UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------- to -----------------
Commission File No. 0-25768
RELIANCE FINANCIAL INC.
-------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1703958
- - -------------------------- ------------------------------
(State or other (I.R.S. Employer
jurisdiction of incorporation Identification No.)
or organization)
8930 Gravois, St. Louis Missouri 63123
- - --------------------------------- ---------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (314) 631-7500
Not applicable
----------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 / X / No / /
Indicate the number of shares outstanding of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding December 31, 1996
- - ------------------------- -----------------------------
Common Stock, par value 425,700 Shares
$.10 per share
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I - Financial Information
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 9
</TABLE>
<PAGE>
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1996 1996
- - ------------------------ ------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 777,746 1,211,033
Certificates of deposit 1,577,000 1,586,000
Securities:
Available for sale, at market value
(amortized cost of $500,000) 476,308 473,399
Held to maturity, at amortized cost
(market value of $1,678,438 and
$1,670,000, respectively) 1,689,744 1,689,069
Stock in Federal Home Loan Bank
of Des Moines 336,000 336,000
Mortgage-backed securities held to
maturity, at amortized cost
(market value of $5,176,963 and
$5,314,126, respectively) 5,397,221 5,500,595
Loans receivable, net 20,776,836 21,144,237
Premises and equipment, net 404,656 410,284
Accrued interest receivable:
Securities and certificates of deposit 26,089 27,929
Mortgage-backed securities 26,542 26,930
Loans receivable 118,970 136,370
Other assets 98,110 120,956
----------- ----------
Total assets $31,705,222 32,662,802
----------- ----------
----------- ----------
Liabilities and Stockholders' Equity
Deposits $23,907,491 24,233,959
Accrued interest on deposits 3,727 3,238
Advances from FHLB of Des Moines 750,000 1,000,000
Advances from borrowers for taxes
and insurance 99,909 237,093
Other liabilities 49,789 330,590
Accrued income taxes 70,793 50,793
----------- ----------
Total liabilities 24,881,709 25,855,673
----------- ----------
Commitments and contingencies
Preferred stock, $.01 par value, 250,000
shares authorized; none issued and
outstanding - -
Common stock, $.10 par value; 1,500,000
shares authorized; 447,200 and 446,993
shares, respectively, issued and
outstanding 44,720 44,699
Additional paid-in capital 4,204,440 4,190,038
Common stock acquired by ESOP (211,310) (229,096)
Common stock acquired by RRP (215,287) (226,042)
Treasury stock, at cost, 21,500 shares (328,055) (328,055)
Unrealized loss on securities
available for sale, net (23,691) (26,601)
Retained earnings-substantially
restricted 3,352,696 3,382,186
----------- ----------
Total stockholders' equity 6,823,513 6,807,129
----------- ----------
Total liabilities and
stockholders' equity $31,705,222 32,662,802
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Interest income:
Loans receivable $440,035 430,910
Mortgage-backed securities 81,337 86,532
Securities 39,910 26,310
Other interest-earning assets 35,851 60,545
-------- -------
Total interest income 597,133 604,297
-------- -------
Interest expense:
Deposits 259,001 280,441
Advances from FHLB of Des Moines 14,287 2,098
-------- -------
Total interest expense 273,288 282,539
-------- -------
Net interest income 323,845 321,758
Provision (credit) for loan losses - (700)
-------- -------
Net interest income after
provision for loan losses 323,845 322,458
-------- -------
Noninterest income:
Loan service charges 3,324 2,998
Other 7,186 6,814
-------- -------
Total noninterest income 10,510 9,812
-------- -------
Noninterest expense:
Compensation and benefits 145,944 130,387
Occupancy expense 12,508 11,532
Equipment and data processing
expense 15,801 16,343
Rental (income) expense from
foreclosed real estate, net - 182
SAIF deposit insurance premium 14,055 14,680
Supervisory and professional fees 57,141 18,445
Other 29,608 32,665
-------- -------
Total noninterest expense 275,057 224,234
-------- -------
Earnings before income taxes 59,298 108,036
Income taxes 28,400 33,100
-------- -------
Net earnings $ 30,898 74,936
-------- -------
Net earnings per share $ .08 .19
-------- -------
-------- -------
Weighted-average shares outstanding 387,369 400,462
-------- -------
-------- -------
Dividends per share $ .15 .15
-------- -------
-------- -------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 30,898 74,936
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 5,629 6,073
Provision (credit) for loan losses - (700)
Amortization of premiums and
discounts on securities, net (675) (638)
ESOP expense 28,975 26,088
RRP expense 13,989 -
FHLB stock dividends - (6,600)
Decrease (increase) in:
Accrued interest receivable 19,627 (20,556)
Other assets 22,847 14,398
Increase (decrease) in:
Accrued interest on deposits 489 64
Other liabilities (280,801) (85,064)
Accrued income taxes 20,000 (900)
--------- -----------
Net cash provided by (used for)
operating activities (139,022) 7,101
--------- -----------
Cash flows from investing activities:
Loans:
Purchased (158,900) (1,195,706)
Originated (53,545) (1,170,699)
Principal collections 579,846 1,414,032
Principal collections on mortgage-
backed securities held to maturity 103,374 35,852
Securities held to maturity and
certificates of deposit:
Purchased (90,000) (599,000)
Proceeds from maturity 99,000 496,000
Purchase of premises and equipment,
net - -
--------- -----------
Net cash provided by (used for)
investing activities 479,775 (1,019,521)
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (326,468) (312,925)
Advances from borrowers for taxes
and insurance (137,184) (192,964)
Proceeds from advances from FHLB - 1,000,000
Repayment of advances from FHLB (250,000) -
Cash dividends (60,388) (59,927)
--------- -----------
Net cash provided by (used for)
financing activities (774,040) 434,184
--------- -----------
Net increase (decrease) in cash
and cash equivalents (433,287) (578,236)
Cash and cash equivalents at
beginning of period 1,211,033 2,036,111
--------- -----------
Cash and cash equivalents at end
of period $ 777,746 1,457,875
--------- -----------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 258,512 280,376
Interest on advances from FHLB 14,287 2,098
Federal income taxes $ 14,000 34,000
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
(1) The information contained in the accompanying consolidated
financial statements is unaudited. In the opinion of
management, the financial statements contain all
adjustments (none of which were other than normal recurring
entries) necessary for a fair statement of the results of
operations for the interim periods. The results of
operations for the interim periods are not necessarily
indicative of the results which may be expected for the
entire fiscal year. The accompanying consolidated
financial statements should be read in conjunction with the
consolidated financial statements for the year ended
September 30, 1996 contained in the Annual Report to
Stockholders and as an exhibit filed with Form 10-K.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
- - -------
The Company has no significant assets other than common stock of
Reliance Federal Savings and Loan Association of St. Louis
County, a federal savings association (the "Association"), the
loan to the ESOP and net proceeds retained by the Company
following the mutual-to-stock conversion of the Association in
April, 1995. The Company's principal business is the business of
the Association. Therefore, the discussion in the Management's
Discussion and Analysis of Financial Condition and Results of
Operations relates to the Association and its operations.
Certain statements in this report which relate to the Company's
plans, objectives or future performance may be deemed to be
forward-looking statements within the meaning of the Private
Securities Litigation Act of 1995. Such statements are based on
management's current expectations. Actual strategies and results
in future periods may differ materially from those currently
expected because of various risks and uncertainties. Additional
discussion of factors affecting the Company's business and
prospects is contained in periodic filings with the Securities
and Exchange Commission.
Liquidity and Capital Resources
- - -------------------------------
The Association's principal sources of funds are cash receipts
from deposits, loan repayments by borrowers and net earnings.
The Association has an agreement with the Federal Home Loan Bank
of Des Moines to provide cash advances, should the Association
need additional funds.
For regulatory purposes, liquidity is measured as a ratio of cash
and certain investments to withdrawable deposits. The minimum
level of liquidity required by regulation is presently 5%. The
Association's regulatory liquidity ratio was approximately 16% at
December 31, 1996. The Association maintains a high level of
liquidity as a matter of management philosophy in order to more
closely match interest-sensitive assets with interest-sensitive
liabilities.
The savings and loan industry historically has accepted interest
rate risk as a part of its operating philosophy. Long-term,
fixed-rate loans were funded with deposits which adjust to market
interest rates more frequently. In recent years, the Association
has originated primarily mortgage loans which permit adjustment
of the interest rate after an initial term of one to three years
in order to reduce inherent interest rate risk.
The Financial Institutions Reform, Recovery and Enforcement Act
of 1989 (FIRREA) requires that the Association maintain core
capital equal to 3% of adjusted total assets and maintain
tangible capital equal to 1.5% of adjusted total assets. The
Association must maintain 8% of risk-based capital.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table presents the Association's capital position
relative to its regulatory capital requirements under FIRREA at
December 31, 1996:
<TABLE>
<CAPTION>
Unaudited Regulatory Capital
--------------------------------------
Tangible Core Risk-Based
<S> <C> <C> <C>
Stockholders' equity per
consolidated financial
statements $ 6,823,513 6,823,513 6,823,513
Stockholders' equity of
Reliance Financial Inc.
not available for regulatory
capital purposes (1,327,856) (1,327,856) (1,327,856)
----------- ----------- -----------
GAAP capital 5,495,657 5,495,657 5,495,657
General valuation allowances - 174,341
Non-includable deferred tax
assets (76,000) (76,000) (76,000)
----------- ----------- -----------
Regulatory capital 5,419,657 5,419,657 5,593,998
Regulatory capital requirement (457,604) (915,208) (1,113,454)
----------- ----------- -----------
Regulatory capital - excess $ 4,962,053 4,504,449 4,480,544
----------- ----------- -----------
----------- ----------- -----------
Regulatory capital ratio 17.77% 17.77% 40.19%
Regulatory capital requirement (1.50) (3.00) (8.00)
----------- ----------- -----------
Regulatory capital ratio - excess 16.27% 14.77% 32.19%
----------- ----------- -----------
----------- ----------- -----------
Commitments to originate adjustable-rate loans at December 31,
1996 were $487,500.
</TABLE>
Financial Condition
- - -------------------
Assets decreased from $32.7 million at September 30, 1996 to
$31.7 million at December 31, 1996. Deposit accounts decreased
from $24.2 million at September 30, 1996 to $23.9 million at
December 31, 1996. Cash and cash equivalents, as well as
certificates of deposit, decreased as such funds were used to
fund withdrawals from customer deposit accounts. The components
of interest-bearing assets change from time to time based on the
availability and interest rates of loans, securities, mortgage-
backed securities and other interest-bearing assets meeting the
Association's risk guidelines. Loans receivable, net decreased
due to continued loan repayments in excess of loans originated
and purchased. The Association purchased $159,000 in mortgage
loans during the 1996 quarter.
Accrued interest receivable on loans decreased due a lower
average balance of loans receivable. The Association repaid
$250,000 of its advance from the Federal Home Loan Bank of Des
Moines during the quarter. Management may utilize FHLB advances
in the future where the overall cost is less than retail deposits
or to meet short-term liquidity needs. Advances by borrowers for
taxes and insurance decreased due to seasonal factors. Real
estate taxes are paid on behalf of borrowers in December of each
year. Other liabilities decreased due to the payment of a SAIF
special assessment of $216,000 and payment of bonuses during the
quarter which were accrued at September 30, 1996.
Asset Quality
- - -------------
The Association's general policy is to exclude from earnings,
interest on loans contractually delinquent 90 days or more. At
December 31, 1996 and September 30, 1996, the Association had
$35,000 and $67,000, respectively in loans that were 90 days or
more delinquent. Such delinquent loans represented .17% and .32%
of net loans receivable at December 31, 1996 and September 30,
1996, respectively.
<PAGE>
Results of Operations
Net Earnings
- - ------------
Net earnings were $31,000 for the three months ended December 31,
1996 compared to $75,000 for the three months ended December 31,
1995. Net earnings was lower for the 1996 period due primarily
to higher noninterest expense.
Net Interest Income
- - -------------------
Net interest income for the three months ended December 31, 1996
and 1995 was $324,000 and $322,000, respectively. The interest
rate spread (the difference between the weighted-average rate on
all interest-earning assets and interest-bearing liabilities)
improved slightly for the current period. The interest rate
spread increased from 3.10% for the three months ended December
31, 1995 to 3.20% for the three months ended December 31, 1996.
Interest on loans receivable increased by $9,000 for the three
months ended December 31, 1996 compared to the three months ended
December 31, 1995 due to an increase in average loan balance and
an increase in the average yield on loans. The average yield was
8.33% for the three months ended December 31, 1996 compared to
8.24% for the three months ended December 31, 1995.
Interest on mortgage-backed securities decreased by $5,000 for
the three months ended December 31, 1996 compared to the three
month period ended December 31, 1995 due to decreases in the
average balances and yield. Yields on mortgage-backed securities
decreased to 5.99% for the three months ended December 31, 1996
from 6.15% for the three months ended December 31, 1995 as the
adjustable mortgages underlying these securities continued to
reprice.
Interest on securities and other interest-earning assets in the
1996 period compared to the 1995 period reflect changes in
average balances. Components of interest-earning assets vary
from time to time based on the availability and interest rates of
loans, investment securities, and other interest-bearing assets.
Interest Expense
- - ----------------
Interest on deposits decreased due to a lower average balance and
slightly lower interest rates. The retail deposit market remains
very competitive. The average rate decreased to 4.31% for the
three months ended December 31, 1996 from 4.49% for the three
months ended December 31, 1995
Provision for Loan Losses
- - -------------------------
Provision for loan losses was a credit of $700 for the three
month periods ended December 31, 1995. There was no provision
for the three months ended December 31, 1996. The allowance for
losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses on existing loans in the
portfolio. In evaluating the portfolio, management takes into
consideration numerous factors, including current economic
conditions, prior loan loss experience, the composition of the
loan portfolio, and risk characteristic of the loan portfolio.
<PAGE>
Noninterest Income
- - ------------------
Noninterest income increased by $1,000 to $11,000 for the three
months ended December 31, 1996 from $10,000 for the three months
ended December 31, 1995. The increase was due to a slight
increase in loan service charges and deposit account service
charges.
Noninterest Expense
- - -------------------
Noninterest expense increased to $275,000 for the three months
ended December 31, 1996, from $224,000 for the three months ended
December 31, 1995. Compensation and benefit costs increased by
$16,000 to $146,000 for the three months ended December 31, 1996
from $130,000 for the three months ended December 31, 1995 due
primarily to the cost of stock benefit plans. The Company
adopted a Recognition and Retention Plan (RRP) in April, 1996,
which was approved by stockholders. RRP expense was $14,000 for
the three months ended December 31, 1996 compared to none in the
1995 quarter. In addition, Employee Stock Ownership Plan (ESOP)
expense increased from $26,000 for the three months ended
December 31, 1995 to $29,000 for the three months ended December
31, 1996. Under generally accepted accounting principles,
expense of the ESOP is affected by changes in the market price of
the Company's common stock, which increased during the quarter
ended December 31, 1996. SAIF deposit insurance premium was
slightly lower during the 1996 quarter compared with the 1995
quarter due to a decrease in the average balance of deposits.
SAIF deposit insurance premium is expected to be lower beginning
January 1, 1997 since the SAIF has now been recapitalized.
Supervisory and professional fees increased due to consulting and
professional services related to review of the Company's business
plans and related matters.
Income Taxes
- - ------------
Income tax expense for the three months ended December 31, 1996
reflects lower earnings before income taxes than in the 1995
period.
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Company
or the Association is a party or of which any of their
property is subject. From time to time, the Association is a
party to various legal proceedings incident to its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Reports on Form 8-K: No reports on Form 8-K have been
filed during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RELIANCE FINANCIAL INC.
--------------------------------------
(Registrant)
DATE: February 13, 1997 BY: /s/ John Bowman
----------------------------------
John Bowman, President,
Principal Financial Officer and
Duly Authorized Officer
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 777746
<INT-BEARING-DEPOSITS> 1577000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 476308
<INVESTMENTS-CARRYING> 7422965
<INVESTMENTS-MARKET> 7191401
<LOANS> 20776836
<ALLOWANCE> 203441
<TOTAL-ASSETS> 31705222
<DEPOSITS> 23907441
<SHORT-TERM> 750000
<LIABILITIES-OTHER> 49789
<LONG-TERM> 0
<COMMON> 44720
0
0
<OTHER-SE> 6778793
<TOTAL-LIABILITIES-AND-EQUITY> 31705222
<INTEREST-LOAN> 443359
<INTEREST-INVEST> 121247
<INTEREST-OTHER> 35851
<INTEREST-TOTAL> 597133
<INTEREST-DEPOSIT> 259001
<INTEREST-EXPENSE> 273288
<INTEREST-INCOME-NET> 323845
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 29608
<INCOME-PRETAX> 59298
<INCOME-PRE-EXTRAORDINARY> 30898
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30898
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
<YIELD-ACTUAL> 7.579
<LOANS-NON> 34671
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 34671
<ALLOWANCE-OPEN> 203515
<CHARGE-OFFS> 1574
<RECOVERIES> 1500
<ALLOWANCE-CLOSE> 203441
<ALLOWANCE-DOMESTIC> 61273
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 142168
</TABLE>
