UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, ~~2010~~2011

[ ]	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: 000-50224

SECURITY CAPITAL CORPORATION

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(Exact Name of Registrant as specified in its Charter)

MISSISSIPPI 64-0681198

-------------------------------------------------------------- ---------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number)

(State or Other Jurisdiction of (I.R.S. Employer Identification Number)

Incorporation or Organization)

295 Highway 6 West/P. O. Box 690, Batesville, Mississippi 38606 ---------------------------------------------------------------------------- -----------------------------------------~~---~~

(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number:

(662) 563-9311

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Securities registered under Section 12(b) of the Act:

Name of Each Exchange on

Title of Each Class Which Registered

None

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Securities registered pursuant to section 12(g) of the Act:

Name of Each Exchange on

Title of Each Class

Which Registered

Common Stock, $5 par value None

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

YES [ ] NO [X ]

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

YES [X] 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 periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

YES [ X ] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.

[X]

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

Large accelerated filer [ ]

Accelerated filer [X]

Non-accelerated filer [ ]

Smaller reporting company [ ]

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

Yes [ ] No [ X ]

Based on the stockholders of record on December 31, ~~2010~~2011, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $5349.69 million.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.

Class Outstanding at December 31, ~~2010~~2011

Common stock ($5.00 par value) 2,883,~~209~~309 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into Parts III of the Form 10-K report: Proxy Statement dated March 119, ~~2011~~2012.

952131.1/13193.16317

CROSS REFERENCE INDEX

		Page
PART I
Item 1	Business	21
Item 1A	Risk Factors	14
Item 1B	Unresolved Staff Comments	1819
Item 2	Properties	19
Item 3	Legal Proceedings	2021
Item 4	~~Submission of Matters to a Vote of Security Holders~~Reserved	2021
PART II
Item 5	Market for the Registrant's Common Equity, Related Stockholder Matters and	2022
	Issuer Purchases of Equity Securities
Item 6	~~Selected~~Consolidated Financial Data	2123
Item 7	Management's Discussion and Analysis of Financial Condition and Results of
	Operations	2224
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	4345
Item 8	Financial Statements and Supplementary Data	4445
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	9198
Item 9A	Controls and Procedures	9199
Item 9B	Other Information	92100
PART III
Item 10	Directors and Executive Officers ofand ~~the~~Corporate ~~Registrant~~Governance	92100
Item 11	Executive Compensation	92100
Item 12	Security Ownership of Management and Related Stockholder Matters	92100
Item 13	Certain Relationships and Related Transactions, and Director Independence	93100
Item 14	Principal Accounting Fees and Services	93101
Part IV
Item 15	Exhibits and Financial Statement Schedules	93101
Signatures		93101
Index to Exhibits		95103
EX-3.(B) (EX-3.(B))
EX-21 (EX-21)
EX-23 (EX-23) EX-31.1 (EX-31.1)
EX-31.2 (EX-31.2)
EX-32.1 (EX-32.1)
EX-99.1 (EX-99.1)
EX-99.2 (EX-99.2)

* Information called for by Part III (Items 10 through 14) is incorporated by reference to the Registrant's Proxy Statement dated March 119, ~~2011~~2012.

PART I

ITEM 1. BUSINESS

General Development and Structure of Business

Security Capital Corporation is a one-bank holding company and has two subsidiaries, First Security Bank and Batesville Security Building Corporation.

As a bank holding company, Security Capital Corporation engages in the business of banking through its sole banking subsidiary and may engage in certain non-banking activities closely related to banking and may own certain other business corporations that are not banks, subject to applicable laws and regulations. Security Capital Corporation is not currently engaging in non-bank activities and does not own any business corporations, except for Batesville Security Building Corporation, and has no current plans to engage in non-bank activities or own any other business corporations.

Security Capital Corporation was incorporated on September 16, 1982, for the purpose of acquiring First Security Bank and serving as a one-bank holding company.

First Security Bank was originally chartered under the laws of the State of Mississippi on October 25, 1951.

Batesville Security Building Corporation, the nonbank subsidiary, was chartered under the laws of the State of Mississippi on June 23, 1971, for the purpose of acquiring real estate; to hold, improve, develop, operate, manage, mortgage, sell, exchange and lease and to generally deal and manage real estate and personal property. Batesville Security Building Corporation, a wholly owned subsidiary of Security Capital Corporation, reactivated its operations in 2004 by investing in new leasehold improvements.

First Security Insurance, Inc., a subsidiary of First Security Bank, was chartered for the purpose of selling annuities and insurance. The activities of this entity are not material and have little effect on the financial statements of Security Capital Corporation.

First Security Armored Car, Inc., a subsidiary of First Security Bank, was chartered in 2008 for the purpose of providing courier services. The activities of this entity have little effect on the financial statements of Security Capital Corporation.

Security Capital Corporation’s home or principal office is located at 295 Highway 6 West, Batesville, Mississippi 38606. The telephone number of the home or principal office is (662) 563-9311. First Security Bank's website is www.firstsecuritybk.com

Operations

Security Capital Corporation, through First Security Bank, engages in a wide range of banking activities, including accepting demand deposits, accepting savings and time deposit accounts, making secured and unsecured loans to corporations, individuals and others, issuing credit cards, issuing and processing ATM cards and debit cards, issuing commercial and standby letters of credit, originating mortgage loans, providing personal and corporate trust services, and offering Certificate of Deposits Account Registry Service (CDARS) to add protection to customers deposits that exceed current FDIC insurance limits.

Security Capital Corporation’s lending services include commercial, real estate, installment, credit card loans,, and agricultural loans. Revenues from Security Capital Corporation’s lending activities constitute the largest component of Security Capital Corporation’s operating revenues.

At December 31, ~~2010~~2011, the loan portfolio totaled $~~247~~233.80 million constituting 5956.0003% of the earning assets of $~~420~~415.09 million. Security Capital Corporation’s loan personnel have the authority to extend credit under guidelines established and approved by the Board of Directors. Any aggregate credit which exceeds the authority of the loan officer or a combination of several authority limits is forwarded to the Loan Committee for approval. The Loan Committee is comprised of various Bank Directors, including the Chairman.

Security Capital Corporation’s primary lending areas are the counties of Desoto, Panola, Quitman , Marshall, and Tunica in the State of Mississippi. Security Capital Corporation may extend credit to borrowers out of the primary lending area but on a limited basis in which the risk is low and/or a relationship may exist with the borrower and an industry or a development in the primary lending area. The corporation, in an outreach to the “underserved” and “not served”, targets Tate, Union and Lafayette as areas also to serve.

The following tables provide demographic information for Desoto, Panola, Quitman, Marshall, and Tunica counties, and for the State of Mississippi:

Population

2000

1990

1980

1970

2010

2000

1990

1980

DeSoto

~~107~~161,~~199~~252

67107,~~910~~199

5367,~~930~~910

3553,~~885~~930

Panola

34,~~274~~707

2934,~~996~~274

2829,~~164~~996

2628,~~829~~164

Marshall

3437,~~993~~144

3034,~~361~~993

2930,~~296~~361

2429,~~027~~296

Quitman

108,~~117~~223

10,~~490~~117

1210,~~636~~490

1512,~~888~~636

Tunica

910,~~277~~778

89,~~164~~277

98,~~652~~164

119,~~854~~652

Mississippi

2,~~844~~967,~~658~~297

2,~~573~~844,~~216~~658

2,~~520~~573,~~698~~216

2,~~216~~520,~~994~~698

SOURCE: Center for Population Studies, University of Mississippi

PER CAPITA INCOME
	2008		2007		2006		2005		2004
(In Dollars)
DeSoto		32,393		31,891		31,589		29,623		29,318
	2009		2008		2007		2006		2005
Panola		25,646		22,943		22,776		20,908		20,017
DeSoto		31,113		32,393		31,891		31,589		29,623
Marshall		25,326		23,739		22,754		21,683		20,249
Panola		25,755		25,646		22,943		22,776		20,908
Quitman		26,345		21,978		20,665		20,058		19,482
Marshall		25,423		25,326		23,739		22,754		21,683
Tunica		30,072		23,325		21,186		19,656		19,567
Quitman		26,197		26,345		21,978		20,665		20,058
Mississippi		30,383		28,541		27,028		25,051		24,518
Tunica		27,862		30,072		23,325		21,186		19,656
Mississippi		30,401		30,383		28,541		27,028		25,051
SOURCE: United States Department of Commerce, Bureau of Economic Analysis

MEDIAN AGE

	2000		1990

DeSoto		33.7		31.5

Panola		33.0		30.1

Marshall		33.9		30.5

Quitman		31.8		30.1

Tunica		30.6		25.3

SOURCE: Center for Population Studies, University of Mississippi

Panola County and Quitman County are rural areas, in which agriculture and industry play a big part in the economy. Desoto County and Tunica County have a different economic structure. The growth and composition of Desoto County has been dictated, primarily, by the outflow from Memphis, Tennessee, seeking residential living developments as well as locations for retail businesses and other commercial developments outside the Memphis city limits. Tunica County’s economy is dependent on the gaming industry to provide employment and to provide resources for the operation of the county. The numerous casinos in the Tunica area employ residents from the surrounding counties and residents from the states of Tennessee and Arkansas. Marshall County, prior to 2008, reflected growth from being close to Memphis, Tennessee.

Security Capital Corporation has made in the past and intends to continue to make most types of real estate loans including but not limited to single and multi-family housing, farm loans, residential and commercial construction loans and loans for commercial real estate.

Major classifications of loans were as follows:

Loans
Major Classifications
	December 31,
	2010			2009
	2011			2010
	(In thousands)
Commercial, financial and agricultural	$	3335,~~347~~341		$	3033,~~580~~347
Real estate - construction and development		5651,~~673~~725			6956,~~797~~673
Real estate - mortgage		~~134~~124,~~964~~994			~~142~~134,~~917~~964
Installment loans to individuals		2018,~~186~~871			20,~~702~~186
Other		2,~~594~~092			2,~~615~~594
		247,764			266,611
		233,023			247,764
Less allowance for loan losses		(4,~~477~~026	)		(4,~~352~~477	)
	$	~~243~~228,~~287~~997		$	~~262~~243,~~259~~287

The success of the loan portfolio is not dependent on a single borrower or group of borrowers. The large loans of the loan portfolio are defined as those loans with a balance of $~~389~~750,000 and ~~over~~greater. As of December 31, 2011, the loan portfolio totaled $233.0 million of which the large lines total $60.5 million representing 46 borrowers. For 2010, large loans were those with a balance of $389,000 and greater. As of December 31, 2010, the loan portfolio totaled $247.8 million of which the large lines total $94.4 million representing 101 borrowers.

Security Capital Corporation provides a wide range of personal and corporate trust and trust-related services, which include serving as executor of estates, as trustee under testamentary and inter vivos trusts and various pension and other employee benefit plans, as guardian of the estates of minors and incompetents, as escrow agent under various agreements, as transfer agent and paying agent of registered bond issues, and as custodian for assets invested. In addition, the Trust Department of First Security Bank offers a variety of investment tools which include a money management and financial planning program that uses the skills and abilities of a Certified Financial Planner and a Certified Retirement Services Professional among other specialists who are within the employment of First Security Bank and the Trust Department.

In 1998, Security Capital Corporation began an expansion to new market areas for the banking operation of First Security Bank. In October of 1998, First Security banking locations at Como, Mississippi, and Crenshaw, Mississippi, were purchased from First Tennessee Bank. In July of 1999, Planters Bank in Tunica was purchased from First Tennessee Bank. In December of 1995, a loan production office opened in Desoto County in the city of Olive Branch. In June of 1997, the loan production office extended to a full service bank branch but with a small facility and a small staff. In October of 2001, First Security Bank’s operation in Olive Branch moved from a loan production office to a newly constructed building with features of four drive-thru lanes and a total square footage of 7,000 to accommodate the projected growth in that area. ~~In January 2001, a loan production office officially opened in Desoto County in the city of Hernando.~~ On July 1, 2002, the operation in Hernando moved from a loan production facility to a newly constructed building, a sister to the Olive Branch building, providing full banking services. In August of 2003, a branch was opened in the town of Pope. In 2005, First Security Bank continued its expansion in the Desoto County area with the opening of a new branch in Southaven. Construction was completed in July of 2006 on a new facility for the Robinsonville banking location. The facility for a new full-service branch on the corner of Goodman Road and Pleasant Hill Road in Desoto County was occupied in September of 2006. Each of the newly constructed buildings represents state of the art facilities and will meet the needs of the staff and the level of customer activity. To better serve the customers in northern Panola County, an additional location in Sardis was opened in October of 2006. On February 19, 2009, a branch identified as the “Barton Branch” was opened in a newly constructed banking facility on the corner of Goodman Road and Highway 309 in Marshall County, Mississippi. First Security Bank provides ATM services at twenty-~~two~~seven locations~~, ten of which are not located on bank property~~. First Security Bank also provides the customer with 24 hours a day, 7 days a week, access to their account balances and activity through a telephone banking product called First Line. Initiated in October of 2002, First Security Bank offers internet banking, called First Net, to accommodate those customers desiring banking through technology to review their account’s activity and images of the activity, if applicable, and pay their bills from anywhere in the world. In 2011, plans and investments were made to provide First Security Bank savings and deposit customers with the option to receive electronic statements. This new service is scheduled to be available in February 2012.

Employees

On December 31, ~~2010~~2011, First Security Bank had ~~177~~182 full-time equivalent employees.

Supervision and Regulation

Security Capital Corporation and First Security Bank are subject to state and federal banking laws and regulations which impose specific requirements or restrictions on and provide for general regulatory oversight with respect to virtually all aspects of operations. These laws and regulations are generally intended to protect depositors, not shareholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of Security Capital Corporation. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and following with Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"), numerous additional regulatory requirements have been placed on the banking industry in the past several years, and additional changes have been proposed. The operations of Security Capital Corporation and First Security Bank may be affected by legislative changes and the policies of various regulatory authorities. Security Capital Corporation is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future.

Security Capital Corporation is a bank holding company within the meaning of the federal Bank Holding Company Act of 1956 (the "BHCA").

The BHCA: Under the BHCA, Security Capital Corporation is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. Security Capital Corporation's and First Security Bank's activities are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

The Dodd-Frank Wall Street Reform and Consumer Protection Act ~~(discussed in more detail below under “Recent Developments”)~~ has removed many limitations on the Federal Reserve Board’s authority to make examinations of banks that are subsidiaries of bank holding companies. Under the Dodd-Frank Act, the Federal Reserve Board will generally be permitted to examine bank holding companies and their subsidiaries, provided that the Federal Reserve Board must rely on reports submitted directly by the institution and examination reports of the appropriate regulators (such as the FDIC and the Mississippi Department of Banking and Consumer Finance) to the fullest extent possible; must provide reasonable notice to, and consult with, the appropriate regulators before commencing an examination of a bank holding company subsidiary; and, to the fullest extent possible, must avoid duplication of examination activities, reporting requirements, and requests for information.

Investments, Control, and Activities: With certain limited exceptions, the BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company.

In addition, and subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring "control" of a bank holding company, such as Security Capital Corporation. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person acquires 10% or more but less than 25% of any class of voting securities and either Security Capital Corporation has registered securities under Section 12 of the Exchange Act or no other person owns a greater percentage of that class of voting securities immediately after the transaction. The regulations provide a procedure for challenge of the rebuttable control presumption.

Under the BHCA, a bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in nonbanking activities, unless the Federal Reserve Board, by order or regulation, has found those activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve Board has determined by regulation to be proper incidents to the business of a bank holding company include making or servicing loans and certain types of leases, engaging in certain insurance and discount brokerage activities, performing certain data processing services, acting in certain circumstances as a fiduciary or investment or financial adviser, owning savings associations, and making investments in certain corporations or projects designed primarily to promote community welfare.

The Federal Reserve Board has imposed certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of "qualifying" capital to risk-weighted assets. These requirements are described below under "Capital Regulations." Subject to its capital requirements and certain other restrictions, Security Capital Corporation may borrow money to make a capital contribution to First Security Bank, and such loans may be repaid from dividends paid from First Security Bank to Security Capital Corporation (although the ability of First Security Bank to pay dividends is subject to regulatory restrictions as described below in "Dividends" under Item 5). Security Capital Corporation is also able to raise capital for contribution to First Security Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

Source of Strength and Cross-Guarantee: In accordance with Federal Reserve Board policy, Security Capital Corporation is expected to act as a source of financial strength to First Security Bank and to commit resources to support First Security Bank in circumstances in which Security Capital Corporation might not otherwise do so. Under the BHCA, the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution's financial condition.

State and FDIC Regulation: First Security Bank is subject to regulation and periodic examinations by the FDIC and the State of Mississippi Department of Banking and Consumer Finance. These regulatory authorities examine such areas as reserves, loan and investment quality, management policies, procedures and practices and other aspects of operations. These examinations are designed for the protection of the Bank’s depositors, rather than its stockholders. In addition to these regular examinations, the Company and the Bank must furnish periodic reports to their respective regulatory authorities containing a full and accurate statement of their affairs.

FDICIA: All insured institutions must undergo regular on-site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC and the appropriate agency (and state supervisor when applicable). FDICIA also directs the FDIC to develop with other appropriate agencies a method for insured depository institutions to provide supplemental disclosure of the estimated fair market value of assets and liabilities, to the extent feasible and practicable, in any balance sheet, financial statement, report of condition, or any other report of any insured depository institution. FDICIA also requires the federal banking regulatory agencies to prescribe, by regulation, standards for all insured depository institutions and depository institution holding companies relating, among other things, to: (i) internal controls, information systems, and audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset quality.

FDICIA contains a "prompt corrective action" section intended to resolve problem institutions at the least possible long-term cost to the deposit insurance funds. Pursuant to this section, the federal banking agencies are required to prescribe a leverage limit and a risk-based capital requirement indicating levels at which institutions will be deemed to be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." In the case of a depository institution that is "critically undercapitalized" (a term defined to include institutions which still have positive net worth), the federal banking regulators are generally required to appoint a conservator or receiver.

Deposit Insurance: The FDIC establishes rates for the payment of premiums by federally insured banks and thrifts for deposit insurance. A separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF") are maintained for commercial banks and thrifts, respectively, with insurance premiums from the industry used to offset losses from insurance payouts when banks and thrifts fail. Since 1993, insured depository institutions like First Security Bank have paid for deposit insurance under a risk-based premium system.

Transactions with Affiliates and Insiders: First Security Bank is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans to, and certain other transactions with, affiliates, as well as on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The aggregate of all covered transactions is limited in amount, as to any one affiliate, to 10% of the Bank's capital and surplus and, as to all affiliates combined, to 20% of the Bank's capital and surplus. Furthermore, within the foregoing limitations as to amount, each covered transaction must meet specified collateral requirements.

First Security Bank is also subject to Section 23B of the Federal Reserve Act, which prohibits an institution from engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution, as those prevailing at the time for comparable transactions with nonaffiliated companies. First Security Bank is subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

Community Reinvestment Act: The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC, the OCC, or the Office of Thrift Supervision shall evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility.

Sarbanes-Oxley Act of 2002: The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), which became law on July 30, 2002, added new legal requirements for all publicly-held companies affecting corporate governance, accounting and corporate reporting. The Securities and Exchange Commission has been delegated the task of enacting rules to implement various provisions, and the Company is required to comply with such rules to the extent they are applicable to the Company. In addition, each of the national stock exchanges has developed new corporate governance rules, including rules strengthening director independence requirements for boards, the adoption of corporate governance codes, and charters for the nominating and audit committees.

Other Regulations: Interest and certain other charges collected or contracted for by First Security Bank are subject to state usury laws and certain federal laws concerning interest rates. First Security Bank's loan operations are subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; the Fair Debt Collection Act, concerning the manner in which consumer debts may be collected by collection agencies; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of First Security Bank also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Enforcement Powers: FIRREA expanded and increased civil and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain "institution-affiliated parties" (primarily including management, employees, and agents of a financial institution, independent contractors such as attorneys and accountants, and others who participate in the conduct of the financial institution's affairs). These practices can include the failure of an institution to timely file required reports; the filing of false or misleading information; or the submission of inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations. Criminal penalties for some financial institution crimes have been increased to twenty years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties. Possible enforcement actions include the termination of deposit insurance. Furthermore, FIRREA expanded the appropriate banking agencies' power to issue cease and desist orders that may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications, or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the ordering agency to be appropriate.

Effect of Governmental Monetary Policies: The earnings of First Security Bank are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Board's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board have major effects upon the levels of bank loans, investments, and deposits through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

Financial Services Modernization Act: On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The Financial Services Modernization Act repeals the two affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms "engaged principally" in specified securities activities; and Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person "primarily engaged" in specified securities activities. In addition, the Financial Services Modernization Act also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a Financial Holding Company. "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

Generally, the Financial Services Modernization Act:

•

Repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among banks, securities firms, insurance companies, and other financial service providers;

•

Provides a uniform framework for the functional regulation of the activities of banks, savings institutions, and their holding companies;

•

Broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;

•

Provides an enhanced framework for protecting the privacy of consumer information;

•

Adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;

•

Modifies the laws governing the implementation of the Community Reinvestment Act ("CRA"); and

•

Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

In order for a bank holding company to take advantage of the ability to affiliate with other financial services providers, that company must become a "Financial Holding Company" as permitted under an amendment to the BHCA. To become a Financial Holding Company, Security Capital Corporation would file a declaration with the Federal Reserve, electing to engage in activities permissible for Financial Holding Companies and certifying that it is eligible to do so because all of its insured depository institution subsidiaries are well-capitalized and well-managed. In addition, the Federal Reserve must also determine that each insured depository institution subsidiary of Security Capital Corporation has at least a "satisfactory" CRA rating.

The Financial Services Modernization Act also includes a new section of the Federal Deposit Insurance Act governing subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. It expressly preserves the ability of a state bank to retain all existing subsidiaries. In order to form a financial subsidiary, a state bank must be well-capitalized, and the state bank would be subject to the same capital deduction, risk management and affiliate transaction rules as applicable to national banks.

Security Capital Corporation and First Security Bank do not believe that the Financial Services Modernization Act will have a material adverse effect on operations in the near-term. However, to the extent that it permits banks, securities firms, and insurance companies to affiliate, the financial services industry may experience further consolidation. The Financial Services Modernization Act is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis. Nevertheless, this act may have the result of increasing the amount of competition that Security Capital Corporation and First Security Bank face from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than Security Capital Corporation and First Security Bank.

Capital. Security Capital Corporation and First Security Bank are required to comply with the capital adequacy standards established by the Federal Reserve Board and the FDIC. There are two basic measures of capital adequacy for bank holding companies and their banking subsidiaries: a risk-based measure and a leverage measure.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among depository institutions and bank holding companies, to account for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the total capital to risk-weighted assets, including certain off-balance sheet items such as standby letters of credit ("total capital ratio") is 8.0 percent. At least half of total capital must be composed of common equity, undivided profits, minority interests in the equity accounts of consolidated subsidiaries, non-cumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets ("Tier 1 capital"). The remainder may consist of subordinated debt, other preferred stock, a limited amount of loan loss reserves, and unrealized gains on equity securities subject to limitations ("Tier 2 capital").

The following table represents the capital ratios for Security Capital Corporation and First Security Bank as of December 31, ~~2010~~2011:

	Corporation			Bank
Risk-Based Capital Ratio	Ratio			Ratio			Requirements
Total Capital		2223.4325	%		1819.4624	%		8.00	%
Tier 1 Capital		2122.1800	%		1718.2101	%		4.00	%
Leverage Capital		1213.9831	%		10.3043	%		4.00	%

Deposit Insurance Assessments: The deposits of First Security Bank are insured by the FDIC up to the limits set forth under applicable law. A majority of the deposits of First Security Bank are subject to the deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC. However, a portion of First Security Bank's deposits, relating to a savings association acquisition, are subject to assessments imposed by the Savings Association Insurance Fund ("SAIF") of the FDIC. The FDIC equalized the assessment rates for BIF-insured and SAIF-insured deposits effective January 1, 1997. The assessments imposed on all FDIC deposits for deposit insurance have an effective rate ranging from 0 to 27 basis points per $100 of insured deposits, depending on the institution's capital position and other supervisory factors. Effective March 31, 2006, the BIF and SAIF funds were merged into the newly created Deposit Insurance Fund (“DIF”). The DIF is maintained by assessing depository institutions an insurance premium effective 2007. The premium is based upon statutory factors that include the balance of the insured deposits as well as the degree of risk the institution poses to the fund. The Federal Deposit Insurance Reform Act of 2005 provided a One-time Assessment Credit of $194,604 to First Security Bank in 2007 as an eligible institution which eliminated the need to pay a DIF premium in that year. The remaining credit of $44,403 was depleted early in the next year, 2008. In 2008, the bank paid annualized basis points ranging from 5.45 basis points to 7 basis points for the DIF premium. On October 3, 2008, deposits at FDIC-insured institutions became insured up to at least $250,000 per depositor with this increase in coverage to cease at December 31, 2013. On October 14, 2008, the Temporary Liquidity Guarantee Program (TLGP) became available to participating banks. With this program, First Security Bank opted to cover any noninterest-bearing transaction accounts with a balance exceeding $250,000 at an additional fee of 10 basis points (annualized) to provide this coverage for its customers. This program, originally to expire on December 31, 2009, was extended to June 30, 2010 and then to December 31, 2010. In 2010, the Dodd-Frank Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. Although the TLGP ceased at its sunset date of December 31, 2010, the Dodd-Frank Act has in effect extended unlimited deposit insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions for the period of December 31, 2010 through December 31, 2012. This regulation also made permanent the standard coverage of $250,000 per depositor, per insured bank, for each account ownership category. In 2009, First Security Bank paid DIF premiums ranging from annualized basis points of 7.00 to 20.89. Also in 2009, a special one-time assessment of .05% was paid on total assets less Tier 1 Capital. In 2010, First Security Bank paid DIF premiums ranging from annualized basis points of 21.04 to 21.21. Legislation was enacted in 1996 requiring both SAIF-insured and BIF-insured deposits to pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation ("FICO"). Based on the assigned FICO debt service rates, the assessments paid by the Bank during 2010 was 1.04 basis points, per $100 of deposits. The projected assessments for the first quarter of 2012 will be paid based on an assigned FICO debt service rate of 1.02 basis points.

~~Deposit~~The ~~Insurance~~Dodd-Frank ~~Assessments:~~Act also changed the method of calculation for FDIC insurance assessments. ~~The~~Under the current system, the assessment base is domestic deposits ofminus ~~First~~a ~~Security~~few ~~Bank~~allowable exclusions, such as pass-through reserve balances. Under the Dodd-Frank Act, assessments are ~~insured~~to bybe calculated based on the depository institution’s average consolidated total assets, less its average amount of tangible equity. On February 9, 2011, the FDIC uppublished final regulations implementing these changes. In addition to providing for the ~~limits~~required change in assessment base, the FDIC has modified or eliminate the assessment adjustments based on unsecured debt, secured liabilities, and brokered deposits; added a new adjustment for holding unsecured debt issued by another insured depository institution; and lowered the initial base assessment rate schedule in order to collect approximately the same amount of revenue under the new base as under the old base, among other changes. Due to the expanded assessment base the new initial base assessment rates will range from 5 to 35 basis points, and total base assessment rates will range from 2.5 to 45 basis points after adjustments. These final regulations were effective April 1, 2011.

set forth under applicable law. A majority of the deposits of First Security Bank are subject to the deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC. However, a portion of First Security Bank's deposits, relating to a savings association acquisition, are subject to assessments imposed by the Savings Association Insurance Fund ("SAIF") of the FDIC. The FDIC equalized the assessment rates for BIF-insured and SAIF-insured deposits effective January 1, 1997. The assessments imposed on all FDIC deposits for deposit insurance have an effective rate ranging from 0 to 27 basis points per $100 of insured deposits, depending on the institution's capital position and other supervisory factors. Effective March 31, 2006, the BIF and SAIF funds were merged into the newly created Deposit Insurance Fund (“DIF”). The DIF is maintained by assessing depository institutions an insurance premium effective 2007. The premium is based upon statutory factors that include the balance of the insured deposits as well as the degree of risk the institution poses to the fund. The Federal Deposit Insurance Reform Act of 2005 provided a One-time Assessment Credit of $194,604 to First Security Bank in 2007 as an eligible institution which eliminated the need to pay a DIF premium in that year. The remaining credit of $44,403 was depleted early in the next year, 2008. In 2008, the bank paid annualized basis points ranging from 5.45 basis points to 7 basis points for the DIF premium. On October 3, 2008, deposits at FDIC-insured institutions became insured up to at least $250,000 per depositor with this increase in coverage to cease at December 31, 2013. On October 14, 2008, the Temporary Liquidity Guarantee Program (TLGP) became available to participating banks. With this program, First Security Bank opted to cover any noninterest-bearing transaction accounts with a balance exceeding $250,000 at an additional fee of 10 basis points (annualized) to provide this coverage for its customers. This program, originally to expire on December 31, 2009, was extended to June 30, 2010 and then to December 31, 2010. In 2010, the Dodd-Frank Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. Although the TLGP ceased at its sunset date of December 31, 2010, the Dodd-Frank Act has in effect extended unlimited deposit insurance coverage for noninterest-bearing transaction accounts at all FDIC-insured depository institutions for the period of December 31, 2010 through December 31, 2012. This regulation also made permanent the standard coverage of $250,000 per depositor, per insured bank, for each account ownership category. In 2009, First Security Bank paid DIF premiums ranging from annualized basis points of 7.00 to 20.89. Also in 2009, a special one-time assessment of .05% was paid on total assets less Tier 1 Capital. In 2010, First Security Bank paid DIF premiums ranging from annualized basis points of 21.04 to 21.21. Legislation was enacted in 1996 requiring both SAIF-insured and BIF-insured deposits to pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation ("FICO"). Based on the assigned FICO debt service rates, the assessments paid by the Bank during 2010 was 1.04 basis points, per $100 of deposits. The projected assessments for the first quarter of 2011 will be paid based on an assigned FICO debt service rate of 1.02 basis points.

The Dodd-Frank Act also changed the method of calculation for FDIC insurance assessments. Under the current system, the assessment base is domestic deposits minus a few allowable exclusions, such as pass-through reserve balances. Under the Dodd-Frank Act, assessments are to be calculated based on the depository institution’s average consolidated total assets, less its average amount of tangible equity. On February 9, 2011, the FDIC published final regulations implementing these changes. In addition to providing for the required change in assessment base, the FDIC has modified or eliminate the assessment adjustments based on unsecured debt, secured liabilities, and brokered deposits; added a new adjustment for holding unsecured debt issued by another insured depository institution; and lowered the initial base assessment rate schedule in order to collect approximately the same amount of revenue under the new base as under the old base, among other changes. Due to the expanded assessment base the new initial base assessment rates will range from 5 to 35 basis points, and total base assessment rates will range from 2.5 to 45 basis points after adjustments. These final regulations will be effective April 1, 2011.

Legislative and Regulatory Initiatives to Address Financial and Economic Crises

The Congress, Treasury Department and the federal banking regulators, including the FDIC, have taken broad action since early September, 2008 to address volatility in the U.S. banking system, including the passage of legislation, the provision of other direct and indirect assistance to financial institutions, assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers, implementation of programs by the Federal Reserve Board to provide liquidity to the commercial paper markets and expansion of deposit insurance coverage

In October 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted. The EESA authorizes the Treasury Department to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. The Treasury Department has allocated $250 billion towards the TARP Capital Purchase Program (“CPP”). Under the CPP, Treasury purchased ~~will purchase~~ debt or equity securities from participating institutions. ~~The~~ TARP also ~~includes~~included direct purchases or guarantees of troubled assets of financial institutions. Participants in the CPP are subject to executive compensation limits and are encouraged to expand their lending and mortgage loan modifications.

The ~~new~~current administration and Congress have pursued a number of initiatives in an effort to stimulate the economy and stabilize the financial markets, including the enactment of the American Recovery and Reinvestment Act of 2009 and the Small Business Jobs Act of 2010, among others, and have altered the terms of some previously announced policies and programs.

11Dodd-Frank Wall Street Reform and Consumer Protection Act

The ~~recent~~ enactment ~~during 2010~~ of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) will ~~likely~~ result in increased regulation of the financial services industry. Provisions likely to affect the activities of the Company and the Bank include, without limitation, the following:

·	Asset-based deposit insurance assessments. FDIC deposit insurance premium assessments will be based on bank assets rather than domestic deposits.

·	Deposit insurance limit increase. The deposit insurance coverage limit has been permanently increased from $100,000 to $250,000.

·	Extension of Transaction Account Guarantee Program. Unlimited deposit insurance coverage is extended for non-interest-bearing transaction accounts and certain other accounts for two years. This applies to all banks; there is no opt-in or opt-out requirement.

Establishment of the Bureau of Consumer Financial Protection (BCFP). The BCFP will be housed within the Federal Reserve and, in consultation with the Federal banking agencies, will make rules relating to consumer protection. The BCFP has the authority, should it wish to do so, to rewrite virtually all of the consumer protection regulations governing banks, including those implementing the Truth in Lending Act, the Real Estate Settlement Procedures Act (or RESPA), the Truth in Savings Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the S.A.F.E. Mortgage Licensing Act, the Fair Credit Reporting Act (except Sections 615(e) and 628), the Fair Debt Collection Practices Act, and the Gramm-Leach-Bliley Act (sections 502 through 509 relating to privacy), among others.

·	Risk-retention rule. Banks originating loans for sale on the secondary market or securitization must retain 5 percent of any loan they sell or securitize, except for mortgages that meet low-risk standards to be developed by regulators.

Limitation on federal preemption. Limitations have been imposed on the ability of national bank regulators to preempt state law. Formerly, the national bank and federal thrift regulators possessed preemption powers with regard to transactions, operating subsidiaries and attorney general civil enforcement authority. These preemption requirements have been limited by the Dodd-Frank Act, which will likely impact state banks by affecting activities previously permitted through parity with national banks.

Changes to regulation of bank holding companies. Under Dodd-Frank, bank holding companies must be well-capitalized and well-managed to engage in interstate transactions. In the past, only the subsidiary banks were required to meet those standards. The Federal Reserve Board’s “source of strength doctrine” has now been codified, mandating that bank holding companies such as the Company serve as a source of strength for their subsidiary banks, meaning that the bank holding company must be able to provide financial assistance in the event the subsidiary bank experiences financial distress.

·	Executive compensation limitations. The Dodd-Frank Act codified executive compensation limitations similar to those previously imposed on TARP recipients.

This new legislation contains 16 different titles, is over 800 pages long, and calls for the completion of dozens of studies and reports and hundreds of new regulations. The information provided herein regarding the effect of the Dodd-Frank Act is intended merely for illustration and is not exhaustive, as the full impact of the legislation on banks and bank holding companies is still being studied and in any event cannot be fully known until the completion of hundreds of new federal agency rulemakings over the next few years. Interested shareholders should refer directly to the Dodd-Frank Act itself for additional information.

The Dodd-Frank Act is one of a number of legislative initiatives that have been proposed in recent months due to the ongoing national and global financial crisis. It is not possible to predict whether any other similar legislation may be adopted that would significantly affect the operations and performance of the Company and the Bank.

On June 26, 2009, as part of the TARP CPP, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the Treasury Department, pursuant to which the Company sold (i) 17,388 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series UST (the “UST Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 522.00522 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series UST/W (“the “Warrant Preferred Stock”), for an aggregate purchase price of $17,388,000 in cash. The UST Preferred Stock qualifies as Tier 1 capital and is entitled to cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Warrant was immediately exercised upon its issuance, and the 522 net shares of Warrant Preferred Stock was (after net settlement) entitled to dividends at a rate of 9% per annum. The Company was subject to these rate requirements until September 29, 2010.

On September 29, 2010, the Company closed a transaction whereby the Treasury exchanged its 17,910 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series UST and Series UST/W for 17,910 shares of a new series of preferred stock designated Fixed Rate Cumulative Perpetual Preferred Stock, Series CD (the “CDCI Preferred Shares”). As a result of the Exchange, the Company is no longer participating in the TARP Capital Purchase Program being administered by Treasury and is now participating in Treasury’s TARP Community Development Capital Initiative (the “CDCI”). In comparison with the rates required by the TARP CPP, the CDCI Preferred Shares entitle the holder to an annual dividend of 2% of the liquidation value of the shares, payable quarterly in arrears, for a period of eight years or until repayment of the principal, whichever expires first. If the principal remains outstanding at the end of eight years, the annual dividend rate will rise to 9%. In addition, if the Company fails to maintain its compliance with the eligibility requirements for certification as a Community Development Financial Institution, the annual rate will be 5% when noncompliance exceeds 180 days and 9% for noncompliance exceeding 270 days.

These eligibility requirements include the following:

·	The Company must have a primary mission of promoting community development, based on criteria set forth in 12 C.F.R. 1805.201(b)(1);

·	The Company must provide Financial Products, Development Services, and/or other similar financing as a predominant business activity in arm’s-length transactions, as provided in 12 C.F.R. 1805.201(b)(2);

·	The Company must serve a Target Market by serving one or more Investment Areas and/or Targeted Populations, substantially in the manner set forth in 12 C.F.R. 1805.201(b)(3);

·	The Company must provide Development Services in conjunction with its Financial Products, either directly, through an Affiliate, or through a contract with a third-party provider, as provided in 12 C.F.R. 1805.201(b)(4);

·	The Company must maintain accountability to residents of the applicable Investment Area(s) and/or Targeted Population(s) through representation on its governing Board of Directors or otherwise, as provided in 12 C.F.R. 1805.201(b)(5); and

The Company must remain a non-governmental entity which is not an agency or instrumentality of the United States of America, or any State or political subdivision thereof, as described in 12 C.F.R. 1805.201(b)(6) and within the meaning of any supplemental regulations or interpretations of 12 C.F.R. 1805.201(b)(6) or such supplemental regulations published by the Fund.

As used in the discussion above, the terms “Affiliate,” “Financial Products,” “Development Services,” “Target Market,” “Investment Area(s),” and “Targeted Population(s)” have the meanings ascribed to such terms in 12 C.F.R. 1805.104.

Summary

The foregoing is a brief summary of certain statutes, rules and regulations affecting the Company and the Bank. It is not intended to be an exhaustive discussion of all the statutes and regulations having an impact on the operations of such entities.

Competition

The banking business is a highly competitive business. Security Capital Corporation’s market area consists principally of Panola, Quitman, Desoto, Marshall and Tunica Counties in Mississippi. Security Capital Corporation competes with other financial institutions, as well as insurance companies and various other entities, for deposits and in providing financial services in these counties and the surrounding counties. Security Capital Corporation, as provided by the FDIC Market Share Report of June 30, ~~2010~~2011 (the latest Market Share Report), held 58.4185% of the deposit market in Panola County. In Quitman County, this same report reflects Security Capital Corporation holding 2022.2541% of the deposit market. In Desoto County, an area filled with large regional banks and national banks, Security Capital Corporation held a 4.1509% share of the deposit market as of June 30, ~~2010~~2011. In Marshall County, Security Capital held a .78% share of the deposit base at June 30, ~~2010~~2011. In Tunica County, Security Capital Corporation held a 4849.8178% share of the deposit base as of June 30, 2011. The market share held as of June 30, 2011 by the Company in the counties of Panola, Quitman and Tunica reflected a small increase from the percentages shown as of June 30, 2010.

Available Information

The Company maintains an internet website at www.firstsecuritybk.com. ~~The~~On ~~Company provides on~~ its website, ~~as filed with~~ the ~~Securities~~Company ~~and~~provides ~~Exchange~~access ~~Commission,~~to the quarterly ~~reports on~~ Form 10-Q reports, ~~as well as~~ the annual report, Form 10-K, current reports on Form 8-K, and amendments to those reports when filed with the Securities and Exchange Commission. These reports will be available on the Company’s website as ~~soon as reasonably practical after~~ the reports are filed with the Commission. Information on the Company’s website is not incorporated into this Form 10-K or the Company's other securities filings and is not a part of them. Electronic or paper copies of the reports will be provided, free of charge, upon request by mail, through our website or in person.

The ~~2010~~2011 annual report and the ~~2011~~2012 proxy material are available on the website, www.firstsecuritybk.com, for the shareholders to review prior to submitting a proxy or attending the ~~2011~~2012 shareholders’ meeting.

Statistical Disclosure

The statistical disclosures for the Company are contained in Tables 1 through 16.

Table 1 - Five Year Financial Summary

Table 2 - Average Balances, Interest Earned and Interest Yields

Table 3 - Net Interest Earning Assets

Table 3A - Volume/Rate Analysis

Table 4 - Non-Interest Income and Expense

Table 5 - Loans by Type

Table 6 - Loan Liquidity

Table 7 - Allowance for Loan Losses

Table 8 - Nonperforming Assets

Table 8A - Allocation of the Allowance for Loan Losses

Table 9 - Securities

Table 10 - Securities Maturity and Repricing Schedule

Table 11 - Securities Weighted Maturity and Tax Equivalent Yield by Classification

Table 12 - Deposit Information

Table 13 - Maturity Ranges of Time Deposits with Balances More Than $100,000

Table 14 - Funding Uses and Sources

Table 15 - Liquidity; Interest Rate Sensitivity

Table 15A - Changes in Net Interest Income over One Year Horizon

Table 16 - Capital Ratios

ITEM 1A. RISK FACTORS

Making or continuing an investment in securities issued by the Company, including the Company’s common stock, involves certain risks that you should carefully consider. The risks and uncertainties described below are not the only risks that may have a material adverse effect on the Company. Additional risks and uncertainties also could adversely affect the Company’s business and results of operations. If any of the following risks actually occur, the Company’s business, financial condition or results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company.

The Company may be vulnerable to certain sectors of the economy.

A portion of the Company’s loan portfolio is secured by real estate. If the economy continues to deteriorate causing depressed real estate values beyond a certain point, then the collateral value of the portfolio and the revenue stream from those loans could come under stress and possibly require additional loan loss accruals. The Company’s ability to dispose of foreclosed real estate at prices above the respective carrying values could also be impinged, causing additional losses.

General economic conditions in the areas where the Company’s operations or loans are concentrated may adversely affect our customers’ ability to meet their obligations.

A sudden or severe downturn in the economy in the geographic markets served by the Company in the state of Mississippi may affect the ability of the Company’s customers to meet loan payment obligations on a timely basis. The local economic conditions in these areas have a significant impact on the Company’s commercial, real estate, and construction loans, the ability of borrowers to repay these loans and the value of the collateral securing such loans. Changes resulting in adverse economic conditions of the Company’s market areas could negatively impact the financial results of the Company’s banking operations and its profitability. Additionally, adverse economic changes may cause customers to withdraw deposit balances, thereby causing a strain on the Company’s liquidity.

The Company is subject to a risk of rapid and significant changes in market interest rates.

The Company’s assets and liabilities are primarily monetary in nature and, as a result, the Company is subject to significant risks tied to changes in interest rates. The Company’s ability to operate profitably is largely dependent upon net interest income. Unexpected movement in interest rates markedly changing the slope of the current yield curve could

cause the Company’s net interest margins to decrease, subsequently decreasing net interest income. In addition, such changes could adversely affect the valuation of the Company’s assets and liabilities.

At present the Company’s one-year interest rate sensitivity position continues to indicate an overall neutrality, with a slight tendency to being asset sensitive. This status projects that a gradual increase in interest rates during the next twelve months should not have a significant impact on net interest income during that period. However, as with most financial institutions, the Company’s results of operations are affected by changes in interest rates and the Company’s ability to manage this risk. The difference between interest rates charged on interest-earning assets and interest rates paid on interest-bearing liabilities may be affected by changes in market interest rates, changes in relationships between interest rate indices, and/or changes in the relationships between long-term and short-term market interest rates. A change in this difference might result in an increase in interest expense relative to interest income, or a decrease in the Company’s interest rate spread.

Certain changes in interest rates, inflation, or the financial markets could affect demand for the Company’s products and the Company’s ability to deliver products efficiently.

Loan originations, and potentially loan revenues, could be adversely impacted by sharply rising interest rates. Conversely, sharply falling rates could increase prepayments within the Company’s securities portfolio lowering interest earnings from those investments. An underperforming stock market could reduce brokerage transactions, therefore reducing investment brokerage revenues; in addition, wealth management fees associated with managed securities portfolios could also be adversely affected. An unanticipated increase in inflation could cause the Company’s operating costs related to salaries & benefits, technology, & supplies to increase at a faster pace than revenues.

The fair market value of the Company’s securities portfolio and the investment income from these securities also fluctuate depending on general economic and market conditions. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk, such as mortgage-backed and other asset-backed securities, may differ from those anticipated at the time of investment as a result of interest rate fluctuations.

Changes in the policies of monetary authorities and other government action could adversely affect the Company’s profitability.

The results of operations of the Company are affected by credit policies of monetary authorities, particularly the Federal Reserve Board. The instruments of monetary policy employed by the Federal Reserve Board include open market operations in U.S. government securities, changes in the discount rate or the federal funds rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, particularly in light of the continuing threat of terrorist attacks and the current military operations in the Middle East, we cannot predict possible future changes in interest rates, deposit levels, loan demand or the Company’s business and earnings. Furthermore, the actions of the United States government and other governments in responding to such terrorist attacks or the military operations in the Middle East may result in currency fluctuations, exchange controls, market disruption and other adverse effects.

Natural disasters could affect the Company’s ability to operate.

The Company’s market areas are susceptible to hurricanes. Natural disasters, such as hurricanes, can disrupt the Company’s operations, result in damage to properties and negatively affect the local economies in which the Company operates.

The Company cannot predict whether or to what extent damage caused by future hurricanes will affect the Company’s operations or the economies in the Company’s market areas, but such weather events could cause a decline in loan originations, a decline in the value or destruction of properties securing the loans and an increase in the risk of delinquencies, foreclosures or loan losses.

Greater loan losses than expected may adversely affect the Company’s earnings.

The Company, as a lender, is exposed to the risk that its customers will be unable to repay their loans in accordance with their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse effect on the Company’s operating results. The Company’s credit risk, with respect to its real estate and construction loan portfolio, will relate principally to the creditworthiness of corporations and the value of the real estate serving as security for the repayment of loans. The Company’s credit risk, with respect to its commercial and consumer loan portfolio, will relate principally to the general creditworthiness of businesses and individuals within the Company’s local markets.

The Company makes various assumptions and judgments about the collectibility of its loan portfolio and provides an allowance for estimated loan losses based on a number of factors. The Company believes that its current allowance for loan losses is adequate. However, if the Company’s assumptions or judgments prove to be incorrect, the allowance for loan losses may not be sufficient to cover actual loan losses. The Company may have to increase its allowance in the future in response to the request of one of its primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of the Company’s loan portfolio. The actual amount of future provisions for loan losses cannot be determined at this time and may vary from the amounts of past provisions.

The Company’s stock is not listed or traded on the financial markets.

The Company’s stock is neither listed nor traded on any securities exchange and transfer to a non-stockholder is restricted. The Company, through handling a stock sale, provides a market for the stock.

The Company is subject to regulation by various federal and state entities.

The Company is subject to the regulations of the Securities and Exchange Commission (“SEC”), the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Mississippi Department of Banking and Consumer Finance. New regulations issued by these agencies may adversely affect the Company’s ability to carry on its business activities. The Company is subject to various federal and state laws and certain changes in these laws and regulations may adversely affect the Company’s operations.

The Company is also subject to the accounting rules and regulations of the SEC and the Financial Accounting Standards Board. Changes in accounting rules could adversely affect the reported financial statements or results of operations of the Company and may also require extraordinary efforts or additional costs to implement.

Any of these laws or regulations may be modified or changed from time to time, and the Company cannot be assured that such modifications or changes will not adversely affect the Company.

The Company engages in acquisitions of other businesses from time to time.

On occasion, the Company will engage in acquisitions of other businesses. Acquisitions may result in customer and employee turnover, thus increasing the cost of operating the new businesses. The acquired companies may also have legal contingencies, beyond those that the Company is aware of, that could result in unexpected costs.

The Company is subject to industry competition which may have an impact upon its success.

The profitability of the Company depends on its ability to compete successfully. The Company operates in a highly competitive financial services environment. Certain competitors are larger and may have more resources than the Company. The Company faces competition in its regional market areas from other commercial banks, savings and loan associations, credit unions, internet banks, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, and other financial intermediaries that offer similar services. Some of the Company’s nonbank

competitors are not subject to the same extensive regulations that govern the Company or the Bank and may have greater flexibility in competing for business.

Another competitive factor is that the financial services market, including banking services, is undergoing rapid changes with frequent introductions of new technology-driven products and services. The Company’s future success may depend, in part, on its ability to use technology competitively to provide products and services that provide convenience to customers and create additional efficiencies in the Company’s operations.

Anti-takeover laws and certain agreements and charter provisions may adversely affect share value.

Certain provisions of state and federal law and the Company’s articles of incorporation may make it more difficult for someone to acquire control of the Company. Under federal law, subject to certain exemptions, a person, entity, or group must notify the federal banking agencies before acquiring 10% or more of the outstanding voting stock of a bank holding company, including the Company’s shares. Banking agencies review the acquisition to determine if it will result in a change of control. The banking agencies have 60 days to act on the notice, and take into account several factors, including the resources of the acquiror and the antitrust effects of the acquisition.

Securities issued by the Company, including the Company’s common stock, are not FDIC insured.

Securities issued by the Company, including the Company’s common stock, are not savings or deposit accounts or other obligations of any bank and are not insured by the FDIC, the Bank Insurance Fund, or any other governmental agency or instrumentality, or any private insurer, and are subject to investment risk, including the possible loss of principal.

Security Capital Corporation makes loans, and most of its assets are located in Panola, Quitman, Desoto, Marshall, and Tunica Counties in Mississippi. Adverse changes in economic conditions in these areas could hurt Security Capital Corporation's ability to collect loans, could reduce the demand for loans, and could negatively impact performance and financial condition.

Security Capital Corporation’s profitability depends on economic policies and factors beyond our control.

Security Capital Corporation’s earnings depend to a great extent on “rate differentials,” which are the differences between interest income that Security Capital Corporation earns on loans and investments and the interest expense paid on deposits and other borrowings. These rates are highly sensitive to many factors which are beyond Security Capital Corporation’s control, including general economic conditions and the policies of various government and regulatory authorities. Changes in interest rate policy by the Board of Governors of the Federal Reserve System affect Security Capital Corporation’s interest income, interest expense and investment portfolio. Also, governmental policies such as the creation of a tax deduction for individual retirement accounts can increase savings and affect the cost of funds. A rapid increase or decrease in interest rates could have an adverse effect on the net interest margin and results of operations of Security Capital Corporation. The nature, timing and effect of any future changes in federal monetary and fiscal policies on Security Capital Corporation and its results of operations are not predictable.

There is no assurance that Security Capital Corporation will be able to successfully compete with others for business.

The banking business is highly competitive, and the profitability of Security Capital Corporation depends principally upon its ability to compete in the market areas where its banking operations are located. Security Capital Corporation competes with other commercial banks, savings banks, savings and loan associations, credit unions, mortgage companies, finance companies, mutual funds, insurance companies, brokerage and investment banking firms, asset-based non-bank lenders and certain other non-financial entities, including retail stores which may maintain their own credit programs and certain governmental organizations which may offer more favorable financing than Security Capital Corporation. Many of these competitors have greater financial and other resources than Security Capital Corporation, and certain larger competitors are recent entrants into Security Capital Corporation’s markets.

The capital and credit markets, including fixed income markets, have been experiencing volatility and disruption in recent months. In some cases the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ financial strength. In many cases, secondary markets for certain forms of securitized credit have ceased to function.

Many lenders and institutional investors have reduced and in some cases ceased to provide funding to borrowers including to other financial institutions because of concern about the stability of financial markets and the strength of counterparties. It is difficult to predict how long these economic conditions will persist, the extent to which they will impact our business segments, or whether management’s actions will effectively mitigate these external factors. Accordingly, the resulting shortfall of available credit, lack of confidence in the financial sector, decreased consumer confidence, increased volatility in the financial markets, and reduced business activity could materially and adversely affect our business, financial condition, and results of operations.

The Company participates in the U.S. Treasury’s Troubled Asset Relief Program (TARP).

In 2009, the Company received $17,388,000 in funding under the Capital Purchase Program, which is part of the Troubled Asset Relief Program or “TARP,” in exchange for preferred stock and preferred stock warrants. On September 29, 2010, the Company closed a transaction whereby the Treasury exchanged (the “Exchange”) its 17,910 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series UST and Series UST/W for 17,910 shares of a new series of preferred stock designated Fixed Rate Cumulative Perpetual Preferred Stock, Series CD (the “CDCI Preferred Shares”). As a result of the Exchange, the Company is participating in the Community Development Capital Initiative which is also part of TARP.

Participation constrains the Company’s ability to raise dividends and repurchase equity securities and also places certain constraints on executive compensation arrangements. The increased funding provides assurance that the Company can maintain its minimum regulatory capital ratios in the face of future large real estate-related losses.

The rules that govern TARP include restrictions on certain compensation to executive officers and a number of others in the Company. Among other things, these rules include a prohibition on golden parachute payments, a prohibition on providing tax gross-ups, a bonus claw-back provision, and a prohibition on paying any bonus payment to the Company’s most highly compensated employee. It is possible that compensation restrictions imposed by TARP could impede our ability to attract and retain qualified executive officers.

· Our participation in the Capital Purchase Program limited our annual per share dividend payments to no more than the amount paid in the immediately prior fiscal year. Beginning on September 29, 2008, ~~our~~the Capital Purchase Program restricts the ability to repurchase ~~our~~the Company’s common stock ~~would also be restricted~~.

Since TARP was part of legislation that has the reputation of being passed as a bailout of the financial industry, participation in the program could also create some reputational risk. This reputation of the program could impede the Company’s ability to attract business in competition with other financial institutions that did not participate. This reputational risk could also impede the Company’s ability to attract and retain qualified executive officers.

As a result of the Exchange, the Company is no longer participating in the TARP Capital Purchase Program being administered by Treasury and is now participating in Treasury’s TARP Community Development Capital Initiative (the “CDCI”). In comparison with the rates required by the TARP CPP, the CDCI Preferred Shares entitle the holder to an annual dividend of 2% of the liquidation value of the shares, payable quarterly in arrears, for a period of eight years or until repayment of the principal, whichever expires first. If the principal remains outstanding at the end of eight years, the annual dividend rate will rise to 9%. In addition, if the Company fails to maintain its compliance with the eligibility requirements for certification as a Community Development Financial Institution, the annual rate will be 5% when noncompliance exceeds 180 days and 9% for noncompliance exceeding 270 days.

These eligibility requirements include the following:

·	The Company must have a primary mission of promoting community development, based on criteria set forth in 12 C.F.R. 1805.201(b)(1);

·	The Company must provide Financial Products, Development Services, and/or other similar financing as a predominant business activity in arm’s-length transactions, as provided in 12 C.F.R. 1805.201(b)(2);

·	The Company must serve a Target Market by serving one or more Investment Areas and/or Targeted Populations, substantially in the manner set forth in 12 C.F.R. 1805.201(b)(3);

·	The Company must provide Development Services in conjunction with its Financial Products, either directly, through an Affiliate, or through a contract with a third-party provider, as provided in 12 C.F.R. 1805.201(b)(4);

·	The Company must maintain accountability to residents of the applicable Investment Area(s) and/or Targeted Population(s) through representation on its governing Board of Directors or otherwise, as provided in 12 C.F.R. 1805.201(b)(5); and

As a result of the challenges presented by current economic conditions, we face various risks in connection with these events, including the following:

•		Inability of our borrowers to make timely repayments of their loans, or decreases in value of real estate collateral securing the payment of such loans resulting in significant credit losses.

•		Increased regulation of our industry, including heightened legal standards, and regulatory requirements or future legislation. Compliance with such regulation will likely increase our costs and may limit our ability to pursue business opportunities. In addition, compensation restrictions associated with any future legislation may affect our ability to attract and retain key management personnel.

•		Possible changes to bankruptcy laws could result in the loss of all or part of our security interest in mortgage loans.

•		Further disruptions in the capital markets or other events including actions by rating agencies and deteriorating investor expectations may result in an inability to borrow at favorable terms or at all from other financial institutions.

• On August 5, 2011, Standard & Poor's downgraded the United States long-term debt rating from its AAA rating to AA+. On August 8, 2011, Standard & Poor's downgraded the credit ratings of certain long-term debt instruments issued by Fannie Mae and Freddie Mac and other U.S. government agencies linked to long-term U.S. debt. Although these downgrades did not have a significant effect on the Company's operations, any future additional downgrades could have a significant effect on the value of the Company's U.S. government-related investments and on lending and other programs that are dependent on the credit standing of the U.S. government.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable

ITEM 2. PROPERTIES

Security Capital Corporation, through First Security Bank, currently operates from its Main Office and its Trust and Financial Services in central Batesville and from 15 additional branches in Panola, Quitman, Desoto, Marshall, and Tunica Counties - all located in Mississippi. Information about these branches is set forth in the table below:

Name of Office	Location/Telephone Number	Banking Services Offered
Main Office	295 Highway 6 West	Loans, Deposits, Cash,
	Batesville, Mississippi 38606	Safe Deposit Boxes, ATM,
	662-563-9311	Drive-thru
Express Branch	130 Highway 51 North	Drive-thru, Cash
	Batesville, Mississippi 38606
	662-563-9311
Marks Branch	1651 Charlie Pride Highway South	Loans, Deposits, Cash,
	Marks, Mississippi 38646	Safe Deposit Boxes,
	662-326-8053	Drive-thru
Power Drive Branch	230 Power Drive	Loans, Deposits, Cash,
	Batesville, Mississippi 38606	Safe Deposit Boxes, ATM,
	662-563-9311	Drive-thru
Sardis Branch	201 South Main	Loans, Deposits, Cash,
	Sardis, Mississippi 38666	Safe Deposit Boxes
	662-487-1661
Olive Branch Branch	6659 Highway 305	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-895-1994	Drive-thru
Como Branch	227 Main Street	Loans, Deposits, Cash,
	Como, Mississippi 38619	Safe Deposit Boxes, ATM,
	662-526-5191	Drive-thru
Crenshaw Branch	729 Broad Street	Loans, Deposits, Cash,
	Crenshaw, Mississippi 38621	Safe Deposit Boxes
	662-382-5215
Tunica Branch	1262 East Edwards Street	Loans, Deposits, Cash,
	Tunica, Mississippi 38676	Safe Deposit Boxes, ATM,
	662-363-2311	Drive-thru
Robinsonville Branch	11490 Old Highway 61 North	Loans, Deposits, Cash,
	Robinsonville, Mississippi 38664	Safe Deposit Boxes, ATM,
	662-363-5015	Drive-thru
Hernando Branch	985 East Commerce Street	Loans, Deposits, Cash,
	Hernando, Mississippi 38632	Safe Deposit Boxes, ATM,
	662-449-4115	Drive-thru
Pope Branch	7024 Highway 51 North	Deposits, Cash, ATM,
	Pope, Mississippi 38658	Drive-thru
	662-578-5650
Southaven Branch	3035 Church Road East	Loans, Deposits, Cash,
	Southaven, Mississippi 38672	Safe Deposit Boxes, ATM,
	662-893-3243	Drive-thru
Sardis Express Branch	610 East Lee Street	Deposits, Cash, ATM,
	Sardis, Mississippi 38666	Drive-thru
	662-487-1895
Goodman Road Branch	5028 Goodman Road	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-890-1043	Drive-thru
Barton Branch	4417 Highway 302	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-890-4670	Drive-thru
Trust and Financial Services	275 Highway 6 West	Investment Planning &
Branch	Batesville, Mississippi 38606	Management, Personal Trusts,
	662-563-9311	Corporate Trusts, Pension &
		Profit-Sharing Plans, IRA's,
		Paying Agent Accounts

First Security Bank owns its main office and all of its branch offices, except the Express Branch. The Express Branch was leased for an annual rent of $10,200 in 2010. This ground lease agreement had an option to renew which was exercised in 2007. Under the renewal, the Bank is committed to an annual rent of $10,200 for 2011 through 2012. The main office facility, originally occupied in 1973, is used solely by Security Capital Corporation and First Security Bank. This facility contains approximately 21,300 square feet and houses the executive offices and the operations department as well as providing the customer area for cash, deposit, safe deposit and loan transactions. The other branch buildings range in size from approximately 600 square feet for the Express Branch to 7,000 square feet for the Hernando, Olive Branch, and Southaven locations.

Name of Office	Location/Telephone Number	Banking Services Offered

Main Office	295 Highway 6 West	Loans, Deposits, Cash,
	Batesville, Mississippi 38606	Safe Deposit Boxes, ATM,
	662-563-9311	Drive-thru

Express Branch	130 Highway 51 North	Drive-thru, Cash
	Batesville, Mississippi 38606
	662-563-9311

Marks Branch	1651 Charlie Pride Highway South	Loans, Deposits, Cash,
	Marks, Mississippi 38646	Safe Deposit Boxes,
	662-326-8053	Drive-thru

Power Drive Branch	230 Power Drive	Loans, Deposits, Cash,
	Batesville, Mississippi 38606	Safe Deposit Boxes, ATM,
	662-563-9311	Drive-thru

Sardis Branch	201 South Main	Loans, Deposits, Cash,
	Sardis, Mississippi 38666	Safe Deposit Boxes
	662-487-1661

Olive Branch Branch	6659 Highway 305	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-895-1994	Drive-thru

Como Branch	227 Main Street	Loans, Deposits, Cash,
	Como, Mississippi 38619	Safe Deposit Boxes, ATM,
	662-526-5191	Drive-thru

Crenshaw Branch	729 Broad Street	Loans, Deposits, Cash,
	Crenshaw, Mississippi 38621	Safe Deposit Boxes
	662-382-5215

Tunica Branch	1262 East Edwards Street	Loans, Deposits, Cash,
	Tunica, Mississippi 38676	Safe Deposit Boxes, ATM,
	662-363-2311	Drive-thru

Robinsonville Branch	11490 Old Highway 61 North	Loans, Deposits, Cash,
	Robinsonville, Mississippi 38664	Safe Deposit Boxes, ATM,
	662-363-5015	Drive-thru

Hernando Branch	985 East Commerce Street	Loans, Deposits, Cash,
	Hernando, Mississippi 38632	Safe Deposit Boxes, ATM,
	662-449-4115	Drive-thru

Pope Branch	7024 Highway 51 North	Deposits, Cash, ATM,
	Pope, Mississippi 38658	Drive-thru
	662-578-5650

Southaven Branch	3035 Church Road East	Loans, Deposits, Cash,
	Southaven, Mississippi 38672	Safe Deposit Boxes, ATM,
	662-893-3243	Drive-thru

Sardis Express Branch	610 East Lee Street	Deposits, Cash, ATM,
	Sardis, Mississippi 38666	Drive-thru
	662-487-1895

Goodman Road Branch	5028 Goodman Road	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-890-1043	Drive-thru

Barton Branch	4417 Highway 302	Loans, Deposits, Cash,
	Olive Branch, Mississippi 38654	Safe Deposit Boxes, ATM,
	662-890-4670	Drive-thru

Trust and Financial Services	275 Highway 6 West	Investment Planning &
Branch	Batesville, Mississippi 38606	Management, Personal Trusts,
	662-563-9311	Corporate Trusts, Pension &
		Profit-Sharing Plans, IRA's,
		Paying Agent Accounts

First Security Bank owns its main office and all of its branch offices, except the Express Branch. The Express Branch was leased for an annual rent of $10,200 in 2011. This ground lease agreement had an option to renew which was exercised in 2007. Under the renewal, the Bank is committed to an annual rent of $10,200 through 2012. The main office facility, originally occupied in 1973, is used solely by Security Capital Corporation and First Security Bank. This facility contains approximately 21,300 square feet and houses the executive offices and the operations department as well as providing the customer area for cash, deposit, safe deposit and loan transactions. The other branch buildings range in size from approximately 600 square feet for the Express Branch to 7,000 square feet for the Hernando, Olive Branch, and Southaven locations.

ITEM 3. LEGAL PROCEEDINGS

In 2011, the case in which First Security Bank is was the defendant in a case styled Amy French, individually, and Austin Lenard, a minor, by and through His Next Friend and Mother, Amy French vs. First Security Bank and Joshua Hawkins, Cause No. 2002-327-BB, filed on December 17, 2002, in the Circuit Court of the Second Judicial District of Panola County, Mississippi. ~~The case involves an accident that occurred when a First Security Bank employee traveling in his personal vehicle to service an ATM~~ was involved in an automobile accident. The pregnant occupant of the other vehicle gave birth later that day. The claims in the lawsuit are that the mother and child are experiencing permanent and continuing injuries, and the plaintiffs ask for compensatory damages in the amount determined to be fair by the jury. At December 31, 2010, the legal proceedings had not been resolved~~. However,~~ ~~an analysis by legal counsel anticipates possible awards to the claimants to be within the insurance coverage~~ with no ~~potential~~ loss to the Bank ~~and~~beyond ~~closure of~~ the ~~case~~insurance ~~is dependent on forthcoming medical documentation on status of claimants~~coverage.

From time to time First Security Bank is a defendant in various other lawsuits arising out of the normal course of business. In the opinion of management, the ultimate resolution of this category of claims should not have a material adverse effect on Security Capital Corporation’s consolidated financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Reserved

PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Market Value

There is no public trading market for the common stock of Security Capital Corporation. The articles and bylaws of Security Capital Corporation give Security Capital Corporation a right of first refusal to acquire shares when a shareholder wishes to sell stock.

Dividends

Security Capital Corporation paid an annual cash dividend of $.50 per share in ~~2010~~2011 and ~~2009~~2010. The primary source of funds for dividends paid by Security Capital Corporation to its shareholders is the dividend income received from First Security Bank. There are certain restrictions on the payment of such dividends imposed by federal and state banking laws, regulations and authorities. Under Mississippi law, the payment of dividends by First Security Bank must be approved by the Mississippi Department of Banking and Consumer Finance. The FDIC also has the authority to regulate the payment of dividends and to prohibit a regulated depository institution from engaging in what, in such agency’s opinion, constitutes an unsafe or unsound practice for conducting business. Depending upon the financial condition of the depository institution, payment of dividends could be deemed to constitute such an unsafe or unsound practice. In addition, a depository institution may not pay a dividend or otherwise make a capital distribution if the payment thereof would cause such institution to fail to satisfy its capital requirements.

At December 31, ~~2010~~2011, there were ~~832~~837 stockholders of record of the Company's common stock.

2022

ITEM 6. ~~SELECTED~~CONSOLIDATED FINANCIAL DATA

Five Year Financial Summary

The following table sets forth certain financial information for Security Capital Corporation on a consolidated historical basis. Such information should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes appearing elsewhere in this report.

Security Capital Corporation
Table 1 - Five Year Financial Summary
	12/31/2010	12/31/2009	12/31/2008	12/31/2007	12/31/2006
		12/31/2011				12/31/2010			12/31/2009			12/31/2008			12/31/2007
	~~(In thousands except per share data and other financial data)~~	(In thousands except per share data and other financial data)
Income Statement Data:
Interest Income	~~$ 19,785~~	$ ~~21,067~~	~~$ 27~~18,~~071~~625	~~$ 34,133~~	~~$ 30,586~~	$	19,785		$	21,067		$	27,071		$	34,133
Interest Expense	~~4,276~~	~~5,373~~	83,~~993~~073	~~13,699~~	~~11,523~~		4,276			5,373			8,993			13,699
Net Interest Income	~~15,509~~	~~15,694~~	1815,~~078~~552	~~20,434~~	~~19,063~~		15,509			15,694			18,078			20,434
Provision for Loan Losses	~~2,325~~	~~3,911~~	102,~~456~~848	~~1,155~~	~~965~~		2,325			3,911			10,456			1,155
Net Interest Income After Provision	~~13,184~~	~~11,783~~	712,~~622~~704	~~19,279~~	~~18,098~~		13,184			11,783			7,622			19,279
Noninterest Income	~~6,355~~	~~6,624~~	76,~~748~~877	~~6,849~~	~~6,926~~		6,355			6,624			7,748			6,849
Noninterest Expenses	~~18,493~~	~~18,137~~	1617,~~029~~373	~~15,538~~	~~14,435~~		18,493			18,137			16,029			15,538
Income (loss) Before Income Taxes	~~1, 046~~	~~270~~	~~(839)~~2, 208	~~10,590~~	~~10,589~~		1, 046			270			(839	)		10,590
Income Tax Expense (Benefit)	~~(256)~~	~~(528)~~	(~~1,022)~~8	~~3,155~~)	~~3,349~~		(256	)		(528	)		(1,022	)		3,155
NET INCOME	~~1,302~~	~~798~~	~~183~~2,216	~~7,435~~	~~7,240~~		1,302			798			183			7,435
Preferred Dividends	~~1,014~~	~~585~~	-540	-	-		1,014			585			-			-
Net income applicable to
common shareholders	~~288~~	~~213~~	~~183~~1,676	~~7,435~~	~~7,240~~		288			213			183			7,435
Per Share Data:
Basic net Income – per common share*	~~.10~~	~~.07~~	.0658	~~2.58~~	~~2.51~~		.10			.07			.06			2.58
Cash Dividends*	~~.50~~	~~.50~~	.50	~~1.00~~	~~0.95~~		.50			.50			.50			1.00
Book Value*	~~24.94~~	~~25.24~~	1925.4249	~~19.76~~	~~18.05~~		24.94			25.24			19.42			19.76
Other Ratios (%):
Return on Average Assets	~~.06~~	~~.04~~	.0432	~~1.54~~	~~1.58~~		.06			.04			.04			1.54
Return on Average Equity	~~.39~~	~~.32~~	2.3125	~~13.44~~	~~14.36~~		.39			.32			.31			13.44
Loans to Deposits	~~60.62~~	~~69.52~~	8657.8203	~~88.28~~	~~89.08~~		60.62			69.52			86.82			88.28
Loans to Total Assets	~~48.35~~	~~54.26~~	6745.1157	~~72.02~~	~~71.27~~		48.35			54.26			67.11			72.02
Equity Capital to Total Assets	~~14.03~~	~~14.81~~	1214.1037	~~11.95~~	~~11.34~~		14.03			14.81			12.10			11.95
Average Equity to Average Assets	~~14.39~~	~~14.08~~	1214.1506	~~11.43~~	~~10.99~~		14.39			14.08			12.15			11.43
Dividend Payout Ratio	~~500.00~~	~~676.79~~	~~787~~86.5802	~~38.76~~	~~37.90~~		500.00			676.79			787.58			38.76
Other Financial Data:
Cash Dividends Declared	~~$1,441,580~~	$~~1,441,555~~	$1,441,~~280~~655	~~$2,881,809~~	~~$2,743,770~~	$	1,441,580		$	1,441,555		$	1,441,280		$	2,881,809
Weighted Average
Outstanding Common Shares	~~2,883,167~~	~~2,882,959~~	2,~~882~~883,~~332~~309	~~2,881,934~~	~~2,880,487~~		2,883,167			2,882,959			2,882,332			2,881,934
*The per share information is based upon the retroactive effect of the stock dividends for the period, if applicable.
The per share data being reflected was derived using the weighted average number of outstanding shares at
December 31, 2010 as the denominator. (The weighted average number of outstanding shares at December
December 31, 2011 as the denominator. (The weighted average number of outstanding shares at December
31, 2010 was 2,883,209.) For example, the cash dividends per share was determined by dividing the amount
31, 2011 was 2,883,309.) For example, the cash dividends per share was determined by dividing the amount
of dividends by 2,883,209.
of dividends by 2,883,309.
	12/31/2010	12/31/2009	12/31/2008	12/31/2007	12/31/2006
		12/31/2011				12/31/2010			12/31/2009			12/31/2008			12/31/2007
	~~(In thousands except other data)~~	(In thousands except other data)
Balance Sheet Data:
Total Assets	~~$ 512,482~~	$ ~~491,372~~	~~$ 462~~511,~~485~~322	~~$ 476,530~~	~~$ 458,329~~	$	512,482		$	491,372		$	462,485		$	476,530
Earning Assets	~~419,954~~	~~403,751~~	~~395~~415,~~077~~891	~~425,879~~	~~398,824~~		419,954			403,751			395,077			425,879
Investment Securities AFS	~~124,447~~	~~109,466~~	69123,~~890~~972	~~66,160~~	~~61,028~~		124,447			109,466			69,890			66,160
Investment Securities HTM	~~33,095~~	~~14,759~~	547,~~375~~219	~~7,235~~	~~7,850~~		33,095			14,759			5,375			7,235
Other Securities	~~1,933~~	~~2,223~~	21,~~218~~938	~~2,024~~	~~2,250~~		1,933			2,223			2,218			2,024
Loans - Net	~~243,287~~	~~262,259~~	~~306~~228,~~678~~997	~~338,460~~	~~322,324~~		243,287			262,259			306,678			338,460
Allowance for Loan Losses	~~4,477~~	~~4,352~~	34,~~675~~026	~~4,729~~	~~4,334~~		4,477			4,352			3,675			4,729
Total Deposits	~~408,743~~	~~383,500~~	~~357~~408,~~483~~626	~~388,733~~	~~366,699~~		408,743			383,500			357,483			388,733
Savings Deposits	~~28,064~~	~~26,830~~	2731,~~731~~222	~~26,897~~	~~30,553~~		28,064			26,830			27,731			26,897
Time Deposits	~~158,987~~	~~148,746~~	~~145~~137,~~899~~666	~~175,805~~	~~156,692~~		158,987			148,746			145,899			175,805
Long-Term Borrowings	~~25,127~~	~~26,910~~	2815,~~657~~309	~~22,082~~	~~11,937~~		25,127			26,910			28,657			22,082
Shareholders' Equity	~~71,913~~	~~72,780~~	5573,~~979~~489	~~56,939~~	~~51,984~~		71,913			72,780			55,979			56,939
Average Balances:
Total Assets	~~518,551~~	~~477,345~~	~~482~~528,~~066~~965	~~472,756~~	~~450,822~~		518,551			477,345			482,066			472,756
Earning Assets	~~438,687~~	~~400,451~~	~~422~~450,~~877~~798	~~420,609~~	~~397,929~~		438,687			400,451			422,877			420,609
Securities	~~149,068~~	~~87,609~~	78178,~~734~~483	~~72,399~~	~~78,309~~		149,068			87,609			78,734			72,399
Total Loans	~~258,541~~	~~286,433~~	~~334~~242,~~576~~917	~~340,689~~	~~315,468~~		258,541			286,433			334,576			340,689
Allowance for Loan Losses	~~3,985~~	~~4,141~~	4,~~963~~157	~~4,612~~	~~4,281~~		3,985			4,141			4,963			4,612
Savings Deposits	~~27,771~~	~~26,512~~	2830,~~442~~201	~~29,932~~	~~31,363~~		27,771			26,512			28,442			29,932
Time Deposits	~~156,388~~	~~144,736~~	~~162~~146,~~006~~198	~~168,032~~	~~144,549~~		156,388			144,736			162,006			168,032
Long-Term Borrowings	~~27,219~~	~~29,989~~	2925,~~742~~411	~~16,291~~	~~12,450~~		27,219			29,989			29,742			16,291
Shareholders’ Equity	~~74,608~~	~~67,539~~	5674,~~228~~236	~~52,990~~	~~50,414~~		74,608			67,539			56,228			52,990
Other Data:
Number of Employees	~~177~~	~~186~~	~~189~~182	~~190~~	~~190~~		177			186			189			190

2123

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Application of Critical Accounting Policies

Release 33-8098 requires the Company to disclose any accounting estimates based on highly uncertain data and any material impact from adopting an accounting standard or policy.

The primary area in which there is uncertainty is the potential losses in the loan portfolio. In this area, an estimate is derived from an analysis of the loan portfolio and the Allowance for Loan Losses of the loans and the loan types that pose a risk of being a future loss. To prepare for the potential loss, an increase will be made to the loan loss reserve, if needed, for the inclusion of the balances or a percentage of the balances of the identified risks in the loan portfolio. With the need to increase the Allowance for Loan Losses, an increase will occur in bad debt expense or the Provision for Loan Losses expense which ultimately lowers the net income which is reflected on the Income Statement. In addition, the building up of the Allowance for Loan Losses results in a decrease in the total assets reflected on the balance sheet by the decrease in the net loan portfolio. The amount expensed - which is a non-cash transaction - for the accounting period will be an adjustment on the Statement of Cash Flows. For future periods, the effect on the income statement and the balance sheet will be dependent on the amount of loan charge offs and the strength of the loan portfolio for the accounting period. If charge offs decrease and the analysis of the loan portfolio and the Allowance for Loan Losses determines no additional provisions are required, the decrease of the accrual estimate will boost income and net assets. See “Allowance and Provision for Loan Losses” for more details.

Management's Discussion and Analysis of Financial Condition and Results of Operations

For the Years Ended December 31, ~~2010~~2011, ~~2009~~2010, and ~~2008~~2009

Management's Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of Security Capital Corporation's balance sheets and statements of income. This section should be read in conjunction with Security Capital Corporation's Consolidated Financial Statements and accompanying Notes and other detailed information appearing elsewhere in this report.

This discussion includes various forward-looking statements with respect to credit quality (including delinquency trends and the allowance for loan losses), corporate objectives and other financial and business matters. When used in this discussion the words "anticipate," "project," "expect," "believe," and similar expressions are intended to identify forward-looking statements. Security Capital Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ materially from forward-looking statements.

In addition to factors disclosed by Security Capital Corporation elsewhere in this report, the following factors, among others, could cause actual results to differ materially from such forward-looking statements: exposure to local economic conditions, interest rate risk, credit quality, risks inherent in consumer and commercial lending, competition, and the extent and timing of legislative and regulatory actions and reforms.

Results of Operations

Overview

Security Capital Corporation earned $12.32 million of which $~~288~~1.7 ~~thousand~~million or $.1058 per share was available for common shareholders for ~~2010~~2011, $~~213~~288 thousand or $.0710 per share for ~~2009~~2010, and $ ~~183~~213 thousand or $.0607 per share for ~~2008~~2009 representing an increase of $~~105~~1.5 ~~thousand~~million or $.0451 per share for the period from year ~~2008~~2009 through year ~~2010~~2011 for common shareholders. The ~~substantial~~downturn ~~change~~ in the ~~earnings~~economy, ~~since~~beginning ~~2007~~in is2008, ~~primarily~~affected ~~due to~~ the ~~downturn~~overall inbanking ~~the~~industry. The ~~economy~~most ~~that~~recent ~~has~~earnings ~~greatly~~have ~~affected~~improved as the ~~overall~~affects ~~banking~~of ~~industry~~economic conditions stabilize.

Net Interest Income

Net interest income is the most significant component of Security Capital Corporation’s earnings. Net interest income is the difference between interest and fees realized on earning assets, primarily loans and securities, and interest paid on deposits and other borrowed funds. The net interest income is determined by several factors, including the volume of earning assets and liabilities, the mix of earning assets and liabilities and interest rates heavily influenced by nonaccrual loans. Although there are a certain number of these factors which can be controlled by management policies and actions, there are certain other factors, such as the general level of credit demand, the Federal Reserve Board monetary policy, and changes in tax law that are beyond the control of management.

The ~~decrease~~increase in net interest income in ~~2010~~2011 as compared to ~~2009~~2010 is the ~~due~~result toof a ~~continuing~~combination ~~decrease~~of a increase in ~~loans~~investments ~~and~~in ~~loan~~securities ~~interest~~at ~~rates~~lower yields, and ana ~~increase~~continuing decrease in ~~non-accrual~~ loans.

22The following table sets forth the major components of interest earning assets and interest-bearing liabilities for three consecutive years ended December 31, 2011. In the table below, the loan interest includes loan fees and the interest on securities considers discount accretion and premium amortization.

The following table sets forth the major components of interest earning assets and interest-bearing liabilities for three consecutive years ended December 31, 2010. In the table below, the loan interest includes loan fees and the interest on securities considers discount accretion and premium amortization.

Security Capital Corporation
Table 2 - Average Balances; Interest Earned and Interest Yields
(in thousands)
	Years ended December 31,
	2010						2009						2008
	Average				Average		Average				Average		Average				Average
	Balance		Interest		Yields		Balance		Interest		Yields		Balance		Interest		Yields
Assets:
Interest-Earning Assets:
Securities		145,905		4,512		3.09		85,672		3,515		4.10		78,188		3,712		4.75
BV to MV		3,163						1,937						546
Total Securities		149,068		4,512		3.03		87,609		3,515		4.01		78,734		3,712		4.71
Loans
Commerical/Agricultural		196,036		10,789		5.50		218,744		12,446		5.69		262,136		17,039		6.50
Consumer/Installment		57,359		4,158		7.25		62,594		4,743		7.58		66,761		5,702		8.54
Mortgage		160		8		5.00		150		12		8.00		232		19		8.19
Other Personal Loans		4,986		221		4.43		4,945		217		4.39		5,447		303		5.56
Total Loans		258,541		15,176		5.87		286,433		17,418		6.08		334,576		23,063		6.89
Other Investments
CDs with Other Banks		671		13		1.94		257		7		2.72		198		10		5.05
Federal Funds Sold		27,681		62		0.22		20,782		47		0.23		3,503		89		2.54
FHLB Account/Other		2,726		22		0.81		5,370		80		1.49		5,866		197		3.36
Total Other		31,078		97		0.31		26,409		134		0.51		9,567		296		3.09
Total Earning Assets		438,687		19,785		4.51		400,451		21,067		5.26		422,877		27,071		6.40
Noninterest Earning Assets:
Allowance for Loan Losses		-3,985						-4,141						-4,963
Fixed Assets		32,708						27,361						23,145
Other Assets		32,063						36,301						24,245
Cash and Due Froms		19,427						17,373						16,762
Total Noninterest Earning Assets		80,213						76,894						59,189
Total Assets		518,900						477,345						482,066
Liabilities & Shareholders' Equity
Interest-Bearing Liabilities
Deposits:
Interest-Bearing DDA		155,585		883		0.57		140,946		981		0.70		135,517		1,767		1.30
Savings Deposits		27,771		57		0.21		26,512		92		0.35		28,442		201		0.71
Time Deposits		156,388		2,242		1.43		144,736		3,043		2.10		162,006		5,651		3.49
Total Interest-Bearing Deposits		339,744		3,182		0.94		312,194		4,116		1.32		325,965		7,619		2.34
Borrowed Funds
Short-Term Borrowings		577		0		0.00		723		2		0.28		2,314		45		1.94
FHLB Advances- Short/Long-Term		26,642		1,094		4.11		29,989		1,255		4.18		31,614		1,329		4.20
Total Borrowed Funds		27,219		1,094		4.02		30,712		1,257		4.09		33,928		1,374		4.05
Total Interest-Bearing Liabilities		366,963		4,276		1.17		342,906		5,373		1.57		359,893		8,993		2.50
Non-Interest-Bearing Liabilities
Non-Interest-Bearing Deposits		69,422						59,201						59,544
Other Liabilities		7,907						7,699						6,401
Shareholders' Equity		74,608						67,539						56,228
Total Liabilities & Shareholders' Equity		518,900						477,345						482,066
Net Interest Income &
Interest Rate Spread				15,509		3.34				15,694		3.69				18,078		3.90
Net Interest Margin						3.54						3.92						4.28

The following table sets forth net interest earning assets and liabilities for 2010, 2009 and 2008.

Table 3 - Net Interest Earning Assets
(in thousands)
	2010		2009		2008
Average Interest
Earning Assets	$	438,687	$	400,451	$	422,877
Average Interest
Bearing Liabilities		366,963		342,906		359,893
Net	$	71,724	$	57,545	$	62,984

Table 3A - Volume/Rate Analysis depicts the dollar effect of volume and rate changes from 2008 to 2010. Variances which were not specifically attributable to volume or rate were allocated proportionately between rate and volume using the absolute values of each for a basis for the allocation. Non-accruing loans were included in the average loan balances used in determining the yields.

Table 3A - Volume/Rate Analysis
(dollars in thousands)
	2010 Change from 2009						2009 Change from 2008
	Volume		Rate		Total		Volume		Rate		Total
INTEREST INCOME (excluding fees):
Loans		-1,648		-487		-2,135		-2,935		-2,710		-5,645
Investment Securities		1,862		-867		995		347		-544		-197
Other		11		-71		-60		84		-246		-162
Total Interest Income		225		-1,425		-1,200		-2,504		-3,500		-6,004
INTEREST EXPENSE:
Interest-Bearing
Demand Deposit Accounts		51		-240		-189		34		-820		-786
Savings Deposits		3		-37		-34		-7		-102		-109
Time Deposits		167		-970		-803		-362		-2,246		-2,608
Borrowed Funds		-129		-123		-252		-131		14		-117
Total Interest Expense		92		-1,370		-1,278		-466		-3,154		-3,620
NET INTEREST INCOME		133		-55		78		-2,038		-346		-2,384

Security Capital Corporation
Table 2 - Average Balances; Interest Earned and Interest Yields
(in thousands)
	Years ended December 31,
	2011						2010						2009
	Average				Average		Average				Average		Average				Average
	Balance		Interest		Yields		Balance		Interest		Yields		Balance		Interest		Yields
Assets:
Interest-Earning Assets:
Securities		175,369		4,535		2.59		145,905		4,512		3.09		85,672		3,515		4.10
Fair Value to Carrying Value		3,114						3,163						1,937
Total Securities		178,483		4,535		2.54		149,068		4,512		3.03		87,609		3,515		4.01

Loans
Commerical/Agricultural		182,450		9,225		5.06		196,036		10,789		5.50		218,744		12,446		5.69
Consumer/Installment		55,067		3,805		6.91		57,359		4,158		7.25		62,594		4,743		7.58
Mortgage		62		5		8.06		160		8		5.00		150		12		8.00
Other Personal Loans		5,338		237		4.44		4,986		221		4.43		4,945		217		4.39
Total Loans		242,917		13,272		5.46		258,541		15,176		5.87		286,433		17,418		6.08

Other Investments
CDs with Other Banks		1,375		21		1.53		671		13		1.94		257		7		2.72
Federal Funds Sold		26,379		60		0.23		27,681		62		0.22		20,782		47		0.23
FHLB Account/Other		1,744		20		1.15		2,726		22		0.81		5,370		80		1.49
Total Other		29,398		101		0.34		31,078		97		0.31		26,409		134		0.51

Total Earning Assets		450,798		17,908		3.97		438,687		19,785		4.51		400,451		21,067		5.26

Noninterest Earning Assets:

Allowance for Loan Losses		-4,157						-3,985						-4,141
Fixed Assets		32,849						32,708						27,361
Other Assets		31,460						32,063						36,301
Cash and Due Froms		18,015						19,427						17,373

Total Noninterest Earning Assets		78,167						80,213						76,894

Total Assets		528,965						518,900						477,345

Liabilities & Shareholders' Equity

Interest-Bearing Liabilities
Deposits:
Interest-Bearing DDA		166,445		715		0.43		155,585		883		0.57		140,946		981		0.70
Savings Deposits		30,201		45		0.15		27,771		57		0.21		26,512		92		0.35
Time Deposits		146,198		1,292		0.88		156,388		2,242		1.43		144,736		3,043		2.10

Total Interest-Bearing Deposits		342,844		2,052		0.60		339,744		3,182		0.94		312,194		4,116		1.32

Borrowed Funds
Short-Term Borrowings		559		0		0.00		577		0		0.00		723		2		0.28
FHLB Advances- Short/Long-Term		24,852		1,021		4.11		26,642		1,094		4.11		29,989		1,255		4.18

Total Borrowed Funds		25,411		1,021		4.02		27,219		1,094		4.02		30,712		1,257		4.09

Total Interest-Bearing Liabilities		368,255		3,073		0.83		366,963		4,276		1.17		342,906		5,373		1.57

Non-Interest-Bearing Liabilities
Non-Interest-Bearing Deposits		79,268						69,422						59,201
Other Liabilities		7,206						7,907						7,699

Shareholders' Equity		74,236						74,608						67,539

Total Liabilities & Shareholders' Equity		528,965						518,900						477,345

Net Interest Income &
Interest Rate Spread				14,835		3.14				15,509		3.34				15,694		3.69

Net Interest Margin						3.29						3.54						3.92

The following table sets forth net interest earning assets and liabilities for 2011, 2010 and 2009.

Table 3 - Net Interest Earning Assets
(in thousands)

	2011		2010		2009

Average Interest
Earning Assets	$	450,798	$	438,687	$	400,451

Average Interest
Bearing Liabilities		368,255		366,963		342,906

Net	$	82,543	$	71,724	$	57,545

Table 3A - Volume/Rate Analysis depicts the dollar effect of volume and rate changes from 2009 to 2011. Variances which were not specifically attributable to volume or rate were allocated proportionately between rate and volume using the absolute values of each for a basis for the allocation. Non-accruing loans were included in the average loan balances used in determining the yields.

Table 3A - Volume/Rate Analysis
(dollars in thousands)

	2011 Change from 2010						2010 Change from 2009
	Volume		Rate		Total		Volume		Rate		Total

INTEREST INCOME (excluding fees):

Loans		-853		-1,163		-2,016		-1,648		-487		-2,135

Investment Securities		750		-716		34		1,862		-867		995

Other		-5		12		7		11		-71		-60

Total Interest Income		-108		-1,867		-1,975		225		-1,425		-1,200

INTEREST EXPENSE:

Interest-Bearing
Demand Deposit Accounts		68		-151		-83		51		-240		-189

Savings Deposits		4		-17		-13		3		-37		-34

Time Deposits		-90		-860		-950		167		-970		-803

Borrowed Funds		-73		90		17		-129		-123		-252

Total Interest Expense		-91		-938		-1,029		92		-1,370		-1,278

NET INTEREST INCOME		-17		-929		-946		133		-55		78

Non-Interest Income and Non-Interest Expense

Non-interest expense increased by 111.9096% from ~~2008~~2009 to ~~2009~~2010 and ~~increased~~decreased by 16.9606% from ~~2009~~2010 to ~~2010~~2011.

~~Increases~~Salaries ~~in non-interest expense in 2010, as well as 2009, are attributable to the increase in FDIC assessments. In 2009, a small increase was experienced in salaries~~ and employee benefits ~~which,~~ prior to 2008, annormally ~~increase~~reflected ~~annually~~an ~~was~~annual ~~normally~~increase in a range from 3% to 7% depending on the profits and the attainment of performance goals. ~~In 2010~~However, the effect of the profits of the entity and the goal to control costs can ~~again~~ be seen in asmaller ~~small~~increases ~~increase~~ in salaries and employee benefits~~. The~~ ~~effects~~and ofan ~~the~~increase ~~economy can also be seen~~ in ~~the increase of~~ professional fees from $440 thousand in 2008 to $939 thousand in 2009. InThe 2010, ~~professional~~variance ~~fees~~in ~~related~~salaries and employee benefits reflect a decrease resulting from a funding change in the group insurance. FDIC Assessments decreased in 2011 due to ~~other~~a change in the basis of the assessment of premiums and also to having no special assessment due. Other real estate ~~owned~~expenses ~~totaled~~peaked ~~$313~~in ~~thousand~~2010 ~~which~~and is2011 inexpenses ~~addition~~continue to ~~$654~~identify ~~thousand~~large ~~for~~monetary ~~all~~responsibilities ~~other~~in property taxes and professional ~~services~~fees on the non-performing assets.

The following table provides details on non-interest income and expense for the years ended December 31, ~~2008~~2009 through ~~2010~~2011.

Table 4 - Non-Interest Income and Expense

(in thousands)

2010

2009

2008

2011

2010

2009

Non-Interest Income:

Trust Department Income

~~837~~866

~~814~~837

~~752~~814

Service Charges: Deposits

4,~~354~~133

4,~~826~~354

54,~~172~~826

Other Operating Income

1,~~164~~878

~~984~~1,164

~~1,824~~984

Total Non-Interest Income

6,~~355~~877

6,~~624~~355

76,~~748~~624

Non-Interest Expense:

Salaries & Employee Benefits

910,~~559~~322

109,~~456~~559

10,~~227~~456

Occupancy Expense

2,~~405~~314

2,~~447~~405

2,~~475~~447

Other Operating Expense

64,~~529~~737

56,~~234~~529

35,~~507~~234

Total Non-Interest Expense

1817,~~493~~373

18,~~137~~493

1618,~~209~~137

Income Taxes

Security Capital Corporation records a provision for income taxes currently payable, along with a provision for those taxes in the future. Such deferred taxes arise from differences in timing of certain items for financial statement reporting rather than income tax reporting. Security Capital Corporation benefits in its computation of income taxes due to having tax-exempt securities and loans.

Financial Condition

Loans

The loan portfolio constitutes the major earning asset of Security Capital Corporation and in the opinion of management offers the best alternative for maximizing interest spread above the cost of funds. Real Estate Loans and Commercial Loans comprise the largest segment of the loan portfolio. Commercial loans which bear a higher degree of risk comprise 78.8062% of the loan portfolio at December 31, ~~2010~~2011. Agricultural loans, another type of loan that carries a higher degree of risk, are only 1.5732% of the loan portfolio at December 31, ~~2010~~2011.

Authorization of Loans

The Board of Directors of the Corporation has approved guidelines and policies specific for each type loan. These guidelines are followed under the direction of the President and the Senior Loan Administrators. All loans made above $25,000 will be presented by the officer originating the loan to a loan committee comprised of other officers and directors for a review of the maker(s), repayment ability, source of repayment, type and sufficiency of collateral and length of repayment. The loans reviewed are compiled into a report certifying that the loans have been made in accordance with the Board approved policies and principles. This periodic report is submitted to the Directors Loan Committee for review and then ratified at the next scheduled meeting. Each loan officer has an individual lending limit (not to exceed the legal limit of $250,000) which is awarded based on his or her lending experience and length of service. Any loan in excess of the loan officer’s limit must be approved prior to consummation by the Senior Loan Administrators, the President or the Board of Directors. All loans or lines of credit over $250,000 must be pre-approved by the Directors’ Loan Committee.

Collateral and Documentation Requirements

All loans should have an ample margin of safety between the loan advance and the current fair value of the collateral. Documentation of the collateral is properly collected before the loan transaction is completed and will meet the requirements, (to name a few), of the Mississippi Uniform Commercial Code, the Loan Policy, and all pertinent regulations. In an effort to secure and to protect the liens of First Security Bank, periodic reports, highlighting loans requiring additional documentation, are provided to management. In addition, the compliance and loan review officer along with the internal audit staff monitor the procedures on an ongoing basis with reports for management of any deficiencies.

Characteristics, Criteria and Risks of Types

The composition of the loan portfolio consists chiefly of real estate, agricultural, consumer and commercial loans. Real estate loans, in addition to the general collateral and documentation requirements, require the performance of an appraisal or evaluation before the credit decision is made. An appraisal is required for all new real estate loans where the loan amount is $250,000 or greater. All appraisals must be prepared by a certified appraiser. However, on 1-4 family residential real estate loans less than $1,000,000, the appraisal may be prepared by a licensed appraiser. For small loans (less than $250,000), the appraisals may be performed by a certified or licensed in-house appraiser. Real estate loans, which were prior to 2008 considered a low risk, now in today’s economy and market are subject to extensive review in all stages of consideration and status. Agricultural loans mandate an extensive review of the customer’s farming track record, financial statements, cash flow statements, projected income and collateral. The depth of these reviews should determine the honesty, integrity, the debt status, the repayment ability and the collateral strength of the farmer. To combat this high risk area, the bank’s policy is for production loans to be completely secured with tangible assets and not to exceed 60% of the projected cash repayment ability. Consumer loans are another area of high risk due to the type and location of the collateral and the volatility of the economy which may affect the payback ability of the customer. The consumer loans normally require the pledging of collateral. Credit card loans (a very high risk area) - in the consumer group - require a financial statement submitted in order for a credit limit of $5,000 and over to be granted. Commercial loans require a review of the purpose and the assessment of the future benefit of the operation, the financial statements, and the collateral on the onset to determine the strength of the potential loan asset. The degree of risks associated with the commercial lending is dependent on the completeness of the initial loan evaluation process.

Concentration of Credit

The bank monitors its loans in a manner that will identify any excessive risk due to concentrations of credit from a large volume of economically related assets advanced to one individual, related groups of borrowers or industry. Loans to one individual or corporation shall not exceed the limits set by state law. Mississippi state law states that the limit of lending to one individual or entity shall not exceed 20% of unimpaired capital and reserves. ~~At least semi-annually~~Monthly, borrowers, related groups of borrowers, and industries who are known to be near this limit are monitored and reported to the board of directors.

2628

The following table reflects outstanding balances by loan type for the past five years.

Table 5 - Loans by Type

(in thousands)

2010

2009

2008

2007

2006

2011

2010

2009

2008

2007

Commercial, Financial & Agricultural

3335,~~347~~341

3033,~~580~~347

4430,~~752~~580

3944,~~135~~752

3839,~~349~~135

Real Estate - Construction & Development

5651,~~673~~725

6956,~~797~~673

9669,~~049~~797

~~124~~96,~~714~~049

~~105~~124,~~545~~714

Real Estate - Mortgage

~~134~~124,~~964~~994

~~142~~134,~~917~~964

~~144~~142,~~647~~917

~~151~~144,~~998~~647

~~153~~151,~~525~~998

Installment Loans to Individuals

2018,~~186~~871

20,~~702~~186

2220,~~999~~702

2422,~~624~~999

2624,~~858~~624

Other

2,~~594~~092

2,~~615~~594

12,~~906~~615

21,~~718~~906

2,~~381~~718

Total Loans

~~247~~233,~~764~~023

~~266~~247,~~611~~764

~~310~~266,~~353~~611

~~343~~310,~~189~~353

~~326~~343,~~658~~189

The following table reflects the maturity schedule or repricing frequency of all loans that will reprice or mature within one year.

Table 6 - Loan Liquidity

(in thousands)

Within

1 thr 5

Over

Loans That Will Reprice or Will Mature:

1 Year

Years

5 Years

Total

Allocation by Maturity Date:

Commercial, financial and agriculture loans

1722,~~760~~124

1513,~~450~~103

~~137~~114

3335,~~347~~341

Construction and development

4439,~~460~~311

12,~~201~~377

1237

5651,~~673~~725

Total

6261,~~220~~435

2725,~~651~~480

~~149~~151

9087,~~020~~066

Repricing frequency of loan types above:

Fixed Rate

1620,~~162~~367

1412,~~777~~758

35112

3033,~~974~~237

Variable Rate

4641,~~058~~068

12,~~874~~722

~~114~~39

5953,~~046~~829

Total

6261,~~220~~435

2725,~~651~~480

~~149~~151

9087,~~020~~066

Percent of Total

69.1249

30.7233

0.1618

100.00

Allowance and Provision for Loan Losses

The provision for loan losses represent charges made to earnings to maintain an adequate allowance for loan losses. The allowance is maintained at an amount believed by management to be sufficient to absorb losses inherent in the credit portfolio. Factors considered in establishing an appropriate allowance include: a careful assessment of the financial condition of the borrower; a realistic determination for the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; a comprehensive analysis of the levels and trends of loan categories; and review of delinquent and classified loans.

Security Capital Corporation ~~strives~~attains ~~to attain~~ a loan review program to evaluate loan administration, credit quality, and loan documentation. This program includes a regular review of problem loans, delinquencies, and charge-offs. The adequacy of the allowance for loan losses is evaluated on a quarterly basis. This evaluation focuses on specific loan reviews, changes in the type and volume of the loan portfolio given the current and forecasted economic conditions, and historical loss experience. Any one of the following conditions may necessitate a review of a specific loan: a question of whether the customer’s cash flow or net worth may not be sufficient to repay the loan; the loan has been criticized in a regulatory examination; the accrual of interest has been suspended; serious delinquency; or other reasons where either the ultimate collectibility of the loan is in question or the loan has other special or unusual characteristics which require special monitoring.

Activity in the allowance for loan losses is reflected in Table 7 - Analysis of Allowance for Loan Losses. The recorded values of loans and leases actually removed from the consolidated balance sheets are referred to as charge-offs and, after netting out recoveries on previously charged-off assets, become net charge-offs. Security Capital Corporation’s policy is to charge-off loans, when, in management’s opinion, the loan is deemed uncollectible, although concerted efforts are made to maximize recovery.

Security Capital Corporation
Table 7 - Allowance for Loan Losses
(in thousands)
	2010			2009			2008			2007			2006
Balance at
Beginning of Year	$	4,352		$	3,675		$	4,729		$	4,334		$	3,899
Less: Loans Charged-Off
Commercial, Financial & Agricultural		611			303			107			92			105
Real Estate - Construction & Development		1,002			1,452			8,959			202			35
Real Estate - Mortgage		379			987			683			76			44
Installment Loans to Individuals		856			1,070			2,255			2,025			1,017
Other		141			517			1,871			5			13
Total Charge-Offs		2,989			4,329			13,875			2,400			1,214
Add: Charge-Off Recovered
Commercial, Financial & Agricultural		74			69			17			10			8
Real Estate - Construction & Development		9			44			510			11			4
Real Estate - Mortgage		75			94			59			27			21
Installment Loans to Individuals		593			837			1,778			1,591			648
Other		38			51			1			1			3
Total Recoveries		789			1,095			2,365			1,640			684
Less: Net Charge-Offs		2,200			3,234			11,510			760			530
Add: Current Year Provision		2,325			3,911			10,456			1,155			965
Balance at End of Year	$	4,477		$	4,352		$	3,675		$	4,729		$	4,334
Loans at End of Year (Net of Allowance)	$	243,287		$	262,259		$	306,678		$	338,460		$	322,324
Ratio: Allowance to Loans		1.84	%		1.66	%		1.20	%		1.40	%		1.34	%
Average Loans	$	258,541		$	286,433		$	334,576		$	340,689		$	315,468
Ratio: Allowance to Average Loans		1.73	%		1.52	%		1.10	%		1.39	%		1.37	%
Ratio: Net Charge-Offs to Average Loans		0.85	%		1.13	%		3.44	%		0.22	%		0.17	%

Security Capital Corporation
Table 7 - Allowance for Loan Losses
(in thousands)
	2011			2010			2009			2008			2007
Balance at
Beginning of Year	$	4,477		$	4,352		$	3,675		$	4,729		$	4,334

Less: Loans Charged-Off
Commercial, Financial & Agricultural		120			611			303			107			92
Real Estate - Construction & Development		1,996			1,002			1,452			8,959			202
Real Estate - Mortgage		1,001			379			987			683			76
Installment Loans to Individuals		750			856			1,070			2,255			2,025
Other		9			141			517			1,871			5
Total Charge-Offs		3,876			2,989			4,329			13,875			2,400

Add: Charge-Off Recovered
Commercial, Financial & Agricultural		33			74			69			17			10
Real Estate - Construction & Development		18			9			44			510			11
Real Estate - Mortgage		17			75			94			59			27
Installment Loans to Individuals		509			593			837			1,778			1,591
Other		-			38			51			1			1
Total Recoveries		577			789			1,095			2,365			1,640

Less: Net Charge-Offs		3,299			2,200			3,234			11,510			760

Add: Current Year Provision		2,848			2,325			3,911			10,456			1,155

Balance at End of Year	$	4,026		$	4,477		$	4,352		$	3,675		$	4,729

Loans at End of Year (Net of Allowance)	$	228,997		$	243,287		$	262,259		$	306,678		$	338,460

Ratio: Allowance to Loans		1.76	%		1.84	%		1.66	%		1.20	%		1.40	%

Average Loans	$	242,917		$	258,541		$	286,433		$	334,576		$	340,689

Ratio: Allowance to Average Loans		1.66	%		1.73	%		1.52	%		1.10	%		1.39	%

Ratio: Net Charge-Offs to Average Loans		1.36	%		0.85	%		1.13	%		3.44	%		0.22	%

Nonperforming assets and relative percentages to loan balances are presented in Table 8 - Nonperforming Assets. The level of nonperforming loans and leases is an important element in assessing asset quality and the relevant risk in the credit portfolio. Nonperforming loans include non-accrual loans, restructured loans, and loans delinquent 90 days or more. Loans are classified as non-accrual when management believes that collection of interest is doubtful, typically when payments are past due over 90 days, unless well secured and in the process of collection. Another element associated with asset quality is other real estate owned (OREO), which represents properties acquired by Security Capital Corporation through loan defaults by customers.

2830

Table 8 - Nonperforming Assets
(in thousands)
	2010			2009			2008			2007			2006
	2011			2010			2009			2008			2007
Loans:
Non-accrual	$	97,~~584~~537		$	159,~~244~~584		$	315,~~271~~244		$	13,~~043~~271		$	~~819~~1,043
90 Days+ Past-Due		6310			1263			~~3,616~~12			13,~~725~~616			1,~~489~~725
Total Nonperforming Loans	$	97,~~647~~547		$	159,~~256~~647		$	615,~~887~~256		$	26,~~768~~887		$	2,~~308~~768
As % of Total Loans		3.8924	%		53.7289	%		25.2272	%		02.8122	%		0.7181	%
Other Real Estate	$	2023,~~272~~667		$	20,~~770~~272		$	1420,~~046~~770		$	~~716~~14,046		$	~~365~~716
As % of Total Loans		810.1816	%		78.7918	%		47.5379	%		04.2153	%		0.1121	%
Allowance for loan losses	$	4,~~477~~026		$	4,~~352~~477		$	34,~~675~~352		$	43,~~729~~675		$	4,~~334~~729
Loan Charge-Offs	$	23,~~989~~876		$	42,~~329~~989		$	134,~~875~~329		$	213,~~400~~875		$	12,~~214~~400
Total Loans	$	~~247~~233,~~764~~023		$	~~266~~247,~~611~~764		$	~~310~~266,~~353~~611		$	~~343~~310,~~189~~353		$	~~326~~343,~~658~~189

The consolidated allowance for loan losses reflected in Table 7 are the balances remaining after the charge-offs for the year.

The loan portfolio contained $97.65 million in non-accrual loans represented ~~by114~~by 66 loans and an aggregate of $6310 thousand of 90 days past due and over as of December 31, ~~2010~~2011. If the non-accrual loans had been performing loans during the ~~2010~~2011 period, interest income would have shown an addition of $~~409~~272 thousand. Loans of 90 days and over past due are automatically classified as nonaccrual loans unless collectibility is expected. The interest income recognized in ~~2010~~2011 for the loans classified as 90 days and over past due at December 31, ~~2010~~2011, was nominal.

Potential Problem Loans

As of December 31, ~~2010~~2011, loan management had not identified any loans requiring greater than normal supervision other than the loans in the categories of Watch, Substandard and Doubtful indicated below. Analysis of possible workout plans does not anticipate any deficiency. The actual deficiency depends on the market for the equipment and real estate at the time of disposal.

In addition to loans classified for regulatory purposes, management designates certain loans for internal monitoring purposes in a watch category. Loans may be placed on management’s watch list as a result of delinquent status, concern about the borrower’s financial condition or the value of the collateral securing the loan, substandard classification during regulatory examinations, or simply as a result of management’s desire to monitor more closely a borrower’s financial condition and performance. Watch category loans may include loans with loss potential that are still performing and accruing interest and may be current under the terms of the loan agreement; however, management may have a degree of concern about the borrowers’ ability to continue to perform according to the terms of the loan. Loss exposure on these loans is typically evaluated based primarily upon the estimated liquidation value of the collateral securing the loan. Also, watch category loans may include credits which, although adequately secured and performing, reflect a past delinquency problem or unfavorable financial trends exhibited by the borrower.

2931

All watch list loans are subject to additional scrutiny and monitoring. Security Capital Corporation’s policies require loan officers to identify borrowers that should be monitored in this fashion and believe this process ultimately results in the identification of problem loans in a more timely fashion. At December 31, ~~2010~~2011, Security Capital Corporation in its allowance for loan losses analysis classified $4436,~~093~~615,000 with a rating of Substandard, of which $2825,~~171~~545,000 needed no allowance and $1512,~~922~~070,000 required an allowance of $2,~~608~~259,000.

All other real estate is carried by Security Capital Corporation at the lower of cost or ~~market~~fair value less costs to dispose. Any normal expense of holding the other real estate is expensed as incurred. Expenditures occurring from other real estate that are substantial or that extends the life of the asset are capitalized.

An analysis of the loan portfolio and the allowance for loan losses is conducted on a quarterly basis by loan review analyst personnel, the President and loan administrators. This analysis is approved by the Board of Directors to insure that the bank is protected against any potential and/or unexpected loan losses. To arrive at the proper grades or classifications needed in the allowance for loan losses analysis, each loan officer reviews each loan in his or her portfolio. The review process will include consideration of the payment history of the customer, bankruptcy status, and stimuli in the economy or in the area that may affect the future cash flow of the customer. The loan officer and/or the senior loan administrator will grade the loan as exceptional, satisfactory, watch, substandard or doubtful. This quarterly review and grading process is conducted on an ongoing basis to identify the loans that are non-performing as well as loans that no longer require an allocation in the loan loss reserve. The required allowance will fluctuate from quarter to quarter due to the loan portfolio performance being monitored.

The composition of the allowance for loan losses is based on the risk elements in the loan portfolio. Loans with the highest risk are graded doubtful. These would be loans that have been restructured due to poor payment performance, insufficient collateral to support the loan balance, non-accrual loans and loans that have been modified due to a change in the financial condition of the borrower to such an extent that a loss would most normally be expected. Loans with the second highest risk are graded substandard. These loans normally portray extremely weak credit with a potential for either partial or total loss which must be recognized. With these loans, legal action is anticipated with the debt not being retired through liquidation of the collateral. The next risk level is the loans that are considered to be on the “watch” list. These loan customers display inadequate financial strength or credit to provide loan management with the assurance that they will meet the scheduled repayment plan. Loan customers who have filed bankruptcy present a high risk due to likelihood that the payment plan may not be re-affirmed. Due to the type of collateral or lack of collateral, consumer loans without real estate are considered another area of risk requiring a higher allowance.

3032

	Table 8A - Allocation of the Allowance for Loan Losses
	(Dollars in thousands)
	(In thousands)
	At December 31,
	2010					2009					2008					2007					2006
	2011					2010					2009					2008					2007
	Amount		Percent			Amount		Percent			Amount		Percent			Balance		Percent			Balance		Percent
Commercial, Financial
& Agricultural	$	~~310~~130		63.9223	%	$	~~861~~310		196.7892	%	$	~~367~~861		919.9978	%	$	~~547~~367		119.5799	%	$	~~590~~547		1311.6157	%
Real Estate - Construction
& Development		2,~~178~~324		4857.6572	%		12,~~787~~178		4148.0665	%		21,~~029~~787		5541.2106	%		12,~~758~~029		3755.1821	%		~~913~~1,758		2137.0718	%
Real Estate - Mortgage		1,~~773~~288		3931.6099	%		1,~~500~~773		3439.4760	%		1,~~037~~500		2834.2247	%		1,~~558~~037		3228.9522	%		1,~~922~~558		4432.3595	%
Installment Loans
to Individuals		98190		24.1972	%		~~123~~98		2.8319	%		~~240~~123		62.5383	%		~~770~~240		166.2953	%		~~460~~770		1016.6129	%
Other Loans		~~118~~94		2.6433	%		81118		12.8664	%		281		01.0586	%		952		20.0105	%		~~413~~95		92.5301	%
Unallocated		-		-			-		-			-		-			-		-			36-		~~0.83~~-	%
Total Loans	$	4,~~477~~026		100.00	%	$	4,~~352~~477		100.00	%	$	34,~~675~~352		100.00	%	$	43,~~728~~675		100.00	%	$	4,~~334~~728		100.00	%

Note: Percent in the above table represents the amount represented by the loan type in the loan portfolio.

The allowance is based on regular, quarterly assessments of the estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance and specific allowances for identified problem loans. The portfolio is segregated into nine various rating codes based on a risk analysis of the portfolio prepared by management. Loss factors are based both on our loss experience as well as on significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date.

The appropriateness of the allowance is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in delinquencies, nonperforming loans and foreclosed assets expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of the loan. Management reviews these conditions quarterly. To the extent that if any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of this condition may be reflected as a specific allowance applicable to this credit or portfolio segment.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio. Actual losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management’s judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.

Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the net realizable value of collateral expected to be received on impaired loans that may be susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, covers all known and inherent losses in the loan portfolio that are both probable and reasonable to estimate.

3133

The allowance for loan losses at December 31, 2007 reflects an increase of $395 thousand from December 31, 2006. The difference chiefly results from the allocation for construction and development real estate loans. This allocation increased from 2006 to 2007 by $845 thousand and is primarily due to an increase in the advances for the loan type and the increase in the allocation percentage caused by the present inherent risks in this type of lending. In the same analysis of risks and of balance levels, the allocation for the following loan types dropped during 2007: commercial, financial and agricultural loans; and mortgage loans.

At December 31, 2008, the allowance for loan losses reflects a decrease of approximately $1 million from December 31, 2007. The decrease can be attributed to the decrease in the total loan portfolio as well as a substantial decrease in the high risk loan areas – such as commercial real estate, nonfarm nonresidential properties and construction. The decrease can be supported by conservative lending in a failing real estate market as well as the realization of losses on existing loans.

At December 31, 2009 and 2010, the allowance for loan losses reflects an increase of $677 thousand and $125 thousand respectively from the previous December 31. The increase is a normal variance stemming from the analysis of the loan portfolio, which heavily concentrates on the collectibility, cash flows, meeting contract obligations and sufficiency of collateral on impaired loans.

InThe ~~2007,~~allowance ~~the~~for loan ~~charge~~losses ~~offs~~at ~~and~~December ~~loan~~31, ~~recoveries~~2011 ~~increased~~reflects ~~significantly~~a decrease of $451 thousand from December 31, 2010. ~~The~~During ~~significant~~2011, ~~increase~~the information and methodology of the loan ~~charge-offs~~loss ~~can~~reserve bechanged, ~~credited~~conforming to ~~installment~~changes ~~loans~~in toregulatory ~~individuals~~requirements, but stimulating little changes in the allocation. The ~~charge-offs~~chief ~~for~~difference in the ~~classification~~2010 ofand ~~installment~~2011 ~~loans~~is togenerated ~~individuals~~by –the ~~which~~change ~~includes~~in ~~charged-off~~the ~~overdrafts~~level –of ~~increased~~loans, ~~from~~the ~~$1.0~~risk ~~million~~within tothe ~~$2.0~~loan ~~million~~portfolio ~~from~~and ~~2006~~a tonew ~~2007~~twelve month historic loan loss average per loan category.

For 2008 through 2010 activity in the allowance for loan losses reflects the state of the economy and the condition of the real estate market. In 2010, the allowance was decreased by $1 million for construction and real estate development loans that failed and, in addition, $611 thousand of non-performing commercial loans created another major decrease. The allowance was charged in 2009 with approximately $1.5 million due to declining values in collateral and poor customer performance in loans primarily for construction and development in real estate. In 2008, the allowance was charged $9 million for this type loan. The majority of the charges were due to losses from overdrafts on deposit accounts. In 2010, the allowance was charged with $856 thousand for consumer loans and $593 thousand was recovered. In 2009, approximately $1.1 million was charged to the allowance for consumer loans and $1.1 million was recovered. In 2008, $2.3 million was charged to the allowance for consumer loans and $2.4 million was recovered.

In 2011, the level of loan of charge offs decreased from 2010 levels. A decrease has been experienced for 2009 through 2011 as the exposures developed in 2007 and 2008 decreased or stabilized. Characteristics of the real estate markets, notably sales and appraisal values, have stimulated losses in real estate loans including development loans.

The ratio of the Allowance for Loan Losses to Loans for the years presented reflects a range from a low of 1.20% in 2008 to a high of 1.84% in 2010.

Securities

Securities are identified as either Available-for-Sale, Held-to-Maturity or Other Securities. Securities held to maturity are those securities which Security Capital Corporation has both the intent and the ability to hold to maturity and are reported at the amortized cost. Securities available-for-sale are those securities which Security Capital Corporation may decide to sell if needed for liquidity, asset/liability management or other reasons. Securities that are available-for- sale are reported at market value with the unrealized gains or losses included as a separate component of equity, net of tax. Other securities are carried at cost and are investments in FHLB, and First National Banker’s Bankshares ~~and Federal Agricultural Mortgage Corporation~~.

3234

Table 9 - Securities

(in thousands)

2010

2009

2008

2007

2006

2011

2010

2009

2008

2007

Securities Available-for-Sale

U. S. Agencies

219,~~164~~578

21,~~258~~164

121,~~075~~258

1,~~536~~075

51,~~441~~536

Mortgage Backed

4337,~~308~~896

4043,~~223~~308

3740,~~534~~223

3437,~~452~~534

2034,~~915~~452

State, Municipals & Other

5976,~~975~~498

4759,~~985~~975

3147,~~281~~985

3031,~~172~~281

3430,~~672~~172

Total Securities AFS

~~124~~123,~~447~~972

~~109~~124,~~466~~447

69109,~~890~~466

6669,~~160~~890

6166,~~028~~160

Securities Held-to-Maturity

U. S. Agencies

2533,~~578~~905

925,~~614~~578

-9,614

State, Municipals & Other

713,~~517~~314

57,~~145~~517

5,~~375~~145

75,~~235~~375

7,~~850~~235

Total Securities HTM

3347,~~095~~219

1433,~~759~~095

514,~~375~~759

75,~~235~~375

7,~~850~~235

Other Securities

Equities

1,~~933~~938

21,~~223~~933

2,~~218~~223

2,~~024~~218

2,~~250~~024

Total Securities

~~159~~173,~~475~~129

~~126~~159,~~448~~475

77126,~~483~~448

7577,~~419~~483

7175,~~128~~419

The security portfolio is composed of U. S. Treasury securities, U. S. Agency securities, State and Municipal securities - both tax-exempt and taxable, equities, and mortgage-backed securities.

Table 10
Securities & Repricing Schedule
For 12/31/2011
(in thousands)

	1 Year		After 1 Year		5 to 10		Over
	and Less		Thru 5 Years		Years		10 Years
Agencies
Fair Value	$	-	$	1,531	$	1,002	$	41,009
Book Yield		-		1.210		1.000		1.590

Taxable Municipals
Fair Value		1,126		1,373		2,431		5,186
Book Yield		1.550		2.460		5.050		5.750

Municipals
Fair Value		15,420		37,443		11,814		15,078
Book Yield		1.670		2.350		2.980		3.360


Equity-FHLB		-		-		-		1,438
Book Yield		-		-		-		0.375

Other Securities				-		-		500

MBS
Fair Value		-		-		-		37,896
Book Yield		-		-		-		3.920

Total Fair Values	$	16,546	$	40,347	$	15,247	$	101,107
Weigh Bk Yields		1.662		2.310		3.180		2.916

Table 10
Table 11
Securities & Repricing Schedule
Securities Weighted Maturity and Tax Equivalent Yield by Classification
For 12/31/2010
December 31, 2011
(in thousands)
	Weighted		Weighted
	1 Year		After 1 Year			5 to 10		Over
	Maturity		Tax-Equivalent
	and Less		Thru 5 Years			Years		10 Years
	(Years)		Yield
Agencies
U. S. Agencies		13.64		1.486	%
Fair Value	$	1,010	$	1,539		$	10,368	$	33,217
Mortgage Backed		3.08		3.984	%
Book Yield		5.100		1.262			1.789		1.812
Taxable Municipals		8.93		4.845	%
Taxable Municipals
Tax-Exempt Municipals		5.33		3.677	%
Fair Value		26		145			612		3,421
Total Securities Portfolio		7.21		3.248	%
Book Yield		4.527		4.790			4.250		5.305
Municipals
Fair Value		9,556		32,425			11,118		10,230
Book Yield		3.178		3.677			4.897		6.577
Equity-FHLB		-		-			-		1,433
Book Yield		-		-			-		5.080
Other Securities		13		-			-		500
MBS
Fair Value		-		-			-		43,308
Book Yield		-		-			-		4.501
Total Fair Values	$	10,605	$	34,109		$	22,098	$	92,109
Weigh Bk Yields		3.360		3.573			3.421		3.776

Table 11
Securities Weighted Maturity and Tax Equivalent Yield by Classification
December 31, 2010
	Weighted		Weighted
	Maturity		Tax-Equivalent
	(Years)		Yield
U. S. Agencies		12.32		1.860	%
Mortgage Backed		4.11		4.501	%
Taxable Municipals		10.70		5.137	%
Tax-Exempt Municipals		5.17		4.303	%
Total Securities Portfolio		7.136		3.614	%

The weighted tax-equivalent yields reflected in the table above were calculated using amortized costs and a tax rate of 34%.

3436

The securities portfolio carries varying degrees of risk. Investments in U. S. Treasury and U. S. Agency securities have little or no credit risk. Mortgage-backed securities are substantially issues of federal agencies. Obligations of states and political subdivisions are the areas of highest potential credit exposure in the portfolio. This risk is minimized through the purchase of high quality investments. When purchased, obligations of states and political subdivisions and corporate bonds must have a credit rating by Moody’s or Standard and Poor’s of “A” or better. The risk of non-rated municipal bonds is minimized by limiting the amounts invested in local issues. Management believes the non-rated securities are of high equality. No securities of an individual issuer exceeded 10% of Security Capital Corporation’s shareholders’ equity as of December 31, ~~2010~~2011. Security Capital Corporation does not use off-balance sheet derivative financial instruments as defined in FASB Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging.”

The securities investment was increased as investment decisions favored securities investments when adequate loan funding was maintained. In ~~2010~~2011, the investment in securities increased by $3313.17 million ~~due~~driven toby a continuing decrease in loans and an increase in deposits.

Deposits

Security Capital Corporation offers a wide variety of deposit services to individual and commercial customers, such as non-interest-bearing and interest-bearing checking accounts, savings accounts, money market deposit accounts, and time deposit. The deposit base provides the major funding source for earning assets. Total average deposits have shown steady growth over the past few years. Time deposits continue to be the largest single source of Security Capital Corporation’s deposit base.

A five year schedule of average balances of deposits by type is presented in Table 12. Also, the maturities of time deposits greater than $100,000 are presented in Table 13.

Table 12 - Deposit Information

(in thousands)

2010

2009

2008

2007

2006

2011

2010

2009

2008

2007

Average

Avg

Average

Avg

Average

Avg

Average

Avg

Average

Avg

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Noninterest- Bearing

Demand

6979,~~143~~000

5869,~~940~~143

5958,~~286~~940

5659,~~816~~286

5856,~~635~~816

Savings

~~279~~268

~~261~~279

~~258~~261

~~251~~258

~~242~~251

Interest-bearing

Demand

~~155~~166,~~585~~446

0.7043

~~140~~155,~~946~~585

0.7057

~~135~~140,~~517~~946

10.3070

135,~~369~~517

21.7630

~~132~~135,~~447~~369

2.6576

Savings

2730,~~771~~201

0.3515

2627,~~512~~771

0.3521

2826,~~442~~512

0.7135

2928,~~932~~442

10.5271

3129,~~363~~932

1.5052

Time Deposits

~~156~~146,~~388~~198

20.1088

~~144~~156,~~736~~388

21.1043

~~162~~144,~~006~~736

32.4910

~~168~~162,~~032~~006

43.8649

~~144~~168,~~549~~032

4.2786

~~409~~422,~~166~~113

~~371~~409,~~395~~166

~~385~~371,~~509~~395

~~390~~385,~~400~~509

~~367~~390,~~236~~400

Table 13 - Maturity Ranges of Time Deposits
With Balances More Than $100,000
As of December 31, 2011
(in thousands)

3 Months or Less	$	20,033
Over 3 Months thru 6 Months		11,079
Over 6 Months thru 12 Months		28,828
Over 12 Months		6,631
	$	66,571

Table 13 - Maturity Ranges of Time Deposits
With Balances More Than $100,000
As of December 31, 2010
(in thousands)
3 Months or Less	$	32,412
Over 3 Months thru 6 Months		19,245
Over 6 Months thru 12 Months		23,037
Over 12 Months		6,191
	$	80,885

Security Capital Corporation in its normal course of business will acquire large certificates of deposit (time deposits), generally from public entities that exhibit a variety of maturities. These funds are acquired on a bid basis and are considered to be part of the deposit base of Security Capital Corporation.

Borrowings

Aside from the core deposit base and large denomination certificates of deposit mentioned above, the remaining funding sources include short-term and long-term borrowings. As of December 31, ~~2009~~2010, Security Capital Corporation’s short-term borrowings consisted of approximately $~~1.0~~843 ~~million~~thousand of the Treasury Tax and Loan open-end note and $1,000,000 of the $2726,~~909~~127,000 borrowed from the Federal Home Loan Bank. As of December 31, ~~2010~~2011, ~~short-term~~ borrowings ~~were~~maturing ~~composed~~within ofone ~~$843~~year ~~thousand~~included ofthree ~~the Treasury Tax and Loan~~ open-end ~~note~~notes ~~and~~totaling $19,000,000 of the $2624,~~127~~309,000 borrowed from the Federal Home Loan Bank. Security Capital Corporation foresees short-term borrowings to be a continuing source of liquidity and will continue to use these borrowings as a method to fund short-term needs.

At the end of ~~2009~~2010 and ~~2010~~2011, Security Capital Corporation had long-term debt in the amount of $2625,~~909~~127,000 and $2515,~~127~~309,000, respectively. Scheduled principal payments of $19,~~819~~857,000 are due to the Federal Home Loan Bank in ~~2011~~2012. The rates on the debt with Federal Home Loan Bank as of December 31, ~~2010~~2011 , ranged from 2.568% to 5.810% with the maturities ranging to 2032. The maximum month-end balance during 2011 with Federal Home Loan Bank occurred at the beginning of 2011 with the balance of $26,127,000. For 2011, the average outstanding long-term balance was $24,852,000 for debt with Federal Home Loan Bank.

, ranged from 2.568% to 5.810% with the maturities ranging to 2032. The maximum month-end balance during 2010 with Federal Home Loan Bank occurred at the beginning of 2010 with the balance of $27,846,000. For 2010, the average outstanding long-term balance was $26,642,000 for debt with Federal Home Loan Bank.

Liquidity and Rate Sensitivity

Liquidity management is the process by which Security Capital Corporation ensures that adequate liquid funds are available to meet financial commitments on a timely basis. These commitments include honoring withdrawals by depositors, funding credit obligations to borrowers, servicing long-term obligations, making shareholder dividend payments, paying operating expenses, funding capital expenditures and maintaining reserve requirements. Interest rate risk is the exposure to Corporation earnings and capital from changes in future interest rates. All financial institutions assume interest rate risk as an integral part of normal operations. Managing and measuring the interest rate risk is the process that ranges from reducing the exposure of Security Capital Corporation’s interest margin regarding swings in interest rates assuring that there are sufficient capital and liquidity to support future balance sheet growth.

Liquidity risk is the risk to a bank’s earnings and capital arising from its inability to meet obligations when they come due without incurring losses. Bank management must ensure that sufficient funds are available at a reasonable cost to meet potential demands from both funds providers and borrowers.

Security Capital Corporation addresses short–term liquidity from both an asset liquidity and a liability liquidity viewpoint. Short-term asset liquidity is provided by money market assets, the investment portfolio, and readily saleable bank assets. Short-term liability liquidity is measured by the liabilities considered to be more volatile in nature and more likely to be sensitive to changes in interest rates. Short-term liquidity is monitored through the asset/liability reports in a measure of a coverage ratio and a crisis coverage ratio. These ratios measure the ability of the bank to raise cash quickly and how many times this cash will cover volatile liabilities. For December 31, ~~2010~~2011, the coverage ratio was 6.1429%. Of this ratio, the calculated reserves or the source for cash was $~~185~~204.36 million which would be needed to meet the demand of the identified volatile liabilities and unused loan commitments of $2225.97 million and $56.28 million, respectively. The crisis ratio looks at the coverage of volatile liabilities under a scenario where cash is needed immediately. The crisis ratio for December 31, ~~2010~~2011, was 2.6375%. The identified reserves for a crisis ratio totaled $~~147~~168.3 million and the volatile liabilities and unused loan commitments totaled $5661.01 million. Additionally, the bank monitors liquidity by looking at the ratio of cash and short-term investments versus non-core funding. The liquidity ratio for December 31, ~~2010~~2011, was in compliance with the policy limit of 15% with a ratio of 4541.2050%. This ratio measures the net cash and short-term marketable assets of $~~112~~142.46 million to the net deposits and short-term liabilities of $~~248~~343.78 million. The Corporation’s dependency ratio of -215.6770% was in compliance with the policy ratio of 20.0% at December 31, ~~2010~~2011. This ratio measures the net volatile liabilities to the earning assets less short-term investments.

3638

Long-term liquidity is the ability of the bank to maintain its reputation in the market and to produce an acceptable return to its shareholders. Adverse effects of reputation deterioration could cause depositors and other funds providers as well as investors, to seek higher compensation and negatively impact the bank’s earnings and capital. If negative public opinion occurred, withdrawals of funding could become debilitating. The bank will take steps to minimize its reputation risk and the potential impact on liquidity. One step is to monitor its reliance on credit-sensitive funding. Another issue that is monitored is asset growth. Strategic consideration will be given to the development of new business. A significant component of reputation risk is the underlying credit underwriting process of the financial institution. Continued stringent underwriting standards for both existing and for new business will be employed. Additionally, concentrations of credit will be closely monitored.

Atacceptable ~~December~~return ~~31,~~to ~~2010,~~its ~~the~~shareholders. Adverse ~~Company~~effects ~~had~~of ~~outstanding~~reputation ~~loan~~deterioration ~~origination~~could ~~commitments~~cause depositors and ~~unused~~other ~~commercial~~funds ~~and~~providers ~~commercial~~as ~~and~~well ~~retail~~as ~~lines~~investors, ofto ~~credit~~seek ofhigher ~~$17.5~~compensation ~~million. Letters~~and ofnegatively ~~credit~~impact ~~commitments~~the ~~totaling~~bank’s ~~$10.5~~earnings ~~million~~and ~~consisted~~capital. If ofnegative ~~financial~~public ~~standby~~opinion ~~letters~~occurred, withdrawals of ~~credit~~funding ofcould $6become debilitating.4 The ~~million,~~bank ~~performance~~will ~~standby~~take ~~letters~~steps ofto ~~credit~~minimize ofits ~~$1.1~~reputation ~~million~~risk and ~~commercial~~the ~~letters~~potential ofimpact ~~credit~~on ~~of $3~~liquidity.~~0 million.~~ WeOne ~~anticipate~~step ~~that~~is weto ~~will~~monitor ~~have~~its ~~sufficient~~reliance ~~funds~~on ~~available~~credit-sensitive tofunding. Another ~~meet~~issue ~~current~~that ~~origination~~is ~~and~~monitored ~~other~~is ~~lending~~asset ~~commitments~~growth. AsStrategic aconsideration ~~contingency~~will ~~plan~~be ~~for~~given ~~significant~~to ~~funding needs,~~ the ~~Asset/Liability~~development ~~Management~~of ~~Committee~~new ~~may~~business. A ~~also~~significant ~~consider~~component ~~the sale~~ of reputation ~~securities,~~risk ~~sale~~is ofthe ~~loans~~underlying ~~and/or~~credit ~~the~~underwriting ~~temporary~~process ~~curtailment~~ of ~~lending~~the ~~activities~~financial institution. ~~Certificates~~Continued ofstringent ~~deposit~~underwriting ~~that~~standards ~~are~~for ~~scheduled~~both toexisting ~~mature~~and ~~within~~for ~~one~~new ~~year~~business ~~totaled~~will ~~approximately~~be ~~$136 million at December 31, 2010~~employed. WeAdditionally, ~~expect~~concentrations ~~to retain a substantial majority~~ of ~~these~~credit ~~certificates~~will ofbe ~~deposit~~closely monitored.

At December 31, 2011, the Company had outstanding loan origination commitments and unused commercial and commercial and retail lines of credit of $22.7 million. Letters of credit commitments totaling $11.8 million consisted of financial standby letters of credit of $6.5 million, performance standby letters of credit of $1.3 million and commercial letters of credit of $4.0 million. We anticipate that we will have sufficient funds available to meet current origination and other lending commitments. As a contingency plan for significant funding needs, the Asset/Liability Management Committee may also consider the sale of securities, sale of loans and/or the temporary curtailment of lending activities. Certificates of deposit that are scheduled to mature within one year totaled approximately $114.3 million at December 31, 2011. We expect to retain a substantial majority of these certificates of deposit.

The asset/liability committee is responsible for managing liquidity issues and interest rate risk, among other matters. Various interest rate movements are factored into a simulation model to assist the asset/liability committee in assessing interest rate risk. The committee analyzes the results of the simulation model to formulate strategies to effectively manage the interest rate risk that may exist.

The liquidity of Security Capital Corporation is dependent on the receipt of dividends from First Security Bank.

Management expects that in the aggregate, First Security Bank will continue to have the ability to provide adequate funds to Security Capital Corporation.

The liquidity of Security Capital Corporation is dependent on the receipt of dividends from First Security Bank. Management expects that in the aggregate, First Security Bank will continue to have the ability to provide adequate funds to Security Capital Corporation.

The Interest Rate Risk Management System is comprised of six different steps. They are: Board Oversight; Senior Management Oversight; Risk Limits and Controls; Risk Identification and Measurement; Risk Monitoring ~~andReporting~~and Reporting; and Independent Review. A strategic plan highlighting risk tolerance levels is established and monitored by the Board. Senior management implements the strategic plan of goals, objectives and risk limits. Risk limits are set for Earnings at Risk, Gap Analysis, Economic Value and Value at Risk. The status of liquidity and rate sensitivity is forecasted in a quarterly report, Asset/Liability Performance Analysis which is provided by an independent outside organization. The resulting analysis report notifies Security Capital Corporation of compliance with the limitations/goals established by Security Capital Corporation and regulatory agencies as well as projecting a flat rate scenario where rates do not change from the starting point of the analysis, the scenario of rates increasing by(using ~~200~~shocks and ramps) of 200, 300 and 400 basis points and (though low probability) the scenario of rates decreasing by 200 or 300 basis points.

The areas of interest rate risk which Security Capital Corporation is susceptible are Repricing Risk, Option ~~Riskand~~Risk and Yield Curve/Basis Risk. Repricing Risk is the difference in the timing of the assets and the liabilities due to ~~eithermaturities~~either maturities or repricing within a certain time frame. Option Risk is the interest rate related options embedded in the bank’s assets and liabilities which change the cash flow characteristics of the assets and liabilities. Yield Curve/Basis Risk are the changes in the relationship between different interest rates with the same maturity or interest rates across a maturity spectrum which ~~create~~creates compression or expansion of net interest margins.

3739

Gap Analysis is the analytical tool that places maturing and repricing assets and liabilities into time buckets ~~tomeasure~~to measure the short- and long-term pricing imbalances for a given period. The broad guidelines set by Security ~~CapitalCorporation~~Capital Corporation for this measure are set in time frames of three months, six months, and twelve months with a +/- cumulative gap position ~~limit~~ of 30%. Earnings at Risk (EAR), another analysis tool, is considered management’s best source of managing short-term interest rate risk (in a one-year time frame.) The EAR variance is the percentage change in net interest income over 12 months relative to the base case scenario (with rates being flat) for a +/- instantaneous parallel movement. The first limit or level is set at 10% of net interest income which will serve as a warning to management. The second level of 15% represents a risk earnings and is not acceptable to management. When this occurs, an explanation of the variance is reported to Asset/Liability Committee and to the Board of Directors with an action plan to decrease the variance. Among the possible actions are loan sales, use of FHLB borrowings and investment portfolio restructuring. Economic Value of Equity isif the tool for measuring long-term interest rate risk. This tool measures the long-term safety and soundness of the institution being compromised for the sake of short-term results. The two limits of Economic Value of Equity are level I designated having a variance of 30-39% and level II designated having a variance of 40% or higher and uses the same concern or action level as for Earnings at Risk.

The analysis performed using December 31, ~~2010~~2011, data projecting for the period ending December 31, 2012, reflected the net interest income at $15.3 million and the Return on Assets (ROA) and Return on Equity (ROE) were projected for 2012 at .59% and 4.89%, respectively. To compare, the actuals at December 31, 2011, were .32% and 2.25%, respectively. In the current model, the net interest margin 3.59% drops to 3.50% in the 200 ramp down and a drop to 3.52% in the down 100 ramp. For the 200 ramp up and the 100 ramp up, the model reflects an increase to 3.75% and 3.66%, respectively. The Economic Value of Equity increased 18.4% in the up 200 ramp. The down 200 ramp results in a decrease of 16.1% which is well within the policy limit of 30%. As rates move up or down 100 or 200 basis points, we see a small change in net interest income. The model shows if rates continue to tighten, the risk to earnings will be minimal.

~~reflected~~First ~~the~~Security’s ~~net~~Bank ~~interest~~current ~~income~~source atof ~~$15.6~~funding ~~million~~is ~~and~~predominantly ~~the~~core ~~Return~~deposits onconsisting ~~Assets~~of ~~(ROA)~~both ~~and~~commercial ~~Return on Equity (ROE) were projected for 2011 at .44%~~ and ~~3.82%,~~individual ~~respectively. To compare~~deposits, ~~the~~calls ~~actuals~~and atmaturities ~~December~~of ~~31,~~securities ~~2010, were .06%~~ and ~~.39%,~~repayments ~~respectively. In~~of ~~the~~loan ~~current~~principal ~~model,~~and ~~the net~~ interest ~~margin 3~~.58 With ~~drops to 3.11 in~~ the ~~200~~deposit ~~ramp~~base ~~down~~being ~~and~~diversified abetween ~~drop~~individual ~~to 3.34 in the down 100 ramp. For the 200 ramp up~~ and ~~the~~commercial ~~100 ramp up~~accounts, ~~the~~First ~~model~~Security ~~reflects~~Bank anavoids ~~increase~~dependence toon ~~4.78~~large ~~and~~concentrations ~~4.23,~~of ~~respectively~~funds. Security ~~The~~Capital ~~Economic~~Corporation ~~Value~~does ofnot ~~Equity~~solicit ~~increased~~certificates ~~10.0%~~of indeposits ~~the~~from ~~up 200 ramp~~brokers. The ~~down~~primary ~~200~~sources ~~ramp~~of ~~results~~liquidity inon athe ~~decrease~~asset toside ~~net interest income~~ of ~~16.3% which is well within~~ the ~~policy~~balance ~~limit~~sheet ofare ~~30%. As~~federal ~~rates~~funds ~~move~~sold upand orsecurities ~~down~~classified ~~100~~as oravailable ~~200~~for ~~basis~~sale. Most ~~points,~~of wethe ~~see~~investment securities aportfolio ~~small~~are ~~change~~classified in ~~net~~the ~~interest~~available-for-sale ~~income. The~~category ~~model~~and ~~shows~~are ifsubject ~~rates continue~~ to ~~tighten,~~be ~~the~~sold ~~risk~~should toliquidity ~~earnings~~needs ~~will be minimal~~arise.

First Security Bank’s source of funding is predominantly core deposits consisting of both commercial and individual deposits, maturities of securities, repayments of loan principal and interest, federal funds purchased, and long-term borrowings from the FHLB. With the deposit base being diversified between individual and commercial accounts, First Security Bank avoids dependence on large concentrations of funds. Security Capital Corporation does not solicit certificates of deposit from brokers. The primary sources of liquidity on the asset side of the balance sheet are federal funds sold and securities classified as available for sale. Most of the investment securities portfolio are classified in the available-for-sale category and are subject to be sold should liquidity needs arise.

The cash available for use in 2008 was provided by operating activities in the amount of $12.2 million. Other transactions or activities affecting cash were: purchases of available-for-sale securities of $19.2 million; maturities, calls and sales of securities of $17.8 million; repayment of debt of $14.1 million; proceeds from borrowings of $23.3 million; and payment of cash dividends of $1.4 million.

Along with the funds provided by operations in 2009, the cash available for use was provided by maturities and paydowns on securities of $23.1 million, a decrease in loans of $30.4 million, an increase of deposits of $26.0 million and the proceeds from the issuance of preferred stock of $17.4 million. These funds were used to provide for the decrease in federal funds purchased of $8 million, an increase in federal funds sold of $20.6 million, the paying of a cash dividend of $1.4 million, and the purchase of securities of $62.4 million.

In addition to the funds provided by operations of $9.6 million in 2010, the increase of deposits by $25.2 million and the decrease of loans by $15.5 million provided the source of funding for an increase in securities and federal funds sold of $35.8 million and $10.7 million, respectively.

38The cash available for use in 2011 was provided by operating activities in the amount of $8.6 million. Other transactions or activities affecting cash were: purchases of available-for-sale securities of $70.6 million; maturities, calls and sales of available-for-sale and held-to-maturity securities of $93.5 million; repayment of debt of $2.7 million; and payment of cash dividends of $1.4 million; purchase of held-to maturity securities of $36.3 million; decrease in loans of $5.7 million; and a decrease in Federal Funds Sold of $7.3 million.

~~Table 14 - Funding Uses and Sources details the main components of cash flows for 2008 thru 2010.~~40

Table 14 - Funding Uses and Sources
(in thousands)
	2010								2009								2008
			Increase								Increase								Increase
	Average		(Decrease)			%			Average		(Decrease)			%			Average		(Decrease)			%
	Balance		Amount			Change			Balance		Amount			Change			Balance		Amount			Change
Funding Uses
Loans	$	258,541	$	(27,892	)		(9.74	)	$	286,433	$	(48,143	)		(14.39	)	$	334,576	$	(6,113	)		(1.79	)
Securities*		145,905		60,233			70.31			85,672		7,484			9.57			78,188		5,534			7.62
Federal Funds Sold		27,681		6,899			33.20			20,782		17,279			493.26			3,503		600			20.67
		432,127		39,240			9.99			392,887		(23,380	)		(5.62	)		416,267		21			0.01
Funding Sources
Noninterest Bearing Deposits
Demand Deposits		69,143		10,203			17.31			58,940		(346	)		(0.58	)		59,286		2,470			4.35
Savings Deposits		279		18			6.90			261		3			1.16			258		7			2.79
Interest Bearing Deposits
Demand Deposits		155,585		14,639			10.39			140,946		5,429			4.01			135,517		148			0.11
Savings Deposits		27,771		1,259			4.75			26,512		(1,930	)		(6.79	)		28,442		(1,490	)		(4.98	)
Time Deposits		156,388		11,652			8.05			144,736		(17,270	)		(10.66	)		162,006		(6,027	)		(3.59	)
Borrowings		27,219		(3,493	)		(11.37	)		30,712		(3,216	)		(9.48	)		33,928		10,218			43.10
	$	436,385	$	34,278			8.52		$	402,107	$	(17,330	)		(4.13	)	$	419,437	$	5,326			1.29
*Cost basis is used for securities instead of market values.

Table 14 - Funding Uses and Sources details the main components of cash flows for 2009 thru 2011.

Table 14 - Funding Uses and Sources
(in thousands)
	2011								2010								2009
			Increase								Increase								Increase
	Average		(Decrease)			%			Average		(Decrease)			%			Average		(Decrease)			%
	Balance		Amount			Change			Balance		Amount			Change			Balance		Amount			Change
Funding Uses
Loans	$	242,917	$	(15,624	)		(6.04	)	$	258,541	$	(27,892	)		(9.74	)	$	286,433	$	(48,143	)		(14.39	)
Securities*		175,369		29,464			20.19			145,905		60,233			70.31			85,672		7,484			9.57
Federal Funds Sold		26,379		(1,402	)		(5.06	)		27,681		6,899			33.20			20,782		17,279			493.26
		444,565		12,438			2.88			432,127		39,240			9.99			392,887		(23,380	)		(5.62	)

Funding Sources

Filing Compare · SECURITY CAPITAL CORP/MS