UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

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

Commission file number 00-52588

Reliance Bancshares, Inc.

(Exact name of Registrant as Specified in its Charter)

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

     The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $28,989,797.

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 22,481,804 shares of common stock outstanding as of March 18, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

 

 

TABLE OF CONTENTS

		Page No.
PART I
Item 1. Business			2
Item 1A. Risk Factors			10
Item 1B. Unresolved Staff Comments			16
Item 2. Properties			16
Item 3. Legal Proceedings			16
Item 4. (Removed and Reserved)			16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchaser of Equity Securities			16
Item 6. Selected Financial Data			20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation			21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			49
Item 8. Financial Statements and Supplementary Data			49
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			49
Item 9A Controls and Procedures			49
Item 9B. Other Information			50
PART III
Item 10. Directors, Executive Officers and Corporate Governance			50
Item 11. Executive Compensation			50
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			50
Item 13. Certain Relationships and Related Transactions, and Director Independence			50
Item 14. Principal Accountant Fees and Services			51
PART IV
Item 15. Exhibits and Financial Statement Schedules			51
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1
EX-99.2

STATEMENT REGARDING FORWARD-LOOKING INFORMATION

     Except for the historical information contained in this Annual Report, certain matters discussed herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although we believe that, in making any such statements, our expectations are based on reasonable assumptions, any such statements may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in this document, the words “anticipates,” “believes,” “expects,” “intends” and similar expressions as they relate to Reliance Bancshares, Inc. or its management are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. There are important factors that could cause actual

results to differ materially from those in forward-looking statements, certain of which are beyond our control. These factors, risks and uncertainties are discussed under Item 1A, “Risk Factors.”

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

Item 1. Business

General

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

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

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

Available Information

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

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

Recent Developments

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

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

     The Series A preferred stock accrues a dividend at the rate of 5% per annum for the first five years and 9% thereafter. Dividends are payable quarterly and each share has a liquidation amount of $1,000 and has liquidation rights in pari passu with other preferred stock, which is paid in liquidation prior to Company’s common stock. The Series B preferred stock accrues a dividend at the rate of 9% per annum, payable quarterly, and includes other provisions similar to the Series A preferred stock with liquidation at $1,000 per share. On February 11, 2011, the Company announced that it was suspending dividends on its Series A and Series B preferred stock effective immediately in order to positively manage capital.

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

     On November 10, 2009, the Company authorized 25,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, no par value, Series C for sale with an offering price of $1,000 per share. The offering was extended to existing shareholders who are accredited investors (as such term is defined in Regulation D of the Securities Act of 1933, as amended) and to other accredited investors to subscribe for and purchase shares of this series. At December 31, 2010, the Company had subscriptions and payments totaling $555,000 for the purchase of 555 shares. The Series C preferred stock accrues a dividend at the rate of 7% per annum, payable quarterly and includes a liquidation preference of $1,000 per share. On February 11, 2011, the Company announced that it was suspending dividends on its Series C preferred stock effective immediately in order to positively manage capital.

Regulatory Agreements

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

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

pay any dividends, management fees or bonuses, or increase any executive salary or other compensation that would reduce the Bank to a level below a well-capitalized status.

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

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

     On February 14, 2011, Reliance Bank’s Board of Directors entered into a Consent Order (the Consent Order) with the FDIC to (a) develop a written management plan to have and retain qualified management; (b) charge off adversely classified assets identified during the FDIC’s September 20, 2010 examination of Reliance Bank; (c) develop a written plan to reduce Reliance Bank’s risk exposure in each asset in excess of $2,000,000 classified as substandard or doubtful in the FDIC’s Report of Examination for its September 20, 2010 examination; (d) not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit or obligation with Reliance Bank that has been, in whole or in part, charged off or adversely classified as substandard or doubtful in the FDIC’s Report of Examination, unless the denial of additional credit would be detrimental to Reliance Bank, as determined by the Bank’s Board of Directors; (e) develop a written plan for systematically reducing and monitoring the Bank’s concentrations of credit as listed in the FDIC’s Report of Examination, to an amount that is commensurate with Reliance Bank’s business strategy, management expertise, size, and location; (f) review and maintain an adequate reserve for loan losses on a quarterly basis; (g) maintain minimum capital ratios of an 8% Tier 1 leverage capital ratio and 12% Total risk-based capital ratio; (h) not increase salaries or pay bonuses for any executive officer, pay management fees, or declare or pay any dividends; (i) review the liquidity, contingent funding, and interest rate risk policies and plans and develop or amend such policies and plans to address how the Bank will increase its liquid assets and reduce its reliance on volatile liabilities for liquidity purposes; (j) not accept, increase, renew, or rollover any brokered deposits; (k) develop a written three-year business/strategic plan and one-year profit and budget plan; (l) eliminate and/or correct any violations of laws, rules, and regulations identified in the FDIC’s Report of Examination; and (m) provide periodic progress reports on the above matters to the FDIC.

     The Agreement, MOUs and Consent Order 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, MOUs and Consent Order and will diligently endeavor to take all actions necessary for compliance.

Market Area and Approach to Geographic Expansion

     Reliance Bank

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

     Reliance Bank, FSB

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

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

Competition

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

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

     Reliance Bank and Reliance Bank, FSB have both grown rapidly with aggressive branching in both markets. Because of the Company’s continued use of earnings for this expansion, we have not historically issued dividends on common stock and do not anticipate doing so in the foreseeable future. We have also recently suspended the dividends on our outstanding classes of preferred stock. The Company has incurred significant expenses due to its aggressive organic growth plan. This increased expense has negatively impacted our short term earnings per share. Both Reliance Bank and Reliance Bank, FSB are comfortable with the amount of branches they have established in both areas and therefore, did not expand in 2010.

Supervision and Regulation

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

The following is a summary of significant regulations:

The Holding Company

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

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

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

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

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

Reliance Bank

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

     Transactions with Affiliates and Insiders: Regulation W, promulgated by the Federal Reserve, imposes regulations on certain transactions with affiliates, including the amount of loans and extensions of credit to affiliates, investments in affiliates and the amount of advances to third parties collateralized by the securities

or obligations of affiliates. Regulation W also requires, among other things, that Reliance Bank transact business with affiliates on terms substantially the same, or at least as favorable to Reliance Bank, as those prevailing at the time for comparable transactions with non-affiliates.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     Beginning with the second quarter of 2011, as mandated by the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the assessment base that the FDIC will use to calculate assessment premiums will be a bank’s average assets minus average tangible equity. As the asset base of the banking industry is larger thatn the deposit base, the range of assessment rates will change to a low of 2.5 basis points through a high of 45 basis points, per $100 of assets; however, the dollar amount of total actual premiums is expected to be roughly the same.

     The FDIC is required under the Dodd-Frank Act to establish assessment rates that will allow the Deposit Insurance Fund to achieve a reserve ratio of 1.35% of Insurance Fund insured deposits by September 2020. In addition, the FDIC has established a “designated reserve ratio” of 2.0%, a target ratio that, until it is achieved, will not likely result in the FDIC reducing assessment rates. In attempting to achieve the mandated 1.35% ratio, the FDIC is required to implement assessment formulas that charge banks over $10 billion in asset size more than banks under that size. Those new formulas begin in the second quarter of 2011, but do not affect the Bank. Under the Dodd-Frank Act, the FDIC is authorized to make reimbursements from the insurance fund to banks if the reserve ratio exceeds 1.50%, but the FDIC has adopted the “designated reserve ratio” of 2.0% and has announced that any reimbursements from the fund are indefinitely suspended.

     Reliance Bank, FSB

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

Recent Legislation Affecting the Financial Services Industry

The Dodd-Frank Act, which became law in July 2010, significantly changes regulation of financial institutions and the financial services industry, including: creating a Financial Services Oversight Council to identify emerging systemic risks and improve interagency cooperation; centralizing responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, which will be responsible for implementing, examining and enforcing compliance with federal consumer financial laws; permanently raising the current standard maximum deposit insurance amount to $250,000; establishing strengthened capital standards for banks, and disallowing certain trust preferred securities from qualifying as Tier 1 capital (subject to certain grandfather provisions for trust preferred securities); establishing new minimum mortgage underwriting standards; granting the Federal Reserve Board the power to regulate debit card interchange fees; and implementing corporate governance changes. Many aspects of the Dodd-Frank

Act are subject to rulemaking that will take effect over several years, thus making it difficult to assess the impact of the statute on the financial industry, including the Company, at this time.

It is difficult to predict at this time the specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’ operations is presently unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our 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 in order to comply with new statutory and regulatory requirements.

Employees

     As of December 31, 2010, we had approximately 212 full-time equivalent employees. None of the Company’s employees are covered by a collective bargaining agreement. Management believes that its relationship with its employees is good.

Item 1A. Risk Factors

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

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

     We are operating in a challenging and uncertain economic environment, including generally uncertain national conditions and local conditions in our markets. The capital and credit markets have been experiencing volatility and disruption for more than 36 months. The volatility and disruption we have experienced are ongoing. The risks associated with our business become more acute in periods of a slowing economy or slow growth. Financial institutions continue to be affected by sharp declines in the real estate market and constrained financial markets. We retain direct exposure to the residential and commercial real estate markets, and we are affected by these events.

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

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

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

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

Current levels of market volatility are unprecedented.

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

Additional increases in insurance premiums could affect our earnings.

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

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

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

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

Difficult market conditions have adversely affected our industry.

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

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

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

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

     With most of our loans concentrated in the St. Louis and Fort Myers metropolitan areas at this time, a continued decline in local economic conditions could adversely affect the value of the real estate collateral securing our loans. A continued decline in property values would diminish our ability to recover on defaulted loans by selling the real estate collateral, making it more likely that we would suffer losses on defaulted loans. Additionally, the subsequent decrease in asset quality could require additions to our reserve for possible loan losses through increased provisions for loan losses, which would hurt our profits. Also, a further decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. Real estate values are affected by various factors in addition to local economic conditions, including, among other things, changes in general or regional economic conditions, governmental rules or policies and natural disasters. A negative development in any of these factors could adversely affect our results of operations and financial condition.

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

     Like most financial institutions, we maintain a reserve for possible loan losses to provide for loans in our portfolio that may not be repaid in their entirety. We believe that our reserve for possible loan losses is maintained at a level adequate to absorb probable losses inherent in our loan portfolio as of the corresponding

balance sheet date. However, our reserve for possible loan losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially adversely affect our operating results.

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

     At December 31, 2010, our reserve for possible loan losses as a percentage of total loans was 3.84%. Federal and state regulators, as an integral part of their examination process, periodically review our reserve for possible loan losses and may require us to increase our reserve for possible loan losses by recognizing additional provisions for loan losses charged to expense, or to decrease our reserve for possible loan losses by recognizing loan charge-offs, net of recoveries. Any such additional provisions for loan losses or charge-offs, as required by these regulatory agencies, could have a material adverse effect on our financial condition and results of operations.

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

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

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

     We are dependent upon the services of our management team.

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

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

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

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

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

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

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

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

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

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

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

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

     Our controls and procedures may fail or be circumvented.

     Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

     We continually encounter technological change.

     The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources than we do to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business and, in turn, our financial condition and results of operations.

     We are subject to credit risk.

     When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of losses if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contracts. A number of our products expose us to credit risk, including loans and lending commitments, and assets held for sale. The credit quality of our portfolio can have a significant impact on our earnings. We estimate and establish reserves for credit risks and credit losses inherent in our credit exposure (including unfunded credit commitments). This process, which is critical to our financial results and condition, requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans. As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify.

     Changes in interest rates could adversely affect profitability.

     The Company may be unable to manage interest rate risk that could reduce its net interest income. Like other financial institutions, the Company’s results of operations are affected principally by net interest income, which is the difference between interest earned on loans and investments and interest expense paid on deposits and other borrowings. The Company cannot predict or control changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the Federal Reserve, affect interest income and interest expense. While the Company continually takes measures intended to manage the risks from changes in market interest rates, changes in interest rates can still have a material adverse effect on the Company’s profitability. For example, upward fluctuations in interest rates in the credit market may force the Company to either pay higher rates on its deposits or risk losing such deposits to other investments. At the same time, the Company may have loaned funds to customers at long-term fixed rates and thus would not be able to correspondingly increase its interest income. Conversely, during periods of decreasing interest rates, customers with higher rate long term fixed rate loans may seek to refinance their loans, thereby decreasing the Company’s interest income.

     ITEM 1b. Unresolved Staff Comments

     None.

     Item 2. Properties

     Our executive offices are located at 10401 Clayton Road, Frontenac, Missouri, 63131. As of December 31, 2010, the Company’s subsidiary, Reliance Bank, had a total of twenty banking locations in Missouri and Illinois. Reliance Bank owns nineteen of the bank branch buildings, as well as the underlying real property on fourteen of them. One branch operates in a leased building, and the remaining five branch buildings, although owned, are subject to ground leases that expire between 2015 and 2026 and include one or more renewal options.

     As of December 31, 2010, the Company’s subsidiary, Reliance Bank, FSB, had three locations in Florida. Reliance Bank, FSB leases one of these locations, and owns the other two.

     As of December 31, 2010, the Company’s subsidiary, Reliance Loan Center in Phoenix, Arizona had one leased location.

     As of December 31, 2010, the Company’s subsidiary, Reliance Loan Center in Houston, Texas had one leased location.

     Item 3. Legal Proceedings

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

     Item 4. (Removed and Reserved)

PART II

     Item 5. Market for Registrant’s common equity, related stockholder matters and issuer purchases of equity securities

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

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

		High				Low
2010
First Quarter		$	3.40			$	2.25
Second Quarter		$	2.75			$	2.10
Third Quarter		$	2.75			$	2.10
Fourth Quarter		$	2.74			$	1.43
2009
First Quarter		$	4.90			$	3.00
Second Quarter		$	4.50			$	3.25
Third Quarter		$	3.65			$	2.65
Fourth Quarter		$	3.50			$	2.00

As of March 18, 2011 there were approximately 747 holders of our Common Stock.

Dividends

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

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

     The following graph compares the Company’s cumulative stockholder return on its common stock from June 26, 2007 through December 31, 2010, the measurement period. The graph compares the Company’s common stock with the NASDAQ Composite and the SNL $1B-$5B Bank Index. The graph assumes an investment of $100.00 in the Company’s common stock and each index on June 26, 2007 and reinvestment of all quarterly dividends. The investment is measured as of the fiscal year end. While there are no assurances, the Company believes that this trend will reverse as the economy improves.

Stock Performance Graph

		Period
		Ending
Index		06/26/07				12/31/07				06/30/08				12/31/08				06/30/09				12/31/09				06/30/10				12/31/10
Reliance Bancshares, Inc.			100.00				93.33				62.22				45.24				28.89				20.44				20.89				14.31
NASDAQ Composite			100.00				102.21				88.74				61.35				71.76				89.17				83.27				105.35
SNL $1B-$5B Bank Index			100.00				84.90				66.04				70.42				51.72				50.48				53.04				57.22

     Securities Authorized for Issuance Under Equity Compensation Plans

     The following table provides information as of December 31, 2010, regarding securities issued and to be issued under our equity compensation plans that were in effect during the year ended December 31, 2010:

Number of securities

remaining available for

future issuance under

Number of securities to

Weighted-average

equity compensation

be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

warrants and rights

warrants and rights

column (a))

Plan category

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,424,450

$

8.05

408,300

Equity compensation plans not approved by security holders

666,816

$

8.41

116,500

Total

2,091,266

$

8.17

524,800

Recent Sales of Unregistered Equity Securities

The Company sold 1,400,517 shares of the Company’s common stock at the offering price of $3.00 per share at various times during the year ended 2010. This represented an aggregate offering price of $4,201,551. This offering was extended to accredited investors (as such term is defined in Regulation D under the Securities Act of 1933, as amended), and was intended to qualify for exemption from registration pursuant to Rule 506 of Regulation D.

In addition, at various times during 2010 the Company sold 250 shares of our Series C Preferred Stock for an aggregate consideration of $250,000.00. These shares were not registered and were sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.

Item 6. selected financial data

     The following consolidated selected financial data is derived from the Company’s audited financial statements as of and for the five years ended December 31, 2010. This information should be read in connection with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report.

		As of and for the
		Years ended December 31,
		2010				2009				2008				2007				2006
		(in thousands, except per share data)
Statements of income:
Total interest income		$	64,146			$	76,589			$	78,209			$	63,687			$	47,961
Total interest expense			23,637				39,005				41,715				37,609				26,227
Net interest income			40,509				37,584				36,494				26,078				21,734
Provision for possible loan losses			41,492				53,450				11,148				3,187				2,200
Net interest income after provision for possible loan losses			(983	)			(15,866	)			25,346				22,891				19,534
Total noninterest income			3,507				3,925				2,683				1,976				1,310
Total noninterest expense			39,741				34,046				29,428				22,290				16,605
Income (loss) before income taxes			(37,217	)			(45,987	)			(1,399	)			2,577				4,239
Income tax expense (benefit)			11,312				(16,630	)			(1,080	)			462				1,223
Net income (loss)		$	(48,529	)		$	(29,357	)		$	(319	)		$	2,115			$	3,016
Common share data:
Basic net income (loss) per share		$	(2.32	)		$	(1.49	)		$	(0.02	)		$	0.10			$	0.16
Diluted net income (loss) per share			(2.32	)			(1.49	)			(0.02	)			0.10				0.15
Dividends declared per share			—				—				—				—				—
Book value per common share			2.74				5.12				6.73				6.76				6.31
Tangible book value per common share			2.69				5.06				6.67				6.70				6.24
Weighted average shares-basic			21,868				20,864				20,670				20,343				18,685
Weighted average shares-diluted			21,868				20,881				21,063				21,337				19,548
Shares outstanding-end of period			22,482				20,972				20,771				20,682				19,571
Period-end balances:
Loans, net		$	932,988			$	1,107,998			$	1,238,707			$	901,842			$	660,318
Investment securities			241,599				284,120				193,888				158,042				188,369
Total assets			1,296,025				1,536,708				1,573,989				1,136,152				900,799
Deposits			1,080,159				1,266,060				1,228,047				834,576				678,597
Short-term borrowings			15,178				12,697				63,919				88,325				70,463
Long-term borrowings			93,000				104,000				136,000				68,000				24,300
Stockholders’ equity			104,247				149,669				139,609				139,891				123,497
Average balances:
Loans		$	1,066,142			$	1,213,937			$	1,115,216			$	770,523			$	546,122
Investment securities			239,910				254,116				168,289				174,052				200,286
Total assets			1,422,470				1,569,548				1,366,110				1,006,628				786,014
Deposits			1,153,078				1,238,968				1,006,763				777,450				629,588
Short-term borrowings			19,701				22,477				88,749				49,179				26,475
Long-term borrowings			98,297				131,039				125,118				39,646				15,881
Stockholders’ equity			145,683				169,792				138,394				134,548				109,940
Selected ratios:
Net yield on earning assets			3.08	%			2.55	%			2.88	%			2.79	%			2.94	%
Return on average total assets			(3.41	)%			(1.87	)%			(0.02	)%			0.21	%			0.38	%
Return on average stockholders’ equity			(33.31	)%			(17.29	)%			(0.23	)%			1.57	%			2.74	%
Average stockholders’ equity as a percent of average total assets			10.24	%			10.82	%			10.13	%			13.37	%			13.99	%
Nonperforming loans as a percent of loans at year-end			17.63	%			6.32	%			2.78	%			1.95	%			0.77	%
Reserve for possible loan losses as a percent of loans at year-end			3.84	%			2.83	%			1.14	%			1.06	%			1.06	%

Note:		All share and per share information has been retroactively restated for a two-for-one stock split and concurrent reduction in par value of $0.50 to $0.25, effective December 29, 2006.

Item 7.		Management’s discussion and analysis of financial condition and results of operations

     The following presents management’s discussion and analysis of the consolidated financial condition and results of operations of Reliance Bancshares, Inc. (the “Company”) for each of the years in the three-year period ended December 31, 2010. This discussion and analysis is intended to review the significant factors affecting the financial condition and results of operations of the Company, and provides a more comprehensive review which is not otherwise apparent from the consolidated financial statements alone. This discussion should be read in conjunction with “Selected Financial Data,” the Company’s consolidated financial statements and the notes thereto and other financial data appearing elsewhere herein.

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

Overview

     The Company provides a full range of banking services to individual and corporate customers throughout the St. Louis metropolitan area in Missouri and Illinois and southwestern Florida through the 23 locations of its wholly owned subsidiaries, Reliance Bank and Reliance Bank, FSB (hereinafter referred to as the “Banks”). Since its opening in 1999 through December 31, 2010, Reliance Bank has established a total of 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 total assets, loans and deposits of $1.2 billion, $920 million, and $1 billion, respectively, at December 31, 2010.

     On January 17, 2006, the Company opened a new Federal Savings Bank, Reliance Bank, FSB, in Ft. Myers, Florida. Since its opening in 2006 through December 31, 2010, Reliance Bank, FSB has established three branch locations in southwestern Florida and has total assets, loans, and deposits of $85.3 million, $50.1 million, and $76.5 million, respectively, at December 31, 2010.

     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.

Executive Summary of Results of Operations and Financial Condition

     The Company’s consolidated net loss for the years ended December 31, 2010, 2009, and 2008 totaled $48,528,489, $29,357,361, and $319,230, respectively. The December 31, 2010 loss includes a $26.1 million charge to establish a valuation allowance for deferred tax assets (see Results of Operations for detail discussion). The Company’s financial results were driven largely by stresses related to the commercial real estate sector in the Florida and St. Louis metropolitan markets.

Provision and Asset Quality

     Credit costs continued to weigh heavily on 2010 earnings, as the Company recorded $41.5 million in provision for loan losses, largely related to asset quality deterioration in the Company’s land development, construction and commercial real estate portfolios. Provision for loan losses for 2009 was $53.5 million. The Company experienced an increase in non-performing loans due to the current economic environment. Non-performing loans as of December 31, 2010 totaled $171.1 million, compared with $72.1 million as of December 31, 2009. Net charge-offs during 2010 and 2009 were $36.4 million and $35.5, respectively.

     Management remains focused on improving credit quality and as a result of continued economic strains has implemented rigorous problem credit action plans. During 2010, the Company has added personnel to address asset quality issues and dispose of non-performing assets.

Improved Net Interest Margin

     2010 net interest margin grew by 7.8% over the same period in 2009, driven by a 39.4% drop in 2010 interest expense compared to 2009. The composition of the Company’s funding sources has shifted to lower cost transaction and savings accounts and away from higher cost time deposits. For the year ended December 31, 2010, average balances of transaction and savings accounts increased to 48.4% of total funding sources in 2010 as compared to 35.5% during 2009. Also, for the year ended December 31, 2010, average balances of time deposits decreased to 42.3% of total funding sources in 2010 as compared to 53.5% during the same period in 2009.

     These increases in lower cost deposits helped reduce the Company’s cost of funds to 1.96% from 2.93% for the year ended December 31, 2010 and 2009, respectively. Management has placed increased focus on growing low cost core transaction deposits, by concentrating on overall customer deposit relationships, allowing for a reduction in total deposit pricing and increased customer retention.

     Following are certain percentages generally followed in the banking industry:

		As of and for the
		Years Ended December 31,
		2010				2009				2008
Percentage of net income (loss) to:
Average total assets			(3.41	)%			(1.87	)%			(0.02	)%
Average stockholders’ equity			(33.31	)%			(17.29	)%			(0.23	)%
Percentage of common dividends declared to net income per common share			—				—				—
Percentage of average stockholders’ equity to average total assets			10.24	%			10.82	%			10.13	%

Critical Accounting Policies

     The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations. These critical accounting policies require management’s most difficult subjective and complex judgments about matters that are inherently uncertain. Because these estimates and judgments are based on current circumstances, they are likely to change over time or prove to be different than actual experiences. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could reasonably be expected. The impact and any associated risks related to our critical accounting policies on our business operations are discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 1 to our Consolidated Financial Statements for the years ended December 31, 2010, 2009, and 2008 included elsewhere herein.

     Reserve for Possible Loan Losses

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

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

     Deferred Tax Assets

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

Results of Operations for the Three-Year Period Ended December 31, 2010

     Net Interest Income

     The Company’s net interest income increased by $2,924,853 (7.78%) to $40,509,237 for the year ended December 31, 2010 from the $37,584,384 earned for the year ended December 31, 2009, which was an increase of $1,090,445 (2.99%) from the $36,493,939 earned in 2008. The Company’s net interest margin for the years ended December 31, 2010, 2009, and 2008 was 3.08%, 2.55%, and 2.88%, respectively. The increase in margin percentage from 2009 is primarily attributed to lower cost of funds on the Company’s retail deposit products with a shift in funding composition toward lower cost deposit products. The Company’s average rate on interest-bearing liabilities for the years ended December 31, 2010 and 2009 were 1.96% and 2.93%, respectively. These gains were partially offset by a decrease in yield on loans due to an increase in non-performing loans. The Company’s average yield on loans for the years ended December 31, 2010 and 2009 were 5.33% and 5.57%, respectively.

     Average earning assets for 2010 decreased $163,703,339 (10.95%) to $1,330,650,715 from the level of $1,494,354,054 for 2009. Average earning assets for 2009 increased $203,514,070 (15.77%) from the level of $1,290,839,984 for 2008. A significant portion of the decline from 2009 can be attributed to the decrease in outstanding loan balances. Total average loans declined $147,794,178 (12.17%) in 2010 to $1,066,142,431 from the level of $1,213,936,609 for 2009, which was an increase of $98,720,183 (8.85%) from the level of $1,115,216,426 for 2008. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets and a redirection away from commercial real estate, which, in the near term, will reduce loan balances.

     Total average investment securities for 2010 decreased $14,205,751 (5.59%) to $239,910,442 from the level of $254,116,193 for 2009, which was a decrease of $85,827,133 (51.00%) from the level of $168,289,060 for 2008. The Company uses its investment portfolio to (a) provide support for borrowing arrangements for securities sold under repurchase agreements, (b) provide support for pledging purposes for deposits of governmental and municipal deposits over FDIC insurance limits, (c) provide a secondary source of liquidity through “laddered” maturities of such securities, and (d) provide increased interest income over that which would be earned on overnight/daily fund investments. The total carrying value of securities pledged to secure public funds and repurchase agreements was approximately $150,544,000, $160,923,000, and $180,767,000 at December 31, 2010, 2009, and 2008, respectively. The Banks have also pledged letters of credit from the Federal Home Loan Banks totaling $9,118,574 as additional collateral to secure public funds at December 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 years ended December 31, 2010, 2009, and 2008 were $24,597,842, $26,301,252, and $7,334,498 respectively.

     A key factor in increasing the Company’s net interest margin is to maintain a higher percentage of earning assets in the loan category, which is the Company’s highest earning asset category. However, average loans as a percentage of average earning assets were 80.12% for 2010, which was a 111 basis point decrease under the 81.23% percentage achieved in 2009, which was a 516 basis point decrease under the 86.39% percentage achieved in 2008. This decline resulted from the depressed economic environment in the Banks’ market areas, resulting in fewer lending opportunities for the Banks. The average loan balances include nonperforming loans, which do not add any interest and reduce the overall loan yields disclosed. Total nonperforming loans at December 31, 2010, 2009, and 2008 were $171,089,003, $72,077,434, and $34,896,410, respectively.

     Total average interest-bearing deposits for 2010 decreased $87,644,019 (7.45%) to $1,089,127,193 from the level of $1,176,771,212 for 2009, which was an increase of $226,232,142 (23.80%) from the level of $950,539,070 for 2008. As discussed in the following paragraphs, while the overall balance has declined, the mix of deposit balances has moved away from the higher cost time deposits to savings and transaction accounts. With the decline in loan demand and low rates available on investments, the Banks have not needed as much in deposits.

     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 and a short term note payable obtained in 2008 by the Company in the amount of $7,000,000, and repaid in 2009. The average balances of such borrowings for the years ended December 31, 2010, 2009, and 2008 totaled $19,701,175, $22,476,551, and $88,748,506, respectively. Short-term borrowings can fluctuate significantly based on short-term liquidity needs and changes in deposit volumes.

     The Company has used longer-term advances from the Federal Home Loan Banks to match with longer-term fixed rate assets. During the three-year period ended December 31, 2010, average longer-term borrowings were $98,296,595, $131,038,979, and $125,117,708, for 2010, 2009, and 2008, respectively.

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

		2010				2009				2008
Average deposits:
Noninterest-bearing			5.03	%			4.47	%			4.61	%
Interest-bearing:
Transaction accounts			18.01				12.11				13.29
Savings			25.40				18.88				4.30
Time deposits of $100,000 or more			17.25				22.58				27.85
Other time deposits			25.03				30.94				32.43
Total average interest-bearing deposits			85.69				84.51				77.87
Total average deposits			90.72				88.98				82.48
Short-term borrowings			1.55				1.61				7.27
Longer-term advances from Federal Home Loan Banks			7.73				9.41				10.25
			100.00	%			100.00	%			100.00	%

     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 25.40% of total average funding sources for the year ended December 31, 2010, compared to 18.88% and 4.30% for the years ended December 31, 2009 and 2008, respectively. Also, average interest-bearing transaction accounts increased to 18.01% of total average funding sources for the year ended December 31, 2010, from 12.11% and 13.29% for the years ended December 31, 2009 and 2008, respectively. This shift in deposits was also helped by an extremely low interest rate environment, in which customers are less willing to roll over maturing certificates of deposit to longer term instruments at the present low rates.

     The increases in lower cost deposits, coupled with maturities of higher rate certificates of deposit, helped reduce the rates paid on total interest-bearing liabilities. Average rates on interest bearing liabilities were 1.96%, 2.93%, and 3.58% for the years ended December 31, 2010, 2009 and 2008, respectively. Given the low rate of interest rates for all deposits, customers are more willing to maintain their accounts in lower-yielding savings accounts, with the expectation that rates will eventually increase, rather than locking up their funds in lower-yielding time deposits for any length of time.

     The Company was also able to reduce the percentage of longer-term advances and higher cost certificates of deposit. Average balances for time deposits were 42.28%, 53.52%, and 60.28% for the years ended December 31, 2010, 2009 and 2008, respectively. 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.

     Management has placed increased focus on growing lower-cost core transaction deposits by concentrating on overall customer deposit relationships, allowing for a reduction in total deposit pricing and increased customer retention.

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

		Year Ended December 31, 2010
		Average				Percent of				Interest Income/				Average Yield/
		Balance				Total Assets				Expense				Rate
ASSETS
Loans (1) (2) (3)		$	1,066,142,431				74.95	%		$	56,775,455				5.33	%
Investment securities:
Taxable			213,684,481				15.02				6,265,165				2.93
Exempt from Federal income taxes (3)			26,225,961				1.84				1,546,174				5.90
Short-term investments			24,597,842				1.73				45,532				0.19
Total earning assets			1,330,650,715				93.54				64,632,326				4.86
Nonearning assets:
Cash and due from banks			5,343,320				0.38
Reserve for possible loan losses			(36,756,476	)			(2.58	)
Premises and equipment			41,269,332				2.90
Other assets			79,456,080				5.58
Available-for-sale investment market valuation			2,507,029				0.18
Total nonearning assets			91,819,285				6.46
Total assets		$	1,422,470,000				100.00	%
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts		$	228,869,803				16.09	%			1,971,283				0.86	%
Savings			322,853,791				22.70				3,647,678				1.13
Time deposits of $100,000 or more			219,314,957				15.42				5,387,309				2.46
Other time deposits			318,088,642				22.36				8,739,062				2.75
Total interest-bearing deposits			1,089,127,193				76.57				19,745,332				1.81
Long-term borrowings			98,296,595				6.91				3,770,894				3.84
Short-term borrowings			19,701,175				1.38				120,260				0.61
Total interest-bearing liabilities			1,207,124,963				84.86				23,636,486				1.96
Noninterest-bearing deposits			63,951,012				4.50
Other liabilities			5,711,362				0.40
Total liabilities			1,276,787,337				89.76
STOCKHOLDERS’ EQUITY			145,682,663				10.24
Total liabilities and stockholders’ equity		$	1,422,470,000				100.00	%
Net interest income										$	40,995,840
Net yield on earning assets															3.08	%

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

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

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

										Amount of Increase (Decrease)
		Change From 2009 to 2010 Due to												Change From 2008 to 2009 Due to
						Yield/												Yield/
		Volume (1)				Rate (2)				Total				Volume (1)				Rate (2)				Total
Interest income:
Loans		$	(8,033,127	)		$	(2,843,016	)		$	(10,876,143	)		$	5,934,729			$	(8,642,779	)		$	(2,708,050	)
Investment securities:
Taxable			(317,890	)			(1,055,455	)			(1,373,345	)			3,485,743				(2,006,617	)			1,479,126
Exempt from Federal income taxes			(268,506	)			45,173				(223,333	)			(369,278	)			(11,094	)			(380,372	)
Short-term investments			(3,773	)			—				(3,773	)			154,357				(293,845	)			(139,488	)
Total interest income			(8,623,296	)			(3,853,298	)			(12,476,594	)			9,205,551				(10,954,335	)			(1,748,784	)
Interest expense:
Interest bearing transaction accounts			629,224				(742,021	)			(112,797	)			140,207				(1,843,817	)			(1,703,610	)
Savings accounts			1,398,963				(5,121,221	)			(3,722,258	)			5,645,760				781,730				6,427,490
Time deposits of $100,000 or more			(2,581,210	)			(1,739,326	)			(4,320,536	)			(969,138	)			(2,991,052	)			(3,960,190	)
Other time deposits			(3,383,779	)			(2,316,310	)			(5,700,089	)			1,358,823				(3,172,220	)			(1,813,397	)
Total deposits			(3,936,802	)			(9,918,878	)			(13,855,680	)			6,175,652				(7,225,359	)			(1,049,707	)
Short-term borrowings			(39,388	)			(196,610	)			(235,998	)			(1,277,362	)			(656,388	)			(1,933,750	)
Long -term borrowings			(1,263,514	)			(13,134	)			(1,276,648	)			234,146				38,855				273,001
Total interest expense			(5,239,704	)			(10,128,622	)			(15,368,326	)			5,132,436				(7,842,892	)			(2,710,456	)
Net interest income		$	(3,383,592	)		$	6,275,324			$	2,891,732			$	4,073,115			$	(3,111,443	)		$	961,672

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 years ended December 31, 2010, 2009, and 2008 totaled $41,491,947, $53,450,000, and $11,148,000, respectively. During this same time period, the Company incurred net charge-offs of $36,412,441 in 2010, $35,534,253 in 2009, and $6,527,189 in 2008. At December 31, 2010, 2009, and 2008, the reserve for possible loan losses as a percentage of net outstanding loans was 3.84, 2.83%, and 1.14%, 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 21.80%, 44.70%, and 41.00% at December 31, 2010, 2009, and 2008, respectively. The continued significant decline of the real estate market has resulted in an increase in the level of non-performing loans and a required higher provision for loan losses during 2010. Even though problem loans have increased in 2010, the majority of the increase has been loans originated outside the Florida market and loss exposure outside of Florida has been much less severe for Reliance. See further discussion regarding the Company’s credit risk management in the section below entitled “Risk Management.”

     Noninterest Income

     Total noninterest income for the year ended December 31, 2010 excluding security sale gains and losses, increased $640,602 (24.84%) to $3,219,119 from the $2,578,517 earned for the year ended December 31, 2009, which had increased $217,095 (9.19%) over the $2,361,422 earned for the year ended December 31, 2008. The Company recognized a gain during 2010 of $244,369 on the sale of approximately $4.0 million of loans guaranteed by the Small Business Administration. Other real estate income increased $368,964 (172.44%) to $582,934 from the $213,970 earned for the year ended December 31, 2009, as the increased level of properties owned provided more rental income opportunities.

     The Company recorded net security sale gains of $287,509 in 2010, compared with net security sale gains of $1,346,565 and $321,113 in 2009 and 2008, respectively. From time to time, the Company will sell certain of its available-for-sale investment securities for short-term liquidity purposes or longer-term asset/liability management reasons. See further discussion below in the section entitled “Liquidity and Rate Sensitivity Management.”

     Noninterest Expense

     Noninterest expense increased $5,694,345 (16.73%) for the year ended December 31, 2010 to $39,740,734 from the $34,046,389 incurred for the year ended December 31, 2009, which was a $4,618,799 (15.70%) increase over the $29,427,590 of noninterest expenses incurred for the year ended December 31, 2008. Savings achieved by the Company’s cost reduction efforts were more than offset by the increase in costs of other real estate owned and insurance assessments from the FDIC.

     Total personnel costs decreased $265,808 (1.92%) in 2010 to $13,601,820 from the $13,867,628 of personnel costs incurred in 2009, which was a decrease of $2,047,462 (12.86%) from the $15,915,090 of personnel costs incurred in 2008. During 2009, the Company implemented a plan to reduce operating costs, which included a reduction in staffing levels, and a reduction in certain benefits.

     Other real estate expense increased significantly in 2010 to $13,147,525, which was an increase of $6,984,212 (113.32%) over the $6,163,313 of other real estate expenses incurred in 2009, which had increased by $4,580,715 (289.44%) from the $1,582,598 incurred in 2008. Approximately $3.4 million of the 2010 expense amount relates to the transfer of four parcels of land from land and construction in process to other real estate owned, with the balance written down to their appraised values. The parcels were originally purchased for future expansion; however, the Company determined that it would not be constructing branches on those sites in the foreseeable future. Total other real estate owned net losses and write-downs for 2010 were $10,902,221, as the continued decline in the real estate markets has necessitated such write-downs.

     Total occupancy and equipment expenses decreased $41,531 (0.98%) to $4,215,238 in 2010 from the $4,256,769 incurred in 2009, which had decreased $246,356 (5.47%) from the $4,503,125 incurred in 2008. Certain assets became fully depreciated and a temporary facility was closed in 2009, which reduced the Company’s depreciation expense charged to this category.

     The Company’s FDIC assessment has increased significantly during the three year period ended December 31, 2010. This assessment increased $114,217 (4.16%) in 2010 to $2,859,649, from the $2,745,432 paid in 2009, which was an increase of $1,833,339 (201.00%) from the $912,093 paid in 2008. During 2009, the FDIC imposed a special assessment, which was levied on all banks, varying based on size, to replenish the FDIC’s insurance fund.

     Total data processing expenses for 2010 decreased $287,802 (14.76%) to $1,662,425, from the $1,950,227 incurred in 2009, which had increased $69,259 (3.68%) from the $1,880,968 incurred in 2008. The decrease from 2009 to 2010 was due to cost reduction efforts.

Income Taxes

     Applicable income tax expenses (benefits) totaled $11,311,673 for the year ended December 31, 2010, compared with $(16,629,562) and $(1,079,886) for the years ended December 31, 2009 and 2008, respectively. The Company is required to provide a valuation reserve on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company had not established a valuation reserve at December 31, 2009 or 2008 due to management’s belief and analysis that future income levels would be sufficient to realize the net deferred tax assets recorded. In 2010, the Company received a total of $1,951,677 for the carryback of net operating losses for tax reporting purposes of prior years. At December 31, 2010, the Company has established deferred tax assets of $13,609,596 for net operating loss carryforwards for tax reporting purposes totaling $38,561,563 which will expire beginning in 2029, if unused. The Company has also established deferred tax assets for operating loss carry forwards for Florida state income tax reporting purposes totaling $1,084,856 for losses incurred by Reliance Bank, F.S.B. Such operating losses totaled $19,724,646 at December 31, 2010, and will begin to expire, if unused by 2023.

Given the Company’s losses that have occurred through 2010, the Company has established a valuation reserve of $26,076,828 for its deferred tax assets.

Financial Condition

     Total assets of the Company declined $240,682,320 (15.66%) to $1,296,025,264 at December 31, 2010, from $1,536,707,584 at December 31, 2009, which had decreased $37,281,634 (2.37%) in 2007 from $1,573,989,218 at December 31, 2008. The depressed economy has reduced the Company’s opportunities for loan growth in its current markets.

     Total deposits of the Company declined $185,900,981 (14.68%) to $1,080,159,216 at December 31, 2010, from $1,266,060,197 at December 31, 2009, which had increased $38,012,898 (3.10%) from $1,228,047,299 at December 31, 2008. The overall decline is consistent with the decline in total assets as less funding is required. However, the Company has achieved increased average growth in interest-bearing transaction and savings accounts with a corresponding reduction in certificates of deposit. See the “Results of Operations” section of the report for additional discussion of changes in deposit composition.

     Total short-term borrowings of the Company grew $2,480,923 (19.54%) to $15,177,855 at December 31, 2010, from $12,696,932 at December 31, 2009, which had decreased $51,221,912 (80.14%) from $63,918,844 at December 31, 2008. Short-term borrowings will fluctuate significantly based on short-term liquidity needs and certain seasonal deposit trends. Total long-term advances from the Federal Home Loan Bank declined $11,000,000 (10.58%) to $93,000,000 at December 31, 2010, from $104,000,000 at December 31, 2009, which had decreased $32,000,000 (23.53%) from $136,000,000 at December 31, 2008. These longer-term fixed rate advances are used as an alternative funding source and are matched up with longer-term fixed rate assets.

     Total loans declined $170,042,509 (14.91%) to $970,261,366 at December 31, 2010, from $1,140,303,875 at December 31, 2009, which had decreased $113,411,565 (9.05%) from the $1,253,715,440 of total loans at December 31, 2008. The depressed economy and a reduced focus on commercial real estate 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 $42,520,095 (14.97%) to $241,599,461 at December 31, 2010, from the $284,119,556 at December 31, 2009, which had increased $90,231,064 (46.54%) from the $193,888,492 of investment securities maintained at December 31, 2008. 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 stockholders equity at December 31, 2010, 2009, and 2008 was $104,246,650, $149,669,424, and $139,608,880, respectively, with capital-to-asset percentages of 8.04%, 9.74%, and 8.87%, respectively.

Risk Management

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

     Credit Risk Management

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

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

     Net charge-offs for 2010 were $36,412,441 compared to $35,534,253 in 2009, and $6,527,189 in 2008. The increased charge-off levels result from the increased levels of nonperforming loans and the decline in the overall valuation of real estate securing such loans. The Company’s banking subsidiaries had no loans to any foreign countries at December 31, 2010 and 2009, nor did they have any concentration of loans to any industry on these dates, although a significant portion of the Company’s loan portfolio is secured by real estate in the St. Louis metropolitan and southwestern Florida areas, particularly commercial and construction and land development real estate loans. The Company has refrained from financing speculative transactions such as highly leveraged corporate buyouts, or thinly-capitalized speculative start-up companies.

     A summary of loans by type at December 31, 2010, 2009, 2008, 2007 and 2006 is as follows:

		December 31,
		2010				2009				2008				2007				2006
Commercial:
Real estate		$	716,773,796			$	797,054,385			$	843,312,225			$	514,752,151			$	394,469,137
Other			80,973,537				82,732,850				94,606,918				61,519,983				53,152,775
Real estate:
Construction			100,456,596				172,731,598				190,381,178				184,167,532				108,408,270
Residential			69,143,298				84,080,509				120,903,014				146,488,402				105,094,409
Consumer			2,914,139				3,704,533				4,512,105				4,820,918				6,577,048
		$	970,261,366			$	1,140,303,875			$	1,253,715,440			$	911,748,986			$	667,701,639

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

     Real estate loans, including commercial real estate, residential real estate, and construction loans, are also based on the borrower’s character, but more emphasis is placed on the estimated collateral values. Commercial real estate loans are mainly for owner-occupied business and industrial properties, multifamily properties, and other commercial properties for which income from the property is the primary source of repayment. Credit risk of these loan types is managed in a similar manner to commercial loans and real estate construction loans by employing sound underwriting guidelines. These loans are underwritten based on the cash flow coverage of the property, typically meet the Company’s loan-to-value guidelines, and generally require either the limited or full guarantee of principal sponsors of the credit.

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

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

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

     The continued significant decline of the real estate market in the St. Louis metropolitan and southwestern Florida areas has caused an increase in the Company’s non-performing assets. Following is a summary of information regarding the Bank’s nonperforming loans as of and for each of the years in the five-year period ended December 31, 2010:

		2010				2009				2008				2007				2006
Nonperforming loans:
Nonaccrual loans		$	151,390,860			$	57,227,968			$	33,716,050			$	15,810,222			$	5,082,784
Loans 90 days delinquent and still accruing interest			—				3,560,644				1,180,360				1,937,388				65,000
Restructured loans			19,698,143				11,288,822				—				—				—
Total nonperforming loans		$	171,089,003			$	72,077,434			$	34,896,410			$	17,747,610			$	5,147,784
Additional interest that would have been earned on nonaccrual loans		$	10,159,025			$	4,425,441			$	1,716,845			$	928,759			$	77,687

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

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

     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 thorough and thoughtful 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 results in other real estate owned write-downs. The Company believes the reserve for loan losses calculation at December 31, 2010 adequately considers the 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 periods if the values of such properties continue to decline.

     Of the Company’s $970 million loans outstanding at December 31, 2010, 5% were originated in Florida and 95% outside of Florida. The following table breaks down net charge-offs, non-performing loans and non-performing assets between loans originated in Florida and all other loans:

Originated In

Florida

All other

Total

Net charge-offs (year to date 12/31/2010)

15.8 million

20.6 million

36.4 million

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

23.0 million

12.5 million

35.5 million

Non-performing loans (12/31/2010)

26.3 million

144.8 million

171.1 million

Non-performing loans (12/31/2009)

25.4 million

46.7 million

72.1 million

Non-performing assets* (12/31/2010)

41.6 million

160.5 million

202.1 million

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

44.5 million

56.7 million

101.2 million

Outstanding loans originated in respective markets (12/31/2010)

51.1 million

919.2 million

970.3 million

     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 Company’s non-performing loans in 2008, 2009 and 2010. At December 31, 2010, non-performing loans had increased $99,011,569 to $171,089,003, from $72,077,434 at December 31, 2009, which had increased $37,181,024 from $34,896,410 at December 31, 2008. The largest components of non-performing loans at December 31, 2010 were primarily comprised of the following loan relationships (which comprises approximately 90% of total non-performing loans):

•

A loan for approximately $10.9 million, secured by an individual warehouse in St. Louis, Missouri. The loan is currently in forbearance as the borrower restructures its business operations. The warehouse is experiencing high vacancy.

•

A $16.3 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 and the Company agreed to loan renewal terms in December 2010 that brought the loan current, past due real estate taxes current, and established a reserve account. The borrower continues to negotiate the sale of a tract of ground that is collateral to a national home builder.

•

A loan for approximately $3.4 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 lease the vacant space.

•

Loans totaling approximately $3.2 million to build out a day spa in Missouri. The borrower is in default. The Company is seeking repayment in full through foreclosure and pursuit of guarantors.

•		A loan for approximately $2.8 million to finance the purchase of a retail center in O’Fallon, Missouri. The center is currently experiencing high vacancy in an overdeveloped area. The borrower continues to make monthly interest payments. Additional capital calls from investors have been slow to complete. The loan is in default and the Company has engaged counsel to collect the loan.
•		A loan for approximately $5.7 million to a commercial real estate developer for the construction of medical office buildings in Arizona. The loan is secured by 10 acres. The borrower has agreed to a settlement agreement that has allowed the Company to complete foreclosure of the collateral in late January 2011.

•		A loan for approximately $2.2 million for a 64,000 sq. ft. industrial warehouse used as a sports complex. The owner operates indoor soccer and inline hockey throughout the year. The borrower continues to perform and the Company is encouraging the borrower to seek alternate financing.
•		A loan of approximately $11.7 million on a 61,000 sq. ft. medical office building that is located in St. Louis County, Missouri. A new professional management company has been put in place to take over day-to-day operations. The Company is seeking collection through foreclosure. The process to complete foreclosure has been stalled by a lawsuit. The Company’s counsel is seeking to have the lawsuit dismissed.
•		A loan for approximately $7.8 million to refinance and provide additional capital to complete phase II of a land development in St. Charles, Missouri. The development has slowed significantly and experienced difficult times due to the continuing slow economy.
•		A loan for approximately $1.9 million for the development of eight condominium buildings in St. Louis County, Missouri. Since originated, one building is under construction. The development of the land is fully completed. The borrower has experienced difficulties. The Company is seeking repayment in full through foreclosure and pursuit of guarantors.
•		A loan for approximately $1.2 million for the purchase of two single tenant warehouse properties in Minnesota. The tenant previously occupied both buildings and has now consolidated operations in one building. The second building has been sold and net proceeds paid down the debt. The Company and the borrower are moving forward to restructure the debt with a goal to have this completed in early 2011.
•		A loan for approximately $2.6 million to refinance a commercial building in St. Louis County, Missouri. The building was formerly occupied by a national chain which has since vacated. The borrower and the Company have entered into a forbearance agreement that allows the borrower a short time frame to liquidate the collateral.
•		A loan for approximately $7.0 million to refinance a commercial office property located in Phoenix, Arizona. The building has experienced vacancies. The borrower is developing a plan to increase occupancy and bring the loan current.
•		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.
•		A loan for approximately $7.5 million for the purchase of four commercial buildings located in St. Louis County and Jefferson County, MO. The buildings have experienced high vacancy. The loan continues to perform on an interest only basis. The Company is seeking the borrower’s cooperation to restructure the debt.
•		A loan for approximately $1.1 million to refinance a commercial office building in St. Louis County, MO. The borrower has experienced high vacancy that has affected the cash flow of the building. The Company is seeking collection through foreclosure and pursuit of guarantors.
•		A loan for approximately $3.5 million to refinance a commercial retail building located in St. Louis County, MO. The largest tenant has recently vacated and the building also has other vacancies. The Company is seeking repayment in full through foreclosure and pursuit of guarantors.
•		A loan for approximately $5.8 million to purchase a commercial office/warehouse building in St. Louis County, MO. The Company has identified a potential purchaser of the building. Due to outstanding judgments against the borrower, the Company will initiate foreclosure of the collateral.

•		A loan for approximately $13.0 million to refinance a commercial retail center in St. Louis County, MO. The building has experienced increased vacancies and therefore insufficient cash flow to service debt. The Company is seeking repayment in full through foreclosure and pursuit of the guarantors.
•		Loans totaling approximately $14.5 million to finance the equipment, operations and real estate for a joint venture industrial and manufacturing company with its main operations in Texas. The operations have suffered from the economy and the parent company’s bankruptcy. The Company is seeking repayment in full through foreclosure and pursuit of the guarantor.
•		Loans totaling approximately $3.2 million for the construction and operation of a full service car wash in Napa County, California. The plan suffered delays, cost overruns and lower than expected revenues. The borrower is working to increase revenues and bring the loan current.
•		A loan for approximately $4.0 million to finance the purchase a private airplane. The lease between the borrower and a third party has been terminated. Additionally, airplane values have experienced significant declines. The borrower is developing a plan to submit to the Company to repay the loan in full.
•		A loan for approximately $2.0 million to finance the purchase of a retail strip center. The center has suffered from vacancy issues and their largest tenant has vacated the premises. The Company has moved towards foreclosure of the asset.
•		A loan for approximately $1.3 million to an individual, secured by the individual’s primary residence in Florida that is in default. The borrower entered into a forbearance agreement, but has now defaulted under that negotiated plan. Foreclosure proceedings have again been initiated.
•		A loan for approximately $2.3 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 legal counsel. The Company has initiated foreclosure. The borrower is in contract with a local government agency to purchase collateral.
•		A loan for approximately $1.0 million to a group of investors secured by an improved commercial lot. The borrower and the Company were unable to reach agreement on further development of the site. Negotiations continue with a possible deed-in-lieu of foreclosure with new notes from the borrower for any deficiencies.
•		A loan for approximately $7.9 million to a group of investors secured by a retail strip center. The borrower and the Company continue to negotiate terms to maintain the property in name of the borrower
•		A loan for approximately $2.0 million to a group of investors secured by a piece of unimproved commercial real estate. The primary guarantor strength has been compromised, resulting in severe cash flow deficiencies. Legal action has been initiated against the borrower and all of the guarantors.
•		A loan for approximately $2.0 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 of the project, or obtaining a signed deed for the property in lieu of foreclosure.

     The Company also has non-performing assets in the form of other real estate owned. The Banks maintained other real estate owned totaling $30,850,543 and $29,085,943 at December 31, 2010 and 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 for the year ended December 31, 2010:

Balance at December 31, 2009		$	29,085,943
Foreclosures			15,855,798
Transfers from premises and equipment			4,447,859
Loans made to facilitate sales of other real estate			(1,703,249	)
Cash proceeds from sales			(5,933,587	)
Losses and write-downs			(10,902,221	)
Balance at December 31, 2010		$	30,850,543

     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 enhance 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 non-performing loans discussed above, the Company believes the reserve for possible loan losses is adequate to absorb losses in the portfolio existing at December 31, 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.

Potential Problem Loans

     As of December 31, 2010, the Company had 38 loans with a total principal balance of $32,296,693 that were identified by management as having possible credit problems that raise doubts as to the ability of the borrower to comply with the current repayment terms, which are not included in nonperforming loans. These loans were continuing to accrue interest and were less than 90 days past due on any scheduled payments. However, various concerns, including, but not limited to, payment history, loan agreement compliance, adequacy of collateral coverage, and borrowers’ overall financial condition caused management to believe that these loans may result in reclassification at some future time as nonaccrual, past due or restructured. Such loans are not necessarily indicative of future nonperforming loans, as the Company continues to work on resolving issues with both nonperforming and potential problem credits on its watch list.

Policies and Procedures

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

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

•		Delinquency of a scheduled loan payment;
•		Deterioration in the borrower’s financial condition identified in a review of periodic financial statements;
•		Decrease in the value of collateral securing the loan; or
•		Change in the economic environment in which the borrower operates.

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

     Downgrades of loan risk ratings may be initiated by the responsible loan officer, internal loan review, the watch list committee, the loan committee, or senior lending personnel at any time. Upgrades of certain risk ratings may only be made with the concurrence of a majority of the members of the loan committee.

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

     The Company conducts weekly loan committee meetings of all of its loan officers, including the Chief Executive Officer, Chief Risk Officer, Chief Lending Officer, Chief Credit Officer, and the Chief Executive Officer of Reliance Bank FSB. This committee may approve individual credit relationships up to $2,500,000. Larger credits must go to the loan committee of the Board of Directors, which is comprised of three directors on a rotating basis. The Company’s legal lending limit was $31,597,816 at December 31, 2010.

Reserve for Loan Losses

     At December 31, 2010, 2009, 2008, 2007, and 2006, the reserve for possible loan losses was $37,301,075, $32,221,569, $14,305,822, $9,685,011, and $7,101,031, respectively, or 3.84%, 2.83%, 1.14%, 1.06%, and 1.06% of net outstanding loans, respectively. The following table summarizes the Company’s loan loss experience for each of the years in the five-year period ended December 31, 2010.

		December 31,
(in thousands of dollars)		2010				2009				2008				2007				2006
Average loans outstanding		$	1,066,142			$	1,213,937			$	1,115,216			$	770,523			$	546,122
Reserve at beginning of year		$	32,222			$	14,306			$	9,685			$	7,101			$	5,213
Provision for possible loan losses			41,492				53,450				11,148				3,187				2,200
			73,714				67,756				20,833				10,288				7,413
Charge-offs:
Commercial loans:
Real estate			(14,962	)			(18,532	)			(2,828	)			(317	)			—
Other			(221	)			(656	)			(77	)			(25	)			(62	)
Real estate:
Construction			(19,878	)			(16,042	)			(2,262	)			—				(3	)
Residential			(1,910	)			(1,832	)			(1,313	)			(279	)			(220	)
Consumer			(40	)			(52	)			(73	)			(30	)			(48	)
Total charge-offs			(37,011	)			(37,114	)			(6,553	)			(651	)			(333	)
Recoveries:
Commercial loans:
Real estate			462				1,033				1				10				—
Other			63				4				9				20				2
Real estate:
Construction			22				371				1				—				—
Residential			30				150				—				13				8
Consumer			21				22				15				5				11
Total recoveries			598				1,580				26				48				21
Reserve at end of year		$	37,301			$	32,222			$	14,306			$	9,685			$	7,101
Net charge-offs to average loans			3.42	%			2.93	%			0.59	%			0.08	%			0.06	%
Ending reserve to net loans at end of year			3.84	%			2.83	%			1.14	%			1.06	%			1.06	%