8-K: FB Financial Details Southern States Merger Impact

FB Financial Corporation provides unaudited historical financials for Southern States Bancshares, Inc. and pro forma combined statements following their July 1, 2025 merger.

Summary

• FB Financial Corporation completed its acquisition of Southern States Bancshares, Inc. on July 1, 2025.
• Southern States reported a net income of $3.675 million for the six months ended June 30, 2025, a significant decrease from $16.317 million in the prior year period.
• This decrease was primarily driven by a net realized loss on securities of $12.313 million and $12.913 million in acquisition-related expenses.
• Southern States' net interest income increased to $51.276 million for the six months ended June 30, 2025, up from $42.418 million in the same period last year.
• Pro forma combined net income for FB Financial and Southern States for the nine months ended September 30, 2025, would be $90.846 million, with basic earnings per share of $1.68, assuming the merger occurred on January 1, 2024.
• Southern States' total assets grew to $2.876 billion, and total deposits increased to $2.470 billion as of June 30, 2025.
• The allowance for credit losses for Southern States decreased to $22.167 million at June 30, 2025, from $28.338 million at December 31, 2024, despite an increase in charged-off loans.

Sentiment

Score: 4

Explanation: While the merger is complete and pro forma results are provided, Southern States' standalone financial performance for the six months leading up to the merger showed a significant decline in net income and EPS due to substantial securities losses and acquisition-related expenses. This indicates a challenging period for the acquired entity, even with some positive balance sheet growth and improved comprehensive loss.

Positives

• Southern States' net interest income increased by $8.858 million (20.88%) for the six months ended June 30, 2025, compared to the prior year.
• Southern States' total assets increased to $2.876 billion at June 30, 2025, from $2.848 billion at December 31, 2024.
• Southern States' total deposits increased to $2.470 billion at June 30, 2025, from $2.411 billion at December 31, 2024.
• Southern States' accumulated other comprehensive loss improved significantly to $(1.174) million at June 30, 2025, from $(7.936) million at December 31, 2024.
• Southern States' past due loans (30-89 days) decreased from $9.648 million at December 31, 2024, to $3.912 million at June 30, 2025.
• Southern States Bank is considered 'well capitalized' under regulatory frameworks as of June 30, 2025.

Negatives

• Southern States' net income significantly decreased to $3.675 million for the six months ended June 30, 2025, from $16.317 million in the prior year period.
• Southern States reported a net realized loss on securities of $12.313 million for the six months ended June 30, 2025, compared to a $8k gain in the prior year.
• Southern States' noninterest expenses increased substantially to $38.547 million for the six months ended June 30, 2025, from $21.786 million, including $12.913 million in acquisition-related expenses.
• Southern States' basic earnings per share decreased to $0.37 for the six months ended June 30, 2025, from $1.82 in the prior year period.
• Southern States' loans charged off increased to $7.884 million for the six months ended June 30, 2025, from $900k in the prior year period.
• Southern States' nonaccrual loans increased to $10.255 million at June 30, 2025, from $6.434 million at December 31, 2024.

Risks

• Material estimates in financial statements are susceptible to significant change, particularly the allowance for credit losses, valuation of foreclosed assets, financial instruments, deferred taxes, and investment securities.
• The determination of the adequacy of the allowance for credit losses is based on estimates susceptible to significant changes in the economic environment and market conditions.
• Regulatory agencies may require the Company to recognize additional losses on loans based on their judgments.
• The Company's loan portfolio is sensitive to local economic conditions, as a substantial portion of borrowers' ability to honor contracts depends on these conditions.
• Derivatives contain contingent features where the Company could be declared in default on derivative obligations if it defaults on any indebtedness or fails to maintain 'well/adequate capitalized' status.
• Failure to meet minimum capital requirements can initiate mandatory and discretionary actions by regulators.

Future Outlook

The filing provides pro forma financial information for the combined entity, assuming the merger was consummated earlier, to illustrate the potential financial results. It does not provide explicit forward-looking statements or guidance beyond this illustrative pro forma data.

Management Comments

• Management believes that the Bank met all capital adequacy requirements and was well capitalized as of June 30, 2025.
• Management does not intend to utilize the Community Bank Leverage Ratio (CBLR) framework, despite qualifying for it.
• Management believes that the Company will generate sufficient operating earnings to realize deferred tax benefits.
• Management believes any liability from legal proceedings would not have a material effect on the Company's financial statements.

Industry Context

The banking industry continues to see consolidation through mergers and acquisitions, as evidenced by FB Financial's acquisition of Southern States. The repositioning of Southern States' balance sheet through significant securities sales prior to the merger reflects a common strategy to optimize asset portfolios in anticipation of integration. The focus on maintaining 'well capitalized' status and managing credit risk is standard practice in a regulated environment, especially amidst fluctuating interest rates and economic conditions that impact loan portfolios and investment securities.

Comparison to Industry Standards

• NA

Legal Proceedings

• The Company is involved in various legal proceedings in the normal course of business, but management believes any resulting liability would not have a material effect on the Company's financial statements.

Stakeholder Impact

• Shareholders (FB Financial): The merger is expected to expand and strengthen FB Financial's footprint, particularly in the Georgia market (referencing CBB acquisition, which Southern States did). The pro forma combined financials provide an indication of the merged entity's potential performance.
• Shareholders (Southern States): All outstanding stock-based compensation vested during the second quarter of 2025 due to the merger.
• Customers (Southern States Bank): Southern States Bank merged into FirstBank, indicating a change in banking services provider and potentially expanded offerings.
• Employees (Southern States): All outstanding stock-based compensation vested due to the merger, which could imply changes in employment terms or structure post-merger.

Next Steps

• FB Financial Corporation will continue to operate the combined entity following the merger completed on July 1, 2025.
• Southern States Bank has merged into FirstBank.

Key Dates

Recommendation

While the merger is complete and the pro forma financials offer a glimpse into the combined entity's potential, Southern States' standalone performance leading up to the merger showed significant headwinds, particularly a large net loss on securities and substantial acquisition-related expenses that severely impacted net income. The pro forma adjustments for credit losses are also notable. Investors should 'hold' to observe how the combined entity integrates operations, realizes synergies, and manages the acquired loan portfolio and interest rate risks in the coming quarters. The immediate pre-merger financial performance of the acquired entity introduces a degree of uncertainty that warrants caution rather than an immediate 'buy' or 'sell' recommendation.

Keywords

FB Financial Corporation, Southern States Bancshares, Merger, Acquisition, SEC Filing, 8-K, Financial Results, Banking, Net Interest Income, Loan Portfolio, Credit Losses, Pro Forma, Bank Holding Company, Regulatory Capital, Investment Securities