Judge blocks Memphis credit union's acquisition of local bank

A Tennessee judge has issued a temporary injunction blocking one of the deals announced this year in which a credit union is attempting to buy a community bank.

The $1 billion-asset Orion Federal Credit Union in Memphis, Tennessee, announced in August that it agreed to acquire the $774 million-asset Financial Federal Bank, which is also based in Memphis.

But Davidson County Chancery Court Judge Patricia Moskal last month issued an injunction until a hearing on the matter could be held, according to court documents.

Tennessee Department of Financial Institutions Commissioner Greg Gonzales contended that the transaction is prohibited under the Tennessee Banking Act.

In the ruling, Moskal said the commissioner has the power to interpret the provisions of the Act.

“Although the term ‘acquire’ is not specifically defined in the Act, it appears that the commissioner has the statutory authority and duty to interpret, regulate and enforce the provisions of the Act. In light of that broad authority, Orion’s proposed purchase of all or substantially all of FFBank’s assets and assumption of its liabilities seems to come within the plain and ordinary meaning of ‘acquire,' " Moskal said in the ruling.

Michael Bell, an attorney with Honigman who advised Orion FCU on the transaction, said the ruling is a “speed bump not a roadblock.”

There have been 12 deals announced this year in which a credit union agreed to purchase a bank, surpassing last year's tally of seven. The most credit union-bank deals announced in one year was 16 deals in 2019. Most recently, GreenState Credit Union in North Liberty, Iowa, announced in October it agreed to purchase Midwest Community Bank in Freeport, Illinois.

Colin Barrett, president and CEO of the Tennessee Bankers Association, said that from the beginning, the association felt the acquisition was a clear violation of the Tennessee statute.

“I applaud the attorney general and TDFI commissioner for pushing back on what is clearly a violation of state law. And I don’t believe Tennessee is alone with these types of statutes. Hopefully, this leads to more states questioning the legality of these transactions,” he said.

In an August blog post, Barrett said the deal would result in a loss of roughly $15 million in local, state and federal tax revenue over the next decade.

“We are reaching an inflection point in the debate about credit unions. This isn’t just about losing loans due to unfair competition. It is about losing the community banking model,” he wrote.

Tennessee is not alone in pushing back on credit union purchases of community banks.

Colorado determined that its state-chartered banks do not have the option to sell to credit unions. In 2020, the Colorado Banking Board blocked a bid by Elevations Credit Union to buy the assets of Cache Bank & Trust in Greeley.

In 2019, the Iowa Division of Banking announced its intent to block GreenState Credit Union’s  purchase of seven branches and related assets from First American Bank in Fort Dodge, Iowa. That deal ultimately closed, and Bell said Iowa’s stance against such deals going forward is on “very shaky ground.”