Executive Summary / Key Takeaways

• Southern States Bancshares (SSBK) is a community bank operating across Alabama and Georgia, focused on commercial and retail banking with a significant real estate lending portfolio.
• Recent financial performance in Q1 2025 shows solid net income growth year-over-year, driven by strong net interest income and lower credit provisions, despite increased operating expenses partly due to the recent Century Bank acquisition.
• Asset quality metrics, while showing a slight increase in nonperforming loans linked-quarter, remain within regulatory concentration guidelines, supported by robust underwriting and active risk management.
• The announced merger with FB Financial (FBK), expected in late Q3/early Q4 2025, represents a major strategic pivot aimed at expanding market presence and leveraging combined financial strength, subject to customary approvals.
• While SSBK leverages standard digital banking tools and third-party processing, its competitive positioning relies more heavily on its community-focused model and local market expertise, which the FBK merger intends to scale.

Setting the Scene: A Southeastern Community Banking Foundation

Southern States Bancshares, Inc. (SSBK) operates as a bank holding company rooted in the southeastern United States, primarily through its wholly owned subsidiary, Southern States Bank. Headquartered in Anniston, Alabama, the Bank functions as a full-service community banking institution, providing a range of deposit, loan, and other banking services to businesses and individuals across its fifteen branch locations in Alabama and Georgia, complemented by two loan production offices in the Atlanta metropolitan area. The core of SSBK's business lies in commercial and retail banking, with a notable emphasis on real estate lending.

The Company's recent history has been marked by strategic expansion. A significant step was the acquisition of CBB Bancorp, the parent company of Century Bank of Georgia, which closed on July 31, 2024. This transaction was explicitly aimed at bolstering SSBK's footprint within the attractive Georgia market, adding branches in Cartersville and Rockmart. This acquisition, while contributing to growth, also brought associated integration costs and intangible assets like core deposit intangibles, impacting recent financial statements.

In the broader competitive landscape, SSBK operates amidst a diverse array of financial service providers. It faces direct competition from local, regional, and national banks, including larger players like Regions Financial (RF) and Bank of America (BAC), as well as regional peers such as FB Financial, KeyCorp (KEY), and M&T Bank Corporation (MTB). Competition also stems from non-bank entities and financial technology (fintech) firms that are often not subject to the same regulatory burdens. SSBK's strategic positioning has historically leaned on its community-centric model, aiming to build strong customer relationships and leverage local market knowledge. This approach is particularly evident in its focus on serving small to medium-sized businesses and accumulating a deposit base with a relatively higher proportion of insured commercial accounts compared to institutions focused on larger clients.

Strategic Evolution: The Impending Merger with FB Financial

The most significant strategic development for Southern States Bancshares is the recently announced definitive merger agreement with FB Financial Corporation, entered into on March 31, 2025. Under the terms of this agreement, SSBK will merge into FB Financial, and Southern States Bank will subsequently merge into FirstBank, FB Financial's banking subsidiary. This transaction is anticipated to close in late the third quarter or early the fourth quarter of 2025, contingent upon obtaining necessary shareholder and regulatory approvals, among other customary closing conditions.

This merger represents a pivotal moment, signaling SSBK's strategic decision to combine forces with a larger regional player rather than pursuing independent growth or smaller-scale acquisitions. The stated rationale behind the merger is to expand the combined entity's presence in key markets across Alabama and Georgia and to leverage combined talent and financial strength. For SSBK shareholders, the agreement outlines the right to receive 0.800 shares of FB Financial common stock for each share of SSBK common stock held, implying a transaction value of approximately $37.64 per SSBK share based on FB Financial's closing price on March 28, 2025. This move is intended to be a tax-free reorganization for federal income tax purposes for SSBK stockholders receiving FB Financial common stock.

The merger with FB Financial will fundamentally alter SSBK's competitive standing. While SSBK has carved out a niche through its community focus, the combination with FBK will create a larger entity with potentially greater scale, broader product offerings, and enhanced technological capabilities, positioning it more competitively against larger regional and national banks. This strategic pivot acknowledges the increasing pressures in the banking sector, including the need for greater efficiency, technological investment, and scale to compete effectively.

Business Model and Operational Footprint

SSBK's operational model centers on traditional community banking activities. The lending portfolio is a primary driver of interest income, diversified across real estate mortgages, commercial and industrial loans, and consumer loans. As of March 31, 2025, gross loans totaled $2.27 billion, showing a linked-quarter annualized growth rate of 6.1%. Real estate mortgages constitute the largest portion at 84.7%, with commercial real estate being the dominant class within this segment at 59.8% of total gross loans. Construction and development loans represent 10.9%, and residential mortgages 14.0%. Commercial and industrial loans make up 14.8%, and consumer and other loans a small 0.5%.

The Company manages credit risk through a comprehensive framework involving a detailed Loan Policy, centralized underwriting, risk-rating, and ongoing monitoring. Underwriting standards for business purpose loans include evaluating borrower cash flow and stress testing debt service under various interest rate scenarios. Financial and performance covenants are utilized in commercial lending. Concentration risk, particularly in commercial real estate and construction and development loans, is actively managed and, as of March 31, 2025, regulatory concentration ratios remained below the 300%/100% guidelines.

Deposits are the most vital funding source, totaling $2.43 billion as of March 31, 2025, a modest 0.6% increase linked-quarter (2.4% annualized). Noninterest-bearing deposits accounted for 22.0%, interest-bearing transaction accounts 48.8%, savings 2.3%, and time deposits 26.9%. Brokered deposits represented 6.7% of the total. The Company also utilizes wholesale deposits and has access to borrowing facilities from the FHLB, correspondent banks, and historically, the Federal Reserve Bank (though the BTFP program ended). Uninsured deposits stood at approximately 31.3% of total deposits as of March 31, 2025, a level management attributes partly to its focus on small businesses, which tend to have more insured accounts.

Information indicates the availability of mobile and online banking and the use of a third-party vendor for core data processing; however, specific proprietary technological differentiators or quantifiable benefits derived from technology beyond these standard offerings are not detailed. The risk factors do note the disruption potential from financial technology competitors not subject to the same regulations, indicating that technological advancement in the broader market is a competitive factor SSBK must consider. The strategic response appears to be leveraging partnerships and potentially the scale of a larger entity like FBK to enhance technological capabilities rather than highlighting internal, proprietary tech moats.

Financial Performance and Asset Quality

SSBK delivered net income of $10.4 million for the three months ended March 31, 2025, a significant increase from $8.1 million in the same period of 2024. This translated to basic earnings per share of $1.04 and diluted earnings per share of $1.03 for Q1 2025. The annualized return on average assets (ROAA) was 1.48%, and annualized return on average equity (ROAE) was 14.67% for the quarter.

The primary driver of the year-over-year improvement was a substantial increase in net interest income, which rose by $4.0 million, or 19.4%, to $24.9 million. This growth was fueled by a 16.6% increase in average loans outstanding, partly attributable to the Century Bank acquisition, despite a slight decrease in the average loan yield. Interest expense also increased, primarily due to a 10.8% rise in average interest-bearing liabilities, though this was partially offset by a decrease in the cost paid on these liabilities. The net interest margin expanded to 3.75% in Q1 2025 from 3.59% in Q1 2024.

Noninterest income saw a 30.4% increase to $1.7 million, largely benefiting from the Century Bank acquisition which boosted service charges on deposit accounts, bank card services, and other operating income (including BOLI income). However, mortgage banking and SBA/USDA fees saw decreases.

Operating expenses rose considerably, increasing by $1.9 million, or 18.6%, to $12.3 million. This was primarily driven by higher salaries and employee benefits, data processing fees, and other operating expenses, again with the Century Bank acquisition contributing significantly to these increases, including core deposit intangible amortization. Other real estate expense also saw a notable increase related to a nonperforming loan.

Asset quality trends showed a slight increase in nonperforming loans, which totaled $7.2 million as of March 31, 2025, up from $6.5 million at December 31, 2024. This increase was mainly attributed to two specific loans (one commercial real estate, one commercial and industrial) being placed on nonaccrual status. Despite this, the ratio of nonperforming loans to gross loans remained relatively low at 0.32%. The allowance for credit losses stood at $28.9 million, representing 1.27% of gross loans, consistent with the prior quarter. The provision for credit losses for the quarter was $775,000, lower than the $1.2 million in Q1 2024, reflecting management's assessment based on loan growth, qualitative factors, and individually analyzed loans. Net charge-offs decreased year-over-year to $237,000 in Q1 2025.

Capital Strength and Liquidity Management

SSBK maintains a solid capital position, exceeding all minimum regulatory capital requirements and qualifying as well-capitalized for prompt corrective action purposes as of March 31, 2025. The Bank's CET1 capital ratio was 13.35%, Tier 1 risk-based capital ratio was 13.35%, Total capital to risk-weighted assets was 14.55%, and Tier 1 capital to average assets was 11.99%. While the holding company is not subject to consolidated capital standards due to its size, illustrative ratios also indicate strong capital levels. This robust capital base provides a buffer against potential losses and supports future growth initiatives, including the pending merger.

Liquidity is managed through a combination of liquid assets (cash, securities) and access to various funding sources. While cash and cash equivalents decreased linked-quarter, the overall liquidity position is supported by a stable deposit base and available borrowing capacity from the FHLB and other lines of credit. The maturity profile of time deposits is monitored, with a significant portion maturing within one year, requiring ongoing deposit gathering efforts. The reliance on brokered deposits is noted, representing 6.7% of total deposits.

Competitive Dynamics and Positioning

SSBK operates in a competitive environment characterized by the presence of larger, more technologically advanced institutions and agile fintech firms. Compared to national banks like Bank of America, SSBK lacks the scale, extensive branch network, and significant technological investment capabilities. Bank of America's TTM net profit margin of 27% and asset turnover of 0.03 significantly outpace SSBK's TTM net profit margin of 26.27% and asset turnover of 0.03, reflecting the efficiency advantages of a larger operation.

Against regional peers like Regions Financial and FB Financial, SSBK's community-focused model offers a degree of differentiation through personalized service and local expertise. However, Regions Financial and FB Financial generally exhibit stronger financial performance metrics. Regions Financial's TTM ROE of 11% and FB Financial's TTM ROE of 7% (though FB Financial's figure may be impacted by recent M&A) compare to SSBK's Q1 2025 annualized ROAE of 14.67%, suggesting SSBK has recently demonstrated strong profitability relative to equity, potentially due to its asset mix and interest rate sensitivity positioning in the current environment.

However, Regions Financial's TTM gross profit margin of 70% and FB Financial's of 100% (likely reflecting different revenue classifications) highlight varying operational efficiencies.

SSBK's competitive advantages primarily stem from its established community brand and regulatory licenses enabling its regional operations. The community focus fosters customer loyalty, contributing to deposit stability and recurring revenue. Its licenses allow it to operate in niche lending areas with potentially lower operating costs compared to larger, more complex institutions.

However, SSBK faces disadvantages related to its smaller scale and capital needs compared to larger competitors. While it utilizes standard digital banking tools, it lacks proprietary technological moats and faces vulnerability from fintech competitors offering more streamlined or lower-cost digital solutions. The pending merger with FB Financial is a direct strategic response to these competitive pressures, aiming to overcome scale limitations and enhance technological capabilities through combination.

Risks and Challenges

The investment thesis for SSBK is subject to several key risks. Interest rate risk remains a primary concern, as fluctuations can significantly impact net interest income and the value of interest-sensitive assets and liabilities. While simulation models are used to manage this, actual results can differ from projections. The Company's policy limits potential declines in net interest income under various yield curve shifts, but adverse movements could still impact profitability.

Credit risk is inherent in the lending business, and the determination of the allowance for credit losses is a subjective process sensitive to economic conditions. Deterioration in local economic conditions in Alabama and Georgia could adversely affect borrower repayment ability and collateral values, potentially requiring increased provisions for credit losses. While concentration ratios are currently within guidelines, a downturn impacting specific real estate sectors could pose a risk.

Operational risks, including systems failures, cybersecurity threats, and data security breaches, are also pertinent, particularly in an increasingly digital banking environment. Regulatory compliance is an ongoing challenge, with potential changes in laws and regulations impacting operations and capital requirements.

The pending merger with FB Financial introduces specific risks, including the possibility that closing conditions may not be met, integration challenges could arise, or expected synergies may not be fully realized. The distraction of management attention during the merger process is also a potential concern.

Conclusion

Southern States Bancshares is a profitable community bank with a strong capital base and a focused presence in the southeastern U.S. Its recent financial performance in Q1 2025 demonstrates solid earnings power driven by net interest income growth and effective credit risk management, albeit with increased operating expenses partly linked to recent expansion activities.

The announced merger with FB Financial marks a significant strategic shift, positioning SSBK to become part of a larger regional entity with enhanced scale and capabilities. While SSBK has leveraged its community focus and local expertise as competitive advantages, the merger is a clear acknowledgment of the evolving banking landscape and the need for greater size and technological investment to compete effectively against larger rivals and fintech disruptors. The successful execution and integration of the FBK merger will be the critical determinant of SSBK's future trajectory and the realization of the potential benefits for investors, transforming the investment thesis from one focused on a standalone community bank to one centered on participation in a larger, expanding regional franchise.