Financial Survey: Farmers & Merchants Bancorp (NASDAQ:FMAO) vs. Arrow Financial (NASDAQ:AROW)

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

Analyst Recommendations

This is a breakdown of current ratings for Farmers & Merchants Bancorp and Arrow Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Farmers & Merchants Bancorp	0	3	1	0	2.25
Arrow Financial	0	3	3	0	2.50

Farmers & Merchants Bancorp currently has a consensus target price of $32.25, suggesting a potential downside of 7.80%. Arrow Financial has a consensus target price of $41.62, suggesting a potential upside of 13.79%. Given Arrow Financial’s stronger consensus rating and higher probable upside, analysts clearly believe Arrow Financial is more favorable than Farmers & Merchants Bancorp.

Earnings & Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Farmers & Merchants Bancorp	$190.68 million	2.53	$33.31 million	$2.91	12.02
Arrow Financial	$242.58 million	2.79	$43.95 million	$3.10	11.80

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Farmers & Merchants Bancorp	20.27%	10.72%	1.16%
Arrow Financial	20.56%	12.13%	1.17%

Risk & Volatility

Farmers & Merchants Bancorp has a beta of 0.81, indicating that its share price is 19% less volatile than the S&P 500. Comparatively, Arrow Financial has a beta of 0.76, indicating that its share price is 24% less volatile than the S&P 500.

Institutional and Insider Ownership

24.0% of Farmers & Merchants Bancorp shares are held by institutional investors. Comparatively, 46.7% of Arrow Financial shares are held by institutional investors. 7.3% of Farmers & Merchants Bancorp shares are held by insiders. Comparatively, 3.5% of Arrow Financial shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Dividends

Farmers & Merchants Bancorp pays an annual dividend of $0.96 per share and has a dividend yield of 2.7%. Arrow Financial pays an annual dividend of $1.20 per share and has a dividend yield of 3.3%. Farmers & Merchants Bancorp pays out 33.0% of its earnings in the form of a dividend. Arrow Financial pays out 38.7% 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. Farmers & Merchants Bancorp has raised its dividend for 19 consecutive years and Arrow Financial has raised its dividend for 7 consecutive years.

Summary

Arrow Financial beats Farmers & Merchants Bancorp on 12 of the 17 factors compared between the two stocks.

About Farmers & Merchants Bancorp

Farmers & Merchants Bancorp, Inc. is a bank holding company, which engages in the provision of commercial banking, retail banking, and financial services. It includes commercial, agricultural, and residential mortgages as well as consumer and credit card lending activities. The firm also offers checking account services, and savings and time deposit services. The company was founded in 1985 and is headquartered in Archbold, OH.

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.