Provident Financial Services (NYSE:PFS) versus Mercantile Bank (NASDAQ:MBWM) Critical Contrast

Provident Financial Services (NYSE:PFS) and Mercantile Bank (NASDAQ:MBWM) are both finance companies, but which is the superior business? We will compare the two companies based on the strength of their profitability, valuation, risk, dividends, earnings, analyst recommendations and institutional ownership.

Institutional and Insider Ownership

72.0% of Provident Financial Services shares are owned by institutional investors. Comparatively, 58.6% of Mercantile Bank shares are owned by institutional investors. 3.0% of Provident Financial Services shares are owned by insiders. Comparatively, 2.5% of Mercantile Bank shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Provident Financial Services and Mercantile Bank’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Provident Financial Services	21.73%	10.82%	1.22%
Mercantile Bank	24.42%	13.37%	1.43%

Risk & Volatility

Provident Financial Services has a beta of 0.82, meaning that its share price is 18% less volatile than the S&P 500. Comparatively, Mercantile Bank has a beta of 0.82, meaning that its share price is 18% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current recommendations for Provident Financial Services and Mercantile Bank, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Provident Financial Services	0	2	4	1	2.86
Mercantile Bank	0	3	3	0	2.50

Provident Financial Services presently has a consensus target price of $26.79, indicating a potential upside of 15.52%. Mercantile Bank has a consensus target price of $62.20, indicating a potential upside of 2.09%. Given Provident Financial Services’ stronger consensus rating and higher possible upside, equities analysts clearly believe Provident Financial Services is more favorable than Mercantile Bank.

Dividends

Provident Financial Services pays an annual dividend of $0.96 per share and has a dividend yield of 4.1%. Mercantile Bank pays an annual dividend of $1.60 per share and has a dividend yield of 2.6%. Provident Financial Services pays out 40.3% of its earnings in the form of a dividend. Mercantile Bank pays out 28.5% 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. Mercantile Bank has raised its dividend for 14 consecutive years.

Earnings & Valuation

This table compares Provident Financial Services and Mercantile Bank”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Provident Financial Services	$1.38 billion	2.19	$291.16 million	$2.38	9.74
Mercantile Bank	$371.80 million	2.83	$88.75 million	$5.61	10.86

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

Summary

Provident Financial Services beats Mercantile Bank on 9 of the 17 factors compared between the two stocks.

About Provident Financial Services

Provident Financial Services, Inc. operates as the bank holding company for Provident Bank that provides various banking products and services to individuals, families, and businesses in the United States. Its deposit products include savings, checking, interest-bearing checking, money market deposit, and certificate of deposit accounts, as well as IRA products. The company's loan portfolio comprises commercial real estate loans that are secured by properties, such as multi-family apartment buildings, office buildings, retail and industrial properties, and office buildings; commercial business loans; fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate properties; commercial construction loans; and consumer loans consisting of home equity loans, home equity lines of credit, personal loans and unsecured lines of credit, and auto and recreational vehicle loans. It also offers cash management, remote deposit capture, payroll origination, escrow account management, and online and mobile banking services; and business credit cards. In addition, the company provides wealth management services comprising investment management, trust and estate administration, financial planning, and tax compliance and planning. Further, it sells insurance and investment products, including annuities; operates as a real estate investment trust for acquiring mortgage loans and other real estate related assets; and manages and sells real estate properties acquired through foreclosure. The company was founded in 1839 and is headquartered in Jersey City, New Jersey.

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.