Second Long Island bank turns down bailout money

A second Long Island bank has turned down money from the U.S. Treasury Department's controversial program to take out equity stakes in healthy banks and help bail out troubled financial institutions.

Hauppauge-based Smithtown Bancorp, parent of the Bank of Smithtown, said Friday that it "will not be participating" in Treasury's Troubled Asset Relief Program, begun in late fall to help loosen tightened lending markets and aid institutions that suffered significant losses after investing in toxic assets.

The Bank of Smithtown's decision comes a week after Westbury-based New York Community Bancorp, parent of New York Community Bank, said it had decided against participating in the TARP program.

Both banks said that although they had been approved for funding - $37.8 million in Bank of Smithtown's case and $596 million in New York Community Bank's case - they had sufficient capital, and they also objected to some of the strings attached to the money.

Chief among the objections was limitations on dividend payments the banks accepting TARP money could make. Banks have also taken issue with other restrictions, such as on bonuses for employees and executive compensation.

"As long as they keep talking about imposing onerous restrictions on banks that take TARP money, it doesn't make sense for a healthy and profitable bank to take the money," Bank of Smithtown chief executive Brad Rock said in an interview yesterday.

Rock said the Bank of Smithtown has been paying dividends for its nearly 100-year history.

"We have had record earnings, the best year in the history of the bank," he said. "Why would we not pay dividends?"

In November, the bank declared a 4-cents-per-share cash dividend payment. In the third quarter, the bank said profits rose 21 percent, compared to the same period in 2007. The bank said loans increased to $1.5 billion, from $948 million in the third quarter in 2007. It is scheduled to release fourth-quarter results tomorrow.

Joseph R. Ficalora, chief executive of New York Community Bank, said Jan. 12 that the bank's capital is "sufficient to support the communities we serve ... "

In October, the bank declared a quarterly cash dividend of 25 cents per share.

David Wyss, an economist for Standard & Poor's Corp., said he expects government restrictions on TARP money to tighten even further as more funds are released. So far, Treasury has released $150 billion, and Congress recently approved the release of another $350 billion.

Nonetheless the American Bankers Association said that a relatively small percentage of financial institutions - about 300 of the 8,500 across the country - have been approved for TARP funding and have received it. Peter Garuccio, an ABA spokesman, said the TARP approval process is lengthy.

In testimony before the House Financial Services Committee this month, Edward L. Yingling, the ABA's chief executive, said bankers were "frustrated" about "the current confused situation" regarding TARP, which he said unfairly lumped together strong banks and failing institutions. "This is not fair and it is harmful to our economy," Yingling said.

BY JAMES BERNSTEIN |james.bernstein@newsday.com
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