KBRA Comments on Colony Bancorp, Inc.'s Proposed Merger with First Reliance Bancshares, Inc.

On June 24, 2026, Fitzgerald, GA-based Colony Bancorp, Inc. (NYSE:CBAN) ("Colony"), parent company of Colony Bank, and Florence, SC-based First Reliance Bancshares, Inc. (OTCQX:FSRL) ("First Reliance"), parent company of First Reliance Bank, jointly announced that they had entered into a definitive merger agreement pursuant to which First Reliance Bancshares, Inc. would merger with and into Colony Bancorp, Inc., and First Reliance Bank would merger with and into Colony Bank. The transaction, valued at $163 million (P/TBV: 1.6x), consists of 80% stock and 20% cash consideration and is expected to close in 4Q26, subject to regulatory and shareholder approval.

In our view, the proposed merger is consistent with Colony's strategy of expanding into attractive contiguous markets through both acquisitive and organic means. The transaction establishes Colony's banking franchise in South Carolina through First Reliance's well-established community banking platform, providing an established presence across several of the state's largest metropolitan markets while extending the company's existing Southeast footprint in Georgia, Alabama, and Florida. Upon closing, the combined entity is expected to have ~$5.0 billion in assets, $3.2 billion in loans, and $4.0 billion in deposits. We view the limited geographic overlap as a positive, allowing Colony to establish a banking franchise in South Carolina through an experienced management team and an established community banking platform rather than building a presence organically.

Under the agreement, Rick Saunders, Chief Executive Officer of First Reliance, will join Colony as Executive Vice Chairman and a member of the Board of Directors, while several additional members of First Reliance's senior management team will assume key leadership positions within the combined organization, including oversight of South Carolina operations. In our view, retaining local leadership should facilitate a smooth integration by preserving customer relationships, local market expertise, and First Reliance's relationship-focused community banking model while enabling Colony to leverage its broader product offerings and specialty business lines across the South Carolina franchise. The transaction is also expected to enhance Colony's operating profile through ~35% cost saves relative to First Reliance's projected noninterest expense base, with management projecting ~20% EPS accretion by 2027 and tangible book value dilution of ~12%, earned back in less than 3.5 years.

Colony has maintained solid capital metrics, with a CET1 ratio of 12.5% at 1Q26, and management anticipates a modest impact on pro forma capital, with CET1 projected to decline to ~11% at closing. In our view, the pro forma capital position remains supportive of the current rating, and the combined entity’s enhanced earnings profile should enable the meaningful rebuild of capital over time.

Regarding credit quality, both institutions have demonstrated sound asset quality performance over time, supported by disciplined underwriting practices and experienced management teams with extensive knowledge of their respective operating markets. The pro forma loan portfolio is not expected to change materially, as both entities maintain complementary loan portfolios. Commercial real estate will continue to be the largest lending category, while the pro forma CRE concentration is expected to remain relatively stable at 270% of total risk-based capital, below the 300% supervisory guidance threshold. Colony conducted an extensive review of First Reliance's loan portfolio (53% of total loans) and expects to record a total gross pre-tax credit mark of $9 million (1.05% of First Reliance's loans). Additionally, management plans to early adopt FASB's new accounting standard for purchased financial assets, eliminating non-PCD credit marks and the related "double count" of expected credit losses. From a funding perspective, First Reliance contributes a granular, relationship-based deposit franchise, with noninterest-bearing deposits representing 27% of total deposits and contained deposit costs of 1.70%. Overall, we believe the transaction strengthens Colony's franchise through greater geographic diversification, enhanced scale, and a solid core funding base while maintaining sound capital and credit fundamentals. Although execution risk is inherent in any bank acquisition, we believe such risk is moderated by Colony's demonstrated acquisition experience, the retention of First Reliance's local leadership team, and the limited operational overlap between the two organizations.

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Hunter Chadwick, Associate Director

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hunter.chadwick@kbra.com

Brian Ropp, Managing Director

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brian.ropp@kbra.com

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Justin Fuller, Managing Director

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