Mar. 14--Bancorp Rhode Island (BARI:NASDAQ) and a pair of dissident investors have reached an accord in their nearly three-year fight over operation of the Providence-based financial institution, according to filings made Thursday with the U.S. Securities and Exchange Commission.

Executives at Bancorp Rhode Island, the parent of the 16-branch Bank Rhode Island, and the partners in the PL Capital LLC hedge fund, have reached what is called a "standstill" agreement.

With the pact, the bank's management has agreed to cut the size of its board of directors from 15 to 12 people over three years and to move to a majority-vote system for board elections. In exchange, PL Capital partners Richard Lashley and John Palmer agreed to halt efforts to oust certain company executives and to change the way the bank operates. In addition, they have agreed to support the bank's director nominees.

The partners have hounded management at the bank for nearly three years, pushing for a sale of the company.

The partners have a history of taking on the management at banks they consider underperforming and seeking to profit from improved earnings, a quick run-up in stock prices or the sale of their targets. PL Capital owns about 373,000 shares, or about 8.2 percent, of BARI stock.

Lashley and Palmer twice sought seats on the Bancorp Rhode Island board of directors as they sought the sale. But neither of those things happened. Meanwhile, the company's share price has sunk along with the rest of the stock market, from about $45 in 2006 to below $16 earlier this month. Shares of BARI closed yesterday at $16.05.This year, the partners pushed to reduce the size of the Bancorp board to less than the current 15 seats, require directors to stand for election annually and require directors to resign if they receive less than a majority of affirmative votes from shareholders.

"Bancorp Rhode Island's board missed several critical opportunities to maximize shareholder value in 2006 and 2007, and management has failed to improve the performance of Bancorp Rhode Island as they promised," Lashley said in a letter to the board.

In the past, the partners have pointed to Bancorp Rhode Island's low earnings, low return on assets and weak efficiency rating.

They said the bank's efficiency rating, essentially a measure of how much money an institution has to spend to make $1, was a "critical" issue.

By that measure, the bank's performance has improved as the efficiency rating has dropped from 76 percent in 2006, to 73.4 percent in 2007 and to 67.7 percent last year. Ratings at similar banks often fall below 60 percent, the partners contended.

During last year's annual meeting, Bancorp officials said the bank relies on a "high-touch" strategy based on cultivating commercial borrowers in its home state, some of whom are poached from the multistate competitors who dominate the Rhode Island market.

High-touch relationships, which require bank executives to become intimately familiar with a customer's business and financial needs, come with high costs, said Merrill W. Sherman, the bank's president and chief executive officer. That management style can hurt a bank's performance in the short run.

Between 2003 and 2007, the bank built four new branches -- in Lincoln, East Greenwich, North Kingstown and Pawtucket -- and an operations center in Lincoln as well. Building those was expensive and recouping that investment takes time.

Last December, the bank received $30 million as a participant in the U.S. Treasury Department's Capital Purchase Program. The voluntary program is available to healthy financial institutions and is designed to increase the availability of credit to businesses and consumers.

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