Banks’ repayments of TARP preferred stock and warrants continue to turn a profit for the U.S. Treasury Department, according to analysis by SNL Financial done by By Andrew Schukman and Russ Yates.

As of March 30, the government has made an 8.5% annualized return on the 49 companies that have exited the Capital Purchase Program and the Target Investment Program, which was created to provide additional funding to Citigroup Inc. and Bank of America Corp. SNL defines “exiting” the programs as completely redeeming the preferred stock and repurchasing the warrants. Institutions that had their warrants auctioned by the Treasury are also considered to have exited the programs, as are institutions that declared bankruptcy.

The proceeds from both TARP warrant repurchases and auctions have largely fueled the profitability of the programs. The redemptions of the preferred shares provide the government a 5% return, which comes from the dividends. American Express Co.‘s and Goldman Sachs Group Inc.‘s warrant repurchases in July 2009 helped create some of the largest annualized company returns at 23.3% and 20.0%, respectively. According to Linus Wilson, a finance professor at the University of Louisiana at Lafayette, Goldman Sachs’ warrant represented one of the best deals for the American taxpayer, as reported by Bloomberg News on July 22, 2009. Wilson said that based on his calculations, Goldman Sachs paid 98% of the value of the warrants.

Overall, 64 institutions have fully redeemed their preferred stock issued under TARP. Of those, 39 have repurchased warrants, while seven have had their warrants auctioned by the Treasury. In sum, institutions that have exited the programs, plus those 18 that have fully redeemed their TARP preferred stock but still have their warrants held by the Treasury, returned 7.6%, as of March 30.

Companies that made partial redemptions and Citigroup, which still has common shares held by the Treasury, were excluded from the analysis. SNL also excluded losses or redemptions from programs other than the CPP and the TIP, such as those associated with American International Group Inc. and the automobile companies.

To calculate the Treasury’s return, SNL compiled the institutions’ dividend payments and proceeds from warrant sales and calculated each as a percent of the amount of preferred stock invested. The dividend and warrant percentages were annualized and then added together to create an estimated return for each company. To approximate aggregate profitability, the returns for each company were weighted by the amount each company received under TARP. These weighted returns were then added together to estimate aggregate return.

Click here for a template detailing SNL’s calculations.

Banks began to return their government money about a year ago, as the negative stigma associated with holding TARP funds grew and rule changes like executive compensation restrictions were put into place. On March 31, 2009, the first five banks repurchased their preferred stock issued under TARP. The companies that redeemed were Signature Bank, Old National Bancorp, IBERIABANK Corp., Bank of Marin Bancorp and Centra Financial Holdings Inc. Redemptions of TARP funds streamed in throughout 2009 with large redemptions taking place in mid-June and December. On June 17, 2009, 10 companies, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., redeemed more than $68 billion in TARP funds. Similarly, 13 banks redeemed nearly $91 billion in December 2009. Bank of America Corp.‘s $45 billion redemption was the largest in December 2009, followed by Wells Fargo & Co.‘s $25 billion repurchase and Citigroup’s $20 billion repayment.

While not included in this analysis, Citigroup should provide the Treasury with additional profit. The Treasury originally invested $25 billion in preferred stock, which Citigroup later converted into common stock at $3.25 per share. With the company’s common stock trading at $4.09, the Treasury has an unrealized gain of about $6.5 billion as of March 30.