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Parent of Five Star Bank pays off last of government's investment

Financial Institutions, the parent of Five Star Bank, has paid off the rest of the federal government's investment in the bank, leaving only M&T Bank Corp. among locally based banks still holding taxpayer dollars.

The Warsaw-based company said it had redeemed the remaining $25 million in preferred stock that it had issued to the U.S. Treasury Department under the Troubled Assets Relief Program, or TARP. The original Capital Purchase Program investment, in December 2008, totaled $37.5 million, but the bank repaid $12.5 million in February.

"Our participation in the Capital Purchase Program was meant to enhance our lending capacity and reinforce our already well-capitalized position during uncertain economic times," Financial Institutions President and CEO Peter G. Humphrey said.

"In the past two years, traditional capital markets became available once again, and there are signs that a gradual economic recovery has begun. We believe it's the right time to redeem the remainder of the TARP funds," he said.

Humphrey noted that the repayment will save Financial Institutions $1.9 million in annual preferred dividends.

As part of the TARP program, Financial Institutions also issued Treasury a warrant for the right to purchase up to 378,175 shares of the bank's common stock at $14.88 per share.

The bank, with $2.2 billion in assets, said in its news release that it also intends to buy back that warrant in the second quarter. That process, which requires Treasury approval, involves either negotiating a price or having Treasury sell them at an auction if the two parties can't agree.

The repurchase comes just a week after Financial Institutions raised $43 million in a public common stock offering, selling 2.8 million shares at $16.35 per share. The purpose was to repay TARP, with the remainder of the proceeds to be used for working capital needs.

Financial Institutions was one of three local banks to participate in TARP, along with Buffalo-based First Niagara Financial Group and M&T.

First Niagara repaid its TARP investment in 2009, just a few months after accepting it. M&T still has its TARP money, which has already grown from the original $600 million because of an acquisition and will total $1.08 billion after it purchases Wilmington Trust Corp.

e-mail: jepstein@buffnews.com

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