Critical Analysis: Mercantile Bank (NASDAQ:MBWM) and First Internet Bancorp (NASDAQ:INBK)

Mercantile Bank (NASDAQ:MBWM) and First Internet Bancorp (NASDAQ:INBK) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, analyst recommendations, earnings, valuation, risk, profitability and dividends.

Volatility and Risk

Mercantile Bank has a beta of 1, meaning that its share price has a similar volatility profile to the S&P 500.Comparatively, First Internet Bancorp has a beta of 0.73, meaning that its share price is 27% less volatile than the S&P 500.

Insider and Institutional Ownership

58.6% of Mercantile Bank shares are held by institutional investors. Comparatively, 65.5% of First Internet Bancorp shares are held by institutional investors. 3.1% of Mercantile Bank shares are held by company insiders. Comparatively, 7.1% of First Internet Bancorp shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares Mercantile Bank and First Internet Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercantile Bank	21.99%	14.29%	1.41%
First Internet Bancorp	7.45%	5.86%	0.40%

Valuation and Earnings

This table compares Mercantile Bank and First Internet Bancorp”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	$231.48 million	3.23	$79.59 million	$4.95	9.37
First Internet Bancorp	$128.78 million	1.96	$25.28 million	$2.89	10.07

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

Dividends

Mercantile Bank pays an annual dividend of $1.48 per share and has a dividend yield of 3.2%. First Internet Bancorp pays an annual dividend of $0.24 per share and has a dividend yield of 0.8%. Mercantile Bank pays out 29.9% of its earnings in the form of a dividend. First Internet Bancorp pays out 8.3% 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 raised its dividend for 14 consecutive years. Mercantile Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Mercantile Bank and First Internet Bancorp, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercantile Bank	0	2	2	0	2.50
First Internet Bancorp	0	2	2	0	2.50

Mercantile Bank presently has a consensus price target of $54.67, indicating a potential upside of 17.89%. First Internet Bancorp has a consensus price target of $41.75, indicating a potential upside of 43.42%. Given First Internet Bancorp’s higher probable upside, analysts plainly believe First Internet Bancorp is more favorable than Mercantile Bank.

Summary

Mercantile Bank beats First Internet Bancorp on 10 of the 15 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 Internet Bancorp

First Internet Bancorp operates as the bank holding company for First Internet Bank of Indiana that provides commercial, small business, consumer, and municipal banking products and services to individuals and commercial customers in the United States. The company accepts non-interest bearing and interest-bearing demand deposit, commercial deposit, savings, money market, and Banking-as-a-Service brokered deposit accounts, as well as certificates of deposit. It also offers commercial and industrial, owner-occupied and investor commercial real estate, construction, residential mortgage, home equity, line of credit and home improvement, small installment, term, and other consumer loans, as well as single tenant lease financing, and public and healthcare finance; franchise finance; and small business lending. In addition, the company is involved in the purchase, manage, service, and safekeeping of municipal securities; and provision of public and municipal lending and leasing products to government entities. Further, the company offers corporate credit card and treasury management services. First Internet Bancorp was founded in 1998 and is headquartered in Fishers, Indiana.