N.C. thrift, free stock plan denied, applies for commercial charter.

A tiny Lexington, N.C., thrift that last month put state and federal regulators at odds over stock savings bank conversions has revised its course of action.

Perpetual Savings Bank, a $38 million-asset thrift located 20 miles south of Winston-Salem, last week applied to state regulators to convert from a mutual to a stock savings bank and then to a commercial bank.

This latest plan followed a rejection by the North Carolina Savings Institution Division on Nov. 10 of the thrift's proposal to give stock or cash -- valued at about $1 million -- to its depositors in the process of converting to a stock institution.

"The distribution of a limited amount of free stock to depositors was an integral part of Perpetual Savings' plan of conversion and also was a crucial element of its business plan for postconversion operations," said B. Glenn Smith, president of Perpetual Savings, in a statement. "The decision...caused the board of directors to reevaluate the institution's entire business plan."

That reevaluation has resulted in the desire to become a commercial bank. The depositor payout, called the Depositor Recognition Plan, has been dropped.

"Stock ownership by customers would've given them (Perpetual Savings) the edge needed to compete as a stock thrift," said Brian Thomas Atkinson, the thrift's lawyer. "But once they lost that opportunity, they had to consider other alternatives. This is the one they selected. They don't plan to change their operations, but the flexibility of a commercial bank will allow them to change in the future if they so desire."

The thrift expects to receive all state and federal regulatory approvals by mid-January, when it will begin its subscription offering. Once the offering is completed, the thrift will be renamed Perpetual State Bank.

The one-office, 91-year-old thrift created headlines last month when its conversion plans appeared to drive a wedge between the Federal Deposit Insurance Corp. and the state regulator.

The FDIC approved the application to convert to a stockowned thrift with the depositor benefits -- estimated at about 15% of the appraised value of the thrift -- at the end of October.

But two weeks later, the thrift learned from Stephen E. Eubanks, the administrator of the state's Savings Institutions Division, that it could not offer the payouts.

Mr. Eubanks wrote in a letter to the thrift's law firm that allowing such depositor payouts in stock conversions would set a precedent that could, "in the view of the division, be inequitable or detrimental to other savings banks and contrary to the public interest."

Once mutual thrift depositors learn of such payouts, they could place pressure on the managers of mutuals to convert, Mr. Eubanks said. Particularly powerful depositors could force higher-than-normal payouts, he added.

"I'd like to see plain vanilla, standard conversions," he said. "That's the way I'd like to see these handled. I don't see any conflict between us and the FDIC on this. They issued a nonobjection letter, and I looked at other components of this as well."

Mr. Eubanks said he had nothing against the situation at Perpetual Savings in particular, but was ruling in the context of implications for the entire industry.

"We felt that that argument was a red herring," Mr. Atkinson said. "We argued that it was right for us, not necessarily for any institution."

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