Madison National Bancorp Inc. in Melville, N.Y., is giving an investment group an additional six months to complete its planned acquisition, but the seller is building in insurance.

The $325 million-asset company said Thursday that FNBNY Bancorp Inc. has until Jan. 31, 2012, to complete its purchase or Madison can walk away. The deal was set to expire at the end of July.

FNBNY is likely inclined to complete the deal sooner because the extension comes at a price. For each month that the extension is used, FNBNY will pay Madison $500,000, which will be counted as income.

The $33.7 million cash deal was announced last October 2010 and was initially expected to close in the first quarter.

FNBNY, which is owned by Modern Capital Partners LP, a New York investment fund, has applied to the Federal Reserve for bank holding company status. A spokesman for FNBNY said the application has been accepted by the Fed and is under review.

"FNBNY's formal application to acquire Madison National Bancorp has been submitted to, and accepted by, the Fed. We are encouraged by this step and regard it as an important advance. We are committed to working expeditiously with the Federal Reserve and all involved parties to move the process forward," Erik Hendrickson, an FNBNY spokesman, said in an email.

Also, Madison shareholders still need to approve the deal.

FNBNY bought a 4.95% stake in Madison when the deal was announced last year. As part of the original agreement, FNBNY increased its stake to 9.9% at the end of March.

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