Critical Review: Southern Michigan Bancorp (OTCMKTS:SOMC) versus Prosperity Bancshares (NYSE:PB)

Prosperity Bancshares (NYSE:PB) and Southern Michigan Bancorp (OTCMKTS:SOMC) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their analyst recommendations, earnings, profitability, valuation, risk, institutional ownership and dividends.

Analyst Ratings

This is a summary of current ratings and target prices for Prosperity Bancshares and Southern Michigan Bancorp, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Prosperity Bancshares	0	5	8	0	2.62
Southern Michigan Bancorp	0	0	0	0	0.00

Prosperity Bancshares presently has a consensus price target of $80.68, indicating a potential downside of 1.52%. Given Prosperity Bancshares’ stronger consensus rating and higher probable upside, equities analysts clearly believe Prosperity Bancshares is more favorable than Southern Michigan Bancorp.

Earnings & Valuation

This table compares Prosperity Bancshares and Southern Michigan Bancorp”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Prosperity Bancshares	$1.11 billion	7.02	$419.32 million	$4.71	17.39
Southern Michigan Bancorp	$73.31 million	1.21	$10.90 million	$2.25	8.67

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

Profitability

This table compares Prosperity Bancshares and Southern Michigan Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Prosperity Bancshares	25.39%	6.46%	1.18%
Southern Michigan Bancorp	12.27%	10.19%	0.70%

Volatility & Risk

Prosperity Bancshares has a beta of 0.92, meaning that its share price is 8% less volatile than the S&P 500. Comparatively, Southern Michigan Bancorp has a beta of 0.28, meaning that its share price is 72% less volatile than the S&P 500.

Dividends

Prosperity Bancshares pays an annual dividend of $2.32 per share and has a dividend yield of 2.8%. Southern Michigan Bancorp pays an annual dividend of $0.60 per share and has a dividend yield of 3.1%. Prosperity Bancshares pays out 49.3% of its earnings in the form of a dividend. Southern Michigan Bancorp pays out 26.7% 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. Prosperity Bancshares has raised its dividend for 27 consecutive years. Southern Michigan Bancorp is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider and Institutional Ownership

80.7% of Prosperity Bancshares shares are held by institutional investors. 4.3% of Prosperity Bancshares shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Summary

Prosperity Bancshares beats Southern Michigan Bancorp on 14 of the 17 factors compared between the two stocks.

About Prosperity Bancshares

Prosperity Bancshares, Inc. operates as bank holding company for the Prosperity Bank that provides financial products and services to businesses and consumers. It accepts various deposit products, such as demand, savings, money market, and time accounts, as well as and certificates of deposit. The company also offers 1-4 family residential mortgage, commercial real estate and multifamily residential, commercial and industrial, agricultural, and non-real estate agricultural loans, as well as construction, land development, and other land loans; consumer loans, including automobile, recreational vehicle, boat, home improvement, personal, and deposit account collateralized loans; term loans and lines of credit; and consumer durables and home equity loans, as well as loans for working capital, business expansion, and purchase of equipment and machinery. In addition, it provides internet banking, mobile banking, trust and wealth management, retail brokerage, mortgage services, and treasury management, as well as debit and credit cards. The company was incorporated in 1983 and is headquartered in Houston, Texas.

About Southern Michigan Bancorp

Southern Michigan Bancorp, Inc. operates as the bank holding company for Southern Michigan Bank & Trust that provides a range of commercial banking services to individuals, businesses, institutions, and governmental agencies primarily in the southwest Michigan communities. Its deposit products include interest and non-interest checking, savings, and various types of money market accounts; time, savings, and demand deposits; and certificates of deposit and IRAs. The company also provides home mortgages and equity loans, home equity lines of credit, VA and FHA home loans, USDA rural development loans, and auto/personal loans; business loans, such as lines of credit, term loans, commercial real estate loans, commercial and industrial loans, agriculture loans, letters of credit, small business administration loans, and capital access loans; industrial, construction, real estate, and inventory loans; and consumer lending products comprising direct and indirect loans to purchasers of residential real property and consumer goods. In addition, it offers trust and investment services that include investment management, trustee, IRA rollovers and retirement plan, institutional and personal custody, estate settlement, wealth management, estate and wealth transfer planning assistance, charitable gift planning assistance, and cash management custody services; and safe deposit box and automated teller machine services. Further, the company provides bill pay, e-statements, ACH, wire transfer, remote deposit capture, and insurance services, as well as ATM, debit, credit, and gift cards. The company was founded in 1871 and is based in Coldwater, Michigan.