Financial Review: United Community Banks (NASDAQ:UCB) and Mercantile Bank (NASDAQ:MBWM)

Mercantile Bank (NASDAQ:MBWM) and United Community Banks (NASDAQ:UCB) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their analyst recommendations, valuation, earnings, profitability, institutional ownership, risk and dividends.

Profitability

This table compares Mercantile Bank and United Community Banks’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercantile Bank	22.77%	14.59%	1.43%
United Community Banks	13.04%	8.36%	0.99%

Volatility and Risk

Mercantile Bank has a beta of 0.99, suggesting that its share price is 1% less volatile than the S&P 500. Comparatively, United Community Banks has a beta of 0.92, suggesting that its share price is 8% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Mercantile Bank and United Community Banks, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercantile Bank	0	3	1	0	2.25
United Community Banks	0	2	1	0	2.33

Mercantile Bank presently has a consensus target price of $54.50, suggesting a potential upside of 19.96%. United Community Banks has a consensus target price of $31.00, suggesting a potential downside of 1.90%. Given Mercantile Bank’s higher possible upside, analysts plainly believe Mercantile Bank is more favorable than United Community Banks.

Earnings and Valuation

This table compares Mercantile Bank and United Community Banks”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Mercantile Bank	$303.50 million	2.42	$82.22 million	$4.98	9.12
United Community Banks	$860.29 million	4.38	$187.54 million	$1.54	20.52

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

Institutional & Insider Ownership

58.6% of Mercantile Bank shares are owned by institutional investors. Comparatively, 82.3% of United Community Banks shares are owned by institutional investors. 3.1% of Mercantile Bank shares are owned by company insiders. Comparatively, 0.5% of United Community Banks shares are owned by company 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

Mercantile Bank pays an annual dividend of $1.44 per share and has a dividend yield of 3.2%. United Community Banks pays an annual dividend of $0.96 per share and has a dividend yield of 3.0%. Mercantile Bank pays out 28.9% of its earnings in the form of a dividend. United Community Banks pays out 62.3% 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 increased 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.

Summary

Mercantile Bank beats United Community Banks on 10 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 United Community Banks

United Community Banks, Inc. operates as the financial holding company for United Community Bank that provides financial products and services to commercial, retail, government, education, energy, health care, and real estate sectors. It accepts various deposit products, including checking, savings, money market, and other deposit accounts. The company also offers lending services, including real estate, consumer, and commercial loans, to individuals, small businesses, mid-sized commercial businesses, and non-profit organizations, as well as secured and unsecured, and mortgage loans. In addition, it originates loans partially guaranteed by the SBA and USDA loan programs. Further, the company provides wealth management services comprising financial planning, customized portfolio management, and investment advice; trust services to manage fiduciary assets; non-deposit investment products; and insurance products, including life insurance, long-term care insurance, and tax-deferred annuities, as well as invests in residential and commercial mortgage-backed securities, asset-backed securities, the U.S. treasury, the U.S. agency, and municipal obligations. Additionally, it offers reinsurance on a property insurance contract; insurance agency services; treasury management; credit cards; payment and commerce solution, equipment finance, investment advisory, and other related financial services; brokerage services; and payment processing, merchant, wire transfer, private banking, and other related financial services. The company was founded in 1950 and is headquartered in Blairsville, Georgia.