First National (NASDAQ:FXNC) & Security Federal (OTCMKTS:SFDL) Critical Review

First National (NASDAQ:FXNC) and Security Federal (OTCMKTS:SFDL) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, institutional ownership, valuation, profitability, analyst recommendations, earnings and risk.

Profitability

This table compares First National and Security Federal’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First National	17.94%	11.48%	1.02%
Security Federal	15.72%	12.60%	0.88%

Analyst Ratings

This is a summary of recent ratings and recommmendations for First National and Security Federal, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First National	0	1	1	0	2.50
Security Federal	0	0	0	0	0.00

Dividends

First National pays an annual dividend of $0.68 per share and has a dividend yield of 2.3%. Security Federal pays an annual dividend of $0.64 per share and has a dividend yield of 1.7%. First National pays out 29.2% of its earnings in the form of a dividend. Security Federal pays out 16.0% 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. First National has increased its dividend for 10 consecutive years. First National is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk and Volatility

First National has a beta of 0.45, meaning that its stock price is 55% less volatile than the S&P 500. Comparatively, Security Federal has a beta of 0.43, meaning that its stock price is 57% less volatile than the S&P 500.

Valuation & Earnings

This table compares First National and Security Federal”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First National	$116.51 million	2.32	$17.70 million	$2.33	12.82
Security Federal	$90.14 million	1.30	$13.67 million	$4.00	9.50

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

Institutional and Insider Ownership

33.9% of First National shares are owned by institutional investors. 14.2% of First National shares are owned by company insiders. Comparatively, 36.4% of Security Federal shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Summary

First National beats Security Federal on 12 of the 16 factors compared between the two stocks.

About First National

First National Corporation operates as the bank holding company for First Bank that provides various commercial banking services to small and medium-sized businesses, individuals, estates, local governmental entities, and non-profit organizations in Virginia. The company's deposit products include checking, savings, money market, and individual retirement accounts, as well as certificates of deposit and treasury management solutions. Its loan products comprise construction loans, including residential, land acquisition, and development loans; 1-4 family residential real estate loans; and commercial real estate loans that are secured by commercial real estate, including multi-family residential buildings, office and retail buildings, hotels, industrial buildings, and religious facilities. In addition, the company's loan products include commercial and industrial loans that are secured by business assets, such as accounts receivable, equipment, and inventory; home equity loans; and secured and unsecured consumer loans, such as lines of credit, automobile loans, deposit account loans, and installment and demand loans. Further, it provides wealth management services, including estate planning, investment management of assets, trustee under an agreement, trustee under a will, and estate settlement. Additionally, the company offers title insurance and investment services; and holds other real estate owned and office sites, as well as provides internet and mobile banking, remote deposit capture, and other traditional banking services. First National Corporation was founded in 1907 and is headquartered in Strasburg, Virginia.

About Security Federal

Security Federal Corporation operates as the bank holding company for Security Federal Bank that provides various banking products and services. It offers various deposit products, such as savings and checking accounts, money market accounts, fixed interest rate certificates with varying maturities, and individual retirement accounts. The company provides real estate loans comprising commercial real estate loans secured by non-residential commercial properties, churches, hotels, residential developments, and multi-family dwellings; one-to-four family residential real estate loans; and construction loans and loans for the acquisition, development, and construction of residential subdivisions and commercial projects. In addition, it offers commercial and agricultural business loans secured by business equipment, furniture and fixtures, inventory, and receivables, or unsecured; and consumer loans including home improvements, residential lots, mortgage, automobiles, boats, mobile homes, recreational vehicles, and education. The company offers trust, financial planning, and financial management services; and insurance agency services, such as auto, business, and home insurance. Additionally, it invests in various types of liquid assets, including U.S. Treasury obligations and securities of various federal agencies, certificates of deposit at insured institutions, mutual funds, bankers' acceptances, and federal funds, as well as commercial paper and corporate debt securities. It through branch offices in Aiken, Lexington, Richland and Saluda counties in South Carolina and Columbia; and Richmond counties in Georgia. Security Federal Corporation was founded in 1922 and is headquartered in Aiken, South Carolina.