Orion Federal Credit Union’s proposed acquisition of $818 million-asset Financial Federal Bank can proceed after a Tennessee judge last week lifted an injunction she placed on the transaction in November.
The Tennessee Banking Act allows the transaction because Orion would be acquiring Financial Federal’s assets, not its charter or stock, Davidson County Chancery Court Judge Patricia Moskal ruled May 27.
“To hold otherwise, would be to expand or enlarge the meaning of the statute,” Moskal wrote, according to American Banker.
The case hinges on how the word “acquire” is interpreted according to the Tennessee Banking Act. The Tennessee Department of Financial Institutions (TDFI), a state financial regulator, asserted the transaction should be prohibited because of ambiguity in the law. Moskal, in her ruling, said the TDFI has approved similar transactions when the acquirer was a state-chartered or out-of-state bank.
“The legislature could have included a limitation on the types of entities permitted to purchase the assets of a state-chartered bank, but it did not do so,” Moskal wrote, according to Credit Union Times.
The TDFI has until June 27 to file an appeal. The Tennessee Attorney General’s office, which represents the TDFI, said Wednesday it is “reviewing the order and is considering next steps.”
Colin Barrett, president of the Tennessee Bankers Association, said the ruling "doesn’t change the fact that Orion should not be allowed to blatantly abandon its mission and exploit its taxpayer-subsidized status in order to acquire a tax-paying community bank."
“If the deal goes through, it will harm the city of Memphis and result in a loss of $15 million in local, state and federal taxes over the next decade,” he said. “All taxpayers and those responsible for Tennessee fiscal policy should be concerned.”
Orion and Financial Federal are both based in Memphis.
A review by the Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) has been suspended until the case is resolved.