As of December 31, 2005, loan management had identified loans of $851thousand requiring greater than normal supervision. 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.

     Management believes loans classified for regulatory purposes as loss, doubtful, or substandard that are not included in nonperforming or impaired loans do not represent or result from trends or uncertainties which will have a material impact on future operating results, liquidity, or capital resources.

     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 significant 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.

     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, 2005, Security Capital Corporation in its Loan Loss Reserve Analysis classified $10,019,698 with a rating of Watch, $1301,164 with a rating of Substandard, and $14,677 with a rating of Doubtful.

     All other real estate is carried by Security Capital Corporation at the lower of cost or market 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 is substantial or that extends the life of the asset are capitalized.

     An analysis of the loan portfolio and the loan loss reserve or allowance is conducted on a quarterly basis by the President and loan administrators and approved by the Board of Directors to insure that the bank is well protected against any potential and/or unexpected loan losses. To arrive at the proper grades or classifications needed in the loan loss reserve 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 reserve will fluctuate from quarter to quarter due to the loan portfolio performance being monitored.

     The composition of the allowance or reserve 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 of 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 more reserves. Agricultural loans, by the nature of the purpose and the unforeseen elements in the farming process, complete the loans identified as having more than the normal risks.

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 collect-ability 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 collect-ability 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 collect-ability 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.

     At December 31, 2001, the loan loss reserve grew approximately $119 thousand from December 31, 2000. The allocation for substandard loans increased from $101 thousand to $169 thousand due to the increase in the loans in this risk category from $676 thousand to $1.1 million. Bankruptcy loans increased by approximately $800 and caused an increase in its loan loss reserve allocation of $156 thousand. The loans classified as agricultural loans decreased by approximately $1.6 million. This decrease created a decrease in the agricultural loans allocation by $274 thousand. The allocation for consumer loans without real estate collateral increased by $204 thousand due to the increase in loans from $12.8 million in 2000, to $23 million in 2001. Other variables in the loan loss reserve allocation remained constant. The allocation for December 31, 2001, is as follows: substandard loans, $169 thousand; doubtful loans, $39 thousand; bankruptcy loans, $367 thousand; credit card loans, $38 thousand; agricultural loans, $458 thousand; consumer loans without real estate collateral, $461 thousand; watch loans, $83 thousand and the remainder of the adjusted loan portfolio, $1,215 thousand.

     At December 31, 2002, the loan portfolio analysis required an increase in the loan loss reserve. The major stimulus for the increase was the growth in the loan portfolio from $170 million to $187.5 million. A decrease in the amount allocated for doubtful loans from $38 thousand to $7 thousand was attributed to a decrease in the balance of loans with this grade. The loan loss reserve at December 31, 2002, was allocated as follows: substandard loans, $201 thousand; doubtful loans, $7 thousand; bankruptcy loans, $350 thousand; credit card loans, $39 thousand; agricultural loans, $742 thousand; consumer loans without real estate collateral, $645 thousand; watch loans, $133 thousand; and the remainder of the adjusted loan portfolio, $1,277 thousand.

     Due to the growth in the loan portfolio from $187.5 million to $204.4 million during 2003, the loan portfolio analysis required an increase in the loan loss reserve. The allocation for doubtful loans reflected an increase of $17 thousand primarily to using a specific allocation for a projected loss. A specific allocation is a deficiency when the balance of the loans exceeds the market value of the collateral. The loan loss reserve at December 31, 2003, was allocated as follows: substandard loans, $166 thousand; doubtful loans, $25 thousand; bankruptcy loans, $439 thousand; credit card loans, $38 thousand; agricultural loans, $575 thousand; consumer loans without real estate collateral, $540 thousand; watch loans, $260 thousand; and the remainder of the adjusted loan portfolio, $1,622 thousand.

     At December 31, 2005, the loan loss reserve reflected a small decrease of $67 thousand from the previous year. The loan loss reserve at December 31, 2005, was composed of the following: substandard loans, $160 thousand; an allocation for deemed uncollectible doubtful loans, $113 thousand; bankruptcy loans, $448 thousand; credit card loans, $49 thousand; agricultural loans, $288 thousand; consumer loans without real estate collateral, $558 thousand; watch loans, $202 thousand; and the remainder of the adjusted loan portfolio, $780 thousand.

     The loan loss reserve at December 31, 2005, showed an increase of $291 thousand from the previous year, which can be justified by the increase in the loan portfolio. The loan loss reserve at December 31, 2005, was represented by substandard loans ($195 thousand), doubtful loans ($5 thousand), bankruptcy loans ($577 thousand), credit card loans ($42 thousand), agricultural loans ($145 thousand), consumer loans without real estate collateral ($543 thousand), watch loans ($301 thousand) and the remainder of the adjusted loan portfolio ($1,992 thousand). In the third and fourth quarter of 2005, management looked intently at the adequacy of the loan loss reserve with the loan losses of $1.4 million being recognized for the year. Analysis at the close of 2005 of the loan loss reserve considered loan growth in specific market areas, and potential problem accounts forecasted changes in the allocation and methodology in the loan loss reserve calculations.

     Loan charge offs in 2004 and 2005 were $1,128 and $1,617 thousand, respectively, reflecting a significant increase over the average loan charge offs of $858 thousand for the prior three years. This increase in loan charge offs mandated the need to maintain the increase in provisions for the Allowance for Loan Losses for 2004 and 2005, respectively, $637 thousand and $1,440 thousand. The significant increase of $803 in the provision is the resulting action of a continuing analysis of problem loans, a readiness to recognize losses, and a dedication to maintain a sufficient level of a reserve. The regulatory exam as of September 30, 2005, however, classified $1.9 million of loans as substandard, up from $1.6 million as reflected in the regulatory exam as of December 31, 2003. This increase will be a gauge in the analysis of needed loan provisions. Recoveries reflected an increase in 2005 from $424 thousand to $478 thousand as a result of the diligent efforts by loan and deposit personnel to regain principal from the classified loan activity. The ratio of the Allowance for Loan Losses to Loans for the other years presented shows a small increase with each year.
 

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, First National Banker’s Bankshares and Federal Agricultural Mortgage Corporation.

     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.

     The weighted tax-equivalent yields reflected in the table above were calculated using amortized costs and a tax rate of 34%.
     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, 2005. Security Capital Corporation does not use off-balance sheet derivative financial instruments as defined in Statement of Financial Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments."

     In 2003 and 2004, the securities investment was increased as investment decisions favored securities investments when adequate loan funding was maintained. In 2005, the securities portfolio decreased as the loan demand increased without an echo of the increase in the 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.

     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, 2005, Security Capital Corporation’s short-term borrowings consisted of $1,105,000 of the Treasury Tax and Loan open-end note and $12,991,000 borrowed from the Federal Home Loan Bank. As of December 31, 2004, the borrowings were composed of $1,497,000 in the Treasury, Tax and Loan open-end note and $8,634,000 in advance from the Federal Home Loan Bank. Security Capital Corporation foresees short-term borrowings to be a continued source of liquidity and will continue to use these borrowings as a method to fund short-term needs.

     Security Capital Corporation at the end of 2005 had long-term debt in the amount of $12,991,000 with scheduled principal payments of $572,354 due to the Federal Home Loan Bank in 2006. The rates on the debt with Federal Home Loan Bank as of December 31, 2005, ranged from 2.335% to 6.575% with the maturities ranging to 2025. The maximum month-end balance during 2005 with Federal Home Loan Bank occurred at the end of November with the balance of $19,806,245. For 2005, the average outstanding long-term balance was $11,765,410 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 thru 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, 2005, the coverage ratio was 3.81X - which was in compliance of the policy limit of 1X. Of this ratio, the calculated reserves or the source for cash was $141.3 million which would be needed to meet the demand of the identified volatile liabilities and unused loan commitments of $22 million and $15.1 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, 2005, was 1.42X, adequately within the policy limit of .50X. The identified reserves for a crisis ratio totaled $100.3 million and the volatile liabilities and unused loan commitments totaled $71 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, 2005, was in compliance with the policy limit of 15% with a ratio of 15.8%. This ratio measures the net cash and short-term marketable assets of $50 million to the net deposits and short-term liabilities of $318 million. The corporation’s dependency ratio complied with policy with a ratio of 13.647% at December 31, 2005. This ratio measures the net volatile liabilities to the earning assets less short-term investments.

     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 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.

     At December 31, 2005, we had outstanding loan origination commitments and unused commercial and commercial and retail lines of credit of $48.2 million. Letters of credit commitments totaling $14.3 million consisted of financial standby letters of credit of $8.2 million, performance standby letters of credit of $1.3 million and commercial letters of credit of $4.8 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 $100.9 million at December 31, 2005. 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 Interest Rate Risk Management System is comprised of six different steps. They are: Board Oversight; Management Oversight; Risk Limits and Controls; Risk Identification and Measurement; Risk Monitoring 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 200 and 300 basis points and 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 Risk and Yield Curve/Basis Risk. Repricing Risk is the difference in the timing of the assets and the liabilities due to 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 compression or expansion of net interest margins.

     Gap Analysis is the analytical tool that places maturing and repricing assets and liabilities into time buckets to measure the short and long term pricing imbalances for a given period. The broad guidelines set by Security 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 is 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, 2005, data projecting for the period ending December 31, 2006, reflected the net interest income at $18.8 million. There were no exceptions to policy for the 12 month period. Return on Assets and Return on Equity at 1.88% and 17.13%, respectively, compare to December 31, 2005, actuals at 1.57% and 14.16%, respectively. The model for December 31, 2005, though shows a neutral position to changes in rates, has shifted to a liability sensitive status as compared to the model for December 31,2004, which reflected an asset sensitive status. In the current model, the net interest income decreases .50% in the 200 ramp up and decreases .60% in the up 100 ramp. Economic Value of Equity increased 28.3% in the up 200 ramp. The down 200 ramp results in an increase to net interest income of 2.8% which is well within the policy limit of 10%. As rates move down 100 basis points we see a decrease in net interest income of .60%. The model shows a "best place" position of reaping some benefit if rates fall and only a slight risk if rates continue to rise.

     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.

     Along with the cash provided by operations of $5.5 million in 2002, the cash available for use was provided by an increase of deposits of $30 million and a net increase of borrowings of $2.8 million. These funds were used to provide for an increase in loan demand of $17.6 million, the increase of an investment of $12.4 million in securities, the paying of a cash dividend of $2 million, the increase of $8.6 million in federal funds sold, the addition of buildings and equipment of $1.6 million and the purchase of bank owned life insurance of $3 million.

     In 2003, funds available for use were basically provided by net income adjusted for non-cash transactions for a total of $6.9 million, maturities and calls of securities of $47 million, long-term debt advances of $3.3 million and withdrawal of certificates of deposits of $1.3 million. The major use of the funds provided was to invest $52.8 million in securities and $16.9 million in loans. Further funding was provided by the increase of deposits of $22.8 million. Other cash uses during 2003 were to fund the cash dividends paid on common stock ($2.2 million) and to retire debt of $4 million.

     In 2004, the funds provided by operation activities totaled $6.4 million. The funds available from operations, maturitie, calls and sales of securities of $36 million, and increases in deposits of $45 million were used to invest in securities of $59 million and in loans of $30 million. Other major uses of funds were cash dividends of $2.5 million and investment in buildings and locations of $2.9 million.

     In 2005, the funds provided by operations totaled $5.8 million. The increase in loans of $63.6 million demanded funding from the redemption of federal funds sold of $14 million, an increase in borrowings of approximately $19 million (which includes federal funds purchased), and an increase in deposits of $21.3 million. Other uses of fundings were a $2 million purchase of bank owned life insurance, $2.6 million in dividends paid, and a $4.5 million capitalization for premises. A net decrease of $9.4 between purchases and maturities in investment in securities assisted in providing for the expenditures in 2005.

     Table 15 - Liquidity and Interest Rate Sensitivity reflects interest earning assets and interest-bearing liabilities by maturity distribution. Product lines repricing in time periods predetermined by contractual agreements are included in the respective maturity categories.

     Interest rate risk can also be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific time period. The interest rate sensitivity gap is defined as the difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, therefore, a negative gap would tend to adversely affect the net interest income. Conversely, during a period of falling interest rates, a negative gap position would tend to result in an increase in net interest income.

     As of December 31, 2005, Security Capital Corporation had a neutral gap of 1.85% in the base case.

     Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates. Additionally, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Therefore, we do not rely solely on a gap analysis to manage our interest rate risk, but rather we use what we believe to be the more reliable simulation model - relating to changes in net interest income.

Income Sensitivity :
Based on simulation modeling at December 31, 2005, and December 31, 2004, our net interest income would
change over a one-year time period due to changes in interest rates as follows:

     As of December 31, 2004, the asset sensitivity is evident as reflected in the projected 1.74% increase in the up 200 ramp. The down 200 ramp as of December 31, 2004, results in a decrease to net interest income of 3.32%, well within the policy limit of (10%). Analysis of the simulation presented indicates as of December 31, 2005, there is little short term interest rate risk due to the projected increase in net interest income of 2.80% in a down 200 basis point rate ramp.

Capital Adequacy

     Security Capital Corporation and First Security Bank are subject to various regulatory capital guidelines as required by federal and state banking agencies, as discussed in greater detail under Item 1 hereof. These guidelines define the various components of core capital and assign risk weights to various categories of assets.

     The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires federal regulatory agencies to define capital tiers. These are: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under these regulations, a "well-capitalized" institution must achieve a Tier I risk-based capital ratio of at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage ratio of at least 5.00% and not be under a capital directive order. Failure to meet capital requirements can initiate regulatory action that could have a direct material effect on Security Capital Corporation’s financial statements. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions, asset growth and expansion is limited, in addition to the institution being required to submit a capital restoration plan.

     Management believes Security Capital Corporation and First Security Bank meet all the capital requirements as of December 31, 2005, as noted below in Table 16 - Capital Ratios, and is well-capitalized under the guidelines established by the banking regulators. To be well-capitalized, Security Capital Corporation and First Security Bank must maintain the prompt corrective action capital guidelines described above.

     Security Capital Corporation increased the amount of dividends paid to $2,611,400 in 2005, compared to $2,484,937 in 2004, an increase of $126,463or 5.09%.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements existing at December 31, 2005.

Tabular Disclosure of Contractual Obligations

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the potential of loss arising from adverse changes in interest rates and prices. The Company is exposed to market risk as a consequence of the normal course of conducting its business activities. Financial products that expose the Company to market risk include investment securities, loans, deposits and debt. The Company's market risk management process involves measuring, monitoring, controlling and managing risks that can significantly impact the Company's financial position and operating results. In this management process, market risks are balanced with expected returns in an effort to enhance earnings performance and shareholder value, while limiting the volatility of each. Normal business transactions expose the Company's balance sheet profile to varying degrees of market risk. The Company's primary market risk exposure is interest rate risk. A key element in the process of managing market risk involves oversight by senior management and the Board of Directors as to the level of such risk assumed by the Company in its balance sheet. The Board of Directors reviews and approves risk management policies, including risk limits and guidelines and delegates oversight functions to the Asset Liability Management Committee ("ALCO"). The ALCO, consisting of senior business and finance officers, monitors the Company's market risk exposure and as market conditions dictate, modifies balance sheet positions.