Executive Summary / Key Takeaways

• FB Financial (FBK) is strategically positioned for future growth through a disciplined approach to capital deployment, prioritizing organic expansion, opportunistic M&A, and balance sheet optimization.
• The recently announced merger with Southern States Bancshares is a key near-term catalyst, expected to expand FBK's footprint in attractive Alabama and Georgia markets and solidify its net interest margin in the upper end of the guided range.
• Strong capital ratios (TCE to tangible assets at 10.5%, CET1 at 12.8%) provide significant dry powder for targeted investments in talent, technology, and acquisitions, supporting management's aim for low double-digit loan and deposit growth in 2025.
• Recent financial performance shows improving profitability metrics, driven by effective cost of funds management, strategic securities portfolio adjustments, and disciplined expense control, despite some one-off credit events and ongoing competitive pressures.
• While facing competitive dynamics in deposit and lending markets and monitoring potential credit softness in specific areas like C&I and manufactured housing, FBK emphasizes its relationship-driven model, granular portfolio, and strong reserve levels as key mitigants.

Building a Regional Powerhouse: Strategy Rooted in Local Authority

FB Financial Corporation, operating primarily through its subsidiary FirstBank, has cultivated a business model centered on local market authority within the dynamic Southeastern United States. Tracing its origins back to the 1984 acquisition of a small bank in Scotts Hill, Tennessee, the company's history is marked by a commitment to community banking principles, even as it has grown into a publicly traded institution with over $13 billion in assets. This foundational ethos of personalized service and deep regional understanding underpins its current strategy, distinguishing it within a competitive landscape dominated by larger regional and national players like Fifth Third Bancorp (FITB), East West Bancorp (EWBC), and Old National Bancorp (ONB).

FBK's operations are segmented into Banking and Mortgage. The Banking segment, the primary driver of revenue through interest on loans and deposits, loan fees, and various banking services, leverages a network of full-service branches across Tennessee, Alabama, Kentucky, and North Georgia. The Mortgage segment focuses on originating and servicing residential mortgage loans, primarily for sale in the secondary market. This dual-segment structure allows FBK to serve a broad range of customer needs while maintaining specialized expertise.

The company's strategic blueprint is clear: deploy capital to drive earnings per share and create long-term shareholder value. This is pursued through a defined hierarchy of priorities: first, organic growth; second, opportunistic bank acquisitions; and third, balance sheet optimization. This disciplined approach, coupled with a relatively young and ambitious leadership team, positions FBK to capitalize on the favorable demographic and economic trends in its core geography.

In the competitive arena, FBK's local market authority model and extensive branch network are key differentiators. While larger competitors like FITB and EWBC may possess greater scale and potentially more advanced digital platforms, FBK aims to compete on the strength of its relationships and localized service delivery. Management believes this approach attracts both customers seeking a more personal banking experience and high-performing bankers looking for a stable, growth-oriented franchise. The company's mortgage expertise is also noted as a strength, potentially offering faster processing in its core markets compared to some rivals. However, FBK acknowledges vulnerabilities related to its smaller scale compared to national banks, which can impact operating costs, and potential gaps in digital innovation relative to some fintech competitors or larger, digitally-focused institutions. Competitive pressures are evident in both deposit pricing, particularly in higher-growth markets, and loan pricing, where a general slowdown in industry-wide loan growth has increased aggression.

Performance Reflecting Strategic Execution

Recent financial performance demonstrates the impact of FBK's strategic focus. For the three months ended March 31, 2025, net income applicable to FB Financial Corporation increased significantly to $39.4 million, or $0.84 per diluted common share, compared to $28.0 million, or $0.59 per diluted common share, for the same period in 2024. This translated to a return on average assets of 1.21% and a return on average common equity of 10.10% in Q1 2025, up from 0.89% and 7.70% respectively in Q1 2024. Return on average tangible common equity also improved to 11.90% in Q1 2025 from 9.29% in Q1 2024.

Net interest income saw an increase to $107.6 million in Q1 2025 from $99.5 million in Q1 2024. On a tax-equivalent basis, the net interest margin expanded to 3.55% from 3.42%. This improvement was primarily driven by a decrease in interest expense paid on interest-bearing deposits, partially offset by a decline in the overall yield on loans held for investment. The average rate paid on interest-bearing deposits decreased to 3.13% in Q1 2025 from 3.49% in Q1 2024, reflecting disciplined cost of funds management and deposit repricing efforts. Interest income on investment securities increased due to higher yields from recent portfolio restructuring transactions, while interest income on deposits with other financial institutions also rose due to higher average balances.

Noninterest income experienced a substantial increase to $23.0 million in Q1 2025, compared to $8.0 million in Q1 2024. This was largely attributable to the absence of a $16.2 million net loss from investment securities sales recognized in the prior year period. Excluding this impact, noninterest income saw a slight decline. Mortgage banking income remained relatively stable at $12.4 million in Q1 2025 versus $12.6 million in Q1 2024, benefiting from lower market interest rates which supported lock volumes and improved servicing economics. Investment services and trust income, as well as service charges on deposit accounts, showed increases, while ATM and interchange fees decreased.

Noninterest expense rose by 10.0% to $79.5 million in Q1 2025 from $72.4 million in Q1 2024. This increase was driven by higher salaries, commissions, and employee benefits (up $3.7 million), advertising (up $1.3 million), and other noninterest expense (up $1.9 million), which included increases in technology and platform fees and the absence of a prior year franchise tax benefit. Merger and integration costs of $0.4 million were also incurred in Q1 2025 related to the Southern States acquisition. The efficiency ratio improved to 60.90% in Q1 2025 from 67.40% in Q1 2024, while the core efficiency ratio on a tax-equivalent basis was 59.90% compared to 58.10% in the prior year period.

The Banking segment's income before income taxes increased significantly to $47.3 million in Q1 2025 from $32.6 million in Q1 2024, benefiting from higher net interest income and the swing in noninterest income (excluding securities losses), despite increased expenses. The Mortgage segment's income before income taxes remained relatively stable at $1.5 million in Q1 2025 compared to $1.6 million in Q1 2024.

On the balance sheet, total assets were $13.14 billion at March 31, 2025, relatively stable compared to $13.16 billion at December 31, 2024. Loans held for investment increased to $9.77 billion from $9.60 billion. Total deposits were $11.20 billion, slightly down from $11.21 billion. Noninterest-bearing deposits increased, while interest-bearing checking and brokered/internet time deposits decreased, and money market/savings and customer time deposits increased. Borrowings decreased to $168.9 million from $176.8 million.

Asset Quality and Risk Management

FBK maintains a focus on originating high-quality loans and rigorously monitoring its portfolio. The allowance for credit losses on loans held for investment stood at $150.5 million, or 1.54% of loans HFI, at March 31, 2025, down from $151.9 million, or 1.58%, at December 31, 2024. The decrease in the allowance was primarily attributed to charge-offs during the quarter, slightly improved economic forecast assumptions, and reductions in construction lending exposure, partially offset by loan growth.

Net charge-offs for the three months ended March 31, 2025, were $3.3 million, or an annualized 0.14% of average loans HFI, an increase from $0.5 million, or 0.02%, for the same period in 2024. This increase was driven by a $2.8 million charge-off of a single commercial and industrial relationship in Q1 2025, which management noted was largely reserved for and specific to the borrower's circumstances, not indicative of systemic issues. Management expects charge-offs for the full year 2025 to be lower than the Q1 rate.

Nonperforming loans held for investment decreased to $77.2 million, or 0.79% of loans HFI, at March 31, 2025, compared to $83.7 million, or 0.87%, at December 31, 2024. Nonperforming assets as a percentage of total assets were 0.84% at March 31, 2025, down from 0.93% at December 31, 2024. Management noted improvements in nonperforming loans in the 1-to-4 family mortgage, commercial and industrial, and construction portfolios.

The company actively manages its exposure to construction and commercial real estate lending. As of March 31, 2025, the construction concentration ratio was 64.5% and the commercial real estate concentration ratio was 243.3% for the Bank, both within regulatory guidelines. Management views these levels as comfortable and sustainable. While monitoring potential softness in consumer loans (mortgage, manufactured housing) and C&I credits, management emphasizes the granularity and geographic diversity of the portfolio, strong collateral positions, and guarantor support as key mitigants. They also utilize loan modifications (FDM) to assist borrowers experiencing financial difficulty.

Interest rate risk is actively monitored and managed. The balance sheet is estimated to be asset-sensitive, meaning that in a rising rate environment, net interest income would likely increase. This sensitivity stems primarily from the floating-rate nature of a significant portion of the loan portfolio and the composition of the deposit base. Management utilizes rate shock analysis and monitors deposit betas to assess potential impacts. While derivative instruments may be used, the cost of hedging has historically outweighed the perceived benefit, leading to a preference for managing risk through balance sheet composition.

Strategic Outlook and Growth Catalysts

FBK is poised for its next phase of growth, driven by a combination of organic initiatives and strategic expansion. The first priority remains organic growth, fueled by the company's presence in growing Southeastern markets and its success in attracting talent. In 2024, the company added 32 new revenue-producing bankers, including expansion into new markets like Tuscaloosa, Alabama, and Asheville, North Carolina. Management aims to maintain or accelerate this pace of hiring, viewing it as a key driver for achieving low double-digit loan and deposit growth targets in 2025. The expectation is that the bulk of this growth will come from the existing base of relationship managers and the organic momentum in their markets, supplemented by contributions from new hires as they ramp up. The pace of core deposit generation is seen as the primary factor governing the rate of asset growth.

The second major catalyst is the recently announced merger with Southern States Bancshares, Inc. (SSBI). This transaction, expected to close in the third quarter of 2025, will significantly expand FBK's presence in attractive markets across Alabama and Georgia, adding approximately $2.85 billion in assets, $2.26 billion in loans, and $2.43 billion in deposits (as of March 31, 2025). The strategic rationale centers on cultural fit, market opportunity, and financial profile, with the transaction intended to solidify FBK's net interest margin in the upper end of its guided range.

Balance sheet optimization remains the third priority. This includes managing the securities portfolio (as seen in the Q3 2024 trade to enhance yield) and opportunistic share buybacks, leveraging the company's strong capital position. At March 31, 2025, tangible common equity to tangible assets stood at a robust 10.5%, and the preliminary Common Equity Tier 1 ratio was 12.8%, well above regulatory requirements. This strong capital base provides ample capacity for executing on both organic and inorganic growth strategies.

Management's outlook for 2025 includes expectations for net interest margin to remain between 3.55% and 3.60% on a standalone basis, solidifying in the upper end of that range post-merger. Banking segment non-interest expense is anticipated to be in the $66 million to $68 million range in Q2 2025, with overall company expense growth expected to be in the 4% to 5% range in 2025, reflecting continued investment in the business.

Key risks to this outlook include ongoing economic uncertainty, potential changes in interest rate policy (though management feels reasonably well-positioned), increased competition for deposits and loans impacting pricing and growth, and potential deterioration in credit quality beyond current expectations, particularly if macroeconomic conditions worsen significantly. The successful integration of Southern States is also critical to realizing the anticipated benefits of the merger.

Conclusion

FB Financial is executing a clear and disciplined strategy focused on leveraging its local market authority, strong balance sheet, and experienced team to drive future growth. The company's recent financial performance demonstrates solid profitability and effective risk management, even amidst a challenging operating environment. The planned acquisition of Southern States represents a significant step in expanding its geographic footprint and enhancing its market position. With ample capital and a strategic focus on both organic expansion and opportunistic M&A, FBK appears well-positioned to continue growing earnings per share and tangible book value. While competitive pressures and potential credit headwinds warrant monitoring, the company's emphasis on relationship banking, portfolio granularity, and robust capital levels provide a foundation of resilience. The investment thesis hinges on FBK's ability to successfully integrate Southern States, continue attracting talent to fuel organic growth, and effectively manage its cost of funds and credit risk in a dynamic economic landscape.