This Form 10-K contains forward-looking statements of the Company 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 are 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 Form 10-K, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update or revise any statement in light of new information or future events, except as required by law.

The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. The factors that could cause actual results and outcomes to differ materially from those contained in, or implied by, the forward-looking statements included herein and that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are detailed under "Risk Factors" and elsewhere in this Form 10-K. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

This Form 10-K contains the consolidated financial information for the years ended December 31, 2016 and 2015 and the consolidated statements of operations, comprehensive income (loss), changes in stockholders equity and cash flows for the years ended December 31, 2016, 2015, and 2014. The consolidated financial information as of and for the quarterly periods ended September 30, 2015, June 30, 2015, March 31, 2015, September 30, 2014, ~~(the "Amendment"), as~~June 30, 2014, March 31, 2014, which have not been filed with the Securities and Exchange Commission (the "SEC"), will not be separately presented as the Company determined that due to the length of time that has passed the separate presentation is not material. Comparative quarterly information was, however, provided in the Company's Quarterly Reports on ~~May~~Form 10-Q for the quarterly periods beginning March 31, 2016.

As detailed in Item 9A, "Controls and Procedures" in this Form 10-K, there are material weaknesses in our internal control over financial reporting and disclosure controls dating to 2006, that have not yet been fully remediated.

For more information regarding the impact on the Company's financial results, refer to Part I, Item 1A, "Risk Factors" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations;" and to our consolidated financial statements included in Part II, Item 8 of this Form 10K. Information regarding the internal control deficiencies identified by management and management's efforts to remediate those deficiencies can be found in Part II, Item 9A, "Controls and Procedures" of this Form 10-K.

General. Trinity Capital Corporation, a bank holding company organized in 1977 under the laws of the State of New Mexico, is the sole stockholder of the Bank and the sole stockholder of Title Guaranty & Insurance Company ("Title Guaranty"). Title Guaranty holds effectively no assets and is in the process of being dissolved by the Company. In addition, Trinity owns all the common shares of four business trusts, created by Trinity for the sole purpose of issuing trust preferred securities that had an aggregate outstanding balance of $37.1 million as of December 31, 2016.

As a bank holding company, Trinity is regulated primarily by the Federal Reserve Bank of Kansas City. The primary business of Trinity is the operation of the Bank. As of December 31, 2016, Trinity had, on a consolidated basis, total assets of $1.4 billion, net loans of $771.1 million and deposits (net of deposits of affiliates) of $1.2 billion.

Trinity is located in Los Alamos, New Mexico, a small community in the Jemez Mountains of Northern New Mexico. Los Alamos County has approximately 17,800 residents.

Corporate Information. The address of our headquarters is 1200 Trinity Drive, Los Alamos, New Mexico 87544, our main telephone number is (505) 662-5171 and our general email address is tcc@lanb.com.

Trinity maintains a website at https://www.lanb.com/home/tcc-investor-relations. Information located on our website is not incorporated by reference into this Form 10-K. We make available free of charge on or through our website, Annual Reports on Form 10-K, proxy statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company will also provide copies of its filings free of charge upon written request to: TCC Stock Representative, Trinity Capital Corporation, Post Office Box 60, Los Alamos, New Mexico 87544. In addition, any materials we file with the SEC can be read and copied at the SEC's Public Reference Room at 110 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers such as Trinity. Trinity's filings are available free of charge on the SEC's website at http://www.sec.gov.

General. The Bank is a national banking association founded in 1963 by local investors to provide convenient, full-service banking to the unique scientific community that developed around the Los Alamos National Laboratory (the "Laboratory"). The Laboratory is a pre-eminent research facility for scientific and technological development in numerous scientific fields. As of December 31, 2016, the Laboratory employed (directly and indirectly) approximately 10,500 people, making it the largest employer in Los Alamos County. The Laboratory is the cornerstone of the community and has attracted numerous other scientific business to the area.

The Bank is a full-service commercial banking institution with seven bank offices in Los Alamos, White Rock, Santa Fe, and Albuquerque, New Mexico and is regulated by the Office of the Comptroller of the Currency ("OCC").

The Bank is the sole member of Triscensions ABQ, LLC, a New Mexico limited liability company, and the sole member of FNM Investment Fund IV, LLC, a Delaware Limited Liability Company ("FNM Investment Fund IV"). The Bank is also a member of Cottonwood Technology Group, LLC ("Cottonwood"), a management consulting and counseling company for technology startup companies, which is also designed to manage venture capital funds. FNM Investment Fund IV is a member of Finance New Mexico—Investor Series IV, LLC, a New Mexico Limited Liability Company ("FNM CDE IV"), an entity created by the Bank to fund loans and investments in a New Market Tax Credit project. The Bank is also the sole stockholder of TCC Advisors Corporation ("TCC Advisors"). Substantially all of the assets of TCC Advisors were sold in January 2015. Trinity is in the process of dissolving this entity.

In February 2006, TCC Funds, a Delaware statutory trust was created with Trinity as its sponsor, to allow for the creation of a mutual fund. TCC Funds was dissolved in January 2017. In August 2008, the Bank invested in Cottonwood. Cottonwood assists in the management of, and counsels, startup companies involved in technology transfer from research institutions in New Mexico, as well as establishing and managing venture funds. Additionally, the Bank is participating in a venture capital fund managed by Cottonwood. In 2009, the Bank created FNM Investment Fund IV to acquire a 99.99% interest in FNM CDE IV. Both of these entities were created for the sole purpose of funding loans to, and investments in, a New Market Tax Credit project located in downtown Albuquerque, New Mexico. The Bank initially formed LANB Investment Advisors in October 2012 to house a Registered Investment Advisor as part of its Trust and Investment Department operations. This entity was dissolved in November 2016.

Products and Services. The Bank provides a full range of financial services for deposit customers and lends money to creditworthy borrowers at competitive interest rates. The Bank's products include certificates of deposit, checking and saving accounts, on-line banking, Individual Retirement Accounts, loans, mortgage loan servicing, trust and investment services, international services and safe deposit boxes. These business activities make up the Bank's three key processes: investment of funds, generation of funds and service-for-fee income. The profitability of operations depends primarily on the Bank's net interest income, which is the difference between total interest earned on interest-earning assets and total interest paid on interest-bearing liabilities, and its ability to maintain efficient operations. In addition to the Bank's net interest income, it produces income through mortgage servicing operations and noninterest income processes, such as trust and investment services.

General. The Bank provides a broad range of commercial and retail lending services to corporations, partnerships, individuals and government agencies primarily within the Bank's existing market areas. The Bank actively markets its services to qualified borrowers. Lending officers build relationships with new borrowers entering the Bank's market areas as well as long-standing members of the local business community. The Bank has established lending policies that include a number of underwriting factors to be considered in making a loan, including location, loan-to-value ratio, cash flow and the credit history of the borrower. As of December 31, 2016, the Bank's maximum legal lending limit to one borrower was $22.0 million; however, the Bank may impose additional limitations on the amount it is willing to lend to one borrower as part of its credit risk management policies. The Bank's loan portfolio is comprised primarily of loans in the areas of commercial real estate, residential real estate, construction, general commercial and consumer lending. In addition, Trinity has one construction loan. As of December 31, 2016, commercial real estate loans comprised approximately 51.6% of the total loan portfolio; residential real estate mortgages made up approximately 27.1%; construction real estate loans comprised 9.7%; general commercial loans comprised 9.0%; and consumer lending comprised 2.6%.

Commercial Real Estate Loans. The Bank's commercial real estate lending concentrates on loans to building contractors and developers, as well as owner occupied properties. The Bank collateralizes these loans and, in most cases, obtains personal guarantees to help ensure repayment. The Bank's commercial real estate loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying real estate collateral. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the real estate and enforcement of a personal guarantee, if any exists. The primary repayment risk for a commercial real estate loan is the potential loss of revenue of the business which could impact the cash flows, and fair value of the property.

Residential Real Estate Loans. The majority of the residential real estate loans originated and retained by the Bank are in the form of 15- and 30-year variable rate loans. The Bank also originates 15- to 30-year fixed rate residential mortgages and sells most of these loans to outside investors. In 2016, the Bank made a strategic change to an outsourced solution whereby the Bank generates residential mortgage applications for non-affiliated residential mortgage companies on a fee basis. In 2016, the Bank originated approximately $55.8 million in residential real estate loans sold to third parties. As of December 31, 2016, the total sold residential mortgage loan portfolio serviced by the Bank on behalf of third parties was $780.3 million. The Bank does not engage in financing sub-prime loans nor does it participate in any sub-prime lending programs. The Bank participates in the current U.S. Department of the Treasury (the "Treasury") programs, including the Home Affordable Modification Program, to work with borrowers who are in danger of, or who have defaulted on residential mortgage loans.

Construction Loans. The Bank is active in financing the construction of residential and commercial properties in New Mexico, primarily in Northern New Mexico. Management continues to de-emphasize this type of lending in favor of other types of loans. The Bank manages the risks of construction lending through the use of underwriting and construction loan guidelines and requires work be conducted by reputable contractors. Construction loans are structured either to convert to permanent loans at the end of the construction phase or to be paid off upon receiving financing from another financial institution. The amount financed on construction loans is based on the appraised value of the property, as determined by an independent appraiser, and an analysis of the potential marketability and profitability of the project and the costs of construction. Approximately 20% of all construction loans have terms that do not exceed 24 months. Loan proceeds are typically disbursed on a percentage of completion basis, as determined by inspections, with all construction required to be completed prior to the final disbursement of funds.

Construction loans afford the Bank an opportunity to receive yields higher than those obtainable on adjustable rate mortgage loans secured by existing residential properties. However, these higher yields correspond to the higher risks associated with construction lending.

Commercial Loans. The Bank is an active commercial lender. The Bank's focus in commercial lending concentrates on loans to business services companies and retailers. The Bank provides various credit products to commercial customers, including lines of credit for working capital and operational purposes and term loans for the acquisition of equipment and other purposes. Collateral on commercial loans typically includes accounts receivable, furniture, fixtures, inventory and equipment. In addition, most commercial loans have personal guarantees to ensure repayment. The terms of approximately 60% of commercial loans range from one to eight years. A significant portion of the Bank's commercial business loans reprice within one year or have floating interest rates.

Consumer Loans. The Bank also provides all types of consumer loans, including motor vehicle, home improvement, credit cards, signature loans and small personal credit lines. Consumer loans typically have shorter terms and lower balances with higher yields compared to the Bank's other loans, but generally carry higher risks of default. Consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances.

Additional information on the risks associated with banking activities and products and concentrations can be found under Part I, Item 1A, "Risk Factors" of this Form 10-K.

Competition. There is strong competition, both in originating loans and in attracting deposits, in the Bank's market areas. Competition in originating real estate loans comes primarily from large regional banks, other commercial banks, credit unions, savings institutions and mortgage bankers making loans secured by real estate located in the Bank's market areas. Commercial banks, credit unions and finance companies, including finance company affiliates of automobile manufacturers, provide vigorous competition in consumer lending. The Bank competes for real estate and other loans principally on the basis of the interest rates and loan fees charged, the types of loans originated and the quality and speed of services provided to borrowers. Insurance companies and internet-based financial institutions present growing areas of competition both for loans and deposits.

There is substantial competition in attracting deposits from other commercial banks, savings institutions, money market and mutual funds, credit unions and other investment vehicles. The Bank's ability to attract and retain deposits depends on its ability to provide investment opportunities that satisfy the requirements of investors as to rate of return, liquidity, risk and other factors. The financial services industry has become more competitive as technological advances enable companies to provide financial services to customers outside their traditional geographic markets and provide alternative methods for financial transactions. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

Employees. As of December 31, 2016, we had 277 full time-equivalent employees. We are not a party to any collective bargaining agreements.

On December 19, 2016, the Company closed its previously announced $52 million private placement with Castle Creek Capital Partners VI, L.P. ("Castle Creek"), Patriot Financial Partners II, L.P., Patriot Financial Partners Parallel II, L.P. (collectively, "Patriot") and Strategic Value Bank Partners, L.P., through its fund Strategic Value Investors LP, pursuant to which the Company issued 2,661,239 shares of its common stock, no par value per share, at $4.75 per share, and 82,862 shares of a new series of convertible perpetual non-voting preferred stock, Series C, no par value per share, at $475.00 per share ("Series C Preferred Stock"). The Company used a portion of the net proceeds from the private placement to repurchase its outstanding Series A Preferred Stock (as defined below) and Series B Preferred Stock (as defined below), which it completed on January 25, 2017, and use the remaining net proceeds to pay the deferred interest on its trust preferred securities, and for general corporate purposes.

In connection with the private placement and in accordance with the terms of a stock purchase agreement, dated September 9, 2016 (the ~~"Original Filing"~~"Stock Purchase Agreement"), the Company entered into a registration rights agreement (the "Registration Rights Agreement") with each of Castle Creek and Patriot. Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to file a resale registration statement for the purpose of registering the resale of the shares of the Common Stock and Series C Preferred Stock issued in the private placement and the underlying shares of Common Stock or non-voting Common Stock into which the shares of Series C Preferred Stock are convertible, as appropriate. The Company is obligated to file the registration statement no later than the third anniversary after the closing of the private placement.

Pursuant to the terms of the Stock Purchase Agreement, Castle Creek and Patriot entered into side letter agreements with us. Under the terms of the side letter agreements, each of Castle Creek and Patriot is entitled to have one representative appointed to our Board of Directors for so long as such investor, together with its respective affiliates, owns, in the aggregate, 5% or more of all of our outstanding shares of common stock (including shares of common stock issuable upon conversion of the Series C Preferred Stock or non-voting common stock).

On March 27, 2009, Trinity participated in the TARP Capital Purchase Program by issuing 35,539 shares of Trinity's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Series A Preferred Stock") to the Treasury for a purchase price of $35.5 million in cash and issued warrants that were immediately exercised by the Treasury for 1,777 shares of Trinity's Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the "Series B Preferred Stock"). Using part of the proceeds from the private placement described above, the Company redeemed all of its outstanding Series A Preferred Stock and Series B Preferred Stock effective January 25, 2017.

As of December 31, 2016, the Company had outstanding $37.1 million of trust preferred securities with a total of $9.8 million of accrued and unpaid interest. During the first quarter of 2017, the Company used part of the proceeds from the private placement, plus a portion of a $15 million dividend from the Bank, to pay all of the accrued and unpaid interest on the junior subordinated debentures.

At December 31, 2016, the Company had outstanding 82,862 shares of Series C Preferred Stock that were issued in connection with the private placement. Following shareholder approval of an amendment to the Company's articles of incorporation to authorize a class of non-voting common stock, and the subsequent filing of such amendment with the New Mexico Secretary of State, all outstanding shares of Series C Preferred Stock were automatically converted into 8,286,200 shares of non-voting common stock.

General. Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of Trinity may be affected not only by management decisions and general economic conditions, but also by requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the OCC, the Board of Governors of the Federal Reserve System (the "FRB"), the Federal Deposit Insurance Corporation (the "FDIC") and the Consumer Financial Protection Bureau (the "CFPB"). Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (the "FASB") and securities laws administered by the SEC and state securities authorities have an impact on the business of Trinity. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the operations and results of Trinity and the Bank. The nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.

This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other factors, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to Trinity and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

Financial Regulatory Reform. On July 21, 2010, former President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") into law. The Dodd-Frank Act represents a sweeping reform of the U.S. supervisory and regulatory framework applicable to financial institutions and capital markets in the wake of the global financial crisis, certain aspects of which are described below in more detail. In particular, and among other factors, the Dodd-Frank Act: created a Financial Stability Oversight Council as part of a regulatory structure for identifying emerging systemic risks and improving interagency cooperation; created the CFPB, which is authorized to regulate providers of consumer credit, savings, payment and other consumer financial products and services; narrowed the scope of federal preemption of state consumer laws enjoyed by national banks and federal savings associations and expanded the authority of state attorneys general to bring actions to enforce federal consumer protection legislation; imposed more stringent capital requirements on bank holding companies and subjected certain activities, including interstate mergers and acquisitions, to heightened capital conditions; with respect to mortgage lending, (i) significantly expanded requirements applicable to loans secured by 1-4 family residential real property, (ii) imposed strict rules on mortgage servicing, and (iii) required the originator of a securitized loan, or the sponsor of a securitization, to retain at least 5% of the credit risk of securitized exposures unless the underlying exposures are qualified residential mortgages or meet certain underwriting standards; repealed the prohibition on the payment of interest on business checking accounts; restricted the interchange fees payable on debit card transactions for issuers with $10 billion in assets or greater; in the so-called "Volcker Rule," subject to numerous exceptions, prohibited depository institutions and affiliates from certain investments in, and sponsorship of, hedge funds and private equity funds and from engaging in proprietary trading; provided for enhanced regulation of advisers to private funds and of the derivatives markets; enhanced oversight of credit rating agencies; and prohibited banking agency requirements tied to credit ratings. These statutory changes shifted the regulatory framework for financial institutions, impacted the way in which they do business and have the potential to constrain revenues.

Numerous provisions of the Dodd-Frank Act are required to be implemented through rulemaking by the appropriate federal regulatory agencies. Although the majority of the Dodd-Frank Act's rulemaking requirements have been met with finalized rules, approximately one-fourth of the rulemaking requirements are either still in the proposal stage or have not yet been proposed. In addition, on February 3, 2017, President Donald J. Trump signed an executive order calling for the administration to review various U.S. financial laws and regulations. The full scope of President Trump's short-term legislative agenda is not yet fully known, but it may include certain deregulatory measures for the banking industry, including the structure and powers of the CFPB and other areas under the Dodd-Frank Act. Accordingly, it is difficult to anticipate the continued impact this expansive legislation will have on Trinity, the Bank, its customers and the financial industry generally. Management of Trinity and the Bank will continue to evaluate the effect of the Dodd-Frank Act changes; however no current assurance may be given that the Dodd-Frank Act, or any other new legislative changes, will not have a negative impact on the results of operations and financial condition of Trinity and the Bank.

Trinity and Bank Required Capital Levels. Due to the risks to their business, depository institutions are generally required to hold more capital than other businesses, which directly affects earnings capabilities. While capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role has become fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress. Certain provisions of the Dodd-Frank Act and Basel III, discussed below, establish strengthened capital standards for banks and bank holding companies, require more capital to be held in the form of common stock and disallow certain funds from being included in capital determinations. Once fully implemented, these standards will represent regulatory capital requirements that are meaningfully more stringent than those in place historically.

The OCC and FRB guidelines also provide that banks and bank holding companies experiencing internal growth or making acquisitions will be expected to maintain capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the agencies will continue to consider a "tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or to engage in new activities.

Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the FRB's capital guidelines contemplate that additional capital may be required to take adequate account of, among other factors, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.

As of December 31, 2016, the Bank exceeded its minimum regulatory capital requirements under OCC capital adequacy guidelines. However, as discussed under " The Bank – Enforcement Action," the Bank has agreed with the OCC to maintain certain heightened regulatory capital ratios. As of December 31, 2016, the Bank exceeded the heightened regulatory capital ratios to which it had agreed. As of December 31, 2016, Trinity had regulatory capital in excess of the FRB, Dodd-Frank Act and Basel III requirements.

Basel III. In July 2013, the U.S. federal banking agencies approved the implementation of the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the "Basel III Rule"). The Basel III Rule became effective on January 1, 2015 and is applicable to all U.S. banks that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies other than "small bank holding companies" (generally bank holding companies with consolidated assets of less than $1 billion).

The Basel III Rule not only increases most of the required minimum capital ratios, but it introduces the concept of Common Equity Tier 1 Capital ("CET1"), which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and CET1 minority interests subject to certain regulatory adjustments. The Basel III Rule also expanded the definition of capital as in effect prior to January 1, 2015 by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (Tier 1 Capital in addition to Common Equity) and Tier 2 Capital. A number of instruments that qualified as Tier 1 Capital prior to the Basel III Rule implementation no longer qualify as such, or their qualifications have changed. For example, cumulative preferred stock and certain hybrid capital instruments, including trust preferred securities, no longer qualify as Tier 1 Capital of any kind, with the exception, subject to certain restrictions, of such instruments issued before May 10, 2010, by bank holding companies with total consolidated assets of less than $15 billion as of December 31, 2009. For those institutions, trust preferred securities and other non-qualifying capital instruments currently included in consolidated Tier 1 Capital are permanently grandfathered under the Basel III Rule, subject to certain restrictions. Noncumulative perpetual preferred stock, which now qualifies as simple Tier 1 Capital, will not qualify as CET1, but will qualify as Additional Tier 1 Capital. The Basel III Rule also constrains the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and requires deductions from CET1 in the event such assets exceed a certain percentage of a bank's CET1.

The Basel III Rule requires:

The Basel III Rule also implements a "capital conservation buffer" of 2.5% above the new regulatory minimum risk-based capital requirements. The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. The capital conservation buffer began to be phased in in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on certain activities, including discretionary bonuses to executive officers, if its capital level is below the buffered ratio. Factoring in the fully phased-in conservation buffer increases the minimum ratios described above to 7.0% for CET1, 8.5% for Tier 1 Capital and 10.5% for Total Capital.

The Basel III Rule maintains the general structure of the current prompt corrective action framework, but increases the capital level requirements. The prompt corrective action guidelines were also revised to add the CET1 Capital ratio. In order to be a "well-capitalized" depository institution under the new regime, a bank must maintain a CET1 Capital ratio of 6.5% or more; a Tier 1 Capital ratio of 8.0% or more; a Total Capital ratio of 10.0% or more; and a leverage ratio of 5.0% or more. However, these "well capitalized" capital requirements are less than the fully buffered risk-based capital ratios described above. Accordingly, it is possible under the Basel III Rule to be well-capitalized yet still be out of compliance with the fully phased in buffered ratios discussed above.

The Basel III Rule also revises a number of the risk weightings (or their methodologies) for bank assets that are used to determine the capital ratios.

Furthermore, Basel III requires unrealized gains and losses on available-for-sale securities to flow through to regulatory capital as opposed to the current treatment, which neutralizes such effects. The Basel III Rule provided for a one-time election for smaller institutions like Trinity and the Bank to opt out of including most elements of accumulated other comprehensive income ("AOCI") in regulatory capital. This opt-out, which was required to be made in the first quarter of 2015, excluded from regulatory capital both unrealized gains and losses on available-for-sale debt securities and accumulated net gains and losses on cash-flow hedges and amounts attributable to defined benefit post-retirement plans. Trinity made the opt-out election in the first quarter of 2015.

Prompt Corrective Action. A banking organization's capital plays an important role in connection with regulatory enforcement as well. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution's asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution. Bank regulatory agencies are uniformly encouraging banks and bank holding companies to be "well-capitalized" and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is "well-capitalized" may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept brokered deposits.

General. Trinity, as the sole stockholder of the Bank, is a bank holding company. As a bank holding company, Trinity is registered with, and is subject to regulation and examination by, the FRB under the Bank Holding Company Act ("BHCA"). Trinity is required to file with the FRB periodic reports of Trinity's operations and such additional information regarding Trinity and its subsidiaries as the FRB may require.

Enforcement Action. On September 26, 2013, the FRB entered into a Written Agreement with Trinity (the "Written Agreement"). The Written Agreement requires Trinity to serve as a source of strength to the Bank and restricts Trinity's ability to issue dividends and other capital distributions and to repurchase or redeem any Trinity stock without the prior written approval of the FRB. The Written Agreement further requires that Trinity implement a capital plan, subject to approval by the FRB, and submit cash flow projections to the FRB. Finally, the Written Agreement requires Trinity to comply with all applicable laws and regulations and to provide quarterly progress reports to the FRB.

Because Trinity is deemed to be in "troubled condition" by virtue of the Written Agreement, it also is required to: (i) obtain the prior approval of the FRB for the appointment of new directors and the hiring or promotion of senior executive officers; and (ii) comply with restrictions on severance payments and indemnification payments to institution-affiliated parties.

Acquisitions, Change in Control, and Activities. The primary purpose of a bank holding company is to control and manage banks. Under the BHCA, Trinity must obtain prior approval of the FRB or, acting under delegated authority, the appropriate Federal Reserve Bank before (1) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, Trinity would directly or indirectly own or control 5% or more of the class; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.

Under the BHCA, any company must obtain approval of the FRB or, acting under delegated authority, the appropriate Federal Reserve Bank, prior to acquiring control of Trinity or the Bank. For purposes of the BHCA, "control" is defined as ownership of 25% or more of any class of voting securities of Trinity or the Bank, the ability to control the election of a majority of the directors, or exercise of a controlling influence over management or policies of Trinity or the Bank.

The Change in Bank Control Act, as amended (the "CIBC"), and the related regulations of the FRB require any person or groups of persons acting in concert (except for companies required to make application under the BHCA), to file a ~~revised consent~~written notice with the FRB or, acting under delegated authority, the appropriate Federal Reserve Bank, before the person or group acquires control of Trinity. The CIBC defines "control" as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. A rebuttable presumption of control arises under the CIBC where a person or group controls 10% or more, but less than 25%, of a class of the ~~Company's independent~~voting stock of a company or insured bank which is a reporting company under the Exchange Act, such as Trinity, or such ownership interest is greater than the ownership interest held by any other person or group.

In addition, the CIBC prohibits any entity from acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of a bank holding company's or bank's voting securities, or otherwise obtaining control or a controlling influence over a bank holding company or bank without the approval of the FRB. On September 22, 2008, the FRB issued a policy statement on equity investments in bank holding companies and banks, which allows the FRB to generally be able to conclude that an entity's investment is not "controlling" if the investment in the form of voting and nonvoting shares represents in the aggregate (i) less than one-third of the total equity of the banking organization (and less than one-third of any class of voting securities, assuming conversion of all convertible nonvoting securities held by the entity) and (ii) less than 15% of any class of voting securities of the banking organization.

The BHCA generally prohibits Trinity from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the FRB prior to November 11, 1999 to be "so closely related to banking ... as to be a proper incident thereto." This authority would permit Trinity to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the FRB, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the FRB determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. Trinity does not currently operate as a financial holding company.

Dividend Payments. In addition to applicable restrictions in the Written Agreement, Trinity's ability to pay dividends to its stockholders also may be affected by both general corporate law considerations and policies of the FRB applicable to bank holding companies. New Mexico law prohibits Trinity from paying dividends if, after giving effect to the dividend: (i) Trinity would be unable to pay its debts as they become due in the usual course of its business; or (ii) Trinity's total assets would be less than the sum of its total liabilities and (unless Trinity's articles of incorporation otherwise permit) the maximum amount that then would be payable, in any liquidation, in respect of all outstanding shares having preferential rights in liquidation.

As a general matter, the FRB has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company's net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company's capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Source of Strength. Under the FRB's "source-of-strength" doctrine, a bank holding company is required to act as a source of financial and managerial strength to any of its subsidiary banks. The holding company is expected to commit resources to support a subsidiary bank, including at times when the holding company may not be in a financial position to provide such support. A bank holding company's failure to meet its source-of-strength obligations may constitute an unsafe and unsound practice or a violation of the FRB's regulations, or both. The source-of-strength doctrine most directly affects bank holding companies in situations where the bank holding company's subsidiary bank fails to maintain adequate capital levels. This doctrine was codified by the Dodd-Frank Act, but the FRB has not yet adopted regulations to implement this requirement.

Federal Securities Regulation. Trinity's common stock is registered ~~public accounting firm~~with the SEC under the Securities Act of 1933, as ~~Exhibit 23.1.~~amended, and the Exchange Act. Consequently, Trinity is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

In ~~accordance~~June 2010, the Federal Reserve, OCC, and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks; (ii) be compatible with ~~SEC rules, this Amendment includes currently dated certifications~~effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of ~~our Chief Executive Officer and Chief Financial Officer.~~directors.

~~Except~~The Federal Reserve will review, as ~~described above,~~part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not "large, complex banking organizations." The findings of the supervisory initiatives will be included in reports of examination. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, Section 956 of the Dodd-Frank Act required certain regulators (including the FDIC, SEC and Federal Reserve) to adopt requirements or guidelines prohibiting excessive compensation. In May 2016, the federal banking regulators, joined by the SEC, proposed such a rule that is tailored based on the asset size of the institution. All covered financial institutions would be subject to a prohibition on paying compensation, fees, and benefits that are "unreasonable" or "disproportionate" to the value of the services performed by a person covered by the proposed rule (generally, senior executive officers and employees who are significant risk-takers). Moreover, the proposed rule includes a new requirement which provides that an incentive-based compensation arrangement must (i) include financial and non-financial measures of performance, (ii) be designed to allow non-financial measures of performance to override financial measures of performance, when appropriate (so called safety and soundness factors), and (iii) be subject to adjustment to reflect actual losses, inappropriate risk taking, compliance deficiencies, or other measures or aspects of financial and non-financial performance.

General. The Bank is a national bank, chartered by the OCC under the National Bank Act. The deposit accounts of the Bank are insured by the FDIC's Deposit Insurance Fund (the "DIF") to the maximum extent provided under federal law and FDIC regulations, and the Bank is a member of the Federal Reserve System. As a national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC. The FDIC, as administrator of the DIF, also has regulatory authority over the Bank. The Bank is also a member of the Federal Home Loan Bank System, which provides a central credit facility primarily for member institutions.

Enforcement Actions. On November 30, 2012, the Bank entered into a Formal Agreement with the OCC (the "Formal Agreement"). On December 17, 2013, the Bank entered into a Consent Order with the OCC (the "Consent Order"). The focus of the Consent Order, which terminated the Bank's Formal Agreement, is on improving the Bank's credit administration, credit underwriting, internal controls, compliance and management supervision. Additionally, the Consent Order requires that the Bank maintain certain capital ratios and receive approval of the OCC prior to declaring dividends. The Consent Order requires the Bank to maintain the following minimum capital ratios: (i) a Tier 1 leverage ratio of at least 8%; and (ii) a Total risk-based capital ratio of at least 11%. Being subject to the Consent Order means that the Bank may not be deemed to be "well capitalized" under the prompt corrective action rules.

Because the Bank is deemed to be in "troubled condition" by virtue of the Consent Order, it also is required to: (i) obtain the prior approval of the OCC for the appointment of new directors and the hiring or promotion of senior executive officers; and (ii) comply with restrictions on severance payments and indemnification payments to institution-affiliated parties.

Deposit Insurance. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for bank, savings institutions, and credit unions to $250,000 per insured depositor, retroactive to January 1, 2009. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.

Under the Federal Deposit Insurance Act an institution's assessment base is calculated based on its average consolidated total assets less its average tangible equity. This may shift the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, requires large institutions to bear the burden of raising the reserve ratio from 1.15% to 1.35%, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. The FDIC has until September 3, 2020 to meet the 1.35% reserve ratio target. The reserve ratio reached 1.15% effective June 30, 2016. Lower rates, surcharges, and new pricing became effective July 1, 2016 and those appeared on the December 30, 2016 invoice.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the federal government established to recapitalize the predecessor to the DIF. These assessments, which are included in Deposit Insurance Premiums on the Consolidated Statements of Income, will continue until the FICO bonds mature between 2017 and 2019.

Supervisory Assessments. National banks are required to pay supervisory assessments to the OCC to fund the operations of the OCC. The amount of the assessment is calculated using a formula that takes into account the bank's size and its supervisory condition. During the years ended December 31, 2016 and 2015, the Bank paid supervisory assessments to the OCC totaling $720 thousand and $648 thousand, respectively.

Dividend Payments. The primary source of funds for Trinity is dividends from the Bank. Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank's board of directors deems prudent. Without prior OCC approval, however, a national bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank's year-to-date net income plus the bank's retained net income for the two preceding years.

The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

The Bank may not pay any dividend unless it complies with certain provisions of the Consent Order and receives a prior written determination of no supervisory objection from the OCC.

Insider Transactions. The Bank is subject to certain restrictions imposed by federal law on "covered transactions" between the Bank and its "affiliates." Trinity is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to Trinity, investments in the stock or other ~~changes~~securities of Trinity and the acceptance of the stock or other securities of Trinity as collateral for loans made by the Bank. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates as of July 21, 2011, including an expansion of the definition of "covered transactions" and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of Trinity and its subsidiaries, to principal stockholders of Trinity and to "related interests" of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of Trinity or the Bank, or a principal stockholder of Trinity, may obtain credit from banks with which the Bank maintains a correspondent relationship.

Safety and Soundness Standards/ Risk Management. The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution's primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator's order is cured, the regulator may restrict the institution's rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the institutions they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. In particular, recent regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.

Branching Authority. National banks headquartered in New Mexico, such as the Bank, have the same branching rights in New Mexico as banks chartered under New Mexico law, subject to OCC approval. New Mexico law grants New Mexico-chartered banks the authority to establish branches anywhere in the State of New Mexico, subject to receipt of all required regulatory approvals.

Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been ~~made~~in existence for a minimum period of time (not to exceed five years) prior to the ~~Original Filing.~~merger. The ~~Original Filing continues~~establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) has historically been permitted only in those states in which the laws expressly authorize such expansion. However, the Dodd-Frank Act permits well-capitalized and well-managed banks to ~~speak~~establish new branches across state lines without these impediments.

Transaction Account Reserves. FRB regulations require depository institutions to maintain reserves against their transaction accounts (primarily negotiable order of withdrawal and regular checking accounts). For 2016, the first $15.2 million of otherwise reservable balances are exempt from the reserve requirements; for transaction accounts aggregating more than $15.2 million to $110.2 million, the reserve requirement is 3% of total transaction accounts; and for net transaction accounts in excess of $110.2 million, the reserve requirement is $2.85 million plus 10% of the aggregate amount of total transaction accounts in excess of $110.2 million. These reserve requirements are subject to annual adjustment by the FRB. The Bank is in compliance with the foregoing requirements.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of Dallas (the "FHLB"), which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB.

Community Reinvestment Act Requirements. The Community Reinvestment Act requires the Bank to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Federal regulators regularly assess the Bank's record of meeting the credit needs of its communities. Applications for additional acquisitions would be affected by the evaluation of the Bank's effectiveness in meeting its Community Reinvestment Act obligations.

Anti-Money Laundering and Know-Your-Customer. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "Patriot Act") is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The Patriot Act mandates financial services companies to have policies and procedures with respect to measures designed to address any or all of the following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between financial institutions and law enforcement authorities. In addition, on May 10, 2016, the Financial Crimes Enforcement Network issued a final rule regarding customer due diligence requirements for covered financial institutions in connection with their Bank Secrecy Act and Anti-Money Laundering policies. The final rule has a requirement to understand the nature and purpose of customer relationships and identify the "beneficial owner" of legal entity customers. The formal implementation date is May 11, 2018.

Bank Secrecy Act. Trinity and the Bank are also subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. The Bank Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious. The Bank Secrecy Act requires that all banking institutions develop and provide for the continued administration of a program reasonably designed to assure and monitor compliance with certain recordkeeping and reporting requirements regarding both domestic and international currency transactions. These programs must, at a minimum, provide for a system of internal controls to assure ongoing compliance, provide for independent testing of such systems and compliance, designate individuals responsible for such compliance and provide appropriate personnel training.

UDAP and UDAAP. Banking regulatory agencies use a general consumer protection statute to address "unethical" or otherwise "bad" business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act, referred to as the FTC Act, which is the primary federal law that prohibits unfair or deceptive acts or practices, referred to as UDAP, and unfair methods of competition in or affecting commerce. "Unjustified consumer injury" is the principal focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with UDAP laws and regulations. However, UDAP laws and regulations have been expanded under the Dodd-Frank Act to apply to "unfair, deceptive or abusive acts or practices," referred to as UDAAP, which have been delegated to the CFPB for rule-making. The federal banking agencies have the authority to enforce such rules and regulations.

Commercial Real Estate Guidance. The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance ("CRE Guidance") provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) commercial real estate loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks' levels of commercial real estate lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations. Based on the Bank's current loan portfolio, the Bank does not exceed these guidelines. On December 18, 2015, the federal banking agencies jointly issued a "Statement on Prudent Risk Management for Commercial Real Estate Lending" reminding banks of the need to engage in risk management practices for commercial real estate lending.

Consumer Financial Protection Bureau. The CFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that would apply to all banks and thrifts, including the Equal Credit Opportunity Act, Truth-in Lending Act ("TILA"), Real Estate Settlement Procedures Act ("RESPA"), Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. Banking institutions with total assets of $10 billion or less, such as the Bank, remain subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws and such additional regulations as may be adopted by the CFPB.

Effective January 10, 2013, the CFPB released its final "Ability-to-Repay/Qualified Mortgage" rules, which amended TILA's implementing regulation, Regulation Z. The final rule implements sections 1411 and 1412 of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages." The final rule also implements section 1414 of the Dodd-Frank Act, which limits prepayment penalties. Finally, the final rule requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated. This rule became effective January 10, 2014. The CFPB allowed for a small creditor exemption for banks with assets under $2 billion and that originate less than 500 mortgage loans in 2015. As of January 1, 2016, the small creditor exemption was extended to banks with assets under $2 billion and that originate less than 2,000 mortgage loans.

On November 20, 2013, pursuant to section 1032(f) of the Dodd-Frank Act, the CFPB issued the Know Before You Owe TILA/RESPA Integrated Disclosure Rule ("TRID"), which combined the disclosures required under TILA and sections 4 and 5 of RESPA, into a single, integrated disclosure for mortgage loan transactions covered by those laws. TRID, which requires the use of a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer's application and a Closing Disclosure that must be provided to the consumer at least three business days prior to consummation, became effective for applications received on or after October 3, 2015 for applicable closed-end consumer credit transactions secured by real property. Creditors must only use the Loan Estimate and Closing Disclosure forms for mortgage loan transactions subject to TRID. All other mortgage loan transactions continue to use the Good Faith Estimate and the Initial Truth-in-Lending Disclosure at application and the HUD-1 Settlement Statement and the Final Truth-in-Lending Disclosure at closing. TRID also has new tolerance requirements and record retention requirements. Of note, the creditor must retain evidence of compliance with the Loan Estimate requirements, including providing the Loan Estimate, and the Closing Disclosure requirements for three years after the later of the date of consummation, the date disclosures are required to be made or the date the action is required to be taken. Additionally, the creditor must retain copies of the ~~Original Filing, and the Company has not updated the disclosures contained therein to reflect any events which occurred at a date subsequent~~Closing Disclosure, including all documents related to the ~~filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Company's filings with the SEC subsequent to the date of the Original Filing.~~Closing Disclosure, for five years after consummation.

Although it is difficult to predict at this time the extent to which the CFPB's final rules impact the operations and financial condition of the Bank, such rules may have a material impact on the Bank's compliance costs, compliance risk and fee income.

Foreclosure and Loan Modifications. Federal and state laws further impact foreclosures and loan modifications, with many of such laws having the effect of delaying or impeding the foreclosure process on real estate secured loans in default. Mortgages on commercial property can be modified, such as by reducing the principal amount of the loan or the interest rate, or by extending the term of the loan, through plans confirmed under Chapter 11 of the Bankruptcy Code. In recent years, legislation has been introduced in the U.S. Congress that would amend the Bankruptcy Code to permit courts to modify mortgages secured by residences, although at this time the enactment of such legislation is not presently proposed. The scope, duration and terms of potential future legislation with similar effect continue to be discussed. Trinity cannot predict whether any such legislation will be passed or the impact, if any, it would have on Trinity's business.

Servicing. Effective January 10, 2014, servicing rules require servicers to meet certain benchmarks for loan servicing and customer service in general. Servicers must provide periodic billing statements and certain required notices and acknowledgments, promptly credit borrowers' accounts for payments received and promptly investigate complaints by borrowers and are required to take additional steps before purchasing insurance to protect the lender's interest in the property. The servicing rules also call for additional notice, review and timing requirements with respect to delinquent borrowers, including early intervention, ongoing access to servicer personnel and specific loss mitigation and foreclosure procedures. The rules provide for an exemption from most of these requirements for "small servicers." A small servicer is defined as a loan servicer that services 5,000 or fewer mortgage loans and services only mortgage loans that they or an affiliate originated or own.

Monetary Policy. The monetary policy of the FRB has a significant effect on the operating results of financial or bank holding companies and their subsidiaries. Among the tools available to the FRB to affect the money supply are open market transactions in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

Our business, financial condition and results of operations are subject to various risks, including those discussed below. The risks discussed below are those that we believe are the most significant risks, although additional risks not presently known to us or that we currently deem less significant may also adversely affect our business, financial condition and results of operations, perhaps materially. In addition to the other information in this Form 10-K and our other filings with the SEC, stockholders or prospective investors should carefully consider the following risk factors:

We have identified various material weaknesses in our internal control over financial reporting which have materially adversely affected our ability to timely and accurately report our results of operations and financial condition. These material weaknesses have not been fully remediated as of the filing date of this Form 10-K and we cannot ensure that other material weaknesses will not be identified in the future. Discussed under Part II, Item 9A "Controls and Procedures," we concluded that, as of and for the year ended December 31, 2016, we had material weaknesses in our internal control over financial reporting and that, as a result, our disclosure controls and procedures and our internal control over financial reporting were not effective at such date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that creates a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. See Part II, Item 9A "Controls and Procedures" for a detailed discussion of the material weaknesses identified and related remedial activities. Management anticipates that these remedial actions, and further actions that are being developed, will strengthen the Company's internal control over financial reporting and will, over time, address the material weaknesses that were identified. Because some of these remedial actions will take place on a quarterly or annual basis, their successful implementation will continue to be evaluated before management is able to conclude that these material weaknesses have been remediated. The Company cannot provide any assurance that these remediation efforts will be successful or that the Company's internal control over financial reporting will be effective as a result of these efforts. Moreover, we cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future.

We continue our remediation activities and must also continue to improve our operational, information technology, financial systems, infrastructure, procedures, and controls, as well as continue to expand, train, retain, and manage our employee base. Any difficulties we encounter during implementation could result in additional material weaknesses or in material misstatements in our financial statements. These misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations, or could cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our business, financial condition and results of operations.

Certain regulatory authorities have previously requested information and documentation relating to the restatement of our financial statements. These government inquiries or any future inquiries to which we may become subject could result in penalties and/or other remedies that could have a material adverse effect on our financial condition and results of operation. The SEC opened an investigation in January 2013 relating to the restatement of our financial statements, resulting in the settlement of that investigation in September 2015. The SEC also settled claims against four former members of our senior management and filed suit against one former member of our senior management. While Trinity has settled all claims alleged by the SEC relating to the restatement, Trinity is required to cooperate in any proceedings, including the suit filed against the former members of management, and any other investigation relating to the restatement. The cooperation provisions and the lawsuit may result in a continuation of elevated legal expenses. Additionally, the Special Inspector General for the Troubled Asset Relief Program opened a criminal investigation and requested information and documentation relating to the restatement of our financial statements. The Company has been advised it is not the target of the investigation.

The Company has incurred and may continue to incur significant expenses related to such investigations and inquiries. The Company is cooperating fully with the investigations. The Company cannot predict the outcome of any unresolved proceedings or whether we will face additional government inquiries, investigations, or other actions related to these or other matters. An adverse ruling in any regulatory proceeding or other action could impose upon us fines, penalties, or other remedies, which could have a material adverse effect on results of operations and financial condition. Even if we are successful in defending against regulatory proceedings or other actions, such an action or proceeding may continue to be time consuming, expensive, and distracting from the conduct of our business and could have a material adverse effect on our business, financial condition, and results of operations. Pursuant to our obligation to indemnify our directors, executive officers and certain employees, we are currently covering certain expenses related to these matters and we may become subject to additional costly indemnification obligations to current or former officers, directors, or employees, which may or may not be covered by insurance. Moreover, the regulatory authorities may disagree with the manner in which we have accounted for and reported the financial impact of the adjustments to previously filed financial statements.

We expect to continue to incur significant expenses related to our internal control over financial reporting and the preparation of our financial statements. We devoted substantial internal and external resources to the completion of the restatement and will continue to devote substantial internal and external resources to become current in filing our financial statements. As a result of these efforts, we have incurred and expect that we will continue to incur significant fees and expenses for additional auditor services, financial and other consulting services, and legal services. We expect that these fees and expenses will remain significantly higher than historical fees and expenses in this category for several quarters. These expenses, as well as the substantial time devoted by our management towards addressing these material weaknesses, could have a material adverse effect on our business, financial condition and results of operations.

The restatement of our consolidated financial statements and related events, has had, and likely will continue to have, a material adverse effect on our business. The negative publicity to which we have been subject as a result of our restatement of prior period financial statements, increased regulatory scrutiny and related problems has contributed to declines in the price of our common stock and affected our customer relationships. Companies that restate their financial statements sometimes face litigation claims following such a restatement. In September 2015, Trinity entered into a settlement with the SEC stemming from the restatement of its financial statements for the years ended December 31, 2006 through 2011 and for the quarters ended March 31, 2012 and June 30, 2012, without admitting or denying any of the findings made by the SEC and paid a civil money penalty of $1.5 million to the SEC. It is possible that the Company may face additional monetary judgments, penalties or other sanctions which could have a material adverse effect on our business, financial condition and results of operations.

As a result of the delay in completing our financial statements, the cost of raising future capital may increase. As a result of the delay in completing our financial statements, we have been unable to register securities for sale by us or for resale by other security holders, which adversely affects our ability to raise capital. Additionally, following the filing of this Form 10-K we will remain ineligible to use Form S-3 to register securities until we have timely filed all periodic reports under the Exchange Act for at least 12 calendar months. Although the filing of this Form 10-K will bring our financial statements current, we must use Form S-1 to register securities with the SEC for capital raising transactions or issue such securities in private placements, in either case, increasing the costs of raising capital for at least the next 12 calendar months.

A failure to comply with the terms of the Written Agreement or the Consent Order to which Trinity and the Bank, respectively, are currently subject within the required timeframes could subject us to further regulatory enforcement actions, which could have a material adverse effect upon our business, financial condition and results of operations. As previously discussed, on September 26, 2013, Trinity entered into the Written Agreement with the FRB, and on December 17, 2013, the Bank entered into the Consent Order with the OCC. If Trinity or the Bank is not successful in complying with the terms of their respective regulatory orders within the required timeframes, we could become subject to additional enforcement actions, sanctions or restrictions on our business activities.

If there were to be a return of recessionary conditions our level of non-performing loans could increase and/or reduce demand for our products and services, which could lead to lower revenue, higher loan losses and lower earnings. A return of recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and increased unemployment or underemployment levels may result in higher than expected loan delinquencies, increases in our levels of non-performing and classified assets and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity and financial condition.

Our profitability is dependent upon the health of the markets in which we operate, and our geographic concentration may magnify the adverse effects and consequences of any regional or local economic downturn. We operate our banking offices in Los Alamos, White Rock, Santa Fe and Albuquerque, New Mexico. Since the end of the great recession of 2008, the economy of New Mexico has generally stabilized or is recovering, the housing market has improved and prices have increased, and vacancy rates for commercial properties have declined. The Company's markets, however, continue to be sensitive to general economic trends and conditions, including real estate values, and an unforeseen economic shock or a return of adverse economic conditions could cause deterioration of local economies and have a material adverse effect on the Company's business, financial condition and results of operations, and cash flows. Moreover, because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets. Any regional or local economic downturn that affects New Mexico, whether caused by recession, inflation, unemployment, or other factors, may affect us and our profitability more significantly and more adversely than our competitors that are less geographically concentrated and could have a material adverse effect on our results of operations and financial condition.

As the Laboratory is the largest employer in Northern New Mexico, its health is central to the economic health of both Northern and Central New Mexico. The main indicator of the Laboratory's health is its funding. The Laboratory's funding is primarily based and dependent upon the federal government's budgeting process. As such, funding is not certain and can be delayed and influenced, both negatively and positively, by international, national, state and local events and circumstances beyond the Laboratory's control. Additionally, the Laboratory's funding can be influenced by both positive and negative events and circumstances influenced by the Laboratory. The Laboratory received from the Department of Energy (the Laboratory's largest single historical source of funding) funding of $2.2 billion for its fiscal year 2016. The fiscal year 2017 budget request is for $2.1 billion, a 4.4% decrease over the 2016 funding. Any material fluctuation or delay in the Laboratory's funding may affect our customers' business and financial interests, adversely affect economic conditions in our market area, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations.

Our risk management processes may not fully identify and mitigate exposure to the various risks that we face, including interest rate, credit, liquidity and market risk. We continue to refine our risk management techniques, strategies and assessment methods on an ongoing basis. However, risk management techniques and strategies, both ours and those available to the market generally, may not be fully effective in mitigating our risk exposure in all economic market environments or against all types of risk. For example, we might fail to identify or anticipate particular risks, or the systems that we use, and that are used within our business segments generally, may not be capable of identifying certain risks. Certain of our strategies for managing risk are based upon our use of observed historical market behavior. We apply statistical and other tools to these observations to quantify our risk exposure. Any failures in our risk management techniques and strategies to accurately identify and quantify our risk exposure could limit our ability to manage risks. In addition, any risk management failures could cause our losses to be significantly greater than the historical measures indicate. Further, our quantified modeling does not take all risks into account. As a result, we also take a qualitative approach in reducing our risk. Our qualitative approach to managing those risks could also prove insufficient, exposing us to material unanticipated losses.

We are subject to interest rate risk, and a change in interest rates could have a negative effect on our net income, capital levels, and overall results. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, our competition and policies of various governmental and regulatory agencies, particularly the FRB. Changes in monetary policy, including changes in interest rates, could influence the amount of interest we earn on loans and securities and the amount of interest we incur on deposits and borrowings. Such changes could also affect our ability to originate loans and obtain deposits as well as the average duration of our securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

In addition, we hold securities that may be sold in response to changes in market interest rates, changes in securities' prepayment risk, increases in loan demand, general liquidity needs and other similar factors are classified as available for sale and are carried at estimated fair value, which may fluctuate with changes in market interest rates. The effects of an increase in market interest rates may result in a decrease in the value of our available for sale investment portfolio.

Market interest rates are affected by many factors outside of our control, including inflation, recession, unemployment, money supply, international disorder and instability in domestic and foreign financial markets. We may not be able to accurately predict the likelihood, nature and magnitude of such changes or how and to what extent such changes may affect our business. We also may not be able to adequately prepare for, or compensate for, the consequences of such changes. Any failure to predict and prepare for changes in interest rates, or adjust for the consequences of these changes, may adversely affect our earnings and capital levels and overall results of operations and financial condition.

We measure interest rate risk under various rate scenarios and using specific criteria and assumptions. Although we believe our current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

We must effectively manage our credit risk, including risks specific to real estate value due to the large concentration of real estate loans in our loan portfolio. There are risks inherent in making any loan, including risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. The Loan Department of the Bank has been and remains focused on improving processes and controls to minimize our credit risk through prudent loan underwriting procedures, monitoring of the concentration of our loans within specific industries, monitoring of our collateral values and market conditions, stress testing and periodic independent reviews of outstanding loans performed by a third-party as well as external auditors. However, we cannot assure such approval and monitoring procedures will eliminate these credit risks.

The maximum amount we can loan to any one customer and their related entities (our "legal lending limit") is smaller than the limits of our national and regional competitors with larger lending limits. While there is little demand for loans over our legal lending limit, we can, and have, engaged in participation loans with other financial institutions to respond to customer requirements. However, there are some loans and relationships that we cannot effectively compete for due to our size.

Real estate lending (including commercial, construction and residential) is a large portion of our loan portfolio. These categories constitute approximately $695 million (88.3%) of our total loan portfolio as of December 31, 2016. The fair value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Although a significant portion of such loans is secured by real estate, adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, commercial real estate lending typically involves larger loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and fair values of the affected properties.

The Bank's residential mortgage loan operations include origination, sale and servicing. The Bank's residential mortgage loan portfolio does not include subprime mortgages and contains a limited number of non-traditional residential mortgages. The Bank employs underwriting standards that it believes are in line with industry norms in making residential mortgage loans. The Bank purchased mortgage-backed securities in the past several years based upon the returns and quality of these assets. Neither Trinity nor the Bank engaged in the packaging and selling of loan pools, such as collateralized debt obligations, structured investment vehicles, or other instruments which contain subprime mortgage loans and have seen significant losses in value. As such, Trinity does not foresee any charge-offs, write-downs or other losses outside the ordinary course of business with respect to our residential mortgage operations. The majority of the residential mortgage loans originated by the Bank are sold to third-party investors, primarily to Fannie Mae. The Bank continues to service the majority of loans that are sold to third-party investors, to provide a continuing source of income through mortgage servicing right ("MSR") fees, although moving forward the Bank will not service as many of the loans that it sells to third parties.

If loans collateralized by real estate become troubled during a time when market conditions are declining or have declined, we may not be able to realize the amount of security anticipated at the time of originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition. To mitigate such risk, we employ the use of independent third parties to conduct appraisals on our real estate collateral and adhere to limits set on the percentages for the loan amount to the appraised value of the collateral. We continually monitor the real estate markets and economic conditions in the areas in which our loans are concentrated.

Our ability to continue extensive residential real estate lending in our market area is heavily dependent on building and retaining relationships with non-affiliate mortgage lenders. As of December 31, 2016, the Bank serviced a total of approximately $780.3 million in loans that were sold to Fannie Mae, in addition to the approximately $214.7 million in residential real estate loans maintained on the balance sheet. For many years, the Bank sold the majority of the residential real estate loans it generated to Fannie Mae on a servicing retained basis. However, beginning in late 2015, the Bank began moving toward a strategy to sell most newly originated mortgages with servicing released. In 2016, the Bank made a further strategy change to generate applications for non-affiliated mortgage companies on a fee basis. These changes in strategy were primarily based upon new compliance requirements and capital treatment related to residential mortgage loans. If we are unable to identify new partners or fund the loans on our balance sheet, it could have the effect of limiting the Company's fees associated with originating such loans, which in turn could adversely affect our business, financial condition and results of operations.

Our construction and development loans are based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate and we may be exposed to more losses on these projects than on other loans. As of December 31, 2016, construction loans, including land acquisition and development, totaled $76.0 million, or 9.7%, of our total loan portfolio. Construction, land acquisition and development lending involve additional risks because funds are advanced based upon the value of the project, which is of uncertain value prior to its completion. Because of the uncertainties inherent in estimating construction costs, as well as the fair value of the completed project and the effects of governmental regulation of real property and the general effects of the national and local economies, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure, sale and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time.

Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio. Every loan carries a certain risk that it will not be repaid in accordance with its terms or that any underlying collateral will not be sufficient to assure repayment. This risk is affected by, among other factors:

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that we believe is appropriate to provide for probable incurred losses in our loan portfolio. The amount of this allowance is determined by our management through a periodic review and consideration of several factors, including, but not limited to:

The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. A deterioration or lack of improvement in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have a material negative effect on our financial condition and results of operations.

Our ability to attract and retain management and key personnel may affect future growth and earnings, and legislation imposing compensation restrictions could adversely affect our ability to do so. Much of our future success will be strongly influenced by our ability to attract and retain management experienced in banking and financial services and familiarity with the communities in our market areas. Our ability to retain executive officers, the functional area managers, branch managers and loan officers of our bank subsidiary will continue to be important to the successful implementation of our strategy. It is also critical, as we address the Written Agreement and the Consent Order, to be able to attract and retain qualified management and loan officers with the appropriate level of experience and knowledge about our market areas to implement our community-based operating strategy.

As a result of the Bank having entered into the Consent Order, we are subject to certain limitations regarding employee compensation, as well as the hiring of executive officers. These limitations may adversely affect our ability to recruit and retain key employees in addition to our senior executive officers, especially if we are competing for talent against institutions that are not subject to the same restrictions. Moreover, there have been many staffing changes recently at the Company, including the departure of several loan officers and senior management. Over the past two years, the Company hired experienced and proven management to serve as Chief Executive Officer, Chief Financial Officer, Chief Credit Officer, Chief Risk Officer, Chief Lending Officer, Chief Wealth Strategies & Fiduciary Officer, and Chief Information Officer. The unexpected loss of services of key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, results of operations and financial condition.

Effective as of March 27,2017 the Chief Financial Officer of the Company retired from all positions he held as an officer of the Company, the Bank and its affiliates. This position is currently open and being filled in the interim by the Controller Michael Shuler.

We may need to raise additional capital in the future, which may not be available when it is needed. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We manage our growth rate and risk profile to ensure that our existing capital resources will satisfy our capital requirements for the foreseeable future. However, regulatory requirements, growth in assets outpacing growth in capital or our growth strategy may present conditions that would create a need for additional capital from the capital markets. Additionally, the restatement of our financial statements for 2010 and 2011, and our inability to have timely filed our 2012, 2013, 2014 and 2015 financial statements, as well as the regulatory orders on Trinity and the Bank, among other factors, may make it difficult to raise capital in the near future, or limit the manner in which we can raise it. Our ability to raise additional capital depends on conditions in the capital markets, general economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. There may not always be capital available or available on favorable terms. These conditions may alter our strategic direction and require us to manage our growth to remain within capital limits relying solely on our earnings for capital formation, possibly limiting our growth.

The size of our loan portfolio has declined in recent periods, and, if we are unable to return to loan growth, our profitability may be adversely affected. From December 31, 2015 to December 31, 2016, our gross loans declined 6.5 % and have continued to decline in 2017. During this period, we were managing our balance sheet composition to manage our capital levels and position the Bank to meet and exceed its targeted capital levels. Among other factors, our current strategic plan calls for reductions in the amount of our non-performing assets and a return to growth in our loan portfolio to improve our net interest margin and profitability. Our ability to increase profitability in accordance with this plan will depend on a variety of factors, including our ability to originate attractive new lending relationships. While we believe we have the management resources and lending staff in place to successfully achieve our strategic plan, if we are unable to increase the size of our loan portfolio, our strategic plan may not be successful and our profitability may be adversely affected.

Our growth must be effectively managed and our growth strategy involves risks that may impact our net income. While addressing the Written Agreement and the Consent Order, we are also resuming a general growth strategy, which may include our expansion into additional communities or attempt to strengthen our position in our current markets to take advantage of expanding market share by opening new offices. To the extent that we undertake additional office openings, we are likely to experience the effects of higher operating expenses relative to operating income from the new operations for a period of time, which may have an adverse effect on our levels of reported net income, return on average equity and return on average assets.

We must compete with other banks and financial institutions in all lines of business. The banking and financial services business in our market is highly competitive. Our competitors include large regional banks, local community banks, savings institutions, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions and other non-bank financial service providers. Many of these competitors are not subject to the same regulatory restrictions, which may therefore enable them to provide customers with an alternative to traditional banking services.

Increased competition in our markets may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to modify our underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets, have larger lending limits and may be able to offer a broader range of financial services than we can offer.

Additionally, our ability to compete successfully depends on developing and maintaining long-term customer relationships, offering community banking services with features and pricing in line with customer interests and expectations, consistently achieving outstanding levels of customer service and adapting to many and frequent changes in banking as well as local or regional economies. Failure to excel in these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability. These weaknesses could have a significant negative impact on our business, financial condition and results of operations.

Our mortgage origination business is subject to fluctuations based upon seasonal and other factors and, as a result, our results of operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year. Our mortgage origination business is subject to several variables that can impact loan origination volume, an increase in the general level of interest rates may, among other things, adversely affect the demand for mortgage loans and our ability to originate mortgage loans. In particular, if mortgage interest rates increase, the demand for residential mortgage loans and the refinancing of residential mortgage loans will likely decrease, which will have an adverse effect on our mortgage origination activities. Conversely, a decrease in the general level of interest rates, among other things, may lead to increased competition for mortgage loan origination business. As a result of these variables, our results of operations for any single quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

We could experience an unexpected inability to obtain needed liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits, and to take advantage of interest rate market opportunities and is essential to a financial institution's business. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. We seek to ensure that our funding needs are met by maintaining an appropriate level of liquidity through asset and liability management. In the event the Bank is unable to deliver sufficient and acceptable collateral to the FHLB, it may affect our ability to borrow sufficient amounts in the event it is necessary for our liquidity. If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition and results of operations.

Loss of customer deposits due to increased competition could increase our funding costs. We rely on bank deposits to be a low cost and stable source of funding. We compete with banks and other financial services companies for deposits. If our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net interest income and could have a material adverse effect on our financial condition and results of operations.

We rely on the accuracy and completeness of information about customers and counterparties. We rely on information furnished by or on behalf of customers and counterparties in deciding whether to extend credit or enter into other transactions. This information could include financial statements, credit reports and other financial information. We also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect our business. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different counterparties and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, credit unions, investment banks, mutual and hedge funds, and other institutional clients. As a result, defaults by, or even negative speculation about, one or more financial services institutions, or the financial services industry in general, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the receivable due us. Any such losses could be material and could materially and adversely affect our business, financial condition, results of operations or cash flows.

Negative publicity regarding us, or financial institutions in general, could damage our reputation and adversely impact our business and results of operations. Our ability to attract and retain customers and conduct our business could be adversely affected to the extent our reputation is damaged. Reputational risk, or the risk to our business, earnings and capital from negative public opinion regarding our company, or financial institutions in general, is inherent in our business. Adverse perceptions concerning our reputation could lead to difficulties in generating and maintaining accounts as well as in financing them. In particular, negative perceptions concerning our reputation could lead to decreases in the level of deposits that consumer and commercial customers and potential customers choose to maintain with us. Negative public opinion could result from actual or alleged conduct in any number of activities or circumstances, including lending or foreclosure practices; sales practices; corporate governance and potential conflicts of interest; ethical failures or fraud, including alleged deceptive or unfair lending or pricing practices; regulatory compliance; protection of customer information; cyberattacks, whether actual, threatened, or perceived; negative news about us or the financial institutions industry generally; general company performance; or from actions taken by government regulators and community organizations in response to such activities or circumstances. Furthermore, our failure to address, or the perception that we have failed to address, these issues appropriately could impact our ability to keep and attract customers and/or employees and could expose us to litigation and/or regulatory action, which could have an adverse effect on our business and results of operations.

Technology is continually changing and we must effectively implement new innovations in providing services to our customers. The financial services industry is undergoing rapid technological changes with frequent innovations in technology-driven products and services. In addition to better serving customers, the effective use of technology increases our efficiency and enables us to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers using innovative methods, processes and technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market areas. In order to ensure that we are responsive to customer needs as well as compliant with the numerous changes required by the rapid pace of regulatory initiatives, we underwent a conversion of our core information systems in July, 2016. Our ability to successfully transition and implement the new system may affect our ability to meet the needs of our customers and capitalize on the opportunities for efficiencies presented through increased automation.

System failure or breaches of our network security or cybersecurity-related incidents could subject us to increased operating costs, damage to our reputation, litigation and other liabilities. Information technology systems are critical to our business and we have developed some of our own computer software systems internally. The computer systems and network infrastructure we use could be vulnerable to unforeseen problems that may be unique to our organization. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, cybersecurity-related incidents, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in, and transmitted through, our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us, as well as damage to our reputation in general.

As a financial institution, we are susceptible to fraudulent activity, information security breaches and cyber security-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or out clients' information, misappropriation of assets, privacy breaches against our clients, litigation, or damage to our reputation. These risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications.

Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks, and malware or other cyberattacks. In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyberattacks within the financial services industry, especially in the commercial banking sector due to cybercriminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity, security breaches and cybersecurity-related incidents in recent periods. Moreover, in the past year, several large corporations, including retail companies, have suffered major data breaches, where in some cases, exposing sensitive financial and other personal information of their clients and subjecting them to potential fraudulent activity. Some of our clients may have been affected by these breaches, which increase their risks of identity theft, credit card fraud and other fraudulent activity that could involve their accounts with the Bank.

Information pertaining to us and our clients is maintained, and transactions are executed, on our networks and systems, those of our clients and certain of our third party partners, such as reporting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and to maintain our clients' confidence. Increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third-party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our clients to access our systems. Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent security breaches and cyber-attacks and periodically test our security, the inability to anticipate, or failure to adequately mitigate, breaches of security could result in: losses to us or our clients; our loss of business and/or clients; damage to our reputation; the incurrence of additional expenses; disruption to our business, and/or our ability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or exposure to civil litigation or possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

The Federal Financial Institutions Examination Council ("FFIEC") issued guidance for "Strong Authentication/Two Factor Authentication" in the Internet banking environment All financial institutions were required to make changes to their online banking systems to meet the FFIEC requirements. In response to this guidance, Trinity incorporated multiple layers of security to protect our customers' financial data. We further employ external information technology auditors to conduct extensive auditing and testing for any weaknesses in our systems, controls, firewalls and encryption to reduce the likelihood of any security failures or breaches. Although we, with the help of third-party service providers and auditors, intend to continue implementing security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we, and our third-party service providers, use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.

We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors. Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Employee errors could include data processing system failures and errors. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence. We have reported that we found material weaknesses in our internal control over financial reporting and, while we are enhancing our system of internal controls and we maintain insurance coverage, should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to environmental liabilities in connection with the foreclosure on real estate assets securing the loan portfolio of our banking segment. Hazardous or toxic substances or other environmental hazards may be located on the real estate that secures our loans. If we acquire such properties as a result of foreclosure, or otherwise, we could become subject to various environmental liabilities. For example, we could be held liable for the cost of cleaning up or otherwise addressing contamination at or from these properties. We could also be held liable to a governmental entity or third party for property damage, personal injury or other claims relating to any environmental contamination at or from these properties. In addition, we could be held liable for costs relating to environmental contamination at or from our current or former properties. We may not detect all environmental hazards associated with these properties. If we ever became subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be harmed.

Our ability to pay dividends is limited. Pursuant to the terms of the Written Agreement, the Company is prohibited from declaring and paying any dividends without prior written approval of the FRB. Moreover, dividends from the Bank have traditionally served as a major source of the funds with which Trinity pays dividends and interest payments due. However, pursuant to the Consent Order with the OCC, the Bank may not declare and pay any dividends to Trinity unless it complies with certain provisions of the Consent Order and without first obtaining the prior written determination of no supervisory objection from the OCC.

Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations. We may incur additional indebtedness, including secured indebtedness. At December 31, 2016, on a consolidated basis, we had total deposits of $1.2 billion and other indebtedness of $39.4 million, including $37.1 million in aggregate principal amount of junior subordinated debentures. Our significant amount of indebtedness could have important consequences, such as:

In addition to our debt service obligations, our operations require substantial investments on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and noncapital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide capacity for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and financial, business, competitive, legal and other factors. If new debt is added to our current debt levels, the risks described above could increase.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful. Our ability to satisfy our debt obligations will depend upon, among other things: our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to obtain financing in an amount sufficient to fund our liquidity needs.

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations, sell equity and/or negotiate with our lenders and other creditors to restructure the applicable debt in order to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all.

Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations. Trinity and the Bank are subject to extensive regulation by multiple regulatory bodies. These regulations may affect the manner and terms of delivery of our services. If we do not comply with governmental regulations, we may be subject to fines, penalties, lawsuits or material restrictions on our businesses in the jurisdiction where the noncompliance occurred, which may adversely affect our business operations. Changes in these regulations can significantly affect the services that we provide as well as our costs of compliance with such regulations. In addition, adverse publicity and damage to our reputation arising from the failure or perceived failure to comply with legal, regulatory or contractual requirements could affect our ability to attract and retain customers.

The recent economic crises, particularly in the financial markets, resulted in government regulatory agencies and political bodies placing increased focus and scrutiny on the financial services industry. The U.S. government intervened on an unprecedented scale by temporarily enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances and increasing insurance on bank deposits.

These programs have subjected financial institutions to additional restrictions, oversight and costs. In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry, impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings and disclosures, and have an effect on bankruptcy proceedings with respect to consumer residential real estate mortgages, among other factors. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied.

In recent years, regulatory oversight and enforcement have increased substantially, imposing additional costs and increasing the potential risks associated with our operations. If these regulatory trends continue, they could adversely affect our business and, in turn, our consolidated results of operations.

Monetary policies and regulations of the FRB could adversely affect our business, financial condition and results of operations. In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the FRB. An important function of the FRB is to regulate the money supply and credit conditions. Among the instruments used by the FRB to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Implementation of the Basel III Rule requires increased capital levels that we may not be able to satisfy and could impede our growth and profitability. The Basel III Rule became effective January 1, 2015. The Basel III Rule increases minimum capital ratios, adds a new minimum CET1 capital ratio, introduces a new capital conservation buffer, and change the risk-weightings of certain assets. These changes will be phased in through 2019. As the Basel III Rule is phased in, it could have a material and adverse effect on our liquidity, capital resources and financial condition.

The Basel III Rule also expand the definition of capital as in effect currently by establishing criteria that instruments must meet to be considered Additional Tier 1 Capital (Tier 1 Capital in addition to Common Equity) and Tier 2 Capital. A number of instruments that used to qualify as Tier 1 Capital no longer qualify, or their qualifications have changed. The Basel III Rule also permits smaller banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. Trinity made the election to retain the existing treatment of accumulated other comprehensive income. The Basel III Rule also revised the prompt corrective action framework to increase capital thresholds and to add CET1 capital ratio.

Such changes, including changes regarding interpretations and implementation, could affect us in substantial and unpredictable ways and could have a material adverse effect on us, including on our business, financial condition or results of operations. Further, such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other factors.

The CFPB has issued "ability-to-repay" and "qualified mortgage" rules that may have a negative impact on our loan origination process and foreclosure proceedings, which could adversely affect our business, operating results, and financial condition. On January 10, 2013, the CFPB issued a final rule to implement the "qualified mortgage" provisions of the Dodd-Frank Act requiring mortgage lenders to consider consumers' ability to repay home loans before extending them credit. The CFPB's "qualified mortgage" rule took effect on January 10, 2014. The final rule describes certain minimum requirements for lenders making ability-to-repay determinations, but does not dictate that they follow particular underwriting models. Lenders will be presumed to have complied with the ability-to-repay rule if they issue "qualified mortgages," which are generally defined as mortgage loans prohibiting or limiting certain risky features. Loans that do not meet the ability-to-repay standard can be challenged in court by borrowers who default and the absence of ability-to-repay status can be used against a lender in foreclosure proceedings. Any loans that we make outside of the "qualified mortgage" criteria could expose us to an increased risk of liability and reduce or delay our ability to foreclose on the underlying property. The CFPB's "qualified mortgage" rule could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive or time consuming to make these loans. Any decreases in loan origination volume or increases in compliance and foreclosure costs caused by the rule could negatively affect our business, operating results and financial condition.

Trinity, together with its subsidiaries, may not be able to fully utilize our net operating loss ("NOL") and other tax carry forwards. On December 19, 2016, Trinity closed a $52 million private placement pursuant to which it issued 2,661,239 shares of its common stock, no par value per share, and 82,862 shares of Series C Convertible Preferred Stock. Please see Part II, Item 7 for additional information. We believe that we experienced an "ownership change" within the meaning of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the "Code") on December 19, 2016 (the "Change Date") as a result of the issuance of these shares. An ownership change is generally defined as a more than 50 percentage point collective increase in equity ownership by "5-percent shareholders" (as that term is defined for purposes of Sections 382 and 383 of the Code) in any rolling three-year period or since the last ownership change if such prior ownership change occurred within the prior three-year period. As a result of our ownership change on the Change Date, the amount of our taxable income for tax years ending after our ownership change, which may be offset by NOL carry forwards and tax credits from pre-change years, will be subject to an annual limitation, known as a section 382 limitation.

As of December 31, 2016, Trinity and its subsidiaries had U.S. federal NOLs of approximately $15.4 million, of which approximately $144 thousand was allocated to that portion of 2016 after the ownership change described above, and that, if unused, will begin to expire in 2031. As of December 31, 2016, Trinity also had business tax credits of approximately $2.4 million, of which approximately $0 was allocated to that portion of 2016 after the ownership change described above, and that, if unused, will begin to expire in 2031. Trinity has determined the annual section 382 limitation as a result of the ownership change described above to be approximately $1.14 million. To the extent that the section 382 limitation exceeds the amount of taxable income offset by the NOL carry forwards from the pre-change years, the excess may increase the future section 382 limitation. The NOL generated by Trinity in post-change years should generally not be subject to the section 382 limitation except to the extent that either Trinity was in a net unrealized built-in loss position as of the Change Date or Trinity has another ownership change.

The IRS could challenge the amount, timing and/or use of our NOL carry forwards. The amount of our NOL carry forwards has not been audited or otherwise validated by the IRS. Among other things, the IRS could challenge whether an ownership change occurred on the Effective Date, as well as the amount, the timing and/or our use of our NOLs. Any such challenge, if successful, could significantly limit our ability to utilize a portion or all of our NOL carry forwards. In addition, calculating whether an ownership change has occurred within the meaning of Section 382 is subject to inherent uncertainty, both because of the complexity of applying Section 382 and because of limitations on a issuing company's knowledge as to the ownership of, and transactions in, its securities. Therefore, the calculation of the amount of our utilizable NOL carry forwards could be changed as a result of a successful challenge by the IRS or as a result of new information about the ownership of, and transactions in, our securities.

There is a limited trading market for our common shares and, as with all companies, stockholders may not be able to resell shares at or above the price stockholders paid for them. Our common stock is not listed on any automated quotation system or securities exchange and no firm makes a market in our stock. The trading in our common shares has less liquidity than companies quoted on the national securities exchanges or markets. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the market of willing buyers and sellers of our common shares at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Although we intend to explore the benefits to liquidity and improved pricing through greater volumes offered by a listing on an exchange, we cannot assure you that we will be accepted for listing on an exchange or, even if we are accepted, that the volume of trading in our common shares will increase.

We may issue shares of preferred stock or additional shares of common stock to raise capital, complete an acquisition or effect a combination or under an employee incentive plan after consummation of an acquisition or combination, which would dilute the interests of our stockholders and likely present other risks. The issuance of additional shares of preferred stock or common stock:

As of the date of this Form 10-K, our authorized capital stock includes 20,000,000 shares of voting common stock, 9,249,283 shares of which are issued and outstanding, 20,000,000 shares of non-voting common stock, 8,286,200 of which are issued and outstanding, and 1,000,000 shares of preferred stock, none of which are issued. Subject to limitations imposed by law or our articles of incorporation, our board of directors is empowered to issue authorized shares of common stock and preferred stock and determine the designations, powers, preferences, limitations, restrictions, special or relative rights or qualifications, voting rights, dividend rates, conversion rights, redemption price, and liquidation preferences of any series of preferred stock. Preferred stock could be issued with voting and conversion rights that could adversely affect the voting power of the shares of our common stock.

Authority to Issue Additional Shares. Under our charter, our board of directors may issue up to an aggregate of 1,000,000 shares of preferred stock without stockholder action. Subject to limitations imposed by law or our articles of incorporation, the preferred stock may be issued, in one or more series, with the preferences and other terms designated by our board of directors that may delay or prevent a change in control of us, even if the change is in the best interests of stockholders. At December 31, 2016, 120,178 shares of preferred stock were outstanding.

Banking Laws. Any change in control of our company is subject to prior regulatory approval under the Bank Holding Company Act or the Change in Bank Control Act, which may delay, discourage or prevent an attempted acquisition or change in control of us.

Restrictions on Calling Special Meeting and Board Nominations. Our bylaws include a provision prohibiting the holders of less than 25% of the voting shares from calling a special meeting of stockholders. Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders' meeting.

Cumulative Voting and Other Board Matters. Our charter expressly denies cumulative voting in the election of directors. Further our board of directors is divided into three classes, and only one class is nominated for election each year. Our charter provides that our directors may only be removed for cause and then only by an affirmative vote of at least a majority of the outstanding shares entitled generally in the election of directors. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.

Approximately 29% of our outstanding shares of voting common stock are owned by three shareholders whose interests could conflict with those of our other shareholders. Castle Creek, Patriot and SVBP own approximately 9.90%, 9.90% and 9.20%, respectively, of our outstanding shares of voting common stock as of December 31, 2016. Further, in connection with the private placement, Castle Creek and Patriot each appointed one representative to the Company's board of directors, in each case for so long as these entities, together with its respective affiliates, owns, in aggregate, 5% or more of all of the outstanding shares of our common stock. As a result, Castle Creek and Patriot will be able to exercise significant influence over our corporate policy and business strategy and each of the shareholders will be able to exercise significant influence on our business as shareholders, including influence over election of our board of directors and the authorization of other corporate actions requiring shareholder approval. In deciding on how to vote on certain proposals, our shareholders should be aware that any of these shareholders may have interests that are different from, or in addition to, the interests of our other shareholders.

As of December 31, 2016, the Company conducts operations through seven locations as shown below. Trinity is headquartered in the main Bank office in Los Alamos, New Mexico. Four banking offices are owned by the Bank and are not subject to any mortgages or material encumbrances. The Bank's Albuquerque offices are in leased office spaces and the Cerrillos Road office is subject to a ground lease as further discussed in Part II, Item 8 of the Form 10-K, Note 11. In March 2016, the Bank formed Triscensions ABQ, LLCs, a wholly owned subsidiary of the Bank, for the purpose of acquiring, holding, and managing a commercial office building at 7445 Pan American Freeway, NE in Albuquerque, NM. The Bank intends to utilize approximately one quarter of the building for future banking offices. The Cerrillos Road ground lease contains a purchase option exercised in 2015, the cost of which is largely offset by a loan held on the property. The Company notified the owners of its intent to exercise its option to purchase the property and expects to complete the purchase or extend the leases in 2017.

In addition to our offices, the Bank operates 22 automatic teller machines ("ATMs") throughout northern New Mexico. The ATMs are housed either on Bank properties or on leased property.

In addition to legal proceedings occurring in the normal course of business, certain governmental investigations and legal proceedings as set forth below are ongoing.

In connection with the restatements and investigations, on September 1, 2015, the Company and William Enloe ("Enloe"), Trinity and the Bank's former Chief Executive Officer and Chairman of the Board, filed separate suits in New Mexico State Court. Jill Cook, the Company's former Chief Credit Officer, was also named in the suit brought by Trinity. On October 28, 2015, the Court entered an order consolidating the Enloe and Trinity suits. Mark Pierce, the Bank's former Senior Lending Officer, filed suit in New Mexico State Court on November 2, 2015. On April 28, 2016, the Court entered an order consolidating the Pierce suit with the Enloe and Trinity suits. In each of the three suits listed above, the plaintiffs seek coverage and reimbursement from the insurance carriers for the defense costs incurred by individuals covered under those policies, as defined therein, in addition to causes of action against the insurance companies for bad faith breach of insurance contracts and against Atlantic Specialty Insurance for violations of New Mexico insurance statutes. The suits, with the exception of Enloe's suit, also seek a determination on the obligations of the Company and/or the Bank to indemnify the former officers. The suits filed by Enloe and Pierce and the counterclaims of Cook allege, in the alternative, negligence against the Company and the Bank for failing to timely put all carriers on notice of claims. On July 18, 2016, one of the insurance company defendants filed a notice removing the consolidated lawsuits to the United States District Court for the District of New Mexico. Enloe, Pierce, the Company and the Bank each filed motions to remand the coverage litigation back to the First Judicial District Court and are awaiting a ruling on those motions. The Company and the Bank will vigorously defend its actions and seek indemnification and coverage from its insurance carriers as required under the insurance policies. Due to the complex nature, the outcome and timing of ultimate resolution is inherently difficult to predict.

First American Title v. Los Alamos National Bank (Second Judicial District Court, State of New Mexico, Case No. D-202-CV-201207023). This suit relates to title coverage claims regarding a commercial property that served as collateral for a commercial loan made by the Bank. The title company asserted a claim against the Bank for recovery of losses suffered as a result of a settlement entered into by both the title company and the Bank to satisfy the claims of certain contractors who filed liens on the property. On April 29, 2016, the District Court issued its Findings of Fact and Conclusions of Law finding against the Bank and finding the plaintiff is entitled to a judgment in the amount of $150,000 and its costs of bringing suit. The suit was settled in June 2016 for significantly less than the judgment amount.

Trinity's common stock is not listed on any automated quotation system or securities exchange. No firm makes a market in our stock. As of December 31, 2016, there were 9,199,306 shares of common stock outstanding and approximately 1,640 stockholders of record. At December 31, 2016, the most recently reported sale price of Trinity's stock was $4.75 per share.

The tables below show the reported high and low sales prices of the common stock during the periods indicated. The prices below are only the trades where the price was disclosed to the Company. Sales where the value of the shares traded was not given to us are not included.

A table presenting the shares issued and available to be issued under stock-based benefit plans and arrangements can be found under Part III, Item 12,"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of this Form 10-K.

Trinity did not pay dividends on its common stock during 2016 or 2015. The Company is subject to certain restrictions that currently materially limit its ability to pay dividends on its common stock. Under New Mexico law, a corporation may not, subject to any restrictions in its articles of incorporation, make any distributions to its shareholders if, after giving effect to such distribution either (1) the corporation would be unable to pay its debts as they become due in the usual course of its business, or (2) the corporation's total assets would be less than the sum of its total liabilities and the maximum amount that then would be payable, in any liquidation, in respect of all outstanding shares having preferential rights in liquidation. In addition, pursuant to the terms of the Written Agreement, the Company is prohibited from declaring and paying any dividends without the prior written approval of the FRB.

On May 7, 2013, the Company, determined to defer its regularly scheduled interest payments on its junior subordinated debentures and its quarterly cash dividend payments payable on its Series A Preferred Stock and Series B Preferred Stock. Under the terms of both the junior subordinated debentures and the Series A Preferred Stock and Series B Preferred Stock, we are not able to pay dividends on our common shares until the deferred interest payments and all accrued dividends on our Series A Preferred Stock and Series B Preferred Stock have been paid in full. However, the Company repurchased all of its outstanding Series A Preferred Stock and Series B Preferred Stock effective January 25, 2017 in the amount of $50.7 million including all deferred dividends due. In addition, the Company paid all deferred interest on the junior subordinated debentures in the first quarter of 2017 in the amount of $10.1 million. Accordingly, the Company is no longer subject to these dividend restrictions. Please see Part II, Item 8, Notes 10, 16, and 22 of the Form 10-K for more information.

Dividends from the Bank have traditionally served as a major source of funds with which Trinity pays dividends and interest due. However, pursuant to the Consent Order with the OCC, the Bank may not declare or pay any dividends to Trinity unless it first obtains a prior written determination of no supervisory objection from the OCC. In addition, Trinity cannot accept the payment of a dividend from the Bank without prior written approval of the FRB.

The following discussion should be read in conjunction with the other sections of this Form 10-K, including our consolidated financial statements and related notes included in this Form 10-K. This discussion contains forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements, including as a result of the factors we describe under Part I, Item 1A "Risk Factors" and elsewhere in this Form 10-K. See "Special Note Regarding Forward-Looking Statements" appearing at the beginning of this Form 10-K and "Risk Factors" set forth in Part I, Item 1A of this Form 10-K.

The Company's net income available to common shareholders increased by $13.7 million from a net loss of $1.9 million for the year ended December 31, 2015 to net income of $11.8 million for the year ended December 31, 2016. This increase was primarily attributable to the reversal of the majority of the valuation allowance on net deferred tax assets ("DTAs") which resulted in an income tax benefit of $13.7 million, increases in taxable investment interest income of $3.8 million, a decrease in venture capital losses of $1.6 million, and an increase of $1.4 million in gains on sale of OREO properties. Offsetting these factors was a reduction in loan interest income of $3.4 million, an increase in salaries and employee benefits of $1.1 million, an increase in data processing expenses of $839 thousand, and a decrease on gains on loans held for sale of $711 thousand.

The Company continues to experience challenges in its loan portfolio, with high levels of non-performing loans and foreclosed properties. In response to these challenges and to proactively position the Company to meet these challenges, we continue to reduce our concentration in the construction real estate portfolio and have taken other steps in compliance with the regulatory enforcement actions taken against the Company and the Bank.

As discussed in Part I, Item 1 of this Form 10-K, the FRB entered into the Written Agreement with Trinity. The Written Agreement requires Trinity to serve as a source of strength to the Bank and restricts Trinity's ability to issue dividends and other capital distributions and to repurchase or redeem any Trinity stock without the prior written approval of the FRB. The Written Agreement further requires that Trinity implement a capital plan, subject to approval by the FRB, and submit cash flow projections to the FRB. Finally, the Written Agreement requires Trinity to comply with all applicable laws and regulations and to provide quarterly progress reports to the FRB. Additionally, the Bank entered into a Consent Order with the OCC. The Consent Order focuses on improving the Bank's credit administration, credit underwriting, internal controls, compliance and management supervision. Additionally, the Consent Order requires that the Bank maintain certain capital ratios and receive approval of the OCC prior to declaring dividends. The Consent Order requires the Bank to maintain the following minimum capital ratios: (i) a leverage ratio of Tier 1 Capital to average total assets of at least 8%; and (ii) a ratio of Total Capital to total risk-weighted assets of at least 11%. The Company and the Bank continue to take action to ensure the satisfaction of the requirements under the Consent Order and the Written Agreement.

On December 19, 2016, the Company closed its previously announced $52 million private placement with Castle Creek, Patriot and Strategic Value Bank Partners, L.P., through its fund Strategic Value Investors LP, pursuant to which the Company issued 2,661,239 shares of its common stock, no par value per share, at $4.75 per share, and 82,862 shares of Series C Preferred Stock. The Company used a portion of the net proceeds from the private placement and a $15 million dividend from the Bank to redeem its outstanding Series A and Series B preferred stock, which it completed on January 25, 2017, and to pay the deferred interest on its trust preferred securities, which it completed in the first quarter of 2017, and for general corporate purposes.

In connection with the private placement and in accordance with the terms of the Stock Purchase Agreement, the Registration Rights Agreement with each of Castle Creek and Patriot. Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to file a resale registration statement for the purpose of registering the resale of the shares of the Common Stock and the underlying shares of non-voting Common Stock into which the shares of Series C Preferred Stock were converted, as appropriate. The Company is obligated to file the registration statement no later than the third anniversary after the closing of the private placement.

Also pursuant to the terms of the Stock Purchase Agreement, the Company is permitted to conduct a rights offering to its existing shareholders for shares of common stock, resulting in gross proceeds to the Company of up to $10 million, within one year following the closing of the private placement, or December 19, 2017. Shares in the rights offering must be sold at the same $4.75 purchase price as the shares of Common Stock sold to the investors pursuant to the Stock Purchase Agreement. The investors are not entitled to participate in the rights offering pursuant to the Stock Purchase Agreement.

On March 27, 2009, Trinity participated in the TARP Capital Purchase Program by issuing 35,539 shares of Series A Preferred Stock to the Treasury for a purchase price of $35.5 million in cash and issued warrants that were immediately exercised by the Treasury for 1,777 shares of Series B Preferred Stock. Using part of the proceeds from the private placement described above, the Company redeemed all of its outstanding Series A Preferred Stock and Series B Preferred Stock effective January 25, 2017 in the amount of $50.7 million including all deferred dividends due.

Allowance for Loan and Lease Losses: The allowance for loan and lease losses calculation was enhanced for the December 31, 2016 calculation. See Note 1 of this Form 10-K for more information on the impact of this change.

The allowance for loan and lease losses is that amount which, in management's judgment, is considered appropriate to provide for probable incurred 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. Specific reserves for impaired loans and historical loss experience factors, combined with other considerations, such as delinquency, nonaccrual, 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 quarterly, to determine the amount of allowance for loan losses and the resultant provisions for loan losses it considers adequate to provide for probable incurred loan losses. 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.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The general component covers non‑impaired loans and is based on historical loss experience adjusted for current factors. The general component is based upon (a) historic performance; and (b) an estimate of the impact of environmental or qualitative factors based on levels of credit concentrations; lending policies and procedures; the experience, ability and depth of lending management and staff; the volume and severity of past dues, criticized, classified and nonaccrual loans; the quality of the loan review system; the change in economic conditions; loan collateral value for dependent loans; and other external factors, examples of which are changes in regulations, laws or legal precedent and competition.

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.

Investment securities: Securities classified as available for sale are debt securities the Bank intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are reported at fair value with unrealized gains or losses reported as other comprehensive income, net of the related deferred tax effect. Securities classified as held to maturity are those securities that the Bank has the ability and positive intent to hold until maturity. These securities are reported at amortized cost. Sales of investment securities held to maturity within three months of maturity are treated as maturities. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

Purchase premiums and discounts are generally recognized in interest income using the interest method over the term of the securities. For mortgage-backed securities, estimates of prepayments are considered in the constant yield calculations.

Securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of accumulated other comprehensive income, net of deferred income taxes. Declines in fair value of individual securities, below their amortized cost, are evaluated by management to determine whether the decline is temporary or "other-than-temporary." Declines in the fair value of available for sale securities below their cost that are deemed "other-than-temporary" are reflected in earnings as impairment losses. In determining whether other-than-temporary impairment ("OTTI") exists, management considers whether: (1) we have the intent to sell the security, (2) it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis, and (3) we do not expect to recover the entire amortized cost basis of the security. When we determine that OTTI has occurred, the amount of the OTTI recognized in earnings depends on whether we intend to sell the security or whether it is more likely than not we will be required to sell the security before recovery of its amortized cost basis. If we intend to sell, or it is more likely than not we will be required to sell, the security before recovery of its amortized cost basis, the OTTI recognized in earnings is equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. If we do not intend to sell the security, and it is not more likely than not that we will be required to sell before recovery of its amortized cost basis, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected, using the original yield as the discount rate, and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in accumulated other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. The assessment of whether an OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at the time.

Deferred Tax Assets: A valuation allowance is required for deferred tax assets ("DTA") if, based on available evidence, it is more likely than not that all or some portion of the asset may not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the DTA. In making this assessment, all sources of taxable income available to realize the DTA are considered, including taxable income in prior carryback years, future reversals of existing temporary differences, tax planning strategies, and future taxable income exclusive of reversing temporary differences and carry-forwards. The predictability that future taxable income, exclusive of reversing temporary differences, will occur is the most subjective of these four sources. The presence of cumulative losses in recent years is considered significant negative evidence, making it difficult for a company to rely on future taxable income, exclusive of reversing temporary differences and carry-forwards, as a reliable source of taxable income to realize a DTA. Judgment is a critical element in making this assessment. Changes in the valuation allowance that result from favorable changes in those circumstances that cause a change in judgment about the realization of deferred tax assets in future years are recorded through income tax expense.

In assessing the need for a valuation allowance, the Company considered all available evidence about the realization of DTAs, both positive and negative, that could be objectively verified and concluded that the Company's positive evidence overcame the negative evidence. Therefore, the Company reversed the majority of its valuation allowance on its net deferred tax assets leaving $387 thousand in valuation allowances as of December 31, 2016. The factors that lead to the decision to reverse the valuation allowance were: 1) positive income before income taxes trend from January 2014 to December 2016, 2) positive year to date income before income taxes at December 31, 2016, and 3) reasonable and supportable forecasts of future taxable income.

There remain limitations on the ability to include the DTA for regulatory capital purposes. Pursuant to regulatory requirements, DTAs that arise from net operating loss and tax credit carryforwards are shown as a deduction from CET1 capital and additional tier 1 capital based on transition provisions starting in 2015 with these DTAs being fully deducted from CET1 capital in 2018. DTAs that arise from temporary differences that could not be realized through net operating loss carrybacks which exceed either a 10% or 15% threshold of CET1 capital are reported as deductions from CET1 capital. Finally, DTAs that arise from temporary differences that can be realized through net operating loss carrybacks are not subject to deduction.

For tax purposes, the issuance of voting common stock and Series C preferred stock in connection with the Company's private placement in the fourth quarter of 2016 resulted in an "ownership change" of the Company, as broadly defined in Section 382 of the Internal Revenue Code. As a result of the ownership change, utilization of the Company's net operating loss carry-forwards, tax credit carry-forwards and certain built-in losses under federal income tax laws will be subject to annual limitations and potential impairment. The annual limitation placed on the Company's ability to utilize these potential tax deductions will equal the product of an applicable interest rate mandated under federal income tax laws and the Company's value immediately before the ownership change. The annual limitation imposed under Section 382 may limit the deduction for both the carry-forward tax attributes and the built-in losses realized within five years of the date of the ownership change. However, we believe that the full amount of the Company's deferred tax asset will be utilized before it expires. As of December 31, 2016, the Company had U.S. federal NOLs of approximately $15.4 million and federal business tax credits of approximately $2.4 million of business tax, of which approximately $144 thousand and $0, respectively, were allocated to that portion of 2016 after the ownership change described above. The Company had an annual Section 382 limitation of $1.14 million with respect to these federal NOLs and business tax credits.

Other Real Estate Owned ("OREO"): OREO, consisting of properties obtained through a foreclosure proceeding or through an in-substance foreclosure in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of fair value obtained principally from independent sources, adjusted for estimated selling costs. Management also considers other factors or recent developments, such as changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management's plans for disposition, which could result in adjustments to the collateral value estimates indicated in the appraisals. Significant judgments and complex estimates are required in estimating the fair value of OREO, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, management may utilize liquidation sales as part of its distressed asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of other real estate. Management reviews the value of other real estate each quarter and adjusts the values as appropriate.

Mortgage Servicing Rights ("MSRs"): 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 for comparable mortgage servicing contracts, which incorporate the expected life of the loans, estimated costs to service the loans, servicing fees to be received and other factors. The valuation model calculates the present value of estimated future net servicing income. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or fair value.

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.

A valuation allowance is used to recognize impairments of our MSRs. An MSR is considered impaired when the fair 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.

MSRs are analyzed for impairment on a monthly basis. The underlying loans on all serviced loans are reviewed and, based upon the value of MSRs that are traded on the open market, a current fair value is assigned for each risk tranche in our portfolio and then compared to the current amortized book value for each tranche. The change in fair value (up to the amortized value of the MSR) is recorded as an adjustment to the MSR valuation allowance, with the offset recorded to earnings.

Fees earned for MSRs are recorded as mortgage loan servicing fees on the consolidated statement of operations. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of MSRs as well as change in any valuation allowances are netted against loan servicing fee income.

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 noninterest income and noninterest expenses.

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. 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. Noninterest income and noninterest expenses are impacted by growth of operations and growth in the number of accounts. Noninterest expenses are impacted by additional employees, branch facilities and promotional marketing expenses. A number of accounts affect noninterest income, including service fees as well as noninterest expenses such as computer services, supplies, postage, telecommunications and other miscellaneous expenses.

Net Income (Loss). Net income available to common shareholders for the year ended December 31, 2016 was $11.8 million, or a diluted earnings per common share of $1.71, compared to net loss available to common shareholders of $1.9 million for the year ended December 31, 2015, or diluted loss per common share of $0.29, a reduction of $13.7 million in net losses and a decrease in diluted loss per common share of $2.00. This reduction in net loss available to common shareholders was primarily due to the reversal of the majority of the valuation allowance on the net DTAs resulting in an income tax benefit of $13.7 million, an increase in taxable investment security interest income of $3.8 million, a decrease in venture capital losses of $1.6 million, an increase in gains on sale of OREO properties of $1.4 million, a decrease of $928 thousand in legal, professional, and audit fees, and a decrease of $835 thousand in MSR amortization and valuation. These were partially offset by a $3.4 million decrease in loan interest income, an increase in provision of $1.3 million, an increase of $1.1 million in salaries and benefits, and a $839 thousand increase in data processing.

Net loss available to common shareholders for the year ended December 31, 2015 was $1.9 million, or a diluted loss per common share of $0.29, compared to net loss available to common shareholders of $9.2 million for the year ended December 31, 2014, or diluted loss per common share of $1.43, a decrease of $7.3 million in net losses and a decrease in diluted loss per common share of $1.14. This decrease in net loss available to common shareholders was primarily due to decreases of $3.6 million in professional, legal and accounting fees, a decrease of $2.4 million in losses on sales of OREO properties, a decrease in the loan loss provision of $1.5 million, a decrease of $1 million in interest expense on deposits, $800 thousand decreases in both salaries and employee benefits and occupancy expenses, and an increase of $1.6 million in investment securities interest income. These fluctuations were partially offset by a decrease in interest income on loans including loan fees of $6.4 million. Reductions in the net loan portfolio of $63.4 million resulted in an adverse effect on the interest income earned on loans. The reduction in the size of the loan portfolio was driven by management's focus on reducing nonperforming assets and positioning the Bank to meet and exceed its targeted capital levels. The decrease in the provision for loan losses was due to decreases in the loan portfolio and in the amount of non-performing loans. The decrease in legal, professional and accounting fees was due to decreased costs associated with the restatement of the consolidated financial statements and the related requests for information pertaining to the restatements for regulatory agencies, including the SEC, as well as compliance with enforcement actions issued by bank regulators. A reduction in interest-bearing deposits of $37 million resulted in a decline for net interest expense on deposits.

Net Interest Income. The following table presents, 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:

In 2016, net interest income increased $753 thousand to $42.5 million from $41.7 million in 2015 due to increased interest income of $244 thousand and a decrease in interest expense of $509 thousand from 2015. Net interest income increased primarily due to an increase in volume of taxable investment securities of $132.7 million and an increase in volume of tax-exempt investment securities of $18.4 million, partially offset by a lower average volume of loans of $50.1 million and a lower average volume of interest-bearing deposits of $121.6 million. The increase volume of investment securities resulted in the average yield on earning assets to increase 11 basis points to 3.56% in 2016 from 3.45% in 2015. The decrease in interest expense was primarily due to a decrease in the average volume of time deposits of $55.5 million and a decrease in average volume of NOW deposits of $61.8 million, partially offset by an increase in average volume of money market deposits of $112.9 million and an increase in average volume of savings deposits of $24.7 million. The reduction in volume and shift in deposit mix caused the cost of interest-bearing liabilities to decline five basis points to 0.45% in 2016 from 0.50% in 2015. The decrease in the cost of funds on interest-bearing liabilities is a result of an effort by management to decrease the cost of funds and increase the overall interest margin, causing existing deposits to reprice at lower interest rates, and causing new deposits to be priced at lower interest rates. Net interest margin decreased 14 basis point to 3.16% in 2016 from 3.02% in 2015.

In 2015, net interest income decreased $3.1 million to $41.7 million from $44.8 million in 2014 due to lower interest income of $4.6 million offset by a decrease in interest expense of $1.5 million from 2014. Net interest income decreased primarily due to a lower average volume of loans of $112.9 million partially offset by an increase in average taxable investment securities of $91.6 million. The lower volume of loans and earning assets in general resulted in the average yield on earning assets to decline 22 basis points to 3.45% from 3.67% in 2014. The decrease in interest expense was primarily due to a decrease in the average volume of time deposits of $62.7 million partially offset by an increase in average savings deposits of $20.4 million. The reduction in volume and shift in deposit mix caused the cost of interest-bearing liabilities to decline 10 basis points to 0.50% from 0.60% in 2014. The decrease in the cost of funds on interest-bearing liabilities is a result of an effort by management to decrease the cost of funds and increase the overall interest margin, causing existing deposits to reprice at lower interest rates, and causing new deposits to be priced at lower interest rates. Net interest margin decreased 13 basis points to 3.02% in 2015 from 3.15% in 2014.

Volume, Mix and Rate Analysis of Net Interest Income. The following table presents the extent to which changes in volume and interest rates of interest-earning assets and interest-bearing liabilities have affected 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) and (ii) changes attributable to changes in interest rate (changes in rate times the prior period 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.

Provision for Loan Losses. Our allowance for loan losses is established through charges to income in the form of the provision in order to bring our allowance for loan losses to a level deemed appropriate by management. The allowance for loan losses at December 31, 2016 and December 31, 2015 was $14.4 million and $17.4 million, respectively, representing 1.8 % and 2.1 % of total loans as of such dates. We recorded a $1.8 million provision for loan losses for the year ended December 31, 2016 compared with $500 thousand for the year ended December 31, 2015. The decrease in the allowance for loan losses was primarily due to a decrease in impaired loan balances due to a loan sale in the fourth quarter. See the Balance Sheet section below for further information on provision for loan losses.

The provision for loan losses for the year ended December 31, 2015 was $500 thousand compared with $2.0 million provision for the year ended December 31, 2014. The decrease in the provision was primarily due to a decrease in impaired loan balances.

Noninterest Income. Changes in noninterest income between 2016 and 2015 and between 2015 and 2014 were as follows:

Noninterest income increased $1.7 million to $11.8 million in 2016 from $10.1 million in 2015, primarily attributable to a decrease in losses on the venture capital investments of $1.6 million, and an increase in gains on sale of OREO properties of $1.4 million, partially offset by a decrease in gains on sale of loans of $711 thousand, a decrease in trust and investment service fees of $344 thousand, and a decreases of $242 thousand in mortgage loan servicing fees.

Noninterest income increased $1.1 million to $10.1 million in 2015 from $9.0 million in 2014, primarily attributable to increase in net gain on sale of OREO properties of $2.4 million, partially offset by decrease in income on the venture capital investments of $1.4 million due to impairment and recorded losses reported to us, a decrease in service charges on deposits of $266 thousand, and a decrease of mortgage servicing income of $130 thousand.

Noninterest Expenses. Changes in noninterest expenses between 2016 and 2015 and between 2015 and 2014 were as follows:

Noninterest expenses increased $628 thousand to $50.1 million in 2016 from $49.4 million in 2015. This increase was primarily attributable to an increase of $1.1 million in salaries and benefits expense, an increase of $839 thousand in data processing expenses, an increase in fair value expense on interest rate contracts of $341 thousand, an increase in supplies expense of $308 thousand, and an increase in director fees of $151 thousand, partially offset by a decrease of $928 thousand in legal, professional, and audit fees, a decrease of $837 thousand in FDIC insurance premiums, and a decrease of $835 thousand in MSR amortization and valuation.

Noninterest expenses decreased $7.2 million to $49.4 million in 2015 from $56.6 million in 2014. This decrease was primarily attributable to a decrease of $3.6 million in legal, professional and accounting fees due to reduced fees associated with the restatement of our consolidated financial statements and the related requests from regulatory agencies, including with respect to the SEC investigation, for information regarding the restatements, as well as compliance with enforcement actions issued by bank regulators; a decrease of $787 thousand in salaries and employee benefits, a decrease of $752 thousand in occupancy expenses, a decrease of $757 thousand included in the other category due to the payment of the civil money penalty to the SEC in 2014, a decrease of $372 thousand in OREO property management expenses, a decrease of $297 thousand in bankcard and network expenses, and a decrease of $280 thousand in MSR amortization and valuation.

Impact of Inflation and Changing Prices. The primary impact of inflation on our operations is increased operating costs. Unlike industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Over short periods of time, interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

Income Taxes. Benefit for income taxes increased $13.7 million from 2015 to 2016. There was a benefit income tax in 2016 due to the reversal of $14.8 million of the valuation allowance on the deferred tax assets leaving a $387 thousand valuation allowance at December 31, 2016. There was no income tax provision or benefit in 2015 due to a full valuation allowance on the deferred tax assets. Due to the private stock placement, the Company's Section 382 annual limitation was $1.14 million at December 31, 2016 although the Company does expect to realize the full NOL amounts. For further discussion of income taxes, see Note 14 "Income Taxes" in Item 8 "Financial Statements and Supplementary Data".

General. Total assets as of December 31, 2016 were $1.43 billion, increasing $26.6 million from $1.40 billion as of December 31, 2015. During 2016, net loans decreased by $51.3 million and cash and cash equivalents decreased by $69.5 million, but were offset by an increase of $123.6 million in investment securities available for sale. During the same period total liabilities decreased to $1.29 billion, a decrease of $31.7 million. Stockholders' equity (excluding stock owned by the ESOP) decreased $57.8 million to $134.1 million as of December 31, 2016 compared to $76.3 million as of December 31, 2015 due to the issuance of new shares in our private placement. For more information on the stock purchase agreement see Note 22 "Subsequent Events" in Item 8 "Financial Statements and Supplementary Data".

Investment Securities. We primarily utilize our investment portfolio to provide a source of earnings, to manage liquidity, to provide collateral to pledge against public deposits, and to manage 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 "Sources of Funds" included below under this Item 7 of this Form 10-K.

The following table sets forth the amortized cost and fair value of our securities portfolio:

U.S. government sponsored agency securities generally consist of fixed rate securities with maturities from seven months to seven years. States and political subdivision investment securities consist of a local issue rated "Aa1" by Moody's Investment Services with maturities of eight months to seventeen years.

The Company had a total of $14.8 million in collateralized mortgage obligations ("CMOs") as of December 31, 2016. The CMOs were private label issued or issued by U.S. government sponsored agencies. At the time of purchase, the ratings of these securities ranged from AAA to Aaa. As of December 31, 2016, the ratings of these securities were Aaa, which is considered "Investment Grade" (rating of "BBB" or higher). At the time of purchase and on a monthly basis, the Company reviews these securities for impairment on an other than temporary basis. The Company utilizes several external sources to evaluate prepayments, delinquencies, loss severity, and other factors in determining if there is impairment. As of December 31, 2016, none of these securities were deemed to have OTTI. The Company continues to closely monitor the performance and ratings of these securities.

As of December 31, 2016 and 2015, securities of no single issuer exceeded 10% of stockholders' equity, except for U.S. government sponsored agency securities.

Loan Portfolio. With management's focus on completing the restatement, levels of total loans decreased steadily from 2012 to 2016. While loan demand remains weak in our markets, management is working to increase its portfolio of performing loans. The total amounts in the residential real estate and construction real estate loan portfolios have steadily decreased primarily due to the Bank's strategy to diversify its portfolio.

The following table sets forth the composition of the loan portfolio:

Net loans decreased $51.3 million from $822.4 million as of December 31, 2015 to $771.1 million as of December 31, 2016. The largest decreases were in gross residential real estate loans of $43.9 million, gross commercial loans of $23.8 million, gross construction loans of $13.4 million, and gross installment and other loans of $7.7 million, partially offset by increases in gross commercial real estate loans of $34.3 million.

Loan Maturities. The following table sets forth the maturity or repricing information for loans outstanding as of December 31, 2016:

Asset Quality. Over the past several years, the Bank has experienced improvements in asset quality.

The following table sets forth the amounts of non-performing loans and non-performing assets as of the dates indicated:

As of December 31, 2016, total non-performing assets decreased $8.8 million to $29.9 million from $38.7 million as of December 31, 2015 primarily due to a decrease in non-accruing loans of $8.8 million. The decreases in non-accruing loans were primarily in the categories of commercial real estate loans of $4.9 million, residential real estate loans of $3.6 million, and commercial loans of $1.1 million, partially offset by an increase in non-accruing construction loans of $806.0 thousand. The overall reduction in non-performing assets is a result of a combination of transfers to OREO, charge-offs, and a bulk loan sale.

The following table presents data related to non-performing loans by dollar amount and category as of December 31, 2016 and 2015:

Non-performing loans include (i) loans accounted for on a nonaccrual basis and (ii) accruing loans contractually past due 90 days or more as to interest and principal. Management reviews the loan portfolio for problem loans on a regular basis with additional resources dedicated to resolving the non-performing loans. Additional internal controls were implemented to ensure the timely identification of signs of weaknesses in credits, facilitating efforts to rehabilitate or exit the relationship in a timely manner. External loan reviews, which have been conducted on a regular basis, were also revised to provide a broad scope and reviewers now have access to all elements of a relationship. In 2016 and 2015, a significant portion of the loan portfolio was also examined by independent third party consultants.

During the ordinary course of business, management may become aware of borrowers who may not be able to meet the contractual requirements of loan agreements. Such loans are placed under close supervision with consideration given to placing the loan on nonaccrual status, increasing the allowance for loan losses, and (if appropriate) partial or full charge-off. After a loan is placed on nonaccrual status, any interest previously accrued, but not yet collected, is reversed against current income. When payments are received on nonaccrual loans, such payments will be applied to principal and any interest portion included in the payments are not included in income, but rather are applied to the principal balance of the loan. Loans will not be placed back on accrual status unless all unpaid interest and principal payments are made. If interest on nonaccrual loans had been accrued, such income would have amounted to $1.1 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively. Our policy is to place loans 90 days past due on nonaccrual status.

We consider a loan to be impaired when, based on current information and events, we determine that it is probable that we will not be able to collect all amounts due according to the original terms of the note, including interest payments. When management identifies a loan as impaired, impairment is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rates, except when the sole remaining source of repayment for the loan is the liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling costs when foreclosure is probable, rather than discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan, an impairment is recognized through a charge-off to the allowance.

Non-performing assets also consist of other repossessed assets and OREO. OREO represents properties acquired through foreclosure or other proceedings and are initially recorded at the fair value. OREO is evaluated regularly to ensure that the recorded amount is supported by its current fair value. Valuation allowances to reduce the carrying amount to fair value are recorded as necessary. Revenues and expenses from the operations of OREO and changes in the valuation are included in noninterest expenses on the consolidated statements of operations.

The following table presents an analysis of the allowance for loan losses for the periods presented:

Net charge-offs for 2016 totaled $4.8 million, a decrease of $3.1 million from 2015 primarily due to decreases in net charge-offs for commercial loans of $2.5 million and decreases in net charge-offs of construction real estate loans of $1.2 million, partially offset by increases in net charge-offs for commercial real estate loans of $1.0 million. A bulk loan sale completed in the fourth quarter of 2016 was completed. There were $4.7 million in net charge offs in 2016 due to the bulk loan sale.

The following table sets forth the allocation of the allowance for loan losses for the years presented and the percentage of loans in each classification to total loans:

The allowance for loan losses decreased $3.0 million from $17.4 million as of December 31, 2015 to $14.4 million as of December 31, 2016. This reduction was largely due to net charge-offs in commercial real estate loan and residential real estate loan categories. Non-recurring net charge-offs in the amount of $4.7 million were required in 2016 due to a bulk sale of loans. A $1.8 million provision for loan loss was required during 2016 due to the bulk loan sale. A $500 thousand provision for loan loss was required during 2015 due to impairment adjustments identified during subsequent event reviews to maintain an adequate reserve for the current portfolio. As of December 31, 2016 there are $3.0 million in specific reserves recorded to cover future charge-offs. For further information, see the discussion in "Critical Accounting Policies—Allowance for Loan Losses" above in this Item 7.

The allocation of the allowance for impaired credits is equal to the recorded investment in the loan using 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 the loan. An impairment reserve that exceeds collateral value is charged to the allowance for loan losses in the period it is identified. Total loans which were deemed to have been impaired, including both performing and non-performing loans, as of December 31, 2016 were $53.8 million. Impaired loans that are deemed collateral dependent have been charged down to the value of the collateral (based upon the most recent valuations), less estimated disposition costs. Impaired loans with specifically identified allocations of allowance for loan losses had a total of $3.0 million allocated in the allowance for loan losses as of December 31, 2016.

TDRs are defined as those loans whose terms have been modified, due to deterioration in the financial condition of the borrower in which the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Total loans which were considered TDRs as of December 31, 2016 were $43.1 million. Of these, $35.2 million were still performing in accordance with modified terms as of December 31, 2016. Please see Part II, Item 8, Note 4 for additional information.

Although the Company believes the allowance for loan losses is sufficient to cover probable incurred losses inherent in the loan portfolio, there can be no assurance that the allowance will prove sufficient to cover actual loan losses.

Potential Problem Loans. We utilize an internal asset classification system as a means of reporting problem and potential problem assets. At the scheduled meetings of the Board of Directors of the Bank, a watch list is presented, listing significant loan relationships as "Special Mention," "Substandard," "Doubtful" and "Loss." Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. Assets classified as "Loss" are those considered uncollectible and viewed as valueless assets and have been charged-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.

See Item 1 "Explanatory Note" and Item 9A "Controls and Procedures" in this Form 10-K for a discussion of the restatement of previously issued financial statements as the result of correcting misstatements related to the Company's allowance for loan losses, carrying value of OREO and loan credit quality disclosures.

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the OCC, which can order the establishment of additional general or specific loss allowances. There can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially adjust our allowance for loan losses. 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 establish 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. We analyze our process regularly, with modifications made if needed, and report those results four times per year at meetings of our Audit Committee.

Although management believes that adequate specific and general allowance for loan losses have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general allowance for loan losses may become necessary.

We define potential problem loans as performing loans rated Substandard that do not meet the definition of a non-performing loan.

The table above does not include nonaccrual loans that are less than 30 days past due. Total performing adversely classified assets as of December 31, 2016 were $22.6 million, a decrease of $37.3 million from $59.9 million as of December 31, 2015. The declines were primarily in the commercial real estate, commercial loans, and construction real estate loan categories. The majority of this reduction was due to the bulk loan sale in the amount of $12.9 million. In addition, special mention loans decreased $12.3 million. These declines were primarily in commercial loans, construction real estate loans, and commercial real estate loans. For further discussion of loans, see Note 4 "Loans and Allowance for Loan Losses" in Item 8, "Financial Statements and Supplementary Data."

General. Deposits, short-term and long-term borrowings, loan and investment security repayments and prepayments, proceeds from the sale of securities, and cash flows generated from operations are the primary sources of our funds for lending, investing and other general purposes. Loan repayments are a relatively predictable source of funds except during periods of significant interest rate declines, while deposit flows tend to fluctuate with prevailing interests rates, money market conditions, general economic conditions and competition.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our core deposits consist of checking accounts, NOW accounts, MMDA, savings accounts and non-public certificates of deposit. These deposits, along with public fund deposits and short-term and long-term borrowings are used to support our asset base. Our deposits are obtained predominantly from our market areas. We rely primarily on competitive rates along with customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits.

The following table sets forth the maturities of time deposits $250 thousand and over:

Borrowings. We have access to a variety of borrowing sources and use short-term and long-term borrowings to support our asset base. Short-term borrowings were advances from the FHLB with remaining maturities under one year. Long-term borrowings are advances from the FHLB with remaining maturities over one year.

The following table sets forth certain information regarding our borrowings for the years ended December 31, 2016, 2015 and 2014:

Bank Liquidity. Liquidity management is monitored by the Asset/Liability Management Committee and Board of Directors of the Bank, who review historical funding requirements, current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.

Our primary sources of funds are retail and commercial deposits, borrowings, public funds and funds generated from operations. Funds from operations include principal and interest payments received on loans and securities. While maturities and scheduled amortization of loans and securities provide an indication of the timing of the receipt of funds, changes in interest rates, economic conditions and competition strongly influence mortgage prepayment rates and deposit flows, reducing the predictability of the timing on sources of funds.

We adhere to a liquidity policy, which was updated and approved by the Board of Directors in December 2016, which requires that we maintain the following liquidity ratios:

As of December 31, 2016 we were in compliance with the foregoing policy. As of December 31, 2015 we were in compliance with the then effective liquidity policy as outlined in the December 31, 2015 Form 10-K filed on October 31, 2016.

As of December 31, 2016, we had outstanding loan origination commitments and unused commercial and retail lines of credit of $118.3 million and standby letters of credit of $7.2 million. We anticipate we will have sufficient funds available to meet current origination and other lending commitments. Certificates of deposit scheduled to mature within one year totaled $172.4 million as of December 31, 2016. As of December 31, 2016, total certificates of deposits declined $66.4 million or 23.16 % from the prior year end.

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 the ability to borrow $20 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, as of December 31, 2016, we had the ability to borrow from the FHLB up to $100.6 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.

Company Liquidity. Trinity's main sources of liquidity at the holding company level are dividends from the Bank.

The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies, as well as the restrictions imposed by the Consent Order, which affect its ability to pay dividends to Trinity. See Part I, Item 1 "Business—Supervision and Regulation—Trinity—Dividends Payments" and Part I, Item 1 "Business—Supervision and Regulation—The Bank—Dividend Payments" of this Form 10-K. Failure to meet minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a material adverse effect on our business, financial condition, and results of operations. The Consent Order also requires that the Bank maintain (i) a leverage ratio of Tier 1 capital to total assets of at least 8%; and (ii) a ratio of total capital to total risk-weighted assets of at least 11%. As of December 31, 2016, the Bank was in compliance with these requirements.

The Bank has an internal Capital Plan which identifies potential sources for additional capital should it be deemed necessary. For more information, see "Capital Resources" below and Note 19 "Regulatory Matters" in Part II, Item 8, "Financial Statements and Supplementary Data.

We have various financial obligations, including contractual obligations and commitments, which may require future cash payments.

Contractual Obligations. The following table presents significant fixed and determinable contractual obligations to third parties by payment date as of December 31, 2016. For further discussion of the nature of each obligation, see Note 16 "Commitments and Off-Balance-Sheet Activities" in Item 8, "Financial Statements and Supplementary Data" for more information on each line item.

Deposits without a stated maturity and time deposits do not necessarily represent future cash requirements. While these deposits contractually can be withdrawn by the customer on the dates indicated in the above table, historical experience has shown these deposits to have low volatility. Operating leases represent rental payments for office and storage property, as well as space for ATM installation in various locations. The capital leases were acquired in 2006 for the land on which our third office in Santa Fe was constructed. The leases contain a purchase option exercised in 2015, the cost of which is largely offset by a loan held on the property. The Company notified the owners of its intent to exercise its option to purchase the property and expects to complete the purchase or extend the leases in 2017.

As of December 31, 2016 the Company had a total of $9.8 million of accrued and unpaid interest due on the junior subordinated debt.

Data Processing Agreement. In September 2015, the Bank entered into a data processing agreement with FIS, a global leader in banking and payments technology. This agreement will allow the Bank to increase efficiency and functionality, and expand its services to better meet the needs of its customers. The Bank implemented the FIS core system on July 18, 2016. The contract has an initial term of five (5) years. The terms of the agreement call for monthly payments based, in large part, on the amount of volume processed. Currently, the Company anticipates that the required payments under the new agreement will total approximately $14.8 million over the initial five-year term of the agreement.

Commitments. The following table details the amounts and expected maturities of significant commitments as of December 31, 2016. Further discussion of these commitments is included in Note 15 "Commitments and Off-Balance-Sheet Activities" in Part II, Item 8, "Financial Statements and Supplementary Data."

Commitments to extend credit, including loan commitments and standby letters of credit, do not necessarily represent future cash requirements, as these commitments may expire without being drawn upon. Commitments to sell mortgage loans are offset by commitments from customers to enter into a mortgage loan. The Bank's contract with customers specifically requires the customer to pay any fees incurred in the event that we cannot deliver a mortgage to the buyer according to the contract with the buyer of the mortgage. The ESOP liquidity put is described in Note 12 "Retirement Plans" in Part II, Item 8, "Financial Statements and Supplementary Data."

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Failure to meet capital requirements can initiate regulatory action. The Basel III Rules became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, being fully phased in by January 1, 2019. Under the prompt corrective action regulations, to be adequately capitalized a bank must maintain minimum ratios of total capital to risk-weighted assets of 8%, Tier 1 capital to risk-weighted assets of 6%, CET1 capital to risk-weighted assets of 4.5%, and Tier 1 capital to total assets of 4%. A "well–capitalized" institution must maintain minimum ratios of total capital to risk-weighted assets of at least 10%, Tier 1 capital to risk-weighted assets of at least 8%, CET1 capital to risk-weighted assets of at least 6.5%, and Tier 1 capital to total assets of at least 5% and must not be subject to any written order, agreement or directive requiring it to meet or maintain a specific capital level.

A certain amount of Trinity's Tier 1 Capital is in the form of trust preferred securities. See Note 10, "Junior Subordinated Debt" in Item 8, "Financial Statements and Supplementary Data" for details on the effect these have on risk based capital. See "Risk Factors" in Part I, Item 1A of this Form 10-K for further information regarding changes in the regulatory environment affecting capital.

As previously discussed, the Consent Order requires that the Bank maintain certain capital ratios and receive approval of the OCC prior to declaring dividends. The Consent Order requires the Bank to maintain the following minimum capital ratios: (i) a leverage ratio of Tier 1 Capital to total assets of at least 8%; and (ii) a ratio of Total Capital to total risk-weighted assets of at least 11%. While the Bank's capital ratios as of December 31, 2016 fall into the category of "well-capitalized," the Bank cannot be considered "well-capitalized" due to the requirement to meet and maintain a specific capital level in the Consent Order pursuant to the prompt corrective action rules. As of December 31, 2016, the Bank was in compliance with these requirements. The required and actual amounts and ratios for Trinity and the Bank as of December 31, 2016 are presented below:

Trinity and the Bank are also required to maintain a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. The purpose of the capital conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. The capital conservation buffer began to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio. Factoring in the fully phased-in conservation buffer increases the minimum ratios described above to 7.0% for CET1, 8.5% for Tier 1 Capital and 10.5% for Total Capital. At December 31, 2016 the Bank's capital conservation buffer was 7.3793 % and the consolidated capital conservation buffer was 2.3186 %.

We have audited the accompanying consolidated balance sheets of Trinity Capital Corporation & Subsidiaries ("the Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and December 31, 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

Consolidation: The accompanying 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"), TCC Advisors Corporation ("TCC Advisors"), LANB Investment Advisors, LLC ("LANB Investment 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. Trinity owns all of the outstanding common securities of the Trusts. The Trusts are considered variable interest entities ("VIEs") under ASC Topic 810, "Consolidation." 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. Title Guaranty & Insurance Company ("Title Guaranty") was acquired in 2000 and its assets were subsequently sold in August 2012. Title Guaranty had no operations in 2015 or 2016 and Trinity is in the process of dissolving the entity. TCC Funds was dissolved in January 2017.

Basis of presentation: The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany items and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America ("GAAP") 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 then ended. Actual results could differ from those estimates.

Nature of operations: The Company provides a variety of financial services to individuals, businesses and government organizations through its offices in Los Alamos, Santa Fe and Albuquerque, New Mexico. Its primary deposit products are term certificate, Negotiable Order of Withdrawal ("NOW") and savings accounts and its primary lending products are commercial, residential and construction real estate loans. The Company also offers trust and wealth management services.

Deposits with banks and securities purchased under resell agreements: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing deposits with banks with original maturities of 90 days or less.

Investment securities: Securities classified as available for sale are debt securities the Bank intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Bank's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are reported at fair value with unrealized gains or losses reported as other comprehensive income, net of the related deferred tax effect. Securities classified as held to maturity are those securities that the Company has the ability and positive intent to hold until maturity. These securities are reported at amortized cost. Sales of investment securities held to maturity within three months of maturity are treated as maturities. Realized gains or losses are included in earnings on the trade date and are determined on the basis of the cost of specific securities sold.

An investment security is impaired if the fair value of the security is less than its amortized cost basis. Once the security is impaired, a determination must be made to determine if it is other than temporarily impaired ("OTTI").

In determining OTTI losses, management considers many factors, including: current market conditions, fair value in relationship to cost; extent and nature of the change in fair value; issuer rating changes and trends; whether it intends to sell the security before recovery of the amortized cost basis of the investment, which may be maturity; and other factors. For debt securities, if management intends to sell the security or it is likely that the Bank will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If management does not intend to sell the security and it is not likely that the Bank will be required to sell the security, but management does not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to the difference between the present value of the cash flows expected to be collected and fair value is recognized as a charge to other comprehensive income.

Non-marketable equity securities: The Bank, as a member of the FHLB, is required to maintain an investment in common stock of the FHLB based upon borrowings made from the FHLB and based upon various classes of loans in the Bank's portfolio. FHLB and Federal Reserve Bank ("FRB") stock do not have readily determinable fair values as ownership is restricted and they lack a market. As a result, these stocks are carried at cost and evaluated periodically by management for impairment.

Loans held for sale: In 2016, the Bank made a strategic change to an outsourced solution whereby the Bank generates residential mortgage applications for non-affiliated residential mortgage companies on a fee basis. Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. As of December 31, 2016 there were no loans held for sale.

Mortgage loans held for sale were generally sold with servicing rights retained; however, management intends to sell newly originated mortgage loans with servicing rights released going forward. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold. As the Bank is no longer originating mortgage loans there are no new additions to the servicing rights portfolio.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the amount of unpaid principal reduced by deferred fees and costs and the allowance for loan losses.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized as an adjustment of the related loan's yield. The Company amortizes these amounts over the estimated life of the loan. Commitment fees based upon a percentage of a customer's unused line of credit and fees related to standby letters of credit are recognized over the commitment period. Net deferred fees on real estate loans sold in the secondary market reduce the cost basis of such loans.

Interest on loans is accrued and reported as income using the interest method on daily principal balances outstanding. Past due status is based on the contractual terms of the loan. The Company generally discontinues accruing interest on loans when the loan becomes 90 days or more past due or when management believes that the borrower's financial condition is such that collection of interest is doubtful. Cash collections on nonaccrual loans are credited to the loan balance, and no interest income is recognized on those loans until the principal balance has been determined to be collectible. Such interest will be reported as income on a cash basis, only upon collection of such interest.

For all classes of loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral (less estimated disposition costs) if the loan is collateral dependent. The amount of impairment (if any) and any subsequent changes are included in the allowance for loan losses.

A loan is classified as a troubled debt restructure ("TDR") when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses.

In determining whether a debtor is experiencing financial difficulties, the Company considers if the debtor is in payment default or would be in payment default in the foreseeable future without the modification, the debtor declared or is in the process of declaring bankruptcy, there is substantial doubt that the debtor will continue as a going concern, the debtor has securities that have been or are in the process of being delisted, the debtor's entity-specific projected cash flows will not be sufficient to service any of its debt, or the debtor cannot obtain funds from sources other than the existing creditors at a market rate for debt with similar risk characteristics.

In determining whether the Company has granted a concession, the Company assesses, if it does not expect to collect all amounts due, whether the current value of the collateral will satisfy the amounts owed, whether additional collateral or guarantees from the debtor will serve as adequate compensation for other terms of the restructuring, and whether the debtor otherwise has access to funds at a market rate for debt with similar risk characteristics.

A loan that is modified at a market rate of interest will not be classified as TDR in the calendar year subsequent to the restructuring if it is in compliance with the modified terms. Payment performance prior and subsequent to the restructuring is taken into account in assessing whether it is likely that the borrower can meet the new terms. A period of sustained repayment for at least six months generally is required for return to accrual status.

Periodically, the Company will restructure a note into two separate notes (A/B structure), charging off the entire B portion of the note. The A note is structured with appropriate loan-to-value and cash flow coverage ratios that provide for a high likelihood of repayment. The A note is classified as a non-performing note until the borrower has displayed a historical payment performance for a reasonable time prior to and subsequent to the restructuring. A period of sustained repayment for at least six months generally is required to return the note to accrual status provided that management has determined that the performance is reasonably expected to continue. The A note will be classified as a restructured note (either performing or non-performing) through the calendar year of the restructuring that the historical payment performance has been established.

Allowance for loan losses: The Company has established an internal policy to estimate the allowance for loan losses. This policy is periodically reviewed by management and the Board of Directors.

The Company enhanced the allowance to loan losses calculation method at December 31, 2016. The enhancements precisely describe the factors used to build the allowance for loan losses estimate. The loss history now takes into account 20 quarters of gross charge-offs and recoveries whereas the previous calculation used 12 quarters. Management also applies a greater weight to the most recent quarter, declining in weight as time gets older. This allows the Bank to adjust its factors more quickly in a declining economic cycle where charge-offs are likely to increase while also allowing it to adjust its reserve when economic cycles are improving. At the same time, the longer window provides greater accuracy as to the likely charge-offs that will be incurred over time. This enhanced methodology relies more on analytical data, historical losses, and economic data, and less on subjective data that was previously used. The impact of the changes described resulted in an increase of $177 thousand at December 31, 2015 compared to the allowance calculation used at that time.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged-off against the allowance for loan losses when management believes that collectability of the principal is unlikely. The allowance for loan losses is an amount that management believes will be adequate to absorb probable incurred losses on existing loans, based on an evaluation of the collectability of loans in the portfolio and prior loss experience. This is based, in part, on an evaluation of the loss history of each type of loan over the past 20 quarters and this loss history is applied to the current outstanding loans of each respective type. This loss history analysis is updated quarterly to ensure it encompasses the most recent 20 quarter loss history. The allowance for loan losses is based on management's evaluation of the loan portfolio giving consideration to the nature and volume of the loan portfolio, the value of underlying collateral, overall portfolio quality, review of specific problem loans, and prevailing 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 for loan losses may be necessary if there are significant changes in economic conditions.

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. Specific reserves for impaired loans and historical loss experience factors, combined with other considerations, such as delinquency, nonaccrual status, 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 for loan losses. Management uses a systematic methodology, which is applied quarterly, to determine the amount of allowance for loan losses and the resultant provisions for loan losses it considers adequate to provide for probable incurred loan losses. 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.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The general component covers non‑impaired loans and is based on historical loss experience adjusted for current factors. The general component is based upon (a) historic performance; and (b) an estimate of the impact of environmental or qualitative factors based on levels of credit concentrations; lending policies and procedures; the nature and volume of the portfolio; the experience, ability and depth of lending management and staff; the volume and severity of past due, criticized, classified and nonaccrual loans; the quality of the loan review system; the change in economic conditions; loan collateral value for dependent loans; and other external factors, examples of which are changes in regulations, laws or legal precedent and competition.

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. A substantial portion of the Company's loan portfolio includes loans that are made to businesses and individuals associated with, or employed by, the Los Alamos National Laboratory (the "Laboratory"). 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 state 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 are granted primarily to commercial borrowers.

The Company recognizes a liability in relation to unfunded commitments that is intended to represent the estimated future losses on the commitments. In calculating the amount of this liability, management considers the amount of the Company's off-balance-sheet commitments, estimated utilization factors and loan specific risk factors. The Company's liability for unfunded commitments is calculated quarterly and the liability is included in "other liabilities" in the consolidated balance sheets.

Premises and equipment: Premises and equipment is carried at cost less accumulated depreciation and amortization. Depreciation and amortization is computed by the straight-line method over the estimated useful lives. Leasehold improvements are amortized over the term of the related lease or the estimated useful lives of the improvements, whichever is shorter. For owned and capitalized assets, estimated useful lives range from three to 39 years. Maintenance and repairs are charged to expense as incurred, while major improvements are capitalized and amortized to operating expense over their identified useful life. Generally, the useful life on software is three years; on computer and office equipment, five years; on furniture, 10 years; and on building and building improvements, 10 to 39 years.

Bank owned life insurance ("BOLI"): The Bank has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts that are probable at settlement.

Other Real Estate Owned ("OREO"): OREO includes real estate assets that have been received in full or partial satisfaction of debt. OREO is initially recorded at fair value establishing a new cost basis and subsequently carried at lower of cost basis or fair value. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequently, unrealized losses and realized gains and losses on sale are included in "(Gains) losses and write-downs on OREO, net" in the consolidated statements of operations. Operating results from OREO are recorded in "other noninterest expenses" in the consolidated statements of operations.

Mortgage Servicing Rights ("MSRs"): The Bank recognizes, as separate assets, rights to service mortgage loans for others, whether the rights are acquired through purchase or after origination and sale of mortgage loans. The Bank initially measures MSRs at fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on the present value of estimated future net servicing income. All classes of servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

The carrying amount of MSRs, and the amortization thereon, is periodically evaluated in relation to their estimated fair values. The Bank stratifies the underlying mortgage loan portfolio by certain risk characteristics, such as loan type, interest rate and maturity, for purposes of measuring impairment. The Bank estimates the fair value of each stratum by calculating the discounted present value of future net servicing income based on management's best estimate of remaining loan lives.

Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular group, a reduction of the valuation allowance may be recorded as an increase to income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual payment speeds and default rates and losses. The Bank has determined that the primary risk characteristic of MSRs is the contractual interest rate and term of the underlying mortgage loans.

Fees earned for servicing rights are recorded as "mortgage loan servicing fees" in the consolidated statements of operations. The fees are based on a contractual percentage of the outstanding principal; or a fixed amount per loan and are recorded as income when earned. The amortization of MSRs as well as change in any valuation allowances are recorded in "other noninterest expenses" in the consolidated statements of operations.

Federal Home Loan Bank (FHLB) Stock: The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Federal Reserve Bank (FRB) Stock: The Bank is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Other intangible assets: The Company may obtain intangible assets other than MSRs from time to time. In certain cases, these assets have no definite life and are not amortized. Other intangible assets may have an expected useful life and are amortized over this life. All intangible assets are tested periodically for impairment and, if deemed impaired, the assets are written down to the current value, with the impairment amount being charged to current earnings.

Loan commitments and related financial instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Prepaid expenses: The Company may pay certain expenses before the actual costs are incurred. In this case, these expenses are recognized as an asset. These assets are amortized as expense over the period of time in which the costs are incurred. The original term of these prepaid expenses generally range from three months to five years.

Earnings (loss) per common share: Basic earnings (loss) per common share represent income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share are determined assuming that all in-the-money stock options were exercised at the beginning of the yearly period. Shares related to unvested stock options are not treated as outstanding for the purposes of computing basic earnings (loss) per common share; however all allocated shares held by the ESOP are included in the average shares outstanding.

Average number of shares used in calculation of basic and diluted earnings (loss) per common share are as follows for the years ended December 31, 2016, 2015 and 2014:

Certain stock options and restricted stock units were not included in the above calculation, as they would have an anti-dilutive effect as the exercise price is greater than current market prices. The total number of shares excluded was approximately 26,000 shares and 42,000 shares for years ended December 31, 2015 and 2014, respectively.

Comprehensive income (loss): Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes net unrealized gains and losses on investment securities available for sale, net of tax, which is also recognized as a separate component of equity.

Transfers of financial assets: Transfers of financial assets are accounted for as sales only when the control over the financial assets has been surrendered. Control over transferred assets is deemed surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Impairment of long-lived assets: Management periodically reviews the carrying value of its long-lived assets to determine if impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful life. In making such determination, management evaluates the performance, on an undiscounted basis, of the underlying operations or assets which give rise to such amount.

Income taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Stock-based compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Preferred stock: Preferred stock callable at the option of the Company is initially recorded at the amount of proceeds received. Any discount from the liquidation value is accreted to the preferred stock and charged to retained earnings. The accretion is recorded using the level-yield method. Preferred dividends paid (declared and/or accrued) and any accretion is deducted from net income for computing net income available to common shareholders and earnings per share computations.

Fair value of financial instruments: Fair value of financial instruments is estimated using relevant market information and other assumptions, as more fully disclosed in Note 20. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Operating segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company and Bank-wide basis. Operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

Newly Issued But Not Yet Effective Accounting Standards: In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers (Topic 606). This update requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. The FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date. This update deferred the effective date by one year. The amended effective date is annual reporting periods beginning after December 15, 2017 including interim reporting periods within that reporting period. The Company's preliminary analysis suggests that the adoption of this accounting standard is not expected to have a material impact on the Company's consolidated financial statements. The FASB continues to release new accounting guidance related to the adoption of this standard, which could impact the Company's preliminary materiality analysis and may change the conclusions reached as to the application of this new guidance.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). The amendments in this update require that public entities measure equity investments with readily determinable fair values, at fair value, with changes in their fair value recorded through net income. This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity's other deferred tax assets. The amendments within the update are effective for fiscal years and all interim periods beginning after December 15, 2017. The Company is currently in the process of evaluating the impact of the adoption of this update, but does not expect a material impact on the Company's financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods using a modified retrospective approach and early adoption is permitted. The Company's preliminary analysis suggests that the adoption of this accounting standard is not expected to have a material impact on the Corporation's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. ASU 2016-07 is effective for fiscal years beginning December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-07 on its financial statements and disclosures, but does not expect a material impact on the Company's financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016 and early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effects of ASU 2016-09 on its financial statements and disclosures, but does not expect a material impact on the Company's financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU is effective for the annual periods beginning after December 15, 2017. The Company is currently in the process of evaluating the effects of ASU 2016-10 on its financial statements and disclosures, but does not expect a material impact on the Company's financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This ASU is effective for the annual periods beginning after December 15, 2017. The Company is currently in the process of evaluating the effects of ASU 2016-12 on its financial statements and disclosures, but does not expect a material impact on the Company's financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently in the process of evaluating the effects of ASU 2016-13 on its financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 320): classification of certain cash receipts and cash payments. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently in the process of evaluating the effects of ASU 2016-15 on its financial statements and disclosures, but does not expect any material impact on the Company's financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 320): Restricted Cash. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently in the process of evaluating the effects of ASU 2016-15 on its financial statements and disclosures, but does not expect any material impact on the Company's financial statements.

The Bank is required to maintain reserve balances in cash or on deposit with the FRB, based on a percentage of deposits. As of December 31, 2016, the reserve requirement on deposit at the FRB was $0 due to the large balance kept at the FRB. As of December 31, 2015, the reserve requirement on deposit at the FRB was $4.3 million.

The Company maintains some of its cash in bank deposit accounts at financial institutions other than its subsidiaries that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Amortized cost and fair values of investment securities are summarized as follows:

A summary of unrealized loss information for investment securities, categorized by security type, as of December 31, 2016 and 2015 was as follows:

As of December 31, 2016, the Company's security portfolio consisted of 147 securities, 87 of which were in an unrealized loss position. As of December 31, 2016, $387.0 million in investment securities had unrealized losses with aggregate depreciation of 1.90% of the Company's amortized cost basis. Of these securities, $51.3 million had a continuous unrealized loss position for twelve months or longer with an aggregate depreciation of 1.53%. The unrealized losses in all security categories relate principally to the general change in interest rates and illiquidity, and not credit quality, that has occurred since the securities purchase dates, and such unrecognized losses or gains will continue to vary with general interest rate level fluctuations in the future. The Company utilizes several external sources to evaluate prepayments, delinquencies, loss severity, and other factors in determining if there is impairment on an individual security. As management does not intend to sell the securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, no declines are deemed to be other than temporary.

The amortized cost and fair value of investment securities, as of December 31, 2016, by contractual maturity are shown below. Maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

Securities with carrying amounts of $87.9 million and $91.7 million as of December 31, 2016 and 2015, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

As of December 31, 2016 and 2015, loans consisted of:

Loan Origination/Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review and approve these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Management has identified the following categories in its loan portfolios:

Commercial loans: These loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans: These loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of other real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher original amounts than other types of loans and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company's commercial real estate portfolio are geographically concentrated in the markets in which the Company operates. Management monitors and evaluates commercial real estate loans based on collateral, location and risk grade criteria. The Company also utilizes third-party sources to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. As of December 31, 2016 and 2015, 26.1% and 28.4%, respectively, of the outstanding principal balances of the Company's commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success.

Residential real estate loans: Underwriting standards for residential real estate and home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, maximum loan-to-value levels, debt-to-income levels, collection remedies, the number of such loans a borrower can have at one time and documentation requirements.

Construction real estate loans: These loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction real estate loans are generally based upon estimates of costs and values associated with the completed project and often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Installment loans: The Company originates consumer loans utilizing a credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis.

The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company's policies and procedures, which include periodic internal reviews and reports to identify and address risk factors developing within the loan portfolio. The Company engages external independent loan reviews that assess and validate the credit risk program on a periodic basis. Results of these reviews are presented to management and the Board of Directors.

The following table presents the contractual aging of the recorded investment in current and past due loans by class of loans as of December 31, 2016 and 2015, including nonaccrual loans:

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of December 31, 2016 and 2015:

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company's risk rating system, problem and potential problem loans are classified as "Special Mention," "Substandard," and "Doubtful." Substandard loans include those characterized by the likelihood that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention. Any time a situation warrants, the risk rating may be reviewed.

Loans not meeting the criteria above that are analyzed individually are considered to be pass-rated loans. The following table presents the risk category by class of loans based on the most recent analysis performed and the contractual aging as of December 31, 2016 and 2015:

The following table shows all loans, including nonaccrual loans, by classification and aging, as of December 31, 2016 and 2015:

As of December 31, 2016, nonaccrual loans totaling $18.4 million were classified as Substandard. As of December 31, 2015, nonaccrual loans totaling $27.5 million were classified as Substandard.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016 and 2015, showing the unpaid principal balance, the recorded investment of the loan (reflecting any loans with partial charge-offs), and the amount of allowance for loan losses specifically allocated for these impaired loans (if any):

If nonaccrual loans outstanding had been current in accordance with their original terms, approximately $1.1 million, $1.8 million and $3.0 million would have been recorded as loan interest income during the years ended December 31, 2016, 2015 and 2014, respectively. Interest income recognized in the above table was primarily recognized on a cash basis.

For the years ended December 31, 2016, 2015 and 2014, activity in the allowance for loan losses was as follows:

Allocation of the allowance for loan losses (as well as the total loans in each allocation method), disaggregated on the basis of the Company's impairment methodology, is as follows:

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. The evaluation is performed under the Company's internal underwriting policy.

TDRs are defined as those loans where: (1) the borrower is experiencing financial difficulties and (2) the restructuring includes a concession by the Bank to the borrower that the Bank would not otherwise consider.

The following loans were restructured during the years ended December 31, 2016, 2015, and 2014:

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the years ended December 31, 2016, 2015, and 2014:

The following table presents total TDRs, both in accrual and nonaccrual status, as of December 31, 2016, 2015, and 2014:

As of December 31, 2016, the Bank had a total of $1.6 million in commitments to lend additional funds on six commercial loans classified as TDRs.

Impairment analyses are prepared on TDRs in conjunction with the normal allowance for loan loss process. TDRs required a specific reserve of $0, $14 thousand, and $88 thousand which was included in the allowance for loan losses at the years ended December 31, 2016, 2015, and 2014, respectively. TDRs resulted in charge-offs of $2.0 million, $2.8 million, and $2.8 million during the years ended December 31, 2016, 2015, and 2014, respectively. The TDRs that subsequently defaulted required a provision of $0, $11 thousand, and $0 to the allowance for loan losses for the years ended December 31, 2016, 2015, and 2014 respectively.

Loan principal balances to executive officers and directors of the Company were $347.8 thousand and $1.9 million as of December 31, 2016 and 2015, respectively. Total credit available, including companies in which these individuals have management control or beneficial ownership, was $513.6 thousand and $2.3 million as of December 31, 2016 and 2015, respectively. An analysis of the activity related to these loans as of December 31, 2016 and 2015 is as follows:

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid balance of these loans as of December 31, 2016 and 2015 is summarized as follows:

During the years ended December 31, 2016, 2015 and 2014, substantially all of the loans serviced for others had a contractual servicing fee of 0.25% on the unpaid principal balance. These fees are recorded as "mortgage loan servicing fees" under "noninterest income" on the consolidated statements of operations.

Late fees on the loans serviced for others totaled $53 thousand, $182 thousand and $191 thousand during the years ended December 31, 2016, 2015 and 2014, respectively. These fees are included in "noninterest income" on the consolidated statements of operations.

Custodial balances on deposit at the Bank in connection with the foregoing loan servicing were approximately $4.8 million and $6.1 million as of December 31, 2016 and 2015, respectively. There were no custodial balances on deposit with other financial institutions as of December 31, 2016 and 2015.

An analysis of changes in the MSR asset for the years ended December 31, 2016, 2015 and 2014 follows:

Below is an analysis of changes in the MSR asset valuation allowance for the years ended December 31, 2016, 2015 and 2014:

The fair values of the MSRs were $6.9 million, $6.9 million and $7.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

A valuation allowance is used to recognize impairments of MSRs. An MSR is considered impaired when the fair value of the MSR is below the amortized book value of the MSR. MSRs are accounted for 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.

The following assumptions were used to calculate the fair value of the MSRs as of December 31, 2016, 2015 and 2014:

OREO consists of property acquired due to foreclosure on real estate loans. As of December 31, 2016 and 2015, total OREO consisted of:

The following table presents a summary of OREO activity for the years ended December 31, 2016 and 2015:

As of December 31, 2016 and 2015, premises and equipment consisted of:

Depreciation on premises and equipment was $1.4 million, $1.7 million and $2.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

As of December 31, 2016 and 2015, deposits consisted of:

As of December 31, 2016, the scheduled maturities of time certificates were as follows:

Deposits from executive officers, directors and their affiliates as of December 31, 2016 and 2015 were $1.6 million and $1.1 million, respectively.

Notes payable to the FHLB as of December 31, 2016 and 2015 were secured by a blanket assignment of mortgage loans or other collateral acceptable to FHLB, and generally had a fixed rate of interest, interest payable monthly and principal due at end of term, unless otherwise noted. As of December 31, 2016, $537.7 thousand in loans were pledged under the blanket assignment. Investment securities are held in safekeeping at the FHLB with $2.3 million pledged as collateral for outstanding advances. An additional $100.6 million in advances is available based on the current value of the remaining unpledged investment securities. In the event that 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 purchase. We have the ability to borrow $20 million for a short period (15 to 60 days) from these banks on a collective basis.

The following table details borrowings as of December 31, 2016 and 2015.

The following table presents details on the junior subordinated debt as of December 31, 2016:

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, with the approval of the FRB. 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 (or twenty consecutive quarterly periods in the case of Trusts with quarterly interest payments) with respect to each interest payment deferred. During a period of deferral, unpaid accrued interest is compounded.

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 common stock or purchase or acquire any of its common stock.

In the second quarter of 2013, Trinity began to defer the interest payments on $37.1 million of junior subordinated debentures that are held by the Trusts that it controls. Interest accrued and unpaid to securities holders total $9.8 million and $6.9 million as of December 31, 2016 and 2015, respectively. In the first quarter of 2017 all deferred interest was paid in full and the Company is no longer deferring interest payments on the junior subordinated debentures. See Note 22, "Subsequent Events."

As of December 31, 2016 and 2015, the Company's trust preferred securities, subject to certain limitations, qualified as Tier 1 Capital for regulatory capital purposes.

Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by Trinity. 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.

The Company is leasing land in Santa Fe on which it built a bank office as well as the vacant land adjacent to the office. The construction of the office was completed in 2009. The original terms of the leases expired in May 2014 and are currently month-to-month. The leases contain both an option to extend for additional five year terms and an option to purchase the land at a set price. Trinity was required to notify the landlord of its intent to exercise the options to purchase between December 1, 2014 and December 1, 2015 for the land on which the bank built its office and between May 1, 2014 and December 1, 2015 for the adjacent land. Trinity formally notified the landlord of its exercise of the options to purchase under the leases on April 24, 2015 and expects to complete the exercise or extend the lease in 2017. This lease is classified as a capital lease. The Company also holds two notes and mortgages on the land, and the interest payments received on the notes are approximately equal to the rental payments on the leases; and the principal due at maturity or upon transfer of the land, will largely offset the option purchase prices.

Operating lease payments for the years ended December 31, 2016, 2015 and 2014 totaled $241 thousand, $272 thousand and $356 thousand, respectively.

There were no lease payments under capital lease for 2016.

Commitments for minimum future rentals under operating leases were as follows as of December 31, 2016:

The Company has an ESOP for the benefit of all employees who are at least 18 years of age and have completed 1,000 hours of service during the plan year. The employee's interest in the ESOP vests over a period of six years. The ESOP was established in January 1989 and is a defined contribution plan subject to the requirements of the Employee Retirement Income Security Act of 1974.

The ESOP is funded by discretionary contributions by the Company as determined by its Board of Directors. No expenses were recorded in 2016, 2015, or 2014.

All shares held by the ESOP, acquired prior to the issuance of ASC 718-40, "Compensation—Stock Compensation-Employee Stock Ownership Plans" are included in the computation of average common shares and common share equivalents. This accounting treatment is grandfathered for shares purchased prior to December 31, 1992. As permitted by ASC 718-40, compensation expense for shares released is equal to the original acquisition cost of the shares if acquired prior to December 31, 1992. As shares acquired after ASC 718-40 were released from collateral, the Company reported compensation expense equal to the current fair value of the shares, and the shares became outstanding for the earnings per share computations.

Shares of the Company held by the ESOP are as follows:

There was no compensation expense recognized for ESOP shares acquired prior to December 31, 1992 during the years ended December 31, 2016, 2015 and 2014.

Under federal income tax regulations, the employer securities that are held by the Plan and its participants and that are not readily tradable on an established market or that are subject to trading limitations include a put option (liquidity put). The liquidity put is a right to demand that the Company buy shares of its stock held by the participant for which there is no readily available market. The put price is representative of the fair value of the stock. The Company may pay the purchase price over a five-year period. The purpose of the liquidity put is to ensure that the participant has the ability to ultimately obtain cash. The fair value of the allocated shares subject to repurchase was $3.2 million and $2.7 million as of December 31, 2016 and 2015, respectively.

The Company's employees may also participate in a tax-deferred savings plan (401(k)) to which the Company does not contribute.

The Trinity Capital Corporation 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 on December 19, 2002) from shares held in treasury or authorized but unissued common stock were reserved for granting options. No further awards may be granted under the 1998 Plan. Under the 2005 Plan, 500,000 shares from shares held in treasury or authorized but unissued common stock were reserved for granting stock-based incentive awards. No further awards may be granted under the 2005 Plan. Both of these plans were approved by the Company's stockholders. The Compensation Committee determines the terms and conditions of the awards. At the Shareholder Meeting held on January 22, 2015, the Company's stockholders approved the Trinity Capital Corporation 2015 Long-Term Incentive Plan ("2015 Plan"). Under the 2015 Plan, 500,000 shares from shares held in treasury or authorized but unissued common stock are reserved for granting stock-based incentive awards. There were 50,228 awards issued under the 2015 Plan in 2016.

Because share-based compensation awards vesting in the current periods were granted on a variety of dates, the assumptions are presented as weighted averages in those assumptions. There was no stock option activity as of December 31, 2016. A summary of restricted stock unit ("RSU") activity under the 1998 Plan, the 2005 Plan, and the 2015 Plan as of December 31, 2016 is presented below:

There were 11,765 restricted stock units exercised in 2016. No restricted stock units were exercised in 2015 or 2014.

As of December 31, 2016, there was $145 thousand in unrecognized compensation cost related to unvested share-based compensation awards granted under the 2015 Plan. The cost will be recognized over the remaining vesting period.

The current and deferred components of the provision (benefit) for income taxes for the years ended December 31, 2016, 2015 and 2014 are as follows:

A deferred tax asset or liability is recognized to reflect the net tax effects of temporary differences between the carrying amounts of existing assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes. Temporary differences that gave rise to the deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:

A valuation allowance is established when it is more likely than not that all or a portion of a net deferred tax asset will not be realized. The Company recorded a loss before income taxes for the years ended December 31, 2011 and 2010. Based on these losses, the Company determined that it was no longer more likely than not that its deferred tax assets of $14.6 million at December 31, 2011 would be utilized. Accordingly, a full valuation allowance was recorded as of December 31, 2011. As of December 31, 2016, management's analysis determined that it was more likely than not that the amount of the deferred tax assets would be utilized in future periods for all but the capital losses therefore $14.8 million of the previously recorded valuation allowance was reversed leaving $387 thousand in valuation allowance at December 31, 2016. The positive evidence used in evaluating the reversal of the valuation allowance were: 1) positive income before income taxes in 8 of the 12 quarters from January 2014 to December 2016, 2) positive year to date income before income taxes at December 31, 2016, 3) successful capital rise completed in December 2016, and 4) reasonable and supportable forecasts for future earnings. The negative evidence used in evaluating the reversal of the valuation allowance were: 1) the Company has experienced losses due to the restatement of the Company's financials and from expenses stemming from the resulting SEC and OCC investigations, 2) the Company incurred significant expenses in building the infrastructure and controls necessary to support the Company, and 3) the Company's major earning assets have continued to decline in 2016. Based on the evaluation, management concluded the available positive evidence outweighed the negative evidence.

For the year ended December 31, 2016, the Company had federal net operating loss carryforwards of $15.4 million and state net operating loss carryforwards of $13.9 million which will expire at various dates from 2031 to 2035. Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration.

The Company has federal business tax credit carry-forwards totaling $2.4 million as of December 31, 2016 and 2015, which will begin to expire in 2031, and $173 thousand of alternative minimum tax (AMT) carry-forwards that do not expire. The Company has state tax credit carry-forwards of $427 thousand which will begin to expire in 2018.

Items causing differences between the Federal statutory tax rate and the effective tax rate are summarized as follows:

The calculation for the income tax provision or benefit generally does not consider the tax effects of changes in other comprehensive income ("OCI"), which is a component of stockholders' equity on the balance sheet. However, an exception is provided in certain circumstances, such as when there is a full valuation allowance on net deferred tax assets, a loss before provision (benefit) for income taxes and income in other components of the financial statements. In such a case, pre-tax income from other categories, such as changes in OCI, must be considered in determining a tax benefit to be allocated to the loss before provision (benefit) for income taxes.

The Company has no liabilities associated with uncertain tax positions as of December 31, 2016 and 2015 and does not anticipate providing an income tax reserve in the next twelve months. During the years ended December 31, 2016 and 2015, the Company did not record an accrual for interest and penalties associated with uncertain tax positions.

The Company is subject to U.S. federal and New Mexico income taxes. The Company's federal and state income tax returns are subject to examination by the taxing authorities for years after 2012.

Under Section 382 of the Code ("Section 382"), and based on the Company's analysis, we believe that the Company experienced an "ownership change" (generally defined as a greater than 50% change (by value) in our equity ownership over a three-year period) on December 19, 2016, and our ability to use our pre-change of control NOLs and other pre-change tax attributes against our post-change income is limited. The Section 382 limitation is applied annually so as to limit the use of our pre-change NOLs to an amount that generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. Due to applicable limitations under Section 382, a portion of these NOLs are limited; however, we do not believe that any NOLs will expire unused. We believe that the total available and utilizable NOL carry forward at December 31, 2016 is approximately $15.4 million. These NOLs will begin to expire in 2031. The Company's ability to utilize the NOLs or realize any benefit related to the NOLs is subject to a number of risks. Please see Part I, Item 1A "Risk Factors" for more information.

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.

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.

As of December 31, 2016 and 2015, the following credit-related commitments were outstanding:

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity 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 Bank, 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 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 Bank is committed.

Commitments to make loans are generally made for periods of 90 days or less. The Company had outstanding loan commitments, excluding undisbursed portion of loans in process and equity lines of credit, of approximately $125.4 million as of December 31, 2016 and $116.6 million as of 2015, respectively. Of these commitments outstanding, the breakdown between fixed rate and adjustable rate loans is as follows:

Outstanding Letters of Credit: In addition to short and long-term borrowings from the FHLB, the FHLB has issued letters of credit to various public entities with deposits at the Bank. These letters of credit are issued to collateralize the deposits of these entities at the Bank as required or allowed under law. These letters of credit expired during 2015. These letters were secured under the blanket assignment of mortgage loans or other collateral acceptable to the FHLB that also secures the Company's short and long-term borrowings from FHLB. The amount of collateral with the FHLB at December 31, 2016 was $102.9 million.

Commercial and standby letters of credit are conditional credit-related commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all 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 Bank generally 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 Bank would be required to fund the credit-related commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount shown in the summary above. If the credit-related commitment is funded, the Bank would be entitled to seek recovery from the customer. As of both December 31, 2016 and 2015, $575 thousand has been recorded as liabilities for the Company's potential losses 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 $26 thousand and $20 thousand as of December 31, 2016 and 2015, respectively, and are included in "other liabilities" on the consolidated balance sheets.

On March 27, 2009, the Company issued two series of preferred stock to the U.S. Department of the Treasury ("Treasury") under the TARP Capital Purchase Program ("CPP"). On December 19, 2016, the Company issued 82,862 shares of Series C Convertible Preferred Stock pursuant to a private placement. Below is a table disclosing the information on the three series as of December 31, 2016:

The difference between the liquidation value of the preferred stock and the original cost is accreted (for the Series B Preferred Stock) or amortized (for the Series A Preferred Stock) over 10 years and is reflected, on a net basis, as an increase to the carrying value of preferred stock and decrease to retained earnings. For each of the years ended December 31, 2016 and 2015, a net amount of $178 thousand was recorded for amortization.

Dividends and discount accretion on preferred stock reduce the amount of net income available to common shareholders. For each of the years ended December 31, 2016 and 2015 the total of these amounts was $4.3 million and $3.8 million, respectively.

In connection with the private placement and in accordance with the terms of a stock purchase agreement, dated September 9, 2016 (the "Stock Purchase Agreement"), the Company entered into a registration rights agreement (the "Registration Rights Agreement") with each of Castle Creek and Patriot. Pursuant to the terms of the Registration Rights Agreement, the Company has agreed to file a resale registration statement for the purpose of registering the resale of the shares of the Common Stock and Series C Preferred Stock issued in the private placement and the underlying shares of Common Stock or non-voting Common Stock into which the shares of Series C Preferred Stock are convertible, as appropriate. The Company is obligated to file the registration statement no later than the third anniversary after the closing of the private placement.

On March 27, 2009, Trinity participated in the TARP Capital Purchase Program by issuing 35,539 shares of Trinity's Fixed Rate Cumulative Perpetual Preferred Stock, Series A Preferred Stock to the Treasury for a purchase price of $35.5 million in cash and issued warrants that were immediately exercised by the Treasury for 1,777 shares of Trinity's Fixed Rate Cumulative Perpetual Preferred Stock, Series B Preferred Stock. Using part of the proceeds from the private placement described above, the Company redeemed all of its outstanding Series A Preferred Stock and Series B Preferred Stock effective January 25, 2017.

The Company and its subsidiaries are subject, in the normal course of business, to various pending and threatened legal proceedings in which claims for monetary damages are asserted. On an ongoing basis management, after consultation with legal counsel, assesses the Company's liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that the Company will incur losses and the amounts of the losses can be reasonably estimated, the Company records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable.

The Company can give no assurance, however, its business, financial condition and results of operations will not be materially adversely affected, or that it will not be required to materially change its business practices, based on: (i) future enactment of new banking or other laws or regulations; (ii) the interpretation or application of existing laws or regulations, including the laws and regulations as they may relate to the Company's business, banking services or the financial services industry in general; (iii) pending or future federal or state governmental investigations of the business; (iv) institution of government enforcement actions against the Company; or (v) adverse developments in other pending or future legal proceedings against the Company or affecting the banking or financial services industry generally.

In addition to legal proceedings occurring in the normal course of business, the Company is the subject of certain governmental investigations and legal proceedings as set forth below.

SEC Investigation: On September 28, 2015, the Securities and Exchange Commission ("SEC") announced an administrative settlement with the Company, resolving the previously reported investigation of the Company's historical accounting and reporting with respect to its restatement of financial information for the years ended December 31, 2006 through December 31, 2011 and the quarters ended March 31, 2012 and June 30, 2012. The Company and the SEC settled the investigation, pursuant to which the Company, without admitting or denying any factual allegations, consented to the SEC's issuance of an administrative order finding that the Company did not properly account for the Bank's loan portfolio during 2010, 2011 and the first two quarters of 2012, did not properly account for its OREO in 2011, and did not have effective internal accounting controls over loan and OREO accounting. In addition, the SEC found that certain former members of the Bank's management caused the Bank to engage in false and misleading accounting and overrode internal accounting controls. As a result, the SEC found that the Company violated certain provisions of the securities laws, including Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; Section 17(a) of the Securities Act of 1933; and Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder; Section 13(b)(2)(A) of the Exchange Act; and Sections 13(b)(2)(B) of the Exchange Act. The settlement orders the Company to cease and desist from committing or causing any such violations in the future and to pay a civil money penalty in the amount of $1.5 million. The civil money penalty was expensed in 2014 and subsequently paid in September 2015, upon entering into the administrative settlement agreement. The Company agreed to cooperate in proceedings brought by the SEC as well as any future investigations into matters described in the settlement. The Company cooperated fully with the SEC investigation.

SIGTARP/DOJ Investigation: The Special Inspector General of the Troubled Asset Relief Program ("SIGTARP") and the Department of Justice ("DOJ") initiated a criminal investigation relating to the financial reporting and securities filings referenced above and actions relating to the 2012 examination of the Bank by the OCC. The Company is cooperating with all requests from SIGTARP and the DOJ. SIGTARP and DOJ have advised the Company that it is not the target of the investigation.

As of March 9, 2017, no suit or charges have been filed against the Company or its current directors, executive officers or employees by any parties relating to the restatement.

While there is a reasonable probability that some loss will be experienced, through litigation or assessments, other than as disclosed above, the potential loss cannot be quantified. The Company has not accrued a reserve for any potential losses resulting from unresolved regulatory investigations.

In connection with the restatements and investigations, on September 1, 2015, the Company and William Enloe ("Enloe"), Trinity and the Bank's former Chief Executive Officer and Chairman of the Board, filed separate suits in New Mexico State Court. Jill Cook, the Company's former Chief Credit Officer, was also named in the suit brought by Trinity. On October 28, 2015, the Court entered an order consolidating the Enloe and Trinity suits. Mark Pierce, the Bank's former Senior Lending Officer, filed suit in New Mexico State Court on November 2, 2015. On April 26, 2016, Pierce filed a motion to consolidate his suit with the Enloe and Trinity suit. In each of the three suits listed above, the plaintiffs seek coverage and reimbursement from the insurance carriers for the defense costs incurred by individuals covered under those policies, as defined therein, in addition to causes of action against the insurance companies for bad faith, breach of insurance contracts and against Atlantic Specialty Insurance for violations of New Mexico insurance statutes. The suits, with the exception of Enloe's suit, also seek a determination on the obligations of the Company and/or the Bank to indemnify the former officers. The suits filed by Enloe and Pierce each allege, in the alternative, negligence against the Company and the Bank for failing to timely put all carriers on notice of his claims. The Company and the Bank will vigorously defend its actions and seek indemnification and coverage from its insurance carriers as required under the insurance policies. Due to the complex nature, the outcome and timing of ultimate resolution is inherently difficult to predict.

In the normal course of business, the Bank uses a variety of financial instruments to service the financial needs of customers and to reduce its exposure to fluctuations in interest rates. Derivative instruments that the Bank used as part of its interest rate risk management strategy include mandatory forward delivery commitments and rate lock commitments.

As a result of using derivative instruments, the Bank has potential exposure to credit loss in the event of non-performance by the counterparties. The Bank manages this credit risk by spreading the credit risk among counterparties that the Company believes are well established and financially strong and by placing contractual limits on the amount of unsecured credit risk from any single counterparty. The Bank's exposure to credit risk in the event of default by a counterparty is the current cost of replacing the contracts net of any available margins retained by the Bank. However, if the borrower defaults on the commitment the Bank requires the borrower to cover these costs.

The Company originates single-family residential loans for sale pursuant to programs offered by Fannie Mae. At the time the interest rate is locked in by the borrower, the Bank concurrently enters into a forward loan sale agreement with respect to the sale of such loan at a set price in an effort to manage the interest rate risk inherent in the locked loan commitment. Any change in the fair value of the loan commitment after the borrower locks in the interest rate is substantially offset by the corresponding change in the fair value of the forward loan sale agreement related to such loan. This change is recorded to "other noninterest expenses" in the consolidated statements of operations. The period from the time the borrower locks in the interest rate to the time the Bank funds the loan and sells it to Fannie Mae is generally 60 days. The fair value of each instrument will rise or fall in response to changes in market interest rates subsequent to the dates the interest rate locks and forward loan sale agreements are entered into. In the event that interest rates rise after the Bank enters into an interest rate lock, the fair value of the loan commitment will decline. However, the fair value of the forward loan sale agreement related to such loan commitment generally increases by substantially the same amount, effectively eliminating the Company's interest rate and price risk.

In October 2016, the Company moved to an outsource solution whereby the Bank generates residential mortgage applications for non-affiliated residential mortgage companies on a fee basis. Due to this change in strategy, the Company did not have any derivative instruments outstanding as of December 31, 2016.

As of December 31, 2016, the Company had no notional amounts in contracts with customers or in contracts with Fannie Mae for interest rate lock commitments outstanding related to loans being originated for sale. As of December 31, 2015, the Company had notional amounts of $5.1 million in contracts with customers and $8.1 million in contracts with Fannie Mae for interest rate lock commitments outstanding related to loans being originated for sale. The fair value of interest rate lock commitments was $0 as of December 31, 2016 and $225 thousand as of December 31, 2015.

The Company is subject to restrictions on the payment of dividends and cannot pay dividends that exceed its net income or which may weaken its financial health. The Company's primary source of cash is dividends from the Bank. Generally, the Bank is subject to certain restrictions on dividends that it may declare without prior regulatory approval. The Bank cannot pay dividends in any calendar year that, in the aggregate, exceed the Bank's year-to-date net income plus its retained income for the two preceding years. Additionally, the Bank cannot pay dividends that are in excess of the amount that would result in the Bank falling below the minimum required for capital adequacy purposes.

Trinity was placed under a Written Agreement by the FRB on September 26, 2013. The Written Agreement requires Trinity to serve as a source of strength to the Bank and restricts Trinity's ability, without written approval of the FRB, to make payments on the Company's junior subordinated debentures, incur or increase any debt, issue dividends and other capital distributions or to repurchase or redeem any Trinity stock. Additionally, the Bank was similarly prohibited from paying dividends to Trinity under the Formal Agreement issued by the OCC on November 30, 2012 and under the Consent Order, which replaced the Formal Agreement, issued on December 17, 2013. The Consent Order requires that the Bank maintain certain capital ratios and receive approval from the OCC prior to declaring dividends. The Company and the Bank are taking actions to address the provisions of the enforcement actions.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

While the Bank's capital ratios fall into the category of "well-capitalized," the Bank cannot be considered "well-capitalized" under the prompt corrective action rules due to the existence of the Consent Order. The Bank is required to maintain (i) a leverage ratio of Tier 1 Capital to total assets of at least 8%; and (ii) a ratio of Total Capital to total risk-weighted assets of at least 11%. As of December 31, 2016 and 2015 the Bank was in compliance with these requirements.

Trinity and the Bank are also required to maintain a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. The capital conservation buffer began to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio. Factoring in the fully phased-in conservation buffer increases the minimum ratios described above to 7.0% for CET1, 8.5% for Tier 1 Capital and 10.5% for Total Capital. At December 31, 2016 the Bank's capital conservation buffer was 7.3793 % and the consolidated capital conservation buffer was 2.3186 %.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The Company uses valuation techniques that are consistent with the sales comparison approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert expected future amounts, such as cash flows or earnings, to a single present value amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Securities Available for Sale. The fair values of securities available for sale are determined by quoted prices in active markets, when available. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities.

Derivatives. Derivative assets and liabilities represent interest rate contracts between the Company and loan customers, and between the Company and outside parties to whom it has 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 fair value are recorded in current earnings.

The following table summarizes the Company's financial assets and off-balance-sheet instruments measured at fair value on a recurring basis as of December 31, 2016 and 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

There were no financial liabilities that were measured at fair value as of December 31, 2016 and 2015. There were no financial assets or financial liabilities measured at fair value on a recurring basis for which the Company used significant unobservable inputs (Level 3) during the periods presented in these financial statements. There were no transfers between the levels used on any asset classes during the year.

The Company may be required, from time to time, to measure certain financial assets and financial liabilities at fair value on a nonrecurring basis in accordance with GAAP.

Impaired Loans. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as impaired, management measures the amount of that impairment in accordance with ASC Topic 310. The fair value of impaired loans is estimated using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized discounting criteria. For collateral dependent impaired loans, the Company obtains a current independent appraisal of loan collateral. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

OREO. OREO is adjusted to fair value at the time the loans are transferred to OREO. Subsequently, OREO is carried at the lower of the carrying value or fair value. Fair value is determined based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. The fair value of OREO was computed based on third part appraisals, which are level 3 valuation inputs.

As of December 31, 2016, impaired loans with a carrying value of $34.6 million had a valuation allowance of $3.0 million. As of December 31, 2015, impaired loans with a carrying value of $40.7 million had a valuation allowance of $4.2 million.

In the table below, OREO had write-downs during the years ended December 31, 2016 and 2015 of $63 thousand and $361 thousand, respectively. The valuation adjustments on OREO have been recorded through earnings.

Assets measured at fair value on a nonrecurring basis as of December 31, 2016 and 2015 are included in the table below:

ASC Topic 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The following methods and assumptions were used by the Company in estimating the fair values of its other financial instruments:

Cash and due from banks and interest-bearing deposits with banks: The carrying amounts reported in the balance sheet approximate fair value and are classified as Level 1.

Securities purchased under resell agreements: The carrying amounts reported in the balance sheet approximate fair value and are classified as Level 1.

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). See below for additional discussion of Level 3 valuation methodologies and significant inputs.

Non-marketable equity securities: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Loans held for sale: The fair values disclosed are based upon the values of loans with similar characteristics purchased in secondary mortgage markets and are classified as Level 3.

Loans: For those variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values for fixed rate and all other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of loans is classified as Level 3 within the fair value hierarchy.

Noninterest-bearing deposits: The fair values disclosed are equal to their balance sheet carrying amounts, which represent the amount payable on demand, and are classified as Level 1.

Interest-bearing deposits: The fair values disclosed for deposits with no defined maturities are equal to their carrying amounts, which represent the amounts payable on demand, and are classified as Level 2. The carrying amounts for variable rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-term borrowings: The fair values of the Company's long-term borrowings (other than deposits) are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements, and are classified as Level 2.

Junior subordinated debt: The fair values of the Company's junior subordinated debt are estimated based on the quoted market prices, when available, of the related trust preferred security instruments, or are estimated based on the quoted market prices of comparable trust preferred securities, and are classified as Level 3.

Off-balance-sheet instruments: Fair values for the Company's off-balance-sheet lending commitments in the form of letters of credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements. It is the opinion of management that the fair value of these commitments would approximate their carrying value, if drawn upon, and are classified as Level 2.

Accrued interest: The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification.

The carrying amount and estimated fair values of other financial instruments as of December 31, 2016 and 2015 are as follows:

Other noninterest expense items are presented in the following table for the years ended December 31, 2016, 2015 and 2014. Components exceeding 1% of the aggregate of total net interest income and total noninterest income are presented separately.

The condensed financial statements of Trinity Capital Corporation (parent company only) are presented below:

As discussed in the Company's Annual Report on Form 10-K for the period ended December 31, 2015, filed on October 31, 2016, subsequent to the issuance of the Company's consolidated financial statements on Form 10-Q as of and for the quarterly period ended June 30, 2012, the Company's management determined that the Bank had not properly recognized certain losses and risks inherent in its loan portfolio on a timely basis as disclosed in the Company's Current Report on Form 8-K Current Reports filed on November 13, 2012, April 26, 2013 and October 27, 2014 with the Securities and Exchange Commission ("SEC"). This failure was caused by the override of controls by certain former members of management and material weaknesses in internal control over financial reporting.

Management anticipates that its remedial actions, and further actions that are being developed, will strengthen the Company's internal control over financial reporting and will, over time, address the material weaknesses that were identified. Certain of the remedial measures, primarily those associated with information technology systems, infrastructure and controls, may require ongoing effort and investment. Management has made technological improvements with the implementation of the new core systems in mid-July 2016. These new enhanced core systems will allow management to redesign processes and enhance controls. Because some of these remedial actions take place on a quarterly basis, their successful implementation must be further evaluated before management is able to conclude that a material weakness has been remediated. The Company cannot provide any assurance that these remediation efforts will be successful or that the Company's internal control over financial reporting will be effective as a result of these efforts. Our management, with the oversight of the Audit Committee, will continue to identify and take steps to remedy known material weaknesses as expeditiously as possible and enhance the overall design and capability of our control environment.

To address the material weaknesses described below, the Company performed extensive procedures to ensure the reliability of its financial reporting. These procedures included independent review of loan grading, TDR recognition, accrual status, collateral valuations, impairment and required loan loss reserves. Additional procedures were conducted relating to accounts payable, journal entries and reconciliations, and access controls. The additional procedures were conducted at a detailed level and included the dedication of a significant amount of internal resources and external consultants. As a result, management believes that the consolidated financial statements and other financial information included in this Form 10-K fairly present, in all material respects, the Company's financial condition, results of operations, and cash flows for the periods presented in accordance with GAAP.

The Company maintains controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" in Exchange Act Rules 13a-15 (e) and 15d-15(e).

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors or fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

In connection with the preparation and filing of this Form 10-K, the Company, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2016, as a result of the material weaknesses in internal control over financial reporting as discussed below.

Management of the Company is responsible for establishing and maintaining adequate internal controls designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting is defined in Rule 13a-15(f) under the Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Management's assessment of the effectiveness of internal control over financial reporting is based on the criteria established in the 1992 Internal Control —Integrated Framework issued by the COSO.

All internal control systems, no matter how well designed, have inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. Further, because of changes in conditions, the effectiveness of internal control may vary over time. A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (United States) Auditing Standard No. 5), or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation and filing of this Form 10-K, the Company's management evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2016. Based on this evaluation, Management has concluded that there were control deficiencies in the Company's internal control over financial reporting, which individually or in combination were considered material weaknesses as of December 31, 2016. Management has identified the following material weaknesses in the Company's internal control over financial reporting as of December 31, 2016. Many of these weaknesses continue to be present.

As of result of a provision of the Dodd-Frank Act, which, among other things, permanently exempted non-accelerated filers, such as us, from complying with the requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires an issuer to include an attestation report from an issuer's independent registered public accounting firm on the issuer's internal control over financial reporting, this Form 10-K does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting.

The Company determined the following preliminary steps were necessary to address the aforementioned material weaknesses, including:

The remediation plans identified above were in different stages of progress as of the date of this Form 10-K. Management anticipates that these remedial actions, and further actions that are being developed, when fully implemented will strengthen the Company's internal control over financial reporting and will, over time, address the material weaknesses that were identified. Certain of the remedial measures, primarily those associated with information technology systems, infrastructure and controls, may require ongoing effort and investment. Because some of these remedial actions take place on a quarterly basis, their successful implementation must be further evaluated before management is able to conclude that a material weakness has been remediated. The Company cannot provide any assurance that these remediation efforts will be successful or that the Company's internal control over financial reporting will be effective as a result of these efforts. Our management, with the oversight of the Audit Committee, will continue to identify and take steps to remedy known material weaknesses as expeditiously as possible and enhance the overall design and capability of our control environment.

All directors and employees of Trinity and all of its subsidiaries', including Trinity's principal executive officer, principal financial officer and principal accounting officer or persons performing similar functions, are required to abide by Trinity's Code of Conduct (the "Code of Conduct"). Trinity does not maintain a separate code of ethics applicable solely to its directors, principal executive officer, principal financial officer and/or its principal accounting officer or the persons performing similar functions. The Code of Conduct requires that the directors, executive officers, and employees of Trinity and its subsidiaries, avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in Trinity's best interests. Under the terms of the Code of Conduct, directors, executive officers and employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Conduct.

Trinity's Code of Conduct is available on its website (www.lanb.com) at https://www.lanb.com/docs/default-source/TCC/code-of-conduct-(2016-03-18).pdf?sfvrsn=6. Trinity intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding any amendment to or waiver of the Code of Conduct by posting such information on its website. No waivers to Trinity's Code of Conduct were granted or made in 2016.

Trinity's current stock-based benefit plans and arrangements consist of the 1998 Stock Option Plan which was approved by stockholders at the 1998 Annual Meeting, the Trinity Capital Corporation 2005 Stock Incentive Plan (the "2005 Plan"), which was approved by stockholders at the 2005 Annual Shareholders' Meeting and the Trinity Capital Corporation 2015 Long-Term Incentive Plan (the "2015 Plan"), which was approved by stockholders at the 2014 Annual Shareholders' Meeting held on January 22, 2015. The following table provides information regarding the Plans as of December 31, 2016:

New Mexico		85-0242376
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1200 Trinity Drive Los Alamos, New Mexico		87544
(Address of principal executive offices)		(Zip Code)

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐	(do not check if a smaller reporting company)	Smaller reporting company☒
Emerging growth company ☐

PART I
Item 1. Business	2
Item 1A. Risk Factors	8
Item 1B. Unresolved Staff Comments	14
Item 2. Properties	14
Item 3. Legal Proceedings	14
Item 4. Mine Safety Disclosures	14
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6. Selected Consolidated Financial Data	15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A. Quantitative and Qualitative Disclosure About Market Risk	26
Item 8. Financial Statements and Supplementary Data	29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	57
Item 9A. Controls and Procedures	57
Item 9B. Other Information	59
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant	60
Item 11. Executive Compensation	64
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
Item 13. Certain Relationships and Related Transactions, and Director Independence	67
Item 14. Principal Accountant Fees and Services	68
PART IV
Item 15. Exhibits and Financial Statement Schedules	69
Item 16. Form 10-K Summary	70
Signatures	76

Properties	Address	Entity

Company Headquarters	~~PART IV~~1200 Trinity Drive ~~ITEM 15. Exhibits and Financial Statement Schedules~~Los Alamos, New Mexico 87544	Trinity

Los Alamos Office	1200 Trinity Drive ~~SIGNATURES~~Los Alamos, New Mexico 87544	Bank

White Rock Office	77 Rover White Rock, New Mexico 87544	Bank

Santa Fe Office I (Galisteo)	2009 Galisteo Street Santa Fe, New Mexico 87505	Bank

Santa Fe Office II (Downtown)	301 Griffin Street Santa Fe, New Mexico 87501	Bank

Santa Fe Office III (Cerrillos Road)	3674 Cerrillos Road Santa Fe, New Mexico 87507	Bank

Albuquerque Office II (AJ II)	6700 Jefferson NE Suite D-1 Albuquerque, New Mexico 87109	Bank

Albuquerque Office I (AJ I)	6700 Jefferson NE Suite A-2 Albuquerque, New Mexico 87109	Bank

Quarter ended	High sales price		Low sales price

December 31, 2016	$	4.75	$	3.75
September 30, 2016		4.00		3.75
June 30, 2016		4.00		4.00
March 31, 2016		4.00		4.00

December 31, 2015	$	4.00	$	4.00
September 30, 2015		4.00		4.00
June 30, 2015		4.50		4.00
March 31, 2015		4.50		3.00

	Year Ended December 31,
	2016							2015							2014
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning Assets:
Loans(1)	$	812,377	$	38,915		4.79	%	$	862,465	$	42,364		4.91	%	$	975,317	$	48,766		5.00	%
Taxable investment securities		402,325		7,716		1.92	%		269,653		3,956		1.47	%		178,102		2,081		1.17	%
Investment securities exempt from federal income taxes		25,130		520		2.07	%		6,739		175		2.60	%		12,223		452		3.70	%
Securities purchased under resell agreements		3,119		43		1.38	%		20,129		155		0.77	%		19,689		134		0.68	%
Other interest-bearing deposits		95,972		432		0.45	%		217,590		739		0.34	%		234,755		580		0.25	%
Non-marketable equity securities		4,001		222		5.55	%		4,281		215		5.02	%		1,116		137		12.28	%
Total interest-earning assets		1,342,924		47,848		3.56	%		1,380,857		47,604		3.45	%		1,421,202		52,150		3.67	%
Non-interest-earning assets		68,734							61,065							63,602
Total assets	$	1,411,658						$	1,441,922						$	1,484,804

Interest-bearing Liabilities:
Deposits:
NOW deposits	$	95,808	$	135		0.14	%	$	157,587	$	106		0.07	%	$	152,615	$	173		0.11	%
Money market deposits		405,605		133		0.03	%		292,660		202		0.07	%		290,951		271		0.09	%
Savings deposits		399,361		338		0.08	%		374,671		318		0.08	%		354,311		299		0.08	%
Time deposits over $100,000		133,403		1,040		0.78	%		170,770		1,457		0.85	%		211,582		2,074		0.98	%
Time deposits under $100,000		122,428		633		0.52	%		140,579		856		0.61	%		162,423		1,116		0.69	%
Short-term borrowings		-		-		0.00	%		4,441		139		3.13	%		15,430		471		3.05	%
Long-term borrowings		2,300		146		6.34	%		2,300		146		6.35	%		6,870		285		4.15	%
Long-term capital lease obligation		2,211		-		0.00	%		2,211		-		0.00	%		2,211		239		10.81	%
Junior subordinated debt		37,116		2,942		7.93	%		37,116		2,652		7.15	%		37,116		2,428		6.54	%
Total interest-bearing liabilities		1,198,232		5,367		0.45	%		1,182,335		5,876		0.50	%		1,233,509		7,356		0.60	%
Demand deposits, noninterest- bearing		96,199							151,283							152,599
Other noninterest-bearing liabilities		30,405							25,430							10,650
Stockholders' equity, including stock owned by ESOP		86,822							82,874							88,046
Total liabilities and stockholders equity	$	1,411,658						$	1,441,922						$	1,484,804
Net interest income/interest rate spread (2)			$	42,481		3.12	%			$	41,728		2.95	%			$	44,794		3.07	%
Net interest margin (3)						3.16	%						3.02	%						3.15	%

	Year ended December 31,									Year Ended December 31,
	2016 Compared to 2015									2015 Compared to 2014
	Change Due to Volume			Change Due to Rate			Total Change			Change Due to Volume			Change Due to Rate			Total Change
	(In thousands)
Interest-earning Assets:
Loans, includes fees	$	(2,460	)	$	(989	)	$	(3,449	)	$	(5,643	)	$	(759	)	$	(6,402	)
Taxable investment securities		1,946			1,814			3,760			1,070			805			1,875
Investment securities exempt from federal income taxes		478			(133	)		345			(203	)		(249	)		(452	)
Securities purchased under resell agreements		(131	)		19			(112	)		3			18			21
Other interest bearing deposits		(413	)		106			(307	)		(42	)		201			159
Non-marketable equity securities		(14	)		21			7			389			(311	)		78
Total (decrease) increase in interest income	$	(594	)	$	838		$	244		$	(4,426	)	$	(295	)	$	(4,721	)
Interest-bearing Liabilities:
NOW deposits	$	(42	)	$	71		$	29		$	6		$	(73	)	$	(67	)
Money market deposits		78			(147	)		(69	)		2			(71	)		(69	)
Savings deposits		21			(1	)		20			17			2			19
Time deposits over $100,000		(319	)		(98	)		(417	)		(400	)		(217	)		(617	)
Time deposits under $100,000		(111	)		(112	)		(223	)		(150	)		(110	)		(260	)
Short-term borrowings		(139	)		-			(139	)		(335	)		3			(332	)
Long-term borrowings		-			-			-			(191	)		52			(139	)
Capital long-term lease obligation		-			-			-			-			(239	)		(239	)
Junior subordinated debt		-			290			290			-			224			224
Total (decrease) increase in interest expense	$	(512	)	$	3		$	(509	)	$	(1,051	)	$	(429	)	$	(1,480	)
(Decrease) increase in net interest income	$	(82	)	$	835		$	753		$	(3,375	)	$	134		$	(3,241	)

	December 31,
	2016				2015				2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Securities Available for Sale:
U.S. Government sponsored agencies	$	69,306	$	68,828	$	69,798	$	69,584	$	42,438	$	42,282
States and political subdivisions		38,718		37,343		3,429		3,576		4,964		5,087
Residential mortgage-backed security		206,101		203,819		123,055		121,597		102,482		101,775
Residential collateralized mortgage obligation		14,828		14,816		40,305		39,921		41,119		41,051
Commercial mortgage backed security		117,272		114,172		41,341		41,119		24,993		24,882
SBA pool		681		672		757		750		949		945
Asset-backed security		-		-		40,136		39,493		-		-
Totals	$	446,906	$	439,650	$	318,821	$	316,040	$	216,945	$	216,022

Securities Held to Maturity:
SBA pools	$	8,824	$	8,613	$	8,986	$	8,988	$	9,269	$	9,378
State and political subdivisions		-		-		-		-		2,506		2,569
Totals	$	8,824	$	8,613	$	8,986	$	8,988	$	11,775	$	11,947

	Due in One Year or Less					Due after One Year through Five Years					Due after Five Years through Ten Years					Due after Ten Years or no stated Maturity
	Balance		Weighted Average Yield			Balance		Weighted Average Yield			Balance		Weighted Average Yield			Balance		Weighted Average Yield
As of December 31, 2016	(Dollars in thousands)
Securities Available for Sale:
U.S. Government sponsored agencies	$	10,003		0.80	%	$	29,399		1.30	%	$	29,427		2.25	%	$	-		0.00	%
States and political subdivision (1)		201		1.10	%		1,296		1.48	%		1,762		2.31	%		34,083		2.70	%
Mortgage backed		-		0.00	%		18,562		1.66	%		90,538		2.23	%		223,706		2.31	%
SBA pools		-		0.00	%		-		0.00	%		-		0.00	%		673		1.04	%
Asset backed securities		-		0.00	%		-		0.00	%		-		0.00	%		-		2.01	%
Totals	$	10,204		0.81	%	$	49,257		1.66	%	$	121,727		2.21	%	$	258,462		2.31	%
Securities Held to Maturity:
SBA pools	$	-		0.00	%	$	-		0.00	%	$	-		0.00	%	$	8,613		3.48	%
Totals	$	-		0.00	%	$	-		0.00	%	$	-		0.00	%	$	8,613		3.48	%

	Due in One Year or Less				Due after one Year through Five Years				Due after Five Years				Total
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(Dollars in thousands)
Commercial	$	10,192	$	35,879	$	14,601	$	92	$	9,947	$	-	$	34,740	$	35,971
Commercial real estate		19,593		122,704		59,616		75,642		113,828		14,763		193,037		213,109
Residential real estate		257		108,488		4,914		15,068		82,596		1,607		87,767		125,163
Construction real estate		22,707		34,781		3,634		242		8,274		6,334		34,615		41,357
Installment and other		1,060		11,088		4,304		-		4,601		-		9,965		11,088
Total loans	$	53,809	$	312,940	$	87,069	$	91,044	$	219,246	$	22,704	$	360,124	$	426,688

	Construction real estate					Installment & other loans					Total
Dollar Range	Number of Borrowers		Amount			Number of Borrowers		Amount			Number of Borrowers			Amount
	(Dollars in thousands)
December 31, 2016
$5.0 million or more		-	$	-			-	$	-			-		$	-
$3.0 million to $4.9 million		-		-			-		-			-			-
$1.5 million to $2.9 million		3		6,596			-		-			4			8,808
Under $1.5 million		17		3,563			4		57			96	��		12,670
Total		20	$	10,159			4	$	57			100		$	21,478

Percentage of individual loan category				13.37	%				0.27	%					2.73	%

December 31, 2015
$5.0 million or more		-	$	-			-	$	-			-		$	-
$3.0 million to $4.9 million		-		-			-		-			-			-
$1.5 million to $2.9 million		2		4,851			-		-			5			10,570
Under $1.5 million		19		4,502			4		146			107			19,755
Total		21	$	9,353			4	$	146			112		$	30,325

Percentage of individual loan category				10.47	%				0.51	%					3.60	%

	At December 31,
	2016						2015
	Amount			Percent			Amount		Percent
	(Dollars in thousands)
Commercial		$	1,449		10.10	%	$	2,442		14.04	%
Commercial real estate			6,472		45.09			6,751		38.82
Residential real estate			4,524		31.52			6,082		34.97
Construction real estate			1,119		7.80			1,143		6.57
Installment and other			715		4.98			940		5.40
Unallocated			73		0.51			34		0.19
Total		$	14,352		100.00		$	17,392		100.00

	December 31, 2016 (In thousands)

Maturing within three months	$	5,507
After three but within six months		4,511
After six but within twelve months		7,460
After twelve but within three years		4,374
After three years		6,679
Total time deposits $250,000 and over	$	28,531

	Payments Due by Period
	Total		One year or less		1-3 years		4-5 years		After 5 years
	(in thousands)
Deposits without a stated maturity (1)	$	994,848	$	994,848	$	-	$	-	$	-
Time deposits (1)		220,241		172,435		31,754		10,122		5,930
Short-term borrowings (1)		-		-		-		-		-
Long-term borrowings (1)		2,300		-		-		2,300		-
Operating leases		134		122		10		2		-
Capital lease obligation		2,211		2,211		-		-		-
Junior subordinated debt (1)		37,116		-		-		-		37,116
Total contractual long-term cash obligations	$	1,256,850	$	1,169,616	$	31,764	$	12,424	$	43,046

	Actual					For Capital Adequacy Purposes					To be well capitalized under prompt corrective action provisions					Minimum Levels Under Order Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2016
Total capital (to risk-weighted assets):
Consolidated	$	178,906		20.0509	%	$	71,381		8.00	%		N/A		N/A			N/A		N/A
Bank only		137,873		15.3793	%		71,719		8.00	%	$	89,649		10.00	%	$	98,614		11.00	%
Tier 1 capital (to risk weighted assets):
Consolidated		167,290		18.7490	%		53,536		6.00	%		N/A		N/A			N/A		N/A
Bank only		126,598		14.1216	%		53,789		6.00	%		71,719		8.00	%		N/A		N/A
Common Equity Tier 1 Capital (to risk weighted assets):
Consolidated		60,840		6.8186	%		40,152		4.50	%		N/A		N/A			N/A		N/A
Bank only		126,598		14.1216	%		40,342		4.50	%		58,272		6.50	%		N/A		N/A
Tier 1 leverage (to average assets):
Consolidated		167,290		12.0120	%		35,690		4.00	%		N/A		N/A			N/A		N/A
Bank only		126,598		9.1596	%		35,859		4.00	%		44,824		5.00	%		71,719		8.00	%

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	28

AUDITED FINANCIAL STATEMENTS



Consolidated Balance Sheets as of December 31, 2016 and 2015	29

Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 2014	30

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 2014	31

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2016, 2015 and 2014	32

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014	33

Notes to Consolidated Financial Statements	35

	2016			2015
ASSETS
Cash and due from banks	$	13,537		$	13,506
Interest-bearing deposits with banks		105,798			151,049
Securities purchased under resell agreements		-			24,320
Cash and cash equivalents		119,335			188,875
Investment securities available for sale, at fair value		439,650			316,040
Investment securities held to maturity, at amortized cost (fair value of $8,613 and $8,988 as of December 31, 2016 and 2015, respectively)		8,824			8,986
Non-marketable equity securities		3,812			3,854
Loans held for sale		-			3,041
Loans (net of allowance for loan losses of $14,352 and $17,392 as of December 31, 2016 and 2015, respectively)		771,138			822,396
Mortgage servicing rights ("MSRs"), net		6,905			6,882
Bank owned life insurance ("BOLI")		10,191			-
Premises and equipment, net		25,959			23,373
Other real estate owned ("OREO"), net		8,436			8,346
Other assets		31,376			17,192
Total assets	$	1,425,626		$	1,398,985

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	28,301		$	75,867
Interest-bearing		1,186,788			1,178,091
Total deposits		1,215,089			1,253,958
Long-term borrowings		2,300			2,300
Junior subordinated debt		37,116			37,116
Other liabilities		33,822			26,621
Total liabilities		1,288,327			1,319,995

Stock owned by Employee Stock Ownership Plan ("ESOP") participants; 671,962 shares and 672,623 shares as of December 31, 2016 and 2015, respectively, at fair value		3,192			2,690

Commitments and contingencies (Notes 11, 15 and 17)

Stockholders' equity
Preferred stock, no par, authorized 1,000,000 shares
Series A, 9% cumulative perpetual, 35,539 shares issued and outstanding, $1,000 liquidation value per share, at amortized cost		35,068			34,858
Series B, 9% cumulative perpetual, 1,777 shares issued and outstanding, $1,000 liquidation value per share, at amortized cost		1,850			1,882
Series C, 0% convertible cumulative perpetual, 82,862 shares issued and outstanding, $475 liquidation value per share, at amortized cost		37,089			-
Common stock, no par, 20,000,000 shares authorized; 9,199,306 and 6,856,800 shares issued; 9,199,306 shares and 6,491,802 shares outstanding as of December 31, 2016 and 2015, respectively		9,510			6,836
Additional paid-in capital		694			1,153
Retained earnings		55,391			44,232
Accumulated other comprehensive loss		(5,495	)		(2,781	)
Total stockholders' equity before treasury stock		134,107			86,180
Treasury stock, at cost; 0 shares and 364,998 shares as of December 31, 2016 and 2015, respectively		-			(9,880	)
Total stockholders' equity		134,107			76,300
Total liabilities and stockholders' equity	$	1,425,626		$	1,398,985

	Common stock
	Issued		Held in treasury, at cost			Preferred stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Total stockholders' equity
Balance, December 31, 2013	$	6,836	$	(10,974	)	$	36,386		$	2,005		$	54,958		$	(501	)	$	88,710
Net income													(5,992	)					(5,992	)
Other comprehensive income																(54	)		(54	)
Dividends declared on preferred shares													(3,052	)					(3,052	)
Amortization of preferred stock issuance costs							177						(177	)					-
Treasury shares issued for stock option plan				86						14									100
Dissolution of subsidiary										(56	)								(56	)
Net change in the fair value of stock owned by ESOP participants													1,347						1,347
Balance, December 31, 2014	$	6,836	$	(10,888	)	$	36,563		$	1,963		$	47,084		$	(555	)	$	81,003
Net loss													1,914						1,914
Other comprehensive income																(2,226	)		(2,226	)
Dividends declared on preferred shares													(3,917	)					(3,917	)
Amortization of preferred stock issuance costs							177						(177	)					-
Treasury shares issued for board compensation				1,008						(810	)								198
Net change in the fair value of stock owned by ESOP participants													(672	)					(672	)
Balance, December 31, 2015	$	6,836	$	(9,880	)	$	36,740		$	1,153		$	44,232		$	(2,781	)	$	76,300
Net Income													16,113						16,113
Other comprehensive income																(2,714	)		(2,714	)
Issued preferred stock C - capital raise							39,359												39,359
Issued common stock - capital raise		2,661		8,983						997									12,641
Preferred stock C issuance costs							(2,270	)											(2,270	)
Common stock issuance costs										(769	)								(769	)
ESOP distribution		1								2									3
Issue vested restricted stock units ("RSUs")		12								(12	)								-
RSUs granted in 2016 expenses										82									82
Dividends declared on preferred shares													(4,272	)					(4,272	)
Amortization of preferred stock issuance costs							178						(178	)					-
Treasury shares issued for board compensation				897						(759	)								138
Net change in the fair value of stock owned by ESOP participants													(504	)					(504	)
Balance, December 31, 2016	$	9,510	$	-		$	74,007		$	694		$	55,391		$	(5,495	)	$	134,107

Securities Available for Sale:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2016
U.S. Government sponsored agency	$	69,306	$	20	$	(498	)	$	68,828
State and political subdivision		38,718		42		(1,417	)		37,343
Residential mortgage-backed security		206,101		42		(2,324	)		203,819
Residential collateralized mortgage obligation		14,828		77		(89	)		14,816
Commercial mortgage backed security		117,272		57		(3,157	)		114,172
SBA pools		681		-		(9	)		672
Totals	$	446,906	$	238	$	(7,494	)	$	439,650

December 31, 2015
U.S. Government sponsored agencies	$	69,798	$	98	$	(312	)	$	69,584
State and political subdivisions		3,429		147		-			3,576
Residential mortgage-backed security		123,055		43		(1,501	)		121,597
Residential collateralized mortgage obligation		40,305		139		(523	)		39,921
Commercial mortgage backed security		41,341		15		(237	)		41,119
SBA pools		757		-		(7	)		750
Asset-backed security		40,136		-		(643	)		39,493
Totals	$	318,821	$	442	$	(3,223	)	$	316,040

Securities Held to Maturity	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2016
SBA pools	$	8,824	$	-	$	(211	)	$	8,613
Totals	$	8,824	$	-	$	(211	)	$	8,613

December 31, 2015
SBA pools	$	8,986	$	2	$	-		$	8,988
Totals	$	8,986	$	2	$	-		$	8,988

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Securities Available for Sale:	(In thousands)
December 31, 2016
U.S. Government sponsored agencies	$	53,877	$	(498	)	$	-	$	-		$	53,877	$	(498	)
State and political subdivision		33,833		(1,417	)		-		-			33,833		(1,417	)
Residential mortgage-backed security		143,344		(1,539	)		50,474		(785	)		193,818		(2,324	)
Residential collateralized mortgage obligation		8,413		(87	)		122		(2	)		8,535		(89	)
Commercial mortgage backed security		96,222		(3,157	)		-		-			96,222		(3,157	)
SBA pools		-		-			673		(9	)		673		(9	)
Asset-backed security		-		-			-		-			-		-
Totals	$	335,689	$	(6,698	)	$	51,269	$	(796	)	$	386,958	$	(7,494	)

December 31, 2015
U.S. Government sponsored agency	$	54,804	$	(312	)	$	-	$	-		$	54,804	$	(312	)
Residential mortgage-backed security		54,760		(602	)		48,752		(899	)		103,512		(1,501	)
Residential collateralized mortgage obligation		17,237		(185	)		16,252		(338	)		33,489		(523	)
Commercial mortgage backed security		26,883		(237	)		-		-			26,883		(237	)
SBA pools		-		-			742		(7	)		742		(7	)
Asset-backed security		39,493		(643	)		-		-			39,493		(643	)
Totals	$	193,177	$	(1,979	)	$	65,746	$	(1,244	)	$	258,923	$	(3,223	)

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
December 31, 2016	(In thousands)
One year or less	$	10,205	$	10,204	$	-	$	-
One to five years		31,070		30,695		-		-
Five to ten years		31,249		31,189		-		-
Over ten years		36,181		34,755		8,824		8,613
Subtotal		108,705		106,843		8,824		8,613
Residential mortgage-backed security		206,101		203,819		-		-
Residential collateralized mortgage obligation		14,828		14,816		-		-
Commercial mortgage backed security		117,272		114,172
Total	$	446,906	$	439,650	$	8,824	$	8,613

	Current		30-59 Days Past Due		60-89 Days Past Due		Loans past due 90 days or more		Total Past Due		Total
	(In thousands)
December 31, 2016
Commercial	$	67,562	$	1,010	$	221	$	368	$	1,599	$	69,161
Commercial real estate		399,861		4,564		-		1,475		6,039		405,900
Residential real estate		208,200		3,089		1,355		2,082		6,526		214,726
Construction real estate		67,310		378		43		8,241		8,662		75,972
Installment and other		20,860		135		38		20		193		21,053
Total loans	$	763,793	$	9,176	$	1,657	$	12,186	$	23,019	$	786,812

Nonaccrual loan classification	$	8,331	$	249	$	712	$	12,186	$	13,147	$	21,478

December 31, 2015
Commercial	$	90,839	$	167	$	131	$	1,858	$	2,156	$	92,995
Commercial real estate		363,495		1,526		704		5,874		8,104		371,599
Residential real estate		252,568		1,215		606		4,217		6,038		258,606
Construction real estate		80,629		291		85		8,336		8,712		89,341
Installment and other		28,534		110		12		74		196		28,730
Total loans	$	816,065	$	3,309	$	1,538	$	20,359	$	25,206	$	841,271

Nonaccrual loan classification	$	6,202	$	2,702	$	1,418	$	20,003	$	24,123	$	30,325

	Pass		Special Mention		Substandard		Doubtful		Total
	(In thousands)
December 31, 2016
Commercial	$	56,611	$	1,046	$	11,504	$	-	$	69,161
Commercial real estate		380,777		11,573		13,550		-		405,900
Residential real estate		209,049		588		5,089		-		214,726
Construction real estate		60,848		5,378		9,746		-		75,972
Installment and other		20,983		4		66		-		21,053
Total	$	728,268	$	18,589	$	39,955	$	-	$	786,812

December 31, 2015
Commercial	$	69,221	$	3,129	$	20,645	$	-	$	92,995
Commercial real estate		307,700		19,512		44,387		-		371,599
Residential real estate		245,897		1,622		11,087		-		258,606
Construction real estate		71,864		6,667		10,810		-		89,341
Installment and other		28,378		2		350		-		28,730
Total	$	723,060	$	30,932	$	87,279	$	-	$	841,271

	Commercial			Commercial real estate			Residential real estate			Construction real estate			Installment and other			Unallocated			Total
	(In thousands)
Year Ended December 31, 2016
Beginning balance	$	2,442		$	6,751		$	6,082		$	1,143		$	940		$	34		$	17,392
Provision (benefit) for loan losses		(3,001	)		4,954			(180	)		(146	)		134			39			1,800

Charge-offs		(822	)		(5,834	)		(1,726	)		(21	)		(575	)		-			(8,978	)
Recoveries		2,830			601			348			143			216			-			4,138
Net charge-offs		2,008			(5,233	)		(1,378	)		122			(359	)		-			(4,840	)
Ending balance	$	1,449		$	6,472		$	4,524		$	1,119		$	715		$	73		$	14,352

Year Ended December 31, 2015
Beginning balance	$	4,031		$	8,339		$	7,939		$	3,323		$	788		$	363		$	24,783
Provision (benefit) for loan losses		(1,146	)		2,635			(80	)		(1,081	)		501			(329	)		500

Charge-offs		(1,919	)		(4,731	)		(2,297	)		(1,570	)		(642	)		-			(11,159	)
Recoveries		1,476			508			520			471			293			-			3,268
Net charge-offs		(443	)		(4,223	)		(1,777	)		(1,099	)		(349	)		-			(7,891	)
Ending balance	$	2,442		$	6,751		$	6,082		$	1,143		$	940		$	34		$	17,392

Year Ended December 31, 2014
Beginning balance	$	3,958		$	10,699		$	8,162		$	4,658		$	1,199		$	(318	)	$	28,358
Provision (benefit) for loan losses		1,516			(334	)		1,571			(1,504	)		70			681			2,000

Charge-offs		(2,261	)		(2,772	)		(2,463	)		(285	)		(631	)		-			(8,412	)
Recoveries		818			746			669			454			150			-			2,837
Net charge-offs		(1,443	)		(2,026	)		(1,794	)		169			(481	)		-			(5,575	)
Ending balance	$	4,031		$	8,339		$	7,939		$	3,323		$	788		$	363		$	24,783

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Specific Reserves Allocated
	(Dollars in thousands)
December 31, 2016
Commercial		1	$	39	$	39	$	-
Construction real estate		1		62		62		-
Installment and other		1		40		40		-
Total		3	$	141	$	141	$	-

December 31, 2015
Residential real estate		1		82		82		-
Construction real estate		2		831		831		11
Installment and other		4		82		82		3
Total		7	$	995	$	995	$	14

December 31, 2014
Commercial		3	$	221	$	90	$	1
Commercial real estate		2		1,408		1,408		56
Residential real estate		6		498		493		21
Construction real estate		2		410		410		1
Installment and other		4		76		49		9
Total		17	$	2,613	$	2,450	$	88

	Number of Contracts		Recorded Investment		Specific Reserves Allocated
	(Dollars in thousands)
TDRs that subsequently defaulted:	2016
Construction real estate		1	$	62	$	-
Total		1	$	62	$	-

	(In thousands)
2017	$	172,435
2018		24,319
2019		7,435
2020		4,464
2021		5,658
Thereafter		5,930
Total	$	220,241

Maturity Date	Rate			Type	Principal due	2016			2015
						(In thousands)
April 27, 2021		6.343	%	Fixed	At maturity			2,300		2,300
					Total		$	2,300	$	2,300

	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, 2006
Amount of trust preferred securities issued	$	10,000		$	6,000	$	10,000		$	10,000
Rate on trust preferred securities		10.875	%	3.6307% (variable)			6.88	%	2.6134% (variable)
Maturity	March 8, 2030			September 8, 2034		November 23, 2035			December 15, 2036
Date of first redemption	March 8, 2010			September 8, 2009		August 23, 2010			September 15, 2011
Common equity securities issued	$	310		$	186	$	310		$	310
Junior subordinated deferrable interest debentures owed	$	10,310		$	6,186	$	10,310		$	10,310
Rate on junior subordinated deferrable interest debentures		10.875	%	3.6307% (variable)			6.88	%	2.6134% (variable)

Lease Payments under Operating Leases

Year	(In thousands)
2017	$	122
2018		5
2019		5
2020		2
Thereafter		-
Total	$	134

	Shares			Weighted-Average Grant Price		Weighted-Average Remaining Contractual Term, in years		Aggregate Intrinsic Value (in thousands)
RSUs
Outstanding as of January 1, 2016		11,765			4.25		0.50		50
Granted		50,228			4.00		3.00		201
Exercised		(11,765	)		4.25		-		50
Forfeited or expired		-			-		-		-
Outstanding as of December 31, 2016		50,228		$	4.00		2.15	$	201
Vested as of December 31, 2016		-		$	-		-	$	-

	2016					2015
	Asset			Liability		Asset			Liability
	(In thousands)
Unrealized loss on securities available for sale	$	2,870		$	-	$	1,109		$	-
Stock dividends on FHLB stock		-			5		-			3
Venture capital investments		823			-		835			-
Allowance for loan losses		5,904			-		7,106			-
Premises and equipment		-			1,252		-			1,273
MSRs		-			2,731		-			2,722
Other intangible assets		256			-		377			-
OREO		755			-		1,349			-
Prepaid expenses		-			756		-			636
Accrued compensation		310			-		566			-
Capital losses		387			-		372			-
Net operating loss carryforwards		6,010			-		4,687			-
Business tax credits		2,827			-		2,827			-
Stock options and SARs expensed		22			-		237			-
Contributions and Other		231			-		206			-
AMT credit		173			-		173			-
Total deferred taxes		20,568			4,744		19,844			4,634
Allowance for deferred taxes		(387	)		-		(19,844	)		(4,634	)
Net deferred taxes	$	20,181		$	4,744	$	-		$	-

	Contract Amount
	2016			2015
	(In thousands)
Unfunded commitments under lines of credit		$	118,252	$	108,966
Commercial and standby letters of credit			7,152		7,608
Commitments to make loans			5,835		5,105

	Number of shares issued		Dividend rate			Liquidation value per share		Original cost, in thousands
Series A cumulative perpetual preferred shares		35,539	5% for first 5 years; thereafter 9%			$	1,000.00	$	33,437
Series B cumulative perpetual preferred shares		1,777		9	%		1,000.00		2,102
Series C cumulative perpetual convertible preferred shares		82,862		-			475.00		39,359