<TABLE>
<S>
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 June 30, 1997
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 jurisdiction of
(I.R.S. Employer Identification No.)
incorporation 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 July 31, 1997
Common Stock, par value $.10 per share 426,045
<PAGE>
<S>
</TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED June 30, 1997
INDEX
<TABLE>
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 10
</TABLE>
<PAGE>
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, September 30,
Assets 1997 1996
<S> <C> <C>
Cash and cash equivalents $ 2,186,275 1,211,033
Certificates of deposit 1,288,000 1,586,000
Securities:
Available for sale, at market value
(amortized cost of $500,000 and
$500,000) 475,171 473,399
Held to maturity, at amortized cost
(market value of $1,081,387 and
$1,656,125, respectively) 1,091,124 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 $4,935,183 and
$5,387,694, respectively) 5,197,804 5,500,595
Loans receivable, net 19,066,972 21,144,237
Premises and equipment, net 393,909 410,284
Accrued interest receivable:
Securities and certificates of deposit 19,645 27,929
Mortgage-backed securities 25,543 26,930
Loans receivable 110,511 136,370
Other assets 108,818 120,956
Total assets $ 30,299,772 32,662,802
Liabilities and Stockholders' Equity
Deposits $ 23,104,849 24,233,959
Accrued interest on deposits 3,273 3,238
Advances from FHLB of Des Moines - 1,000,000
Advances from borrowers for taxes
and insurance 214,287 237,093
Other liabilities 69,818 330,590
Accrued income taxes 54,922 50,793
Total liabilities 23,447,149 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;
shares issued 447,329 and 446,993,
respectively 44,733 44,699
Additional paid-in capital 4,234,227 4,190,038
Common stock acquired by ESOP (175,736) (229,096)
Common stock acquired by RRP (188,278) (226,042)
Unrealized loss on securities
available for sale, net (24,829) (26,601)
Retained earnings - substantially
restricted 3,290,561 3,382,186
Treasury stock, at cost, 21,500 shares (328,055) (328,055)
Total stockholders' equity 6,852,623 6,807,129
Total liabilities and stockholders'
equity $ 30,299,772 32,662,802
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 1
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 405,463 444,247 1,277,065 1,368,720
Mortgage-backed securities 78,254 83,267 240,120 255,423
Securities 38,342 35,422 117,684 84,984
Other interest-earning assets 37,764 50,797 106,052 172,472
Total interest income 559,823 613,733 1,740,921 1,881,599
Interest expense:
Deposits 244,097 268,892 750,578 824,841
Advances from FHLB of Des Moines 4,370 14,686 28,478 31,471
Total interest expense 248,467 283,578 779,056 856,312
Net interest income 311,356 330,155 961,865 1,025,287
Provision (credit) for loan losses - - - (700)
Net interest income after
provision for loan losses 311,356 330,155 961,865 1,025,987
Noninterest income:
Loan service charges 2,834 3,261 9,331 10,065
Gain on investment in data center - 14,965 2,404 14,965
Other 5,058 6,087 18,158 18,743
Total noninterest income 7,892 24,313 29,893 43,773
Noninterest expense:
Compensation and benefits 154,177 144,340 460,830 416,141
Occupancy expense 12,749 15,814 38,254 40,390
Equipment and data processing expense 15,178 15,756 46,112 48,722
SAIF deposit insurance premium 3,864 14,246 18,744 43,458
Supervisory and professional fees 57,032 23,697 155,608 64,168
Other 25,895 37,504 87,172 98,130
Total noninterest expense 268,895 251,357 806,720 711,009
Earnings before income taxes 50,353 103,111 185,038 358,751
Income taxes 25,435 44,000 95,435 134,800
Net earnings $ 24,918 59,111 89,603 223,951
Net earnings per share $ .06 .15 .22 .56
Weighted-average shares outstanding 406,057 400,924 399,943 401,341
Dividends per share $ .15 .15 .45 .45
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 2
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 89,603 223,951
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:
Depreciation expense 16,376 24,193
Provision (credit) for loan losses - (700)
Amortization of premiums and discounts on securities, net (2,055) (1,286)
ESOP expense 92,425 80,551
RRP expense 40,998 10,053
FHLB stock dividends - (6,600)
Decrease (increase) in:
Accrued interest receivable 35,530 (19,442)
Other assets 12,138 24,957
Increase (decrease) in:
Accrued interest on deposits 35 (478)
Other liabilities (260,772) (71,014)
Accrued income taxes 4,129 (17,883)
Net cash provided by (used for) operating activities 28,407 246,302
Cash flows from investing activities:
Loans:
Purchased (158,900) (2,802,354)
Originated (705,256) (2,275,481)
Principal collections 2,941,420 4,261,740
Principal collections on mortgage-backed securities held to maturity 302,792 124,466
Securities held to maturity and certificates of deposit:
Purchased (288,000) (2,795,000)
Proceeds from maturity 1,186,000 2,579,343
Purchase of premises and equipment - (6,804)
Proceeds from sale of foreclosed real estate held for sale - 7,189
Net cash provided by (used for) investing activities 3,278,056 (906,901)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (1,129,110) (741,816)
Advances from borrowers for taxes and insurance (22,806) (50,146)
Proceeds from advances from FHLB of Des Moines - 1,000,000
Repayment of advances from FHLB and notes payable (1,000,000) (100,503)
Proceeds from exercise of stock options 1,923 -
Cash dividends (181,228) (181,357)
Net cash provided by (used for) financing activities (2,331,221) (73,822)
Net increase (decrease) in cash and cash equivalents 975,242 (734,421)
Cash and cash equivalents at beginning of period 1,211,033 2,036,111
Cash and cash equivalents at end of period $ 2,186,275 1,301,690
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 750,543 825,319
Interest on advances from FHLB 28,478 31,471
Income taxes 106,458 152,683
Real estate acquired in settlement of loans $ - 40,894
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
<S>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
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 Form 10-K.
(2) On March 20, 1997, Allegiant Bancorp, Inc., St. Louis, Missouri ("Allegiant"), and Reliance
Financial Inc. ("Reliance"), jointly announced that they have entered into a definitive agreement
that provides for the merger of Allegiant and Reliance. After the merger, Reliance Federal Savings
and Loan Association of St. Louis County, Reliance's wholly owned subsidiary, will maintain its
thrift charter and continue to operate as a separate subsidiary with its current management and
staff.
The agreement provides for the acquisition by Allegiant of all of the capital stock of Reliance in
exchange for consideration of 1.6741 shares of Allegiant common stock per share of Reliance
common stock, subject to adjustment. The acquisition is expected to be completed on or about
August 29, 1997 and is subject to, among other things, regulatory approval and the approval of
the shareholders of Allegiant and the stockholders of Reliance.
<PAGE> 4
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The Company has no significant assets other than common stock of the Association, the loan to the
Employee Stock Ownership Plan (ESOP) and net proceeds retained by the Company following its initial
public offering 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 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 19% at June 30, 1997. 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.
Under the capital adequacy guidelines and regulatory framework for prompt corrective action, the
Association must meet specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. Capital adequacy guidelines require Tier 1 (core) capital of at least 4% (3% under
certain circumstances) of total assets, Tier 1 capital of 4% of risk-weighted assets and total capital
(risk-based capital) of 8% of risk-weighted assets. As of June 30, 1997, the Association was
categorized as well capitalized under the regulatory framework for prompt corrective action.
<PAGE> 5
<S>
</TABLE>
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Association's regulatory capital and regulatory capital requirements
at June 30, 1997 are summarized as follows:
<CAPTION>
Minimum Required Minimum Required
for Capital to be "Well
Actual Adequacy Capitalized"
Amount Ratio Amount Ratio Amount Ratio
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated stockholders' equity $ 6,853
Stockholders' equity of Company $ (1,172)
GAAP capital $ 5,681
Nonincludable deferred tax assets $ (76)
Tangible capital $ 5,605 19.2% $ 439 1.5%
General valuation allowance $ 161
Total capital to risk-weighted assets $ 5,766 45.0% $ 1,026 8.0% $ 1,282 10.0%
Tier 1 capital to risk-weighted assets$ 5,605 43.7% $ 513 4.0% $ 769 6.0%
Tier 1 capital to total assets $ 5,605 19.2% $ 877 3.0% $ 1,462 5.0%
</TABLE>
<TABLE>
<S>
At June 30, 1997 there were no commitments to originate loans.
Financial Condition
Assets decreased from $32.7 million at September 30, 1996 to $30.3 million at June 30, 1997. Loans
receivable, net decreased from $21.1 million at September 30, 1996 to $19.1 million at June 30, 1997
due to normal loan repayment activity and substantially lower loan originations and purchases during
the nine month period. Cash flows from loan repayments were used primarily to fund withdrawals from
deposit accounts of $1,100,000 and repayment of $1,000,000 of FHLB advances. Accrued interest
receivable on loans decreased due to a lower average balance. Advances from borrowers for taxes and
insurance decreased due to payment of real estate taxes on behalf of borrowers in December of each
year. Other liabilities decreased due primarily to payment of a one-time special assessment of
$215,500 for recapitalization of the Savings Association Insurance Fund. The assessment was
recorded as of September 30, 1996 and paid in November, 1996.
Asset Quality
The Association's general policy is to exclude from earnings, interest on loans contractually delinquent
90 days or more. The Association had $27,000 of loans at June 30, 1997 which were 90 days or
more delinquent compared to $35,000 at September 30, 1996. Such delinquent loans represented
.14% and .17% of net loans receivable at June 30, 1997 and September 30, 1996, respectively.
<PAGE> 6
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Following is a summary of activity in the allowance for loan losses:
Balance at September 30, 1996 $ 203,515
Charge-offs (1,908)
Recoveries 4,645
Provision for loan loss -
Balance at June 30, 1997 $ 206,252
Results of Operations
Net Earnings
Net earnings for the three months ended June 30, 1997 and 1996 were $25,000 and $59,000,
respectively. Net earnings for the nine months ended June 30, 1997 and 1996 were $90,000 and
$224,000, respectively. The decrease in net earnings for the three and nine month periods ended June
30, 1997, reflects lower net interest income and noninterest income, higher noninterest expense,
partially offset by lower income taxes.
Net Interest Income
Net interest income decreased by $19,000, or 5.7%, for the three months ended June 30, 1997 from
the same period of the prior year and decreased by $63,000, or 6.2%, for the nine months ended June
30, 1997 as compared to the same period of 1996. During the three and nine months ended June 30,
1996, the Association recognized amortization of unearned discount of $52,000 to interest income on
certain loans which were paid-off. The loans were classified as troubled debt restructurings prior to
the effective date of SFAS No. 114 and No. 118 and unearned discount was recognized for cash
receipts in excess of the carrying amount of the loans.
Interest Income
Interest on loans receivable decreased in both the three and nine months ended June 30, 1997
compared to the 1996 periods due to a lower average balance and yield. The average yield on loans
was 8.64% for the nine months ended June 30, 1996 compared to 8.34% for the nine months ended
June 30, 1997. The yield on loans receivable for the nine months ended June 30, 1996 was higher
by approximately 33 basis points as a result of the amortization of unearned discount to interest income
on certain loans paid off as discussed in the previous paragraph. The interest margin on interest-bearing
assets was 4.17% for the nine months ended June 30, 1997 compared to 4.22% for the nine months
ended June 30, 1996.
Interest on securities increased due to higher average balances for both the three and nine months
ended June 30, 1997 compared to the 1996 periods. Interest income on mortgage-backed securities
(MBSs) and other interest-earning assets decreased due to lower average balances for both the three
and nine months ended June 30, 1997 compared to the 1996 periods. Components of interest income
change from time to time based on the availability, quality and interest rates on securities, MBSs and
other interest-earning assets.
<PAGE> 7
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Result of Operations
Interest Expense
Interest on deposits decreased due to lower interest rates and a lower average balance for both the
three and nine months ended June 30, 1997 compared to the 1996 periods. The lower average
balance resulted from deposit outflows. Interest on advances from the Federal Home Loan Bank of Des
Moines reflected changes in average balances. The average rate on interest-bearing liabilities decreased
to 4.27% for the nine months ended June 30, 1997 from 4.45% for the nine months ended June 30,
1996. Average interest-bearing liabilities decreased to $24.3 million for the nine months ended June
30, 1997, from $25.6 million for the nine months ended June 30, 1996.
Provision for Loan Losses
Reliance had no loss provision or credit for loan losses for the three and nine months ended June 30,
1997 and three months ended June 30, 1996, and a $700 net credit for the nine month period ended
June 30, 1996. The allowance for losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount which, in management's opinion, is adequate to absorb losses
existing 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 characteristics of the loan portfolio.
Noninterest Income
Total noninterest income decreased to $8,000 for the three months ended June 30, 1997 from
$24,000 for the three months ended June 30, 1996. Total noninterest income decreased to $30,000
for the nine months ended June 30, 1997 from $44,000 for the nine months ended June 30, 1996.
The decreases between the three and nine months periods for 1997 and 1996 were due primarily to
nonrecurring income related to the sale of Reliance Federal's interest in a data processing service.
Noninterest Expense
Noninterest expense increased to $269,000 and $807,000 for the three and nine months ended June
30, 1997, respectively, from $251,000 and $711,000 for the three and nine months ended June 30,
1996, respectively. Compensation and benefit costs increased by $10,000 to $154,000 for the three
months ended June 30, 1997 from $144,000 for the three months ended June 30, 1996.
Compensation and benefit costs increased by $45,000 to $461,000 for the nine months ended June
30, 1997 from $416,000 for the nine months ended June 30, 1996. In April 1996, the Association
implemented a recognition and retention plan similar to plans of other publicly traded thrift holding
companies. Expenses under this plan for the three and nine months ended June 30, 1997 were
$13,000 and $41,000, respectively, compared to $10,000 for the three and nine months ended June
30, 1996. The plan was approved by shareholders effective April, 1996. Compensation and benefits
for the three and nine months ended June 30, 1997 included $34,000 and $92,000, respectively
related to the Employee Stock Ownership Plan (ESOP). Compensation and benefits for the three and
nine months ended June 30, 1996 included $27,000 and $81,000, respectively, related to the ESOP.
Under generally accepted accounting principles, expense of the ESOP is affected by changes in the
market price of the Company's common stock. SAIF deposit insurance premium decreased as a result
of a substantially lower assessment rate. The special assessment recorded at September 30, 1996
recapitalized the fund. Recurring SAIF premiums are expected to be assessable based on an annual
revised rate of approximately 6.48 basis points of deposits. Supervisory and professional fees for the
three and nine months ended June 30, 1997, increased as a result of additional costs of reviewing the
strategic options of the Company, and evaluating the proposed merger of the Company.
<PAGE> 8
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Managements's Discussion and Analysis of
Financial Condition and Results of Operations
Income Taxes
Income tax expense for the three and nine months ended June 30, 1997 decreased compared to prior
periods due to lower earnings before income taxes, partially offset by a higher effective tax rate. The
higher tax rate is related to the tax effects of the ESOP, differences in tax rates of the Company and
the Association based on filing of separate tax returns, and other factors.
<PAGE> 9
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: none
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: August 13, 1997 BY:John Bowman
John Bowman, President,
Principal Financial Officer and
Duly Authorized Officer
<S>
</TABLE>
<PAGE> 10
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2186275
<INT-BEARING-DEPOSITS> 1288000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 475171
<INVESTMENTS-HELD-FOR-SALE> 6288928
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 19066972
<ALLOWANCE> 206252
<TOTAL-ASSETS> 30299772
<DEPOSITS> 23104849
<SHORT-TERM> 0
<LIABILITIES-OTHER> 342300
<LONG-TERM> 0
0
0
<COMMON> 44733
<OTHER-SE> 6807890
<TOTAL-LIABILITIES-AND-EQUITY> 30299772
<INTEREST-LOAN> 1277065
<INTEREST-INVEST> 357804
<INTEREST-OTHER> 106052
<INTEREST-TOTAL> 1740921
<INTEREST-DEPOSIT> 750578
<INTEREST-EXPENSE> 779056
<INTEREST-INCOME-NET> 961865
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 806720
<INCOME-PRETAX> 185038
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89603
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 206252
<ALLOWANCE-DOMESTIC> 206252
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 206252
</TABLE>
