By ALLISSA KLINE
akline@bizjournals.com | 716-541-1612

Financial Institutions Inc. in Warsaw has repaid the $37.5 million it borrowed from the federal government during the worst of the financial crisis.

The parent of Five Star Bank announced March 30 that it redeemed the remaining $25 million of preferred stock issued to the U.S. Treasury Department's Capital Purchase Plan as part of the Troubled Asset Relief Program in December 2008. The bank repaid $12.5 million in February and raised $43 million in net proceeds earlier this month by selling 2.8 million shares of its common stock.

The move leaves M&T Bank Corp. as the only local TARP recipient that still must repay TARP funds. The Buffalo bank originally received $600 million, but its total is now more than that because it assumed the TARP funds delegated to the banks it has acquired since fall 2008. It has not announced any plans to repay the money.

Now that it has returned the money, Financial Institutions is free to pay cash bonuses to its named executives. It had not done so in recent years due to federal limitations, instead giving larger stock awards to executives.

"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," Humphrey said in a release. "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, which will save our company $1.9 million in annual preferred dividends."

Participating in the Capital Purchase Plan meant the U.S. Treasury received warrants for the right to buy up to 378,175 shares of the company's common stock, priced at $14.88 per share. Bank officials said the company intends to repurchase the warrants during the second quarter of 2011.

Five Star Bank operates 20 branches in Western New York.