FB Financial's Q2 Results Highlight Merger Benefits Amid Near-Miss on Revenue

FB Financial (NYSE: FBK) posted its second-quarter 2025 earnings on July 14, revealing a stark divergence between its adjusted financial performance and headline figures. While the company narrowly missed analyst expectations on revenue, its strategic moves—including the recent merger with Southern States Bancshares—suggest a path to long-term earnings stability and geographic diversification.

Earnings Results: A One-Time Hit Masks Underlying Strength

The quarter's GAAP diluted EPS of $0.06 was a steep decline from $0.84 in Q1 2025 and $0.85 in Q2 2024, driven by a $60.5 million loss from the sale of low-yielding securities. However, adjusted diluted EPS of $0.88 matched consensus estimates, reflecting operational resilience. The revenue decline to $76.86 million (a 40% year-over-year drop) stemmed entirely from the securities sale—a non-recurring item excluded from adjusted results.

The core business demonstrated strength: net interest income (NII) rose 3.5% sequentially to $112.2 million, fueled by a widening net interest margin (NIM) of 3.68%, up 13 basis points from Q1. This expansion was driven by higher loan yields and lower deposit costs. Meanwhile, noninterest income grew to $25.8 million, with mortgage banking activity contributing $13.0 million.

The Southern States Merger: Geographic Diversification and Scale

The July 1 completion of the merger with Southern States Bancshares adds $2.87 billion in assets, $2.47 billion in deposits, and 15 branches in Alabama and Georgia—regions where FB Financial previously had limited exposure. This expands FB's footprint beyond its traditional markets in Tennessee, Kentucky, and parts of Georgia, creating a multi-state presence critical for reducing regional risk (see map below).

The merger also delivers cost synergies. FB's core efficiency ratio improved to 56.9% in Q2, down from 59.9% in Q1, reflecting disciplined expense management. The combined entity is expected to realize further savings through streamlined operations, such as integrating Southern States' 15 branches into FB's existing network.

Operational Momentum: Loans, Deposits, and Credit Quality

• Loan Growth: Loans held for investment rose 4.2% annualized to $9.87 billion, driven by commercial real estate, consumer loans, and mortgages.
• Deposit Strength: Deposits grew 7.2% annualized to $11.40 billion, with deposit costs falling to 2.48%—a competitive advantage in a rising rate environment.
• Credit Quality: While nonperforming loans (NPLs) edged up to 0.97% of total loans, management emphasized that charge-offs remain “modest,” and the portfolio is “well-diversified” with minimal exposure to distressed sectors.

Risks and Challenges

• Near-Term Earnings Volatility: The securities sale and merger integration could pressure GAAP EPS in coming quarters, though adjusted metrics remain stable.
• NPL Watch: The slight uptick in NPLs and nonperforming assets warrants monitoring, though management attributes it to normal cyclical fluctuations.
• Stock Price Reaction: FBK's shares fell 7.6% to $45.44 post-earnings, reflecting investor focus on the revenue miss. However, the stock's forward P/E of ~20x adjusted EPS appears reasonable given its growth prospects.

Investment Outlook: A Buy on Strategic Catalysts

FB Financial's Q2 results underscore that its adjusted performance remains on track, while the Southern States merger positions it for sustainable growth. Key positives:
1. Geographic Diversification: The Alabama/Georgia expansion reduces reliance on existing markets and taps into high-growth areas like Atlanta.
2. NIM Expansion: The 3.68% NIM is above peers, and further rate hikes could amplify this advantage.
3. Cost Discipline: The improving efficiency ratio suggests operational leverage from the merger.

Historical data reinforces this outlook: when FBK has missed earnings expectations since 2022, the stock has shown resilience, with a 50% win rate over 3 days and short-term gains of up to 3.28% within a week. This suggests that the recent pullback to $45.44 may present an entry point for investors. While short-term volatility remains, the stock's current level creates an opportunity to consider a buy with a 12-month target of $52–$55, assuming stable NII growth and successful merger integration.

Final Take

FB Financial's Q2 earnings are a reminder that mergers can be transformative—but not without growing pains. The Southern States deal adds scale, diversifies risk, and positions FB for a stronger 2025. Investors focused on the long term may find this a compelling opportunity in the regional banking sector.