Independent Bank (NASDAQ:IBCP) vs. First Merchants (NASDAQ:FRME) Critical Contrast

Independent Bank (NASDAQ:IBCP) and First Merchants (NASDAQ:FRME) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their institutional ownership, valuation, earnings, profitability, analyst recommendations, dividends and risk.

Profitability

This table compares Independent Bank and First Merchants’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Independent Bank	20.31%	14.05%	1.21%
First Merchants	21.35%	9.88%	1.23%

Dividends

Independent Bank pays an annual dividend of $1.04 per share and has a dividend yield of 3.4%. First Merchants pays an annual dividend of $1.44 per share and has a dividend yield of 3.8%. Independent Bank pays out 33.9% of its earnings in the form of a dividend. First Merchants pays out 37.3% 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. Independent Bank has raised its dividend for 11 consecutive years and First Merchants has raised 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.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Independent Bank and First Merchants, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Independent Bank	0	3	1	0	2.25
First Merchants	0	2	4	0	2.67

Independent Bank presently has a consensus target price of $36.00, suggesting a potential upside of 16.62%. First Merchants has a consensus target price of $48.00, suggesting a potential upside of 26.38%. Given First Merchants’ stronger consensus rating and higher probable upside, analysts clearly believe First Merchants is more favorable than Independent Bank.

Insider and Institutional Ownership

79.4% of Independent Bank shares are owned by institutional investors. Comparatively, 73.9% of First Merchants shares are owned by institutional investors. 5.7% of Independent Bank shares are owned by company insiders. Comparatively, 1.4% of First Merchants shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Risk and Volatility

Independent Bank has a beta of 0.79, indicating that its share price is 21% less volatile than the S&P 500. Comparatively, First Merchants has a beta of 1.05, indicating that its share price is 5% more volatile than the S&P 500.

Valuation and Earnings

This table compares Independent Bank and First Merchants”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Independent Bank	$216.12 million	2.96	$66.79 million	$3.07	10.06
First Merchants	$1.07 billion	2.04	$201.40 million	$3.86	9.84

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

Summary

First Merchants beats Independent Bank on 11 of the 17 factors compared between the two stocks.

About Independent Bank

Independent Bank Corporation operates as the bank holding company for Independent Bank that provides commercial banking services to individuals and businesses in rural and suburban communities in Michigan. It offers checking and savings accounts, commercial lending, direct and indirect consumer financing, mortgage lending, and safe deposit box services. The company also provides title insurance services and investment services, as well as automatic teller machines, and internet and mobile banking services. In addition, it operates through branches, drive-thru facilities, and loan production offices. Independent Bank Corporation was founded in 1864 and is based in Grand Rapids, Michigan.

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.