Judge Blocks Tenn. Credit Union-Bank Acquisition Pending State Regulator's Appeal

A Tennessee judge placed a stay on her previous ruling, which allows a regulator to ask the state’s appeal court to stop the $1 billion Orion Federal Credit Union from purchasing the $818 million Financial Federal Bank.

Davidson County Chancery Court Judge Patricia Moskal ordered the stay Monday on her previous ruling, which rescinded her temporary injunction to allow the Memphis-based credit union to buy the bank. She initially blocked the purchase with a temporary injunction last November after the Tennessee Department of Financial Institutions (TDFI) said the acquisition agreement is prohibited under state law.

After hearing legal arguments from the state regulator, Financial Federal and Orion, Judge Moskal ruled on May 27 that the acquisition is allowed under state law, and she rescinded the temporary injunction.

However, the TDFI last month filed a request to stay Judge Moskal’s ruling, which she granted, until the state regulator’s appeal could be heard and decided by the Tennessee Court of Appeals.

Orion and Financial Federal argued against the stay in jointly filed court documents, saying the acquisition’s delay has cost them financially.

The bank faces increased rates for certain contracts due to the need to move to shorter terms based on the uncertainty of an acquisition closing date. In addition, it is critical for the bank to have a reasonably certain closing date for the transaction for future contract negotiations and to provide peace of mind for its employees and shareholders, the financial institutions said in court documents opposing the state’s requested stay of the judge’s ruling.

Orion also argued in court documents that in the parties’ application to the FDIC, the credit union projected a post-closing increase of net income of approximately $725,000 per month.

“The (TDFI) Commissioner’s opposition has prevented Orion from realizing this net income,” the financial institutions said. “Yet another stay – after the Commissioner already lost on the merits – would continue to deprive Orion of this income.”

The financial institutions did not indicate in court documents whether another delay could lead to the cancellation of the acquisition deal.

Nevertheless, the financial institutions said another delay would mean that it would be months before FFBank could resubmit its FDIC application, and that the bank, its shareholders and customers could be at risk of facing “undesirable alternatives to the Orion transaction.”

“FFBank needs certainty as (CEO) Mr. (Kent) Wunderlich is nearing retirement, but the other offers for FFBank were materially lower than Orion’s, were not all-cash transactions, and likely would have led to the termination of 25% to 35% of the current employees at FFBank,” the financial institutions said. “Orion has committed to retaining 100% of the employees of FFBank post closing. But the ongoing delay in closing the transaction has resulted in increasing uncertainty among FFBank employees as the transaction drags on with no finality in sight.”

Orion, FFBank and their attorneys did not respond to a CU Times‘ request for comment.