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 June 30, 2010
 
 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
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    43-1823071
(IRS Employer
Identification No.)10401 Clayton Road 
Frontenac, Missouri
(Address of Principal Executive Offices)
    
    63131
(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 StatementsCondensed Consolidated Balance Sheets (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)
    
    
    4Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
    
    
    5Condensed Consolidated Statements of Stockholders Equity (Unaudited)
    
    
    6Condensed Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. 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
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. [Removed and Reserved]
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    40
 2




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##### 



PART I  FINANCIAL INFORMATION
 Part I  Item 1  Financial Statements
 RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 
 June 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2009ASSETSCash and due from banks
    
    $
    12,776,906
    
    
    
    10,401,682
    
    
    
    11,928,668Interest-earning deposits in other financial institutions
    
    
    17,563,040
    
    
    
    648,192
    
    
    
    15,767,862Federal funds sold
    
    
    144,000
    
    
    
    
    
    
    
    Investments in available-for-sale debt securities, at fair value
    
    
    263,575,008
    
    
    
    238,868,535
    
    
    
    284,119,556Loans
    
    
    1,066,898,802
    
    
    
    1,223,632,245
    
    
    
    1,140,881,275Less  Deferred loan fees / costs
    
    
    (36,507
    )
    
    
    (217,965
    )
    
    
    (84,741
    )Reserve for possible loan losses
    
    
    (36,163,403
    )
    
    
    (24,044,510
    )
    
    
    (32,221,569
    )Net loans
    
    
    1,030,698,892
    
    
    
    1,199,369,770
    
    
    
    1,108,574,965Premises and equipment, net
    
    
    41,157,221
    
    
    
    43,252,496
    
    
    
    42,210,536Accrued interest receivable
    
    
    4,459,133
    
    
    
    5,752,059
    
    
    
    5,647,887Other real estate owned
    
    
    36,319,932
    
    
    
    16,341,216
    
    
    
    29,085,943Identifiable intangible assets, net of accumulated amortization of
$115,373, $99,085 and $107,229 at June 30, 2010 and 2009,
and December 31, 2009, respectively
    
    
    128,946
    
    
    
    145,234
    
    
    
    137,090Goodwill
    
    
    1,149,192
    
    
    
    1,149,192
    
    
    
    1,149,192Other assets
    
    
    39,903,192
    
    
    
    21,766,041
    
    
    
    38,085,885$
    1,447,875,462
    
    
    
    1,537,694,417
    
    
    
    1,536,707,584LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing
    
    $
    63,683,728
    
    
    
    64,230,082
    
    
    
    71,829,581Interest-bearing
    
    
    1,113,423,878
    
    
    
    1,143,341,051
    
    
    
    1,194,230,616Total deposits
    
    
    1,177,107,606
    
    
    
    1,207,571,133
    
    
    
    1,266,060,197Short-term borrowings
    
    
    18,893,075
    
    
    
    15,675,440
    
    
    
    12,696,932Long-term Federal Home Loan Bank borrowings
    
    
    99,000,000
    
    
    
    136,000,000
    
    
    
    104,000,000Accrued interest payable
    
    
    1,759,664
    
    
    
    2,578,382
    
    
    
    2,194,952Other liabilities
    
    
    4,325,984
    
    
    
    4,025,320
    
    
    
    2,086,079Total liabilities
    
    
    1,301,086,329
    
    
    
    1,365,850,275
    
    
    
    1,387,038,160Commitments and contingenciesStockholders equity:Preferred stock, no par value; 2,000,000 shares authorized:Series A, 40,000 shares issued and outstanding
    
    
    40,000,000
    
    
    
    40,000,000
    
    
    
    40,000,000Series B, 2,000 shares issued and outstanding
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    2,000,000Series C, 535 and 300 shares issued and outstanding at June 30,
2010 and December 31, 2009, respectively
    
    
    535,000
    
    
    
    
    
    
    
    300,000Common stock, $0.25 par value; 40,000,000 shares authorized,
22,539,711, 20,770,781 and 20,972,091 shares issued and
outstanding at June 30, 2010, 2009, and December 31, 2009,
respectively
    
    
    5,634,928
    
    
    
    5,226,794
    
    
    
    5,243,023Subscriptions receivable
    
    
    (3,557,499
    )
    
    
    
    
    
    
    Surplus
    
    
    125,703,572
    
    
    
    122,507,257
    
    
    
    122,334,757Retained earnings
    
    
    (25,798,356
    )
    
    
    1,823,944
    
    
    
    (19,796,396
    )Accumulated other comprehensive income  net unrealized
holding gains (losses) on available-for-sale debt securities
    
    
    2,271,488
    
    
    
    286,147
    
    
    
    (411,960
    )Total stockholders equity
    
    
    146,789,133
    
    
    
    171,844,142
    
    
    
    149,669,424$
    1,447,875,462
    
    
    
    1,537,694,417
    
    
    
    1,536,707,584
  3




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##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income:Interest and fees on loans
    
    $
    14,671,909
    
    
    
    16,998,726
    
    
    
    30,123,935
    
    
    
    34,669,969Interest on debt securities:Taxable
    
    
    1,673,943
    
    
    
    1,961,004
    
    
    
    3,507,293
    
    
    
    3,916,989Exempt from Federal income taxes
    
    
    294,650
    
    
    
    310,178
    
    
    
    600,912
    
    
    
    650,231Interest on short-term investments
    
    
    15,988
    
    
    
    5,758
    
    
    
    32,543
    
    
    
    22,721Total interest income
    
    
    16,656,490
    
    
    
    19,275,666
    
    
    
    34,264,683
    
    
    
    39,259,910Interest expense:Interest on deposits
    
    
    5,464,530
    
    
    
    8,699,655
    
    
    
    11,255,119
    
    
    
    18,182,631Interest on short-term borrowings
    
    
    26,333
    
    
    
    47,251
    
    
    
    56,752
    
    
    
    307,539Interest on long-term Federal Home Loan
Bank borrowings
    
    
    955,082
    
    
    
    1,245,663
    
    
    
    1,924,001
    
    
    
    2,477,633Total interest expense
    
    
    6,445,945
    
    
    
    9,992,569
    
    
    
    13,235,872
    
    
    
    20,967,803Net interest income
    
    
    10,210,545
    
    
    
    9,283,097
    
    
    
    21,028,811
    
    
    
    18,292,107Provision for possible loan losses
    
    
    9,628,000
    
    
    
    14,000,000
    
    
    
    17,320,000
    
    
    
    16,250,000Net interest income after provision
for possible loan losses
    
    
    582,545
    
    
    
    (4,716,903
    )
    
    
    3,708,811
    
    
    
    2,042,107Noninterest income:Service charges on deposit accounts
    
    
    235,836
    
    
    
    240,879
    
    
    
    460,312
    
    
    
    448,517Net gains (losses) on sales of debt
securities
    
    
    201,069
    
    
    
    (241
    )
    
    
    265,760
    
    
    
    (241
    )Other noninterest income
    
    
    348,689
    
    
    
    422,880
    
    
    
    714,104
    
    
    
    750,012Total noninterest income
    
    
    785,594
    
    
    
    663,518
    
    
    
    1,440,176
    
    
    
    1,198,288Noninterest expense:Salaries and employee benefits
    
    
    3,223,969
    
    
    
    3,435,246
    
    
    
    6,488,951
    
    
    
    7,315,701Other real estate expense
    
    
    1,222,042
    
    
    
    1,452,500
    
    
    
    2,595,829
    
    
    
    1,762,163Occupancy and equipment expense
    
    
    1,074,211
    
    
    
    1,086,386
    
    
    
    2,161,230
    
    
    
    2,212,318FDIC assessment
    
    
    754,397
    
    
    
    1,157,449
    
    
    
    1,538,915
    
    
    
    1,660,982Data processing
    
    
    377,037
    
    
    
    519,679
    
    
    
    809,580
    
    
    
    994,353Writedown of investment securities
    
    
    57,817
    
    
    
    146,078
    
    
    
    57,817
    
    
    
    146,078Advertising
    
    
    16,859
    
    
    
    28,192
    
    
    
    35,751
    
    
    
    175,502Amortization of intangible assets
    
    
    4,072
    
    
    
    4,072
    
    
    
    8,144
    
    
    
    8,144Other noninterest expenses
    
    
    833,526
    
    
    
    868,459
    
    
    
    1,622,224
    
    
    
    1,663,952Total noninterest expense
    
    
    7,563,930
    
    
    
    8,698,061
    
    
    
    15,318,441
    
    
    
    15,939,193Loss before applicable income taxes
    
    
    (6,195,791
    )
    
    
    (12,751,446
    )
    
    
    (10,169,454
    )
    
    
    (12,698,798
    )Applicable income tax benefit
    
    
    (2,692,536
    )
    
    
    (4,378,551
    )
    
    
    (4,167,494
    )
    
    
    (4,416,777
    )Net loss
    
    $
    (3,503,255
    )
    
    
    (8,372,895
    )
    
    
    (6,001,960
    )
    
    
    (8,282,021
    )Per share amounts:Basic loss per share
    
    $
    (0.17
    )
    
    
    (0.40
    )
    
    
    (0.28
    )
    
    
    (0.40
    )Basic weighted average shares outstanding
    
    
    21,221,753
    
    
    
    20,855,898
    
    
    
    21,097,611
    
    
    
    20,801,385Diluted loss per share
    
    $
    (0.17
    )
    
    
    (0.40
    )
    
    
    (0.28
    )
    
    
    (0.40
    )Diluted weighted average shares outstanding
    
    
    21,221,753
    
    
    
    20,859,102
    
    
    
    21,097,611
    
    
    
    20,839,274
  4




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##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    2010
    
    
    2009Net loss
    
    $
    (6,001,960
    )
    
    
    (8,282,021
    )Other comprehensive income before tax  net unrealized gains
on available-for-sale securities
    
    
    4,273,773
    
    
    
    446,222Reclassification adjustments for:Available-for-sale security losses (gains) included in net loss
    
    
    (265,760
    )
    
    
    241Writedown of investment securities included in net loss
    
    
    57,817
    
    
    
    146,078Other comprehensive income before tax
    
    
    4,065,830
    
    
    
    592,541Income tax related to items of other comprehensive income
    
    
    1,382,382
    
    
    
    201,464Other comprehensive income, net of tax
    
    
    2,683,448
    
    
    
    391,077Total comprehensive loss
    
    $
    (3,318,512
    )
    
    
    (7,890,944
    )
  5




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##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 Accumulatedother
    
    
    TotalPreferred
    
    
    Common
    
    
    Subscriptions
    
    
    
    
    
    
    Retained
    
    
    Treasury
    
    
    comprehensive
    
    
    stockholders'stock
    
    
    stock
    
    
    receivable
    
    
    Surplus
    
    
    earnings
    
    
    stock
    
    
    (loss) income
    
    
    equityBalance at December 31, 2008
    
    $
    
    
    
    
    5,192,696
    
    
    
    
    
    
    
    124,193,318
    
    
    
    10,663,076
    
    
    
    (335,280
    )
    
    
    (104,930
    )
    
    
    139,608,880Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,282,021
    )
    
    
    
    
    
    
    
    
    
    
    (8,282,021
    )Issuance of 40,000 shares of
Series A preferred stock
    
    
    40,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000,000Issuance of 2,000.02 shares of
Series B preferred stock
    
    
    2,000,000
    
    
    
    
    
    
    
    
    
    
    
    (2,000,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557,111
    )
    
    
    
    
    
    
    
    
    
    
    (557,111
    )Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,271
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,271
    )Stock options exercised -
156,000 shares (19,604 from
treasury)
    
    
    
    
    
    
    34,098
    
    
    
    
    
    
    
    210,485
    
    
    
    
    
    
    
    158,416
    
    
    
    
    
    
    
    402,999Treasury stock purchased -
10,000 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Issuance of stock in connection
with employee stock purchase
plan  14,910 shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163,039
    )
    
    
    
    
    
    
    216,864
    
    
    
    
    
    
    
    53,825Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268,764Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000Change in valuation of available
for-sale-securities, net of
related tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    391,077
    
    
    
    391,077Balance at June 30, 2009
    
    $
    42,000,000
    
    
    
    5,226,794
    
    
    
    
    
    
    
    122,507,257
    
    
    
    1,823,944
    
    
    
    
    
    
    
    286,147
    
    
    
    171,844,142Balance at December 31, 2009
    
    
    42,300,000
    
    
    
    5,243,023
    
    
    
    
    
    
    
    122,334,757
    
    
    
    (19,796,396
    )
    
    
    
    
    
    
    (411,960
    )
    
    
    149,669,424Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,001,960
    )
    
    
    
    
    
    
    
    
    
    
    (6,001,960
    )Subscriptions received for
1,551,517 shares of common
stock
    
    
    
    
    
    
    387,879
    
    
    
    (4,654,551
    )
    
    
    4,266,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments received for
subscription receivable
    
    
    
    
    
    
    
    
    
    
    1,097,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097,052Issuance of 235 shares of
Series C preferred stock
    
    
    235,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235,000Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,100,142
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,100,142
    )Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,653
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,653
    )Issuance of stock in connection
with employee stock purchase
plan - 16,103 shares
    
    
    
    
    
    
    4,026
    
    
    
    
    
    
    
    31,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,491Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,412Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,061
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,061change in valuation of
available-for-sale
securities,
net of related tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,683,448
    
    
    
    2,683,448Balance at June 30, 2010
    
    $
    42,535,000
    
    
    
    5,634,928
    
    
    
    (3,557,499
    )
    
    
    125,703,572
    
    
    
    (25,798,356
    )
    
    
    
    
    
    
    2,271,488
    
    
    
    146,789,133
  6




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (6,001,960
    )
    
    
    (8,282,021
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    1,843,271
    
    
    
    2,535,806Provision for possible loan losses
    
    
    17,320,000
    
    
    
    16,250,000Net (gains) losses on sales and writedowns of debt securities
    
    
    (207,943
    )
    
    
    146,319Net gain on sale of premises and equipment
    
    
    
    
    
    
    (10,809
    )Net losses on sales and writedowns of other real estate owned
    
    
    1,503,964
    
    
    
    1,289,359Stock option compensation cost
    
    
    169,412
    
    
    
    268,764Amortization of restricted stock expense
    
    
    29,061
    
    
    
    15,000Mortgage loans originated for sale in the secondary market
    
    
    (8,280,847
    )
    
    
    (28,241,565
    )Mortgage loans sold in secondary market
    
    
    8,113,447
    
    
    
    28,726,594Decrease (increase) in accrued interest receivable
    
    
    1,188,754
    
    
    
    (327,951
    )Decrease in accrued interest payable
    
    
    (435,288
    )
    
    
    (1,326,559
    )Other operating activities, net
    
    
    (959,784
    )
    
    
    (4,402,317
    )Net cash provided by operating activities
    
    
    14,282,087
    
    
    
    6,640,620Cash flows from investing activities:Purchase of available-for-sale debt securities
    
    
    (85,748,544
    )
    
    
    (159,923,841
    )Proceeds from maturities and issuer calls of available-for-sale debt securities
    
    
    94,126,644
    
    
    
    112,732,816Proceeds from sales of available-for-sale debt securities
    
    
    15,672,280
    
    
    
    1,228,825Net decrease in loans
    
    
    48,384,734
    
    
    
    20,758,318Proceeds from sale of other real estate owned
    
    
    3,600,786
    
    
    
    999,866Construction expenditures to finish other real estate owned
    
    
    
    
    
    
    (13,786
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    35,179Purchase of premises and equipment
    
    
    (13,871
    )
    
    
    (276,960
    )Net cash provided by (used in) investing activities
    
    
    76,022,029
    
    
    
    (24,459,583
    )Cash flows form financing activities:Net decrease in deposits
    
    
    (88,952,591
    )
    
    
    (20,476,166
    )Net increase (decrease) in short-term borrowings
    
    
    6,196,143
    
    
    
    (48,243,404
    )Payments of long-term Federal Home Loan Bank borrowings
    
    
    (5,000,000
    )
    
    
    Issuance of preferred stock
    
    
    235,000
    
    
    
    40,000,000Dividends on preferred stock
    
    
    (1,100,142
    )
    
    
    (557,111
    )Issuance of common stock
    
    
    1,132,543
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (40,000
    )Proceeds from sale of treasury stock
    
    
    
    
    
    
    53,825Stock options exercised
    
    
    
    
    
    
    402,999Payment of stock issuance costs
    
    
    (27,653
    )
    
    
    (17,271
    )Net cash used in financing activities
    
    
    (87,516,700
    )
    
    
    (28,877,128
    )Net increase (decrease) in cash and cash equivalents
    
    
    2,787,416
    
    
    
    (46,696,091
    )Cash and cash equivalents at beginning of period
    
    
    27,696,530
    
    
    
    57,745,965Cash and cash equivalents at end of period
    
    $
    30,483,946
    
    
    
    11,049,874Supplemental information:Cash paid for:Interest
    
    $
    13,671,160
    
    
    
    22,294,362Cash received from:Income tax refunds
    
    
    248,494
    
    
    
    Noncash transactions:Warrant exercise and issuance of Series B preferred stock
    
    
    
    
    
    
    2,000,000Transfers to other real estate in settlement of loans
    
    
    12,709,989
    
    
    
    3,478,995Loans made to facilitate the sale of other real estate
    
    
    371,250
    
    
    
    151,510
  7




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      Principles of Consolidation
  Basis of Accounting
  Cash Flow Information
  Stock Issuance Costs
  8




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  Subsequent Events
  Earnings per Share
  Three-Months Ended June 30,
    
    
    Six-Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009BasicNet loss
    
    $
    (3,503,255
    )
    
    
    (8,372,895
    )
    
    
    (6,001,960
    )
    
    
    (8,282,021
    )Weighted average common
shares outstanding
    
    
    21,221,753
    
    
    
    20,855,898
    
    
    
    21,097,611
    
    
    
    20,801,385Basic loss per share
    
    $
    (0.17
    )
    
    
    (0.40
    )
    
    
    (0.28
    )
    
    
    (0.40
    )DilutedNet loss
    
    $
    (3,503,255
    )
    
    
    (8,372,895
    )
    
    
    (6,001,960
    )
    
    
    (8,282,021
    )Weighted average common
shares outstanding
    
    
    21,221,753
    
    
    
    20,855,898
    
    
    
    21,097,611
    
    
    
    20,801,385Effect of dilutive stock options
    
    
    
    
    
    
    3,204
    
    
    
    
    
    
    
    37,889Diluted weighted average common
shares outstanding
    
    
    21,221,753
    
    
    
    20,859,102
    
    
    
    21,097,611
    
    
    
    20,839,274Diluted loss per share
    
    $
    (0.17
    )
    
    
    (0.40
    )
    
    
    (0.28
    )
    
    
    (0.40
    )
 NOTE 2  INTANGIBLE ASSETS
   NOTE 3  STOCK OPTIONS
   9




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    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 SharesSix-Months Ended June 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
    )
    
    
    15.49
    
    
    
    (9,667
    )Exercised
    
    
    2.58
    
    
    
    (156,000
    )
    
    
    
    
    
    
    Balance at June 30, 2009
    
    $
    8.07
    
    
    
    1,434,700
    
    
    $
    8.34
    
    
    
    663,833Six-Months Ended June 30, 2010:Balance at December 31, 2009
    
    $
    8.05
    
    
    
    1,424,450
    
    
    $
    8.41
    
    
    
    666,816Forfeited
    
    
    10.86
    
    
    
    (17,250
    )
    
    
    10.53
    
    
    
    (20,816
    )Balance at June 30, 2010
    
    $
    8.02
    
    
    
    1,407,200
    
    
    $
    8.34
    
    
    
    646,000
   WeightedAverageGrant DateShares
    
    
    Fair ValueNonvested at December 31, 2009
    
    
    271,198
    
    
    $
    2.09Granted
    
    
    
    
    
    
    Vested
    
    
    (125,157
    )
    
    
    2.54Forfeited
    
    
    (4,250
    )
    
    
    1.14Nonvested at June 30, 2010
    
    
    141,791
    
    
    
    1.72
  10




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  NOTE 4  DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
   Financial instruments for which
contractual amounts represent:Commitments to extend credit
    
    $
    113,380,599Standby letters of credit
    
    
    12,609,055$
    125,989,654
    Carrying
    
    
    Estimatedamount
    
    
    fair valueBalance sheet assets:Cash and due from banks
    
    $
    30,339,946
    
    
    $
    30,339,946Federal funds sold
    
    
    144,000
    
    
    
    144,000Investments in debt securities
    
    
    263,575,008
    
    
    
    263,575,008Loans, net
    
    
    1,030,698,892
    
    
    
    1,044,242,297Accrued interest receivable
    
    
    4,459,133
    
    
    
    4,459,133$
    1,329,216,979
    
    
    $
    1,342,760,384Balance sheet liabilities:Deposits
    
    $
    1,177,107,606
    
    
    $
    1,185,987,845Short-term borrowings
    
    
    18,893,075
    
    
    
    18,893,075Long-term FederalHome Loan Bank borrowings
    
    
    99,000,000
    
    
    
    119,365,338Accrued interest payable
    
    
    1,759,664
    
    
    
    1,759,664$
    1,296,760,345
    
    
    $
    1,326,005,922
 11




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   
    
    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.
  Cash and Other Short-Term Instruments 
 Investments in Available-For-Sale Debt Securities
 12




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   Balance, at fair value on December 31, 2009
    
    $
    1,237,737Decrease in fair value
    
    
    (1,241
    )Impairment writedowns
    
    
    (57,817
    )Accreted discount
    
    
    932Payments in kind
    
    
    11,407Principal payments received
    
    
    (4,082
    )Balance, at fair value on June 30, 2010
    
    $
    1,186,936
 Loans
 Deposits 
 Long-Term Borrowings 
 Commitments to Extend Credit and Standby Letters of Credit 
 13




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   QuotedPrices inActive


    SignificantMarkets for


    Other
    
    SignificantIdentical


    Observable
    
    ObservableAssets


    Inputs
    
    Inputs
    
    Total Fair(Level 1)


    (Level 2)
    
    (Level 3)
    
    ValueAssetsInvestment Securities:U.S. government sponsored agency obligations
    
    $
    

    $
    102,740,520
    
    
    $
    
    
    
    $
    102,740,520State and municipal securities
    
       $
    

    
    28,899,845
    
    
    
    
    
    
    
    28,899,845Other debt securities
    
       $
    

    
    
    
    
    
    1,186,936
    
    
    
    1,186,936Mortgage-backed securities
    
       $
    

    
    130,747,707
    
    
    
    
    
    
    
    130,747,707Total Investment Securities available for sale
    
    $
    

    $
    262,388,072
    
    
    $
    1,186,936
    
    
    $
    263,575,008
  14




---



##### 



Part I  Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
   Forward-Looking Statements
  Overview
     15




---



##### 



16




---



##### 



As of and for the
    
    As of and for thesix months ended June 30,
    
    quarters ended June 30,2010
    
    2009
    
    2010
    
    2009Percentage of net loss to:Average total assets
    
    
    (0.81
    )%
    
    
    (1.05
    )%
    
    
    (0.96
    )%
    
    
    (2.12
    )%Average stockholders equity
    
    
    (8.10
    )%
    
    
    (9.79
    )%
    
    
    (9.48
    )%
    
    
    (18.58
    )%Percentage of common dividends
declared to net income per common
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentage of average stockholders
equity to average total assets
    
    
    10.05
    %
    
    
    10.70
    %
    
    
    10.13
    %
    
    
    11.43
    %
 Critical Accounting Policies
  17




---



##### 



Results of Operations for the Three and Six-Month Periods Ended June 30, 2010 and 2009
        18




---



##### 



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Average deposits:Noninterest-bearing
    
    
    4.45
    %
    
    
    4.31
    %
    
    
    4.58
    %
    
    
    4.16
    %Interest-bearing:Transaction accounts
    
    
    17.75
    
    
    
    12.27
    
    
    
    17.41
    
    
    
    11.68Savings
    
    
    24.97
    
    
    
    17.52
    
    
    
    24.23
    
    
    
    15.00Time deposits of $100,000 or more
    
    
    18.80
    
    
    
    23.32
    
    
    
    19.41
    
    
    
    24.28Other time deposits
    
    
    25.26
    
    
    
    31.51
    
    
    
    25.65
    
    
    
    33.23Total average interest-bearing deposits
    
    
    86.78
    
    
    
    84.62
    
    
    
    86.70
    
    
    
    84.19Total average deposits
    
    
    91.23
    
    
    
    88.93
    
    
    
    91.28
    
    
    
    88.35Average short-term borrowings
    
    
    1.20
    
    
    
    1.31
    
    
    
    1.11
    
    
    
    2.05Average longer-term advances from Federal Home Loan Bank
    
    
    7.57
    
    
    
    9.76
    
    
    
    7.61
    
    
    
    9.60100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  19




---



##### 



Amount of Increase (Decrease)Second Quarter
    
    
    First Six MonthsChange From 2009 to 2010 Due toYield/
    
    
    
    
    
    
    
    
    
    
    Yield/Volume (1)
    
    
    Rate (2)
    
    
    Total
    
    
    Volume (1)
    
    
    Rate (2)
    
    
    TotalInterest income:Loans
    
    $
    (1,905,226
    )
    
    
    (421,625
    )
    
    
    (2,326,851
    )
    
    
    (3,581,237
    )
    
    
    (964,693
    )
    
    
    (4,545,930
    )Investment securities:Taxable
    
    
    (75,974
    )
    
    
    (211,087
    )
    
    
    (287,061
    )
    
    
    (8,086
    )
    
    
    (401,610
    )
    
    
    (409,696
    )Exempt from Federal income taxes
    
    
    (20,193
    )
    
    
    10,269
    
    
    
    (9,924
    )
    
    
    (68,533
    )
    
    
    28,993
    
    
    
    (39,540
    )Short-term investments
    
    
    8,427
    
    
    
    1,803
    
    
    
    10,230
    
    
    
    7,021
    
    
    
    2,801
    
    
    
    9,822Total interest income
    
    
    (1,992,966
    )
    
    
    (620,640
    )
    
    
    (2,613,606
    )
    
    
    (3,650,835
    )
    
    
    (1,334,509
    )
    
    
    (4,985,344
    )Interest expense:Interest-bearing transaction accounts
    
    
    167,208
    
    
    
    (181,657
    )
    
    
    (14,449
    )
    
    
    372,938
    
    
    
    (437,015
    )
    
    
    (64,077
    )Savings accounts
    
    
    462,029
    
    
    
    (1,172,763
    )
    
    
    (710,734
    )
    
    
    1,145,343
    
    
    
    (2,107,859
    )
    
    
    (962,516
    )Time deposits of $100,000 or more
    
    
    (551,054
    )
    
    
    (514,933
    )
    
    
    (1,065,987
    )
    
    
    (1,215,967
    )
    
    
    (1,236,425
    )
    
    
    (2,452,392
    )Other time deposits
    
    
    (859,758
    )
    
    
    (584,197
    )
    
    
    (1,443,955
    )
    
    
    (2,058,885
    )
    
    
    (1,389,642
    )
    
    
    (3,448,527
    )Total deposits
    
    
    (781,575
    )
    
    
    (2,453,550
    )
    
    
    (3,235,125
    )
    
    
    (1,756,571
    )
    
    
    (5,170,941
    )
    
    
    (6,927,512
    )Funds purchased and securities sold
under repurchase agreements
    
    
    (5,857
    )
    
    
    (15,061
    )
    
    
    (20,918
    )
    
    
    (108,946
    )
    
    
    (141,841
    )
    
    
    (250,787
    )Long-term borrowings
    
    
    (355,082
    )
    
    
    64,501
    
    
    
    (290,581
    )
    
    
    (657,346
    )
    
    
    103,714
    
    
    
    (553,632
    )Total interest expense
    
    
    (1,142,514
    )
    
    
    (2,404,110
    )
    
    
    (3,546,624
    )
    
    
    (2,522,863
    )
    
    
    (5,209,068
    )
    
    
    (7,731,931
    )Net interest income (loss)
    
    $
    (850,452
    )
    
    
    1,783,470
    
    
    
    933,018
    
    
    
    (1,127,972
    )
    
    
    3,874,559
    
    
    
    2,746,587
 
 (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.
     20




---



##### 



21




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Loss before income taxes
    
    $
    (6,195,791
    )
    
    $
    (12,751,446
    )
    
    $
    (10,169,454
    )
    
    $
    (12,698,798
    )Other real estate expense
    
    
    1,222,042
    
    
    
    1,452,500
    
    
    
    2,595,829
    
    
    
    1,762,163Losses (gains) on sales and writedown
of securities
    
    
    (143,252
    )
    
    
    146,319
    
    
    
    (207,943
    )
    
    
    146,319FDIC special assessment
    
    
    
    
    
    
    693,520
    
    
    
    
    
    
    
    693,520Provision for loan losses
    
    
    9,628,000
    
    
    
    14,000,000
    
    
    
    17,320,000
    
    
    
    16,250,000Pre-tax core earnings
    
    $
    4,510,999
    
    
    $
    3,540,893
    
    
    $
    9,538,432
    
    
    $
    6,153,204
 Financial Condition
       22




---



##### 



Six Months Ended June 30, 2010Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,107,753,561
    
    
    
    74.54
    %
    
    $
    30,135,515
    
    
    
    5.49
    %Investment securities:Taxable
    
    
    225,075,692
    
    
    
    15.15
    
    
    
    3,507,293
    
    
    
    3.14Exempt from Federal income taxes (3)
    
    
    29,062,615
    
    
    
    1.96
    
    
    
    854,936
    
    
    
    5.93Short-term investments
    
    
    32,129,667
    
    
    
    2.16
    
    
    
    32,543
    
    
    
    0.20Total earning assets
    
    
    1,394,021,535
    
    
    
    93.81
    
    
    
    34,530,287
    
    
    
    5.00Nonearning assets:Cash and due from banks
    
    
    5,368,062
    
    
    
    0.36Reserve for possible loan losses
    
    
    (33,231,280
    )
    
    
    (2.24
    )Premises and equipment
    
    
    41,758,240
    
    
    
    2.81Other assets
    
    
    76,538,934
    
    
    
    5.15Available-for-sale investment market
valuation
    
    
    1,648,445
    
    
    
    0.11Total nonearning assets
    
    
    92,082,401
    
    
    
    6.19Total assets
    
    $
    1,486,103,936
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilities:Interest-bearing transaction accounts
    
    $
    231,733,363
    
    
    
    15.60
    
    
    
    1,080,184
    
    
    
    0.94Savings
    
    
    322,525,828
    
    
    
    21.70
    
    
    
    2,050,543
    
    
    
    1.28Time deposits of $100,000 or more
    
    
    258,419,981
    
    
    
    17.39
    
    
    
    3,141,889
    
    
    
    2.45Other time deposits
    
    
    341,387,357
    
    
    
    22.97
    
    
    
    4,982,503
    
    
    
    2.94Total interest-bearing deposits
    
    
    1,154,066,529
    
    
    
    77.66
    
    
    
    11,255,119
    
    
    
    1.97Long term borrowings
    
    
    101,231,183
    
    
    
    6.81
    
    
    
    1,924,001
    
    
    
    3.83Funds purchased and securities sold under
repurchase agreements
    
    
    14,752,435
    
    
    
    0.99
    
    
    
    56,752
    
    
    
    0.78Total interest-bearing liabilities
    
    
    1,270,050,147
    
    
    
    85.46
    
    
    
    13,235,872
    
    
    
    2.10Noninterest-bearing deposits
    
    
    60,997,297
    
    
    
    4.11Other liabilities
    
    
    5,657,239
    
    
    
    0.38Total liabilities
    
    
    1,336,704,683
    
    
    
    89.95STOCKHOLDERS EQUITY
    
    
    149,399,253
    
    
    
    10.05Total liabilities and
stockholders equity
    
    $
    1,486,103,936
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    21,294,415Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.08
    %
  23




---



##### 



Six Months Ended June 30, 2009Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,237,889,511
    
    
    
    77.64
    %
    
    $
    34,681,445
    
    
    
    5.65
    %Investment securities:Taxable
    
    
    225,542,795
    
    
    
    14.15
    
    
    
    3,916,989
    
    
    
    3.50Exempt from Federal income taxes (3)
    
    
    31,421,568
    
    
    
    1.97
    
    
    
    894,476
    
    
    
    5.74Short-term investments
    
    
    25,130,395
    
    
    
    1.58
    
    
    
    22,721
    
    
    
    0.18Total earning assets
    
    
    1,519,984,269
    
    
    
    95.34
    
    
    
    39,515,631
    
    
    
    5.24Nonearning assets:Cash and due from banks
    
    
    5,585,542
    
    
    
    0.35Reserve for possible loan losses
    
    
    (14,481,582
    )
    
    
    (0.91
    )Premises and equipment
    
    
    43,775,796
    
    
    
    2.75Other assets
    
    
    38,965,946
    
    
    
    2.44Available-for-sale investment market valuation
    
    
    483,384
    
    
    
    0.03Total nonearning assets
    
    
    74,329,086
    
    
    
    4.66Total assets
    
    $
    1,594,313,355
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilities:Interest-bearing transaction accounts
    
    
    165,461,647
    
    
    
    10.38
    %
    
    
    1,144,261
    
    
    
    1.39Savings
    
    
    212,492,074
    
    
    
    13.33
    
    
    
    3,013,059
    
    
    
    2.86Time deposits of $100,000 or more
    
    
    344,037,916
    
    
    
    21.58
    
    
    
    5,594,281
    
    
    
    3.28Other time deposits
    
    
    470,864,426
    
    
    
    29.53
    
    
    
    8,431,030
    
    
    
    3.61Total interest-bearing deposits
    
    
    1,192,856,063
    
    
    
    74.82
    
    
    
    18,182,631
    
    
    
    3.07Long term borrowings
    
    
    136,000,000
    
    
    
    8.53
    
    
    
    2,477,633
    
    
    
    3.67Funds purchased and securities sold under
repurchase agreements
    
    
    28,894,011
    
    
    
    1.81
    
    
    
    307,539
    
    
    
    2.15Total interest-bearing liabilities
    
    
    1,357,750,074
    
    
    
    85.16
    
    
    
    20,967,803
    
    
    
    3.11Noninterest-bearing deposits
    
    
    58,981,144
    
    
    
    3.70Other liabilities
    
    
    6,951,446
    
    
    
    0.44Total liabilities
    
    
    1,423,682,664
    
    
    
    89.30STOCKHOLDERS EQUITY
    
    
    170,630,691
    
    
    
    10.70Total liabilities and stockholders equity
    
    $
    1,594,313,355
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    18,547,828Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.46
    %
  24




---



##### 



Quarter Ended June 30, 2010Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,090,087,275
    
    
    
    74.55
    %
    
    $
    14,677,482
    
    
    
    5.40
    %Investment securities:Taxable
    
    
    219,279,697
    
    
    
    15.00
    
    
    
    1,673,943
    
    
    
    3.06Exempt from Federal income taxes (3)
    
    
    28,508,567
    
    
    
    1.95
    
    
    
    419,474
    
    
    
    5.90Short-term investments
    
    
    31,499,569
    
    
    
    2.15
    
    
    
    15,988
    
    
    
    0.20Total earning assets
    
    
    1,369,375,108
    
    
    
    93.65
    
    
    
    16,786,887
    
    
    
    4.92Nonearning assets:Cash and due from banks
    
    
    5,812,533
    
    
    
    0.40Reserve for possible loan losses
    
    
    (34,089,075
    )
    
    
    (2.33
    )Premises and equipment
    
    
    41,495,707
    
    
    
    2.84Other assets
    
    
    77,389,385
    
    
    
    5.29Available-for-sale investment market
valuation
    
    
    2,164,175
    
    
    
    0.15Total nonearning assets
    
    
    92,772,725
    
    
    
    6.35Total assets
    
    $
    1,462,147,833
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    232,208,960
    
    
    
    15.88
    
    
    
    534,575
    
    
    
    0.92Savings
    
    
    326,591,959
    
    
    
    22.34
    
    
    
    1,026,262
    
    
    
    1.26Time deposits of $100,000 or more
    
    
    245,914,015
    
    
    
    16.82
    
    
    
    1,501,777
    
    
    
    2.45Other time deposits
    
    
    330,319,633
    
    
    
    22.59
    
    
    
    2,401,916
    
    
    
    2.92Total interest-bearing deposits
    
    
    1,135,034,567
    
    
    
    77.63
    
    
    
    5,464,530
    
    
    
    1.93Long-term borrowings
    
    
    99,000,000
    
    
    
    6.77
    
    
    
    955,082
    
    
    
    3.87Funds purchased and securities sold under
repurchase agreements
    
    
    15,721,742
    
    
    
    1.08
    
    
    
    26,333
    
    
    
    0.67Total interest-bearing liabilities
    
    
    1,249,756,309
    
    
    
    85.48
    
    
    
    6,445,945
    
    
    
    2.07Noninterest-bearing deposits
    
    
    58,168,040
    
    
    
    3.98Other liabilities
    
    
    6,045,836
    
    
    
    0.41Total liabilities
    
    
    1,313,970,185
    
    
    
    89.87STOCKHOLDERS EQUITY
    
    
    148,177,648
    
    
    
    10.13Total liabilities and
stockholders equity
    
    $
    1,462,147,833
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    10,340,942Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.03
    %
  25




---



##### 



Quarter Ended June 30, 2009Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,230,614,589
    
    
    
    77.84
    %
    
    $
    17,004,333
    
    
    
    5.54
    %Investment securities:Taxable
    
    
    228,358,817
    
    
    
    14.44
    
    
    
    1,961,004
    
    
    
    3.44Exempt from Federal income taxes (3)
    
    
    29,892,810
    
    
    
    1.89
    
    
    
    429,398
    
    
    
    5.76Short-term investments
    
    
    14,523,829
    
    
    
    0.92
    
    
    
    5,758
    
    
    
    0.16Total earning assets
    
    
    1,503,390,045
    
    
    
    95.09
    
    
    
    19,400,493
    
    
    
    5.18
    %Nonearning assets:Cash and due from banks
    
    
    6,053,883
    
    
    
    0.38Reserve for possible loan losses
    
    
    (14,033,695
    )
    
    
    (0.89
    )Premises and equipment
    
    
    43,526,132
    
    
    
    2.75Other assets
    
    
    40,633,821
    
    
    
    2.58Available-for-sale investment market valuation
    
    
    1,362,916
    
    
    
    0.09Total nonearning assets
    
    
    77,543,057
    
    
    
    4.91Total assets
    
    $
    1,580,933,102
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    170,859,869
    
    
    
    10.81
    %
    
    
    549,024
    
    
    
    1.29
    %Savings
    
    
    244,049,100
    
    
    
    15.44
    
    
    
    1,736,996
    
    
    
    2.85Time deposits of $100,000 or more
    
    
    324,880,091
    
    
    
    20.55
    
    
    
    2,567,764
    
    
    
    3.17Other time deposits
    
    
    438,892,158
    
    
    
    27.76
    
    
    
    3,845,871
    
    
    
    3.51Total interest-bearing deposits
    
    
    1,178,681,218
    
    
    
    74.56
    
    
    
    8,699,655
    
    
    
    2.96Long term borrowings
    
    
    136,000,000
    
    
    
    8.60
    
    
    
    1,245,663
    
    
    
    3.67Funds purchased and securities sold under
repurchase agreements
    
    
    18,246,127
    
    
    
    1.15
    
    
    
    47,251
    
    
    
    1.04Total interest-bearing liabilities
    
    
    1,332,927,345
    
    
    
    84.31
    
    
    
    9,992,569
    
    
    
    3.01Noninterest-bearing deposits
    
    
    60,076,229
    
    
    
    3.80Other liabilities
    
    
    7,183,033
    
    
    
    0.46Total liabilities
    
    
    1,400,186,607
    
    
    
    88.57STOCKHOLDERS EQUITY
    
    
    180,746,495
    
    
    
    11.43Total liabilities and stockholders equity
    
    $
    1,580,933,102
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    9,407,924Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.51
    %
 
 (1)
    
    Interest includes loan fees, recorded as discussed in Note 1 to our consolidated financial
statements for the year ended December 31, 2009, included in our annual report on Form 10-K,
which was filed March 26, 2010.(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. 26




---



##### 



Risk Management
        27




---



##### 



Originated InFlorida
    
    
    All other
    
    
    TotalNet Charge-offs (quarter ended 6/30/10)
    
    $3.9 million
    
    $2.3 million
    
    $6.2 millionNet Charge-offs (quarter ended 6/30/09)
    
    $3.2 million
    
    $1.0 million
    
    $4.2 millionNonperforming Loans (6/30/2010)
    
    $22.6 million
    
    $71.3 million
    
    $93.9 millionNonperforming Loans (12/31/2009)
    
    $25.4 million
    
    $46.7 million
    
    $72.1 millionNonperforming Loans (6/30/2009)
    
    $52.4 million
    
    $21.1 million
    
    $73.5 millionNonperforming Assets* (6/30/2010)
    
    $42.9 million
    
    $87.3 million
    
    $130.2 millionNonperforming Assets* (12/31/2009)
    
    $44.5 million
    
    $56.7 million
    
    $101.2 millionNonperforming Assets* (6/30/2009)
    
    $59.6 million
    
    $30.2 million
    
    $89.8 millionOutstanding Loans Originated In
Respective Markets
    
    $69.3 million
    
    $998 million
    
    $1.067 billion
    
    
    A loan for approximately $1.4 million to a single purpose entity, secured by six improved
commercial lots in Florida. The Company has determined no mutually agreeable solution is
likely and is moving forward with foreclosure.
    
    A loan for approximately $1.5 million to a single purpose entity secured by unimproved
property in Florida that is in default. The Company has determined no mutually agreeable
solution is likely and is moving forward with foreclosure.
    
    A loan for approximately $1.5 million to two Florida investors for future commercial
development. Development has not started, as recent changes in FEMA flood maps have 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, which now include
action against Lee County, Florida for damages. The Company is attempting to join the suit as
plaintiff to protect its collateral interests.
    
    A loan for approximately $1.4 million to a single purpose entity controlled by a group of
investors that is in default. The loan is secured by a building and improved commercial lots
in Florida. The Company has been
 28




---



##### 



negotiating with the borrower and guarantors to develop a plan for the property with no
meaningful results. The Company is moving forward with foreclosure.
 
    
    A loan for approximately $2.0 million to an individual, secured by the individuals primary
residence in Florida, that is in default. The borrower entered into a forbearance agreement
but has now defaulted under that negotiated plan. Foreclosure proceedings have been initiated
again.
    
    A loan for approximately $4.0 million to a group of Florida investors secured by unimproved
property in Florida. After multiple quarters of performance by some of the guarantors,
payments have stopped and the parties have engaged counsel. The Company has initiated
foreclosure.
    
    A loan for approximately $2.9 million for ground development of a proposed commercial
retail strip center and self-storage facility in southwestern Florida. The entity was
established by an experienced real estate developer; however, with the deterioration of the
real estate market, the project did not begin construction, and the real estate downturn has
affected the cash flow of the guarantor. The Company is working with the borrower on a
strategy for repayment, resolution to the project, or obtaining a signed deed for the property
in lieu of foreclosure.
    
    A loan for approximately $13.1 million, secured by an individual warehouse in St. Louis,
Missouri. The loan is currently in forbearance as borrower restructures its business
operations. The warehouse is experiencing high vacancy.
    
    A loan totaling approximately $1.8 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
Company reached an agreement with the borrower to move the project forward with a new home
builder. The new builder has a good reputation and is qualified for the project. The Company
and the builder are developing a marketing plan to increase sales prospects.
    
    A $16.7 million loan to a commercial real estate developer in Houston, Texas. The loan is
secured by three office buildings and developed commercial land. The borrower recently
refinanced a tract of land that provided a principal loan reduction, payment of past due
interest and real estate taxes. Additionally, the borrower has another tract of ground that is
bank collateral under contract to a national home builder.
    
    A loan for approximately $4.0 million to a non-profit organization for the purchase of 482
acres and a 7,000 square foot residence in St. Louis, Missouri. The property is well located
in a natural setting that abuts a river. The nonprofit organization has experienced financial
setbacks, most notably a decline in contributions.
    
    A loan for approximately $4.5 million to a commercial real estate developer for the
development of a shopping center. The center has a long term lease in place with a grocery
store. The owner is actively marketing the center to get the vacant space leased.
    
    Loans totaling approximately $3.4 million to build out a day spa in Missouri. The spa was
paying as agreed until recently.
    
    A loan for approximately $1.1 million of a 30,000 sq. ft. office warehouse in St. Charles,
MO. The warehouse is partially occupied by the owner. The loan is secured by the building
and assignment of rents. The Company is working with the borrower on getting the past due
real estate taxes paid.
    
    A loan for approximately $3.0 million for the purchase of a 35,500 sq. ft. retail strip
center. The center has experienced high vacancy and slow leasing. Outside counsel has been
engaged for collection.
    
    A loan for approximately $5.0 million to a group of investors for the building of a hotel.
A few of the investors have been in the hotel industry for many years. Since opening, the
hotel has not been able to achieve expected occupancy levels. Foreclosure proceedings have
begun.
    
    A loan for approximately $1.6 million to a golf course in Florida. The course contains 342
acres with a club house, swimming pool, fitness center, and other amenities. The slow economy
in Florida has caused the borrower to have less than expected bookings for tee times and a
drop in membership. This is a Small Business Administration loan and the Company is working
with the SBA on liquidation of assets and legal action.
 29




---



##### 




    
    A loan for approximately $8.4 million to a commercial real estate developer for the
construction of medical office condominiums in Arizona. The loan is secured by 10.59 acres.
The borrower had a successful background in commercial real estate development and a strong
financial background. The development has been struggling with the recent economic conditions
but the Company is working with the borrower and watching the development closely.
    
    A loan for approximately $2.3 million for a 64,000 sq. ft. industrial warehouse that is
used as a sports complex. The owner operates indoor soccer and inline hockey throughout the
year. The Company is pursuing various collection opportunities.
  Balance at December 31, 2009
    
    $
    29,085,943Foreclosures
    
    
    12,709,989Loans made to facilitate sales of other
real estate
    
    
    (371,250
    )Cash proceeds from sales
    
    
    (3,600,786
    )Losses and writedowns
    
    
    (1,503,964
    )Balance at June 30, 2010
    
    $
    36,319,932
      
    
    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.
 30




---



##### 



Six-Month PeriodsEnded June 30,(in thousands of dollars)
    
    2010
    
    
    2009Average loans outstanding
    
    $
    1,107,754
    
    
    $
    1,237,890Reserve at beginning of year
    
    $
    32,221
    
    
    $
    14,306Provision for possible loan losses
    
    
    17,320
    
    
    
    16,25049,541
    
    
    
    30,556Charge-offs:Commercial loans:Real estate
    
    
    (4,758
    )
    
    
    (1,164
    )Other
    
    
    (27
    )
    
    
    (134
    )Real estate:Construction
    
    
    (8,256
    )
    
    
    (4,511
    )Residential
    
    
    (595
    )
    
    
    (1,176
    )Consumer
    
    
    (17
    )
    
    
    (21
    )Overdrafts
    
    
    
    
    
    
    (20
    )Total charge-offs
    
    
    (13,653
    )
    
    
    (7,026
    )Recoveries:Commercial loans:Real estate
    
    
    77
    
    
    
    29Other
    
    
    135
    
    
    
    1Real estate:Construction
    
    
    25
    
    
    
    353Residential
    
    
    30
    
    
    
    118Consumer
    
    
    8
    
    
    
    14Overdrafts
    
    
    
    
    
    
    Total recoveries
    
    
    275
    
    
    
    515Reserve at end of period
    
    $
    36,163
    
    
    $
    24,045Net charge-offs to average loans
    
    
    2.44
    %
    
    
    1.06
    %Ending reserve to net outstanding
loans at end of period
    
    
    3.39
    %
    
    
    1.97
    %
 31




---



##### 




    
    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.
    
    
    General economic and business conditions affecting our key lending areas;
    
    Credit quality trends (including trends in nonperforming 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.
    32




---



##### 




    
    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 Capital6/30/2010
    
    
    12/31/2009
    
    
    6/30/2009Construction, land development and other
other land loans
    
    
    93
    %
    
    
    112
    %
    
    
    98
    %Nonfarm nonresidential:Owner occupied
    
    
    136
    %
    
    
    112
    %
    
    
    73
    %Non-owner occupied
    
    
    341
    %
    
    
    340
    %
    
    
    303
    %1-4 family closed end loans
    
    
    43
    %
    
    
    40
    %
    
    
    38
    %Multi-family
    
    
    84
    %
    
    
    86
    %
    
    
    68
    %Other
    
    
    23
    %
    
    
    22
    %
    
    
    18
    %
 33




---



##### 



Liquidity and Capital Resources
     34




---



##### 



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
    
    $
    135,056
    
    
    
    11.14
    %
    
    $
    96,966
    
    
    
    38.0
    %
    
    
    N/A
    
    
    
    N/AReliance Bank
    
    
    117,806
    
    
    
    10.25
    %
    
    
    91,915
    
    
    
    38.0
    %
    
    
    114,894
    
    
    
    310.0
    %Reliance Bank, FSB
    
    
    10,676
    
    
    
    14.75
    %
    
    
    5,790
    
    
    
    38.0
    %
    
    
    7,238
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted
assets)Consolidated
    
    
    119,111
    
    
    
    9.83
    %
    
    
    48,483
    
    
    
    34.0
    %
    
    
    N/A
    
    
    
    N/AReliance Bank
    
    
    103,256
    
    
    
    8.99
    %
    
    
    45,957
    
    
    
    34.0
    %
    
    
    68,936
    
    
    
    36.0
    %Reliance Bank, FSB
    
    
    9,734
    
    
    
    13.45
    %
    
    
    2,895
    
    
    
    34.0
    %
    
    
    4,343
    
    
    
    36.0
    %Tier 1 capital (to average assets)Consolidated
    
    
    119,111
    
    
    
    8.30
    %
    
    
    57,424
    
    
    
    34.0
    %
    
    
    N/A
    
    
    
    N/AReliance Bank
    
    
    103,256
    
    
    
    7.66
    %
    
    
    53,921
    
    
    
    34.0
    %
    
    
    67,401
    
    
    
    35.0
    %Reliance Bank, FSB
    
    
    9,734
    
    
    
    11.37
    %
    
    
    3,423
    
    
    
    34.0
    %
    
    
    4,279
    
    
    
    35.0
    %
  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.  Contractual Obligations, Off-Balance Sheet Risk, and Contingent Liabilities
  35




---



##### 



Over 1 YearTotal Cash
    
    
    Less Than 1
    
    
    Less Than 5
    
    
    Over 5Commitment
    
    
    Year
    
    
    Years
    
    
    YearsOperating leases
    
    $
    7,573,260
    
    
    $
    720,255
    
    
    $
    2,128,917
    
    
    $
    4,724,088Time deposits
    
    
    535,575,085
    
    
    
    365,028,547
    
    
    
    160,585,679
    
    
    
    9,960,859Federal Home Loan Bank
borrowings
    
    
    99,000,000
    
    
    
    6,000,000
    
    
    
    26,000,000
    
    
    
    67,000,000Commitments to extend credit
    
    
    113,380,599
    
    
    
    60,396,701
    
    
    
    19,451,797
    
    
    
    33,532,101Standby letters of credit
    
    
    12,609,055
    
    
    
    4,429,881
    
    
    
    8,179,174
    
    
    
    
 Impact of New and Not Yet Adopted Accounting Pronouncements
  Part I  Item 3  Quantitative and Qualitative Disclosures About Market Risk
   Remaining Maturity if Fixed Rate;Earliest Possible Repricing Interval if Floating Rate3
    
    
    Over 3
    
    
    Over 1months
    
    
    months
    
    
    yearor
    
    
    through
    
    
    through
    
    
    Overless
    
    
    12 months
    
    
    5 years
    
    
    5 years
    
    
    TotalInterest-earning assetsLoans
    
    $
    441,698,149
    
    
    
    139,176,744
    
    
    
    449,978,537
    
    
    
    36,045,372
    
    
    
    1,066,898,802Investment securities, at amortized cost
    
    
    35,016,293
    
    
    
    58,147,981
    
    
    
    151,800,295
    
    
    
    15,168,791
    
    
    
    260,133,360Other interest-earnings assets
    
    
    17,707,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,707,040Total interest-earning assets
    
    $
    494,421,482
    
    
    
    197,324,725
    
    
    
    601,778,832
    
    
    
    51,214,163
    
    
    
    1,344,739,202Interest bearing-liabilitiesSavings and interest bearing transaction accounts
    
    $
    577,805,563
    
    
    
    43,230
    
    
    
    
    
    
    
    
    
    
    
    577,848,793Time certificates of deposit of $100,000 or more
    
    
    90,120,769
    
    
    
    79,724,796
    
    
    
    55,063,234
    
    
    
    4,382,871
    
    
    
    229,291,670All other time deposits
    
    
    83,234,082
    
    
    
    111,948,900
    
    
    
    105,522,445
    
    
    
    5,577,988
    
    
    
    306,283,415Nondeposit interest-bearing liabilities
    
    
    23,622,645
    
    
    
    1,270,430
    
    
    
    26,000,000
    
    
    
    67,000,000
    
    
    
    117,893,075Total interest-bearing liabilities
    
    $
    774,783,059
    
    
    
    192,987,356
    
    
    
    186,585,679
    
    
    
    76,960,859
    
    
    
    1,231,316,953Gap by period
    
    $
    (280,361,577
    )
    
    
    4,337,369
    
    
    
    415,193,153
    
    
    
    (25,746,696
    )
    
    
    113,422,249Cumulative gap
    
    $
    (280,361,577
    )
    
    
    (276,024,208
    )
    
    
    139,168,945
    
    
    
    113,422,249
    
    
    
    113,422,249Ratio of interest-sensitive assets to interest-
sensitive liabilities
    
    
    0.64x
    
    
    
    1.02x
    
    
    
    3.23x
    
    
    
    0.67x
    
    
    
    1.09xCumulative ratio of interest-sensitive assets to
interest-sensitive liabilities
    
    
    0.64x
    
    
    
    0.71x
    
    
    
    1.12x
    
    
    
    1.09x
    
    
    
    1.09x
 36




---



##### 



Part I  Item 4  Controls and Procedures
     PART II  OTHER INFORMATION
 Part II  Item 1  Legal Proceedings
  Part II  Item 1A  Risk Factors
 Financial reforms and related regulations may affect our business activities, financial
position and profitability.
   37




---



##### 



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  [Removed and Reserved]
 Part II  Item 5  Other Information
   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.
 38




---



##### 



ExhibitNumber
    
    Description32.1
    
    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.
 39




---



##### 



SIGNATURES
  RELIANCE BANCSHARES, INC.By:
    /s/ Allan D. Ivie, IVAllan D. Ivie, IVChief Executive OfficerBy:
    /s/ Dale E. OberkfellDale E. OberkfellChief Financial Officer  40