Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - SECURITY CAPITAL CORP/MS | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - SECURITY CAPITAL CORP/MS | ex31_2.htm |
EX-32.2 - EXHIBIT 32.2 - SECURITY CAPITAL CORP/MS | ex32_2.htm |
EX-32.1 - EXHIBIT 32.1 - SECURITY CAPITAL CORP/MS | ex32_1.htm |
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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D. C. 20549
FORM 10-Q
x
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED:
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JUNE 30, 2011
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-------------------------
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OR
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER:
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000-50224
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------------------
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SECURITY CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSISSIPPI
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64-0681198
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(STATE OF INCORPORATION)
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(I. R. S. EMPLOYER IDENTIFICATION NO.)
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295 HIGHWAY 6 WEST/ P. O. BOX 690
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BATESVILLE, MISSISSIPPI
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38606
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--------------------------------------------------------
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----------------------------------------------------------
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(ADDRESS OF PRINCIPAL
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(ZIP CODE)
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EXECUTIVE OFFICES)
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662-563-9311
(ISSUER’S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK MARK WHETHER THE ISSUER: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
[ X ] YES [ ] NO
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER OR A NON-ACCELERATED FILER. SEE DEFINITION OF “ACCELERATED FILER AND LARGE ACCELERATED FILER” IN RULE 12B-2 OF THE EXCHANGE ACT. (CHECK ONE):
LARGE ACCELERATED FILER [ ] ACCELERATED FILER [ X ] NON-ACCELERATED FILER [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT.)
[ ] YES [ X ] NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK AS OF JUNE 30, 2011.
TITLE
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OUTSTANDING
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COMMON STOCK, $5.00 PAR VALUE
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2,883,309
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SECURITY CAPITAL CORPORATION
FORM 10-Q
SECOND QUARTER 2011 INTERIM FINANCIAL STATEMENTS
TABLE OF CONTENTS
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||
PART I.
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FINANCIAL INFORMATION
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Item 1.
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Consolidated Financial Statements
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Consolidated Balance Sheets
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||
June 30, 2011 (unaudited) and December 31, 2010
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Consolidated Statements of Income
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||
Six months and three months ended June 30, 2011 and 2010 (unaudited)
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||
Consolidated Statements of Comprehensive Income
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||
Six months and three months ended June 30, 2011 and 2010 (unaudited)
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||
Consolidated Statements of Cash Flows
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||
Six months ended June 30, 2011 and 2010 (unaudited)
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||
Notes to Consolidated Financial Statements (unaudited)
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||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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Item 4.
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Controls and Procedures
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PART II.
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OTHER INFORMATION
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Item 1.
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Legal Proceedings
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Item 1A.
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Risk Factors
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Item 2.
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Changes in Securities
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Item 3.
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Defaults upon Senior Securities
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Item 4.
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Submission of Matters to a Vote of Security Holders
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Item 5.
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Other Information
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Item 6.
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Exhibits and Reports on Form 8-K
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PART 1 – FINANCIAL INFORMATION
ITEM NO. 1
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CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS
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||||||||
(dollar amounts presented in thousands)
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||||||||
(Unaudited)
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||||||||
June 30,
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Dec. 31,
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|||||||
2011
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2010
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|||||||
ASSETS
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||||||||
Cash and due from banks
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$ | 22,574 | $ | 14,822 | ||||
Interest-bearing deposits with banks
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4,655 | 442 | ||||||
Total cash and cash equivalents
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27,229 | 15,264 | ||||||
Federal funds sold
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14,270 | 31,270 | ||||||
Certificates of deposit with other banks
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1,538 | 1,778 | ||||||
Securities available-for-sale
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139,798 | 124,447 | ||||||
Securities held-to-maturity, estimated fair value of
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45,564 | 33,095 | ||||||
$45,549 in 2011 and $32,541 in 2010
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||||||||
Securities, other
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1,935 | 1,933 | ||||||
Total securities
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187,297 | 159,475 | ||||||
Loans, less allowance for loan losses of
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||||||||
$5,377 in 2011 and $4,477 in 2010
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243,461 | 243,287 | ||||||
Interest receivable
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3,046 | 2,902 | ||||||
Premises and equipment
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22,880 | 22,922 | ||||||
Other real estate
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19,679 | 20,272 | ||||||
Intangible assets
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3,874 | 3,874 | ||||||
Cash surrender value of life insurance
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6,772 | 6,650 | ||||||
Customers' liability acceptances
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3,537 | 1,142 | ||||||
Other assets
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3,102 | 3,646 | ||||||
Total Assets
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$ | 536,685 | $ | 512,482 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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||||||||
Liabilities:
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||||||||
Noninterest-bearing deposits
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$ | 76,735 | $ | 74,022 | ||||
Time deposits of $100,000 or more
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72,533 | 80,885 | ||||||
Other interest-bearing deposits
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279,751 | 253,836 | ||||||
Total deposits
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429,019 | 408,743 | ||||||
Interest payable
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241 | 419 | ||||||
Acceptances outstanding
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3,537 | 1,142 | ||||||
Borrowed funds
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25,427 | 26,970 | ||||||
Other liabilities
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4,719 | 3,295 | ||||||
Total Liabilities
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462,943 | 440,569 | ||||||
Shareholders' equity:
|
||||||||
Preferred stock - $1,000 par value, 25,000 shares
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||||||||
authorized, 17,910 shares issued
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17,868 | 17,742 | ||||||
Common stock - $5 par value, 10,000,000 shares
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||||||||
authorized, 2,890,811 shares issued
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14,454 | 14,454 | ||||||
Surplus
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38,520 | 40,733 | ||||||
Retained earnings (deficit)
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776 | (2,214 | ) | |||||
Accumulated other comprehensive income
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2,162 | 1,236 | ||||||
Treasury stock, at par, 7,502 shares in 2011 and
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||||||||
7,602 shares in 2010
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(38 | ) | (38 | ) | ||||
Total Shareholders' Equity
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73,742 | 71,913 | ||||||
Total Liabilities and Shareholders' Equity
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$ | 536,685 | $ | 512,482 | ||||
CONSOLIDATED STATEMENTS OF INCOME
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||||||||||||||||
(dollar amounts presented in thousands)
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||||||||||||||||
(Unaudited)
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(Unaudited)
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|||||||||||||||
For the three months
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For the six months
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|||||||||||||||
ended June 30,
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ended June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
INTEREST INCOME
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||||||||||||||||
Interest and fees on loans
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$ | 3,510 | $ | 3,857 | $ | 6,978 | $ | 7,581 | ||||||||
Interest and dividends on securities
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1,210 | 1,168 | 2,358 | 2,303 | ||||||||||||
Federal funds sold
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12 | 14 | 30 | 24 | ||||||||||||
Other
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6 | 11 | 7 | 15 | ||||||||||||
Total interest income
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4,738 | 5,050 | 9,373 | 9,923 | ||||||||||||
INTEREST EXPENSE
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||||||||||||||||
Interest on deposits
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560 | 826 | 1,164 | 1,688 | ||||||||||||
Interest on borrowings
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257 | 274 | 432 | 463 | ||||||||||||
Total interest expense
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817 | 1,100 | 1,596 | 2,151 | ||||||||||||
Net Interest Income
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3,921 | 3,950 | 7,777 | 7,772 | ||||||||||||
Provision for loan losses
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1,076 | 576 | 1,506 | 852 | ||||||||||||
Net interest income after provision
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||||||||||||||||
for loan losses
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2,845 | 3,374 | 6,271 | 6,920 | ||||||||||||
OTHER INCOME
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||||||||||||||||
Service charges on deposit accounts
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1,023 | 1,105 | 1,994 | 2,149 | ||||||||||||
Trust Department income
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209 | 209 | 433 | 440 | ||||||||||||
Securities net gain
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245 | 5 | 245 | 5 | ||||||||||||
Other income
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436 | 252 | 835 | 471 | ||||||||||||
Total other income
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1,913 | 1,571 | 3,507 | 3,065 | ||||||||||||
OTHER EXPENSES
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||||||||||||||||
Salaries and employee benefits
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2,599 | 2,164 | 5,118 | 4,787 | ||||||||||||
Occupancy expense
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586 | 617 | 1,149 | 1,220 | ||||||||||||
Other operating expense
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1,075 | 1,223 | 2,421 | 2,411 | ||||||||||||
Total other expenses
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4,260 | 4,004 | 8,688 | 8,418 | ||||||||||||
INCOME BEFORE PROVISION
|
||||||||||||||||
FOR INCOME TAXES
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498 | 941 | 1,090 | 1,567 | ||||||||||||
PROVISION (BENEFIT) FOR INCOME TAXES
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31 | 197 | (5 | ) | 208 | |||||||||||
NET INCOME
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467 | 744 | 1,095 | 1,359 | ||||||||||||
Preferred Dividends
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(152 | ) | (280 | ) | (319 | ) | (569 | ) | ||||||||
NET INCOME APPLICABLE TO
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||||||||||||||||
COMMON SHAREHOLDERS
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$ | 315 | $ | 464 | $ | 776 | $ | 790 | ||||||||
BASIC NET INCOME PER
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$ | 0.11 | $ | 0.16 | $ | 0.27 | $ | 0.27 | ||||||||
COMMON SHARE
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||||||||||||||||
SECURITY CAPITAL CORPORATION
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||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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||||||||||||||||
(dollar amounts presented in thousands)
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||||||||||||||||
(Unaudited)
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||||||||||||||||
(Unaudited)
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||||||||||||||||
For the three months
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For the six months
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|||||||||||||||
ended June 30,
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ended June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Net income
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$ | 467 | $ | 744 | $ | 1,095 | $ | 1,359 | ||||||||
Other comprehensive income, net of tax:
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||||||||||||||||
Unrealized holding gains
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631 | 429 | 926 | 1,014 | ||||||||||||
Comprehensive income
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$ | 1,098 | $ | 1,173 | $ | 2,021 | $ | 2,373 | ||||||||
SECURITY CAPITAL CORPORATION
|
||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(dollar amounts presented in thousands)
|
||||||||
(Unaudited)
|
||||||||
Six months ended
|
||||||||
June 30,
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||||||||
2011
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2010
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
NET INCOME
|
$ | 1,095 | $ | 1,359 | ||||
Adjustments to reconcile net income to
|
||||||||
net cash provided by operating activities:
|
||||||||
Provision for loan losses
|
1,506 | 852 | ||||||
Amortization of premiums and discounts on securities, net
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932 | 808 | ||||||
Depreciation and amortization
|
588 | 607 | ||||||
Deferred income taxes
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(124 | ) | - | |||||
FHLB stock dividend
|
(2 | ) | (3 | ) | ||||
Gain on securities
|
(245 | ) | (5 | ) | ||||
(Gain) loss on sale/disposal of other assets
|
(128 | ) | 184 | |||||
Changes in:
|
||||||||
Interest receivable
|
(144 | ) | 177 | |||||
Cash value of life insurance, net
|
(116 | ) | (111 | ) | ||||
Other assets
|
(1,507 | ) | (629 | ) | ||||
Interest payable
|
(178 | ) | (107 | ) | ||||
Other liabilities
|
3,377 | 1,565 | ||||||
Net cash provided by operating activities
|
5,054 | 4,697 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases of securities available-for-sale
|
(39,833 | ) | (55,029 | ) | ||||
Purchases of securities held-to-maturity
|
(16,273 | ) | (14,568 | ) | ||||
Proceeds from maturities and calls of securities available-for-sale
|
21,624 | 34,788 | ||||||
Proceeds from maturities and calls of securities held-to-maturity
|
3,620 | 5,145 | ||||||
Sales of securities available-for-sale
|
3,832 | - | ||||||
Additions to premises and equipment
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(61 | ) | (69 | ) | ||||
Proceeds from sale of other assets
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882 | 1,083 | ||||||
Purchase of bank-owned life insurance
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(6 | ) | - | |||||
Changes in:
|
||||||||
(Increase) decrease in loans
|
(2,670 | ) | 4,286 | |||||
Federal funds sold
|
17,000 | 4,885 | ||||||
Certificates of deposits with other banks
|
240 | - | ||||||
Net cash used in investing activities
|
(11,645 | ) | (19,479 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Dividends paid on preferred stock
|
(179 | ) | (458 | ) | ||||
Changes in:
|
||||||||
Deposits
|
20,276 | 36,739 | ||||||
Reissuance of treasury stock
|
2 | - | ||||||
Repayment of debt
|
(2,247 | ) | (2,390 | ) | ||||
Proceeds from issuance of debt
|
704 | 140 | ||||||
Net cash provided by financing activities
|
18,556 | 34,031 | ||||||
Net increase in cash and cash equivalents
|
11,965 | 19,249 | ||||||
Cash and cash equivalents at beginning of period
|
15,264 | 17,045 | ||||||
Cash and cash equivalents at end of period
|
$ | 27,229 | $ | 36,294 | ||||
Cash paid during the period for:
|
||||||||
Interest
|
$ | 1,774 | $ | 2,258 | ||||
Income taxes
|
176 | - | ||||||
Noncash activities:
|
||||||||
Transfer of loans to other real estate and repossessed inventory
|
$ | 1,022 | $ | 1,492 |
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 six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information, please refer to the Company’s Form 10-K filed March 12, 2011, which includes the consolidated financial statements and footnotes for the year ended December 31, 2010.
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 (the “Bank” or the “subsidiary 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 its 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. First Security Bank has branch locations in the following Mississippi communities: Batesville, Pope, Sardis, Como, Crenshaw, Tunica, Hernando, Marks, Olive Branch, Robinsonville, Southaven and Barton.
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 in and manage real estate and personal property.
NOTE C – SECURITIES
A summary of amortized cost and estimated fair value of securities available-for-sale and securities held-to-maturity at June 30, 2011 and December 31, 2010, follows:
Securities
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||||||||||||||||
Amortized Cost and Fair Values
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Estimated
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Fair Value
|
|||||||||||||
(In thousands)
|
||||||||||||||||
June 30, 2011
|
||||||||||||||||
Securities available-for-sale:
|
||||||||||||||||
U. S. Government agencies
|
$ | 30,546 | $ | 124 | $ | 4 | $ | 30,666 | ||||||||
Mortgage-backed securities
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36,079 | 1,922 | 1 | 38,000 | ||||||||||||
State and local political subdivisions
|
69,721 | 1,496 | 103 | 71,114 | ||||||||||||
Other equity securities
|
4 | 14 | - | 18 | ||||||||||||
$ | 136,350 | $ | 3,556 | $ | 108 | $ | 139,798 | |||||||||
Securities held-to-maturity:
|
||||||||||||||||
U. S. Government agencies
|
$ | 35,123 | $ | 36 | $ | 61 | $ | 35,098 | ||||||||
State and local political subdivisions
|
10,441 | 10 | - | 10,451 | ||||||||||||
$ | 45,564 | $ | 46 | $ | 61 | $ | 45,549 | |||||||||
December 31, 2010
|
||||||||||||||||
Securities available-for-sale:
|
||||||||||||||||
U. S. Government agencies
|
$ | 21,242 | $ | 51 | $ | 143 | $ | 21,150 | ||||||||
Mortgage-backed securities
|
41,733 | 1,688 | 112 | 43,309 | ||||||||||||
State and local political subdivisions
|
59,497 | 929 | 451 | 59,975 | ||||||||||||
Other equity securities
|
4 | 9 | - | 13 | ||||||||||||
$ | 122,476 | $ | 2,677 | $ | 706 | $ | 124,447 | |||||||||
Securities held-to-maturity:
|
||||||||||||||||
U. S. Government agencies
|
$ | 25,578 | $ | 5 | $ | 600 | $ | 24,983 | ||||||||
State and local political subdivisions
|
7,517 | 84 | 43 | 7,558 | ||||||||||||
$ | 33,095 | $ | 89 | $ | 643 | $ | 32,541 | |||||||||
The details concerning securities classified as available-for-sale and held-to-maturity with unrealized losses as of June 30, 2011 and December 31, 2010, were as follows:
Securities
|
||||||||||||||||||||||||
Unrealized Losses < and > 12 Months
|
||||||||||||||||||||||||
Available-for-Sale
|
||||||||||||||||||||||||
Losses < 12 Months
|
Losses 12 Months or >
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
June 30, 2011
|
||||||||||||||||||||||||
U. S. Government
|
||||||||||||||||||||||||
agencies
|
$ | 2,997 | $ | 4 | $ | - | $ | - | $ | 2,997 | $ | 4 | ||||||||||||
Mortgage-backed
|
||||||||||||||||||||||||
securities
|
1,668 | 1 | - | - | 1,668 | 1 | ||||||||||||||||||
State and local political
|
||||||||||||||||||||||||
subdivisions
|
12,675 | 103 | - | - | 12,675 | 103 | ||||||||||||||||||
$ | 17,340 | $ | 108 | $ | - | $ | - | $ | 17,340 | $ | 108 | |||||||||||||
December 31, 2010
|
||||||||||||||||||||||||
U. S. Government
|
||||||||||||||||||||||||
agencies
|
$ | 8,924 | $ | 143 | $ | - | $ | - | $ | 8,924 | $ | 143 | ||||||||||||
Mortgage-backed
|
||||||||||||||||||||||||
securities
|
11,524 | 112 | - | - | 11,524 | 112 | ||||||||||||||||||
State and local political
|
||||||||||||||||||||||||
subdivisions
|
17,202 | 369 | 1,236 | 82 | 18,438 | 451 | ||||||||||||||||||
$ | 37,650 | $ | 624 | $ | 1,236 | $ | 82 | $ | 38,886 | $ | 706 | |||||||||||||
Held-to-Maturity
|
||||||||||||||||||||||||
Losses < 12 Months
|
Losses 12 Months or >
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
June 30, 2011
|
||||||||||||||||||||||||
U. S. Government
|
||||||||||||||||||||||||
agencies
|
$ | 11,564 | $ | 61 | $ | - | $ | - | $ | 11,564 | $ | 61 | ||||||||||||
State and local political
|
||||||||||||||||||||||||
subdivisions
|
- | - | - | - | - | - | ||||||||||||||||||
$ | 11,564 | $ | 61 | $ | - | $ | - | $ | 11,564 | $ | 61 | |||||||||||||
December 31, 2010
|
||||||||||||||||||||||||
U. S. Government
|
||||||||||||||||||||||||
agencies
|
$ | 19,675 | $ | 600 | $ | - | $ | - | $ | 19,675 | $ | 600 | ||||||||||||
State and local political
|
||||||||||||||||||||||||
subdivisions
|
2,144 | 43 | - | - | 2,144 | 43 | ||||||||||||||||||
$ | 21,819 | $ | 643 | $ | - | $ | - | $ | 21,819 | $ | 643 | |||||||||||||
NOTE D - LOANS
Loans
|
||||||||
Major Classifications
|
||||||||
Major classifications of loans were as follows:
|
||||||||
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Commercial, financial and agricultural
|
$ | 41,987 | $ | 33,347 | ||||
Real estate - construction and development
|
57,749 | 56,673 | ||||||
Real estate - mortgage
|
126,897 | 134,964 | ||||||
Installment loans to individuals
|
20,832 | 20,186 | ||||||
Other
|
1,373 | 2,594 | ||||||
248,838 | 247,764 | |||||||
Less allowance for loan losses
|
(5,377 | ) | (4,477 | ) | ||||
$ | 243,461 | $ | 243,287 | |||||
Activity in the allowance for loan losses for the period indicated is as follows:
|
||||||||||||||||
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
Balance at beginning of period
|
$ | 4,809 | $ | 4,143 | $ | 4,477 | $ | 4,352 | ||||||||
Provision for loan losses
|
1,076 | 576 | 1,506 | 852 | ||||||||||||
Loans charged-off
|
(631 | ) | (1,176 | ) | (931 | ) | (1,887 | ) | ||||||||
Recoveries on loans previously charged-off
|
123 | 167 | 325 | 393 | ||||||||||||
Balance at end of period
|
$ | 5,377 | $ | 3,710 | $ | 5,377 | $ | 3,710 | ||||||||
The following table provides the ending balances in the Company’s loans and allowance for loan losses, broken down by portfolio segment as of June 30, 2011 and December 31, 2010. The table also provides additional detail as to the amount of our loans and allowance that corresponds to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company’s systematic methodology for estimating its Allowance for Loan Losses.
June 30, 2011
|
||||||||||||||||
Installment
|
Commercial,
|
|||||||||||||||
and
|
Financial
|
|||||||||||||||
Real Estate
|
Other
|
and Agriculture
|
Total
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Loans
|
||||||||||||||||
Individually evaluated
|
$ | 14,986 | $ | 28 | $ | 427 | $ | 15,441 | ||||||||
Collectively evaluated
|
169,660 | 22,177 | 41,560 | 233,397 | ||||||||||||
Total
|
$ | 184,646 | $ | 22,205 | $ | 41,987 | $ | 248,838 | ||||||||
Allowance for Loan Losses
|
||||||||||||||||
Individually evaluated
|
$ | 3,155 | $ | 1 | $ | 24 | $ | 3,180 | ||||||||
Collectively evaluated
|
1,517 | 383 | 297 | 2,197 | ||||||||||||
Total
|
$ | 4,672 | $ | 384 | $ | 321 | $ | 5,377 | ||||||||
December 31, 2010
|
||||||||||||||||
Installment
|
Commercial,
|
|||||||||||||||
and
|
Financial
|
|||||||||||||||
Real Estate
|
Other
|
and Agriculture
|
Total
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Loans
|
||||||||||||||||
Individually evaluated
|
$ | 44,284 | $ | 28 | $ | 950 | $ | 45,262 | ||||||||
Collectively evaluated
|
147,359 | 22,752 | 32,391 | 202,502 | ||||||||||||
Total
|
$ | 191,643 | $ | 22,780 | $ | 33,341 | $ | 247,764 | ||||||||
Allowance for Loan Losses
|
||||||||||||||||
Individually evaluated
|
$ | 2,870 | $ | 1 | $ | 8 | $ | 2,879 | ||||||||
Collectively evaluated
|
1,136 | 215 | 247 | 1,598 | ||||||||||||
Total
|
$ | 4,006 | $ | 216 | $ | 255 | $ | 4,477 | ||||||||
At June 30, 2011, and December 31, 2010, loans lines of $250,000 and greater, rated substandard or lower, were analyzed for impairment. The following is a summary comparison of the analysis for impairment.
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Loans analyzed for impairment
|
||||||||
without a valuation allowance
|
$ | 2,790,990 | $ | 28,171,248 | ||||
Loans analyzed for impairment
|
||||||||
with a valuation allowance
|
12,649,950 | 17,090,793 | ||||||
Total impaired loans
|
$ | 15,440,940 | $ | 45,262,041 | ||||
Valuation allowance related to impaired loans
|
$ | 3,180,352 | $ | 2,879,000 | ||||
The following table provides additional detail of loans lines of $250,000 and greater, rated substandard or lower which were analyzed for impairment and reflects the breakdown according to class as of June 30, 2011, and December 31, 2010. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. As a majority of these loans at June 30, 2011, and December 31, 2010, are on nonaccrual status, the recorded investment excludes any insignificant amount of accrued interest receivable on loans 90 days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.
June 30, 2011
|
||||||||||||||||||||
Average
|
Interest
|
|||||||||||||||||||
Recorded
|
Income
|
|||||||||||||||||||
Recorded
|
Unpaid
|
Related
|
Investment
|
Recognized
|
||||||||||||||||
Investment
|
Balance
|
Allowance
|
YTD
|
YTD
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Loans analyzed for
|
||||||||||||||||||||
impairment with
|
||||||||||||||||||||
no related allowance:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 159 | $ | 159 | $ | - | $ | 168 | $ | 4 | ||||||||||
Real estate-construction and development
|
472 | 472 | - | 471 | 2 | |||||||||||||||
Real estate-mortgage
|
2,160 | 2,160 | - | 2,164 | 48 | |||||||||||||||
Installment loans and other
|
- | - | - | - | - | |||||||||||||||
Total
|
$ | 2,791 | $ | 2,791 | $ | - | $ | 2,803 | $ | 54 | ||||||||||
Loans analyzed for
|
||||||||||||||||||||
impairment with
|
||||||||||||||||||||
a related allowance:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 268 | $ | 288 | $ | 24 | $ | 268 | $ | - | ||||||||||
Real estate-construction and development
|
8,330 | 8,330 | 2,186 | 8,272 | 13 | |||||||||||||||
Real estate-mortgage
|
4,024 | 4,485 | 969 | 4,039 | 20 | |||||||||||||||
Installment loans and other
|
28 | 28 | 1 | 28 | - | |||||||||||||||
Total
|
$ | 12,650 | $ | 13,131 | $ | 3,180 | $ | 12,607 | $ | 33 | ||||||||||
Total loans analyzed for
|
||||||||||||||||||||
impairment:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 427 | $ | 447 | $ | 24 | $ | 436 | $ | 4 | ||||||||||
Real estate-construction and development
|
8,802 | 8,802 | 2,186 | 8,743 | 15 | |||||||||||||||
Real estate-mortgage
|
6,184 | 6,645 | 969 | 6,203 | 68 | |||||||||||||||
Installment loans and other
|
28 | 28 | 1 | 28 | - | |||||||||||||||
Total Impaired Loans
|
$ | 15,441 | $ | 15,922 | $ | 3,180 | $ | 15,410 | $ | 87 | ||||||||||
December 31, 2010
|
||||||||||||||||||||
Average
|
Interest
|
|||||||||||||||||||
Recorded
|
Income
|
|||||||||||||||||||
Recorded
|
Unpaid
|
Related
|
Investment
|
Recognized
|
||||||||||||||||
Investment
|
Balance
|
Allowance
|
YTD
|
YTD
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Impaired loans with
|
||||||||||||||||||||
no related allowance:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 623 | $ | 623 | $ | - | $ | 580 | $ | 29 | ||||||||||
Real estate-construction and development
|
17,886 | 17,886 | - | 20,360 | 762 | |||||||||||||||
Real estate-mortgage
|
9,662 | 9,662 | - | 9,759 | 377 | |||||||||||||||
Installment loans and other
|
- | - | - | - | - | |||||||||||||||
Total
|
$ | 28,171 | $ | 28,171 | $ | - | $ | 30,699 | $ | 1,168 | ||||||||||
Impaired loans with
|
||||||||||||||||||||
a related allowance:
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 327 | $ | 347 | $ | 8 | $ | 338 | $ | 12 | ||||||||||
Real estate-construction and development
|
12,030 | 12,030 | 1,667 | 10,788 | 364 | |||||||||||||||
Real estate-mortgage
|
4,706 | 4,982 | 1,203 | 4,784 | 192 | |||||||||||||||
Installment loans and other
|
28 | 28 | 1 | 31 | 1 | |||||||||||||||
Total
|
$ | 17,091 | $ | 17,387 | $ | 2,879 | $ | 15,941 | $ | 569 | ||||||||||
Total Impaired Loans
|
||||||||||||||||||||
Commercial, financial, and agricultural
|
$ | 950 | $ | 970 | $ | 8 | $ | 918 | $ | 41 | ||||||||||
Real estate-construction and development
|
29,916 | 29,916 | 1,667 | 31,148 | 1,126 | |||||||||||||||
Real estate-mortgage
|
14,368 | 14,644 | 1,203 | 14,543 | 569 | |||||||||||||||
Installment loans and other
|
28 | 28 | 1 | 31 | 1 | |||||||||||||||
Total Impaired Loans
|
$ | 45,262 | $ | 45,558 | $ | 2,879 | $ | 46,640 | $ | 1,737 | ||||||||||
The following table is summary of nonaccrual loans and loans past due 90 days still on accrual status:
|
||||||||
June 30,
|
December 30,
|
|||||||
2011
|
2010
|
|||||||
(In thousands)
|
||||||||
Nonaccrual loans
|
$ | 14,006 | $ | 9,584 | ||||
Loans past due over 90 days still on accrual
|
$ | 3 | $ | 63 | ||||
The following table is a summary of interest recognized and cash-basis interest earned on impaired loans:
|
||||||||||||||||
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Average of individually impaired loans
|
||||||||||||||||
during period
|
$ | 15,379 | $ | 35,733 | $ | 15,410 | $ | 43,824 | ||||||||
Interest income recognized during
|
||||||||||||||||
impairment
|
$ | - | $ | - | $ | 87 | $ | - | ||||||||
Cash-basis interest income recognized
|
$ | 68 | $ | - | $ | 107 | $ | - | ||||||||
The following table summarizes by class the Company’s loans classified as past due in excess of 30 days or more in addition to those loans classified as non-accrual:
June 30, 2011
|
||||||||||||||||||||
90 Days +
|
||||||||||||||||||||
30-89 |
Past Due
|
|||||||||||||||||||
Days Past
|
and Still
|
Non-Accrual
|
Total
|
Total
|
||||||||||||||||
Due
|
Accruing
|
Loans
|
Past Due
|
Loans
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Commercial, financial
|
$ | 384 | $ | - | $ | 314 | $ | 698 | $ | 41,987 | ||||||||||
and agricultural
|
||||||||||||||||||||
Real estate - construction
|
||||||||||||||||||||
and development
|
1,304 | - | 8,760 | 10,064 | 57,749 | |||||||||||||||
Real estate - mortgage
|
3,706 | - | 4,788 | 8,494 | 126,897 | |||||||||||||||
Installment loans to individuals
|
856 | - | 144 | 1,000 | 20,832 | |||||||||||||||
Other
|
80 | 3 | - | 83 | 1,373 | |||||||||||||||
Total
|
$ | 6,330 | $ | 3 | $ | 14,006 | $ | 20,339 | $ | 248,838 | ||||||||||
December 31, 2010
|
||||||||||||||||||||
90 Days +
|
||||||||||||||||||||
30-89 |
Past Due
|
|||||||||||||||||||
Days Past
|
and Still
|
Non-Accrual
|
Total
|
Total
|
||||||||||||||||
Due
|
Accruing
|
Loans
|
Past Due
|
Loans
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Commercial, financial
|
$ | 238 | $ | 29 | $ | 326 | $ | 593 | $ | 33,347 | ||||||||||
and agricultural
|
||||||||||||||||||||
Real estate - construction
|
||||||||||||||||||||
and development
|
1,016 | - | 3,856 | 4,872 | 56,673 | |||||||||||||||
Real estate - mortgage
|
2,070 | - | 5,237 | 7,307 | 134,964 | |||||||||||||||
Installment loans to individuals
|
842 | - | 165 | 1,007 | 20,186 | |||||||||||||||
Other
|
67 | 34 | - | 101 | 2,594 | |||||||||||||||
Total
|
$ | 4,233 | $ | 63 | $ | 9,584 | $ | 13,880 | $ | 247,764 | ||||||||||
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:
Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
As of June 30, 2011, and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
June 30, 2011
|
||||||||||||||||||||
Real Estate
|
Installment
|
|
||||||||||||||||||
Commercial &
|
Real Estate
|
and
|
Financial
|
|||||||||||||||||
Development
|
Mortgage
|
Other
|
and Agriculture
|
Total
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Pass
|
$ | 19,379 | $ | 98,412 | $ | 21,070 | $ | 31,007 | $ | 169,868 | ||||||||||
Special Mention
|
8,187 | 12,340 | 675 | 9,703 | 30,905 | |||||||||||||||
Substandard
|
30,183 | 16,150 | 461 | 1,280 | 48,074 | |||||||||||||||
Doubtful
|
- | - | - | - | - | |||||||||||||||
Subtotal
|
57,749 | 126,902 | 22,206 | 41,990 | 248,847 | |||||||||||||||
Less: Unearned
|
||||||||||||||||||||
Discount
|
- | 5 | 1 | 3 | 9 | |||||||||||||||
Loans, net of
|
||||||||||||||||||||
unearned discount
|
$ | 57,749 | $ | 126,897 | $ | 22,205 | $ | 41,987 | $ | 248,838 | ||||||||||
December 31, 2010
|
||||||||||||||||||||
Real Estate
|
Installment
|
Commercial,
|
||||||||||||||||||
Commercial &
|
Real Estate
|
and
|
Financial
|
|||||||||||||||||
Development
|
Mortgage
|
Other
|
and Agriculture
|
Total
|
||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Pass
|
$ | 15,545 | $ | 107,179 | $ | 21,514 | $ | 24,098 | $ | 168,336 | ||||||||||
Special Mention
|
10,261 | 10,329 | 643 | 7,811 | 29,044 | |||||||||||||||
Substandard
|
30,867 | 17,456 | 623 | 1,443 | 50,389 | |||||||||||||||
Doubtful
|
- | - | - | - | - | |||||||||||||||
Subtotal
|
56,673 | 134,964 | 22,780 | 33,352 | 247,769 | |||||||||||||||
Less: Unearned
|
||||||||||||||||||||
Discount
|
- | - | - | 5 | 5 | |||||||||||||||
Loans, net of
|
||||||||||||||||||||
unearned discount
|
$ | 56,673 | $ | 134,964 | $ | 22,780 | $ | 33,347 | $ | 247,764 | ||||||||||
NOTE E – 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 the exercise of stock options. For the periods presented below, there were no potential dilutive common shares. All weighted average, actual shares or per share information in the financial statements have been adjusted retroactively for the effect of stock dividends.
For the Three Months Ended
|
||||||||||||
June 30, 2011
|
||||||||||||
Basic income
|
||||||||||||
applicable to
|
||||||||||||
common
|
||||||||||||
shareholders
|
Shares
|
Per Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Data
|
||||||||||
Basic per Share
|
$ | 314,660 | 2,883,308 | $ | 0.11 | |||||||
For the Six Months Ended
|
||||||||||||
June 30, 2011
|
||||||||||||
Basic income
|
||||||||||||
applicable to
|
||||||||||||
common
|
||||||||||||
shareholders
|
Shares
|
Per Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Data
|
||||||||||
Basic per Share
|
$ | 775,925 | 2,883,259 | $ | 0.27 |
For the Three Months Ended
|
||||||||||||
June 30, 2010
|
||||||||||||
Basic income (loss)
|
||||||||||||
applicable to
|
||||||||||||
common
|
||||||||||||
shareholders
|
Shares
|
Per Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Data
|
||||||||||
Basic per Share
|
$ | 463,179 | 2,883,159 | $ | 0.16 | |||||||
For the Six Months Ended
|
||||||||||||
June 30, 2010
|
||||||||||||
Basic income
|
||||||||||||
applicable to
|
||||||||||||
common
|
||||||||||||
shareholders
|
Shares
|
Per Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Data
|
||||||||||
Basic per Share
|
$ | 789,697 | 2,883,159 | $ | 0.27 |
NOTE F – FAIR VALUE OF ASSETS AND LIABILITIES
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 which has been included in FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 has been applied prospectively as of the beginning of the period.
ASC 820 defines the fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In accordance with ASC 820, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1
|
Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
|
|
Level 2
|
Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities.
|
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet.
Available-for-Sale Securities
The fair value of available-for-sale securities is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1. The Company has no securities classified within Level 1. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include U.S. Treasury securities, obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, mortgage-backed securities and collateralized mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Company has no securities classified within Level 3.
The following table presents the Company’s assets that are measured at fair value on a recurring basis and the level within the ASC 820 hierarchy in which the fair value measurements fall as of June 30, 2011 and December 31, 2010, (in thousands):
Quoted
|
Models with
|
Models with
|
Carrying
|
||||||||||||
market
|
significant
|
significant
|
value
|
||||||||||||
prices in
|
observable
|
unobservable
|
in the
|
||||||||||||
active
|
market
|
market
|
Balance
|
||||||||||||
markets
|
parameters
|
parameters
|
Sheet
|
||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
June 30, 2011:
|
|||||||||||||||
Available-for-sale securities
|
|||||||||||||||
U. S. Government agencies
|
$ | - | $ | 30,684 | $ | - | $ | 30,684 | |||||||
State and local political subdivisions
|
- | 71,114 | - | 71,114 | |||||||||||
Mortgage-backed securities
|
- | 38,000 | - | 38,000 | |||||||||||
$ | - | $ | 139,798 | $ | - | $ | 139,798 | ||||||||
Quoted
|
Models with
|
Models with
|
Carrying
|
||||||||||||
market
|
significant
|
significant
|
value
|
||||||||||||
prices in
|
observable
|
unobservable
|
in the
|
||||||||||||
active
|
market
|
market
|
Balance
|
||||||||||||
markets
|
parameters
|
parameters
|
Sheet
|
||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
December 31, 2010:
|
|||||||||||||||
Available-for-sale securities
|
|||||||||||||||
U. S. Government agencies
|
$ | - | $ | 21,164 | $ | - | $ | 21,164 | |||||||
State and local political subdivisions
|
- | 59,975 | - | 59,975 | |||||||||||
Mortgage-backed securities
|
- | 43,308 | - | 43,308 | |||||||||||
$ | - | $ | 124,447 | $ | - | $ | 124,447 | ||||||||
There were no transfers of financial assets among Level 1, Level 2 and Level 3 during 2011.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy:
Impaired Loans
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of ASC 310, Receivables. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, premiums or discount existing at origination or acquisition of the loan. Impaired loans are classified within Level 3 of the fair value hierarchy.
The following table presents the fair value measurement of impaired loans measured at fair value on a nonrecurring basis and the level within the ASC Topic 820 fair value hierarchy in which the fair value measurements fell at June 30, 2011 and December 31, 2010, (in thousands):
June 30, 2011
|
||||||||||||||||
Carrying
|
Quoted
|
Models with
|
Models with
|
|||||||||||||
value
|
market
|
significant
|
significant
|
|||||||||||||
in the
|
prices in
|
observable
|
unobservable
|
|||||||||||||
Balance
|
active
|
market
|
market
|
|||||||||||||
Sheet
|
markets
|
parameters
|
parameters
|
|||||||||||||
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Impaired Loans
|
||||||||||||||||
Real estate - construction
|
||||||||||||||||
and development
|
$ | 8,330 | $ | - | $ | - | $ | 8,330 | ||||||||
Real estate - farmland
|
113 | - | - | 113 | ||||||||||||
Real estate - 1-4 family
|
||||||||||||||||
residential
|
1,765 | - | - | 1,765 | ||||||||||||
Nonfarm/Nonresidential
|
2,259 | - | - | 2,259 | ||||||||||||
Commerical and industrial
|
155 | - | - | 155 | ||||||||||||
Consumer
|
28 | - | - | 28 | ||||||||||||
Total impaired loans
|
$ | 12,650 | $ | - | $ | - | $ | 12,650 | ||||||||
December 31, 2010
|
||||||||||||||||
Carrying
|
Quoted
|
Models with
|
Models with
|
|||||||||||||
value
|
market
|
significant
|
significant
|
|||||||||||||
in the
|
prices in
|
observable
|
unobservable
|
|||||||||||||
Balance
|
active
|
market
|
market
|
|||||||||||||
Sheet
|
markets
|
parameters
|
parameters
|
|||||||||||||
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Impaired Loans
|
$ | 17,091 | $ | - | $ | - | $ | 17,091 | ||||||||
Total loans analyzed for impairment had a carrying amount of $15,441,000 at June 30, 2011. Of this amount, $12,650,000 had a reserve allocated of $3,180,000. Total loans analyzed for impairment at December 31, 2010 totaled $45,262,000 of which $17,091,000 had a reserve allocated of $2,879,000.
Other Real Estate Owned
Other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. The adjustment at the time of foreclosure is recorded through the allowance for loan losses. Due to the subjective nature of establishing the fair value when the asset is acquired, the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate. If it is determined the fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Operating costs associated with the assets after acquisition are also recorded as non-interest expense. Gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other non-interest expense. Other real estate owned measured at fair value on a non-recurring basis at June 30, 2011 and December 31, 2010, amounted to $11.5 million and $8.2 million, respectively, with the remainder carried at cost.
The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at June 30, 2011 and December 31, 2010, (in thousands):
June 30, 2011
|
||||||||||||||||
Carrying
|
Quoted
|
Models with
|
Models with
|
|||||||||||||
value
|
market
|
significant
|
significant
|
|||||||||||||
in the
|
prices in
|
observable
|
unobservable
|
|||||||||||||
Balance
|
active
|
market
|
market
|
|||||||||||||
Sheet
|
markets
|
parameters
|
parameters
|
|||||||||||||
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Other real estate owned
|
$ | 11,456 | $ | - | $ | - | $ | 11,456 | ||||||||
December 31, 2010
|
||||||||||||||||
Carrying
|
Quoted
|
Models with
|
Models with
|
|||||||||||||
value
|
market
|
significant
|
significant
|
|||||||||||||
in the
|
prices in
|
observable
|
unobservable
|
|||||||||||||
Balance
|
active
|
market
|
market
|
|||||||||||||
Sheet
|
markets
|
parameters
|
parameters
|
|||||||||||||
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Other real estate owned
|
$ | 8,233 | $ | - | $ | - | $ | 8,233 | ||||||||
The following disclosure of the estimated fair value of financial instruments is made in accordance with ASC 825 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 and First National Banker’s Bankshares, 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 ASC 825, 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:
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
|
Estimated
|
Carrying
|
Estimated
|
|||||||||||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
|||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
Financial assets:
|
||||||||||||||||
Cash and cash equivalents
|
$ | 27,229 | $ | 27,229 | $ | 15,264 | $ | 15,264 | ||||||||
Federal funds sold
|
14,270 | 14,270 | 31,270 | 31,269 | ||||||||||||
Certificates of deposit with
|
||||||||||||||||
other banks
|
1,538 | 1,538 | 1,778 | 1,778 | ||||||||||||
Securities available-for-sale
|
139,798 | 139,798 | 124,447 | 124,447 | ||||||||||||
Securities held-to-maturity
|
45,564 | 45,549 | 33,095 | 32,541 | ||||||||||||
Securities, other
|
1,935 | 1,935 | 1,933 | 1,933 | ||||||||||||
Loans
|
248,838 | 250,982 | 247,764 | 249,898 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Noninterest-bearing deposits
|
76,735 | 60,140 | 74,022 | 58,013 | ||||||||||||
Interest-bearing deposits
|
352,284 | 335,486 | 334,721 | 318,760 | ||||||||||||
FHLB and other borrowings
|
25,427 | 27,037 | 26,970 | 28,671 |
NOTE G – NON-PERFORMING ASSETS
Risk of nonpayment exists with respect to all loans, which could result in the classification of such loans as non-performing. The increase in non-performing assets (NPAs) is primarily due to the economic recession and real estate downturn which has impacted the Company’s loan portfolio. At June 30, 2011, NPA balances were comparable to year-end 2010 primarily due to the continued effect of the adverse economy and real estate downturn on residential land development and construction loan portfolios.
The Company has a significant concentration in real estate lending, including loans to real estate developers secured by real estate located in Desoto County, Mississippi. Declining real estate values and a severe constriction in the availability of mortgage financing has negatively impacted real estate sales, which has resulted in customers' inability to repay loans. In addition, the value of collateral underlying such loans has decreased materially. During 2011, the Company has continued to experience significant levels of non-performing assets relating to real estate lending, primarily in our residential real estate portfolio.
At June 30, 2011 and December 31, 2010, the Company had Troubled Debt Restructured ("TDR") assets of $1.5 million and $308 thousand, respectively. Policy in managing TDRs is to include the asset in NPA’s and reserve appropriately with management working with the borrower on a plan to either return the obligation to an accruing status or take appropriate measures to secure the collateral for disposition.
The following table presents information with respect to non-performing assets at June 30, 2011, December 31, 2010, September 30, 2010 and June 30, 2010 (dollars in thousands, except for selected ratios):
Jun. 30,
|
Mar. 31,
|
Dec. 31,
|
Sept. 30,
|
|||||||||||||
2011
|
2011
|
2010
|
2010
|
|||||||||||||
Loans on non-accrual status
|
$ | 14,006 | $ | 9,622 | $ | 9,584 | $ | 12,268 | ||||||||
Loans past due 90 days or more but
|
||||||||||||||||
not non-accrual status
|
3 | 1 | 63 | 27 | ||||||||||||
OREO - non-performing
|
16,294 | 16,424 | 16,887 | 16,691 | ||||||||||||
Total NPAs
|
$ | 30,303 | $ | 26,047 | $ | 26,534 | $ | 28,986 | ||||||||
Operating commercial real
|
||||||||||||||||
estate OREO
|
$ | 3,385 | $ | 3,385 | $ | 3,385 | $ | 3,450 | ||||||||
OREO - non-performing
|
16,294 | 16,424 | 16,887 | 16,691 | ||||||||||||
Total OREO
|
$ | 19,679 | $ | 19,809 | $ | 20,272 | $ | 20,141 | ||||||||
Selected ratios:
|
||||||||||||||||
NPLs to total gross loans
|
5.630 | 3.903 | 3.894 | 4.808 | ||||||||||||
NPAs to total gross loans and OREO
|
11.285 | 9.779 | 9.899 | 10.489 | ||||||||||||
NPAs to total assets
|
5.646 | 4.855 | 5.178 | 5.556 | ||||||||||||
NOTE H – OTHER REAL ESTATE
The following tables reflect the activity in the asset, income and expense accounts during the three month periods ending June 30, 2010 and June 30, 2011. The first table summarizes the activity in the other real estate asset account. Additions to other real estate owned include property gained through loan foreclosures as well as capital expenditures since foreclosure. Sales proceeds represent amounts received on a completion of a sale of property as well as lease purchase payments. Losses and gains are recognized on the closing of a sale of property and write-downs are incurred as the value reflected on recent appraisals fall below the carrying value of the property. The second table shows the costs of holding the properties as well as the net losses incurred on the disposition of the properties.
CHANGES IN CARRYING VALUE OF OREO
|
|||||
Balance as of December 31, 2009:
|
$ | 20,770 | |||
Additions to OREO
|
1,721 | ||||
Sales Proceeds
|
(2,824 | ) | |||
Losses and write-downs, net of gains
|
(278 | ) | |||
Balance as of June 30, 2010:
|
$ | 19,389 | |||
Balance as of December 31, 2010:
|
$ | 20,272 | |||
Additions to OREO
|
1,042 | ||||
Sales Proceeds
|
(1,602 | ) | |||
Losses and write-downs, net of gains
|
(33 | ) | |||
Balance as of June 30, 2011:
|
$ | 19,679 | |||
Six Months Ended June 30,
|
|||||
2011
|
2010 | ||||
Writedowns, net of gains on sale
|
$ 33
|
$ | 278 | ||
Operating expenses, net of rental income
|
89
|
126 | |||
Total expenses related to foreclosed assets
|
$ 122
|
$ | 404 |
SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date the financial statements were issued.
ITEM NO. 2
|
MANAGEMENT’S 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-Q with the Securities and Exchange Commission.
This discussion and analysis should be read in conjunction with the audited consolidated financial statements, and notes thereto, contained in the Company’s 2010 Form 10-K.
Economic Conditions:
The Company's business is affected by the economy of the Desoto County area in northern Mississippi, which is adjacent to Memphis, Tennessee. The uncertain depth and duration of the present economic downturn could continue to cause further deterioration of the local economy in Desoto County, resulting in an adverse effect on the Company's financial condition and results of operations. Real estate values in this area have declined and may continue to fall. Unemployment rates in this area remain elevated and could increase further. Business activity in the real estate development has been impacted and local governments and many businesses are facing serious challenges due to the lack of consumer spending driven by the elevated unemployment and uncertainty.
The Company’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the declining value of collateral securing those loans, is reflective of the business environment in the markets where the Company operates. The present significant downturn in economic activity and declining real estate values has had a direct and adverse effect on the financial condition and results of operations of the Company. This is particularly evident in the residential land development and residential construction segments of the Company’s loan portfolio. Developers or home builders whose cash flows are dependent on the sale of lots or completed residences have reduced ability to service their loan obligations and the market value of underlying collateral has been and continues to be adversely affected. The impact on the Company has been an elevated level of impaired loans, an associated increase in provisioning expense and charge-offs for the Company leading to a decrease in net income. The local and regional economy also has a direct impact on the volume of bank deposits.
On June 26, 2009, the Company completed a transaction with the United States Treasury Department (the “Treasury”) under the Troubled Asset Relief Program Capital Purchase Program (the “TARP CPP”). The Company issued 17,388 shares of its Series UST, Cumulative Perpetual Preferred Stock. In addition, the Treasury received a warrant to purchase 522 shares of the Company’s Series UST/W, Cumulative Perpetual Preferred Stock, which was immediately exercised by the Treasury for a nominal exercise price. The Series UST Preferred Stock is a senior cumulative perpetual preferred stock that has a liquidation preference of $1,000 per share, pays cumulative dividends at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year. Dividends are payable quarterly. The Series UST Preferred Stock is generally non-voting. The Series UST/W Preferred Stock is a cumulative perpetual preferred stock that has the same rights, preferences, privileges, voting rights and other terms as the Series UST Preferred Stock, except that dividends will be paid at the rate of 9% per year. The aggregate sales price of the Series UST Preferred Stock and warrant to purchase Series UST/W Preferred Stock was $17,388,000. The securities offered and sold in the TARP CPP transaction were not registered under the Securities Act of 1933 in reliance upon the exemption provided under Section 4(2) of that Act for transactions not involving any public offering.
The subsidiary Bank represents the primary assets of the Company. On June 30, 2011, First Security Bank had approximately $523.6 million in assets compared to $515.0 million at June 30, 2010. Loans decreased to $246.8 million at June 30, 2011, from $256.2 million at June 30, 2010. Deposits increased by $7.6 million from June 30, 2010 to June 30, 2011, for a total of $430.5 million. For the six months ended June 30, 2011, and June 30, 2010, the Bank reported net income of approximately $1,230,298 and $1,486,414, respectively.
CHANGES IN FINANCIAL CONDITION
The cash and cash equivalents of $27.2 million at June 30, 2011, reflected an increase of $11.9 million from the cash position of $15.3 million at December 31, 2010. This increase is attributed to a normal fluctuation in bank transactions. The cash management team readily invests available cash and assesses the investment tools for the most desirable yield and the funding needs of the Company.
The earning assets at December 31, 2010, were $420.0 million and at June 30, 2011, were $452.9 million. The increase is attributable to the growth in short-term investments such as fed funds sold and growth in investment securities. The premises and equipment, net of accumulated depreciation, at June 30, 2011, totaled approximately $22.9 million – reflecting a decrease of $42 thousand for the first six months in 2011. Investment securities were $187.3 million at June 30, 2011. Other assets were $3.1 million at June 30, 2011 and $3.6 million at December 31, 2010.
Deposit liabilities of $429.0 million at June 30, 2011, reflected an increase of $20.3 million from the $408.7 million at December 31, 2010. The fluctuation in deposits during the first six months is attributable to a normal seasonal increase and an increase in public funds. An increase in deposits decreases the amount of long-term borrowings and short-term borrowings needed for funding investments in loans and facilities. Short-term borrowings provide a tool in providing the funding for unforeseen deposit withdrawals and seasonal loan demands. Due to the increase in deposits, the need for short-term funding was eliminated at June 30, 2011.
The net unrealized gain on available-for-sale securities reflected in accumulated other comprehensive income in shareholders’ equity at December 31, 2010, was $1.2 million. At June 30, 2011, accumulated other comprehensive income reflected a net unrealized gain on available-for-sale securities of $2.2 million. The change over these reporting periods reflects the nature of the market. The changes in the market affected accumulated other comprehensive income with a net after tax increase of $926 thousand for the six months ended June 30, 2011, and $1.0 million for the six months ended June 30, 2010.
The consolidated statements of cash flows summarize the changes in the financial condition of the Company. The following identify some of the changes for the six months ended June 30, 2011: purchase of securities of $56.1 million; maturities, calls and pay-downs of securities of $25.5 million; sales of securities of $3.6 million, an increase of $20.3 million in deposits; and a decrease of $17.0 million in federal funds sold.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and the timely identification of potential problem loans. On a quarterly basis, the Company’s Board of Directors reviews and approves the appropriate level for the Company’s allowance for loan losses based upon management’s recommendations, the results of the internal monitoring and reporting system, and an analysis of economic conditions in its market. The Company has implemented an improved loan review program, which includes an internal loan review officer position and the engagement of an external loan review firm and the establishment of a new system for tracking borrower financial statements and the structure of our watch reports.
Additions to the allowance for loan losses, which are expensed through the provision for loan losses on the Company’s income statement, are made periodically to maintain the allowance at an appropriate level based on management’s analysis of the estimated losses inherent in the loan portfolio. Loan losses and recoveries are charged or credited directly to the allowance. The amount of the provision is a function of the level of loans outstanding, the level of non-performing loans, historical loan loss experience, the amount of loan losses actually charged against the allowance during a given period, and current and anticipated economic conditions.
The Company’s allowance for loan losses is based upon judgments and assumptions about risk elements in the portfolio, trends in past due loans and charge offs, local and national economic conditions, and other factors affecting borrowers. The determination of the appropriate allowance for loan losses includes identification and analysis of loss potential in various portfolio segments utilizing a credit risk grading process and historical loss factors and specific reviews and evaluations of significant problem credits. An appropriate allowance for loan losses covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. However, there is no precise method of estimating credit losses, since any estimate of loan losses is necessarily subjective. If charge-offs in future periods increase, we may be required to increase our provision for loan losses, which would decrease our net income and possibly our capital.
In addition, the current downturn in the real estate market has resulted in an increase in loan delinquencies, defaults and foreclosures, and we believe these trends are likely to continue. In some cases, this downturn has resulted in a significant impairment to the value of our collateral and the subsidiary Bank’s ability to sell the collateral upon foreclosure, and there is a risk that this trend will continue. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If real estate values continue to decline, it is also more likely that the Bank would be required to increase the allowance for loan losses. The value of real estate collateral is determined by using a current appraisal. Contrary to any other relevant information an appraisal is considered current if it is less than 12 months old except when economic or market changes have caused values to rise or fall significantly. If a current appraisal is not maintained, the Bank will generally order a new appraisal prior to accepting the property as a result of a deed in lieu of foreclosure or completion of a foreclosure action. Based on present information and an ongoing evaluation, management considers the allowance for loan losses to be adequate to meet presently known and inherent losses in the loan portfolio. Management’s judgment about the adequacy of the allowance is based upon a number of assumptions and estimates which it believes to be reasonable but which may or may not be accurate. Estimated credit losses means an estimate of the current amount of loans that it is probable the Company will be unable to collect given facts and circumstances as of the evaluation date. Thus, estimated credit losses represent net charge-offs that are likely to be realized for a loan or group of loans. Accordingly, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required, especially considering the overall weakness in the commercial real estate market in our market areas.
NONPERFORMING ASSETS AND RISK ELEMENTS
Diversification within the loan portfolio is an important means of reducing inherent lending risks. The loan portfolio is represented by the following mix: Commercial 8.13%; Agricultural 1.92%; Real Estate 81.03%; Consumer 8.43% and Other .49%. The major components of the real estate loans are 26.92% for construction and land development property, 8.42% for farmland, 36.79% for first liens on 1-4 family residential property and 27.37% for nonfarm and nonresidential property.
At June 30, 2011, the subsidiary Bank had loans past due as follows:
(in thousands)
|
|
Past due 30 days through 89 days
|
$6,330
|
Past due 90 days or more and still accruing
|
$ 3
|
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. The non-accrual loans at June 30, 2011, totaled $14.0 million. Any other real estate owned is carried at lower of cost or current appraised value less cost to dispose. Other real estate at June 30, 2011, totaled $19.7 million. 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 during the second quarter of 2011.
For the six months ended June 30, 2011, the Company experienced $931 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 $606 thousand. The net charge-offs represent .25% of average loans. Of the $931 thousand charge to the allowance for loan losses, the breakdown, per loan category, is: 23.09% for construction and land development; 35.98% for 1-4 family residential loans; 3.44% for commercial loans and 37.49% for consumer loans. Consumer loan collections of $202 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. The asset and liability reports for June 30, 2011, substantiate that the Company remains in a neutral position to changes in rates. A 1% increase or decrease in market rates will basically not affect net interest income. 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. When funds exceed the needs for reserve requirements or short-term liquidity needs, the Company will increase its security investments or invest in 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 ensure rate flexibility and to meet loan funding and liquidity needs.
The financial status at June 30, 2011, reflects a net interest margin of 3.38%. This ratio is consistent with prior periods and represents the continuing effort of management in managing the rates and the funding. At June 30, 2011, the regulatory liquidity ratio of 44.56% is well within the Bank’s policy requirement of a minimum liquidity ratio of 15%. In addition, the core deposits represent 67.35% of total assets and temporary investments represent 18.96% of total assets and volatile liabilities represent 1.56% of total assets.
As stated earlier, the Company received $17.388 million from the Treasury through participation in the Capital Purchase Program (CPP). This participation contributed to the excellent liquidity status reflected in the ratios listed below. The CPP funds were invested at June 30, 2011 in short-term products in anticipation of a recovery in the market.
At June 30, 2011, the tools to meet funding needs are the secured and unsecured lines of credit with the correspondent banks totaling $28.5 million (to borrow federal funds) and a line of credit with the Federal Home Loan Bank of $95.7 million. In addition, a seasonal line of credit of $4 million with the Federal Reserve Bank exists for June through December of 2011. At June 30, 2011, the Company had available (unused) lines of credit of approximately $103.5 million.
CAPITAL RESOURCES
Total consolidated equity capital at June 30, 2011, was $73.7 million or approximately 13.74% of total assets. The main source of capital for the Company 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. The Company and the Bank have adequate capital positions as of June 30, 2011, as reflected below:
Company
|
Bank
|
|||||||||||
Risk-Based Capital Ratio
|
Ratio
|
Ratio
|
Requirements
|
|||||||||
Total Capital
|
22.30 | % | 18.42 | % | 8 | % | ||||||
Tier 1 Capital
|
21.04 | % | 17.16 | % | 4 | % | ||||||
Leverage Capital
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12.67 | % | 10.18 | % | 4 | % | ||||||
RESULTS OF OPERATIONS – QUARTERLY
The consolidated net income for the Company for the three months ended June 30, 2011, was $467 thousand which was a $277 thousand decrease from the same period in 2010.
Interest income decreased to $4.7 million for the three months ended June 30, 2011 which was a $312 thousand decrease from the $5.1 million for the three months ended June 30, 2010. Other Income for the three months ended June 30, 2011, was $1.9 million reflecting a $342 thousand increase from the three months ended June 30, 2010. The increase in Other Income for the period in 2011 is mainly attributable to a gain of $245 thousand recognized on the sale of available-for-sale securities.
Interest expense reflects a decrease of $283 thousand to $817 thousand for the three months ended June 30, 2011, from $1.1 million for the same period in 2010. The decrease in interest expense can be attributed to the pricing of the deposit accounts in a decreasing rate environment and volatile market. Other expenses for the three months ended June 30, 2011, reveal an increase of $256 thousand from the same period in 2010. During the period in 2010, a cumulative adjustment was made in the accrual of employee benefits resulting in a lower cost for that time frame.
The loan loss provision of $1.08 million for the period ending June 30, 2011 is attributed to the evaluation of the quality of the loan portfolio and the quarterly analysis of the allowance for loan losses, which determine the requirements for and the adequacy of the provision. In addition, this provision resulted in an increase from the same period in 2010 of $500 thousand.
RESULTS OF OPERATIONS – YEAR-TO-DATE
The consolidated net income for the Company for the six months ended June 30, 2011, was $1.1 million which reflects a decrease of $264 thousand in consolidated net income for the same period in 2010. The decrease in the consolidated net income can be attributed mainly to an increase in the provision for loan losses.
Interest income decreased to $9.4 million for the six months ended June 30, 2011, indicating a decrease of $550 thousand from the $9.9 million for the six months ended June 30, 2010. The decrease in interest income signifies the management decision to decrease the rate pricing of the loan products.
Interest expense reflects a decrease of $555 thousand for the six months ended June 30, 2011, from $2.2 million for the same period in 2010. The decrease in interest expense can be attributed to the low rates that existed during the period ended June 30, 2011.
The increase in the provision for loan losses of $654 thousand is attributed to the evaluation of the quality of the loan portfolio and the quarterly analysis of the allowance for loan losses, which determine the requirements for and the adequacy of the provision.
Non-interest income for the six months ended June 30, 2011, was $3.5 million, which is an increase of $442 thousand from the income for the same period in 2010. The service charges on deposit accounts, for the six months ended June 30, 2011, and June 30, 2010, were $2.0 million and $2.1 million, respectively.
Other expenses, consisting primarily of salaries, employee benefits and occupancy expense, for the six months ended June 30, 2011, reveal an increase of $270 thousand. Salaries and employee benefits of $5.1 million for the six months ended June 30, 2011, represent the largest component of other expenses and the small increase represents a conservative response to the 2010 Bank performance and the current economy.
Income tax benefit of $5 thousand for the six months ended June 30, 2011, reflects a decrease of $213 thousand in income tax expense from the same period in 2010. The decrease is a direct result from the decrease in taxable income due to tax-exempt interest income.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” This updated guidance (ASC Topic 310, Receivables) is designed to assist creditors with determining whether or not a restructuring constitutes a troubled debt restructuring. In particular, additional guidance has been added to help creditors determine whether a concession has been granted and whether a debtor is experiencing financial difficulties. Both of these conditions are required to be met for a restructuring to constitute a troubled debt restructuring. The amendments in the update are effective for the first interim period beginning on or after June 15, 2011. The Company is currently evaluating the effects of this guidance on its troubled debt restructuring identification and on its financial statement disclosures.
In April 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control of Repurchase Agreements.” This guidance (ASC Topic 860, Transfers and Servicing) eliminates a requirement for entities to consider whether a transferor has the ability to repurchase the financial assets in a repurchase agreement. This requirement was previously used to determine whether the transferor maintained effective control. The change could lead to more conclusions that a repo arrangement should be accounted for as a secured borrowing rather than as a sale. ASU 2011-03 is effective for the first interim period beginning on or after December 15, 2011. The Company is currently evaluating the effects, if any, of this guidance on its financial statements.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” This ASU is the result of joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures about fair value measurements are required. This ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (ASC Topic 820, Fair Value Measurement). It does expand existing disclosure requirements for fair value measurements and eliminates unnecessary wording differences between U.S. GAAP and IFRS. ASU 2011-04 is effective for interim periods beginning after December 15, 2011. The Company is currently evaluating the effects of this guidance on its financial statement disclosures.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This guidance (ASC Topic 220, Comprehensive Income) revises the manner in which entities present comprehensive income in their financial statements. It requires entities to report components in either a continuous statement of comprehensive income or in two separate but consecutive statements. The items that must be reported in other comprehensive income do not change. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011. The Company is currently evaluating the effects of this guidance on its financial statements.
ITEM NO. 3
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QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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There have been no material changes in market risk exposures that affect the quantitative and qualitative disclosures presented as of December 31, 2010, in the Company’s Form 10-K and Annual Report.
ITEM NO. 4
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CONTROLS AND PROCEDURES
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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 Company’s internal controls or in other factors subsequent to the date of the evaluation that could significantly affect these controls.
PART II--
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OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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Out of the normal course of business, First Security Bank may be a 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 operations.
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ITEM NO. 1A RISK FACTORS
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There are no material changes to the Company’s risk factors from what was previously disclosedin the Annual Report on Form 10-K for the year ended December 31, 2010.
ITEM 2.
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CHANGES IN SECURITIES
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Not Applicable
ITEM 3.
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DEFAULT UPON SENIOR SECURITIES
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Not Applicable
ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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ITEM 5.
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OTHER INFORMATION
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Not Applicable
ITEM 6.
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EXHIBITS AND REPORTS ON FORM 8-K
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(a)
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Exhibits
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Exhibit No. 31.1 Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 31.2 Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32.1 Certification of principal executive officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit No. 32.2 Certification of principal financial officer pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(b)
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The Company did not file any reports on Form 8-K during the quarter ended June 30, 2011.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SECURITY CAPITAL CORPORATION
BY /s/ Frank West
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BY /s/ Connie Woods Hawkins
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Frank West
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Connie Woods Hawkins
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President and Chief Executive Officer
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Executive Vice-President, Cashier
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and Chief Financial Officer
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DATE: August 8, 2011
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DATE: August 8, 2011
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