A well-financed investor blew through sleepy Cumberland like a whirlwind last month, stirring up local shareholders of $330 million-asset First Financial Corp. of Western Maryland in a proxy fight with denunciations of its "woeful" performance. When the dust cleared, Seymour Holtzman, the largest shareholder, had defeated a proposed stock option plan and came close to placing three representatives, including his son-in-law, on the board. The performance surprised even Mr. Holtzman's own proxy solicitation firm, which didn't think he had a chance, given the short amount of time he had to work with - just three weeks. One of the directors on the management slate that came close to losing was the chief executive and chairman of the thrift itself - Patrick J. Coyne, who was hired in January. "The word out of Cumberland is that this board is greedy, and that its word doesn't mean anything," Mr. Holtzman told the 200-plus shareholders and onlookers crammed into the Holiday Inn ballroom in downtown Cumberland two weeks ago. "They got caught with their hands in the cookie jar." Though unusual for the short amount of time needed to wage the proxy fight, the tumultuous scene in Cumberland last month is becoming a more common occurrence at small banks and thrifts nationwide. Consider the past month alone: *A Michigan investor launched a proxy fight at a small thrift in St. Joseph to put two representatives on the board who would likely push for a sale. *A recently founded Newport Beach, Calif., partnership has made detailed recommendations to management at a small Pennsylvania institution, promising "more aggressive action" if its suggestions are ignored. *Bankers First Corp. in Augusta, Ga., finally sold, after losing a proxy fight last spring. "It comes down to a perception problem between the rights of shareholders and what management believes their role and rights are," said Stephen H. Gordon, who last summer started an investment fund targeting middle-market institutions. "There is a real gap between the two sides, and sometimes that gap turns into a fight." Analysts and legal experts said that Mr. Seymour, and a growing number of investors like him, are resorting to proxy battles in usually placid nooks of the banking world - and are successful - for several reasons. For one, shareholders are more receptive than ever before. Once content just to have a stake in the local thrift, the average investor is better informed and, consequently, more active than 10 years ago, observers said. The fax machine and on-line services have facilitated shareholder communication. "It used to be that a lot of local investors were an insurmountable barrier to winning a proxy contest," said Mark D. Gerstein, Mr. Holtzman's lawyer in the First Financial fight and a partner at Katten, Muchin, & Zavis in Chicago. "But they turned out to be a real weapon for us. If you really want to get in the trenches, you can educate these people and turn them." And institutional investors and fund managers, who have traditionally sided with management in such disputes, are becoming sympathetic to shareholder rebels as well. A survey released last week by Russell Reynolds Associates, an executive search firm, revealed that 83% of the fund managers and 64% of the institutional investors polled have voted in favor of a shareholder resolution - against management. The vast majority of both groups also said that they expect to become more influential in corporate governance in the next five years, according to the survey. Plus, the mutual-conversion boom of the past decade has created many more investment opportunities for those interested in community institutions. One hundred mutuals converted to stock thrifts in 1994, for example, compared with just 35 in 1989, according to SNL Securities of Charlottesville, Va. First Financial Corp. of Western Maryland converted to stock form in Feb. 1992, and Mr. Holtzman invested four months later. The drama that enfolded in the Cumberland hotel on a crisp, autumn day two weeks ago started soon after the thrift's new chief executive, Mr. Coyne, was hired last winter. At that time, Mr. Holtzman spoke with Mr. Coyne about getting board representation but was told to "take a hike," according to Mr. Holtzman. Mr. Coyne said he was receptive to Mr. Holtzman, and met with Mr. Holtzman's nominee, but he subsequently concluded that the nominee would only be interested in pushing for a sale of the company. Then two months ago, Mr. Holtzman, an investor in small banks and thrifts with offices in Wilkes-Barre, Pa., and Boca Raton, Fla., became "outraged" when he read about the stock option plan proposed by management in its proxy letter for the annual meeting. He considered the plan, which would give an additional 20,000 options to Mr. Coyne on top of his initial 40,000, to be exorbitant, he said. Beginning on Oct. 2, he and his cohorts swamped the Cumberland media with ads likening the thrift's management and board to pigs. The ads blasted them as greedy and unqualified, pointing out, among other things, that the chief financial officer that Mr. Coyne brought in is only 29 years old. Mr. Holtzman then went on local radio and said, "Let me tell you why your board of directors cannot be trusted. After the bank reported a huge loss, the first one in 20 years, the board of directors wants the shareholders to approve over 210,000 additional stock options." The 53-year-old Mr. Coyne fired back with a series of letters to shareholders, correcting some of Mr. Holtzman's misstatements and defending the record of his management team. "It's been nothing but harassment and intimidation right from the start," said Mr. Coyne, who had broken his right arm at a picnic six weeks before the annual meeting. "But I'm not one who succumbs to intimidation." Mr. Coyne said he had even been threatened by unknown persons in recent months, including one physical threat, which he reported to the Federal Bureau of Investigation. Mr. Coyne explained the 1995 fiscal year loss of $1.2 million as the result of a top-to-bottom review of the thrift's asset quality, which required a $6 million provision for loan losses, most of which was done in the last two quarters of the year. It was not in fact the first loss in 20 years, as Mr. Holtzman said, as there was a 1991 loss under previous management. Mr. Coyne could also proudly point to the most recent quarter that ended Sept. 30, during which First Financial earned $801,000, a 29% jump from last year. Mr. Coyne's salary of $125,000 is well below the peer group average. He prefers to be compensated mainly through incentives such as stock options, he said. However, Mr. Holtzman and, when it came to a vote, the majority of the shareholders said he would be getting too much under the plan. The board was also asking for 63,000 additional stock options for itself. If he had gotten the additional 20,000, his option-adjusted salary would have been about $530,000, which would have put him in the 80th percentile in his peer group for similarly sized thrifts, according to SNL Securities. The average option-adjusted salary in his peer group in the Southeast was $309,955 in 1994, according to SNL. In preliminary numbers released last week, 58% of the stock was voted against the option plan. And on the vote for the directors, Mr. Holtzman's nominees fell short with 46%. The insurgents are verifying the numbers and looking into rumors that some employees were intimidated by management into voting with the company.

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