Madison Bank warned on 'unsafe' practices

Madison National Bank, the Merrick-based bank that has an agreement to be acquired by a Manhattan investment group, was ordered by regulators to correct "unsafe and unsound banking practices" months before the agreement.

The order from the federal Comptroller of the Currency, signed in June but released just this month, criticizes the bank for weak management, inadequate earnings, insufficient capital and not diversifying the types of loans it makes.

Bank officials did not respond to requests for comment.

More than half of the bank's loans are to owners of apartment buildings, and according to its most recent earnings report, its rate of bad loans to total loans has more than doubled in the past year, from a fairly typical 2.8 percent to a rather high 6.2 percent.

Meanwhile, its capital levels dipped slightly, and in the first three quarters of the year, the bank lost $285,500 after making $2.1 million in the same period the year before.

Although net interest income was up, the bank's increase in operating expenses far exceeded that increase.

Four months after regulators imposed the order on Madison, it agreed last month to be acquired by FNBNY Bancorp Inc. of Manhattan for $33.7 million.

The deal, which requires regulatory approval, is expected to close by the end of March.

If it goes through, it is expected to give the bank a stronger capital base.