UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 00-52588

Reliance Bancshares, Inc.

(Exact name of Registrant as Specified in its Charter)

Missouri		43-1823071
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
10401 Clayton Road
Frontenac, Missouri		63131
(Address of Principal Executive Offices)		(ZIP Code)

Registrant’s telephone number, including area code:
(314) 569-7200

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Title of Class
Class A Common Stock, par value $0.25

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company þ
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $34,282,606.

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 20,972,091 shares of common stock outstanding as of March 22, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement for the 2010 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to SEC Regulation 14A are incorporated by reference in Part III, Items 10 -13.

 

 

TABLE OF CONTENTS

		Page No.
Explanatory Note — 2009 Restatement			2
Item 1. Business			2
Item 1A. Risk Factors			9
Item 1B. Unresolved Staff Comments			14
Item 2. Properties			14
Item 3. Legal Proceedings			15
Item 4. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			15
Item 5. Selected Financial Data			17
Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 6A. Quantitative and Qualitative Disclosures About Market Risk			47
Item 7. Financial Statements and Supplementary Data			47
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			47
Item 8A(T).Controls and Procedures			48
Item 8B. Other Information			48
Item 9. Directors, Executive Officers and Corporate Governance			48
Item 10. Executive Compensation			49
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			49
Item 12. Certain Relationships and Related Transactions, and Director Independence			49
Item 13. Principal Accountant Fees and Services			49
Item 14. Exhibits and Financial Statement Schedules			49
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     Except for the historical information contained in this Amendment No. 1 to Annual Report on Form 10-K, certain matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words “anticipates,” “believes,” “expects,” “intends” and similar expressions as they relate to Reliance Bancshares, Inc. or its management are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties are discussed under Item 1A, “Risk Factors.”

     Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do so, what impact they will have on our results of operations or financial condition. We expressly decline any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.

EXPLANATORY NOTE — 2009 RESTATEMENT

     This Amendment No. 1 to Form 10-K (Amendment No. 1) is being filed by Reliance Bancshares, Inc. (the Company) to amend and restate its Annual Report on Form 10-K for the year ended December 31, 2009 filed with the United States Securities and Exchange Commission (SEC) on March 26, 2010 (the Initial Form 10-K). For purposes of this Annual Report on Form 10-K/A, and in accordance with Rule 12b-15 under the Securities Exchange Act of 1934 (Exchange Act), Items 5, 6, 7, and 8A(T) of our Initial Form 10-K have been amended and restated in their entirety. In addition, Exhibit 31.2 is being amended solely to add new certifications in accordance with Rule 13a-14(a) of the Exchange Act. Other than the Items outlined above, there are no changes to the Initial Form 10-K. Except as otherwise specifically noted, all information contained herein is as of December 31, 2009 and does not reflect any events or changes that have occurred subsequent to that date. We are not required to and we have not updated any forward-looking statements previously included in the Initial Form 10-K filed on March 26, 2010. We have not amended, and do not intend to amend, any of our other previously filed reports for the periods affected by the restatement. Our previously issued consolidated financial statements included in those reports should no longer be relied upon. Accordingly, this Annual Report on Form 10-K/A should be read in conjunction with the Company’s filings with the Securities and Exchange Commission subsequent to the Initial Form 10-K.

     This Amendment No. 1 is required due to certain disclosure omissions in the Initial Form 10-K related to net losses available to common shareholders after increasing the net loss for preferred dividends paid by the Company, which required an adjustment of the previously reported net loss per share data included in the Company’s consolidated statement of operations for the year ended December 31, 2009. We have also restated the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2009 to expand the disclosures for other-than-temporary losses on available for sale securities in those statements.

     These restatements had no effect on the Company’s consolidated net loss for the year ended December 31, 2009 or its consolidated stockholders’ equity as of December 31, 2009. Net loss available to common shareholders, after increasing the loss for preferred dividends paid by the Company, increased from the $(1.41) per share originally disclosed for both basic and fully-diluted loss per share to $(1.49) and $(1.48) for basic and fully-diluted loss per share for the year ended December 31, 2009.

     This Amendment No. 1 includes changes in “Item 8A(T) — Controls and Procedures” and reflects management’s restated assessment of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2009. This restatement of management’s assessment regarding disclosure controls and procedures results from material weaknesses in our internal control over financial reporting relating to the above described restatements. The information required in this restatement was previously omitted and, while it had no effect on the Company’s consolidated net loss for the year ended December 31, 2009 and stockholders’ equity as of December 31, 2009, such information should have been disclosed in our 2009 consolidated financial statements. The Company has implemented certain changes in our internal controls as of the date of this report to address these material weaknesses, and believes such weaknesses have been remediated. There can be no assurance that our remedial efforts will be effective nor can there be any assurances that the Company will not incur losses due to internal or external acts intended to defraud, misappropriate assets, or circumvent applicable law or our system of internal controls. See “Item 8A(T) — Controls and Procedures.”

     For the convenience of the reader, this Annual Report sets forth the Initial Form 10-K in its entirety.

Item 1. Business

General

     Reliance Bancshares, Inc. (the “Company” or “Reliance”) is a multi-bank holding company that was incorporated in Missouri on July 24, 1998. The Company organized its first subsidiary commercial bank, Reliance Bank, in Missouri, which secured insurance from the Federal Deposit Insurance Corporation (“FDIC”) and began conducting business on April 16, 1999 in Des Peres, Missouri with full depository and loan capabilities. The Company organized an additional subsidiary, Reliance Bank, FSB in Fort Myers, Florida as a federal savings bank after operating as a loan production office of Reliance Bank since 2004. The Company applied for and received a federal charter from the Office of Thrift Supervision (the “OTS”), secured insurance from the FDIC and began conducting business on January 17, 2006. The Company’s two subsidiaries, Reliance Bank and Reliance Bank, FSB, are sometimes referred to as the “Banks.” Unless otherwise indicated, references to the “Company” shall be intended to be references to Reliance Bancshares, Inc. and its subsidiaries.

     On April 27, 2007, the Company filed its Form 10 registration statement with the Securities and Exchange Commission (the “SEC”) pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. The effective date of the registration statement was June 26, 2007.

     The Company’s headquarters and executive offices are located at 10401 Clayton Road, Frontenac, Missouri, 63131, (314) 569-7200.

Available Information

     All of the Company’s reports required to be filed by Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, will be available or accessible free of charge, including copies of our future Annual Reports on Form 10-K, future Quarterly Reports on Form 10-Q, future Current Reports on Form 8-K, future Proxy Statements, and any amendments to those reports at our website with the address “www.reliancebancshares.com”. All reports will be made available as soon as reasonably practicable after they are filed with or furnished to the SEC. You may also request any materials we file with the SEC from the SEC’s Public Reference Room at 100 F. Street, NE, Washington, D.C., 20549, or by calling (800) SEC-0330. In addition, our filings with the SEC are electronically available via the SEC’s website at http://www.sec.gov.

     For general information about Reliance Bank and Reliance Bank, FSB, please visit our current websites at www.reliancebankstl.com and www.reliancebankfsb.com, respectively.

Recent Developments

     The Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted on October 3, 2008. Pursuant to EESA, the United States Treasury Department (the “Treasury”) has the authority to among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Pursuant to its authority under EESA, the Treasury created the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”) under which the Treasury was authorized to invest in non-voting, senior preferred stock of U.S. banks and savings associations or their holding companies.

     The Treasury has invested in the Company through the EESA and CPP. On February 13, 2009, the Company issued 40,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, no par value, Series A for a total of $40,000,000, and 2,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, no par value, Series B for no additional funds, to the Treasury in connection with the Company’s participation in the CCP. The funds received by the Company are included in any the financial data or calculations for this filing.

     The Series A preferred stock will pay a dividend at the rate of 5% per annum for the first five years and 9% thereafter. Dividends are payable quarterly and each share has a liquidation amount of $1,000 and has liquidation rights in pari passu with other preferred stock, which is paid in liquidation prior to Company’s common stock. The Series B preferred stock will pay a dividend at the rate of 9% per annum, payable quarterly, and includes other provisions similar to the Series A preferred stock with liquidation at $1,000 per share.

     The American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted on February 17, 2009. Among other things, ARRA sets forth additional limits on executive compensation at all financial institutions receiving federal funds under any program, including the CPP, both retroactively and prospectively. The executive compensation restrictions in ARRA, which will be further described in rules and regulations to be established, include among others: limits on compensation incentives, prohibitions on “golden parachute payments”, the establishment by publicly registered CPP recipients of a board compensation committee comprised entirely of independent directors for the purpose of reviewing employee compensation plans, and the requirement of a non-binding vote on executive pay packages at each annual shareholder meeting until the government funds are repaid. The full impact of the ARRA is not yet certain because additional regulatory action is required.

     On November 10, 2009, the Company authorized 25,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, no par value, Series C for sale with an offering price of $1,000 per share. The offering was extended to existing shareholders who are accredited investors (as such term is defined in Regulation D of the Securities Act of 1933, as amended) and to other accredited investors to subscribe for and purchase shares of this series. At December 31, 2009, the Company had subscriptions and payments totalling $300,000 for the purchase of 300 shares. The Series C preferred stock pays a dividend at the rate of 7% per annum, payable quarterly and includes other provisions similar to the Series A preferred stock with liquidation at $1,000 per share.

Informal Regulatory Agreements

     The Company and the Banks have recently entered into a certain Agreement and memoranda of understanding (“MOU”) with regulatory authorities as listed below. The Agreement and MOUs are informal administrative agreements pursuant to which the Company and the Banks have agreed to take various actions and comply with certain requirements to facilitate improvement in financial condition.

     On November 30, 2009, Reliance Bank’s Board of Directors entered into an Agreement with the Missouri Division of Finance and the Federal Deposit Insurance Corporation (“FDIC”) to, among other things, (a) develop a plan to reduce the level of risk in each criticized asset aggregating $2,000,000 or more included in the September 21, 2009 Missouri Division of Finance examination report; (b) maintain the reserve for possible loan losses at a level which is reasonable in relation to the degree of risk inherent in the Bank’s loan portfolio; (c) develop and adopt policies and procedures designed to identify and monitor concentrations of credit, including out-of-territory loans and loan participations purchased; (d) formulate plans to reduce the Bank’s concentrations of credit, particularly in commercial real estate and land acquisition and development

lending; (e) review and revise the Bank’s formal loan policy to address weaknesses noted in the September 21, 2009 Missouri Division of Finance examination report; (f) cease making or extending any loans which might violate the Bank’s written loan policy, except in those instances in which the Board of Directors has made a prior determination that a variance from loan policy is in the best interests of the Bank, with such Board decisions appropriately documented in the minutes of the Board of Director meetings; (g) develop a formal written profit plan, which will provide a three-year budget projection for asset growth and dividend payouts to ensure Tier 1 leverage capital is maintained at least a 7% level; and (h) maintain a Tier 1 leverage capital ratio of at least 7%, and other capital ratios such that the Bank will remain well-capitalized, and not pay any dividends, management fees or bonuses, or increase any executive salary or other compensation that would reduce the Bank to a level below a well-capitalized status.

     On February 10, 2010, Reliance Bank, FSB’s Board of Directors entered into a MOU with the OTS to, among other things, (a) develop a business plan for the years ending December 31, 2010, 2011, and 2012 which shall include (1) strategies to preserve and enhance the Bank’s capital sufficient to meet its needs and support its risk profile; (2) achieve core profitability by the end of 2010; and (3) establish and maintain Board-approved loan concentration limits expressed as a percentage of risk-based capital that takes into account the Bank’s current capital position, local and regional market conditions, and the credit risks posed by higher risk loans; (b) continue to take steps to identify, classify, and properly account for problem assets, including but not limited to (1) conducting periodic asset quality reviews to identify and assign appropriate classifications to all problem assets; (2) performing analyses on all impaired assets identified by the review required by subparagraph (b)(1) above; and (3) estimating potential losses in identified problem assets, while establishing an appropriate reserve for loan losses for all classified assets; (c) develop a detailed, written plan with specific strategies, targets, and timeframes to reduce the Bank’s level of criticized assets; (d) review the adequacy of the Bank’s reserve for loan losses policies, procedures and methodologies on at least an annual basis to ensure the timely establishment and maintenance of an adequate reserve for loan losses account balance; (e) identify and monitor all loan modifications and troubled debt restructurings, with delinquent loans that are modified being classified as substandard and placed on nonaccrual status for at least six months; (f) prohibit the increase in the dollar amount of brokered deposits; (g) analyze the major differences in and bases for significant differences in the value of assets, liabilities, and off-balance-sheet positions calculated by the OTS Net Portfolio Value and the Bank’s internal economic value of equity model; and (h) correct all deficiencies and weaknesses identified in the October 5, 2009 OTS report of examination.

     On March 16, 2010, the Company entered into a MOU with the Federal Reserve Bank of St. Louis (“Federal Reserve”) requiring the Company to, among other things, (a) utilize its financial and managerial resources to assist the Banks in addressing weaknesses identified during their most recent regulatory examinations, and achieving/maintaining compliance with any supervisory action between the Banks and their primary regulators; (b) declare no corporate dividends without the prior written approval of the Federal Reserve; (c) incur no additional debt without the prior written approval of the Federal Reserve; and (d) make no distributions of interest or other sums on its preferred stock without the prior written approval of the Federal Reserve.

     The Agreement and MOUs will remain in effect until modified or terminated by the applicable regulatory authority. We do not expect the actions called for by the Agreement and MOUs to change our business strategy in any material respect, although they may have the effect of limiting or delaying our ability or plans to expand. Management has taken various actions to comply with the Agreement and MOUs and will diligently endeavor to take all actions necessary for compliance. Management believes that the Company and the Banks are currently in compliance with the Agreement and MOUs, although formal determination of compliance with the Agreement and MOUs can only be made by the applicable regulatory authority.

Market Area and Approach to Geographic Expansion

     Reliance Bank

     In the greater St. Louis Metropolitan Statistical Area, (“MSA”), which includes St. Louis bordering counties in Illinois, Reliance Bank has facilities in twenty locations. Reliance Bank strategically chose to locate these branches within six to seven miles of each other so as not to over-saturate any one municipality or area. Still, in any given area, customers are within a few miles of local branches. When choosing branch locations, we have also focused on areas that we believe have high growth potential, a high concentration of closely-held businesses and a large number of professionals and executives. Typically, a high growth potential location consists of both commercial and residential development, which provides us with potential commercial and individual customers.

     Reliance Bank, FSB

     The current primary market area of Reliance Bank, FSB is Lee County on the southwest coast of Florida. Reliance Bank, FSB has a total of three locations, and is headquartered in Fort Myers, Florida.

     Reliance Bank, FSB’s original strategy was to expand in Lee County and Collier County, in southwest Florida, as these areas have experienced high growth rates in recent years. However, with the unprecedented downturn in the economy, specifically in the Southwest Florida real estate market, Reliance Bank, FSB has amended its strategy for 2009 and did not establish any new branches while the economy is recovering. Reliance Bank, FSB plans to work within the community to build stronger customer relationships, deposit growth and loan production.

Competition

     The Company and its subsidiaries operate in highly competitive markets. We face substantial competition in all phases of operations from a variety of different competitors in the St. Louis and Fort Myers markets, including: (i) large national and super-regional financial institutions that have well-established branches and significant market share in the communities we serve; (ii) finance companies, investment banking and brokerage firms, and insurance companies that offer bank-like products; (iii) credit unions, which can offer highly competitive rates on loans and deposits as they receive tax advantages not available to commercial or community banks; (iv) other commercial or community banks, including start-up banks, that can compete with us for customers who desire a high degree of personal service; (v) national and super-regional banks offering mortgage loan application services; (vi) both local and out-of-state trust companies and trust service offices; and (vii) multi-bank holding companies with substantial capital resources and lending capacity.

     Many of the larger banks have established specialized units, which target private businesses and high net worth individuals. Also, the St. Louis market has recently experienced an increase in de novo (i.e., new start- up) banks that have opened within the past five years.

     Many existing community banks with which we compete directly, as well as several new community bank start-ups, have marketing strategies similar to ours. These community banks may open new branches in the communities we serve and compete directly for customers who want the level of service offered by community banks. In addition, these banks compete directly for the same management personnel.

     Reliance Bank and Reliance Bank, FSB have both grown rapidly with aggressive branching in both markets. Because of the Company’s continued use of earnings for this expansion, we have not historically issued dividends on common stock and do not anticipate doing so in the foreseeable future. The Company has incurred significant expenses due to its aggressive organic growth plan. This increased expense has negatively impacted our short term earnings per share. Both Reliance Bank and Reliance Bank, FSB are comfortable with the amount of branches they have established in both areas and therefore, did not expand in 2009.

Supervision and Regulation

     We are subject to various state, federal and self-regulatory organization banking laws, regulations and policies in place to protect customers and, to some extent, shareholders, which impose specific requirements and restrictions on our operations. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company and its subsidiaries.

     The following is a summary of significant regulations:

     The Holding Company

     Bank Holding Company Act of 1956: The Company is a multi-bank holding company registered under the Bank Holding Company Act of 1956, as amended (“BHCA”). As such, we are subject to regulation and examination by the Federal Reserve Board and are required to file periodic reports of our operations and such additional information as the Federal Reserve may require. Financial holding companies must be well managed and well capitalized pursuant to the standards set by the Federal Reserve and have at least a “satisfactory” rating under the Community Reinvestment Act.

     Under the BHCA, bank holding companies are generally required to obtain the prior approval of the Federal Reserve before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company.

     Gramm-Leach Bliley Act of 1999: The Gramm-Leach-Bliley Act of 1999 (“GLBA”) eliminates many of the restrictions placed on the activities of certain qualified financial or bank holding companies. The GLBA also restricts the Company and the Banks from sharing certain customer personal information with non- affiliated third parties and requires disclosure of the policies and practices regarding such data sharing.

     Source of Strength; Cross-Guarantee: Federal Reserve policy requires that we commit resources to support our subsidiaries and in implementing this policy, the Federal Reserve takes the position that it may require us to provide financial support when we otherwise would not consider it necessary to do so.

     Sarbanes-Oxley Act of 2002: The Sarbanes-Oxley Act of 2002 (“SOX”) generally applies to all publicly-held companies and was enacted to increase corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws promulgated by the SEC. SOX requires, among other things, (i) certification of financial statements by the Chief Executive Officer and the Chief Financial Officer and (ii) adoption of procedures designed to ensure the adequacy of the internal controls and financial reporting processes of public companies. Companies with securities listed on national securities exchanges must also comply with strict corporate governance requirements.

Reliance Bank

     Because Reliance Bank is not a member of the Federal Reserve System, the Missouri Division of Finance and the FDIC are its primary regulators. Between these two regulatory authorities, all areas of the Bank’s operations are monitored or regulated, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuance of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. In addition, Reliance Bank must maintain certain capital ratios and is subject to limitations on total investments in real estate, bank premises, and furniture and fixtures.

     Transactions with Affiliates and Insiders: Regulation W, promulgated by the Federal Reserve, imposes regulations on certain transactions with affiliates, including the amount of loans and extensions of credit to affiliates, investments in affiliates and the amount of advances to third parties collateralized by the securities or obligations of affiliates. Regulation W also requires, among other things, that Reliance Bank transact

business with affiliates on terms substantially the same, or at least as favorable to Reliance Bank, as those prevailing at the time for comparable transactions with non-affiliates.

     Community Reinvestment Act: The Community Reinvestment Act (the “CRA”) requires that the Company and its subsidiaries take certain steps to meet the credit needs of varying income level households in their local communities. The Company’s record of meeting such needs is considered by the FDIC when evaluating mergers and acquisitions and applications to open a branch or facility. Both Reliance Bank and Reliance Bank, FSB have satisfactory ratings under the CRA.

     Check 21: The Check Clearing for the 21st Century Act (“Check 21”) is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check clearing. The law facilitates check clearing by creating a new negotiable instrument called a substitute check, which permits banks to clear original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks. A substitute check is the legal equivalent of the original check and includes all the information contained on the original check. The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by Check 21 to create substitute checks.

     USA Patriot Act: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”) requires financial institutions to take certain steps to protect against money laundering, such as establishing anti-money laundering programs and maintaining controls with respect to private and foreign banking matters.

     Limitations on Loans and Transactions: The Federal Reserve Act generally imposes certain limitations on extensions of credit and other transactions by and between banks that are members of the Federal Reserve and other affiliates (which includes any holding company of which a bank is a subsidiary and any other non-bank subsidiary of such holding company). Banks that are not members of the Federal Reserve are also subject to these limitations. Further, federal law prohibits a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or the furnishing of services.

     Other Regulations: Interest and certain other charges collected or contracted for by the Bank are subject to state usury laws and certain federal laws concerning interest rates. The Bank’s loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978 governing information given to credit reporting agencies; the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies; the Soldiers’ and Sailors Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying obligations of, persons in military service; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the Banks are also subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

     Deposit Insurance: The Bank is FDIC-insured, and is therefore required to pay deposit insurance premium assessments to the FDIC.

     Pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “FDIRA”) in 2006, the previously separate deposit insurance funds for banks and savings associations were merged into a single deposit insurance fund administered by the FDIC. The Bank’s deposits are insured up to applicable limitations by that deposit insurance fund.

     Following the adoption of the FDIRA, the FDIC has the opportunity, through its rulemaking authority, to better price deposit insurance for risk than was previously authorized. The FDIC adopted regulations that create a system of risk-based assessments. Under the regulations, there are four risk categories, and each insured institution is assigned to a risk category based on capital levels and supervisory ratings. Well- capitalized institutions with the highest regulatory composite ratings are placed in Risk Category I, while other institutions are placed in Risk Categories II, III or IV depending on their capital levels and composite ratings. Currently, Reliance Bank, FSB is ranked as Risk Category I and Reliance Bank is ranked as Risk Category II. The assessment rates may be changed by the FDIC as necessary to maintain the insurance fund at the reserve ratio designated by the FDIC, which currently is 1.25% of insured deposits. The FDIC may set the reserve ratio annually at between 1.15% and 1.50% of insured deposits. Deposit insurance assessments will be collected for a quarter, at the end of the next quarter. Assessments are based on deposit balances at the end of the quarter, except for institutions with $1 billion or more in assets, such as the Bank, and any institution that becomes insured on or after January 1, 2007 which will have their assessment base determined using average daily balances of insured deposits.

     As of September 30, 2008, the reserve ratio of the deposit insurance fund fell to 0.76%. On October 7, 2008, the FDIC established a restoration plan to restore the reserve ratio to at least 1.15% within five years (effective February 27, 2009 the FDIC extended this time to seven years) and proposed rules increasing the assessment rate for deposit insurance and making adjustments to the assessment system. On December 16, 2008, the FDIC adopted and issued a final rule increasing the rates banks pay for deposit insurance uniformly by 7 basis points (annualized) effective January 1, 2009. Under the final rule, risk-based rates for the first quarter 2009 assessment will range between 12 and 50 basis points (annualized). The 2009 first quarter assessment rates established by the FDIC provide that the highest rated institutions, those in Risk Category I, will pay premiums of between 12 and 14 basis points and the lowest rated institutions, those in Risk Category IV, will pay premiums of 50 basis points. On February 27, 2009, the FDIC adopted a final rule amending the way that the assessment system differentiates for risk and setting new assessment rates beginning with the second quarter of 2009. Beginning April 1, 2009, for the highest rated institutions, those in Risk Category I, the initial base assessment rate will be between 12 and 16 basis points and for the lowest rated institutions, those in Risk Category IV, the initial base assessment rate will be 45 basis points. The final rule modifies the means to determine a Risk Category I institution’s initial base assessment rate. It also provides for the following adjustments to an institution’s assessment rate: (1) a decrease for long-term unsecured debt, including most senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) an increase for secured liabilities above a threshold amount; and (3) for institutions in risk categories other than Risk Category I, an increase for brokered deposits above a threshold amount. After applying these adjustments, for the highest rated institutions, those in Risk Category I, the total base assessment rate will be between 7 and 24 basis points and for the lowest rated institutions, those in Risk Category IV, the total base assessment rate will be between 40 and 77.5 basis points.

     On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each institution’s assets minus Tier 1 capital as of June 30, 2009, which was collected on September 30, 2009. The amount of the special assessment for any institution was not to exceed 10 basis points times the institution’s assessment base for the second quarter.

     On November 12, 2009, the FDIC adopted a final rule amending the assessment regulations to require institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012, on December 30, 2009. The prepayment for the fourth quarter of 2009 and all of 2010 was determined by multiplying the total base assessment rate that the institution paid for the third quarter of 2009 by the corresponding prepaid assessment base for each quarter. The prepayment for 2011 and 2012 was determined by multiplying the prepaid assessment rate plus 75 basis points times the corresponding prepaid assessment base for each quarter. For each quarter of the prepayment period, an institution’s prepaid assessment base was calculated by increasing its third quarter 2009 assessment base at an annual rate of 5 percent.

     On November 21, 2008, the FDIC adopted final regulations implementing the Temporary Liquidity Guarantee Program (“TLGP”) pursuant to which depository institutions could elect to participate. Pursuant to the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30,

2009 (the “Debt Guarantee”), and (ii) provide full FDIC deposit insurance coverage for non-interest bearing deposit transaction accounts regardless of dollar amount for an additional fee assessment by the FDIC (the “Transaction Account Guarantee”). These accounts are mainly payment-processing accounts, such as business payroll accounts. The Transaction Account Guarantee will expire on June 30, 2010. Participating institutions will be assessed a 10 basis point surcharge on the portion of eligible accounts that exceeds the general limit on deposit insurance coverage. Reliance Bank and Reliance Bank, FSB elected to participate in this Program.

     The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (i) has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe or unsound condition to continue operations or (iii) has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance, if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of Reliance Bank.

     Reliance Bank, FSB

     Reliance Bank, FSB is a federally chartered thrift, and as such, is regulated by the same agencies as its affiliate, Reliance Bank. The principal difference is that the FSB’s primary regulator is the OTS in lieu of the Missouri Division of Finance. As such, all of the above mentioned federal regulations apply to Reliance Bank, FSB. Additionally, under OTS regulations, Reliance Bank, FSB must maintain its standing as a “qualified thrift lender.” To maintain this status, it is required to comply with restrictions and limitations imposed by OTS regulations on the percentage of its loan portfolio that may be invested in different types of loans; specifically, Reliance Bank, FSB must maintain at least 65% of its loan portfolio in “qualified thrift investments,” which are essentially residential real estate loans. There are a wide variety of loans that qualify for this purpose.

Employees

     As of December 31, 2009, we had approximately 210 full-time equivalent employees. None of the Company’s employees are covered by a collective bargaining agreement. Management believes that its relationship with its employees is good.

Item 1A. Risk Factors

     An investment in shares of our Common Stock involves various risks. Before deciding to invest in our Common Stock, you should carefully consider the risks described below in conjunction with the other information in this Annual Report. Our business, financial condition and results of operations could be harmed by any of the following risks or by other risks identified throughout this Annual Report, or by other risks that have not been identified or that we may believe are immaterial or unlikely. The value or market price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

The current economic environment poses challenges for us and could adversely affect our financial condition and results of operations.

     We are operating in a challenging and uncertain economic environment, including generally uncertain national conditions and local conditions in our markets. The capital and credit markets have been experiencing volatility and disruption for more than 24 months. The volatility and disruption we have experienced are ongoing. The risks associated with our business become more acute in periods of a slowing economy or slow growth. Financial institutions continue to be affected by sharp declines in the real estate market and constrained financial markets. We retain direct exposure to the residential and commercial real estate markets, and we are affected by these events.

     Our loan portfolio includes commercial real estate loans, residential mortgage loans, and construction and land development loans. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on our borrowers or their customers, which could adversely affect our financial condition and results of operations. In addition, a deepening of the national economic recession or further deterioration in local economic conditions in our markets could drive losses beyond that which is provided for in our reserve for loan losses and result in the following other consequences: increases in loan delinquencies, problem assets and foreclosures may increase; demand for our products and services may decline; deposits may decrease, which would adversely impact our liquidity position; and collateral for our loans, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.

The impact of recent and future legislation may affect our business.

     Congress and the Treasury Department have recently adopted legislation and taken actions to address the disruptions in the financial system and declines in the housing market. It is not clear at this time what impact EESA, TARP, ARRA, other liquidity and funding initiatives of the Treasury and other bank regulatory agencies that have been previously announced, and any additional programs that may be initiated in the future, will have on the financial markets and the financial services industry. The actual impact that EESA and such related measures undertaken to alleviate the credit crisis will have generally on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced, is unknown. The failure of such measures to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock. Finally, there can be no assurance regarding the specific impact that such measures may have on us.

     In addition to the legislation mentioned above, federal and state governments could pass additional legislation responsive to current credit conditions. As an example, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that reduces the amount the Bank’s borrowers are otherwise contractually required to pay under existing loan contracts. Also, the Bank could experience higher credit losses because of federal or state legislation or regulatory action that limits its ability to foreclose on property or other collateral or makes foreclosure less economically feasible.

Current levels of market volatility are unprecedented.

     The capital and credit markets have been experiencing volatility and disruption for several years. In recent months, the volatility and disruption have reached unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, our ability to access capital may be adversely affected which, in turn, could adversely affect our business, financial condition and results of operations.

Additional increases in insurance premiums could affect our earnings.

     The FDIC insures the Bank’s deposits up to certain limits. The FDIC charges us premiums to maintain the Deposit Insurance Fund. Current economic conditions have increased the deposit premiums as a result of bank failures. The FDIC takes control of failed banks and ensures payment of deposits up to insured limits using the resources of the Deposit Insurance Fund. The FDIC has designated the Deposit Insurance Fund long -term target reserve ratio at 1.25 percent of insured deposits. Due to recent bank failures, the FDIC insurance fund reserve ratio has fallen below 1.15 percent, the statutory minimum.

     The FDIC expects a higher ratio of insured institution failures in the next few years, which may result in a continued decline in the reserve ratio. As discussed above, the FDIC has developed a proposed restoration plan that will uniformly increase insurance assessments by 7 basis points (annualized) effective January 1, 2009. Effective April 1, 2009, the plan also has made changes to the deposit insurance assessment system requiring riskier institutions to pay a larger share. Even though we fully paid FDIC deposit insurance for the year 2009, as well as prepaying for the years 2010, 2011, and 2012, there is no guarantee the FDIC will not implement further increases during these three years, even though prepaid. If these assessments increase significantly it could adversely affect our earnings.

A future reduction in liquidity in the banking system could increase our costs.

     The Federal Reserve Bank has been providing vast amounts of liquidity into the banking system to compensate for weaknesses in short-term borrowing markets and other capital markets. A reduction in the Federal Reserve’s activities or capacity could reduce liquidity in the markets, thereby increasing funding costs to the Company or reducing the availability of funds to the Company to finance its existing operations.

Difficult market conditions have adversely affected our industry.

     We are particularly exposed to downturns in the U.S. housing market. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and securities and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities, major commercial and investment banks, and regional financial institutions. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets have adversely affected our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry.

Our business is impacted by the local economies in which we operate.

     Because the majority of our borrowers and depositors are individuals and businesses located and doing business in the St. Louis and Fort Myers metropolitan areas, our success depends to a significant extent upon economic conditions in the St. Louis and Fort Myers metropolitan areas. Adverse economic conditions in our market areas could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international disorder, terrorism, weather-related conditions and other factors beyond our control may adversely affect our profitability. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions in the St. Louis or Fort Myers metropolitan areas could adversely affect the value of our assets, revenues, results of operations and financial condition. Our loan production offices (“LPOs”) in Phoenix and Houston could also be impacted by local economies in regards to loan production and growth. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur.

If the value of real estate in the St. Louis and Fort Myers metropolitan areas were to continue to decline materially, a significant portion of our loan portfolio would become under-collateralized, which could have a material adverse effect on us.

     With most of our loans concentrated in the St. Louis and Fort Myers metropolitan areas at this time, a continued decline in local economic conditions could adversely affect the value of the real estate collateral securing our loans. A continued decline in property values would diminish our ability to recover on defaulted loans by selling the real estate collateral, making it more likely that we would suffer losses on defaulted loans. Additionally, the subsequent decrease in asset quality could require additions to our reserve for possible loan losses through increased provisions for loan losses, which would hurt our profits. Also, a further decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. Real

estate values are affected by various factors in addition to local economic conditions, including, among other things, changes in general or regional economic conditions, governmental rules or policies and natural disasters. A negative development in any of these factors could adversely affect our results of operations and financial condition.

Our reserve for possible loan losses may be insufficient to absorb losses in our loan portfolio.

     Like most financial institutions, we maintain a reserve for possible loan losses to provide for loans in our portfolio that may not be repaid in their entirety. We believe that our reserve for possible loan losses is maintained at a level adequate to absorb probable losses inherent in our loan portfolio as of the corresponding balance sheet date. However, our reserve for possible loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results.

     In evaluating the adequacy of our reserve for possible loan losses, we consider numerous quantitative factors, including our historical charge-off experience, growth of our loan portfolio, changes in the composition of our loan portfolio and the volume of delinquent and criticized loans. In addition, we use information about specific borrower situations, including their financial position and estimated collateral values, to estimate the risk and amount of loss for those borrowers. Finally, we also consider many qualitative factors, including general and economic business conditions, duration of the current business cycle, current general market collateral valuations, trends apparent in any of the factors we take into account and other matters, which are by nature more subjective and fluid. Our estimates of the risk of loss and amount of loss on any loan are complicated by the significant uncertainties surrounding our borrowers’ abilities to successfully execute their business models through changing economic environments, competitive challenges and other factors. Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates.

     At December 31, 2009, our reserve for possible loan losses as a percentage of total loans was 2.82%. Federal and state regulators, as an integral part of their examination process, periodically review our reserve for possible loan losses and may require us to increase our reserve for possible loan losses by recognizing additional provisions for loan losses charged to expense, or to decrease our reserve for possible loan losses by recognizing loan charge-offs, net of recoveries. Any such additional provisions for loan losses or charge-offs, as required by these regulatory agencies, could have a material adverse effect on our financial condition and results of operations.

Fluctuations in interest rates could reduce our profitability and affect the value of our assets.

     Like other financial institutions, we are subject to interest rate risk. Our primary source of income is net interest income, which is the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. We expect that we will periodically experience imbalances in the interest rate sensitivities of our assets and liabilities and the relationships of various interest rates to each other. Over any defined period of time, our interest-earning assets may be more sensitive to changes in market interest rates than our interest-bearing liabilities, or vice versa. In addition, the individual market interest rates underlying our loan and deposit products (e.g., the prime commercial rate) may not change to the same degree over a given time period. In any event, if market interest rates should move contrary to our position, our earnings may be negatively affected. In addition, loan volume and quality and deposit volume and mix can be affected by market interest rates. Changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, origination volume and overall profitability.

     We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities. In a changing interest rate environment, we may not be able to manage this risk effectively. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be adversely affected. Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.

We are dependent upon the services of our management team.

     Our future success and profitability is substantially dependent upon the management and banking abilities of our executive management team. We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified senior and middle management. We are especially dependent on a limited number of key management personnel, none of whom has an employment agreement with us, except for our Chief Executive Officer and our Executive Vice President. The loss of the Chief Executive Officer, Executive Vice President or other senior executive officers could have a material adverse impact on our operations because other officers may not have the experience and expertise to readily replace these individuals. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting or retaining such personnel. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition and results of operations.

Our failure to recruit and retain qualified lenders could adversely affect our ability to compete successfully and affect our profitability.

     Our success and future growth depend heavily on our ability to attract and retain highly skilled and motivated lenders and other banking professionals. We compete against many institutions with greater financial resources both within our industry and in other industries to attract these qualified individuals. Our failure to recruit and retain adequate talent could reduce our ability to compete successfully and could adversely affect our business and profitability.

Competition from financial institutions and other financial service providers may adversely affect our growth and profitability.

     The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere.

     We compete with these institutions both in attracting deposits and in making loans. This competition has made it more difficult for us to make new loans and has occasionally forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. Many of our competitors are larger financial institutions. While we believe we successfully compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, smaller resources and smaller lending limits, lack of geographic diversification and inability to spread our marketing costs across a broader market. In recent years, several new financial institutions have been established in the St. Louis and Fort Myers metropolitan areas. These new financial institutions have and are expected to continue to price their loans and deposits aggressively in order to attract customers. Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts, and greater flexibility and responsiveness in working with local customers, we can give no assurance this strategy will be successful.

We may have fewer resources than many of our competitors to invest in technological improvements.

     The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

We are subject to security and operational risks relating to our use of technology that could damage our reputation and our business.

     Security breaches in our internet banking activities could expose us to possible liability and damage our reputation. Any compromise of our security also could deter customers from using our internet banking services that involve the transmission of confidential information. We rely on standard internet security systems to provide the security and authentication necessary to effect secure transmission of data. These precautions may not protect our systems from compromises or breaches of our security measures that could result in damage to our reputation and our business. Additionally, we outsource our data processing to a third party. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

     We are subject to extensive regulation, supervision and examination by the Federal Reserve, OTS, the Missouri Division of Finance, its chartering authorities, and by the FDIC, as insurer of our deposits. Such regulation and supervision govern the activities in which we may engage, and are intended primarily for the protection of the insurance fund and for the depositors and borrowers of the Banks. The regulation and supervision by the Federal Reserve, OTS, the Missouri Division of Finance and the FDIC are not intended to protect the interests of investors in our Common Stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our reserve for possible loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. As an example, the GLBA eliminates many of the restrictions placed on the activities of certain qualified financial or bank holding companies. We will incur additional expenses as a publicly reporting company as a result of compliance costs associated with the SEC’s public reporting requirements. In addition, SOX and the related rules and regulations promulgated by the SEC that are now applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices, including the costs of completing our audits and maintaining our internal controls.

ITEM 1b. Unresolved Staff Comments

     None.

Item 2. Properties

     Our executive offices are located at 10401 Clayton Road, Frontenac, Missouri, 63131. As of December 31, 2009, the Company’s subsidiary, Reliance Bank, had a total of twenty banking locations in Missouri and Illinois. Reliance Bank owns nineteen of the bank branch buildings, as well as the underlying real property on fourteen of them. One branch operates in a leased building, and the remaining five branch buildings, although owned, are subject to ground leases that expire between 2015 and 2026 and include one or more renewal options.

     As of December 31, 2009, the Company’s subsidiary, Reliance Bank, FSB, had three locations in Florida. Reliance Bank, FSB leases one of these locations, and owns the other two..

     As of December 31, 2009, the Company’s subsidiary, Reliance Loan Center in Phoenix, Arizona had one leased location.

     As of December 31, 2009, the Company’s subsidiary, Reliance Loan Center in Houston, Texas had one leased location.

Item 3. Legal Proceedings

     The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes that there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company or any of its subsidiaries.

Item 4. Market for Registrant’s common equity, related stockholder matters and issuer purchases of equity securities

     The Class A Common Stock of the Company, par value $0.25 (the “Common Stock”), is not registered under the Securities Act of 1933, as amended, however is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. The Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol “RLBS,” but the Company is unaware as to any transactions involving its Common Stock other than occasional trades and private transactions between shareholders and third parties.

     The high and low price per share paid for the Common Stock as determined by reference to offering prices of the Common Stock during the previous two fiscal years are reflected in the following table:

		High				Low
2009
First Quarter		$	4.90			$	3.00
Second Quarter		$	4.50			$	3.25
Third Quarter		$	3.65			$	2.65
Fourth Quarter		$	3.50			$	2.00
2008
First Quarter		$	12.00			$	7.00
Second Quarter		$	10.10			$	6.25
Third Quarter		$	11.00			$	6.10
Fourth Quarter		$	7.75			$	4.40

As of March 22, 2010 there were approximately 753 holders of our Common Stock.

Dividends

     The Company has never paid any cash dividends and has no current intention to pay dividends on common in the immediate future.

     The following Stock Performance Graph and related information should not be deemed “soliciting material” or to be “filed” with the SEC nor shall such performance be incorporated by reference into any future filings under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

     The following graph compares the Company’s cumulative stockholder return on its common stock from June 26, 2007 through December 31, 2009, the measurement period. The graph compares the Company’s common stock with the NASDAQ Composite and the SNL $1B-$5B Bank Index. The graph assumes an investment of $100.00 in the Company’s common stock and each index on June 26, 2007 and reinvestment of all quarterly dividends. The investment is measured as of the fiscal year end. While there are no assurances, the Company believes that this trend will reverse as the economy improves.

Stock Performance Graph

			Period Ending
	Index			06/26/07					12/31/07					06/30/08					12/31/08					06/30/09					12/31/09
	Reliance Bancshares, Inc.				100.00					93.33					62.22					45.24					28.89					20.44
	NASDAQ Composite				100.00					103.03					89.08					61.26					71.29					88.15
	SNL $1B-$5B Bank Index				100.00					84.90					66.04					70.42					51.72					50.48

Recent Sales of Unregistered Equity Securities

On December 4, 2009, December 15, 2009, and December 22, 2009 we sold 25, 175, and 100 shares, respectively, of our Series C Preferred Stock for an aggregate consideration of $300,000.00. Such shares were not registered and were sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

Item 5. selected financial data

     The following consolidated selected financial data is derived from the Company’s audited financial statements as of and for the five years ended December 31, 2009. This information should be read in connection with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report.

		As of and for the
		Years ended December 31,
		2009				2008				2007				2006				2005
		(in thousands, except per share data)
Statements of income:
Total interest income		$	76,589			$	78,209			$	63,687			$	47,961			$	31,267
Total interest expense			39,005				41,715				37,609				26,227				15,236
Net interest income			37,584				36,494				26,078				21,734				16,031
Provision for possible loan losses			53,450				11,148				3,187				2,200				2,333
Net interest income after provision for possible loan losses			(15,866	)			25,346				22,891				19,534				13,698
Total noninterest income			3,925				2,683				1,976				1,310				537
Total noninterest expense			34,046				29,428				22,290				16,605				11,449
Income (loss) before income taxes			(45,987	)			(1,399	)			2,577				4,239				2,786
Income tax expense (benefit)			(16,630	)			(1,080	)			462				1,223				863
Net income (loss)		$	(29,357	)		$	(319	)		$	2,115			$	3,016			$	1,923
Common share data:
Basic net income (loss) per common share (2009 restated)		$	(1.49	)		$	(0.02	)		$	0.10			$	0.16			$	0.12
Diluted net income (loss) per common share (2009 restated)			(1.48	)			(0.02	)			0.10				0.15				0.12
Dividends declared per share			—				—				—				—				—
Book value per common share			5.14				6.73				6.76				6.31				5.06
Tangible book value per common share			5.09				6.67				6.70				6.24				4.98
Weighted average shares-basic			20,864				20,670				20,343				18,685				16,095
Weighted average shares-diluted			20,881				21,063				21,337				19,548				16,681
Shares outstanding-end of period			20,972				20,771				20,682				19,571				18,242
Period-end balances:
Loans, net		$	1,108,575			$	1,240,191			$	902,053			$	660,318			$	467,402
Investment securities			284,120				193,888				158,042				188,369				187,842
Total assets			1,536,708				1,573,989				1,136,152				900,799				702,462
Deposits			1,266,060				1,228,047				834,576				678,597				576,425
Short-term borrowings			12,697				63,919				88,325				70,463				16,847
Long-term borrowings			104,000				136,000				68,000				24,300				14,300
Stockholders’ equity			149,669				139,609				139,891				123,497				92,216
Average balances:
Loans		$	1,213,937			$	1,115,216			$	770,523			$	546,122			$	397,584
Investment securities			254,116				168,289				174,052				200,286				145,887
Total assets			1,569,548				1,366,110				1,006,628				786,014				588,312
Deposits			1,238,968				1,006,763				777,450				629,588				473,540
Short-term borrowings			22,477				88,749				49,179				26,475				17,155
Long-term borrowings			131,039				125,118				39,646				15,881				11,423
Stockholders’ equity			169,792				138,394				134,548				109,940				83,324
Selected ratios:
Net yield on earning assets			2.55	%			2.88	%			2.79	%			2.94	%			2.90	%
Return on average total assets			(1.87	)%			(0.02	)%			0.21	%			0.38	%			0.33	%
Return on average stockholders’ equity			(17.29	)%			(0.23	)%			1.57	%			2.74	%			2.31	%
Average stockholders’ equity as a percent of average total assets			10.82	%			10.13	%			13.37	%			13.99	%			14.16	%
Nonperforming loans as a percent of loans at year-end			6.32	%			2.94	%			1.95	%			0.77	%			0.65	%
Reserve for possible loan losses as a percent of loans at year-end			2.82	%			1.14	%			1.06	%			1.06	%			1.10	%

Item 6. Management’s discussion and analysis of financial condition and results of operations

     The following presents management’s discussion and analysis of the consolidated financial condition and results of operations of Reliance Bancshares, Inc. (the “Company”) for each of the years in the three-year period ended December 31, 2009. This discussion and analysis is intended to review the significant factors affecting the financial condition and results of operations of the Company, and provides a more comprehensive review which is not otherwise apparent from the consolidated financial statements alone. This discussion should be read in conjunction with “Selected Financial Data,” the Company’s consolidated financial statements and the notes thereto and other financial data appearing elsewhere herein.

     The Company has prepared all of the consolidated financial information in this report in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In preparing the consolidated financial statements in accordance with U.S. GAAP, the Company makes estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. No assurances can be given that actual results will not differ from those estimates.

Overview

     The Company provides a full range of banking services to individual and corporate customers throughout the St. Louis metropolitan area in Missouri and Illinois and southwestern Florida through the 23 locations of its wholly-owned subsidiaries, Reliance Bank and Reliance Bank, FSB (hereinafter referred to as the “Banks”). The Company was incorporated and began its development stage activities on July 24, 1998. Such development stage activities (i.e., applying for a banking charter, raising capital, acquiring property, and developing policies and procedures, etc.) led to the opening of Reliance Bank (as a new bank) upon receipt of all regulatory approvals on April 16, 1999. Since its opening in 1999 through December 31, 2009, Reliance Bank has added 20 branch locations in the St. Louis metropolitan area of Missouri and Illinois and Loan Production Offices (“LPOs”) in Houston, Texas and Phoenix, Arizona and has grown its total assets, loans and deposits to $1.4 billion, $1.1 billion, and $1.2 billion, respectively, at December 31, 2009.

     Effective May 31, 2003, the Company purchased The Bank of Godfrey, a Godfrey, Illinois state banking institution. The Godfrey bank was merged with and into Reliance Bank on October 31, 2005. Reliance Bank also opened a LPO in Ft. Myers, Florida on July 1, 2004. Effective January 17, 2006, the Company opened a new Federal Savings Bank, Reliance Bank, FSB, in Ft. Myers, Florida, and loans totaling approximately $14 million that were originated by the Reliance Bank LPO were transferred to Reliance Bank, FSB. Since its opening in 2006, Reliance Bank, FSB has three branch locations in southwestern Florida and with total assets, loans, and deposits of $105.0 million, $65.5 million, and $77.3 million, respectively, at December 31, 2009.

     At December 31, 2009, Reliance Bank’s total assets, total revenues, and net loss represented 93.30%, 93.60%, and 70.39%, respectively, of the Company’s consolidated total assets, total revenue, and net loss. Reliance Bank, FSB’s total assets, total revenues, and net loss represented 6.83%, 6.40%, and 24.16%, respectively, of the Company’s consolidated totals. The Company incurred a net loss of $29.4 million for the year ended December 31, 2009.

     During 2008, the Company completed building its St. Louis metropolitan branch network. The Company plans to continue building its branch network in southwestern Florida at some time in the future , with four additional branches planned; however, the building of these branches has been suspended while management focuses on Reliance Bank, FSB’s profitability in light of the stressful market conditions in southwestern Florida. The Company’s branch expansion plans were designed to increase the Company’s market share in the St. Louis metropolitan area in Missouri and Illinois and southwestern Florida and to allow the Company’s banking subsidiaries to compete with much larger financial institutions in these markets. The Houston and Phoenix LPOs are intended to benefit from commercial and residential lending and fee income generation opportunities in these larger and historically higher-growth markets.

     The St. Louis metropolitan, southwestern Florida, Houston and Phoenix markets in which the Company’s banking subsidiaries operate are highly competitive in the financial services area. The Banks are subject to competition from other financial and nonfinancial institutions providing financial products throughout these markets.

     The Company’s total consolidated assets were $1.5 billion at December 31, 2009, with loans and deposits totaling $1.1 billion and $1.3 billion, respectively. The branch locations of the Banks have provided the Company with excellent strategic locations from which depositors and borrowers can be accessed. Three Reliance Bank branches were opened in 2008, six Reliance Bank branches were opened in 2006, one branch was opened in 2005, four branches were opened in 2004, two branches were opened in 2003, and one branch was opened each year in 2002, 2001, and 1999. Three Reliance Bank, FSB branches were opened in 2007 and one branch was opened in 2006, while one temporary branch was closed on June 26, 2009 due to local economic conditions.

     The Company has funded its Banks’ branch expansion with several private placement stock offerings made to accredited investors since its inception. The Company has held a total of 12 such offerings since its inception and has sold 20,972,091 shares of Company Common Stock through December 31, 2009.

     The Company’s consolidated net income/(loss) for the years ended December 31, 2009, 2008, and 2007 totaled $(29,357,361), $(319,230), and $2,114,947, respectively. While the Company’s net interest income has grown, the provision for possible loan losses has increased, reflecting an increase in non-performing loans, which has resulted from a substantial decline in the real estate and local economic markets in which the Company’s banking subsidiaries operate. These factors and their effect on the Company’s results of operations are discussed in more detail below.

     Net interest income before the provision for possible loan losses for the years ended December 31, 2009, 2008, and 2007 totalled $37,584,384, $36,493,939, and $26,077,924, respectively. This growth in net interest income resulted from a decrease in the rates paid on deposits and an increasing level of interest-earning assets during this time period, reduced by increasing nonearning problem assets. Total interest income was $76,589,196, $78,209,207, and $63,686,972, for the years ended December 31, 2009, 2008, and 2007, respectively.

     Interest expense incurred on interest-bearing liabilities for the years ended December 31, 2009, 2008, and 2007 totalled $39,004,812, $41,715,268, and $37,609,048, respectively. The Company continues to restructure its mix of deposits away from higher rate time deposits and short term borrowings to lower cost savings and money market accounts. Also, the Company has been able to lower rates on retail deposits and still retain customer balances.

     The substantial decline of the real estate market that has occurred during the past several years on a national scale has also been experienced in the St. Louis metropolitan and southwestern Florida areas. Residential home building and sales have declined significantly from the levels enjoyed in prior years. As a result, since 2006, the Company has experienced a significant and continual increase in non-performing assets (which include non-performing loans and other real estate owned). Nonperforming assets totalled $101.2 million at December 31, 2009, compared with $50.2 million at December 31, 2008. The reserve for possible loan losses as a percentage of net outstanding loans was 2.82% and 1.14% at December 31, 2009 and 2008, respectively. Net charge-offs for the year ended December 31, 2009 totalled $35,534,253 compared with $6,527,189 for the year ended December 31, 2008. The provision for possible loan losses charged to expense for the years ended December 31, 2009 and 2008 was $53,450,000 and $11,148,000, respectively. The increase in the provision for loan losses was a direct reaction to the significant and continual decline in the real estate market. The Company believes it has identified existing problems in the portfolio and worked to address those issues, however, the economy continues to present challenges to our borrowers and it could be likely that others will experience difficulties in meeting obligations. See further discussion regarding the Company’s management of credit risk in the section below entitled “Risk Management.”

     Total noninterest income excluding securities gains and losses for the years ended 2009, 2008 and 2007 was $2,578,517, $2,361,422, and $1,818,785. Gains on security sales for the years ended 2009, 2008 and 2007 were $1,346,565, $321,113, and $157,011, respectively.

     Deposit service charge income increased due to a larger deposit base. Deposit service charge revenues for 2009, 2008 and 2007 were $975,664, $796,653, and $509,352, respectively. Residential mortgage lending operations (in which fixed rate loans are originated and sold in the secondary market) also increased. Total income for these secondary market activities during 2009, 2008 and 2007 were $435,570, $391,849 and $243,538, respectively.

     Total noninterest expense was $34,046,389, $29,427,590, and $22,290,307, for the years ended December 31, 2009, 2008, and 2007, respectively. Increased expenses relating to other real estate owned (including losses on sales of foreclosed property and writedowns on properties still held, as well as holding costs on such properties), increased FDIC insurance assessments, and writedowns on investment securities more than offset the cost savings achieved in other operational expenses.

     The Company’s effective tax rate for the years ended December 31, 2009, 2008, and 2007 was 36.16%, 77.18%, and 17.93%, respectively. The change in effective tax rates during this three year period is a result of the level of tax-exempt interest income and its effect on the pre-tax income/loss.

     Basic earnings (loss) per common share for the years ended December 31, 2009, 2008, and 2007 were $(1.49) (restated), $(0.02), and $0.10, respectively. On a diluted basis, earnings (loss) per share for the years ended December 31, 2009, 2008, and 2007 were $(1.48) (restated), $(0.02), and $0.10, respectively.

     Following are certain ratios generally followed in the banking industry for the Company for the years ended December 31, 2009, 2008, and 2007:

		As of and for the
		Years Ended December 31,
		2009				2008				2007
Percentage of net income (loss) to:
Average total assets			(1.87	)%			(0.02	)%			0.21	%
Average stockholders’ equity			(17.29	)%			(0.23	)%			1.57	%
Percentage of common dividends declared to net income per common share			—				—				—
Percentage of average stockholders’ equity to average total assets			10.82	%			10.13	%			13.37	%

Critical Accounting Policies

     The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they are likely to change over time or prove to be different than actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to our critical accounting policies on our business operations are discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 to our Consolidated Financial Statements for the years ended December 31, 2009, 2008, and 2007 included elsewhere herein.

     Reserve for Possible Loan Losses

     Subject to the use of estimates, assumptions, and judgments, management’s evaluation process used to determine the adequacy of the reserve for possible loan losses combines several factors: management’s ongoing review of the loan portfolio; consideration of past loan loss experience; trends in past due and nonperforming loans; risk characteristics of the various classifications of loans, existing economic conditions; the fair value of underlying collateral; input from regulators; and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy

of the reserve, could change significantly. In addition, as an integral part of their examination process, various regulatory agencies also review the reserve for possible loan losses. Such agencies may require that certain loan balances be charged off when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examinations, or may have particular views of the level of loan loss reserve. The Company believes the reserve for possible loan losses is adequate and properly recorded in the consolidated financial statements.

     Deferred Tax Assets

     The Company recognizes deferred tax assets and liabilities for the estimated future tax effects of temporary differences, net operating loss carry-forwards and tax credits. Deferred tax assets are recognized subject to management’s judgment based upon available evidence that realization is more likely than not. In the event that management determines the Company would not be able to realize all or part of net deferred tax assets in the future, deferred tax assets would be reduced if necessary, by a deferred tax asset valuation allowance, which would result from a direct charge to income tax expense in the period that such determination is made. Likewise, the Company would reverse the valuation allowance when realization of the deferred tax asset is expected and decrease income tax expense, accordingly.

Results of Operations for the Three-Year Period Ended December 31, 2009

     Net Interest Income

     The Company’s net interest income increased by $1,090,445 (2.99%) to $37,584,384 for the year ended December 31, 2009 from the $36,493,939 earned for the year ended December 31, 2008, which was an increase of $10,416,015 (39.94%) from the $26,077,924 earned in 2007. The Company’s net interest margin for the years ended December 31, 2009, 2008, and 2007 was 2.55%, 2.88%, and 2.79%, respectively. The Company’s net interest margin has been negatively impacted by increased non-performing loans.

     Average earning assets for 2009 increased $203,514,070 (15.77%) to $1,494,354,054 from the level of $1,290,839,984 for 2008. Average earning assets for 2008 increased $337,460,622 (35.40%) from the level of $953,379,362 for 2007. The growth in average interest earning assets was primarily due to growth in both the investment and loan portfolios, although loan balances have declined since December 31, 2008. Total average loans grew $98,720,183 (8.85%) in 2009 to $1,213,936,609 from the level of $1,115,216,426 for 2008, which was an increase of $344,693,406 (44.73%) from the level of $770,523,020 for 2007. The Company’s addition of LPOs in Houston and Phoenix, and normal growth occurring in some of the Banks’ newer branches were the primary reasons for the growth in the Company’s average loan balances.

     Total average investment securities for 2009 increased $85,827,133 (51.00%) to $254,116,193 from the level of $168,289,060 for 2008, which was a decrease of $5,762,992 (3.31%) from the level of $174,052,052 for 2007. The Company uses its investment portfolio to (a) provide support for borrowing arrangements for securities sold under repurchase agreements, (b) provide support for pledging purposes for deposits of governmental and municipal deposits over FDIC insurance limits, (c) provide a secondary source of liquidity through “laddered” maturities of such securities, and (d) provide increased interest income over that which would be earned on overnight/daily fund investments. As the Company’s deposits grow, a certain percentage of such deposits are invested in investment securities for these specific purposes. The total carrying value of securities pledged to secure public funds and repurchase agreements was approximately $160,923,000, $180,767,000, and $156,904,000 at December 31, 2009, 2008, and 2007, respectively. The Banks have also pledged letters of credit from the Federal Home Loan Banks totaling $17,791,974 as additional collateral to secure public funds at December 31, 2009.

     Average short-term investments can fluctuate significantly from day to day based on a number of factors, including, but not limited to, the collected balances of customer deposits, loan demand and investment security maturities. Excess funds not invested in loans or investment securities are invested in overnight funds with various unaffiliated financial institutions. The average balances of such short-term investments for the years ended December 31, 2009, 2008, and 2007 were $26,301,252, $7,334,498, and $8,804,290 respectively.

     A key factor in increasing the Company’s net interest margin is to maintain a higher percentage of earning assets in the loan category, which is the Company’s highest earning asset category. However, average loans as a percentage of average earning assets were 81.23% for 2009, which was a 516 basis point decrease under the 86.39% percentage achieved in 2008, which was a 557 basis point increase over the 80.82% percentage achieved in 2007. The decline from 2008 to 2009 resulted from the depressed economic environment in the Banks’ market areas, resulting in fewer lending opportunities for the Banks.

     Funding the Company’s growth in interest-earning assets has been a challenge in the markets in which the Company’s banking subsidiaries operate. With the stock market rebounding through 2007 from its depressed levels in 2004 and 2003, deposits were not as plentiful in the banking market overall, until the second half of 2007, when a declining real estate economy significantly reduced loan demand. The stock market has since also declined from its record levels in 2007 to low levels not seen since 1982, before rebounding in 2009. Additionally, the St. Louis metropolitan area has added several new banks in the past five or six years (as well as several institutions such as Reliance Bank adding numerous branches), resulting in an intensely competitive environment for customer deposits. Competition for deposits in southwestern Florida is equally as intense as the market for deposits in the St. Louis metropolitan area.

     Total average interest-bearing deposits for 2009 increased $226,232,142 (23.80%) to $1,176,771,212 from the level of $950,539,070 for 2008, which was an increase of $217,930,791 (29.75%) from the level of $732,608,279 for 2007. This increase in deposits resulted from the Company’s earlier aggressive branch expansion (with some of the newer branches showing strong deposit growth) and aggressive pricing of deposits. The Company’s banking subsidiaries have sought to be aggressive on deposits, without necessarily being the highest rate available in their markets.

     The Company’s short-term borrowings consist of overnight funds borrowed from unaffiliated financial institutions, securities sold under sweep repurchase agreements with larger deposit customers, and a short term note payable obtained in 2008 by the Company in the amount of $7,000,000, and repaid in 2009. The average balances of such borrowings for the years ended December 31, 2009, 2008, and 2007 totaled $22,476,551, $88,748,506, and $49,178,929, respectively. The increase in retail savings accounts resulting from two special rate promotions allowed the Company to reduce its short term borrowings.

     The Company has used longer-term advances from the Federal Home Loan Bank as a less expensive alternative to the intensely competitive deposit market, particularly when such longer-term fixed rate advances can be matched up with longer-term fixed rate assets. During the three year period ended December 31, 2009, average longer-term borrowings were $131,038,979, $125,117,708, and $39,646,040, for 2009, 2008, and 2007, respectively.

     The overall mix of the Company’s funding sources has a significant impact on the Company’s net interest margin. Following is a summary of the percentage of the various components of average interest-bearing liabilities and noninterest-bearing deposits to the total of all average interest-bearing liabilities and noninterest-bearing deposits (hereinafter described as total funding sources):

		2009				2008				2007
Average deposits:
Noninterest-bearing			4.47	%			4.61	%			5.18	%
Interest-bearing:
Transaction accounts			12.11				13.29				18.39
Savings			18.88				4.30				6.97
Time deposits of $100,000 or more			22.58				27.85				25.95
Other time deposits			30.94				32.43				33.26
Total average interest-bearing deposits			84.51				77.87				84.57
Total average deposits			88.98				82.48				89.75
Short-term borrowings			1.61				7.27				5.67
Longer-term advances from Federal Home Loan Bank			9.41				10.25				4.58
			100.00	%			100.00	%			100.00	%

     The composition of the Company’s deposit portfolio will fluctuate as recently-added branches grow and help to diversify the Company’s deposit base. The overall level of interest rates will also cause fluctuations between categories. The Company has sought to increase the percentage of its noninterest-bearing deposits to the total of all funding sources; however, in the competitive markets in which the Company’s banking subsidiaries operate, this has been difficult. Through a campaign which began in the fourth quarter of 2008 and concluded in the first quarter of 2009, the Company did increase its percentage of retail savings accounts, allowing it to reduce the percentage of short term borrowings. This campaign, which has generated $252 million in deposit balances, offered a rate similar to the 12-month CD rate, and was guaranteed until December 31, 2009. Another campaign was initiated to retain deposits after the first promotion’s guarantee expiration. At December 31, 2009 this second campaign has generated an additional $54 million in deposit balances. The Company has worked to replace its higher cost deposits with lower cost transaction accounts; however, its most significant funding source has continued to be certificates of deposit, which comprised 53.52% of total average funding sources during 2009, as compared with 60.28% in 2008, and 59.21% in 2007. Certificates of deposit have a lagging effect with interest rate changes, as most certificates of deposit have longer maturities at fixed rates.

     The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in volume and changes in yield/rates:

		Amount of Increase (Decrease)
		Change From 2008 to 2009 Due to												Change From 2007 to 2008 Due to
						Yield/												Yield/
		Volume (1)				Rate (2)				Total				Volume (1)				Rate (2)				Total
Interest income:
Loans		$	5,934,729			$	(8,642,779	)		$	(2,708,050	)		$	22,321,195			$	(7,082,820	)		$	15,238,375
Investment securities:
Taxable			3,485,743				(2,006,617	)			1,479,126				(257,862	)			(147,267	)			(405,129	)
Exempt from Federal income taxes			(369,278	)			(11,094	)			(380,372	)			(16,286	)			122,591				106,305
Short — term investments			154,357				(293,845	)			(139,488	)			(71,243	)			(229,499	)			(300,742	)
Total interest income			9,205,551				(10,954,335	)			(1,748,784	)			21,975,804				(7,336,995	)			14,638,809
Interest expense:
Interest bearing transaction accounts			140,207				(1,843,817	)			(1,703,610	)			123,783				(3,086,475	)			(2,962,692	)
Savings accounts			5,645,760				781,730				6,427,490				(212,642	)			(642,000	)			(854,642	)
Time deposits of $100,000 or more			(969,138	)			(2,991,052	)			(3,960,190	)			4,978,501				(2,678,056	)			2,300,445
Other time deposits			1,358,823				(3,172,220	)			(1,813,397	)			4,564,626				(1,832,573	)			2,732,053
Total deposits			6,175,652				(7,225,359	)			(1,049,707	)			9,454,268				(8,239,104	)			1,215,164
Short — term borrowings			(1,277,362	)			(656,388	)			(1,933,750	)			1,349,278				(1,439,850	)			(90,572	)
Long — term borrowings			234,146				38,855				273,001				3,299,642				(318,014	)			2,981,628
Total interest expense			5,132,436				(7,842,892	)			(2,710,456	)			14,103,188				(9,996,968	)			4,106,220
Net interest income		$	4,073,115			$	(3,111,443	)		$	961,672			$	7,872,616			$	2,659,973			$	10,532,589

     Provision for Possible Loan Losses

     The provision for possible loan losses charged to earnings for the years ended December 31, 2009, 2008, and 2007 totaled $53,450,000, $11,148,000, and $3,186,500, respectively. During this same time period, the Company incurred net charge-offs of $35,534,253 in 2009, $6,527,189 in 2008, and $602,520 in 2007. At December 31, 2009, 2008, and 2007, the reserve for possible loan losses as a percentage of net outstanding loans was 2.82%, 1.14%, and 1.06%, respectively. The reserve for possible loan losses as a percentage of nonperforming loans (comprised of loans for which the accrual of interest has been discontinued and loans still accruing interest that were 90 days delinquent) was 44.70%, 41.00%, and 54.57% at December 31, 2009, 2008, and 2007, respectively. The continued significant decline of the real estate market has resulted in an

increase in the level of nonperforming loans and a higher provision for loan losses during 2009. See further discussion regarding the Company’s credit risk management in the section below entitled “Risk Management.”

     Noninterest Income

     Total noninterest income for the year ended December 31, 2009 excluding security sale gains and losses, increased $217,095 (9.19%) to $2,578,517 from the $2,361,422 earned for the year ended December 31, 2008, which had increased $542,637 (29.84%) over the $1,818,785 earned for the year ended December 31, 2007. Service charges on deposits increased $179,011 (22.47%) to $975,664 in 2009 from the $796,653 earned in 2008, which was an increase of $287,301 (56.41%) from the $509,352 earned in 2007, due to the increased level of customer deposits and the fees generated by the Banks’ overdraft privilege programs.

     Reliance Bank recorded net security sale gains of $1,346,565 in 2009, compared with net security sale gains of $321,113 and $157,011 in 2008 and 2007, respectively. From time to time, the Company will sell certain of its available-for-sale investment securities for short-term liquidity purposes or longer-term asset/liability management reasons. See further discussion below in the section entitled “Liquidity and Rate Sensitivity Management.”

     Noninterest Expense

     Noninterest expense increased $4,618,799 (15.70%) for the year ended December 31, 2009 to $34,046,389 from the $29,427,590 incurred for the year ended December 31, 2008, which was a $7,137,283 (32.02%) increase over the $22,290,307 of noninterest expenses incurred for the year ended December 31, 2007. Savings achieved by the Company’s cost reduction efforts were offset by the increase in assessments from the FDIC and increased costs of other real estate owned.

     Total personnel costs decreased $2,047,462 (12.86%) in 2009 to $13,867,628 from the $15,915,090 of personnel costs incurred in 2008, which was an increase of $2,841,931 (21.74%) from the $13,073,159 of personnel costs incurred in 2007. During 2009, the Company implemented a plan to reduce operating costs, which included a reduction in staffing levels, elimination of 401(k) matches and a one week furlough program for the Company’s workforce.

     Total occupancy and equipment expenses decreased $246,356 (5.47%) to $4,256,769 in 2009 from the $4,503,125 incurred in 2008, which had increased $1,114,798 (32.90%) from the $3,388,327 incurred in 2007, as certain assets became fully depreciated and temporary facility use was reduced.

     Other real estate expense increased significantly in 2009 to $6,163,313, which was an increase of $4,580,715 (289.44%) over the $1,582,598 of other real estate expenses incurred in 2008, which had increased by $1,276,061 (416.28%) from the $306,537 incurred in 2007. The increase is due to higher levels of foreclosed assets and the continued decline in real estate values. Net losses and writedowns for 2009 were $4,818,900.

     The Company’s FDIC assessment has increased significantly during the three year period ended December 31, 2009. This assessment increased $1,833,339 (201.00%) in 2009 to $2,745,432, from the $912,093 paid in 2008, which was an increase of $350,514 (62.42%) from the $561,579 paid in 2007. Approximately $690,500 of the increase in 2009 was attributed to the FDIC’s special assessment, which was levied on all banks, varying based on size, to replenish the FDIC’s insurance fund. The remaining portion of the increase relates to increases in rates on regular assessments.

     Total data processing expenses for 2009 increased $69,259 (3.68%) to $1,950,227, from the $1,880,968 incurred in 2008, which had increased $381,769 (25.46%) from the $1,499,199 incurred in 2007. Such increases are consistent with the overall growth in customer accounts during the three-year period.

     Total advertising expenses for 2009 decreased $628,637 (80.79%) to $149,435, as compared with the $778,072 of expenses incurred in 2008, which was an increase of $208,414 (36.59%) from the $569,658 incurred in 2007. The decrease is part of the Company’s cost reduction efforts, as many of the Company’s advertising efforts have been scaled back.

     Income Taxes

     Applicable income tax expenses (benefits) totaled $(16,629,562) for the year ended December 31, 2009, compared with $(1,079,886) and $461,966 for the years ended December 31, 2008 and 2007, respectively. The effective tax rates for 2009, 2008, and 2007 were 36.16%, 77.18%, and 17.93%. The changes in effective tax rates during the three-year period ended December 31, 2009 is a result of the level of investment income that is exempt from Federal income taxes and its overall effect on the pretax income or loss amount.

Financial Condition

     Total assets of the Company declined $37,281,634 (2.37%) to $1,536,707,584 at December 31, 2009, from $1,573,989,218 at December 31, 2008, which had increased $437,836,796 (38.54%) in 2007 from $1,136,152,422 at December 31, 2007. The growth in prior years resulted from the Company’s continued emphasis on increasing its market share of loans and deposits with its branch expansion program, establishment of LPO’s in the Houston and Phoenix markets, a strong capital base, and competitive pricing of banking products. In 2009, the depressed economy has reduced the Company’s opportunities for loan growth.

     Total deposits of the Company grew $38,012,898 (3.10%) to $1,266,060,197 at December 31, 2009, from $1,228,047,299 at December 31, 2008, which had increased $393,470,850 (47.15%) from $834,576,449 at December 31, 2007. Non-retail, brokered deposits decreased by approximately $103,129,000 during this same time period. These brokered deposits were replaced in part by increases in retail deposit accounts, including increased savings accounts from two campaigns that generated a combined $306 million. See the “Results of Operations” section of the report for additional discussion of changes in deposit composition.

     Total short-term borrowings of the Company declined $51,221,912 (80.14%) to $12,696,932 at December 31, 2009, from $63,918,844 at December 31, 2008, which had decreased $24,406,071 (27.63%) from $88,324,915 at December 31, 2007. The Company has worked to decrease the amount of short term wholesale funding and increase retail deposits. Total long-term advances from the Federal Home Loan Bank declined $32,000,000 (23.53%) to $104,000,000 at December 31, 2009, from $136,000,000 at December 31, 2008, which had increased $68,000,000 (100%) from $68,000,000 at December 31, 2007. These longer-term fixed rate advances are used as an alternative funding source and are matched up with longer-term fixed rate assets.

     Total loans declined $114,317,665 (9.11%) to $1,140,881,275 at December 31, 2009, from $1,255,198,940 at December 31, 2008, which had increased $343,238,704 (37.64%) from the $911,960,236 of total loans at December 31, 2007. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets and management has slackened its desire for growth at this time.

     Investment securities, all of which are maintained as available-for-sale, increased $90,231,064 (46.54%) to $284,119,556 at December 31, 2009, from the $193,888,492 at December 31, 2008, which had increased $35,846,074 (22.68%) from the $158,042,418 of investment securities maintained at December 31, 2007. The Company’s investment portfolio growth is dependent upon the level of deposit growth and the funding requirements of the Company’s loan portfolio, as described above.

     Total capital at December 31, 2009, 2008, and 2007 was $149,669,424, $139,608,880, and $139,890,973, respectively, with capital-to-asset percentages of 9.74%, 8.87%, and 12.31%, respectively. The increase relates to the U.S. Treasury’s $42,000,000 investment in preferred shares of Reliance Bancshares, Inc., in connection with the TARP program. TARP proceeds were, in part, downstreamed to the Banks as a capital injection, and a portion remained at the Parent Company. By downstreaming the proceeds, the Banks were able to reduce lending less than otherwise would have occurred, and increased reserves for non-performing assets. This investment has allowed the Company to maintain a strong capital position.

     The following tables show the condensed average balance sheets for the periods reported and the percentage of each principal category of assets, liabilities and stockholders’ equity to total assets. Also shown is the average yield on each category of interest-earning assets and the average rate paid on each category of interest-bearing liabilities for each of the periods reported.

		Year Ended December 31, 2009
		Average				Percent of				Interest Income/				Average Yield/
		Balance				Total Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	1,213,936,609				77.34	%		$	67,651,598				5.57	%
Investment securities:
Taxable			223,321,399				14.23				7,638,510				3.42
Exempt from Federal income taxes (3)			30,794,794				1.96				1,769,507				5.75
Short-term investments			26,301,252				1.68				49,305				0.19
Total earning assets			1,494,354,054				95.21				77,108,920				5.16
Nonearning assets:
Cash and due from banks			5,235,533				0.33
Reserve for possible loan losses			(18,699,687	)			(1.19	)
Premises and equipment			43,287,455				2.76
Other assets			44,151,042				2.81
Available-for-sale investment market valuation			1,219,514				0.08
Total nonearning assets			75,193,857				4.79
Total assets			1,569,547,911				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts			168,582,912				10.74	%			2,084,080				1.24	%
Savings			262,920,235				16.75				7,369,936				2.80
Time deposits of $100,000 or more			314,461,095				20.04				9,707,845				3.09
Other time deposits			430,806,970				27.45				14,439,151				3.35
Total interest-bearing deposits			1,176,771,212				74.98				33,601,012				2.86
Long-term borrowings			131,038,979				8.35				5,047,542				3.85
Short-term borrowings			22,476,551				1.43				356,258				1.59
Total interest-bearing liabilities			1,330,286,742				84.76				39,004,812				2.93
Noninterest-bearing deposits			62,196,559				3.96
Other liabilities			7,272,672				0.46
Total liabilities			1,399,755,973				89.18
STOCKHOLDERS’ EQUITY			169,791,938				10.82
Total liabilities and stockholders’ equity		$	1,569,547,911				100.00	%
Net interest income										$	38,104,108
Net yield on earning assets															2.55	%

		Year Ended December 31, 2008
						Percent of				Interest				Average
		Average				of Total				Income/				Yield/
		Balance				Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	1,115,216,426				81.63	%		$	70,359,648				6.31	%
Investment securities:
Taxable			131,062,979				9.59				6,159,384				4.70
Exempt from Federal income taxes (3)			37,226,081				2.72				2,149,879				5.78
Short-term investments			7,334,498				0.55				188,793				2.57
Total earning assets			1,290,839,984				94.49				78,857,704				6.11
Nonearning assets:
Cash and due from banks			14,090,695				1.03
Reserve for possible loan losses			(11,776,516	)			(0.86	)
Premises and equipment			44,063,019				3.23
Other assets			29,508,579				2.16
Available-for-sale investment market valuation			(615,955	)			(0.05	)
Total nonearning assets			75,269,822				5.51
Total assets		$	1,366,109,806				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts		$	162,299,967				11.88	%			3,787,690				2.33	%
Savings			52,455,044				3.84				942,446				1.80
Time deposits of $100,000 or more			339,942,549				24.88				13,668,035				4.02
Other time deposits			395,841,510				28.98				16,252,548				4.11
Total interest-bearing deposits			950,539,070				69.58				34,650,719				3.65
Long-term borrowings			125,117,708				9.16				4,774,541				3.82
Short-term borrowings			88,748,506				6.49				2,290,008				2.58
Total interest-bearing liabilities			1,164,405,284				85.23				41,715,268				3.58
Noninterest-bearing deposits			56,223,479				4.12
Other liabilities			7,087,530				0.52
Total liabilities			1,227,716,293				89.87
STOCKHOLDERS’ EQUITY			138,393,513				10.13
Total liabilities and stockholders’ equity		$	1,366,109,806				100.00	%
Net interest income										$	37,142,436
Net yield on earning assets															2.88	%

		Year Ended December 31, 2007
						Percent				Interest				Average
		Average				of Total				Income/				Yield/
		Balance				Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	770,523,020				76.54	%		$	55,121,273				7.15	%
Investment securities:
Taxable			136,530,094				13.56				6,564,513				4.81
Exempt from Federal income taxes (3)			37,521,958				3.73				2,043,574				5.45
Short-term investments			8,804,290				0.87				489,535				5.56
Total earning assets			953,379,362				94.70				64,218,895				6.74
Nonearning assets:
Cash and due from banks			10,345,818				1.03
Reserve for possible loan losses			(7,846,708	)			(0.78	)
Premises and equipment			37,758,227				3.75
Other assets			13,705,775				1.37
Available-for-sale investment market valuation			(714,086	)			(0.07	)
Total nonearning assets			53,249,026				5.30
Total assets			1,006,628,388				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts			159,338,600				15.83	%			6,750,382				4.24	%
Savings			60,373,225				6.00				1,797,088				2.98
Time deposits of $100,000 or more			224,805,601				22.33				11,367,590				5.06
Other time deposits			288,090,853				28.62				13,520,495				4.69
Total interest-bearing deposits			732,608,279				72.78				33,435,555				4.56
Long-term borrowings			39,646,040				3.94				1,792,913				4.52
Short-term borrowings			49,178,929				4.89				2,380,580				4.84
Total interest-bearing liabilities			821,433,248				81.61				37,609,048				4.58
Noninterest-bearing deposits			44,841,777				4.45
Other liabilities			5,805,815				0.57
Total liabilities			872,080,840				86.63
STOCKHOLDERS’ EQUITY			134,547,548				13.37
Total liabilities and stockholders’ equity		$	1,006,628,388				100.00	%
Net interest income										$	26,609,847
Net yield on earning assets															2.79	%

Risk Management

     Management’s objective in structuring the balance sheet is to maximize the return on average assets while minimizing the associated risks. The major risks concerning the Company are credit, liquidity and interest rate risks. The following is a discussion concerning the Company’s management of these risks.

     Credit Risk Management

     Managing risks that the Company’s banking subsidiaries assume in providing credit products to customers is extremely important. Credit risk management includes defining an acceptable level of risk and return, establishing appropriate policies and procedures to govern the credit process and maintaining a thorough portfolio review process.

     Of equal importance in the credit risk management process are the ongoing monitoring procedures performed as part of the Company’s loan review process. Credit policies are examined and procedures reviewed for compliance each year. Loan personnel also continually monitor loans after disbursement in an attempt to recognize any deterioration which may occur so that appropriate corrective action can be initiated on a timely basis.

     Net charge-offs for 2009 were $35,534,253, compared to $6,527,189 in 2008, and $602,520 in 2007. The increased charge-off levels resulted from the increased levels of nonperforming loans and the decline in the overall valuation of real estate securing such loans. The Company’s banking subsidiaries had no loans to any foreign countries at December 31, 2009, 2008 and 2007, nor did they have any concentration of loans to any industry on these dates, although a significant portion of the Company’s loan portfolio is secured by real estate in the St. Louis metropolitan and southwestern Florida areas, particularly commercial real estate and land acquisition and development. The Company has also refrained from financing speculative transactions such as highly leveraged corporate buyouts, or thinly-capitalized speculative start-up companies.

     A summary of loans by type at December 31, 2009, 2008, 2007, 2006 and 2005 is as follows:

		December 31,
		2009				2008				2007				2006				2005
Commercial:
Real estate		$	797,054,385			$	843,312,225			$	514,752,151			$	394,469,137			$	254,262,184
Other			82,732,850				94,606,918				61,519,983				53,152,775				66,790,693
Real estate:
Construction			172,731,598				190,381,178				184,167,532				108,408,270				56,525,290
Residential			84,080,509				120,903,014				146,488,402				105,094,409				88,949,636
Held for Sale			577,400				1,483,500				211,250				—				—
Consumer			3,654,463				4,485,070				4,786,747				6,541,351				6,196,062
Overdrafts			50,070				27,035				34,171				35,697				81,464
		$	1,140,881,275			$	1,255,198,940			$	911,960,236			$	667,701,639			$	472,805,329

     Commercial loans are made based on the borrower’s character, experience, general credit strength, and ability to generate cash flows for repayment from income sources, even though such loans may also be secured by real estate or other assets. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations.

     Real estate loans, including commercial real estate, residential real estate, and construction loans, are also based on the borrower’s character, but more emphasis is placed on the estimated collateral values. Commercial real estate loans are mainly for owner-occupied business and industrial properties, multifamily properties, and other commercial properties for which income from the property is the primary source of repayment. Credit risk of these loan types is managed in a similar manner to commercial loans and real estate

construction loans by employing sound underwriting guidelines. These loans are underwritten based on the cash flow coverage of the property, typically meet the Company’s loan-to-value guidelines, and generally require either the limited or full guarantee of principal sponsors of the credit.

     Real estate construction loans, relating to residential and commercial properties, represent financing secured by real estate under construction for eventual sale. The Company requires third party disbursement on the majority of loans in its builder portfolio and the Company reviews projects regularly for progress status.

     Residential real estate loans are predominantly made to finance single-family, owner-occupied properties in the St. Louis metropolitan area and southwestern Florida. Loan-to-value percentage requirements for collateral are based on the lower of the purchase price or appraisal and are normally limited to 80% at loan origination, unless credit enhancements are added. Appraisals are required on all owner-occupied residential real estate loans and private mortgage insurance is required if the loan to value percentage exceeds 85% at loan origination. These loans generally have a short duration of three years or less, with some loans repricing more frequently. Long-term, fixed rate mortgages are generally not retained in the Banks’ loan portfolios, but rather are sold into the secondary market. The Banks have not financed, and do not currently finance, sub-prime mortgage credits.

     Consumer and other loans represent loans to individuals on both a secured and unsecured nature. Credit risk is controlled by thoroughly reviewing the credit worthiness of the borrowers on a case-by-case basis.

     The continued significant decline of the real estate market in the St. Louis metropolitan and southwestern Florida areas has caused an increase in the Company’s non-performing assets. Following is a summary of information regarding the Bank’s nonperforming loans as of and for each of the years in the five-year period ended December 31, 2009:

		2009				2008				2007				2006				2005
Nonperforming loans:
Nonaccrual loans		$	57,227,968			$	33,716,050			$	15,810,222			$	5,082,784			$	3,050,351
Loans 90 days delinquent and still accruing interest			3,560,644				1,180,360				1,937,388				65,000				24,000
Restructured loans			11,288,822				—				—				—				—
Total nonperforming loans		$	72,077,434			$	34,896,410			$	17,747,610			$	5,147,784			$	3,074,351
Additional interest that would have been earned on nonaccrual loans		$	4,425,441			$	1,716,845			$	928,759			$	177,687			$	141,914

     Non-performing loans are defined as loans on non-accrual status, loans 90 days or more past due but still accruing, and restructured loans. Loans are placed on non-accrual status when contractually past due 90 days or more as to interest or principal payments, unless the loans are well secured and in process of collection. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on non-accrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal for financial reporting purposes.

     Loans past due 90 days or more but still accruing interest are also included in non-performing loans. Loans past due 90 days or more but still accruing interest are classified as such when the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. Also included in non-performing loans are “restructured” loans. Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate.

     The increase in non-performing loans is due to the continued weakness in the economy, particularly regarding commercial and construction real estate in the Banks’ markets. During 2009, the Company took a more aggressive approach toward collection and resolution of such problem credits. Such loans have continually been reviewed for impairment as the underlying real estate values have declined, resulting in additional loan charge-offs. Once foreclosure occurs, additional declines in the value of the properties results in other real estate owned write-downs. The Company believes the reserve for loan losses calculation at December 31, 2009 adequately considers the fair value of the underlying collateral on its problem loan portfolio; however, the values of these properties have continued to deteriorate throughout 2009, requiring the additional provision for loan losses. Additional provisions and other real estate write-downs may be required in subsequent quarters if the values of such properties continue to decline.

     Of the Company’s $1.1 billion loans outstanding at December 31, 2009, 7% were originated in Florida and 93% outside Florida. The following table breaks down net charge-offs, non-performing loans and non-performing assets between loans originated in Florida and all other loans:

Originated In

Florida

All other

Total

Net charge-offs (year to date 12/31/2009)

$23.0 million

$12.5 million

$35.5 million

Net charge-offs (year to date 12/31/2008)

5.6 million

0.9 million

6.5 million

Net charge-offs (quarter ended 12/31/2009)

10.6 million

9.2 million

19.8 million

Net charge-offs (quarter ended 12/31/2008)

0.6 million

0.1 million

0.7 million

Non-performing loans (12/31/2009)

25.4 million

46.7 million

72.1 million

Non-performing loans (9/30/2009)

46.0 million

44.5 million

90.5 million

Non-performing loans (12/31/2008)

30.1 million

4.8 million

34.9 million

Non-performing assets* (12/31/2009)

44.5 million

56.7 million

101.2 million

Non-performing assets* (9/30/2009)

52.0 million

53.8 million

105.8 million

Non-performing assets* (12/31/2008)

37.5 million

12.7 million

50.2 million

Outstanding loans originated in respective markets (12/31/2009)

80.8 million

1.060 billion

1.141 billion

     In the normal course of business, the Company’s practice is to consider and act upon borrowers’ requests for renewal of loans at their maturity. Evaluation of such requests includes a review of the borrower’s credit history, the collateral securing the loan, and the purpose of such requests. In general, loans which the Banks renew at maturity require payment of accrued interest, a reduction in the loan balance, and/or the pledging of additional collateral and a potential adjustment of the interest rate to reflect changes in economic conditions.

     At December 31, 2005, nonaccrual loans consisted primarily of two borrowing relationships, both construction contractors whose developments were slow in selling. At December 31, 2005, these two credit relationships totaled $2,750,000 of the nonaccrual loans of $3,050,351. By December 31, 2006, the Company had foreclosed on one of the contractors and sold the property at no further loss to the Company. By December 31, 2006, the other contractor had sold its property and the Company was paid off with no loss incurred.

     At December 31, 2006, the Company’s nonaccrual loans of $5,082,784 were comprised primarily of two borrowing relationships totaling $3,312,496. One of the nonaccrual loan relationships included commercial and residential real estate loans to a small business owner whose various businesses had been struggling for some time. The Company foreclosed on the various properties during the first quarter of 2007 and incurred additional charge-offs of $274,740 on this credit relationship. The other large nonaccrual loan relationship was to a real estate investor with several single family residential properties that he was renting out. This real estate investor declared bankruptcy in November 2006 after several properties incurred significant storm damage. The Company foreclosed on these properties after additional charge-offs of $175,000 in 2007.

     The continued significant decline of the real estate markets (which began in 2007) in the St. Louis metropolitan and southwestern Florida areas has caused a significant increase in the Company’s non-performing loans in 2007, 2008 and 2009. At December 31, 2009, non-performing loans had increased $37,181,024 to $72,077,434, from $34,896,410 at December 31, 2008, which had increased $17,148,800 from $17,747,610 at December 31, 2007. The largest components of which were primarily comprised of the following loan relationships.

Following is a discussion of the primary loans that have deteriorated during this three-year period:

	•		A loan for approximately $1.4 million to an individual Florida investor that is in default and in the process of foreclosure prior to being suspended by forbearance agreement. The loan is secured by an undeveloped real estate parcel in southwestern Florida.
	•		A loan for approximately $1.5 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 is negotiating with the borrower and guarantors to develop a plan for the property. There has been recent interest by several potential lessees of the building.
	•		A loan for approximately $2.2 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 has been initiated again.
	•		A loan for approximately $1.8 million to a single purpose entity, secured by one office building for sale and six improved commercial lots in Florida. The building is under contract to close in the first quarter of 2010. The Company continues to negotiate with the borrower and guarantor to develop a marketing plan for six remaining lots.
	•		A loan for approximately $2.0 million to a single purpose entity secured by unimproved property in Florida that is in default. The Company is negotiating with the borrower and guarantor to determine the best course of action going forward for the proposed development.
	•		A loan for approximately $1.4 million to an individual investor for future residential and commercial development. Development has not been started as planned. The loan is secured by approximately 240 acres of ground in Florida currently in agricultural production. The Company is in the process of foreclosure.
	•		A loan for approximately $2.2 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 that now includes action against Lee County, Florida for damages.
	•		A loan for approximately $1.4 million to a single purpose entity for commercial development. Development has been delayed. The loan is secured by 3.4 acres of ground in Florida. The Company, borrower and guarantors continue to negotiate a resolution to the delay in development.
	•		A loan for approximately $5.0 million to a single purpose entity. The operation is a retail commercial center in St Charles, Missouri. Exterior construction of the building is complete; interior configuration continues and is dictated by tenant needs. The center has experienced sluggish leasing, although recent leasing and leasing opportunities have increased slightly. The Company and borrower continue to work together to lease up the property. The borrower is reviewing options to sell the property.
	•		A loan for approximately $1.2 million to a Texas limited partnership. The loan is secured by a newly constructed retail commercial property in Dallas, Texas. The borrower has entered into bankruptcy protection. The Company is seeking a dismissal of the case in court, so that it can foreclose on the property. Court hearings have occurred and will continue through the second quarter of 2010. The Company expects to begin foreclosure proceedings as soon as practicable thereafter.

	•		A loan participation totaling approximately $2.6 million to entities controlled by a group of Missouri real estate investors for the purchase and development of a parcel of land in St. Charles, Missouri. The majority of the proposed entitlements and development have been completed. The loans are secured by the property. The lead bank has reached an agreement with the Borrower to move the project forward. A new builder was engaged to build inventory homes and five homes have been completed. Sales have been slow to occur.
	•		A loan for approximately $3.0 million to a single purpose entity in Phoenix, Arizona. The borrower owned and operated a new retail commercial 15,000 square foot strip center. The center was well located, well maintained and 90% occupied since inception; however the loan did not perform as planned. Deteriorating real estate and general market conditions stressed the developers and guarantors to force the Bank to commence additional collection action. The Company anticipates the note and collateral will be sold to a third party to retire the loan during the first quarter of 2010.
	•		A loan for approximately $19.5 million loan to commercial real estate developer in Houston, Texas. The loan is secured by three office buildings and developed commercial land. The Company and borrower have been working to restructure the credit that will include a $2.2 million reduction of the loan during the first quarter of 2010.
	•		A loan for approximately $2.0 million loan for the development of single family lots in Lincoln County, Missouri. The entity operated as a single asset entity that developed single family lots and construction of single family homes. The deteriorating real estate market and residential downturn have been contributing factors to the slowness of the project and the demise of the project. Additional collection efforts have begun for repayment of the loan.
	•		A loan for approximately $4.4 million to a single operating entity that financed the purchase of single family lots in two subdivisions located in St. Louis County, Missouri. The lots are well located, good sized and fully developed. The residential real estate downturn has led to stress in the project and for the borrower. The Bank has initiated additional collection efforts to be repaid. The Company and borrower have reached agreement in principle that requires the borrower to execute a deed in lieu of foreclosure to repay the loan. The Company expects the lots to be turned over in the first quarter of 2010, at which time the Company will develop a plan to dispose of the lots.
	•		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 borrowers purchased the property to conduct the preservation of wolves and other endangered canids through education, research and captive breeding. 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. The Company and borrower have reached an agreement to operate under a standstill and forbearance agreement as we work together for the repayment of the loan.

     The Company also has nonperforming assets in the form of other real estate owned. The Banks maintained other real estate owned totalling $29,085,943 and $15,289,170 at December 31, 2009 and 2008, respectively. Other real estate owned represents property acquired through foreclosure, or deeded to the Banks in lieu of foreclosure for loans on which borrowers have defaulted as to payment of principal and interest. The following table details the activity within other real estate owned for the year ended December 31, 2009:

Balance at December 31, 2008		$	15,289,170
Foreclosures			25,013,222
Loans made to facilitate sales of other real estate			(1,784,045	)
Cash proceeds from sales			(4,627,290	)
Construction expenditures			13,786
Losses and writedowns			(4,818,900	)
Balance at December 31, 2009		$	29,085,943

     During this period of a depressed real estate market, the Company has sought to add loans to its portfolio with increased collateral margins or excess payment capacity from proven borrowers. Given the collateral values maintained on its loan portfolio, including the nonperforming loans discussed above, the Company believes the reserve for possible loan losses is adequate to absorb losses in the portfolio existing at December 31, 2009; however, should the residential and commercial real estate market continue to decline, the Company may require additional provisions to the reserve for possible loan losses to address the declining collateral values.

Potential Problem Loans

     As of December 31, 2009, the Company had 18 loans with a total principal balance of $28,845,441 that were identified by management as having possible credit problems that raise doubts as to the ability of the borrower to comply with the current repayment terms, which are not included in nonperforming loans. These loans were continuing to accrue interest and were less than 90 days past due on any scheduled payments. However, various concerns, including, but not limited to, payment history, loan agreement compliance, adequacy of collateral coverage, and borrowers’ overall financial condition caused management to believe that these loans may result in reclassification at some future time as nonaccrual, past due or restructured. Such loans are not necessarily indicative of future nonaccrual loans, as the Company continues to work on resolving issues with both nonperforming and potential problem credits on its watch list.

Policies and Procedures

     The Company’s credit management policies and procedures focus on identifying, measuring, and controlling credit exposure. These procedures employ a lender-initiated system of rating credits, which is ratified in the loan approval process and subsequently tested in internal loan review and regulatory bank examinations. The system requires rating all loans at the time they are made, at each renewal date and as conditions warrant.

     Adversely rated credits, including loans requiring close monitoring, are included on a monthly loan watch list. Other loans are added whenever any adverse circumstances are detected which might affect the borrower’s ability to meet the terms of the loan. This could be initiated by any of the following:

	•		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.

     Loans on the watch list require periodic detailed loan status reports, including recommended corrective actions, prepared by the responsible loan officer, which are discussed at each monthly loan committee meeting.

     Downgrades of loan risk ratings may be initiated by the responsible loan officer, internal loan review, the Watch List Committee, the Loan Committee, or senior lending personnel at any time. Upgrades of certain risk ratings may only be made with the concurrence of both the Chief Credit Officer and Chief Operating Officer.

     The Company’s loan underwriting policies limit individual loan officers to specific amounts of lending authority, over which various committees must get involved and approve a credit. The Company’s underwriting policies require an analysis of a borrower’s ability to pay the loan and interest on a timely basis in accordance with the loan agreement. Collateral is then considered as a secondary source of payment, should the borrower not be able to pay.

     The Company conducts weekly loan committee meetings of all of its loan officers, including the Chief Operating Officer, Chief Lending Officer, and Chief Credit Officer. This committee may approve individual credit relationships up to $2,500,000. Larger credits must go to the Loan Committee of the Board of Directors, which is comprised of three Directors on a rotating basis. The Company’s legal lending limit was $40,029,183 at December 31, 2009.

Reserve for Loan Losses

     At December 31, 2009, 2008, 2007, 2006, and 2005, the reserve for possible loan losses was $32,221,569, $14,305,822, $9,685,011, $7,101,031, and $5,213,032, respectively, or 2.82%, 1.14%, 1.06%, 1.06%, and 1.10% of net outstanding loans, respectively. The following table summarizes the Company’s loan loss experience for each of the years in the five-year period ended December 31, 2009.

		December 31,
(in thousands of dollars)		2009				2008				2007				2006				2005
Average loans outstanding		$	1,213,937			$	1,115,216			$	770,523			$	546,122			$	397,584
Reserve at beginning of year		$	14,306				9,685				7,101				5,213				3,112
Provision for possible loan losses			53,450				11,148				3,187				2,200				2,333
			67,756				20,833				10,288				7,413				5,445
Charge-offs:
Commercial loans:
Real estate			(18,532	)			(2,828	)			(317	)			—				(7	)
Other			(656	)			(77	)			(25	)			(62	)			(24	)
Real estate:
Construction			(16,042	)			(2,262	)			—				(3	)			(50	)
Residential			(1,832	)			(1,313	)			(279	)			(220	)			(178	)
Consumer			(38	)			(21	)			(5	)			(48	)			—
Overdrafts			(14	)			(52	)			(25	)			—				—
Total charge-offs			(37,114	)			(6,553	)			(651	)			(333	)			(259	)
Recoveries:
Commercial loans:
Real estate			1,033				1				10				—				—
Other			4				9				20				2				2
Real estate:
Construction			371				1				—				—				—
Residential			150				—				13				8				23
Consumer			19				3				—				11				2
Overdrafts			3				12				5				—				—
Total recoveries			1,580				26				8				21				27
Reserve at end of year		$	32,222			$	14,306			$	9,685			$	7,101			$	5,213
Net charge-offs to average loans			2.93	%			0.59	%			0.08	%			0.06	%			0.06	%
Ending reserve to net loans at end of year			2.82	%			1.14	%			1.06	%			1.06	%			1.10	%