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Security Bank Corporation (PSE:SECB) held its annual stockholders meeting last Tuesday May 29, 2007. During the meeting, President and Chief Executive Officer Alberto S. Villarosa reported another record net income for Security Bank of P1.9 billion or a 65% growth over P1.16 billion in the previous year, and exceeding the two successive years of at least 50% growth. The increase is more than double compared to the entire Philippine Banking industry average in percentage terms. Based on BSP statistics, average net income growth of universal and commercial banks were only at 29% and 26% for 2005 and 2006, respectively. Mr. Villarosa emphasized the Bank’s performance is a result of its focus on shareholder value, which has always been among the Bank’s principal priorities. This buoyant earnings performance boosted the Bank’s return on equity to 17.3% --- a 29% increase over the previous year. On the average, industry only recorded a return on equity of 11.5% for 2006.
Amidst a significant decline in interest rates and an appreciating peso, Mr. Villarosa attributed the exceptional earnings to increased efforts on growing the low cost deposit base and the effective deployment of these funds into optimally-priced assets to manage the yield compression. The focus on deposit generation enabled a reduction in more costly interbank borrowings resulting in a faster decline in interest expense compared to interest income, holding net interest income flat to the previous year at P4.1 billion. Combined with a 33% growth in non-interest income to P2.5 billion, revenues improved by P651 million to P6.6 billion.
In his management report, Mr. Villarosa emphasized the bank’s commitment to improve asset quality as manifested in the decline in non-performing loans to 4.2% from the previous year’s 5.3%. NPL cover meanwhile increased to 155%, which is among the highest in the industry. By the first quarter of 2007, Security Bank’s NPL ratio was kept steady at 4.1%, while related NPL cover was deemed more than adequate at 138%. Excellent asset quality of a balance sheet that sustained organic growth over the last three years significantly strengthened the bank’s capital base even with the advent of Basel II. As a result, the Bank’s Capital Adequacy Ratio (CAR) at year-end 2006 stood at 24.6% and 22.8% as of the first quarter of 2007.
Reflecting on the sustainability of growth in this low interest rate environment, Mr. Villarosa commented: “We continue to build an even stronger base of recurring earnings to sustain organic growth by embarking on strategies focused on developing our middle market niche and strengthening our hold on mass affluent clients. This year, we laid out our plans to build a more significant consumer finance business and to capitalize on other franchises, such as our derivatives license and our subsidiaries. We started with a strong first quarter performance, far outpacing our target, and we are confident of achieving another good year in terms of earnings. Rest assured that we are working hard to make 2007 another milestone year for the Bank that would set the tone for the succeeding years.”
As of the first quarter of 2007, Security Bank had an asset base of P137 billion, up by P36 billion or 35% from the same period last year. Testament to our continued drive to mold a solid funding base, deposits soared by 68% to P101.4 billion. The liquidity generated sustained the Bank’s deposit-led asset deployment efforts and amply contributed to the earnings momentum that resulted in Security Bank recording a net income of P758 million, 40% higher than the same quarter last year.
The jump in earnings for the first quarter of this year occurred on the back of a 19% improvement in net interest income coupled by a 27% increase in non-interest income. The healthy increase in net interest margins were supported by a quarter-to-quarter expansion in earning assets to P129.3 billion, which helped defray the impact of a 273 basis points decline in average interest rates over the same period last year. This first quarter profit translates to a return on equity to 24.5% vs. 20.5% in first quarter of 2006.
The accelerated earnings growth enabled Security Bank to steadily increase its dividend payments. After the release of its first quarter results, the Bank declared a regular cash dividend of P0.25 per share and a special cash dividend of P 0.75 per share for the first semester of 2007. Record and payment dates shall be set upon BSP approval. Based on year-end 2006 share price of P65.50, this equates to an annualized dividend yield of 3%. Since then, share price has dramatically risen to its current share price level of P81, resulting to a market capitalization of P26.7 billion, an impressive incremental of over P5 billion in just 5 months. This underscores investors’ confidence on the Bank’s growth prospects and on the management’s commitment to maintain superior returns to its shareholders.
During the stockholders’ meeting and the ensuing organizational board meeting, the following were re-elected to the Board of Directors: Frederick Y. Dy as Chairman, Paul Y. Ung as Vice Chairman, and Philip T. Ang, Anastasia Y. Dy, Jose R. Facundo, James JK Hung, Jose Perpetuo M. Lotilla, Fe T. Palileo, Eduardo I. Plana, Rafael F. Simpao, Jr. and Alberto S.
Villarosa.
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