Critical Analysis: ConnectOne Bancorp (NASDAQ:CNOB) vs. Arrow Financial (NASDAQ:AROW)

Arrow Financial (NASDAQ:AROW) and ConnectOne Bancorp (NASDAQ:CNOB) are both small-cap finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their valuation, risk, profitability, institutional ownership, dividends, earnings and analyst recommendations.

Analyst Recommendations

This is a summary of current ratings for Arrow Financial and ConnectOne Bancorp, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Arrow Financial	0	3	2	0	2.40
ConnectOne Bancorp	0	1	4	0	2.80

Arrow Financial currently has a consensus target price of $40.83, indicating a potential upside of 2.49%. ConnectOne Bancorp has a consensus target price of $35.00, indicating a potential upside of 6.25%. Given ConnectOne Bancorp’s stronger consensus rating and higher probable upside, analysts clearly believe ConnectOne Bancorp is more favorable than Arrow Financial.

Volatility & Risk

Arrow Financial has a beta of 0.76, meaning that its stock price is 24% less volatile than the S&P 500. Comparatively, ConnectOne Bancorp has a beta of 1.05, meaning that its stock price is 5% more volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Arrow Financial	20.56%	12.25%	1.17%
ConnectOne Bancorp	20.21%	11.35%	1.17%

Insider and Institutional Ownership

46.7% of Arrow Financial shares are owned by institutional investors. Comparatively, 67.7% of ConnectOne Bancorp shares are owned by institutional investors. 3.5% of Arrow Financial shares are owned by insiders. Comparatively, 5.2% of ConnectOne Bancorp shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Dividends

Arrow Financial pays an annual dividend of $1.20 per share and has a dividend yield of 3.0%. ConnectOne Bancorp pays an annual dividend of $0.78 per share and has a dividend yield of 2.4%. Arrow Financial pays out 38.7% of its earnings in the form of a dividend. ConnectOne Bancorp pays out 25.6% 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 raised its dividend for 7 consecutive years and ConnectOne Bancorp has raised its dividend for 4 consecutive years. Arrow Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares Arrow Financial and ConnectOne Bancorp”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Arrow Financial	$242.58 million	2.71	$43.95 million	$3.10	12.85
ConnectOne Bancorp	$679.93 million	2.44	$80.44 million	$3.05	10.80

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

Summary

ConnectOne Bancorp beats Arrow Financial on 9 of the 16 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 ConnectOne Bancorp

ConnectOne Bancorp, Inc. operates as the bank holding company for ConnectOne Bank that provides commercial banking products and services for small and mid-sized businesses, local professionals, and individuals in the New York Metropolitan area and South Florida market. The company offers personal and business checking, money market, and time and savings accounts; credit cards, wire transfers, safe deposit boxes, automated teller services and telephone, and internet and mobile banking. It provides retirement accounts, consumers and cash management services for business clients, including treasury direct, automated clearing house, remote deposit capture, and digital invoicing. In addition, the company offers consumer and commercial business loans, including lines of credit, commercial and residential mortgages, home equity and bridge loans, and other personal loans; commercial loans secured by collateral, such as business assets comprising accounts receivable, inventory and equipment, and mortgages filed on commercial and residential real estate, as well as cash balances and marketable securities. Further, it provides real estate loans, which includes loans secured by first liens on completed commercial properties, including multi-family properties, to purchase or refinance properties; residential mortgages, such as loans secured by first liens on 1-4 family and condominium; and cooperative residential real estate loans. The company was formerly known as Center Bancorp, Inc. and changed its name to ConnectOne Bancorp, Inc. in July 2014. ConnectOne Bancorp, Inc. was incorporated in 1982 and is headquartered in Englewood Cliffs, New Jersey.