Local banks took a hit during, after recession

The recession and its aftereffects bloodied Long Island's banking industry, causing three publicly traded banks to disappear through mergers since 2007.

Now Long Island's public banks, whose earnings potential is restricted by low interest rates intended to help the economy recover, seek a balance between expanding their lending and avoiding bad debt in an uncertain economic recovery.

Among the banks that are no longer in business:

Bank of Smithtown, taken over in 2010 by People's United Financial Inc. of Connecticut after bad commercial real estate loans forced Smithtown to seek buyers.

Madison National Bancorp of Melville, with branches in Massapequa, Melville and Merrick, taken over in April by FNBNY Bancorp of Manhattan. Its branches were renamed First National Bank of New York. Madison National was ordered by regulators in 2010 to correct "unsafe and unsound banking practices."

State Bank, taken over in January by New Jersey-based Valley National Bank, which operates the branches under its own name. State was one of two Long Island banks propped up by the Troubled Asset Relief Program during the financial crisis of 2008. State, which had 16 branches in Nassau and Suffolk and in Queens, borrowed $37 million after slipping into the red and didn't repay the government until last year, with money provided by its soon-to-be owner, Valley.

Suffolk Bancorp, the Riverhead-based parent of the 30-branch Suffolk County National Bank, almost had its stock delisted from the Nasdaq Market last year, after it was late in filing certain quarterly reports. It had to restate two of the reports because of inadequate provisions on its books for bad loans. In this year's second quarter, with a new CEO and chief financial officer, Suffolk earned $4.2 million, up 27 percent from a year earlier.

In an environment of risky loans, shrinking was a strategy for some banks. Astoria Financial Corp., of Lake Success, had $17 billion in assets on Dec. 31 -- $4.5 billion less than it had at year's end 2007.

The 85-branch bank cut 142 of its 1,541 employees in February. Banking analyst Mark T. Fitzgibbon of Sandler O'Neill & Partners in Manhattan, says management decided to make fewer loans when the recession hit, rather than issuing stock to raise the capital it would have needed to lend more: "It was a very smart thing to do and they really protected their shareholders during this period."

At larger New York Community Bancorp., based in Westbury, key numbers look better than before the recession -- including $42 billion in assets, up 37 percent from 2007. Net income last year was $480 million, up 72 percent from 2007. New York Community operates under other names in New York, Ohio, Florida and Arizona.

Flushing Financial, based in Lake Success and parent of the 15-branch Flushing Savings Bank, borrowed $70 million from TARP in 2008. It kept profits growing through the recession and repaid the government in 2009. Assets totaled $4.3 billion on Dec. 31, up 28 percent from the end of 2007.