Maryland-based Bradford Bancorp Inc. merges with Senator Bank of

Daily Record, The (Baltimore), Feb 2, 2007 by Andy Rosen

This week, Bradford Bancorp Inc. made the latest in a five-month series of acquisitions, growing both its branch network and its assets by agreeing to merge with Senator Bank of Cockeysville.

It was the second deal of its kind in the space of a month for the Baltimore-based mutual savings and loan, a straight combination of assets and operations for the two banks with no compensation. Bradford is now working on a similar merger with Golden Prague Federal Savings and Loan, also of Baltimore.

Company officials hope these deals, combined with other recent acquisitions, will position the bank to stay competitive by growing commercial loans in an increasingly difficult environment for small banks.

Since last October, Bradford has also grown by assuming $6.4 million in deposits from American Bank of Chevy Chase, and it recently completed a $9.6 million stock purchase acquisition of Valley Bancorp Inc. of Hunt Valley.

Combined, these transactions could increase the bank's consolidated assets to up to $570 million, said Dallas R. Arthur, president of Bradford Bancorp, up from $407 million at the beginning of 2006. That represents growth of almost 29 percent in just over a year.

So why the sudden growth spurt for a bank in its 105th year of operation? Arthur said in an increasingly competitive environment, size matters.

"In order for a financial institution to survive in today's marketplace, size is one of the key components, as well as capital," he said. "Size gives you the ability to attract more customers and attract quality employees to help with that growth."

Bradford Bank will be able to offer services, including online banking and financial brokerage, that Senator did not, Arthur said.

Senator Bank is also a mutual savings and loan, owned by its depositors. Chairman and President Leonard J. Grossman said the decision to merge is in the best interest of the Senator's customers. They will benefit from being part of a larger and more competitive bank, he said.

"It allows our depositors and our customers a lot of access to products that we cannot offer on our own because we're too small," he said.

Babu Baradwaj, associate professor of finance at Towson University, said small banks are having increasing trouble competing, because they do not have the same range of products and services as their larger rivals.

"They can only do so much with a limited offering," he said. "They're in a limited market, and it's not a market they have to themselves."

To stay vital, Baradwaj said, many small banks have to either be acquired or grow by making acquisitions.

Bradford Bank's string of acquisitions has also grown its footprint in the area around Baltimore. The bank will expand its branch network from six to nine locations, making inroads in places like Cockeysville, Parkville and Pikesville.

The growth is part of a trend toward increasing the bank's level of commercial lending, Arthur said. Commercial loans tend to generate higher rates that can be adjusted based on market conditions.

Mortgage loans, the traditional bread and butter of savings and loans like Bradford, often have fixed rates and do not bring in very high yields. Other opportunities, like investment in securities, have also seen declining returns.

The bank has classically kept its mortgage loans in its portfolio, as opposed to selling them on the secondary market like many institutions. But Bradford may consider changing that, Arthur said.

Commercial lending has become a primary avenue for Bradford Bank to grow its earnings to the point where it can pay market-level interest rates on certificates of deposit and other projects, Arthur said.

"There are so many other opportunities where folks can invest their money," he said. "It's a challenge to attract deposits into any financial institution today."

Baradwaj said savings and loans tend to become attracted to the yields of commercial lending enjoyed by larger commercial banks because the mortgage lending market is slowing. He said savings and loans may find success in lending to smaller customers who are underserved by big banks, but they should be careful because commercial lending can carry more risk and heavier regulation than consumer lending.