First Reliance Bancshares Reports Third Quarter 2026 Results

Earnings are steady, but nonperforming assets spike ahead of an imminent merger closing.

What the company is saying

First Reliance Bancshares, Inc. (OTCQX:FSRL) is presenting a stable earnings narrative for the third quarter of 2026, with net income of $2.7 million ($0.33 per diluted share) unchanged from the prior year. The company highlights year-to-date net income of $9.0 million ($1.10 per diluted share), up from $8.0 million ($0.96) in 2025, and operating earnings (Non-GAAP) of $9.2 million ($1.13), up from $6.6 million ($0.79). Book value per share increased $0.98 (8.6%) to $12.40, and tangible book value per share rose $0.98 (8.7%) to $12.31. The announcement emphasizes the completion of regulatory and shareholder approvals for the merger with Colony Bank, with closing scheduled for November 1, 2026, and systems conversion in June 2027. CEO Rick Saunders frames the quarter as steady, noting slight margin compression and tangible book value impact from rising interest rates and unrealized securities losses. The company acknowledges a sharp increase in nonperforming assets, primarily due to one $5.5 million loan, but asserts this loan is sufficiently collateralized with no specific allowance for credit loss recorded.

What the data suggests

The financials show net income for Q3 2026 at $2.7 million ($0.33 per diluted share), unchanged year-over-year, and nine-month net income at $9.0 million ($1.10), up from $8.0 million ($0.96). Operating earnings (Non-GAAP) for the quarter were $2.9 million ($0.36), up from $2.7 million ($0.33), and for the nine months totaled $9.2 million ($1.13), up from $6.6 million ($0.79). Book value per share rose to $12.40 and tangible book value to $12.31, both up $0.98. Net interest income increased 4.6% year-over-year to $9.9 million, but net interest margin compressed slightly to 3.73%. Total loans held for investment declined $8.4 million (4.1% annualized) during the quarter, though total loan growth for 2026 stands at $32.4 million (5.5% annualized). Deposits rose marginally to $922.4 million. Nonperforming assets jumped by $5.9 million to $6.6 million (0.59% of assets), driven by a single $5.5 million loan, though management claims adequate collateral. Noninterest income fell by $514 thousand, with mortgage banking income dropping to $1.0 million from $1.6 million. Noninterest expense increased by $511 thousand, partly due to merger-related costs. The merger with Colony Bank is set to create a combined entity with nearly $5.0 billion in assets, but the pro forma breakdown is not detailed.

Analysis

The announcement is balanced and factual, with the majority of claims supported by realised, audited financial results for the quarter and year-to-date. Key profitability metrics (net income, operating earnings), book value, and operational figures are all disclosed with period-over-period comparisons, allowing for a clear assessment of performance. The only forward-looking elements relate to the merger with Colony Bank, for which regulatory and shareholder approvals have already been received and closing is scheduled within days (November 1, 2026), with systems conversion in June 2027. The statement that the combined company will have nearly $5.0 billion in assets is a projection, but it is grounded in current asset figures and the imminent merger. There is no exaggerated or promotional language; the tone is measured, and risks (such as the increase in nonperforming assets) are disclosed. The capital intensity flag is set to true due to the scale of the merger, but the timeline for benefit realisation is near-term, and the funding/approvals are already secured.

Risk flags

• ●Nonperforming assets surged from $626 thousand to $6.6 million (0.59% of assets) in a single quarter, primarily due to one $5.5 million loan. While management asserts sufficient collateral, the concentration risk and potential for loss if collateral values decline are material.
• ●The merger with Colony Bank, while approved and imminent, introduces significant integration risk. Systems conversion is not scheduled until June 2027, leaving several quarters where operational disruption or unexpected costs could impact performance.
• ●Net interest margin compressed slightly to 3.73% from 3.74% in the prior quarter, and tangible book value was negatively affected by increased unrealized securities losses as interest rates rose. Further rate volatility could pressure margins and capital.
• ●Noninterest income fell by $514 thousand year-over-year, and mortgage banking income declined to $1.0 million from $1.6 million, indicating potential headwinds in fee-based businesses that could persist post-merger.
• ●Merger-related expenses are already impacting noninterest expense ($240 thousand in Q3, $354 thousand in Q2), and further integration costs may arise, potentially offsetting expected synergies.

Bottom line

First Reliance Bancshares delivered stable quarterly earnings, with year-to-date profitability and book value both improving over 2025. The imminent merger with Colony Bank, now fully approved, will nearly quintuple the asset base to $5.0 billion, but integration will take until at least June 2027. The sharp rise in nonperforming assets, driven by a single large loan, raises credit quality questions despite management's assurance of sufficient collateral. Margins are under mild pressure from rising rates, and noninterest income is declining, particularly in mortgage banking. Investors should focus on post-merger integration execution, credit resolution, and whether the combined entity can deliver improved efficiency and earnings without further asset quality surprises. The most important takeaway is that while the merger is transformative and near-term, operational and credit risks are rising and will need close monitoring through 2027.

Announcement summary

(OTCQX:FSRL) First Reliance Bancshares, Inc., the holding company for First Reliance Bank, reported net income for the third quarter of 2026 of $2.7 million, or $0.33 per diluted share, unchanged from the third quarter of 2025. For the nine months ended September 30, 2026, net income totaled $9.0 million, or $1.10 per diluted share, compared to $8.0 million, or $0.96 per diluted share, for the same period in 2025. Operating earnings (Non-GAAP) for the third quarter of 2026 were $2.9 million, or $0.36 per diluted share, compared to $2.7 million, or $0.33 per diluted share, for the third quarter of 2025. For the nine months ended September 30, 2026, operating earnings (Non-GAAP) totaled $9.2 million, or $1.13 per diluted share, compared to $6.6 million, or $0.79 per diluted share, for the nine months ended September 30, 2025. Book value per share increased $0.98, or 8.6%, to $12.40 at September 30, 2026, from $11.42 at September 30, 2025. Tangible book value per share (Non-GAAP) rose $0.98, or 8.7%, to $12.31 from $11.33 over the same period. Net interest income for the third quarter of 2026 was $9.9 million, up $430 thousand, or 4.6%, from the same quarter in 2025 and up $12 thousand, or 0.12%, from the second quarter of 2026. Net interest margin for the third quarter of 2026 was 3.73%, compared to 3.74% in the second quarter of 2026 and 3.66% in the third quarter of 2025. Total loans held for investment decreased $8.4 million, or 4.1% annualized, to $812.3 million at September 30, 2026, from $820.7 million at June 30, 2026. Total loan growth for 2026 was $32.4 million, or 5.5% annualized. Unfunded commitments decreased $7.7 million during the quarter, with the unfunded commitment reserve decreasing $123 thousand to $506 thousand from $629 thousand at June 30, 2026. Total deposits were $922.4 million at September 30, 2026, an increase of $2.1 million, or 0.90% annualized, from $920.3 million at June 30, 2026. Nonperforming assets increased by $5.9 million to $6.6 million, or 0.59% of total assets, at September 30, 2026, compared with $626 thousand, or 0.06% of total assets, at June 30, 2026, primarily due to one loan totaling $5.5 million. This loan was sufficiently collateralized and no specific allowance for credit loss was recorded as of September 30, 2026. In June 2026, the company announced a partnership with Colony Bank (CBAN), headquartered in Fitzgerald, Georgia. Bank regulatory approvals and shareholder approvals for both companies have been received, with closing scheduled for November 1, 2026, and systems conversion scheduled for June 2027. Based on total assets at September 30, 2026, the combined company will have nearly $5.0 billion in total assets. For the three months ended September 30, 2026, total revenue was $12.2 million, and for the nine months ended September 30, 2026, total revenue was $38.0 million. Noninterest income for the third quarter of 2026 was $2.3 million, a decrease of $514 thousand from the same period in 2025. Mortgage banking income for the third quarter of 2026 was $1.0 million, compared to $1.6 million in the third quarter of 2025. Noninterest expense for the third quarter of 2026 was $9.0 million, up $511 thousand from the same period in 2025. The company incurred $240 thousand in merger-related expenses in the third quarter of 2026 and $354 thousand in the second quarter of 2026. In the first quarter of 2026, the company sold mortgage servicing rights related to approximately $565.9 million underlying mortgage loans for an initial gain of $266 thousand, net of direct expenses. The company also sold securities at a net loss of $6 thousand in the first quarter of 2026. In the fourth quarter of 2025, the company sold property in Florence for a gain of $382 thousand and sold five securities for a net loss of $294 thousand. Rick Saunders, Chief Executive Officer, commented that the third quarter of 2026 was steady from an earnings standpoint, with a slight margin compression and tangible book value affected by an increase in unrealized loss of the securities portfolio due to rising interest rates. The bank experienced net recoveries in the third quarter of 2026 for the fourth consecutive quarter. Regulatory and shareholder approvals for the partnership with Colony Bank have been received, with closing anticipated on November 1, 2026.

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