Two major shareholders of a small Illinois banking company say its management is spending on "excessive" perquisites and shouldn't build an expensive new branch.

Douglas M. Kratz and Perry B. Hansen, who together own 9.6% of First Financial Bancorp, Belvidere, said its expenses are out of line for a $94 million-asset company.

The two men, who run another bank holding company in the state, bought their stake in First Financial June 5. It didn't take them long to fire off a letter detailing the changes and cost-cutting they want to see. They ticked off a dozen examples of what they deemed lavish perks for the chief executive officer and directors, such as a three-year employee agreement, generous benefit and compensation plans, and club membership dues.

It appeared to be another sign of shareholder activism in even the smallest community banks. But in this case, the pair said, they're not taking a hostile stance toward management. "As far as hostile takeovers and 'bear hugs,' that's not our modus operandi," Mr. Kratz said. "Sometimes an outsider just needs to point some things out."

Mr. Kratz and Mr. Hansen head $440 million-asset Financial Services Corporation of the Midwest, Rock Island.

They said they have a track record of buying into small, underperforming companies and working with management to turn them around.

Steven C. Derr, chief executive officer and president of First Financial, said the company's management and board have shared some of these two investors' concerns about First Financial's operations.

"It didn't come as a big surprise," he said.

Mr. Derr, who has been CEO since June 1995, would not discuss the plan to spend up to $2 million on a new branch in Rockford, Ill., or any of the investors' other specific criticisms. However, he said, the board plans to meet within a few weeks to discuss Mr. Kratz and Mr. Hansen's letter.

"We listen to our shareholders, and we respond to their concerns," Mr. Derr said.

In their letter, Mr. Kratz and Mr. Hansen also said they believe board members own too little stock in First Financial. The directors, as a group, own less than 5% of the company, the two wrote.

"Who is looking out for the shareholders?" they asked.

The company's stock price would be enhanced, the shareholders wrote, if First Financial were to improve its overhead and efficiency ratios from 73% and 77%, respectively, to 45% and 55%.

First Financial's stock price has fluctuated between $15 and $16.50 a share during the past 24 months. The company's book value is $17.50 a share. Mr. Kratz and Mr. Hansen each bought 20,000 shares, paying $16 apiece for a total of $320,000 each.

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