Contrasting MainStreet Bank (NASDAQ:MNSB) & Heritage Commerce (NASDAQ:HTBK)

MainStreet Bank (NASDAQ:MNSB) and Heritage Commerce (NASDAQ:HTBK) are both small-cap finance companies, but which is the better business? We will contrast the two companies based on the strength of their dividends, risk, valuation, earnings, institutional ownership, analyst recommendations and profitability.

Dividends

MainStreet Bank pays an annual dividend of $0.40 per share and has a dividend yield of 1.6%. Heritage Commerce pays an annual dividend of $0.52 per share and has a dividend yield of 3.9%. MainStreet Bank pays out 19.6% of its earnings in the form of a dividend. Heritage Commerce pays out 66.7% 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.

Profitability

This table compares MainStreet Bank and Heritage Commerce’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
MainStreet Bank	13.24%	9.16%	0.79%
Heritage Commerce	17.77%	8.07%	1.01%

Analyst Recommendations

This is a breakdown of recent ratings and target prices for MainStreet Bank and Heritage Commerce, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
MainStreet Bank	0	1	1	0	2.50
Heritage Commerce	0	5	2	0	2.29

Heritage Commerce has a consensus price target of $13.12, suggesting a potential downside of 2.42%. Given Heritage Commerce’s higher probable upside, analysts clearly believe Heritage Commerce is more favorable than MainStreet Bank.

Insider and Institutional Ownership

52.3% of MainStreet Bank shares are owned by institutional investors. Comparatively, 75.6% of Heritage Commerce shares are owned by institutional investors. 10.2% of MainStreet Bank shares are owned by insiders. Comparatively, 2.7% of Heritage Commerce shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Valuation & Earnings

This table compares MainStreet Bank and Heritage Commerce”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
MainStreet Bank	$73.15 million	2.47	$15.61 million	$2.04	12.43
Heritage Commerce	$197.46 million	4.20	$47.83 million	$0.78	17.24

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

Volatility and Risk

MainStreet Bank has a beta of 0.55, meaning that its share price is 45% less volatile than the S&P 500. Comparatively, Heritage Commerce has a beta of 0.69, meaning that its share price is 31% less volatile than the S&P 500.

Summary

Heritage Commerce beats MainStreet Bank on 11 of the 16 factors compared between the two stocks.

About MainStreet Bank

MainStreet Bancshares, Inc. operates as the bank holding company for MainStreet Bank that provides various banking products and services for individuals, small to medium-sized businesses, and professional service organizations. The company offers demand, NOW, money market, savings, and sweep accounts, as well as certificates of deposit; business and consumer checking, interest-bearing checking, business account analysis, and other depository services; and cash management, wire transfer, check imaging, bill pay, remote deposit capture, and courier services. It also provides commercial loans, include government contract receivables, plant and equipment, general working capital, contract administration, and acquisition loans; commercial real estate, real estate construction, and residential real estate loans; and consumer loans comprising term loans and overdraft protection, as well as debit and credit cards. In addition, the company offers deposit insurance solutions; remote deposit of checks; and internet bill payment, online cash management, and online and mobile banking services. It operates in Herndon, Fairfax, McLean, Leesburg, Clarendon, and Washington D.C., as well as automated teller machines. The company was incorporated in 2003 and is headquartered in Fairfax, Virginia.

About Heritage Commerce

Heritage Commerce Corp operates as the bank holding company for Heritage Bank of Commerce that provides various commercial and personal banking services to residents and the business/professional community in California. Its deposit products for business banking and retail markets include interest and non-interest-bearing demand, savings, and money market accounts, as well as certificates of deposit and time deposits. The company’s loan portfolio comprises commercial loans, such as operating secured and unsecured loans advanced for working capital, equipment purchases, and other business purposes; commercial real estate loans; commercial construction loans for rental properties, commercial buildings, and homes; small business administration loans; home equity lines of credit; multifamily loans on residential properties; residential mortgage loans; and consumer loans consisting of loans for financing automobiles, various consumer goods, and other personal purposes. In addition, it offers other banking services, including cashier’s checks, bank by mail, night depositories, safe deposit boxes, direct deposit, automated payroll, electronic funds transfer, online bill pay, homeowner association, remote deposit capture, automated clearing house origination, electronic data interchange, and check imaging services, as well as other customary banking, factoring financing, and electronic banking services. Heritage Commerce Corp was founded in 1994 and is headquartered in San Jose, California.