Edwin F. Hale Sr. has always run headfirst into challenges. Walking away is not his style.
But after years of trying to turn around the company he founded, that's what the First Mariner Bancorp chairman and chief executive agreed to do last week — part of a tentative deal to secure a desperately needed cash infusion of $160 million for the Baltimore institution.
"He doesn't shy away from adversity," said Bel Air attorney John Nowicki, who went to Sparrows Point High School with Hale and bought stock in his bank — both years ago and in 2010. "I'm sure this is a heartbreaker for him."
As Hale prepares to relinquish his leadership role, he leaves an uncertain legacy. Some, admiring him for trying to bail out the parent company of 1st Mariner Bank with $2 million of his own money, wish he could stay. Those who blame him for its near-collapse and stock-price nosedive are delighted to see him go.
"Look at the enormity of his losses over the years," said John Maas, a dissident investor from North Carolina who owns more than 4,500 shares. "How can he still be there?"
For his part, Hale said last week that it's "a matter of principle" to get the bank back on solid footing, even if that means he can't be there for a rebound. Part of his capital-raising strategy last year was to appeal directly to Baltimore-area residents to buy First Mariner stock, and he doesn't want them to lose everything to federal receivership.
"I went out to people in my neighborhood that didn't even know what a share of stock was, and they bought it because of me," said Hale, who grew up in the blue-collar areas of Highlandtown and Edgemere. "I feel a great sense of responsibility to them."
The bank, the largest based in Baltimore, announced Tuesday that New York investment firm Priam Capital is willing to provide just over $36 million if First Mariner can raise nearly $124 million more. That would make the bank one of the best-capitalized in Maryland, the company said, calling off the federal regulators poised to take over.
Hale, 64, says he has no intention of shuffling quietly off into retirement. He will still likely be the 700-employee bank's largest individual shareholder and can sit on the board — just not at the head of it — through next year if the deal is successful. He also has local real estate he wants to develop, the Baltimore Blast soccer team to run, the Baltimore Convention & Tourism Board to chair.
"That's just for starters," he said. "I've had numerous offers, some of which I can't talk about."
Hale bootstrapped his way from working class to millionaire through ventures in trucking, shipping and real estate before angry shareholders recruited him to take over the ailing Bank of Baltimore in 1991. He sold it for a profit three years later, intent on starting his own bank basically from scratch.
He said he turned 1st Mariner into a significant player at "warp speed," building it from $35 million in assets to $1.3 billion. Acquisitions played a role, as did ads — starring Hale — that were aimed at people tired of dealing with financial institutions based far from Baltimore. "Big out-of-town banks just don't get it," he told viewers in an ad last year.
When times were good, they were very good. He erected a 17-story headquarters tower for the company as part of his Canton Crossing development, put the bank's name on what had been the Baltimore Arena and employed more than 1,000 people. At its height, the stock price topped $20 a share.
Then it all began to unravel. Near the height of the housing bubble, a Northern Virginia division started making mortgages that required little or no documentation of borrowers' financial situations — "liar loans," as they're known — and selling them to the Bear Stearns Cos. When borrowers defaulted, as so many did across the country, Bear Stearns sent the loans back to First Mariner under a buyer's remorse clause.
Losses quickly mounted. Regulators began circling, demanding that the bank raise more capital.
One outgrowth of the financial crisis, though, is that capital markets have been largely frozen.
So Hale invested his own money. He appealed to shareholders to buy more stock. And he went across the region to personally ask teachers, retirees and others to become shareholders.
"He's personally tried very hard and he could have easily walked away [before], but he didn't do that," said M.J. "Jay" Brodie, who is president of the quasi-public Baltimore Development Corp. and has known Hale for years.
The fundraising effort brought in more than $10 million last year, but it wasn't nearly enough. Losses continued. And the stock that people purchased at Hale's request is worth about a third less now, with shares trading at about 70 cents.
If the Federal Deposit Insurance Corp. takes over, everything shareholders invested in First Mariner goes up in smoke. Should the new capital-raising deal go through instead, current investors will be left with a much smaller piece of the company because of stock dilution, but they will still own something.
Hale, thinking of the local people who heeded his call last year, including friends of his mother, said: "I just feel an obligation to them to help them restore some of the money that they had lost."
The housing bust and financial meltdown hit the mega-financiers first, but community banks across the country have been buffeted by the aftereffects. These institutions with assets below $10 billion account for most of the 8,000 banks in the country, and also most of the ones now struggling, said banking analyst Christopher Marinac of Atlanta-based FIG Partners LLC.
More than 3,000 banks of all sizes are under the close supervision of regulators, 870 are on the FDIC's "problem list" and 200-plus have failed since 2008, he said.
But "the vast majority" of community banks have enough capital on hand to steer their way through the choppy waters of the uneven recovery, said Paul Merski, chief economist for the Independent Community Bankers of America. That's particularly true for banks that aren't on the East and West coasts, he said.
"You didn't have a huge bubble in real estate prices and real estate investing, and you didn't have that huge burst," he said. "For many banks right through the middle swath of the country, it's almost business as usual."
Hale says he knows the buck stops with the CEO, but he feels he was blindsided by the loans that have brought his bank to the brink. During the foray into the "Alt-A" mortgages, he said he asked many times, "Are you sure that these loans are going to be sold without recourse, they will be sold to Wall Street and never come back?" The mortgage-team leaders assured him that was the case, he said.
They've since been fired.
"It started off as a trickle, and it became a torrent," Hale said of the returning loans. "A total of $80 million came back to us. It was unstoppable. And when that happened, that ultimately cost us about $60 million and created the capital hole we have today."
Maas, the shareholder critic, isn't impressed with that explanation. It strikes him as "incompetence" for the CEO of a bank to not know the terms under which it sold loans.
But he was unhappy with management long before the housing bust. Hale's intertwined business relationships — First Mariner rented its headquarters from him until 2009, sponsors his soccer team and made loans to his son that later went bad — don't sit well with Maas.
For years, the university professor tried to get the company to split the CEO and chairman positions so Hale would not be both the man in charge of day-to-day operations and the head of the board overseeing the company — including the CEO. The reason none of his annual shareholder resolutions to that effect passed, Maas said, is because company insiders control so much of the stock.
A Baltimore native who invested in the company early on, Maas feels his concerns about Hale have been borne out by events. "He was the problem," Maas said.
Other shareholders have warm feelings for Hale, despite the sharp drop in stock price. They blame economic forces, not him.
"I think the people in Baltimore who like the idea of a community bank identify with Ed," said Leigh Brent, president of Baltimore insurance firm Maury Donnelly & Parr.
Brent, whose company banks with 1st Mariner, bought shares when Hale appealed to the community last year. A few weeks ago, he purchased more. "I believe in the bank," he said. "They're still our bank, and I hope they make it."
Hale, who earned about $540,000 last year as head of the company, is due a payout of more than $1.5 million when he leaves. The financial hits he has taken over the past few years far outweigh that amount, and not just because he's the largest shareholder of a company that has dropped in value from nearly $120 million to $13 million in a little over four years.
The real estate bust meant his property holdings lost value, too. Then the loan came due on 1st Mariner Tower in 2009 and, unable to refinance, he sold it for less than he thought it was worth to avoid foreclosure. As part of that deal, he moved out of the penthouse condo that — like an upscale version of living over the storefront — had been his home.
He said last week that he could have saved "a fortune" if he'd filed for bankruptcy protection rather than sell the tower, and his lawyer urged him to take that route.
"If I went into Chapter 11, if I did have to do that, it would cause a run on the bank because people wouldn't understand the distinction between Ed and Ed's bank," Hale recalled telling the attorney. He added: "I just flat refused to do it."
He didn't reveal how much he's lost over the last few years. But, he said, "I know exactly what it is, and it just sickens me to think about it."
Even at the height of Hale's success, he saw himself on the outside looking in — an uninvited guest in Baltimore's power circles, thanks to his school-of-hard-knocks background. The last few years haven't helped.
But last week, he said his plans for a new chapter post-Mariner aren't about proving himself to anyone.
"I don't know what else I have to prove," he said. "I just like being challenged."
The immediate challenge is raising the $123.6 million First Mariner needs to consummate the deal with Priam Capital, an investment fund run by a Baltimore native that wants to own nearly a quarter of the company. Hale said Securities and Exchange Commission rules prohibit him from talking about that deal directly, but there's little question he's hopeful it will all work out.
"When the capital comes into the bank, now everybody's off defense, immediately put back on offense," he said. "We will be a force to be reckoned with."
Then he corrects himself. "First Mariner will be a force to be reckoned with."
After so many years with man and bank nearly one and the same, the idea of a mostly separate future takes time to sink in.
Hale can more easily imagine himself at First Mariner — somehow — than gone.
"I'm not going to stay in the position I have now, but if there could be something else out there for me, if they want me, I'd be happy to look at it," he volunteered. "One big thing is, I've told everyone I will not be an impediment. If it means I have to leave to facilitate this deal, I will do so."