On Sept. 11, Colin Blair resigned as chief financial officer of Massachusetts-based People's Bancshares Inc. of Brockton. That put a smile on Thomas F. Gillen's face.

The 54-year-old Gillen, an investor in small banks, had campaigned for months for change at People's, in which his R.C.G. Kingston fund has a 5% stake. He was particularly unhappy about People's investment strategy and the thinness of its equity, and he had been urging the company to sell out. He even sponsored a shareholder revolt in an attempt to place new directors on the board, but he lost his bid by a small margin.

It was not until People's was censured last summer by the Federal Deposit Insurance Corp. and Massachusetts banking authorities that Gillen got his way. The authorities demanded that People's raise its capital and stop depending as heavily as it had on investments in trust preferred stock.

Gillen's style has not always been marked by such aggressiveness. "We have refocused our approach," he said in an interview in his mid-town Manhattan office. "If we're happy with management, we'll support them. If not, we'll encourage them to adopt different strategies," which may include selling the company.

Gillen attributes the change to the market. Stocks of smaller banks have been in the doldrums, and merger and acquisition activity has been sparse. And even when mergers do take place, margins are not as big as they used to be, so profits for investors are not as hearty as they once were. The result is that Gillen, and others like him, feel obliged to stir things up rather than to sit back and let the scenario unfold. "A year or so ago, we were much more passive," he says.

Gillen and Don Jennings are co-general partners with Ramius Capital Group in R.C.G. Kingston, the firm that manages the Kingston fund. Ramius Capital is an investment manager that supervises more than $1 billion in assets. Ramius is headed by Peter Cohen, who had been CEO of Shearson Lehman Brothers in 1983, and a close associate of Sandy Weill.

Gillen operates from an office within the Ramius group. He declined to provide a copy of the fund's balance sheet, but said that its assets amounted to about $27 million. Gillen and Jennings run a second fund, with assets of about $4 million, that is virtually identical to Kingston, called the Partnership for Bank Capital Fund, which had been started by Jennings.

The Kingston Fund invests in community banks, generally those with $3 billion or less in assets. Because of the sluggishness in the market for small bank stocks, Gillen at times strays from his basic guidelines.

Kingston has invested in the $24 billion-asset Dime Bancorp because the hyper-aggressive North Fork Bancorp is in the midst of a hostile campaign to acquire it, and Gillen thinks that whether or not North Fork wins, Dime will become more profitable and higher-priced. He cites the appointment earlier this year of Anthony P. Terracciano, a veteran, no-nonsense banker, as Dime's chairman.

"We're not pleased with the position Dime's management has taken" against the takeover, Gillen says. "But now they have an 800-pound gorilla that's not going to sit still for mediocre performance," he says, referring to Terraciano. He sees North Fork as "aggressive and performance-oriented."

Gillen clearly is willing to take risks, and at times he plunges into stocks of troubled banks, sometimes quickly buying and selling, depending on changing winds.

Among his investments in this category is the $322.3 million BYL Bancorp of Orange, CA. In early September, Sy Jacobs, who headed a group of dissident investors, New York-based JAM Partners, gained a seat on the board. JAM has a stake of about 9% in BYL. Because he is now a director of the bank, Jacobs would not discuss its current situation.

A few years ago, bank stocks in general, and BYL in particular, were high-fliers. In May of 1998, BYL stock was selling as high as $23 a share. It dropped to its nadir in February, selling as low as $7.69. It operated in one of the hottest spots of the national economy. It had seven branches and two divisional loan origination offices in California's Orange and Riverside counties. In addition, it had mortgage loan origination offices in Colorado, Indiana, Florida, Kansas, Northern California, Nevada, Utah and Washington State.

Last year BYL's earnings dropped to $1.21 a share, from $1.55 in 1998, and this year it reported a 10-cent loss in the first quarter. It bounced back to profitability in the second quarter, reporting earnings of 17 cents a share. But worse than the first-quarter loss, in late 1999 the Federal Reserve classified BYL as undercapitalized.

The declines reflected a write-down on residuals from unguaranteed portions of Small Business Administration loans BYL had securitized, according to a filing with the Securities and Exchange Commission.

The stock has come off its lows and was trading in mid-September around $10.88. The ups and downs gave Gillen a lot of room to maneuver, but he doesn't say exactly when he gets in or when he gets out.

Another troubled company in which Gillen has dabbled is the $537 million-asset LIFE Financial Corp., which owns LIFE Bank, a thrift based in Riverside, CA. It has six retail branches and a mortgage banking office in suburban Los Angeles.

Gillen bought into LIFE about a year ago, when new management took over. But, according to Gillen, the new managers didn't have the time to fully clean up the problems. On June 16, according to SEC filings, the Office of Thrift Supervision declared that LIFE was undercapitalized, and about a month later issued a supervisory agreement.

On Sept. 11, Steven R. Gardner, 39, was appointed CEO, succeeding 40-year-old Robert K. Riley, who remains a board member of LIFE Financial Corp. and chairman of LIFE Bank. Riley said in a statement that, during his tenure as CEO, LIFE Bank went through "a transformation from a higher-risk, subprime-oriented institution towards a more community bank focus."

He noted that LIFE had quit all non-core businesses such as commercial, warehouse and consumer lending and that it had cut overhead by consolidating five regional lending centers into one centralized operation. The company also pulled out of subprime lending.

Gillen says that at one point, more than a year ago, LIFE Financial had a deal to be sold, but the deal fell through and the stock was "crushed." Gillen thought a change in direction was likely and bought in. Shortly after, management was changed, which bolstered his confidence. But the new management didn't have enough time to achieve what it sought to do, and regulators stepped in, says Gillen. He thinks LIFE remains a good long-term investment, and that earnings will improve or the company will be sold, or both.

Gillen says community bank stocks are beginning to pick up, thanks in part to a moderation in the Federal Reserve's monetary policy and to the clamor stirred by giant deals among giant banks. "It all creates a better tone," he says. And that may make his job a bit easier.


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