Contrasting Arrow Financial (NASDAQ:AROW) & Farmers & Merchants Bancorp (NASDAQ:FMAO)

Arrow Financial (NASDAQ:AROW) and Farmers & Merchants Bancorp (NASDAQ:FMAO) are both small-cap finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their dividends, profitability, risk, earnings, analyst recommendations, institutional ownership and valuation.

Volatility and Risk

Arrow Financial has a beta of 0.76, suggesting that its share price is 24% less volatile than the S&P 500. Comparatively, Farmers & Merchants Bancorp has a beta of 0.81, suggesting that its share price is 19% less volatile than the S&P 500.

Valuation and Earnings

This table compares Arrow Financial and Farmers & Merchants Bancorp”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$242.58 million	2.81	$43.95 million	$3.10	11.88
Farmers & Merchants Bancorp	$126.48 million	3.77	$33.31 million	$2.91	11.90

Arrow Financial has higher revenue and earnings than Farmers & Merchants Bancorp. Arrow Financial is trading at a lower price-to-earnings ratio than Farmers & Merchants Bancorp, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

46.7% of Arrow Financial shares are held by institutional investors. Comparatively, 24.0% of Farmers & Merchants Bancorp shares are held by institutional investors. 3.5% of Arrow Financial shares are held by company insiders. Comparatively, 7.3% of Farmers & Merchants Bancorp shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Arrow Financial and Farmers & Merchants Bancorp, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	3	3	0	2.50
Farmers & Merchants Bancorp	0	3	1	0	2.25

Arrow Financial presently has a consensus target price of $41.62, indicating a potential upside of 13.07%. Farmers & Merchants Bancorp has a consensus target price of $32.25, indicating a potential downside of 6.90%. Given Arrow Financial’s stronger consensus rating and higher possible upside, analysts plainly believe Arrow Financial is more favorable than Farmers & Merchants Bancorp.

Dividends

Arrow Financial pays an annual dividend of $1.20 per share and has a dividend yield of 3.3%. Farmers & Merchants Bancorp pays an annual dividend of $0.96 per share and has a dividend yield of 2.8%. Arrow Financial pays out 38.7% of its earnings in the form of a dividend. Farmers & Merchants Bancorp pays out 33.0% 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. Arrow Financial has raised its dividend for 7 consecutive years and Farmers & Merchants Bancorp has raised its dividend for 19 consecutive years.

Profitability

This table compares Arrow Financial and Farmers & Merchants Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	20.56%	12.13%	1.17%
Farmers & Merchants Bancorp	20.27%	10.72%	1.16%

Summary

Arrow Financial beats Farmers & Merchants Bancorp on 11 of the 17 factors compared between the two stocks.

About Arrow Financial

Arrow Financial Corporation, a bank holding company, provides commercial and consumer banking, and financial products and services. The company’s deposit products include demand deposits, interest-bearing checking accounts, savings deposits, time deposits, and other time deposits. Its lending activities comprise commercial loans, such as term loans, time notes, and lines of credit; and commercial real estate loans to finance real estate purchases, refinancing, expansions, and enhancement to commercial properties, as well as commercial construction and land development loans to finance projects. The company’s lending activities also include consumer installment loans to finance personal expenditures, personal lines of credit, overdraft protection, and automobile loans; and residential real estate loans, fixed home equity loans, and home equity lines of credit for consumers to finance home improvements, debt consolidation, education, and other uses. In addition, it maintains an indirect lending program. Further, the company provides retirement planning, trust, and estate administration services for individuals, as well as pension, profit-sharing, and employee benefit plan administration services for corporations. Additionally, it offers insurance agency services comprising group health care policies and life insurance, and property and casualty insurance products; and investment advisory services to its proprietary mutual funds, as well as holds a real estate investment trust. It operates in the northeastern region of New York State in Warren, Washington, Saratoga, Essex, Clinton, Rensselaer, Albany, and Schenectady counties. Arrow Financial Corporation was founded in 1851 and is headquartered in Glens Falls, New York.

About Farmers & Merchants Bancorp

Farmers & Merchants Bancorp, Inc. is a bank holding company, which engages in the provision of commercial banking, retail banking, and financial services. It includes commercial, agricultural, and residential mortgages as well as consumer and credit card lending activities. The firm also offers checking account services, and savings and time deposit services. The company was founded in 1985 and is headquartered in Archbold, OH.