United Bankshares: Asymmetric Risk-Reward With Increased Dividends (NASDAQ:UBSI)

United Bankshares (NASDAQ: UBSI) came from humble beginnings in 1839 as a regional bank in West Virginia. Over the years, the company has taken advantage of several growth opportunities and has become one of the top fifty banks in the United States through numerous, well-navigated mergers and acquisitions. With dual headquarters located in Washington D.C. and Charleston, WV, United Bankshares holds over $29 billion in assets and continues to grow. It became a publicly-traded company in 1987 and has since completed thirty-three acquisitions with 222 full-service banking offices and twenty-two loan origination offices in its footprint of Virginia, West Virginia, Maryland, Pennsylvania, Ohio, North Carolina, South Carolina, and Washington D.C.

In this article, I will illustrate the solid foundation which United Bankshares maintains to promote growth, increase profitability, minimize risk, and why a bullish position could garner advantages in years to come with ever-growing dividend increases to its investors.

Reliable Growth

United Bankshares has a history of successful mergers and acquisitions. The acquisition of Virginia Commerce Bank occurred in 2013 and the Bank of Georgetown in 2016. 2017 brought the acquisition of Cardinal Financial Corporation, which led to the company now holding over $19 billion in assets. In November of 2019, the company announced that Carolina Financial Corporation, the parent company of CresCom Bank, entered into a merger agreement bringing United Bankshares from approximately $19.8 billion in assets to approximately $25 billion, which was completed in May of 2020.

And lastly, in June of 2021, the company announced that Community Bankers Trust, the parent company of Essex Bank, entered into a merger agreement, which was completed in December of 2021, bringing it to hold approximately $29 billion in assets, ranking it the 41st largest banking company in the U.S based on market capitalization.

Through all the growth that United Bankshares has achieved, it has a history of delivering to its investors, with forty-eight consecutive years of dividend increases to shareholders. This was despite several challenging times for the financial industry, including the 2008 financial crisis. United Bankshares not only performed, but declined funds offered by the US Treasury via the Troubled Asset Relief Program (TARP) following the 2008 financial crisis – a true indication of its asset quality.

As reported in the financial statements for FYE 2021, the company holds $29.4 billion in assets and announced record earnings for the year. Further, the bank’s asset quality remains prudent with NPA loans of only $90.8 million in 2021 – down from $132.2 million in 2021. It continues to be well-capitalized, based on regulatory guidelines.

Like its growth in assets, United Bankshares has improved its bottom-line year-over-year. Net income for 2021 reached $368 million, increasing from $289 million in 2020, $260 million in 2019, and $256 million in 2018. The main driver of the bank’s revenues is derived from interest income from all loans and leases with supplementary income stemming from its brokerage, trust, mortgage, and deposit services.

The mission of the company is to provide “excellence in service to our employees, our customers, our shareholders, and our communities.” This mission is demonstrated by the value they assign to their employees. Each year, the leading expenses reported are for employee compensation and employee benefits. This commitment to its employees promotes dedication, robust work ethic, and employee retention – all leading to the growth and performance that United Bankshares has exhibited over time.

At FYE 2021, United Bankshares held approximately $3.8 billion in cash and cash equivalents, which has increased from $2.2 billion at FYE 2020. Its largest current asset figure is related to interest-bearing deposit accounts reaching $3.5 billion. Total borrowings decreased $60.4 million, approximately 6% since FYE 2020, with short-term borrowings decreasing by 9.5% to $129 million. The most recent acquisition of Community Bankers Trust added $6.8 million in short-term borrowings.

However, all was repaid by the end of the year. The most recent acquisition also added approximately $260 million in shareholders’ equity with over seven million authorized but unissued shares. This resulted in an increase in retained earnings to $185 million or 15.4% since FYE 2020. The company’s capital ratios have also exceeded all regulatory requirements as of FYE 2021.

Passing the Baton

In February of 2022, United Bankshares announced Board approval of an executive management reorganization becoming effective in the 2nd quarter of 2022. The outgoing CEO, Richard M. Adams, will become the Executive Chairman of the Board with his son, Rick Adams, Jr., stepping up to become CEO. At the same time, Jim C. Consagra – currently COO – will become President. Rick Adams, Jr. joined the bank in 1994 after practicing law at Bowles Rice, LLP and has served as president in the recent future. Jim Consagra joined the bank in 1998 through an acquisition of George Mason Bankshares, where he held the position of CFO and Treasurer.

In March of 2022, the company announced Board approval of the promotion of Julie R. Gurtis to President. Julie Gurtis most recently served as an Executive Vice President and Chief Commercial Banking Officer for the bank; however, her 31-year career included roles such as Commercial Lender, Market President, and Regional President. Also announced was the transition of a bank President, Michael P. Fitzgerald, to Vice Chairman of the Board of Directors. Fitzgerald was the Founder, Chairman, President, and CEO of Bank of Georgetown, acquired by United Bankshares in 2016. Fitzgerald plans to continue his focus on business development and client relationships.

Although changes are occurring, the amount of experience stepping into these vital roles is incomparable and promotes further growth and continued performance.

Current Events and Future Outlook

On March 08, 2022, Mark Tatterson, Chief Financial Officer, presented at the Raymond James 43rd Institutional Investors Conference. Tatterson discussed the “high performance / low risk” strategy of United Banksharesand the vast experience of its management team. Loan growth is expected to be in the mid-single digits for 2022, and investment portfolio balances are expected to increase, taking advantage of recently increased rates.

Net interest income for 2022 is expected to be in the $780-800 million dollar range, which is a considerable boost from $724 million in 2021, taking advantage of the increased interest rates in the market. Non-interest expenses are projected to reach $570-580 million, which is on par with what was reported in 2021. These increasing income and constant expense figures will prove to be lucrative to the bank’s bottom line in 2022.

The company’s investment thesis touts long-term growth prospects with an expanded market footprint. It offers a current income opportunity with a dividend yield of approximately 4% based on recent prices. Again, Tatterson reinforces the “high-performance bank with a low-risk profile” strategy, citing United Bankshares’s performance throughout the financial crisis and beyond. It is evident that it has been and will remain profitable and hold a substantial market share within the industry.

With a record of dividend increases year after year with proven performance through the darkest time, United Bankshares is a beacon of progress and prosperity. Its management team is experienced with long-time employees taking over vital responsibilities. The company will likely continue to grow, capture more of the market, increase profitability, and ultimately continue to improve dividends for investors that take a bullish position with a buy and hold strategy.