Anthony Terracciano has this sly grin on his face. He's been asked a pretty simple question -- why did he, the chief executive of First Fidelity Bancorp. of Newark, N.J., agree Monday to buy Baltimore Bancorp for $346 million? And he's getting ready to give a really simple answer.

"It was for sale," he said.

From someone else's mouth, those words would be dissembling, but the 55-year old banker from Bayonne, N.J., is straighter than that. Anyone who paid attention to him has known for a while that he wanted to get into Baltimore, and that the parent company of the Bank of Baltimore was the only bank in town on the market. He's just stating facts. So what if people thought the buyer would be Mellon Bank Corp. or First Union Corp.?

"Some people were shocked -- shocked!" he said. "I don't know why they should be."

First Fidelity is the new bank in town, and it is very much the creature of Mr. Terracciano, who was brought in in 1990 to fix the now-$34 billion bank when it was reeling from half-thought-out mergers and lending woes.

He fired 1,400 people two months after arriving, replaced virtually everyone at the top (only four of 15 current executive officers arrived before 1990). He dealt with the bad loans, raised capital even though he had to go to Spain to find a partner, engineered 18 mergers and saved the company while pushing from its New Jersey-Pennsylvania base into New York, Connecticut and now Maryland.

The result is a super-regional bank, the bank Maryland National Bank yearned to become when First Fidelity's one-time peer flung itself into the real estate loans that wrecked it. First Fidelity's stock has tripled since 1990, handily outperforming regional banks as a group, earnings have gone from a $6 million 1990 loss to $399 million last year, and the growth is still coming.

"This seems to be a period where you have to have a strategic framework, but you have to behave somewhat opportunistically," Terracciano said. "We would like to stretch from Boston to Baltimore. I'm sticking with that geographical framework."

First Fidelity is a bank investors love. But it is not a bank competitors seem to fear.

"Banks in New Jersey and Pennsylvania love to compete against First Fidelity," said Arnold Danielson, a Rockville banking consultant. "When you get a big bank that's cost-conscious, [you become] impersonal. But when you're a big bank, you don't have a lot of choice."

"All we really have is another name; we don't have another competitor," said Kenneth Trout, president of Signet Bank/Maryland. "I think there are plenty of strong competitors in the market, and I don't see anything First Fidelity is going to bring."

At first meeting, the First Fidelity chief executive is part the imposing Mr. Terracciano, the banker with the $1.075 million in 1992 salary and bonus in charge of $34 billion in assets.

But he also is part -- seemingly a larger part -- the engaging Tony from Bayonne, with the New York accent and the pack of Merit cigarettes on the desk, humble enough to insist any banker who is arrogant after the last few years needs a "lobotomy."

He also is part witty Jesuit-educated holder of a master's in philosophy, as fluent in moral reasoning as market share, who drops jokes about "poor, misunderstood Descartes" into the context of a conversation.

He spent 23 years at Chase Manhattan Corp., then went to Mellon Bank Corp. in Pittsburgh in 1987. Mellon was in terrible shape, clobbered by loans in Texas real estate and energy that went bad by 1987, years before real estate lending woes hit the East Coast.

As chief operating officer, he helped Mellon Chief Executive Frank V. Cahouet execute an innovative "good bank/bad bank" strategy to spin off the bad loans into a separate company and protect the "good bank" from failure.

First Fidelity became the next big eastern bank to get in trouble after a 1988 lending debacle and the first signs of real estate problems. Those problems also kept the old management from effectively knitting together the New Jersey and Pennsylvania banks that had merged to form First Fidelity in 1988. The bank turned to Mr. Terracciano.

"The cultures were different, and my job was to turn around the institution. To do that I had to have one culture," Mr. Terracciano said. "One contribution I made right away was that I gave all the banks in the First Fidelity system something in common, which was that they all hated me."

After his cost-cutting wave and acquisition spree, the bank is healthy. But its profits and asset quality are still below those of top performing banks. Dean Witter Reynolds Inc. analyst Anthony Davis ranks First Fidelity's overall fundamentals 22nd of 30 regional banking companies that Dean Witter follows. Lingering loan problems and acquisitions of weak banks earn First Fidelity a 29th place for asset quality. The bank is 10th on that list in profits, and will do better when loan problems are completely fixed, Mr. Davis said.

"There are major-league earnings benefits coming for this company from reduced [loan write-downs]," Mr. Davis said.

"A lot of people don't step back and think about their strategy and just let it happen. That's not Tony," Mr. Cahouet said. "He's bright, he's got vision. He's a strong leader who will get involved."

Mr. Terracciano's vision is that the banking world is shrinking. The 10,000 or so banks in the nation are too many, he said. In the future, he says, there will be 3,000 or fewer banks, most of them tiny community banks. Bigger banks already face increasing competition from mutual funds and stock brokers who can compete for depositors, and capital markets where big corporations can borrow money more cheaply than First Fidelity could ever lend it.

That means the path to survival as a large independent bank, let alone prosperity, leads through the middle of the market, Mr. Terracciano says. He wants to lend money to small to midsized companies that are too small to float bonds on the public markets, but too big for an independent Bank of Baltimore to serve.

Maryland has nearly 5,000 such companies, he says, and their projected economic growth is faster than the national average. And the Port of Baltimore gives local business the chance to capitalize on growing trade with Europe.

That's why he's here.

"A lot of this trade will be in middle-market companies, and that's our business," Mr. Terracciano said. "That's where the money is in this business, and that's where this franchise [First Fidelity's] was anyway."

That message was catnip to the Bank of Baltimore, where several directors, including Chairman Edwin F. Hale, make their main living in cargo shipping. Mr. Terracciano was preaching to the choir when he told the Baltimore bankers that international trade was the way to make the local bank grow, and to allow it to push into commercial banking sectors that the consumer-oriented Bank of Baltimore has never been able to crack.

"The port is on the upswing, and that is [First Fidelity's] focus," Mr. Hale said. "It was inevitable that we were going to be acquired. To buck the trend would have cost shareholders a lot of money, and I wasn't about to do that. That's what [ousted Chairman] Harry Robinson did."

For years, the Savings Bank of Baltimore was your basic savings and loan association. It followed the 3-6-3 rule -- borrow deposit money at 3 percent, lend mortgage money at 6 percent, and go play golf at 3 p.m. It wasn't a business for brain surgeons.

But thrifts were hit hard when the high interest rates of 1979 through 1982 left them paying more for short-term deposits than they were getting for long-term loans. Many thrifts failed. Deregulation was supposed to help save the rest. What was clear was that thrifts couldn't stand still.

A different idea

The Bank of Baltimore had a different idea. It changed itself into a commercial bank, went public in 1984 and tried to compete with established banks like Maryland National, 1st National Bank of Maryland, Signet and Mercantile Safe Deposit & Trust.

The goal was to add to the thrift's deposit base the big, usually noninterest-bearing checking accounts businesses need, to sell companies sophisticated services like cash management that generate risk-free fee income, and to make loans for shorter, less risky terms and at higher interest rates than consumer mortgages.

The combination of these and similar tactics had made commercial banks more profitable than thrifts for years.

But in the Bank of Baltimore's case, it didn't work out. It didn't have pre-existing relationships with businesses, it didn't have the size to make the bigger loans companies needed, and it didn't have the expertise or money to get into the most sophisticated services.

So profits lagged behind those of its Baltimore banking peers, and the company became takeover bait. First Maryland Bancorp, the parent of 1st National, offered $17 a share in 1990. Then-Chairman Harry L. Robinson turned it down cold.

Shareholders revolted. Mr. Hale in 1991 led a slate of dissident director candidates in a proxy fight, and Mr. Robinson was turned out to retirement. But while Mr. Hale did an acclaimed job putting out the real estate lending-based fires that threatened NTC the bank's survival in 1991 and early 1992, he never fully got around to his own stated goal of building up the commercial business to boost profits.

"Since we've been hunkered down playing defense for so long, we've only been playing offense for the last few months," he said.

Now it's Mr. Terracciano's turn to pick up where Mr. Hale is leaving off. First Fidelity is big enough to serve midsized companies. Certainly it has the know-how in commercial banking the Bank of Baltimore has always been short on.

But the question is, can a $34 billion bank come in and be nimble enough to get that business away from local banks, and to make money the way First Fidelity makes money? Can the Bank of Baltimore, whose return on assets was a paltry 0.44 percent in 1993, make the 1.2 percent return on assets First Fidelity demands?

Terracciano confident

No doubt about it, Mr. Terracciano insists. "It will have a business mix like ours, and its return on assets will be consistent with our corporate objectives," he said. "We wouldn't have done the deal if we didn't think it could do that."

In large part, Mr. Terracciano will go back to his 1990 playbook for First Fidelity to make the profits rise. He said the company will cut Baltimore Bancorp's costs 40 percent -- though most or all of the 300 jobs likely to be cut will be cut by attrition -- and will reduce loan loss expenses that are already falling as the economy improves. Then getting more commercial business will finish the job.

"The first two will come fairly quickly and the third within a reasonable period of time," he said. "People are going to be surprised at how aggressively we go after that business."

But some doubt how effectively First Fidelity will be able to push into that market.

Mr. Danielson said First Fidelity has actually lost some of its market share in Pennsylvania since 1988, shortly after it expanded into the state via acquisition. He argues that pushing into new cities means doing things that very large super-regional banks like First Fidelity can't do -- spend money, accept losses, and price low to get business.

"That's what you have to do to make a second-tier bank first tier," he said. "This market is owned by NationsBank, First Maryland, Mercantile and Signet, and after that it's a long way to No. 5."

"The question is, can this company become offensive?" Mr. Davis said. "The mind-set at this company has been defensive."

Mr. Hale, never a fan of other Baltimore bankers, thinks First Fidelity will be able to feed on the dissatisfaction of small-business owners who felt snubbed in favor of developers in the 1980s, then dumped on in the 1990s as the banks squeezed other customers to make up for the money lost on real estate loans.

Inroads predicted

"We were making some inroads, and they really will," Mr. Hale said. "I think [Mr. Terracciano] is going to change the face of banking in this area."

But even if the deal works flawlessly, Mr. Terracciano knows the acquisition is only a small part of what he needs to do to cope in a world where a slip in performance can make you the hunted instead of the hunter. He expects to expand more in Maryland, possibly by buying more institutions. Longer-term, specific predictions, he says, are for fools.

"What happens when the [industry] consolidation really picks up steam and there are nationwide banks, I don't know yet," he said. "All our work has just given us a chance."