Zacks_Analysts' Blog : Financial Institutions Exists TARP - Analyst Blog

On Wednesday, Financial Institutions Inc. (FISI) stated that it had repaid the remaining $25.0 million in bailout money to the government. In February, the company paid back $12.5 million of the total $37.5 million bailout money that it had received as part of its participation in the government’s Troubled Asset Relief Program (TARP) in December 2008.

Financial Institutions financed its TARP repayment primarily through proceeds from a $43.0 million stock offering.

Financial Institutions repurchased all remaining shares of its Series A Fixed Rate Cumulative Perpetual Preferred Stock. Hence, with the clearance of TARP dues, the company would be able to save $1.9 million annually in preferred dividends.

However, the U.S. Treasury continues to hold warrants to purchase 378,175 shares of Financial Institutions’ common stock at an initial exercise price of $14.88 per share. The company now plans to evaluate the potential to purchase those warrants in the second quarter of 2011. If the company is unable to buy back these warrants, it might issue sufficient number of common stock in order to mitigate any share dilution that would occur if these warrants are exercised.

Financial Institutions is one of the three banks that repaid the total $7.4 billion of TARP funds on Wednesday. The other two banks are Ohio-based KeyCorp (KEY) that repaid $2.5 billion, and Atlanta, Georgia-based SunTrust Banks Inc. (STI) that paid back $4.9 billion.

With this repayment, the bank bailout moved into profit. Out of the total $700 billion bailout money, about $245 billion was handed out to banks in 2008. Now, with the latest repayments, taxpayers have recouped a total of $251 billion from bailed out banks. This recovery includes dividends as well as interest income from banks.

However, more than $20 billion is still due from about 600 institutions. The Treasury currently estimates that if the dues are paid, the bank programs within TARP would fetch nearly $23.6 billion as profit to taxpayers.

The TARP loan repayment is essentially a positive for Financial Institutions. It has removed restrictions on both financial and executives’ pay package flexibility that the company was subject to upon being a TARP receiver.

Currently, Financial Institutions shares retain a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating.