Philippine National Bank (PNB) reported a 22.1 percent growth in net income for the first quarter of 2010 to P889 million from the P728 million posted in the same period last year.

In a disclosure to the Philippine Stock Exchange, the bank said “a confluence of factors contributed to the growth in profitability” including lower cost of funds in tandem with a year-on-year increase in low-cost deposits.

Also contributing to profits were gains on trading and investment securities; and reduction in operating costs with efficiencies being realized out of investments in technology, reengineering of processes, and prudent risk management.

During the period, PNB was able to substantially reduce its operating expenses by 15.9 percent notwithstanding the incremental investments in branch rationalization and renovations, technology and staff development.

This was realized even as the bank continued to provide for impairment and credit losses amounting to P256 million consistent with its prudent risk management policies. Its cost efficiency ratio thus improved to 64.5 percent from 69.9 percent in the same period last year.

A more favorable funding mix also contributed to the profit growth in the first three months of 2010. The increased share of low cost deposits to total deposits and redemption in February 2009 of P3-billion Lower Tier 2 Notes issued in February 2004 reduced funding costs.

PNB’s consolidated resources based on financial statements consistent with Regulatory Accounting Policies closed at a solid level of P283.3 billion as of end March 2010, slightly lower than P284.5 billion as of year-end 2009.

This was mainly due to the slight dip in outstanding loans and receivables by 1.2 percent following the scheduled paydowns by large borrowers during the first quarter of 2010.

Total deposits reached P209.1 billion with low cost deposits growing by P1.5 billion during the first quarter of the year as a result of intensified marketing efforts.