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Analyst: Smithtown Bancorp may be ripe for takeover

In the wake of Smithtown Bancorp's decision last month to suspend paying a dividend to shareholders, a banking analyst said the company could be an attractive takeover target for another neighboring bank.

The holding company for the Bank of Smithtown decided against paying a dividend as its number of bad loans continued to rise. The bank has been an aggressive lender, making more than $2 billion in loans through Sept. 30, 2009, almost 40 percent more than the previous year. Of the 19 Long Island-based banks, only the much larger New York Community Bank lent more.

A few weeks before the dividend announcement, Tom Stevens, a loan officer responsible primarily for construction lending, resigned. In announcing the resignation then, the bank said it "has significantly curtailed its construction lending since September 2007, shortly after the subprime mortgage crisis began."

The combination of bad loans and high credit costs led the bank to suspend the dividend of 4 cents a share and has contributed to its stock price losing more than half its value in the past year, even as other Nasdaq bank stocks gained slightly, analyst Mark Fitzgibbon of Sandler and O'Neill wrote in a research report last month.

Bank officials did not respond to repeated requests for comment.

If the stock price remains low, "we believe the company could . . . decide to sell to one of the many neighboring banks or thrifts in the region that would want to own Smithtown's attractive franchise," Fitzgibbon wrote.

The stock, which was up 5 cents, closed Monday at $6 a share. After the dividend announcement, it traded as low as $4.51, its lowest in more than nine years.

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