United Bankshares: Expansion To Atlanta Looks Promising For This Dividend King

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United Bankshares is a financial holding company with increasing dividends for 50 years in a row and a high dividend yield of 4.58%.The acquisition of Piedmont Bancorp in Georgia is expected to boost ...

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SeanPavonePhoto/iStock via Getty Images United Bankshares (NASDAQ:UBSI) is a financial holding company operating primarily in the Community Banking and Mortgage Banking segments. Founded in 1839, it is headquartered in Charleston, West Virginia, but as we shall see it is looking to expand its operations to other states as well. The hallmark of this bank is that it has been issuing an increasing dividend for 50 years in a row, so we are talking about a dividend king. In addition, the dividend yield is also quite high, 4.58%, which is why I think it is interesting to analyze it further. Finally, its financials are solid, and the acquisition of Piedmont Bancorp looks quite promising. It is currently trading at lower multiples than in the past, so there is potential for capital gains. Piedmont Bancorp Acquisition The acquisition of Piedmont Bancorp was announced about a month ago, will be financed by the issuance of new shares and was valued at a total of $267 million; it is UBSI's 34th acquisition. But why did management choose to purchase this small bank? There are many reasons, but the main one concerns the geographical area in which Piedmont operates.   United Bankshares, Inc. (UBSI) to Acquire Piedmont Bancorp, Inc. Piedmont's branches are mainly located in Georgia, a state where UBSI had no exposure. Notably, most of them are located in Atlanta, one of the fastest-growing capital cities.   United Bankshares, Inc. (UBSI) to Acquire Piedmont Bancorp, Inc. In fact, beyond having the world's busiest airport and a booming housing market, in terms of demographics it has great potential. From 2024 to 2029 the population is expected to grow by 4.50% per year, more than Georgia and more than the U.S. as a whole. Operating in a market where there is population growth is critical for a bank, and Piedmont is UBSI's hook to interface with this market. The second reason this bank was purchased relates to its rather strong fundamentals.   United Bankshares, Inc. (UBSI) to Acquire Piedmont Bancorp, Inc. Total assets are increasing year after year, as is the yield on loans. Of course, the cost of deposits has also increased over time, but the net interest margin remains very high, 4.19%. ROAA is 1.36%, ROATCE is well above double digits. Given such high profitability, one might expect a propensity of the bank to lend money to untrustworthy individuals/companies in order to earn a higher return, but this is not the case. In fact, the NPAs/Assets is 0%. Overall, Piedmont is a small company that was recently established (2008) but has built a valuable business in a short time. It operates in a growing geographic area, and this is its main strength. Personally, I see this acquisition as positive for UBSI's long-term growth, but for completeness it is worth noting that Piedmont was not paid little.  Based on expected EPS in 2024 and 2025, the respective FWD P/E at the time of the acquisition were 9.70x and 8.80x. Based on the Q1 2024 TBV per share, the Price/TBV per share was 1.45x.  We are not talking about such low multiples for a bank of this size, especially regarding TBV. Probably, it was the net interest margin above 4% coupled with no non-performing assets that made its valuation shoot up. Finally, Piedmont represents just one of the many acquisitions made by UBSI; in fact, the company used to expand into other geographic areas by buying the most profitable local banks. In the coming years, the list may grow longer. United Bankshares, Inc. (UBSI) to Acquire Piedmont Bancorp, Inc. Financials and valuation UBSI is a fairly solid bank, and it has demonstrated its ability to handle even a difficult macroeconomic environment such as the current one. The rapid increase in rates that began in 2022 has put a strain on the net interest margin, but nevertheless it remains quite high. United Bankshares Q1 2024  As of today it is 3.44%, not that far from 3.63% at the beginning of 2023: the increase in the yield on net loans has almost managed to offset the increase in the cost of deposits. The outlook for entire 2024 is quite modest, in fact both loans and deposits are expected to grow in the low to mid-single digits. Net interest income is expected to be in the range of $900 million to $915 million, assuming two rate cuts of 25 basis points each through year-end. At the same time, the net interest margin is likely to be flat and is not expected to improve. In other words, 2024 will almost certainly not be an exciting year for UBSI, but the most important thing right now is not to deteriorate in terms of profitability and to keep capital ratios high. After all, even if recession is no longer a recurring theme, let's not forget that in the short term the economy is still in a complex period: rates continue to be high, inflation has not yet been defeated, and mortgage applications are at historic lows. Mortgage Applications, © 2024 - Mortgage News Daily From a medium-term perspective, the acquisition of Piedmont could boost EPS, in fact it is expected to have an impact of +7.60% on EPS 2025 and +8.30% on EPS 2026. From a capital perspective, the acquisition will generate a 3.50% dilution on TBV, recoverable in about 2.8 years according to management's expectations. Overall, there are challenges for UBSI to overcome during 2024, but in case of no recession I remain optimistic about its performance in the coming years. The acquisition of Piedmont will pay off as early as next year. Finally, the current valuation of UBSI seems quite reasonable. TIKR The FWD P/E is only 12.46x, about 10-15% less than its historical average. It was certainly cheaper a few months ago, but it is still at a discount. TIKR As for Price / TBV per share, we are at rather low levels. As you can see, this bank has often had a multiple above 2x, today the market believes it is not worth more than 1.46x. Personally, I don't think UBSI has deteriorated so much over the past few years to justify such a drop in valuation. With a 2x multiple, based on the current TBV per share, the fair value is $43.10, so a potential upside of 36%. Dividend analysis As mentioned in the intro, the dividend is the hallmark of this bank, in fact it is a dividend king. It is very rare to find a bank with this characteristic, as it means having successfully weathered all the recessions of the past 50 years. In other words, UBSI has been stopped neither by double-digit inflation, nor by the bursting of the .com bubble, nor by the Great Financial Crisis, nor by a worldwide pandemic. Such constancy cannot go unnoticed in the eyes of dividend investors. Seeking Alpha The only problem is that the growth rate is too low; therefore, you cannot rely on yield on cost. The current dividend yield is 4.58 percent, and you probably cannot aspire to much more than that in the next 10 years. At most it can reach a yield on cost of 5.50%, but no more. For those looking for a reliable passive yield, UBSI may be a good option to consider, but for those looking for dividend growth then it is better to look elsewhere. The reason I rate it a buy is because I currently see potential for capital gain; the dividend is a plus. If I were to base my rating only on the dividend yield at most it would be a hold, since the T-Bond yield is about the same, but with zero risk. Conclusion United Bankshares is an expanding company that is looking to tap new growth markets. Atlanta is a city with a great demographic potential as well as thriving in terms of real estate market, which is why I understand management's willingness to enter this area. The acquisition of Piedmont was not cheap considering the Price/TBV per share, but this bank probably deserved a premium given the quality of its assets and its profitability. UBSI's 2024 will not be exciting in terms of growth, but this is a problem for almost all banks. Applications for mortgages are at historic lows and few want to pay interest at 8-9%. Once there are the first cuts, the cost of deposits will ease and give room for the net interest margin to recover.  The dividend, while low growth, has proven to be a certainty over the past decades, and since at current prices UBSI looks cheap enough, I think a buy rating is reasonable.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2443666499"}