FB Financial (FBK): Merger Momentum Overcomes Near-Term Hurdles, "Buy" for Strategic Growth

FB Financial Corporation (NASDAQ: FBK) reported its Q2 2025 earnings with a headline GAAP EPS of $0.06, a stark contrast to its $0.84 in Q1 2025 and $0.85 in Q2 2024. However, beneath this headline figure lies a compelling story of strategic transformation. The $60.5 million GAAP loss from the sale of $266.5 million in low-yielding securities—a move to reposition the balance sheet—explains the shortfall. Adjusted for this one-time event, EPS held steady at $0.88, aligning with prior quarters and underscoring the resilience of core operations. This article argues that the Southern States merger's long-term benefits, including geographic diversification, cost synergies, and enhanced loan/deposit growth, outweigh the near-term earnings volatility. The adjusted metrics and improved net interest margin (NIM) position FBK as a Buy for investors focused on sustainable growth.

The Merger's Transformative Impact

The completion of the Southern States Bancshares merger on July 1, 2025, marked a pivotal step for FB Financial. The deal added $2.87 billion in assets, $2.32 billion in loans, and $2.47 billion in deposits, expanding FBK's footprint to four states (Tennessee, Alabama, Kentucky, and Georgia). This geographic diversification reduces regional concentration risk and opens access to new customer bases. The combined entity now commands $16.0 billion in total assets across 93 branches, a 21% increase in scale compared to pre-merger levels.

The merger's cost synergies are equally promising. Core noninterest expenses fell to $78.5 million in Q2 2025, and the core efficiency ratio improved to 56.9%, down from 59.9% in Q1 2025. This reflects disciplined cost management and operational integration progress. While full system conversions are planned for Q3 2025, the immediate benefits include reduced reliance on higher-cost deposits and a streamlined branch network.

Balance Sheet Restructuring: Pain Now, Gain Later

The $60.5 million GAAP loss from the securities sale was a calculated sacrifice. By offloading $266.5 million in low-yielding assets (weighted average yield of 1.63%), FB Financial redeployed capital into higher-yielding loans and repaid subordinated debt. This move directly contributed to the NIM expanding to 3.68%, up from 3.55% in Q1 2025 and 3.57% in Q2 2024. The NIM improvement stemmed from an 8-basis-point rise in loan yields and a 3-basis-point decline in deposit costs.

The strategic sale also reduced the company's exposure to interest rate risk. With deposits now at $11.40 billion (up 8.94% annually), FBK has ample liquidity to fund loan growth. Loans held for investment (HFI) grew to $9.87 billion, a 6.07% annual increase, driven by strength in commercial real estate, mortgages, and consumer lending. This robust loan growth, combined with improved NIM, positions the company to capitalize on rising loan demand post-merger.

Adjusted Metrics Signal Stability, Not Weakness

While GAAP EPS cratered, the adjusted metrics tell a different story. Adjusted net income of $40.8 million was consistent with Q1's $0.85 and slightly ahead of Q2 2024's $0.84. Noninterest income rose to $25.8 million, supported by a 100% jump in mortgage banking income to $13.0 million. Meanwhile, credit quality remained stable: net charge-offs stayed at a negligible 0.02% of average loans, and the allowance for credit losses dipped to 1.51% of HFI loans.

The merger's completion also bolstered capital ratios. Tangible common equity (TCE) to tangible assets rose to 10.4%, while the common equity tier 1 ratio held at 12.3%. These metrics, combined with $2.9 billion in liquidity post-merger, suggest FBK is well-capitalized to weather economic uncertainty.

Investment Thesis: Why Buy Now?

The near-term earnings hit is a distraction from FBK's long-term trajectory. The Southern States merger provides:
1. Scale and Diversification: A $16 billion platform reduces reliance on any single region.
2. Cost Efficiency: The core efficiency ratio's improvement signals synergy capture is underway.
3. Balance Sheet Strength: Higher NIM and loan growth imply earnings leverage as rates stabilize.

The $60.5 million securities loss was a necessary trade-off to reposition the balance sheet. With $266.5 million redirected into higher-yielding assets, future NIMs could expand further. Meanwhile, the merger's integration risks—such as system conversions and customer retention—are manageable given FBK's strong pre-merger operational track record.

Risks to Consider

• Integration Hurdles: Full system conversions in Q3 2025 could strain operations temporarily.
• Economic Downturn: Rising nonperforming loans (NPLs) to 0.97% of total loans (up from 0.79% in Q1) suggest some credit quality softening, though NPLs remain manageable.
• Stock Volatility: FBK's stock price may remain pressured by short-term EPS concerns until Q3 earnings reflect merger synergies.

Conclusion: Buy FBK for Strategic Value

FB Financial's Q2 results are a classic case of short-term pain for long-term gain. The Southern States merger has already delivered scale and geographic diversification, with cost efficiencies emerging. The NIM expansion and loan growth validate management's balance sheet repositioning strategy. While the securities loss dented GAAP EPS, adjusted metrics and capital strength signal a sustainable business model.

Investors should focus on the merger's transformative potential and the adjusted EPS stability. With shares trading at 1.4x tangible book value (below its five-year average of 1.6x), FBK offers a compelling entry point for those willing to look past the one-time hit. Rating: Buy, with a 12-month price target of $50 (20% upside from current levels). The merger's synergies, NIM upside, and balance sheet flexibility position FBK to outperform once the market focuses on its long-term story.