Critical Review: UMB Financial (NASDAQ:UMBF) & Mercantile Bank (NASDAQ:MBWM)

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

Profitability

This table compares Mercantile Bank and UMB Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercantile Bank	23.87%	13.54%	1.39%
UMB Financial	16.90%	12.14%	1.19%

Dividends

Mercantile Bank pays an annual dividend of $1.56 per share and has a dividend yield of 3.2%. UMB Financial pays an annual dividend of $1.72 per share and has a dividend yield of 1.6%. Mercantile Bank pays out 28.6% of its earnings in the form of a dividend. UMB Financial pays out 18.8% 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 14 consecutive years and UMB Financial has increased its dividend for 32 consecutive years.

Valuation and Earnings

This table compares Mercantile Bank and UMB Financial”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	$371.80 million	2.29	$88.75 million	$5.46	9.03
UMB Financial	$4.14 billion	2.00	$702.40 million	$9.13	11.93

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

Volatility & Risk

Mercantile Bank has a beta of 0.89, indicating that its stock price is 11% less volatile than the S&P 500. Comparatively, UMB Financial has a beta of 0.78, indicating that its stock price is 22% less volatile than the S&P 500.

Insider & Institutional Ownership

58.6% of Mercantile Bank shares are held by institutional investors. Comparatively, 87.8% of UMB Financial shares are held by institutional investors. 3.2% of Mercantile Bank shares are held by insiders. Comparatively, 5.3% of UMB Financial shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Mercantile Bank and UMB Financial, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercantile Bank	0	3	4	0	2.57
UMB Financial	0	2	10	2	3.00

Mercantile Bank currently has a consensus price target of $56.20, suggesting a potential upside of 13.93%. UMB Financial has a consensus price target of $139.36, suggesting a potential upside of 27.90%. Given UMB Financial’s stronger consensus rating and higher probable upside, analysts plainly believe UMB Financial is more favorable than Mercantile Bank.

Summary

UMB Financial beats Mercantile Bank on 12 of the 18 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 UMB Financial

UMB Financial Corporation operates as the bank holding company that provides banking services and asset servicing in the United States and internationally. The Commercial Banking segment provides commercial loans and credit card; commercial real estate financing; letters of credit; loan syndication, and consultative service; various business solutions including asset-based lending, mezzanine debt, and minority equity investment; and treasury management service, such as depository service, account reconciliation, cash management tool, accounts payable and receivable solution, electronic fund transfer and automated payment, controlled disbursement, lockbox service, and remote deposit capture service. The Institutional Banking segment offers fund, asset management, and healthcare service to institutional clients; and fund administration and accounting, investor service and transfer agency, mutual fund service, alternative investment service, fixed income sale, trading and underwriting, and corporate trust and escrow service, as well as institutional custody service. This segment also provides healthcare payment solution includes custodial service for health saving accounts and private label, multipurpose debit cards to insurance carriers, third-party administrator, software companies, employers, and financial institutions. The Personal Banking segment offers deposit account, retail credit card, private banking, installment loan, home equity line of credit, residential mortgage, as well as internet banking, ATM network, private banking, brokerage and insurance service, and investment advisory, custody, and trust services. It operates through a network of branches and offices. The company was founded in 1913 and is headquartered in Kansas City, Missouri.