##### Table of Contents



United States
Securities And Exchange Commission
 Washington,
D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2009
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number: 000-52588
 RELIANCE BANCSHARES, INC.
  Missouri
    
    43-1823071(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer
Identification No.)10401 Clayton RoadFrontenac, Missouri
    
    63131(Address of Principal Executive Offices)
    
    (Zip Code)
 (314) 569-7200
 
 þ o
  o o
  Large accelerated filer: o
Accelerated filer: o
Non-accelerated filer: o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsInterim Condensed Consolidated Balance Sheets (Unaudited)
    
    
    3Interim Condensed Consolidated Statements of Operations (Unaudited)
    
    
    4Interim Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
    
    
    5Interim Condensed Consolidated Statements of Stockholders Equity (Unaudited)
    
    
    6Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Unaudited Interim Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4T. Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    38EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Part I  Item 1  Financial Statements
 
 RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2008(unaudited)ASSETSCash and due from banks
    
    $
    27,756,600
    
    
    
    12,717,479
    
    
    
    14,366,579Interest-earning deposits in other financial institutions
    
    
    22,929,968
    
    
    
    2,041,867
    
    
    
    31,919,386Federal funds sold
    
    
    
    
    
    
    
    
    
    
    11,460,000Investments in available-for-sale debt and equity securities, at
fair value
    
    
    240,261,214
    
    
    
    178,331,285
    
    
    
    202,724,064Loans
    
    
    1,191,892,529
    
    
    
    1,225,166,080
    
    
    
    1,255,198,940Less  Deferred loan fees / costs
    
    
    (208,419
    )
    
    
    (893,553
    )
    
    
    (702,514
    )Reserve for possible loan losses
    
    
    (26,269,806
    )
    
    
    (12,398,957
    )
    
    
    (14,305,822
    )Net loans
    
    
    1,165,414,304
    
    
    
    1,211,873,570
    
    
    
    1,240,190,604Premises and equipment, net
    
    
    42,716,033
    
    
    
    44,491,084
    
    
    
    44,143,317Accrued interest receivable
    
    
    5,209,112
    
    
    
    5,442,661
    
    
    
    5,424,108Other real estate owned
    
    
    15,296,761
    
    
    
    11,653,385
    
    
    
    15,289,170Identifiable intangible assets, net of accumulated amortization of
$103,157, $86,869 and $90,941 at September 30, 2009 and 2008,
and December 31, 2008, respectively
    
    
    141,162
    
    
    
    157,450
    
    
    
    153,378Goodwill
    
    
    1,149,192
    
    
    
    1,149,192
    
    
    
    1,149,192Other assets
    
    
    15,994,172
    
    
    
    8,271,407
    
    
    
    7,169,420$
    1,536,868,518
    
    
    
    1,476,129,380
    
    
    
    1,573,989,218LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing
    
    $
    64,730,025
    
    
    
    54,401,841
    
    
    
    59,374,964Interest-bearing
    
    
    1,155,280,809
    
    
    
    1,042,132,382
    
    
    
    1,168,672,335Total deposits
    
    
    1,220,010,834
    
    
    
    1,096,534,223
    
    
    
    1,228,047,299Short-term borrowings
    
    
    14,048,952
    
    
    
    86,214,611
    
    
    
    63,918,844Long-term Federal Home Loan Bank borrowings
    
    
    129,000,000
    
    
    
    149,000,000
    
    
    
    136,000,000Accrued interest payable
    
    
    2,346,410
    
    
    
    4,239,781
    
    
    
    3,904,941Other liabilities
    
    
    4,242,097
    
    
    
    3,581,183
    
    
    
    2,509,254Total liabilities
    
    
    1,369,648,293
    
    
    
    1,339,569,798
    
    
    
    1,434,380,338Commitments and contingenciesStockholders equity:Preferred stock, no par value; 1,850,000 shares authorizedSeries A, 40,000 shares issued and outstanding at September 30,
2009
    
    
    40,000,000
    
    
    
    
    
    
    
    Series B, 2,000.02 shares issued and outstanding at September 30,
2009
    
    
    2,000,000
    
    
    
    
    
    
    
    Common stock, $0.25 par value; 40,000,000 shares authorized,
20,918,020, 20,770,781 and 20,770,781 shares issued and outstanding
at September 30, 2009 and 2008, and December 31, 2008,
respectively
    
    
    5,229,505
    
    
    
    5,192,695
    
    
    
    5,192,696Surplus
    
    
    122,673,854
    
    
    
    124,315,888
    
    
    
    124,193,318Retained earnings
    
    
    (4,496,446
    )
    
    
    9,772,943
    
    
    
    10,663,076Treasury stock 76,948 and 24,514 shares at September 30, 2008 and
December 31, 2008, respectively
    
    
    
    
    
    
    (964,488
    )
    
    
    (335,280
    )Accumulated other comprehensive income  net unrealized
holding gains (losses) on available-for-sale debt securities
    
    
    1,813,312
    
    
    
    (1,757,456
    )
    
    
    (104,930
    )Total stockholders equity
    
    
    167,220,225
    
    
    
    136,559,582
    
    
    
    139,608,880$
    1,536,868,518
    
    
    
    1,476,129,380
    
    
    
    1,573,989,218
  3




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Interest and fees on loans
    
    $
    16,705,289
    
    
    
    18,669,323
    
    
    
    51,375,259
    
    
    
    51,484,539Interest on debt and equity securities:Taxable
    
    
    1,909,531
    
    
    
    1,636,351
    
    
    
    5,873,340
    
    
    
    4,806,351Exempt from Federal income taxes
    
    
    312,195
    
    
    
    387,887
    
    
    
    962,426
    
    
    
    1,176,754Interest on short-term investments
    
    
    7,076
    
    
    
    51,471
    
    
    
    29,817
    
    
    
    162,797Total interest income
    
    
    18,934,091
    
    
    
    20,745,032
    
    
    
    58,240,842
    
    
    
    57,630,441Interest expense:Interest on deposits
    
    
    7,835,261
    
    
    
    8,662,923
    
    
    
    26,017,912
    
    
    
    25,694,396Interest on short-term borrowings
    
    
    22,734
    
    
    
    571,906
    
    
    
    330,272
    
    
    
    1,680,996Interest on long term Federal Home Loan Bank
borrowings
    
    
    1,237,276
    
    
    
    1,375,939
    
    
    
    3,714,910
    
    
    
    3,463,592Total interest expense
    
    
    9,095,271
    
    
    
    10,610,768
    
    
    
    30,063,094
    
    
    
    30,838,984Net interest income
    
    
    9,838,820
    
    
    
    10,134,264
    
    
    
    28,177,748
    
    
    
    26,791,457Provision for possible loan losses
    
    
    11,450,000
    
    
    
    1,800,000
    
    
    
    27,700,000
    
    
    
    8,539,000Net interest income (loss) after provision
for possible loan losses
    
    
    (1,611,180
    )
    
    
    8,334,264
    
    
    
    477,748
    
    
    
    18,252,457Noninterest income:Service charges on deposit accounts
    
    
    265,069
    
    
    
    209,682
    
    
    
    713,587
    
    
    
    582,678Net gains on sales of debt and equity securities
    
    
    807,172
    
    
    
    117
    
    
    
    806,931
    
    
    
    312,250Other noninterest income
    
    
    399,286
    
    
    
    374,521
    
    
    
    1,102,477
    
    
    
    1,095,250Total noninterest income
    
    
    1,471,527
    
    
    
    584,320
    
    
    
    2,622,995
    
    
    
    1,990,178Noninterest expense:Salaries and employee benefits
    
    
    3,319,920
    
    
    
    4,219,635
    
    
    
    10,635,621
    
    
    
    12,628,179Occupancy and equipment expense
    
    
    1,119,182
    
    
    
    1,212,522
    
    
    
    3,331,499
    
    
    
    3,375,614Other real estate owned expense
    
    
    2,066,751
    
    
    
    409,275
    
    
    
    3,828,915
    
    
    
    884,578FDIC assessment
    
    
    675,279
    
    
    
    291,821
    
    
    
    2,336,261
    
    
    
    668,888Data processing
    
    
    505,299
    
    
    
    473,512
    
    
    
    1,499,653
    
    
    
    1,359,070Writedown of investment securities
    
    
    173,844
    
    
    
    
    
    
    
    319,921
    
    
    
    Advertising
    
    
    25,528
    
    
    
    289,770
    
    
    
    201,030
    
    
    
    791,351Amortization of intangible assets
    
    
    4,072
    
    
    
    4,072
    
    
    
    12,216
    
    
    
    12,216Other noninterest expenses
    
    
    836,886
    
    
    
    900,264
    
    
    
    2,500,838
    
    
    
    2,930,990Total noninterest expense
    
    
    8,726,761
    
    
    
    7,800,871
    
    
    
    24,665,954
    
    
    
    22,650,886Loss before applicable income taxes
    
    
    (8,866,414
    )
    
    
    1,117,713
    
    
    
    (21,565,211
    )
    
    
    (2,408,251
    )Applicable income tax benefit
    
    
    (3,091,023
    )
    
    
    266,621
    
    
    
    (7,507,800
    )
    
    
    (1,198,888
    )Net income (loss)
    
    $
    (5,775,391
    )
    
    
    851,092
    
    
    
    (14,057,411
    )
    
    
    (1,209,363
    )Per share amounts:Basic earnings (loss) per share
    
    $
    (0.28
    )
    
    
    0.04
    
    
    
    (0.68
    )
    
    
    (0.06
    )Basic weighted average shares outstanding
    
    
    20,918,020
    
    
    
    20,687,321
    
    
    
    20,840,691
    
    
    
    20,656,388Diluted earnings (loss) per share
    
    $
    (0.28
    )
    
    
    0.04
    
    
    
    (0.67
    )
    
    
    (0.06
    )Diluted weighted average shares outstanding
    
    
    20,918,020
    
    
    
    20,920,384
    
    
    
    20,862,858
    
    
    
    21,048,143
  4




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    2009
    
    
    2008Net loss
    
    $
    (14,057,411
    )
    
    
    (1,209,363
    )Other comprehensive income (loss) before tax:Net unrealized gain (losses) on available-for-sale securities
    
    
    3,393,433
    
    
    
    (2,969,700
    )Reclassification adjustments for:Available-for-sale security gains included in net loss
    
    
    (806,931
    )
    
    
    (312,250
    )Writedown of investment securities included in net loss
    
    
    319,921
    
    
    
    Other comprehensive income (loss) before tax
    
    
    2,906,423
    
    
    
    (3,281,950
    )Income tax related to items of other comprehensive income (loss)
    
    
    988,181
    
    
    
    (1,115,863
    )Other comprehensive income (loss), net of tax
    
    
    1,918,242
    
    
    
    (2,166,087
    )Total comprehensive loss
    
    $
    (12,139,169
    )
    
    
    (3,375,450
    )
  5




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 Accumulated other
    
    
    TotalPreferred
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Treasury
    
    
    comprehensive income
    
    
    stockholdersstock
    
    
    stock
    
    
    Surplus
    
    
    earnings
    
    
    stock
    
    
    (loss)
    
    
    equityBalance at December 31, 2007
    
    $
    
    
    
    
    5,170,519
    
    
    
    123,329,517
    
    
    
    10,982,306
    
    
    
    
    
    
    
    408,631
    
    
    
    139,890,973Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209,363
    )
    
    
    
    
    
    
    
    
    
    
    (1,209,363
    )Sale of 9,615 shares of
common stock from treasury
    
    
    
    
    
    
    
    
    
    
    (34,892
    )
    
    
    
    
    
    
    115,380
    
    
    
    
    
    
    
    80,488Stock options exercised - 101,000
shares (12,296 from treasury)
    
    
    
    
    
    
    22,176
    
    
    
    519,657
    
    
    
    
    
    
    
    147,552
    
    
    
    
    
    
    
    689,385Treasury stock purchased -
105,324 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,305,000
    )
    
    
    
    
    
    
    (1,305,000
    )Issuance of 2,565 shares of
common stock as partial payment
for certain operating leases
    
    
    
    
    
    
    
    
    
    
    (5,771
    )
    
    
    
    
    
    
    30,780
    
    
    
    
    
    
    
    25,0091,400 shares of common stock from
treasury awarded to directors
    
    
    
    
    
    
    
    
    
    
    (3,449
    )
    
    
    
    
    
    
    16,800
    
    
    
    
    
    
    
    13,351Stock option expense
    
    
    
    
    
    
    
    
    
    
    421,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    421,946Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    88,880
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    118,880Change in valuation of
available-for-sale securities,
net of related tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,166,087
    )
    
    
    (2,166,087
    )Balance at September 30, 2008
    
    $
    
    
    
    
    5,192,695
    
    
    
    124,315,888
    
    
    
    9,772,943
    
    
    
    (964,488
    )
    
    
    (1,757,456
    )
    
    
    136,559,582Balance at December 31, 2008
    
    $
    
    
    
    
    5,192,696
    
    
    
    124,193,318
    
    
    
    10,663,076
    
    
    
    (335,280
    )
    
    
    (104,930
    )
    
    
    139,608,880Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,057,411
    )
    
    
    
    
    
    
    
    
    
    
    (14,057,411
    )Issuance of 40,000 shares of
Series A preferred stock
    
    
    40,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000,000Issuance of 2,000 shares of
Series B preferred stock
    
    
    2,000,000
    
    
    
    
    
    
    
    (2,000,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,102,111
    )
    
    
    
    
    
    
    
    
    
    
    (1,102,111
    )Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (17,271
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,271
    )Stock options exercised -
156,000 shares (19,604 from
from treasury)
    
    
    
    
    
    
    34,098
    
    
    
    210,485
    
    
    
    
    
    
    
    158,416
    
    
    
    
    
    
    
    402,999Treasury stock purchased -
10,000 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Sale of common stock in
connection with employee stock
purchase plan - 25,753 shares
(14,910 from treasury)
    
    
    
    
    
    
    2,711
    
    
    
    (132,272
    )
    
    
    
    
    
    
    216,864
    
    
    
    
    
    
    
    87,303Stock option expense
    
    
    
    
    
    
    
    
    
    
    391,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    391,469Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    28,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,125Change in valuation of available-
for-sale securities, net of related
tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,918,242
    
    
    
    1,918,242Balance at September 30, 2009
    
    $
    42,000,000
    
    
    
    5,229,505
    
    
    
    122,673,854
    
    
    
    (4,496,446
    )
    
    
    
    
    
    
    1,813,312
    
    
    
    167,220,225
  6




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (14,057,411
    )
    
    
    (1,209,363
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    3,571,080
    
    
    
    1,592,243Provision for possible loan losses
    
    
    27,700,000
    
    
    
    8,539,000Capitalized interest expense on construction
    
    
    
    
    
    
    (85,984
    )Net gains on sales and writedowns of debt and equity securities
    
    
    (487,010
    )
    
    
    (312,250
    )Net gain on sale of fixed assets
    
    
    (6,877
    )
    
    
    Net losses on sales and writedowns of other real estate owned
    
    
    3,092,545
    
    
    
    38,525Stock option compensation cost
    
    
    391,469
    
    
    
    421,946Common stock awarded to directors
    
    
    
    
    
    
    13,351Amortization of restricted stock expense
    
    
    28,125
    
    
    
    118,880Mortgage loans originated for sale in the secondary market
    
    
    (33,518,523
    )
    
    
    (18,076,916
    )Mortgage loans sold in secondary market
    
    
    34,516,523
    
    
    
    17,087,483Decrease (increase) in accrued interest receivable
    
    
    214,996
    
    
    
    (483,032
    )Increase (decrease) in accrued interest payable
    
    
    (1,558,531
    )
    
    
    583,668Other operating activities, net
    
    
    (8,080,092
    )
    
    
    425,966Net cash provided by operating activities
    
    
    11,806,294
    
    
    
    8,653,517Cash flows from investing activities:Purchase of available-for-sale debt and equity securities
    
    
    (205,650,276
    )
    
    
    (90,282,122
    )Proceeds from maturities and issuer calls of available-for-sale debt securities
    
    
    132,794,998
    
    
    
    45,513,113Proceeds from sales of available-for-sale debt and equity securities
    
    
    36,851,707
    
    
    
    27,252,250Net decrease (increase) in loans
    
    
    41,794,755
    
    
    
    (325,613,463
    )Proceeds from sale of other real estate owned
    
    
    1,197,195
    
    
    
    1,141,834Construction expenditures to finish other real estate owned
    
    
    (13,786
    )
    
    
    (48,525
    )Proceeds from sale of fixed assets
    
    
    36,037
    
    
    
    105,685Purchase of premises and equipment
    
    
    (300,884
    )
    
    
    (5,565,726
    )Net cash provided by (used in) investing activities
    
    
    6,709,746
    
    
    
    (347,496,954
    )Cash flows form financing activities:Net increase (decrease) in deposits
    
    
    (8,036,465
    )
    
    
    261,957,774Net decrease in short-term borrowings
    
    
    (49,869,892
    )
    
    
    (2,110,304
    )Proceeds from long-term Federal Home Loan Bank borrowings
    
    
    
    
    
    
    93,000,000Payments of long-term Federal Home Loan Bank borrowings
    
    
    (7,000,000
    )
    
    
    (12,000,000
    )Issuance of preferred stock
    
    
    40,000,000
    
    
    
    Dividends on preferred stock
    
    
    (1,102,111
    )
    
    
    Issuance of common stock
    
    
    33,478
    
    
    
    80,488Purchase of treasury stock
    
    
    (40,000
    )
    
    
    (1,305,000
    )Proceeds from sale of treasury stock
    
    
    53,825
    
    
    
    Stock options exercised
    
    
    402,999
    
    
    
    689,385Payment of stock issuance costs
    
    
    (17,271
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (25,575,437
    )
    
    
    340,312,343Net (decrease) increase in cash and cash equivalents
    
    
    (7,059,397
    )
    
    
    1,468,906Cash and cash equivalents at beginning of period
    
    
    57,745,965
    
    
    
    13,290,440Cash and cash equivalents at end of period
    
    $
    50,686,568
    
    
    
    14,759,346Supplemental information:Cash paid for:Interest
    
    $
    31,621,625
    
    
    
    30,341,300Income taxes
    
    
    964,000
    
    
    
    425,000Noncash transactions:Warrant exercise and issuance of Series B preferred stock
    
    
    2,000,000
    
    
    
    Transfers to other real estate in settlement of loans
    
    
    4,485,100
    
    
    
    8,243,326Loans made to facilitate the sale of other real estate
    
    
    201,555
    
    
    
    Stock issued for operating lease payments
    
    
    
    
    
    
    25,009
  7




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RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 
   NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles The
Hierarchy of Generally Accepted Accounting Principles
 Principles of Consolidation
  Basis of Accounting
  8




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  Cash Flow Information
  Stock Issuance Costs
  Subsequent Events
  Recent Accounting Pronouncements
 Fair Value Measurement Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased the Identifying Transactions That Are Not Orderly
 
    
    Level 1  Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency
securities and federal agency mortgage-backed securities, which are traded by dealers or
brokers in active markets. 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 similar
assets or liabilities.
 
    
    Level 3  Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer, or value assigned to such assets or
liabilities.
  Investments in Available-For-Sale Debt Securities
 9




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##### Table of Contents



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   Obligations of U.S. Government agencies
and corporations
    
    $
    100,451,253Obligations of state and political subdivisions
    
    
    30,939,296Other debt securities
    
    
    1,591,558Mortgage-backed securities
    
    
    98,410,396$
    231,392,503
  Balance, at fair value on December 31, 2008
    
    $
    1,416,729Net unrealized gain arising in 2009
    
    
    529,372Impairment writedowns recognized in 2009
    
    
    (319,921
    )Principal payments received in 2009
    
    
    (34,622
    )Balance, at fair value on September 30, 2009
    
    $
    1,591,558
 Loans Accounting by Creditors for Impairment of a Loan.
  
    
    ASC 855, Subsequent Events This standard establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. In particular, this standard sets forth:
 1.
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.
 2.
    
    The circumstances under which an entity should recognize events or transactions occurring
after the balance sheet date in its financial statements.
 3.
    
    The disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.
 
    
    ASC 320-10-65 regarding other-than-temporary impairment of investment securities  this
recognition guidance applies to debt securities classified as available-for-sale and
held-to-maturity that are subject to the other-than-temporary impairment guidance within ASC
320. If the fair value of a debt security is less than its amortized cost basis at the
balance sheet date, an entity shall assess whether the impairment is other than temporary. If
an entity intends to sell the debt security, an other-than-temporary impairment shall be
considered to have occurred. If an entity does not intend to
 10




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RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  sell the debt security, the entity shall consider available evidence to assess whether it more
likely than not will be required to sell the security before the recovery of its amortized
cost basis. If the entity more likely than not will be required to sell the security before
recovery of its amortized cost basis, an other-than-temporary impairment shall be considered
to have occurred.
 If the entity does not expect to recover the entire amortized cost basis of the security, an
other-than-temporary impairment shall be considered to have occurred. If the present value of
cash flows expected to be collected is less than the amortized cost basis of the security, the
entire amortized cost basis of the security will not be recovered (that is, a credit loss exists),
and an other-than-temporary impairment shall be considered to have occurred. In such situations,
the credit loss should be recorded through earnings as an other-than-temporary impairment.
 
    
    ASC 825-100-65  This standard requires disclosures about fair value of financial
instruments for interim reporting periods of publicly-traded companies as well as in annual
financial statements.
 Earnings per Share
  Three-Months Ended September 30,
    
    
    Nine-Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet income (loss)
    
    $
    (5,775,391
    )
    
    
    851,092
    
    
    
    (14,057,411
    )
    
    
    (1,209,363
    )Weighted average common
shares outstanding
    
    
    20,918,020
    
    
    
    20,687,321
    
    
    
    20,840,691
    
    
    
    20,656,388Basic income (loss) per share
    
    $
    (0.28
    )
    
    
    0.04
    
    
    
    (0.68
    )
    
    
    (0.06
    )DilutedNet income (loss)
    
    $
    (5,775,391
    )
    
    
    851,092
    
    
    
    (14,057,411
    )
    
    
    (1,209,363
    )Weighted average common
shares outstanding
    
    
    20,918,020
    
    
    
    20,687,321
    
    
    
    20,840,691
    
    
    
    20,656,388Effect of dilutive stock options
    
    
    
    
    
    
    233,063
    
    
    
    22,167
    
    
    
    391,755Diluted weighted average common
shares outstanding
    
    
    20,918,020
    
    
    
    20,920,384
    
    
    
    20,862,858
    
    
    
    21,048,143Diluted income (loss) per share
    
    $
    (0.28
    )
    
    
    0.04
    
    
    
    (0.67
    )
    
    
    (0.06
    )
 NOTE 2  INTANGIBLE ASSETS
   NOTE 3  STOCK OPTIONS
 Accounting for Stock
Issued to Employees,
 11




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RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   Share-based Payments
    Options Granted Under
    
    
    Options Granted to DirectorsIncentive Stock Option Plans
    
    
    Under Nonqualified PlansWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageOption Price
    
    
    Number
    
    
    Option Price
    
    
    Numberper Share
    
    
    of Shares
    
    
    per Share
    
    
    of SharesNine-Months Ended September 30, 2008:Balance at December 31, 2007
    
    $
    7.31
    
    
    
    1,648,200
    
    
    $
    8.41
    
    
    
    701,000Granted
    
    
    12.89
    
    
    
    91,000
    
    
    
    11.58
    
    
    
    16,000Forfeited
    
    
    13.87
    
    
    
    (27,250
    )
    
    
    9.14
    
    
    
    (41,500
    )Exercised
    
    
    6.83
    
    
    
    (101,000
    )
    
    
    
    
    
    
    Balance at September 30, 2008
    
    $
    7.54
    
    
    
    1,610,950
    
    
    $
    8.44
    
    
    
    675,500Nine-Months Ended September 30, 2009:Balance at December 31, 2008
    
    $
    7.61
    
    
    
    1,553,450
    
    
    $
    8.44
    
    
    
    673,000Granted
    
    
    7.50
    
    
    
    102,250
    
    
    
    7.50
    
    
    
    500Forfeited
    
    
    9.33
    
    
    
    (65,000
    )
    
    
    13.23
    
    
    
    (3,000
    )Exercised
    
    
    2.58
    
    
    
    (156,000
    )
    
    
    
    
    
    
    --Balance at September 30, 2009
    
    $
    8.07
    
    
    
    1,434,700
    
    
    $
    8.42
    
    
    
    670,500
  12




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RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  NOTE 4  DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
   Financial instruments for which
contractual amounts represent:Commitments to extend credit
    
    $
    143,748,261Standby letters of credit
    
    
    13,758,582$
    157,506,843
    Carrying
    
    
    Estimated
    
    
    Fair valueamount
    
    
    fair value
    
    
    measurementsBalance sheet assets:Cash and due from banks
    
    $
    50,686,568
    
    
    $
    50,686,568
    
    
    Carrying valueInvestments in debt and
equity securities
    
    
    240,261,214
    
    
    
    240,261,214
    
    
    Level 2 and 3 inputsLoans, net
    
    
    1,165,414,304
    
    
    
    1,151,544,123
    
    
    Level 3 inputsAccrued interest receivable
    
    
    5,209,112
    
    
    
    5,209,112
    
    
    Carrying value$
    1,461,571,198
    
    
    $
    1,447,701,017Balance sheet liabilities:Deposits
    
    $
    1,220,010,834
    
    
    $
    1,235,365,793
    
    
    Level 3 inputsShort-term borrowings
    
    
    14,048,952
    
    
    
    14,048,952
    
    
    Carrying valueLong-term Federal Home
Loan Bank borrowings
    
    
    129,000,000
    
    
    
    153,680,896
    
    
    Level 3 inputsAccrued interest payable
    
    
    2,346,410
    
    
    
    2,346,410
    
    
    Carrying value$
    1,365,406,196
    
    
    $
    1,405,442,051
 13




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Part I  Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
   Forward-Looking Statements
  Overview
     14




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15




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As of and for the
    
    As of and for theNine Months Ended
    
    Quarters EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Percentage of net income to:Average total assets
    
    
    (1.19
    )%
    
    
    (0.12
    )%
    
    
    (1.49
    )%
    
    
    0.23
    %Average stockholders equity
    
    
    (10.97
    )%
    
    
    (1.16
    )%
    
    
    (13.27
    )%
    
    
    2.47
    %Percentage of common dividends
declared to net income per common
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentage
of average stockholders equity to average total assets
    
    
    10.88
    %
    
    
    10.60
    %
    
    
    11.24
    %
    
    
    9.43
    %
 Critical Accounting Policies
  Results of Operations for the Three and Nine-Month Periods Ended September 30, 2009 and 2008
    16




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17




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Average deposits:Noninterest-bearing
    
    
    4.57
    %
    
    
    4.47
    %
    
    
    4.29
    %
    
    
    4.71
    %Interest-bearing:Transaction accounts
    
    
    12.37
    
    
    
    12.33
    
    
    
    11.90
    
    
    
    14.14Savings
    
    
    21.43
    
    
    
    3.64
    
    
    
    17.08
    
    
    
    4.19Time deposits of $100,000 or more
    
    
    21.30
    
    
    
    28.75
    
    
    
    23.32
    
    
    
    28.58Other time deposits
    
    
    29.52
    
    
    
    32.86
    
    
    
    32.03
    
    
    
    31.11Total average interest-bearing deposits
    
    
    84.62
    
    
    
    77.58
    
    
    
    84.33
    
    
    
    78.02Total average deposits
    
    
    89.19
    
    
    
    82.05
    
    
    
    88.62
    
    
    
    82.73Average short-term borrowings
    
    
    1.03
    
    
    
    6.86
    
    
    
    1.71
    
    
    
    6.98Average longer-term advances from Federal Home
Loan Bank
    
    
    9.78
    
    
    
    11.09
    
    
    
    9.67
    
    
    
    10.29100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  18




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Amount of Increase (Decrease)Third Quarter
    
    
    First Nine MonthsChange From 2008 to 2009 Due toYield/
    
    
    
    
    
    
    
    
    
    
    Yield/Volume (1)
    
    
    Rate (2)
    
    
    Total
    
    
    Volume (1)
    
    
    Rate (2)
    
    
    TotalInterest income:Loans
    
    $
    181,018
    
    
    
    (2,145,139
    )
    
    
    (1,964,121
    )
    
    
    6,989,979
    
    
    
    (7,098,910
    )
    
    
    (108,931
    )Investment securities:Taxable
    
    
    720,381
    
    
    
    (447,201
    )
    
    
    273,180
    
    
    
    2,650,886
    
    
    
    (1,583,897
    )
    
    
    1,066,989Exempt from Federal income taxes
    
    
    (108,319
    )
    
    
    14,129
    
    
    
    (94,190
    )
    
    
    (306,345
    )
    
    
    105,433
    
    
    
    (200,912
    )Short-term investments
    
    
    28,605
    
    
    
    (73,000
    )
    
    
    (44,395
    )
    
    
    127,949
    
    
    
    (260,929
    )
    
    
    (132,980
    )Total interest income
    
    
    821,685
    
    
    
    (2,651,211
    )
    
    
    (1,829,526
    )
    
    
    9,462,469
    
    
    
    (8,838,303
    )
    
    
    624,166Interest expense:Interest-bearing transaction
accounts
    
    
    34,475
    
    
    
    (437,242
    )
    
    
    (402,767
    )
    
    
    18,493
    
    
    
    (1,429,717
    )
    
    
    (1,411,224
    )Savings accounts
    
    
    1,607,970
    
    
    
    266,864
    
    
    
    1,874,834
    
    
    
    3,791,956
    
    
    
    656,376
    
    
    
    4,448,332Time deposits of $100,000 or more
    
    
    (709,018
    )
    
    
    (755,847
    )
    
    
    (1,464,865
    )
    
    
    (257,609
    )
    
    
    (2,564,622
    )
    
    
    (2,822,231
    )Other time deposits
    
    
    (265,153
    )
    
    
    (569,711
    )
    
    
    (834,864
    )
    
    
    2,391,154
    
    
    
    (2,282,515
    )
    
    
    108,639Total deposits
    
    
    668,274
    
    
    
    (1,495,936
    )
    
    
    (827,662
    )
    
    
    5,943,994
    
    
    
    (5,620,478
    )
    
    
    323,516Funds purchased and securities
sold under repurchase agreements
    
    
    (291,924
    )
    
    
    (257,248
    )
    
    
    (549,172
    )
    
    
    (923,257
    )
    
    
    (427,467
    )
    
    
    (1,350,724
    )Long-term borrowings
    
    
    (113,707
    )
    
    
    (24,956
    )
    
    
    (138,663
    )
    
    
    408,698
    
    
    
    (157,380
    )
    
    
    251,318Total interest expense
    
    
    262,643
    
    
    
    (1,778,140
    )
    
    
    (1,515,497
    )
    
    
    5,429,435
    
    
    
    (6,205,325
    )
    
    
    (775,890
    )Net interest income
    
    $
    559,042
    
    
    
    (873,071
    )
    
    
    (314,029
    )
    
    
    4,033,034
    
    
    
    (2,632,978
    )
    
    
    1,400,056
 
 (1)
    
    Change in volume multiplied by yield/rate of prior year.(2)
    
    Change in yield/rate multiplied by volume of prior year. NOTE:
    
    The change in interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts of the change in
each.
    19




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20




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Financial Condition
        21




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Nine Months Ended September 30, 2009Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,226,372,271
    
    
    
    77.85
    %
    
    $
    51,392,428
    
    
    
    5.60
    %Investment securities:Taxable
    
    
    229,599,272
    
    
    
    14.58
    
    
    
    5,873,340
    
    
    
    3.42Exempt from Federal income taxes (3)
    
    
    31,035,822
    
    
    
    1.97
    
    
    
    1,335,948
    
    
    
    5.76Short-term investments
    
    
    22,710,559
    
    
    
    1.44
    
    
    
    29,817
    
    
    
    0.18Total earning assets
    
    
    1,509,717,924
    
    
    
    95.84
    
    
    
    58,631,533
    
    
    
    5.19
    %Nonearning assets:Cash and due from banks
    
    
    5,171,632
    
    
    
    0.33Reserve for possible loan losses
    
    
    (16,645,273
    )
    
    
    (1.06
    )Premises and equipment
    
    
    43,536,302
    
    
    
    2.76Other assets
    
    
    32,563,329
    
    
    
    2.07Available-for-sale investment market valuation
    
    
    862,440
    
    
    
    0.06Total nonearning assets
    
    
    65,488,430
    
    
    
    4.16Total assets
    
    $
    1,575,206,354
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilities:Interest-bearing transaction accounts
    
    $
    166,222,457
    
    
    
    10.55
    %
    
    
    1,616,712
    
    
    
    1.30
    %Savings
    
    
    238,560,261
    
    
    
    15.14
    
    
    
    5,069,880
    
    
    
    2.84Time deposits of $100,000 or more
    
    
    325,684,306
    
    
    
    20.68
    
    
    
    7,617,809
    
    
    
    3.13Other time deposits
    
    
    447,364,036
    
    
    
    28.40
    
    
    
    11,713,511
    
    
    
    3.50Total interest-bearing
deposits
    
    
    1,177,831,060
    
    
    
    74.77
    
    
    
    26,017,912
    
    
    
    2.95Long term borrowings
    
    
    134,917,563
    
    
    
    8.57
    
    
    
    3,714,910
    
    
    
    3.68Funds purchased and securities sold under
repurchase agreements
    
    
    23,914,007
    
    
    
    1.52
    
    
    
    330,272
    
    
    
    1.85Total interest-bearing
liabilities
    
    
    1,336,662,630
    
    
    
    84.86
    
    
    
    30,063,094
    
    
    
    3.01Noninterest-bearing deposits
    
    
    59,971,718
    
    
    
    3.81Other liabilities
    
    
    7,244,134
    
    
    
    0.45Total liabilities
    
    
    1,403,878,482
    
    
    
    89.12STOCKHOLDERS EQUITY
    
    
    171,327,872
    
    
    
    10.88Total liabilities and
stockholders equity
    
    $
    1,575,206,354
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    28,568,439Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.53
    %
  22




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Nine Months Ended September 30, 2008Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,070,366,888
    
    
    
    81.48
    %
    
    $
    51,501,359
    
    
    
    6.43
    %Investment securities:Taxable
    
    
    136,085,251
    
    
    
    10.36
    
    
    
    4,806,351
    
    
    
    4.72Exempt from Federal income taxes (3)
    
    
    38,262,929
    
    
    
    2.91
    
    
    
    1,536,860
    
    
    
    5.37Short-term investments
    
    
    6,355,548
    
    
    
    0.48
    
    
    
    162,797
    
    
    
    3.42Total earning assets
    
    
    1,251,070,616
    
    
    
    95.23
    
    
    
    58,007,367
    
    
    
    6.19Nonearning assets:Cash and due from banks
    
    
    10,950,903
    
    
    
    0.83Reserve for possible loan losses
    
    
    (11,406,428
    )
    
    
    (0.87
    )Premises and equipment
    
    
    43,961,674
    
    
    
    3.35Other assets
    
    
    18,810,531
    
    
    
    1.44Available-for-sale investment market valuation
    
    
    314,438
    
    
    
    0.02Total nonearning assets
    
    
    62,631,118
    
    
    
    4.77Total assets
    
    $
    1,313,701,734
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    165,207,045
    
    
    
    12.58
    %
    
    
    3,027,936
    
    
    
    2.45
    %Savings
    
    
    48,944,845
    
    
    
    3.73
    
    
    
    621,548
    
    
    
    1.70Time deposits of $100,000 or more
    
    
    334,052,847
    
    
    
    25.43
    
    
    
    10,440,040
    
    
    
    4.17Other time deposits
    
    
    363,564,437
    
    
    
    27.67
    
    
    
    11,604,872
    
    
    
    4.26Total interest-bearing deposits
    
    
    911,769,174
    
    
    
    69.41
    
    
    
    25,694,396
    
    
    
    3.76Long-term borrowings
    
    
    120,302,920
    
    
    
    9.16
    
    
    
    3,463,592
    
    
    
    3.85Funds purchased and securities sold under
repurchase agreements
    
    
    81,577,258
    
    
    
    6.21
    
    
    
    1,680,996
    
    
    
    2.75Total interest-bearing liabilities
    
    
    1,113,649,352
    
    
    
    84.78
    
    
    
    30,838,984
    
    
    
    3.70Noninterest-bearing deposits
    
    
    55,075,699
    
    
    
    4.19Other liabilities
    
    
    5,684,111
    
    
    
    0.43Total liabilities
    
    
    1,174,409,162
    
    
    
    89.40STOCKHOLDERS EQUITY
    
    
    139,292,572
    
    
    
    10.60Total liabilities and stockholders equity
    
    $
    1,313,701,734
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    27,168,383Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.90
    %
  23




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##### Table of Contents



Quarter Ended September 30, 2009Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,203,337,792
    
    
    
    78.29
    %
    
    $
    16,710,982
    
    
    
    5.51
    %Investment securities:Taxable
    
    
    219,988,125
    
    
    
    14.31
    
    
    
    1,909,531
    
    
    
    3.44Exempt from Federal income taxes (3)
    
    
    30,264,332
    
    
    
    1.97
    
    
    
    436,030
    
    
    
    5.72Short-term investments
    
    
    17,870,889
    
    
    
    1.16
    
    
    
    7,076
    
    
    
    0.16Total earning assets
    
    
    1,471,461,138
    
    
    
    95.73
    
    
    
    19,063,619
    
    
    
    5.14Nonearning assets:Cash and due from banks
    
    
    4,343,811
    
    
    
    0.28Reserve for possible loan losses
    
    
    (20,972,655
    )
    
    
    (1.36
    )Premises and equipment
    
    
    43,057,314
    
    
    
    2.80Other assets
    
    
    37,482,195
    
    
    
    2.44Available-for-sale investment market valuation
    
    
    1,620,549
    
    
    
    0.11Total nonearning assets
    
    
    65,531,214
    
    
    
    4.27Total assets
    
    $
    1,536,992,352
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    167,744,078
    
    
    
    10.91
    %
    
    
    472,430
    
    
    
    1.12
    %Savings
    
    
    290,696,634
    
    
    
    18.91
    
    
    
    2,056,821
    
    
    
    2.81Time deposits of $100,000 or more
    
    
    288,977,087
    
    
    
    18.80
    
    
    
    2,023,528
    
    
    
    2.78Other time deposits
    
    
    400,364,321
    
    
    
    26.05
    
    
    
    3,282,482
    
    
    
    3.25Total interest-bearing deposits
    
    
    1,147,782,120
    
    
    
    74.67
    
    
    
    7,835,261
    
    
    
    2.71Long term borrowings
    
    
    132,752,688
    
    
    
    8.64
    
    
    
    1,237,276
    
    
    
    3.70Funds purchased and securities sold under
repurchase agreements
    
    
    13,953,999
    
    
    
    0.91
    
    
    
    22,734
    
    
    
    0.65Total interest-bearing liabilities
    
    
    1,294,488,807
    
    
    
    84.22
    
    
    
    9,095,271
    
    
    
    2.79Noninterest-bearing deposits
    
    
    61,952,867
    
    
    
    4.03Other liabilities
    
    
    7,828,447
    
    
    
    0.51Total liabilities
    
    
    1,364,270,121
    
    
    
    88.76STOCKHOLDERS EQUITY
    
    
    172,722,231
    
    
    
    11.24Total liabilities and stockholders equity
    
    $
    1,536,992,352
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    9,968,348Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.69
    %
  24




---



##### Table of Contents



Quarter Ended September 30, 2008Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,191,904,958
    
    
    
    82.24
    %
    
    $
    18,675,103
    
    
    
    6.23
    %Investment securities:Taxable
    
    
    144,600,823
    
    
    
    9.98
    
    
    
    1,636,351
    
    
    
    4.50Exempt from Federal income taxes (3)
    
    
    37,877,908
    
    
    
    2.61
    
    
    
    530,220
    
    
    
    5.57Short-term investments
    
    
    8,358,876
    
    
    
    0.58
    
    
    
    51,471
    
    
    
    2.45Total earning assets
    
    
    1,382,742,565
    
    
    
    95.41
    
    
    
    20,893,145
    
    
    
    6.01Nonearning assets:Cash and due from banks
    
    
    13,045,160
    
    
    
    0.90Reserve for possible loan losses
    
    
    (13,092,284
    )
    
    
    (0.90
    )Premises and equipment
    
    
    44,776,852
    
    
    
    3.09Other assets
    
    
    24,132,986
    
    
    
    1.66Available-for-sale investment market valuation
    
    
    (2,318,941
    )
    
    
    (0.16
    )Total nonearning assets
    
    
    66,543,773
    
    
    
    4.59Total assets
    
    $
    1,449,286,338
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    161,183,261
    
    
    
    11.12
    %
    
    
    875,197
    
    
    
    2.16
    %Savings
    
    
    47,548,423
    
    
    
    3.28
    
    
    
    181,987
    
    
    
    1.52Time deposits of $100,000 or more
    
    
    375,945,922
    
    
    
    25.94
    
    
    
    3,488,393
    
    
    
    3.69Other time deposits
    
    
    429,763,468
    
    
    
    29.65
    
    
    
    4,117,346
    
    
    
    3.81Total interest-bearing deposits
    
    
    1,014,441,074
    
    
    
    69.99
    
    
    
    8,662,923
    
    
    
    3.40Long-term borrowings
    
    
    145,021,740
    
    
    
    10.01
    
    
    
    1,375,939
    
    
    
    3.77Funds purchased and securities sold under
repurchase agreements
    
    
    89,676,651
    
    
    
    6.19
    
    
    
    571,906
    
    
    
    2.54Total interest-bearing liabilities
    
    
    1,249,139,465
    
    
    
    86.19
    
    
    
    10,610,768
    
    
    
    3.38Noninterest-bearing deposits
    
    
    58,414,574
    
    
    
    4.03Other liabilities
    
    
    5,012,265
    
    
    
    0.35Total liabilities
    
    
    1,312,566,304
    
    
    
    90.57STOCKHOLDERS EQUITY
    
    
    136,720,034
    
    
    
    9.43Total liabilities and stockholders equity
    
    $
    1,449,286,338
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    10,282,377Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.96
    %
 
 (1)
    
    Interest includes loan fees, recorded as discussed in Note 1 to our consolidated financial
statements for the year ended December 31, 2008, included in our Form 10-K, which was filed
March 30, 2009.(2)
    
    Average balances include nonaccrual loans. The income on such loans is included in interest,
but is recognized only upon receipt.(3)
    
    Interest yields are presented on a tax-equivalent basis. Nontaxable income has been adjusted
upward by the amount of Federal income tax that would have been paid if the income had been
taxed at a rate of 34%, adjusted downward by the disallowance of the interest cost to carry
nontaxable loans and securities. Risk Management
  25




---



##### Table of Contents



Originated InFlorida

    


All other

    


TotalNet charge-offs (year to date 9/30/09)
    
$
    12.5
million
    
$
    3.2
million
    
$
    15.7
millionNet charge-offs (year to date 9/30/08)
    
$
    5.0
million
    
$
    0.8
million
    
$
    5.8
millionNet charge-offs (quarter ended 9/30/09)
    
$
    7.3
million
    
$
    1.9
million
    
$
    9.2
millionNet charge-offs (quarter ended 9/30/08)
    
$
    1.6
million
    
$
    0.5
million
    
$
    2.1
millionNon-performing loans (9/30/2008)
    
$
    9.8
million
    
$
    5.5
million
    
$
    15.3
millionNon-performing loans (12/31/2008)
    
$
    30.1
million
    
$
    4.8
million
    
$
    34.9
millionNon-performing loans (9/30/2009)
    
$
    46.0
million
    
$
    44.5
million
    
$
    90.5
millionNon-performing assets* (9/30/2008)
    
$
    15.7
million
    
$
    11.2
million
    
$
    26.9
millionNon-performing assets* (12/31/2008)
    
$
    37.5
million
    
$
    12.7
million
    
$
    50.2
millionNon-performing assets* (9/30/2009)
    
$
    52.0
million
    
$
    53.8
million
    
$
    105.8
millionOutstanding loans originated in 
respective markets (9/30/09)
    
$
    108.3
million
    
$
    1.083
billion
    
$
    1.192
billion
 
 *
    
    Non-performing assets are comprised of non-performing loans and other real estate owned. 26




---



##### Table of Contents




    
    Loans totaling approximately $3.1 million to entities controlled by a Florida real estate
investor that were in default and for which foreclosure proceedings have commenced.
Foreclosure is now moving forward uncontested based on an agreement reached among the Bank,
borrowers and guarantors. These loans are secured by commercial real estate properties in
southwestern Florida.
    
    A loan for approximately $9.6 million to a single purpose entity, controlled by a group of
Florida investors, that is in default. The loan is secured by a mixed-use undeveloped real
estate parcel in southwestern Florida. The proposed entitlements have been completed but
development has not been started. The Bank is in the process of obtaining control and
ownership of the property.
    
    A loan for approximately $4.0 million to a single purpose entity controlled by an
individual Florida investor, for which the borrower is in default and the loan is in the
process of foreclosure. The loan is secured by a newly constructed retail commercial property
in southwestern Florida. The Bank is working through a Receiver to continue to lease up the
property as foreclosure continues.
    
    A loan for approximately $1.4 million to an individual Florida investor that is in default
and in the process of foreclosure. The loan is secured by an undeveloped real estate parcel
in southwestern Florida.
    
    A loan for $10.0 million to a single purpose entity of a Florida real estate developer that
is in default. The loan is secured by a multi-story, Class A office building. The building
is complete externally and ready for tenant finish. The Bank, borrower and guarantor are in
negotiations to transfer title to the Bank.
    
    A loan for $1.5 million to a single purpose entity controlled by a group of investors that
is in default. The loan is secured by improved commercial lots in Florida. The Bank is
negotiating with the borrower and guarantors to develop a plan for the property.
    
    A loan for $2.2 million to an individual, secured by the individuals primary residence in
Florida, that is in default. The customer is making payments according to a negotiated plan.
    
    A loan for $2.2 million to a single purpose entity, secured by two office buildings for
sale and six improved commercial lots in Florida. The Bank continues to negotiate with the
borrower and guarantor to develop a marketing plan.
    
    A loan for $2.9 million to a single purpose entity secured by unimproved property in
Florida that is in default. The Bank is negotiating with the borrower and guarantor to
determine the best course of action going forward for the proposed development.
 27




---



##### Table of Contents




    
    A loan for approximately $1.4 million to an individual investor for future residential and
commercial development. Development has not been started as planned. The loan is secured by
approximately 240 acres of ground in Florida currently in agricultural production. The
Company is in the process of foreclosure.
    
    A loan for approximately $1.4 million to two Florida investors for future commercial
development. Development has not started, as recent changes in FEMA flood maps has impacted
the value and future development options. The borrower is currently operating under a
Forbearance Agreement as it works through its options for the property.
    
    A $7.9 million loan to a single purpose entity. The operation is a retail commercial
center in St Charles, Missouri. Exterior construction of the building is complete; interior
configuration continues and is dictated by tenant needs. The center has experienced sluggish
leasing, although recent leasing and leasing opportunities have increased slightly. The Bank
and borrower continue to work together to lease up the property.
    
    A loan for approximately $3.5 million to a single purpose entity controlled by a group of
Illinois real estate investors. The loan is secured by partially developed residential and
commercial real estate parcels in southwestern Illinois. The Company has been moving toward a
deed in lieu of foreclosure and a deficiency agreement on the real estate. Documents have
been signed, a deed is in process to be recorded and transfer to other real estate will take
place shortly.
    
    A $1.8 million loan to a single purpose entity that owns an industrial building. The
property has become vacant, and the owners have listed the building for sale and most recently
entered final negotiations to sell the building.
    
    A loan for approximately $1.8 million to a Texas limited partnership. The loan is secured
by a newly constructed retail commercial property in northeastern Texas. The borrower has
entered into bankruptcy protection. The Bank is seeking a dismissal of the case in court, so
that it can foreclose on the property. The next hearing is scheduled to occur in the fourth
quarter of 2009. The Company expects to begin foreclosure proceedings as soon as practicable
thereafter.
    
    A loan participation totaling approximately $3 million to entities controlled by a group of
Missouri real estate investors for the purchase and development of a parcel of land in St.
Charles, Missouri. The majority of the proposed entitlements and development have been
completed. The loans are secured by the property. The lead bank has reached an agreement
with the borrower to move the project forward. A new builder has been engaged and houses are
being constructed; however, no sales have yet occurred.
  Balance at December 31, 2008
    
    $
    15,289,170Foreclosures
    
    
    4,485,100Loans made to facilitate sales of other real estate
    
    
    (201,555
    )Cash proceeds from sales
    
    
    (1,197,195
    )Construction expenditures capitalized
    
    
    13,786Losses and writedowns
    
    
    (3,092,545
    )Balance at September 30, 2009
    
    $
    15,296,761
  28




---



##### Table of Contents




    
    Delinquency of a scheduled loan payment;
    
    Deterioration in the borrowers financial condition identified in a review of periodic
financial statements;
    
    Decrease in the value of collateral securing the loan; or
    
    Change in the economic environment in which the borrower operates.
      29




---



##### Table of Contents



Nine-Month PeriodsEnded September 30,(in thousands of dollars)
    
    2009
    
    
    2008Average loans outstanding
    
    $
    1,226,372
    
    
    $
    1,070,367Reserve at beginning of year
    
    $
    14,306
    
    
    $
    9,685Provision for possible loan losses
    
    
    27,700
    
    
    
    8,53942,006
    
    
    
    18,224Charge-offs:Commercial loans:Real estate
    
    
    (7,611
    )
    
    
    (2,710
    )Other
    
    
    (590
    )
    
    
    (30
    )Real estate:Construction, land development and other land loans
    
    
    (7,295
    )
    
    
    (1,758
    )Residential
    
    
    (1,602
    )
    
    
    (1,291
    )Consumer
    
    
    (31
    )
    
    
    (19
    )Overdrafts
    
    
    (1
    )
    
    
    (38
    )Total charge-offs
    
    
    (17,130
    )
    
    
    (5,846
    )Recoveries:Commercial loans:Real estate
    
    
    865
    
    
    
    1Other
    
    
    4
    
    
    
    9Real estate:Construction
    
    
    361
    
    
    
    Residential
    
    
    145
    
    
    
    Consumer
    
    
    19
    
    
    
    3Overdrafts
    
    
    
    
    
    
    8Total recoveries
    
    
    1,394
    
    
    
    21Reserve at end of period
    
    $
    26,270
    
    
    $
    12,399Net charge-offs to average loans (annualized)
    
    
    1.72
    %
    
    
    0.73
    %Ending reserve to net outstanding loans at end of period
    
    
    2.20
    %
    
    
    1.01
    %
   
    
    Specific allocations based upon probable losses identified during a quarterly review of the
loan portfolio;
    
    Allocations based principally on the Companys risk rating formulas; and
    
    An unallocated allowance based on subjective factors.
    30




---



##### Table of Contents




    
    General economic and business conditions affecting our key lending areas;
    
    Credit quality trends (including trends in non-performing loans expected to result from
existing conditions);
    
    Collateral values;
    
    Loan volumes and concentrations;
    
    Competitive factors resulting in shifts in underwriting criteria;
    
    Specific industry conditions within portfolio segments;
    
    Recent loss experience in particular segments of the portfolio;
    
    Bank regulatory examination results; and
    
    Findings of our internal loan review department.
         31




---



##### Table of Contents




    
    There is a level of imprecision necessarily inherent in the estimates of expected loan
losses, and the unallocated reserve gives reasonable assurance that this level of imprecision
in our formula methodologies is adequately provided for.
    
    Pressures to maintain and grow the loan portfolio with increasing competition from de novo
institutions and larger competitors have to some degree affected credit granting criteria
adversely. The Company monitors the disposition of all credits, which have been approved
through its Executive Loan Committee, in order to better understand competitive shifts in
underwriting criteria.
  Real Estate Loan Balances as a Percentageof Total Regulatory Capital9/30/2008
    
    12/31/2008
    
    9/30/2009Construction, land development and other
other land loans
    
    
    145
    %
    
    
    138
    %
    
    
    103
    %Nonfarm nonresidential:Owner occupied
    
    
    58
    %
    
    
    60
    %
    
    
    66
    %Non-owner occupied
    
    
    399
    %
    
    
    408
    %
    
    
    310
    %1-4 family closed end loans
    
    
    63
    %
    
    
    61
    %
    
    
    37
    %Multi-family
    
    
    70
    %
    
    
    71
    %
    
    
    71
    %Other
    
    
    20
    %
    
    
    20
    %
    
    
    17
    %
   Liquidity and Capital Resources
    32




---



##### Table of Contents



To Be a WellCapitalized Bank UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provision(in thousands of dollars)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk-weighted
assets)Consolidated
    
    $
    180,988
    
    
    
    13.44
    %
    
    $
    107,724
    
    
    
    ≥8.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    148,894
    
    
    
    11.77
    %
    
    
    101,217
    
    
    
    ≥8.0
    %
    
    
    126,521
    
    
    
    ≥10.0
    %Reliance Bank, FSB
    
    
    22,300
    
    
    
    27.30
    %
    
    
    6,536
    
    
    
    ≥8.0
    %
    
    
    8,170
    
    
    
    ≥10.0
    %Tier 1 capital (to risk-weighted
assets)Consolidated
    
    $
    164,040
    
    
    
    12.18
    %
    
    $
    53,862
    
    
    
    ≥4.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    132,899
    
    
    
    10.50
    %
    
    
    50,608
    
    
    
    ≥4.0
    %
    
    
    75,913
    
    
    
    ≥6.0
    %Reliance Bank, FSB
    
    
    21,309
    
    
    
    26.08
    %
    
    
    3,268
    
    
    
    ≥4.0
    %
    
    
    4,902
    
    
    
    ≥6.0
    %Tier 1 capital (to average assets)Consolidated
    
    $
    164,040
    
    
    
    10.69
    %
    
    $
    61,358
    
    
    
    ≥4.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    132,899
    
    
    
    9.38
    %
    
    
    56,702
    
    
    
    ≥4.0
    %
    
    
    70,878
    
    
    
    ≥5.0
    %Reliance Bank, FSB
    
    
    21,309
    
    
    
    18.90
    %
    
    
    4,510
    
    
    
    ≥4.0
    %
    
    
    5,637
    
    
    
    ≥5.0
    %
  Total
    
    Tier 1
    
    Tier 1Risk-Based
    
    Risk-Based
    
    LeverageRatio
    
    Ratio
    
    RatioWell capitalized
    
    
    10
    %
    
    
    6
    %
    
    
    5
    %Adequately capitalized
    
    
    8
    
    
    
    4
    
    
    
    4Undercapitalized
    
    
    <8
    
    
    
    <4
    
    
    
    <4Significantly undercapitalized
    
    
    <6
    
    
    
    <3
    
    
    
    <3Critically undercapitalized
    
    
    *
    
    
    
    *
    
    
    
    *
 
 *
    
    A critically undercapitalized institution is defined as having a tangible equity to total
assets ratio of 2% or less.  33




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##### Table of Contents



Contractual Obligations, Off-Balance Sheet Risk, and Contingent Liabilities
   Over 1 YearTotal Cash
    
    Less Than 1
    
    Less Than 5
    
    Over 5Commitment
    
    Year
    
    Years
    
    YearsOperating leases
    
    $
    7,509,882
    
    
    $
    631,604
    
    
    $
    2,081,481
    
    
    $
    4,796,797Time deposits
    
    
    683,280,869
    
    
    
    474,470,132
    
    
    
    203,290,432
    
    
    
    5,520,305Federal Home
Loan Bank borrowings
    
    
    129,000,000
    
    
    
    31,000,000
    
    
    
    26,000,000
    
    
    
    72,000,000Commitments to extend credit
    
    
    143,748,261
    
    
    
    71,337,510
    
    
    
    37,415,320
    
    
    
    34,995,431Standby letters of credit
    
    
    13,758,582
    
    
    
    5,379,759
    
    
    
    8,378,823
    
    
    
    
 Accounting Pronouncements
 Fair Value Measurement Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased the Identifying Transactions That Are Not Orderly
 
    
    Level 1  Valuations for assets and liabilities traded in active exchange markets, such as
the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency
securities and federal agency mortgage-backed securities, which are traded by dealers or
brokers in active markets. 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 similar
assets or liabilities.
    
    Level 3  Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer, or value assigned to such assets or
liabilities.
 34




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##### Table of Contents



Investments in Available-For-Sale Debt Securities
 Obligations of U.S. Government agencies
and corporations
    
    $
    100,451,253Obligations of state and political subdivisions
    
    
    30,939,296Other debt securities
    
    
    1,591,558Mortgage-backed securities
    
    
    98,410,396$
    231,392,503
  Balance, at fair value on December 31, 2008
    
    $
    1,416,729Net unrealized gain arising in 2009
    
    
    529,372Impairment writedowns recognized in 2009
    
    
    (319,921
    )Principal payments received in 2009
    
    
    (34,622
    )Balance, at fair value on September 30, 2009
    
    $
    1,591,558
 Loans Accounting by Creditors for Impairment of a Loan.
  
    
    ASC 855, Subsequent Events This standard establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. In particular, this standard sets forth:
 1.
    
    The period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements.2.
    
    The circumstances under which an entity should recognize events or transactions occurring
after the balance sheet date in its financial statements.3.
    
    The disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.
 
    
    ASC 320-10-65 regarding other-than-temporary impairment of investment securities  this
recognition guidance applies to debt securities classified as available-for-sale and
held-to-maturity that are subject to the other-than-temporary impairment guidance within ASC
320. If the fair value of a debt security is less than its amortized cost basis at the
balance sheet date, an entity shall assess whether the impairment is other than temporary. If
an entity intends to sell the debt security, an other-than-temporary impairment shall be
considered to have occurred. If an entity does not intend to sell the debt security, the
entity shall consider available evidence to assess whether it more likely than not will be
 35




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##### Table of Contents



required to sell the security before the recovery of its amortized cost basis. If the entity
more likely than not will be required to sell the security before recovery of its amortized
cost basis, an other-than-temporary impairment shall be considered to have occurred.
 If the entity does not expect to recover the entire amortized cost basis of the security, an
other-than-temporary impairment shall be considered to have occurred. If the present value of
cash flows expected to be collected is less than the amortized cost basis of the security, the
entire amortized cost basis of the security will not be recovered (that is, a credit loss exists),
and an other-than-temporary impairment shall be considered to have occurred. In such situations,
the credit loss should be recorded through earnings as an other-than-temporary impairment.
    
    ASC 825-100-65  This standard requires disclosures about fair value of financial
instruments for interim reporting periods of publicly-traded companies as well as in annual
financial statements.
 
 Part I  Item 3  Quantitative and Qualitative Disclosures About Market Risk
   Remaining Maturity if Fixed Rate;Earliest Possible Repricing Interval if Floating Rate3 months
    
    
    Over 3 months
    
    
    Over 1 yearor less
    
    
    through
    
    
    through
    
    
    Overless
    
    
    12 months
    
    
    5 years
    
    
    5 years
    
    
    TotalInterest-earning assetsLoans
    
    $
    470,608,755
    
    
    
    135,508,229
    
    
    
    532,507,727
    
    
    
    53,267,818
    
    
    
    1,191,892,529Investment securities, at amortized cost
    
    
    47,402,326
    
    
    
    64,851,655
    
    
    
    104,789,474
    
    
    
    20,470,317
    
    
    
    237,513,772Other interest-earnings assets
    
    
    22,929,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,929,968Total interest-earning assets
    
    $
    540,941,049
    
    
    
    200,359,884
    
    
    
    637,297,201
    
    
    
    73,738,135
    
    
    
    1,452,336,269Interest bearing-liabilitiesSavings and interest bearing transaction accounts
    
    $
    471,979,120
    
    
    
    20,820
    
    
    
    
    
    
    
    
    
    
    
    471,999,940Time certificates of deposit of $100,000 or more
    
    
    81,127,131
    
    
    
    136,083,761
    
    
    
    73,191,333
    
    
    
    2,529,321
    
    
    
    292,931,546All other time deposits
    
    
    80,679,369
    
    
    
    176,579,871
    
    
    
    130,099,099
    
    
    
    2,990,984
    
    
    
    390,349,323Nondeposit interest-bearing liabilities
    
    
    12,662,446
    
    
    
    32,386,506
    
    
    
    26,000,000
    
    
    
    72,000,000
    
    
    
    143,048,952Total interest-bearing liabilities
    
    $
    646,448,066
    
    
    
    345,070,958
    
    
    
    229,290,432
    
    
    
    77,520,305
    
    
    
    1,298,329,761Gap by period
    
    $
    (105,507,017
    )
    
    
    (144,711,074
    )
    
    
    408,006,769
    
    
    
    (3,782,170
    )
    
    
    154,006,508Cumulative gap
    
    $
    (105,507,017
    )
    
    
    (250,218,091
    )
    
    
    157,788,678
    
    
    
    154,006,508
    
    
    
    154,006,508Ratio of interest-sensitive assets to interest-
sensitive liabilities
    
    
    0.84
    x
    
    
    0.58
    x
    
    
    2.78
    x
    
    
    0.95
    x
    
    
    1.12
    xCumulative ratio of interest-sensitive assets tointerest-sensitive liabilities
    
    
    0.84
    x
    
    
    0.75
    x
    
    
    1.13
    x
    
    
    1.12
    x
    
    
    1.12
    x
  36




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##### Table of Contents



Part I  Item 4T  Controls and Procedures
     
 PART II  OTHER INFORMATION
 
 Part II  Item 1  Legal Proceedings
  
 Part II  Item 1A  Risk Factors
  
 Part II  Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Part II  Item 3  Defaults Upon Senior Securities
  
 Part II  Item 4  Submission of Matters to a Vote of Security Holders
  37




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##### Table of Contents



Part II  Item 5  Other Information
 (a)
    
    None.(b)
    
    There have been no material changes to the procedures by which security holders may recommend
nominees to the Companys Board of Directors implemented during the period covered by this
Quarterly Report on Form 10-Q.
 
 Part II  Item 6  Exhibits
 ExhibitNumber
    
    Description31.1
    
    Chief Executive Officers Certification pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Chief Financial Officers Certification pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Chief Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 SIGNATURES
  RELIANCE BANCSHARES, INC.By:
    /s/ Jerry S. Von RohrJerry S. Von RohrChief Executive OfficerBy:
    /s/ Dale E. OberkfellDale E. OberkfellChief Financial Officer  38