U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

COMMISSION FILE NUMBER:       000-50224

SECURITY CAPITAL CORPORATION
SECOND QUARTER 2004 INTERIM FINANCIAL STATEMENTS

TABLE OF CONTENTS
    

SECURITY CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the nine months ended September 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, please refer to the Company's Form 10-K filed March 30, 2004, which will include the consolidated financial statements and footnotes for the year ended December 31, 2003.

NOTE B – SUMMARY OF ORGANIZATION
Security Capital Corporation (the "Company") was incorporated September 16, 1982, under the laws of the State of Mississippi for the purpose of acquiring First Security Bank and serving as a one-bank holding company.

First Security Bank and Batesville Security Building Corporation are wholly owned subsidiaries of the Company.

First Security Bank was originally chartered under the laws of the State of Mississippi on October 25, 1951 and engages in a wide range of commercial banking activities and emphasizes it local management, decision-making and ownership. The Bank offers a full range of banking services designed to meet the basic financial needs of its customers. These services include checking accounts, NOW accounts, money market deposit accounts, savings accounts, certificates of deposit, and individual retirement accounts. The Bank also offers a wide range of personal and corporate trust services and commercial, agricultural, mortgage and personal loans. It's full-service banking locations expanded to eleven with the October 31, 2001 opening in Olive Branch, Mississippi, the July 1, 2002 opening in Hernando, Mississippi and the August 2003 opening in Pope, Mississippi. In 2004, land has been purchased for the construction of a branch location in Southaven, Mississippi with the projected opening to be in early 2005.

Batesville Security Building Corporation, the non-bank subsidiary, was chartered under the laws of the State of Mississippi on June 23, 1971, generally, to deal and manage real estate and personal property and is currently inactive.

The Company filed the initial registration, Form 10-SB, with the Securities and Exchange Commission on March 28, 2003 having reached and exceeded 500 shareholders in 2002.

NOTE C – EARNINGS PER COMMON SHARE
Basic per share data is calculated based on the weighted average number of common shares outstanding during the reporting period. Diluted per share data includes any dilution from potential common stock outstanding, such as exercise of stock options.

For the Three Months Ended September 30, 2004   Net Income (Numerator) Shares (Denominator) Per Share Data Basic per share $1,739,272 2,366,602 .73 Effect of dilutive shares:* 0  0   Diluted per share $1,739,272 2,366,602 .73

 

For the Nine months Ended September 30, 2004   Net Income (Numerator) Shares (Denominator) Per Share Data Basic per share  $4,762,640 2,365,740 2.01 Effect of dilutive shares:* 0  0   Diluted per share $4,762,640  2,365,740 2.01

 

For the Three Months Ended September 30, 2003 (as restated for stock dividend)   Net Income (Numerator) Shares (Denominator) Per Share Data Basic per share $1,259,736 2,361,347 .53 Effect of dilutive shares:* 0  0   Diluted per share $1,259,736 2,361,347 .53

 

For the nine months Ended September 30, 2003 (as restated for stock dividend)   Net Income (Numerator) Shares (Denominator) Per Share Data Basic per share $4,117,025 2,360,855 1.74 Effect of dilutive shares:* 0  0   Diluted per share $4,117,025 2,360,855 1.74 *There was no dilution from potential common stock outstanding at September 30, 2004 and September 30, 2003. Subsequent to September 30, 2004, the Company declared a 5% stock dividends resulting in the issuance of 118,350 common shares on October 21, 2004. A $1 per share cash dividend totaling $2,484,937 was declared for the holders of record on October 22, 2004.

ITEM NO. 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains “forward-looking statements” relating to, without limitation, future economic performance, plan and objectives of management for future operations, and projections of revenues and other financial items that are based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. The words “expect,” “estimate,” “anticipate,” and “believe,” as well as similar expressions, are intended to identify forward-looking statements. The Company's actual results may differ and the Company's operating performance each quarter is subject to various risks and uncertainties that are discussed in detail in the Company's filing of the Form 10-SB with the Securities and Exchange Commission.

The subsidiary Bank represents the primary assets of the Company. On September 30, 2004, First Security Bank had approximately $374.9 million in assets compared to $332 million at September 30, 2003. Loans increased to $231.8 million at September 30, 2004 from $205.5 million at September 30, 2003. Deposits increased by $39.6 million from September 30, 2003 to September 30, 2004 for a total of $319.8 million. For the nine months ended September 30, 2004 and September 30, 2003, the Bank reported income of approximately $4,849,000 and $4,277,000 respectively.

CHANGES IN FINANCIAL CONDITION
The cash and due from banks of $16.5 million at September 30, 2004 reflected an increase from the cash position of $15 million at December 31, 2003. This increase is attributed to growth and a daily fluctuation due to normal bank transactions. The cash management team readily invests available cash and assesses the investment tools for the most desirable yield as displayed in the reduction in the federal funds sold from the position at December 31, 2003 and an increase in securities available for sale.

The earning assets at December 31, 2003 were $306 million and at September 30, 2004 was $337 million. The investments in fixed assets continue to increase with the expansion of the banking services into the Southaven area. The premises and equipment, net of the accumulated depreciation, at December 31, 2003 was $12.8 million as compared to $14.3 million at September 30, 2004. Other assets increased to $4.7 million at September 30, 2004 from $1.7 million at December 31, 2003, with the major components of the increase attributed to an increase in the customer liability acceptances and the classification of the September 30, 2004 unposted deposit debits as other assets.

Deposit liabilities at September 30, 2004 reflected an 11% growth or a $30.4 million increase for the first nine months in 2004. The rise in deposits decreases the need for increments on long-term borrowings. Short-term borrowings are a tool in providing funding for deposit withdrawals and customer loan advances. At September 30, 2004, short-term funding was not needed as demonstrated by no liability existing for federal funds purchased.

The net unrealized gain on available-for-sale securities reflected in the shareholder's equity section on December 31, 2003 was approximately $1.3 million. Due to the volatile changes in the market in 2004, the net unrealized gain on available-for-sale securities dropped to $56 thousand as of June 30, 2004. At September 30, 2004, the net unrealized gain on available-for-sale securities increased to $902 thousand from the previous quarter ending. The third quarter changes in the market affected the comprehensive income with an increase of $847 thousand for the three months ending September 30, 2004 and a decrease of $382 thousand for the nine months ending September 30, 2004. In 2003, the three months and the nine months ending September 30 reflected a decrease in comprehensive income of $426 thousand and $275 thousand, respectively.

The consolidated statements of cash flows summarize the changes in the financial condition of the Company. The most prevalent of the changes for the nine months ending September 30, 2004 are: an increase of $ 27.4 million in loans; purchases of available-for-sale securities of $54.4 million; purchases of $2 million for premises and equipment of which the new real estate and construction costs for the branch located in Southaven, Mississippi, comprise $1.6 million; an increase of $30.4 million in deposits and a decrease in federal funds sold of $20.3 million.

NONPERFORMING ASSETS AND RISK ELEMENTS.
Diversification within the loan portfolio is an important means of reducing inherent lending risks. The loan portfolio is represented of the following mix: Commercial 7.6%; Agricultural 2.95%; Real Estate 74.93%; Consumer 13.90% and Other .55%. The major components of the real estate loans are 27.11% for construction and land development property, 27.62% for first liens on 1-4 family residential property and 34.62% for nonfarm and nonresidential property.

At September 30, 2004, the subsidiary bank had loans past due as follows:

The accrual of interest is discontinued on loans which become ninety days past due unless the loans are adequately secured and in the process of collection. Nonaccrual loans totaled $78 thousand at September 30, 2004. Any other real estate owned is carried at lower of cost or current appraised value less cost to dispose. Other real estate at September 30, 2004 totaled $139 thousand. A loan is classified as a restructured loan when the interest rate is materially reduced or the term is extended beyond the original maturity date because of the inability of the borrower to service the debt under the original terms. The subsidiary bank had no restructured loans at September 30, 2004.

For the nine months ended September 30, 2004, the Company experienced $656 thousand in charge-offs of loans and $325 thousand in recoveries of loans for a net decrease effect to the Allowance for Loan Losses of $331 thousand. The net charge-offs represent .14 % of loans. Of the $656 thousand charge to the Allowance for Loan Losses, the breakdown is 8.54% for 1-4 family residential properties with first liens, 18.14% for 1-4 family residential properties with junior liens, 1% for commercial and industrial loans, 61.59% for consumer loans. Consumer loan collections of $301 thousand represent the major component of the $325 thousand in recoveries.

LIQUIDITY
The Company has an asset and liability management program that assists management in maintaining net interest margins during times of both rising and falling interest rates and in maintaining sufficient liquidity. As of September 30, 2004, Security Capital Corporation had a positive gap of 21.1 % in a 12-month time frame. The regulatory liquidity ratio reflected 17.94%, within the policy requirement of a minimum liquidity ratio of 15%. A 1% increase in market rates will increase net interest income by approximately 1.22% while a decrease in market rates will reduce net interest income by 2.06%. The Company's policy allows for no more than a 10% movement in NII (net interest income), in a 200 basis point ramp of market rates over a one-year period. Currently, a 200 basis point movement down would reduce NII by 4.54% while an upward movement of the same amount would increase NII by 4.81%. When funds exceed the needs for reserve requirements or short-term liquidity needs, the company will increase its security investments or sell federal funds. It is management's policy to maintain an adequate portion of its portfolio of assets and liabilities on a short-term basis to insure rate flexibility and to meet loan funding and liquidity needs.

At September 30, 2004, the tools to meet these needs are the secured and unsecured lines of credit with the correspondent banks totaling $20.5 million (to borrow federal funds) and the line of credit with the Federal Home Loan Bank that exceeds $82 million. At September 30, 2004, the Company had available (unused) line of credit of approximately $89 million.

CAPITAL RESOURCES
Total consolidated equity capital at September 30, 2004 was $45.4 million or approximately 12.1% of total assets. The main source of capital for the Corporation has been the retention of net income.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier 1 Capital and Leverage Capital. Currently, the Company and the Bank have adequate capital positions as of September 30, 2004 as reflected below:

RESULTS OF OPERATIONS
The Company had a consolidated net income for $4.8 million for the nine months ending September 30, 2004, compared with consolidated net income of $4.1 million for the nine months ending September 30, 2003.

Total interest income increased to $14.0 million for the nine months ending September 30, 2004 from $12.9 million for the nine months ending September 30, 2003, or an increase of 8.7 %. Earning assets through September 30, 2004 increased $43.0 million and interest-bearing liabilities increased $48.2 million compared to September 30, 2003, reflecting an increase of 14.51% and 19.88%, respectively.

Noninterest income for the nine months ending September 30, 2004 was $4.4 million compared to $4.0 million for the same period in 2003, reflecting an increase of $474 thousand or 11.95%. Included in noninterest income are service charges on deposit accounts, which for each of the nine months ended September 30, 2004 and September 30, 2003 totaled $2.9 million and $2.8 million, respectively

The provision for loan losses was $455 thousand in the first nine months of 2004 compared with $484 for the same period in 2003 showing a decrease of $29 thousand. The Allowance for Loan Losses of $3.8 million on September 30, 2004 (approximately 1.63% of loans) is considered by management to be adequate to cover losses inherent in the loan portfolio. The Allowance for Loan Losses as of September 30, 2003 was 1.81% of loans. An evaluation of historical loss rates for bankruptcy and agriculture loans resulted in a reduction of the applied allocation rate beginning in the second quarter of 2004. The level of this allowance is dependent upon a number of factors, including the total amount of past due loans, general economic conditions, and management's assessment of potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant change. Ultimately, losses may vary from current estimates and future additions to the allowance may be necessary. Thus, there can be no assurance that charge-offs in future periods will not exceed the Allowance for Loan Losses or that additional increases will not be required. Management evaluates the adequacy of the Allowance for Loan Losses quarterly and makes provisions for loan losses based on this evaluation.

Other income for the nine months ending September 30, 2004 showed a significant increase, primarily due to a legal settlement receipt of $350,000 in a fire loss of a branch in 2002.

Other expense increased by $621 thousand or 7.83% for the nine months ended September 30, 2004, when compared with the same period in 2003. Salaries and employee benefits of $5.7 million for the nine months ended September 30, 2004 represent the largest component of other expenses and steadily increases with the development of the market area and the training of future bank management, in both areas of commercial banking and trust.

Income tax expense of $1.6 million for the nine months ended September 30, 2004 is indicative of the applicable tax liability for the increase in the income for 2004 along with the adjustments for tax-exempt income and tax deferred income.

The net interest margin forecasted in the Company's asset liability management analysis for the coming twelve months period is 4.73% based on no change in rates. This forecast is up from the 4.58% as forecasted for the quarter ended June 30, 2004. The increase in the forecast is due to the Company being asset sensitive. With the substantial change in the markets since June 30, 2004, the Company's ability to reprice the asset side of the balance sheet higher and combined with the lagging impact upward rates typically have on the funding side of the balance sheet attribute to the increase in the forecasted net interest margin.

For the nine months ended September 30, 2004, the return on assets is reflected at 1.77% as compared to the six months ended September 30, 2003 of 1.69%.

ITEM NO. 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes in market risk exposures that affect the quantitative and qualitative disclosures presented as of December 31, 2003 in the Company's Form 10-K and Annual Report.
    

ITEM NO. 4 CONTROLS AND PROCEDURES

Within 90 days prior to the filing of this report, an evaluation under the direction and with the participation of our principal executive officer and principal financial officer was performed to determine the effectiveness of the design and operation of the disclosure controls and procedures. The principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. There have been no significant changes in the Corporation's internal controls or in other factors subsequent to the date of the evaluation that could significantly affect these controls.
  

ITEM 1. LEGAL PROCEEDINGS

Out of the normal course of business, First Security Bank may be defendant in a lawsuit. In regard to any legal proceedings, which occurred during the reporting period, management expects no material impact on the Company's consolidated financial position or results of operation.
    

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None
    

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
    

SECURITY CAPITAL CORPORATION

Exhibit No. 31.1

Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002 – Chief Executive Officer.

I, Frank West certify that:

EXHIBIT 31.2

Certificate pursuant to Rule 13a-14(a) or 15d-14(a) of Securities Exchange Act of 1934 as adopted pursuant to section 302 of Sarbanes-Oxley Act of 2002 – Cashier and Chief Financial Officer.

I, Connie Woods Hawkins certify that:

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U. S. C., SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10Q, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, of Security Capital Corporation (the "Company") for the period ended September 30, 2004, as filed with the Securities Exchange Commission on the date hereof (the "Report"), I, Frank West, the Chief Executive Officer of the Company, certify, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Security Capital Corporation and will be retained by Security Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U. S. C., SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report on Form 10Q, filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, of Security Capital Corporation (the "Company") for the period ended September 30, 2004, as filed with the Securities Exchange Commission on the date hereof (the "Report"), I, Connie Woods Hawkins, the Chief Financial Officer of the Company, certify, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Security Capital Corporation and will be retained by Security Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.