Critical Review: Independent Bank Co.(MI) (IBCP) & Merchants Bancorp (MBIN)

Independent Bank Co.(MI) (NASDAQ:IBCP) and Merchants Bancorp (NASDAQ:MBIN) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their analyst recommendations, risk, earnings, profitability, valuation, dividends and institutional ownership.

Profitability

This table compares Independent Bank Co.(MI) and Merchants Bancorp’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Independent Bank Co.(MI) 22.71% 12.72% 1.29%
Merchants Bancorp 33.07% 17.53% 1.66%

Earnings & Valuation

This table compares Independent Bank Co.(MI) and Merchants Bancorp’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Independent Bank Co.(MI) $175.59 million 3.07 $39.84 million $1.68 13.31
Merchants Bancorp $190.15 million 3.15 $62.87 million $2.07 10.09

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

Risk and Volatility

Independent Bank Co.(MI) has a beta of 0.45, suggesting that its stock price is 55% less volatile than the S&P 500. Comparatively, Merchants Bancorp has a beta of 0.88, suggesting that its stock price is 12% less volatile than the S&P 500.

Dividends

Independent Bank Co.(MI) pays an annual dividend of $0.72 per share and has a dividend yield of 3.2%. Merchants Bancorp pays an annual dividend of $0.28 per share and has a dividend yield of 1.3%. Independent Bank Co.(MI) pays out 42.9% of its earnings in the form of a dividend. Merchants Bancorp pays out 13.5% 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 Co.(MI) has increased its dividend for 3 consecutive years. Independent Bank Co.(MI) is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of current ratings and target prices for Independent Bank Co.(MI) and Merchants Bancorp, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Independent Bank Co.(MI) 0 2 1 0 2.33
Merchants Bancorp 0 1 1 0 2.50

Independent Bank Co.(MI) presently has a consensus price target of $27.00, indicating a potential upside of 20.75%. Merchants Bancorp has a consensus price target of $21.00, indicating a potential upside of 0.57%. Given Independent Bank Co.(MI)’s higher probable upside, equities analysts plainly believe Independent Bank Co.(MI) is more favorable than Merchants Bancorp.

Insider & Institutional Ownership

79.1% of Independent Bank Co.(MI) shares are owned by institutional investors. Comparatively, 22.2% of Merchants Bancorp shares are owned by institutional investors. 2.2% of Independent Bank Co.(MI) shares are owned by insiders. Comparatively, 43.4% of Merchants Bancorp shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Summary

Merchants Bancorp beats Independent Bank Co.(MI) on 11 of the 16 factors compared between the two stocks.

About Independent Bank Co.(MI)

Independent Bank Corporation operates as the holding company for Independent Bank that provides various banking services to individuals and businesses in Michigan. The company offers checking and savings accounts, commercial lending, direct and indirect consumer financing, mortgage lending, and safe deposit box services, as well as automatic teller machines, and Internet and mobile banking services. It also provides title insurance, investment, and insurance brokerage services. The company offers its services through approximately 67 branches, 1 drive-thru facility, and 12 loan production offices. Independent Bank Corporation was founded in 1864 and is based in Grand Rapids, Michigan.

About Merchants Bancorp

Merchants Bancorp operates as a diversified bank holding company in the United States. It operates in three segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. The Multi-family Mortgage Banking segment originates and services government sponsored mortgages for multi-family and healthcare facilities. The Mortgage Warehousing segment funds agency eligible residential loans, including origination, purchase, and sale in the secondary market, as well as commercial loans to non-depository financial institutions. The Banking segment offers a range of financial products and services to consumers and businesses, such as various types of deposit products comprising checking, savings, and time deposit accounts; commercial, commercial real estate, mortgage, and other consumer loan products; and letters of credit, as well as engages in the retail banking, agricultural lending, single family mortgage lending, small business administration lending, and correspondent lending and servicing businesses. The company operates seven branches comprising three branches in the Indianapolis, Indiana metropolitan area; two branches in Lynn, Indiana; and two branches in Joy and New Boston, Illinois. Merchants Bancorp was founded in 1990 and is headquartered in Carmel, Indiana.

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