ADEEP RECESSION that is pounding at banks is driv- ing a split between institutions that are raising capital by selling stock to the federal govern- ment and those that have spurned the U.S. Treasury Department's offer, according to some industry observers.

The federal government has set minimum eligibility requirements for the Capital Purchase Program of the Troubled Assets Relief Program, or TARR Some banks say qualifying for CPP sends a message of strength.

Last week, for example, Unity Bancorp crowed about issuing $20.6 million of stock to Treasury.

"The capital raised under the Treasury program will significantly strengthen our financial position during these challenging economic times," said James A. Hughes, chief executive officer of the Clinton- based parent of Unity Bank.

Valley National Bancorp also touted its participation in the program. Gerald H. Lipkin, CEO of the Wayne-based bank, said it sold a $300 million stake to Treasury, calling the transaction an "acknowledgement of Valleys financial health."

Some other banks, like Vineland-based Sun Bancorp Inc., limited their disclosure to regulatory filings.

"Although the company has a strong capital position, it has submitted an application to participate in the CPP to further strengthen its capital," said Sun's quarterly report with the Securities and Exchange Commission.

"Our application was submitted right around the time that we filed our [Sept. 30] 10-Q, so we felt there was no need for a separate press release," said Sun CEO Thomas X. Geisel.

Sun hopes to sell between $30 million and $89 million of stock to the Treasury, but has not yet been told whether its offer will be accepted, Geisel said.

Meanwhile, institutions like Investors Bancorp Inc. say their decision not to sell stock to government sends a signal of strength.

While supporting the government's initiative, "given our excess capital position and the ability to raise additional capital, we have decided not to participate in the Capital Purchase Program," said Investors CEO Kevin Cummings, whose company is based in the Short Hills section of Millburn.

In fact, TARP-related decisions have caused a rare chasm among bankers, said John E. McWeeney Jr., CEO of the New Jersey Bankers Association, in Princeton.

"There's a split in the industry," he said. "Some banks are concerned about a negative [customer] perception if they apply for a stock sale under TARP But others are worried that not applying for it could make customers think me bank is worried about not meeting the capital requirements set by the government."

Marketing consultant James Kerr agreed.