As community banks and thrifts come under increasing pressure from activist shareholders, attorneys and consultants are urging banking executives to improve communication and, when necessary, beef up investor relations staffs.

At America's Community Bankers' annual conference last week in Seattle, experts advised thrift executives to forget about causes of unrest - the interest rate environment, for instance - and concentrate instead on what they can control, such as financial results and investor relations.

"You don't need to go out and sell your company just because shares are down and coming under heat," said Samuel J. Malizia of law firm Malizia Spidi & Fisch PC in Washington and a panelist at a session on investor relations.

Mr. Malizia's suggestions for keeping activist shareholders at bay included amending bylaws to avoid stockholder interference, limiting shareholder proposals and nominees for directors, and stock buybacks. But above all, he said, bankers need to better communicate their stories to shareholders through quarterly and annual reports and by holding stockholder meetings where the emphasis is on the company's progress.

"One of the things I tell them is to toot your own horn," said Mr. Malizia, who advises community financial institutions on shareholder matters. Communicating with investors has become even more important in the wake of new Securities and Exchange Commission rules that prohibit public companies from making selective disclosures. As a result, some companies are choosing not to talk at all, which may be a "way to protect yourself but not a good way to enhance the value of your stock," he said.

Robert A. Kotecki, an analyst at Friedman, Billings, Ramsey & Co. in Chicago and another panelist at the session, said companies without a strong financial track record are more vulnerable to an outside attack if they appear "weak" because of a lack of insider ownership, clearly stated long-term goals, and a strong following.

"If your stock is undervalued, you need to have an analyst or brokerage firm touting your stock and telling investors why it is undervalued," he said.

Since the end of 1998, when financial stocks began to tumble as money poured out of the financial sector and into technology stocks, shareholder activism has reached new heights, especially at smaller banks and thrifts where it is easier to gain a foothold.

"There's no segment of the U.S. economy where dissident activity has been more widespread - and successful - than at community and regional banks," said Patrick McGurn, an attorney at Institutional Shareholder Services, a proxy-advisor firm in Rockville, Md.

At least 38 banks and thrifts have been threatened by activist shareholders this year, up from fewer than 10 in 1999, according to Institutional Shareholder Services.

Sandy Spring Bancorp in Olney, Md., which last week added an investor relations function to its Web site, is just one example of how small financial companies are reaching out to investors.

The $1.1 billion-asset company is now including on its site such information as historical stock performance, institutional and insider ownership, press releases, and filings with the SEC.

While most large banks have an investor relations department, a less costly alternative for smaller companies is to outsource the function. Pulaski Bank in St. Louis is one thrift that has hired an outside firm instead of paying a full-time employee to handle the job. The $271 million-asset company went public in 1998 and in January hired a Chicago-based investor relations company to help it "attract the right kind of investors," said William A. Donius, Pulaski's president and chief executive officer.

Mr. Donius has had more than 100 meetings with potential institutional investors as a result of the investor relations company's work. Still, he said that in the end, protection from dissident shareholders requires more than good investor relations.

"Have good results, demonstrate earnings growth, and doing the right things - that's the best defense of all," Mr. Donius said.

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