UNITED STATES
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

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number: 000-52588

RELIANCE BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

(314) 569-7200
(Registrant’s 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 file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by checkmark 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).

     o Yes o No

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

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

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

As of May 11, 2010, the Registrant had 21,023,694 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 380 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 March 31, 2010 filed with the United States Securities and Exchange Commission (SEC) on May 14, 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 4T 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 March 31, 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 May 14, 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 Company’s interim condensed consolidated statement of operations for the three months ended March 31, 2010.

These restatements had no effect on the Company’s consolidated net loss for the three months ended March 31, 2010 or its consolidated stockholders’ equity as of March 31, 2010. Net loss available to common shareholders, after increasing the loss for preferred dividends paid by the Company, increased from the $(0.12) per share originally disclosed to $(0.15) per share as restated, for both basic and fully-diluted loss per share for the three months ended March 31, 2010.

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 4T — Controls and Procedures” and reflects management’s restated assessment of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2010. This restatement of management’s assessment regarding disclosure controls and procedures results from material weaknesses in our internal control over financial reporting relating to the above described restatements. The information required in this restatement was previously omitted and, while it had no effect on the Company’s consolidated net loss for the three months ended March 31, 2010 and stockholders’ equity as of March 31, 2010, such information should have been disclosed in our March 31, 2010 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 4T — Controls and Procedures.”

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Condensed Consolidated Balance Sheets (Unaudited)		3
Interim Condensed Consolidated Statements of Operations (Unaudited)		4
Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)		5
Interim Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)		6
Interim Condensed Consolidated Statements of Cash Flows (Unaudited)		7
Notes to Unaudited Interim Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4T. Controls and Procedures		35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. [Removed and Reserved]		36
Item 5. Other Information		36
Item 6. Exhibits		36
Signatures		37
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I — Item 1 — Financial Statements

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Balance Sheets

March 31, 2010 and 2009 and December 31, 2009

		March 31,
										December 31,
		2010				2009				2009
		(unaudited)
ASSETS
Cash and due from banks		$	11,488,611				9,900,850				11,928,668
Interest-earning deposits in other financial institutions			43,486,792				2,820,878				15,767,862
Federal funds sold			—				1,351,000				—
Investments in available-for-sale debt and equity securities, at fair value			238,712,309				288,723,123				284,119,556
Loans			1,104,653,035				1,235,360,011				1,140,881,275
Less — Deferred loan fees/costs			(43,964	)			(612,034	)			(84,741	)
Reserve for possible loan losses			(32,717,084	)			(14,196,047	)			(32,221,569	)
Net loans			1,071,891,987				1,220,551,930				1,108,574,965
Premises and equipment, net			41,686,176				43,687,967				42,210,536
Accrued interest receivable			5,290,542				6,653,744				5,647,887
Other real estate owned			33,451,884				15,489,980				29,085,943
Identifiable intangible assets, net of accumulated amortization of $111,301, $95,013 and $107,229 at March 31, 2010 and 2009, and December 31, 2009, respectively			133,018				149,306				137,090
Goodwill			1,149,192				1,149,192				1,149,192
Other assets			37,724,360				16,681,404				38,085,885
		$	1,485,014,871				1,607,159,374				1,536,707,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest-bearing		$	57,287,630				52,601,034				71,829,581
Interest-bearing			1,155,394,912				1,214,792,775				1,194,230,616
Total deposits			1,212,682,542				1,267,393,809				1,266,060,197
Short-term borrowings			19,776,971				17,157,546				12,696,932
Long-term Federal Home Loan Bank borrowings			99,000,000				136,000,000				104,000,000
Accrued interest payable			1,954,220				3,591,620				2,194,952
Other liabilities			3,377,511				2,771,897				2,086,079
Total liabilities			1,336,791,244				1,426,914,872				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, 380 and 300 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively			380,000				—				300,000
Common stock, $0.25 par value; 40,000,000 shares authorized, 20,972,091, 20,770,781, and 20,972,091 shares issued and outstanding at March 31, 2010, March 31, 2009, and December 31, 2009, respectively			5,243,023				5,192,696				5,243,023
Surplus			121,888,348				122,331,181				122,334,757
Retained earnings (accumulated deficit)			(22,295,101	)			10,753,950				(19,796,396	)
Treasury stock, 24,514 shares at March 31, 2009			—				(335,280	)			—
Accumulated other comprehensive income — net unrealized holding gains (losses) on available-for-sale debt securities			1,007,357				301,955				(411,960	)
Total stockholders’ equity			148,223,627				180,244,502				149,669,424
		$	1,485,014,871				1,607,159,374				1,536,707,584

See accompanying notes to interim condensed consolidated financial statements.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2010 and 2009

(unaudited)

		(restated) 2010				2009
Interest income:
Interest and fees on loans		$	15,452,027				17,671,243
Interest on debt securities:
Taxable			1,833,350				1,955,985
Exempt from Federal income taxes			306,262				340,054
Interest on short-term investments			16,555				16,963
Total interest income			17,608,194				19,984,245
Interest expense:
Interest on deposits			5,790,589				9,482,976
Interest on short-term borrowings			30,419				260,288
Interest on long-term Federal Home Loan Bank borrowings			968,919				1,231,970
Total interest expense			6,789,927				10,975,234
Net interest income			10,818,267				9,009,011
Provision for possible loan losses			7,692,000				2,250,000
Net interest income after provision for possible loan losses			3,126,267				6,759,011
Noninterest income:
Service charges on deposit accounts			224,476				207,638
Net gains on sale of debt securities			64,691				—
Other noninterest income			365,415				327,131
Total noninterest income			654,582				534,769
Noninterest expense:
Salaries and employee benefits			3,264,982				3,880,456
Occupancy and equipment expense			1,087,020				1,125,932
Other real estate expense			1,373,787				309,663
FDIC assessments			784,518				503,533
Data processing			432,543				474,674
Amortization of intangible assets			4,072				4,072
Other noninterest expenses			807,590				942,802
Total noninterest expense			7,754,512				7,241,132
Income (loss) before applicable income taxes			(3,973,663	)			52,648
Applicable income tax benefit			(1,474,958	)			(38,226	)
Net income (loss)		$	(2,498,705	)			90,874
Net income (loss)		$	(2,498,705	)			90,874
Preferred stock dividends			(548,891	)			—
Net income (loss) available to common shareholders			(3,047,596	)			90,874
Per share amounts:
Basic earnings (loss) per share		$	(0.15	)			< 0.01
Basic weighted average shares outstanding			20,972,091				20,746,267
Diluted earnings (loss) per share		$	(0.15	)			<0.01
Diluted weighted average shares outstanding			20,972,091				20,818,840

See accompanying notes to interim condensed consolidated financial statements.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31, 2010 and 2009

(unaudited)

		2010				2009
Net income (loss)		$	(2,498,705	)			90,874
Other comprehensive income before tax:
Net unrealized holding gains on available-for-sale securities			2,215,171				616,492
Reclassification adjustments on available-for-sale security gains included in net loss			(64,691	)			—
Other comprehensive income before tax			2,150,480				616,492
Income tax related to items of other comprehensive income			731,163				209,607
Other comprehensive income, net of tax			1,419,317				406,885
Total comprehensive income (loss)		$	(1,079,388	)			497,759

See accompanying notes to interim condensed consolidated financial statements.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2010 and 2009

(unaudited)

																						Accumulated				Total
														Retained earnings								other				stock-
		Preferred				Common								(accumulated				Treasury				comprehensive				holders’
		stock				stock				Surplus				deficit)				stock				income				equity
Balance at December 31, 2008		$	—				5,192,696				124,193,318				10,663,076				(335,280	)			(104,930	)			139,608,880
Net income			—				—				—				90,874				—				—				90,874
Issuance of 40,000 shares of Series A preferred stock			40,000,000				—				—				—				—				—				40,000,000
Exercise of warrants for 2,000 shares of Series B preferred stock			2,000,000				—				(2,000,000	)			—				—				—				—
Stock issuance costs			—				—				(7,422	)			—				—				—				(7,422	)
Compensation cost recognized for stock options granted			—				—				137,785				—				—				—				137,785
Amortization of restricted stock			—				—				7,500				—				—				—				7,500
Change in valuation of available-for-sale securities, net of related tax effect			—				—				—				—				—				406,885				406,885
Balance at March 31, 2009		$	42,000,000				5,192,696				122,331,181				10,753,950				(335,280	)			301,955				180,244,502
Balance at December 31, 2009		$	42,300,000				5,243,023				122,334,757				(19,796,396	)			—				(411,960	)			149,669,424
Net loss			—				—				—				(2,498,705	)			—				—				(2,498,705	)
Issuance of 80 shares of Series C preferred stock			80,000				—				—				—				—				—				80,000
Dividends on preferred stock			—				—				(548,891	)			—				—				—				(548,891	)
Stock issuance costs			—				—				(8,906	)			—				—				—				(8,906	)
Stock option expense			—				—				96,857				—				—				—				96,857
Amortization of restricted stock			—				—				14,531				—				—				—				14,531
Change in valuation of available-for-sale securities, net of related tax effect			—				—				—				—				—				1,419,317				1,419,317
Balance at March 31, 2010		$	42,380,000				5,243,023				121,888,348				(22,295,101	)			—				1,007,357				148,223,627

See accompanying notes to interim condensed consolidated financial statements.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Interim Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2010 and 2009

(unaudited)

		2010				2009
Cash flows from operating activities:
Net income (loss)		$	(2,498,705	)			90,874
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			946,072				1,288,475
Provision for possible loan losses			7,692,000				2,250,000
Net gains on sale of debt securities			(64,691	)			—
Net losses on sales and writedowns of other real estate owned			774,301				110,000
Stock option compensation cost			96,857				137,785
Amortization of restricted stock expense			14,531				7,500
Mortgage loans originated for sale in the secondary market			(5,082,589	)			(10,770,860	)
Mortgage loans sold in the secondary market			4,802,789				11,366,360
Decrease (increase) in accrued interest receivable			357,345				(1,229,636	)
Decrease in accrued interest payable			(240,732	)			(313,321	)
Other operating activities, net			921,794				(535,429	)
Net cash provided by operating activities			7,718,972				2,401,748
Cash flows from investing activities:
Purchase of available-for-sale debt securities			(11,087,421	)			(153,186,749	)
Proceeds from maturities and calls of available-for-sale debt securities			51,565,291				58,177,906
Proceeds from sales of available-for-sale debt securities			6,738,269				—
Net decrease in loans			23,513,337				16,271,700
Proceeds from sale of other real estate owned			617,199				222,972
Construction expenditures to finish other real estate owned			—				(12,308	)
Purchase of premises and equipment, net			(11,361	)			(126,296	)
Net cash provided by (used in) investing activities			71,335,314				(78,652,775	)
Cash flows from financing activities:
Net increase (decrease) in deposits			(53,377,655	)			39,346,510
Net increase (decrease) in short-term borrowings			7,080,039				(46,761,298	)
Payments of long-term Federal Home Loan Bank borrowings			(5,000,000	)			—
Issuance of preferred stock			80,000				40,000,000
Dividends on preferred stock			(548,891	)			—
Payment of stock issuance costs			(8,906	)			(7,422	)
Net cash provided by (used in) financing activities			(51,775,413	)			32,577,790
Net increase (decrease) in cash and cash equivalents			27,278,873				(43,673,237	)
Cash and cash equivalents at beginning of period			27,696,530				57,745,965
Cash and cash equivalents at end of period		$	54,975,403				14,072,728
Supplemental information:
Cash paid for interest		$	7,030,659				11,288,555
Noncash transactions:
Warrant exercise and issuance of Series B preferred stock			—				2,000,000
Transfers to other real estate owned in settlement of loans			5,757,441				672,985
Loans made to facilitate the sale of other real estate owned			—				151,511

See accompanying notes to interim condensed consolidated financial statements.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes Interim Condensed Consolidated Financial Statements

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 loss or stockholders’ equity.

Operating results for the three-month period ended March 31, 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 Company’s previously issued Annual Report on Form 10-K/A.

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 arising 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 due from banks, interest-earning deposits in other financial institutions (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 Corporation’s (“FDIC”) Transaction Account Guarantee Program. Under this program, these balances are fully guaranteed by the FDIC through December 31, 2013. After this period, these balances would generally exceed the level of deposits insured by the FDIC.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

Stock Issuance Costs

The Company incurs certain costs associated with the issuance of its common stock. Such costs are recorded as a reduction of equity capital.

Subsequent Events

The Company has evaluated subsequent events after the consolidated balance sheet date of March 31, 2010 through May 14, 2010, the date the financial statements were issued with the filing of this Form 10-Q with the Securities and Exchange Commission.

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 March 31,
		(restated) 2010				2009
Basic
Net income (loss) available to common shareholders		$	(3,047,596	)			90,874
Weighted average common shares outstanding			20,972,091				20,746,267
Basic earnings (loss) per share		$	(0.15	)			< 0.01
Diluted
Net income (loss) available to common shareholders		$	(3,047,596	)			90,874
Weighted average common shares outstanding			20,972,091				20,746,267
Effect of dilutive stock options			—				72,573
Diluted weighted average common shares outstanding			20,972,091				20,818,840
Diluted earnings (loss) per share		$	(0.15	)			< 0.01

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

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 months ended March 31, 2010 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 Company’s 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 Company’s interim condensed consolidated statement of operations for the three months ended March 31, 2010.

These restatements had no effect on the Company’s consolidated net loss for the three months ended March 31, 2010, or its consolidated stockholders’ equity as of March 31, 2010. Net loss available to common shareholders, after increasing the loss for preferred dividends paid by the Company, increased from the $(0.12) per share originally disclosed to $(0.15) per share as restated, for both basic and fully-diluted loss per share for the three months ended March 31, 2010.

The effects of the restatement for additional disclosures and recalculation of per share information regarding the Company’s 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 March 31, 2010, are as follows:

		Three Months Ended
		March 31,
		2010								2009
		As reported				As restated
Noninterest Expense
Salaries and employee benefits		$	3,264,982				3,264,982				3,880,456
Occupancy and equipment expense			1,087,020				1,087,020				1,125,932
Other real estate expense			1,373,787				1,373,787				309,663
FDIC assessment			784,518				784,518				503,533
Data processing			432,543				432,543				474,674
Amortization of intangible assets			4,072				4,072				4,072
Other interest expenses			807,590				807,590				942,802
Total noninterest expense			7,754,512				7,754,512				7,241,132
Loss before income taxes			(3,973,663	)			(3,973,663	)			52,648
Applicable income tax benefit			(1,474,958	)			(1,474,958	)			(38,226	)
Net income (loss)		$	(2,498,705	)			(2,498,705	)			90,874
Net income (loss)		$	(2,498,705	)			(2,498,705	)			90,874
Preferred stock dividends							(548,891	)			—
Net loss attributed to common shareholders							(3,047,596	)			90,874
Per share amounts
Basic loss per share		$	(0.12	)			(0.15	)			<0.01
Basic weighted average shares outstanding		$	20,972,091				20,972,091				20,746,267
Diluted loss per share		$	(0.12	)			(0.15	)			<0.01
Diluted weighted average shares outstanding		$	20,972,091				20,972,091				20,818,840

NOTE 2 — INTANGIBLE ASSETS

Identifiable intangible assets include the core deposit premium relating to the Company’s 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 March 31, 2010 will be $4,072 per quarter until completely amortized.

The excess of the Company’s 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 Company’s 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 thus far been required on this intangible asset.

NOTE 3 — STOCK OPTIONS

Compensation costs relating to share-based payment transactions are recognized in the Company’s 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

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

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 quarter of 2009 as the option price significantly exceeded the market value of the stock on the grant date; however, the Company’s common stock is not actively traded on any exchange. Accordingly, the availability of fair value information for the Company’s 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 options granted, including minimal or no volatility in the Company’s 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 Company’s stock option activity for the three-month periods ended March 31, 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
Three Months Ended March 31, 2009:
Balance at December 31, 2008		$	7.61				1,553,450			$	7.98				673,000
Granted			7.50				102,250				7.50				500
Exercised			8.81				(59,500	)			—				—
Balance at March 31, 2009		$	7.56				1,596,200			$	7.98				673,500
Three Months Ended March 31, 2010:
Balance at December 31, 2009		$	8.05				1,424,450			$	8.41				666,816
Forfeited			10.44				(12,250	)			11.88				(5,816	)
Balance at March 31, 2010		$	8.03				1,412,200			$	8.38				661,000

The weighted average option prices for the 2,073,200 and 2,269,700 options outstanding at March 31, 2010 and 2009, were $8.14 and $7.68, respectively. At March 31, 2010, options to purchase an additional 522,050 shares of Company common stock were available for future grants under the various plans.

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 March 31, 2010:

Financial instruments for which contractual amounts represent:
Commitments to extend credit		$	117,792,139
Standby letters of credit			13,172,904
		$	130,965,043

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

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 March 31, 2010, $22,089,331 were 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 drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer’s 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 management’s 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 Company’s financial instruments at March 31, 2010:

		Carrying				Estimated				Fair value
		amount				fair value				measurements
Balance sheet assets:
Cash and due from banks		$	54,975,403			$	54,975,403			Carrying value
Investment in debt securities			238,712,309				238,712,309			Level 2 and 3 inputs
Loans, net			1,071,891,987				1,081,954,920			Level 3 inputs
Accrued interest receivable			5,290,542				5,290,542			Carrying value
		$	1,370,870,241			$	1,380,933,174
Balance sheet liabilities:
Deposits		$	1,212,682,542			$	1,223,712,780			Level 3 inputs
Short-term borrowings			19,776,971				19,776,971			Carrying value
Long-term Federal Home
Loan Bank borrowings			99,000,000				120,234,818			Level 3 inputs
Accrued interest payable			1,954,220				1,954,220			Carrying value
		$	1,333,413,733			$	1,365,678,789

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

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

			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 Company’s 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 which include observable inputs rather than “significant unobservable inputs” and therefore, fall into the Level 2 category.

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 March 31, 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 not reliable for the purpose of determining fair value at March 31, 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 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
Increase in fair value			27,328
Payments in kind			4,572
Principal payments received			(3,550	)
Balance, at fair value on March 31, 2010		$	1,266,087

Loans – The Company does not record loans at fair value on a recurring basis other than loans that are considered impaired. At March 31, 2010, all impaired loans were evaluated based on the fair value of the 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 2 category. The total principal balance of impaired loans measured at fair value at March 31, 2010 was $107,178,682.

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.

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.

RELIANCE BANCSHARES, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements

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.

Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of the consolidated financial condition and results of operations of Reliance Bancshares, Inc. (the “Company”) as of and for the three-month periods ended March 31, 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 consolidated financial statements included in this report and the consolidated financial statements as of and 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 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 March 31, 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 March 31, 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 an LPO in Ft. Myers, Florida on July 1, 2004. Effective January 17, 2006, the Company opened a new Federal Savings Bank, Reliance Bank, FSB, in Ft. Myers, Florida, and loans totaling approximately $14 million that were originated by the Reliance Bank LPO were transferred to Reliance Bank, FSB. Since its opening in 2006, Reliance Bank, FSB has added three branch locations in southwestern Florida, and has grown its total assets, loans, and deposits to $99.3 million, $64.1 million, and $76.3 million, respectively, at March 31, 2010.

At March 31, 2010, Reliance Bank’s total assets, total revenues, and net loss represented 93.35%, 93.94%, and 35.13%, respectively, of the Company’s consolidated total assets, total revenue, and net loss. Reliance Bank, FSB’s total assets, total revenues, and net loss represented 6.68%, 6.07%, and 56.85%, respectively, of the Company’s consolidated totals. The Company incurred a net loss of $2.5 million for the three months ended March 31, 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 at some time in the future, with four additional branches planned; however, the building of these branches has been suspended while management focuses on Reliance Bank, FSB’s profitability in light of the

stressful market conditions in southwestern Florida. The Company’s branch expansion plans were designed to increase the Company’s market share in the St. Louis metropolitan area in Missouri and Illinois and southwestern Florida and to allow the Company’s banking subsidiaries to compete with much larger financial institutions in these markets. The Houston and Phoenix LPOs are intended to benefit from commercial and residential lending and fee income generation opportunities in these larger and historically higher-growth markets.

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

The Company’s total consolidated assets were $1.5 billion at March 31, 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 in 2009 due to local economic conditions.

The Company has funded its Banks’ branch expansion with several private placement stock offerings made to accredited investors since its inception. The Company has made a total of 12 such offerings since its inception and has sold 20,972,091 shares of Company Common Stock through March 31, 2010.

The Company’s consolidated net income (loss) for the three-month periods ended March 31, 2010 and 2009 totaled $(2,498,705) and $90,874, respectively. While the Company’s net interest income has grown, the provision for possible loan losses has increased, reflecting an increase in nonperforming loans, which has resulted from a substantial decline in the real estate and local economic markets in which the Company’s banking subsidiaries operate. These factors and their effect on the Company’s results of operations are discussed in more detail below.

Net interest income before provision for possible loan losses for the three-month periods ended March 31, 2010 and 2009 totaled $10,818,267 and $9,009,011, respectively. This growth in year-to-date 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 increasing nonearning problem assets.

Interest expense incurred on interest-bearing liabilities for the quarters ended March 31, 2010 and 2009 totaled $6,789,927 and $10,975,234, 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 in the real estate market that has occurred over the past several years on a national scale has also been experienced in the St. Louis metropolitan and southwestern Florida areas. Residential home building and sales have declined significantly from the levels enjoyed in prior years. As a result, the Company has experienced a significant and continual increase in nonperforming assets (which include nonperforming loans and other real estate owned). Nonperforming assets totaled $110.3 million at March 31, 2010 compared with $54.7 million at March 31, 2009. The reserve for possible loan losses as a percentage of net outstanding loans was 2.96% at March 31, 2010 compared with 1.15% at March 31, 2009. Net charge-offs for the three months ended March 31, 2010 totaled $7.2 million compared with $2.4 million for the three months ended March 31, 2009. The provision for possible loan losses charged to expense for the three months ended March 31, 2010 and 2009 was $7,692,000 and $2,250,000, respectively. The increase in the provision for loan losses in the first quarter of 2010 was a direct reaction to the significant and continued decline of the real estate market. The Company believes it has identified existing problems in the portfolio and worked to address those issues; however, the economy continues to present challenges to our borrowers and it could be likely that others will experience difficulties in meeting obligations. See further discussion regarding the Company’s management of credit risk in the section below entitled “Risk Management.”

Total noninterest income for the three-month periods ended March 31, 2010 and 2009 was $654,582 and $534,769, respectively. A portion of the increase is attributed to a net gain of $64,691 from investment securities sold during the first quarter of 2010. No investment security sales occurred during the first quarter of 2009. Income generated from other real estate properties for the three-month periods ended March 31, 2010 and 2009 was $80,860 and $14,101, respectively. Offsetting this gain was a decline in secondary mortgage fees for the three-month periods ended March 31, 2010 and 2009, which were $43,173 and $110,642,

respectively. Deposit service charge income increased by $16,838, or 8.11%, to $224,476 for the three months ended March 31, 2010 compared to $207,638 for the three months ended March 31, 2009, due to a larger transaction deposit base.

Total noninterest expense was $7,754,512 and $7,241,132 for the quarters ended March 31, 2010 and 2009, respectively. Increased expenses relating to other real estate owned (including losses on sales of foreclosed property and writedowns on properties still held, as well as holding costs on such properties), and increased FDIC insurance assessments more than offset the cost savings achieved in other operational expenses such as personnel and occupancy expenses.

The Company’s effective tax rate for the three-month periods ended March 31, 2010 and 2009 was (37.12%) and (72.61%), respectively. The change in effective tax rates during these periods is a result of the level of tax-exempt interest income and its effect on the pre-tax income/loss.

Basic and fully-diluted loss per common share for the three month period ended March 31, 2010 were both $(0.15) (restated) per share. Basic and fully-diluted earnings per share for the three-month period ended March 31, 2009 were both less than $0.01 per share.

Following are certain of the Company’s ratios generally followed in the banking industry for the three-month periods ended March 31, 2010 and 2009:

		As of and for the
		Quarters Ended March 31,
		2010				2009
Percentage of net income to:
Average total assets			(0.67	%)			0.02	%
Average stockholders’ equity			(6.73	%)			0.23	%
Percentage of common dividends declared to net income per common share			—				—
Percentage of average stockholders’ equity to average total assets			9.97	%			9.98	%

Critical Accounting Policies

The impact and any associated risks related to the Company’s critical accounting policies on business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Company’s consolidated financial statements as of and for year ended December 31, 2009 and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report in 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 quarter of 2010.

Results of Operations for the Three-Month Periods Ended March 31, 2010 and 2009

Net Interest Income

The Company’s net interest income increased $1,809,256 (20.08%) to $10,818,267 for the three-month period ended March 31, 2010 from the $9,009,011 earned during the three-month period ended March 31, 2009. The Company’s net interest margin for the three-month periods ended March 31, 2010 and 2009 was 3.13% and 2.41%, respectively. This increase in margin percentage is primarily attributed to lower cost of funds on the Company’s retail deposit products and a shift in funding composition toward lower cost deposit products.

Average interest earning assets for the first quarter of 2010 decreased $117,910,809 (7.67%) to $1,418,667,963 from the level of $1,536,578,772 for the first quarter of 2009. The decline was primarily due to a decrease in loan balances. Total average loans for the first quarter of 2010 decreased $119,744,586 (9.62%) to $1,125,419,848 from the level of $1,245,164,434 for the first quarter of 2009. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets.

Total average investment securities for the first quarter of 2010 increased $4,810,972 (1.88%) to $260,488,350 from the level of $255,677,378 for the first 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 FDIC insurance limits, (c) provide a secondary source of liquidity through “laddered” maturities of such securities and their marketability, 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 $169.1 million at March 31, 2010. The Banks have also pledged letters of credit from the Federal Home Loan Banks totaling $1,690,974 as additional collateral to secure public funds at March 31, 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 quarters ended March 31, 2010 and 2009 were $32,759,765 and $35,736,960, respectively.

A key factor in attempting to increase the Company’s net interest margin is to maintain a higher percentage of earning assets in the loan category, which is the Company’s highest earning asset category. However, average loans as a percentage of average earning assets were 79.33% for the first quarter of 2010, which was a 170 basis point decrease over the 81.03% achieved in the first 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 quarter of 2010 were $1,173,098,490, a decrease of $33,932,419 (2.81%) from the level of $1,207,030,909 for the first 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 decreased $242,651,407 (28.02%) to $623,381,028 from a level of $866,032,435 for the first quarter of 2009. The Company increased average savings account deposits by $137,524,647 (76.01%) to $318,459,696 from $180,935,049 for the first quarter of 2009. Also, interest bearing transaction accounts increased $71,194,341 (44.48%) to $231,257,766 from a level of $160,063,425 for the first quarter of 2009.

The Company’s 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 declined $25,758,765 (65.14%) to $13,783,129 from $39,541,894 at March 31, 2009. Short-term borrowings can fluctuate significantly based on short-term liquidity needs and growth in deposits.

The Company also uses longer-term advances from the Federal Home Loan Bank as a less expensive alternative to the intensely competitive deposit market, particularly when such longer-term fixed rate advances can be matched with longer-term fixed rate assets. The average balance of Federal Home Loan Bank advances declined $32,537,634 (23.92%) to $103,462,366 for the first quarter of 2010, compared with the $136,000,000 average balance for the first quarter of 2009. The decline is the result of the Company’s efforts to increase core retail deposits and reduce its percentage of wholesale funding.

The overall mix of the Company’s funding sources has a significant impact on the Company’s net interest margin. Following is a summary of the percentage of the various components of average interest-bearing liabilities and noninterest-bearing deposits to the total of all average interest-bearing liabilities and noninterest-bearing deposits (hereinafter described as “total funding sources”) for the three-month periods ended March 31, 2010 and 2009:

		Three Months Ended
		March 31
		2010				2009
Average deposits:
Noninterest-bearing			4.71	%			4.02	%
Interest-bearing:
Transaction accounts			17.08				11.11
Savings			23.52				12.56
Time deposits of $100,000 or more			20.01				25.21
Other time deposits			26.02				34.91
Total average interest-bearing deposits			86.63				83.79
Total average deposits			91.34				87.81
Short-term borrowings			1.02				2.75
Longer-term advances from Federal Home Loan Bank			7.64				9.44
			100.00	%			100.00	%

The composition of the Company’s deposit portfolio will fluctuate as recently added branches help to diversify the Company’s deposit base. The overall level of interest rates will also cause fluctuations between categories. The Company has sought to increase the percentage of its noninterest-bearing deposits to 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 23.52% of total average funding sources, compared to 12.56% at March 31, 2009. Also, average interest bearing transaction accounts increased to 17.08% of total average funding sources from 11.11% at March 31, 2009. These increases allowed the Company to reduce the percentage of short term borrowings and longer term advances. Higher cost certificates of deposits declined as well, but continue to be the Company’s most significant funding source, which comprised 46.03% of total average funding sources during the first three months of 2010, as compared with 60.12% during the first three months of 2009. Certificates of deposit have a lagging effect with interest rate changes, as most certificates of deposit have longer maturities at fixed rates.

The following table sets forth, on a tax-equivalent basis for the 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)
		Change from 2010 to 2009 Due to
						Yield/
		Volume (1)				Rate (2)				Total
Interest income:
Loans		$	(1,652,324	)			(566,757	)			(2,219,081	)
Investment securities:
Taxable			69,444				(192,079	)			(122,635	)
Exempt from Federal income taxes			(48,501	)			18,885				(29,616	)
Short-term investments			(1,330	)			922				(408	)
Total interest income			(1,632,711	)			(739,029	)			(2,371,740	)
Interest Expense:
Interest bearing transaction accounts			211,400				(261,029	)			(49,629	)
Savings accounts			663,810				(915,591	)			(251,781	)
Time deposits of $100,000 or more			(669,308	)			(717,097	)			(1,386,405	)
Other time deposits			(1,207,784	)			(796,788	)			(2,004,572	)
Total deposits			(1,001,882	)			(2,690,505	)			(3,692,387	)
Short-term borrowings			(113,930	)			(115,939	)			(229,869	)
Long-term borrowings			(305,072	)			42,021				(263,051	)
Total interest expense			(1,420,884	)			(2,764,423	)			(4,185,307	)
Net interest income		$	(211,827	)			2,025,394				1,813,567

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 three-month periods ended March 31, 2010 and 2009 was $7,692,000 and $2,250,000, respectively. Net charge-offs for the three-month periods ended March 31, 2010 and 2009 totaled $7,196,485 and $2,359,775, respectively. At March 31, 2010 and 2009, the reserve for possible loan losses as a percentage of net outstanding loans was 2.96% and 1.15%, 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 42.55% and 36.24% at March 31, 2010 and 2009, respectively. The continued significant decline in the real estate market has resulted in an increase in the level of nonperforming loans and a higher provision for loan losses in the first quarter of 2010. See further discussion regarding the Company’s credit risk management in the section below entitled “Risk Management.”

Noninterest Income

Total noninterest income for the first quarter of 2010, excluding security sale gains and losses, increased $55,122 (10.31%) to $589,891, from the $534,769 earned for the first quarter of 2009. Rental income generated from other real estate properties increased $66,759 (473.43%) to $80,860 for the three-month periods ended March 31, 2010 from $14,101 for the three months ended March 31, 2009. Offsetting this gain was a decline in secondary mortgage fees of $67,469 (60.98%) to $43,173 for the three-month periods ended March 31, 2010 from $110,642 for the three months ended March 31, 2009, resulting from less mortgage refinance activity. Deposit service charge income increased by $16,838 (8.11%) to $224,476 for the three months ended March 31, 2010 compared to $207,638 for the three months ended March 31, 2009, due to a larger transaction deposit base.

Noninterest Expense

Noninterest expense increased $513,380 (7.09%) for the first quarter of 2010 to $7,754,512 from the $7,241,132 during the first quarter of 2009. Increased expenses relating to other real estate owned (including losses on sales of foreclosed property and writedowns on properties still held, as well as holding costs on such properties), and increased FDIC insurance assessments more than offset the cost savings achieved in other operational expenses such as personnel and occupancy expenses.

Other real estate expense increased to $1,373,787, which was an increase of $1,064,124 (343.64%) over the $309,663 incurred during the first quarter of 2009. The increase is due to higher levels of foreclosed assets and the continued decline in real estate values. Net losses and writedowns for the three-month period ended March 31, 2010 were $774,301.

FDIC assessment expense increased $280,985 (55.80%) for the first quarter of 2010 to $784,518 from the $503,533 incurred during the first quarter of 2009, due to increased assessment rates on deposits.

Total personnel costs decreased $615,474 (15.86%) for the first quarter of 2010 to $3,264,982 from the $3,880,456 of personnel costs incurred for the first quarter of 2009. At the end of the first 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 occupancy and equipment expenses decreased $38,912 (3.46%) to $1,087,020 for the first quarter of 2010 from the $1,125,932 incurred in the first quarter of 2009, as certain assets became fully depreciated and a temporary facility was closed.

Total data processing expenses for the first quarter of 2010 decreased $42,131 (8.88%) to $432,543 for the first quarter of 2010, as compared with the $474,674 of expenses incurred for the first quarter of 2009, due to cost reduction efforts.

Income Taxes

Applicable income tax benefits totaled $1,474,958 and $38,226 for the three-month periods ended March 31, 2010 and 2009, respectively. The effective tax rates for the three-month periods ended March 31, 2010 and 2009 were (37.12%) and (72.61%), respectively. The change in effective tax rates during the three-month periods ended March 31, 2010 and 2009 is a result of the level of tax-exempt interest income and its effect on the pre-tax income/loss.

Financial Condition

Total assets of the Company declined $51,692,713 (3.36%) in the first three months of 2010 to $1,485,014,871 at March 31, 2010, from the level of $1,536,707,584 at December 31, 2009. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets.

Total deposits of the Company declined $53,377,655 (4.22%) in the first three months of 2010 to $1,212,682,542 at March 31, 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.

Short-term borrowings at March 31, 2010 increased $7,080,039 (55.76%) to $19,776,971 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. Longer-term borrowings declined $5,000,000 (4.81%) in the first three months of 2010 to $99,000,000 at March 31, 2010, form a level of $104,000,000. These longer-term fixed rate advances were used as an alternative funding source and are matched with longer-term fixed rate assets.

Total loans decreased $36,228,240 (3.18%) in the first three months of 2010 to $1,104,653,035 at March 31, 2010, from the level of $1,140,881,275 at December 31, 2009. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets.

Investment securities, all of which are maintained as available-for-sale, decreased $45,407,247 (15.98%) in the first three months of 2010 to $238,712,309 at March 31, 2010, from the level of $284,119,556 at December 31, 2009. The Company’s investment portfolio growth is dependent upon the level of deposit growth and the funding requirements of the Company’s loan portfolio, as described above.

Total capital decreased $1,445,797 (0.97%) to $148,223,627 at March 31, 2010 from the level of $149,669,424 at December 31, 2009. The Company’s capital-to-asset percentage was 9.98% at March 31, 2010.

Recent Developments

The Company and the Banks have recently entered into a certain Agreement and memoranda of understanding (“MOU”) with regulatory authorities as listed below and discussed in our most recent Form 10-K filed with the SEC on March 26, 2010. The Agreement and MOUs are informal administrative agreements pursuant to which the Company and the Banks have agreed to take various actions and comply with certain requirements to facilitate improvement in financial condition.

On November 30, 2009, Reliance Bank’s Board of Directors entered into an Agreement with the Missouri Division of Finance and the Federal Deposit Insurance Corporation (“FDIC”) to, among other things, (a) develop a plan to reduce the level of risk in each criticized asset aggregating $2,000,000 or more included in the September 21, 2009 Missouri Division of Finance examination report; (b) maintain the reserve for possible loan losses at a level which is reasonable in relation to the degree of risk inherent in the Bank’s loan portfolio; (c) develop and adopt policies and procedures designed to identify and monitor concentrations of credit, including out-of-territory loans and loan participations purchased; (d) formulate plans to reduce the Bank’s concentrations of credit, particularly in commercial real estate and land acquisition and development lending; (e) review and revise the Bank’s formal loan policy to address weaknesses noted in the September 21, 2009 Missouri Division of Finance examination report; (f) cease making or extending any loans which might violate the Bank’s written loan policy, except in those instances in which the Board of Directors has made a prior determination that a variance from loan policy is in the best interests of the Bank, with such Board decisions appropriately documented in the minutes of the Board of Director meetings; (g) develop a formal written profit plan, which will provide a three-year budget projection for asset growth and dividend payouts to ensure Tier 1 leverage capital is maintained at least a 7% level; and (h) maintain a Tier 1 leverage capital ratio of at least 7%, and other capital ratios such that the Bank will remain well-capitalized, and not pay any dividends, management fees or bonuses, or increase any executive salary or other compensation that would reduce the Bank to a level below a well-capitalized status.

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

off-balance-sheet positions calculated by the OTS Net Portfolio Value and the Bank’s internal economic value of equity model; and (h) correct all deficiencies and weaknesses identified in the October 5, 2009 OTS report of examination.

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

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

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.

		Quarter Ended March 31, 2010
						Percent				Interest				Average
		Average				of Total				Income/				Yield/
		Balance				Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	1,125,419,848				74.53	%		$	15,458,032				5.57	%
Investment securities:
Taxable			230,871,686				15.29	%			1,833,350				3.22	%
Exempt from Federal income taxes (3)			29,616,664				1.96	%			435,462				5.96	%
Short-term investments			32,759,765				2.17	%			16,555				0.20	%
Total earning assets			1,418,667,963				93.95	%			17,743,399				5.07	%
Nonearning assets:
Cash and due from banks			4,923,591				0.33	%
Reserve for possible loan losses			(32,373,486	)			(2.14	)%
Premises and equipment			42,020,773				2.78	%
Other assets			75,688,483				5.00	%
Available-for-sale investment market valuation			1,132,714				0.08	%
Total nonearning assets			91,392,075				6.05	%
Total assets		$	1,510,060,038				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts		$	231,257,766				15.31	%			545,609				0.96	%
Savings			318,459,696				21.09	%			1,024,281				1.30	%
Time deposits of $100,000 or more			270,925,947				17.94	%			1,640,112				2.46	%
Other time deposits			352,455,081				23.34	%			2,580,587				2.97	%
Total interest-bearing deposits			1,173,098,490				77.68	%			5,790,589				2.00	%
Long-term borrowings			103,462,366				6.85	%			968,919				3.80	%
Short-term borrowings			13,783,129				0.91	%			30,419				0.90	%
Total interest-bearing liabilities			1,290,343,985				85.44	%			6,789,927				2.13	%
Noninterest-bearing deposits			63,826,553				4.23	%
Other liabilities			5,268,643				0.36	%
Total liabilities			1,359,439,181				90.03	%
STOCKHOLDERS’ EQUITY			150,620,857				9.97	%
Total liabilities and stockholders’ equity		$	1,510,060,038				100.00	%
Net interest income										$	10,953,472
Net yield on earning assets															3.13	%

(continued)

		Quarter Ended March 31, 2009
						Percent				Interest				Average
		Average				of Total				Income/				Yield/
		Balance				Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	1,245,164,434				77.45	%		$	17,677,113				5.76	%
Investment securities:
Taxable			222,727,051				13.85	%			1,955,985				3.56	%
Exempt from Federal income taxes (3)			32,950,327				2.05	%			465,078				5.72	%
Short-term investments			35,736,960				2.22	%			16,963				0.19	%
Total earning assets			1,536,578,772				95.57	%			20,115,139				5.31	%
Nonearning assets:
Cash and due from banks			5,117,201				0.32	%
Reserve for possible loan losses			(14,929,468	)			(0.93	)%
Premises and equipment			44,025,461				2.74	%
Other assets			37,297,792				2.32	%
Available-for-sale investment market valuation			(396,148	)			(0.02	)%
Total nonearning assets			71,114,838				4.43	%
Total assets		$	1,607,693,610				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts		$	160,063,425				9.96	%			595,238				1.51	%
Savings			180,935,049				11.25	%			1,276,062				2.86	%
Time deposits of $100,000 or more			363,195,741				22.59	%			3,026,517				3.38	%
Other time deposits			502,836,694				31.28	%			4,585,159				3.70	%
Total interest-bearing deposits			1,207,030,909				75.08	%			9,482,976				3.19	%
Long-term borrowings			136,000,000				8.46	%			1,231,970				3.67	%
Short-term borrowings			39,541,894				2.46	%			260,288				2.67	%
Total interest-bearing liabilities			1,382,572,803				86.00	%			10,975,234				3.22	%
Noninterest-bearing deposits			57,886,059				3.60	%
Other liabilities			6,719,860				0.42	%
Total liabilities			1,447,178,722				90.02	%
STOCKHOLDERS’ EQUITY			160,514,888				9.98	%
Total liabilities and stockholders’ equity		$	1,607,693,610				100.00	%
Net interest income										$	9,139,905
Net yield on earning assets															2.41	%