Baltimore's leaders created the Savings Bank of Baltimore in 1818 to help the poor save money and build wealth. Today, shareholders of the company's descendant, Baltimore Bancorp, will vote on a more modern wealth-building device: a friendly takeover.
If the merger with First Fidelity Bancorp. of Lawrenceville, N.J., is approved at today's special meeting, as expected, the 3,449 stockholders who own the company and its main subsidiary, the Bank of Baltimore, will cash in their shares for a total of $346 million. And Baltimore will end up minus one more local bank.
With $33.8 billion in assets and more than 650 branches in New Jersey, Pennsylvania, New York and Connecticut, First Fidelity is the nation's 24th-largest banking company. The merger will add Baltimore Bancorp's $2.2 billion in assets and 41 branches, and make the company Maryland's fifth-largest bank.
While the Bank of Baltimore name will disappear after the consolidation of the two institutions next year, First Fidelity executives have promised to bring their retail and community banking focus to Maryland. They have said branch closings will be minimal, though there are no projections. About a quarter of Baltimore Bancorp's 1,125-person work force likely will be cut, much of it through attrition.
The New Jersey company already has moved to make its services more convenient. This month, First Fidelity received approval from regulators to merge its banking operations in New Jersey and Pennsylvania with its growing presence in Maryland (it purchased several branches of the failed John Hanson Savings & Loan Association this year).
The move took place this month when First Fidelity relocated the main office of its primary New Jersey subsidiary from Salem in southern New Jersey to Elkton. It then received regulatory approval to merge that bank with its small Maryland operation.
When a similar merger takes place with the company's banks in New York and Connecticut, customers will be able to make deposits and withdrawals in any state that has a First Fidelity branch, well ahead of the 1997 target for interstate branching included in Congress' recently passed banking law.
The pending merger with Baltimore Bancorp, expected by the end of the year assuming regulatory and shareholder approvals, will mark the close of a dramatic finalchapter in the company's 176-year history.
As recently as two years ago, few believed Baltimore Bancorp's financial problems could be surmounted. Like MNC Financial Inc., a victim of overly aggressive commercial real estate lending, Baltimore Bancorp turned to a new management team to stem the losses from a portfolio of increasingly bad loans.
But unlike MNC, which was sold to NationsBank Corp. last year, Baltimore Bancorp's management turnover happened before the financial problems emerged. In a successful proxy fight, a group of disaffected shareholders won control of the board of directors after a raft of shareholder lawsuits was filed against the company and its prior management, led by Chairman and Chief Executive Harry L. Robinson.
Mr. Robinson and his board had enraged many shareholders by rejecting a $17-a-share takeover bid from First Maryland Bancorp in the spring of 1990, at a time when the stock was trading just above $10. By that fall, First Maryland withdrew its offer, and Baltimore Bancorp's stock began a long slide, ultimately hitting a low point of $3.875 in January 1991.
When shipping and trucking executive Edwin F. Hale Sr. and his group of dissident shareholders took control of the company in late 1990, they had no inkling of the problems they faced. Expecting a rest after the long and bruising proxy fight, Mr. Hale left for vacation in Bermuda, only to be called back early to face federal regulators distressed about the bank's condition.
The company lost $94.6 million in the fourth quarter of 1991, and $126.5 million for the year, largely because of the real estate loans regulators forced the company to write off as uncollectable.
It seemed an unlikely fate for a company that had relied on little but savings accounts, small business loans and home mortgages for most of its existence.
A history of Baltimore Bancorp says the founders were inspired by the doomsday theories of 18th century economist Thomas R. Malthus. In a widely read essay, he had warned about the dangers to society of a fast-growing lower-class unable to sustain itself financially.
Whether out of altruistic concern for the poor or the self-interest of the wealthy, who were loath to pay for a British-style social welfare system, Baltimore's ruling class in 1818 decided to create a savings bank to encourage the city's lower classes to build wealth.
The Savings Bank of Baltimore, as it was first called, was the nation's third savings institution. The company was so committed to its mission -- "to promote Economy, and the practice of saving among the poor and labouring classes of the community . . ." -- that at first it rejected deposits of more than $10 a week and customers it believed were too well-to-do.
By sticking to its limited lines of business, accepting small deposits and investing them mostly in government and utility bonds, the company managed to survive every bank run and calamity through the 19th and most of the 20th centuries, including the Civil War, the Great Baltimore Fire of 1904 and two world wars. The Savings Bank helped finance the fortunes of some of Baltimore's most prominent names, including its largest single borrower, Johns Hopkins.
Classic Greek building
The bank's classic Greek building, at the corner of Charles and Baltimore streets, was erected in 1907, three years after its old building was destroyed in the fire (the vault survived intact).
But it wasn't until 1951 that the bank opened its first branch operation, in the 5100 block of Park Heights Ave. near where its large block of Jewish customers had moved. In the '50s, the company responded to the need for postwar housing by setting up a mortgage operation. William A. Beasman Jr., who started as a trainee in 1947, and was tapped to run its first branch, was called back downtown to run the new mortgage operations.
Later, Mr. Beasman led the company's foray into consumer finance. He became chairman and chief executive in 1974, and stayed in office until 1984, when the company converted from a mutual to a stock institution, and switched its charter from a savings bank to a commercial bank.
Mr. Robinson led the company through its last growth years, more than doubling its assets to $3.5 billion in 1989 from $1.6 billion in 1984. He engineered several acquisitions, and under him the company took a 5 percent equity stake in the 25-story Bank of Baltimore Building, at Calvert and Baltimore streets, and moved its headquarters there. The tower graced the cover of the bank's annual report in 1989, the year it was completed.
But the rapid growth turned out to be ill-conceived, and Baltimore Bancorp's fall came as a shock to some. "It was the biggest blow to me," said Mr. Beasman, who had retired in 1987. "I only had three interests in my life: the bank, my family and sailing."
Hale takes over
When Mr. Hale took over, he moved to build a measure of trust by calling Mr. Beasman back as chairman emeritus. "I admire what Ed did," Mr. Beasman said. "He did things that I couldn't have done, nor do I think the old board could've done."
At Baltimore Bancorp's last annual meeting, in April, John R. Hershey Jr., a Hagerstown stockbroker and chairman of the company's shareholders advisory committee, put it succinctly: "Ed Hale's accomplished everything he said he would."
But while the Baltimore Bancorp merger will bring some benefits to its customers -- not to mention $20.75 a share in cash to its stockholders -- bankers and analysts are divided over whether this acquisition, like the others in Maryland before it, had to happen. Even Mr. Hale, who stands to make about $6 million from severance payments and the sale of stock and options he owns, seems dissatisfied with the turnout.
"I think we could've made it on our own, no question," he said last week. "In fact, Ed Hale's preference, even with the money that I'm making, would have been to stay independent and even to be an acquirer."
"But my personal pledge from the start was we were going to entertain any reasonable offers," he said.
But others questioned whether the company could have thrived on its own. "Yes, they could've muddled along," said Rockville banking consultant Arnold G. Danielson. "But in this rising interest rate environment, as a thrift they probably would have been a disappointment to their shareholders."
A commercial bank in name, but not in the composition of its loan and deposit portfolio, Baltimore Bancorp would soon find its profitability squeezed as the cost of its funds began to rise with the higher interest rates, Mr. Danielson said.
As for First Fidelity, Mr. Danielson said he's not convinced the company can itself survive the consolidation that is fast shrinking the nation's banking industry. With 26 percent of First Fidelity's stock owned by Spain's Banco Santander, Mr. Danielson said any severe problems at Santander could lead to pressure for a sale of its American holding.
First Fidelity
Still, Mr. Hale said he's satisfied with his company's prospective new owner. He said First Fidelity met all of his criteria: they were willing to pay the highest price, more than two times book value; their lack of presence in Maryland meant fewer layoffs; and they showed a strong sense of commitment to the existing operation here, as evidenced by their willingness to retain Joseph A. Cicero, executive vice president and chief financial officer, and President Alan M. Leberknight. Mr. Hale will serve for a time on the company's Maryland and national boards of directors.
"Of all the alternatives," Mr. Hale said, "First Fidelity was the best."