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 March 31, 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
incorporation or organization) Identification No.)
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 April 30, 1997
- -----------------------------------------------------------------
Common Stock, par value 425,725
$.10 per share
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 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 9
</TABLE>
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<TABLE>
March 31, September 30,
Assets 1997 1996
<S> <C> <C>
Cash and cash equivalents $ 1,146,698 1,211,033
Certificates of deposit 1,478,000 1,586,000
Securities:
Available for sale, at market value (amortized cost of$500,000) 470,306 473,399
Held to maturity, at amortized cost (market value
of $1,668,230 and $1,670,000, respectively) 1,690,429 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 $5,103,061 and $5,314,126, respectively) 5,321,087 5,500,595
Loans receivable, net 19,925,344 21,144,237
Premises and equipment, net 399,138 410,284
Accrued interest receivable:
Securities and certificates of deposit 26,622 27,929
Mortgage-backed securities 26,138 26,930
Loans receivable 114,315 136,370
Other assets 106,519 120,956
----------- ----------
Total assets $31,040,596 32,662,802
----------- ----------
----------- ----------
Liabilities and Stockholders' Equity
Deposits $23,582,851 24,233,959
Accrued interest on deposits 3,502 3,238
Advances from FHLB of Des Moines 350,000 1,000,000
Advances from borrowers for taxes and insurance 165,701 237,093
Other liabilities 48,580 330,590
Accrued income taxes 56,005 50,793
Total liabilities 24,206,639 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 447,200 and 446,993, respectively 44,720 44,699
Additional paid-in capital 4,215,687 4,190,038
Common stock acquired by ESOP (193,523) (229,096)
Common stock acquired by RRP (201,244) (226,042)
Unrealized loss on securities available for sale, net (29,694) (26,601)
Retained earnings - substantially restricted 3,326,066 3,382,186
Treasury stock, at cost, 21,500 shares (328,055) (328,055)
----------- ----------
Total stockholders' equity 6,833,957 6,807,129
----------- ----------
Total liabilities and stockholders' equity $31,040,596 32,662,802
----------- ----------
----------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
Three Months Ended Six months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $431,567 493,564 871,602 924,473
Mortgage-backed securities 80,528 85,623 161,866 172,156
Securities 39,433 23,251 79,342 49,562
Other interest-earning assets 32,438 61,130 68,289 121,675
------- ------- --------- ---------
Total interest income 583,966 663,568 1,181,099 1,267,866
------- ------- --------- ---------
Interest expense:
Deposits 247,480 275,509 506,481 555,949
Advances from FHLB of Des Moines 9,821 14,686 24,108 16,785
------- ------- --------- ---------
Total interest expense 257,301 290,195 530,589 572,734
------- ------- --------- ---------
Net interest income 326,665 373,373 650,510 695,132
Provision (credit) for loan losses - - - (700)
------- ------- --------- ---------
Net interest income after provision
for loan losses 326,665 373,373 650,510 695,832
------- ------- --------- ---------
Noninterest income:
Loan service charges 3,172 3,806 6,496 6,804
Other 8,318 5,842 15,505 12,656
------- ------- --------- ---------
Total noninterest income 11,490 9,648 22,001 19,460
------- ------- --------- ---------
Noninterest expense:
Compensation and benefits 160,709 141,414 306,653 271,801
Occupancy expense 12,997 13,044 25,504 24,576
Equipment and data processing expense 15,134 16,623 30,935 32,966
SAIF deposit insurance premium 824 14,532 14,880 29,212
Supervisory and professional fees 41,434 22,026 98,576 40,471
Other 31,669 27,779 61,277 60,626
------- ------- --------- ---------
Total noninterest expense 262,767 235,418 537,825 459,652
------- ------- --------- ---------
Earnings before income taxes 75,388 147,603 134,686 255,640
Income taxes 41,600 57,700 70,000 90,800
------- ------- --------- ---------
Net earnings $ 33,788 89,903 64,686 164,840
------- ------- --------- ---------
------- ------- --------- ---------
Net earnings per share $ .09 .22 .16 .41
------- ------- --------- ---------
------- ------- --------- ---------
Weighted-average shares outstanding 397,145 402,356 392,974 401,409
------- ------- --------- ---------
------- ------- --------- ---------
Dividends per share $ .15 .15 .30 .30
------- ------- --------- ---------
------- ------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 64,686 164,840
Adjustments to reconcile net earnings
to net cash provided by (used for) operating activities:
Depreciation expense 11,147 11,943
Provision (credit) for loan losses - (700)
Amortization of premiums and discounts on securities, net (1,360) (1,286)
ESOP expense 58,008 53,089
RRP expense 28,033 -
FHLB stock dividends - (6,600)
Decrease (increase) in:
Accrued interest receivable 24,154 (17,628)
Other assets 14,437 7,979
Increase (decrease) in:
Accrued interest on deposits 264 (168)
Other liabilities (282,010) (68,419)
Accrued income taxes 5,212 (24,554)
Net cash provided by (used for) operating activities (77,429) 118,496
Cash flows from investing activities:
Loans:
Purchased (158,900) (2,194,504)
Originated (291,991) (1,449,142)
Principal collections 1,669,784 2,435,278
Principal collections on mortgage-backed securities
held to maturity 179,508 66,642
Securities held to maturity and certificates of deposit:
Purchased (90,000) (1,496,000)
Proceeds from maturity 197,999 1,685,000
Net cash provided by (used for) investing activities 1,506,400 (952,726)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (651,108) (271)
Advances from borrowers for taxes and insurance (71,392) (112,867)
Proceeds from advances from FHLB of Des Moines - 1,000,000
Repayment of notes payable (650,000) -
Cash dividends (120,806) (119,855)
Net cash provided by (used for) financing activities (1,493,306) 767,007
Net increase (decrease) in cash and cash equivalents (64,335) (67,223)
Cash and cash equivalents at beginning of period 1,211,033 2,036,111
Cash and cash equivalents at end of period $1,146,698 1,968,888
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 506,217 556,118
Interest on advances from FHLB 24,108 16,785
Federal income taxes 49,770 111,891
State income taxes $ 20,918 3,463
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 September 30,
1997 and is subject to, among other things, regulatory approval
and the approval of the shareholders of Allegiant and the
stockholders of Reliance.
<PAGE>
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, 1996. 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 18% at
March 31, 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.
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 an 8% risk-based capital.
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
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
March 31, 1997:
<TABLE>
Unaudited Regulatory Capital
Tangible Core Risk-Based
<S> <C> <C> <C>
Stockholders' equity per consolidated
financial statements $6,833,957 6,833,957 6,833,957
Stockholders' equity of Reliance Financial Inc.
not available for regulatory capital purposes (1,253,268) (1,253,268) (1,253,268)
----------- ----------- -----------
GAAP capital 5,580,689 5,580,689 5,580,689
General valuation allowances - - 168,579
Non-includable deferred tax assets (76,000) (76,000) (76,000)
----------- ----------- -----------
Regulatory capital 5,504,689 5,504,689 5,673,268
Regulatory capital requirement (448,758) (897,515) (1,075,983)
----------- ----------- -----------
Regulatory capital - excess $5,055,931 4,607,174 4,597,285
----------- ----------- -----------
----------- ----------- -----------
Regulatory capital ratio 18.40% 18.40% 42.18%
Regulatory capital requirement (1.50) (3.00) (8.00)
----------- ----------- -----------
Regulatory capital ratio - excess 16.90% 15.40% 34.18%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Association is also required to maintain core, tier 1 risk-
based capital (core capital to risk-weighted assets) and risk
based capital of 5%, 6%, and 10%, respectively in order to be
classified as "well capitalized" for regulatory purposes. Such
requirements have been met.
Commitments to originate mortgage loans amounted to $17,000 at
March 31, 1997.
Financial Condition
- -------------------
Assets decreased from $32.7 million at September 30, 1996 to
$31.0 million at March 31, 1997. Loans receivable, net decreased
from $21.1 million at September 30, 1996 to $19.9 million at
March 31, 1997 due to normal loan repayment activity and
substantially lower loan originations and purchases during the
six month period. Cash flows from loan repayments were used
primarily to fund withdrawals from deposit accounts and repayment
of $650,000 of FHLB advances. Management may utilize FHLB
advances in the future where the overall cost is less than retail
deposits or to meet short-term liquidity needs. 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. At
March 31, 1997 the Association had no loans which were 90 days or
more delinquent compared to $35,000 at September 30, 1996. Such
delinquent loans represented 0% and .17% of net loans receivable
at March 31, 1997 and September 30, 1996, respectively.
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
Following is a summary of activity in the allowance for loan
losses:
<TABLE>
<S> <C>
Balance at September 30, 1996 $203,515
Charge-offs (1,574)
Recoveries 3,146
Provision for loan loss -
--------
Balance at March 31, 1997 $205,087
--------
--------
</TABLE>
Results of Operations
Net Earnings
- ------------
Net earnings for the three months ended March 31, 1997 and 1996
were $34,000 and $90,000, respectively. Net earnings for the six
months ended March 31, 1997 and 1996 were $65,000 and $165,000,
respectively. The decrease in net earnings for the three and six
month periods ended March 31, 1997, reflected lower net interest
income and higher noninterest expense, partially offset by higher
noninterest income and lower income taxes.
Net Interest Income
- -------------------
Net interest income decreased by $47,000, or 12.5%, for the three
months ended March 31, 1997 from the same period of the prior
year and decreased by $45,000, or 6.4%, for the six months ended
March 31, 1997 as compared to the same period of 1996. During
the three and six months ended March 31, 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 six
months ended March 31, 1997 compared to the 1996 periods due to a
lower average balance and yield. The average yield on loans was
8.77% for the six months ended March 31, 1996 compared to 8.38%
for the six months ended March 31, 1997. The yield on loans
receivable for the six months ended March 31, 1996 increased by
approximately 50 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 rate spread
for the six months ended March 31, 1997 was 3.29% compared to
3.37% for the six months ended March 31, 1996. The net yield on
interest-bearing assets was 4.17% for the six months ended March
31, 1997 compared to 4.30% for the six months ended March 31,
1996.
Interest on securities increased due to higher average balances
for both the three and six months ended March 31, 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 six months ended
March 31, 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>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
Interest Expense
- ----------------
Interest on deposits decreased due to lower interest rates and a
lower average balance for both the three and six months ended
March 31, 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 4.29% for the six months ended March 31,
1997 from 4.46% for the six months ended March 31, 1996.
Average interest- bearing liabilities decreased to $24.7 million
for the six months ended March 31, 1997, from $26.0 million for
the six months ended March 31, 1996.
Provision for Loan Losses
- -------------------------
Reliance had no loss provision or credit for loan losses for the
three and six months ended March 31, 1997 and three months ended
March 31, 1996, and a $700 net credit for the six month period
ended March 31, 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 increased to $11,000 for the three
months ended March 31, 1997 from $10,000 for the three months
ended March 31, 1996. Total noninterest income increased to
$22,000 for the six months ended March 31, 1997 from $19,000 for
the six months ended March 31, 1996. The increase was due to
$2,400 of nonrecurring income related to the sale of Reliance
Federal's interest in a data processing service bureau.
Noninterest Expense
- -------------------
Noninterest expense increased to $263,000 and $538,000 for the
three and six months ended March 31, 1997, respectively, from
$235,000 and $460,000 for the three and six months ended March
31, 1996, respectively. Compensation and benefit costs increased
by $19,000 to $161,000 for the three months ended March 31, 1997
from $142,000 for the three months ended March 31, 1996.
Compensation and benefit costs increased by $35,000 to $307,000
for the six months ended March 31, 1997 from $272,000 for the six
months ended March 31, 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 six months ended March 31, 1997 were
$14,000 and $28,000, respectively. Compensation and benefits for
the three and six months ended March 31, 1997 included $29,000
and $58,000, respectively related to the Employee Stock Ownership
Plan (ESOP). Compensation and benefits for the three and six
months ended March 31, 1996 included $27,000 and $53,000,
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. Management
expects ESOP expense will increase in future quarters due to the
recent increase in the price of common stock of Reliance
Financial, Inc. 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 6.48 basis points of deposits.
Supervisory and professional fees for the three and six months
ended March 31, 1997, increased as a result of additional costs
of reviewing the strategic options of the Company, and evaluating
the proposed
<PAGE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
merger of the Company.
Income Taxes
- ------------
Income tax expense for the three and six months ended March 31,
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>
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: May 7, 1997 BY: /s/ John Bowman
------------------------------
John Bowman, President,
Principal Financial Officer and
Duly Authorized Officer
