Perpetual State Bank has realized its impossible dream.

After enduring a year and a half of regulatory hurdles in its efforts to position itself for a possible sale, the $47 million-asset community bank in Lexington, N.C., signed a deal last week with Fidelity Bank of Fuquay- Varina, N.C.

"This has been a long-drawn-out process for us," said B. Glenn Smith, Perpetual's chief executive.

The deal is valued at roughly $11 million, a 1.16% price-to- book ratio. Perpetual, founded in 1903, would become a branch of $410 million-asset Fidelity.

In today's feverish merger environment, community banks usually have little problem in selling themselves off speedily to the highest bidder. But Perpetual's efforts to ready itself for sale have been star-crossed from the outset.

Perpetual's original charter, as a mutual thrift, made it impossible to sell until ownership had been transferred to shareholders.

But the thrift's plan to convert to a stock thrift in the fall of 1994 created headlines and a regulatory row after Perpetual announced its intention of giving 15% of its new stock, valued at about $1 million, to its depositors.

The Federal Deposit Insurance Corp. filed a nonobjection letter, but the state's thrift regulator, the Savings Institutions Division, rejected the plan outright, saying it would set a bad precedent for conversions.

The resulting furor prompted the FDIC's acting general counsel to say the agency's ruling should not be construed as "an endorsement" of the plan. Rather, he wrote in a letter to the American Banker, the FDIC had merely made no safety-and-soundness objections.

Nevertheless, Stephen E. Eubanks, the commissioner of state regulatory agency, argued that allowing such a payout would set off a wave of demands by powerful depositors pressuring other mutuals them to convert.

A month later, Perpetual announced a new course of action: dropping the depositor payout and simultaneously converting to a stock thrift and then to a commercial bank. This plan was approved, and Perpetual set about raising $6 million in capital last spring.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.