A South Carolina thrift has found fresh ammunition for its battle with a notorious shareholder activist-an outside report siding with management.

Palfed Inc. said Tuesday that a recent report by Institutional Shareholder Services, a Bethesda, Md., advisory group, supports its battle to remain independent.

The March report, which was requested by Palfed's institutional investors but just released publicly, recommends that shareholders vote against a proposal by Mid-Atlantic Investors, Columbia, S.C., calling for the sale of the Aiken-based thrift company.

Mid-Atlantic, a partnership led by managing partner H. Jerry Shearer, owns 9.9% of Palfed, the $663.3 million-asset parent of Palmetto Federal Savings Bank. Mid-Atlantic wants a "prompt sale" of Palfed. A vote on Mid- Atlantic's proxy is scheduled for the company's annual meeting April 22.

John C. Troutman, president and CEO of Palfed, said in a written statement that the advice from Institutional Shareholder Services can't be ignored, even by Mid-Atlantic.

But Mr. Shearer played down the importance of the report.

"It's not surprising," he said. Institutional Shareholder Services "typically recommends management's position. They made such a recommendation a couple years ago in another proxy contest."

Mr. Shearer was referring to another proxy fight in which his group took on management. In that instance, shareholders of Bankers First Corp., Augusta, Ga., agreed with Mid-Atlantic Investors and voted to sell the bank.

But an official at Institutional Shareholder Services said the company evaluates each case on its own, judging companies on performance, strategic plan, and management ability.

"We don't always go for or against," said Jill Lyons, research director at Institutional Shareholder Services.

Institutional Shareholder Services is considered a leader in the rather small shareholder advisory industry. Last week, it recommended that California's Great Western Financial Corp. consider a hostile bid from H.F. Ahmanson & Co. in addition to the friendly offer from Washington Mutual Inc.

Mr. Shearer said he's concerned that Palfed could miss its opportunity to sell.

Mid-Atlantic is unhappy with Palfed's performance. The thrift company lost $146,000 in 1996, reporting losses of more than $2 million in the year's last half. But on Thursday, Palfed reported first-quarter earnings of $1.35 million, up 21% from a year earlier.

Mr. Shearer is embroiled in a second proxy fight, which is expected to come to a head the day after the Palfed vote. Mid-Atlantic is taking on the management of Cenit Bancorp, Norfolk, Va., April 23.

In that conflict, Mid-Atlantic wants Cenit shareholders to elect three directors on its slate and hire an investment banker to determine the company's worth.

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