M&T has also taken an innovative step to reduce its cost of capital and avoiding dilution of its common shareholders. The company owes $230 million in bailout money provided through the Troubled Assets Relief Program, or TARP, in December 2008, in addition to $151.5 million for TARP assistance provided to Provident Bancshares before that company was acquired by M&T in May 2009.

The U.S. Treasury on Aug. 17 completed a public offering of the $381.5 million in M&T TARP preferred shares held by the government. The preferred shares have a 5.00% coupon, which is scheduled to rise to 9.00% in February 2014 for the remaining $230 of the bank's original TARP bailout, with the coupon on the $151.5 million in assistance originally provided to Provident Bancshares rising to 9.00% in November 2013.

M&T on Aug. 20 proposed an amendment under which the dividend rate on all of the former TARP preferred shares will rise to 6.375% on November 15, 2013. The amendment needs to be approved by M&T's common shareholders, who will be sure to do so, since it will reduce the possibility of a dilutive common equity raise. The amendment was approved by the Treasury before the public offering, so the new preferred shareholders will not be voting.

If M&T's common shareholders approve the lower rate increase, M&T won't redeem the preferred share until November 15, 2008. Otherwise, the company will probably redeem the shares in 2013. The big icing on the cake for M&T is that the former TARP preferred shares qualify as regulatory Tier 1 capital.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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