Trinity Capital 10-K/A 2005 FY Annual report (amended)

As filed with the Securities and Exchange Commission on July 25, 2006

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

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

For the fiscal year ended December 31, 2005

or

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

For the transition period from                                                    to                                                    

Commission File Number 000-50266

TRINITY CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

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)
Registrant’s telephone number, including area code (505) 662-5171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
20,000,000 authorized shares
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o  Yes  ý  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o  Yes  ý  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý  Yes  o  No

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

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

Large Accelerated Filer  o Accelerated Filer  ý Non-Accelerated Filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  o  Yes  ý  No

The aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates as of June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $131,298,000 (based on the last sale price of the Common Stock at June 30, 2005 of $28.50 per share).

As of March 10, 2006, there were 6,587,249 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

Explanatory Note

Trinity Capital Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 solely for the purpose of including the Company’s Report of Independent Registered Public Accounting Firm that it received from Neff & Ricci LLP for its fiscal years ended December 31, 2004 and 2003. This report was inadvertently excluded from the Company’s original Form 10-K filing on March 16, 2006.

The Company is also attaching a consent from its independent registered public accounting firm as well as certifications executed as of the date of this Form 10-K/A from its Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, which are attached as exhibits 23.1, 31.1, 31.2, 32.1 and 32.2. Part IV of Form 10-K/A reflects the changes to the exhibits.

Except as described above, no other changes have been made to the Form 10-K or the Annual Report to Stockholders, and this Amendment No. 1 does not amend, update or change any other information contained in the Form 10-K. Information not affected by the changes described above is unchanged and reflects the disclosures made at the time of the original filing of the Form 10-K on March 16, 2006. Accordingly, this Amendment No. 1 should be read in conjunction with the Company’s filings made with the Securities and Exchange Commission subsequent to the filing of the Form 10-K, including any amendments to those filings.

Item 8. Financial Statements and Supplemental Data.

TRINITY CAPITAL CORPORATION AND SUBSIDIARIES

FINANCIAL STATEMENTS

Audited Financial Statements December 31, 2005, 2004, and 2003

INDEX

AUDITED FINANCIAL STATEMENTS

1

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2005. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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 performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 based upon criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2005.

Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by Moss Adams, LLP, an independent registered public accounting firm, as stated in their report which appears herein.

2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Trinity Capital Corporation

We have audited the accompanying consolidated balance sheet of Trinity Capital Corporation and subsidiaries as of December 31, 2005 and the related statement of income, changes in stockholders’ equity and cash flows for the year then ended. The 2004 consolidated statements of Trinity Capital Corporation and subsidiaries were audited by Neff + Ricci LLP who combined with Moss Adams LLP as of January 1, 2006, and whose report dated February 18, 2005, expressed an unqualified opinion on those statements.  The 2003 consolidated statements of income, changes in stockholders’ equity and cash flows were also audited by Neff + Ricci LLP, and whose report dated February 26, 2004, expressed an unqualified opinion on those statements.  We have also audited management’s assessment, included in the accompanying Management Report on Internal Control over Financial Reporting, that Trinity Capital Corporation maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Trinity Capital Corporation and subsidiaries’ management is responsible for these financial statements, maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these financial statements, an opinion on management’s assessment, and an opinion on the effectiveness of the Bank’s internal control over financial reporting 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s 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 assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made 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.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trinity Capital Corporation and subsidiaries as of December 31, 2005 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion management’s assessment that Trinity Capital Corporation and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the COSO. Furthermore, in our opinion, Trinity Capital Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the COSO.

Moss Adams LLP

Albuquerque, New Mexico

March 16, 2006

3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Trinity Capital Corporation:

We have audited the accompanying consolidated balance sheet of Trinity Capital Corporation and subsidiaries as of December 31, 2004, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2004 and 2003. 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 auditing the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements present fairly, in all material respects, the financial position of Trinity Capital Corporation and subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the years ended December 31, 2004 and 2003 and in conformity with accounting principles generally accepted in the United States of America.

/s/ Neff & Ricci LLP

Albuquerque, New Mexico

February 18, 2005

4

TRINITY CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004

(Amounts in thousands, except share data)

	2005			2004
ASSETS
Cash and due from banks	$	24,547		$	23,678
Interest bearing deposits with banks	29,122			96
Federal funds sold and securities purchased under resell agreements	1,013			40
Cash and cash equivalents	54,682			23,814
Investment securities available for sale	91,231			44,105
Investment securities held to maturity, at amortized cost (fair value of $26,565 at December 31, 2005 and $61,883 at December 31, 2004)	26,612			61,658
Other investments	7,965			7,480
Loans (net of allowance for loan losses of $8,842 at December 31, 2005 and $8,367 at December 31, 2004)	1,010,538			885,954
Loans held for sale	7,588			8,634
Premises and equipment, net	24,401			25,450
Accrued interest receivable	7,321			5,941
Mortgage servicing rights, net	9,779			8,371
Other real estate owned	375			6,438
Other assets	3,524			2,548
Total assets	$	1,244,016		$	1,080,393
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest bearing	$	79,030		$	63,070
Interest bearing	962,818			817,511
Total deposits	1,041,848			880,581
Short-term borrowings	10,000			34,400
Long-term borrowings	72,306			60,006
Junior subordinated debt owed to unconsolidated trusts	32,992			22,682
Borrowings made by Employee Stock Ownership Plan (ESOP) to outside parties	1,214			1,686
Accrued interest payable	4,047			2,768
Other liabilities	5,991			5,314
Total liabilities	1,168,398			1,007,437
Stock owned by Employee Stock Ownership Plan (ESOP) participants; 614,558 shares and 636,915 shares at 2005 and 2004, at fair value; net of unearned ESOP shares of 72,243 shares and 98,318 shares at 2005 and 2004, at historical cost	16,100			18,078
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, no par, authorized 20,000,000 shares; issued 6,856,800 shares, shares outstanding 6,554,559 and 6,732,748 at 2005 and 2004	6,836			6,836
Additional paid-in capital	922			997
Retained earnings	58,013			47,849
Accumulated other comprehensive loss	(273		)	(200		)
Total stockholders’ equity before treasury stock	65,498			55,482
Treasury stock, at cost, 229,998 shares and 25,734 shares at 2005 and 2004	(5,980		)	(604		)
Total stockholders’ equity	59,518			54,878
Total liabilities and stockholders’ equity	$	1,244,016		$	1,080,393

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

5

TRINITY CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2005, 2004 and 2003

(Amounts in thousands except per share data)

	2005		2004		2003
Interest income:
Loans, including fees	$	63,730	$	50,305	$	48,963
Investment securities:
Taxable	2,364		3,173		3,551
Nontaxable	759		622		513
Federal funds sold and securities purchased with agreements to resell	12		—		3
Other interest bearing deposits	969		132		338
Investment in unconsolidated trusts	75		59		52
Total interest income	67,909		54,291		53,420
Interest expense:
Deposits	20,636		12,478		15,296
Short-term borrowings	188		287		30
Long-term borrowings	3,011		2,397		2,000
Junior subordinated debt owed to unconsolidated trusts	2,493		1,931		1,754
Total interest expense	26,328		17,093		19,080
Net interest income	41,581		37,198		34,340
Provision for loan losses	2,850		2,100		3,350
Net interest income after provision for loan losses	38,731		35,098		30,990
Other income:
Mortgage loan servicing fees	2,594		2,367		2,208
Loan and other fees	2,753		2,432		1,925
Service charges on deposits	1,489		1,416		1,275
Gain on sale of loans	2,377		3,129		10,859
Gain on sale of securities	—		272		—
Other operating income	1,036		850		1,603
	10,249		10,466		17,870
Other expenses:
Salaries and employee benefits	16,073		15,342		15,555
Occupancy	3,166		2,601		1,798
Data processing	1,841		1,924		1,500
Marketing	1,509		1,365		1,451
Amortization and valuation of mortgage servicing rights	501		1,650		2,003
Supplies	686		1,005		914
Loss on sale of other real estate owned	950		414		438
Postage	582		556		536
Other	4,543		3,889		4,013
	29,851		28,746		28,208
Income before income taxes	19,129		16,818		20,652
Income taxes	7,169		6,429		7,794
Net income	$	11,960	$	10,389	$	12,858
Basic earnings per common share	$	1.80	$	1.54	$	1.93
Diluted earnings per common share	$	1.79	$	1.52	$	1.90

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

6

TRINITY CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31, 2005, 2004 and 2003

(Amounts in thousands except share and per share data)

															Accumulated
	Common Stock, No Par								Additional						Other
	Issued			Held in Treasury, at cost					Paid-In			Retained			Comprehensive
	Shares	Amount		Shares		Amount			Capital			Earnings			Income			Total
Balance, December 31, 2002	6,856,800	$	6,836	(29,128	)	$	(559	)	$	199		$	39,990		$	439		$	46,905
Comprehensive income
Net income												12,858
Net change in unrealized gain on investment securities, available for sale, net of taxes of $185															(304		)
Total comprehensive income																		12,554
Dividends												(3,866		)				(3,866		)
Decrease in stock owned by ESOP participants, 19,813 shares												357						357
Net change in the fair value of stock owned by ESOP participants												(8,494		)				(8,494		)
Allocation of ESOP shares									346									346
Balance, December 31, 2003	6,856,800	6,836		(29,128	)	(559		)	545			40,845			135			47,802
Comprehensive income
Net income												10,389
Net change in unrealized gain on investment securities, available-for sale, net of taxes of $140															(227		)
Reclassification of unrealized gains to realized gains, net of taxes of $66															(108		)
Total comprehensive income																		10,054
Dividends									(76		)	(4,023		)				(4,099		)
Treasury shares purchased				(3,770	)	(117		)										(117		)
Treasury shares issued from exercise of stock options				7,164		72												72
Tax benefit from the exercise of stock options									53									53
Decrease in stock owned by ESOP participants, 16,466 shares												511						511
Net change in the fair value of stock owned by ESOP participants												127						127
Allocation of ESOP shares									475									475
Balance, December 31, 2004	6,856,800	6,836		(25,734	)	(604		)	997			47,849			(200		)	54,878
Comprehensive income
Net income												11,960
Net change in unrealized gain on investment securities, available-for sale, net of taxes of $44															(73		)
Total comprehensive income																		11,887
Dividends									(59		)	(4,205		)				(4,264		)
Treasury shares purchased				(246,983	)	(6,422		)										(6,422		)
Treasury shares issued from exercise of stock options				42,719		1,046			(652		)							394
Tax benefit from the exercise of stock options									272									272
Decrease in stock owned by ESOP participants, 22,357 shares												688						688
Net change in the fair value of stock owned by ESOP participants												1,721						1,721
Allocation of ESOP shares									364									364
Balance, December 31, 2005	6,856,800	$	6,836	(229,998	)	$	(5,980	)	$	922		$	58,013		$	(273	)	$	59,518

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

7

TRINITY CAPITAL CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2005, 2004 and 2003

(Amounts in thousands)

	2005			2004			2003
Cash Flows From Operating Activities
Net income	$	11,960		$	10,389		$	12,858
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,620			2,261			1,945
Net amortization (accretion) of:
Mortgage servicing rights	2,758			2,739			1,249
Premiums and discounts on investment securities	814			1,367			1,517
Junior subordinated debt owed to unconsolidated trusts issuance costs	20			24			18
Provision for loan losses	2,850			2,100			3,350
Change in mortgage servicing rights valuation allowance	(2,257		)	(1,089		)	754
Loss on sale of premises and equipment	183			—			—
Gain on sale of available for sale securities	—			(272		)	—
Federal Home Loan Bank (FHLB) stock dividends received	(203		)	(103		)	(89		)
Gain on sale of loans	(2,377		)	(3,129		)	(10,859		)
Loss (gain) on disposal of other real estate owned	157			148			(219		)
Write-down of value of other real estate owned	793			351			580
(Increase) decrease in other assets	(2,376		)	3,380			(1,050		)
Increase (decrease) in other liabilities	1,794			(754		)	1,495
Release of Employee Stock Ownership Plan (ESOP) shares	794			935			1,003
Tax benefit recognized for exercise of stock options	272			53			—
Net cash provided by operating activities before originations and gross sales of loans	17,802			18,400			12,552
Gross sales of loans held for sale	182,271			221,029			577,225
Origination of loans held for sale	(180,757		)	(219,252		)	(505,825		)
Net cash (used in) provided by operating activities	19,316			20,177			83,952
Cash Flows From Investing Activities
Proceeds from maturities and paydowns of investment securities available for sale	14,075			49,760			18,120
Proceeds from maturities and paydowns of investment securities held to maturity	34,550			11,350			7,555
Proceeds from sale of investment securities, available for sale	—			28,388			—
Proceeds from sale of investment securities, other	—			300			—
Purchase of investment securities available for sale	(61,636		)	(28,095		)	(82,373		)
Purchase of investment securities held to maturity	—			—			(12,057		)
Purchase of investment securities other	(1,013		)	(1,516		)	(1,815		)
Proceeds from sale of other real estate owned	5,633			2,604			4,065
Loans funded, net of repayments	(127,954		)	(157,057		)	(90,740		)
Purchases of premises and equipment	(1,854		)	(8,772		)	(3,531		)
Proceeds from sale of premises and equipment	100			—			—
Net cash used in investing activities	(137,368		)	(103,038		)	(160,776		)
Cash Flows From Financing Activities
Net increase in demand deposits, NOW accounts and savings accounts	39,492			42,439			46,960
Net increase (decrease) in time deposits	121,775			1,947			(851		)
Proceeds from issuances of borrowings	30,000			481,700			95,596
Repayment of borrowings	(42,100		)	(464,094		)	(58,288		)
Repayment of ESOP debt	(472		)	(471		)	(731		)
Proceeds from issuance of junior subordinated debt owed to unconsolidated trusts	10,310			6,186			—
Purchase of treasury stock	(6,422		)	(117		)	—
Issuance of common stock for stock option plan	394			72			—
Dividend payments	(4,057		)	(4,098		)	(3,730		)
Net cash provided by financing activities	148,920			63,564			78,956
Net increase (decrease) in cash and cash equivalents	30,868			(19,297		)	2,132
Cash and cash equivalents:
Beginning of year	23,814			43,111			40,979
End of year	$	54,682		$	23,814		$	43,111
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	25,049		$	17,122		$	17,448
Income taxes	7,921			3,843			10,742
Non-cash investing and financing activities:
Transfers from loans to other real estate owned	520			2,158			8,102
Dividends declared, not yet paid	2,256			2,050			2,048
Change in unrealized (loss) gain on investment securities, net of taxes	(73		)	(334		)	(304		)

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

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

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”) and Title Guaranty & Insurance Company (“Title Guaranty”), collectively referred to as the “Company.”  Trinity Capital Trust I (“Trust I”), Trinity Capital Trust II (“Trust II”), Trinity Capital Trust III (“Trust III”) and Trinity Capital Trust IV (“Trust IV”), collectively referred to as the “Trusts”, which are also wholly owned subsidiaries of Trinity, are not consolidated in these financial statements (see “Consolidation” accounting policy below.)  The business activities of the Company consist solely of the operations of its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. TCC Appraisal Services Corporation (“TCC Appraisal”), TCC Advisors Corporation and TCC Funds are not included as they were not created until 2006.

Basis of financial statement presentation:  The consolidated financial statements include the accounts of the Company and its subsidiaries. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the year. Actual results could differ from those estimates. Areas involving the use of management’s estimates and assumptions, and which are more susceptible to change in the near term include the allowance for loan losses and initial recording and subsequent valuation for impairment of mortgage servicing rights.

Nature of operations:  The Company provides a variety of financial services to individuals, businesses and government organizations through its offices in Los Alamos and Santa Fe. Its primary deposit products are term certificate, 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, title insurance products and residential real estate appraisal services.

The Bank conducts its operations from its main office in Los Alamos and separate office locations in Santa Fe and White Rock, New Mexico and provides loan services from its loan production office in Albuquerque, New Mexico. The Bank also operates drive-up facilities and 29 automatic teller machines (ATM’s) in Los Alamos and surrounding geographic areas. Title Guaranty conducts its operations from its offices in Los Alamos and Santa Fe. TCC Appraisal conducts real estate appraisals in Los Alamos County from its office in the Company headquarters..

Deposits with banks, federal funds sold and securities purchased under resell agreements:  For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing deposits with banks and federal funds sold.

Investment securities available for sale:  Securities classified as available for sale are those securities that the Company 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 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 accumulated other comprehensive income, net of the related deferred tax effect. The amortization of premiums and accretion of discounts, computed by the interest method over their contractual lives, are recognized in interest income. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. In addition, if a loss is deemed to be other than temporary, it is recognized as a realized loss in the income statement.

Investment securities held to maturity:  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.

Other investments:  The Bank, as a member of the Federal Home Loan Bank of Dallas (the “FHLB”), is required to maintain an investment in capital 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 stock do not have readily determinable fair values as ownership is restricted and it lacks a market. As a result, these stocks are carried at cost and evaluated periodically by management for impairment.

9

The Company’s investment in the unconsolidated trusts is also reported as an investment in this line of the balance sheet. In addition, the Bank has other non-marketable investments that are carried at cost and evaluated periodically by management for impairment. Investments with fair values that are less than amortized cost are considered impaired. Impairment may result from either a decline in the financial condition of the issuing entity or, in the case of fixed rate investments, from rising interest rates. At each financial statement date, management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other than temporary based upon the evidence available. Evidence evaluated includes (if applicable), but is not limited to, industry analyst reports, credit market conditions, and interest rate trends. If negative evidence outweighs positive evidence that the carrying amount is recoverable within a reasonable period of time, the impairment is deemed to be other-than-temporary and the security is written down in the period in which such determination is made.

Loans held for sale:  Loans held for sale are those loans the Company intends to sell. They are carried at the lower of aggregate cost or market value. Gains and losses on sales of loans are recognized at settlement dates and are determined by the difference between the sales proceeds plus the value of the mortgage servicing rights compared to the carrying value of the loans. These are generally sold within 30 to 60 days of origination.

Loans:  Loans are stated at the amount of unpaid principal reduced by the allowance for loan losses and unearned income.

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 is amortizing 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 in such loans.

Interest on loans is accrued and reported as income using the interest method on daily principal balances outstanding. The Bank 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.

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 if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb probable losses on existing loans, based on an evaluation of the collectibility of loans and prior loss experience. 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 may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the subsidiary Bank’s allowance for loan losses, and may require the subsidiary bank to recognize additions to its allowance based on their judgments of information available to them at the time of their examinations.

Premises and equipment:  Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization is computed by the straight-line method for buildings and computer equipment over their 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.

Other real estate owned (“OREO”):  OREO includes real estate assets that have been received in satisfaction of debt. OREO is initially recorded and subsequently carried at the lower of cost or fair value less estimated selling costs. 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 other non-interest income. Operating results from OREO are recorded in other non-interest expense.

10

Mortgage servicing rights:  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. In cases where the mortgage loan is originated and sold, the total cost of the mortgage loan is allocated to the mortgage servicing right and to the loan based on their relative fair values.

The carrying amount of mortgage servicing rights, and the amortization thereon, is periodically evaluated in relation to estimated fair value. 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. The Bank has determined that the primary risk characteristic of the mortgage servicing rights is the contractual interest rate of the underlying mortgage loans.

The carrying value of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues.

Earnings per common share:  Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share were determined assuming that all stock options were exercised at the beginning of the years presented. Unearned shares owned by the Employee Stock Ownership Plan (ESOP) are treated as not outstanding for the purposes of computing basic earnings per common share.

Average number of shares used in calculation of earnings per common share and diluted earnings per common share are as follows:

	2005			2004			2003
	(In thousands, except share and per share data)
Net income	$	11,960		$	10,389		$	12,858
Weighted average common shares issued	6,856,800			6,856,800			6,856,800
LESS: Weighted average treasury stock shares	(149,569		)	(27,394		)	(29,128		)
LESS: Weighted average unearned Employee Stock Ownership Plan (ESOP) stock shares	(74,644		)	(101,117		)	(166,814		)
Weighted average common shares outstanding, net	6,632,587			6,728,289			6,660,858
Basic earnings per common share	$	1.80		$	1.54		$	1.93
Weighted average dilutive shares from stock option plan	60,262			111,731			95,468
Weighted average common shares outstanding including dilutive shares	6,692,849			6,840,020			6,756,326
Diluted earnings per common share	$	1.79		$	1.52		$	1.90

Comprehensive income:  Comprehensive income includes net income, as well as the change in net unrealized gain on investment securities available for sale, net of tax. Comprehensive income was $11.9 million, $10.1 million and $12.6 million for 2005, 2004 and 2003.

Segment reporting:  The Company is managed as one unit and does not have separate operating segments. The Company’s chief operating decision-makers use consolidated results to make operating and strategic decisions.

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 an 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.

11

Income taxes:  Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards, and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Stock-based compensation:As allowed under SFAS No. 123, Accounting for Stock-Based Compensation, the Company measures stock-based compensation cost in accordance with the methods prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.  As stock options are granted at fair value, there are no charges to earnings associated with stock options granted.  Accordingly, no compensation cost has been recognized for grants made to date.  Had compensation cost been determined based on the fair value method prescribed in FASB Statement No. 123 and which the Company will follow in 2006, as discussed below, reported net income and earnings per common share would have been reduced to the pro forma amounts shown below:

	2005		2004		2003
	(In thousands except per share amounts)
Net income:
As reported	$	11,960	$	10,389	$	12,858
Pro forma	11,877		10,289		12,671
Basic earnings per share:
As reported	$	1.80	$	1.54	$	1.93
Pro forma	1.79		1.53		1.90
Diluted earnings per share
As reported	$	1.79	$	1.52	$	1.90
Pro forma	1.77		1.50		1.88

The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following assumptions used for December 31, 2005, 2004 and 2003, respectively: dividend yield of 2.3%, 1.9% and 1.9%; expected price volatility of 14.1%, 3.7% and 15.2%; risk free rate of return of 4.2%, 4.2% and 2.0%; and weighted average assumption for expected life of 10 years for all years.

Recent accounting pronouncements:

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which is an Amendment of FASB Statement Nos. 123 and 95. SFAS No. 123R changes, among other things, the manner in which share-based compensation, such as stock options and restricted stock awards, will be accounted for by both public and non-public companies. For public companies, the cost of employee services received in exchange for equity instruments including options and restricted stock awards generally will be measured at fair value at the grant date. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of those options and instruments, unless observable market prices for the same or similar options are available. The cost will be recognized over the requisite service period, often the vesting period.

The changes in accounting will replace existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and will eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not require companies to expense options if the exercise price is equal to the trading price at the date of grant. The accounting for similar transactions involving parties other than employees or the accounting for employee stock ownership plans that are subject to AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, would remain unchanged. See Note 12 below for the Company’s current application of SFAS No. 123.

On April 14, 2005, the Securities and Exchange Commission (SEC) announced the adoption of a new rule that amends the compliance dates for SFAS No. 123R. Under SFAS No. 123R, the Company would have been required to implement the standard as of the beginning of the first interim period that begins after June 15, 2005. The SEC’s new rule allows companies to implement SFAS No. 123R at the beginning of their next fiscal year (beginning January 1, 2006, in the case of the Company), instead of the next reporting period that begins after June 15, 2005. The SEC’s new rule does not change the accounting required by SFAS No. 123R; it changes only the dates for compliance with the standard. The adoption of this standard will decrease earnings for the Company by approximately $143 thousand in 2006. The impact in the years following 2006 will be dependent upon stock options granted, the estimated value of these options and the vesting terms for the options granted.

12

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The reporting of a correction of an error by restating previously issued financial statements is also addressed by this statement. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Management does not believe that this statement will have a material impact on the Company’s financial statements.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.”  This Statement improves financial reporting by eliminating the exemption from applying Statement 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. This Statement also improves financial reporting by allowing a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. Providing a fair value measurement election also results in more financial instruments being measured at what the Board regards as the most relevant attribute for financial instruments, fair value. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Management does not believe that this statement will have a material impact on the Company’s financial statements.

Trust Assets:  Assets held by the Bank in fiduciary or agency capacities for its customers are not included in the accompanying consolidated balance sheets as such items are not assets of the Bank.

Reclassifications:  Certain prior year amounts have been reclassified to conform to the current year’s presentation.

Note 2. Restrictions on Cash and Due From Banks

The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was approximately $619 thousand and $4.3 million at December 31, 2005 and 2004. The main reason for this decline was because of a reclassification of deposits from transaction accounts to non-transaction accounts. As the amount required for reserves is based upon transaction accounts, this lowered the reserve requirement for the bank.

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.

13

Note 3. Investment Securities

Carrying amounts and fair values of investment securities are summarized as follows:

AVAILABLE FOR SALE	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2005:
U.S. Government agencies	$	85,687	$	2	$	(400	)	$	85,289
States and political subdivisions	5,984		—		(47		)	5,937
Equity securities	1		4		—			5
Totals	$	91,672	$	6	$	(447	)	$	91,231
December 31, 2004:
U.S. Government agencies	$	42,218	—		$	(311	)	$	41,907
States and political subdivisions	2,210		$	2	(21		)	2,191
Equity securities	1		6		—			7
Totals	$	44,429	$	8	$	(332	)	$	44,105

HELD TO MATURITY	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2005:
U.S. Government agencies	$	13,687	—		$	(40	)	$	13,647
States and political subdivisions	12,925		$	19	(26		)	12,918
Totals	$	26,612	$	19	$	(66	)	$	26,565
December 31, 2004:
U.S. Government agencies	$	46,547	$	158	—			$	46,705
States and political subdivisions	15,111		78		$	(11	)	15,178
Totals	$	61,658	$	236	$	(11	)	$	61,883

OTHER INVESTMENTS	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
	(In thousands)
December 31, 2005:
Non-marketable equity securities (including FRB and FHLB stock)	$	6,973	—	—	$	6,973
Investment in unconsolidated trusts	992		—	—	992
Totals	$	7,965	—	—	$	7,965
December 31, 2004:
Non-marketable equity securities (including FRB and FHLB stock)	$	6,798	—	—	$	6,798
Investment in unconsolidated trusts	682		—	—	682
Totals	$	7,480	—	—	$	7,480

14

Realized net gains on sale of securities available for sale are summarized as follows:

	For the Years Ended December 31,
	2005	2004		2003
	(In thousands)
Realized gains	—	$	272	—
Realized losses	—	—		—
Net gains	—	$	272	—

A summary of unrealized loss information for investment securities, categorized by security type, at December 31, 2005 and 2004 is as follows:

	Less than 12 Months					12 Months or Longer					Total
AVAILABLE FOR SALE	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses (1), (2)			Fair Value		Unrealized Losses
December 31, 2005
U.S. Government agencies	$	55,465	$	(76	)	$	27,770	$	(324	)	$	83,235	$	(400	)
States and political subdivisions	4,444		(26		)	1,493		(21		)	5,937		(47		)
Equity securities	—		—			—		—			—		—
Totals	$	59,909	$	(102	)	$	29,263	$	(345	)	$	89,172	$	(447	)
December 31, 2004
U.S. Government agencies	$	33,837	$	(202	)	$	7,044	$	(109	)	$	40,881	$	(311	)
States and political subdivisions	1,797		(21		)	—		—			1,797		(21		)
Equity securities	—		—			—		—			—		—
Totals	$	35,634	$	(223	)	$	7,044	$	(109	)	$	42,678	$	(332	)

	Less than 12 Months					12 Months or Longer					Total
HELD TO MATURITY	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
December 31, 2005
U.S. Government agencies	$	13,647	$	(40	)	—		—			$	13,647	$	(40	)
States and political subdivisions	497		(5		)	$	1,579	$	(21	)	2,076		(26		)
Totals	$	14,144	$	(45	)	$	1,579	$	(21	)	$	15,723	$	(66	)
December 31, 2004
U.S. Government agencies	—		—			—		—			—		—
States and political subdivisions	$	2,591	$	(11	)	—		—			$	2,591	$	(11	)
Totals	$	2,591	$	(11	)	—		—			$	2,591	$	(11	)

(1)$324 thousand of the total unrealized losses twelve months or longer as of December 31, 2005 relates to unrealized losses on U.S. government sponsored agencies with an S&P quality rating of AAA. The Company has the ability to hold these securities until they mature. The remaining $21 thousand of unrealized losses twelve months or longer as of December 31, 2005 relates to unrealized losses on state, county and municipal securities with Moody ratings of Aaa to Aa2. The Company has the ability to hold these securities until they mature.

(2)All of the $109 thousand total unrealized losses twelve months or longer as of December 31, 2004 relates to unrealized losses on U.S. government sponsored agencies with an S&P quality rating of AAA. The Company has the ability to hold these securities until they mature.

15

The amortized cost and fair value of investment securities as of December 31, 2005 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.

	Available for Sale				Held to Maturity				Other Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
One year or less	$	34,937	$	33,882	$	15,453	$	15,410	$	100	$	100
One to five years	56,734		56,586		1,605		1,601		—		—
Five to ten years	763		758		—		—		—		—
Over ten years	—		—		9,554		9,554		—		—
Equity investments with no stated maturity	1		5		—		—		7,865		7,865
	$	91,672	$	91,231	$	26,612	$	26,565	$	7,965	$	7,965

Securities with carrying amounts of $20.4 million and $84.8 million at December 31, 2005 and 2004, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

Note 4. Loans

Loans consisted of:

	December 31,
	2005			2004
	(In thousands)
Commercial loans	$	93,579		$	92,736
Commercial real estate	379,884			346,454
Residential real estate	313,693			282,380
Construction real estate	178,068			121,769
Installment and other	56,309			52,984
Total loans	1,021,533			896,323
Unearned income	(2,153		)	(2,002		)
Gross loans	1,019,380			894,321
Allowance for loan losses	(8,842		)	(8,367		)
Loans, net	$	1,010,538		$	885,954

Loans are made to individuals as well as commercial and tax exempt entities. Specific loan terms vary as to interest rate, repayment and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower. Credit risk tends to be geographically concentrated in that the majority of the loan customers are located in the markets serviced by the Bank.

Non-performing loans as of December 31, 2005, 2004 and 2003 were as follows:

	December 31,
	2005		2004		2003
	(In thousands)
Non-accruing loans	$	8,037	$	5,714	$	3,112
Loans 90 days or more past due, still accruing interest	—		8		80
Total non-performing loans	$	8,037	$	5,722	$	3,192

The reduction in interest income associated with loans on non-accrual status was $198 thousand, $216 thousand and $118 thousand for the years ended December 31, 2005, 2004 and 2003.

16

Information about impaired loans as of and for the years ended December 31, 2005, 2004 and 2003 is as follows:

	December 31,
	2005		2004		2003
	(In thousands)
Loans for which there was a related allowance for credit losses	$	6,233	$	3,282	$	2,187
Other impaired loans	480		3,391		486
Total impaired loans	$	6,713	$	6,673	$	2,673
Average monthly balance of impaired loans	$	5,790	$	772	$	638
Related allowance for credit losses	$	1,396	$	446	$	325
Interest income recognized on an accrual basis	—		—		—
Interest income recognized on a cash basis	$	253	—		—

Activity in the allowance for loan losses was as follows:

	Years Ended December 31,
	2005			2004			2003
	(In thousands)
Balance, beginning of year	$	8,367		$	7,368		$	6,581
Provision for loan losses	2,850			2,100			3,350
Charge-offs	(2,537		)	(1,287		)	(2,813		)
Recoveries	162			186			250
Net charge-offs	2,375			1,101			2,563
Balance, end of year	$	8,842		$	8,367		$	7,368

Loans outstanding to executive officers and directors of the Company, including companies in which they have management control or beneficial ownership, at December 31, 2005 and 2004, were approximately $3.2 million and $6.1 million. In the opinion of management, these loans have similar terms to other customer loans. An analysis of the activity related to these loans for the year ended December 31, 2005 is as follows:

	2005			2004
	(In thousands)
Balance, beginning	$	6,052		$	9,135
Additions	1,022			2,018
Principal payments and other reductions	(3,903		)	(5,101		)
Balance, ending	$	3,171		$	6,052

Note 5. Loan Servicing and Mortgage Servicing Rights

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

	2005		2004
	(In thousands)
Mortgage loan portfolios serviced for:
Federal National Mortgage Association (FNMA)	$	940,979	$	912,204
Federal Home Loan Mortgage Corporation (FHLMC)	2,428		4,006
Other investors	574		611
	943,981		916,821
Mortgage loans underlying pass-through securities—FNMA	25		37
	$	944,006	$	916,858

17

Custodial balances on deposit at the Bank in connection with the foregoing loan servicing were approximately $3.5 million and $2.4 million as of December 31, 2005 and 2004. There were no custodial balances on deposit with other financial institutions during 2005 and 2004.

An analysis of changes in mortgage servicing rights follows:

	2005			2004
	(In thousands)
Balance, beginning of year	$	8,371		$	7,792
Servicing rights originated and capitalized	1,909			2,229
Amortization	(2,758		)	(2,739		)
Valuation allowance due to changes in prepayment assumptions	2,257			1,089
	$	9,779		$	8,371

The fair value of the mortgage servicing rights was determined by an independent third-party broker of mortgage servicing rights. The values given by the broker were based upon current market conditions and assumptions, which incorporate the expected life of the loans, estimated costs to service the loans, servicing fees to be received and other factors. Mortgage servicing rights were valued at $10.5 million at December 31, 2005. The key assumptions used to initially value the mortgage servicing rights recorded in 2005 and 2004 included a Prepayment Standard Assumption speed of 165% and 265% and a discount rate of 9.01% and 9.01%, respectively.

Note 6. Premises and Equipment

Premises and equipment consisted of:

	December 31,
	2005			2004
	(In thousands)
Land and land improvements	$	3,820		$	1,241
Buildings	15,482			19,176
Furniture and equipment	19,141			19,285
	38,443			39,702
Accumulated depreciation	(14,042		)	(14,252		)
	$	24,401		$	25,450

Depreciation on premises and equipment totaled $2.6 million, $2.3 million and $1.9 million for the years ended December 31, 2005, 2004 and 2003.

Note 7. Deposits

Deposits consisted of:

	December 31,
	2005		2004
	(In thousands)
Demand deposits, noninterest bearing	$	41,651	$	42,498
NOW and money market accounts	279,745		250,883
Savings deposits	259,344		247,867
Time certificates, $100,000 or more	294,583		190,723
Other time certificates	166,525		148,610
Total	$	1,041,848	$	880,581

18

At December 31, 2005, the scheduled maturities of time certificates were as follows:

	(in thousands)
2006	$	357,358
2007	45,203
2008	23,339
2009	7,893
2010	27,281
Thereafter	34
	$	461,108

The Company had no brokered deposits at December 31, 2005 or 2004.

Note 8. Short- and Long-term Borrowings, including Borrowings made by Employee Stock Ownership Plan (ESOP)

Notes payable to the Federal Home Loan Bank (FHLB) at December 31 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. The total value of loans under the blanket assignment as of December 31, 2004 was $375.1 million.

Maturity Date	Rate	Type	Index	Principal due	2005		2004
					(In thousands)
01/03/2005	2.460	Fixed	—	At maturity	—		$	2,000
01/03/2005	2.360	Fixed	—	At maturity	—		32,400
11/06/2006	3.923	Fixed	—	At maturity	$	10,000	32,400
01/02/2007	4.121	Fixed	—	Monthly Amortization	3,517		6,627
01/02/2007	4.078	Fixed	—	Monthly Amortization	5,154		9,713
07/18/2008	3.221	Fixed	—	At maturity	40,000		40,000
03/22/2010	4.667	Fixed	—	At maturity	20,000		1,366
01/03/2011	6.031	Fixed	—	Monthly Amortization	1,335		1,366
04/27/2021	6.343	Fixed	—	At maturity	2,300		2,300
01/20/2008	7.250	Variable	Citibank Prime	Monthly Amortization	1,214		1,686
					$	83,520	$	96,092

The following is a summary of debt payments required for years after 2005. Included are payments for the ESOP debt of $471 thousand each year until maturity:

	(In thousands)
2006	$	18,493
2007	1,181
2008	305
2009	8,247
2010	10,617
Thereafter	44,677
	$	83,520

19

Note 9. Junior Subordinated Debt Owed to Unconsolidated Trusts

The following table presents details on the junior subordinated debt owed to unconsolidated trusts as of December 31, 2005:

	Trust I			Trust II			Trust III			Trust IV
	(Dollars in thousands)
Date of issue	March 23, 2000			November 28, 2001			May 11, 2004			June 29, 2005
Amount of trust preferred securities issued	$	10,000		$	6,000		$	6,000		$	10,000
Rate on trust preferred securities	10.875		%	9.95		%	7.11% (variable		)	6.88		%
Maturity	March 8, 2030			December 8, 2031			September 8, 2034			November 23, 2035
Date of first redemption	March 8, 2010			December 8, 2006			September 8, 2009			August 23, 2010
Common equity securities issued	$	310		$	186		$	186		$	310
Junior subordinated deferrable interest debentures owed	$	10,310		$	6,186		$	6,186		$	10,310
Rate on junior subordinated deferrable interest debentures	10.875		%	9.95		%	7.11% (variable		)	6.88		%

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 the Company at any time after the date of first redemption indicated above, with the approval of the Federal Reserve Board and in whole at any time upon the occurrence of certain events affecting their tax or regulatory capital treatment. The Trusts also issued common equity securities to Trinity in the amounts indicated above. The Trusts used the proceeds of the offering of the trust preferred securities to purchase junior subordinated deferrable interest debentures (the “debentures”) issued by the Company, which have terms substantially similar to the trust preferred securities. The Company has the right to defer payments of interest on the debentures at any time or from time to time for a period of up to ten consecutive semi-annual periods with respect to each interest payment deferred. Under the terms of the debentures, under certain circumstances of default or the Company has elected to defer interest on the debentures, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. The Company used the majority of the proceeds from the sale of the debentures to add to Tier 1 or Tier 2 capital in order to support its growth and to purchase treasury stock.

Trinity owns all of the outstanding common securities of the Trusts. The Trusts are considered variable interest entities (“VIEs”) under Financial Accounting Standards Board Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51”, as revised. Prior to FIN 46, VIEs were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. Under FIN 46, a VIE should be consolidated by its primary beneficiary. The Company implemented FIN 46 during the fourth quarter of 2003. Because Trinity is not the primary beneficiary of the Trusts, the financial statements of the Trusts are no longer included in the consolidated financial statements of the Company. The Company’s prior financial statements have been recl assified to de-consolidate the Company’s investment in the Trusts.

In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill less any associated deferred tax liability. The final rule provides a five-year transition period, ending March 31, 2009, for application of the aforementioned quantitative limitation. As of September 30, 2005, 79% of the trust preferred securities noted in the table above qualified as Tier I capital and 21% qualified as Tier 2 capital under the final rule adopted in March 2005.

Payments of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by the Company on a limited basis. The Company 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 the Company 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 the Company of the Trusts’ obligations under the trust preferred securities.

20

Issuance costs of $615 thousand related to the first three trust preferred securities were deferred and are being amortized over the period until mandatory redemption of the securities in March 2030, December 2031 and September 2034, respectively. During 2005, 2004 and 2003, respectively, $20 thousand, $24 thousand and $18 thousand of these issuance costs were amortized. Unamortized issuance costs were $519 thousand, $539 thousand and $481 thousand at December 31, 2005, 2004 and 2003, respectively.

Dividends accrued and unpaid to securities holders totaled $494 thousand and $399 thousand on December 31, 2005 and 2004, respectively.

Note 10. Lease Commitments and Rental Expense

The Company leases certain equipment, ATM location space, office space and storage space from other parties under operating leases expiring through 2010. Lease payments for the years ended December 31, 2005, 2004 and 2003, totaled $112 thousand, $143 thousand and $165 thousand, respectively. Commitments for minimum future rentals under these operating leases were as follows at December 31, 2005:

	(In thousands)
2006	$	133
2007	127
2008	111
2009	100
2010	100
	$	571

Note 11. Retirement Plans

The Company has a qualified Employee Stock Ownership Plan (“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 employees interest in the ESOP vests over a period of seven 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 provides for annual discretionary contributions by the Company as determined by its Board of Directors. The Company’s discretionary contributions to the ESOP in 2005, 2004 and 2003 were approximately $462 thousand, $573 thousand and $463 thousand, respectively.

The ESOP had a note payable of $1.2 million outstanding with a local bank as of December 31, 2005. The note requires annual principal payments of $471 thousand with a final payment of principal on January 20, 2008. Interest is variable at Citibank Prime (7.25% at December 31, 2005) and is payable semi-annually. Collateral for this loan is in the form of Company stock owned by the ESOP and unallocated to the plan participants. Shares are released from collateral based upon the ratio of principal and interest paid during the year to total principal and interest paid for the current year and payable for all future plan years. Allocations of common stock released and forfeitures are based on the eligible compensation of each participant. The note payable is recorded as debt and the shares pledged as collateral netted against stock owned by ESOP participants in the accompanying balance sheets. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings; dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest.

All shares held by the ESOP, which were acquired prior to the issuance of AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans (SOP 93-6), are included in the computation of average common shares and common share equivalents. This accounting treatment is grandfathered under SOP 93-6 for shares purchased prior to December 31, 1992. As permitted by SOP 93-6, compensation expense for shares released is equal to the original acquisition cost of the shares if they were acquired prior to December 31, 1992. As shares acquired after SOP 93-6 are released from collateral, the Company reports compensation expense equal to the current fair value of the shares, and the shares become outstanding for earnings-per-share computations.

Shares of the Company held by the ESOP that were acquired prior to December 31, 1992 totaled 268,289 and 292,782 shares at December 31, 2005 and 2004, respectively.

21

Shares of the Company held by the ESOP that were acquired after December 31, 1992 are as follows:

	December 31,
	2005		2004
Allocated shares	247,951		217,939
Shares committed to be released	26,075		27,876
Unallocated (unearned) shares	72,243		98,318
Total shares acquired after December 31, 1992	346,269		344,133
Estimated fair value of unallocated (unearned) shares	$	2,023,000	$	3,028,000

There was no compensation expense recognized for ESOP shares acquired prior to December 31, 1992 during the years 2005, 2004 and 2003. Compensation expense recognized for ESOP shares acquired after December 31, 1992 during 2005, 2004 and 2003 was $683 thousand, $1.0 million and $1.0 million, respectively.

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 market. The put price is representative of the fair market value of the stock. The Company pays for the purchase within 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 $15.2 million and $16.6 million as of December 31, 2005 and 2004.

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

Note 12. Stock Option Plan

The Company has the 1998 Stock Option Plan and the 2005 Stock Incentive Plan created for the benefit of key management and select employees. Under the 1998 Stock Option Plan, 400,000 shares (as adjusted for the stock split of December 19, 2002) from shares held in treasury or authorized but unissued common stock are reserved for granting options. Under the 2005 Stock Incentive Plan, 500,000 shares from shares held in treasury or authorized but unissued common stock are reserved for granting stock-based incentive awards. The Board of Directors determines vesting and pricing of the awards. All stock options granted through December 31, 2005 were granted at or above the fair value of the stock at the date of the grant, vest over three years and must be exercised within ten years of and pricing the date of grant. The following table summarizes data concerning stock options:

	2005					2004					2003
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	333,836			$	20.45	313,000			$	19.29	252,000		$	16.21
Granted	42,000			30.50		28,000			30.50		61,000		32.00
Exercised	(42,719		)	9.23		(7,164		)	9.00		—		—
Forfeited	—			—		—			—		—		—
Outstanding at end of year	333,117			$	23.15	333,836			$	20.45	313,000		$	19.29
Exercisable at end of year	252,116			$	20.67	251,169			$	17.37	210,000		$	15.18
Weighted average fair value per option of options granted during the year	$	5.22				$	5.51				$	5.21

22

The following table presents certain information with respect to outstanding and exercisable stock options:

		Options Outstanding				Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted Average Remaining Life	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
$	9-$10.25	34,117	2.94	$	10.25	34,117	$	10.25
$	16.00	42,000	3.95	16.00		42,000	16.00
$	20-$22.00	126,000	5.96	20.67		126,000	20.67
$	30.50	70,000	9.36	30.50		9,332	30.50
$	32.00	61,000	7.96	32.00		40,667	32.00
		333,117		$	23.15	252,116	$	20.67

Note 13. Income Taxes

The current and deferred components of the provision for Federal income tax expense for the years 2005, 2004 and 2003 are as follows:

	Years Ended December 31,
	2005		2004			2003
	(In thousands)
Current income tax expense:
Federal	$	5,658	$	5,660		$	5,193
State	983		974			850
Deferred income tax (benefit) expense:
Federal	468		(176		)	1,493
State	60		(29		)	258
Total income tax expense	$	7,169	$	6,429		$	7,794

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 purposes. Significant temporary differences that gave rise to the deferred tax assets and liabilities as of December 31, 2005 and 2004 were as follows:

	2005 Deferred				2004 Deferred
	Asset		Liability		Asset		Liability
	(In thousands)
Prepaid Expenses	$	122	—		—		—
Allowance for loan losses	3,500		—		$	3,146	—
Mortgage servicing rights	—		$	3,871	—		$	3,147
Investment securities	—		86		—		41
Premises and equipment	—		1,436		—		1,327
Stock dividends on FHLB stock	—		365		—		312
Loans	100		—		128		—
Unrealized gain on securities available for sale	16		—		122		—
Accrued compensation	217		—		183		—
Employee stock ownership plan (ESOP) compensation	540		—		434		—
Other real estate owned (OREO)	53		—		132		—
Total deferred taxes	$	4,548	$	5,758	$	4,145	$	4,827

The net deferred tax liability of $1.2 million and $682 thousand in 2005 and 2004, respectively, was reported in other liabilities.

23

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

	Year ended December 31
	2005					2004					2003
	Amount			Rate		Amount			Rate		Amount			Rate
	(In thousands)
Statutory tax rate	$	6,695		35.00	%	$	5,886		35.00	%	$	7,228		35.00	%
Net tax exempt interest income	(247		)	(1.29	)	(207		)	(1.23	)	(175		)	(0.85	)
Interest disallowance	23			0.12		20			0.12		20			0.10
Other, net	22			0.12		116			0.69		1			0.00
State income tax net of federal benefit	676			3.53		614			3.65		720			3.49
Provision for income taxes	$	7,169		37.48	%	$	6,429		38.23	%	$	7,794		37.74	%

Note 14. Commitments, Contingencies and Off-Balance Sheet Activities

Credit-related financial instruments:  The Company is a party to credit-related commitments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These credit-related commitments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such credit-related commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual amount of these credit-related commitments. The Company follows the same credit policies in making credit-related commitments as it does for on-balance-sheet instruments.

At December 31, 2005 and 2004, the following credit-related commitments were outstanding whose contract amounts represent credit risk:

	Contract Amount
	December 31, 2005		December  31, 2004
	(In thousands)
Unfunded commitments under lines of credit	$	182,641	$	168,794
Commercial and standby letters of credit	37,436		33,319

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 a 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 it is deemed necessary by the Company, is based on management’s credit evaluation of the customer. Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. Overdraft protection agreements are uncollateralized, but most other unfunded commitments have collateral. These unfunded lines of credit usually do not contain a specified maturity date and may not necessarily be drawn upon to the total extent to which the Company is committed.

Commercial and standby letters of credit are conditional credit-related commitments issued by the Company to guarantee the performance of a customer to a third party. 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 Company 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 Company would be required to fund the credit-related commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the summary above. If the credit-related commitment is funded, the Company would be entitled to seek recovery from the customer. At December 31, 2005 and 2004, no amounts have been recorded as liabilities for the Company’s potential obligations under these credit-related commitments. The fair value of these credit-related commitments is approximately equal to the fees collected when granting these letters of credit. These fees collected were $33 thousand and $60 thousand as of December 31, 2005 and 2004, respectively, and are included in “other liabilities” on the Company’s balance sheet.

24

Concentrations of credit risk:  The majority of the loans, commitments to extend credit, and standby letters of credit have been granted to customers in Los Alamos, Santa Fe and surrounding communities. Although the Company has a diversified loan portfolio, a substantial portion of its loans are made to businesses and individuals associated with, or employed by, Los Alamos National Laboratory (“the Laboratory”). The ability of such borrowers to honor their contracts is predominately dependent upon the continued operation and funding of the Laboratory. Investments in securities issued by states and political subdivisions involve governmental entities within the state of New Mexico. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Standby letters of credit were granted primarily to commercial borrowers.

Contingencies:  In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, after consulting with counsel, probable liabilities resulting from such proceedings would not have a material adverse effect on the Company’s consolidated financial statements.

Note 15. Derivative Financial Instruments

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 uses as part of its interest rate risk management strategy include mandatory forward delivery commitments and rate lock commitments.

As a result of using over-the-counter derivative instruments, the Bank has potential exposure to credit loss in the event of nonperformance by the counterparties. The Bank manages this credit risk by selecting only well established, financially strong counterparties, spreading the credit risk amongst many such counterparties 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 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 adopted the provisions of SFAS No. 149 effective July 1, 2003. The Company’s derivative instruments outstanding at December 31, 2005 include commitments to fund loans held for sale. As per Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments, the interest rate lock commitment was valued at zero at inception. The rate locks will continue to be adjusted for changes in value resulting from changes in market interest rates.

The Company originates single-family residential loans for sale pursuant to programs with the Federal National Mortgage Association (“FNMA”). At the time the interest rate is locked in by the borrower, the Company 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. The period from the time the borrower locks in the interest rate to the time the Company funds the loan and sells it to FNMA 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 Company 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 should increase by substantially the same amount, effectively eliminating the Company’s interest rate and price risk.

At December 31, 2005 the Company had notional amounts of $4.0 million contracts with customers and $11.6 million contracts with FNMA in interest rate lock commitments outstanding related to loans being originated for sale. The related fair values of these commitments was an asset of $7 thousand and a liability of $26 thousand as of December 31, 2005.

The Company has outstanding loan commitments, excluding undisbursed portion of loans in process and equity lines of credit, of approximately $175.4 million and $165.7 million as of December 31, 2005 and 2004, respectively. Of these commitments outstanding, the breakdown between fixed and adjustable-rate loans is as follows:

	At December 31,
	2005		2004
	(In thousands)
Fixed-rate (ranging from 4.0% to 10.5%)	$	47,596	$	68,231
Adjustable-rate	127,799		101,465
Total	$	175,395	$	165,696

25

Note 16. Regulatory Matters

The Company’s primary source of cash is dividends from the Bank. The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. Generally, the Company cannot pay dividends that exceed its net income or that can only be funded that weaken its financial health. 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 proceeding years. Additionally, the Bank cannot pay dividends that are in excess of the amount which would cause the Bank to fall below the minimum required for capital adequacy purposes.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items are calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes the Company and the Bank meet all capital adequacy requirements to which they are subject as of December 31, 2005.

As of December 31, 2005, the Bank was “well capitalized” as defined by OCC regulations. To be categorized as well capitalized the Bank must maintain the total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the well capitalized column in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category subsequent to this time.

The required and actual amounts and ratios for the Company and the Bank are presented below:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of December 31, 2005
Total capital (to risk-weighted assets):
Consolidated	$	116,734	11.67	%	$	80,041	8.00	%	N/A		N/A
Bank only	112,691		11.30		79,816		8.00		$	99,770	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	101,096		10.10		40,020		4.00		N/A		N/A
Bank only	103,848		10.41		39,908		4.00		59,862		6.00
Tier 1 capital (to average assets):
Consolidated	101,096		8.19		49,348		4.00		N/A		N/A
Bank only	103,848		8.43		49,255		4.00		61,569		5.00

26

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of December 31, 2004
Total capital (to risk-weighted assets):
Consolidated	$	102,994	11.59	%	$	71,079	8.00	%	N/A		N/A
Bank only	95,577		10.78		70,940		8.00		$	88,675	10.00	%
Tier 1 capital (to risk-weighted assets):
Consolidated	94,625		10.65		35,539		4.00		N/A		N/A
Bank only	87,208		9.83		35,470		4.00		53,205		6.00
Tier 1 capital (to average assets):
Consolidated	94,625		8.87		42,666		4.00		N/A		N/A
Bank only	87,208		8.19		42,596		4.00		53,246		5.00

N/A—not applicable

Note 17. Fair Value Information

Fair values are calculated based on the value of one unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument.

	Carrying Amount		Estimated Fair Value
	(In thousands)
December 31, 2005
Investments:
Available for sale	$	91,231	$	91,231
Held to maturity	26,612		26,565
Other investments	7,965		7,965
Loans, net	1,010,538		1,000,211
Mortgage servicing rights	9,779		10,486
Rate lock commitments, mandatory forward delivery commitments and pair offs, net asset	7		7
Rate lock commitments, mandatory forward delivery commitments and pair offs, net liability	26		26
Time deposits	461,108		459,967
Short- and long-term borrowings	82,306		78,756
Junior subordinated debt owed to unconsolidated trusts	32,992		38,958
Borrowings made by Employee Stock Ownership Plan (ESOP)	1,214		1,214
December 31, 2004
Investments:
Available for sale	$	44,105	$	44,105
Held to maturity	61,658		61,883
Other investments	7,480		7,480
Loans, net	885,954		888,070
Mortgage servicing rights	8,371		8,711
Rate lock commitments, mandatory forward delivery commitments and pair offs, net	8		8
Time deposits	339,333		339,178
Short- and long-term borrowings	94,406		93,323
Junior subordinated debt owed to unconsolidated trusts	22,682		27,110
Borrowings made by Employee Stock Ownership Plan (ESOP)	1,686		1,686

27

Financial instruments whose carrying value is estimated to be equal to the fair value include: cash and due from banks, interest bearing deposits with banks, accrued interest receivable and payable, loans held for sale, demand deposits, negotiable orders of withdrawal and savings deposits. Management believes that the Company’s demand deposits, negotiable orders of withdrawal and savings deposits provide significant additional value that is not reflected above.

Commitments to extend lines of credit and standby letters of credit have fair values approximately equal to fees generated to extend such commitments and are not material.

Fair value is best determined upon quoted market prices. However, no active market exists for a significant portion of the Company’s financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using the present value of future cash flows, discounted by the current rates offered on financial instruments of a similar nature and term. Financial instruments with variable rates that reprice frequently and have no significant change in credit risk have a fair value equal to carrying value. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Because of the inherent imprecision of estimating fair value discount rates for financial instruments for which no market value exists, management does not believe that the above information reflects the amounts that would be received (including any gains or losses) if assets and liabilities were sold.

Note 18. Condensed Parent Company Financial Information

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

Balance Sheets

	December 31,
	2005		2004
	(In thousands)
Assets
Cash	$	4,079	$	7,921
Investments in subsidiaries	106,100		89,766
Other assets	1,237		546
Total assets	$	111,416	$	98,233
Liabilities and Stockholders’ Equity
Dividends payable	$	2,256	$	2,050
Junior subordinated debt owed to unconsolidated trusts	32,992		22,682
Other liabilities	550		545
Stock owned by Employee Stock Ownership Plan (ESOP) participants	16,100		18,078
Stockholders’ equity	59,518		54,878
Total liabilities and stockholders’ equity	$	111,416	$	98,233

Statements of Income

	Years Ended December 31,
	2005			2004			2003
	(In thousands)
Dividends from subsidiaries	$	6,366		$	9,105		$	5,879
Interest and other expense	(2,780		)	(2,193		)	(2,057		)
Income before income tax benefit and equity in undistributed net income of subsidiaries	3,586			6,912			3,822
Income tax benefit	1,065			843			794
Income before equity in undistributed net income of subsidiaries	4,651			7,755			4,616
Equity in undistributed net income of subsidiaries	7,309			2,634			8,242
Net income	$	11,960		$	10,389		$	12,858

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Statements of Cash Flows

	Years Ended December 31,
	2005			2004			2003
	(In thousands)
Cash Flows From Operating Activities
Net income	$	11,960		$	10,389		$	12,858
Adjustments to reconcile net income to net cash (used in) operating activities:
Amortization of junior subordinated debt owed to unconsolidated trusts issuance costs	20			24			18
Equity in undistributed net income of subsidiaries	(7,309		)	(2,634		)	(8,242		)
Decrease (increase) in taxes receivable from subsidiaries	2			(1,733		)	2,199
(Increase) decrease in other assets	(711		)	2,454			(2,542		)
(Decrease) increase in other liabilities	(346		)	122			(276		)
Increase in TPS accrued dividend payable	83			—			—
Tax benefit recognized for exercise of stock options	272			53			—
Net cash provided by operating activities	3,971			8,675			4,015
Cash Flows From Investing Activities
Investments in and advances to subsidiaries	(8,310		)	(6,121		)	—
Net cash (used in) investing activities	(8,310		)	(6,121		)	—
Cash Flows From Financing Activities
Purchase of treasury stock	(6,422		)	(117		)	—
Issuance of treasury stock	666			72			—
Dividends paid	(3,998		)	(4,022		)	(3,637		)
Dividends paid on unearned Employee Stock Ownership Plan (ESOP) stock	(59		)	(76		)	(93		)
Proceeds from issuance of junior subordinated debt owed to unconsolidated trusts	10,310			6,186			—
Net cash provided by (used in) financing activities	497			2,043			(3,730		)
Net (decrease) increase in cash	(3,842		)	4,597			285
Cash:
Beginning of year	7,921			3,324			3,039
End of year	$	4,079		$	7,921		$	3,324

Note 19. Income by Quarter (Unaudited)

Presented in the table below is the income of the Company by quarter:

	Three Months Ended 2005								Three Months Ended 2004
	December		September		June		March		December		September		June		March
	(Thousands of dollars, except per share data)
Interest income	$	18,931	$	17,554	$	16,326	$	15,098	$	14,557	$	13,741	$	12,905	$	13,088
Interest expense	7,812		7,193		6,144		5,179		4,655		4,304		4,053		4,081
Net interest income	11,119		10,361		10,182		9,919		9,902		9,437		8,852		9,007
Provision for loan losses	750		750		825		525		450		450		600		600
Net interest income after provision for loan losses	10,369		9,611		9,357		9,394		9,452		8,987		8,252		8,407
Other income	2,623		2,873		2,693		2,060		2,502		2,097		2,850		3,017
Other expense	6,995		6,905		8,293		7,658		7,958		7,809		5,450		7,529
Income before income taxes	5,997		5,579		3,757		3,796		3,996		3,275		5,652		3,895
Income taxes	2,220		2,205		1,316		1,428		1,544		1,147		2,293		1,445
Net income	$	3,777	$	3,374	$	2,441	$	2,368	$	2,452	$	2,128	$	3,359	$	2,450
Basic earnings per share	$	0.57	$	0.51	$	0.37	$	0.35	$	0.36	$	0.32	$	0.50	$	0.36
Diluted earnings per share	$	0.57	$	0.50	$	0.37	$	0.35	$	0.36	$	0.31	$	0.49	$	0.36

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

Financial Statements. All financial statements of Trinity are set forth under Item 8 of this Form 10-K.

Exhibits. The following exhibits are filed as part of this Form 10-K:

3.1*	Articles of Incorporation of Trinity Capital Corporation
3.2*	Amended and Restated By-Laws of Trinity Capital Corporation
4.1*	Indenture dated as of March 23, 2000 among Trinity Capital Corporation, Trinity Capital Trust I and The Bank of New York
4.2*	Indenture dated as of November 28, 2001 between Trinity Capital Corporation, Trinity Capital Trust II and Wilmington Trust Company
4.3**	Indenture dated as of May 11, 2004 between Trinity Capital Corporation, Trinity Capital Trust III and Wells Fargo Bank, National Association
4.4****	Indenture dated as of June 29, 2005 between Trinity Capital Corporation, Trinity Capital Trust IV and Wilmington Trust Company
10.1*	Employment Agreement dated March 24, 1998 between Trinity Capital Corporation, Los Alamos National Bank and William C. Enloe
10.2*	Employment Agreement dated March 24, 1998 between Trinity Capital Corporation, Los Alamos National Bank and Steve W. Wells
10.3*	Los Alamos National Bank Employee Stock Ownership Plan
10.4*	Trinity Capital Corporation 1998 Stock Option Plan
10.5*	Promissory Note dated July 16, 2001, in the original principal amount of $3,300,075, made to the benefit of Valley National Bank, located in Espanola, New Mexico
10.6**	Form of stock option grant agreement
10.7***	Trinity Capital Corporation 2005 Stock Incentive Plan
10.8***	Trinity Capital Corporation 2005 Deferred Income Plan
10.9**	Director fee schedule
21.1****	Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification on Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*	Audit Committee Charter

* Incorporated by reference to the Company’s Form 10 filed on April 30, 2003, as amended.

** Incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 31, 2004

*** Incorporated by reference to the Company’s Form S-8 filed on July 28, 2005

**** Incorporated by reference to the Company’s Form 10-K for the fiscal year ended December 31, 2005

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SIGNATURES

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

Date: July 25, 2006	TRINITY CAPITAL CORPORATION
	By:	/s/ William C. Enloe
		William C. Enloe President and Chief Executive Officer

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