First Security Bank: ABOUT FSB: March 2005 Form 10Q

FYE 12/31/05
Part II, Page 4

PART II (Continued)
Item 8.	Financial Statements and Supplementary Data (Continued)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Continued)

Note L - Related Party Transactions

In the normal course of business, loans are made to directors and executive officers and to companies in which they have a significant ownership interest. In the opinion of management, these loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties, are consistent with sound banking practices and are within applicable regulatory and lending limitations. Such loans amounted to approximately $2,254,000 and $1,795,000 at December 31, 2005 and 2004, respectively.

Note M - Regulatory Matters

     Banking regulations require the Bank to maintain certain capital levels and limit the dividends paid by the Bank to the holding company. Dividends paid by the Bank to the Corporation are the primary source of funds for dividends by the Corporation to its shareholders.

     The Corporation and its subsidiary bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and its subsidiary must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

     Quantitative measures established by regulation to ensure capital adequacy require the Corporation and its subsidiary bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to adjusted average total assets (leverage). Management’s contention is that, as of December 31, 2005, the Corporation and its subsidiary bank exceed all capital adequacy requirements.

     At December 31, 2005, the Bank was categorized by regulators as well-capitalized under the regulatory framework for prompt corrective action. A financial institution is considered to be well-capitalized if it has a total risk-based capital ratio of 10% or more, a Tier 1 risk-based capital ratio of 6% or more, and a Tier 1 leverage capital ratio of 5% or more. There are no conditions or anticipated events that, in the opinion of management, would change the categorization.

     The actual capital amounts and ratios at December 31, 2005 and 2004, are presented in the following table. No amount was deducted from capital for interest-rate risk exposure.

	Security Capital Corporation (Consolidated)		Bank
	Amount	Ratio	Amount	Ratio
December 31, 2005:
Total risk-based	$ 47,467	14.4%	$ 45,417	13.8%
Tier 1 risk-based	43,568	13.2%	41,518	12.7%
Tier 1 leverage	43,568	10.2%	41,518	9.8%

December 31, 2004:
Total risk-based	$ 42,859	15.8%	$ 40,884	15.2%
Tier 1 risk-based	39,486	14.6%	37,511	13.9%
Tier 1 leverage	39,486	10.4%	37,511	9.9%

The minimum amounts of capital and ratios as established by banking regulators at December 31, 2005 and 2004, were as follows:

	Security Capital Corporation (Consolidated)		Bank
	Amount	Ratio	Amount	Ratio
December 31, 2005:
Total risk-based	$ 26,406	8.0%	26,247	8.0%
Tier 1 risk-based	13,203	4.0%	13,123	4.0%
Tier 1 leverage	12,801	3.0%	12,747	3.0%

December 31, 2004:
Total risk-based	21,704	8.0%	21,571	8.0%
Tier 1 risk-based	10,851	4.0%	10,785	4.0%
Tier 1 leverage	11,368	3.0%	11,325	3.0%

Note N - Disclosure About Fair Values of Financial Investments

The following disclosure of the estimated fair value of financial instruments is made in accordance with FASB Statement No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents - For such short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities - For securities held as investments, fair value equals market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Fair value of other securities, which consist of FHLB, First National Banker’s Bankshares, and Federal Agricultural Mortgage Corporation, is estimated to be the carrying value which is par.

Loans - The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Deposits - The fair values of demand deposits are, as required by Statement No. 107, equal to the carrying value of such deposits. Demand deposits include noninterest-bearing demand deposits, savings accounts, NOW accounts, and money market demand accounts. The fair value of variable rate term deposits, those repricing within six months or less, approximates the carrying value of these deposits. Discounted cash flows have been used to value fixed rate term deposits and variable rate term deposits repricing after six months. The discount rate used is based on interest rates currently being offered on comparable deposits as to amount and term.

FHLB and Other Borrowings - The fair value of the fixed rate borrowings are estimated using discounted cash flows, based on current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of any variable rate borrowings approximates their fair values.

Off-Balance Sheet Instruments - Fair values of off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value until such commitments are funded or closed. Management has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned.

The estimated fair values of the financial instruments, none of which are held for trading purposes, were as follows:

	December 31, 2005		December 31, 2004
	Carrying Amount	Estimated Fair Value	Carrying Amount	Estimated Fair Value
Financial Assets:
Cash and cash equivalents	19,677	19,677	16,088	16,088
Federal funds sold	-	-	14,000	14,000
Certificates of deposit with other banks	392	392	591	591
Securities available-for-sale	78,949	78,949	96,669	96,669
Securities held-to-maturity	2,047	2,063	2,050	2,052
Securities, other	1,456	1,456	1,259	1,259
Loans	294,046	272,375	230,805	215,967
Financial Liabilities:
Noninterest-bearing deposits	63,082	63,082	53,502	53,502
Interest-bearing deposits	291,684	290,334	279,956	278,908
FHLB and other borrowings	29,096	29,096	10,131	10,086

Note O - Concentrations of Credit

Most of the loans, commitments, commercial letters of credit and standby letters of credit have been granted to customers in the Bank’s market area. Generally such customers are also depositors. Investments in state and municipal securities also include governmental entities within the Bank’s market area. The concentrations of credit by type of loan are set forth in
Note D. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Letters of credit were granted primarily to commercial borrowers.

Note P - Condensed Parent Company Statements

Balance sheets as of December 31, 2005 and 2004, and statements of income and cash flows for the years ended December 31, 2005, 2004, and 2003, of Security Capital Corporation (parent company only) are presented below:

BALANCE SHEETS
	December 31, (in thousands)
	2005	2004
Assets
Cash and cash equivalents	$ 23	$116
Investment in subsidiaries	45,730	42,489
Land	2,173	994
Other assets	243	317
	$ 48,169	$ 43,916
Liabilities and Shareholders' Equity
Notes payable	$ 930	-
Other liabilities	52	46
Shareholders' equity	47,187	43,870
	$ 48,169	$ 43,916

STATEMENTS OF INCOME
	Years ended December 31,
	2005	2004	2003
Income
Dividends from subsidiary	$ 2,695	$ 2,420	$ 2,530
Gain on sale of other asset	-	-	406
Other	53	10	10
	$ 2,748	$ 2,430	$ 2,946

Expense	$ 202	$ 151	$ 177

Income before income taxes and equity in undistributed earnings of subsidiaries	2,546	2,279	2,769
Income tax (expense) benefit	56	50	(78
Income before equity in undistributed earnings of subsidiaries	2,602	2,329	2,691
Equity in undistributed earnings of subsidiaries in excess of dividends	4,005	3,803	2,826

Net income	$ 6,607	$ 6,132	$ 5,517

STATEMENTS OF CASH FLOWS
	Years ended December 31,
	2005	2004	2003
Income
Dividends from subsidiary	$ 2,695	$ 2,420	$ 2,530
Gain on sale of other asset	-	-	406
Other	53	10	10
	$ 2,748	$ 2,430	$ 2,946

Expense	$ 202	$ 151	$ 177

Income before income taxes and equity in undistributed earnings of subsidiaries	2,546	2,279	2,769
Income tax (expense) benefit	56	50	(78
Income before equity in undistributed earnings of subsidiaries	2,602	2,329	2,691
Equity in undistributed earnings of subsidiaries in excess of dividends	4,005	3,803	2,826

Net income	$ 6,607	$ 6,132	$ 5,517

	Years Ended December 31, (in thousands)
	2005	2004	2003
Cash Flows From Operating Activities
Net income	$ 6,607	$ 6,132	$ 5,517
Equity in subsidiaries’ earnings	(4,005)	(3,803)	(2,826)
Gain on sale of other asset	-	-	(406)
Other, net	80	(68)	234
Net cash provided by operating activities	2,682	2,261	2,519
Cash Flows From Investing Activities
Purchases of assets	$ (1,179)	$ (1,204)	-
Proceeds from sale of other asset	-	-	406
Other, net	(2)	-	-
Net cash provided by (used in) investing activities	(1,181)	(1,204)	406
Cash Flows From Financing Activities
Dividends paid on common stock	$ (2,611)	$ (2,485)	$ (2,243)
Issuance of debt	930	-	-
Other, net	87	150	58
Net cash used in financing activities	(1,594)	(2,335)	(2,185)
Net increase (decrease) in cash and cash equivalents	(93)	(1,278)	740
Cash and cash equivalents at beginning of year	116	1,394	654
Cash and cash equivalents at end of year	$ 23	$ 116	$ 1,394

Note Q - Summary Of Quarterly Results Of Operations And Per Share Amounts (Unaudited)

	Three Months Ended (in thousands except per share data)
2005	Mar. 31	June 30	Sep. 30	Dec. 31
Total interest income	$ 5,332	$ 5,906	$ 6,493	$ 6,727
Total interest expense	1,287	1,595	1,893	2,132
Net interest income	4,045	4,311	4,600	4,595
Provision for loan losses	185	185	465	605
Net interest income after provision for loan losses	3,860	4,126	4,135	3,990
Total noninterest income, excluding securities gains (losses)	1,492	1,555	1,616	1,556
Securities gains (losses)	7	-	(16)	(43)
Total noninterest expenses	3,075	3,269	3,325	3,295
Income taxes	657	593	754	703
Net income	$ 1,627	$ 1,819	$ 1,656	$ 1,505

Per share: (1)
Net income	$ 0.62	$ 0.70	$0.63	$ 058
Cash dividends declared	-	-	-	1.00
(1) Restated for stock dividends.

	Three Months Ended (in thousands except per share data)
2004	Mar. 31	June 30	Sep. 30	Dec. 31
Total interest income	$ 4,392	$ 4,610	$ 4,969	$ 5,121
Total interest expense	949	956	1,061	1,173
Net interest income	3,443	3,654	3,908	3,948
Provision for loan losses	163	144	148	182
Net interest income after provision for loan losses	3,280	3,510	3,760	3,766
Total noninterest income, excluding securities gains (losses)	1,313	1,720	1,409	1,350
Securities gains (losses)	-	33	(45)	-
Total noninterest expenses	2,716	2,988	2,852	2,977
Income taxes	485	644	532	770
Net income	$ 1,392	$ 1,631	$ 1,740	$ 1, 369

Per share: (1)
Net income	$ 0.53	$ 0.62	$ 0.67	$ 0.52
Cash dividends declared	-	-	-	1.00
(1) Restated for stock dividends.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Security Capital Corporation

     We have audited the accompanying consolidated balance sheets of Security Capital Corporation and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Security Capital Corporation and subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ T. E. LOTT & COMPANY

Columbus, Mississippi
January 18, 2006