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Security Bank Corporation (PSE: SECB) maintains its leadership among private domestic universal banks in providing shareholders the highest return on equity. Based on its recent disclosures, Security Bank posted an average return on equity of 24.5%, up from 20.5 % in the 1st quarter 2006. The higher ROE was achieved on a 40% increase in the Bank’s net income which amounted to P 757.6 million for the first quarter of 2007 versus the P 540.3 million earnings for recorded a year earlier.
Mr. Alberto S. Villarosa, President and Chief Executive Officer, disclosed: “Our continuing commitment to our shareholders is to maintain superior returns as we build the business. We are focused first and foremost on shareholder value.”
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. Carlos M. Borromeo, Chief Financial Officer of the bank stated: “We have dealt with the significant decline in interest rates quite admirably. Our net margins remained intact; managed through a combination of a very healthy expansion of earning assets funded by a corresponding growth in lower cost deposits. The incremental deposits have also contributed to the fee based revenues of the bank.”
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. Villarosa replied: “The push to build an increasing base of recurring other income is a key component of our priorities. We have exerted great effort to nurture customer relationships and provide our clients with relevant products and services that contribute to a steady stream of recurring revenues off the back of these customer flows. These range from an increase in the distribution of foreign exchange products to fixed income investment products.”
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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