Union bank

Tennessee regulator files appeal to block credit union’s takeover of bank

Diving brief:

  • The Tennessee Department of Financial Institutions (TDFI) is appealing a judge’s decision to allow Orion Credit Union to buy Financial Federal Bank, American banker reported Monday.
  • A judge in November issued an injunction temporarily halting the deal between the two Memphis-based companies after the state’s financial regulator claimed the tie-up was prohibited under Tennessee banking law.
  • Davidson County Chancery Court Judge Patricia Moskal lifted this injunction last month, ruling that the Tennessee Banking Act allows the transaction because Orion would acquire Financial Federal’s assets, not its charter or stock.

Overview of the dive:

The legal challenge to Orion’s purchase of Financial Federal Bank, announced in August 2021, highlights the continued opposition of community banking groups to agreements between credit unions and banks.

“It is surprising that the commissioner is so opposed to the economic freedom of community banks and their right to choose when it comes to sales,” Michael Bell, a Honigman lawyer who advised Orion on the transaction, told American Banker on Monday. “The outcome they seek – which the trial court emphatically and clearly denied – will harm the value of banks, shareholders, bank employees and communities.”

A hearing for an injunction is scheduled for July 8.

The TDFI had until June 27 to appeal. TDFI Commissioner Greg Gonzales, in his June 14 appeal, said federal financial account holders would be “irreparably harmed and disrupted” — as would the state’s interest in maintaining a safe and sound banking system — if the agreement was authorized to be concluded.

If the deal goes through and is then overturned by an appeals court, “it would likely create confusion and uncertainty among Financial Federal customers regarding the security of their accounts and which entity actually has custody and control. control over their accounts,” Gonzales added, according to American. Banker.

Banking trade groups have long challenged what they see as an unfair playing field that allows tax-exempt credit unions offer a higher purchase price in acquisitions than banks can.

Credit unions bought a record 16 banks in 2019. But the pace of those deals has slowed since the start of the COVID-19 pandemic.

Bell in January predicted a record”25 years and overagreements between credit unions and banks in 2022, according to American Banker. Nine such transactions have been proposed so far this year. If this pace continues, 2022 could see 18 deals – a record but nowhere near 25.

Opposition to the Orion deal was almost immediate.

“It’s not just about losing loans due to unfair competition. This is about losing the community banking model,” wrote Colin Barrett, CEO of the Tennessee Bankers Association, in a blog post the day Orion announced the proposed transaction. Barrett added that the industry is “reaching an inflection point in the credit union debate.”

However, not all planned takeovers by credit unions of community banks have been successful.

Jacksonville, Fla.-based VyStar Credit Union’s deal to buy Georgia’s Heritage Southeast Bank has been canceled this monthafter both parties said the deal lacked a clear path to obtaining necessary regulatory approvals.

The deal, which would have made VyStar the 13th largest credit union in the United States, garnered strong repression from the Independent Community Bankers of America (ICBA) and the Community Bankers Association of Georgia, which denounced the institution’s consolidation record following a bank acquisition in 2019.