Reviewing Norwood Financial (NASDAQ:NWFL) and Preferred Bank (NASDAQ:PFBC)

Preferred Bank (NASDAQ:PFBC) and Norwood Financial (NASDAQ:NWFL) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, earnings, analyst recommendations, valuation and dividends.

Profitability

This table compares Preferred Bank and Norwood Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Preferred Bank	27.35%	20.24%	2.10%
Norwood Financial	11.52%	7.40%	0.59%

Risk & Volatility

Preferred Bank has a beta of 0.95, meaning that its share price is 5% less volatile than the S&P 500. Comparatively, Norwood Financial has a beta of 0.63, meaning that its share price is 37% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for Preferred Bank and Norwood Financial, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Preferred Bank	0	0	2	0	3.00
Norwood Financial	0	0	0	0	N/A

Preferred Bank presently has a consensus price target of $100.00, indicating a potential upside of 20.00%. Given Preferred Bank’s higher possible upside, equities research analysts clearly believe Preferred Bank is more favorable than Norwood Financial.

Valuation & Earnings

This table compares Preferred Bank and Norwood Financial”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Preferred Bank	$485.10 million	2.48	$150.04 million	$10.23	8.15
Norwood Financial	$103.66 million	2.24	$16.76 million	$1.62	17.69

Preferred Bank has higher revenue and earnings than Norwood Financial. Preferred Bank is trading at a lower price-to-earnings ratio than Norwood Financial, indicating that it is currently the more affordable of the two stocks.

Dividends

Preferred Bank pays an annual dividend of $2.80 per share and has a dividend yield of 3.4%. Norwood Financial pays an annual dividend of $1.20 per share and has a dividend yield of 4.2%. Preferred Bank pays out 27.4% of its earnings in the form of a dividend. Norwood Financial pays out 74.1% 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. Norwood Financial has increased its dividend for 6 consecutive years. Norwood Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

72.8% of Preferred Bank shares are held by institutional investors. Comparatively, 28.1% of Norwood Financial shares are held by institutional investors. 9.3% of Norwood Financial shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

Preferred Bank beats Norwood Financial on 12 of the 16 factors compared between the two stocks.

About Preferred Bank

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.

About Norwood Financial

Norwood Financial Corp. operates as the bank holding company for Wayne Bank that provides various banking products and services. The company accepts a range of deposit products, including interest-bearing and non-interest-bearing transaction accounts, and statement savings and money market accounts, as well as certificate of deposits. It also provides commercial loans comprising lines of credit, revolving credit, term loans, mortgages, secured lending products, and letter of credit facilities; municipal finance lending; construction loans for commercial construction projects and single-family residences; land loans; construction financing; consumer loans; mortgage lending to finance principal residences and second home dwellings; and indirect dealer financing of new and used automobiles, boats, and recreational vehicles. In addition, the company offers investment securities services; personal and business credit services; trust and investment products; and cash management, direct deposit, remote deposit capture, mobile deposit capture, automated clearing house activity, real estate settlement, and Internet and mobile banking services. Further, it engages in the annuity and mutual fund sale, and discount brokerage activities, as well as insurance agency business. The company serves consumers, businesses, nonprofit organizations, and municipalities. It operates branches in Northeastern Pennsylvania; and in Delaware, Sullivan, Ontario, Otsego, and Yates Counties, New York, as well as automated teller machines. Norwood Financial Corp. was founded in 1870 and is headquartered in Honesdale, Pennsylvania.