Merchants Bancorp (NASDAQ:MBIN) and Arrow Financial (NASDAQ:AROW) Critical Comparison

Arrow Financial (NASDAQ:AROW) and Merchants Bancorp (NASDAQ:MBIN) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their profitability, valuation, analyst recommendations, dividends, institutional ownership, risk and earnings.

Profitability

This table compares Arrow Financial and Merchants Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	13.28%	8.64%	0.79%
Merchants Bancorp	18.06%	16.06%	1.34%

Dividends

Arrow Financial pays an annual dividend of $1.16 per share and has a dividend yield of 4.2%. Merchants Bancorp pays an annual dividend of $0.40 per share and has a dividend yield of 1.2%. Arrow Financial pays out 63.4% of its earnings in the form of a dividend. Merchants Bancorp pays out 8.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Arrow Financial has raised its dividend for 7 consecutive years and Merchants Bancorp has raised its dividend for 8 consecutive years.

Insider and Institutional Ownership

46.7% of Arrow Financial shares are owned by institutional investors. Comparatively, 24.6% of Merchants Bancorp shares are owned by institutional investors. 3.3% of Arrow Financial shares are owned by insiders. Comparatively, 34.8% of Merchants Bancorp shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

Arrow Financial has a beta of 0.79, meaning that its share price is 21% less volatile than the S&P 500. Comparatively, Merchants Bancorp has a beta of 1.29, meaning that its share price is 29% more volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and price targets for Arrow Financial and Merchants Bancorp, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	3	0	0	2.00
Merchants Bancorp	1	1	2	0	2.25

Arrow Financial currently has a consensus target price of $28.25, indicating a potential upside of 2.36%. Merchants Bancorp has a consensus target price of $40.00, indicating a potential upside of 24.34%. Given Merchants Bancorp’s stronger consensus rating and higher probable upside, analysts plainly believe Merchants Bancorp is more favorable than Arrow Financial.

Valuation & Earnings

This table compares Arrow Financial and Merchants Bancorp”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$223.07 million	2.04	$29.71 million	$1.83	15.08
Merchants Bancorp	$1.45 billion	1.02	$320.39 million	$4.55	7.07

Merchants Bancorp has higher revenue and earnings than Arrow Financial. Merchants Bancorp is trading at a lower price-to-earnings ratio than Arrow Financial, indicating that it is currently the more affordable of the two stocks.

Summary

Merchants Bancorp beats Arrow Financial on 13 of the 17 factors compared between the two stocks.

About Arrow Financial

Arrow Financial Corporation, a bank holding company, provides commercial and consumer banking, and financial products and services. The company’s deposit products include demand deposits, interest-bearing checking accounts, savings deposits, time deposits, and other time deposits. Its lending activities comprise commercial loans, such as term loans, time notes, and lines of credit; and commercial real estate loans to finance real estate purchases, refinancing, expansions, and enhancement to commercial properties, as well as commercial construction and land development loans to finance projects. The company’s lending activities also include consumer installment loans to finance personal expenditures, personal lines of credit, overdraft protection, and automobile loans; and residential real estate loans, fixed home equity loans, and home equity lines of credit for consumers to finance home improvements, debt consolidation, education, and other uses. In addition, it maintains an indirect lending program. Further, the company provides retirement planning, trust, and estate administration services for individuals, as well as pension, profit-sharing, and employee benefit plan administration services for corporations. Additionally, it offers insurance agency services comprising group health care policies and life insurance, and property and casualty insurance products; and investment advisory services to its proprietary mutual funds, as well as holds a real estate investment trust. It operates in the northeastern region of New York State in Warren, Washington, Saratoga, Essex, Clinton, Rensselaer, Albany, and Schenectady counties. Arrow Financial Corporation was founded in 1851 and is headquartered in Glens Falls, New York.

About Merchants Bancorp

Merchants Bancorp operates as the diversified bank holding company in the United States. It operates through three segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. The Multi-family Mortgage Banking segment engages in the mortgage banking, which originates and services government sponsored mortgages, including bridge financing products to refinance, acquire, or reposition multi-family housing projects, and construction lending for multi-family and healthcare facilities. This segment also offers customized loan products for need-based skilled nursing facilities, such as independent living, assisted living, and memory care; and tax credit equity syndicator service. The Mortgage Warehousing segment funds agency eligible residential loans, as well as commercial loans to non-depository financial institutions. The Banking segment offers a range of financial products and services to consumers and businesses, which includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and small business administration lending. Merchants Bancorp was founded in 1990 and is headquartered in Carmel, Indiana.