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

United Overseas Bank Ltd (SGX: U11) – or better know as UOB – reported in its fourth quarter earnings this morning. The reporting period was for 1 January 2015 to 31 March 2015.

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 2014 fourth quarter earnings here.

Financial highlights

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

  1. For the first quarter, net interest income for UOB was up 8.3% to $1.2 billion on a year-on-year comparison.
  2. The fee and commission income came in at $453 million for the reporting quarter, about 9.5% above 2014’s first quarter.
  3. Next up, other non-interest income for the first quarter increased by a hefty 32% to $301 million compared to a year ago.
  4. Share of profit from associates and joint ventures dwindled by 90.8% in the past quarter, ending up at $4 million. This compares with $43 million made in the comparable quarter last year.

Taken together, UOB made $1.96 billion in total income (excluding share of profit from associates and joint ventures) for the first quarter of 2015, or 11.6% above the first quarter of 2014.

On the costs and expenses side of things:

  1. For the reporting quarter, UOB’s total expenses recorded a 12.9% year-on-year increase to come in at $852 million.
  2. Impairment charges for the quarter were up 7.6% year-on-year to $169 million.

In summation, UOB’s first quarter net profit in 2015 was $801 million or 1.6% higher than the first quarter of 2014. The net profit includes the share of profit from associates and joint ventures.

The bank’s net asset value per share also increased by 19.73% from $15.90 at the first quarter of 2014 to $17.88 in the reporting quarter.

Operational highlights

Net interest income rose from broad based growth in loans. Meanwhile, the increase in non-interest income was driven by a 9.5% increase in fee income as well as higher trading and investment income.

UOB’s customer loans rose 7.8% from a year ago to reach $203 billion at end of the first quarter. The non-performing loan ratio for the fourth quarter of 2014 was 1.2%. Elsewhere for the quarter, customer deposits of $239 billion at the end of the reporting quarter was a healthy 10.5% higher from a year ago.

As such, the total and SGD loan-to-deposit ratios were 83.4% and 94.5% respectively as of 31 March 2015. 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 capitalised as its CARs at the end of the first quarter are comfortably higher than MAS’ requirements at 14.3%, 14.3%, and 17.1% respectively. These figures mostly represent improvements from a year ago when the trio of ratios were at 14%, 14%, and 17.7% respectively.

UOB also disclosed its leverage ratio based on the requirement under the revised Monetary Authority of Singapore notice 637 (effective from 1 January 2015). The group’s ratio was 7.6% as of 31 March 2015, well above the minimum requirement of 3%.

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

“We are off to a good start to the year with our first quarter results. Net interest income was lifted by widening margins and growth in loans across our core markets and customer segments.

Our asset quality remained stable while we continued to ensure a strong funding and capital base. We diversified our funding sources, with an increase in our EMTN [Euro Medium Term Note] programme limit from S$10 billion to S$15 billion in March 2015.

Even as market volatility is likely to persist, we remain focused on building our core franchise for the long-term. We will stay vigilant, nimble and continue to invest in capabilities to serve customers’ evolving needs.”

Foolish summary

At its opening price of $24.23 this morning, UOB traded at around 1.36 times its latest net asset value and has a trailing twelve months dividend yield of 3.1%.

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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.