Reviewing First United (NASDAQ:FUNC) and Farmers & Merchants Bancorp (NASDAQ:FMAO)

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

Institutional & Insider Ownership

24.0% of Farmers & Merchants Bancorp shares are held by institutional investors. Comparatively, 33.3% of First United shares are held by institutional investors. 7.3% of Farmers & Merchants Bancorp shares are held by company insiders. Comparatively, 8.1% of First United shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Farmers & Merchants Bancorp	18.54%	9.95%	1.06%
First United	20.55%	13.51%	1.31%

Dividends

Farmers & Merchants Bancorp pays an annual dividend of $0.92 per share and has a dividend yield of 3.5%. First United pays an annual dividend of $1.04 per share and has a dividend yield of 2.7%. Farmers & Merchants Bancorp pays out 38.0% of its earnings in the form of a dividend. First United pays out 26.6% 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. Farmers & Merchants Bancorp has increased its dividend for 19 consecutive years and First United has increased its dividend for 6 consecutive years. Farmers & Merchants Bancorp 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 for Farmers & Merchants Bancorp and First United, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Farmers & Merchants Bancorp	0	3	1	0	2.25
First United	0	0	1	0	3.00

Farmers & Merchants Bancorp currently has a consensus target price of $28.25, indicating a potential upside of 6.04%. Given Farmers & Merchants Bancorp’s higher possible upside, equities analysts clearly believe Farmers & Merchants Bancorp is more favorable than First United.

Earnings and Valuation

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Farmers & Merchants Bancorp	$190.68 million	2.03	$33.31 million	$2.42	11.01
First United	$121.42 million	2.04	$24.51 million	$3.91	9.76

Farmers & Merchants Bancorp has higher revenue and earnings than First United. First United 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.

Volatility & Risk

Farmers & Merchants Bancorp has a beta of 0.81, meaning that its share price is 19% less volatile than the S&P 500. Comparatively, First United has a beta of 0.53, meaning that its share price is 47% less volatile than the S&P 500.

Summary

First United beats Farmers & Merchants Bancorp on 9 of the 16 factors compared between the two stocks.

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.

About First United

First United Corporation operates as the bank holding company for First United Bank & Trust that provides various retail and commercial banking services to businesses and individuals. It offers various deposit products, which includes checking, savings, money market deposit, and regular and individual retirement accounts (IRAs), as well as certificates of deposit. The company loan portfolio includes commercial loans secured by real estate, commercial equipment, vehicles, or other assets of the borrower; commercial real estate loans for residential and commercial development, agricultural purpose properties, and service industry buildings, such as restaurants and motels, retail buildings, and general purpose business space; residential mortgage loans; home equity lines of credit; residential real estate construction loans; and indirect and direct auto loans, student loans, and other secured and unsecured lines of credit and term loans. It also offers access to multi-million-dollar certificates of deposit and the Intrafi cash service, including multi-million-dollar savings and demand deposits to municipalities, businesses, and consumers; and treasury management, cash sweep, and various checking services. In addition, the company provides trust services, which includes personal trust, investment agency accounts, charitable trusts, retirement accounts, including IRA roll-overs, 401(k) accounts and defined benefit plans, estate administration, and estate planning; and insurance products, brokerage services, and safe deposit and night depository facilities. First United Corporation was founded in 1900 and is headquartered in Oakland, Maryland.