Reviewing Norwood Financial (NASDAQ:NWFL) and Potomac Bancshares (OTCMKTS:PTBS)

Potomac Bancshares (OTCMKTS:PTBS) and Norwood Financial (NASDAQ:NWFL) are both small-cap finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, earnings, valuation, risk, institutional ownership, dividends and analyst recommendations.

Risk and Volatility

Potomac Bancshares has a beta of 0.26, suggesting that its stock price is 74% less volatile than the S&P 500. Comparatively, Norwood Financial has a beta of 0.56, suggesting that its stock price is 44% less volatile than the S&P 500.

Dividends

Potomac Bancshares pays an annual dividend of $0.60 per share and has a dividend yield of 2.6%. Norwood Financial pays an annual dividend of $1.28 per share and has a dividend yield of 4.1%. Potomac Bancshares pays out 25.4% of its earnings in the form of a dividend. Norwood Financial pays out 47.2% 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. Norwood Financial has raised its dividend for 7 consecutive years. Norwood Financial is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Potomac Bancshares and Norwood Financial’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Potomac Bancshares	N/A	N/A	N/A
Norwood Financial	17.75%	12.43%	1.21%

Earnings and Valuation

This table compares Potomac Bancshares and Norwood Financial”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Potomac Bancshares	$54.90 million	1.91	$10.60 million	$2.36	9.92
Norwood Financial	$95.00 million	3.57	$27.75 million	$2.71	11.49

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

Insider and Institutional Ownership

5.3% of Potomac Bancshares shares are owned by institutional investors. Comparatively, 28.1% of Norwood Financial shares are owned by institutional investors. 4.4% of Potomac Bancshares shares are owned by insiders. Comparatively, 8.1% of Norwood Financial shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of recent ratings for Potomac Bancshares and Norwood Financial, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Potomac Bancshares	0	0	0	0	0.00
Norwood Financial	0	2	1	0	2.33

Norwood Financial has a consensus target price of $33.00, suggesting a potential upside of 5.95%. Given Norwood Financial’s stronger consensus rating and higher probable upside, analysts clearly believe Norwood Financial is more favorable than Potomac Bancshares.

Summary

Norwood Financial beats Potomac Bancshares on 16 of the 17 factors compared between the two stocks.

About Potomac Bancshares

Potomac Bancshares, Inc. operates as the bank holding company for Bank of Charles Town that provides various banking products and services to individuals and businesses. The company offers checking, savings, and individual retirement accounts; and certificates of deposit (CD). It also provides personal loans, including new and used vehicle, home equity, unsecured home improvement and personal, retail equipment, and lot loans, as well as loans secured by CD, and home equity lines of credit; commercial loans for building or office purchases, commercial real estate and construction, and production and administrative equipment purchases; lines of credit; mortgage, commercial, term, residential and commercial construction, commercial real estate, and agricultural loans; and credit and debit cards. In addition, the company offers Card Pay, cash management, merchant, financial planning, trust and estate, investment management, wealth management, full-service brokerage, retirement and insurance planning and products, asset allocation and management, and college planning services, as well as telephone, mobile, and online banking services. Potomac Bancshares, Inc. was founded in 1871 and is based in Charles Town, West Virginia.

About Norwood Financial

Norwood Financial Corp. operates as the bank holding company for Wayne Bank that provides various banking products and services. The company accepts a range of deposit products, including interest-bearing and non-interest-bearing transaction accounts, and statement savings and money market accounts, as well as certificate of deposits. It also provides commercial loans comprising lines of credit, revolving credit, term loans, mortgages, secured lending products, and letter of credit facilities; municipal finance lending; construction loans for commercial construction projects and single-family residences; land loans; construction financing; consumer loans; mortgage lending to finance principal residences and second home dwellings; and indirect dealer financing of new and used automobiles, boats, and recreational vehicles. In addition, the company offers investment securities services; personal and business credit services; trust and investment products; and cash management, direct deposit, remote deposit capture, mobile deposit capture, automated clearing house activity, real estate settlement, and Internet and mobile banking services. Further, it engages in the annuity and mutual fund sale, and discount brokerage activities, as well as insurance agency business. The company serves consumers, businesses, nonprofit organizations, and municipalities. It operates branches in Northeastern Pennsylvania; and in Delaware, Sullivan, Ontario, Otsego, and Yates Counties, New York, as well as automated teller machines. Norwood Financial Corp. was founded in 1870 and is headquartered in Honesdale, Pennsylvania.