Reviewing Old Second Bancorp (NASDAQ:OSBC) and First Merchants (NASDAQ:FRME)

First Merchants (NASDAQ:FRME) and Old Second Bancorp (NASDAQ:OSBC) are both finance companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, analyst recommendations, risk, profitability, valuation, earnings and dividends.

Volatility & Risk

First Merchants has a beta of 0.88, indicating that its share price is 12% less volatile than the S&P 500. Comparatively, Old Second Bancorp has a beta of 0.74, indicating that its share price is 26% less volatile than the S&P 500.

Dividends

First Merchants pays an annual dividend of $1.44 per share and has a dividend yield of 3.5%. Old Second Bancorp pays an annual dividend of $0.28 per share and has a dividend yield of 1.3%. First Merchants pays out 37.0% of its earnings in the form of a dividend. Old Second Bancorp pays out 17.2% 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. First Merchants has increased its dividend for 13 consecutive years and Old Second Bancorp has increased its dividend for 1 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of recent ratings and price targets for First Merchants and Old Second Bancorp, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First Merchants	0	3	3	0	2.50
Old Second Bancorp	0	1	4	0	2.80

First Merchants presently has a consensus target price of $48.33, indicating a potential upside of 17.49%. Old Second Bancorp has a consensus target price of $23.38, indicating a potential upside of 6.59%. Given First Merchants’ higher possible upside, equities research analysts plainly believe First Merchants is more favorable than Old Second Bancorp.

Valuation & Earnings

This table compares First Merchants and Old Second Bancorp”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First Merchants	$1.05 billion	2.48	$226.00 million	$3.89	10.58
Old Second Bancorp	$401.54 million	2.83	$80.31 million	$1.63	13.45

First Merchants has higher revenue and earnings than Old Second Bancorp. First Merchants is trading at a lower price-to-earnings ratio than Old Second Bancorp, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares First Merchants and Old Second Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First Merchants	21.49%	9.58%	1.21%
Old Second Bancorp	20.00%	12.79%	1.60%

Institutional and Insider Ownership

73.9% of First Merchants shares are held by institutional investors. Comparatively, 67.8% of Old Second Bancorp shares are held by institutional investors. 1.8% of First Merchants shares are held by insiders. Comparatively, 3.8% of Old Second Bancorp shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Summary

First Merchants beats Old Second Bancorp on 9 of the 17 factors compared between the two stocks.

About First Merchants

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. The company offers a range of financial services, including time, savings, and demand deposits; and consumer, commercial, agri-business, public finance, and real estate mortgage loans. It also provides personal and corporate trust; brokerage and private wealth management; and letters of credit, repurchase agreements, and other corporate services. The company operates banking locations in Indiana, Illinois, Ohio, and Michigan counties. It also offers its services through electronic and mobile delivery channels. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.

About Old Second Bancorp

Old Second Bancorp, Inc. operates as the bank holding company for Old Second National Bank that provides community banking services. It offers demand, NOW, money market, savings, time deposit, individual retirement, and checking accounts, as well as certificates of deposit accounts. The company also provides commercial loans; lease financing receivables; commercial real estate loans; construction loans; residential real estate loans, such as residential first mortgage and second mortgage loans; home equity line of credit; consumer loans, including motor vehicle, home improvement, and signature loans; installment and agricultural loans; residential mortgages; and overdraft checking. In addition, it offers safe deposit services; trust and wealth management services; and money orders, cashier’s checks, foreign currency, direct deposits, discount brokerage, debit and credit cards, and other services, as well as acquires the U.S. treasury notes and bonds. Further, the company provides online and mobile banking; corporate cash management products, including remote and mobile deposits capture, investment sweep accounts, zero balance accounts, automated tax payments, automatic teller machines access, telephone banking, lockbox accounts, automated clearing house transactions, account reconciliation, controlled disbursement, detail and general information reporting, foreign and domestic wire transfers, and vault services for currency and coin; and investment, agency, and custodial services for individual, corporate, and not-for-profit clients. Old Second Bancorp, Inc. was incorporated in 1981 and is headquartered in Aurora, Illinois.