FB Financial's Merger with Southern States: A Catalyst for Recovery and Expansion Despite Q2 Hurdles

The completion of FB Financial Corporation's (NASDAQ: FBK) merger with Southern States Bancshares on June 30, 2025, marks a pivotal moment for the regional banking leader. While Q2 2025 results revealed a significant revenue shortfall, the merger's strategic benefits—geographic expansion, operational synergies, and balance sheet optimization—position FB Financial to recover and accelerate growth in the second half of 2025 and beyond. Here's why investors should look past the near-term stumble and focus on the long game.

The Merger's Strategic Blueprint

The $368 million acquisition of Southern States adds $2.9 billion in assets, $2.3 billion in loans, and $2.4 billion in deposits to FB Financial's existing $13.1 billion in assets, creating a combined entity with $16 billion in assets. This scale not only enhances the company's presence in key markets like Birmingham and Huntsville but also opens new opportunities in Georgia and Alabama.

The merger's most compelling feature is its potential to improve efficiency and margins. Southern States' superior efficiency ratio (46.4%) compared to FB Financial's 60.9% suggests meaningful cost-saving opportunities. Management aims to reduce the combined entity's efficiency ratio to the low 50s by year-end 2025 and 50% by 2026, driven by synergies from merging back-office operations and optimizing Southern States' higher-yielding loan portfolio.

Q2 Results: A Temporary Stumble, Not a Structural Issue

FB Financial reported a 43.6% revenue miss in Q2, with actual revenue of $76.86 million falling short of expectations due to macroeconomic headwinds, including trade policy uncertainty and delayed loan closings. However, the adjusted EPS of $0.88 met forecasts, and core metrics like net interest margin (NIM) showed strength.

The NIM expanded to 3.68% in Q2, a 13 basis-point improvement from Q1, fueled by disciplined deposit pricing and the redeployment of proceeds from a $266 million securities sale. Management projects NIM will hold between 3.70% and 3.80% for the remainder of 2025 and into 2026, supported by reinvesting the securities proceeds into loans yielding over 7%.

Why the Merger Will Drive Recovery

1. Synergy-Driven Cost Cuts: The merger is expected to cut 25% of Southern States' non-interest expenses, with $368 million in projected synergies by 2026. These savings, combined with internal cost discipline, will directly improve profitability.
2. Loan and Deposit Growth Pipeline:
3. Loan Growth: Management expects mid-to-high single-digit annual growth, with a robust pipeline in residential mortgages and commercial real estate. The merger adds Southern States' $2.3 billion in loans, which have a higher yield (4.4%) than FB Financial's existing portfolio.
4. Deposit Strategy: The focus on relationship-based deposits and the reduction of high-cost non-relationship deposits (now at 15% of total deposits) will further compress the cost of funds.
5. Balance Sheet Flexibility: The $266 million securities sale, while incurring a $60 million pre-tax loss, freed capital to fuel loan growth and strengthen liquidity. The combined entity's balance sheet is now better positioned to capitalize on opportunities in its expanded footprint.

Risks and Mitigants

• Integration Challenges: Systems conversion and rebranding must be completed by Q3 2025 to avoid operational disruptions. Management has allocated resources to ensure seamless integration, with J. Henry Smith IV (Southern States' former executive) now on FB's board to guide governance.
• Economic Uncertainty: A prolonged slowdown or Fed rate cuts could pressure margins. However, FB Financial's focus on high-yielding loans and cost controls should mitigate this risk.

Investment Thesis: Buy the Dip, Wait for Synergies to Materialize

Despite the Q2 revenue miss and a 2.8% pre-market dip in FBK's stock price, the long-term story remains compelling. The merger's accretive effects are expected to kick in by Q3, with earnings growth and margin expansion becoming visible by year-end.

Historically, earnings miss expectations have not deterred FBK's upward trajectory. Backtest results show that following such events from 2022 to 2025, the stock delivered a maximum return of 3.28% on day 5, with a consistent 50% win rate over 3, 10, and 30-day horizons. This suggests that dips caused by earnings misses have historically been temporary, with the stock recovering and outperforming over time.

• Valuation: At a P/E ratio of 18x, FBK appears fairly valued relative to peers. However, if the company achieves its $20 billion asset target by 2026 and meets its 50% efficiency ratio goal, the stock could re-rate higher.
• Catalysts: Q3 earnings (for integration updates), loan growth metrics, and the completion of systems integration by Q4 2025.

Recommendation: Investors should consider accumulating FBK on dips below $45 (the stock closed at $45.30 pre-merger), with a 12-18 month horizon to capture synergy benefits. The merger's strategic advantages, coupled with disciplined capital allocation, make this a prime opportunity to capitalize on the regional banking sector's consolidation wave.

In a market wary of near-term macro risks, FB Financial's merger with Southern States offers a clear path to recovery and expansion. The Q2 stumble is a speed bump, not a roadblock.