A year and a half after Centura Banks Inc. of Rocky Mount, N.C., acquired a mutual savings bank in a merger-conversion, seven former depositors of the thrift are trying to have the deal overturned.
The depositors, who had filed suit against the $4.2 billion-asset Centura and the directors of the acquired First Savings Bank last spring, received a boost recently when a superior court judge ruled that a hearing will be held for the plaintiffs to voice their complaints on their treatment by the state's thrift regulator.
That body, called the North Carolina Savings Institution Division, had approved the merger-conversion and subsequently denied the depositors' request for a public hearing in the winter of 1993.
"They're (the plaintiffs) trying to unscramble the egg," said Ralph MacDonald, the lawyer representing the Savings Institution Division. "This is pretty rare. There have been some challenges to this type of deal over the years, but they've generally been unsuccessful."
The disgruntled depositors of the former $66 million-asset mutual savings bank, located in Forest City, are charging the directors of Centura and of First Savings with conspiracy to commit fraud. They also want the deal voided.
The charges against the thrift regulator's office were separated from the civil suits, and will be considered in a process called a judicial review. That procedure, expected to be held in two to three months, will determine whether the state regulator's actions were in any way inappropriate.
The plaintiffs' primary complaint focuses on the $3.6 million in benefits the directors, managers, and employees of First Savings will receive from the deal, as well as on the low purchase price for the institution, about $12.6 million.
For their part, the thrift's depositors received more than $1.5 million in benefits from Centura, in the form of either buying Centura stock at a 15% discount or receiving a 1% bonus interest payment on their deposits.
Centura also made a $1.5 million charitable contribution to the Forest City community.
"The question that has to be answered on these deals is who really owns mutual thrifts," said Cecil W. Sewell Jr., president and chief operating officer of Centura. "When these mutuals were having trouble several years ago, it wasn't the depositors who tried to help. They were pulling their money out. It's been the insurance fund (SAIF) that has carried the risk, not the depositors."
In a merger-conversion a mutual savings institution converts to a stock institution, and then, in most cases, converts to a bank so that the entity can be acquired by another bank or bank holding company. The entire process takes place simultaneously.
Such deals have occurred with increasing frequency during the past several years. They also have begun attracting complaints, primarily from the depositors of the mutuals, who believe that their interests are sacrificed for those of the institutions' directors and officials, who often receive handsome benefit packages in the deals.
"The whole theory of a mutual is that the depositors are the owners of the institution," said Ray E. Grace, examiner at the North Carolina Office of the Commissioner of Banks. "So it bothers them when their directors are being wooed into deals by these attractive contracts."
Criticism of these deals has also focused on the so-called professional depositors, who roam the country placing significant deposits in mutuals in order to benefit when the institutions are converted and then purchased by a bank.
Merger-conversions generated headlines last year when both the Federal Deposit Insurance Corp. and the Office of Thrift Supervision, the agencies that regulate mutual thrifts, decided to study the transactions and subsequently implemented new regulations on them.
The new rules, which went into effect Jan. 1, seek to prevent insider abuse, improperly low pricing of the acquired institution, and the incursion of professional depositors.
A similar case occurred last year in North Carolina when members of Graham Savings Bank of Graham sued BB&T Financial Corp. after it acquired Graham Savings in a merger-conversion deal. The case was settled out of court; the merger was not overturned.
