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

United Overseas Bank Ltd (SGX: U11) – better know as UOB – reported in its third-quarter earnings for the fiscal quarter ending 31 December 2015 last Friday. The reporting period was for 1 July 2015 to 30 September 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 earnings for the previous quarter here.

Financial highlights

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

  1. For the third quarter, net interest income for UOB was up 6.9% to $1.2 billion on a year-on-year comparison.
  2. Fees and commissions income came in at $485 million for the reporting quarter, about 2% above 2014’s third quarter.
  3. Other non-interest income rose as well, rising 7.1% to $365 million compared to the same quarter a year ago.
  4. That said, share of profit from associates and joint ventures declined around 25% in the past quarter, ending up at $28 million. This compares with $37 million made in the comparable quarter last year.

Taken together, UOB made $2.085 billion in total income (excluding share of profit from associates and joint ventures) for the third quarter of 2015, up 5.8% from a year ago.

On the costs and expenses side of things:

  1. Total expenses for UOB recorded a 13% year-on-year increase to $904 million.
  2. Total allowances was down 1.4% year-on-year to $160 million.

When its revenue and cost are put together, UOB’s net profit for the third quarter of 2015 came in at $858 million or 1% lower than the third quarter of 2014. The net profit figure includes the share of profit from associates and joint ventures.

The bank’s net asset value per share – a proxy for the bank’s real business value – saw a solid increase of 5.9% from $16.51 at the third quarter of 2014 to $17.49 in the reporting quarter. However, this was a sequential decline from the net asset value of $17.71 recorded in the second-quarter of 2015.

To commemorate UOB’s 80th anniversary, the board of directors declared a one-off 80th Anniversary dividend of 20 cents per ordinary share.

Operational highlights

Net interest income rose from an improvement in net interest margin. The improvement came from loans that were repriced on SIBOR increases. For the third quarter, net interest margin was 1.77%, up from the 1.71% recorded last year.

Meanwhile, the fee and commission income registered growth on the back of higher contribution from credit card and wealth management.

Elsewhere, customer deposits for the third quarter was $245 billion or a healthy 9% increase from a year ago. Gross loans also rose 3.7% from a year ago to reach $203 billion on 30 September 2015. The non-performing loan ratio for the third quarter of 2015 was 1.3%.

As of 30 September 2015, the Group’s loan-to-deposit ratios was 81.6%. As my colleague James Yeo had once noted:

“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 the end of the first quarter are comfortably higher than MAS’ requirements at 13.6%, 13.6%, and 16.4% respectively.

The UOB’s leverage ratio was 7.2% as of 30 September 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:

Our results demonstrate continued resilience amid volatility. Core revenue growth was led by net interest income and fee income while capital and funding positions remain robust.

As part of our 80th anniversary celebrations which began this month, we launched a brand campaign which expresses our long-standing belief in and commitment to doing what is right for our customers consistently and through business cycles. Our time-tested approach to banking has enabled us to create long-term value across our regional franchise. Today, even as uncertainty prevails, our values will continue to steer us on the right path of sustainable growth.

Foolish summary

At its closing price of $20.33 last Friday, UOB traded at around 1.16 times its latest net asset value and has a trailing dividend yield of 5.4%.

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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.