The irate shareholder, historically a rarity at small-town financial institutions, is roaring with a vengeance.

At community banks from California to Connecticut, disruptive local shareholders have tormented managements and boards this spring both in court and out. They're trying to scuttle mergers, prompt mergers, block branch acquisitions, and get CEOs fired - or rehired.

"There are shareholders out there who are vindictive, who don't understand that their actions don't always comply with SEC or bylaw requirements, and cause the institution excessive legal fees," said Philip D. LaChapelle. The chief executive of Tracy Federal Bank in California was summing up his board's bruising experience with some local shareholders.

The buffeting community banks have taken from management changes, regulatory pressure, merger mania, and a lack of liquidity in community bank stocks is causing schisms between boards and their shareholders and the community.

Shareholder activism is an emerging trend at large banks - witness Wall Street investor Michael Price's moves at Michigan National Corp. and Chase Manhattan Corp.

At community banks, however, shareholder spats don't often register on Wall Street's radar because they usually arise spontaneously from a disaffected and often disorganized local group.

Reid Nagle, president of Charlottesville, Va.-based SNL Securities, said formal proxy battles at small institutions are rare.

"With smaller institutions, it's a costly process," he said. "For a shareholder to undertake and pay for a proxy battle, the cost almost becomes prohibitive. The hassle and cost often far outweigh the return."

But despite many community bank shareholders' lack of organization and money, they can create enormous headaches for management and force fundamental changes in board direction.

A case in point: In April, several shareholders, apparently acting independently, attended the annual meeting of $860 million-asset Jefferson Savings Bancorp in St. Louis. They lit into management and the board about adoption of a "poison pill" anti-takeover measure and excessive executive compensation. One shareholder eventually called management's pension package "sleazy."

In a curt defense, chairman David McCay reportedly replied, "I'm doing a good job, and if the board doesn't like the job I'm doing, then they can fire me."

Nonetheless, one shareholder's ardent call for a dividend had the effect of pushing up Jefferson's stock by 10% in the days after.

At Bank of South Windsor's annual meeting last month, a small group of shareholders managed to put a recently ousted president onto an alternate slate of board nominees. The dissidents said the sitting board members had only wanted to protect their privileged access to the Connecticut bank's credit department when they fired the president.

And the pressure to merge - the growing belief among community bank investors that there's more value in selling their stock to another financial institution - is causing more shareholders to question board strategy.

In sleepy Augusta, Ga., this month, the old-line directors of Bankers First Corp. were forced to put out a "for sale" sign after the thrift holding company's rank-and-file shareholders sided with a thrift raider from South Carolina.

The board of the $1.1 billion-asset company was challenged by Mid- Atlantic Investors, a Columbia, S.C., investment firm that owns 9.4% of Bankers First and believed the company should be sold. What surprised analysts was not that the proxy fight was waged - in this case by a well- financed and sophisticated outsider - but that most shareholders sided with the dissidents.

At Long Island's $570 million-asset Sunrise Bancorp, one shareholder filed a class-action against the board only days after it had rejected a merger offer from acquisitive North Fork Bancorp. In DeWitt, N.Y., three small shareholders at Community Bank System Inc. sued to block its purchase of 15 Chase Manhattan branches (they lost).

But perhaps no boardroom drama eclipses that of Tracy Federal Bank, a $120 million-asset thrift. Tracy is a textbook example of what can happen when the bond between a board and its shareholders is sundered.

The trouble started in late 1992, when Tracy Federal's founding CEO, Lawrence Winslow, quit to take a job with much bigger Cenfed Bank. His replacement, Mr. LaChapelle, described the events in the two-and-a-half years after Mr. Winslow's departure:

First, the board was expanded to 11 members to accommodate a dissident slate of directors who were displeased at Mr. Winslow's departure. Then regulators asked Tracy to develop "suitability" guidelines for directors, which caused the loss of eight board members, most of them just elected.

In the interim, a shareholder group led by an ex-employee was waging a proxy war whose aim, among other things, was to get Mr. LaChapelle fired.

Mr. LaChapelle and his four fellow board members are girding for another proxy challenge from dissident shareholders at the July annual meeting.

"I'm still under siege," he said.

Winfred Tom, a California bank consultant who's been on both sides of shareholder/board battles - first at the former Golden Coin Savings and Loan and later as a director on Tracy's board - said more boards should prepare for open brawls.

"There's often disagreement among different groups of shareholders that are being aired in the annual meeting," said Mr. Tom, a onetime thrift CEO who made it onto the board of Tracy as a dissident before being asked to leave last year. "Everybody has different agendas. And the board is being held accountable for more and more."

Mr. Tom declined to discuss the details of his tenure on Tracy's board, saying many of the issues that arose - like selling the company - are still being hotly debated.

"There's bound to be more fireworks," he said.

Barbara Bronstien, Christopher Rhoads, and Jonathan Epstein contributed to this article.

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