Colony Bancorp to Acquire First Reliance Bancshares in $163 Million Deal, Expanding Southeast Banking Franchise into South Carolina
Colony Bancorp, Inc. (NYSE: CBAN), the parent company of Colony Bank, has announced a definitive merger agreement with Florence, South Carolina-based First Reliance Bancshares, Inc. (OTCQX: FSRL), the parent company of First Reliance Bank, in a transaction valued at approximately $163 million. The acquisition marks a significant milestone in Colony Bancorp’s long-term growth strategy, extending its footprint into South Carolina while strengthening its position as a leading community banking organization across the Southeastern United States.
Under the terms of the agreement, First Reliance Bancshares will merge into Colony Bancorp, while First Reliance Bank will become part of Colony Bank. The transaction will be structured as approximately 80% stock and 20% cash consideration, reflecting a valuation of roughly 1.6 times tangible book value (P/TBV). Subject to customary regulatory approvals and approval from shareholders of both organizations, the merger is expected to close during the fourth quarter of 2026.
The proposed acquisition represents more than a routine bank merger. It is a strategic expansion designed to establish Colony’s first major banking presence in South Carolina while preserving the relationship-driven community banking model that has helped First Reliance build a respected franchise throughout the state.
Strategic Expansion into an Attractive Growth Market
For Colony Bancorp, the acquisition aligns closely with its long-term strategic vision of combining organic expansion with carefully selected acquisitions that enhance shareholder value and strengthen market presence.
Until now, Colony’s banking operations have primarily served customers across Georgia, Alabama, and Florida. The addition of First Reliance introduces a well-established community banking network in South Carolina, creating a continuous Southeastern footprint spanning multiple high-growth states.
Unlike many mergers where institutions compete heavily in overlapping territories, the geographic relationship between Colony and First Reliance is highly complementary. Limited market overlap reduces integration challenges while allowing Colony to immediately establish meaningful operations in South Carolina without the time, expense, and uncertainty associated with opening new branches organically.
The transaction provides Colony with access to several of South Carolina’s largest metropolitan areas, where First Reliance has spent years cultivating customer relationships with individuals, businesses, and commercial clients.
Management believes this strategy accelerates market entry while preserving local expertise that would otherwise take years to develop independently.
Building a Stronger Regional Banking Franchise
Following completion of the merger, the combined banking organization is expected to possess approximately:
- $5.0 billion in total assets
- $3.2 billion in total loans
- $4.0 billion in deposits
These figures significantly increase Colony’s scale, allowing the institution to compete more effectively within the regional banking landscape.
Greater scale offers several competitive advantages, including improved operating efficiency, enhanced lending capacity, broader investment capabilities, and stronger technology resources.
A larger balance sheet also enables the combined organization to diversify risk across additional markets while providing customers with a wider range of banking products and financial solutions.
Management expects the expanded franchise to be better positioned to support both consumer and commercial customers throughout the Southeast while continuing to maintain the personalized service typically associated with community banks.
Preserving Community Banking Relationships
One of the defining characteristics of the merger is the emphasis on leadership continuity.
Rather than replacing First Reliance’s executive team, Colony intends to retain key members of senior management to preserve institutional knowledge and customer relationships.
As part of the agreement:
- Rick Saunders, Chief Executive Officer of First Reliance, will become Executive Vice Chairman of Colony Bancorp.
- Saunders will also join Colony’s Board of Directors.
- Additional senior executives from First Reliance will assume leadership positions within the combined organization.
- Local management will continue overseeing South Carolina operations.
This leadership structure reflects Colony’s commitment to maintaining the relationship-based banking philosophy that has contributed to First Reliance’s success.
Community banks often derive their competitive advantage from long-standing local relationships and deep understanding of regional markets. Retaining experienced management helps minimize customer disruption while maintaining continuity across commercial lending, retail banking, and wealth management operations.
For existing First Reliance customers, familiar leadership should provide reassurance that local decision-making and personalized service will remain central to the combined institution.
Operational Synergies and Financial Benefits
Management expects the merger to produce meaningful operating efficiencies that should strengthen profitability over time.
Among the anticipated financial benefits are approximately:
- 35% cost savings relative to First Reliance’s projected noninterest expense base.
- Approximately 20% earnings-per-share (EPS) accretion by 2027.
- Tangible book value dilution of approximately 12%, with an expected earn-back period of less than 3.5 years.
Cost savings are expected to come primarily from operational efficiencies, technology integration, elimination of duplicate corporate functions, and improved economies of scale rather than significant reductions in customer-facing operations.
The relatively short tangible book value earn-back period is generally viewed favorably by investors because it indicates that the initial dilution created by the acquisition should be recovered within a reasonable timeframe.
Meanwhile, projected EPS accretion suggests that shareholders could benefit from stronger earnings relatively soon after integration.
Capital Position Remains Strong
An important consideration in any bank acquisition is the acquiring institution’s capital strength.
Colony entered the transaction with a Common Equity Tier 1 (CET1) ratio of 12.5% as of the first quarter of 2026.
Following completion of the acquisition, management expects the CET1 ratio to decline modestly to approximately 11%.
Despite the reduction, the projected capital levels remain comfortably supportive of regulatory requirements and consistent with Colony’s current financial profile.
Management also expects the enhanced earnings generated by the combined institution to support steady capital rebuilding over time.
The combination of healthy profitability, anticipated cost synergies, and disciplined capital management should position Colony to continue supporting future lending growth while maintaining financial flexibility.
Credit Quality Remains a Key Strength
Both Colony and First Reliance have established reputations for disciplined underwriting and prudent credit risk management.
The merger combines two institutions that have historically demonstrated sound asset quality across varying economic cycles.
Importantly, the overall composition of the combined loan portfolio is not expected to change materially because the institutions maintain complementary lending strategies.
Commercial real estate (CRE) will remain the largest lending segment after the merger.
However, management expects the pro forma CRE concentration to remain approximately 270% of total risk-based capital, comfortably below the 300% supervisory guidance threshold commonly monitored by banking regulators.
This suggests that the acquisition does not materially increase concentration risk within the loan portfolio.
Comprehensive Due Diligence Supports Transaction
Before agreeing to the acquisition, Colony conducted an extensive review of First Reliance’s loan portfolio.
Management examined approximately 53% of First Reliance’s total loans, providing substantial insight into credit quality prior to signing the agreement.
As part of the transaction accounting, Colony expects to recognize approximately $9 million in gross pre-tax credit marks, representing roughly 1.05% of First Reliance’s total loans.
These purchase accounting adjustments reflect expected credit characteristics identified during due diligence rather than evidence of widespread credit deterioration.
The relatively modest credit marks reinforce management’s view that First Reliance maintains a sound loan portfolio supported by disciplined underwriting practices.
Adoption of Updated Accounting Standards
The merger also provides an opportunity to implement updated accounting guidance.
Management plans to early adopt the Financial Accounting Standards Board’s (FASB) new accounting standard governing purchased financial assets.
Early adoption will eliminate non-purchased credit deteriorated (non-PCD) credit marks and remove the “double counting” of expected credit losses that previously occurred under earlier accounting rules.
Although largely technical in nature, this accounting change should simplify purchase accounting while improving consistency in financial reporting.
Investors often appreciate accounting practices that enhance transparency and reduce unnecessary complexity.
Strong Deposit Franchise Adds Stability
Funding quality remains another important strength of the transaction.
First Reliance contributes a well-diversified, relationship-oriented deposit base that complements Colony’s existing funding profile.
Among the notable characteristics of First Reliance’s deposits:
- 27% of total deposits are noninterest-bearing
- Overall deposit costs remain contained at approximately 1.70%
A substantial proportion of noninterest-bearing deposits represents a valuable funding source because these accounts generally provide stable liquidity without requiring interest payments.
Relationship-based deposits also tend to demonstrate stronger customer loyalty compared to rate-sensitive funding obtained through wholesale channels.
The addition of these deposits enhances Colony’s liquidity profile while supporting future lending opportunities.
Geographic Diversification Reduces Risk
Beyond immediate financial benefits, the acquisition enhances Colony’s long-term strategic resilience through greater geographic diversification.
Operating across multiple Southeastern states allows the combined institution to reduce dependence on any single regional economy.
Economic conditions often vary across states and metropolitan markets.
By expanding into South Carolina, Colony broadens its exposure across different industries, commercial sectors, and customer bases.
Diversification can help stabilize earnings during localized economic slowdowns while creating additional opportunities for business development.
This broader regional footprint also strengthens Colony’s competitive positioning against larger regional banks operating throughout the Southeast.
Integration Risks Appear Manageable
Like any acquisition, the transaction carries execution risk.
Combining technology systems, corporate cultures, operational processes, and regulatory frameworks always presents challenges.
However, several factors appear to reduce those risks.
First, Colony has successfully completed acquisitions in the past and possesses meaningful integration experience.
Second, retaining First Reliance’s executive leadership should preserve customer relationships and facilitate organizational continuity.
Third, limited geographic overlap minimizes branch consolidation challenges and reduces disruption for customers.
Finally, both institutions share similar community banking philosophies focused on relationship banking, local decision-making, and disciplined lending.
These similarities should support smoother operational integration than would typically be expected in a merger involving institutions with significantly different business models.
If completed as expected during the fourth quarter of 2026, the merger will create a stronger regional banking franchise with enhanced scale, broader geographic reach, and improved earnings potential.
The combined institution will enter its next phase of growth with approximately $5 billion in assets, a diversified lending portfolio, a stable core deposit base, and experienced leadership representing both organizations.
Management expects the acquisition to generate meaningful operational efficiencies while preserving the customer-focused approach that has characterized both banks throughout their histories.
With strong capital levels, disciplined credit management, complementary market positions, and a carefully planned integration strategy, the proposed merger represents a significant strategic step for Colony Bancorp as it continues expanding its presence across the Southeastern United States. Assuming regulatory and shareholder approvals are obtained as anticipated, the transaction is expected to strengthen Colony’s competitive position while creating additional opportunities for customers, employees, communities, and shareholders over the coming years.
Source link: https://www.businesswire.com
