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, 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
(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




---



##### 



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 Income (Loss) (Unaudited)
    
    
    5Condensed Consolidated Statements of Stockholders Equity (Unaudited)
    
    
    6Condensed 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
    
    
    38Item 5.
    
    Other Information
    
    
    39Item 6.
    
    Exhibits
    
    
    39Signatures
    
    
    39
 2




---



##### 



PART I  FINANCIAL INFORMATION
 
 Part I  Item 1  Financial Statements
 
 RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 June 30,
    
    December 31,2009
    
    
    2008
    
    
    2008ASSETSCash and due from banks
    
    $
    10,401,682
    
    
    
    18,554,276
    
    
    
    14,366,579Interest-earning deposits in other financial institutions
    
    
    648,192
    
    
    
    285,033
    
    
    
    31,919,386Federal funds sold
    
    
    
    
    
    
    112,000
    
    
    
    11,460,000Investments in available-for-sale debt and equity securities, at
fair value
    
    
    247,748,235
    
    
    
    171,290,667
    
    
    
    202,724,064Loans
    
    
    1,223,632,245
    
    
    
    1,115,579,839
    
    
    
    1,255,198,940Less  Deferred loan fees / costs
    
    
    (217,965
    )
    
    
    (689,223
    )
    
    
    (702,514
    )Reserve for possible loan losses
    
    
    (24,044,510
    )
    
    
    (12,682,420
    )
    
    
    (14,305,822
    )Net loans
    
    
    1,199,369,770
    
    
    
    1,102,208,196
    
    
    
    1,240,190,604Premises and equipment, net
    
    
    43,252,496
    
    
    
    44,827,825
    
    
    
    44,143,317Accrued interest receivable
    
    
    5,752,059
    
    
    
    5,008,066
    
    
    
    5,424,108Other real estate owned
    
    
    16,341,216
    
    
    
    10,802,316
    
    
    
    15,289,170Identifiable intangible assets, net of accumulated amortization of
$99,085, $82,797 and $90,941 at June 30, 2009 and 2008,
and December 31, 2008, respectively
    
    
    145,234
    
    
    
    161,522
    
    
    
    153,378Goodwill
    
    
    1,149,192
    
    
    
    1,149,192
    
    
    
    1,149,192Other assets
    
    
    12,886,341
    
    
    
    8,075,773
    
    
    
    7,169,420$
    1,537,694,417
    
    
    
    1,362,474,866
    
    
    
    1,573,989,218LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non-interest-bearing
    
    $
    64,230,082
    
    
    
    59,608,559
    
    
    
    59,374,964Interest-bearing
    
    
    1,143,341,051
    
    
    
    912,793,445
    
    
    
    1,168,672,335Total deposits
    
    
    1,207,571,133
    
    
    
    972,402,004
    
    
    
    1,228,047,299Short-term borrowings
    
    
    15,675,440
    
    
    
    104,488,569
    
    
    
    63,918,844Long-term Federal Home Loan Bank borrowings
    
    
    136,000,000
    
    
    
    142,000,000
    
    
    
    136,000,000Accrued interest payable
    
    
    2,578,382
    
    
    
    4,364,492
    
    
    
    3,904,941Other liabilities
    
    
    4,025,320
    
    
    
    3,209,986
    
    
    
    2,509,254Total liabilities
    
    
    1,365,850,275
    
    
    
    1,226,465,051
    
    
    
    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 June 30, 2009
    
    
    40,000,000
    
    
    
    
    
    
    
    Series B, 2,000.02 shares issued and outstanding at June 30, 2009
    
    
    2,000,000
    
    
    
    
    
    
    
    Common stock, $0.25 par value; 40,000,000 shares authorized,
20,907,177, 20,770,781 and 20,770,781 shares issued and outstanding
at June 30, 2009, 2008, and December 31, 2008, respectively
    
    
    5,226,794
    
    
    
    5,192,695
    
    
    
    5,192,696Surplus
    
    
    122,507,257
    
    
    
    124,301,338
    
    
    
    124,193,318Retained earnings
    
    
    1,823,944
    
    
    
    8,921,852
    
    
    
    10,663,076Treasury stock 94,954 and 24,514 shares at June 30, 2008 and
December 31, 2008, respectively
    
    
    
    
    
    
    (1,180,560
    )
    
    
    (335,280
    )Accumulated other comprehensive income  net unrealized
holding gains (losses) on available-for-sale debt securities
    
    
    286,147
    
    
    
    (1,225,510
    )
    
    
    (104,930
    )Total stockholders equity
    
    
    171,844,142
    
    
    
    136,009,815
    
    
    
    139,608,880$
    1,537,694,417
    
    
    
    1,362,474,866
    
    
    
    1,573,989,218
  3




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Interest and fees on loans
    
    $
    16,998,726
    
    
    
    16,796,847
    
    
    
    34,669,969
    
    
    
    32,815,215Interest on debt and equity securities:Taxable
    
    
    1,981,250
    
    
    
    1,595,361
    
    
    
    3,963,810
    
    
    
    3,169,999Exempt from Federal income taxes
    
    
    310,178
    
    
    
    391,394
    
    
    
    650,231
    
    
    
    788,868Interest on short-term investments
    
    
    5,758
    
    
    
    20,904
    
    
    
    22,721
    
    
    
    115,858Total interest income
    
    
    19,295,912
    
    
    
    18,804,506
    
    
    
    39,306,731
    
    
    
    36,889,940Interest expense:Interest on deposits
    
    
    8,699,655
    
    
    
    8,303,576
    
    
    
    18,182,631
    
    
    
    17,035,731Interest on short-term borrowings
    
    
    47,251
    
    
    
    529,816
    
    
    
    307,539
    
    
    
    1,109,089Interest on long term Federal Home Loan Bank
borrowings
    
    
    1,245,663
    
    
    
    1,202,776
    
    
    
    2,477,633
    
    
    
    2,087,653Total interest expense
    
    
    9,992,569
    
    
    
    10,036,168
    
    
    
    20,967,803
    
    
    
    20,232,473Net interest income
    
    
    9,303,343
    
    
    
    8,768,338
    
    
    
    18,338,928
    
    
    
    16,657,467Provision for possible loan losses
    
    
    14,000,000
    
    
    
    5,607,000
    
    
    
    16,250,000
    
    
    
    6,739,000Net interest income after provision
for possible loan losses
    
    
    (4,696,657
    )
    
    
    3,161,338
    
    
    
    2,088,928
    
    
    
    9,918,467Noninterest income:Service charges on deposit accounts
    
    
    240,879
    
    
    
    197,178
    
    
    
    448,517
    
    
    
    372,997Net gains (losses) on sales of debt and equity
securities
    
    
    (241
    )
    
    
    118,118
    
    
    
    (241
    )
    
    
    312,133Other noninterest income
    
    
    402,634
    
    
    
    408,629
    
    
    
    703,191
    
    
    
    720,453Total noninterest income
    
    
    643,272
    
    
    
    723,925
    
    
    
    1,151,467
    
    
    
    1,405,583Noninterest expense:Salaries and employee benefits
    
    
    3,435,246
    
    
    
    4,260,926
    
    
    
    7,315,701
    
    
    
    8,408,544Occupancy and equipment expense
    
    
    1,086,386
    
    
    
    1,095,976
    
    
    
    2,212,318
    
    
    
    2,163,092Other real estate expense
    
    
    1,452,500
    
    
    
    457,379
    
    
    
    1,762,163
    
    
    
    487,526FDIC assessment
    
    
    1,157,449
    
    
    
    188,960
    
    
    
    1,660,982
    
    
    
    377,067Data processing
    
    
    519,679
    
    
    
    443,279
    
    
    
    994,353
    
    
    
    885,558Advertising
    
    
    28,192
    
    
    
    290,711
    
    
    
    175,502
    
    
    
    501,581Amortization of intangible assets
    
    
    4,072
    
    
    
    4,072
    
    
    
    8,144
    
    
    
    8,144Writedown of investment securities
    
    
    146,078
    
    
    
    
    
    
    
    146,078
    
    
    
    Other noninterest expenses
    
    
    868,459
    
    
    
    1,029,122
    
    
    
    1,663,952
    
    
    
    2,018,502Total noninterest expense
    
    
    8,698,061
    
    
    
    7,770,425
    
    
    
    15,939,193
    
    
    
    14,850,014Loss before applicable income taxes
    
    
    (12,751,446
    )
    
    
    (3,885,162
    )
    
    
    (12,698,798
    )
    
    
    (3,525,964
    )Applicable income tax benefit
    
    
    (4,378,551
    )
    
    
    (1,514,610
    )
    
    
    (4,416,777
    )
    
    
    (1,465,510
    )Net loss
    
    $
    (8,372,895
    )
    
    
    (2,370,552
    )
    
    
    (8,282,021
    )
    
    
    (2,060,454
    )Per share amounts:Basic loss per share
    
    $
    (0.40
    )
    
    
    (0.11
    )
    
    
    (0.40
    )
    
    
    (0.10
    )Basic weighted average shares outstanding
    
    
    20,855,898
    
    
    
    20,673,419
    
    
    
    20,801,385
    
    
    
    20,650,862Diluted loss per share
    
    $
    (0.40
    )
    
    
    (0.11
    )
    
    
    (0.40
    )
    
    
    (0.10
    )Diluted weighted average shares outstanding
    
    
    20,859,102
    
    
    
    21,119,050
    
    
    
    20,839,274
    
    
    
    21,149,790
  4




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
    2009
    
    
    2008Net loss
    
    $
    (8,282,021
    )
    
    
    (2,060,454
    )Other comprehensive income (loss) before tax:Net unrealized gain (losses) on available-for-sale securities
    
    
    446,222
    
    
    
    (2,163,838
    )Reclassification adjustments for:Available-for-sale security (gains) losses included in net loss
    
    
    241
    
    
    
    (312,133
    )Writedown-of investment securities included in net loss
    
    
    146,078
    
    
    
    Other comprehensive income (loss) before tax
    
    
    592,541
    
    
    
    (2,475,971
    )Income tax related to items of other comprehensive income (loss)
    
    
    201,464
    
    
    
    (841,830
    )Other comprehensive income (loss), net of tax
    
    
    391,077
    
    
    
    (1,634,141
    )Total comprehensive loss
    
    $
    (7,890,944
    )
    
    
    (3,694,595
    )
  5




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 
 Accumulatedother
    
    
    TotalPreferred
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Treasury
    
    
    comprehensive
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,060,454
    )
    
    
    
    
    
    
    
    
    
    
    (2,060,454
    )Issuance of 4,409 shares of
common stock from treasury
    
    
    
    
    
    
    
    
    
    
    (8,862
    )
    
    
    
    
    
    
    52,908
    
    
    
    
    
    
    
    44,046Stock options exercised  91,000
shares
    
    
    
    
    
    
    22,176
    
    
    
    614,656
    
    
    
    
    
    
    
    27,552
    
    
    
    
    
    
    
    664,384Treasury 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
    
    
    
    
    
    
    
    25,0091,100 shares of common stock
awarded to directors
    
    
    
    
    
    
    
    
    
    
    (1,739
    )
    
    
    
    
    
    
    13,200
    
    
    
    
    
    
    
    11,461Stock option expense
    
    
    
    
    
    
    
    
    
    
    292,127
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,127Amortization of restricted stock
    
    
    
    
    
    
    
    
    
    
    81,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,410Change in valuation of
available-for-sale securities,
net of related tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,634,141
    )
    
    
    (1,634,141
    )Balance at June 30, 2008
    
    $
    
    
    
    
    5,192,695
    
    
    
    124,301,338
    
    
    
    8,921,852
    
    
    
    (1,180,560
    )
    
    
    (1,225,510
    )
    
    
    136,009,815Balance 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
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
    
    
    
    171,844,142
  6




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
 2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (8,282,021
    )
    
    
    (2,060,454
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    2,535,806
    
    
    
    907,545Provision for possible loan losses
    
    
    16,250,000
    
    
    
    6,739,000Capitalized interest expense on construction
    
    
    
    
    
    
    (85,984
    )Net (gains) losses on sales and writedowns of debt and equity securities
    
    
    146,319
    
    
    
    (312,133
    )Net gain on sale of premises and equipment
    
    
    (10,809
    )
    
    
    Net losses on sales and writedowns of other real estate owned
    
    
    1,289,359
    
    
    
    13,921Stock option compensation cost
    
    
    268,764
    
    
    
    292,127Common stock awarded to directors
    
    
    
    
    
    
    11,461Amortization of restricted stock expense
    
    
    15,000
    
    
    
    81,410Mortgage loans originated for sale in the secondary market
    
    
    (28,241,565
    )
    
    
    (13,428,566
    )Mortgage Loans sold in secondary market
    
    
    28,726,594
    
    
    
    13,236,216Increase in accrued interest receivable
    
    
    (327,951
    )
    
    
    (48,437
    )Increase (decrease) in accrued interest payable
    
    
    (1,326,559
    )
    
    
    708,379Other operating activities, net
    
    
    (4,402,317
    )
    
    
    (91,688
    )Net cash provided by operating activities
    
    
    6,640,620
    
    
    
    5,962,797Cash flows from investing activities:Purchase of available-for-sale debt and equity securities
    
    
    (159,923,841
    )
    
    
    (74,121,826
    )Proceeds from maturities and issuer calls of available-for-sale debt securities
    
    
    112,732,816
    
    
    
    41,490,364Proceeds from sales of available-for-sale debt and equity securities
    
    
    1,228,825
    
    
    
    23,037,133Net (increase) decrease in loans
    
    
    20,758,318
    
    
    
    (213,490,713
    )Proceeds from sale of other real estate owned
    
    
    999,866
    
    
    
    647,091Construction expenditures to finish other real estate owned
    
    
    (13,786
    )
    
    
    (48,568
    )Proceeds from sale of fixed assets
    
    
    35,179
    
    
    
    107,134Purchase of premises and equipment
    
    
    (276,960
    )
    
    
    (5,315,182
    )Net cash used in investing activities
    
    
    (24,459,583
    )
    
    
    (227,694,567
    )Cash flows form financing activities:Net increase (decrease) in deposits
    
    
    (20,476,166
    )
    
    
    137,825,555Net increase (decrease) in short-term borrowings
    
    
    (48,243,404
    )
    
    
    16,163,654Proceeds from long-term Federal Home Loan Bank borrowings
    
    
    
    
    
    
    86,000,000Payments of long-term Federal Home Loan Bank borrowings
    
    
    
    
    
    
    (12,000,000
    )Issuance of preferred stock
    
    
    40,000,000
    
    
    
    Dividends on preferred stock
    
    
    (557,111
    )
    
    
    Issuance of common stock
    
    
    
    
    
    
    44,046Purchase of treasury stock
    
    
    (40,000
    )
    
    
    (1,305,000
    )Proceeds from sale of treasury stock
    
    
    53,825
    
    
    
    Stock options exercised
    
    
    402,999
    
    
    
    664,384Payment of stock issuance costs
    
    
    (17,271
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (28,877,128
    )
    
    
    227,392,639Net (decrease) increase in cash and cash equivalents
    
    
    (46,696,091
    )
    
    
    5,660,869Cash and cash equivalents at beginning of period
    
    
    57,745,965
    
    
    
    13,290,440Cash and cash equivalents at end of period
    
    $
    11,049,874
    
    
    
    18,951,309Supplemental information:Cash paid for:Interest
    
    $
    22,294,362
    
    
    
    19,610,078Income taxes
    
    
    
    
    
    
    425,000Noncash transactions:Warrant exercise and issuance of Series B preferred stock
    
    
    2,000,000
    
    
    
    Transfers to other real estate in settlement of loans
    
    
    3,478,995
    
    
    
    6,788,866Loans made to facilitate the sale of other real estate
    
    
    151,510
    
    
    
    Stock issued for operating lease payments
    
    
    
    
    
    
    25,009
  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
  Recent Accounting Pronouncements
  
    
    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
 Obligations of U.S. Government agencies
and corporations
    
    $
    109,236,432Obligations of state and political
subdivisions
    
    
    30,281,958Other debt securities
    
    
    1,073,031Mortgage-backed securities
    
    
    98,277,114$
    238,868,535
  9




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
   Balance, at fair value on December 31, 2008
    
    $
    1,416,729Net unrealized losses arising in 2009
    
    
    (186,945
    )Impairment writedowns recognized in 2009
    
    
    (146,078
    )Principal payments received in 2009
    
    
    (10,675
    )Balance, at fair value on June 30, 2009
    
    $
    1,073,031
 Loans Accounting by Creditors for
Impairment of a Loan.
  
    
    Financial Accounting Standard No. 165, Subsequent Events(FAS 165)  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, FAS 165 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.
 
    
    FASB Staff Position 115-2 (FSP 115-2) regarding other-than-temporary impairment of investment
securities  the recognition guidance in FSP 115-2 applies to debt securities classified as
available-for-sale and held-to-maturity that are subject to the other-than-temporary
impairment guidance within FAS 115. 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 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.
    
    FASB Staff Position 107-1 and APB 28-1  This FSP amends FASB Statement No. 107, Disclosures
About Fair Value of Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly-traded companies as well as in
annual financial statements.
 10




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
  Earnings per Share
  Three-Months Ended June 30,
    
    
    Six-Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet loss
    
    $
    (8,372,895
    )
    
    
    (2,370,552
    )
    
    
    (8,282,021
    )
    
    
    (2,060,454
    )Weighted average common
shares outstanding
    
    
    20,855,898
    
    
    
    20,673,419
    
    
    
    20,801,385
    
    
    
    20,650,862Basic loss per share
    
    $
    (0.40
    )
    
    
    (0.11
    )
    
    
    (0.40
    )
    
    
    (0.10
    )DilutedNet loss
    
    $
    (8,372,895
    )
    
    
    (2,370,552
    )
    
    
    (8,282,021
    )
    
    
    (2,060,454
    )Weighted average common
shares outstanding
    
    
    20,855,898
    
    
    
    20,673,419
    
    
    
    20,801,385
    
    
    
    20,650,862Effect of dilutive stock options
    
    
    3,204
    
    
    
    445,631
    
    
    
    37,889
    
    
    
    498,928Diluted weighted average common
shares outstanding
    
    
    20,859,102
    
    
    
    21,119,050
    
    
    
    20,839,274
    
    
    
    21,149,790Diluted loss per share
    
    $
    (0.40
    )
    
    
    (0.11
    )
    
    
    (0.40
    )
    
    
    (0.10
    )
 NOTE 2  INTANGIBLE ASSETS
   NOTE 3  STOCK OPTIONS
 Accounting for Stock
Issued to Employees,
 Share-based Payments Accounting for
Stock-Based Compensation
 11




---



##### 



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, 2008:Balance at December 31, 2007
    
    $
    7.31
    
    
    
    1,648,200
    
    
    $
    8.41
    
    
    
    701,000Granted
    
    
    13.91
    
    
    
    76,500
    
    
    
    11.16
    
    
    
    16,000Forfeited
    
    
    12.50
    
    
    
    (5,000
    )
    
    
    
    
    
    
    Exercised
    
    
    7.30
    
    
    
    (91,000
    )
    
    
    
    
    
    
    Balance at June 30, 2008
    
    $
    7.60
    
    
    
    1,628,700
    
    
    $
    8.47
    
    
    
    717,000Six-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
    
    
    
    663,833
  NOTE 4  DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
   Financial instruments for which
contractual amounts represent:Commitments to extend credit
    
    $
    167,199,297Standby letters of credit
    
    
    16,889,787$
    184,089,084
 12




---



##### 



RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
     Carrying
    
    
    Estimated
    
    
    Fair valueamount
    
    
    fair value
    
    
    measurementsBalance sheet assets:Cash and due from banks
    
    $
    11,049,874
    
    
    $
    11,049,874
    
    
    Carrying valueInvestments in debt and
equity securities
    
    
    247,748,235
    
    
    
    247,748,235
    
    
    Level 2 and 3 inputsLoans, net
    
    
    1,199,369,770
    
    
    
    1,181,344,426
    
    
    Level 3 inputsAccrued interest receivable
    
    
    5,752,059
    
    
    
    5,752,059
    
    
    Carrying value$
    1,463,919,938
    
    
    $
    1,445,894,594Balance sheet liabilities:Deposits
    
    $
    1,207,571,133
    
    
    $
    1,222,392,996
    
    
    Level 3 inputsShort-term borrowings
    
    
    15,675,440
    
    
    
    15,675,440
    
    
    Carrying valueLong-term FederalHome Loan Bank borrowings
    
    
    136,000,000
    
    
    
    161,410,771
    
    
    Level 3 inputsAccrued interest payable
    
    
    2,578,382
    
    
    
    2,578,382
    
    
    Carrying value$
    1,361,824,955
    
    
    $
    1,402,057,589
 13




---



##### 



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




---



##### 



15




---



##### 



As of and for the
    
    As of and for theSix Months Ended June 30,
    
    Quarters Ended June 30,2009
    
    2008
    
    2009
    
    2008Percentage of net income to:Average total assets
    
    
    (1.05
    )%
    
    
    (0.33
    )%
    
    
    (2.12
    )%
    
    
    (0.72
    )%Average stockholders equity
    
    
    (9.79
    )%
    
    
    (2.95
    )%
    
    
    (18.58
    )%
    
    
    (6.70
    )%Percentage of common dividends
declared to net income per common
share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentage of average stockholders
equity to average total assets
    
    
    10.70
    %
    
    
    11.29
    %
    
    
    11.43
    %
    
    
    10.78
    %
 Critical Accounting Policies
  Results of Operations for the Three and Six-Month Periods Ended June 30, 2009 and 2008
    16




---



##### 



17




---



##### 



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Average deposits:Noninterest-bearing
    
    
    4.31
    %
    
    
    4.80
    %
    
    
    4.16
    %
    
    
    4.86
    %Interest-bearing:Transaction accounts
    
    
    12.27
    
    
    
    14.29
    
    
    
    11.68
    
    
    
    15.22Savings
    
    
    17.52
    
    
    
    4.25
    
    
    
    15.00
    
    
    
    4.52Time deposits of $100,000 or more
    
    
    23.32
    
    
    
    28.05
    
    
    
    24.28
    
    
    
    28.48Other time deposits
    
    
    31.51
    
    
    
    29.92
    
    
    
    33.23
    
    
    
    30.05Total average interest-bearing deposits
    
    
    84.62
    
    
    
    76.51
    
    
    
    84.19
    
    
    
    78.27Total average deposits
    
    
    88.93
    
    
    
    81.31
    
    
    
    88.35
    
    
    
    83.13Average short-term borrowings
    
    
    1.31
    
    
    
    7.27
    
    
    
    2.05
    
    
    
    7.06Average
longer-term advances from Federal Home Loan Bank
    
    
    9.76
    
    
    
    11.42
    
    
    
    9.60
    
    
    
    9.81100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
  18




---



##### 



Amount of Increase (Decrease)Second Quarter
    
    
    First Six MonthsChange From 2008 to 2009 Due toYield/
    
    
    
    
    
    
    
    
    
    
    Yield/Volume (1)
    
    
    Rate (2)
    
    
    Total
    
    
    Volume (1)
    
    
    Rate (2)
    
    
    TotalInterest income:Loans
    
    $
    2,477,670
    
    
    
    (2,275,817
    )
    
    
    201,853
    
    
    
    6,726,772
    
    
    
    (4,871,808
    )
    
    
    1,854,964Investment securities:Taxable
    
    
    928,877
    
    
    
    (542,988
    )
    
    
    385,889
    
    
    
    1,930,400
    
    
    
    (1,136,589
    )
    
    
    793,811Exempt from Federal income taxes
    
    
    (116,687
    )
    
    
    14,912
    
    
    
    (101,775
    )
    
    
    (202,261
    )
    
    
    34,622
    
    
    
    (167,639
    )Short-term investments
    
    
    18,101
    
    
    
    (33,247
    )
    
    
    (15,146
    )
    
    
    101,363
    
    
    
    (194,500
    )
    
    
    (93,137
    )Total interest income
    
    
    3,307,961
    
    
    
    (2,837,140
    )
    
    
    470,821
    
    
    
    8,556,274
    
    
    
    (6,168,275
    )
    
    
    2,387,999Interest expense:Interest-bearing transaction accounts
    
    
    28,427
    
    
    
    (390,254
    )
    
    
    (361,827
    )
    
    
    (22,622
    )
    
    
    (985,855
    )
    
    
    (1,008,477
    )Savings accounts
    
    
    1,298,499
    
    
    
    235,290
    
    
    
    1,533,789
    
    
    
    2,171,731
    
    
    
    401,767
    
    
    
    2,573,498Time deposits of $100,000 or more
    
    
    (690
    )
    
    
    (854,943
    )
    
    
    (855,633
    )
    
    
    635,800
    
    
    
    (1,993,166
    )
    
    
    (1,357,366
    )Other time deposits
    
    
    900,553
    
    
    
    (820,803
    )
    
    
    79,750
    
    
    
    2,720,372
    
    
    
    (1,781,127
    )
    
    
    939,245Total deposits
    
    
    2,226,789
    
    
    
    (1,830,710
    )
    
    
    396,079
    
    
    
    5,505,281
    
    
    
    (4,358,381
    )
    
    
    1,146,900Funds purchased and securities sold
under repurchase agreements
    
    
    (275,485
    )
    
    
    (207,080
    )
    
    
    (482,565
    )
    
    
    (570,929
    )
    
    
    (230,621
    )
    
    
    (801,550
    )Long-term borrowings
    
    
    39,125
    
    
    
    3,762
    
    
    
    42,887
    
    
    
    514,038
    
    
    
    (124,058
    )
    
    
    389,980Total interest expense
    
    
    1,990,429
    
    
    
    (2,034,028
    )
    
    
    (43,599
    )
    
    
    5,448,390
    
    
    
    (4,713,060
    )
    
    
    735,330Net interest income
    
    $
    1,317,532
    
    
    
    (803,112
    )
    
    
    514,420
    
    
    
    3,107,884
    
    
    
    (1,455,215
    )
    
    
    1,652,669
 
 (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




---



##### 



Financial Condition
  20




---



##### 



Results
of Operations
      21




---



##### 



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
    
    
    234,404,846
    
    
    
    14.70
    
    
    
    3,963,810
    
    
    
    3.41Exempt 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
    
    
    1,528,846,320
    
    
    
    95.89
    
    
    
    39,562,452
    
    
    
    5.22
    %Nonearning 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
    
    
    30,103,895
    
    
    
    1.89Available-for-sale investment market
valuation
    
    
    483,384
    
    
    
    0.03Total nonearning assets
    
    
    65,467,035
    
    
    
    4.11Total assets
    
    $
    1,594,313,355
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilities:Interest-bearing transaction accounts
    
    $
    165,461,647
    
    
    
    10.38
    %
    
    
    1,144,261
    
    
    
    1.39
    %Savings
    
    
    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
    
    
    
    
    
    
    
    
    
    $
    18,594,649Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.45
    %
  22




---



##### 



Six Months Ended June 30, 2008Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,008,930,061
    
    
    
    81.05
    %
    
    $
    32,826,481
    
    
    
    6.54
    %Investment securities:Taxable
    
    
    131,780,677
    
    
    
    10.59
    
    
    
    3,169,999
    
    
    
    4.84Exempt from Federal income taxes (3)
    
    
    38,457,556
    
    
    
    3.09
    
    
    
    1,062,115
    
    
    
    5.55Short-term investments
    
    
    5,427,909
    
    
    
    0.44
    
    
    
    115,858
    
    
    
    4.29Total earning assets
    
    
    1,184,596,203
    
    
    
    95.17
    
    
    
    37,174,453
    
    
    
    6.31Nonearning assets:Cash and due from banks
    
    
    9,890,901
    
    
    
    0.79Reserve for possible loan losses
    
    
    (10,554,237
    )
    
    
    (0.85
    )Premises and equipment
    
    
    43,549,605
    
    
    
    3.50Other assets
    
    
    15,653,828
    
    
    
    1.26Available-for-sale investment market valuation
    
    
    1,645,594
    
    
    
    0.13Total nonearning assets
    
    
    60,185,691
    
    
    
    4.83Total assets
    
    $
    1,244,781,894
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    167,239,677
    
    
    
    13.44
    %
    
    
    2,152,738
    
    
    
    2.59
    %Savings
    
    
    49,651,000
    
    
    
    3.99
    
    
    
    439,561
    
    
    
    1.78Time deposits of $100,000 or more
    
    
    312,876,127
    
    
    
    25.14
    
    
    
    6,951,647
    
    
    
    4.47Other time deposits
    
    
    330,100,919
    
    
    
    26.52
    
    
    
    7,491,785
    
    
    
    4.56Total interest-bearing deposits
    
    
    859,867,723
    
    
    
    69.09
    
    
    
    17,035,731
    
    
    
    3.98Long-term borrowings
    
    
    107,807,693
    
    
    
    8.66
    
    
    
    2,087,653
    
    
    
    3.89Funds purchased and securities sold under
repurchase agreements
    
    
    77,568,094
    
    
    
    6.23
    
    
    
    1,109,089
    
    
    
    2.88Total interest-bearing liabilities
    
    
    1,045,243,510
    
    
    
    83.98
    
    
    
    20,232,473
    
    
    
    3.89Noninterest-bearing deposits
    
    
    53,298,058
    
    
    
    4.28Other liabilities
    
    
    5,647,352
    
    
    
    0.45Total liabilities
    
    
    1,104,188,920
    
    
    
    88.71STOCKHOLDERS EQUITY
    
    
    140,592,974
    
    
    
    11.29Total liabilities and stockholders equity
    
    $
    1,244,781,894
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    16,941,980Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.88
    %
  23




---



##### 



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
    
    
    237,242,074
    
    
    
    15.01
    
    
    
    1,981,250
    
    
    
    3.35Exempt 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
    
    
    1,512,273,302
    
    
    
    95.66
    
    
    
    19,420,739
    
    
    
    5.15
    %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
    
    
    31,750,564
    
    
    
    2.01Available-for-sale investment market
valuation
    
    
    1,362,916
    
    
    
    0.09Total nonearning assets
    
    
    68,659,800
    
    
    
    4.34Total 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
    
    
    
    
    
    
    
    
    
    $
    9,428,170Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.50
    %
  24




---



##### 



Quarter Ended June 30, 2008Percent
    
    
    Interest
    
    
    AverageAverage
    
    
    of Total
    
    
    Income/
    
    
    Yield/Balance
    
    
    Assets
    
    
    Expense
    
    
    RateASSETSLoans (1) (2) (3)
    
    $
    1,064,328,888
    
    
    
    81.56
    %
    
    $
    16,802,480
    
    
    
    6.35
    %Investment securities:Taxable
    
    
    137,252,206
    
    
    
    10.52
    
    
    
    1,595,361
    
    
    
    4.67Exempt from Federal income taxes (3)
    
    
    38,169,627
    
    
    
    2.92
    
    
    
    531,173
    
    
    
    5.60Short-term investments
    
    
    3,686,720
    
    
    
    0.28
    
    
    
    20,904
    
    
    
    2.28Total earning assets
    
    
    1,243,437,441
    
    
    
    95.28
    
    
    
    18,949,918
    
    
    
    6.13Nonearning assets:Cash and due from banks
    
    
    9,398,280
    
    
    
    0.72Reserve for possible loan losses
    
    
    (11,221,086
    )
    
    
    (0.86
    )Premises and equipment
    
    
    43,504,994
    
    
    
    3.33Other assets
    
    
    18,418,390
    
    
    
    1.41Available-for-sale investment market
valuation
    
    
    1,490,376
    
    
    
    0.12Total nonearning assets
    
    
    61,590,954
    
    
    
    4.72Total assets
    
    $
    1,305,028,395
    
    
    
    100.00
    %LIABILITIESInterest-bearing liabilitiesInterest-bearing transaction accounts
    
    $
    165,553,560
    
    
    
    12.69
    %
    
    
    910,851
    
    
    
    2.21
    %Savings
    
    
    49,241,231
    
    
    
    3.77
    
    
    
    203,207
    
    
    
    1.66Time deposits of $100,000 or more
    
    
    324,946,233
    
    
    
    24.90
    
    
    
    3,423,397
    
    
    
    4.24Other time deposits
    
    
    346,585,504
    
    
    
    26.56
    
    
    
    3,766,121
    
    
    
    4.37Total interest-bearing deposits
    
    
    886,326,528
    
    
    
    67.92
    
    
    
    8,303,576
    
    
    
    3.77Long-term borrowings
    
    
    132,241,758
    
    
    
    10.13
    
    
    
    1,202,776
    
    
    
    3.66Funds purchased and securities sold under
repurchase agreements
    
    
    84,267,910
    
    
    
    6.46
    
    
    
    529,816
    
    
    
    2.53Total interest-bearing liabilities
    
    
    1,102,836,196
    
    
    
    84.51
    
    
    
    10,036,168
    
    
    
    3.66Noninterest-bearing deposits
    
    
    55,586,147
    
    
    
    4.26Other liabilities
    
    
    5,946,070
    
    
    
    0.45Total liabilities
    
    
    1,164,368,413
    
    
    
    89.22STOCKHOLDERS EQUITY
    
    
    140,659,982
    
    
    
    10.78Total liabilities and
stockholders equity
    
    $
    1,305,028,395
    
    
    
    100.00
    %Net interest income
    
    
    
    
    
    
    
    
    
    $
    8,913,750Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.88
    %
 
 (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




---



##### 



Originated InFlorida
    
    All other
    
    TotalNon-performing Loans (6/30/2009)
    
    $  52.4 million
    
    $21.1 million
    
    $73.5 millionNon-performing Loans (12/31/2008)
    
    $  30.1 million
    
    $  4.8 million
    
    $34.9 millionNon-performing Loans (6/30/2008)
    
    $  11.5 million
    
    $  3.6 million
    
    $15.1 millionNon-performing Assets* (6/30/2009)
    
    $  59.6 million
    
    $30.2 million
    
    $89.8 millionNon-performing Assets* (12/31/2008)
    
    $  37.5 million
    
    $12.7 million
    
    $50.2 millionNon-performing Assets* (6/30/2008)
    
    $  15.4 million
    
    $10.5 million
    
    $25.9 millionOutstanding
Loans Originated In Respective Markets
    
    $113.6 million
    
    $1.110 billion
    
    $1.223 billion
  26




---



##### 




    
    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 $10.6 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 Company is in the process of obtaining control and
ownership of the property.
    
    A loan for approximately $5.1 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 Company is working through a receiver to continue to lease up
the property as foreclosure continues.
    
    A loan for approximately $2.4 million to a Florida real estate development company that is
in default. The loan is secured by an undeveloped real estate parcel in southwestern Florida.
The proposed entitlements and development have not been completed.
    
    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. The proposed entitlements and development have not been completed.
    
    A loan for $11.1 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. Bank, borrower and guarantor are in
negotiations in an attempt to avoid a foreclosure.
    
    A loan for $2.1 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 Bank is in foreclosure against the property.
    
    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 $1.4 million to a single purpose entity secured by unimproved commercial
property in Florida that is in default. The Bank is negotiating with the borrower and
guarantors to develop an alternative plan or refinance.
 27




---



##### 




    
    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 or and guarantor to
determine the best course of action going forward for the proposed development.
    
    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 is moving to execute a
deed in lieu of foreclosure and a deficiency agreement on the real estate.
    
    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 Bank is working
towards foreclosure.
    
    A loan totaling approximately $2 million to a single purpose entity controlled by
individual Missouri real estate investors. The loan is secured by a retail commercial
property and a single-family residence located in St. Louis, Missouri.
    
    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 participating banks continue to work
with the borrower to accelerate pay downs.
  Balance at December 31, 2008
    
    $
    15,289,170Foreclosures
    
    
    3,478,995Loans made to facilitate sales of other real estate
    
    
    (151,510
    )Cash proceeds from sales
    
    
    (999,866
    )Construction expenditures capitalized
    
    
    13,786Losses and writedowns
    
    
    (1,289,359
    )Balance at June 30, 2009
    
    $
    16,341,216
    28




---



##### 




    
    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




---



##### 



Six-Month PeriodsEnded June 30,(in thousands of dollars)
    
    2009
    
    
    2008Average loans outstanding
    
    $
    1,237,890
    
    
    $
    1,008,930Reserve at beginning of year
    
    $
    14,306
    
    
    $
    9,685Provision for possible loan losses
    
    
    16,250
    
    
    
    6,73930,556
    
    
    
    16,424Charge-offs:Commercial loans:Real estate
    
    
    (1,164
    )
    
    
    (2,466
    )Other
    
    
    (134
    )
    
    
    (30
    )Real estate:Construction
    
    
    (4,511
    )
    
    
    (212
    )Residential
    
    
    (1,176
    )
    
    
    (1,016
    )Consumer
    
    
    (21
    )
    
    
    (19
    )Overdrafts
    
    
    (20
    )
    
    
    (17
    )Total charge-offs
    
    
    (7,026
    )
    
    
    (3,760
    )Recoveries:Commercial loans:Real estate
    
    
    29Other
    
    
    1
    
    
    
    9Real estate:Construction
    
    
    353Residential
    
    
    118Consumer
    
    
    14
    
    
    
    3Overdrafts
    
    
    
    
    
    
    6Total recoveries
    
    
    515
    
    
    
    18Reserve at end of period
    
    $
    24,045
    
    
    $
    12,682Net charge-offs to average loans
    
    
    0.53
    %
    
    
    0.37
    %Ending
reserve to net outstanding loans at end of period
    
    
    1.97
    %
    
    
    1.14
    %
   
    
    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




---



##### 




    
    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.
        31




---



##### 




    
    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.
   Liquidity and Capital Resources
     32




---



##### 



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
    
    $
    187,571
    
    
    
    13.55
    %
    
    $
    110,723
    
    
    
    38.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    153,702
    
    
    
    11.86
    %
    
    
    103,648
    
    
    
    38.0
    %
    
    
    129,560
    
    
    
    310.0
    %Reliance Bank, FSB
    
    
    23,227
    
    
    
    24.64
    %
    
    
    7,541
    
    
    
    38.0
    %
    
    
    9,427
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets)Consolidated
    
    $
    170,187
    
    
    
    12.30
    %
    
    $
    55,361
    
    
    
    34.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    137,424
    
    
    
    10.61
    %
    
    
    51,824
    
    
    
    34.0
    %
    
    
    77,736
    
    
    
    36.0
    %Reliance Bank, FSB
    
    
    22,322
    
    
    
    23.68
    %
    
    
    3,771
    
    
    
    34.0
    %
    
    
    5,656
    
    
    
    36.0
    %Tier 1 capital (to average assets)Consolidated
    
    $
    170,187
    
    
    
    10.78
    %
    
    $
    63,200
    
    
    
    34.0
    %
    
    $
    N/A
    
    
    
    N/AReliance Bank
    
    
    137,424
    
    
    
    9.46
    %
    
    
    58,138
    
    
    
    34.0
    %
    
    
    72,672
    
    
    
    35.0
    %Reliance Bank, FSB
    
    
    22,322
    
    
    
    18.45
    %
    
    
    4,841
    
    
    
    34.0
    %
    
    
    6,051
    
    
    
    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
  33




---



##### 



Over 1 YearTotal Cash
    
    Less Than 1
    
    Less Than 5
    
    Over 5Commitment
    
    Year
    
    Years
    
    YearsOperating leases
    
    $
    7,690,522
    
    
    $
    660,511
    
    
    $
    2,128,353
    
    
    $
    4,901,658Time deposits
    
    
    710,707,925
    
    
    
    442,065,010
    
    
    
    267,171,929
    
    
    
    1,470,986Federal Home
Loan Bank borrowings
    
    
    136,000,000
    
    
    
    30,000,000
    
    
    
    36,000,000
    
    
    
    70,000,000Commitments to extend credit
    
    
    167,199,297
    
    
    
    75,243,050
    
    
    
    40,315,687
    
    
    
    51,640,560Standby letters of credit
    
    
    16,889,787
    
    
    
    8,824,944
    
    
    
    8,064,843
    
    
    
    
 Accounting Pronouncements
   
    
    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
 34




---



##### 



Obligations of U.S. Government agencies
and corporations
    
    $
    109,236,432Obligations of state and political subdivisions
    
    
    30,281,958Other debt securities
    
    
    1,073,031Mortgage-backed securities
    
    
    98,277,114$
    238,868,535
  Balance, at fair value on December 31, 2008
    
    $
    1,416,729Net unrealized losses arising in 2009
    
    
    (186,945
    )Impairment writedowns recognized in 2009
    
    
    (146,078
    )Principal payments received in 2009
    
    
    (10,675
    )Balance, at fair value on June 30, 2009
    
    $
    1,073,031
 Loans Accounting by Creditors for
Impairment of a Loan.
  
    
    Financial Accounting Standard No. 165, Subsequent Events(FAS 165)  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, FAS 165 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.
 
    
    FASB Staff Position 115-2 (FSP 115-2) regarding other-than-temporary impairment of investment
securities  the recognition guidance in FSP 115-2 applies to debt securities classified as
available-for-sale and held-to-maturity that are subject to the other-than-temporary
impairment guidance within FAS 115. 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 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.
 35




---



##### 



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.
    
    FASB Staff Position 107-1 and APB 28-1  This FSP amends FASB Statement No. 107, Disclosures
About Fair Value of Financial Instruments, to require 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
    
    
    Over 3
    
    
    Over 1months
    
    
    months
    
    
    yearor
    
    
    through
    
    
    through
    
    
    Overless
    
    
    12 months
    
    
    5 years
    
    
    5 years
    
    
    TotalInterest-earning assetsLoans
    
    $
    480,381,876
    
    
    
    131,076,591
    
    
    
    560,481,223
    
    
    
    51,692,555
    
    
    
    1,223,632,245Investment securities, at amortized cost
    
    
    43,448,477
    
    
    
    101,348,582
    
    
    
    82,543,545
    
    
    
    19,974,074
    
    
    
    247,314,678Other interest-earnings assets
    
    
    648,192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    648,192Total interest-earning assets
    
    $
    524,478,545
    
    
    
    232,425,173
    
    
    
    643,024,768
    
    
    
    71,666,629
    
    
    
    1,471,595,115Interest bearing-liabilitiesSavings and interest bearing transaction accounts
    
    $
    432,615,060
    
    
    
    18,066
    
    
    
    
    
    
    
    
    
    
    
    432,633,126Time certificates of deposit of $100,000 or more
    
    
    89,208,295
    
    
    
    123,255,887
    
    
    
    93,690,549
    
    
    
    864,504
    
    
    
    307,019,235All other time deposits
    
    
    60,002,743
    
    
    
    169,598,085
    
    
    
    173,481,380
    
    
    
    606,482
    
    
    
    403,688,690Nondeposit interest-bearing liabilities
    
    
    22,675,440
    
    
    
    25,000,000
    
    
    
    32,000,000
    
    
    
    72,000,000
    
    
    
    151,675,440Total interest-bearing liabilities
    
    $
    604,501,538
    
    
    
    317,872,038
    
    
    
    299,171,929
    
    
    
    73,470,986
    
    
    
    1,295,016,491Gap by period
    
    $
    (80,022,993
    )
    
    
    (85,446,865
    )
    
    
    343,852,839
    
    
    
    (1,804,357
    )
    
    
    176,578,624Cumulative gap
    
    $
    (80,022,993
    )
    
    
    (165,469,858
    )
    
    
    178,382,981
    
    
    
    176,578,624
    
    
    
    176,578,624Ratio of interest-sensitive assets to interest-
sensitive liabilities
    
    
    0.87x
    
    
    
    0.73x
    
    
    
    2.15x
    
    
    
    0.98x
    
    
    
    1.14xCumulative ratio of interest-sensitive assets to
interest-sensitive liabilities
    
    
    0.87x
    
    
    
    0.82x
    
    
    
    1.15x
    
    
    
    1.14x
    
    
    
    1.14x
  36




---



##### 



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
  37




---



##### 



Part II  Item 4  Submission of Matters to a Vote of Security Holders
   PROPOSAL NO. 1: ELECTION OF DIRECTORS
  Class II
 Class I
  Votes
    
    VotesName
    
    For
    
    Withheld Authority
    
    Class
    
    TermRichard M. Demko
    
    
    16,845,426
    
    
    
    274,161
    
    
    
    I
    
    
    
    2012Patrick R. Gideon
    
    
    16,840,434
    
    
    
    279,153
    
    
    
    I
    
    
    
    2012Lawrence P. Rusty Keeley, Jr.
    
    
    16,840,434
    
    
    
    279,153
    
    
    
    I
    
    
    
    2012Scott A. Sachtleben
    
    
    16,845,994
    
    
    
    273,593
    
    
    II
    
    
    2010David R. Spence
    
    
    16,840,434
    
    
    
    279,153
    
    
    II
    
    
    2010William P. Stiritz
    
    
    16,750,694
    
    
    
    368,893
    
    
    
    I
    
    
    
    2012
 38




---



##### 



PROPOSAL NO. 2: INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  For
    
    Against
    
    AbstainAppointment of Cummings, Ristau & Associates, P.C.
    
    
    16,647,112
    
    
    
    146,141
    
    
    
    4,734
 
 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  39