2 Problems That Could Derail M&T Bank Corporation (MTB)’s Growth

The second big issue facing M&T is, the direction of their outstanding shares. While several banks have announced share repurchase programs to offset dilution from stock options, M&T has allowed its outstanding share count to climb every quarter for the last five. Since the company’s outstanding shares are 2% higher on a year-over-year basis, this means M&T must produce 2% more in earnings growth just to produce flat results.

Is This Really A Big Deal Or What?
I know some investors would say, these two “issues” aren’t really that big of a deal, and they will stick with M&T. Of the four banks we’ve looked at, it’s pretty easy to stick with M&T over PNC Bancorp. PNC has a lower expected growth rate at 6.05% versus 8.1% at M&T. M&T also has a higher yield at 2.68% versus 2.53%. Since PNC has a higher percentage of non-performing loans, that somewhat completes the argument for sticking with M&T.

However, it’s a different ballgame when you compare M&T to BB&T and SunTrust. BB&T has a higher yield at about 3%, better expected growth at 10.8%, and a lower non-performing percentage. The fact that BB&T sells for a lower forward P/E ratio is just icing on the cake. SunTrust is expected to grow earnings at nearly twice the rate of M&T over the next five years, yet the shares sell for a lower forward P/E ratio. While SunTrust’s dividend can’t match M&T currently, this has a lot to do with SunTrust’s credit issues. With the company’s recent sale of its 60 million shares of The Coca-Cola Company (NYSE:KO), this move helped to shore up the balance sheet, and should lead to better distributions in the future.

While it’s true M&T just reported an impressive quarter of growth, if the bank continues to allow its share count to grow, earnings comparisons are going to get more difficult. If the company doesn’t set aside enough money for potential problem loans, earnings could take a hit because of this as well. The bottom line is M&T has huge growth, but investors need to question if this growth will last.

The article 2 Problems That Could Derail This Huge Growth originally appeared on Fool.com and is written by Chad Henage.

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