Reviewing Arrow Financial (NASDAQ:AROW) & Meridian (NASDAQ:MRBK)

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

Institutional and Insider Ownership

46.7% of Arrow Financial shares are owned by institutional investors. Comparatively, 58.6% of Meridian shares are owned by institutional investors. 2.9% of Arrow Financial shares are owned by company insiders. Comparatively, 14.0% of Meridian shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Dividends

Arrow Financial pays an annual dividend of $1.08 per share and has a dividend yield of 4.9%. Meridian pays an annual dividend of $0.50 per share and has a dividend yield of 5.8%. Arrow Financial pays out 60.9% of its earnings in the form of a dividend. Meridian pays out 43.5% 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. Arrow Financial has increased its dividend for 22 consecutive years and Meridian has increased its dividend for 1 consecutive years. Meridian is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk & Volatility

Arrow Financial has a beta of 0.7, suggesting that its stock price is 30% less volatile than the S&P 500. Comparatively, Meridian has a beta of 0.68, suggesting that its stock price is 32% less volatile than the S&P 500.

Profitability

This table compares Arrow Financial and Meridian’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	15.69%	8.21%	0.72%
Meridian	7.86%	8.54%	0.59%

Valuation & Earnings

This table compares Arrow Financial and Meridian’s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$191.68 million	1.89	$30.08 million	$1.77	12.33
Meridian	$168.55 million	0.57	$13.24 million	$1.15	7.49

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

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Arrow Financial and Meridian, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	1	0	0	2.00
Meridian	0	1	0	0	2.00

Meridian has a consensus price target of $13.00, suggesting a potential upside of 50.99%. Given Meridian’s higher probable upside, analysts plainly believe Meridian is more favorable than Arrow Financial.

Summary

Arrow Financial beats Meridian on 9 of the 15 factors compared between the two stocks.

About Arrow Financial

Arrow Financial Corporation, a bank holding company, provides commercial and consumer banking, and financial products and services. The company's deposit products include demand deposits, interest-bearing checking accounts, savings deposits, time deposits, and other time deposits. Its lending activities comprise commercial loans, such as term loans, time notes, and lines of credit; and commercial real estate loans to finance real estate purchases, refinancing, expansions, and enhancement to commercial properties, as well as commercial construction and land development loans to finance projects. The company's lending activities also include consumer installment loans to finance personal expenditures, personal lines of credit, overdraft protection, and automobile loans; and residential real estate loans, fixed home equity loans, and home equity lines of credit for consumers to finance home improvements, debt consolidation, education, and other uses. In addition, it maintains an indirect lending program. Further, the company provides retirement planning, trust, and estate administration services for individuals, as well as pension, profit-sharing, and employee benefit plan administration services for corporations. Additionally, it offers insurance agency services comprising group health care policies and life insurance, and property and casualty insurance products; and investment advisory services to its proprietary mutual funds, as well as holds a real estate investment trust. It operates in the northeastern region of New York State in Warren, Washington, Saratoga, Essex, Clinton, Rensselaer, Albany, and Schenectady counties. Arrow Financial Corporation was founded in 1851 and is headquartered in Glens Falls, New York.

About Meridian

Meridian Corporation operates as the holding company for Meridian Bank that provides commercial banking products and services in Pennsylvania, New Jersey, Delaware, Florida, and Maryland. The company offers various deposit products, such as demand non-interest bearing, demand interest bearing, savings accounts, money market accounts, and time deposits. It also provides commercial and industrial loans comprising business lines of credit, term loans, small business lending, lease financing, shared national credits, and other financing; commercial real estate, and land development and construction loans for residential and commercial projects; and consumer and home equity lending, private banking, merchant, and title and land settlement services. In addition, the company operates and originates mortgage loans for 1-4 family dwellings; and offers real estate holding, investment advisory, and equipment leasing services, as well as financial planning and wealth management services. Meridian Corporation was incorporated in 2004 and is headquartered in Malvern, Pennsylvania.