COVER SHEET 6 0 3 0 SEC Registration Number S E C U R I T Y B A N K C O R P O R A T I O N (Company’s Full Name) S e c u r i t y B a n k C e n t r e , 6 7 7 6 A y a l a A v e n u e , M a k a t i C i t y (Business Address: No. Street City/Town/Province) Joselito E. Mape 888-7291 (Contact Person) (Company Telephone Number) 1 2 3 1 1 7 - A 0 4 3 0 Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting) (Secondary License Type, If Applicable) Corporate Finance Dept. Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings 2,176 Total No. of Stockholders Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document ID Cashier S T A M P S Remarks: Please use BLACK ink for scanning purposes. TABLE OF CONTENTS Part I – BUSINESS AND GENERAL INFORMATION Item 1 Business 1 Item 2 Properties 12 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders 12 Part II – OPERATIONAL AND FINANCIAL INFORMATION Item 5 Market for Issuer’s Common Equity and Related Stockholder Matters 12 Item 6 Management’s Discussion and Analysis or Plan of Operation 14 Item 7 Financial Statements 24 Item 8 Information on Independent Accountant and Other Related Matters 24 Part III – CONTROL AND COMPENSATION INFORMATION Item 9 Directors and Executive Officers of the Issuer 25 Item 10 Executive Compensation 37 Item 11 Security Ownership of Certain Beneficial Owners and Management 38 Item 12 Certain Relationships and Related Transactions 41 Part IV – EXHIBITS AND SCHEDULES Item 13 Exhibits and Reports on SEC Form 17-C 42 SIGNATURES 43 INDEX TO EXHIBITS 44 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 58 PART I – BUSINESS AND GENERAL INFORMATION Item 1. Business A. Description of Business 1) Business Development Security Bank Corporation (PSE: SECB) is a publicly listed Philippine universal bank which serves wholesale and retail clients. Established in 1951, Security Bank has, for over 67 years, remained steadfast in its focus and commitment to serve its clients and stakeholders with distinction. Its headquarters are located at the Security Bank Centre, 6776 Ayala Avenue, Makati City, Metro Manila, Philippines. Security Bank ranked as the 6th largest in total assets and 5th in capital funds ((P=767 billion and ((P=109 billion respectively) and 5th largest in market capitalization among listed private domestic universal banks in the Philippines. In terms of financial results, Security Bank ranks 9th in return on shareholders’ equity and 3rd in asset quality (having the second lowest NPL ratio. The Bank’s strategy, execution and results are guided by its strong focus on shareholder value. Security Bank’s major businesses include wholesale banking, financial markets and retail banking. It is among the leading local players in government fixed income securities distribution, capital markets services, foreign exchange and derivatives products distribution, equities brokerage, and cash management. Security Bank continues to grow its consumer finance business. The Security Bank group has a total of 305 branches all over the country as of year-end 2018. In 2016, Security Bank forged a strategic partnership with The Bank of Tokyo-Mitsubishi UFJ, Ltd. now known as MUFG Bank, Ltd (MUFG), the largest bank in Japan and a member of the Mitsubishi UFJ Financial Group, to help Security Bank achieve accelerated growth through capital infusion and business collaboration. MUFG invested P=36.9 billion in Security Bank representing a 20% equity stake. Security Bank ended the year 2018 with a net income of P=8.6 billion and a return on equity of 8.1%. Total loans grew by 12.5% to P416.3 billion while deposits increased by 18.3% to P488.9 billion as of year-end 2018. This translated to a 30.0% increase in net interest income. The net interest margin in 2018 was 3.27%, slightly higher than the 3.20% in 2017. The non-interest income line item decreased to P4.8 billion mainly due to decrease in trading gains. The cost-to-income ratio was 53.9%. The Bank ended the year with total assets of P766.9 billion for a 10.5% growth rate. Return on assets was 1.20%. Security Bank was a recipient of various awards in 2018 among which the Bank was named as Bank of the Year- Philippines 2018 by The Banker; The Best Retail Bank in the Philippines for 2018 by The Asian Banker; Best Retail Bank in the Philippines 2018 by Alpha Southeast Asia; Best Bank in the Philippines 2018 by Global Finance; Asia’s Best CEO (Investor Relations, Philippines) for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations, Philippines) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia; and People Program of the Year Award for Security Bank’s Total Wellness Program by People Management Association of the Philippines (PMAP). In 2017, Security Bank earned a net income of P10.3 billion which translated to a return on equity of 10.2%. Security Bank was a recipient of various awards in 2017 among which the Bank was named as Best Bank in the Philippines by Alpha Southeast Asia of Singapore, and Best Digital Bank Philippines 2017 by Capital Finance International of London. Security Bank was also recipient of the following awards in 2017: Best Bank for SMEs–Philippines by Asiamoney; Deposit Product of the Year, AllAccess Account by The Asian Banker’s Philippine Country Awards 2017; Top Bank for Government Bonds, Top Bank for Corporate Bonds, and Top Investment House by The Asset Benchmark Research Awards 2017; Best Regional Specialist (Public Sector), Philippines, and Best in Treasury and Working Capital (Public Sector), Philippines by The Asset; Special Citation on Industrial Peace and Harmony from KAPATID 2017 Awards of the Employers Confederation of the Philippines; Asia’s Best CEO (Investor Relations) for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia of Hong Kong; and Advertising Campaign of the Year-Philippines, Credit Card Initiative of the Year-Philippines, and Mortgage and Home Loan Product of the Year-Philippines from Asian Banking and Finance. 1 In 2016, Security Bank earned a net income of P8.6 billion which translated to a return on equity of 10.37%. Security Bank was a recipient of various awards in 2016 among which the Bank was named as Bank of the Year – Philippines by The Banker of London; Philippines’ Best Bank by Euromoney of London; and Best Managed Company in the Philippines (Mid-Cap), Best Executive in the Philippines (Mr. Alberto S. Villarosa, Chairman), and Best for Investor Relations in the Philippines by Asiamoney. Security Bank was also recipient of the following awards in 2016: Best Improved Retail Bank in Asia Pacific, Central Asia, Africa and the Gulf Region by The Asian Banker of Singapore; Highly Commended as Best Bancassurance by Retail Banker International; Award for Excellence for the Better Banking Campaign from the Philippine Quill Awards; and Best Electronic Bank for the Philippines, Best Cash Management and Treasury and Working Capital Bank by The Asset. 2) Business of Issuer (a) Description of Registrant (i) Principal Products or Services and their Markets The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served with each segment representing a strategic business unit. The Bank’s principal business activities are organized as follows: Financial Markets Segment, Wholesale Banking Segment, Retail Banking Segment, and All Other Segments. Financial Markets Segment - this segment focuses on providing money market, foreign exchange, financial derivatives, securities distribution, asset management, trust and fiduciary services, as well as the management of the funding operations for the Group. The Financial Markets segment represents 14.8% of the Group’s 2018 total revenue. Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and public sector markets. Services include relationship management, lending and other credit facilities, trade, cash management, deposit-taking and leasing services provided by the Group. It also provides structured financing and advisory services relating to debt and equity capital raising, project financing, and mergers and acquisitions. The Group’s equity brokerage operations are also part of this segment. The Wholesale Banking segment constitutes 36.8% of total revenues in 2018. Retail Banking Segment - this segment addresses the individual, retail, small-and-medium enterprise and middle markets. It covers deposit-taking and servicing, commercial and consumer loans, credit card facilities and bancassurance. The Retail Banking Segment makes up 37.8% of the Group’s total revenue in 2018. All Other Segments - this segment includes but not limited to branch banking support and other support services. Other operations of the Group comprise the operations and financial control groups. All Other Segments make up 10.7% of the Group’s total revenue in 2018. 2 Subsidiaries and Joint Venture Security Bank Corporation (Parent Bank) * 99.54% 100.00% 100.00% 100.00% 60.00% 100.00% 0% SB Finance Company, Inc. Landlink Property SB Capital Investment SB Cards SB Forex, FWD Life Insurance (Formerly Security Bank Investments (SPV- SBM Leasing, Inc. ** Corporation Corporation Incorporated*** Corporation ***** Savings Corporation) AMC), Inc. **** 100.00% 100.00% 100.00% SB International SB Rental Corporation SB Equities, Inc. Services, Inc. **** * MUFG ow ns 20% of voting shares of SBC (as of December 31, 2018) Common Shares: Par value is P10.00; Total Outstanding Shares – 753,538,887 Preferred Shares: Par Value is P0.10; Total Outstanding Shares – 1,000,000,000 ** Joint venture *** Non-operating **** Pre-operating ***** With irrevocable pow er of attorney/proxy to vote certain shares of FWD Life Insurance Corporation SB Finance Company, Inc.