Attached files
file | filename |
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EX-32.1 - EX-32.1 - Reliance Bancshares, Inc. | c63007exv32w1.htm |
EX-31.2 - EX-31.2 - Reliance Bancshares, Inc. | c63007exv31w2.htm |
EX-32.2 - EX-32.2 - Reliance Bancshares, Inc. | c63007exv32w2.htm |
EX-31.1 - EX-31.1 - Reliance Bancshares, Inc. | c63007exv31w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(Amendment No. 1)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2010
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ____ to____
Commission file number: 000-52588
RELIANCE BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Missouri (State or Other Jurisdiction of Incorporation or Organization) |
43-1823071 (IRS Employer Identification No.) |
|
10401 Clayton Road Frontenac, Missouri (Address of Principal Executive Offices) |
63131 (Zip Code) |
(314) 569-7200
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
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 submit and post such files), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No 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 (Do not check if a smaller reporting company) | Smaller reporting company þ |
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
As of July 30, 2010, the Registrant had 22,369,061 shares of outstanding Class
A common stock, $0.25 par value; 40,000 shares of outstanding Class A preferred
stock, no par value; 2,000 shares of outstanding Class B preferred stock, no
par value; and 535 shares of outstanding Class C preferred stock, no par
value.
EXPLANATORY NOTE RESTATEMENT
This Amendment No. 1 to Form 10-Q (Amendment No. 1) is being filed by Reliance Bancshares,
Inc. (the Company) to amend and restate its Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010 filed with the United States Securities and Exchange Commission (SEC) on August 12,
2010 (the Initial Form 10-Q). For purposes of this Quarterly Report on Form 10-Q/A, and in
accordance with Rule 12b-15 under the Securities Exchange Act of 1934 (Exchange Act), Items 1
and 2 under Part I of our Initial Form 10-Q have been amended and restated in their entirety.
In addition, Item 4 under Part I 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-Q. Except as otherwise specifically noted, all information
contained herein is as of June 30, 2010 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-Q filed on August 12, 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 interim condensed consolidated
financial statements included in those reports should no longer be relied upon.
This Amendment No. 1 is required due to certain disclosure omissions in the Initial Form 10-Q
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 Companys interim condensed consolidated statements of operations for
the three and six months ended June 30, 2010 and 2009. We have also restated the Companys interim
condensed consolidated statements of operations and comprehensive loss for the three and six months
ended June 30, 2010 and 2009 to expand the disclosures for other-than-temporary losses on available
for sale securities in those interim condensed consolidated statements.
These restatements had no effect on the Companys consolidated net loss for the three and six
months ended June 30, 2010 and 2009 or its consolidated stockholders equity as of June 30, 2010
and 2009. Net loss available to common shareholders, after increasing the loss for preferred
dividends paid by the Company, increased from the $(0.17) and $(0.28) per share, respectively
originally disclosed to $(0.19) and $(0.34) per share, respectively as restated, for both basic and
fully-diluted loss per share for the three and six months ended June 30, 2010, respectively. Net
loss available to common shareholders, after increasing the loss for preferred dividends paid by
the Company, increased from the $(0.40) and $(0.40) per share, respectively originally disclosed to
$(0.43) and $(0.42) per share, respectively as restated, for both basis and fully-diluted loss per
share for the three and six months ended June 30, 2009, respectively.
For the convenience of the reader, this Quarterly Report sets forth the original filing in its
entirety.
For additional information regarding the restatement, see Note 1 to our interim condensed
consolidated financial statements appearing elsewhere in this report.
This Amendment No. 1 includes changes in Item 4 Controls and Procedures and reflects
managements 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 June 30, 2010. This restatement of
managements 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 Companys consolidated net loss for the three and six months ended June 30, 2010 and 2009, and
stockholders equity as of June 30, 2010 and 2009, such information should have been disclosed in
our June 30, 2010 interim condensed 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 believe 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 4 Controls and
Procedures.
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page | ||||
PART I FINANCIAL INFORMATION |
||||
Item 1. Financial Statements |
||||
Condensed Consolidated Balance Sheets (Unaudited) |
3 | |||
Condensed Consolidated Statements of Operations (Unaudited) |
4 | |||
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) |
5 | |||
Condensed Consolidated Statements of Stockholders Equity (Unaudited) |
6 | |||
Condensed Consolidated Statements of Cash Flows (Unaudited) |
7 | |||
Notes to Interim Condensed Consolidated Financial Statements (Unaudited) |
8 | |||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
20 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
41 | |||
Item 4. Controls and Procedures |
42 | |||
PART II OTHER INFORMATION |
||||
Item 1. Legal Proceedings |
42 | |||
Item 1A. Risk Factors |
42 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
43 | |||
Item 3. Defaults Upon Senior Securities |
43 | |||
Item 4. [Removed and Reserved] |
43 | |||
Item 5. Other Information |
43 | |||
Item 6. Exhibits |
43 | |||
Signatures |
45 |
2
PART I FINANCIAL INFORMATION
Part I Item 1 Financial Statements
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Balance Sheets
June 30, 2010 and 2009 and December 31, 2009
(unaudited)
June 30, 2010 and 2009 and December 31, 2009
(unaudited)
June 30, | December 31, | |||||||||||
2010 | 2009 | 2009 | ||||||||||
ASSETS |
||||||||||||
Cash and due from banks |
$ | 12,776,906 | 10,401,682 | 11,928,668 | ||||||||
Interest-earning deposits in other financial institutions |
17,563,040 | 648,192 | 15,767,862 | |||||||||
Federal funds sold |
144,000 | | | |||||||||
Investments in available-for-sale debt securities, at fair value |
263,575,008 | 238,868,535 | 284,119,556 | |||||||||
Loans |
1,066,898,802 | 1,223,632,245 | 1,140,881,275 | |||||||||
Less Deferred loan fees / costs |
(36,507 | ) | (217,965 | ) | (84,741 | ) | ||||||
Reserve for possible loan losses |
(36,163,403 | ) | (24,044,510 | ) | (32,221,569 | ) | ||||||
Net loans |
1,030,698,892 | 1,199,369,770 | 1,108,574,965 | |||||||||
Premises and equipment, net |
41,157,221 | 43,252,496 | 42,210,536 | |||||||||
Accrued interest receivable |
4,459,133 | 5,752,059 | 5,647,887 | |||||||||
Other real estate owned |
36,319,932 | 16,341,216 | 29,085,943 | |||||||||
Identifiable intangible assets, net of accumulated amortization of
$115,373, $99,085 and $107,229 at June 30, 2010 and 2009,
and December 31, 2009, respectively |
128,946 | 145,234 | 137,090 | |||||||||
Goodwill |
1,149,192 | 1,149,192 | 1,149,192 | |||||||||
Other assets |
39,903,192 | 21,766,041 | 38,085,885 | |||||||||
$ | 1,447,875,462 | 1,537,694,417 | 1,536,707,584 | |||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||
Deposits: |
||||||||||||
Non-interest-bearing |
$ | 63,683,728 | 64,230,082 | 71,829,581 | ||||||||
Interest-bearing |
1,113,423,878 | 1,143,341,051 | 1,194,230,616 | |||||||||
Total deposits |
1,177,107,606 | 1,207,571,133 | 1,266,060,197 | |||||||||
Short-term borrowings |
18,893,075 | 15,675,440 | 12,696,932 | |||||||||
Long-term Federal Home Loan Bank borrowings |
99,000,000 | 136,000,000 | 104,000,000 | |||||||||
Accrued interest payable |
1,759,664 | 2,578,382 | 2,194,952 | |||||||||
Other liabilities |
4,325,984 | 4,025,320 | 2,086,079 | |||||||||
Total liabilities |
1,301,086,329 | 1,365,850,275 | 1,387,038,160 | |||||||||
Commitments and contingencies |
||||||||||||
Stockholders equity: |
||||||||||||
Preferred stock, no par value; 2,000,000 shares authorized: |
||||||||||||
Series A, 40,000 shares issued and outstanding |
40,000,000 | 40,000,000 | 40,000,000 | |||||||||
Series B, 2,000 shares issued and outstanding |
2,000,000 | 2,000,000 | 2,000,000 | |||||||||
Series C, 535 and 300 shares issued and outstanding at June 30,
2010 and December 31, 2009, respectively |
535,000 | | 300,000 | |||||||||
Common stock, $0.25 par value; 40,000,000 shares authorized,
22,539,711, 20,770,781 and 20,972,091 shares issued and
outstanding at June 30, 2010, 2009, and December 31, 2009,
respectively |
5,634,928 | 5,226,794 | 5,243,023 | |||||||||
Subscriptions receivable |
(3,557,499 | ) | | | ||||||||
Surplus |
125,703,572 | 122,507,257 | 122,334,757 | |||||||||
Retained earnings |
(25,798,356 | ) | 1,823,944 | (19,796,396 | ) | |||||||
Accumulated other comprehensive income net unrealized
holding gains (losses) on available-for-sale debt securities |
2,271,488 | 286,147 | (411,960 | ) | ||||||||
Total stockholders equity |
146,789,133 | 171,844,142 | 149,669,424 | |||||||||
$ | 1,447,875,462 | 1,537,694,417 | 1,536,707,584 | |||||||||
See accompanying notes to interim condensed consolidated financial statements.
3
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2010 and 2009
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(restated) | (restated) | (restated) | (restated) | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest income: |
||||||||||||||||
Interest and fees on loans |
$ | 14,671,909 | 16,998,726 | 30,123,935 | 34,669,969 | |||||||||||
Interest on debt securities: |
||||||||||||||||
Taxable |
1,673,943 | 1,961,004 | 3,507,293 | 3,916,989 | ||||||||||||
Exempt from Federal income taxes |
294,650 | 310,178 | 600,912 | 650,231 | ||||||||||||
Interest on short-term investments |
15,988 | 5,758 | 32,543 | 22,721 | ||||||||||||
Total interest income |
16,656,490 | 19,275,666 | 34,264,683 | 39,259,910 | ||||||||||||
Interest expense: |
||||||||||||||||
Interest on deposits |
5,464,530 | 8,699,655 | 11,255,119 | 18,182,631 | ||||||||||||
Interest on short-term borrowings |
26,333 | 47,251 | 56,752 | 307,539 | ||||||||||||
Interest on long-term Federal Home Loan
Bank borrowings |
955,082 | 1,245,663 | 1,924,001 | 2,477,633 | ||||||||||||
Total interest expense |
6,445,945 | 9,992,569 | 13,235,872 | 20,967,803 | ||||||||||||
Net interest income |
10,210,545 | 9,283,097 | 21,028,811 | 18,292,107 | ||||||||||||
Provision for possible loan losses |
9,628,000 | 14,000,000 | 17,320,000 | 16,250,000 | ||||||||||||
Net interest income after provision
for possible loan losses |
582,545 | (4,716,903 | ) | 3,708,811 | 2,042,107 | |||||||||||
Noninterest income: |
||||||||||||||||
Service charges on deposit accounts |
235,836 | 240,879 | 460,312 | 448,517 | ||||||||||||
Net gains (losses) on sales of debt
securities |
201,069 | (241 | ) | 265,760 | (241 | ) | ||||||||||
Other noninterest income |
348,689 | 422,880 | 714,104 | 750,012 | ||||||||||||
Total noninterest income |
785,594 | 663,518 | 1,440,176 | 1,198,288 | ||||||||||||
Noninterest expense: |
||||||||||||||||
Other-than-temporary impairment losses on
available-for-sale securities:
|
||||||||||||||||
Total other-than-temporary impairment losses
|
666,759 | 1,040,871 | 666,759 | 1,040,871 | ||||||||||||
Less portion of other-than-temporary impairment losses recognized in other comprehensive income |
(608,942 | ) | (894,793 | ) | (608,942 | ) | (894,793 | ) | ||||||||
Net impairment loss realized |
57,817 | 146,078 | 57,817 | 146,078 | ||||||||||||
Salaries and employee benefits |
3,223,969 | 3,435,246 | 6,488,951 | 7,315,701 | ||||||||||||
Other real estate expense |
1,222,042 | 1,452,500 | 2,595,829 | 1,762,163 | ||||||||||||
Occupancy and equipment expense |
1,074,211 | 1,086,386 | 2,161,230 | 2,212,318 | ||||||||||||
FDIC assessment |
754,397 | 1,157,449 | 1,538,915 | 1,660,982 | ||||||||||||
Data processing |
377,037 | 519,679 | 809,580 | 994,353 | ||||||||||||
Advertising |
16,859 | 28,192 | 35,751 | 175,502 | ||||||||||||
Amortization of intangible assets |
4,072 | 4,072 | 8,144 | 8,144 | ||||||||||||
Other noninterest expenses |
833,526 | 868,459 | 1,622,224 | 1,663,952 | ||||||||||||
Total noninterest expense |
7,563,930 | 8,698,061 | 15,318,441 | 15,939,193 | ||||||||||||
Loss before applicable income taxes |
(6,195,791 | ) | (12,751,446 | ) | (10,169,454 | ) | (12,698,798 | ) | ||||||||
Applicable income tax benefit |
(2,692,536 | ) | (4,378,551 | ) | (4,167,494 | ) | (4,416,777 | ) | ||||||||
Net loss |
$ | (3,503,255 | ) | (8,372,895 | ) | (6,001,960 | ) | (8,282,021 | ) | |||||||
Net loss |
$ | (3,503,255 | ) | (8,372,895 | ) | (6,001,960 | ) | (8,282,021 | ) | |||||||
Preferred stock dividends |
(551,251 | ) | (557,111 | ) | (1,100,142 | ) | (557,111 | ) | ||||||||
Net loss available to common shareholders |
$ | (4,054,506 | ) | (8,930,006 | ) | (7,102,102 | ) | (8,839,132 | ) | |||||||
Per share amounts: |
||||||||||||||||
Basic loss per share |
$ | (0.19 | ) | (0.43 | ) | (0.34 | ) | (0.42 | ) | |||||||
Basic weighted average shares outstanding |
21,221,753 | 20,855,898 | 21,097,611 | 20,801,385 | ||||||||||||
Diluted loss per share |
$ | (0.19 | ) | (0.43 | ) | (0.34 | ) | (0.42 | ) | |||||||
Diluted weighted average shares outstanding |
21,221,753 | 20,859,102 | 21,097,611 | 20,839,274 |
See accompanying notes to interim condensed consolidated financial statements.
4
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Comprehensive Loss
Six Months Ended June 30, 2010 and 2009
(unaudited)
(restated) | (restated) | |||||||
2010 | 2009 | |||||||
Net loss |
$ | (6,001,960 | ) | (8,282,021 | ) | |||
Change in unrealized gains (losses) on available-for-sale
securities which a portion of an other-than-temporary impairment loss has been recognized in earnings, net of
reclassification |
(58,136 | ) | (30,284 | ) | ||||
Change in unrealized gains (losses) on other securities
available-far-sale, net of reclassification |
4,331,909 | 476,506 | ||||||
Reclassification adjustments for: |
||||||||
Available-for-sale security losses (gains) included in net loss |
(265,760 | ) | 241 | |||||
Writedown of investment securities included in net loss |
57,817 | 146,078 | ||||||
Other comprehensive income before tax |
4,065,830 | 592,541 | ||||||
Income tax related to items of other comprehensive income |
1,382,382 | 201,464 | ||||||
Other comprehensive income, net of tax |
2,683,448 | 391,077 | ||||||
Total comprehensive loss |
$ | (3,318,512 | ) | (7,890,944 | ) | |||
See accompanying notes to interim condensed consolidated financial statements.
5
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Stockholders Equity
Six Months Ended June 30, 2010 and 2009
(unaudited)
Interim Condensed Consolidated Statements of Stockholders Equity
Six Months Ended June 30, 2010 and 2009
(unaudited)
Accumulated | ||||||||||||||||||||||||||||||||
other | Total | |||||||||||||||||||||||||||||||
Preferred | Common | Subscriptions | Retained | Treasury | comprehensive | stockholders' | ||||||||||||||||||||||||||
stock | stock | receivable | Surplus | earnings | stock | (loss) income | equity | |||||||||||||||||||||||||
Balance at December 31, 2008 |
$ | | 5,192,696 | | 124,193,318 | 10,663,076 | (335,280 | ) | (104,930 | ) | 139,608,880 | |||||||||||||||||||||
Net loss |
| | | | (8,282,021 | ) | | | (8,282,021 | ) | ||||||||||||||||||||||
Issuance of 40,000 shares of
Series A preferred stock |
40,000,000 | | | | | | | 40,000,000 | ||||||||||||||||||||||||
Issuance of 2,000.02 shares of
Series B preferred stock |
2,000,000 | | | (2,000,000 | ) | | | | | |||||||||||||||||||||||
Preferred stock dividend |
| | | | (557,111 | ) | | | (557,111 | ) | ||||||||||||||||||||||
Stock issuance costs |
| | | (17,271 | ) | | | | (17,271 | ) | ||||||||||||||||||||||
Stock options exercised -
156,000 shares (19,604 from
treasury) |
| 34,098 | | 210,485 | | 158,416 | | 402,999 | ||||||||||||||||||||||||
Treasury stock purchased -
10,000 shares |
| | | | | (40,000 | ) | | (40,000 | ) | ||||||||||||||||||||||
Issuance of stock in connection
with employee stock purchase
plan 14,910 shares |
| | | (163,039 | ) | | 216,864 | | 53,825 | |||||||||||||||||||||||
Stock option expense |
| | | 268,764 | | | | 268,764 | ||||||||||||||||||||||||
Amortization of restricted stock |
| | | 15,000 | | | | 15,000 | ||||||||||||||||||||||||
Change in valuation of available
for-sale-securities, net of
related tax effect |
| | | | | | 391,077 | 391,077 | ||||||||||||||||||||||||
Balance at June 30, 2009 |
$ | 42,000,000 | 5,226,794 | | 122,507,257 | 1,823,944 | | 286,147 | 171,844,142 | |||||||||||||||||||||||
Balance at December 31, 2009 |
42,300,000 | 5,243,023 | | 122,334,757 | (19,796,396 | ) | | (411,960 | ) | 149,669,424 | ||||||||||||||||||||||
Net loss |
| | | | (6,001,960 | ) | | | (6,001,960 | ) | ||||||||||||||||||||||
Subscriptions received for
1,551,517 shares of common
stock |
| 387,879 | (4,654,551 | ) | 4,266,672 | | | | | |||||||||||||||||||||||
Payments received for
subscription receivable |
| | 1,097,052 | | | | | 1,097,052 | ||||||||||||||||||||||||
Issuance of 235 shares of
Series C preferred stock |
235,000 | | | | | | | 235,000 | ||||||||||||||||||||||||
Preferred stock dividend |
| | | (1,100,142 | ) | | | | (1,100,142 | ) | ||||||||||||||||||||||
Stock issuance costs |
| | | (27,653 | ) | | | | (27,653 | ) | ||||||||||||||||||||||
Issuance of stock in connection
with employee stock purchase
plan - 16,103 shares |
| 4,026 | | 31,465 | | | | 35,491 | ||||||||||||||||||||||||
Stock option expense |
| | | 169,412 | | | | 169,412 | ||||||||||||||||||||||||
Amortization of restricted stock |
| | | 29,061 | | | | 29,061 | ||||||||||||||||||||||||
change in valuation of
available-for-sale
securities,
net of related tax effect |
| | | | | | 2,683,448 | 2,683,448 | ||||||||||||||||||||||||
Balance at June 30, 2010 |
$ | 42,535,000 | 5,634,928 | (3,557,499 | ) | 125,703,572 | (25,798,356 | ) | | 2,271,488 | 146,789,133 | |||||||||||||||||||||
See accompanying notes to interim condensed consolidated financial statements.
6
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Interim Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2010 and 2009
Interim Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2010 and 2009
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (6,001,960 | ) | (8,282,021 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
1,843,271 | 2,535,806 | ||||||
Provision for possible loan losses |
17,320,000 | 16,250,000 | ||||||
Net (gains) losses on sales and writedowns of debt securities |
(207,943 | ) | 146,319 | |||||
Net gain on sale of premises and equipment |
| (10,809 | ) | |||||
Net losses on sales and writedowns of other real estate owned |
1,503,964 | 1,289,359 | ||||||
Stock option compensation cost |
169,412 | 268,764 | ||||||
Amortization of restricted stock expense |
29,061 | 15,000 | ||||||
Mortgage loans originated for sale in the secondary market |
(8,280,847 | ) | (28,241,565 | ) | ||||
Mortgage loans sold in secondary market |
8,113,447 | 28,726,594 | ||||||
Decrease (increase) in accrued interest receivable |
1,188,754 | (327,951 | ) | |||||
Decrease in accrued interest payable |
(435,288 | ) | (1,326,559 | ) | ||||
Other operating activities, net |
(959,784 | ) | (4,402,317 | ) | ||||
Net cash provided by operating activities |
14,282,087 | 6,640,620 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of available-for-sale debt securities |
(85,748,544 | ) | (159,923,841 | ) | ||||
Proceeds from maturities and issuer calls of available-for-sale debt securities |
94,126,644 | 112,732,816 | ||||||
Proceeds from sales of available-for-sale debt securities |
15,672,280 | 1,228,825 | ||||||
Net decrease in loans |
48,384,734 | 20,758,318 | ||||||
Proceeds from sale of other real estate owned |
3,600,786 | 999,866 | ||||||
Construction expenditures to finish other real estate owned |
| (13,786 | ) | |||||
Proceeds from sale of fixed assets |
| 35,179 | ||||||
Purchase of premises and equipment |
(13,871 | ) | (276,960 | ) | ||||
Net cash provided by (used in) investing activities |
76,022,029 | (24,459,583 | ) | |||||
Cash flows form financing activities: |
||||||||
Net decrease in deposits |
(88,952,591 | ) | (20,476,166 | ) | ||||
Net increase (decrease) in short-term borrowings |
6,196,143 | (48,243,404 | ) | |||||
Payments of long-term Federal Home Loan Bank borrowings |
(5,000,000 | ) | | |||||
Issuance of preferred stock |
235,000 | 40,000,000 | ||||||
Dividends on preferred stock |
(1,100,142 | ) | (557,111 | ) | ||||
Issuance of common stock |
1,132,543 | | ||||||
Purchase of treasury stock |
| (40,000 | ) | |||||
Proceeds from sale of treasury stock |
| 53,825 | ||||||
Stock options exercised |
| 402,999 | ||||||
Payment of stock issuance costs |
(27,653 | ) | (17,271 | ) | ||||
Net cash used in financing activities |
(87,516,700 | ) | (28,877,128 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
2,787,416 | (46,696,091 | ) | |||||
Cash and cash equivalents at beginning of period |
27,696,530 | 57,745,965 | ||||||
Cash and cash equivalents at end of period |
$ | 30,483,946 | 11,049,874 | |||||
Supplemental information: |
||||||||
Cash paid for: |
||||||||
Interest |
$ | 13,671,160 | 22,294,362 | |||||
Cash received from: |
||||||||
Income tax refunds |
248,494 | | ||||||
Noncash transactions: |
||||||||
Warrant exercise and issuance of Series B preferred stock |
| 2,000,000 | ||||||
Transfers to other real estate in settlement of loans |
12,709,989 | 3,478,995 | ||||||
Loans made to facilitate the sale of other real estate |
371,250 | 151,510 |
See accompanying notes to interim condensed consolidated financial statements.
7
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
June 30, 2010 and 2009
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reliance Bancshares, Inc. (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 its wholly-owned subsidiaries, Reliance Bank and Reliance Bank, F.S.B.
(hereinafter referred to as the Banks). The Company also has loan production offices in Houston,
Texas and Phoenix, Arizona.
The Company and Banks are subject to competition from other financial and nonfinancial institutions
providing financial products throughout the St. Louis, Houston and Phoenix metropolitan areas and
southwestern Florida. Additionally, the Company and Banks are subject to the regulations of
certain Federal and state agencies and undergo periodic examinations by those regulatory agencies.
The accounting and reporting policies of the Company and Banks conform to generally accepted
accounting principles within the banking industry. In compiling the consolidated financial
statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Estimates that are particularly susceptible to change in a short period of time include
the determination of the reserve for possible loan losses, valuation of other real estate owned and
stock options, and determination of possible impairment of intangible assets. Actual results could
differ from those estimates.
The accompanying unaudited interim condensed consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements. In the opinion of management
all adjustments, consisting of normal recurring accruals, considered necessary for a fair
presentation have been included. Certain amounts in the 2009 consolidated financial statements
have been reclassified to conform to the 2010 presentation. Such reclassifications have no effect
on previously reported net income or shareholders equity.
Operating results for the three and six month periods ended June 30, 2010 are not necessarily
indicative of the results that may be expected for any other interim period or for the year ending
December 31, 2010. For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 2009, included in the Companys previously issued
Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of the Company and
Banks. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Accounting
The Company and Banks utilize the accrual basis of accounting, which includes in the total of net
income all revenues earned and expenses incurred, regardless of when actual cash payments are
received or paid. The Company is also required to report comprehensive income, of which net income
is a component. Comprehensive income is defined as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances from non-owner
sources, including all changes in equity during a period, except those resulting from investments
by, and distributions to, owners.
Cash Flow Information
For purposes of the consolidated statements of cash flows, cash equivalents include amounts due
from banks, interest-earning deposits in banks (all of which are payable on demand), and Federal
funds sold. Certain balances are maintained in other financial institutions that participate in the Federal Deposit Insurance Corporations (FDIC)
Transaction Account Guarantee Program. Under this program, these balances are fully guaranteed by
the FDIC through December 31, 2011. After this period, these balances would generally exceed the
level of deposits insured by the FDIC.
Stock Issuance Costs
The Company incurs certain costs associated with the issuance of its common stock. Such costs were
recorded as a reduction of equity capital.
8
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
Subsequent Events
The Company has considered all events occurring subsequent to June 30, 2010 for possible
disclosures through the filing date of this Form 10-Q.
Earnings per Share
Basic earnings per share data is calculated by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings per share reflects the potential
dilution of earnings per share which could occur under the treasury stock method if contracts to
issue common stock, such as stock options, were exercised. The following table presents a summary
of per share data and amounts for the periods indicated.
Three-Months Ended June 30, | Six-Months Ended June 30, | |||||||||||||||
(restated) | (restated) | (restated) | (restated) | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Basic |
||||||||||||||||
Net loss available to common shareholders |
$ | (4,054,806 | ) | (8,930,006 | ) | (7,102,102 | ) | (8,839,132 | ) | |||||||
Weighted average common
shares outstanding |
21,221,753 | 20,855,898 | 21,097,611 | 20,801,385 | ||||||||||||
Basic loss per share |
$ | (0.19 | ) | (0.43 | ) | (0.34 | ) | (0.42 | ) | |||||||
Diluted |
||||||||||||||||
Net loss available to common shareholders |
$ | (4,054,804 | ) | (8,930,006 | ) | (7,102,102 | ) | (8,839,132 | ) | |||||||
Weighted average common
shares outstanding |
21,221,753 | 20,855,898 | 21,097,611 | 20,801,385 | ||||||||||||
Effect of dilutive stock options |
| 3,204 | | 37,889 | ||||||||||||
Diluted weighted average common
shares outstanding |
21,221,753 | 20,859,102 | 21,097,611 | 20,839,274 | ||||||||||||
Diluted loss per share |
$ | (0.19 | ) | (0.43 | ) | (0.34 | ) | (0.42 | ) | |||||||
9
Restatement
On March 4, 2011, the Company determined that it needed to restate its previously issued interim
condensed consolidated financial statements as of and for the three and six months ended June 30,
2010 and 2009 and that these previously issued interim condensed consolidated financial
statements should no longer be relied upon, as a result of the identification of certain omitted
disclosures from the Companys interim condensed consolidated financial statements issued for
those particular periods.
This restatement is required due to certain disclosure omissions in the previously issued interim
condensed consolidated financial statements 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 Companys interim
condensed consolidated statements of operations for the three and six months ended June 30, 2010
and 2009. We also have restated the Companys interim condensed consolidated statements of
operations and comprehensive loss to expand the disclosures for other-than-temporary losses on
available-for-sale securities in those statements.
These restatements had no effect on the Companys consolidated net loss for the three and six
months ended June 30, 2010 and 2009, or its consolidated
stockholders equity as of June 30, 2010 and 2009. Net loss
available to common shareholders, after increasing the loss for preferred dividends paid by the
Company, increased from the $(0.17) and $(0.28) per share, respectively originally disclosed to
$(0.19) and $(0.34), respectively per share as restated, for both basic and fully-diluted loss per
share for the three and six months ended June 30, 2010, respectively. Net loss available to common
shareholders, after increasing the loss for preferred dividends paid by the Company, increased from
$(0.40) and $(0.40), respectively originally presented to $(0.43) and $(0.42), respectively as
restated, for both basic and fully-diluted loss per share for the three and six months ended June
30, 2009, respectively.
The Company has restated its interim condensed consolidated statements of operations and
comprehensive loss for the three and six months ended June 30, 2010 and 2009, to add the
disclosures noted above. In connection with this restatement, note 1 to the interim condensed
consolidated financial statements has been restated to reflect the changes in the loss per share
calculation.
The effects of the restatement for additional disclosures regarding other-than-temporary impairment
of the Companys available-for sale securities, by financial statement line item on the interim
condensed consolidated statements of operations for the three and six months ended June 30, 2010
and 2009, are as follows:
10
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
As presented | As restated | As presented | As restated | |||||||||||||
Noninterest Expense |
||||||||||||||||
Other than temporary impairment losses on
available-for-sale securities: |
||||||||||||||||
Total other-than-temporary impairment losses |
666,759 | 1,040,871 | ||||||||||||||
Less portion of other-than-temporary impairment losses
recognized in other comprehensive income |
(608,942 | ) | (894,793 | ) | ||||||||||||
Net impairment loss realized |
$ | 57,817 | 57,817 | 146,078 | 146,078 | |||||||||||
Salaries and employee benefits |
3,223,969 | 3,223,969 | 3,435,246 | 3,435,246 | ||||||||||||
Other real estate expense |
1,222,042 | 1,222,042 | 1,452,500 | 1,452,500 | ||||||||||||
Occupancy and equipment expense |
1,074,211 | 1,074,211 | 1,086,386 | 1,086,386 | ||||||||||||
FDIC assessment |
754,397 | 754,397 | 1,157,449 | 1,157,449 | ||||||||||||
Data processing |
377,037 | 377,037 | 519,679 | 519,679 | ||||||||||||
Advertising |
16,859 | 16,859 | 28,192 | 28,192 | ||||||||||||
Amortization of intangible assets |
4,072 | 4,072 | 4,072 | 4,072 | ||||||||||||
Other interest expenses |
833,526 | 833,526 | 868,459 | 868,459 | ||||||||||||
Total noninterest expense |
7,563,930 | 7,563,930 | 8,698,061 | 8,698,061 | ||||||||||||
Loss before income taxes |
(6,195,791 | ) | (6,195,791 | ) | (12,751,446 | ) | (12,751,446 | ) | ||||||||
Applicable income tax benefit |
(2,692,536 | ) | (2,692,536 | ) | (4,378,551 | ) | (4,378,551 | ) | ||||||||
Net loss |
$ | (3,503,255 | ) | (3,503,255 | ) | (8,372,895 | ) | (8,372,895 | ) | |||||||
The effects of the restatement for additional disclosures and recalculation of per share
information regarding the Companys net loss available to common shareholders after payment of
preferred dividends, by financial statement line item on the interim condensed consolidated
statements of operations for the three months ended June 30, 2010 and 2009, are as follows:
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
As reported | As restated | As reported | As restated | |||||||||||||
Net loss |
$ | (3,503,255 | ) | (3,503,255 | ) | (8,372,895 | ) | (8,372,895 | ) | |||||||
Preferred stock dividends |
(551,251 | ) | (557,111 | ) | ||||||||||||
Net loss attributed to common shareholders |
(4,054,506 | ) | (8,930,006 | ) | ||||||||||||
Per share amounts |
||||||||||||||||
Basic loss per share |
(0.17 | ) | (0.19 | ) | (0.40 | ) | (0.43 | ) | ||||||||
Basic weighted average shares outstanding |
21,221,753 | 21,221,753 | 20,855,898 | 20,855,898 | ||||||||||||
Diluted loss per share |
(0.17 | ) | (0.19 | ) | (0.40 | ) | (0.43 | ) | ||||||||
Diluted weighted average shares outstanding |
21,221,753 | 21,221,753 | 20,859,102 | 20,859,102 |
11
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
As presented | As restated | As presented | As restated | |||||||||||||
Noninterest Expense |
||||||||||||||||
Other than temporary impairment losses on
available-for-sale securities: |
||||||||||||||||
Total other-than-temporary impairment losses |
666,759 | 1,040,871 | ||||||||||||||
Less portion of other-than-temporary impairment losses
recognized in other comprehensive income |
(608,942 | ) | (894,793 | ) | ||||||||||||
Net impairment loss realized |
$ | 57,817 | 57,817 | 146,078 | 146,078 | |||||||||||
Salaries and employee benefits |
6,488,951 | 6,488,951 | 7,315,701 | 7,315,701 | ||||||||||||
Other real estate expense |
2,595,829 | 2,595,829 | 1,762,163 | 1,762,163 | ||||||||||||
Occupancy and equipment expense |
2,161,230 | 2,161,230 | 2,212,318 | 2,212,318 | ||||||||||||
FDIC assessment |
1,538,915 | 1,538,915 | 1,660,982 | 1,660,982 | ||||||||||||
Data processing |
809,580 | 809,580 | 994,353 | 994,353 | ||||||||||||
Advertising |
35,751 | 35,751 | 175,502 | 175,502 | ||||||||||||
Amortization of intangible assets |
8,144 | 8,144 | 8,144 | 8,144 | ||||||||||||
Other interest expenses |
1,622,224 | 1,622,224 | 1,663,952 | 1,663,952 | ||||||||||||
Total noninterest expense |
15,318,441 | 15,318,441 | 15,939,193 | 15,939,193 | ||||||||||||
Loss before income taxes |
(10,169,454 | ) | (10,169,454 | ) | (12,698,798 | ) | (12,698,798 | ) | ||||||||
Applicable income tax benefit |
(4,167,494 | ) | (4,167,494 | ) | (4,416,777 | ) | (4,416,777 | ) | ||||||||
Net loss |
$ | (6,001,960 | ) | (6,001,960 | ) | (8,282,021 | ) | (8,282,021 | ) | |||||||
The effects of the restatement for additional disclosures and recalculation of per share
information regarding the Companys net loss available to common shareholders after payment of
preferred dividends, by financial statement line item on the interim condensed consolidated
statements of operations for the six months ended June 30, 2010 and 2009, are as follows:
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
As reported | As restated | As reported | As restated | |||||||||||||
Net loss |
(6,001,960 | ) | (6,001,960 | ) | (8,282,021 | ) | (8,282,021 | ) | ||||||||
Preferred stock dividends |
(1,100,142 | ) | (557,111 | ) | ||||||||||||
Net loss attributed to common shareholders |
(7,102,102 | ) | (8,839,132 | ) | ||||||||||||
Per share amounts |
||||||||||||||||
Basic loss per share |
(0.28 | ) | (0.34 | ) | (0.40 | ) | (0.42 | ) | ||||||||
Basic weighted average shares outstanding |
21,097,611 | 21,097,611 | 20,801,385 | 20,801,385 | ||||||||||||
Diluted loss per share |
(0.28 | ) | (0.34 | ) | (0.40 | ) | (0.42 | ) | ||||||||
Diluted weighted average shares outstanding |
21,097,611 | 21,097,611 | 20,839,274 | 20,839,274 |
12
The effects of the restatement for additional disclosures regarding other-than-temporary
impairment of the Companys available-for sale securities, by financial statement line item on the
interim condensed consolidated statements of comprehensive loss for the six months ended June 30,
2010 and 2009, are as follows:
2010 | 2009 | |||||||||||||||
As reported | As restated | As reported | As restated | |||||||||||||
Net loss |
$ | (6,001,960 | ) | (6,001,960 | ) | (8,282,021 | ) | (8,282,021 | ) | |||||||
Other comprehensive income before tax: |
||||||||||||||||
Net unrealized gains (losses) on available-for-sale securities |
4,273,773 | 446,222 | ||||||||||||||
Change in unrealized gains (losses) on available-for-sale
securities which a portion of an other-than-temporary
impairment loss has been recognized in earnings,
net of reclassification |
(58,136 | ) | (30,284 | ) | ||||||||||||
Change in unrealized gains (losses) on other securities
available-for-sale, net of reclassification |
4,331,909 | 476,506 | ||||||||||||||
Reclassification adjustments for: |
||||||||||||||||
Available for sale losses (gains) included in net loss |
(265,760 | ) | (265,760 | ) | 241 | 241 | ||||||||||
Writedown of investment securities included in net loss |
57,817 | 57,817 | 146,078 | 146,078 | ||||||||||||
Other comprehensive income before tax |
4,065,830 | 4,065,830 | 592,541 | 592,541 | ||||||||||||
Income tax related to items of other comprehensive income |
1,382,382 | 1,382,382 | 201,464 | 201,464 | ||||||||||||
Other comprehensive income, net of tax |
2,683,448 | 2,683,448 | 391,077 | 391,077 | ||||||||||||
Total comprehensive loss |
$ | (3,318,512 | ) | (3,318,512 | ) | (7,890,944 | ) | (7,890,944 | ) | |||||||
13
NOTE 2 INTANGIBLE ASSETS
Identifiable intangible assets include the core deposit premium relating to the Companys
acquisition of The Bank of Godfrey, which is being amortized into noninterest expense on a
straight-line basis over 15 years. Amortization of the core deposit intangible assets existing at
June 30, 2010 will be $4,072 per quarter until completely amortized.
The excess of the Companys consideration given in its acquisition of The Bank of Godfrey over the
fair value of the net assets acquired is recorded as goodwill, an intangible asset on the
consolidated balance sheets. Goodwill is the Companys only intangible asset with an indefinite
useful life, and the Company is required to test the intangible asset for impairment on an annual
basis. Impairment is measured as the excess of carrying value over the fair value of an intangible
asset with an indefinite life. No impairment writedown has thusfar been required on this
intangible asset.
NOTE 3 STOCK OPTIONS
Compensation costs relating to share-based payment transactions are recognized in the Companys
consolidated financial statements over the period of service to which such compensation relates
(generally the vesting period), and are measured based on the fair value of the equity or liability
instruments issued. The grant date values of share options are estimated using option-pricing
models adjusted for the unique characteristics of those instruments (unless observable market
prices for the same or similar instruments are available). If an equity award is modified after the
grant date, incremental compensation cost would be recognized in an amount equal to the excess of
the fair value of the modified award over the fair value of the original award immediately before
the modification.
No value was ascribed to the options granted in the first six months of 2009 as the option price
significantly exceeded the market value of the stock on the grant date; however, the Companys
common stock is not actively traded on any exchange. Accordingly, the availability of fair value
information for the Companys common stock is limited. In using the Black-Scholes option pricing
model to value the options, several assumptions have been made in arriving at the estimated fair
value of the
14
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
options granted, including minimal or no volatility in the Companys common stock price,
expected forfeitures of 10%, no dividends paid on the common stock, an expected weighted average
option life of six years, and a risk-free interest rate approximating the U.S. Treasury rates for
the applicable duration period. Any change in these assumptions could have a significant impact on
the effects of determining compensation costs.
Following is a summary of the Companys stock option activity for the six-month periods ended June
30, 2010 and 2009:
Options Granted Under | Options Granted to Directors | |||||||||||||||
Incentive Stock Option Plans | Under Nonqualified Plans | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Option Price | Number | Option Price | Number | |||||||||||||
per Share | of Shares | per Share | of Shares | |||||||||||||
Six-Months Ended June 30, 2009: |
||||||||||||||||
Balance at December 31, 2008 |
$ | 7.61 | 1,553,450 | $ | 8.44 | 673,000 | ||||||||||
Granted |
7.50 | 102,250 | 7.50 | 500 | ||||||||||||
Forfeited |
9.33 | (65,000 | ) | 15.49 | (9,667 | ) | ||||||||||
Exercised |
2.58 | (156,000 | ) | | | |||||||||||
Balance at June 30, 2009 |
$ | 8.07 | 1,434,700 | $ | 8.34 | 663,833 | ||||||||||
Six-Months Ended June 30, 2010: |
||||||||||||||||
Balance at December 31, 2009 |
$ | 8.05 | 1,424,450 | $ | 8.41 | 666,816 | ||||||||||
Forfeited |
10.86 | (17,250 | ) | 10.53 | (20,816 | ) | ||||||||||
Balance at June 30, 2010 |
$ | 8.02 | 1,407,200 | $ | 8.34 | 646,000 | ||||||||||
The weighted average option prices for the 2,053,200 and 2,098,533 options outstanding at June
30, 2010 and 2009 were $8.12 and $8.15, respectively. At June 30, 2010, options to purchase an
additional 542,050 shares of Company common stock were available for future grants under the
various plans.
The total intrinsic value of options exercised during the six months ended June 30, 2009 was
$228,300. No options were exercised during the six months ended June 30, 2010. The average
remaining contractual term for options exercisable as of June 30, 2010 was 3.26 years, with no
intrinsic value at June 30, 2010. A summary of the activity of the non-vested options during 2010
is as follows:
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at December 31, 2009 |
271,198 | $ | 2.09 | |||||
Granted |
| | ||||||
Vested |
(125,157 | ) | 2.54 | |||||
Forfeited |
(4,250 | ) | 1.14 | |||||
Nonvested at June 30, 2010 |
141,791 | 1.72 | ||||||
Unrecognized compensation expense related to nonvested stock options granted after January 1, 2006,
was $29,091, and the related weighted average period over which it is expected to be recognized is
approximately 11 months. The Company recognized stock option expense of $169,412 and $268,764 for the six months ended June 30, 2010 and
June 30, 2009, respectively.
15
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
NOTE 4 DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Banks issue financial instruments with off-balance-sheet risk in the normal course of the
business of meeting the financing needs of their customers. These financial instruments include
commitments to extend credit and standby letters of credit and may involve, to varying degrees,
elements of credit risk in excess of the amounts recognized in the balance sheets. The contractual
amounts of those instruments reflect the extent of involvement the Banks have in particular classes
of these financial instruments.
The Banks exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit is represented
by the contractual amount of those instruments. The Banks use the same credit policies in making
commitments and conditional obligations as they do for financial instruments included on the
balance sheets. Following is a summary of the Banks off-balance-sheet financial instruments at
June 30, 2010:
Financial instruments for which
contractual amounts represent: |
||||
Commitments to extend credit |
$ | 113,380,599 | ||
Standby letters of credit |
12,609,055 | |||
$ | 125,989,654 | |||
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Of the total commitments to extend credit
at June 30, 2010, $23,929,733 was made at fixed rates of interest. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee. Since
certain of the commitments may expire without being fully drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Banks evaluate each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Banks upon extension of credit, is based on managements credit evaluation of the borrower.
Collateral held varies, but is generally residential or income-producing commercial property or
equipment, on which the Banks generally have a superior lien.
Standby letters of credit are conditional commitments issued by the Banks to guarantee the
performance of a customer to a third party, for which draw requests have historically not been made
thereon. Such guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
Following is a summary of the carrying amounts and estimated fair values of the Companys financial
instruments at June 30, 2010:
Carrying | Estimated | |||||||
amount | fair value | |||||||
Balance sheet assets: |
||||||||
Cash and due from banks |
$ | 30,339,946 | $ | 30,339,946 | ||||
Federal funds sold |
144,000 | 144,000 | ||||||
Investments in debt securities |
263,575,008 | 263,575,008 | ||||||
Loans, net |
1,030,698,892 | 1,044,242,297 | ||||||
Accrued interest receivable |
4,459,133 | 4,459,133 | ||||||
$ | 1,329,216,979 | $ | 1,342,760,384 | |||||
Balance sheet liabilities: |
||||||||
Deposits |
$ | 1,177,107,606 | $ | 1,185,987,845 | ||||
Short-term borrowings |
18,893,075 | 18,893,075 | ||||||
Long-term Federal |
||||||||
Home Loan Bank borrowings |
99,000,000 | 119,365,338 | ||||||
Accrued interest payable |
1,759,664 | 1,759,664 | ||||||
$ | 1,296,760,345 | $ | 1,326,005,922 | |||||
16
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
The Company uses fair value measurements to determine fair value disclosures. Fair value is
the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. In determining fair value, the
Company uses various methods including market, income and cost approaches. Based on these
approaches, the Company often utilizes certain assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk and/or the risks inherent in the
inputs to the valuation technique. These inputs can be readily observable, market corroborated, or
generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs. Even if there has been a
significant decrease in the volume and level of activity for the asset or liability regardless of
the valuation techniques used, the objective of a fair value measurement remains the same, i.e.,
fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date under current market
conditions. Based on the observability of the inputs used in the valuation techniques, the Company
is required to provide the following information according to the fair value hierarchy. Financial
assets and liabilities carried at fair value will be classified and disclosed in one of the
following three categories:
| Level 1 Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency securities and federal agency mortgage-backed securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. |
| Level 2 Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities. |
| Level 3 Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or value assigned to such assets or liabilities. |
The following is a description of valuation methodologies used for assets recorded at fair value:
Cash and Other Short-Term Instruments For cash and due from banks (including interest-earning
deposits in other financial institutions), Federal funds sold, accrued interest receivable
(payable), and short-term borrowings, the carrying amount is a reasonable estimate of fair value,
as such instruments are due on demand and/or reprice in a short time period.
Investments in Available-For-Sale Debt Securities Investments in available-for-sale debt
securities are recorded at fair value on a recurring basis. The Companys available-for-sale debt
securities are measured at fair value using Level 2 and 3 valuations. For all debt securities
other than the other debt securities described below, the market valuation utilizes several
sources, primarily pricing services, which include observable inputs rather than significant
unobservable inputs and therefore, fall into the Level 2 category.
17
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
Included in other debt securities are collateralized debt obligation securities that are
backed by trust preferred securities issued by banks, thrifts, and insurance companies (TRUP CDOs).
Given conditions in the debt markets at June 30, 2010, and the absence of observable transactions
in the secondary and new issue markets for TRUP CDOs, the few observable transactions and market
quotations that are available are considered not reliable for the purpose of determining fair value
at June 30, 2010, and an income valuation approach technique (present value technique) that
maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is
considered more representative of fair value than the market approach valuation techniques.
Accordingly, the TRUP CDOs have been classified within Level 3 of the fair value hierarchy because
significant adjustments are required to determine fair value at the measurement date, particularly
regarding estimated default probabilities based on the credit quality of the specific issuer
institutions for the TRUP CDOs. The TRUP CDOs are the only assets measured on a recurring basis
using Level 3 inputs. Following is further information regarding such assets:
Balance, at fair value on December 31, 2009 |
$ | 1,237,737 | ||
Decrease in fair value |
(1,241 | ) | ||
Impairment writedowns |
(57,817 | ) | ||
Accreted discount |
932 | |||
Payments in kind |
11,407 | |||
Principal payments received |
(4,082 | ) | ||
Balance, at fair value on June 30, 2010 |
$ | 1,186,936 | ||
Loans The Company does not record loans at fair value on a recurring basis other than loans
that are considered impaired. At June 30, 2010, all impaired loans were evaluated based on the
fair value of the underlying collateral. The fair value of the underlying collateral is based upon
an observable market price or current appraised value, and, therefore, the Company classifies these
assets in the nonrecurring Level 3 category. The total principal balance of impaired loans
measured at fair value at June 30, 2010 was $117,788,158.
Deposits The fair value of demand deposits, savings accounts, and interest-bearing transaction
account deposits is the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits
of similar remaining maturities, which is a nonrecurring Level 3 valuation technique.
Long-Term Borrowings Rates currently available to the Company with similar terms and remaining
maturities are used to estimate the fair value of existing long-term debt, which is a nonrecurring
Level 3 valuation technique.
Commitments to Extend Credit and Standby Letters of Credit The fair value of commitments to
extend credit and standby letters of credit are estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements, the likelihood
of the counterparties drawing on such financial instruments, and the present creditworthiness of
such counterparties. The Company believes such commitments have been made on terms that are
competitive in the markets in which it operates.
18
RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
The following table summarizes financial instruments measured at fair value on a recurring
basis as of June 30, 2010, segregated by the level of the valuation inputs within the fair value
hierarchy utilized to measure fair value.
Quoted | |||||||||||||||
Prices in | |||||||||||||||
Active | Significant | ||||||||||||||
Markets for | Other | Significant | |||||||||||||
Identical | Observable | Observable | |||||||||||||
Assets | Inputs | Inputs | Total Fair | ||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | ||||||||||||
Assets |
|||||||||||||||
Investment Securities: |
|||||||||||||||
U.S. government sponsored agency obligations
|
$ | | $ | 102,740,520 | $ | | $ | 102,740,520 | |||||||
State and municipal securities
|
$ | | 28,899,845 | | 28,899,845 | ||||||||||
Other debt securities
|
$ | | | 1,186,936 | 1,186,936 | ||||||||||
Mortgage-backed securities
|
$ | | 130,747,707 | | 130,747,707 | ||||||||||
Total Investment Securities available for sale
|
$ | | $ | 262,388,072 | $ | 1,186,936 | $ | 263,575,008 | |||||||
From time to time, the Company measures certain assets at fair value on a nonrecurring basis.
These include assets that are measured at the lower of cost or fair value, including impaired loans
and other real estate owned. Impaired loans are reported at the fair value of the underlying
collateral. Fair values for impaired loans are obtained from current appraisals by qualified
licensed appraisers or independent valuation specialists. Other real estate owned is adjusted to
fair value upon foreclosure of the underlying loan. Subsequently, foreclosed assets are carried at
the lower of carrying value or fair value less costs to sell. Fair value of other real estate is
based upon the current appraised values of the properties as determined by qualified licensed
appraisers and the Companys judgment of other relevant market conditions. Accordingly, these
assets are classified in the Level 3 category. The total principal balance of impaired loans and
other real estate owned at June 30, 2010 was $117,788,158 and $36,319,932, respectively.
19
Part I Item 2 Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following presents managements discussion and analysis of the consolidated financial
condition and results of operations of Reliance Bancshares, Inc. (the Company) for the three and
six-month periods ended June 30, 2010 and 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 the accompanying
interim condensed consolidated financial statements included in this report and the consolidated
financial statements for the year ended December 31, 2009, included in our most recent annual
report on Form 10-K/A.
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.
Forward-Looking Statements
Readers should note that in addition to the historical information contained herein, some of the
information in this report contains forward-looking statements within the meaning of the federal
securities laws. Forward-looking statements typically are identified with use of terms such as
may, will, expect, anticipate, estimate, potential, could, and similar words,
although some forward-looking statements are expressed differently. 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 in our most
recent annual report on Form 10-K filed with the Securities and Exchange Commission (SEC), as
updated from time to time in our subsequent SEC filings. The Company does not intend to publicly
revise or update forward-looking statements to reflect events or circumstances that arise after the
date of this report, unless otherwise required by applicable rules.
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 June 30, 2010, 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, $1.0 billion, and $1.1 billion, respectively, at June 30, 2010.
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 through June 30, 2010, Reliance Bank, FSB has
added two branch locations in southwestern Florida and has grown its total assets, loans, and
deposits to $93.4 million, $60.0 million, and $71.6 million, respectively, at June 30, 2010.
At June 30, 2010, Reliance Banks total assets, total revenues, and net loss represented 93.52%,
94.31%, and 55.36%, respectively, of the Companys consolidated total assets, total revenue, and
net loss. Reliance Bank, FSBs total assets, total revenues, and net loss represented 6.45%,
5.69%, and 37.32%, respectively, of the Companys consolidated totals. The Company incurred a net
loss of $6.0 million for the six months ended June 30, 2010.
During 2008, the Company completed building its St. Louis metropolitan branch network. The Company
plans to continue building its branch network in southwestern Florida, with four additional
branches planned; however, the building of these branches has been suspended while management
focuses on Reliance Bank, FSBs profitability in light of the stressful market conditions in
southwestern Florida. The Companys branch expansion plans have been designed to increase the
Companys market share in the St. Louis metropolitan area in Missouri and Illinois and southwestern
Florida and to allow the Companys
20
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
Companys 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 Companys total consolidated assets were $1.4 billion at June 30, 2010, with loans and deposits
totaling $1.1 billion and $1.2 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, and has sold 22,539,711 shares of Company Common
Stock through June 30, 2010.
The Companys consolidated net losses for the six-month periods ended June 30, 2010 and 2009
totaled $6,001,960 and $8,282,021, respectively. Consolidated net losses for the three-month
periods ended June 30, 2010 and 2009 totaled $3,503,255 and $8,372,895, respectively. While the
Companys net interest income has continued to grow, the provision for possible loan losses
increased compared to the same six months of 2009, reflecting an increase in nonperforming loans,
which has resulted from a substantial decline in the real estate and local economic markets in
which the Companys banking subsidiaries operate. These factors and their effect on the Companys
results of operations are discussed in more detail below.
Net interest income before the provision for possible loan losses for the six-month periods ended
June 30, 2010 and 2009 totaled $21,028,811 and $18,292,107, respectively. Net interest income
before the provision for possible loan losses for the three-month periods ended June 30, 2010 and
2009 totaled $10,210,545 and $9,283,097, respectively. This growth in net interest income resulted
from a decrease in the rates paid on deposits and a shift in funding composition toward lower cost
deposit products, reduced by the impact from increasing nonearning problem assets.
Interest expense incurred on interest-bearing liabilities for the six-month periods ended June 30,
2010 and 2009 totaled $13,235,872 and $20,967,803, respectively. Interest expense incurred on
interest-bearing liabilities for the quarters ended June 30, 2010 and 2009 totaled $6,445,945 and
$9,992,569, 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 prior to the current economic recession. As a result, the Company has experienced a
significant continual increase in nonperforming assets (which include nonperforming loans and other
real estate owned). Nonperforming assets totaled $130.2 million at June 30, 2010 compared with
$89.8 million at June 30, 2009. The reserve for possible loan losses as a percentage of net
outstanding loans was 3.39% at June 30, 2010 compared with 1.97% at June 30, 2009. Net charge-offs
for the six months ended June 30, 2010 totaled $13.4 million compared with $6.5 million for the six
months ended June 30, 2009. Net charge-offs for the three months ended June 30, 2010 totaled $6.2
million compared with $4.2 million for the three months ended June 30, 2009. The provision for
possible loan losses charged to expense for the six-month periods ended June 30, 2010 and 2009
totaled $17,320,000 and $16,250,000, respectively, and $9,628,000 and $14,000,000 for the
three-month periods ended June 30, 2010 and 2009, respectively. The year to date increase in the
provision for loan losses was a direct reaction to the significant decline in the real estate
market. The Company believes it has identified existing problems in the loan portfolio and is
working to address those issues. However, the economy continues to present challenges to our
borrowers and it could be likely that others will meet with difficulty in meeting obligations. See
further discussion regarding the Companys management of credit risk in the section below entitled
Risk Management.
Total noninterest income excluding securities gains and losses for the six-month periods ended June
30, 2010 and 2009 was $1,174,416 and $1,198,529, respectively, and $584,525 and $663,759 for the
three-month periods ended June 30, 2010 and 2009, respectively. Gains (losses) on security sales
for the six-month periods ended June 30, 2010 and 2009 were $265,760 and ($241), respectively and
$201,069 and ($241) for the three month periods ended June 30, 2010 and 2009, respectively.
21
Total noninterest expense was $15,318,441 and $15,939,193 for the six-month periods ended June 30,
2010 and 2009, respectively, and $7,563,930 and $8,698,061 for the three-month periods ended June
30, 2010 and 2009, respectively. The Company had reductions in all noninterest expense
categories with the exception of other real estate expense.
The Companys effective tax rate for the six-month periods ended June 30, 2010 and 2009 was 40.98%
and 34.78%, respectively, and 43.46% and 34.34% for the three-month periods ended June 30, 2010 and
2009, respectively.
Basic and fully diluted loss per common
share for the three-month period ended June 30, 2010 were both
$(0.19) per share (restated). Basic and fully diluted loss per share for the six-month period ended June 30,
2010 were both $(0.42) (restated).
Following are certain of the Companys ratios generally followed in the banking industry for the
three and six-month periods ended June 30, 2010 and 2009:
As of and for the | As of and for the | |||||||||||||||
six months ended June 30, | quarters ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Percentage of net loss to: |
||||||||||||||||
Average total assets
|
(0.81 | )% | (1.05 | )% | (0.96 | )% | (2.12 | )% | ||||||||
Average stockholders equity
|
(8.10 | )% | (9.79 | )% | (9.48 | )% | (18.58 | )% | ||||||||
Percentage of common dividends
declared to net income per common
share
|
| | | | ||||||||||||
Percentage of average stockholders
equity to average total assets
|
10.05 | % | 10.70 | % | 10.13 | % | 11.43 | % |
Critical Accounting Policies
The impact and any associated risks related to the Companys critical accounting policies on
reporting operations are discussed throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations where such policies affect reported and expected financial
results. For a detailed discussion on the application of these and other accounting policies, see
the Companys consolidated financial statements as of and for year ended December 31, 2009 and the
related Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our annual report on Form 10-K, which was filed March 26, 2010. Management believes
there have been no material changes to our critical accounting policies during the first six months
of 2010.
22
Results of Operations for the Three and Six-Month Periods Ended June 30, 2010 and 2009
Net Interest Income
The Companys net interest income increased $2,736,704 (14.96%) to $21,028,811 for the six-month
period ended June 30, 2010 from the $18,292,107 earned during the six-month period ended June 30,
2009. The Companys net interest margin for the six-month periods ended June 30, 2010 and 2009 was
3.08% and 2.46%, respectively. The Companys net interest income increased $927,448 (9.99%) to
$10,210,545 for the three-month period ended June 30, 2010 from the $9,283,097 earned during the
three-month period ended June 30, 2009. The Companys net interest margin for the three-month
periods ended June 30, 2010 and 2009 was 3.03% and 2.51%, respectively. This increase in margin
percentage is primarily attributed to lower cost of funds on the Companys retail deposit products
and a shift in funding composition toward lower cost deposit products.
Average earning assets for the first six months of 2010 decreased $125,962,734 (8.29%) to
$1,394,021,535 from the level of $1,519,984,269 for the first six months of 2009. Average earning
assets for the second quarter of 2010 decreased $134,014,937 (8.91%) to $1,369,375,108 from the
level of $1,503,390,045 for the second quarter of 2009. Total average loans for the first six
months of 2010 decreased $130,135,950 (10.51%) to $1,107,753,561 from the level of $1,237,889,511
for the first six months of 2009. Total average loans for the second quarter of 2010 decreased
$140,527,314 (11.42%) to $1,090,087,275 from the level of $1,230,614,589 for the second quarter of
2009. The depressed economy has reduced the Companys opportunities for loan growth in its current
markets.
Total average investment securities for the first six months of 2010 decreased $2,826,056 (1.10%)
to $254,138,307 from the level of $256,964,363 for the first six months of 2009. Total average
investment securities for the second quarter of 2010 decreased $10,463,363 (4.05%) to $247,788,264
from the level of $258,251,627 for the second quarter of 2009. 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 $100,000, (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. The total carrying value of securities pledged to secure public
funds and repurchase agreements was approximately $171.2 million at June 30, 2010. The Banks have
also pledged letters of credit from the Federal Home Loan Banks totaling $1.5 million as additional
collateral to secure public funds and loans at June 30, 2010.
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 six-month periods ended June 30, 2010 and 2009 were
$32,129,667 and $25,130,395, respectively. The average balances of such short-term investments for
the quarters ended June 30, 2010 and 2009 were $31,499,569 and $14,523,829, respectively.
A key factor in attempting to increase the Companys net interest margin is to maintain a higher
percentage of earning assets in the loan category, which is the Companys highest earning asset
category. However, average loans as a percentage of average earning assets were 79.46% for the
first six months of 2010, which was a 1.98% decrease over the 81.44% achieved in the first six
months of 2009. Average loans as a percentage of average earning assets were 79.60% for the second
quarter of 2010, which was a 2.26% decrease over the 81.86% achieved in the second quarter of 2009.
This decline resulted from the depressed economic environment in the Banks market areas,
resulting in fewer lending opportunities for the Banks.
Total average interest-bearing deposits for the first six months of 2010 were $1,154,066,529, a
decrease of $38,789,534 (3.25%) from the level of $1,192,856,063 for the first six months of 2009.
Total average interest-bearing deposits for the second quarter of 2010 were $1,135,034,567, a
decrease of $43,646,651 (3.70%) from the level of $1,178,681,218 for the second quarter of 2009.
The Company has sought to lower its percentage of higher cost time deposit balances while
increasing lower cost savings and interest-bearing transaction account balances. Total average time
deposits for the first six months of 2010 decreased $215,095,004 (26.40%) to $599,807,338 from a
level of $814,902,342 for the first six months of 2009. Average time deposits for the second
quarter of 2010 declined $187,538,601 (24.55%) to $576,233,648 from $763,772,249 for the second
quarter of 2009. The Company increased average savings account deposits by $110,033,754 (51.78%)
to $322,525,828 from $212,492,074 for the first six months of 2009. Average savings accounts for
the second quarter of 2010 increased $82,542,859 (33.82%) to $326,591,959 from $244,049,100 for the
second quarter of 2009. Also, interest-bearing transaction accounts for the first six months of
2010 increased $66,271,716 (40.05%) to $231,733,363 from a level of
23
$165,461,647 for the first six months of 2009. Average interest bearing transaction accounts
increased $61,349,091 (35.91%) to $232,208,960 from $170,859,869 for the second quarter of 2009.
The Companys short-term borrowings consist of overnight funds borrowed from unaffiliated financial
institutions and securities sold under sweep repurchase agreements with larger deposit customers.
Average short term borrowings for the six months ended June 30, 2010 declined $14,141,576 (48.94%)
to $14,752,435 from $28,894,011 for the six months ended June 30, 2009. Average short-term
borrowings for the second quarter of 2010 declined $2,524,385 (13.84%) to $15,721,742 from
$18,246,127 for the second quarter of 2009. The increase in retail savings and interest-bearing
transaction accounts allowed the Company to reduce its short-term borrowings.
The Company has used longer-term advances to match with longer-term fixed rate assets. The average
balance of Federal Home Loan Bank advances declined $34,768,817 (25.57%) to $101,231,183 for the
first six months of 2010, compared with $136,000,000 for the first six months of 2009. The average
balance of Federal Home Loan Bank advances declined $37,000,000 (27.21%) to $99,000,000 for the
second quarter of 2010, compared with the $136,000,000 average balance for the second quarter of
2009. The Company has sought to lower its balances of wholesale funding.
The overall mix of the Companys funding sources has a significant impact on the Companys 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) for the three and six-month periods ended June 30, 2010 and 2009:
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Average deposits: |
||||||||||||||||
Noninterest-bearing |
4.45 | % | 4.31 | % | 4.58 | % | 4.16 | % | ||||||||
Interest-bearing: |
||||||||||||||||
Transaction accounts |
17.75 | 12.27 | 17.41 | 11.68 | ||||||||||||
Savings |
24.97 | 17.52 | 24.23 | 15.00 | ||||||||||||
Time deposits of $100,000 or more |
18.80 | 23.32 | 19.41 | 24.28 | ||||||||||||
Other time deposits |
25.26 | 31.51 | 25.65 | 33.23 | ||||||||||||
Total average interest-bearing deposits |
86.78 | 84.62 | 86.70 | 84.19 | ||||||||||||
Total average deposits |
91.23 | 88.93 | 91.28 | 88.35 | ||||||||||||
Average short-term borrowings |
1.20 | 1.31 | 1.11 | 2.05 | ||||||||||||
Average longer-term advances from Federal Home Loan Bank |
7.57 | 9.76 | 7.61 | 9.60 | ||||||||||||
100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||
The composition of the Companys deposit portfolio will fluctuate as recently added branches help
to diversify the Companys 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 total funding sources and increase its percentage of lower cost
savings and interest bearing transaction accounts. Through deposit campaigns, the Company increased
its percentage of average savings accounts to 24.23% and 24.97% of total average funding sources
for the six and three months ended June 30, 2010, respectively compared to 15.00% and 17.52% for
the six and three months ended June 30, 2009, respectively. Also, average interest bearing
transaction accounts increased to 17.41% and 17.75% of total average funding sources for the six
and three month periods ended June 30, 2010, respectively from 11.68% and 12.27% for the six and
three months ended June 30, 2009, respectively. These increases allowed the Company to reduce the
percentage of short-term borrowings and longer term advances. Higher cost certificates of deposits
declined to 45.06% and 44.06% for the six and three months ended June 30, 2010 compared to 57.51%
and 54.83% at June 30, 2009. Certificates of deposit have a lagging effect with interest rate
changes, as most certificates of deposit have longer maturities at fixed rates. Depositors are
also less likely to lock into the current low interest rates for an extended period of time with
certificates of deposit.
24
The following table sets forth, on a tax-equivalent basis for the period 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) | ||||||||||||||||||||||||
Second Quarter | First Six Months | |||||||||||||||||||||||
Change From 2009 to 2010 Due to | ||||||||||||||||||||||||
Yield/ | Yield/ | |||||||||||||||||||||||
Volume (1) | Rate (2) | Total | Volume (1) | Rate (2) | Total | |||||||||||||||||||
Interest income: |
||||||||||||||||||||||||
Loans |
$ | (1,905,226 | ) | (421,625 | ) | (2,326,851 | ) | (3,581,237 | ) | (964,693 | ) | (4,545,930 | ) | |||||||||||
Investment securities: |
||||||||||||||||||||||||
Taxable |
(75,974 | ) | (211,087 | ) | (287,061 | ) | (8,086 | ) | (401,610 | ) | (409,696 | ) | ||||||||||||
Exempt from Federal income taxes |
(20,193 | ) | 10,269 | (9,924 | ) | (68,533 | ) | 28,993 | (39,540 | ) | ||||||||||||||
Short-term investments |
8,427 | 1,803 | 10,230 | 7,021 | 2,801 | 9,822 | ||||||||||||||||||
Total interest income |
(1,992,966 | ) | (620,640 | ) | (2,613,606 | ) | (3,650,835 | ) | (1,334,509 | ) | (4,985,344 | ) | ||||||||||||
Interest expense: |
||||||||||||||||||||||||
Interest-bearing transaction accounts |
167,208 | (181,657 | ) | (14,449 | ) | 372,938 | (437,015 | ) | (64,077 | ) | ||||||||||||||
Savings accounts |
462,029 | (1,172,763 | ) | (710,734 | ) | 1,145,343 | (2,107,859 | ) | (962,516 | ) | ||||||||||||||
Time deposits of $100,000 or more |
(551,054 | ) | (514,933 | ) | (1,065,987 | ) | (1,215,967 | ) | (1,236,425 | ) | (2,452,392 | ) | ||||||||||||
Other time deposits |
(859,758 | ) | (584,197 | ) | (1,443,955 | ) | (2,058,885 | ) | (1,389,642 | ) | (3,448,527 | ) | ||||||||||||
Total deposits |
(781,575 | ) | (2,453,550 | ) | (3,235,125 | ) | (1,756,571 | ) | (5,170,941 | ) | (6,927,512 | ) | ||||||||||||
Funds purchased and securities sold
under repurchase agreements |
(5,857 | ) | (15,061 | ) | (20,918 | ) | (108,946 | ) | (141,841 | ) | (250,787 | ) | ||||||||||||
Long-term borrowings |
(355,082 | ) | 64,501 | (290,581 | ) | (657,346 | ) | 103,714 | (553,632 | ) | ||||||||||||||
Total interest expense |
(1,142,514 | ) | (2,404,110 | ) | (3,546,624 | ) | (2,522,863 | ) | (5,209,068 | ) | (7,731,931 | ) | ||||||||||||
Net interest income (loss) |
$ | (850,452 | ) | 1,783,470 | 933,018 | (1,127,972 | ) | 3,874,559 | 2,746,587 | |||||||||||||||
(1) | Change in volume multiplied by yield/rate of prior year. | |
(2) | Change in yield/rate multiplied by volume of prior year. |
NOTE: | The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. |
Provision for Possible Loan Losses
The provision for possible loan losses charged to earnings for the six-month periods ended June 30,
2010 and 2009 was $17,320,000 and $16,250,000, respectively. The provision for possible loan
losses charged to earnings for the three-month periods ended June 30, 2010 and 2009 was $9,628,000
and $14,000,000, respectively. Net charge-offs for the six-month periods ended June 30, 2010 and
2009 totaled $13,378,166 and $6,511,312, respectively. Net charge-offs for the three-month periods
ended June 30, 2010 and 2009 totaled $6,181,681 and $4,151,537, respectively. As of June 30, 2010
and 2009, the reserve for possible loan losses as a percentage of net outstanding loans was 3.39%
and 1.97%, 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 38.51% and 32.72% at June 30, 2010 and 2009,
respectively. The continued significant decline of the real estate market has resulted in an
increase in the level of nonperforming loans and a required higher provision for loan losses in the
first six months of 2010. See further discussion regarding the Companys credit risk management in
the section below entitled Risk Management.
Noninterest Income
Total noninterest income for the first six months of 2010, excluding security sale gains and
losses, decreased $24,113 (2.01%) to $1,174,416 from the $1,198,529 earned for the first six months
of 2009. Total noninterest income for the second quarter of 2010, excluding security gains and
losses, decreased $79,234 (11.94%) to $584,525 from the $663,759 earned for the second quarter of
2009. Secondary mortgage market fees declined $210,501 (72.41%) to $80,194 from the $290,695 for
the six months ended June 30, 2010 and declined $143,032 (79.44%) to $37,021 for the three-months
ended June 30, 2010 from $180,053 for the three months ended June 30, 2009, resulting from less
mortgage refinance activity. Offsetting these declines were increases from revenue generated from
the Companys other real estate properties. This income rose $116,360 (415.81%)
25
to $144,344 for the six months ended June 30, 2010 from $27,984 for the six months ended June 30,
2009. Other real estate income increased $49,601 (357.28%) to $63,484 for the three months ended
June 20, 2010 from $13,883 for the three months ended June 30, 2010, due to an increase in the
number of rentable properties held.
Noninterest Expense
Noninterest expense decreased $620,752 (3.89%) for the first six months of 2010 to $15,318,441 from
the $15,939,193 incurred during the first six months of 2009. Noninterest expense decreased
$1,134,131 (13.04%) for the second quarter of 2010 to $7,563,930 from the $8,698,061 incurred
during the second quarter of 2009. The Company had reductions in all noninterest expense
categories with the exception of other real estate expense.
Total personnel costs decreased by $826,750 (11.30%) to $6,488,951 for the first six months of 2010
from the $7,315,701 incurred in the first six months of 2009. Total personnel costs decreased by
$211,277 (6.15%) to $3,223,969 for the second quarter of 2010 from the $3,435,246 incurred in the
second quarter of 2009. During the second quarter of 2009, the Company implemented a plan to
reduce operating costs, which included a reduction in staffing levels, and a reduction in certain
benefits.
Total other real estate expenses (which includes writedowns, losses upon sale, and operating
expenses of other real estate owned), for the first six months of 2010 increased $833,666 (47.31%)
to $2,595,829, as compared with the $1,762,163 of expenses incurred for the first six months of
2009. Total other real estate expenses for the second quarter of 2010 decreased $230,458 (15.87%)
to $1,222,042, as compared with the $1,452,500 of expenses incurred for the second quarter of 2009.
Net losses and writedowns for the first six months and second quarter of 2010 were $1,503,964 and
$774,301, respectively.
Total occupancy and equipment expenses decreased $51,088 (2.31%) to $2,161,230 for the first six
months of 2010 from the $2,212,318 incurred in the first six months of 2009. Total occupancy and
equipment expenses decreased $12,175 (1.12%) to $1,074,211 for the second quarter of 2010 as
compared with $1,086,386 for the second quarter of 2009. Certain assets became fully depreciated
and a temporary facility was closed.
FDIC insurance assessment expense for the first six months of 2010 decreased $122,067 (7.35%) to
$1,538,915, as compared with the $1,660,982 of expenses incurred for the first six months of 2009.
Total FDIC insurance assessment expense for the second quarter of 2010 decreased $403,052 (34.82%)
to $754,397, as compared with the $1,157,449 of expenses incurred for the second quarter of 2009.
During 2009, the FDIC imposed a special assessment, which was levied on all banks, varying based on
size to replenish the FDICs insurance fund.
Total data processing expenses for the first six months of 2010 decreased $184,773 (18.58%) to
$809,580 for the first six months of 2010, as compared with the $994,353 of expenses incurred for
the first six months of 2009. Total data processing expenses for the second quarter of 2010
decreased $142,642 (27.45%) to $377,037 as compared with the $519,679 of expenses incurred for the
second quarter of 2009. The decreases were achieved due to cost reduction efforts.
Total advertising expenses for the first six months of 2010 decreased $139,751 (79.63%) to $35,751,
as compared with the $175,502 of expenses incurred for the first six months of 2009. Total
advertising expenses for the second quarter of 2010 decreased $11,333 (40.20%) to $16,859, as
compared with the $28,192 of expenses incurred for the second quarter of 2009. The decrease is
part of the Companys cost reduction efforts, as many of the Companys advertising efforts have
been scaled back.
Other noninterest expenses for the first six months of 2010 decreased $41,728 (2.51%) to
$1,622,224, as compared with the $1,663,952 of expenses incurred for the first six months of 2009.
Total other noninterest expenses for the second quarter of 2010 decreased $34,933 (4.02%) to
$833,526, as compared with the $868,459 of expenses incurred for the second quarter of 2009. The
decrease is attributed to the Companys cost reduction initiatives.
Income Taxes
Applicable income tax benefits totaled $4,167,494 and $4,416,777 for the six-month periods ended
June 30, 2010 and 2009, respectively. The effective tax rates for the six-month periods ended June
30, 2010 and 2009 were 40.98% and 34.78%, respectively. Applicable income tax benefits totaled
$2,692,536 and $4,378,551 for the three-month periods ended June 30, 2010 and 2009, respectively.
The effective tax rates for the three-month periods ended June 30, 2010 and 2009 were 43.46% and
34.34%, respectively. The change in effective tax rates was primarily influenced by the level of
tax-exempt interest income earned in each period.
26
Pre-tax core earnings increased $3,385,228 (55.02%) to $9,538,432 million for the six months ended
June 30, 2010 from $6,153,204 for the six months ended June 30, 2009. Pre-tax core earnings
increased $970,106 (27.40%) to $4,510,999 for the three months ended June 30, 2010 from the
$3,540,893 for the three months ended June 30, 2009. Pre-tax core earnings, which is a non-GAAP
financial measure, is presented because the Company believes adjusting its results to exclude loan
loss provision expense, impairment charges, special FDIC assessments and unusual gains or losses
provides shareholders with additional insight for evaluating period-to-period operating results. A
schedule reconciling GAAP pre-tax loss to pre-tax core earnings is provided in the table below:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Loss before income taxes |
$ | (6,195,791 | ) | $ | (12,751,446 | ) | $ | (10,169,454 | ) | $ | (12,698,798 | ) | ||||
Other real estate expense |
1,222,042 | 1,452,500 | 2,595,829 | 1,762,163 | ||||||||||||
Losses (gains) on sales and writedown
of securities |
(143,252 | ) | 146,319 | (207,943 | ) | 146,319 | ||||||||||
FDIC special assessment |
| 693,520 | | 693,520 | ||||||||||||
Provision for loan losses |
9,628,000 | 14,000,000 | 17,320,000 | 16,250,000 | ||||||||||||
Pre-tax core earnings |
$ | 4,510,999 | $ | 3,540,893 | $ | 9,538,432 | $ | 6,153,204 | ||||||||
Financial Condition
Total assets of the Company decreased $89,818,955 (5.84%) to $1,447,875,462 at June 30, 2010 from a
level of $1,537,694,417 at June 30, 2009. In the first six months of 2010, total assets decreased
$88,832,122 (5.78%), from the level of $1,536,707,584 at December 31, 2009. The depressed economy
has reduced the Companys opportunities for loan growth in its current markets.
Total deposits of the Company decreased $88,952,591 (7.03%) in the first six months of 2010 to
$1,177,107,606 at June 30, 2010, from the level of $1,266,060,197 at December 31, 2009. The
Company has sought to lower its percentage of higher cost time deposit balances while increasing
lower cost savings and interest bearing transaction account balances. The overall decline is
consistent with the decline in total assets, as less funding is required. However, as presented in
the following tables, the Company has achieved significant average growth in interest bearing and
savings deposits, which reflects success in attracting retail deposits.
Short-term borrowings at June 30, 2010 increased $6,196,143 (48.80%) to $18,893,075 from the level
of $12,696,932 at December 31, 2009. Short-term borrowings will fluctuate significantly based on
short-term liquidity needs and certain seasonal deposit trends. Total longer-term advances from
the Federal Home Loan Bank decreased $5,000,000 (4.81%) to $99,000,000 from the level of
$104,000,000 at December 31, 2009. These longer-term fixed rate advances were used as an
alternative funding source and are matched up with longer-term fixed rate assets.
Total loans decreased $73,982,473 (6.48%) in the first six months of 2010 to $1,066,898,802 at June
30, 2010, from the level of $1,140,881,275 at December 31, 2009. The depressed economy has reduced
the Companys opportunities for loan growth in its current markets.
Investment securities, all of which are maintained as available-for-sale, decreased $20,544,548
(7.23%) in the first six months of 2010 to $263,575,008 at June 30, 2010, from the level of
$284,119,556 at December 31, 2009. The Companys investment portfolio growth is dependent upon the
level of deposit growth exceeding opportunities to grow the loan portfolio and the funding
requirements of the Companys loan portfolio, as described above.
Total stockholders equity decreased $2,880,291 (1.92%) in the first six months of 2010 to
$146,789,133 at June 30, 2010, from the level of $149,669,424 at December 31, 2009. The Companys
capital-to-asset percentage was 10.14% at June 30, 2010.
27
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.
Six Months Ended June 30, 2010 | ||||||||||||||||
Percent | Interest | Average | ||||||||||||||
Average | of Total | Income/ | Yield/ | |||||||||||||
Balance | Assets | Expense | Rate | |||||||||||||
ASSETS |
||||||||||||||||
Loans (1) (2) (3) |
$ | 1,107,753,561 | 74.54 | % | $ | 30,135,515 | 5.49 | % | ||||||||
Investment securities: |
||||||||||||||||
Taxable |
225,075,692 | 15.15 | 3,507,293 | 3.14 | ||||||||||||
Exempt from Federal income taxes (3) |
29,062,615 | 1.96 | 854,936 | 5.93 | ||||||||||||
Short-term investments |
32,129,667 | 2.16 | 32,543 | 0.20 | ||||||||||||
Total earning assets |
1,394,021,535 | 93.81 | 34,530,287 | 5.00 | ||||||||||||
Nonearning assets: |
||||||||||||||||
Cash and due from banks |
5,368,062 | 0.36 | ||||||||||||||
Reserve for possible loan losses |
(33,231,280 | ) | (2.24 | ) | ||||||||||||
Premises and equipment |
41,758,240 | 2.81 | ||||||||||||||
Other assets |
76,538,934 | 5.15 | ||||||||||||||
Available-for-sale investment market
valuation |
1,648,445 | 0.11 | ||||||||||||||
Total nonearning assets |
92,082,401 | 6.19 | ||||||||||||||
Total assets |
$ | 1,486,103,936 | 100.00 | % | ||||||||||||
LIABILITIES |
||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||
Interest-bearing transaction accounts |
$ | 231,733,363 | 15.60 | 1,080,184 | 0.94 | |||||||||||
Savings |
322,525,828 | 21.70 | 2,050,543 | 1.28 | ||||||||||||
Time deposits of $100,000 or more |
258,419,981 | 17.39 | 3,141,889 | 2.45 | ||||||||||||
Other time deposits |
341,387,357 | 22.97 | 4,982,503 | 2.94 | ||||||||||||
Total interest-bearing deposits |
1,154,066,529 | 77.66 | 11,255,119 | 1.97 | ||||||||||||
Long term borrowings |
101,231,183 | 6.81 | 1,924,001 | 3.83 | ||||||||||||
Funds purchased and securities sold under
repurchase agreements |
14,752,435 | 0.99 | 56,752 | 0.78 | ||||||||||||
Total interest-bearing liabilities |
1,270,050,147 | 85.46 | 13,235,872 | 2.10 | ||||||||||||
Noninterest-bearing deposits |
60,997,297 | 4.11 | ||||||||||||||
Other liabilities |
5,657,239 | 0.38 | ||||||||||||||
Total liabilities |
1,336,704,683 | 89.95 | ||||||||||||||
STOCKHOLDERS EQUITY |
149,399,253 | 10.05 | ||||||||||||||
Total liabilities and
stockholders equity |
$ | 1,486,103,936 | 100.00 | % | ||||||||||||
Net interest income |
$ | 21,294,415 | ||||||||||||||
Net yield on earning assets |
3.08 | % | ||||||||||||||
(continued)
28
Six Months Ended June 30, 2009 | ||||||||||||||||
Percent | Interest | Average | ||||||||||||||
Average | of Total | Income/ | Yield/ | |||||||||||||
Balance | Assets | Expense | Rate | |||||||||||||
ASSETS |
||||||||||||||||
Loans (1) (2) (3) |
$ | 1,237,889,511 | 77.64 | % | $ | 34,681,445 | 5.65 | % | ||||||||
Investment securities: |
||||||||||||||||
Taxable |
225,542,795 | 14.15 | 3,916,989 | 3.50 | ||||||||||||
Exempt from Federal income taxes (3) |
31,421,568 | 1.97 | 894,476 | 5.74 | ||||||||||||
Short-term investments |
25,130,395 | 1.58 | 22,721 | 0.18 | ||||||||||||
Total earning assets |
1,519,984,269 | 95.34 | 39,515,631 | 5.24 | ||||||||||||
Nonearning assets: |
||||||||||||||||
Cash and due from banks |
5,585,542 | 0.35 | ||||||||||||||
Reserve for possible loan losses |
(14,481,582 | ) | (0.91 | ) | ||||||||||||
Premises and equipment |
43,775,796 | 2.75 | ||||||||||||||
Other assets |
38,965,946 | 2.44 | ||||||||||||||
Available-for-sale investment market valuation |
483,384 | 0.03 | ||||||||||||||
Total nonearning assets |
74,329,086 | 4.66 | ||||||||||||||
Total assets |
$ | 1,594,313,355 | 100.00 | % | ||||||||||||
LIABILITIES |
||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||
Interest-bearing transaction accounts |
165,461,647 | 10.38 | % | 1,144,261 | 1.39 | |||||||||||
Savings |
212,492,074 | 13.33 | 3,013,059 | 2.86 | ||||||||||||
Time deposits of $100,000 or more |
344,037,916 | 21.58 | 5,594,281 | 3.28 | ||||||||||||
Other time deposits |
470,864,426 | 29.53 | 8,431,030 | 3.61 | ||||||||||||
Total interest-bearing deposits |
1,192,856,063 | 74.82 | 18,182,631 | 3.07 | ||||||||||||
Long term borrowings |
136,000,000 | 8.53 | 2,477,633 | 3.67 | ||||||||||||
Funds purchased and securities sold under
repurchase agreements |
28,894,011 | 1.81 | 307,539 | 2.15 | ||||||||||||
Total interest-bearing liabilities |
1,357,750,074 | 85.16 | 20,967,803 | 3.11 | ||||||||||||
Noninterest-bearing deposits |
58,981,144 | 3.70 | ||||||||||||||
Other liabilities |
6,951,446 | 0.44 | ||||||||||||||
Total liabilities |
1,423,682,664 | 89.30 | ||||||||||||||
STOCKHOLDERS EQUITY |
170,630,691 | 10.70 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 1,594,313,355 | 100.00 | % | ||||||||||||
Net interest income |
$ | 18,547,828 | ||||||||||||||
Net yield on earning assets |
2.46 | % | ||||||||||||||
(continued)
29
Quarter Ended June 30, 2010 | ||||||||||||||||
Percent | Interest | Average | ||||||||||||||
Average | of Total | Income/ | Yield/ | |||||||||||||
Balance | Assets | Expense | Rate | |||||||||||||
ASSETS |
||||||||||||||||
Loans (1) (2) (3) |
$ | 1,090,087,275 | 74.55 | % | $ | 14,677,482 | 5.40 | % | ||||||||
Investment securities: |
||||||||||||||||
Taxable |
219,279,697 | 15.00 | 1,673,943 | 3.06 | ||||||||||||
Exempt from Federal income taxes (3) |
28,508,567 | 1.95 | 419,474 | 5.90 | ||||||||||||
Short-term investments |
31,499,569 | 2.15 | 15,988 | 0.20 | ||||||||||||
Total earning assets |
1,369,375,108 | 93.65 | 16,786,887 | 4.92 | ||||||||||||
Nonearning assets: |
||||||||||||||||
Cash and due from banks |
5,812,533 | 0.40 | ||||||||||||||
Reserve for possible loan losses |
(34,089,075 | ) | (2.33 | ) | ||||||||||||
Premises and equipment |
41,495,707 | 2.84 | ||||||||||||||
Other assets |
77,389,385 | 5.29 | ||||||||||||||
Available-for-sale investment market
valuation |
2,164,175 | 0.15 | ||||||||||||||
Total nonearning assets |
92,772,725 | 6.35 | ||||||||||||||
Total assets |
$ | 1,462,147,833 | 100.00 | % | ||||||||||||
LIABILITIES |
||||||||||||||||
Interest-bearing liabilities |
||||||||||||||||
Interest-bearing transaction accounts |
$ | 232,208,960 | 15.88 | 534,575 | 0.92 | |||||||||||
Savings |
326,591,959 | 22.34 | 1,026,262 | 1.26 | ||||||||||||
Time deposits of $100,000 or more |
245,914,015 | 16.82 | 1,501,777 | 2.45 | ||||||||||||
Other time deposits |
330,319,633 | 22.59 | 2,401,916 | 2.92 | ||||||||||||
Total interest-bearing deposits |
1,135,034,567 | 77.63 | 5,464,530 | 1.93 | ||||||||||||
Long-term borrowings |
99,000,000 | 6.77 | 955,082 | 3.87 | ||||||||||||
Funds purchased and securities sold under
repurchase agreements |
15,721,742 | 1.08 | 26,333 | 0.67 | ||||||||||||
Total interest-bearing liabilities |
1,249,756,309 | 85.48 | 6,445,945 | 2.07 | ||||||||||||
Noninterest-bearing deposits |
58,168,040 | 3.98 | ||||||||||||||
Other liabilities |
6,045,836 | 0.41 | ||||||||||||||
Total liabilities |
1,313,970,185 | 89.87 | ||||||||||||||
STOCKHOLDERS EQUITY |
148,177,648 | 10.13 | ||||||||||||||
Total liabilities and
stockholders equity |
$ | 1,462,147,833 | 100.00 | % | ||||||||||||
Net interest income |
$ | 10,340,942 | ||||||||||||||
Net yield on earning assets |
3.03 | % | ||||||||||||||
(continued)
30
Quarter Ended June 30, 2009 | ||||||||||||||||
Percent | Interest | Average | ||||||||||||||
Average | of Total | Income/ | Yield/ | |||||||||||||
Balance | Assets | Expense | Rate | |||||||||||||
ASSETS |
||||||||||||||||
Loans (1) (2) (3) |
$ | 1,230,614,589 | 77.84 | % | $ | 17,004,333 | 5.54 | % | ||||||||
Investment securities: |
||||||||||||||||
Taxable |
228,358,817 | 14.44 | 1,961,004 | 3.44 | ||||||||||||
Exempt from Federal income taxes (3) |
29,892,810 | 1.89 | 429,398 | 5.76 | ||||||||||||
Short-term investments |
14,523,829 | 0.92 | 5,758 | 0.16 | ||||||||||||
Total earning assets |
1,503,390,045 | 95.09 | 19,400,493 | 5.18 | % | |||||||||||
Nonearning assets: |
||||||||||||||||
Cash and due from banks |
6,053,883 | 0.38 | ||||||||||||||
Reserve for possible loan losses |
(14,033,695 | ) | (0.89 | ) | ||||||||||||
Premises and equipment |
43,526,132 | 2.75 | ||||||||||||||
Other assets |
40,633,821 | 2.58 | ||||||||||||||
Available-for-sale investment market valuation |
1,362,916 | 0.09 | ||||||||||||||
Total nonearning assets |
77,543,057 | 4.91 | ||||||||||||||
Total assets |
$ | 1,580,933,102 | 100.00 | % | ||||||||||||
LIABILITIES |
||||||||||||||||
Interest-bearing liabilities |
||||||||||||||||
Interest-bearing transaction accounts |
$ | 170,859,869 | 10.81 | % | 549,024 | 1.29 | % | |||||||||
Savings |
244,049,100 | 15.44 | 1,736,996 | 2.85 | ||||||||||||
Time deposits of $100,000 or more |
324,880,091 | 20.55 | 2,567,764 | 3.17 | ||||||||||||
Other time deposits |
438,892,158 | 27.76 | 3,845,871 | 3.51 | ||||||||||||
Total interest-bearing deposits |
1,178,681,218 | 74.56 | 8,699,655 | 2.96 | ||||||||||||
Long term borrowings |
136,000,000 | 8.60 | 1,245,663 | 3.67 | ||||||||||||
Funds purchased and securities sold under
repurchase agreements |
18,246,127 | 1.15 | 47,251 | 1.04 | ||||||||||||
Total interest-bearing liabilities |
1,332,927,345 | 84.31 | 9,992,569 | 3.01 | ||||||||||||
Noninterest-bearing deposits |
60,076,229 | 3.80 | ||||||||||||||
Other liabilities |
7,183,033 | 0.46 | ||||||||||||||
Total liabilities |
1,400,186,607 | 88.57 | ||||||||||||||
STOCKHOLDERS EQUITY |
180,746,495 | 11.43 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 1,580,933,102 | 100.00 | % | ||||||||||||
Net interest income |
$ | 9,407,924 | ||||||||||||||
Net yield on earning assets |
2.51 | % | ||||||||||||||
(1) | Interest includes loan fees, recorded as discussed in Note 1 to our consolidated financial statements for the year ended December 31, 2009, included in our annual report on Form 10-K, which was filed March 26, 2010. | |
(2) | Average balances include nonaccrual loans. The income on such loans is included in interest, but is recognized only upon receipt. | |
(3) | Interest yields are presented on a tax-equivalent basis. Nontaxable income has been adjusted upward by the amount of Federal income tax that would have been paid if the income had been taxed at a rate of 34%, adjusted downward by the disallowance of the interest cost to carry nontaxable loans and securities. |
31
Risk Management
Managements 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 Companys management of these
risks.
Credit Risk Management
Managing risks that the Companys 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 Companys 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 the first six months of 2010 were $13,378,166, compared to $6,511,312 for the
first six months of 2009. Net charge-offs for the second quarter of 2010 were $6,181,681, compared
to $4,151,537 for the second quarter of 2009. The Companys banking subsidiaries had no loans to
any foreign countries at June 30, 2010 and 2009, nor did they have any concentration of loans to
any industry on these dates, although a significant portion of the Companys loan portfolio is
secured by commercial and residential real estate in the St. Louis metropolitan and southwestern
Florida areas. The Company has also refrained from financing speculative transactions such as
highly leveraged corporate buyouts, or thinly-capitalized speculative start-up companies.
In the normal course of business, the Companys 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 borrowers credit history, the collateral securing the loan, and the purpose of such requests.
In general, loans which the Banks renew at maturity may 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.
The continued significant decline of the real estate market in the St. Louis metropolitan and
southwestern Florida areas has caused an increase in the Companys nonperforming assets of
$40,404,836 (44.98%) to $130,234,522 at June 30, 2010 from $89,829,687 at June 30, 2009. At June
30, 2010 and 2009, nonperforming loans totaled $93,914,590 and $73,488,471, respectively, comprised
of nonaccrual loans of $86,161,022 and $55,021,386, respectively; loans 90 days delinquent and
still accruing interest of $858,478 and $4,535,232, respectively; and restructured loans totaling
$6,895,090 and $13,931,853, respectively. The increase in nonperforming loans is due to the
continued weakness in the economy, particularly regarding commercial and construction real estate
in the Banks markets. The Company has taken a more aggressive approach toward collection and
resolution of such problem credits. Such loans are continually 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 result in other real estate
owned write-downs. The Company believes the reserve for loan losses calculation at June 30, 2010
adequately considers the current fair value of the underlying collateral on its problem loan
portfolio; however, the values of these properties have continued to deteriorate, 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.
32
Of the Companys $1.2 billion loans outstanding at June 30, 2010, 6% were originated in
Florida and 94% outside Florida. Following is a breakdown of problem assets originated in Florida
and outside of Florida:
Originated In | ||||||||||||
Florida | All other | Total | ||||||||||
Net Charge-offs (quarter ended 6/30/10) |
$3.9 million | $2.3 million | $6.2 million | |||||||||
Net Charge-offs (quarter ended 6/30/09) |
$3.2 million | $1.0 million | $4.2 million | |||||||||
Nonperforming Loans (6/30/2010) |
$22.6 million | $71.3 million | $93.9 million | |||||||||
Nonperforming Loans (12/31/2009) |
$25.4 million | $46.7 million | $72.1 million | |||||||||
Nonperforming Loans (6/30/2009) |
$52.4 million | $21.1 million | $73.5 million | |||||||||
Nonperforming Assets* (6/30/2010) |
$42.9 million | $87.3 million | $130.2 million | |||||||||
Nonperforming Assets* (12/31/2009) |
$44.5 million | $56.7 million | $101.2 million | |||||||||
Nonperforming Assets* (6/30/2009) |
$59.6 million | $30.2 million | $89.8 million | |||||||||
Outstanding Loans Originated In
Respective Markets |
$69.3 million | $998 million | $1.067 billion |
Nonperforming loans are defined as loans on nonaccrual status, loans 90 days or more past due but
still accruing, and restructured loans. Loans are placed on nonaccrual 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
managements practice to place such loans on nonaccrual 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 nonperforming
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 nonperforming 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 continued significant decline of the real estate markets in the St. Louis metropolitan and
southwestern Florida areas has caused a significant increase in the Companys nonperforming loans
in 2009 and 2010. At June 30, 2010, nonperforming loans had increased $21,837,156 to $93,914,590,
from $72,077,434 at December 31, 2009, the largest components of which were primarily comprised of
the following loan relationships, which represents approximately 84.70% of total nonperforming
loans:
| A loan for approximately $1.4 million to a single purpose entity, secured by six improved commercial lots in Florida. The Company has determined no mutually agreeable solution is likely and is moving forward with foreclosure. | ||
| A loan for approximately $1.5 million to a single purpose entity secured by unimproved property in Florida that is in default. The Company has determined no mutually agreeable solution is likely and is moving forward with foreclosure. | ||
| A loan for approximately $1.5 million to two Florida investors for future commercial development. Development has not started, as recent changes in FEMA flood maps have impacted the value and future development options. The borrower is currently operating under a forbearance agreement as it works through its options for the property, which now include action against Lee County, Florida for damages. The Company is attempting to join the suit as plaintiff to protect its collateral interests. | ||
| A loan for approximately $1.4 million to a single purpose entity controlled by a group of investors that is in default. The loan is secured by a building and improved commercial lots in Florida. The Company has been |
33
negotiating with the borrower and guarantors to develop a plan for the property with no meaningful results. The Company is moving forward with foreclosure. |
| A loan for approximately $2.0 million to an individual, secured by the individuals primary residence in Florida, that is in default. The borrower entered into a forbearance agreement but has now defaulted under that negotiated plan. Foreclosure proceedings have been initiated again. | ||
| A loan for approximately $4.0 million to a group of Florida investors secured by unimproved property in Florida. After multiple quarters of performance by some of the guarantors, payments have stopped and the parties have engaged counsel. The Company has initiated foreclosure. | ||
| A loan for approximately $2.9 million for ground development of a proposed commercial retail strip center and self-storage facility in southwestern Florida. The entity was established by an experienced real estate developer; however, with the deterioration of the real estate market, the project did not begin construction, and the real estate downturn has affected the cash flow of the guarantor. The Company is working with the borrower on a strategy for repayment, resolution to the project, or obtaining a signed deed for the property in lieu of foreclosure. | ||
| A loan for approximately $13.1 million, secured by an individual warehouse in St. Louis, Missouri. The loan is currently in forbearance as borrower restructures its business operations. The warehouse is experiencing high vacancy. | ||
| A loan totaling approximately $1.8 million to entities controlled by a group of Missouri real estate investors for the purchase and development of a parcel of land in St. Charles, Missouri. The majority of the proposed entitlements and development have been completed. The Company reached an agreement with the borrower to move the project forward with a new home builder. The new builder has a good reputation and is qualified for the project. The Company and the builder are developing a marketing plan to increase sales prospects. | ||
| A $16.7 million loan to a commercial real estate developer in Houston, Texas. The loan is secured by three office buildings and developed commercial land. The borrower recently refinanced a tract of land that provided a principal loan reduction, payment of past due interest and real estate taxes. Additionally, the borrower has another tract of ground that is bank collateral under contract to a national home builder. | ||
| A loan for approximately $4.0 million to a non-profit organization for the purchase of 482 acres and a 7,000 square foot residence in St. Louis, Missouri. The property is well located in a natural setting that abuts a river. The nonprofit organization has experienced financial setbacks, most notably a decline in contributions. | ||
| A loan for approximately $4.5 million to a commercial real estate developer for the development of a shopping center. The center has a long term lease in place with a grocery store. The owner is actively marketing the center to get the vacant space leased. | ||
| Loans totaling approximately $3.4 million to build out a day spa in Missouri. The spa was paying as agreed until recently. | ||
| A loan for approximately $1.1 million of a 30,000 sq. ft. office warehouse in St. Charles, MO. The warehouse is partially occupied by the owner. The loan is secured by the building and assignment of rents. The Company is working with the borrower on getting the past due real estate taxes paid. | ||
| A loan for approximately $3.0 million for the purchase of a 35,500 sq. ft. retail strip center. The center has experienced high vacancy and slow leasing. Outside counsel has been engaged for collection. | ||
| A loan for approximately $5.0 million to a group of investors for the building of a hotel. A few of the investors have been in the hotel industry for many years. Since opening, the hotel has not been able to achieve expected occupancy levels. Foreclosure proceedings have begun. | ||
| A loan for approximately $1.6 million to a golf course in Florida. The course contains 342 acres with a club house, swimming pool, fitness center, and other amenities. The slow economy in Florida has caused the borrower to have less than expected bookings for tee times and a drop in membership. This is a Small Business Administration loan and the Company is working with the SBA on liquidation of assets and legal action. |
34
| A loan for approximately $8.4 million to a commercial real estate developer for the construction of medical office condominiums in Arizona. The loan is secured by 10.59 acres. The borrower had a successful background in commercial real estate development and a strong financial background. The development has been struggling with the recent economic conditions but the Company is working with the borrower and watching the development closely. | ||
| A loan for approximately $2.3 million for a 64,000 sq. ft. industrial warehouse that is used as a sports complex. The owner operates indoor soccer and inline hockey throughout the year. The Company is pursuing various collection opportunities. |
The Company also has nonperforming assets in the form of other real estate owned. The Banks
maintained other real estate owned totaling $36,319,932, $29,085,943 and $16,341,216 at June 30,
2010, December 31, 2009 and June 30, 2009, 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 since December 31, 2009:
Balance at December 31, 2009 |
$ | 29,085,943 | ||
Foreclosures |
12,709,989 | |||
Loans made to facilitate sales of other
real estate |
(371,250 | ) | ||
Cash proceeds from sales |
(3,600,786 | ) | ||
Losses and writedowns |
(1,503,964 | ) | ||
Balance at June 30, 2010 |
$ | 36,319,932 | ||
During this period of a declining real estate market, the Company has sought to add loans to its
portfolio with increased collateral margins or excess payment capacity from proven borrowers to
maintain the quality of the loan portfolio, and has often had to offer a competitively lower
interest rate on such loans. 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 June 30, 2010; however,
should the 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 June 30, 2010, the Company had 27 loans with a total principal balance of $42,663,445 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. These loans were continuing to
accrue interest and were not greater than 90 days past due on any scheduled payments, and are not
categorized as nonperforming loans. 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.
The Companys 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 borrowers 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 borrowers 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. |
35
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 Companys 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
Companys underwriting policies require an analysis of a borrowers 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 Executive Officer, 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 Companys legal lending limit was $40,201,019 at June 30, 2010.
At June 30, 2010 and 2009, the reserve for possible loan losses was $36,163,403 and $24,044,510,
respectively, or 3.39% and 1.97% of net outstanding loans, respectively. The following table
summarizes the Companys loan loss experience for the six-month periods ended June 30, 2010 and
2009. The increase in the reserve is attributed to a number of factors, including the elevated
levels of nonperforming loans and continued declines in the value of real estate securing the
Banks loans. The economy continues to present challenges to our borrowers and it could be likely
that others will meet with difficulty in meeting obligations.
Six-Month Periods | ||||||||
Ended June 30, | ||||||||
(in thousands of dollars) | 2010 | 2009 | ||||||
Average loans outstanding |
$ | 1,107,754 | $ | 1,237,890 | ||||
Reserve at beginning of year |
$ | 32,221 | $ | 14,306 | ||||
Provision for possible loan losses |
17,320 | 16,250 | ||||||
49,541 | 30,556 | |||||||
Charge-offs: |
||||||||
Commercial loans: |
||||||||
Real estate |
(4,758 | ) | (1,164 | ) | ||||
Other |
(27 | ) | (134 | ) | ||||
Real estate: |
||||||||
Construction |
(8,256 | ) | (4,511 | ) | ||||
Residential |
(595 | ) | (1,176 | ) | ||||
Consumer |
(17 | ) | (21 | ) | ||||
Overdrafts |
| (20 | ) | |||||
Total charge-offs |
(13,653 | ) | (7,026 | ) | ||||
Recoveries: |
||||||||
Commercial loans: |
||||||||
Real estate |
77 | 29 | ||||||
Other |
135 | 1 | ||||||
Real estate: |
||||||||
Construction |
25 | 353 | ||||||
Residential |
30 | 118 | ||||||
Consumer |
8 | 14 | ||||||
Overdrafts |
| | ||||||
Total recoveries |
275 | 515 | ||||||
Reserve at end of period |
$ | 36,163 | $ | 24,045 | ||||
Net charge-offs to average loans |
2.44 | % | 1.06 | % | ||||
Ending reserve to net outstanding
loans at end of period |
3.39 | % | 1.97 | % | ||||
36
Loans charged off are subject to continuous review, and specific efforts are taken to achieve
maximum recovery of principal, accrued interest, and related expenses.
In determining the reserve and the related provision for loan losses, three principal elements are
considered:
| Specific allocations based upon probable losses identified during a quarterly review of the loan portfolio; | ||
| Allocations based principally on the Companys risk rating formulas; and | ||
| An unallocated allowance based on subjective factors. |
The first element reflects managements estimate of probable losses based upon a systematic review
of specific loans considered to be impaired. These estimates are based upon collateral exposure,
using current fair values of collateral.
The second element reflects the application of our loan rating system. This rating system is
similar to those employed by state and Federal banking regulators. In addition, the analysis
considers the following internal and external factors that may cause estimated losses to differ
from historical loss experience. Those factors include (a) changes in lending policies and
procedures, including underwriting standards and collection, charge-off, and recovery practices;
(b) changes in national and local economic and business conditions and developments, including the
condition of various market segments; (c) changes in the nature and volume of the portfolio; (d)
changes in the experience, ability, and depth of lending management and staff; (e) changes in the
trend of the volume and severity of past due and classified loans, and trends in the volume of
non-accrual loans, troubled debt restructurings and other loan modifications; and (f) the existence
and effect of any concentrations of credit, and changes in the level of such concentrations and the
effect of external factors such as competition and legal and regulatory requirements on the level
of estimated credit losses in the Banks current portfolio.
The unallocated allowance is based on managements evaluation of conditions that are not directly
reflected in the determination of the formula and specific allowances. The evaluation of the
inherent loss with respect to these conditions is subject to a higher degree of uncertainty because
they may not be identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the unallocated allowance include the following:
| General economic and business conditions affecting our key lending areas; | ||
| Credit quality trends (including trends in nonperforming loans expected to result from existing conditions); | ||
| Collateral values; | ||
| Loan volumes and concentrations; | ||
| Competitive factors resulting in shifts in underwriting criteria; | ||
| Specific industry conditions within portfolio segments; | ||
| Recent loss experience in particular segments of the portfolio; | ||
| Bank regulatory examination results; and | ||
| Findings of our internal loan review department. |
Executive management reviews these conditions quarterly in discussion with our entire lending
staff. To the extent that any of these conditions are evidenced by a specifically identifiable
problem credit or portfolio segment as of the evaluation date, managements estimate of the effect
of such conditions may be reflected as a specific reserve allocation applicable to such credit or
portfolio segment. Where any of these conditions are not evidenced by a specifically identifiable
problem credit or portfolio segment as of the evaluation date, managements evaluation of the
probable loss related to such condition is reflected in the unallocated allowance.
Based on this quantitative and qualitative analysis, provisions are made to the reserve for
possible loan losses. Such provisions are reflected in our consolidated statements of income.
The allocation of the reserve for possible loan losses by loan category is a result of the above
analysis. The allocation methodology applied by the Company, designed to assess the adequacy of the
reserve for possible loan losses, focuses on changes in the size and character of the loan
portfolio, changes in levels of impaired and other nonperforming loans, the risk inherent in
specific loans, concentrations of loans to specific borrowers or industries, existing economic
conditions, and
37
historical losses normally experienced in our banking market for each portfolio category. Because
each of the criteria used is subject to change, the allocation of the reserve for possible loan
losses is made for analytical purposes and is not necessarily indicative of the trend of future
loan losses in any particular loan category.
The total reserve for possible loan losses is available to absorb losses from any segment of the
portfolio. Management continues to target and maintain the reserve for possible loan losses equal
to the allocation methodology plus an unallocated portion, as determined by economic conditions and
other qualitative and quantitative factors affecting the Companys borrowers, as described above.
In determining an adequate balance in the reserve for possible loan losses, management places its
emphasis as follows: evaluation of the loan portfolio with regard to potential future exposure on
loans to specific customers and industries; reevaluation of each watch list loan or loan classified
by supervisory authorities; and an overall review of the remaining portfolio in light of loan loss
experience normally experienced in our banking market. Any problems or loss exposure estimated in
these categories is provided for in the total current period reserve.
Management views the reserve for possible loan losses as being available for all potential or as
yet presently unidentifiable loan losses which may occur in the future. The risk of future losses
that is inherent in the loan portfolio is not precisely attributable to a particular loan or
category of loans.
The perception of risk with respect to particular loans within the portfolio will change over time
as a result of the characteristics and performance of those loans, overall economic and market
trends, and the actual and expected trends in nonperforming loans. Consequently, while there are no
specific allocations of the reserve resulting from economic or market conditions or actual or
expected trends in nonperforming loans, these factors are considered in the initial assignment of
risk ratings to loans, subsequent changes to those risk ratings and to a lesser extent in the size
of any unallocated allowance amount.
The unallocated reserve is based on factors that cannot necessarily be associated with a specific
loan or loan category. Management focuses on the following factors and conditions:
| There is a level of imprecision necessarily inherent in the estimates of expected loan losses, and the unallocated reserve gives reasonable assurance that this level of imprecision in our formula methodologies is adequately provided for. | ||
| Pressures to maintain and grow the loan portfolio with increasing competition from de novo institutions and larger competitors have to some degree affected credit granting criteria adversely. The Company monitors the disposition of all credits, which have been approved through its Executive Loan Committee, in order to better understand competitive shifts in underwriting criteria. |
While the Company has no significant specific industry concentration risk, analysis showed that
over 91% of the loan portfolio was dependent on real estate collateral at June 30, 2010, including
commercial real estate, residential real estate, and construction and land development loans. The
following table details the significant categories of real estate loans as a percentage of total
regulatory capital:
Real Estate Loan Balances as a Percentage | ||||||||||||
of Total Regulatory Capital | ||||||||||||
6/30/2010 | 12/31/2009 | 6/30/2009 | ||||||||||
Construction, land development and
other land loans |
93 | % | 112 | % | 98 | % | ||||||
Nonfarm nonresidential: |
||||||||||||
Owner occupied |
136 | % | 112 | % | 73 | % | ||||||
Non-owner occupied |
341 | % | 340 | % | 303 | % | ||||||
1-4 family closed end loans |
43 | % | 40 | % | 38 | % | ||||||
Multi-family |
84 | % | 86 | % | 68 | % | ||||||
Other |
23 | % | 22 | % | 18 | % |
38
Liquidity and Capital Resources
Liquidity is a measurement of the Banks ability to meet the borrowing needs and the deposit
withdrawal requirements of their customers. The composition of assets and liabilities is actively
managed to maintain the appropriate level of liquidity in the balance sheet. Management is guided
by regularly-reviewed policies when determining the appropriate portion of total assets which
should be comprised of readily-marketable assets available to meet conditions that are reasonably
expected to occur.
Liquidity is primarily provided to the Banks through earning assets, including Federal funds sold
and maturities and principal payments in the investment portfolio, all funded through continued
deposit growth and short-term borrowings. Secondary sources of liquidity available to the Banks
include the sale of securities included in the available-for-sale category (with a carrying value
of $263,575,008 at June 30, 2010, of which approximately $171,229,666 is pledged to secure deposits
and repurchase agreements) and borrowing capabilities through correspondent banks and the Federal
Home Loan Banks. Maturing loans also provide liquidity on an ongoing basis. Accordingly, Bank
management believes it has the liquidity necessary to meet unexpected deposit withdrawal
requirements or increases in loan demand.
The Banks have borrowing capabilities through correspondent banks and the Federal Home Loan Banks
of Des Moines and Atlanta. The Banks have Federal funds lines of credit totaling $23,000,000,
through correspondent banks, of which $23,000,000 was available at June 30, 2010. Also, Reliance
Bank has a credit line with the Federal Home Loan Bank of Des Moines in the amount of $144,726,676
and availability under that line was $48,307,101 as of June 30, 2010. Reliance Bank, FSB
maintained a credit line with the Federal Home Loan Bank of Atlanta in the amount of $9,920,000, of
which $5,820,000 was available at June 30, 2010. In addition, Reliance Bank maintained a line of
credit with the Federal Reserve Bank in the amount of $32,054,198, of which $32,054,198 is
available at June 30, 2010. As of June 30, 2010, the combined availability under these
arrangements totaled $109,181,299. Bank management believes it has the liquidity necessary to meet
unexpected deposit withdrawal requirements or increases in loan demand. However, availability of
the funds noted above is subject to the Banks maintaining a favorable rating by their regulators.
If the Banks were to become distressed and the Banks ratings lowered, it could negatively impact
the ability of the Banks to borrow the funds.
The Federal Reserve Board established risk-based capital guidelines for bank holding companies,
which require bank holding companies to maintain minimum levels of Tier 1 Capital and Total
Capital. Tier 1 Capital consists of common and qualifying preferred stockholders equity and
minority interests in equity accounts of consolidated subsidiaries, less goodwill and 50% of
investments in unconsolidated subsidiaries. Total capital consists of, in addition to Tier 1
Capital, mandatory convertible debt, preferred stock not qualifying as Tier 1 Capital, subordinated
and other qualifying term debt and a portion of the reserve for possible loan losses, less the
remaining 50% of qualifying total capital. Risk-based capital ratios are calculated with reference
to risk-weighted assets, which include both on-and off-balance sheet exposures. The minimum
required ratio for qualifying Total Capital is 8%, of which at least 4% must consist of Tier 1
Capital.
39
In addition, Federal Reserve guidelines require bank holding companies to maintain a minimum ratio
of Tier 1 Capital to average total assets (net of goodwill) of 3%. The Federal Reserve guidelines
state that all of these capital ratios constitute the minimum requirements for the most
highly-rated banking organizations, and other banking organizations are expected to maintain
capital at higher levels.
As of June 30, 2010, the Company and Banks were each in compliance with the Tier 1 Capital ratio
requirement and all other applicable regulatory capital requirements, as calculated in accordance
with risk-based capital guidelines. The actual capital amounts and ratios for the Company, Reliance
Bank, and Reliance Bank, FSB at June 30, 2010 are presented in the following table:
To Be a Well | ||||||||||||||||||||||||
Capitalized Bank Under | ||||||||||||||||||||||||
For Capital | Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provision | ||||||||||||||||||||||
(in thousands of dollars) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
Total capital (to risk-weighted
assets) |
||||||||||||||||||||||||
Consolidated |
$ | 135,056 | 11.14 | % | $ | 96,966 | ³8.0 | % | N/A | N/A | ||||||||||||||
Reliance Bank |
117,806 | 10.25 | % | 91,915 | ³8.0 | % | 114,894 | ³10.0 | % | |||||||||||||||
Reliance Bank, FSB |
10,676 | 14.75 | % | 5,790 | ³8.0 | % | 7,238 | ³10.0 | % | |||||||||||||||
Tier 1 capital (to risk-weighted
assets) |
||||||||||||||||||||||||
Consolidated |
119,111 | 9.83 | % | 48,483 | ³4.0 | % | N/A | N/A | ||||||||||||||||
Reliance Bank |
103,256 | 8.99 | % | 45,957 | ³4.0 | % | 68,936 | ³6.0 | % | |||||||||||||||
Reliance Bank, FSB |
9,734 | 13.45 | % | 2,895 | ³4.0 | % | 4,343 | ³6.0 | % | |||||||||||||||
Tier 1 capital (to average assets) |
||||||||||||||||||||||||
Consolidated |
119,111 | 8.30 | % | 57,424 | ³4.0 | % | N/A | N/A | ||||||||||||||||
Reliance Bank |
103,256 | 7.66 | % | 53,921 | ³4.0 | % | 67,401 | ³5.0 | % | |||||||||||||||
Reliance Bank, FSB |
9,734 | 11.37 | % | 3,423 | ³4.0 | % | 4,279 | ³5.0 | % |
Federal law provides the federal banking regulators with broad power to take prompt corrective
action to resolve the problems of undercapitalized banking institutions. The extent of the
regulators powers depend on whether the banking institution in question is well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized or critically
undercapitalized, which are defined by the regulators as follows:
Total | Tier 1 | Tier 1 | ||||||||||
Risk-Based | Risk-Based | Leverage | ||||||||||
Ratio | Ratio | Ratio | ||||||||||
Well capitalized |
10 | % | 6 | % | 5 | % | ||||||
Adequately capitalized |
8 | 4 | 4 | |||||||||
Undercapitalized |
<8 | <4 | <4 | |||||||||
Significantly undercapitalized |
<6 | <3 | <3 | |||||||||
Critically undercapitalized |
* | * | * |
* | A critically undercapitalized institution is defined as having a tangible equity to total assets ratio of 2% or less. |
Depending upon the capital category to which an institution is assigned, the regulators corrective
powers include: requiring the submission of a capital restoration plan; placing limits on asset
growth and restrictions on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions with affiliates;
restricting the interest rate the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or directors be dismissed;
prohibiting the institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver of the institution. The capital category
of an institution also determines in part the amount of the premium assessed against the
institution for FDIC insurance. At June 30, 2010, Reliance Bank and Reliance Bank, FSB were
considered well capitalized.
Contractual Obligations, Off-Balance Sheet Risk, and Contingent Liabilities
Through the normal course of operations, the Banks have entered into certain contractual
obligations and other commitments. Such obligations relate to funding of operations through
deposits or debt issuances, as well as leases for premises and equipment. As financial services
providers, the Banks routinely enter into commitments to extend credit. While contractual
obligations represent future cash requirements of the Banks, a significant portion of commitments
to extend credit may expire without being drawn upon. Such commitments are subject to the same
credit policies and approval processes accorded to loans made by the Banks.
40
The required contractual obligations and other commitments at June 30, 2010 were as follows:
Over 1 Year | ||||||||||||||||
Total Cash | Less Than 1 | Less Than 5 | Over 5 | |||||||||||||
Commitment | Year | Years | Years | |||||||||||||
Operating leases |
$ | 7,573,260 | $ | 720,255 | $ | 2,128,917 | $ | 4,724,088 | ||||||||
Time deposits |
535,575,085 | 365,028,547 | 160,585,679 | 9,960,859 | ||||||||||||
Federal Home Loan Bank
borrowings |
99,000,000 | 6,000,000 | 26,000,000 | 67,000,000 | ||||||||||||
Commitments to extend credit |
113,380,599 | 60,396,701 | 19,451,797 | 33,532,101 | ||||||||||||
Standby letters of credit |
12,609,055 | 4,429,881 | 8,179,174 | |
Impact of New and Not Yet Adopted Accounting Pronouncements
None.
Part I Item 3 Quantitative and Qualitative Disclosures About Market Risk
Management of rate sensitive earning assets and interest-bearing liabilities remains a key to
the Companys profitability. The Companys operations are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount of the Companys
interest-earning assets and the amount of interest-bearing liabilities that are prepaid or
withdrawn, mature or are repriced in specified periods. The principal objective of the Companys
asset/liability management activities is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding
needs of the Company. The Banks utilize gap analyses as the primary quantitative tool in measuring
the amount of interest rate risk that is present at the end of each quarter. Reliance Bank
management also monitors, on a quarterly basis the variability of earnings and fair value of equity
in various interest rate environments. Bank management evaluates the Banks risk position to
determine whether the level of exposure is significant enough to hedge a potential decline in
earnings and value or whether the Banks can safely increase risk to enhance returns.
The asset/liability management process, which involves structuring the balance sheet to allow
approximately equal amounts of assets and liabilities to reprice at the same time, is a dynamic
process essential to minimize the effect of fluctuating interest rates on net interest income. The
following table reflects the Companys interest rate gap (rate-sensitive assets minus
rate-sensitive liabilities) analysis as of June 30, 2010, individually and cumulatively, through
various time horizons:
Remaining Maturity if Fixed Rate; | ||||||||||||||||||||
Earliest Possible Repricing Interval if Floating Rate | ||||||||||||||||||||
3 | Over 3 | Over 1 | ||||||||||||||||||
months | months | year | ||||||||||||||||||
or | through | through | Over | |||||||||||||||||
less | 12 months | 5 years | 5 years | Total | ||||||||||||||||
Interest-earning assets |
||||||||||||||||||||
Loans |
$ | 441,698,149 | 139,176,744 | 449,978,537 | 36,045,372 | 1,066,898,802 | ||||||||||||||
Investment securities, at amortized cost |
35,016,293 | 58,147,981 | 151,800,295 | 15,168,791 | 260,133,360 | |||||||||||||||
Other interest-earnings assets |
17,707,040 | | | | 17,707,040 | |||||||||||||||
Total interest-earning assets |
$ | 494,421,482 | 197,324,725 | 601,778,832 | 51,214,163 | 1,344,739,202 | ||||||||||||||
Interest bearing-liabilities |
||||||||||||||||||||
Savings and interest bearing transaction accounts |
$ | 577,805,563 | 43,230 | | | 577,848,793 | ||||||||||||||
Time certificates of deposit of $100,000 or more |
90,120,769 | 79,724,796 | 55,063,234 | 4,382,871 | 229,291,670 | |||||||||||||||
All other time deposits |
83,234,082 | 111,948,900 | 105,522,445 | 5,577,988 | 306,283,415 | |||||||||||||||
Nondeposit interest-bearing liabilities |
23,622,645 | 1,270,430 | 26,000,000 | 67,000,000 | 117,893,075 | |||||||||||||||
Total interest-bearing liabilities |
$ | 774,783,059 | 192,987,356 | 186,585,679 | 76,960,859 | 1,231,316,953 | ||||||||||||||
Gap by period |
$ | (280,361,577 | ) | 4,337,369 | 415,193,153 | (25,746,696 | ) | 113,422,249 | ||||||||||||
Cumulative gap |
$ | (280,361,577 | ) | (276,024,208 | ) | 139,168,945 | 113,422,249 | 113,422,249 | ||||||||||||
Ratio of interest-sensitive assets to interest-
sensitive liabilities |
0.64x | 1.02x | 3.23x | 0.67x | 1.09x | |||||||||||||||
Cumulative ratio of interest-sensitive assets to
interest-sensitive liabilities |
0.64x | 0.71x | 1.12x | 1.09x | 1.09x | |||||||||||||||
41
A gap report is used by Bank management to review any significant mismatch between the
repricing points of the Banks rate sensitive assets and liabilities in certain time horizons. A
negative gap indicates that more liabilities reprice in that particular time frame and, if rates
rise, these liabilities will reprice faster than the assets. A positive gap would indicate the
opposite. Management has set policy limits specifying acceptable levels of interest rate risk as
measured by the gap report. Gap reports can be misleading in that they capture only the repricing
timing within the balance sheet, and fail to capture other significant risks such as basis risk and
embedded options risk. Basis risk involves the potential for the spread relationship between rates
to change under different rate environments and embedded options risk relates to the potential for
the alteration of the level and/or timing of cash flows given changes in rates. As indicated in the
above table, the Company operates on a short-term basis similar to most other financial
institutions, as its liabilities, with savings and interest-bearing transaction accounts included,
could reprice more quickly than its assets. However, the process of asset/liability management in a
financial institution is dynamic. Bank management believes its current asset/liability management
program will allow adequate reaction time for trends in the marketplace as they occur, allowing
maintenance of adequate net interest margins.
Bank management also uses fair market value of equity analyses to help identify longer-term risk
that may reside on the current balance sheet. The fair market value of equity is represented by the
present value of all future income streams generated by the current balance sheet. The Company
measures the fair market value of equity as the net present value of all asset and liability cash
flows discounted at forward rates suggested by the current Treasury curve plus appropriate credit
spreads. This representation of the change in the fair market value of equity under different rate
scenarios gives insight into the magnitude of risk to future earnings due to rate changes.
Management has set policy limits relating to declines in the market value of equity. The results of
these analyses at June 30, 2010 indicate that the Companys fair market value of equity would
decrease 5.23%, and 7.65%, from an immediate and sustained parallel decrease in interest rates of
100 and 200 basis points, respectively, and increase 5.26% and 6.41%, from a corresponding increase
in interest rates of 100 and 200 basis points, respectively.
Part I Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Companys Chief Executive Officer and the
Chief Financial Officer, management has evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)).
As a result of material weaknesses in our internal controls over financial reporting relating to net
losses available to common shareholders after increasing the net loss for preferred dividends paid
by the Company, which require an adjustment to the previously reported net loss per share data
reported by the Company, and the adequacy of disclosure for other-than-temporary losses on
available for sale securities, our management has reassessed the effectiveness of our disclosure
controls and procedures and has determined that our disclosure controls and procedures were not
effective as of June 30, 2010.
On March 4, 2011, the Audit Committee of the Board of Directors concluded that the
Companys audited financial statements for the year ended December 31, 2009, as well as interim
financial statements in its Quarterly Reports on Form 10-Q for the quarters ending March 31, June
30 and September 30, 2010, did not properly account for certain items referred to in the preceding
paragraph and, as a result, should not be relied upon. The Audit Committee has authorized and
directed the officers of the Company to restate its audited financial statements and interim
quarterly financial statements included in the above referenced filing as of and for the periods
covered by such filings.
The Company has implemented certain changes in our internal controls as of the date of
this report to address the material weaknesses and believes that such weaknesses have been
remediated.
Changes in Internal Control Over Financial Reporting
There were no changes during the period covered by this Quarterly Report on Form 10-Q in the
Companys internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
Part II Item 1 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.
Part II Item 1A Risk Factors
Financial reforms and related regulations may affect our business activities, financial
position and profitability.
The Dodd-Frank Act, signed into law on July 21, 2010, makes extensive changes to the laws
regulating financial services firms and requires significant rulemaking. In addition, the
legislation mandates multiple studies, which could result in additional legislative or regulatory
action. We are currently reviewing the impact the legislation will have on our business.
The legislation charges the federal banking agencies with drafting and implementing enhanced
supervision, examination and capital standards for depository institutions and their holding
companies. The enhanced requirements include, among other
42
things, changes to capital, leverage and liquidity standards and numerous other requirements. The
Dodd-Frank Act also authorizes various new assessments and fees, expands supervision and oversight
authority over nonbank subsidiaries, increases the standards for certain covered transactions with
affiliates and requires the establishment of minimum leverage and risk-based capital requirements
for insured depository institutions. In addition, the Dodd-Frank Act contains several provisions
that change the manner in which deposit insurance premiums are assessed and which could increase
the FDIC deposit insurance premiums paid by the Company.
The changes resulting from the Dodd-Frank Act, as well as the regulations promulgated by
federal agencies, may impact the profitability of our business activities, require changes to
certain of its business practices, impose upon us more stringent capital, liquidity and leverage
ratio requirements or otherwise adversely affect our business. These changes may also require us to
invest significant management attention and resources to evaluate and make necessary changes.
There have not been any other material changes in the risk factors as disclosed in the Companys
annual report in Form 10-K for the year ended December 31, 2009.
Part II Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
The Company sold 365,684 shares and received subscriptions for 1,185,833 shares of the
Companys common stock at the offering price of $3.00 per share for the quarter ended June 30,
2010. This represented an aggregate offering price of $4,654,551. Also, the Company sold 180
shares of Fixed Rate Cumulative Perpetual Preferred Stock, no par value, Series C, at the offering
price of $1,000 per share for the quarter ended June 30, 2010. This represented an aggregate
offering price of $180,000. On April 13, 2010, the Company redeemed 25 shares of Fixed Rate
Cumulative Perpetual Preferred Stock, no par value, Series C, at a price of $1,000 per share for
the quarter ended June 30, 2010. This represented an aggregate price of $25,000. These offerings
were extended to accredited investors (as such term is defined in Regulation D under the Securities
Act of 1933, as amended), and were intended to qualify for exemption from registration pursuant to
Rule 506 of Regulation D. The purpose of these offerings, which are still active, is to generate
capital, as well as to remain well capitalized.
Part II Item 3 Defaults Upon Senior Securities
None.
Part II Item 4 [Removed and Reserved]
Part II Item 5 Other Information
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend
nominees to the Companys Board of Directors implemented during the period covered by this
Quarterly Report on Form 10-Q.
Part II Item 6 Exhibits
Exhibit | ||
Number | Description | |
31.1
|
Chief Executive Officers Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Chief Financial Officers Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
43
Exhibit | ||
Number | Description | |
32.1
|
Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2
|
Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RELIANCE BANCSHARES, INC. |
||||
By: | /s/ Allan D. Ivie, IV | |||
Allan D. Ivie, IV | ||||
Chief Executive Officer | ||||
By: | /s/ Dale E. Oberkfell | |||
Dale E. Oberkfell | ||||
Chief Financial Officer | ||||
Date:
March 16, 2011
45