Whether critics of the Treasury's Troubled Asset Relief Program (TARP) ever come around to even a grudging acceptance of the program, the fact remains that the banking sector is on much firmer footing today. Nearly 84% of TARP funds issued under the Capital Purchase Program have been repaid, and so far both the losses and costs are running significantly under budget. (For background reading, see Liquidity And Toxicity: Can TARP Fix The Financial System?)

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That said, there are still several well-known banks with large TARP balances outstanding. While some of these banks seem to be in relatively good shape regarding their ability to repay their loans, dilutive equity offerings could be on the way for others. Moreover, with the cost of continuing participation in the CPP rising substantially in 2013, the clock is ticking for these banks to get their houses in order. Nevertheless, with many of these banks trading at a discount to tangible book value, bargains could still be found here (For more, see The Race To Escape TARP.)

SunTrust (NYSE:STI)
With large franchises in some of the hardest-hit real estate markets (Georgia and Florida), SunTrust took a pounding from losses on mortgage and construction loans. Things got so bad, in fact, that the company sold its nearly century-old stake in Coca-Cola (NYSE:KO) to raise funds. Since then, though, the company has been active in repositioning itself and in 2010, it made a lot of progress in decreasing the risk on its balance sheet.

SunTrust currently has about $4.9 billion in outstanding TARP funds to repay. Assuming that the company will want to target a common Tier 1 ratio of 9%, this implies that the company will need to raise about $2 billion in capital - a move that would result in about 15% dilution at today's prices (assuming a 10% haircut for the equity raise).

SunTrust currently trades just at its tangible book value (a commonly used valuation metric in distressed situations) and has decent long-term organic growth potential. SunTrust may also be an appealing buyout candidate for a large bank looking for a sizable Southeastern footprint.

Regions Financial (NYSE:RF)
All of the banks on this list got here because of crippling loan losses and ongoing difficulty in getting their business back in order. In that respect, Regions is no different. Regions has $3.5 billion in TARP funds outstanding and another $800 million in trust preferred. Regions finished the year with a Tier 1 common ratio of 7.9% (9% would be better) and may very well have to raise the full $3.5 billion through an equity offering - a deal that would be significantly (40% or so) dilutive.

Regions currently trades at about an 8% discount to tangible book and also owns a valuable banking franchise in the Southern states.

Zions Bancorp (Nasdaq:ZION)
Although Zions loaned much less to individuals (and much more to companies) during the bubble, the company had heavy exposure to Western states like Arizona and California. Zions presently owes about $1.4 billion in TARP funds and may try to repay it in tranches. That would lengthen the payback period, allow the company to accumulate more capital through regular operations, and perhaps limit equity financing to under $500 million.

That would still represent more than 10% dilution, but the company's current price-to-tangible book of 0.75 seems too conservative. Zions has a good foothold in states like Nevada, Colorado, Arizona and California as well as solid recovery prospects.

(Nasdaq:BPOP), Citizens Republic (Nasdaq:CRBC), Synovus (NYSE:SNV)
Citizens looks to be the riskiest play here, with a large discount to tangible book (nearly 45%); plus, its TARP bill ($300M) is massive relative to its market capitalization ($374 million). As for Synovus, non-performing loans are still running high there, the company has nearly $1 billion in TARP funds to repay (against about $2 billion in market cap), and the stock carries a sizable (30%+) discount to tangible book.

While Popular has a sizable TARP balance (more than $900 million), a lot of high-priced CDs are rolling off in 2011, the economy in Puerto Rico seems to be recovering, and BPOP management has been aggressive in selling bad loans. Popular may be able to repay TARP in mid-2012 with no equity offering at all, and that is likely why the stock trades roughly in line with tangible book (although well below a fair recovery valuation).

The Bottom Line
Although investors can take some encouragement from a spate of troubled bank acquisitions going off at about 1 time tangible book, many of these names carry above-average risk and investors should approach them accordingly. That said, many banks need only to survive (or take a bid) to reward aggressive investors. (For related reading, see Top 6 U.S. Government Financial Bailouts.)

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