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United Overseas Bank Ltd’s Latest Earnings: What Investors Should Know

United Overseas Bank Ltd (SGX: U11) – or better know as UOB – reported its fiscal fourth quarter earnings for the year ended 31 December 2014 this morning. The reporting period was for 1 October 2014 to 31 December 2014.

UOB is one of the three major banks based out of Singapore, along with DBS Group Holdings Ltd  (SGX: D05) and Oversea-Chinese Bank Corp Limited (SGX: O39). UOB has a network of over 500 offices in 19 countries and territories in Asia-Pacific, Western Europe, and North America. The bank counts United Overseas Insurance (SGX: G07) as its subsidiary.

You can catch up with UOB’s fiscal second quarter earnings here.

Financial highlights

Here’s a quick rundown on UOB’s income (essentially the “revenue” for a bank):

  1. For the fourth quarter, net interest income for UOB was up 1.1% to $1.17 billion on a year-on-year comparison. UOB finished 2014 with $4.56 billion in net interest income, 10.6% above 2013’s net interest income of $4.12 billion.
  2. The fee and commission income came in at $450 million for the fourth quarter, about 3.5% above 2013’s fourth quarter. In 2014, fee and commission income came in at $1.75 billion.
  3. Next up, other non-interest income for the fourth quarter increased by a hefty 9.2% to $232 million compared to a year ago. For the full year, non-interest income came in at $1.15 billion or some 32.2% above what was achieved in 2013.
  4. Share of profit from associates was up more than 100% in the past quarter, ending up with $43 million. For the full year, the share of profit contribution was $149 million, some 21.9% down from 2013’s levels.

Taken together, UOB made $1.85 billion in total income for the fourth quarter of 2014, or 6.2% above the fourth quarter of 2013. For the full year 2014, UOB made $7.45 billion, some 11% above 2013’s total income levels.

On the costs and expenses side of things:

  1. For the fourth quarter, UOB’s total expenses recorded a 5.6% year-on-year increase to come in at $805 million. For the year, expenses rose by 8.6% to $3.1 billion.
  2. Impairment charges for the quarter were up 19.9% year-on-year to $166 million. For 2014, this allowance was $635 million, or a hefty 48.1% higher than in 2013.

In summation, UOB’s fourth quarter net profit in 2014 was $786 million or 1.7% higher than the fourth quarter of 2013. For the full year 2014, net profit was $3.25 billion, up 8% compared to a year ago.

UOB declared a final dividend of 50 cents per ordinary share and a special dividend of 5 cents per ordinary share. Including the interim dividend of 20 cents per share, UOB will distribute a total dividend of 75 cents per share for 2014, unchanged from 2013.

The bank’s book value per share also increased by 11.3% from $15.36 at end-2013 to $17.09 at end-2014.

Operational highlights

Net interest income rose from growth in loans but that was partially offset by a decrease in net interest margin. Meanwhile, the increase in non-interest income was driven by broad based growth in fee and commissions as well as higher trading and investment income.

UOB’s customer loans rose 9.5% from a year ago to reach $199 billion at end-2014. The non-performing loan ratio for the fourth quarter of 2014 was 1.2%, higher than the 1.1% seen a year ago. The bank cited a few isolated accounts in Singapore, Thailand, and Indonesia as the cause for higher non-performing loans.  Elsewhere for the quarter, customer deposits of $234 billion at end-2014 was 4.2% higher from a year ago.

The total and SGD loan-to-deposit ratios were 83.8% and 93% respectively as of 31 December 2014. As my colleague James Yeo had noted before:

“A bank’s deposit to loan ratio should not be too high as that might cause liquidity issues if there were a sudden flood of depositors needing to withdraw their deposits from the bank.”

Based on regulatory requirements from the Monetary Authority of Singapore, banks in Singapore must at least match the following Capital Adequacy Ratios (CARs) from 1 January 2015 onward: Common Equity Tier 1 (CET1) at 6.5%, Tier 1 at 8%, and Total at 10%.

UOB may be considered well capitalized as its CARs at end-2014 are comfortably higher than MAS’ requirements at 13.9%, 13.9%, and 16.9% respectively. These figures also represent improvements from a year ago when they were at 13.2%, 13.2%, and 16.6% respectively.

UOB Group’s Deputy Chairman and Chief Executive Officer, Wee Ee Cheong, summarized the year with a few words:

“Amid a volatile global environment, we have continued to achieve steady returns while maintaining a resilient portfolio. Our core franchise continued to perform well while we maintain stable asset quality and a robust capital and funding base.

We enter 2015 confident of the long-term prospects of the region and of our ability to seize the right opportunities to achieve sustainable growth. The establishment of the ASEAN Economic Community this year will result in greater integration of our core markets over time, which is in line with our approach to provide seamless connectivity and consistent quality service to our customers across our regional network.

We are now operating in an environment where heightened volatility is the new norm. In such a context, our continued discipline and steadfastness in pursuing balanced growth serves us well. We will stay focused on the core fundamentals of banking, ensuring balance sheet strength and building capabilities for the future.”

Foolish summary

At its opening price of $23.55 this morning, UOB traded at around 1.2 times its latest book value and has a dividend yield of 3.2%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.