PNC vs M&T – Scorecard

By Chad Henage - April 26, 2012 | Tickers: MTB, PNC | 0 Comments

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There are two super-regional banks in my neighborhood that seem to be natural competitors. Never mind the fact that PNC (NYSE: PNC) is associated with Pennsylvania, and M&T Bank (NYSE: MTB) has the naming rights to M&T Stadium where the Ravens play. (Steelers vs. Ravens rivalry anyone?) The two companies also overlap geographically and compete for the same customers in many areas. While I'm from Maryland and have a bias against anything from Pittsburg, I'm going to try to be fair and use just the numbers. May the best team win.

When we compare the two companies, both are selling at a premium to their growth rates. This is likely because both companies have weathered the financial storm over the last few years pretty well. Neither bank made big headlines like other financial firms did, and thus investors are more confident in their future prospects. On strictly a PEG basis, though M&T is cheaper. (M&T – 2, PNC – 1)

Since the PEG ratio is driven by earnings, it makes sense to also look at prior earnings growth. I always look at prior earnings growth, as a way to gauge if future earnings growth seems reasonable. M&T shows basically flat earnings for the last few years, PNC on the other hand has grown earnings by about 5%. With the difficult economy and subsequent turnaround, it makes sense that both companies would show increased growth going forward. With 5% growth through some of the most difficult years the economy has seen, PNC wins this battle. (M&T – 1, PNC – 2)

A company that can consistently beat earnings estimates, is usually more highly valued in the market. With this in mind, look at how these two companies have done versus estimates in the last four quarters:

M&T wins this contest even though they actually missed once more than PNC. The reason is, the number of beats and misses ultimately comes down to the average for the year. These misses actually give investors an opportunity to buy the stock if it sells off. With M&T beating annually by over 2% versus just 0.18% for PNC, the company did a better long term job. (M&T – 2, PNC – 1)

Dividends are a big topic of discussion in the banking industry, in particular since the most recent stress tests were released. These stress tests really only made a difference at PNC, where they were allowed to raise their dividend. On the other hand, M&T has not cut their dividend and is the better performer in this regard. Look at the difference in the two companies yield and dividend growth:

With a higher current yield and substantially better dividend growth for M&T, this one isn't even close. (M&T – 2, PNC – 1)

I would usually compare the two companies balance sheets via their debt-to-equity ratio, however both companies have ratios that are nearly identical. Since that test wouldn't tell us much, it seems like comparing loan and deposit growth makes more sense. In the past 3 years, M&T has grown loans by 4.86% and deposits by 8.39%. PNC by contrast has grown loans by 3.34%, but deposits have been basically flat with 0.55% growth. M&T's growth in loans is better and their deposit growth is light years ahead of PNC. (M&T – 2, PNC – 1)

In the final tally, the score is M&T – 9 and PNC – 6. That's funny, that sounds like a Ravens and Steelers final score. Unfortunately for PNC shareholders the results are the same, M&T scores better in virtually every category. This seems like a case where M&T is the more stable, consistent enterprise. The company didn't have to get permission to raise its dividend, because the dividend was already at an acceptable level. According to analysts, M&T has the better future growth profile, and that makes sense because the company has been growing loans and deposits faster. In banking, sometimes it's better to go with the boring, stable and consistent producer and that's what M&T appears to be.

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