BRADFORD BANCORP INC.
6910 YORK ROAD
BALTIMORE, MARYLAND 21212
July 19, 2007
Edwin Adames
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D. C. 20549
Re: Bradford Bancorp, Inc.
Form S-1
Filed June 13, 2007
File No. 333-143696
Comment Letter dated July 13, 2007
Dear Mr. Adames:
Thank you for the opportunity to present our views on the appropriate
accounting treatment for the business combinations involving the registrant,
Bradford Bancorp, Inc. and the two mutual institutions.
We have reproduced your comment No. 40 from your letter dated July 13,
2007 below:
We refer to the agreement to merge with the mutual institutions
Golden Prague Federal Savings and Loan Association and Senator Bank
that are expected to close in June 2007. We also refer to the following
related disclosure in the "Pro Forma Data" section on pages 34 to 57:
o The third paragraph on page 35 states that the March 31, 2007
and December 31, 2006 pro forma balance sheets include the
estimated purchase accounting and merger adjustments related to
these two mergers.
o The application of purchase accounting to these two mergers is
disclosed in footnotes (1) to the various pro forma balance
sheets as of March 31, 2007 and December 31, 2006 at the minimum
and maximum offering ranges and in footnotes (1) to the various
income statements for the three months ended March 31, 2007 and
the year ended December 31, 2007 at the minimum and maximum
offering ranges.
Please revise the notes to the financial statements as of March
31, 2007 and the pro forma financial statements as well as all related
disclosures throughout the filing to record the mergers of these two
mutual institutions on a "similar to a pooling of interests" basis.
Refer to paragraph 60 of SFAS No. 141 that scopes out the combination
of two or more mutual enterprises from the purchase accounting
requirements of SFAS No. 141 until interpretive guidance related to
these transactions is issued by the FASB.
Edwin Adames 2 July 19, 2007
United States Securities and Exchange Commission
Our interpretation of paragraph 60 of SFAS No. 141 is that it merely
scopes the combination of two or more mutual enterprises out of SFAS No. 141's
definition of how to apply purchase accounting. This causes an entity scoped out
of SFAS No. 141 to use APB No. 16 (and its related guidance) to evaluate a
business combination. APB No. 16 allows both purchase accounting and pooling of
interests for business combinations. As such, we have accounted for the
acquisition of the mutual enterprises using APB No. 16 authoritative
methodology. Our interpretation is supported by the following:
1. Paragraph 60 of SFAS No. 141 also states that purchase accounting as
defined in SFAS 141 will not be effective for the combination of two or
more mutual enterprises until interpretive guidance has been issued.
This statement does not prohibit the application of purchase accounting
described under APB No. 16, "Business Combinations".
2. The FASB's Project Update issued June 30, 2005 regarding Combinations
Between Mutual Entities provided the following guidance:
Paragraph 60 of Statement 141 states that Statement 141 is not
effective for combinations between two or more mutual enterprises until
interpretive guidance is issued. As of this time that guidance has not
been issued. Therefore, APB Opinion 16 and related interpretative
guidance (including, but not limited to, FASB Interpretations of
Opinion 16 and AICPA Audit and Accounting Guides) should continue to be
applied until further guidance is issued. The tentative decisions
reached in this project are included in the Exposure Draft for the
Business Combinations: Applying the Acquisition Method project, which
the Board published on June 30, 2005.
3. Under the heading "The Effective Date of this Statement" in SFAS No.
141, it explicitly states that SFAS No. 141 does not apply to the
combination of two or more mutual enterprises. Therefore, no statement
or guidance within SFAS No. 141 affects the combination of mutual
enterprises.
4. The FASB Exposure Draft ("ED") for Business Combinations dated June 30,
2005 requires mutuals to apply purchase accounting. While the ED is not
yet authoritative, we consider it to be further interpretive guidance
that using purchase accounting (under APB No. 16) is in line with the
FASB's most recent indications.
5. Paragraph 19 of SFAS No. 72 discusses industry practice of applying
both purchase and pooling treatment in mergers involving mutuals and
states that the "majority of mutual mergers have been accounted for
using the purchase method.
6. Purchase treatment represents "fair value" accounting; following the
trend for the most recent accounting pronouncements.
Edwin Adames 3 July 19, 2007
United States Securities and Exchange Commission
7. Pooling has been prohibited for almost all business combinations since
June 2001. We are concerned if investors still comprehend pooling
treatment.
8. Neither mutual entity individually meets the 20% significance test.
9. We believe that investors may find the application of pooling for the
mutual entities and purchase accounting for the Patapsco transaction
unnecessarily confusing.
10. The application of pooling would necessitate the "restatement" of
Bradford Bank MHC's historical financial information for the "stub
period" ended March 31, 2007 and for the three years ended December 31,
2006. Accurate accounting records and personnel from the acquired
mutual entities may not be available to accurately reflect the pooling
treatment in Bradford Bank MHC's historical financial statements.
11. Bradford Bank is a stock company and the mutual entities merged into
the Bank.
Based on the aforementioned facts and opinions, we believe that the
appropriate accounting treatment is the application of purchase accounting as
described in APB No. 16 "Business Combinations".
Sincerely,
/s/ David L. Costello III
David L. Costello III
Executive Vice President &
Chief Financial Officer