Could a North Carolina state-chartered savings bank become a regular commercial bank in the mid-1990s and then merge with another commercial bank?

Plain-English summary

By 1994 NC banking law had three separate chapters governing different types of depository institutions: Chapter 53 for commercial banks, Chapter 54B for savings and loan associations, and Chapter 54C for savings banks. The trouble with multi-chapter regimes is that mergers and conversions often need legislative authorization on both sides of the transaction. An earlier 1993 AG opinion (Reed and Rosser) had concluded that a state savings bank could not merge directly with a commercial bank because the necessary cross-references were not all in place.

NC's Savings Institutions Division asked the AG whether the same result could be reached in two steps: first convert the savings bank into a commercial bank, then merge the resulting commercial bank with another commercial bank. Chief Deputy AG Andrew A. Vanore, Jr. and Assistant AG L. McNeil Chestnut said yes.

The conversion authority came from two complementary statutes. G.S. § 54C-47 (effective October 1, 1993) let a state savings bank apply to the Administrator for permission to convert to a "bank" as defined in § 53-1(1). The mirror provision in § 53-17.2 said any "association" as defined at § 54B-4 could convert to a state bank. Although the § 53-17.2 cross-reference seemed to point only at savings and loan associations, a 1992 amendment to § 54C-4(a) provided that "savings and loan association" in the General Statutes generally includes savings banks chartered under Chapter 54C. Read together, the two statutes authorized a direct savings-bank-to-commercial-bank conversion.

Once the savings bank had converted, the resulting entity was a commercial bank under Chapter 53. G.S. § 53-12 plainly allows a bank to merge or consolidate with another bank. So the second step needed no special interpretation. The end result: a savings bank could reach a commercial-bank merger through the two-step process even though the direct one-step merger was not authorized.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. NC banking law has been substantially restructured since 1994 (NC's general banking laws were modernized in 2012, federal Dodd-Frank reshaped state bank regulation, and Chapter 54B and 54C have been amended numerous times). A current institution considering this kind of transaction should look at the current Commercial Bank Act (Chapter 53C), the current savings bank statutes, and federal banking regulator approvals.

Background and statutory framework

The legal distinction between commercial banks and savings banks in 1994 came down to charter type, regulator, and product authority. Chapter 53 commercial banks had broad authority to take demand deposits, make commercial loans, and operate as full-service banks under the Commissioner of Banks. Chapter 54C state savings banks were a more specialized depository charter, organized largely around residential lending, with Savings Institutions Division supervision. Conversions and mergers between the two regimes mattered economically because they let institutions migrate to a different regulatory framework or consolidate operations across charter types.

The AG's prior 1993 opinion had identified a gap in the merger statutes that prevented a direct one-step transaction. This 1994 opinion confirmed that the legislature had filled the gap, at least operationally, through the conversion authority in § 54C-47 (added by 1993 Sess. Laws ch. 163, s. 7) and the cross-reference in § 54C-4(a) (added by 1991 Sess. Laws Reg. Sess. 1992 ch. 829, s. 4). The opinion is a textbook example of statutes in pari materia: § 54C-47 looked complete only when read alongside § 53-17.2 and the § 54C-4(a) cross-reference.

Common questions

Why couldn't the savings bank just merge directly with a commercial bank?

The merger statutes in Chapter 53 referenced mergers among Chapter 53 banks. The savings bank merger statutes in Chapter 54C contained their own framework. There was no statute that authorized a direct cross-chapter merger. The AG's 1993 predecessor opinion had identified that as a fatal gap; this 1994 opinion accepted that gap but found a workable workaround.

Did the two-step approach require any extra approvals?

Yes. The conversion step required application to the Administrator under § 54C-47, including a majority vote of the board and certification of amendments to the certificate of incorporation. The merger step required compliance with § 53-12 and the customary regulatory approvals for commercial bank mergers, including approvals from the Commissioner of Banks and (depending on the institutions' federal status) federal banking regulators.

Did this opinion change the regulatory bottom line?

It opened a previously blocked path. A savings bank board that wanted to merge with a commercial bank no longer had to wait for fresh legislation; it could plan a two-step transaction. As a practical matter, this gave NC savings banks an exit route during the 1990s era of bank consolidation.

What happened to NC's savings banks after this opinion?

Industry consolidation accelerated through the late 1990s and 2000s. Many NC savings banks either remained independent under their original charters, converted to other forms, or were absorbed by commercial bank holding companies. The Savings Institutions Division was eventually folded into broader state banking regulation.

Source

• Landing page: https://ncdoj.gov/opinions/savings-bank-conversion-to-and-merger-with-commercial-banks/

Citations

• N.C. Gen. Stat. § 53-1(1)
• N.C. Gen. Stat. § 53-12
• N.C. Gen. Stat. § 53-17.2
• N.C. Gen. Stat. § 54B-4
• N.C. Gen. Stat. § 54C-4(a)
• N.C. Gen. Stat. § 54C-47
• 1991 Sess. Laws (Reg. Sess. 1992) c. 829, s. 4
• 1993 Sess. Laws c. 163, s. 7
• Ingram v. Johnson, 260 N.C. 697, 133 S.E.2d 662 (1963)
• In re Watson, 273 N.C. 629, 161 S.E.2d 1 (1968)
• Turlington v. McLeod, 323 N.C. 591, 374 S.E.2d 394 (1988)
• State ex rel. Utilities Comm. v. Lumbee Electric Membership Corp., 275 N.C. 250, 166 S.E.2d 663 (1969)

Original opinion text

July 19, 1994

Mr. David C. Worth
Counsel, Savings Institutions Division
North Carolina Department of Commerce
1110 Navaho Drive, Suite 301
Raleigh, NC 27609

Re: Advisory Opinion — Savings Bank Conversion to and Merger with Commercial Banks, G.S. §§ 53-12, 53-17.2 and 54C-47

Dear Mr. Worth:

You have requested an opinion of this office on the question of whether a savings bank, organized under Chapter 54C of the North Carolina General Statutes, i.e., a state savings bank, can convert to a bank organized under Chapter 53, a commercial bank, and subsequently merge with another commercial bank. For the reasons set forth below, we conclude that such a conversion and merger may be lawfully accomplished under North Carolina law.

DISCUSSION OF THE LEGAL ISSUES

As you know, this office has been called upon a number of times in recent years to consider various issues with regard to the conversion and merger of savings institutions (savings and loan associations and savings banks) into or with commercial banks. In an Advisory Opinion of January 7, 1993, by Senior Deputy Attorney General Ann Reed and Special Deputy Attorney General Henry T. Rosser, they conclude that a state savings bank could not merge directly with a commercial bank.

In your request for an opinion, you point out that the merger could be accomplished through a two step transaction: first, the conversion of a state chartered savings bank to a commercial bank, pursuant to G.S. §§ 54C-47 and 53-17.2, and secondly, subsequent merger of the resulting commercial bank with another bank, pursuant to G.S. § 53-12.

A. Conversions Generally

In a January 23, 1991, Opinion by Special Deputy Attorney General Henry T. Rosser to former Savings Institution Administrator Robert Jacobson, Mr. Rosser distinguished conversions from mergers and indicated that they served different purposes, require different approaches and have different consequences. Both type of transactions are specifically dealt with in both Chapters 53 and 54C.

While we continue to believe that the General Assembly failed to effectuate the authority for a state savings bank to merge directly with a commercial bank, it appears, however, that such a merger may nevertheless be accomplished through the two-step process you have described as long as authority exists for the conversion of a state savings bank into a commercial bank.

Generally speaking, a conversion takes place when a single financial institution, through modification of the documents under which it was created, changes into another type of financial institution but maintains its corporate existence and identity. "The change is a transition and not a new creation." 10 Am. Jur. Banks § 28 (1963).

B. Savings Bank Conversion to Commercial Bank

Effective October 1, 1993, Chapter 54C was amended by adding G.S. § 54C-47, entitled "Conversion to bank." Subsection (a) provides in relevant part that "[a] State savings bank, upon a majority vote of its board of directors, may apply to the Administrator for permission to convert to a bank, as defined under G.S. 53-1(1) . . . . and for certification of appropriate amendments to its certificate of incorporation to effect the change." Sess. Laws 1993 c. 163, s. 7. Although the mirror provision in G.S. § 53-17.2 provides that "[a]ny association, as defined at G.S. § 54B-4, may convert to a state bank . . . ." , the term association is now to be construed to include a state savings bank. G.S. § 54C-4(a) was amended in 1992 to provide that "[e]xcept with respect to this Chapter [Chapter 54C] and Chapter 54B, the term 'savings and loan association' when used in the General Statutes shall include savings banks chartered under this Chapter." Sess. Laws 1991 (Reg. Sess. 1992) c. 829, s. 4.

It is a canon of statutory construction that statutes which are in pari materia, that is, which relate or are applicable to the same subject matter, although enacted at different times must be construed together in order to ascertain legislative intent. 27 NC Index, Statutes § 27 (1994). Furthermore, it is said that laws "…dealing with the same subject matter must be construed in pari materia, and harmonized, if possible, to give effect to each . . . . [a]nd any ambiguity should be resolved so as to effectuate the true legislative intent." Id. at § 27.

Equally important, there is a long line of North Carolina Supreme Court decisions which provide that when a statute on its face reveals legislative intent and purpose, the terms of that statute should be given a meaning that is consistent with that intent and purpose in a proper application of the statute to a particular factual situation. See, e.g. Ingram v. Johnson, 260 N.C. 697, 133 S.E.2d 662 (1963), In re Watson, 273 N.C. 629, 161 S.E.2d 1 (1968) and, Turlington v. McLeod, 323 N.C. 591, 374 S.E.2d 394 (1988). Therefore, when you construe G.S. § 54C-47 together with G.S. § 53-17.2, there is authority for a state savings bank to convert into a commercial bank.

C. Bank to Bank Merger

G.S. § 53-12 provides that "[a] bank may merge or consolidate with or transfer its assets and liabilities to another bank." Reference to bank here is a bank as defined at G.S. § 53-1(1), which for the purposes of this opinion is a commercial bank. The statute is clear and unambiguous. When a section of law dealing with a specific matter is clear and unambiguous on its face, it requires no construction. 27 NC Index Id. at § 27, citing State ex rel. Utilities Comm. v. Lumbee Electric Membership Corp., 275 N.C. 250, 166 S.E.2d 663 (1969).

Since we conclude that a state savings bank may convert into a commercial bank, we see no reason why it could not thereafter merge with another such bank pursuant to G.S. § 53-12. The Legislature has thus provided a method by which a merger can be accomplished. This conclusion is consistent with Mr. Rosser's January 1991, opinion to Mr. Jacobson that a savings and loan association could convert into a bank and thereafter merge with another bank.

CONCLUSION

In summary, it is our opinion that a state savings bank, chartered under the provisions of Chapter 54C may, pursuant to G.S. §§ 53-17.2 and 54C-47, convert into a commercial bank operating under Chapter 53. We are also of the opinion that once the state savings bank has converted to a commercial bank, it may, pursuant to G.S. § 53-12, thereafter merge with another such bank.

We trust that this addresses your questions to this office. If, however, we may be of further assistance, please do not hesitate to let us know.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General

L. McNeil Chestnut
Assistant Attorney General