Analyzing Security Federal (OTCMKTS:SFDL) and First Financial Northwest (NASDAQ:FFNW)

First Financial Northwest (NASDAQ:FFNW) and Security Federal (OTCMKTS:SFDL) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their earnings, valuation, risk, institutional ownership, dividends, profitability and analyst recommendations.

Institutional & Insider Ownership

55.0% of First Financial Northwest shares are owned by institutional investors. 7.2% of First Financial Northwest shares are owned by insiders. Comparatively, 35.9% of Security Federal shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Analyst Ratings

This is a summary of recent ratings and recommmendations for First Financial Northwest and Security Federal, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First Financial Northwest	0	2	1	0	2.33
Security Federal	0	0	0	0	N/A

First Financial Northwest currently has a consensus target price of $23.00, indicating a potential upside of 7.48%. Given First Financial Northwest’s higher probable upside, equities research analysts clearly believe First Financial Northwest is more favorable than Security Federal.

Valuation & Earnings

This table compares First Financial Northwest and Security Federal’s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First Financial Northwest	$80.93 million	2.42	$6.30 million	$0.33	64.85
Security Federal	$74.37 million	1.02	$10.19 million	$2.86	8.25

Security Federal has lower revenue, but higher earnings than First Financial Northwest. Security Federal is trading at a lower price-to-earnings ratio than First Financial Northwest, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares First Financial Northwest and Security Federal’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
First Financial Northwest	3.78%	1.94%	0.21%
Security Federal	11.73%	10.99%	0.62%

Risk and Volatility

First Financial Northwest has a beta of 0.54, meaning that its share price is 46% less volatile than the S&P 500. Comparatively, Security Federal has a beta of 0.45, meaning that its share price is 55% less volatile than the S&P 500.

Dividends

First Financial Northwest pays an annual dividend of $0.52 per share and has a dividend yield of 2.4%. Security Federal pays an annual dividend of $0.56 per share and has a dividend yield of 2.4%. First Financial Northwest pays out 157.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Security Federal pays out 19.6% of its earnings in the form of a dividend. First Financial Northwest has increased its dividend for 7 consecutive years. First Financial Northwest is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

First Financial Northwest beats Security Federal on 9 of the 16 factors compared between the two stocks.

About First Financial Northwest

First Financial Northwest, Inc. operates as the bank holding company for First Financial Northwest Bank that provides commercial banking services in Washington. The company offers a range of deposit products, including noninterest-bearing accounts, interest-bearing demand accounts, money market accounts, savings accounts, and certificates of deposit. Its loan products comprise one-to-four family residential loans; multifamily and commercial real estate loans; construction/land loans; business loans; and consumer loans, such as home equity loans, lines of credit, second mortgage term loans, auto loans, and savings account loans. The company also provides wealth management services; and online banking services, as well as debit cards and ATMs. The company was founded in 1923 and is headquartered in Renton, Washington.

About Security Federal

Security Federal Corporation operates as the bank holding company for Security Federal Bank that provides various banking products and services. It offers various deposit products, such as savings and checking accounts, money market accounts, fixed interest rate certificates with varying maturities, and individual retirement accounts. The company provides real estate loans comprising commercial real estate loans secured by non-residential commercial properties, churches, hotels, residential developments, and multi-family dwellings; one-to-four family residential real estate loans; and construction loans and loans for the acquisition, development, and construction of residential subdivisions and commercial projects. In addition, it offers commercial and agricultural business loans secured by business equipment, furniture and fixtures, inventory, and receivables, or unsecured; and consumer loans including home improvements, residential lots, mortgage, automobiles, boats, mobile homes, recreational vehicles, and education. The company offers trust, financial planning, and financial management services; and insurance agency services, such as auto, business, and home insurance. Additionally, it invests in various types of liquid assets, including U.S. Treasury obligations and securities of various federal agencies, certificates of deposit at insured institutions, mutual funds, bankers' acceptances, and federal funds, as well as commercial paper and corporate debt securities. It through branch offices in Aiken, Lexington, Richland and Saluda counties in South Carolina and Columbia; and Richmond counties in Georgia. Security Federal Corporation was founded in 1922 and is headquartered in Aiken, South Carolina.