Ratings and assessments of United Bank, a banking subsidiary of United Bankshares, Inc. (UBSI - Free Report) have been affirmed by Moody’s Investors Service, a rating arm of Moody's Corporation (MCO - Free Report) . The outlook has remained unchanged at stable.
The subsidiary’s a3 standalone baseline credit assessment (BCA) and adjusted BCA have also been affirmed. Also, it has been rated A1 and Prime-1 for long-term and short-term deposits, respectively. Further, an issuer rating of Baa1 has been affirmed.
Long-term Counterparty Risk Assessment of A2(cr) and short-term Counterparty Risk Assessment of Prime-1(cr) of the subsidiary was also maintained.
However, Moody’s did not provide any ratings for the parent company.
The rating action follows the recent announcement of United Bankshares’ share-for-share acquisition of Carolina Financial Corporation (CARO - Free Report) , valued at $1.1 billion. The transaction is anticipated to close in second-quarter 2020.
Also, shares of United Bankshares have gained 21.4% so far this year, outperforming 19.5% growth recorded by the industry.
Currently, United Bankshares carries a Zacks Rank #3 (Hold).
Reasons for Ratings Affirmation
With the aim of expanding in West Virginia, the company entered into a share-for-share acquisition, which led to dilution of shares. Therefore, Moody's anticipates that the company’s franchise dilution might be partially offset by increased scale and its enhanced geographically-diversified lending portfolio post the deal’s closure.
United Bank’s conservative credit culture, asset quality and efficient operations support the company’s strong profitability, which is well reflected in BCA and the ratings. The company’s market position in West Virginia helps it maintain a stable core deposit base and a healthy funding profile.
Further, the consistent earnings of the subsidiary from the banking franchises helps the company maintain a stable profitability. Also, the subsidiary’s performance is at par with its similarly-rated peers. However, financials of United Bank and its peers are under pressure due to a low interest-rate environment.
Although there is no governance issues related to the subsidiary, Moody's is skeptical about its concentration in the commercial real estate (CRE) sector, specifically in the Washington DC area. Though the company has been successfully integrating banks through buyouts, Moody's expects acquisition-linked execution risks to persist, as it expands outside the core footprint.
United Bank's tangible common equity to risk weighted assets ratio was 11.9% and the consolidated assets were $19.8 billion as of Sep 30, 2019.
What Can Lead to a Rating Upgrade/ Downgrade?
The BCAs of the subsidiary might improve if CRE concentration reduces and tangible equity increases, amid its efforts to grow through acquisitions. Increase in BCA might lead to a ratings upgrade.
However, BCAs and the ratings might witness a negative change, in case the subsidiary’s asset quality deteriorates or the company’s acquisition escalates its risk quotient. Also, decline in capital levels might cause a downgrade in the ratings.
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