For legal lending purposes we participating with another bank to originate a loan. Would it be an issue if for one day the full balance was on our books before we sell the participation?

Which legal lending limits are you referring too?

Tennessee

So, you are really exceeding 25% capital, surplus and undivided profits?

I am not a TN person, so take this for what it is worth. You have to go first to the TN statutes.

2020 Tennessee Code
Title 45 - Banks and Financial Institutions
Chapter 2 - Banking Institutions
Part 11 - Loans
§ 45-2-1102. Limit of Loans to Any One Borrower — Classified Loans

a.1. Except as provided in this section, no state bank shall be allowed to lend to any one (1) person, firm or corporation (including loans to a firm or loans to the several members thereof) more than fifteen percent (15%) of its capital, surplus and undivided profits. However, the loans may be in excess of that percent, but not above twenty-five percent (25%) except as provided in subsection (b), if each specific loan in excess of fifteen percent (15%) is first submitted to and approved in advance in writing by the board of directors or by the finance committee of the bank and a record is kept of the written approval.

2. No loan limit shall be applicable to any state bank in any situation or circumstance in which no loan limit is applicable to national banks.

So, if you go to the National Bank rules, then I think you need to see if you have a extension of credit.

You may or may not have an extension of credit according to 12 CFR 32.2(q)(2)(vi).

You might want to call your State EIC..