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Security Bank Corporation (PSE: SECB) posted a net income of P 757.6 million for the first quarter of 2007, 40% more than the P 540.3 million earnings for the same period last year.
The continued growth pace recorded by the bank was spurred by a 23% increase in revenues over the same period last year to P 2.2 billion. The revenue growth is comprised of a 19% improvement in net interest income and 27% improvement in non-interest income. The healthy increase in net interest margins were supported by a 38% quarter-on-quarter expansion in earning assets to P 129.3 billion. The robust growth in earning assets helped defray the impact of a 273 basis point decline in average interest rates versus the same period last year.
Security Bank’ achieved the growth in earning assets while maintaining its asset quality indices among the highest in the industry as its NPL ratio stood 4.1% and its NPL cover registered a more than adequate 138% as of the first quarter of 2007. Consequently, the Bank’s capital adequacy ratio of 22.8% should more than sufficiently cover for incremental capital charges contemplated under Basel II guidelines.
The increase in earning assets was complemented by a P 40.9 billion or 67.8% build-up in total deposits over the same quarter last year to register P 101.4 billion. The incremental deposits were predominantly savings and current accounts which doubled to P 73.4 billion, up P36.7 billion or 100% compared to the first quarter 2006. Time deposits likewise reflected a growth of 4.3 billion or 17.9% to P 28.0 billion.
Mr. Alberto Villarosa, President and Chief Executive Officer of the bank stated: “We have placed a great deal of focus on the needs of our customers and diligently worked to provide them with a range of deposit and investment products tailored to their requirements. We believe that this strategy has helped us enhance our customer relationships and ensured that we remain a key partner to our customers. The excellent growth in funding is an important component in our strategy to build a larger base of recurring revenues derived from lending activities. Coupled with our very healthy balance sheet and capital adequacy, we have both the funding and capital needed to sustain growth in the medium term.”
While the lower interest rate environment proved challenging to the net interest margin component of revenues, it nonetheless contributed favorably to the bank’s trading gains which reflected a 23% quarter-on-quarter increase to P 780.2 million. For its part, service charges, fees and commissions totaled P 198.2 million, higher by 46% over the 1st quarter 2006 and growing at a faster pace than the other non-interest income components. Miscellaneous income, on the other hand, improved 29% to P 113.7 million.
Responding to the questions on the strong growth in non-interest income, Mr. Carlos Borromeo, Chief Financial Officer replied: “Recognizing the need to add a greater base of recurring revenues, there are two key developments that have significantly contributed to our strong growth in other income. Over the last three years, we have built a very respectable fixed income and investment product distribution business. Since these flows are customer driven, it is recurring in nature. This is one of the reasons why we have remained the Best Securities Trading House in the Philippine Fixed Income Exchange over the last three years. In addition, having built a larger deposit base including the lower cost current accounts, we have created a stronger base of recurring deposit related fee-based income.”
In contrast to the revenue performance, operating expenses were modestly higher at P 927.4 million, up by 4% over the first quarter 2006. The combined performance of revenue and operating expense components enabled a robust increase in net income to P 757.6 million net of minority interest in consolidated subsidiaries. This translates into earnings per share for the period of P 2.30 versus the P 1.64 recorded for the comparable period last year. This equates to an annualized earnings per share of P 9.20, higher by P 3.43 or 59% higher than that recorded at year-end 2006.
In consideration of the favorable profit performance for the current quarter and the full year 2006, Security Bank Corporation’s Board of Directors approved a combined P 1.00 regular and special cash dividend per share for the first semester of 2007 subject to BSP approval. Based on the year-end share price of P65.50, this equates to an annualized dividend yield of 3%.
Mr. Villarosa added: “We firmly believe in creating value for all our stakeholders. As it relates to our equity shareholders, we have committed ourselves to maintaining superior returns on equity while retaining capital only to the extent that these are either deployed profitably or are invested to ensure a continued growth in our recurring earnings base. Consequently, in the light of the robust growth in profits we have maintained over the last few years, we have sustained the increase in cash dividends declared.”
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