Tennessee tries again to block bank's sale to credit union

The commissioner of the Tennessee Department of Financial Institutions has filed an appeal to a judge's decision to allow Orion Credit Union’s purchase of Financial Federal Bank to proceed. 

The $1 billion-asset Orion, of Memphis, Tennessee, announced in August that it agreed to acquire the $774 million-asset bank, which is also based in Memphis. In November, Davidson County Chancery Court Judge Patricia Moskal issued an injunction in response to concerns by Tennessee Department of Financial Institutions Commissioner Greg Gonzales that the transaction was prohibited under the Tennessee Banking Act.

But last month, Moskal ruled the state’s banking act is clear that the transaction is legal because Orion would be acquiring the bank’s assets and not its charter or stock. 

In the June 14 appeal, Gonzales stated that the interests of the state in maintaining a safe and sound banking system as well as the depositors of the bank would be “irreparably harmed and disrupted” if the deal is allowed to close.

Further, Gonzales said timing is critical because if the deal closes and is later nullified by an appeals court “it would likely create confusion and uncertainty among Financial Federal’s customers regarding the security of their accounts and what entity actually has custody and control of their accounts.”

There have been nine deals announced in 2022 in which a credit union is buying a bank, and Tennessee is not alone in trying to put a stop to them.

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The Nebraska Department of Banking and Finance last year shot down the proposed sale of the $395 million-asset Premier Bank in Omaha to the $8 billion-asset GreenState Credit Union in North Liberty, Iowa.

Michael Bell, an attorney with Honigman who advised Orion on the transaction, questioned the state's reasoning in its appeal.

“It’s surprising that the commissioner is so set against economic freedom for community banks and their right to choose when it comes to selling,” he said. “The result they are seeking — that the trial court flatly and clearly denied — will harm banks' value, shareholders, bank employees and communities.” 

Bell said that the state filing an appeal after such a strong ruling is “rather outrageous. I believe the law will continue to prevail and this can be ended rather quickly,” he said.

But Colin Barrett, president and CEO of the Tennessee Bankers Association, said the transaction would close once Orion and Financial Federal receive regulatory approval from the Federal Deposit Insurance Corp. and the National Credit Union Administration, so the state has no time to waste in filing the appeal. 

Allowing the transaction to close while a ruling on its validity is pending would undermine Commissioner Gonzales’s authority and his legal duty to enforce the banking laws and prevent bank acquisitions that violate state law, Barrett said.  

A hearing for an injunction is scheduled for July 8.