Franklin Synergy-MidSouth buy came only after four-month stiff arm

Community banks firm up executive, board roles ahead of shareholder votes

The $38 million community bank deal that will bring together Franklin Synergy Bank and MidSouth Bank came about only after the latter rebuffed an initial offer last spring but found no better strategic partner options in the market.

In a preliminary proxy statement with regulators, officials with MidSouth and Franklin Synergy parent Franklin Financial Network have detailed how their agreement came together, starting with initial conversations in December 2012. Three months later, both companies and their investment banks Sterne Agee & Leach (MidSouth) and SunTrust Robinson Humphrey (Franklin Financial) sat down in earnest, which resulted in a non-binding letter of interest from Franklin Financial CEO Richard Herrington delivered April 1.

But the MidSouth board, which had begun looking at strategic alternatives after recognizing the limits to growing on its own and the regulatory costs of being a smaller lender, didn't bite right away.

"The MidSouth executive committee determined that they needed additional information and analysis in order to properly evaluate the FFN proposal," says the filing. "The [...] committee was extremely interested in the compatibility it perceived in FFN but chose to make a decision in favor of MidSouth’s stand-alone strategy versus merger with another institution only after due consideration and analysis of various alternatives."

That decision didn't have a long shelf life, though. In delivering the news to Franklin Financial, MidSouth CEO Lee Moss left the door open to future discussions while reaching out to other bank leaders about a strategic affiliation of some sort. Nothing came of those talks, though, and by June, Moss had reached back out to Sterne Agee's bankers.

Moss, Herrington and their bankers sat down again in early August to talk about combining their organizations. This time, matters move forward more productively, resulting in a formal offer Oct. 29 and the announcement of the deal Nov. 21.

Also detailed in the SEC filing — which does not yet specify when the banks' shareholders will vote on the plan — is an outline for how the combined company will be run and governed. When the companies announced their agreement, they said that Moss would be president of the combined Franklin Synergy Bank, that CFO Kevin Busbey would become CFO of the bank — with Sally Kimble moving into the holding company CFO role — and that MidSouth President Dallas Caudle would be an executive vice president and oversee the bank's investment portfolio. One apparent tweak to the org chart is that Edwin Jernigan will run the combined organization's investment management team. That job is now held by David McDaniel, who also is the bank's chief retail officer.

On the board side, Jimmy Allen and Matthias Murfree III will, along with Moss, join the Franklin Financial board. (All seven current directors are staying on.) Allen is president of trucking company Venture Express and a co-owner of Center Hill Marina & Yacht Club, among other things. Murfree is a senior partner at law firm Murfree & Murfree.

If the deal goes through, the combined company will have assets of about $930 million and shareholders' equity of about $100 million and would have posted a profit of $4.1 million through the first three quarters of 2013. Pro forma, the company's Tier 1 capital ratio is 10 percent, several points above the regulatory minimum. Click here for more financial details.