MEMPHIS–A Tennessee appellate court has rejected a decision by Tennessee’s state regulator that blocked the purchase of a bank by a credit union.
As CUToday.info reported earlier, in August 2021, Memphis-based Orion FCU announced a purchase-and-assumption agreement with a Memphis-based Financial Federal Bank.
But following objections from the Tennessee Bankers Association, the Tennessee banking commissioner sued Orion FCU, claiming that the transaction violated a Tennessee law that blocked the acquisition of a bank by a company that is not a bank holding company.
The Court’s Ruling
“However, in Gonzales v. Orion Federal Credit Union, the intermediate level Court of Appeals of Tennessee rejected the commissioner’s position, finding that the Tennessee statute did not prevent a credit union’s acquisition of a bank’s assets,” JD Supra reported. “The banking commissioner had argued that the reference to ‘acquire a bank’ in the statute encompassed the acquisition of a bank’s assets. The commissioner contended that the purchase of all of a bank’s assets necessarily provided the acquiror with control of the bank’s operations and, for purposes of the statute, should be regarded as an acquisition of the bank.
“However, the court determined that the bank was a legal entity distinct from its assets and, therefore, the statutory limitation was not triggered by the Orion transaction,” JD Supra continued. “The court found further support for this conclusion in Tennessee banking laws that placed no restrictions on a bank’s sale of assets.”
JDSupra noted it is unclear at this point whether the Tennessee regulator will appeal the decision to the Tennessee Supreme Court.
Plan is to Proceed
“The parties have announced their intention to proceed with the transaction, but the timing remains uncertain,” JDSupra reported. “Nevertheless, the appellate court’s statutory interpretation in Gonzales provides helpful support to credit union-bank transactions that face similar issues.”
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