Comparing Mercantile Bank (NASDAQ:MBWM) & First Business Financial Services (NASDAQ:FBIZ)

Mercantile Bank (NASDAQ:MBWM) and First Business Financial Services (NASDAQ:FBIZ) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, risk, analyst recommendations, institutional ownership, dividends, valuation and profitability.

Insider and Institutional Ownership

58.6% of Mercantile Bank shares are held by institutional investors. Comparatively, 60.1% of First Business Financial Services shares are held by institutional investors. 3.2% of Mercantile Bank shares are held by insiders. Comparatively, 5.1% of First Business Financial Services shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Volatility & Risk

Mercantile Bank has a beta of 0.95, meaning that its share price is 5% less volatile than the S&P 500. Comparatively, First Business Financial Services has a beta of 0.72, meaning that its share price is 28% less volatile than the S&P 500.

Dividends

Mercantile Bank pays an annual dividend of $1.52 per share and has a dividend yield of 3.3%. First Business Financial Services pays an annual dividend of $1.16 per share and has a dividend yield of 2.2%. Mercantile Bank pays out 30.2% of its earnings in the form of a dividend. First Business Financial Services pays out 20.6% 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. Mercantile Bank has raised its dividend for 14 consecutive years and First Business Financial Services has raised its dividend for 13 consecutive years. Mercantile Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Mercantile Bank and First Business Financial Services’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercantile Bank	22.11%	13.52%	1.34%
First Business Financial Services	17.59%	14.22%	1.17%

Analyst Recommendations

This is a summary of current recommendations for Mercantile Bank and First Business Financial Services, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercantile Bank	0	2	3	0	2.60
First Business Financial Services	0	0	3	0	3.00

Mercantile Bank presently has a consensus price target of $55.25, indicating a potential upside of 20.63%. First Business Financial Services has a consensus price target of $59.67, indicating a potential upside of 14.92%. Given Mercantile Bank’s higher probable upside, analysts clearly believe Mercantile Bank is more favorable than First Business Financial Services.

Valuation and Earnings

This table compares Mercantile Bank and First Business Financial Services”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Mercantile Bank	$361.89 million	2.06	$79.59 million	$5.04	9.09
First Business Financial Services	$262.38 million	1.65	$44.24 million	$5.62	9.24

Mercantile Bank has higher revenue and earnings than First Business Financial Services. Mercantile Bank is trading at a lower price-to-earnings ratio than First Business Financial Services, indicating that it is currently the more affordable of the two stocks.

Summary

Mercantile Bank beats First Business Financial Services on 9 of the 16 factors compared between the two stocks.

About Mercantile Bank

Mercantile Bank Corporation operates as the bank holding company for Mercantile Bank of Michigan that provides commercial and retail banking services to small- to medium-sized businesses and individuals in the United States. It accepts various deposit products, including checking, savings, and term certificate accounts; time deposits; and certificates of deposit. The company also provides commercial and industrial loans; vacant land, land development, and residential construction loans; owner and non-owner occupied real estate loans; multi-family and residential rental property loans; single-family residential real estate loans; home equity line of credit programs; and consumer loans, such as new and used automobile and boat loans, and credit cards, as well as overdraft protection services; and residential mortgage and instalment loans. In addition, it offers courier services and safe deposit facilities; and insurance products, such as private passenger automobile, homeowners, personal inland marine, boat owners, recreational vehicle, dwelling fire, umbrella policies, small business, and life insurance products. The company was incorporated in 1997 and is headquartered in Grand Rapids, Michigan.

About First Business Financial Services

First Business Financial Services, Inc. operates as the bank holding company for First Business Bank that provides commercial banking products and services for small and medium-sized businesses, business owners, executives, professionals, and high net worth individuals in Wisconsin, Kansas, and Missouri. The company offers real estate lending, commercial and industrial lending, asset-based lending, accounts receivable financing, equipment financing loans and leases, floorplan financing, vendor financing, small business administration lending and servicing, treasury management solutions, and company retirement services. It also provides private wealth management for individuals, including creating and executing asset allocation strategies, trust and estate administration, financial planning, investment management, and access to brokerage and custody-only services. In addition, the company offers bank consulting consisting of investment portfolio administrative and asset liability management services, and commercial deposit accounts. The company was founded in 1909 and is headquartered in Madison, Wisconsin.