Critical Analysis: Franklin Financial Services (NASDAQ:FRAF) & Metropolitan Bank (NYSE:MCB)

Franklin Financial Services (NASDAQ:FRAF) and Metropolitan Bank (NYSE:MCB) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, analyst recommendations, dividends, valuation, risk, profitability and institutional ownership.

Analyst Ratings

This is a breakdown of current ratings and price targets for Franklin Financial Services and Metropolitan Bank, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Franklin Financial Services	0	0	0	0	0.00
Metropolitan Bank	0	0	3	0	3.00

Metropolitan Bank has a consensus price target of $82.6667, suggesting a potential upside of 11.40%. Given Metropolitan Bank’s stronger consensus rating and higher possible upside, analysts plainly believe Metropolitan Bank is more favorable than Franklin Financial Services.

Volatility and Risk

Franklin Financial Services has a beta of 0.18, indicating that its stock price is 82% less volatile than the S&P 500. Comparatively, Metropolitan Bank has a beta of 1.13, indicating that its stock price is 13% more volatile than the S&P 500.

Dividends

Franklin Financial Services pays an annual dividend of $1.32 per share and has a dividend yield of 3.1%. Metropolitan Bank pays an annual dividend of $0.60 per share and has a dividend yield of 0.8%. Franklin Financial Services pays out 40.5% of its earnings in the form of a dividend. Metropolitan Bank pays out 9.7% 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. Franklin Financial Services has raised its dividend for 1 consecutive years. Franklin Financial Services is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Franklin Financial Services and Metropolitan Bank”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Franklin Financial Services	$76.76 million	2.50	$11.10 million	$3.26	13.21
Metropolitan Bank	$492.21 million	1.57	$66.69 million	$6.17	12.03

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

Institutional & Insider Ownership

24.8% of Franklin Financial Services shares are owned by institutional investors. Comparatively, 79.8% of Metropolitan Bank shares are owned by institutional investors. 6.9% of Franklin Financial Services shares are owned by company insiders. Comparatively, 6.1% of Metropolitan Bank shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Franklin Financial Services	11.78%	9.78%	0.66%
Metropolitan Bank	13.68%	10.69%	1.03%

Summary

Metropolitan Bank beats Franklin Financial Services on 12 of the 17 factors compared between the two stocks.

About Franklin Financial Services

Franklin Financial Services Corporation operates as the bank holding company for Farmers and Merchants Trust Company of Chambersburg that provides commercial, retail banking, and trust services to businesses, individuals, governmental entities, and non-profit organizations in Pennsylvania. It offers various deposit products, including checking, savings, money management, and time deposit accounts, as well as demand deposits. The company also provides commercial real estate, construction and land development, commercial and industrial, and residential mortgage loans, as well as installment and revolving loans; consumer loans comprising unsecured personal lines of credit and installment loans; and secured and unsecured commercial and industrial loans, including accounts receivable and inventory financing, and commercial equipment financing. In addition, it offers various investment and trust services comprising estate planning and administration, corporate and personal trust fund management, pension, and profit sharing and other employee benefit funds management services, and custodial services, as well as non-trust related investment services; sells mutual funds, annuities, and insurance products; and offers safe deposit, pension, and fiduciary services. Further, the company engages in non-bank investment activities, such as venture capital investments. The company was founded in 1906 and is headquartered in Chambersburg, Pennsylvania.

About Metropolitan Bank

Metropolitan Bank Holding Corp. operates as the bank holding company for Metropolitan Commercial Bank that provides a range of business, commercial, and retail banking products and services to small businesses, middle-market enterprises, public entities, and individuals in the New York metropolitan area. The company offers checking, savings, term deposit, money market, demand deposit, and other interest-bearing transaction accounts. It also provides lending products, including commercial real estate, multi-family, construction, and one-to four-family real estate loans; commercial and industrial loans; consumer loans; acquisition and renovation loans; loans to refinance or return borrower equity; loans on owner-occupied properties; working capital lines of credit; trade finance and letters of credit; and term loans. In addition, the company offers cash management services, as well as online and mobile banking, ACH, remote deposit capture, and debit cards. The company was formerly known as Metbank Holding Corp. and changed its name to Metropolitan Bank Holding Corp. in January 2007. Metropolitan Bank Holding Corp. was incorporated in 1997 and is headquartered in New York, New York.