Mercantile Bank (NASDAQ:MBWM – Get Free Report) and Community West Bancshares (NASDAQ:CWBC – Get Free Report) are both small-cap finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, profitability, valuation, analyst recommendations, dividends, earnings and institutional ownership.
Profitability
This table compares Mercantile Bank and Community West Bancshares’ net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Mercantile Bank | 22.77% | 14.59% | 1.43% |
| Community West Bancshares | 4.53% | 8.14% | 0.78% |
Dividends
Mercantile Bank pays an annual dividend of $1.44 per share and has a dividend yield of 2.9%. Community West Bancshares pays an annual dividend of $0.48 per share and has a dividend yield of 2.3%. Mercantile Bank pays out 28.9% of its earnings in the form of a dividend. Community West Bancshares pays out 72.7% 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 raised its dividend for 13 consecutive years. Mercantile Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Valuation & Earnings
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Mercantile Bank | $303.50 million | 2.61 | $82.22 million | $4.98 | 9.85 |
| Community West Bancshares | $109.44 million | 3.67 | $25.54 million | $0.66 | 32.14 |
Mercantile Bank has higher revenue and earnings than Community West Bancshares. Mercantile Bank is trading at a lower price-to-earnings ratio than Community West Bancshares, indicating that it is currently the more affordable of the two stocks.
Risk and Volatility
Mercantile Bank has a beta of 0.95, indicating that its share price is 5% less volatile than the S&P 500. Comparatively, Community West Bancshares has a beta of 0.87, indicating that its share price is 13% less volatile than the S&P 500.
Institutional and Insider Ownership
58.6% of Mercantile Bank shares are held by institutional investors. Comparatively, 33.8% of Community West Bancshares shares are held by institutional investors. 3.1% of Mercantile Bank shares are held by company insiders. Comparatively, 11.2% of Community West Bancshares 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.
Analyst Recommendations
This is a breakdown of recent recommendations and price targets for Mercantile Bank and Community West Bancshares, as provided by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Mercantile Bank | 0 | 3 | 1 | 0 | 2.25 |
| Community West Bancshares | 0 | 1 | 1 | 0 | 2.50 |
Mercantile Bank presently has a consensus target price of $52.00, suggesting a potential upside of 6.04%. Community West Bancshares has a consensus target price of $23.00, suggesting a potential upside of 8.44%. Given Community West Bancshares’ stronger consensus rating and higher possible upside, analysts plainly believe Community West Bancshares is more favorable than Mercantile Bank.
Summary
Mercantile Bank beats Community West Bancshares on 11 of the 16 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 Community West Bancshares
Community West Bancshares operates as the bank holding company for Community West Bank, N.A. that provides various financial products and services in California. The company offers deposit products, such as checking accounts, savings accounts, money market accounts, and fixed rate and fixed maturity certificates of deposits; and cash management products. It also provides commercial, commercial real estate, consumer, manufactured housing, and small business administration loans, as well as agricultural loans for real estate and operating lines; home equity lines of credit collateralized by residential real estate; single family real estate loans; and installment loans consisting of automobile and general-purpose loans. The company serves small to medium-sized businesses and their owners, professionals, high-net worth individuals, and non-profit organizations. Community West Bancshares was founded in 1989 and is headquartered in Goleta, California.
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