Georgia-based Colony Bankcorp Inc. will acquire Florence-based First Reliance Bancshares Inc. in a stock-and-cash deal valued at about $163 million. First Reliance co-founder and CEO Rick Saunders spoke about the past, present and future of First Reliance Bank. (PDB2B graphic by Greer Fujiwara)
Saunders is co-founder and CEO of Florence-based First Reliance Bank and its holding company, First Reliance Bancshares Inc. On June 24, First Reliance and Colony Bankcorp Inc. announced the latter would acquire 100% of First Reliance shares in a stock-and-cash transaction worth about $163 million.
First Reliance Bank has nine locations in South Carolina, including two in Florence, as well as a digital banking branch.
Colony — based in Fitzgerald, GA — operates 31 full-service branches in Georgia; two full-service branches and loan production offices in Tallahassee and Jacksonville, FL; and a loan production office in Alabama, according to an email from Colony Communications Manager Brantley Collins.
Saunders said in a phone interview that even though, legally, the transaction is an acquisition, he feels it’s more like a merger.
A very robust period
Rick Saunders, 66, said he, brother Paul and colleague Dale Porter had decided to open First Reliance Bank in 1998, a “very robust period to be in the banking business.” (PDB2B photo provided by First Reliance Bancshares Inc.)
“I grew up in Timmonsville,” Saunders said, adding he had spent most of his childhood in Timmonsville and most of his adult life in Florence.
“I became a banker in the 80s,” he said. By 1983-1987 he had entered the trajectory of a career banker with Pee Dee State Bank, that is until it was sold to a larger bank with which it was “not aligned from a value and culture perspective.”
He said he, along with brother Paul and colleague Dale Porter, had decided to start up a bank in 1998. They began formulating the concept of First Reliance and opened it for business in 1999. “All we wanted to do was get our old community bank back in our neighborhood,” he said.
Saunders related how, between 1998 and 2003, a thousand banks had been founded in the United States. “It was a very robust period to be in the banking business,” he said. “You could not find a better environment for three young guys to start a bank.”
This deal
Saunders said, “About six months ago, we had decided to look for a partner. We wanted to find someone who viewed us as a partner not a buyer.
“The economic environment was perfect and the political environment was perfect to open up these conversations. The world is making it so that these kinds of conversations can be had now.
“I was very intentional about finding the right partner in this deal ... I wanted to make sure the associate, customer and shareholder would benefit from this in my discussions.”
We expect, based on forecasts, that we’ll be a top-five-percenter in terms of profitability measured among Southeastern community banks, if we execute to that standard ... That’s a win for shareholders.
He had come up with a laundry list of qualities the bank looked for in a partner, and the points were “pretty much non-negotiable.”
They had to have very limited or no presence in South Carolina.
They had to be an experienced acquirer; they had to have bought or merged with other banks in the past.
They had to be small enough that First Reliance Bank would be transformational for them.
They had to be large enough that they were on a public exchange, such as the New York Stock Exchange or NASDAQ.
They had to be a dividend payer.
They had to be a high performer, financially.
There had to be upside on the valuation of the combined company after the deal was done.
Their risk culture had to be aligned with First Reliance’s.
Their operation and associate culture had to be aligned with First Reliance’s.
They had to be capable and willing to pay a fair price for shareholders.
He said these criteria eliminated many potential partners. “There were probably about 20 banks across the Southeast that we vetted down to three ... Colony Bank was head and shoulders above everyone else based on the criteria. They checked all the boxes.”
Colony Bankcorp Inc. shares trade on the New York Stock Exchange under ticker symbol CBAN.
Why the industry is shrinking
Heading into the acquisition, First Reliance Bank has $1.1 billion in assets, Saunders said, adding “This partnership will make us a $5 billion bank ... The combined company will be the largest community bank headquartered in Georgia and South Carolina.”
He said out of the 750 community banks headquartered in the 10-state Southeastern region, the new Colony will be the 19th largest. Banks with assets totaling $10 billion or less are designated as community banks, according to Saunders.
He said community banks face increased competition from larger banks, though the big banks are not quite as nimble. “Generally, in the consumer space, the bigger banks do OK with respect to technology and some of their services,” Saunders said. “They generally don't give you personalized service there.
“In the business banking space, they can be pretty competitive. I certainly view them as a competitor worth taking note of.”
He said, at the same time, Internet and non-bank lenders have also become more competitive, particularly in the small-business and consumer-lending spaces. “They’re very competitive in the mortgage space too,” he said.
This has begun to apply more pressure on margins in the banking sector, he said. “The more competition, the better the pricing for consumers, and the more strained margins get,” he said. “What used to be 4% profit margins have shrunk to 3.5%.”
We’re 99% married at this point. Undoing this deal would be near impossible. Once you say ‘I do’ with your wife whom you dated for 10 years, things can change ... There is always the risk that things change once the ring goes on the finger.
He said the question that needs addressing is, “How do we scale the company to get large enough and safe enough so we can run it in a profitable and safe manner?"
“You have to get bigger to make sure you are generating enough revenue to cover the basic costs to run a financial institution. It is why the industry is shrinking at a rapid rate.”
Banking is not designed to grow fast, Saunders said. “Ultimately, I’ve got to find a partner that’s big enough."
Saunders said that, of those thousand banks that had sprung up in 1998-2003, less than a hundred remain. “Most failed in the recession.”
Bigger is necessary
The corporate office of First Reliance Bancshares at 2170 W. Palmetto St., Florence. First Reliance Bank currently has $1.1 billion in assets. Post-acquisition, the combined company will have $5 billion in assets, making it the largest community bank headquartered in Georgia and South Carolina, Saunders said. (PDB2B photo by Greer Fujiwara)
Saunders said South Carolina is one of the best banking markets in the country right now, which made it even more appealing for Colony to get into it. “We’ve operated First Reliance as a branch-light bank,” Saunders said. “We need more brick and mortar in the market.”
He added, for the unforeseen future, First Reliance will continue to operate under its own brand in South Carolina. “We will be a division of Colony. At some point we'll be transitioning as a Colony brand. It depends on the appetite from the market.”
Saunders says things are “only going to get better.” He said the combined entity will be one of the largest mortgage banking companies in the country and that playing to economies of scale will allow them to offer a broader array of banking services. “All the things you can’t do when you manage costs at a small company,” he said. “Unfortunately, bigger is necessary. Continued growth and profitability is impossible to do without growing.”
And the bank will continue to get bigger, according to Saunders. “The Colony brand and team are experienced in the acquisition business,” Saunders said. “I would expect to see them to continue to be active in the M&A field. They’re going to outpace the competition.”
Colony announced in December it had completed its acquisition of TC Bancshares Inc. Saunders says the First Reliance deal will close this year. “We're the largest acquisition they’ve ever done. It will take a while for them to digest.”
There are always risks. If you fumble the ball, there is reputational risk. That’s why you look for an experienced partner. The odds are low that you fumble the ball so hard there’s a punitive consequence.
He said the outlook for the blended companies is an optimistic one. “We expect, based on forecasts, that we’ll be a top-five-percenter in terms of profitability measured among Southeastern community banks, if we execute to that standard ... That’s a win for shareholders.”
Once the ring goes on the finger
Saunders said First Reliance and Colony mesh well, culturally. “I think we’re so identical, we look like twins. This could not be a better fit for our employees, customers and shareholders ... There was zero chance I was going to do this, if I hadn’t found the right fit.
“We’re 99% married at this point,” he continued. “Undoing this deal would be near impossible. Once you say ‘I do’ with your wife whom you dated for 10 years, things can change ... There is always the risk that things change once the ring goes on the finger.”
Saunders said he has held numerous conversations with other CEOs who have gone through this same process, and they tell him their new bedfellows are the same as they ever were, even five years down the road.
“If there’s a risk, it’s really very minimal,” Saunders said, stipulating, “I anticipate some culture clashes.”
He said, “My team is exceptional, and their team seems equally exceptional, if not better.” He sees no operational risks to this transaction that they can’t manage.
“Manage” seems to be the operative word. “There are always risks,” Saunders said. “If you fumble the ball, there is reputational risk. That’s why you look for an experienced partner. The odds are low that you fumble the ball so hard there’s a punitive consequence.”
It was a very robust period to be in the banking business. You could not find a better environment for three young guys to start a bank.
“We wanted to be the largest and most profitable community bank in the Southeast,” Saunders said. “It was going to be challenging for us to do that organically ... This deal is directly in line with that. Those are the metrics that a publicly traded company has to aspire to so that we can fulfil our purpose of enabling progress in our community and states and changing lives for the better."
The beach
Brother and cofounder Paul is currently senior vice president and relationship banker at First Reliance, according to Saunders. Paul will go on to become a commercial banking executive for the Pee Dee region once the Colony deal goes through. The third co-founder Dale Porter has been retired for about 10 years now, according to Saunders. Rick Saunders will go on to become a member of the executive team of the combined company, as well as executive vice chairman and board member, according to the June statement.
Rick Saunders says no plans for retirement loom on the horizon for him. Nor will he move on to another company. “I have no intention of going anywhere else,” he said.
“I’m a purpose-driven leader,” Saunders says. “I wake up every day wondering how I can add value to something ... I don’t have an ambition to travel the world or sit on the beach all day.
“As long as I am adding value, I want to be a participant.”
At time of writing, shares of CBAN are down 1.37% since the acquisition was announced. The stock is down 6 cents or 0.26% to 20.83 in today’s trading.