Reviewing Old Second Bancorp (NASDAQ:OSBC) and First Merchants (NASDAQ:FRME)

Old Second Bancorp (NASDAQ:OSBC) and First Merchants (NASDAQ:FRME) are both finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, earnings, profitability, risk, institutional ownership, analyst recommendations and dividends.

Dividends

Old Second Bancorp pays an annual dividend of $0.28 per share and has a dividend yield of 1.3%. First Merchants pays an annual dividend of $1.44 per share and has a dividend yield of 3.6%. Old Second Bancorp pays out 17.2% of its earnings in the form of a dividend. First Merchants pays out 37.0% 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. Old Second Bancorp has increased its dividend for 1 consecutive years and First Merchants has increased its dividend for 13 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Old Second Bancorp and First Merchants”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Old Second Bancorp	$333.10 million	3.32	$80.31 million	$1.63	13.11
First Merchants	$662.95 million	3.86	$226.00 million	$3.89	10.38

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

Analyst Ratings

This is a summary of current ratings for Old Second Bancorp and First Merchants, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Old Second Bancorp	0	1	4	0	2.80
First Merchants	0	3	3	0	2.50

Old Second Bancorp currently has a consensus price target of $23.38, indicating a potential upside of 9.38%. First Merchants has a consensus price target of $48.33, indicating a potential upside of 19.76%. Given First Merchants’ higher probable upside, analysts plainly believe First Merchants is more favorable than Old Second Bancorp.

Institutional & Insider Ownership

67.8% of Old Second Bancorp shares are held by institutional investors. Comparatively, 73.9% of First Merchants shares are held by institutional investors. 3.8% of Old Second Bancorp shares are held by insiders. Comparatively, 1.8% of First Merchants shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Risk & Volatility

Old Second Bancorp has a beta of 0.74, indicating that its share price is 26% less volatile than the S&P 500. Comparatively, First Merchants has a beta of 0.88, indicating that its share price is 12% less volatile than the S&P 500.

Profitability

This table compares Old Second Bancorp and First Merchants’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Old Second Bancorp	20.00%	12.79%	1.60%
First Merchants	21.49%	9.58%	1.21%

Summary

First Merchants beats Old Second Bancorp on 10 of the 17 factors compared between the two stocks.

About Old Second Bancorp

Old Second Bancorp, Inc. operates as the bank holding company for Old Second National Bank that provides community banking services. It offers demand, NOW, money market, savings, time deposit, individual retirement, and checking accounts, as well as certificates of deposit accounts. The company also provides commercial loans; lease financing receivables; commercial real estate loans; construction loans; residential real estate loans, such as residential first mortgage and second mortgage loans; home equity line of credit; consumer loans, including motor vehicle, home improvement, and signature loans; installment and agricultural loans; residential mortgages; and overdraft checking. In addition, it offers safe deposit services; trust and wealth management services; and money orders, cashier’s checks, foreign currency, direct deposits, discount brokerage, debit and credit cards, and other services, as well as acquires the U.S. treasury notes and bonds. Further, the company provides online and mobile banking; corporate cash management products, including remote and mobile deposits capture, investment sweep accounts, zero balance accounts, automated tax payments, automatic teller machines access, telephone banking, lockbox accounts, automated clearing house transactions, account reconciliation, controlled disbursement, detail and general information reporting, foreign and domestic wire transfers, and vault services for currency and coin; and investment, agency, and custodial services for individual, corporate, and not-for-profit clients. Old Second Bancorp, Inc. was incorporated in 1981 and is headquartered in Aurora, Illinois.

About First Merchants

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. The company offers a range of financial services, including time, savings, and demand deposits; and consumer, commercial, agri-business, public finance, and real estate mortgage loans. It also provides personal and corporate trust; brokerage and private wealth management; and letters of credit, repurchase agreements, and other corporate services. The company operates banking locations in Indiana, Illinois, Ohio, and Michigan counties. It also offers its services through electronic and mobile delivery channels. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.