The founder of 1st Mariner launched the Baltimore bank as an alternative to big, faceless, out-of-state institutions at a time when banks based elsewhere had rapidly gobbled up 30 percent of the Maryland market.
Now — 19 years and many acquisitions later — out-of-state banks control 80 percent of the pie.
That change hasn't dampened the enthusiasm 1st Mariner's new owners feel for the bank. Just the opposite.
The purchasing group with local ties, approved as the bank's winning bidder Tuesday by a federal bankruptcy judge, makes the same argument now that founder Edwin F. Hale Sr. offered in 1995: Baltimore needs this bank. It's the largest still based in the city — once a significant center of finance — and the bank's new owners say they will keep it that way.
"This is just so essential," said Howard Feinglass, a Baltimore native who worked on the deal for more than three years, recruiting local and out-of-state investors.
Jack E. Steil, the incoming CEO and a longtime Baltimore banker, said he's been inundated with calls since the unusual twist this week: Local bank doesn't get bought by an out-of-state player. (The competing bidder was National Penn Bank from Allentown, Pa.)
"My voice mail is full," he said. "It's been a very strong, positive support. And I think a lot of that is that people really want to see locally ... run institutions."
The loss of locally headquartered banks is a familiar story across the country. Waves of consolidation rippled through after the federal government eased geographic restrictions on ownership in the 1980s and '90s, a key reason the number of bank and thrift charters nationwide has shrunk from 20,000 in 1980 to about 6,800 in December, according to the Federal Deposit Insurance Corp.
Major Baltimore banks subsumed by out-of-state buyers during that time include Loyola Federal, the Bank of Baltimore, Maryland National, First Maryland, Mercantile and Provident.
That has left a large part of the Baltimore region accustomed to banking with institutions that have headquarters elsewhere. At the top of the list is North Carolina-based Bank of America, which controls 20 percent of the Maryland market, according to the FDIC. (1st Mariner has just under 1 percent.)
M&T Bank in New York and PNC Bank in Pennsylvania round out Maryland's top three.
So does local matter anymore in banking?
Maryland regulators see the value. Mark Kaufman, the state's commissioner of financial regulation, said community banks account for 40 percent of small-business lending in the country, even though their combined assets make up just 12 percent of the total.
He said he's pleased to see recent examples of capital flowing to local community banks, 1st Mariner among them.
"That's what's needed to keep the community banking system vital," Kaufman said.
Still, banking consultant Joe Sullivan warns his community bank clients that it's not enough to simply be the hometown player.
"Forty-one percent of people see no discernible difference between one bank and another," said Sullivan, chief executive of Market Insights in Chicago. "The big banks have really come a long way in the last two years in cleaning up their reputation. ... Is there a place for a smaller bank against a bigger bank? Absolutely, but you've got to get deeper with the story."
Smaller banks can be more nimble and serve niches that big banks ignore, he said.
"The only way a small bank is going to be able to compete is to be hyper-local and hyper-involved in the markets they serve, and to really understand what the needs are," Sullivan said.
First Mariner is at the high end of what Sullivan considers small: about $1 billion in assets. But the value proposition he's talking about is what Feinglass says he has had in mind since beginning his quest to get his New York investment firm a stake in the bank.
That quest involves Baltimore banking history as much as its potential future.
Feinglass, who heads Priam Capital, does not want 1st Mariner just because it is the biggest local bank left in a sizable city, though that's important to him. He sees value in the brand, too. Despite the bank's well-publicized financial woes, the incoming management team has no plan to change the name. But there's more to it.
He points to long-running Mercantile Bankshares CEO H. Furlong Baldwin, a fellow Gilman School graduate, and what he was able to accomplish at that Baltimore bank. It was customer-oriented, nationally respected in the industry and very profitable before PNC acquired it in 2007.
Feinglass would love to see Mercantile reborn in 1st Mariner. So he went to Steil and Robert D. Kunisch Jr. — both Mercantile executives during the Baldwin years — and sold them on the idea of running a bank that some feared was headed for an FDIC takeover.
Feinglass himself wouldn't run the bank, only take a board seat. Steil and Kunisch saw an opportunity to control their destiny — and avoid having another bank sold out from under them to an outside player.
No matter how good the purchaser, "they do take a lot of decision-making out of the market, which affects your ability to be responsive to your customer needs," Kunisch said.
More than three years after the trio first talked about a future together at 1st Mariner, the bank continues to struggle. Its parent company is in bankruptcy protection.
And faced with an unexpected battle for 1st Mariner, Feinglass' group has to pay $17.7 million for it — a lot more than its opening offer of nearly $4.8 million.
But the bank's biggest problem all this time has been lack of capital, drained by housing-bust losses in nonprime "Alt-A" home loans. Kunisch, sitting in U.S. Bankruptcy Court in Baltimore last week right after the hard-won victory in bidding for the bank, said the $85 million to $100 million the group plans to infuse into 1st Mariner to recapitalize it will make an immediate difference.
Operating in an undercapitalized condition, with increased regulatory oversight, is an expensive proposition for a bank in many ways.
"FDIC insurance is higher, your legal and professional fees are higher, your corporate insurance is higher," Kunisch said. "As you're under that type of financial distress, it's hard to go out and sell your products and services. I'm not sure how many people want to deal with a bank that nobody really knows what the future is for it."
When he steps in as president and chief operating officer and Steil takes the CEO spot, the cash infusion will wipe that uncertainty away. And then, Kunisch said, "We're going to find out if people in Maryland are as passionate as they've said about seeing a local bank."
Stuart Greenberg, a bank consultant based in Baltimore, has worked in the industry for more than 40 years and considers Steil and Kunisch "very qualified, experienced bankers." Add a good board of directors and good managers, and you've got the formula for success, he said.
In his opinion, local "does matter." He thinks there's an emotional advantage to being the hometown bank, but beyond that, a community institution's loan underwriters and other decision-makers aren't far away.
"The bank has the lending authority to do the job here so you don't get hung up in approvals that are coming from some other region that may or may not appreciate what this local company is all about," Greenberg said. "There is a marketing advantage, if done properly. And I have every confidence that that's exactly what 1st Mariner will do."
First Mariner has long traded on its hometown status to win customers. Its motto: "We built this bank for you." Its celebrity spokesman: Ravens quarterback Joe Flacco.
"We're going to know what your name is," Hale said, the week he launched the bank.
Local loyalty was what prompted customer Mike Galiazzo to start banking at 1st Mariner about 10 years ago. He's a Dundalk native and knows Hale, who's from nearby Edgemere.
"You kind of grew up with that notion of blue-collar people sticking together," said Galiazzo, who works at a nonprofit. "For half the population, that population over 30 or 35, I think that local connection will continue to be important because there's a group of people out there, I think they're feeling they're being somewhat minimized or marginalized by bigness."
Still, 1st Mariner has gone through a lot the past several years. And Hale, the reason Galiazzo signed up in the first place, left in late 2011. Galiazzo had been thinking of jumping ship.
But hearing about the buyers and their plans made him feel better.
"Maybe I'll stay there if it's got the local flair," he said, "and they give me free checking."