21 June 2012 THE PHILIPPINE STOCK EXCHANGE … · 21 June 2012 THE PHILIPPINE STOCK EXCHANGE 3F...

21 June 2012 THE PHILIPPINE STOCK EXCHANGE 3F Philippine Stock Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1226 ATTENTION: MS. JANET A. ENCARNACION Head, Disclosure Department Dear Ms. Encarnacion,

We would like to submit to the Philippine Stock Exchange the attached Amended Annual Report SEC 17-A of Philippine Savings Bank (PSBank) as required by the Securities and Exchange Commission. The revisions are as follows:

1. Item 2. Properties – additional information on plans to acquire four (4) leased out properties

2. Item 3. Legal Proceedings – additional information on legal cases which do not have any material effect to the Bank’s status

3. Item 5. Market for Issuer’s Common Equity and Related Stockholder’s Matter – additional information on the range of high and low bids for the subsequent interim period

4. Additional Disclosure requirement – additional information on financial soundness indicators

5. Item 10. Executive Compensation – revised to reflect top four most highly compensated officers

6. Item 12. Certain Relationships and Related Transactions – additional information on Related Party Disclosures

7. Signature Page – revised to include Principal Operating Officer

We hope that you will find everything in order. Thank you.

Very truly yours,

PERFECTO RAMON Z. DIMAYUGA JR. SVP and Chief Finance Officer

COVER SHEET

1 5 5 5 2

SEC Registration Number

P H I L I P P I N E S A V I N G S B A N K

(Company’s Full Name)

P S B a n k C e n t e r , 7 7 7 P a s e o d e R o x a s

c o r n e r S e d e ñ o S t r e e t , M a k a t i C i t

y

(Business Address: No. Street City/Town/Province)

Perfecto Ramon Z. Dimayuga Jr. 885-8208 (Contact Person) (Company Telephone Number)

AMENDED

1 2 3 1 1 7 - A 0 4 2 7

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

SEC-Corporation Finance

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

1,677

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.

SEC NO. 15552

FILE NO.

PHILIPPINE SAVINGS BANK (COMPANY’S NAME)

PSBANK CENTER 777 Paseo de Roxas cor. Sedeño St., Makati City

(COMPANY’S ADDRESS)

885-82-08 (TELEPHONE NUMBER)

DECEMBER 31 (FISCAL YEAR ENDING MONTH & DAY)

SEC FORM 17-A (FORM TYPE)

December 31, 2011 (PERIOD ENDED DATE)

Government Securities Dealer (SECONDARY LICENSE TYPE AND FILE NUMBER)

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SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATIONS CODE AND SECTION 141

OF CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended : December 31, 2011 2. SEC Identification No. : 15552 3. BIR Tax Identification No. : 000-663-983-000 4. Exact name of registrant as specified in its charter : Philippine Savings Bank 5. Province, Country or other jurisdiction or organization : Metro Manila, Philippines 6. Industry Classification Code : (SEC Use only) 7. Address of principal office : 777 Paseo de Roxas corner

Sedeño St., Makati City 8. Registrant’s telephone No. : (632) 885-82-08 9. Former name, address, and former fiscal year,

If changed since last report : Not Applicable 10. Securities registered pursuant to Section 8 & 12 of the SRC Title of each class : Common Shares Number of shares outstanding : 240,252,491 11. Are any or all of these securities listed with the Philippine Stock Exchange : Yes

12. Check whether the issuer:

(a) has filed all report required to be filed under Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder and Section 26 and 141 of The Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) : Yes

(b) has been subject to such filing

requirements for the past ninety (90) days : Yes

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13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold or the average bid and asked prices of such stock, as of a specified date (March 31, 2012) within sixty (60) days prior to the date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided the assumptions are set forth in this Form. P4,675,044,276

APPLICABLE ONLY TO ISSUERS INVOLVED IN INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS

DURING THE PRECEDING FIVE YEARS:

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of the Code subsequent to the distribution of securities under a plan confirmed by a court of the Commission. : Not Applicable

DOCUMENTS INCORPORATED BY REFERENCE

15. If any of the following documents are

incorporated by reference, briefly describe them and identify the part of SEC Form 17-1 Into which the document is incorporated:

(a) Any annual report to security holders; (b) Any proxy or information statement filed

pursuant to SRC Rule 20 and 17.1(b); Any prospectus filed pursuant to SRC Rule 8.1-1

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TABLE OF CONTENTS Page No.

PART I - BUSINESS AND GENERAL INFORMATION Item 1. Description of Business 4 Item 2. Properties 9 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 11 Item 6. Plan of Operation and Management’s Discussion and Analysis 15 Item 7. Financial Statements 26 Item 8. Changes in and Disagreements with Accountants and Financial Disclosure 27 PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Registrant 28 Item 10. Executive Compensation 37 Item 11. Security Ownership of Certain Beneficial Owners and Management 38 Item 12. Certain Relationships and Related Transactions 39

PART IV – CORPORATE GOVERNANCE 41 SIGNATURES 44

PART V - EXHIBITS AND SCHEDULES 45

Exhibit 1 - Schedule of Bank/Branch Sites Owned by the Bank 47 Exhibit 2 - Schedule of Bank/Branch Sites Under Lease Agreements 48 Exhibit 3 - Events Reported under SEC FORM 17-C for the last 6 months 53

PART VI - AUDITED FINANCIAL STATEMENTS

Form and Contents (a) Statement of Management’s Responsibility (b) Independent Auditors’ Report (c) Statements of Condition (d) Statements of Income (e) Statements of Changes in Equity (f) Statements of Cash Flows (g) Notes to Financial Statements (h) Independent Auditors’ Report on Supplementary Schedules (i) Additional Components of Financial Statements under SRC Rule 68, as

amended

PART VII - OTHER RELEVANT SUBMISSIONS

Chief Finance Officer’s Certificate Under Oath on the Submission of Compact Disc together with the Audited Financial Statements

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PART I. BUSINESS AND GENERAL INFORMATION

Item 1. Description of Business

1. Business Development

Philippine Savings Bank (PSBank) was incorporated on June 30, 1959 primarily to engage in savings and mortgage banking. In 1983, Metrobank acquired majority share in the Bank, and in 2004 further increased its shareholdings to the present level of 76%. In 1991, the Bank was authorized to perform trust functions, and in 1995, was granted quasi-banking license. In 1994, PSBank became the country’s first publicly listed thrift bank. It has outpaced its key competitors and is, today, the country’s second largest thrift bank in terms of assets. It caters mainly to the retail and consumer markets and offers a wide range of products and services such as deposits, loans, treasury and trust. The Bank has a 25% interest in Toyota Financial Services Philippines Corp. (TFSPC). It also has a 40% interest in Sumisho Motor Finance Corporation (SMFC), a partnership with Sumitomo Corporation. TFSPC and SMFC are not listed in the stock exchange. Its principal office is located at the PSBank Center, 777 Paseo de Roxas corner Sedeño Street, Salcedo Village, Makati City. The past 3 years marked very significant growth as the Bank continue to grow its core business and always on track in hitting its year-end targets. The Bank has sustained its focus on consumers, which corners approximately 80% of its portfolio by continuing to provide efficient and creative banking solutions through wider distribution network.

Total Resources Net Income Branch Network

2011 120.252 billion 2.029 billion 200 branches



In 2011, the Bank’s balance sheet remained strong as it posted a 15% increase in total assets. The Bank also fortified its commitment to give its customers a wide range of channels by further expanding its network to 200 branches and 505 ATMs nationwide. In the 2011 issue of The Asian Banker magazine, the Bank was recognized as the strongest savings bank in Asia and the fifth strongest bank in the country. During the year, the Bank came up with innovative products to create a more simple, reliable and convenient banking experience to customers:

PSBank Prepaid MasterCard, a new, innovative, and convenient solution to our clients' budget concerns. It is a debit card, ATM card, remittance card, and Internet cash card, all rolled into one. Customers can shop and dine in over 30 million MasterCard-affiliated stores worldwide. They can also withdraw cash anytime from any PSBank, Metrobank and BancNet ATM nationwide or from more than a million ATMs in over 200 countries worldwide. They can even safely and securely use the card when you shop online from over 350,000 online merchants. The PSBank Prepaid MasterCard helps avoid overspending because one can only use the amount you load into it. Reloading can easily be done through PSBank branches nationwide or PSBank Remote Banking, a 24/7 Internet channel, using cash or funds from a PSBank account and vice versa. The card can also be loaded via ATM with funds from a PSBank account or an account from another bank. PSBank Debit MasterCard allows clients to enjoy the convenience of cashless purchases and regular ATM transactions all in one card. Clients can get their own personalized card in 30 minutes or less at any PSBank branch nationwide. Clients need not worry about bringing cash or

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looking for the nearest ATM to withdraw . They can use this when paying for purchases in over 30 million stores and restaurants worldwide that carry the MasterCard logo. You can also use this for regular ATM transactions such as withdrawals, bills payment or account inquiries. PSBank Euro Time Deposit and PSBank Euro Savings Account enable clients to protect their savings and earn higher interest regardless of currency rate fluctuations. These provide more stability and growth opportunities for their funds. The PSBank Euro Savings comes with a passbook for more efficient tracking of transactions. Clients can access their funds anytime and even request for a conversion into pesos before making a withdrawal. On the other hand, the PSBank Euro Time Deposit gives higher interest rates depending on the amount and term of placement. It may even be used as collateral for back-to-back loans. PSBank Remote Key is an added security device that protects clients from online identity theft and prevents malicious individuals from accessing online accounts. It is a small handy gadget that randomly generates a series of numbers that a client needs to enter, along with the username and passphrase, to log into their PSBank Remote Banking account or initiate any financial transaction. This provides more security every time they access PSBank Remote Banking (PRB), a 24/7 online facility. They can check their account balance, view or pay bills, view loan account details, see images of their paid checks and transfer funds. This eliminates long lines and catching up on banking hours. In 2010, the Bank showed a stronger balance sheet and double-digit growth across all loan

products. The Bank aggressively expanded its network to 180 branches and 380 ATMs nationwide and offered the widest nationwide coverage among thrift banks.

In partnership with Mastercard and Bancnet, the Bank launched the PSBank Prepaid Mastercard last October 11, 2010. This is an e-money instrument product that is an ATM card, debit card, remittance card and internet cash card all put into one. As of December 31, 2010, the Bank had a total of 21,171 active Prepaid Mastercard holders. Clients can reload their prepaid card via PSBank branches nationwide using cash or PSBank Remote Banking (PRB) with funds from PSB account. The card can also be loaded via ATM with funds from PSB account or from another bank. To promote this prepaid card, the Bank distributed campaign materials to its branches and had a media briefing to inform and encourage clients to avail this new product. As of year end, PSBank Remote Banking enrollees had gone up to over 40,000 from 30,000 enrollees in 2009. As a result, PRB transactions doubled to more than 3.0 million from previous year’s 1.5 million. Mortgage Banking launched a number of campaigns to boost loan referrals, among them: “The Federal Investors’ Night” which took place last October 21, 2010. The event, which was held in cooperation with Federal Land, was attended by branch personnel and valued clients. This was aimed to generate better profitability for branches in mortgage lending. In 2009, the Bank made significant improvements in loan processing that enabled a 100%

delivery on its Thank Goodness its Five Days (TGIF) campaign promise. The TGIF came with free interest for the first year if the client does not get a credit decision in five days or less. It also reinforced its PSBank Auto Loan through its Isang Tulog Lang campaign which offers flexible financing terms, one of the lowest rates in the market and a credit decision via SMS in as fast as 24 hours. Another industry milestone is the PSBank Prime Rebate, the only loan rebate program in the industry. When customers pay in advance or in excess than their monthly due, they earn rebates which effectively shortens their loan term, gives a discount on their total loan amount, or even both. To provide more convenience to its customers and address their fast-paced lifestyle, PSBank issued the Instant ATM Card where customers can apply for their new or replacement PSBank ATM card on the spot in any of its branches nationwide. Likewise, the PSBank Overseas Filipino (OF) Savings Account, which has no minimum deposit and no maintaining balance, allowed our modern-day heroes and their beneficiaries to have easier access to their funds. Throughout the

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year, the Bank continued its efforts to realign its organizational, operational and business processes to meet the growing customer demand. The Customer Service Division (CSD) took major initiatives in 2009 to further strengthen the service culture within the organization and meet customers’ needs. The Human Resources Group conducted various in-house programs through seminars, workshops and inter-departmental projects, which also serve as a training ground for management skills. In August 2009, the Bank entered into a joint venture agreement with the Sumitomo Corporation to primarily engage in the financing of motorcycle purchases. In September 2009, the Bangko Sentral ng Pilipinas approved the joint venture which was named Sumisho Motor Finance Corporation and was subsequently incorporated with the Securities and Exchange Commission in November 2009.

2. Business of Registrant

a) Products and Services Being a thrift bank, PSBank offers a wide array of products on deposits and loans and services that cater mainly to consumer and retail customers and distributed through the bank’s 200 branches strategically located nationwide.

Deposits

PSBank ATM Savings PSBank Prime Time Deposit PSBank Overseas Filipino (OF) Savings PSBank US Dollar Savings PSBank Regular Passbook Savings PSBank US Dollar Time Deposit PSBank Passbook Savings with ATM PSBank Premium US Dollar Time Deposit PSBank Regular Checking PSBank Debit Mastercard PSBank Premium Checking PSBank Euro Savings PSBank Short-Term Peso Deposit PSBank Euro Time Deposit PSBank Long-Term Peso Deposit

Consumer Loans

PSBank Auto Loan

PSBank Home Loan

PSBank Flexi Personal Loan PSBank Home Credit Line PSBank Multi-Purpose Loan PSBank Home Construction Loan

Credit Card

PSBank Mastercard

Business Loans

PSBank SME Business Credit Line

PSBank Domestic Bills Purchase Line

PSBank Credit Line PSBank Domestic Letter of Credit/Trust Receipt Line

PSBank Term Loan Floor Stock Financing Line PSBank Standby Credit Line Certification Second Endorsed Check Accommodation

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Other Products & Services

PSBank Remote Banking

Trust Services

Employee Benefit Trust PSBank Prepaid Mastercard Escrow Agency

Investment Management Account Payment Collection Services Living Trust Account Products Accepted:

PSBank MasterCard Other Services Metrobank VISA Payroll Services Metrobank Mastercard SSS Pensioner’s Remittance Program SSS Safety Deposit Facility Globe Telecom

Remittances Services

Fund Transfer Services

Domestic Remittances Gift Checks/Cashier’s Checks Foreign Remittances Foreign Demand Draft

b) Business Contribution

(In Millions) 2011 % 2010 % 2009 %

INTEREST INCOME ON

Loans and receivables P=6,473 P=5,872 P=5,376

Investment securities 2,240 1,715 1,945

Due from BSP 71 159 93

Due from other banks 3 7 6

Interbank loans receivable and securities purchased

under resale agreements 190 161 110

8,977 7,913 7,530

INTEREST EXPENSE ON

Deposit liabilities 3,230 2,693 2,485

Subordinated notes payable 37 206 206

Bills payable – 1 5

3,267 2,901 2,696

NET INTEREST INCOME 5,710 74% 5,012 61% 4,834 77%

NET SERVICE FEES AND COMMISSION INCOME 733 10% 692 8% 596 9%

OTHER OPERATING INCOME (CHARGES) 1,242 16% 2,532 30% 842 13%

SHARE IN NET EARNINGS OF AN ASSOCIATE

AND A JOINT VENTURE 8 – 42 1% 45 1%

INCOME, Net of Interest and Commission Expense P=7,693 100% P=8,278 100% P=6,316 100%

c) Distribution Methods of Products and Services

The Bank’s operating segments are organized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit that offers different products and serves different markets. The Bank’s reportable segments are as follows: i. Consumer Banking - principally provides consumer-type loans generated by the Home

Office; ii. Corporate Banking - principally handles loans and other credit facilities for corporate and

institutional customers acquired in the Home Office;

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iii. Branch Banking - serves as the Bank’s main customer touch point which offers consumer and corporate banking products; and

iv. Treasury - principally handles institutional deposit accounts, providing money market, trading and treasury services, as well as managing the Bank’s funding operations by use of government securities and placements and acceptances with other banks.

The Bank has no single customer with revenues from which is 10.00% or more of the Bank’s total revenue. The Bank presented the disclosure requirements prescribed under PFRS in Note 6.

The Bank’s assets generating revenues are all located in the Philippines.

d) Status of any publicly-announced new products or services

Products Date Launched

PSBank Prepaid MasterCard January 7, 2011

PSBank Debit MasterCard July 2, 2011

PSBank Euro Savings & Time Deposit Sept. 19, 2011

PSBank Auto Loan (new advertising campaign) April 9, 2011

PSBank Home Loan(new advertising campaign) March 14, 2011

e) Competition

PSBank continues to rank as second in terms of assets in the thrift banking category and is larger in terms of total resources compared with other commercial banks. Although a thrift bank, PSBank competes aggressively with other commercial banks in the field of retail and consumer banking. Competition has become even more challenging amidst the growing number of players in the consumer business and the vigorous campaign by competitor banks to acquire a bigger share of the market. While there are many factors beyond its control, the efficiencies it set into its operations help the Bank face market challenges. Consistency in product and service delivery remains to be its guidepost for growth.

For the second consecutive year, PSBank obtained a CAMELS rating of 4 from the Bangko Sentral ng Pilipinas released last October 2011, based on its Report on Examination dated September 2010. The rating indicated that the BSP found no major supervisory concerns in the Bank and that it is fundamentally sound with minor weaknesses that can be addressed by Management in the normal course of business.

f) Customers/Clients While the Bank’s client base has been traditionally composed of big and small savers, PSBank persistently builds its CASA deposits. As of year-end, the Bank services about 206,174 deposit accounts and 406,367 loan accounts. Many customers have remained loyal depositors and borrowers of the Bank through the years. There is no single customer that accounts for 20% or more of the Bank’s deposits and loans.

g) Transactions with and/or dependence on related parties

In the ordinary course of business, the Bank has loans and other transactions with its affiliates and with certain directors, officers, stockholders and related interests (DOSRI). These loans and other transactions are made substantially on the same terms as with other individuals and businesses of comparable risks. The Bank has complied with the limits prescribed by regulations.

Other transactions conducted in the normal course of business include deposits with the parent company, interbank loan transactions and deposit liabilities with related parties.

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h) Patents, Trademarks, Copyrights, Licenses, Franchises, etc. The Bank sells its products and services thru the PSBank trademarks and/or tradenames. The Bank’s operations are not dependent on the terms of these agreements.

i) Government approval of principal products or services

Its authority to operate as a thrift bank governs the Bank’s principal products and services. Existing products and services are within the scope allowed under the Bank’s regulatory licenses and do not need special government approval.

j) Research and Development Costs

There are no major expenses on research and development activities. Expenses incurred related to these activities are included into the regular business expense of the Bank.

k) Employees

PSBank considers its entire workforce as important. Everyone is expected to work together as a team to achieve the Bank’s goals and objectives.

The following are the existing and projected manpower complement:

As of 12/31/2011 Projected – Dec 2012

Senior Officers 55 55

Junior Officers 873 896

Staff 1,755 1,760

Total 2,683 2,711

Although its rank-and-file employees are unionized, the Bank has been strike-free for its entire history. The Bank’s Management and the Employees’ Union reached an agreement and signed the Collective Bargaining Agreement (CBA) on January 20, 2010 covering the period of January 2010 to December 2012, significant features of which include goodwill and signing bonuses for the initial year 2010 as the Bank’s gesture of appreciation to the mutually agreed economic package. The CBA also includes salary increases amounting to P1,400, P1,300 and P1,200 for 2010, 2011 and 2012, respectively. The Bank recognizes the importance of its human resources, thus, continuing its officership program for head office and branch functions to its roster of organizational development activities and improving employee trainings and development to achieve the Bank’s current thrust on operations quality and competence, service quality and effective sales.

l) Business Risks

PSBank is exposed to all business risks that confront all banks in general, such as credit, market, interest, liquidity, legal, regulatory and operational risk. The Bank’s risk management structure and process that serve as mechanism to identify, assess and manage these risks are further discussed in Item 13. Compliance with Leading Practices on Corporate Governance.

Item 2. Properties The Bank owns the premises it occupies for the Head Office and 23 of its branches. These offices and branches are all in good condition and there is no mortgage or lien on any of these properties owned by the Bank. Schedule of owned branch sites is shown in EXHIBIT 1. The rest of the Bank’s branch premises are under lease agreements. Terms of leases range from 1 month to 30 years renewable under certain terms and conditions. Rentals charged against operations under these lease contracts amounting to P=349.6 million in 2011. Please refer to EXHIBIT 2 for the Schedule of branch sites under lease agreements.

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The Bank plans to acquire four (4) leased-out properties being used for Gil Puyat, Angeles, Lucena, and Valenzuela branches. Details of such are not yet finalized as of reporting period.

Item 3. Legal Proceedings

The Bank in the course of its operations and running its business, has several cases that are filed in its behalf and against it. However, these cases will not give any material effect to its financial status and are part of its daily operations and consequence of its collection efforts and business dealings with the public that has no material impact to its continuing operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise.

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PART II. OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

a) Market Price Information PSBank common shares were listed in the Philippine Stock Exchange (PSE) in 1994. The shares are traded under the symbol “PSB”.

The high and low sales prices of the Shares as reported in the PSE for each quarter in the years ending December 31, 2011, 2010 and 2009 were as follows:

Highest Lowest

In Php

2012:

First quarter 83.00 72.00

2011:


Second quarter 64.50 62.50

Third quarter 71.00 63.00

Fourth quarter 85.00 70.00

2010:




Fourth quarter 65.00 52.00

2009:




Fourth quarter 58.00 42.00 Source: Bloomberg.

Closing price as of April 10, 2012 was P80.00 per share.

Top 20 Stockholders as of March 31, 2012

Name of Stockholders No. of Shares % to Total

1. Metropolitan Bank and Trust Co. 182,535,895 75.98%

2. PCD Nominee Corporation (Filipino) 14,870,753 6.19%

3. Dolor, Danilo L. 12,610,891 5.25%

4. Dolor, Erlinda L. 7,605,832 3.17%

5. De Leon, Maria Soledad S. 4,000,000 1.66%

6. PSB TID FAO TA#94-00-2-2-006 3,001,369 1.25%

7. De Leon, Gian Carlo S. 2,741,378 1.14%

8. De Leon, Leonard Frederick S. 2,598,334 1.08%

9. De Leon, Alvin Benjamin S. 2,437,887 1.01%

10. De Leon, Kevin Anthony S. 2,407,964 1.00%

11. PCD Nominee Corporation (Non-Filipino) 1,658,674 0.68%

12. Go, James 298,823 0.12%

13. Ng, Jane Frances 141,781 0.06%

14. Chua, Gabriel 100,337 0.04%

15. Chua, Josephine T. 81,056 0.03%

16. Ng, Samuel Chua &/or Jocelyn Ngo Ng ITF/Steven Samuel Ngo Ng 80,100 0.03%

17. Que, Liong H. 68,062 0.03%

18. Choa, Johnny K. 64,843 0.03%

19. Choa, Victoria K. 61,875 0.03%

20 Ty, Alejandro 57,345 0.02%

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Total number of stockholders as of March 31, 2012 is 1,659.

Dividends and Dividend Policy

Dividends to be paid in cash by the Bank are subject to approval by a majority of the Board of Directors and no further approval from the Bank's shareholders is required. Dividends to be paid in the form of stock requires both the approval of a majority of the Board of Directors and the approval of shareholders representing not less than two-thirds of the Bank’s outstanding capital stock. All dividends to be declared are subject to the approval of the BSP and the SEC. There are no known restrictions to the Bank’s ability to pay dividends on shares. Pursuant to existing Philippine SEC rules, cash dividends declared by the Bank must have a record date not less than 10 or more than 30 days from the date the cash dividends are declared. With respect to stock dividends, the record date is to be not less than 10 or more than 30 days from the date of shareholders’ approval, provided however, that the set record date is not to be less than 10 trading days from receipt by the PSE of the notice of declaration of stock dividend. In relation to banks, however, the record date can only be fixed after receipt of the BSP's approval for the dividend declaration. In the event that a stock dividend is declared in connection with an increase in authorized capital stock, the corresponding record date is to be fixed by the SEC. Subject as described herein, the Bank has historically paid and intends to continue to pay (subject as described below) dividends on its Shares. The payment of dividends in the future will depend on the Bank's earnings, cash flow, financial condition and other factors. Dividends may be declared only from unrestricted retained earnings and subject to approval from the BSP. Circumstances which could restrict the payment of cash dividends include, but are not limited to, when the Bank undertakes major projects and developments requiring substantial cash expenditures or when it is restricted from paying cash dividends by its loan covenants. The Board of Directors may, at any time, modify the Bank's dividend payout ratio depending on the results of operations and future projects and plans of the Bank. The bank declared cash dividends to stockholders on the following dates:

Date of Declaration

Cash Dividends Date of BSP Approval

Record Date

Payment Date

Per Share Total Amount

October 28, 2008 0.15 36,037,874 Mar 6, 2009 Mar 26, 2009 April 15, 2009

January 20, 2009 0.15 36,037,874 Jun 29, 2009 July 23, 2009 Aug 7, 2009

May 18, 2009 0.15 36,037,874 Aug 17, 2009 Sep 15, 2009 Sep 30, 2009

July 28, 2009 0.15 36,037,874 Oct 20, 2009 Nov 13, 2009 Dec 1, 2009

October 13, 2009 0.15 36,037,874 Dec 15, 2009 Jan 14, 2010 Jan 28, 2010

January 19, 2010 0.15 36,037,874 Mar 8, 2010 Mar 31, 2010 Apr 16, 2010

February 19, 2010 2.75 660,694,350 Apr 22, 2010 May 17, 2010 May 31, 2010

May 17, 2010 0.15 36,037,874 Jun 15, 2010 Jul 13, 2010 Aug 3, 2010

July 27, 2010 0.15 36,037,874 Sep 6, 2010 Sep 29, 2010 Oct 14, 2010

October 14, 2010 0.15 36,037,874 Nov 15, 2010 Dec 8, 2010 Dec 23, 2010

January 20, 2011 0.15 36,037,874 Feb 23, 2011 Mar 18, 2011 Apr 4, 2011

April 4, 2011 0.15 36,037,874 May 13, 2011 Aug 4, 2011 Aug 19, 2011

August 1, 2011 0.15 36,037,874 Aug 16, 2011 Sept 8, 2011 Sept 23, 2011

October 27, 2011 0.15 36,037,874 Nov 23, 2011 Dec 20, 2011 Jan 5, 2012

January 24, 2012 0.15 36,037,874 Feb 9, 2012 Mar 8, 2012 Mar 23, 2012

No unregistered securities were sold or offered for sale by the Bank for the year 2012.

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Item 6. Plan of Operation and Management’s Discussion and Analysis

A. Plan of Operation

The Bank will further expand its geographic reach nationwide as it plans to open 20 branches in 2012. Expansion of ATM presence in non-branch locations will still be pursued given the growing demand for customer convenience. In line with the Bank’s strategic initiatives on information technology, it will provide reliable technology infrastructure to improve operating efficiency. The Bank will continue to enhance its online banking facility to keep up with the constantly changing preferences of our clients. We will also expand our electronic banking services and offer other secure, fast and efficient channels for our clients to check their account balances and perform other banking transactions anytime, anywhere.

B. Management’s Discussion and Analysis

i. Analysis of Statements of Condition

As of December 31, 2011 and 2010 The Bank’s Total Assets as of December 31, 2011 stood at P120.25 billion, 15% better than the previous year’s level of P104.15 billion. The substantial growth in assets was due to increases in loan portfolio and investments, both in Available-for-Sale (AFS) and Held-to-Maturity (HTM).

Loans and Receivables representing 48% of total assets grew by 9% or P4.98 billion to P58.19 billion from P53.21 billion. Auto Loans increased the most at P31.16 billion, 13% or P3.67 billion higher than the P27.50 billion level in 2010. Mortgage Loans also climbed by 9% to P19.04 billion.

Available-for-Sale Investments representing 16% of total assets increased by 15% to P18.69 billion while Held-to-Maturity Investments representing 10% of total assets increased by 34% or P3.15 billion to P12.31 billion. In addition, Interbank Loans Receivable and Securities Purchased Under Repurchase Agreements (SPURA) representing 9% of total assets climbed by 192% or P6.89 billion to P10.48 billion from year-ago level of P3.59 billion due to overnight placements with the Bangko Sentral ng Pilipinas (BSP) towards the end of the year. Meanwhile, Fair Value Through Profit or Loss (FVPL) Investments decreased by 94% or P813.52 million to P54.79 million as the Bank sold various securities held for trading. Due from BSP, increased by 48% or P1.4 billion to P4.3 billion. Likewise, Cash and Other Cash Items were higher by 24% or P757 million to P3.92 billion. On the other hand, Due from Other Banks dropped by 50% or P3.78 billion to P3.73 billion from last year’s level of P7.52 billion. Investment in Associate and Joint Venture consists of the Bank’s 25% interest in Toyota Financial Services Philippines Corporation (TFSPC) and 40% interest in Sumisho Motor Finance Corporation (SMFC). This account increased by 49% or P408 million mainly due to the Bank’s capital infusion to SMFC during 2011. The Bank’s Investment in TFSPC posted a 14% increase or P64.33 million to P523.25 million from P458.92 million due to recognition of share in the associate’s profit. SMFC started its commercial operations on March 2010. As of December 31, 2011, SMFC’s total assets stood at P754.54 million. SMFC also added 3 new branches during 2011 to end the year with 17 branches. Property and Equipment was 13.04% higher at P2.38 billion from P2.11 billion in 2010. The Bank opened 20 additional branches in 2011, ending the year with 200 branches. Also, the Bank added 125 new ATMs in line with the strategy to increase customer touch points thru various channels. As of December 31, 2011, the Bank has total of 505 ATMs. Goodwill and Other Intangible Assets including software costs and license fees increased by 6% or P14.49 million to P255.18 million, while Other Assets were 16% lower at P741.67 million compared to previous level of P884.12 million. Decrease in Other Assets resulted mainly from the reduction in prepayments.

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Deferred Tax Assets (DTA) went up by 62% to P1.14 billion from P705.36 million due to recognition of future tax benefits. With the Bank’s adoption of the revised allocation of expenses under Revenue Regulation No. 4-2011, the Bank expects to register sufficient taxable income in the future resulting to an accounting recognition of tax asset. Meanwhile, the Bank’s deposit level representing 97% of total liabilities grew by 16% or P14.03 billion to P101.55 billion from P87.52 billion recorded the previous year as it further expanded its branch and ATM networks. The significant increase was experienced across all deposit products, including Demand Deposits, which grew by 59% or P4.25 billion to P11.42 billion. Time Deposits increased by 12% to P78.46 billion from P70.2 billion from previous year while Savings Deposits increased by 15% to P11.67 billion. Last January 28, 2011, the Bank exercised the call option on its P2.0 billion Unsecured Subordinated Notes (Tier 2) which was rated PRS Aaa by Philippine Rating Services Corporation (Philratings). On October 27, 2011, the Bank’s Board of Directors (BOD) approved the issuance of up to P5 billion 10-year Unsecured Subordinated Debt that will allow the Bank to increase and strengthen its capital base. The issuance of the P3 billion notes under the terms approved by the BOD was approved by the BSP on December 29, 2011. Offering period for the Tier 2 Notes was closed a week earlier due to strong demand. The book was more than two times oversubscribed allowing the Bank to price the 10-year Subordinated Notes at 5.75% per annum or below the initial pricing guidance. The Tier 2 Notes were issued last February 20, 2012 and will mature on February 20, 2022. The Notes were rated “Aaa” by Philratings. Accrued Interest and Other Expenses increased by 7% or 75.90 million from P1.13 billion in 2010 due to accruals of information technology expenses. The Bank ended December 31, 2011 with a Capital of P15.54 billion, 34% better than the P11.6 billion level in 2010. Mark to market (MTM) gain on Available-for-Sale Investments increased by P2.04 billion to P2.40 billion compared to last year’s MTM gain of P355.15 million. With the higher net income before tax in 2011, surplus improved by 37% or P1.88 billion to P6.94 billion by the end of 2011 from the previous year’s P5.06 billion. As of end 2011, Capital Adequacy Ratio (CAR) was at 13.93%, which is above the minimum regulatory requirement of 10%. As of December 31, 2011 and 2010, the Bank recorded ‘Cumulative translation adjustment’ under equity amounting to P54.31 million and P57.1 million, respectively. Meanwhile, Return on Average Equity (ROAE) decreased to 14.94% in 2011 versus 15.99% in 2010, while Return on Average Assets (ROAA) slightly dropped to 1.81% in 2011 from 1.83% in 2010. As of December 31, 2010 and 2009 The Bank’s Total Assets for the year ending December 31, 2010 stood at P104.15 billion. This was 12% better than the December 2009 level of P93.09 billion. Significant year-on-year increases were reflected in loans and receivables, held-to-maturity investment securities and due from other banks. Loans and Receivables climbed by 12% to P53.21 billion from P47.31 billion as the Bank continued to benefit from the growth trend in the consumer market sector boosted by higher confidence in the new administration. Held-to-Maturity Investments grew by 92% or P4.39 billion to P9.16 billion as the Bank continued to build up its long term portfolio investment in government securities and ROP bonds. Due from Other Banks rose by 392% to P7.52 billion from year-ago level of P1.53 billion due to the shift in investment strategy from AFS to short term placements with other banks. Cash and Other Cash Items were also higher by 20% to P3.16 billion.

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The Bank continued to maintain its 25% interest in Toyota Financial Services Philippines Corporation (TFSPC) and 40% interest in Sumisho Motor Finance Corporation (SMFC). The Bank’s 25% stake in TFSPC posted a 17% increase or P65.71 million to P458.92 million from P393.21 million in 2009 due to recognition of share in the associate’s profit amounting to P65.71 million in 2010. SMFC, the joint venture with Sumitomo Corporation, was incorporated on November 26, 2009 to engage in motorcycle financing in the Philippines. As of December 31, 2010, total current assets, non-current assets and non-current liabilities of SMFC amounted to P868.29 million, P124.4 million and P65.3 million, respectively. SMFC started its commercial operations in March 2010. As of December 31, 2010, SMFC has a total of 9 branches situated in Metro Manila and strategic provinces. Property and Equipment was 6% higher year-on-year to P2.11 billion due to expansion of ATM network, opening of ten (10) new branches, relocation and renovation of some branches in 2010. Goodwill and Other Intangible Assets including software costs and license fees increased by 22% or P43.21 million to P240.68 million. Likewise, Other Assets were 29% higher at P884.12 million compared with the December 2009 level of P687.05 million due to increases in chattel mortgage and prepaid taxes on investment securities. Deferred Tax Assets (DTA) went down by 44% to P705.36 million from P1.26 billion to align the level of DTA with the 5-year forecasted taxable income. Meanwhile, Fair Value through Profit or Loss (FVPL) Investments increased by 250% to P868.32 million from P248.04 million as the Bank took advantage of the volatility in interest rate for its trading portfolio. Likewise, Investment Properties increased by 7% to P2.77 billion from P2.58 billion as a result of foreclosure of loan accounts with significant balances. The Bank’s deposit level grew by 13% to P87.52 billion from P77.39 billion recorded the previous year. The Bank continued to benefit from its various deposit generation campaigns and expanded branch and ATM network. Time deposits increased by 17% or P10.40 billion. Likewise, savings deposits grew by 8% or P744.39 million while Demand deposits decreased by 12% or P1.02 billion. Last October 2010, Philippine Rating Services Corporation (Philratings) upgraded its rating for PSBank’s P2.0 billion Unsecured Subordinated Notes to PRS Aaa from PRS Aa plus. The Unsecured Subordinated Notes (Tier 2) is due in 2016, with step up in 2011. The request of the Bank to exercise the call option on the Note was approved by the BSP on December 10, 2010. The Bank exercised the call option on January 28, 2011. Treasurer’s, cashier’s and manager’s checks as of December 2010 was higher by 28% to P649.43 million from P505.74 million reflected in the same period last year. In 2010, there was no outstanding income tax payable due to application of MCIT credits. Compared to December 2009, Capital was 5% higher at P11.61 billion from the P11.01 billion due to higher net income by 30% or P568.10 million to P1.81 billion. In addition to quarterly dividends, special dividends of P660.69 million or P2.75 per share was declared last February 19, 2010. Mark to market (MTM) gain on Available-for-Sale investments decreased by 57% or P464.68 million to P355.15 million compared to last year’s MTM gain of P819.83 million. As of end 2010, Capital Adequacy Ratio (CAR) was at 15.37%. This ratio remained way above the minimum regulatory requirement of 10%. As of December 31, 2010 and 2009, the Bank recorded ‘Cumulative translation adjustment’ under equity amounting to P57.1 million and P115.4 million, respectively.

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Meanwhile, Return on Average Equity (ROAE) increased to 15.99% in 2010 versus 12.73% in 2009. Likewise, Return on Average Assets (ROAA) went up to 1.83% in 2010 from 1.48% in 2009.

As of December 31, 2009 and 2008 The Bank’s Total Assets for the year ending December 31, 2009 stood at P93.09 billion. This was 25% better than the December 2008 level of P74.64 billion. Significant year-on-year increase was attributed to the positive results in loans and receivables, securities purchased under resale agreements and investments in government securities. In 2009, Loans and Receivables increased by 14% to P47.31 billion from P41.60 billion as the Bank continued to benefit from the growth trend in the consumer loans sector and participated in corporate issuances of prime companies. Interbank Loans Receivable and Securities Purchased under Resale Agreements or the Bank’s lending to Bangko Sentral ng Pilipinas (BSP) collateralized by government securities increased by P5.15 billion to P5.90 billion from last year’s P750 million. Held-to-Maturity Investments and Available-For-Sale Investments grew by P3.16 billion and P1.45 billion to P4.77 billion and P18.26 billion, respectively, as the Bank invested its excess funds in government securities and ROP bonds. Due from BSP rose by 53% to P4.94 billion from year-ago level of P3.23 billion. Due from Other Banks was P252.08 million higher at P1.53 billion due to increase in placements with other banks. Cash and Other Cash Items were also higher by 83% to P2.63 billion. Investments in an Associate and a Joint Venture represent 25% interest in Toyota Financial Services Philippines Corporation (TFSPC) and 40% interest in Sumisho Motor Finance Corporation (SMFC). The Bank’s 25% stake in TFSPC, posted a 6% increase or P23.26 million to P393.21 million from P369.95 million in 2008 due to recognition of share in the associate’s profit amounting to P50.03 million in 2009. SMFC, the joint venture with Sumitomo Corporation, was incorporated on November 26, 2009 to engage in motorcycle financing in the Philippines. As of December 31, 2009, total current assets, non-current assets and non-current liabilities of SMFC amounted to P=1.0 billion, P39.2 million and P=55.7 million, respectively. SMFC will start its commercial operations in the first quarter of 2010. Property and Equipment was 12% higher year-on-year to P1.99 billion due to opening of six (6) additional branches, relocation of various branches, expansion of ATMs and purchases of computer equipment, furniture and fixtures in 2009. Goodwill and Other Intangible Assets including software costs and license fees increased by 25% or P38.96 million to P197.47 million. Other Assets were 5% higher at P687.05 million compared with the December 2008 level of P654.40 million due to increases in Prepaid expenses, Stationeries and Supplies on Hand and Returned Checks and Other Cash items. On the other hand, it was partially offset by the decline in Chattel Mortgage by 27% or to P68.01 million due to this year’s higher disposal of repossessed vehicles acquired from settlement of loans and receivables. Deferred Tax Assets went up by 13% to P1.26 billion from P1.11 billion previously mainly due to payment of MCIT and increase in provisions for impairment and credit losses. This was offset by the decrease in NOLCO amounting to P211.88 million as the Bank applied the remaining NOLCO in 2009. Meanwhile, Fair Value through Profit or Loss (FVPL) Investments declined by 77% to P248.04 million from P1.08 billion as the Bank took profit on its trading account portfolio.

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Likewise, Investment Properties decreased by 7% to P2.58 billion from P2.78 billion as a result of higher disposal of acquired properties. The Bank’s deposits grew by 25% to P77.39 billion from P61.68 billion recorded the previous year. Demand and time deposits both increased by 28% or P1.79 billion and P13.12 billion, respectively. Treasurer’s, cashier’s and manager’s checks as of December 2009 improved by 49% to P505.74 million from P339.90 million reflected in the same period last year. Subordinated Notes and Bills Payable decreased by 11% to P1.97 billion as the Bank settled its interbank borrowings in 2009. Income Tax Payable slightly increased by P3.35 million to P17.43 million due to higher amount of gross income on loans subject to tax. Also, Other Liabilities inched up by P275.36 million to P1.29 billion from P1.02 billion in 2008. Compared to December 2008, Capital was 30% higher at P11.01 billion from the P8.47 billion due to movement in net unrealized gains on available-for-sale portfolio. Mark to market (MTM) gain on available-for-sale investments significantly increased by P1.50 billion to P819.83 million compared to last year’s MTM loss of P677.29 million. As a result, Capital Adequacy Ratio (CAR) reached a high of 14.44% in end-2009. This ratio remained way above the minimum regulatory requirement of 10%. In 2009, the Bank reflected a negative P115.44 million in its ‘Cumulative translation adjustment’ under equity. Meanwhile, Return on Average Equity (ROAE) increased to 12.73% in 2009 versus 12.47% in 2008. Likewise, Return on Average Assets (ROAA) went up to 1.48% in 2009 from 1.31% in 2008.

ii. Discussion of Results of Operations

For the years ended December 31, 2011 and 2010

The Bank ended 2011 with a Net Income after tax of P2.03 billion, 12% higher year-on-year. Net Interest Income which represents 74% of the Bank’s total operating income rose by 14% to P5.71 billion from P5.01 billion in 2010. Net Interest Income consists of the total Interest Income from Loans and Receivables, Investment Securities, deposits from BSP and Other Banks and Interbank Loans and Receivable and SPURA net of the total Interest Expense from Deposit Liabilities and Subordinated Notes and Bills Payable. Total Interest Income grew by 13% or P1.06 million to P8.98 billion from P7.91 billion. Interest Income on Loans and Receivables reflected a 10% increase to P6.47 billion from P5.87 billion last year as a result of the steady growth in the Bank’s loan portfolio. Interest Income on Investment Securities was higher by 31% or P524.77 million to P2.24 billion due to the increase in investment portfolio, while interest earned from Interbank Loans Receivable and Securities Purchased under Resale Agreements rose by 18% to P189.6 million from P160.51 million. Interest earned from placements with the BSP was lower by 55% to P71.37 million compared to P158.51 million recorded the previous year. Likewise, Interest income from Deposits with Other Banks decreased by 54% to P3.25 million from P7.13 million.

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Net Service Fees and Commission Income were higher by 6% or P41.2 million to P732.88 million versus P691.68 million in 2010. Other Operating Income, representing 16% of total operating income, decreased by 51% to P1.24 billion from P2.53 billion mainly due to the drop in Trading Gains by 58%. Total Interest Expense increased by 13% to P3.27 billion mainly due to increase in deposit levels. Interest Expense on Deposit Liabilities was higher by 20% to P3.23 billion from P2.69 billion in previous year. However, Interest Expense on Subordinated Notes Payable was at P37.33 million, 82% lower than the P206.04 million in 2010 as the Bank paid off its P2.0 billion Tier 2 Notes last January 28, 2011. The Bank’s Gain on Foreclosure of Investment Properties was lower by 7% or P15.61 million to P208.75 million. On the other hand, the Bank registered a P105.85 million Loss from Foreclosure of Chattel Mortgage in 2011 versus P108.4 million loss in 2010. Gain on Sale of Chattel Mortgage Properties was 4% higher at P47.22 million versus P45.40 million in 2010. Meanwhile, Sale of Investment Properties ended at a loss of P22.12 million compared to P15.24 million gain recorded in the previous year. The Bank reflected a higher Gain on Sale of Property and Equipment which increased by 39% or P0.92 million to P3.29 million. Gain on Foreign Exchange was registered at P0.562 million, 96% lower than the P15.05 million level in 2010. The Bank’s Miscellaneous Income increased by 68% to P182.92 million versus previous year’s income of P108.95 million. The increase in operating expenses was tempered at 7% even with the Bank’s investments in branches, ATMs and IT infrastructure. Compensation and Fringe Benefits increased by 9% to P1.90 billion while Occupancy and Equipment related Costs increased by 14% or P61 million to P485.28 million. Likewise, Depreciation and Amortization was higher by 22% or P76.04 million to P428.08 million. Amortization of Intangibles rose by 27% or P11.43 million due to additions in software costs. Security, Messengerial and Janitorial Services increased by 18% to P193.92 million. Meanwhile, the Bank’s provisioning levels decreased by P256.17 million or 28% to P656.09 million from P912.28 million in 2010. As of December 31, 2011, the Bank has a total branch network of 200 compared to 180 in previous year. By the end of 2011 and 2010, the Bank’s ATMs nationwide were at 505 and 380, respectively.


In 2010, the Bank recorded a Net Income after Tax of P1.81 billion or 46% more than the P1.24 billion it posted during the same period last year. Total Interest Income grew by 5% or P383.57 million, better than the P7.53 billion recorded in the same period last year. Interest income on Loans and Receivables showed a 9% improvement or an increase of P496.14 million. Interest Income on Investment Securities was lower by 12% to P1.71 billion as the Interest earned from placements with the BSP rose 70% to P158.51 million versus P92.99 million in 2009. Also, Interest income from Deposits with Other Banks increased by 22% to P7.13 million and interest earned from Interbank Loans Receivable and Securities Purchased under Resale Agreements was up by 46% to P160.51 million. Net Service Fees and Commission Income increased by 16% to P691.68 million from P596.24 in 2009.

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Other Operating Income also posted a favorable growth of 201% or P1.69 billion to P2.53 billion. The Bank took advantage of the trading opportunities in the bond market resulting in higher trading income of P2.23 billion vs. P543.62 million in 2009 or an increase of P1.69 billion. The Bank also reflected a lower income on sale of property and equipment which decreased by 76% or P7.44 million to P2.37 million. The Bank registered higher income on foreclosure of investment properties which increased by 9% or P18.22 million to P224.36 million. This was offset by the loss on foreclosure of chattel mortgage by 18% or P16.44 million to P108.41 million. On the other hand, gain on sale of investment properties slid by 52% or P16.34 million to P15.24 million, while gain on sale of chattel mortgage increased by 9% or P3.59 million to P45.39 million. Meanwhile, Foreign Exchange gain was higher at 22% or P15.05 million in 2010 versus P12.33 million in 2009. Miscellaneous income which includes rent income from investment properties increased by 23% or P20.67 million to P108.95 million in 2010. Total Interest Expense increased by 8% to P2.90 billion. Interest Expense on Deposit Liabilities was higher by 8% to P2.69 billion versus the same period last year. In addition, Interest Expense on bills payable representing interest payments on interbank borrowings declined by 70% to P1.43 million from P4.83 million. In 2010, The Bank also recognized Interest Expense on Tier 2 amounting to P206.24 million. Other Expenses was registered at P5.62 billion in 2010, up by 14% compared to 2009 level. Compensation and Fringe Benefits increased by 17% or P251.98 million due to increases in number of employees to 2,755 from 2,501 previously and the implementation of the revised employee benefits based on the new Collective Bargaining Agreement.

Occupancy and equipment costs increased by 17% or P61.41 million to P424.28 million due to branch and ATM expansion during the year. Likewise, Security, messengerial and janitorial services increased by 11% or P15.96 million to P163.94 million. Depreciation and amortization was higher by 7% or P23.50 million and Taxes and Licenses rose by 39% or P217.36 million due to payment of local taxes on renewal of business permits. The Bank’s provisioning levels decreased by P197.47 Million or 18% from P1.11 billion to P912.28 million in 2010.

As of December 31, 2010, the Bank has a total branch network of 180 compared to 170 in 2009. By the end of 2010, the Bank had 380 ATMs nationwide versus 306 in 2009. Also in 2010, the Bank continued its investments in technology and further enhanced its Remote Banking facility.


In 2009, the Bank recorded a net income of P1.24 billion or 32% more than the P940.15 million posted during the same period last year. Total Interest Income grew by 23% or P1.40 billion year-on-year. Interest income on Loans and Receivables showed a 13% improvement at P5.38 billion. Interest Income on Investment Securities was higher by 92% to P1.94 billion while Interest earned from placements with the BSP rose 9% to P92.99 million. Meanwhile, interest income from Deposits with Other Banks slid 76% to P5.84 million while interest earned from Interbank Loans Receivable and Securities Purchased under Resale Agreements was down 58% to P109.76 million. The Bank’s Net Service Fees and Commissions rose by 12% to P596.24 million. Other Operating Income also posted a favorable growth of 21% or P148.02 million to P841.62 million as the Bank took advantage of the trading opportunities in the bond market. As a result, trading income rose by P343.89 million to P543.63 million. The Bank also reflected a higher income on sale of property and equipment which increased by 156% or P5.97 million to P9.80 million.

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The Bank registered lower income on foreclosure of investment properties which decreased by 2% or P4.98 million to P206.14 million. Likewise, increase in loss on foreclosure of chattel mortgage by 53% or P31.83 million to P91.97 million was recognized. On the other hand, gain on sale of investment properties slid by 22% or P8.85 million to P31.58 million, while gain on sale of chattel mortgage increased by 46% or P13.23 million to P41.80 million. Meanwhile, Foreign Exchange gain was lower at P12.3 million in 2009 versus P186.80 million in 2008. Miscellaneous income which includes rent income from investment properties increased by 6% or P5.05 million to P88.28 million in 2009. Total Interest Expense increased by 11% to P2.70 billion. Interest Expense on Deposit Liabilities was higher by 13% to P2.49 billion versus the same period last year. In addition, Interest Expense on bills payable representing interest payments on interbank borrowings declined by 72% to P4.83 million from P17.45 million. Other Expenses was registered at P4.94 billion in 2009, up by 29% compared to 2008 levels. Compensation and fringe benefits rose by P264.80 million, while Occupancy and equipment costs increased by P55.47 million to P362.87 million due to branch and ATM expansion during the year. Likewise, Security, messengerial and janitorial services increased by P19.29 million to P147.98 million. Depreciation and amortization was higher by 19% or P54.43 million and Taxes and Licenses rose by P108.12 million. The Bank also improved its provisioning levels by P532.36 million or 92%.

As of December 31, 2009, the Bank has a total branch network of 170 compared to 164 in 2008. By the end of 2009, the Bank had 306 ATMs nationwide versus 189 in 2008. Also in 2009, the Bank continued its investments in technology and further enhanced its Remote Banking facility.

iii. Analysis of Key Performance Indicators

The following basic ratios measure the financial performance of the Bank:

2011 2010 2009 Return on Average Equity ROAE 14.94% 15.99% 12.73% Return on Average Assets ROAA 1.81% 1.83% 1.48% Net Interest Margin on Average Earning Assets

NIM 5.49% 5.57% 6.43%

Earnings per share EPS 8.44 7.53 5.16 Capital-to-Risk Assets Ratio CAR 13.93% 15.37% 14.44% Liquidity Ratio LR 41.27% 39.28% 66.80%

Debt-to-Equity Ratio DER 6.74:1 7.97:1 7.45:1 Asset-to-Equity Ratio AER 7.74:1 8.97:1 8.45:1 Interest Rate Coverage Ratio IRCR 1.61:1 1.91:1 1.51:1

2011 vs. 2010 Comparative highlights on key performance indicators

1. Return on Average Equity (ROAE) decreased to 14.94% in 2011 from 15.99% in 2010.

ROAE measures how well the Bank is using common shareholders’ invested money. It is calculated by dividing net income by the year-on-year average of the outstanding shareholders’ equity.

2. Return on Average Assets (ROAA) as of December 31, 2011 slightly declined from 1.81% from last year’s 1.83%. ROAA is calculated by dividing net income by the year-on-year average of the outstanding total assets.

3. Net Interest Margin on Average Earning Assets (NIM) decreased to 5.49% in 2011 from 5.57% in 2010. NIM is calculated by dividing the net interest income by the average earning assets.

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4. Earnings per Share (EPS) increased to P8.44 as of 2011 versus P7.53 in 2010. EPS is the net profit the Bank has generated per common share. It is computed by dividing net income by the number of outstanding common shares.

5. Capital to Risk Assets Ratio (CAR) was at 13.93% in 2011 from 15.37% in 2010. CAR is the measure of the Bank’s capital strength. It is calculated by dividing the qualified capital by risk-weighted assets as defined by the Bangko Sentral ng Pilipinas (BSP).

6. Liquidity Ratio (LR) increased to 41.27% from 39.28% in 2010. LR measures the Bank’s

ability to meet its short-term liabilities. It is derived from dividing the current assets by current liabilities.

7. Debt-to-Equity Ratio (DER) went down from 7.97:1 in 2010 as against 6.74:1 in 2011. DER

indicates the extent to which the Bank s leveraged, or financed by credit. This is computed by dividing total liabilities by total stockholder’s equity.

8. Asset-to-Equity Ratio (AER) decreased to 7.74:1 in 2011 from 8.87:1 last year. AER is

computed by dividing the total assets by total shareholder’s equity.

9. Interest Rate Coverage Ratio (IRCR) slightly went down from 1.91:1 in 2010 versus 1.61:1 in 2011. IRCR is a measure the Bank’s ability to meet its interest payments on outstanding debt. It is calculated by dividing the total earnings before interest and taxes over interest expense.

2010 vs. 2009 Comparative highlights on key performance indicators

1. Return on Average Equity (ROAE) increased to 15.99% in 2010 from 12.73% in 2009. ROAE measures how well the Bank is using common shareholders’ invested money. It is calculated by dividing net income by the year-on-year average of the outstanding shareholders’ equity.

2. Return on Average Assets (ROAA) as of December 31, 2010 improved to 1.83% from last year’s 1.48%. ROAA is calculated by dividing net income by the year-on-year average of the outstanding total assets.

3. Net Interest Margin on Average Earning Assets (NIM) decreased to 5.57% in 2010 from

6.43% in 2009. NIM is calculated by dividing the net interest income by the average earning assets.

4. Earnings per Share (EPS) increased to P7.53 as of 2010 versus P5.16 in 2009. EPS is the

net profit the Bank has generated per common share. It is computed by dividing net income by the number of outstanding common shares.

5. Capital to Risk Assets Ratio (CAR) was at 15.37% in 2010 from 14.44% in 2009. CAR is the

measure of the Bank’s capital strength. It is calculated by dividing the qualified capital by risk-weighted assets as defined by the Bangko Sentral ng Pilipinas (BSP).

6. Liquidity Ratio (LR) decreased to 39.28% in 2010 from 66.80% in 2009. LR measure the

Bank’s ability to meet its short-term liabilities. It is derived from dividing the current assets by current liabilities.

7. Debt-to-Equity Ratio (DER) slightly went up to 7.97:1 in 2010 versus 7.45:1 in 2009. DER

indicates the extent to which the Bank s leveraged, or financed by credit. This is computed by dividing total liabilities by total stockholder’s equity.

8. Asset-to-Equity Ratio (AER) increased to 8.97:1 in 2010 from 8.45:1 in 2009. AER is

computed by dividing the total assets by total shareholder’s equity.

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9. Interest Rate Coverage Ratio (IRCR) was at 1.91:1 in 2011 compared to 1.51:1 in 2009. IRCR is a measure the Bank’s ability to meet its interest payments on outstanding debt. It is calculated by dividing the total earnings before interest and taxes over interest expense.

iv. Key Variables and Other Qualitative and Quantitative Factors

a) Liquidity

PSBank manages its liquidity position to ensure that it has more than adequate funds to meet its obligations at any given time. The Bank monitors its daily liquidity and reserve position by determining inflows and outflows, short-term and long-term obligations, holdings and repayments. Short-term liquidity management identifies obligations and repayments in the next 12-months, aids in the determination of the securities trading strategy, and influences the Bank’s pricing mechanism. On the other hand, long-term liquidity management covers maturing obligations and repayments of loans and investments beyond the next 12-months. The level of liquid assets remained strong, exhibiting healthy growth in both placements with BSP/other banks and securities investments.

With the Bank’s high capitalization, current liquidity position, strong deposit growth trend, continuing development of retail and corporate accounts, and prudent liquidity management, PSBank does not anticipate encountering any cash flow or liquidity problems in the next 12 months. It remains confident of its ability to meet its obligations and is committed to providing the necessary funding to support the projected loan growth, investment activities and expenditures for 2012. The Bank also performs liquidity stress testing under various stress scenarios to ensure its ability to meet its funding obligations. The Bank has a Liquidity Contigency Funding Plan to anticipate and manage any funding crisis that may occur.

b) Events that will Trigger Direct or Contingent Financial Obligation

In the normal course of the Bank's operations, there are various outstanding commitments and

contingent liabilities such as guarantees and commitments to extend credit, which may not be

reflected in the accompanying financial statements. The Bank, however, does not anticipate

significant losses as a result of these transactions. Also, several suit and claims, in behalf or against the Bank in relating to its lending operations and labor-related cases are pending before the courts and quasi-judicial bodies. In the opinion of management, these suits and claims, if decided adversely, will not involve an amount having a material effect on the financial statements

c) Material Off-Balance Sheet Transactions, Arrangements and Obligations

The following is a summary of the Bank’s commitments and contingent liabilities at their

equivalent peso contractual amounts:

2011 2010 2009

Trust department accounts 1,122,081,012 631,063,745 630,040,803

Stand-by credit line 97,307,821 112,514,393 104,023,029

Late deposits/ payments received 68,471,099 58,460,284 88,146,816

Items held for safekeeping 363,447 336,370 232,334

Outward bills for collection – – 82,141

Others 15,704 24,994 24,107

25

None of these off-balance sheet transactions, arising in the ordinary course, either individually or in the aggregate, are expected to have a material adverse effect on the Bank of its financial condition.

d) Material Commitments for Capital Expenditures

The Bank completed in 2008 the issuance of common shares through another stock rights

offering and was able to raise P2.0 billion in capital. In general, the Bank used the net proceeds

from the Offer in strengthening its capital adequacy ratio, taking into account the effects of the

Basel II and continuously enhancing its financial flexibility as well as for general corporate

purposes including but not limited to lending, working capital and investment purposes.

The Bank’s Capital Expenditures in 2011 included projected expenses for twenty (20) new

branches, 125 new on-site and off-site ATMs, upgrade of bank premises including infrastructure,

furniture, fixtures and equipment, IT-related activities on systems, infrastructure, and licenses.

For 2012, the Bank plans to open twenty (20) more branches and ATMs. e) Causes for Any Material Changes from Period to Period of Financial Statements See previous discussion on Analysis of Statement of Condition and Discussion of Results of Operations.

f) Known Trends, Events or Uncertainties or Seasonal Aspects

The financial statements of the Bank have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). g) Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year. The issuance of and the amendments to the following standards and interpretations which became effective as of January 1, 2011, did not have any impact on the accounting policies, financial position or performance of the Bank:

New Standards and Interpretations

• PAS 24, Related Party Transactions (Amendment) PAS 24 clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The Bank reflected the revised disclosure requirements in Note 29.

Improvements to PFRS

• PFRS 7, Financial Instruments: Disclosures a. The amendment was intended to simplify the disclosures provided by reducing the

volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Bank reflected the revised disclosure requirements in Note 5.

The issuance of and the amendments to the following Philippine Accounting Standards (PAS), PFRS and Philippine Interpretations of the IFRIC which became effective as of January 1, 2011, did not have any impact on the accounting policies, financial position or performance of the Bank: Amendments to Standards

• Philippine Interpretation IFRIC–19, Extinguishing Financial Liabilities with Equity Instruments

• PAS 32, Financial Instruments: Presentation (Amendment) – Classification of Rights

26

Issues

• Philippine Interpretation IFRIC–14 (Amendment), Prepayments of a Minimum Funding Requirement

Improvements to PFRSs 2010

• PFRS 3, Business Combinations

• PAS 1, Presentation of Financial Statements

• PAS 27, Consolidated and Separate Financial Statements

• Philippine Interpretation IFRIC–13, Customer Loyalty Programmes

Except for the foregoing, there are no known trends, events and uncertainties or seasonal

aspects that may effect liquidity or reverse the generally profitable results of operation of the

Bank. Independent Accountant SyCip Gorres Velayo & Co. (SGV & Co.), independent certified public accountants, audited the Bank’s financial statements without qualification and in accordance with Philippine Standards on Auditing and has expressed its opinion on the fairness of presentation upon completion of its examination, in its report to the stockholders and Board of Directors. The following table sets out the aggregate fees billed for each of the years ended December 31, 2011 and 2010 for professional services rendered by SGV & Co for the audit of the Bank's annual financial statements.

2011 2010

Audit and Audit-Related Fees:

Fees for services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagements P=2,000,000.00 P=2,000,000.00

Tax and All Other Fees for Services of External Auditor

The Bank has engaged the services of external auditor for tax accounting, compliance, advice, planning and any other form of tax services during the last two years. The collective fees for each year ended December 31, 2011, December 31, 2010 and 2009 amounted to P739,200.00, P251,440.00 and P152,208, respectively.

Fees for Services of other Tax Consultant Beginning September 2010, the Bank has engaged the services of Du-Baladad and Associates for tax consultancy. The collective fees for the years ended December 31, 2011 and December 31, 2010 amounted to P177,408 and P66,336.00 respectively Audit Committee’s Approval Policies and Procedures for Above Services As Metrobank subsidiary, the Bank adopted the Parent’s policies and procedures on audit engagement contract for external auditors. The same was discussed and approved by the Audit Committee. Included in the duties and responsibilities of the Audit Committee as provided in Item No. 4 of the Audit Committee Charter is for the Audit Committee to “consider the appointment of… external auditor, audit fees…” among others.

Item 7. Financial Statements

The audited financial statements of the Bank and statement of management responsibility are included as an accompanying attachment.

27

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

SyCip Gorres Velayo & Co. (SGV & Co.), independent certified public accountants, audited the Bank’s financial statements without qualification and in accordance with Philippine Standards on Auditing and has expressed its opinion on the fairness of presentation upon completion of its examination, in its report to the stockholders and Board of Directors.

SGV & Co. has acted as the Bank’s external auditors since 1979. Aris C. Malantic is the audit partner for the Bank and has served as such for 5 years since 2006. In compliance with the 5-year rotation requirement, under SEC SRC Rule 68 (3) (b) (IV), the new certifying partner from SGV and Co. will be Vicky L. Salas. The Bank has no disagreements on accounting and financial disclosures with its current external auditors for the same periods or any subsequent interim period. The Bank intends to retain SGV as its external auditors for 2012. The external auditors are appointed annually by the registrant’s Board of Directors in its organizational meeting held immediately after the Annual Stockholders’ Meeting.

28

PART III. CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers

Directors of the Bank are elected at the annual stockholders’ meeting to hold office for a term of one (1) year until the next succeeding annual meeting and until the respective successors have been elected and qualified. Officers are elected by the newly-elected Board of Directors at the first meeting. Directors The following are the Directors for 2011 – 2012:

Name/ Position Age Citizenship Business Experience and Present and Past Directorship with Other Companies for the last five (5) years

Relatives up to 4

th

Civil degree

Jose T. Pardo Chairman of the Board of Directors / Independent Director

73 Filipino Present Involvements

• Chairman, Philippine Savings Bank

• Chairman, ECPay (Electronic Commerce Payment Network, Inc.)

• Chairman, Philippine Stock Exchange

• Director, Bank of Commerce

• Director, JG Summit Holdings, Inc.

• Director, ZNN Radio Veritas

• Director, National GRID Corporation of the Phils.

• Director, Philippine Business Center, Inc.

• Member, EDSA People Power Commission - Office of the President

• Chairman, Securities Clearing Corporation of the Philippines

Past Experiences/ Positions Held

• Director, Bank of Commerce Investment Corporation

• Director, Capital Market Integrity Corporation

• Chairman, Electronic Realty Associates, Inc.

• President, Philippine Seven Corporation (Philippine Licensee of 7-Eleven, USA)

• President, Wenphil Corporation (Philippine Area Licensee of Wendy’s, USA)

• President, Cable Entertainment Corp.

• Chairman / President, Asian Holdings Corp.

• President, Land and Housing Development Corporation

• Director, San Miguel Purefoods Company

• Director, GMA Network (Channel 7)

• Director, Metrobank

• Director, Sanitary Wares and Manufacturing Corp.

None

29

• Director, C.C. Unson Co., Inc.

• Director, Mabuhay Philippine Satellite Corporation

• Chairman, Free Legal Assistance for Good Cops (FLAGCOPS)

• Chairman, Muay Thai Philippines Association

• Director, Coca-Cola Bottlers Philippines, Inc.

• Director, ABC Development Corp (ABC-5)

• Director, Associated Broadcast Marketing Corp.

Past Experiences/Positions Held in Government Service

� Cabinet Secretary, Department of Finance

� Cabinet Secretary, Department of Trade and Industry

� Governor for the Phils., Asian Development Bank

� Alternate Governor for the Phils., International Monetary Fund

� Governor, International Fund for Agricultural Development

� Chairman, Committee on Privatization

� Chairman, PDIC � Chairman, Trade and Investment Development Corp

� Chairman, Mt. Pinatubo Commission

� Chairman, Economic Coordinating Council

� Chairman, Council of ASEAN Trade Ministers

� Member, National Dev’t Company � Fellow, Development Academy of the Philippines

� Member, Bangko Sentral Monetary Board

� Commissioner, Career Executive Service Board

� Commissioner, Presidential Anti-Crime Commission

� Member, Presidential Council of Economic Advisers

� Member, CB Monetary Board � ASEAN Free Trade Area (AFTA) Advisory Council

Arthur V. Ty Vice Chairman


• President, Metropolitan Bank and Trust Company

• Vice Chairman, Metrobank Foundation, Inc.

Margaret Ty Cham (Sister)

30

• Vice Chairman/ Director, Cathay Int’l. Resources Corp.

• Chairman/Director, Global Treasure Holdings, Inc.

• Chairman, Metropolitan Bank (China) Ltd.

• Chairman, Great Mark Resources Corporation

• President/ Director, Horizon Royale Holdings, Inc.

• President/ Director, Philippine Securities Corporation

• Director, Federal Land, Inc.

• Adviser, Asia Pacific Top Management Int’l. Resources Corp.

• Director, Global Business Power Corp.

• Chairman/ President, Nove Ferum Holdings, Inc.

• Vice Chairman/Director, GT Capital Holdings Inc.

• Chairman/Director, Grand Titan Capital Holdings, Inc.

● Chairman, Ferum Cee Inc.

Past Experiences/Positions Held

• Held various positions at Metrobank

• Treasurer, First Metro Investment Corporation Equities, Inc.

• President, Philippine Savings Bank

• Director, SMBC Metro Investment Corporation

• Director, Lepanto Consolidated Mining Company

• Senior Vice President, Metrobank Foundation, Inc.

• Director, Metrobank Card Corp.

• President/ Director, MBTC Technology Inc.

• EVP/ Director, Philippine Securities Corporation

• EVP/ Director, Great Mark Resources Corporation

• Director, Baywatch Realty Corp.

• Vice Chairman/Director, Global Business Holdings

• Chairman, First Metro International Investment Corp. (Hong Kong)

• Vice Chairman/Director, Metropolitan Bank (Bahamas), Ltd.

• Vice Chairman, Metro Remittance Singapore Pte. Ltd.

• Vice Chairman, Metro Remittance Center, Inc. (U.S.A)

• Chairman, MB Remittance Center (Hawaii), Ltd.

• Chairman, Metro Remittance Center, Inc. (Canada)

31

• Vice Chairman, Metro Remittance (Italia) SpA

• Director, MBTC Remittance GmbH (Vienna)

• Vice Chairman, Metro Remittance (UK) Ltd.

• Assistant Vice President, Data Serv, Inc.

Pascual M. Garcia III President/ Director


• Director/President, Philippine Savings Bank

• Adviser, Metropolitan Bank and Trust Company

• Director, Toyota Financial Services Philippines Corporation

• Trustee, Chamber of Thrift Banks

• Director, Sumisho Motor Finance Corporation


• President, Chamber of Thrift Banks

• President/COO/Director, DBS Bank Philippines, Inc.

• Director/ President, Bank of Southeast Asia

• Director, Shenton Realty Corporation

• Director, Shenton Corporation

• Director, DBS Forex

• Executive Vice President, Citytrust Banking Corporation

• Senior Vice President, Citytrust Finance Corporation

• Senior Vice President, Citytrust Realty Corporation

None

Margaret Ty Cham Director/ Assistant Vice President


• Member, Executive Committee, Philippine Savings Bank

• Director, Philippine Savings Bank since 2003

• Director, Orix Metro Leasing Corporation

• Director, Federal Land, Inc.

• President/ Director, Glam Holdings Corp.

• Chairman/President, Glamore Holding Corp.

• Vice President, Great Mark Resources Corp.

• Vice President/ Corporate Secretary, Norberto and Tytana Ty Foundation

• Corporate Secretary, Metrobank Foundation

Arthur V. Ty (Brother)

32

• Vice President, Global Treasure Holdings, Inc.

• Vice President, Grand Titan Capital Holdings, Inc.

Past Experiences/ Position Held

• Corporate Secretary, Baywatch Realty Corp.

Samson C. Lim Independent Director


• Director, Philippine Savings Bank

• President, Automatic Appliances Inc.

• President, Blims Fine Furniture

• Vice President, Philippine Chamber of Commerce and Industry

• Executive Director, Federation of Filipino-Chinese Chamber of Commerce and Industry

• President, Canadian Tourism & Hospitality Institute

• Chairman, World Franchise Council

• Chairman Emeritus, Philippine Franchise Association

• Chairman, Francorp Philippines

• Chairman Emeritus, Philippine Retailers Association


• President, LG Collins Electronics, Phils.

• Chairman, Federation of Asian Retailers Association

• Chairman, Asia-Pacific Franchise Confederation

• Vice-Chairman for Asia, World Franchise Council

• President, Philippine Chamber of Commerce and Industry

• President, Appliance Distributors Association

• President & Adviser, Philippines- Korea Economic Council

• Vice President, Chamber of Furniture Industries of the Philippines

Various Positions in Government Service

� Undersecretary & General Manager, Department of Trade & Industry- National Dev’t Company (NDC)

� Chairman and Director, First Cavite Industrial Estate

None

33

David T. Go 58 Filipino Present Involvements

• Director, Metropolitan Bank (China), Ltd.

• Director, Toyota Manila Bay, Inc.

• Director, Toyota Cubao, Inc.

• Director, Lexus Manila, Inc.

• Chairman, Toyota Makati, Inc.

• Chairman, Toyota San Fernando, Inc.

• Trustee, Toyota Motor Philippines Savings & Loan Association

• President, Toyota Motor Philippines Foundation, Inc.

• Vice Chairman, Toyota Autoparts Philippines, Inc.

• Board Adviser/Treasurer, Toyota Financial Services Philippines Corp.

• SEVP/Treasurer/Director Toyota Motor Philippines Corp.

• President, Sumaco Manufacturing Corp.


• Member, Board of Advisor / Director, Metropolitan Bank & Trust Company

• Director, First Metro Investment Corporation

• Professorial Lecturer, University of the Philippines - Diliman

None

Amelia B. Cabal Director


• Chairman, External Audit Committee of the International Monetary Fund

• Bank Supervisor, Metropolitan Bank (China) Ltd.

• Independent Director, Deutsche Regis Partners Inc.

• Independent Director, Ionics, Inc.

• Independent Director, Ionics EMS, Inc.

Past Experiences/ Position Held

• Member, External Audit Committee of the International Monetary Fund

• Director, Metropolitan Bank and Trust Company

• Senior Adviser, Sycip Gorres Velayo and Co.

• Vice Chairman on Financial Markets, Sycip Gorres Velayo and Co.

• Senior Partner and Head of Financial Services Industy, Sycip Gorres Velayo and Co.

None

34

Maria Theresa G. Barretto Director


• Member, Executive Committee, Philippine Savings Bank


• Director, Endel Enterprise

• Director, Rural Bank of Candelaria Past Experiences/ Position Held

• Director, Board of Trustees DLSU- Zobel

• Director, Assumption Alumnae Association

None

Joaquin Aligguy Director



• Corporate Secretary, Manila Doctors Hospital

• Director, Asia Pacific Land (Nanjing) Ltd.

• Director, Aspac Land Development (Shanghai) Co., Ltd.

• Adviser, Metrobank Foundation

• Trustee, Kaisa Heritage Foundation

• Trustee, Angelo King Foundation

• Director, Writers Union of the Phils.

• Director, Philippine Association for China Studies

• Consultant, Asiaticus Management Corporation

• Director, Resources Consultants Phils., Inc.


• General Manager/Director, Philippine Chinese Daily

• Secretary General, Federation of Filipino-Chinese Chambers of Commerce and Industry

• Plant Manager/Director, Non-woven Fabric Philippines

None

Board of Directors

The following have been duly nominated to become members of the Bank’s 2012-2013 Board of Directors: incumbent directors Jose T. Pardo, Arthur V. Ty, Pascual M. Garcia III, Samson C. Lim, Joaquin Aligguy, Margaret Ty Cham, David T. Go, Maria Theresa G. Barretto, (please refer to the table above for a brief professional background) and the following new member, Benedicto Jose R. Arcinas. 1. Benedicto Jose R. Arcinas 2. Joaquin Aligguy 3. Ma. Teresa G. Barretto 4. Margaret Ty Cham 5. Pascual M. Garcia III 6. David T. Go 7. Arthur V. Ty 8. Samson C. Lim 9. Jose T. Pardo

35

Name/ Position Age Citizenship Business Experience and Present and

Past Directorship with Other Companies for the last five (5) years

Relatives up to 4

th Civil

degree

Benedicto Jose R. ArcinasIndependent Director

54 Filipino Past Experiences/Positions Held

• Executive Vice President and Chief Investment Officer, Government Service Insurance System

• Executive Vice President and Treasurer, Export and Industry Bank

• Director, Asia Pacific Recoveries Corporation and Asia Special Situations M3P2 Inc.

• Managing Director, Structured Solutions Inc.

• Managing Director, ATR-Kim Eng Fixed Income Inc.

• Director, Peregrine Fixed Income Philippines and Peregrine Fixed Income Ltd. HK

• Senior Vice President – Treasury, Metropolitan Bank and Trust Company

None

Of the above-named nominees, Messrs. Jose T. Pardo, Samson C. Lim and Benedicto Jose R. Arcinas have been nominated as independent directors by Ms. Yolanda L. dela Paz, Ms. Gilda Brigida C. Alunan and Ms. Dulce D. Arcebal, respectively, with whom they are not related. Based on the Bank’s Manual of Corporate Governance and as required by existing laws and regulations, the stockholders must elect at least two (2) independent directors. Executive Officers

Name/ Position Age Citizenship Experiences

Relatives up to 4th Civil degree

Pascual M. Garcia III Director/President


• President and Director of the Bank since September 2001

• Adviser of Metropolitan Bank and Trust Company

• Director, Toyota Financial Services Philippines, Inc.

• Director, Sumisho Motor Finance Corp.

• Trustee, Chamber of Thrift Banks Past Involvements

• President, Chamber of Thrift Banks

• Director of Metrobank Card Corporation

• Director of DBS Forex and Shenton Realty Corporation

None

36

• President and Director of the Bank of Southeast Asia and DBS Bank Philippines, Inc.

Jose Vicente L. Alde Executive Vice President

46

Filipino

Present Involvement The following businesses and support groups report to Mr. Alde as EVP:

- Branch Banking - Direct Sales Channel - Indirect Sales Channel - Electronic Delivery Channel - Asset Sales - Specialized Lending - Large Enterprises - Customer Service

Past Involvements

• Held various Branch Banking and Treasury Positions as Vice President of ABN-AMRO Bank

None

Noli S. Gomez Senior Vice President

46 Filipino Present Involvement

• Head of the Bank’s Operations Group

Past Involvements

• Head of Systems and Methods at DBS Bank Phils., Inc.

• System Management Officer of the Bank of the Philippine Islands

None

Perfecto Ramon Z. Dimayuga, Jr. Senior Vice President

50

Filipino Present Involvement

• Chief Finance Officer and Finance Group Head

Past Involvements

• Head of Treasury of PSBank from June 2002 to May 2004

• Worked in the Treasury Departments of Bank of the Philippine Islands, DBS Bank Phils., Inc., Mindanao Development Bank, Citytrust Banking Corporation, Rizal Commercial Banking Corporation

None

Significant Employees Except for the above-mentioned executives, there are no other significant employees as contemplated under the Securities Regulations Code.

37

Nomination Procedures

1) A stockholder may submit the nomination of a director to the Nominations Committee. 2) The nominating stockholder shall submit his proposed nomination in writing to the

Nominations Committee together with the acceptance and conformity by the would-be nominee.

3) The Nominations Committee shall screen the nomination of directors prior to the stockholders’ meeting and come up with the Final List of Candidates.

4) Only nominees whose names appear in the Final List of Candidates shall be eligible for election as director.

The nomination process of the Bank is incorporated in the company’s amended Code of By-Laws duly approved by the Securities and Exchange Commission on September 27, 2006. The following are the members of the Bank’s Nominations Committee:

Name Position Arthur V. Ty, Vice Chairman Chairman Samson C. Lim, Independent Director Member Pascual M. Garcia III, President Member

Involvement in Certain Legal Proceedings

To the knowledge and information of the Bank, neither itself nor any of its affiliates, subsidiaries, the Bank’s and their respective Director’s and Executive Officers are involved or have been involved for the past five (5) years in any legal proceeding affecting/involving themselves and a material or substantial portion of their property before any court of law or administrative body in the Philippines or elsewhere.

Item 10. Executive Compensation

Name and Principal Position

2012 (Estimate*)

Salary Bonus

Pascual M. Garcia III – President

Jose Vicente L. Alde – Executive Vice President

Noli S. Gomez – Senior Vice President

Perfecto Ramon Z. Dimayuga, Jr. – Senior Vice President

Yolanda de la Paz – Senior First Vice President 33.20 million 13.64 million

All Officers (AVP up) and Directors 107.27 million 33.92 million

*Estimated (Increased 2011 figures by 10% with adjustments based on retired and replacement Principal Officers)


2011

Salary Bonus


Rolando A. Rodriguez – Executive Vice President (retired effective July 31, 2011)

Jaime Valentin L. Araneta – Senior Vice President (retired effective Aug. 15, 2011)


Noli S. Gomez – Senior Vice President 34.37 million 9.96 million


38


2010

Salary Bonus


Rolando A. Rodriguez – Executive Vice President

Jaime Valentin L. Araneta – Senior Vice President


Noli S. Gomez – Senior Vice President 35.32 million 10.29 million


The directors receive fees, bonuses and allowances that are already included in the amounts stated above. Aside from said amounts, they have no other compensation plan or arrangement with the bank. The executive officers receive salaries, bonuses and other usual bank benefits that are also included in the amounts stated above. Aside from these, they have no other compensation plan or arrangement with the bank.

There are no warrants or options held by the Bank’s officers and directors.

Item 11. Security Ownership of Certain Beneficial Owners and Management

A. CONTROL AND COMPENSATION INFORMATION

Voting Securities and Principal Holders Thereof a) No. of Shares outstanding as of March 31, 2012 : 240,252,491 Common Shares No. of votes to which each share is entitled : one (1) vote per share b) Record date to determine stockholders entitled to

Notice and to vote at the regular meeting : March 16, 2012

c) Election of Directors: Majority vote is required for the election of directors. Security holders shall have the right to cumulative voting. Cumulative voting is allowed provided that the total votes cast by a stockholder shall not exceed the number of shares registered in the name of that security holder in the books of the Bank as of the record date multiplied by the whole number of directors to be elected. There is no condition precedent to the exercise of the right to cumulative voting. d) Arthur V. Ty is the person authorized to vote the MBTC shares in PSBank. e) Security Ownership of Certain Records and Beneficial Owners

e.1) The following stockholders own more than 5% of the common voting securities as of

March 31, 2012:

Title of Class

Name, address of Record Owner and relationship with

issuer

Name of Beneficial Owner and relationship with Record Owner

Citizenship

No. of Shares Held

Percent

Common Stock

Metropolitan Bank and Trust Co. Metrobank Plaza, Gil Puyat Avenue, Makati City (Parent Company of PSBank)

Arthur V. Ty (President of Metrobank)

Filipino 182,535,895 75.977%

39

Common Stock

PCD Nominee Corporation 37

th Floor, Enterprise Bldg. Tower

1 Ayala Avenue, Makati City

Various Stockholders via PCD

Filipino 14,870,753

6.190%

Common Stock

Danilo L. Dolor # 56 Tamarind Rd., Forbes Park, Makati City

Danilo L. Dolor Filipino 12,610,891 5.249%

As of March 31, 2012, there is no person who holds more than 5% of the Bank’s securities lodged with PCD Nominee Corporation.

e.2) Security Ownership of Management as of March 31, 2012:

Title of Class Name

No. of Shares Citizenship Percent

Common Stock Jose T. Pardo, Chairman 1,852 Filipino .000771

Common Stock Arthur V. Ty, Vice Chairman 100 Filipino .000042

Common Stock Pascual M. Garcia III, Director 100 Filipino .000042

Common Stock Samson C. Lim, Director 100 Filipino .000042

Common Stock David T. Go, Director 100 Filipino .000042

Common Stock Amelia B. Cabal 100 Filipino .000042

Common Stock Joaquin Aligguy, Director 400 Filipino .000166

Common Stock Maria Theresa G. Barretto, Director 3,557 Filipino .001481

Common Stock Margaret Ty Cham, Director 100 Filipino .000042

Common Stock Gilda Brigida C. Alunan, Officer 160 Filipino .000067

Common Stock Dulce D. Arcebal, Officer 628 Filipino .000261

Common Stock Yolanda L. Dela Paz, Officer 1,717 Filipino .000715

Officers 25,050

Total (Directors and Officers) 89,140 0.003710

e.3) Voting Trust Holders of 5% or more There is no person who holds more than 5% of the Bank’s securities under a voting trust or

similar agreement. e.4) Changes in Control

There is no arrangement that may result in a change in control of the registrant. There is no change in control that has occurred since the beginning of the last fiscal year.

Item 12. Certain Relationships and Related Transactions

In the ordinary course of business, the Bank has loans and other transactions with affiliates, and with certain directors, officers, stockholders and related interests (DOSRI). The existing banking regulations limit the amount of direct credit accommodations to DOSRI, 70% of which must be secured and should not exceed the total of their respective deposits and book value of their respective investments in the Bank. In the aggregate, loans to DOSRI generally should not exceed the lower of the Bank’s total capital funds or 15% of the Bank’s total loan portfolio.

40

The following table shows information relating to DOSRI loans as of December 31, 2011 and 2010.

2011 2010

Total outstanding DOSRI Loans P=1,284,499,649 P=2,996,655,559 % of DOSRI Loans to Total Loans 1.94% 4.96% % of Unsecured DOSRI Loans to Total DOSRI Loans 19.34% 9.68% % of Past due DOSRI Loans to Total DOSRI Loans 42.57% 19.83% % of Non Performing DOSRI Loans to Total DOSRI Loans 42.57% 19.83%

Total interest income from DOSRI loans amounted to P=60.3 million, P=63.6 million and P=60.8 million in 2011, 2010 and 2009, respectively. Others No director has resigned or declined to stand for re-election because of any disagreement with the Bank on any matter relating to the Bank’s operations, policies or practices. No director has informed the Bank in writing that he intends to oppose any action to be taken by the Bank at the Annual Stockholders’ Meeting. Other information pertaining to related parties and directors, officers, stockholders and related interest (DOSRI) are further discussed in Note 29 of Audited Financial Statements as presented in Part VI.

41

PART IV. CORPORATE GOVERNANCE

Item 13. Compliance with Leading Practices on Corporate Governance

The Bank’s Corporate Governance evolves around the principles of fairness, accountability and transparency. Corporate Governance in PSBank involves the manner in which the business and affairs of banks are governed by the board of directors and senior management. The Corporate Governance tone is being set from the top to:

• Set corporate objectives;

• Operate the bank’s business efficiently on a day-to-day basis;

• Meet the obligation of accountability to their shareholders and take into account the interests of other recognized stakeholders;

• Align corporate activities and behaviors with the expectation that banks will operate in a safe and sound manner, and in compliance with applicable laws and regulations; and

• Protect the interests of its depositors.

• Assure that its employees’ welfare and interests are equitably taken care of.

The Bank recognizes that effective corporate governance practices are essential in achieving and maintaining public trust and confidence in the banking system, which are critical in the banking industry and national economy as a whole. Indeed, in addition to the Bank’s responsibilities to shareholders and stakeholders, it recognizes its responsibility to its depositors.

Sound corporate governance principles are being observed by the Bank:

1. All the Board members are qualified for their positions, have a clear understanding of their role in corporate governance and can exercise sound judgment about the affairs of the Bank.

The Bank’s board of directors has undergone the required Corporate Governance Training. They understand and execute their oversight role, including understanding the Bank’s risk profile.

The Board approves the overall business strategy of the Bank, including approval of the overall risk policy and risk management procedures. They avoid conflicts of interest, or the appearance of conflicts, in their activities with, and commitments to, other business interests.

The Corporate Governance Manual of the Bank was updated and approved by the Board of Directors last December 14, 2009.

The Board likewise provides oversight of the Senior Management of the Bank by exercising its duty and authority to question and insist upon straightforward explanations from Management, and receives on timely basis sufficient information to judge the performance of Management.

To assure objectivity in decision making of the Board, the Bank has included independent directors as members. The independent directors are men of integrity, expertise and experience who have passed an evaluation process and attended the requisite Corporate Governance training.

The specialized oversight committees have taken active role in ensuring sound judgment in the exercise of the affairs of the Bank:

a. Risk Management Committee – provides oversight of Senior Management’s activities in managing credit, market, liquidity, operational, compliance, reputation and other risks of the bank. It also develops written plan defining the strategies for

42

managing and controlling risks, and it communicates the risk management plan to affected parties.

b. Compensation and Remuneration Committee – provides oversight of remuneration

of Senior Management and other key personnel and ensure that compensation is consistent with the Bank’s culture, objectives, strategy, and control environment, as reflected in the formulation of compensation policy. It establishes a formal and transparent procedure for developing a policy on executive remuneration.

c. Nominations Committee – provides assessment of Board effectiveness and directs

the process of renewing and replacing Board members. It reviews and evaluates all persons nominated to the Board as well as those nominated to other positions requiring appointment by the Board.

d. Corporate Governance Committee – provides assistance to the Board in fulfilling its corporate governance responsibilities. It ensures the Board’s effectiveness and due performance of corporate governance principles and guidelines.

e. Audit Committee – provides oversight of the Bank’s Financial Reporting and Control

and oversees the work of internal and external audit functions; it monitors and evaluates the adequacy and effectiveness of the internal control system.

2. The principle of self assessment by the Board of Directors is strictly being complied on

an annual basis. The assessment for the 2011 performance of the Directors, the Board as a body and each of the oversight committees were completed last January 24, 2012. The over-all results of which were very satisfactory.

3. The Board approves and oversees the Bank’s strategic objectives and corporate values

that are communicated throughout the banking organization. The Board likewise avoids conflict of interests. The Board reviews and approves all the business plans and budgets, code of ethics, bank operations, internal controls and product manuals process and the corresponding updates.

4. The Board sets and enforces clear lines of responsibility and accountability throughout

the organization, consistent with prudent board policy, transparent and at an arm’s length basis.

5. The Board ensures that there is appropriate oversight by Senior Management

consistent with Board policy. Senior Management consists of a core group of individuals who are responsible for overseeing the day-to-day management of the Bank. These individuals have the necessary skills and experience to manage the business under their supervision as well as have appropriate control over the key individuals in their respective areas.

Senior Officers contribute a major element of a bank’s sound corporate governance by overseeing line managers in specific business areas and activities consistent with policies and procedures set by the Bank’s Board. Senior Management under the guidance of the Board of Directors undertakes an effective system of internal controls and wise decision-making.

6. The Board and Senior Management effectively utilize the work conducted by the internal auditors and external auditors for a stronger internal control functions.

The Board recognizes and acknowledges that independent, competent and qualified auditors, as well as internal control functions, which include Compliance and Legal, as important elements of the bank’s operations. In particular, the Board utilizes the work of auditors to provide an independent check and assurance on the information received from Management on the operations and performance of the Bank.

43

The Bank engages external auditors, upon the nomination of the Audit Committee to review the internal control processes related to disclosure of financial statements.

7. The Bank is governed in a transparent manner. The bank ensures that appropriate and timely public disclosure is a discipline that is carefully undertaken being a publicly listed bank. Transparency is a discipline that the Bank practices thereby sound corporate governance will continue to operate.

8. The Board and Senior Management understand the Bank’s operational structure.

While the Board of Directors is responsible for overall oversight and approval of policies, Senior Management, on the other hand is responsible for identifying and managing material risks arising from all of the Bank’s activities. Regularly, Senior Management reports to the Board covering the operations of the Bank: risk issues, compliance issues and internal audit findings.

9. The Board and Senior Management have conscientiously adhered to the Bank’s Manual of Corporate Governance and as such, no deviation is committed and reported for disclosure purposes.

10. Consistent with the effort to pursue continuing education and to keep abreast in

Corporate Governance, 180 Junior Officers bankwide with ranks Manager and Senior Manager completed their Corporate Governance training last May 2011. The Board together with Senior Executives attended a high-level round table discussion with regulators earlier on March 24, 2009 with the aim to determine the role of corporate governance in relation to the Bank’s CAMELS rating and the wider role that the former should play in effecting good governance.

11. All directors have attended and completed a 2-day seminar on Corporate Governance,

per certifications submitted to SEC dated January 24, 2011. Additionally, the bank’s directors and selected senior officers attended a one-day comprehensive AMLA seminar participated in the directors and senior officers belonging to the Metrobank Group’s affiliates and subsidiaries conducted by the AMLC Executive-Director last July 2011.

45

PART V. EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C

A. Exhibit 1 - Schedule of Bank/Branch Sites Owned by the Bank B. Exhibit 2 - Schedule of Bank/Branch Sites Under Lease Agreements C. Exhibit 3 - Events Reported under SEC FORM 17-C for the last 6 months

46

PART VI. AUDITED FINANCIAL STATEMENTS

Item 15. Form and Contents a) Statement of Management’s Responsibility b) Independent Auditors’ Report c) Statements of Condition d) Statements of Income e) Statements of Comprehensive Income f) Statements of Changes in Equity g) Statements of Cash Flows h) Notes to Financial Statements i) Independent Auditors’ Report on Supplementary Schedules j) Additional Components of Financial Statements under SRC Rule 68, as amended

47

EXHIBIT 1

PHILIPPINE SAVINGS BANK SCHEDULE OF BANK/BRANCH SITES OWNED BY THE BANK

AS OF DECEMBER 31, 2011

Branch Name Location

1 Head Office PSBank Center, 777 Paseo De Roxas cor. Sedeno Sts., Makati City

2 Baguio No. 35 Perfecto Street, Malcolm Square, Baguio City

3 Binakayan PSBank Bldg., Tirona Highway, Binakayan, Kawit, Cavite

4 Blumentritt 1680 Blumentritt cor. Oroquieta Sts., Sta. Cruz, Manila

5 Camiling Arellano St., near Quezon Ave., Poblacion, Camiling, Tarlac

6 Candelaria PSBank Bldg., Rizal cor. Argao Sts., Candelaria, Quezon

7 Cebu-Jones Osmena Blvd. Cor. Sanciangco St., Cebu City, Cebu

8 Dasmarinas PSBank Bldg., E. Aguinaldo Hghway cor. Mangubat Sts., Dasmarinas, Cavite

9 J.P. Rizal PSBank Bldg., J.P. Rizal, cor. Legaspi Sts., Makati City

10 Laoag Branch F.R. Castro St., Laoag City, Ilocos Norte

11 Lemery Ilustre Avenue cor. J.P. Rizal St., Lemery, Batangas

12 Lipa Lipa City Cathedral Compound, C.M. Recto Ave cor. Soliman Sts., Lipa City

13 Los Banos PSBank Bldg., Lopez Ave., Batong Malake, Los Banos, Laguna

14 Marikina PSBank Bldg., 22 Bayan-Bayanan Avenue, Concepcion, Marikina City

15 Maypajo 132 A. Mabini St. near cor. Dimasalang, Maypajo, Caloocan City

16 Meycauayan PSBank Bldg., McArthur Highway, Calvario, Meycauayan, Bulacan

17 Paniqui Paniqui Commercial Complex, McArthur Highway Ext., Poblacion Norte, Paniqui, Tarlac

18 Pasay Taft 2336 Taft Ave., near cor. Villareal St., Pasay City

19 Quezon Boulevard PSBank Bldg., 358 Quezon Blvd. cor. Arlegui Sts., Quiapo, Manila.

20 Roosevelt PSBank Bldg., 348 Roosevelt Ave., San Francisco Del Monte, Quezon City

21 San Juan No. 5 F. Blumentritt cor. N. Domingo Sts., San Juan, Metro Manila

22 San Pedro Casa Hacienda Commercial Center, A. Mabini St., San Pedro, Laguna

23 Tanauan PSBank Bldg., Pres. Laurel Highway, Tanauan City, Batangas

24 Tarlac PSBank Bldg., F. Tanedo St., Tarlac, Tarlac

48

EXHIBIT 2

PHILIPPINE SAVINGS BANK SCHEDULE OF BANK/BRANCH SITES UNDER LEASE AGREEMENTS

AS OF DECEMBER 31, 2011

BRANCH LOCATION / ADDRESS

RENTAL RATE

TERM

CONTRACT PERIOD

PER MONTH FROM TO

1 Abad Santos No. 1939 Jose Abad Santos Avenue, Tondo, Manila 103,069.00 5 years 1-Oct-2010 30-Sep-2015

2 Acropolis ( formerly Libis) The SPA Building, 80 E. Rodriguez Jr. Avenue, Libis, Quezon City 160,784.19 12 years 1-Mar-2009 28-Feb-2021

3 Alabang Estrellita Building, No. 242 Montillano Street, Alabang, Muntinlupa City 155,600.68 10 years 1-Sep-2005 31-Aug-2015

4 Alabang Zapote Sycamore Arcade, Alabang Zapote Road, Alabang, Muntinlupa City 153,964.80 5 years 16-Dec-2008 15-Dec-2013

5 Alaminos Suki Market, F. Reynoso St., Poblacion, Alaminos Pangasinan 71,182.80 10 years 1-Oct-2009 30-Sep-2019

6 Amoranto (Retiro) N.S. Amoranto cor. Kanlaon Street, La Loma, Quezon City 131,862.89 5 years 1-Feb-2008 31-Jan-2013

7 Angeles Miranda Ext. cor. Sadie Sts., San Nicolas, Angeles City 141,476.86 10 years 16-Aug-2002 15-Aug-2012

8 Angeles Balibago Plaza Complex Fields Avenue, Balibago, Angeles City, Pampanga 256,000.50 15 years 1-Jul-2010 30-Jun-2025

9 Antipolo Sumiran Building , 75 Circumferential Road, Bgy. San Roque, Antipolo City 85,085.44 5 years 1-Nov-2007 31-Oct-2012

10 Antipolo Unciano Unciano Medical Center and Colleges, Circumferential Road, San Roque, Antipolo City 120,000.00 10 years 1-Sep-2010 31-Aug-2020

11 Araneta Avenue 50 G. Araneta Avenue cor. Landargun Sts., Brgy. Santol, Quezon city 94,601.35 10 years 1-Dec-2003 30-Nov-2013

12 Araneta Center New Frontier Aurora Tower, Araneta Center Quezon City 129,340.00 1 month 1-Dec-2011 31-Dec-2011

13 Arnaiz 824 Ginbo Bldg., Arnaiz Ave near cor. Paseo de Roxas Ave., Makati City 118,610.13 5 years 15-Jan-2008 14-Jan-2013

14 Ayala Avenue G/F Jaka Building, No. 6780 Ayala Avenue, Makati City 196,741.91 5 years 1-Sep-2008 31-Aug-2013

15 Baclaran BAGVPI Trade Center Bldg., FB Harrison cor. Ortigas Sts., Pasay City 143,764.50 6 years 1-May-2008 30-Apr-2014

16 Bacolod A. Yu Bldg. Bonifacio cor Locsin Sts., 6100 Bacolod City, Negros Occidental 80,405.74 10 years 1-Jul-2005 30-Jun-2015

17 Bacolod North Drive Riverside Medical Center, B. S. Aquino Drive Bacolod City, Negros Occidental 140,414.40 10 years 1-Sep-2008 31-Aug-2018

18 Balanga G/F SHP II Bldg. Don Manuel Banzon Street, Balanga, Bataan 60,500.00 10 years 1-Oct-2008 30-Sep-2018

19 Balic–Balic G. Tuazon cor. Calabash A Sts., Sampaloc, Manila 82,051.24 10 years 15-Nov-2004 14-Nov-2014

20 Balintawak Building A - Go Soc Bldg., 1238 Edsa, Balintawak, Quezon City 96,956.01 1 year 1-Sep-2011 31-Aug-2012

21 Baliuag B.S. Aquino Ave., Bagong Nayon, Baliuag, Bulacan 100,000.00 1 year 1-Nov-2011 31-Oct-2012

22 Banawe PPSTA Building 3 No. 208 Banawe St. Quezon City 53,289.37 10 years 7-May-2007 6-May-2017

23 Batangas P. Burgos St., Batangas City 37,465.38 5 years 1-Dec-2007 30-Nov-2012

24 BF Homes - Sucat No. 11 President Ave. Cor. Elizalde St., B.F. Homes, Parañaque 140,000.00 5 years 1-Sep-2011 31-Aug-2016

25 BF Resort BF Resort Drive cor. Alice Crisostomo Street, BF Resort Village, Las Pinas City 30,056.43 5 years 1-Apr-2009 31-Mar-2014

26 Bicutan 40 Doña Soledad Avenue, Better Living Subd., Parañaque City 88,578.05 10 years 8-Oct-2003 7-Oct-2013

27 Biñan A. Bonifacio St. Biñan, Laguna 109,807.50 10 years 12-Apr-2004 11-Apr-2014

28 Boni Avenue CIFRA Bldg., No. 641 Boni Avenue, Mandaluyong City 107,715.97 10 years 8-Oct-2003 7-Oct-2013

29 Boni Serrano PSMBFI Bldg., Santolan Road (Boni Serrano), San Juan City 41,369.93 5 years 1-Jun-2009 31-May-2014

30 Bonifacio Global City G/F Units 1& 2 The Forum Fort Bldg., 31st cor 2nd Sts., Fort Bonifacio Global City, Taguig City 134,326.47 12 years 28-Nov-2003 27-Nov-2015

49


RENTAL RATE

TERM

CONTRACT PERIOD

PER MONTH FROM TO

31 Bukidnon Valencia G/F Tamay Lang Arcade cor. Alkuino and Manuel Roxas Streets, Valencia City, Bukidnon 72,450.00 10 years 1-Jul-2010 30-Jun-2020

32 Butuan J. C. Aquino Avenue, Butuan City 38,160.00 20 years 30-Oct-2008 29-Oct-2028

33 Cabanatuan 782 – 784 Melencio cor. Paco Roman Sts., Cabanatuan City, Nueva Ecija 107,423.03 10 years 1-Jan-2012 31-Dec-2021

34 Cagayan De Oro BJS Bldg., Don Apolinario Velez cor. A. Mabini Sts., CDO, Misamis Oriental 82,958.30 15 years 1-Apr-2006 31-Mar-2021

35 Cainta G/F Ortigas Royale Condominium Ortigas Avenue Ext. Brgy. San Juan, Cainta, Rizal 106,501.50 10 years 16-Sep-2008 15-Sep-2018

36 Calamba G/F Anderson I Bldg., National Highway, Brgy. Parian, Calamba, Laguna 95,166.50 10 years 1-Jan-2007 21-Dec-2016

37 Camarin Lower Ground Floor – Zabarte Town Center, 588 Camarin Road, North, Kalookan City 122,184.59 5 years 1-Jan-2009 31-Dec-2013

38 Caniogan 1 Pasig Boulevard Extension corner Doña Mercedes Avenue, Caniogan, Pasig City 85,000.00 5 years 1-Dec-2011 30-Nov-2016

39 Capas Tarlac G/F Massway Supermarket, Sto. Domingo I, Capas, Tarlac 78,750.00 5 years 1-Oct-2010 1-Sep-2015

40 Isabela-Cauayan No. 135 Maharlika Highway, Brgy. San Fermin, Cauayan City, Isabela 87,106.22 10 years 14-Sep-2005 13-Sep-2015

41 Cebu Banilad Gaisano Country Mall, Banilad Cebu City 33,157.39 20 years 1-Feb-1994 31-Jan-2014

42 Cebu Capitol G/F JRDC Bldg., Osmena Blvd., Capitol Site, Cebu City, Cebu 137,088.00 5 years 1-Sep-2010 31-Aug-2015

43 Cebu Carbon Plaridel cor. Progreso Sts., Cebu City 140,625.00 5 years 1-Jan-2010 31-Dec-2014

44 Cebu Colon Pelaez near cor. Colon Sts., Cebu City 102,876.48 5 years 3-Apr-2011 2-Apr-2016

45 Cebu Mandaue - A. C. Cortez

Unit 3 & 4, N & N Cortes Arcade I, A.C. Cortes Avenue, Mandaue City 56,284.02 10 years 1-Aug-2004 31-Jul-2014

46 Cebu Mandaue - National Highway

212 G/F JTC Building National Highway, Mandaue City, Cebu 75,600.00 10 years 16-Mar-2009 15-Mar-2019

47 Cebu Taboan Taboan Market C. Padilla cor. Tomas Abella Sts. (formerly Tuti St.,), Cebu City 126,787.50 5 years 5-Apr-2009 4-Apr-2014

48 Cebu Uptown Allisa Bldg, Archbisop Reyes Avenue,Cebu City 6000 146,900.00 5 years 16-Mar-2011 15-May-2016

49 Central Market 1117 M. Natividad cor. Fugoso Sts., Sta. Cruz, Manila 47,250.00 10 years 1-Feb-2009 31-Jan-2019

50 Chino Roces ENCM Bldg., 1099 Chino Roces Avenue corner Mascardo Street, Makati City 106,964.76 10 years 26-Sep-2003 25-Sep-2013

51 Chino Roces Ext - Buendia Edison

Lising Building No. 2301 Chino Roces Avenue ( formerly Pasong Tamo Extension ), Kayamanan "C", Makati City

98,398.12 5 years 1-Mar-2008 28-Feb-2013

52 Commonwealth Aguirre Building, 2211 Commonwealth Avenue, Capitol District, Quezon City 218,865.79 10 years 1-Jun-2011 31-May-2016

53 Congressional Ave. 45 Congressional Avenue Extension, Quezon City 63,157.89 5 years 31-Oct-2007 30-Oct-2012

54 Dagupan CAP Bldg., Burgos Street, Dagupan City, Pangasinan 99,573.79 10 years 1-Jul-2008 30-Jun-2018

55 Davao Madrazo Quirino cor. Cayetano Bangoy Sr. Sts, Davao City, Davao Del Sur 372,859.20 30 years 1-Dec-2007 30-Nov-2037

56 Davao Monteverde 88 Monteverde Avenue, Davao City, Davao Del Sur 8000 121,550.63 10 years 1-Jun-2007 31-May-2017

57 Davao Tagum PSBank Bldg., National H-way cor. Pioneer Ave.,Tagum City, Davao Del Norte 50,000.00 20 years 1-Jun-2004 31-May-2024

58 Del Monte Ave. No. 182-A Del Monte Avenue, Brgy. Saint Peter, Quezon City 141,724.88 10 years 1-Oct-2004 30-Sep-2014

59 Dipolog Lopez Bldg., Rizal Ave. cor. C.P. Garcia Street, Dipolog City, Zamboanga Del Norte 64,421.83 5 years 1-May-2009 30-Apr-2014

60 Downtown Center #628 G/F Wellington Bldg., Plaza Lorenzo Ruiz, Binondo, Manila 493,304.22 5 years 1-Jan-2011 31-Dec-2015

61 Dumaguete City Dr. Vicente Locsin cor. Real Streets, Dumaguete City, Negros Oriental 53,340.09 5 years 5-Nov-2009 4-Nov-2014

62 E. Rodriguez SENECA Building 1152 E. Rodriguez Ave., New Manila, Quezon City 134,400.00 10 years 8-Oct-2011 7-Oct-2021

63 EDSA Central G/F, Unit 111 EDSA Central Square, 3rd St. Greenfield District, Madaluyong City 123,567.73 1 month 1-Dec-2011 31-Dec-2011

64 España G/F Unit G1, España Tower, 2203 España Boulevard, Sampaloc, Manila 95,337.00 10 years 1-Jan-2004 31-Dec-2013

65 Fairview 95 Commonwealth Ave. East Fairview Park Subdivision, Quezon City 130,000.00 10 years 21-Mar-2010 20-Mar-2020

66 Farmers Plaza - P. Tuazon G/F, Unit 8 Block C, New Farmers Plaza, Araneta Center, Cubao, Quezon City 136,503.13 5 years 15-Sep-2009 30-Sep-2014

50


RENTAL RATE

TERM

CONTRACT PERIOD

PER MONTH FROM TO

67 General Santos Villanueva Bldg., Santiago Blvd., General Santos City, South Cotabato 91,755.72 1 month 1-Dec-2011 31-Dec-2011

68 Gil J. Puyat - Tindalo G/F Skyland Plaza Condominium,Sen. Gil Puyat Ave. cor. Tindalo St., Makati City 382,696.07 5 years 1-Nov-2011 31-Oct-2016

69 Gilmore Heights Gilmore Heights Condominium, Granada cor. Castilla Sts., Valencia, Quezon City 101,804.37 1 year 1-Jan-2012 31-Dec-2012

70 Global City - 4th Avenue The Luxe Residences 28th, cor. 4th Avenue ,Global City Taguig 219,424.90 5 years 1-Sep-2009 31-Aug-2014

71 Grace Park 674 Rizal Avenue, Grace Park, Caloocan City 110,250.00 12 years 15-Jan-2009 14-Jan-2021

72 Greenhills Missouri Street cor. Nevada Sts., North East Greenhills, San Juan City 145,936.42 20 years 8-Sep-2004 7-Sep-2024

73 Harrison Plaza G/F L 20 Harrison Plaza Shopping Mall, Adriatico cor. Mabini Sts., Malate, Manila 85,120.00 5 years 1-Sep-2010 31-Aug-2015

74 Iloilo Iznart 533 Iznart St. Iloilo City 67,676.52 5 years 1-Jan-2011 31-Dec-2015

75 Iloilo Quezon No. 23 Quezon Street, Iloilo City 90,904.57 10 years 15-Feb-2012 14-Feb-2022

76 Imus Nueno Avenue, Imus, Cavite 166,698.00 5 years 1-Jan-2010 31-Dec-2014

77 Jaboneros No. 467 Jaboneros Cor. Ilang-ilang Sts., Binondo, Manila 111,804.00 15 years 14-Jul-2005 13-Jul-2020

78 Kalayaan-Taguig G/F Total Corporate Centre, 1012 North Triangle Drive, Bonifacio Global City, Taguig 151,364.34 10 years 1-Apr-2009 31-Mar-2019

79 Kalentong 908 General Kalentong near corner Shaw Boulevard, Daang Bakal, Mandaluyong City 97,020.00 10 years 15-Oct-2007 14-Oct-2017

80 Kaloocan G. Remundo Bldg. No. 314 EDSA Monumento, Caloocan City 170,170.88 10 years 16-Dec-2007 31-Dec-2017

81 Kamias 14 PHA Bldg., Kamias Road Diliman, Quezon City 31,251.44 10 years 1-Aug-2011 31-Jul-2016

82 Katipunan Unit 103, G/F Elizabeth Hall, Lot 1 Blk 41 Katipunan Avenue, Loyola Heights, Quezon City 124,185.60 3 years 1-Jun-2010 1-Jun-2013

83 La Huerta Paranaque Quirino Ave cor. M. Rodriguez St. La Huerta Paranaque City 131,466.19 10 years 22-Dec-2005 21-Dec-2015

84 La Union G/F Nisce Bldg., Quezon Avenue, San Fernando City, La Union 75,737.79 10 years 6-Feb-2006 1-Feb-2016

85 Lagro Blk 2 Lot 5, Sacred Heart Village, Quirino Highway, Lagro, Quezon City 66,852.85 10 years 1-Nov-2012 31-Oct-2022

86 Las Piñas G/F, Fairland Bldg., Alabang-Zapote Road corner V. Guinto St., Pamplona, Las Piñas City 141,724.88 10 years 10-Sep-2004 9-Sep-2014

87 Las Pinas - Pamplona Alabang - Zapote Road, Pamplona Dos, Las Piñas City 131,275.80 1 month 1-Dec-2011 31-Dec-2011

88 Legarda Unit A Legarda Place, 2327, Legarda St., Sampaloc, Manila 152,997.50 5 years 1-Oct-2009 30-Sep-2014

89 Legazpi City Tower Building II, LANDCO Business Park, Legaspi City 70,312.50 10 years 1-Jun-2009 31-May-2019

90 Lipa-J.P. Laurel Autoflex Bldg., J. P. Laurel Highway, Lipa City 54,140.63 5 years 1-Mar-2009 28-Feb-2014

91 Lucena Quezon Ave. cor. Evangelista St. Lucena City, Quezon 131,538.40 5 years 1-Oct-2011 30-Sep-2016

92 Magallanes EDSA 1052 EDSA cor. Lapu-Lapu St., Magallanes Village, Makati City 122,674.88 10 years 1-Jun-2004 31-May-2014

93 Makati Ave. 690 Makati Ave.Cor. Jupiter St., Bel-Air Village, Makati City 146,410.00 10 years 1-Jun-2002 31-May-2012

94 Malabon 685 Rizal Avenue Extension, San Agustin Malabon City 87,846.00 10 years 1-Nov-2002 31-Oct-2012

95 Malolos Paseo del Congreso, Brgy. Liang, Malolos, Bulacan 153,130.38 10 years 1-Dec-2007 30-Nov-2017

96 Malolos -McArthur Highway Units 2,3 & 4 Twins Plaza Commercial Complex, McArthur Hi-way, Bulihan, Malolos, Bulacan 50,820.00 10 years 1-Jun-2004 1-Jun-2014

97 Mandaluyong Wack-Wack Unit 1A G/F Lee Gardens Condominium, Shaw Blvd. cor. Lee St., Mandaluyong City 162,151.57 10 years 1-May-2009 30-Apr-2019

98 Mandaue Subangdaku Unit 101/102 KRC BLDG., National Hi-way, Subangdaku, 6014 Mandaue City 199,106.29 10 years 16-Sep-2011 15-Sep-2021

99 Manggahan Village Manggahan Village Center, Amang Rodriguez Avenue corner Calle Industria Street, Manggahan, Pasig City 71,500.00 5 years 16-Sep-2010 15-Sep-2015

100 Marikina Marcos Highway M-R Complex, 18 Marcos Highway cor. Gunting St. San Roque Marikina City 100,072.00 5 years 1-Feb-2012 31-Jan-2017

101 Marikina-Riverbank A1-24 Riverbank Arcade, Riverbank Center 84 A Bonifacio Avenue, Barangka, Marikina City 105,056.27 5 years 16-Aug-2010 15-Aug-2015

102 Matalino - Quezon City No. 18 Matalino cor. Matatag Sts., Brgy. Central Diliman Quezon City 200,458.50 10 years 1-Nov-2005 31-Oct-2015

103 Mindanao Avenue Unit A & B CET Bldg. 4 Mindanao Avenue cor. Congressional Avenue, Bahay Toro, Proj. 8, Quezon City 91,755.72 10 years 5-Nov-2003 4-Nov-2013

51


RENTAL RATE

TERM

CONTRACT PERIOD

PER MONTH FROM TO

104 Muntinlupa DLA Building National Road, Putatan, Muntinlupa City 80,000.00 5 years 16-Feb-2011 15-Feb-2016

105 N. Domingo 128 N. Domingo Cor. Lactao Sts., San Juan City 85,323.05 5 years 16-Dec-2007 16-Dec-2012

106 Naga CAP Building, Panganiban Drive cor. Dinaga St., Naga City, Camarines Sur 100,078.56 5 years 17-Jan-2011 16-Jan-2016

107 Navotas 873 N. Naval Street, Navotas City 50,000.00 10 years 1-Jan-2008 31-Dec-2017

108 Novaliches Unit 2 to 5 Gatmaitan Bldg. 877 Quirino Hi-way, Gulod Novaliches, Quezon City 76,901.33 10 years 3-Nov-2005 2-Nov-2015

109 Olongapo Lot 1147 Rizal Ave. cor. 18th St., East Bajac – Bajac, Olongapo City 198,769.12 10 years 28-Jul-2003 27-Jul-2013

110 Ongpin G/F Ongpin Commercial Center, Ongpin cor. Gonzalo Puyat Street, Sta. Cruz, Manila 207,891.56 10 years 25-Apr-2005 24-Apr-2015

111 Ormoc Aviles cor. San Pedro Sts., Ormoc City, Leyte 76,160.14 10 years 15-Sep-2005 22-Sep-2015

112 Ortigas Unit 110 Parc Chateau Condominium Onyx cor. Sapphire & Garnet Rds., Ortigas Center, Pasig City 125,000.00 5 years 1-Nov-2007 31-Oct-2012

113 Ortigas San Miguel The Crescent Building, 21 San Miguel Ave.,Ortigas Center, Pasig City 147,893.30 5 years 1-Nov-2007 31-Oct-2012

114 Ozamiz Capistrano Rizal Ave. cor. Capistrano Street, Ozamiz City, Misamis Occidental 65,637.34 10 years 16-Apr-2004 15-Apr-2014

115 P. Tuazon (Murphy) 247 P. Tuazon cor. 15th Avenues, Murphy, Cubao, Quezon City 113,764.43 3 years 1-Jun-2009 31-May-2012

116 Paco G/F Unit 14 & 15 JCS Building 1521 Paz Street, Paco, Manila 107,032.50 1 month 1-Dec-2011 31-Dec-2011

117 Padre Faura Robinson’s Place Manila, Padre Faura St., Ermita, Manila 218,955.00 5 years 11-Nov-2007 10-Nov-2012

118 Pagadian 222 Jose P Rizal Avenue Pagadian 76,576.90 5 years 16-Jan-2011 15-Jan-2016

119 Palanca Legaspi Village G/F Dona Angela Garden Condominium, 110 Don Carlos Palanca St., Legaspi Village, Makati City 146,153.77 10 years 14-Jan-2004 13-Jan-2014

120 Pallocan West C.S. Rayos Building, Pallocan West, Batangas City 90,000.00 15 years 1-Jun-2010 31-May-2025

121 Parañaque - Sucat PSBank Building, 8387 Dr. A. Santos Ave. Sucat, Parañaque City 254,658.32 5 years 1-Dec-2011 30-Nov-2016

122 Parang-Marikina Lot 2 Block 9 Atienza Property B.G. Molina cor. E.Rodriguez Sts., Parang, Marikina 59,535.00 10 years 1-Jan-2009 31-Dec-2018

123 Pasig Mutya Mariposa Theater Bldg., Caruncho cor. Suarez Avenues, (formerly Market Ave.) Pasig City 107,911.87 7 years 1-Oct-2009 30-Sep-2016

124 Pasig Shaw - Capitolyo 112 Shaw Boulevard, Pasig City 137,605.30 5 years 1-Dec-2007 30-Nov-2012

125 Pateros G/F Sanz Building, 506 Almeda St., Pateros, Metro Manila 90,000.00 10 years 1-Jul-2010 30-Jun-2020

126 Plaza Bonifacio Javier Bldg. A. Mabini cor. Alkalde Jose Street, Kapasigan, Pasig City 312,769.11 10 years 1-Feb-2003 31-Jan-2013

127 Puerto Princesa 248 Rizal Avenue, Puerto Princesa City, Palawan 77,368.42 5 years 26-May-2009 25-May-2014

128 Quezon Avenue Jacinto Realty Building, 380 Quezon Avenue cor. Scout Reyes, Quezon City 178,571.43 2 years 1-Feb-2011 31-Jan-2013

129 Quiapo Palanca 202 C. Palanca cor. Villalobos Sts., Quiapo, Manila 130,659.31 10 years 1-Nov-2004 31-Oct-2014

130 Rizal Avenue 552-554 Rizal Avenue, Sta. Cruz, Manila 115,762.50 10 years 1-Aug-2004 31-Jul-2014

131 Roxas City Arnaldo Blvd. cor. Datiles St., Brgy. Tanque Roxas City, Capiz 73,684.21 5 years 16-May-2009 15-May-2014

132 Legaspi - Salcedo CASMER Building, 195 Salcedo St., Legaspi Village, Makati City 145,049.19 5 years 1-Dec-2007 30-Nov-2012

133 San Andres Adriatico 558 M. Adriatico Street corner San Andres St. Malate Manila 196,785.60 2 years 1-Aug-2010 31-Jul-2012

134 San Fernando HPT Building Mc arthur Highway, Dolores, San Fernando City, Pampanga 90,000.00 10 years 1-Jun-2010 31-May-2020

135 San Pablo J.P. Rizal Avenue, San Pablo City, Laguna 126,421.50 15 years 1-Aug-2003 31-Jul-2018

136 Santiago G/F Insular Life Bldg., Maharlika Highway, Santiago City, Isabela 56,156.38 5 years 1-Nov-2010 31-Oct-2015

137 Soler 1258 G/F Athena Tower, Soler cor. Benavidez Sts., Arranque, Manila 223,613.44 5 years 1-Mar-2008 28-Feb-2013

138 Sta. Maria Corazon De Jesus street, Poblacion, Sta. Maria, Bulacan 46,656.50 15 years 1-Jun-2003 31-May-2018

139 Sta. Rosa - Balibago G/F Dragon Arcade, Balibago-Tagaytay National Road, Laguna Bel-Air, Brgy Don Jose, Sta. Rosa, Laguna 87,517.63 10 years 1-Jun-2004 31-May-2014

140 T.M. Kalaw G/F Unit 1-D & 1-E Sunview Palace Condominium, T.M. Kalaw cor. M.H. Del Pilar Street, Ermita, Manila 122,614.06 10 years 1-May-2004 30-Apr-2014

141 Tabora 817 Picache Bldg., Yangco Market, Tabora St., Divisoria, Manila 176,359.68 10 years 16-Feb-2008 15-Feb-2018

52


RENTAL RATE

TERM

CONTRACT PERIOD

PER MONTH FROM TO

142 Tacloban Tacloban Plaza Hotel, Justice Romualdez Ave., Tacloban City, Leyte 66,031.02 5 years 10-Jan-2008 10-Jan-2013

143 Tagbilaran Carlos P. Garcia Ave., Tagbilaran City, Bohol 119,790.00 5 years 1-Jan-2008 31-Dec-2012

144 Tandang Sora Amina Building, Tierra Bella, Tandang Sora Ave., Quezon City 131,738.42 10 years 6-Jan-2005 5-Jan-2015

145 Taytay J.P. Rizal Avenue cor. Izon St., Brgy. Dolores, Taytay, Rizal 109,052.78 10 years 1-Jan-2005 31-Dec-2014

146 Timog Avenue G/F Castro Bldg., No. 58 Timog Avenue, Quezon City 140,002.40 5 years 1-Apr-2008 31-Mar-2013

147 Tordesillas / N. Garcia Rm. 101 - A, ITC Building, Sen. Gil Puyat Avenue, Makati City 82,663.92 10 years 1-Mar-2009 28-Feb-2019

148 Tuguegarao Luna cor. Del Rosario Sts., Tuguegarao City, Cagayan 103,121.42 10 years 14-Sep-2005 13-Sep-2015

149 U. N. Avenue G/F Linsangan Admirality Bldg., 1225 United Nations Avenue, Ermita, Manila 89,339.71 10 years 31-Oct-2003 30-Oct-2013

150 Valenzuela ARTY Subdivision, Mc Arthur Hi-way cor. J.P. Rizal St., Karuhatan, Valenzuela City 152,830.35 5 years 1-Jul-2012 30-Jun-2017

151 Vigan G/F CAP Building, Florentino Street, Vigan Ilocos Sur 49,696.38 5 years 1-Nov-2010 31-Oct-2015

152 Vito Cruz Unit A, G/F Burgundy Westbay Tower, Pablo Ocampo St. Extension, Malate, Manila 105,840.00 5 years 1-Jan-2009 31-Dec-2013

153 West Ave Graphic Sales Center, Inc. Building, 49 West Avenue, Quezon City 122,767.85 10 years 1-Jan-2010 31-Dec-2019

154 Wilson No. 1 Barasoian cor. Wilson Sts., San Juan, Metro Manila 137,702.61 10 years 1-Dec-2002 30-Nov-2012

155 Ylaya Recto 999 & 1003 Ylaya Street, Tondo Manila 119,092.40 10 years 21-Apr-2004 20-Apr-2014

156 Zamboanga Nuñez extension Avenue, Camino Nuevo, Zamboanga City, Zamboanga del Sur 46,903.35 10 years 15-Jul-2004 14-Jul-2014

157 Davao - Bajada 88 building, J.P. Laurel Street, Bajada Davao City 100,000.00 5 years 1-Oct-2010 30-Sep-2015

158 Zamboanga - Pilar G/F Martha Bldg. Pilar Street, Zamboanga City 85,000.00 4 years 1-Sep-2011 31-Aug-2015

159 Cebu - Lapu - Lapu Gaisano Mactan Island Mall,Lapu Lapu City, Cebu 77,175.00 5 years 1-Sep-2010 31-Aug-2015

160 Antipolo - M.L.Quezon World Citi Colleges Bldg. M.L Quezon St. Brgy. San Roque, Antipolo City, Rizal 82,812.50 5 years 16-Nov-2010 15-Nov-2015

161 Valenzuela - Paso De Blas 141 Paso De Blas St., Valenzuela City 51,461.25 20 years 1-Jul-2010 30-Jun-2030

162 Bulacan - Pulilan Doña Remedios Trinidad Highway, Pulilan, Bulacan 50,000.00 11 years 1-Dec-2010 30-Nov-2022

163 Bukidnon - Malaybalay Fortich Street, Malaybalay City, Bukidnon 8700F 70,000.00 5 years 1-Oct-2010 30-Sep-2015

164 Cavite - Molino G/F Golden Oasys Bldg.,Molino 4, Bacoor Cavite 108,000.00 10 years 16-Nov-2010 15-Nov-2020

165 Cavite - Tanza G/F Annie"s Plaza A. Soriano Hi-way, Tanza Cavite 63,000.00 5 years 16-Sep-2010 15-Sep-2015

166 Aklan - Kalibo 19 Martyrs St. corner Pastrana St., Kalibo, Aklan 63,157.89 5 years 16-Jan-2011 15-Jan-2016

167 Davao - Matina G/F Saito Building, McArthur Highway, Matina, Davao City 110,375.00 8 years 15-Mar-2011 14-Mar-2019

168 Laguna - Sta Cruz A. Regidor St., Sta. Cruz, Laguna 80,000.00 5 years 1-Apr-2011 31-Mar-2016

169 Antipolo - Masinag G/F Tripolee Bldg., Marcos Highway, Brgy. Mayamot, Antipolo City, Rizal 150,000.00 10 years 1-Jul-2011 30-Jun-2021

170 Cavite - Bacoor Heritage Building, Km16 Aguinaldo Highway, Niog , Bacoor, Cavite 76,736.84 5 years 1-Apr-2011 31-Mar-2016

171 Zamboanga - Guiwan Maria Clara Lobregat National Highway, Guiwan, Zamboanga City 35,000.00 5 years 1-Apr-2011 31-Mar-2016

172 Cainta - Felix Ave. Cainta Business Center Building, Felix Ave., Cor Vista verde Ext., Gate 2, Cainta, Rizal 70,000.00 5 years 15-May-2011 14-May-2016

173 Alabang - Madrigal Park G/F Admiralty Bldg., L1 B2 Industry St., Madrigal Business Park, Ayala-Alabang, Muntinlupa City 180,592.50 10 years 1-Sep-2011 31-Aug-2021

174 Cavite - Silang G/F, O.C. Building, M.H. Del Pilar cor. Kiamzon Sts., Silang, Cavite 42,500.00 5 years 1-Jun-2011 31-May-2016

175 Las Pinas Zapote G/F, Zapote Arcade Building 2, Quirino Avenue, Zapote, Las Piñas City 101,579.50 10 years 15-Aug-2011 14-Aug-2021

176 Marikina Sumulong G/F Algers Bldg. Sumulong Highway Cor. E. Jacinto St. Brgy. Sto. Nino, Marikina City 140,000.00 10 years 1-Aug-2011 31-Jul-2021

53

PHILIPPINE SAVINGS BANK EXHIBIT 3

EVENTS REPORTED UNDER FORM 17-C

(Reports filed during the last 6 months prior to filing of Form 17-A)

No. Particulars Date Reported

1 Please be informed that the Board of Directors of Philippine Savings Bank, in its meeting held on 29 February 2012, passed a resolution to amend its annual Regular Cash Dividend Rate to 30% from 6% effective the first quarter of 2012. This translates to an increase in PSBank’s annual dividends to Php 3.00 per share from Php 0.60 per share, previously. The dividends will be paid quarterly at Php 0.75 per share to all common stockholders of record as of a date to be fixed by the President of the Bank, after receipt of approval from the Bangko Sentral ng Pilipinas (BSP) per Subsection X136.4 of the BSP Manual of Regulations for Banks.

March 2, 2012

2 Please be informed that the Philippine Savings Bank (PSBank) Board of Directors, in its meeting on 29 February 2012, passed a resolution on the following: 1) Scheduling of the Annual Stockholders Meeting on April 27, 2012 at 4:00 o'clock in afternoon at the 19th Floor, PSBank Center, Paseo de Roxas Avenue corner Sedeno Street, Makati City; 2) Setting March 16, 2012 as the Record Date for determining stockholders entitled to notice and to vote in the Meeting; and 3) Granting of authority to Mr. Pascual M. Garcia III, PSBank President, to change the date, time and place of the Meeting, as well as the record date and to decide on such other related matters as may be required by the regulators and other exigencies; and to sign, execute and deliver any and all documents and to do and perform any and all acts as may be necessary to carry into effect the intents and purposes of the foregoing.

March 2, 2012

3 Please be informed that the Bangko Sentral ng Pilipinas (BSP) approved the 1.5% regular cash dividend declared by Philippine Savings Bank for the fourth quarter of 2011 amounting to Php 36.04 million, payable to all common stockholders. Likewise as authorized by the Board, the President has fixed 8 March 2012 the record date to determine common stockholders entitled to the regular cash dividends equivalent to Php 0.15 per share. Dividend checks, which will reflect the total amount, shall be available on 23 March 2012 (payment date).

February 22, 2012

4 Please be informed that Philippine Savings Bank (PSBank) has completed its issuance of its Unsecured Subordinated Debt - Tier 2 Notes as of 20 February 2012. The Notes amounted to Php 3 billion and will have a maturity of 10 years, callable in five years. Proceeds from the Notes will be used to finance PSBank’s asset growth and further strengthen its capital base. The Notes were rated PRS Aaa by Philippine Ratings Corporation.

February 22, 2012

54

5 Please be informed that the Board of Directors of Philippine Savings Bank, in its meeting held on 24 January 2012, passed a resolution declaring a 1.5% Regular Cash Dividend for the fourth quarter of 2011 amounting to Php 36.038 million equivalent to Php 0.15 per share, payable to all stockholders of record as of a date to be fixed by the President after approval by the Bangko Sentral ng Pilipinas (BSP).

January 27, 2012

6 Please be informed that the Bangko Sentral ng Pilipinas (BSP) approved the 1.5% regular cash dividend declared by Philippine Savings Bank for the third quarter of 2011 amounting to Php 36.04 million, payable to all common stockholders. Likewise as authorized by the Board, the President has fixed 20 December 2011 as the record date to determine common stockholders entitled to the regular cash dividends equivalent to Php 0.15 per share. Dividend checks, which will reflect the total amount, shall be available on 5 January 2012 (payment date).

December 7, 2011

7 Please be informed that during its regular meeting held on 27 October 2011 the Philippine Savings Bank (PSBank) Board of Directors passed a resolution approving the Bank’s issuance of up to Php 5 billion in Unsecured Subordinated Debt in one or more tranches with a term of ten years and a call option on the 5

th year,

subject to the approval of the Bangko Sentral ng Pilipinas. The purpose of this issuance is to increase and strengthen the capital base of PSBank. With the concurrent rise in its Capital Adequacy Ratio (CAR), the Bank will be allowed to freely pursue its expansion plans and prepare it for any future acquisition opportunity.

October 28, 2011

8 Please be informed that the Board of Directors of Philippine Savings Bank, in its meeting held on 28 October 2011, passed a resolution declaring a 1.5% Regular Cash Dividend for the third quarter of 2011 amounting to Php 36.038 million equivalent to Php 0.15 per share, payable to all stockholders of record as of a date to be fixed by the President after approval by the Bangko Sentral ng Pilipinas (BSP).

October 28, 2011

Philippine Savings Bank

Financial Statements December 31, 2011 and 2010 and Years Ended December 31, 2011, 2010 and 2009 and Independent Auditors’ Report SyCip Gorres Velayo & Co.

1 5 5 5 2

SEC Registration Number

P H I L I P P I N E S A V I N G S B A N K

(Company’s Full Name)

P S B a n k C e n t e r , 7 7 7 P a s e o d e R o x a s

c o r n e r S e d e ñ o S t r e e t , M a k a t i C i t

y

(Business Address: No. Street City/Town/Province)

Perfecto Ramon Z. Dimayuga Jr. 885-8208 (Contact Person) (Company Telephone Number)

1 2 3 1 A A F S 0 4 2 7

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Corporation Finance Department

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

1,677

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.

COVER SHEET

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsPhilippine Savings Bank PSBank Center 777 Paseo de Roxas corner Sedeño StreetMakati City Report on the Financial Stateme

We have audited the accompanying financial statements of the statements of condition as at December 31, 2011statements of comprehensive income, the statements of chanflows for each of the three years in the period ended accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation offrom material misstatement, whether due to fraud or error. Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditorassessment of the risks of material misstatement of the financial statemeerror. In making those risk assessments, the auditor considerpreparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates maevaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of Directors

777 Paseo de Roxas corner Sedeño Street

Report on the Financial Statements

We have audited the accompanying financial statements of Philippine Savings Bank, which comprise December 31, 2011 and 2010, and the statements of income, the

statements of comprehensive income, the statements of changes in equity and the statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are

the circumstances, but not for the purpose of expressing an opinion on the effectiveness An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati City Philippines

Phone: (632) 891 0307Fax: (632) 819 0872www.sgv.com.ph BOA/PRC Reg. No. 0001 January 25, 2010, valid until December 31, 2012SEC Accreditation No. 0012 February 4, 2010, valid until February 3, 2013

, which comprise , and the statements of income, the

ges in equity and the statements of cash , and a summary of significant

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as

financial statements that are free

Our responsibility is to express an opinion on these financial statements based on our audits. We with Philippine Standards on Auditing. Those standards require

that we comply with ethical requirements and plan and perform the audit to obtain reasonable

performing procedures to obtain audit evidence about the amounts and disclosures s judgment, including the

nts, whether due to fraud or internal control relevant to the entity’s

preparation and fair presentation of the financial statements in order to design audit procedures that are the circumstances, but not for the purpose of expressing an opinion on the effectiveness

An audit also includes evaluating the appropriateness of accounting de by management, as well as

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

SyCip Gorres Velayo & Co.

(632) 891 0307 (632) 819 0872

BOA/PRC Reg. No. 0001, January 25, 2010, valid until December 31, 2012

ccreditation No. 0012-FR-2 (Group A), February 4, 2010, valid until February 3, 2013

Opinion

In our opinion, the financial statements Philippine Savings Bank as at December 31, 2011 and 2010, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards.

Report on the Supplementary Information Required Under

and 15-2010 Our audits were conducted for the purpose of forming an opintaken as a whole. The supplementary information required under Revenue Regulationand 15-2010 in Note 34 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of to the auditing procedures applied in our audit of the basic financial statinformation is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO.

CPA Certificate No. 86838 SEC Accreditation No. 0115-AR- February 11, 2010, Valid until February 10, 2013Tax Identification No. 129-434-735BIR Accreditation No. 08-001998

June 1, 2009, Valid until May 31, 2012PTR No. 3174802, January 2, 201 February 29, 2012

- 2 -

In our opinion, the financial statements present fairly, in all material respects, the financial position of as at December 31, 2011 and 2010, and its financial performance and its cash

in the period ended December 31, 2011 in accordance with Philippine

Report on the Supplementary Information Required Under Revenue Regulations 19

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulation

to the financial statements is presented for purposes of filing with the Bureau is not a required part of the basic financial statements. Such information is

the responsibility of the management of Philippine Savings Bank. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as

SYCIP GORRES VELAYO & CO.

-2 (Group A) February 11, 2010, Valid until February 10, 2013

735 001998-53-2009,

June 1, 2009, Valid until May 31, 2012 , 2012, Makati City

the financial position of as at December 31, 2011 and 2010, and its financial performance and its cash

in the period ended December 31, 2011 in accordance with Philippine

Revenue Regulations 19-2011

ion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 19-2011

to the financial statements is presented for purposes of filing with the Bureau is not a required part of the basic financial statements. Such information is

. The information has been subjected ements. In our opinion, the

information is fairly stated in all material respects in relation to the basic financial statements taken as

INDEPENDENT AUDITORS’

ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsPhilippine Savings Bank PSBank Center 777 Paseo de Roxas corner Sedeño StreetMakati City We have audited in accordance with Philippine Standards on Auditing, the financial statements of Philippine Savings Bank (the Bank) as of in the period ended December 31, 2011dated February 29, 2012. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to and Supplementary Schedules are the responsibility of the Bank’s management. These schedules are presented for purposes of complying with Securities Regulation Code Rule 68.1 and SExchange Commission Memorandum Circular No. 11, Series of 2008financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respect the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO.

CPA Certificate No. 86838 SEC Accreditation No. 0115-AR- February 11, 2010, Valid until February Tax Identification No. 129-434-735BIR Accreditation No. 08-001998


REPORT

ON SUPPLEMENTARY SCHEDULES


777 Paseo de Roxas corner Sedeño Street

We have audited in accordance with Philippine Standards on Auditing, the financial statements of Philippine Savings Bank (the Bank) as of December 31, 2011 and 2010 and for each of the three years

December 31, 2011 included in this Form 17-A and have issued our report thereon . Our audits were made for the purpose of forming an opinion on the basic

financial statements taken as a whole. The schedules listed in the Index to the Financial Statements Supplementary Schedules are the responsibility of the Bank’s management. These schedules are

presented for purposes of complying with Securities Regulation Code Rule 68.1 and SMemorandum Circular No. 11, Series of 2008 and are not part of the basic

financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respect the

to be set forth therein in relation to the basic financial statements taken as a



735 001998-53-2009,




We have audited in accordance with Philippine Standards on Auditing, the financial statements of and for each of the three years

issued our report thereon . Our audits were made for the purpose of forming an opinion on the basic

Financial Statements Supplementary Schedules are the responsibility of the Bank’s management. These schedules are

presented for purposes of complying with Securities Regulation Code Rule 68.1 and Securities and nd are not part of the basic

financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respect the

to be set forth therein in relation to the basic financial statements taken as a


(632) 891 0307 (632) 819 0872



INDEPENDENT AUDITOR’S REPORT

TO ACCOMPANY INCOME TAX RETURN

The Stockholders and the Board of DirectorsPhilippine Savings Bank PSBank Center 777 Paseo de Roxas corner Sedeño StreetMakati City We have audited the financial statements of ended December 31, 2011, on which we have rendered the attached report dated In compliance with Revenue Regulations Vconsanguinity or affinity to the president, manager or principal stockholders of the Bank. SYCIP GORRES VELAYO & CO.

CPA Certificate No. 86838 SEC Accreditation No. 0115-AR- February 11, 2010, Valid until FebruaTax Identification No. 129-434-735BIR Accreditation No. 08-001998


INDEPENDENT AUDITOR’S REPORT

TO ACCOMPANY INCOME TAX RETURN


Paseo de Roxas corner Sedeño Street

We have audited the financial statements of Philippine Savings Bank (the Bank) as of and , on which we have rendered the attached report dated February 29

In compliance with Revenue Regulations V-20, we are stating that no partner of our Firm is related byconsanguinity or affinity to the president, manager or principal stockholders of the Bank.



735 001998-53-2009,




as of and for the year February 29, 2012.

o partner of our Firm is related by consanguinity or affinity to the president, manager or principal stockholders of the Bank.


(632) 891 0307 (632) 819 0872



PHILIPPINE SAVINGS BANK

STATEMENTS OF CONDITION

ASSETS

Cash and Other Cash Items (Note 16)

Due from Bangko Sentral ng Pilipinas

Due from Other Banks (Note 29)

Interbank Loans Receivable and Securities Purchased Under Resale Agreements (Note 7)

Fair Value Through Profit or Loss Investments

Available-for-Sale Investments

Held-to-Maturity Investments (Note 8)

Loans and Receivables (Notes 9 and 29)

Investments in an Associate and a Joint Venture

(Notes 10 and 29)

Property and Equipment (Note 11)

Investment Properties (Note 12)

Deferred Tax Asset (Note 27)

Goodwill and Intangible Assets

Other Assets (Note 14)

LIABILITIES AND EQUITY

Liabilities

Deposit Liabilities (Notes 16 and 29)Demand Savings Time

Subordinated Notes (Notes 17 and 33)

Treasurer’s, Cashier’s and Manager’s

Accrued Taxes, Interest and Other

Other Liabilities (Note 19)

(Forward)


STATEMENTS OF CONDITION

December

2011

(Note 16) P=3,921,289,371

Pilipinas (Note 16) 4,303,595,290

(Note 29) 3,736,072,634

bank Loans Receivable and Securities Purchased (Note 7) 10,480,000,000

Fair Value Through Profit or Loss Investments (Note 8) 54,794,038

(Notes 8 and 16) 18,693,113,028

(Note 8) 12,313,815,034

(Notes 9 and 29) 58,190,152,155

Investments in an Associate and a Joint Venture

1,238,145,401

(Note 11) 2,382,152,118

(Note 12) 2,802,259,434

1,139,489,780

Goodwill and Intangible Assets (Note 13) 255,179,428

741,668,569

P=120,251,726,280 P=

(Notes 16 and 29)

P=11,421,806,073

11,668,374,766

78,460,154,771

101,550,335,610

(Notes 17 and 33) –

Treasurer’s, Cashier’s and Manager’s Checks 654,513,679

rued Taxes, Interest and Other Expenses (Note 18) 1,208,024,456

1,297,797,180

104,710,670,925

December 31

2010

P=3,163,939,540

2,899,592,073

7,520,836,053

3,586,560,000

868,316,442

16,200,339,057

9,162,584,959

53,207,635,160

829,873,755

2,107,316,622

2,772,308,932

705,361,217

240,684,552

884,120,899

P=104,149,469,261

P=7,170,221,822 10,147,794,079 70,200,793,366

87,518,809,267

1,977,141,032

649,433,599

1,132,129,341

1,262,878,631

92,540,391,870

Equity

Common Stock (Note 21)

Capital Paid in Excess of Par Value

Surplus Reserves (Note 30)

Surplus (Note 21)

Net Unrealized Gain on Available

(Note 8)

Cumulative Translation Adjustment

See accompanying Notes to Financial Statements.

- 2 -

December 31

2011

P=2,402,524,910

Capital Paid in Excess of Par Value 2,818,083,506

1,035,275,317

6,939,738,262

lable-for-Sale Investments

2,399,747,805

Cumulative Translation Adjustment (54,314,445)

15,541,055,355

P=120,251,726,280 P=

to Financial Statements.

December 31

2010

P=2,402,524,910

2,818,083,506

1,035,275,317

5,055,131,075

355,151,266

(57,088,683)

11,609,077,391

P=104,149,469,261


STATEMENTS OF INCOME

INTEREST INCOME ON Loans and receivables (Notes 9 and 29) Investment securities (Note 8) Interbank loans receivable and securities purchased

under resale agreements (Note 7) Due from Bangko Sentral ng Pilipinas Due from other banks (Note 29)

INTEREST EXPENSE ON Deposit liabilities (Notes 16 and 29) Subordinated notes (Note 17) Bills payable

NET INTEREST INCOME

Service fees and commission income (Note 22)Service fees and commission expense (Note 22)

NET SERVICE FEES AND COMMISSION INCOME

(Note 22)

OTHER OPERATING INCOME (CHARGES)

Trading and securities gains - net (Note 8)Gain on foreclosure of investment properties (Note 12)Gain on sale of chattel mortgage properties (Note Gain on sale of property and equipment (Note 11)Foreign exchange gain Gain (Loss) on sale of investment properties (Note 12)Loss on foreclosure of chattel mortgage (Note 14)Miscellaneous (Note 23)

Total Operating Income

OTHER EXPENSES Compensation and fringe benefits (Notes 24 and 29)Taxes and licenses (Notes 27 and 34) Provision for credit and impairment losses (Note 15)Occupancy and equipment-related costs (Note 25)Depreciation and amortization (Note 11)Security, messengerial and janitorial servicesAmortization of intangible assets (Note 13)Miscellaneous (Note 26)

INCOME BEFORE SHARE IN NET INCOME OF

AN ASSOCIATE AND A JOINT VENTURE

AND INCOME TAX SHARE IN NET INCOME OF AN ASSOCIATE

AND A JOINT VENTURE (Notes 10 and 29)

INCOME BEFORE INCOME TAX

PROVISION FOR (BENEFIT FROM) INCOME

TAX (Note 27) Current Deferred

NET INCOME

Basic/Diluted Earnings Per Share (Note 28)



STATEMENTS OF INCOME

Years Ended December 31

2011 2010

P=6,472,860,619 P=5,872,206,677

2,239,511,695 1,714,742,134 Interbank loans receivable and securities purchased

189,599,307 160,512,694 71,366,834 158,509,526

3,248,372 7,126,287

8,976,586,827 7,913,097,318

3,229,805,995 2,693,229,929

37,327,024 206,037,289 – 1,427,292

3,267,133,019 2,900,694,510

5,709,453,808 5,012,402,808

s and commission income (Note 22) 777,049,501 758,628,630 Service fees and commission expense (Note 22) 44,171,323 66,947,148

NET SERVICE FEES AND COMMISSION INCOME

732,878,178 691,681,482

OPERATING INCOME (CHARGES) net (Note 8) 927,695,530 2,229,490,724

Gain on foreclosure of investment properties (Note 12) 208,751,141 224,362,420 Gain on sale of chattel mortgage properties (Note 14) 47,222,682 45,391,188 Gain on sale of property and equipment (Note 11) 3,289,138 2,366,740

562,092 15,054,607 Gain (Loss) on sale of investment properties (Note 12) (22,120,286) 15,239,154 Loss on foreclosure of chattel mortgage (Note 14) (105,852,761) (108,401,098)

182,920,066 108,949,822

1,242,467,602 2,532,453,557

7,684,799,588 8,236,537,847

Compensation and fringe benefits (Notes 24 and 29) 1,899,698,062 1,740,616,046

764,185,382 777,135,211 Provision for credit and impairment losses (Note 15) 656,088,921 912,282,236

related costs (Note 25) 485,277,052 424,277,820 Depreciation and amortization (Note 11) 428,078,287 352,038,108 Security, messengerial and janitorial services 193,923,812 163,935,978 Amortization of intangible assets (Note 13) 53,124,292 41,692,711

1,208,296,994 1,212,927,582

5,688,672,802 5,624,905,692

INCOME BEFORE SHARE IN NET INCOME OF

ASSOCIATE AND A JOINT VENTURE

1,996,126,786 2,611,632,155 SHARE IN NET INCOME OF AN ASSOCIATE

(Notes 10 and 29) 8,271,646 41,563,418

2,004,398,432 2,653,195,573 PROVISION FOR (BENEFIT FROM) INCOME

469,577,763 363,472,740 (493,938,013) 481,607,494

(24,360,250) 845,080,234

P=2,028,758,682 P=1,808,115,339

(Note 28) P=8.44 P=7.53



2009

P=5,376,067,642 1,944,869,980

109,764,181 92,985,420 5,844,863

7,529,532,086

2,485,486,486 205,737,407 4,831,064

2,696,054,957

4,833,477,129

642,921,038 46,679,681

596,241,357

543,632,852 206,142,134 41,803,965 9,804,030 12,337,918 31,579,888

(108,401,098) (91,966,009) 88,283,966

841,618,744

6,271,337,230

1,488,633,458 559,775,883 1,109,756,584 362,869,511 328,535,606 147,976,617 27,761,608 917,642,194

4,942,951,461

1,328,385,769

45,129,698

1,373,515,467

279,219,880 (145,718,829)

133,501,051

P=1,240,014,416

P=5.16


STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME

Other Comprehensive Income (Loss)

Changes in net unrealized gain (loss) on Availableinvestments (Note 8)

Cumulative translation adjustment

TOTAL COMPREHENSIVE INCOME,

NET OF TAX

See accompanying Notes to Financial Statements


STATEMENTS OF COMPREHENSIVE INCOME


2011 2010

P=2,028,758,682 P=1,808,115,339

on Available-for-sale

2,044,596,539 (464,677,787)2,774,238 58,347,184

TOTAL COMPREHENSIVE INCOME,

P=4,076,129,459 P=1,401,784,736



2009

P=1,240,014,416

(464,677,787) 1,497,117,558 (17,528,813)

P=2,719,603,161


STATEMENTS OF CHANGES IN EQUITY

Common Stock

Balance at January 1, 2011

P=2,402,524,910

Total comprehensive income for the year

Cash dividends (Note 21)

Balance at December 31, 2011

P=2,402,524,910


P=2,402,524,910

Total comprehensive income (loss) for the year

Appropriation of surplus for trust business



P=2,402,524,910


P=2,402,524,910

Total comprehensive income (loss) for the year

Appropriation of surplus for trust business



P=2,402,524,910


EQUITY

Common Stock

(Note 21)

Capital

Paid in Excess

of Par Value

Surplus

Reserves

(Note 30)

Surplus

(Note 21)

Net Unrealized

Gain (Loss) on

Available

Investments

2,402,524,910

P=2,818,083,506

P=1,035,275,317

P=5,055,131,075

P=355,151,266

–

–

–

2,028,758,682

2,044,596

–

–

–

(144,151,495)

2,402,524,910

P=2,818,083,506

P=1,035,275,317

P=6,939,738,262

P=2,399,747,805

2,402,524,910

P=2,818,083,506

P=854,463,783

P=4,232,673,110

P=819,829,053

–

–

–

1,808,115,339

(464,677,787)

–

–

180,811,534

(180,811,534)

–

–

–

(804,845,840)

2,402,524,910

P=2,818,083,506

P=1,035,275,317

P=5,055,131,075

P=355,151,266

2,402,524,910

P=2,818,083,506

P=730,462,341

P=3,296,849,504

(P=677,288,505)

–

–

–

1,240,014,416

1,497,117,558

–

–

124,001,442

(124,001,442)

–

–

–

(180,189,368)

2,402,524,910

P=2,818,083,506

P=854,463,783

P=4,232,673,110

P=819,829,053

Net Unrealized

Gain (Loss) on

Available-for-Sale

Investments

(Note 8)

Cumulative

Translation

Adjustment

Total

355,151,266

(P=57,088,683)

P=11,609,077,391

2,044,596,539

2,774,238

4,076,129,459

–

–

(144,151,495)

2,399,747,805

(P=54,314,445)

P=15,541,055,355

819,829,053

(P=115,435,867) P=11,012,138,495

(464,677,787)

58,347,184

1,401,784,736

–

–

–

–

–

(804,845,840)

355,151,266

(P=57,088,683) P=11,609,077,391

677,288,505)

(P=97,907,054)

P=8,472,724,702

1,497,117,558

(17,528,813)

2,719,603,161

–

–

–

–

–

(180,189,368)

819,829,053

(P=115,435,867) P=11,012,138,495


STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax Adjustments for: Provision for credit and impairment losses (Note 15) Depreciation and amortization (Note 11) Loss on foreclosure of chattel mortgage properties

(Note 14) Amortization of intangible assets (Note 13) Amortization of debt issuance costs (Note 17) Loss (Gain) on sale of investment properties (Note 12) Unrealized trading loss on fair value through profit or loss

investments (Note 8) Gain on sale of property and equipment (Note 11) Share in net income of an associate and a joint venture

(Note 10) Gain on sale of chattel mortgage properties (Note 14) Gain on foreclosure of investment properties (Note 12) Realized gain on sale of available-for

(Note 8) Changes in operating assets and liabilities: Decrease (increase) in: Fair value through profit or loss investments Loans and receivables Other assets Increase (decrease) in: Deposit liabilities Accrued taxes, interests and other expenses Treasurer’s, cashier’s and manager’s checks Other liabilities

Cash generated from operations Income taxes paid

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIESPurchases of: Other intangible assets (Note 13) Property and equipment (Note 11) Held-to-maturity investments Available-for-sale investments Proceeds from sale of: Available-for-sale investments (Note 8) Chattel mortgage properties (Note 14) Investment properties (Note 12) Property and equipment (Note 11) Proceeds from redemption of held-to-maturity investmen

at maturity date Dividends received (Note 10) Additional investment in a joint venture (Note 10)

Net cash provided by (used in) investing activities

(Forward)


STATEMENTS OF CASH FLOWS


2011 2010

CASH FLOWS FROM OPERATING ACTIVITIES

P=2,004,398,432 P=2,653,195,573

Provision for credit and impairment losses (Note 15) 656,088,921 912,282,236 Depreciation and amortization (Note 11) 428,078,287 352,038,108 Loss on foreclosure of chattel mortgage properties

105,852,761 108,401,098 Amortization of intangible assets (Note 13) 53,124,292 41,692,711 Amortization of debt issuance costs (Note 17) 22,858,968 3,259,498

sale of investment properties (Note 12) 22,120,286 (15,239,154)Unrealized trading loss on fair value through profit or loss

15,492,338 793,423 sale of property and equipment (Note 11) (3,289,138) (2,366,740)

e and a joint venture (8,271,646) (41,563,418)

sale of chattel mortgage properties (Note 14) (47,222,682) (45,391,188)Gain on foreclosure of investment properties (Note 12) (208,751,141) (224,362,420)

for-sale investments

(937,165,140) (2,323,447,276)Changes in operating assets and liabilities:

Fair value through profit or loss investments 798,033,046 (620,889,068)

(6,792,102,641) (8,004,900,540)360,562,143 (227,469,061)

14,032,151,553 10,160,268,335

Accrued taxes, interests and other expenses 75,895,998 237,142,974 Treasurer’s, cashier’s and manager’s checks 5,080,080 143,695,236

(1,041,246) 5,555,938

10,581,893,471 3,112,696,265 (479,395,569) (226,340,247)

Net cash provided by operating activities 10,102,497,902 2,886,356,018

INVESTING ACTIVITIES

(67,619,168) (84,904,411) (543,808,722) (396,765,121)

(3,708,632,453) (4,384,256,019)(37,965,655,312) (52,626,689,622)

(Note 8) 38,455,666,062 56,547,892,402

tgage properties (Note 14) 499,715,985 592,678,122 419,441,067 432,950,999

28,261,806 26,802,180 maturity investments

558,072,902 – – –

nvestment in a joint venture (Note 10) (400,000,000) –

Net cash provided by (used in) investing activities (2,724,557,833) 107,708,530


2009

P=1,373,515,467 1,109,756,584 328,535,606

91,966,009 27,761,608 2,939,913

,154) (31,579,888)

11,127,300 (2,366,740) (9,804,030)

(41,563,418) (45,129,698) (45,391,188) (41,803,965) (224,362,420) (206,142,134)

(2,323,447,276) (503,223,604)

(620,889,068) 822,456,959 (8,004,900,540) (7,540,645,333) (227,469,061) (100,044,178)

15,703,125,456 (9,936,508) 165,837,306 239,305,697

11,388,018,567 (226,340,247) (275,867,318)

11,112,151,249

(84,904,411) (66,718,040) (396,765,121) (474,230,433)

(4,384,256,019) (3,163,556,793) (52,626,689,622) (10,014,727,372)

10,467,963,860 563,585,587 599,814,459 39,380,202

– 26,771,150 (400,000,000)

(2,421,717,380)

CASH FLOWS FROM FINANCING ACTIVITIES

Settlement of subordinated Notes Settlements of bills payable Availments of bills payable Dividends paid (Note 21)

Net cash used in financing activities

Effect of exchange rate differences

NET INCREASE IN CASH AND CASH

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

Cash and other cash items (Note 16) Due from Bangko Sentral ng Pilipinas (Note 16)Due from other banks (Note 29) Interbank loans receivable and securities purchased under

resale agreements (Note 7)

CASH AND CASH EQUIVALENTS AT END OF YEAR

Cash and other cash items (Note 16) Due from Bangko Sentral ng Pilipinas (Note 16)Due from other banks (Note 29) Interbank loans receivable and securities purchased un

resale agreements (Note 7)

OPERATIONAL CASH FLOWS FROM INTEREST

Interest paid Interest received


- 2 -


2011 2010

CASH FLOWS FROM FINANCING ACTIVITIES

(P=2,000,000,000) P=– – (6,327,836,992)– 6,327,836,992

(108,113,622) (840,883,714)

(2,108,113,622) (840,883,714)

203,182 18,024,029

CASH AND CASH EQUIVALENTS 5,270,029,629 2,171,204,863

AT BEGINNING

3,163,939,540 2,632,884,729

Due from Bangko Sentral ng Pilipinas (Note 16) 2,899,592,073 4,937,990,387 7,520,836,053 1,528,847,687

ies purchased under 3,586,560,000 5,900,000,000

17,170,927,666 14,999,722,803

CASH AND CASH EQUIVALENTS AT END OF YEAR 3,921,289,371 3,163,939,540

Due from Bangko Sentral ng Pilipinas (Note 16) 4,303,595,290 2,899,592,073 3,736,072,634 7,520,836,053

Interbank loans receivable and securities purchased under 10,480,000,000 3,586,560,000

P=22,440,957,295 P=17,170,927,666

OPERATIONAL CASH FLOWS FROM INTEREST P=3,275,861,523 P=2,890,090,324

8,697,535,991 8,211,376,642



2009

P=–

(6,327,836,992) (2,706,900,000) 2,469,300,000

(840,883,714) (144,151,496)

(840,883,714) (381,751,496)

(731,217)

8,307,951,156

1,436,234,455 3,228,768,914 1,276,768,278

750,000,000

6,691,771,647

2,632,884,729 4,937,990,387 1,528,847,687

5,900,000,000

P=14,999,722,803

P=2,740,452,986 7,391,750,548


NOTES TO FINANCIAL STATEMENTS

1. Corporate Information Philippine Savings Bank (the Bank) was incorporated in the Philippines primarily to engage in

savings and mortgage banking. The Bank’s shares are listed in the Philippine Stock Exchange (PSE). The Bank offers a wide range of products and services such as deposit products, loans, treasury and trust functions that mainly serve the retail and consumer markets. On September 6, 1991, the Bank was authorized to perform trust functions.

As of December 31, 2011 and 2010, the Bank had 200 and 180 branches, respectively. In 2011,

the Bank added 125 Automated Tellering Machines (ATMs) in Metro Manila and in provincial locations, bringing its total number of ATMs to 505 as of December 31, 2011 from 380 as of December 31, 2010.

The Bank’s original Certificate of Incorporation of the Bank was issued by the Securities and

Exchange Commission (SEC) on June 30, 1959. On March 28, 2006, the board of directors (BOD) of the Bank approved the amendment of Article IV of its Amended Articles of Incorporation to extend the corporate term of the Bank, which expired on June 30, 2009, for another 50 years or up to June 30, 2059. The Amended Articles of Incorporation were approved by the SEC on September 27, 2006.

As of December 31, 2011, the Bank is seventy-six percent (76.00%) owned by Metropolitan Bank

& Trust Company (MBTC), its ultimate parent company. The Bank’s principal place of business is located at PSBank Center, 777 Paseo de Roxas corner

Sedeño Street, Makati City.

2. Significant Accounting Policies

Basis of Preparation

The accompanying financial statements have been prepared under the historical cost basis except for fair value through profit or loss (FVPL) investments and available-for-sale (AFS) investments that have been measured at fair value.

The accompanying financial statements of the Bank include the accounts maintained in the

Regular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The functional currency of the RBU and the FCDU is the Philippine Peso and United States Dollar (USD), respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBU are translated into their equivalents in Philippine peso (see accounting policy on Foreign Currency Translation). The financial statements of these units are combined after eliminating inter-unit accounts.

Statement of Compliance

The financial statements of the Bank have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

- 2 -

Changes in Accounting Policies and Disclosure

The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended Philippine Accounting Standards (PAS), PFRS and Philippine Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) which were adopted as of January 1, 2011.

New Standards and Interpretations

• PAS 24, Related Party Transactions (Amendment) PAS 24 clarifies the definitions of a related party. The new definitions emphasize a symmetrical view of related party relationships and clarify the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The Bank reflected the revised disclosure requirements in Note 29.

Improvements to PFRS

• PFRS 7, Financial Instruments: Disclosures The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Bank reflected the revised disclosure requirements in Note 5.

The issuance of and the amendments to the following PAS, PFRS and Philippine Interpretations of the IFRIC which became effective as of January 1, 2011, did not have any impact on the accounting policies, financial position or performance of the Bank:

Amendments to Standards

• Philippine Interpretation IFRIC–19, Extinguishing Financial Liabilities with Equity Instruments

• PAS 32, Financial Instruments: Presentation (Amendment) – Classification of Rights Issues

• Philippine Interpretation IFRIC–14 (Amendment), Prepayments of a Minimum Funding

Requirement

Improvements to PFRSs 2010

• PFRS 3, Business Combinations

• PAS 1, Presentation of Financial Statements

• PAS 27, Consolidated and Separate Financial Statements

• Philippine Interpretation IFRIC–13, Customer Loyalty Programmes

Summary of Significant Accounting Policies

Foreign Currency Translation The financial statements are presented in Philippine Peso, which is the Bank’s functional and

presentation currency.

The books of accounts of the RBU are maintained in Philippine Peso, while those of the FCDU are maintained in USD.

- 3 -

RBU As at reporting date, foreign currency monetary assets and liabilities of the RBU are translated in

Philippine Peso based on the Philippine Dealing System (PDS) closing rate prevailing at end of the year and foreign currency-denominated income and expenses, at the exchange rates as at the date of the transaction. Foreign exchange differences arising from restatements of foreign currency-denominated assets and liabilities in the RBU are credited to or charged against profit or loss in the year in which the rates change. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

FCDU As at the reporting date, the assets and liabilities of the FCDU are translated to the Bank’s

presentation currency (the Philippine Peso) at PDS closing rate prevailing at the statement of condition date, and its income and expenses are translated using the exchange rates as at the dates of the transaction. Exchange differences arising on translation to the presentation currency are taken to the statement of comprehensive income under ‘Cumulative translation adjustment’. Upon disposal of the FCDU, the deferred cumulative amount recognized in the statement of comprehensive income is recognized in the statement of income. The Bank adopted this policy when the Bangko Sentral ng Pilipinas (BSP) issued BSP Circular No. 601 on February 13, 2008. This Circular included a provision requiring Banks to use the USD as the functional currency of its FCDU.

Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition

Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date. Deposits, amounts due to banks and loans are recognized when cash is received by the Bank or advanced to the borrowers.

Initial recognition of financial instruments

All financial instruments, including trading and investment securities and loans and receivables, are initially measured at fair value. Except for FVPL investments and liabilities, the initial measurement of financial instruments includes transaction costs. The Bank classifies its financial assets in the following categories: FVPL investments, Held-to-maturity (HTM) investments, AFS investments, and loans and receivables. Financial liabilities are classified into liabilities at FVPL and other financial liabilities at amortized cost. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every statement of condition date. As of December 31, 2011 and 2010, the Bank had no liabilities at FVPL.

Determination of fair value

The fair value for financial instruments traded in active markets at the statement of condition date is based on their quoted market price or dealer price quotations (bid price for long positions and asking price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

- 4 -

For all other financial instruments not listed in an active market, the fair value is determined by

using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

‘Day 1’ difference

Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Bank recognizes the difference between the transaction price and fair value (a ‘Day 1 difference’) in the statement of income in ‘Trading and securities gains - net’, unless it qualifies for recognition as some other type of asset. In cases where transaction price used is made of data which is not observable, the difference between the transaction price and model value is only recognized in the statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Bank determines the appropriate method of recognizing the ‘Day 1 difference’ amount.

Derivatives

Derivative financial instruments are initially recorded at fair value on the date at which the derivative contract is entered into and are subsequently remeasured at fair value. Any gains or losses arising from changes in fair values of derivatives (except those accounted for as cash flow hedges) are taken directly to the statement of income and are included in ‘Trading and securities gain - net’. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. As of December 31, 2011 and 2010, derivatives comprise Republic of the Philippines (ROP) paired warrants acquired to lower the risk weighted assets and improve the capital adequacy ratio of the Bank.

For purposes of hedge accounting, hedges, if any, are classified primarily as either: a) a hedge of

the fair value of an asset, liability or a firm commitment (fair value hedge); or b) a hedge of the exposure variability in cash flows attributable to an asset or a liability or a forecasted transaction (cash flow hedge). Hedge accounting is applied to derivatives designated as hedging instruments in a fair value, cash flow, or net investment hedge provided certain criteria are met. In 2011 and 2010, the Bank did not apply hedge accounting treatment for its derivative transactions.

Designated financial assets or financial liabilities at FVPL

Designated financial assets or financial liabilities classified in this category are designated by management on initial recognition when the following criteria are met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or

• the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Designated financial assets and financial liabilities at FVPL are recorded in the statement of condition at fair value. Changes in the fair value of financial assets and liabilities designated at FVPL are recorded in ‘Trading and securities gains - net’. Interest earned or incurred is recorded in interest income or expense, respectively, while any dividend income is recorded in other

- 5 -

operating income according to the terms of the contract, or when the right of the payment has been established. As of December 31, 2011 and 2010, the Bank had no designated financial assets or financial liabilities at FVPL.

Other financial assets or financial liabilities held-for-trading (HFT) Other financial assets or financial liabilities HFT (classified as FVPL investments) are recorded in

the statement of condition at fair value. Changes in fair value relating to the HFT positions are recognized in ‘Trading and securities gains - net’. Interest earned or incurred is recorded as interest income or expense, respectively, while dividend income is recorded in other operating income when the right to receive payment has been established.

Included in this classification are debt securities which have been acquired principally for the

purpose of selling in the near term.

Embedded derivatives An embedded derivative is separated from the host contract and accounted for as a derivative if all

of the following conditions are met:

• the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract;

• a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

• the hybrid or combined instrument is not recognized at fair value through profit or loss. The Bank assesses whether embedded derivatives are required to be separated from host contracts

when the Bank first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Bank determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative and the host contract and whether the change is significant relative to the previously expected cash flow on the contract.

As of December 31, 2011 and 2010, the Bank does not have any embedded derivatives required to

be separated from the host contract. HTM investments

HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Bank’s management has the positive intention and ability to hold to maturity. Where the Bank sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified to AFS investments. After initial measurement, these investments are subsequently measured at amortized cost using the effective interest rate (EIR) amortization method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is included in ‘Interest income on investment securities’ in the statement of income. Gains and losses are recognized in the statement of income when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments are recognized in the statement of income under ‘Provision for credit and impairment losses’.

The effects of restatement on foreign currency denominated HTM investments are recognized in

the statement of income.

- 6 -

Amounts due from BSP and other banks, interbank loans receivable and securities purchased

under resale agreements (SPURA), loans and receivables These are non-derivative financial assets with fixed or determinable payments and fixed maturities

that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as ‘FVPL investments’, designated as ‘AFS investments’ or ‘designated financial assets at FVPL’.

After initial measurement, ‘Due from BSP’, ‘Due from other banks’, ‘Interbank loans receivable

and SPURA’ and ‘Loans and receivables’ are subsequently measured at amortized cost using the EIR amortization method, less allowance for credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in the ‘Interest income’ in the statement of income. The losses arising from impairment are recognized in ‘Provision for credit and impairment losses’ in the statement of income.

AFS investments AFS investments are those which are designated as such or do not qualify to be classified as FVPL

investments, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. They include equity investments, money market papers and other debt instruments.

After initial measurement, AFS investments are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of restatement on foreign currency-denominated AFS debt securities, is reported in income. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported income and are reported as ‘Net unrealized gain (loss) on AFS investments’ in other comprehensive income (OCI).

When the security is disposed of, the cumulative gain or loss previously recognized in OCI is

recognized as ‘Trading and securities gains - net’ in the statement of income. Where the Bank holds more than one investment in the same security, these are deemed to be disposed on a weighted average basis. Interest earned on holding AFS debt investments are reported as interest income using the EIR. Dividends earned on holding AFS equity investments are recognized in the statement of income as ‘Miscellaneous income’ when the right of the payment has been established. The losses arising from impairment of such investments are recognized as ‘Provision for credit and impairment losses’ in the statement of income.

Other financial liabilities carried at amortized cost

This category represents issued financial instruments or their components, which are not designated at FVPL and comprises ‘Deposit liabilities’, ‘Subordinated notes’, ‘Treasurer’s, cashier’s and manager’s checks’, ‘Accrued interest payable’, ‘Accounts payable’, ‘Bills purchased-contra’, ‘Other credits’, ‘Due to BSP’, ‘Dividends payable’, ‘Due to Treasurer of the Philippines’ and ‘Deposits for keys-Safety deposit boxes (SDB)’, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

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After initial measurement, financial liabilities not qualified as and not designated as FVPL, are

subsequently measured at amortized cost using the EIR amortization method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the EIR.

Derecognition of Financial Assets and Liabilities Financial asset

A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognized where:

• the rights to receive cash flows from the asset have expired; or

• the Bank retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or

• the Bank has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has transferred control over the asset.

Where the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the Bank’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.

Financial liability

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.

Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase at a specified future date (‘repos’) are not

derecognized from the statement of condition. The corresponding cash received, including accrued interest, is recognized in the statement of condition as a loan to the Bank, reflecting the economic substance of such transaction. The Bank had no outstanding repurchase agreements as of December 31, 2011 and 2010.

Conversely, securities purchased under agreements to resell at a specified future date (‘reverse repos’) are not recognized in the statement of condition. The corresponding cash paid, including accrued interest, is recognized in the statement of condition as SPURA, and is considered a loan to the counterparty. The difference between the purchase price and resale price is treated as interest income and is accrued over the life of the agreement using the EIR amortization method.

Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of

condition if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the statement of condition.

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Impairment of Financial Assets

The Bank assesses at each statement of condition date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost

For financial assets carried at amortized cost, which includes loans and receivables, due from banks and HTM investments, the Bank first assesses at each statement of condition date whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to the statement of income. Interest income continues to be recognized based on the original EIR of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to ‘Provision for credit and impairment losses’ in the statement of income.

If the Bank determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. Assets individually assessed for impairment for which no impairment loss was measured are also collectively assessed for impairment.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis

of such credit risk characteristics as industry and age of receivables.

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Future cash flows in a group of financial assets that are collectively evaluated for impairment are

estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group.

Historical loss experience is adjusted on the basis of current observable data to reflect the effects

of current conditions that did not affect the period in which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with changes in related observable data from period to period (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.

Restructured loans Where possible, the Bank seeks to restructure loans rather than to take possession of collateral.

This may involve extending the payment arrangements and the agreement on new loan conditions.

Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subjected to an individual or collective impairment assessment, calculated using the loan’s original EIR if the original loan has fixed interest rate and the current repriced rate if the original loan is repriceable. The difference between the recorded value of the original loan and the present value of the restructured cash flows, discounted at the applicable interest rate, is recognized in ‘Provision for credit and impairment losses’ in the statement of income.

AFS investments

For AFS investments, the Bank assesses at each statement of condition date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In case of equity investments classified as AFS investments, this would include a significant or

prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the statement of income - is removed from equity and recognized in the statement of income.

Impairment losses on equity investments are not reversed through the statement of income.

Increases in fair value after impairment are recognized in the statement of comprehensive income.

In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of ‘Interest income’ in the statement of income. If, in subsequent years, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income.

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Revenue and Expense Recognition Revenue is recognised when it is probable that future economic benefits will flow to the entity and

these benefits can be measured reliably. The Bank assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Bank concluded that it is acting as a principal in all of its revenue arrangement. The following specific recognition criteria must also be met before revenue is recognized:

Interest income and expense

For all financial instruments measured at amortized cost and interest bearing financial instruments classified as AFS investments, interest income is recorded at the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its

estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as interest income.

Once the recorded value of a financial asset or group of similar financial assets has been reduced

due to an impairment loss, interest income continues to be recognized using the original EIR used to discount future cash flows.

Fee and commission income

Fees earned for the provision of services over a period of time are accrued over that period. These fees include investment fund fees, custodian fees, fiduciary fees, portfolio fees, credit related fees and other service and management fees.

Trading and securities gains - net

Income results from disposal of AFS investments and trading activities including all gains and losses from changes in fair value for financial assets at FVPL.

Dividends

Dividend income is recognized when the Bank’s right to receive payment is established. Income from sale of property and equipment, investment property and chattel mortgage properties

Income from sale of properties is recognized upon completion of the earning process and the collectibility of the sales price is reasonably assured.

Rental income Rental income arising from leased properties is accounted for on a straight-line basis over the

lease terms on ongoing leases and is recorded in the statement of income under ‘Other operating income’.

Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items,

amounts due from BSP and other banks, and interbank loans receivable and SPURA that are convertible to known amounts of cash with original maturities of three months or less from dates of placements and that are subject to insignificant risk of changes in value.

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Business Combination and Goodwill Business combinations are accounted for using the acquisition method. This involves recognizing

identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognized directly in the statement of income in the year of acquisition.

Goodwill is initially measured at cost being the excess of the acquisition cost over the share in the

net fair value of the acquired identifiable assets, liabilities and contingent liabilities. The Bank’s goodwill arose from past purchases of branch business/offices from the Parent Company.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

For the purpose of impairment testing, goodwill acquired is, from the acquisition date, allocated to each of the cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether the acquired other assets or liabilities are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is

disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Investment in an Associate Associates are entities over which the Bank has significant influence but not control, generally

accompanying a shareholding of between 20.00% and 50.00% of the voting rights. The Bank’s investment in an associate represents its 25.00% interest in Toyota Financial Services Philippines Corp. (TFSPC), an entity not listed in the PSE. Investment in an associate is accounted for under the equity method of accounting.

The reporting period of TFSPC is the fiscal year-ending March 31. However, TFSPC prepares financial statements for a 12-month period ending December 31 for the use of the Bank in applying the equity method. The length of the reporting period is the same from period to period. Where necessary, adjustments are made to bring the accounting policies in line with those of the Bank.

Investment in a Joint Venture Investment in a joint venture represents the Bank’s interest in a jointly controlled entity, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of Sumisho Motor Finance Corporation (SMFC), an entity not listed in the PSE. The Bank’s investment in a joint venture represents its 40.00% interest in SMFC. Investment in a joint venture is accounted for under the equity method of accounting.

The reporting period of SMFC is the calendar year ending December 31. Where necessary,

adjustments are made to bring the accounting policies in line with those of the Bank.

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Under the equity method, an investment in an associate and a joint venture is carried in the statement of condition at cost plus post-acquisition changes in the Bank’s share in the net assets of the associate and a joint venture. Goodwill relating to an associate and a joint venture is included in the carrying value of the investment and is not amortized. The Bank’s share in an associate’s and a joint venture’s post-acquisition profits or losses is recognized in the statement of income, and its share of post-acquisition movements in the associate’s and joint venture’s other comprehensive income is recognized in the statement of comprehensive income. When the Bank’s share of losses in an associate and a joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Bank does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. The Bank’s interest in the associate or joint venture is the carrying amount of the investment in the associate or joint venture under the equity method together with any long-term interests that form part of the Bank's net investment in the associate or joint venture. Profits and losses resulting from transactions between the Bank and an associate or joint venture are eliminated to the extent of the Bank’s interest in the associate or joint venture.

Property and Equipment Land is stated at cost less any impairment in value and depreciable properties including building,

furniture, fixtures and equipment, and leasehold improvements are stated at cost less accumulated depreciation and accumulated impairment losses. The initial cost of property and equipment consists of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance, are normally charged against profit or loss in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of property and equipment.

Depreciation is calculated on a straight-line basis over the useful life of the asset as follows:

Buildings 25-50 years Furniture, fixtures and equipment 3-5 years depending on the type of assets Leasehold improvements 5 years or the term of the related leases,

whichever is shorter An item of property and equipment is derecognized upon disposal or when no future economic

benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized.

The carrying values of property and equipment are reviewed for impairment when events or

changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the asset or cash-generating units are written down to their recoverable amount (see policy on Impairment of Nonfinancial Assets).

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if

appropriate, at each financial year-end to ensure that these are consistent with the expected pattern of economic benefits from the items of property and equipment.

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Investment Properties Investment properties are measured initially at cost, including transaction costs. An investment

property acquired through an exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured in which case the investment property acquired is measured at the carrying amount of asset given up. Foreclosed properties are classified under investment properties from foreclosure date. Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are normally charged to income in the period in which the costs are incurred.

Subsequent to initial recognition, investment properties are carried at cost less accumulated

depreciation and impairment in value except for land which is stated at cost less impairment in value. Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of acquisition of the investment properties.

The estimated useful lives of the depreciable assets are as follows:

Building and Condominium Units 10-40 years Investment properties are derecognized when they have either been disposed of or when the

investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of income in ‘Gain (loss) on sale of investment properties’ in the year of retirement or disposal.

Transfers are made to investment properties when, and only when, there is a change in use

evidenced by ending of owner occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is a change in use evidenced by commencement of owner occupation or commencement of development with a view to sale.

Chattel Mortgage Properties Chattel mortgage properties comprise of repossessed vehicles. Chattel mortgage properties are

stated at cost less accumulated depreciation and impairment in value. Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of acquisition of the vehicles. The useful lives of chattel mortgage properties are estimated to be 5 years.

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of

intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the statement of income in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets

with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.

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The amortization expense on intangible assets with finite lives is recognized in the statement of income under ‘Amortization of intangible assets’.

Intangible assets with indefinite useful lives are tested for impairment annually either individually

or at the cash generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from the derecognition of an intangible asset are measured as the difference

between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of income when the asset is derecognized.

License fees

License fees arose from acquisition of branches from a local bank and license to operate new branches from the BSP. License fees have indefinite useful lives and are tested for impairment on an annual basis.

Software costs

Software costs are carried at cost less accumulated amortization and any impairment in value. Given the history of rapid changes in technology, computer software are susceptible to technological obsolescence. Therefore, it is likely that their useful life is short. Software costs are amortized on a straight-line basis over 5 years but maybe shorter depending on the period over which the Bank expects to use the asset.

Impairment of Nonfinancial Assets Property and equipment, investment and chattel mortgage properties

At each statement of condition date, the Bank assesses whether there is any indication that its nonfinancial assets may be impaired. When an indicator of impairment exists or when an annual impairment testing for an asset is required, the Bank makes a formal estimate of the recoverable amount. Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable amount, the asset (or cash generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash generating unit).

An impairment loss is charged to operation in the year in which it arises.

An assessment is made at each statement of condition date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation expense is adjusted in future years to

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allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life.

Goodwill

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash generating

unit (or group of cash generating units) to which the goodwill relates. Where the recoverable amount of the cash generating unit (or group of cash generating units) is less than the carrying amount of the cash generating unit (or group of cash generating units) to which goodwill has been allocated, an impairment loss is recognized immediately in the statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The Bank performs its annual impairment test of goodwill at the statement of condition date.

Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually at the statement of condition date either individually or at the cash generating unit level, as appropriate.

Intangible assets with finite lives are assessed for impairment whenever there is an indication that

the intangible asset may be impaired. Investment in an associate and a joint venture After application of the equity method, the Bank determines whether it is necessary to recognize

an impairment loss on the Bank’s investment in an associate and a joint venture. The Bank determines at each statement of condition date whether there is any objective evidence that the investment in an associate and a joint venture are impaired. If this is the case, the Bank calculates the amount of impairment as being the difference between the fair value of the associate and joint venture and the carrying amount and recognizes the amount in the statement of income.

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of

the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term; (c) there is a change in the determination of whether fulfillment is dependent on a specified asset;

or (d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the

change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b).

Bank as a lessee

Finance leases, which transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments

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are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in the statement of income under ‘Interest expense’.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset

and the lease term, if there is no reasonable certainty that the Bank will obtain ownership by the end of the lease term.

Leases where the lessor retains substantially all the risk and benefits of ownership of the assets are

classified as operating leases. Operating lease payments are recognized as an expense in the statement of income on a straight-line basis over the lease term.

Bank as a lessor

Leases where the Bank does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as income in the period in which they are earned.

Retirement Cost The Bank has a funded, noncontributory defined benefit retirement plan, administered by trustees,

covering their permanent employees. The retirement cost of the Bank is determined using the projected unit credit method. Under this

method, the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period.

The liability recognized in the statement of condition in respect of defined benefit pension plan is the present value of the defined benefit obligation at the statement of condition date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rate on government bonds that have terms to maturity approximating the terms of the related retirement liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited to or charged against income when the net cumulative unrecognized actuarial gains and losses at the end of the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These excess gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

Past-service costs, if any, are recognized immediately in income, unless the changes to the pension

plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period.

The defined benefit asset or liability comprises the present value of the defined benefit obligation

less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

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Provisions Provisions are recognized when the Bank has a present obligation (legal or constructive) as a

result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Bank expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as ‘Interest expense’.

Contingent Liabilities and Contingent Assets

Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the financial statements when an inflow of economic benefits is probable.

Debt Issue Costs Issuance, underwriting and other related expenses incurred in connection with the issuance of debt

instruments are included in the measurement basis of the underlying debt instruments and are deferred and amortized over the terms of the instruments using the EIR method.

Income Taxes Income tax on profit or loss for the year comprises current and deferred tax. Income tax is

determined in accordance with Philippine tax law. Income tax is recognized in the statement of income, except to the extent that it relates to other comprehensive income items recognized directly in the statement of comprehensive income.

Current income tax

Current income tax is the expected tax payable on the taxable income for the period, using the tax rates enacted at the statement of condition date, together with adjustments to tax payable in respect to prior years.

Deferred income tax

Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the statement of condition date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, including asset

revaluation. Deferred tax assets are recognized for all deductible temporary differences and carryforward of unused tax losses and tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT), to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and carryforward of unused tax losses and MCIT can be utilized.

The carrying amount of deferred tax assets is reviewed at each statement of condition date and

reduced to the extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each statement of condition date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

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Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set

off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period

when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of condition date.

Current tax and deferred tax relating to items recognized directly in OCI is also recognized in OCI and not in the statement of income.

Earnings Per Share Basic earnings per share (EPS) is computed by dividing net income for the year by the weighted

average number of common shares issued and outstanding during the year, after giving retroactive effect to stock dividends declared, stock rights exercised and stock splits, if any, declared during the year. As of December 31, 2011 and 2010, there were no potential common shares with dilutive effect on the basic EPS of the Bank.

Dividends on Common Shares Dividends on common shares are recognized as a liability and deducted from equity when

approved by the BOD of the Bank and the BSP. Dividends for the year that are approved after the statement of condition date are dealt with as an event after the statement of condition date.

Subsequent Events Post year-end events that provide additional information about the Bank’s position at the statement

of condition date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial

statements when material. Segment Reporting The Bank’s operating businesses are organized and managed separately according to the nature of

the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Financial information on business segments is presented in Note 6. The Bank’s assets generating revenues are all located in the Philippines (i.e., one geographical location). Therefore, geographical segment information is no longer presented.

Fiduciary Activities Assets and income arising from fiduciary activities together with related undertakings to return

such assets to customers are excluded from the financial statements where the Bank acts in a fiduciary capacity such as nominee, trustee or agent.

Standards Issued but not yet Effective Standards issued but not yet effective up to the date of issuance of the Bank’s financial statements are listed below. This listing consists of standards and interpretations issued, which the Bank reasonably expects to be applicable at a future date. The Bank intends to adopt these standards when they become effective. Except as otherwise indicated, the Bank does not expect the adoption of these new and amended PAS, PFRS and Philippine Interpretation to have significant impact on its financial statements.

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PAS 1, Financial Statement Presentation - Presentation of Items of Other Comprehensive Income (OCI) The amendments to PAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has therefore no impact on the Bank’s financial position or performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012.

PAS 12, Income Taxes - Recovery of Underlying Assets The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in PAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in PAS 16 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after January 1, 2012.

PAS 19, Employee Benefits (Amendment) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Bank is currently assessing the impact of the amendment to PAS 19. The amendment becomes effective for annual periods beginning on or after January 1, 2013.

PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10, Consolidated Financial Statement and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Bank does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after January 1, 2013.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, 2013.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial liabilities These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on the net assets of the Group, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. The Bank is currently assessing impact of the amendments to PAS 32.

PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Bank’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities.

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In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment affects disclosures only and has no impact on the Bank’s financial position or performance.

PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period:

a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the

net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that

are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the

offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and

e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments to PFRS 7 are to be retrospectively applied for annual periods beginning on or after January 1, 2013. The amendment affects disclosures only and has no impact on the Bank’s financial position or performance.

PFRS 9, Financial Instruments: Classification and Measurement

PFRS 9 as issued reflects the first phase on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, hedge accounting and impairment of financial assets will be addressed with the completion of this project expected on the first half of 2012. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Bank’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Bank will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. This standard becomes effective for annual periods beginning on or after January 1, 2013.

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PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities - Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after January 1, 2013.

PFRS 12, Disclosure of Interests with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after January 1, 2013.

PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Bank is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after January 1, 2013.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine

This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset. This interpretation becomes effective for annual periods beginning on or after January 1, 2013.

3. Significant Accounting Judgments and Estimates The preparation of the financial statements in accordance with PFRS requires the Bank to make

judgments and estimates that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent liabilities. Future events may occur which will cause the judgments and assumptions used in arriving at the estimates to change. The effects of any change in judgments and estimates are reflected in the financial statements as they become reasonably determinable.

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Judgments and estimates are continually evaluated and are based on historical experience and

other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments

(a) Operating leases

Bank as lessor

The Bank has entered into leases on its properties. The Bank has determined based on an evaluation of the terms and conditions of the arrangements (i.e., the lease does not transfer ownership of the asset to the lessee by the end of the lease term, the lessee has no option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option is exercisable and the lease term is not for the major part of the asset’s economic life), that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Bank as lessee

The Bank has entered into leases on premises it uses for its operations. The Bank has determined, based on the evaluation of the terms and condition of the lease agreement, that all significant risks and rewards of ownership of the properties it leases on operating lease are not transferable to the Bank.

(b) Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of condition cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. These estimates may include consideration of liquidity, volatility and correlation.

(c) HTM investments

The classification to HTM investment requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than in certain specific circumstances - for example, selling an insignificant amount close to maturity - it will be required to reclassify the entire portfolio to AFS investments. The investments would therefore be measured at fair value and not at amortized cost.

As of December 31, 2011 and 2010, the fair market value of HTM investments amounted to P=14.5 billion and P=10.4 billion, respectively (see Note 4). The carrying value of HTM investments amounted to P=12.3 billion and P=9.2 billion as of December 31, 2011 and 2010, respectively (see Notes 4 and 8).

(d) Financial assets not quoted in an active market

The Bank classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

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(e) Functional currency PAS 21 requires management to use its judgment to determine the entity’s functional currency

such that it most faithfully represents the economic effects of the underlying transactions, events and conditions that are relevant to the entity. In making this judgment, the Bank considers the following: a) the currency that mainly influences sales prices for financial instruments and services (this

will often be the currency in which sales prices for its financial instruments and services are denominated and settled);

b) the currency in which funds from financing activities are generated; and c) the currency in which receipts from operating activities are usually retained.

Estimates (a) Credit losses on loans and receivables

The Bank reviews its loans and receivables at each statement of condition date to assess whether an impairment loss should be recorded in the statement of income. In particular, management estimates the amount and timing of future cash flows based on a number of factors and calculates the impairment loss. Actual results may differ, at which event, the Bank adjusts the impairment loss and ensures that allowance for it remains adequate.

In addition to specific allowance against individually significant loans and receivables, the Bank also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. This collective allowance is based on changes in factors that are indicative of incurred losses, such as deterioration in payment status and underlying property prices, among others.

As of December 31, 2011 and 2010, the allowance for credit losses on loans and receivables amounted to P=4.6 billion and P=4.5 billion, respectively (see Note 15). Loans and receivables are carried at P=58.2 billion and P=53.2 billion as of December 31, 2011 and 2010, respectively (see Note 9).

(b) Valuation of unquoted AFS equity investments

The Bank’s investments in equity securities that do not have quoted market price in an active market and whose fair value cannot be reliably measured are carried at cost.

As of December 31, 2011 and 2010, carrying amounts of unquoted equity securities amounted to P=1.4 million (see Note 8).

(c) Impairment of quoted AFS equity investments

The Bank treats AFS equity investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Bank treats ‘significant’ generally as 20% or more of the original cost of the investment, and ‘prolonged’, greater than 6 months. In addition, the Bank evaluates other factors, including normal volatility in share price for quoted equities.

(d) Impairment of nonfinancial assets

Property and equipment, chattel mortgage properties, and intangible assets The Bank assesses impairment on assets whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable. The factors that the Bank considers important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating results;

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• significant changes in the manner of use of the acquired assets or the strategy for overall business; and

• significant negative industry or economic trends. The Bank recognizes an impairment loss whenever the carrying amount of an asset exceeds

its recoverable amount. The recoverable amount is computed using the fair value less costs to sell for property and equipment, investment properties and chattel mortgage properties. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. As of December 31, 2011 and 2010, there were no main events and circumstances that led to the recognition of impairment losses for individually significant investment properties.

As of December 31, 2011, the carrying values of property and equipment, investment

properties, intangible assets and chattel mortgage properties amounted to P=2.4 billion, P=2.8 billion, P=201.6 million and P=381.8 million, respectively. As of December 31, 2010, the carrying values of property and equipment, investment properties, intangible assets and chattel mortgage properties amounted to P=2.1 billion, P=2.8 billion, P=187.1 million and P=233.5 million, respectively (see Notes 11, 12, 13 and 14).

Investments in an associate and a joint venture The Bank assesses impairment on its investments in an associate and a joint venture whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Among others, the factors that the Bank considers important which could trigger an impairment review on its investments in an associate and a joint venture include the following:

• Deteriorating or poor financial condition;

• Recurring net losses; and

• Significant changes (i.e. technological, market, economic, or legal environment in which the subsidiary or associate operates) with an adverse effect on the subsidiary or associate have taken place during the period, or will take place in the near future.

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is determined based on the asset’s value in use. As of December 31, 2011 and 2010, the carrying values of the Bank’s investments in an associate and a joint venture amounted to P=1.2 billion and P=829.9 million, respectively (see Note 10).

Goodwill The Bank’s management conducts an annual review for any impairment in value of the

goodwill. Goodwill is written down for impairment where the net present value of the forecasted future cash flows from the business is insufficient to support its carrying value. The Bank used its weighted average cost of capital in discounting the expected cash flows from specific cash generating units.

Future cash flows from the business are estimated based on the theoretical annual income of the cash generating units. Average growth rate was derived from the average increase in annual income during the last 5 years.

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The recoverable amount of the cash generating unit has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 12.00%.

Key assumptions in value-in-use calculation of cash generating units are most sensitive to the following assumptions: a.) interest margin; b.) discount rates; and c.) projected growth rates used to extrapolate cash flows beyond the budget period.

As of December 31, 2011 and 2010, the Bank’s goodwill amounted to P=53.6 million

(see Note 13).

(e) Fair value of investment properties

The fair values of the Bank’s investment properties have been derived on the basis of recent sales of similar properties in the same areas as the investment properties and taking into account the economic conditions prevailing at the time the valuations were made.

(f) Present value of retirement obligation

The cost of defined benefit pension plan and other post employment benefits is determined using actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on plan assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of this plan, such estimates are subject to significant uncertainty.

The expected rate of return on plan assets of 8.27% and 8.44% as of January 1, 2011 and

2010, respectively, was based on market prices prevailing on the date of valuation, applicable to the period over which the obligation is to be settled. The assumed discount rates were determined using the market yields on Philippine government bonds with terms consistent with the expected employee benefit payout as of statement of condition dates. Refer to Note 24 for the details of assumptions used in the actuarial valuation.

As of December 31, 2011 and 2010, the present value of the retirement obligation of the Bank

amounted to P=895.1 million and P=647.0 million, respectively (see Note 24).

(g) Recognition of deferred income taxes

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Estimates of future taxable income indicate that temporary differences will be realized in the

future. As discussed in Note 27, net deferred tax assets as of December 31, 2011 and 2010 amounted to P=1.1 billion and P=705.4 million, respectively.

(h) Contingent liabilities

The Bank is a defendant in legal actions arising from normal business activities. Management believes that the ultimate liability, if any, resulting from these cases will not have a material effect on the Bank’s financial statements (see Note 31).

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(i) Estimated useful lives of property and equipment, investment properties, intangible assets and

chattel mortgage properties The Bank estimates the useful lives of its property and equipment, investment properties,

intangible assets and chattel mortgage properties. This estimate is reviewed periodically to ensure that the period of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property and equipment, investment properties, software cost and chattel mortgage properties.

As of December 31, 2011, carrying value of depreciable property and equipment and

investment properties amounted to P=2.2 billion and P=1.3 billion, respectively. As of December 31, 2010, carrying value of depreciable property and equipment and investment properties amounted to P=1.9 billion and P=1.2 billion, respectively (see Notes 11 and 12). As of December 31, 2011 and 2010, carrying value of intangible assets and chattel mortgage properties amounted to P=201.6 million and P=381.8 million, respectively. As of December 31, 2010, the carrying value of intangible assets and chattel mortgage properties amounted to P=187.10 million and P=233.50 million, respectively (see Notes 13 and 14).

4. Fair Value Measurement The following describes the methodologies and assumptions used to determine the fair values of

financial instruments: Cash and other cash items, due from BSP, due from other banks, interbank loans receivable and

SPURA, accounts receivable, accrued interest receivable, bills purchased, returned checks and other cash items (RCOCI), shortages, and petty cash fund - Carrying amounts approximate fair values due to the relatively short-term maturities of these assets.

Debt investments - Fair values are generally based on quoted market prices. If the market prices

are not readily available, fair values are estimated using either values obtained from independent parties offering pricing services or adjusted quoted market prices of comparable investments or using the discounted cash flow methodology using rates currently available for debt on similar terms, credit risk and remaining maturities.

Quoted AFS equity investments - Fair values are based on quoted prices published in markets. Unquoted AFS equity investments - Fair values could not be reliably determined due to the

unpredictable nature of future cash flows and the lack of suitable methods of arriving at a reliable fair value. Hence, these investments are carried at cost less allowance for impairment losses.

Currently, there is no available market to sell these unquoted AFS equity investments. The Bank

will hold unto the investment until management decides to sell them when there will be offers to buy out such investments on the appearance of an available market where the investments can be sold.

Receivable from customers and other receivables except accounts receivable, Accrued interest

receivable and Bills purchased and Security deposits - Fair values are estimated using the discounted cash flow methodology, using the Bank’s current incremental lending rates for similar types of loans.

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Subordinated notes and Time deposit - Fair values are estimated using the discounted cash flow

methodology using the Bank’s current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued.

Demand deposits, savings deposits, treasurer’s, cashier’s and manager’s checks, accrued interest

payable, accounts payable, bills purchased-contra, other credits, due to Treasurer of the Philippines, deposits for keys-SDB, payment orders payable and overages - Carrying amounts approximate fair values due to either the demand nature or the relatively short-term maturities of these liabilities.

Set out below is a comparison by class of carrying amounts and fair values of financial instruments that are carried in the financial statements (in thousands):

2011 2010

Carrying Value Fair Value Carrying Value Fair Value

Financial Assets

FVPL investments HFT - Government securities P=– P=– P=797,427 P=797,427 Derivatives - Republic of the Philippines

(ROP) warrants 54,794 54,794 70,889 70,889 AFS investments Government debt securities 18,688,690 18,688,690 16,195,916 16,195,916 Quoted equity securities 3,005 3,005 3,005 3,005 Unquoted equity securities 1,418 1,418 1,418 1,418 HTM investments Treasury notes 8,005,972 9,854,242 5,570,500 6,484,348 Government bonds 4,307,843 4,671,247 3,592,085 3,921,087 Loans and receivables Loans and advances to banks: Cash and other cash items 3,921,289 3,921,289 3,163,940 3,163,940 Due from BSP 4,303,595 4,303,595 2,899,592 2,899,592 Due from other banks 3,736,073 3,736,073 7,520,836 7,520,836 Interbank loans receivable and SPURA 10,480,000 10,480,000 3,586,560 3,586,560 Receivable from customers: Consumption loans 25,057,065 27,707,430 22,038,472 24,453,677 Real estate loans 18,861,918 19,057,761 17,340,010 17,414,597 Commercial loans 9,286,994 9,760,721 8,942,653 9,211,419 Personal loans 3,241,315 5,242,766 3,147,757 4,947,987 Bills discounted 11,470 10,707 11,792 10,913 Other receivables: Accrued interest receivable 870,762 870,762 617,452 617,452 Sales contract receivable 437,364 426,781 612,086 590,946 Unquoted debt securities 300,000 329,207 400,000 446,065 Accounts receivable 59,401 59,401 44,383 44,383 Bills purchased 63,863 63,863 53,030 53,030 Other assets Security deposits 87,417 65,285 76,325 69,701 RCOCI 20,181 20,181 27,842 27,842 Petty cash fund 300 300 300 300 Shortages 54 54 86 86

Total assets P=111,800,783 P=119,329,572 P=96,714,356 P=102,533,416

(Forward)

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2011 2010

Carrying Value Fair Value Carrying Value Fair Value

Financial Liabilities Other liabilities at amortized cost Deposit liabilities: Demand P=11,421,806 P=11,421,806 P=7,170,222 P=7,170,222 Savings 11,668,375 11,668,375 10,147,794 10,147,794 Time 78,460,155 80,298,947 70,200,793 71,142,589 Subordinated notes – – 1,977,141 2,039,082 Treasurer’s, cashier’s and manager’s checks 654,514 654,514 649,434 649,434

Accrued interest payable 191,368 191,368 200,097 200,097 Accrued other expense payable 916,542 916,542 752,779 752,779

Other liabilities: Accounts payable 753,599 753,599 676,738 676,738 Other credits 96,345 96,345 186,438 186,438 Bills purchased-contra 65,166 65,166 54,333 54,333 Dividends payable 35,370 35,370 – – Due to Treasurer of the Philippines 7,004 7,004 6,303 6,303 Deposits for keys 982 982 1,040 1,040 Others* 1,269 1,269 1,764 1,764

Total liabilities P=104,272,495 P=106,111,287 P=92,024,876 P=93,028,613

* Others under financial liabilities comprise of payment orders payable and overages.

The following table shows financial instruments recognized at fair value (in thousands); analyzed

among those whose fair value is based on:

• Level 1 - quoted market prices in active markets for identical assets or liabilities; when fair values of listed equity and debt securities, as well as publicly traded derivatives at the reporting date are based on quoted market prices or binding dealer price quotations, without any deduction for transaction costs, the instruments are included within Level 1 of the hierarchy.

• Level 2 - those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); for all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist and other revaluation models; and

• Level 3 - those with inputs for the asset or liability that are not based on observable market data (unobservable inputs); instruments included in Level 3 are those for which there are currently no active market.

2011

Level 1 Level 2 Level 3 Total

Financial Assets

FVPL investments

Derivatives - ROP warrants P=– P=54,794 P=– P=54,794

AFS investments

Government securities 17,753,053 935,637 – 18,688,690

Quoted equity securities 3,005 – – 3,005

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2010

Level 1 Level 2 Level 3 Total

Financial Assets FVPL investments HFT - government securities P=797,427 P=– P=– P=797,427 Derivatives - ROP warrants – 70,889 – 70,889 AFS investments Government securities 14,599,372 1,596,544 – 16,195,916 Quoted equity securities 3,005 – – 3,005

There were no transfers made between each level in 2011 and 2010.

5. Financial Risk Management Policies and Objectives The Bank has exposure to the following risks from its use of financial instruments:

• Credit risk

• Market risk

• Liquidity risk Organization risk management structure continues to be a top-down organization, with the BOD at

the helm of all major initiatives. Discussed below are the relevant sections on roles and responsibilities from the Risk Management

Committee (RMC) Charter: BOD

The corporate powers of the Bank are vested in and are exercised by the BOD, who conducts its business and controls its property. The BOD approves broad risk management strategies and policies and ensures that risk management initiatives and activities are consistent with the Bank’s overall objectives. The BOD appoints the members of the RMC.

RMC

The RMC is composed of at least three BOD members who possess a range of expertise and adequate knowledge of the Bank’s risk exposures to be able to develop appropriate strategies for preventing losses and minimizing the impact of losses when they occur.

The BOD may also appoint non-Directors to the RMC as part of the Metrobank Group risk oversight measures. However, only Bank Directors shall be considered as voting members of the RMC. Non-voting members are appointed in an advisory capacity.

The RMC oversees the system of limits to discretionary authority that the BOD delegates to the

management and ensures that the system remains effective, the limits are observed, and that immediate corrective actions are taken whenever limits are breached.

The RMC meets on a monthly basis and is supported by the Risk Management Office (RMO). In

the absence of the RMC Chairman, a non-executive Director shall preside. RMC resolutions, which require the concurrence of the majority of its voting members, are presented to the BOD for confirmation.

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RMO The RMO, headed by the Chief Risk Officer, is a function that is independent from the Bank’s

business line functions and reports directly to the BOD, through the RMC. The RMO assists the RMC in carrying out its responsibilities by:

• analyzing, communicating, implementing, and maintaining the Risk Management Policies approved by the RMC and the BOD;

• spearheading the regular review of the Bank’s Risk Management Policy Manual and making or elevating recommendations that enhance the risk management process to the RMC and the BOD, for their approval;

• ensuring that the risks arising from the Bank’s activities are identified, measured, analyzed, reported to and understood by Risk Takers, Management, and the Board. The RMO analyzes limit exceptions and recommends enhancements to the limits structure.

The RMO does not assume risk-taking accountability nor does it have approving authority. The RMO’s role is to act as liaison and to provide support to the Board, RMC, the President, Management Committees, Risk Takers and other Support and Control Functions on risk-related matters.

President

The President is the Chief Executive Officer of the Bank and has the primary responsibility of carrying out the policies and objectives of the BOD. The President exercises the authorities delegated to him by the BOD and may recommend such policies and objectives he deems necessary for the continuing progress of the Bank.

Risk management

The risk management framework aims to maintain a balance between the nature of the Bank’s businesses and the risk appetite of the BOD. Accordingly, policies and procedures are reviewed regularly and revised as the organization grows and as financial markets evolve. New policies or proposed changes in current policies are presented to the RMC and the BOD for approval.

a. Credit risk and concentration of assets and liabilities and off-balance sheet items

Credit risk is the risk that counterparty will not settle its obligations in accordance with the agreed terms.

The Bank’s lending business follows credit policy guidelines set by the BOD, RMC and RMO. These policies serve as minimum standards for extending credit. The people engaged in the credit process are required to understand and adhere to these policies.

Product manuals are in place for all loans and deposit products that actually or potentially expose the Bank to all types of risks that may result in financial or reputational losses. They define the product and the risks associated with the product plus the corresponding risk-mitigating controls. They embody the business plans and define the business parameters within which the product or activity is to be performed.

The system of checks around extension of credit includes approval by at least two credit approvers through Credit Committee (CreCom), Executive Committee (ExCom) or BOD. The RMC reviews the business strategies and ensure that revenue-generating activities are consistent with the risk tolerance and standard of the Bank. The Internal Audit Group conducts regular audit across all functional units. The BOD - through the ExCom, CreCom and RMC - ensure that sound credit policies and practices are followed through all the business segments.

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Credit Approval Credit approval is the documented acceptance of credit risk in the credit proposal or

application. The Bank’s credit decision-making for consumer loans utilizes the recommendation of the

credit scoring and is performed at the CreCom level appropriate to the size and risk of each transaction in conformity with corporate policies and procedures in regulating credit risk activities. The Bank’s ExCom may approve deviations or exceptions, while the BOD approves material exceptions such as large exposures, loans to directors, officers, stockholders and other related interests (DOSRI), and loan restructuring.

Credit delegation limits are identified, tracked and reviewed at least annually by the Bank’s

Senior Credit Officer together with the Credit Risk Manager. Borrower Eligibility The Bank’s credit processing commences when a customer expresses his intention to borrow

through a credit application. The Bank gathers data on the customer; ensure they are accurate, up-to-date and adequate to meet the minimum regulatory requirements and to render credit decision. These data are used for the intended purpose only and are managed in adherence to the customer information secrecy law.

The customer’s credit worthiness, repayment ability and cash flow are established before

credit is extended. The Bank independently verifies critical data from the customer, ensuring compliance with Know Your Customer requirements under the Anti-Money Laundering Act of 2001. The Bank requires that customer income be derived from legitimate sources and supported with government-accepted statements of income, assets and liabilities.

The Bank ascertains whether the customer is legally capable of entering a credit contract and of providing a charge over any asset presented as collateral for a loan. Guarantors or sureties may be accepted, provided they are a relative, partner, and have financial interest in the transaction, and they pass all credit acceptance criteria applied to the borrower.

Loan Structure The Bank structures loans for its customers based on the customer’s capability to pay, the

purpose of loan, and for collateralized loan, the collateral’s economic life and liquidation value over time.

The Bank establishes debt burden guidelines and minimum income requirement to assess the

customer’s capacity to pay. The Bank utilizes credit bureau data, both external and internal, to obtain information on

customer’s current commitments and credit history. These are sourced from the databases of the Banker’s Association of the Philippines and the Credit Management Association of the Philippines.

The Bank takes into account environmental and social issues when reviewing credit proposals

of small business and commercial mortgage customers. The Bank ensures that all qualified securities pass through the BOD for approval. Assignments of securities are confirmed and insurance are properly secured.

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The Bank uses credit scoring models and decision systems for consumer loans as approved by

the BOD. Initial loan limits are recommended by the CreCom and ExCom and approved by the BOD.

The Bank ensures that secured loans are within ceilings set by local regulators. Succeeding loan availments are based on account performance and customer’s credit worthiness.

The CreCom and ExCom recommend to the BOD any credit exceptions that merit approval

provided they are supported by strong business rationale. The Bank relays credit approval at once thru Short Messaging Service but loan proceeds are paid out after documentations are completed.

Credit Management The Bank maintains credit records and documents on all borrowings and capture transaction

details in its loan systems. The credit risk policies and system infrastructure ensure that loans are monitored and managed at all times.

The Bank’s Management Information System provides statistics that its business units need to

identify opportunities for improving rewards without necessarily sacrificing risk. Statistical data on product, productivity, portfolio, profitability, performance and projection are made available regularly.

The Bank conducts regular loan review through the RMC, with the support of the RMO. The

Bank examines its exposures, credit risk ratios, provisions and customer segments. The Bank’s unique customer identification and unique group identification methodology enables it to aggregate credit exposures by customer or group of borrowers. Aggregate exposures of at least P=0.1 billion are put on a special monitoring.

The RMC assesses the adequacy of provisions for credit losses regularly. The Bank’s

automated loan grading system enables the Bank to set up provision per account. The Bank also performs impairment analyses on loans and receivables, whether on individual or collective basis, in accordance with PFRS.

In 2011, enhanced credit scoring models were implemented for consumer loans. Separately, a

Borrower Risk Rating was piloted for Small and Medium Enterprise (SME) loans, supported with qualitative evaluation. Stress testing models were revisited, and as a result, alternative models were put in place to simultaneously guide the management in terms of macroeconomic indicators movements and portfolio quality trends.

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Maximum Exposure to Credit Risk After Taking Account Collateral Held or Other Credit

Enhancements An analysis of the maximum exposure to credit risk after taking into account any collateral

held or other credit enhancements of collateralized financial instruments is shown below (in thousands):

2011

Carrying

Amount

Fair Value of

Collateral

Maximum

Exposure to

Credit Risk

Financial Effect

of Collateral

or Credit

Enhancement

Due from other banks P=3,736,073 P=3,184,860 P=3,163,905 P=572,168

Interbank loans receivable and SPURA 10,480,000 10,464,917 15,083 10,464,917

Receivables from customers:

Consumption loans 25,057,065 38,785,872 256,488 24,800,577

Real estate loans 18,861,918 44,068,476 – 18,861,918

Commercial loans 9,286,994 8,604,846 7,725,938 1,561,056

Other receivables:

Accrued interest receivable 870,762 77,156 793,606 77,156

Sales contract receivable 437,364 924,733 – 437,364

Total 68,730,176 106,110,860 11,955,020 56,775,156

Stand-by credit lines (Note 31) 97,308 – 97,308 –

Total credit exposure P=68,827,484 P=106,110,860 P=12,052,328 P=56,775,156

2010

Carrying Amount

Fair Value of Collateral

Maximum Exposure to Credit Risk

Financial Effect of Collateral

or Credit Enhancement

Due from other banks P=7,520,836 P=3,157,620 P=5,341,552 P=2,179,284 Interbank loans receivable and SPURA 3,586,560 999,240 2,587,320 999,240

Receivables from customers: Consumption loans 22,038,472 33,982,657 327,711 21,710,761 Real estate loans 17,340,010 41,351,319 – 17,340,010 Commercial loans 8,942,653 9,548,576 8,246,349 696,304 Other receivables: Accrued interest receivable 617,452 68,810 548,642 68,810 Sales contract receivable 612,086 1,180,166 – 612,086

Total 60,658,069 90,288,388 17,051,574 43,606,495 Stand-by credit lines (Note 31) 112,514 – 112,514 –

Total credit exposure P=60,770,583 P=90,288,388 P=17,164,088 P=43,606,495

Collateral and Other Credit Enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding acceptability of types of collateral and valuation parameters.

The main types of collaterals obtained are as follows:

- For Due from other banks; investment securities - For SPURA; investment securities - For commercial lending; mortgages over real estate properties, deposit accounts and

securities - For consumer lending; mortgages over real estate and chattel

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Management monitors the market value of collateral, requests additional collateral in

accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for credit and impairment losses.

It is the Bank’s policy to dispose of repossessed properties in an orderly fashion and proceeds

are used to repay or reduce the outstanding claim. In general, the Bank does not occupy repossessed properties for business use.

The Bank holds collateral against loans and receivables in the form of real estate and chattel

mortgages, guarantees, and other registered securities over assets. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and generally are updated every two years and when a loan is assessed to be impaired, whenever applicable. Generally, collateral is not held over loans and advances to banks except for SPURA. The Bank is not allowed to sell or pledge collateral held under SPURA. Collateral usually is not held against investment securities, and no such collateral was held as of December 31, 2011 and 2010.

Concentration of risk is managed by borrower, by group of borrower, by geographical region

and by industry sector. As of December 31, 2011 and 2010, the maximum credit exposure to any borrower amounted to P=2.7 billion and P=2.2 billion, respectively, before taking account of collateral or other credit enhancement.

The distribution of the Bank’s financial assets and off-balance sheet items before taking into account any collateral held or other credit enhancements can be analyzed by the following geographical regions (in thousands):

2011

Banking

Activities

Trading

Activities Others Total

Luzon P=23,128,598 P=35,462,219 P=44,956,762 P=103,547,579

Visayas 117,806 302,837 3,785,959 4,206,602

Mindanao 195,097 528,771 4,103,031 4,826,899

23,441,501 36,293,827 52,845,752 112,581,080

Less allowance for credit and impairment losses 921,350 201,416 3,481,812 4,604,578

Total P=22,520,151 P=36,092,411 P=49,363,940 P=107,976,502

2010

Banking Activities

Trading Activities Others Total

Luzon P=18,683,941 P=30,927,554 P=44,519,867 P=94,131,362 Visayas 80,729 179,730 1,775,821 2,036,280 Mindanao 89,840 311,545 1,662,600 2,063,985

18,854,510 31,418,829 47,958,288 98,231,627 Less allowance for credit and

impairment losses 894,907 201,295 3,472,794 4,568,996

Total P=17,959,603 P=31,217,534 P=44,485,494 P=93,662,631

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Additionally, the tables below show the distribution of the Bank’s financial assets and off-balance sheet items before taking into account any collateral or other credit enhancements analyzed by industry sector as of December 31, 2011 and 2010 (in thousands):

2011

Loans and

Receivables

Loans and

Advances to

Banks*

Investment

Securities** Others*** Total

Financial intermediaries P=4,159,949 P=18,519,668 P=31,107,732 P=107,652 P=53,895,001

Real estate, renting and business activities 18,320,692 – – – 18,320,692

Other community, social and personal activities 10,229,504 – – – 10,229,504

Transportation, storage and communication 6,874,779 – – – 6,874,779 Wholesale and retail trade 5,146,388 – – 39,708 5,186,096

Private households 3,781,179 – – – 3,781,179

Public administration and defense compulsory social security 2,892,688 – – – 2,892,688

Manufacturing 1,846,637 – – – 1,846,637

Electricity, gas and water 1,845,266 – – – 1,845,266 Agricultural, hunting and forestry 1,596,201 – – 4,364 1,600,565

Construction 916,910 – – 45,000 961,910

Hotel and restaurants 918,691 – – – 918,691

Mining and quarrying 42,340 – – – 42,340

Others 4,177,496 – – 8,236 4,185,732

62,748,720 18,519,668 31,107,732 204,960 112,581,080 Less allowance for credit and impairment

losses 4,558,568 – 46,010 – 4,604,578

Total P=58,190,152 P=18,519,668 31,061,722 P=204,960 P=107,976,502

* Comprised of due from BSP, due from other banks and interbank loans receivable and SPURA. ** Comprised of FVPL investments, AFS investments and HTM investments. *** Comprised of financial assets classified under other assets (such as RCOCI, security deposits and shortages) and stand-by credit lines.

2010

Loans and Receivables

Loans and Advances to

Banks* Investment Securities** Others*** Total

Financial intermediaries P=2,457,197 P=14,006,988 P=26,277,251 P=104,252 P=42,845,688 Real estate, renting and business activities 13,913,795 – – – 13,913,795 Other community, social and personal

activities 16,057,412 – – – 16,057,412 Transportation, storage and communication 11,318,006 – – – 11,318,006 Wholesale and retail trade 4,628,272 – – 65,415 4,693,687 Agricultural, hunting and forestry 1,448,765 – – – 1,448,765 Manufacturing 1,349,775 – – – 1,349,775 Public administration and defense

compulsory social security 1,182,165 – – – 1,182,165 Private households 676,723 – – – 676,723 Construction 531,081 – – 47,000 578,081 Electricity, gas and water 532,233 – – – 532,233 Mining and quarrying 97,593 – – – 97,593 Hotel and restaurants 35,980 – – – 35,980 Others 3,501,624 – – 100 3,501,724

57,730,621 14,006,988 26,277,251 216,767 98,231,627 Less allowance for credit and impairment

losses 4,522,986 – 46,010 – 4,568,996

Total P=53,207,635 P=14,006,988 P=26,231,241 P=216,767 P=93,662,631

* Comprised of due from BSP, due from other banks and interbank loans receivable and SPURA. ** Comprised of FVPL investments, AFS investments and HTM investments. *** Comprised of financial assets classified under other assets (such as RCOCI, security deposits and shortages) and stand-by credit lines.

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Credit Quality Description of the loan grades for loans, receivables and stand-by credit lines:

Interim Credit Rating System

Relative to the credit scoring models enhancements in 2011, the 10-point ICRS (Interim Credit Rating System) of the Bank was enhanced. Each risk rating is mapped to a credit score and BSP loan grade matrix that varies by product.

Neither Past Due nor Individually Impaired

The Bank classifies those accounts under current status having the following loan grades:

High Grade (ICRS 1 - 4) 1 – Excellent This is considered as normal risk by the Bank. An excellent rating is given to a borrower who has the ability to meet credit obligation in full and is never delinquent.

2 – Strong This is also considered as normal risk by the Bank. Borrower has the ability to meet credit obligation in full, except that the borrower had history of 1-29 days delinquency at worst.

3 – Good This rating is given to a borrower who has the ability to meet credit obligation in full, except that the borrower had history of rating of Loans Especially Mentioned (ICRS–7) at worst.

4 – Satisfactory This rating is given to a borrower who has the ability to meet credit obligation in full, except that the borrower had history of rating of Substandard (ICRS–8) at worst.

Standard Grade (ICRS 5 - 7) 5 – Acceptable An acceptable rating is given to a borrower who meets present obligations, except that the borrower had history of Doubtful (ICRS–9) at worst.

6 – Watchlist This rating is given to a borrower who meets present obligations, except that the borrower had history of Loss (ICRS–10) at worst.

7 – Loan Especially Mentioned This rating is given to a borrower who has potential weaknesses which when left uncorrected, may affect the repayment of the loan and thus increase credit risk to the Bank.

Substandard Grade (ICRS 8) 8 – Substandard A substandard rating is given to a borrower whose loan or portion thereof involves a substantial and an unreasonable degree of risk to the Bank because of unfavorable record or unsatisfactory characteristics. These loans show possibility of future loss to the Bank unless given closer supervision and well-defined weaknesses that jeopardize the loan liquidation.

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Unrated grade Other credit assets which cannot be classified as High, Standard or Sub-standard are tagged as Unrated.

Past Due but Not Individually Impaired These are accounts which are classified as delinquent but are not subject to individual impairment as of statement of condition date.

9 – Doubtful This rating is given to a borrower whose loans have characteristics where collection and liquidation in full is highly improbable and in which substantial loss is probable.

10 – Loss This rating is given to a borrower whose loans or portions thereof are considered uncollectible or worthless and of such little value that their continuance as bankable assets is not warranted.

Individually Impaired

Accounts which are subject to individual impairment as of statement of condition date.

The tables below show the credit quality per class of financial assets under loans and receivables (in thousands):

2011


Past Due

but not

High Grade

Standard

Grade

Substandard

Grade Unrated

Individually

Impaired

Individually

Impaired Total

Loans and advances to banks:

Due from BSP P=– P=4,303,595 P=– P=– P=– P=– P=4,303,595 Due from other banks – 3,736,073 – – – – 3,736,073

Interbank loans receivable and SPURA – 10,480,000 – – – – 10,480,000


Consumption loans 21,790,405 84,973 4,312 – 3,719,548 – 25,599,238 Real estate loans 15,695,138 621,243 20,400 – 2,343,378 359,998 19,040,157 Commercial loans 8,812,804 171,195 124,955 – 147,229 993,506 10,249,689

Personal loans 3,054,385 55,606 122,455 – 2,005,309 – 5,237,755

Bills discounted – – – – 11,470 – 11,470 Other receivables:

Accrued interest receivable 776,451 4,423 1,226 – 78,041 304,096 1,164,237

Sales contract receivable 363,976 – – – 78,974 18,313 461,263 Unquoted debt instrument 300,000 – – – – 95,611 395,611

Accounts receivable 1,503 171 82 – 344,698 177,680 524,134

Bills purchased – – – 65,166 – – 65,166

Other assets: Security deposits – – – 87,417 – – 87,417

RCOCI – – – 20,181 – – 20,181

Shortages – – – 54 – – 54

Total P=50,794,662 P=19,457,279 P=273,430 P=172,818 P=8,728,647 P=1,949,204 P=81,376,040

Shown gross of allowance for credit and impairment losses

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2010

Neither Past Due nor Individually Impaired Past Due but not

High Grade Standard Grade

Substandard Grade Unrated

Individually Impaired

Individually Impaired Total

Loans and advances to banks: Due from BSP P=– P=2,899,592 P=– P=– P=– P=– P=2,899,592 Due from other banks – 7,520,836 – – – – 7,520,836 Interbank loans receivable

and SPURA 2,586,560 1,000,000 – – – – 3,586,560 Receivables from customers: Consumption loans 19,569,571 301,226 4,241 – 2,638,636 – 22,513,674 Real estate loans 14,650,183 337,014 57,519 – 2,147,380 320,827 17,512,923 Commercial loans 8,332,250 70,314 49,204 – 132,771 1,127,174 9,711,713 Personal loans 2,990,381 58,873 105,059 – 2,229,643 – 5,383,956 Bills discounted 121 – – – 11,671 – 11,792 Other receivables: Accrued interest receivable 235,817 325,215 430 – 89,269 234,456 885,187 Sales contract receivable 479,118 87,764 – – 54,893 18,313 640,088 Unquoted debt instrument 400,000 – – – – 95,611 495,611 Accounts receivable 3,718 23 15 – 339,333 178,256 521,345 Bills purchased – 54,333 – – 54,333 Other assets: Security deposits – – – 76,325 – – 76,325 RCOCI – – – 27,842 – – 27,842 Shortages – – – 86 – – 86

Total P=49,247,719 P=12,600,857 P=216,468 P=158,586 P=7,643,596 P=1,974,637 P=71,841,863


External Ratings

In ensuring quality investment portfolio, the Bank uses the credit risk rating based on the rating of Moody’s Investors Service (Moody’s rating) as follows:

Credit Quality External Rating

High grade Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

Standard grade Ba1 Ba2 Ba3 B1 B2 B3

Substandard grade Caa1 Caa2 Caa3 Ca C

High grade - represents those investments which fall under any of the following grade: Aaa - fixed income obligations are judged to be of the highest quality, with the smallest

degree of risk. Aa1, Aa2, Aa3 - fixed income are judged to be of high quality and are subject to very low

credit risk, but their susceptibility to long-term risks appears somewhat greater. A1, A2, A3 - fixed income obligations are considered upper-medium grade and are subject to

low credit risk, but have elements present that suggest a susceptibility to impairment over the long term. Baa1, Baa2, Baa3 - fixed income obligations are subject to moderate credit risk. They are considered medium grade and as such protective elements may be lacking or may be characteristically unreliable.

Standard grade - represents those investments which fall under any of the following grade:

Ba1, Ba2, Ba3 - obligations are judged to have speculative elements and are subject to

substantial credit risk. B1, B2, B3 - obligations are considered speculative and are subject to high credit risk.

Substandard grade - represents those investments which fall under any of the following grade:

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Caa1, Caa2, Caa3 - are judged to be of poor standing and are subject to very high credit risk. Ca - are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. C - are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.

The tables below show the credit quality per class of investment securities (in thousands):

2011


Past Due

but not

High Grade

Standard

Grade

Substandard

Grade Unrated

Individually

Impaired

Individually

Impaired Total

FVPL investments Derivatives - ROP warrants P=– P=54,794 P=– P=– P=– P=– P=54,794

AFS investments Government debt securities – 18,688,690 – – – – 18,688,690

Quoted equity securities – – – – – 5,194 5,194

Unquoted equity securities – – – – – 45,239 45,239

HTM investments

Treasury notes – 8,005,972 – – – – 8,005,972

Government bonds – 4,307,843 – – – – 4,307,843

Total P=– P=31,057,299 P= – P=– P=– P=50,433 P=31,107,732


2010

Neither Past Due nor Individually Impaired Past Due

High Grade Standard Grade

Substandard Grade Unrated

but not Individually

Impaired Individually

Impaired Total

FVPL investments HFT - Government securities P=– P=797,427 P=– P=– P=– P=– P=797,427

Derivatives - ROP warrants – 70,890 – – – – 70,890 AFS investments Government debt securities – 16,195,916 – – – – 16,195,916 Quoted equity securities – – – – – 5,194 5,194 Unquoted equity securities – – – – – 45,239 45,239 HTM investments Treasury notes – 5,570,500 – – – – 5,570,500 Government bonds – 3,592,085 – – – – 3,592,085

Total P= – P=26,226,818 P= – P=– P=– P=50,433 P=26,277,251


Impairment Assessment Impairment losses are recognized based on the results of specific (individual) and collective

assessment of credit exposures. Impairment has taken place when there is a presence of known difficulties in the payments of obligation by counterparties, a significant credit rating downgrade takes place, infringement of the original terms of the contract has happened or when there is inability to pay principal or interest overdue beyond a threshold (e.g. 90 days). These and other factors, either singly or in tandem with other factors, constitute observable events or data that meet the definition of objective evidence of impairment.

Individually assessed allowances The Bank determines the allowances appropriate for each significant loan or advance on an

individual basis. Items considered when determining amounts of allowances include an account’s age, payment and collection history, timing of expected cash flows and realizable value of collateral.

The Bank sets criteria for specific loan impairment testing and uses the discounted cash flow

methodology to compute for impairment loss. Accounts subjected to specific impairment and are found to be impaired shall be excluded from the collective impairment computation.

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Collectively assessed allowances

Allowances are assessed collectively for losses on commercial loans and advances that are not individually significant or are found to be not individually impaired. Impairment losses are estimated by taking into consideration the historical losses on the portfolio and the expected receipts and recoveries once impaired. The Bank is responsible for deciding the length of historical loss period which can extend for as long as five years. The impairment allowance is then reviewed by the Bank to ensure alignment with the Bank’s overall policy.

The Bank uses the Net Flow Rate method to determine the credit loss rate of a particular

delinquency age bucket based on historical data of flow-through and flow-back of loans across specific delinquency age buckets. The method applies to consumer loans, as well as, salary and home equity loans granted to employees of the Bank. For commercial loans, the Bank uses Historical Loss Rate method in determining the credit loss rate based on the actual historical loss experienced by the Bank on each specific industry type.

Aging Analysis of Past Due but not Individually Impaired Loans per Class of Financial Assets The succeeding tables show the total aggregate amount of gross past due but not individually impaired loans and receivables per delinquency bucket. Under PFRS, a financial asset is past due when the counterparty has failed to make a payment when contractually due (in thousands):

2011

Past Due but not Individually Impaired

Less than

30 days

31 to

60 days

61 to

90 days

91 to

180 days

Over

180 days Total

Loans and receivables


Consumption loans P=1,737,305 P=767,776 P=310,074 P=288,620 P=615,773 P=3,719,548

Real estate loans 1,587,629 555,780 146,341 24,564 29,064 2,343,378

Commercial loans 123,872 13,189 7,635 2,007 526 147,229 Personal loans 128,081 51,170 30,842 75,821 1,719,395 2,005,309

Bills discounted – – – – 11,470 11,470

Other receivables: Accrued interest receivable 20,722 9,901 4,113 3,087 40,218 78,041

Sales contract receivable 58,752 7,701 3,626 722 8,173 78,974

Accounts receivable 55,871 3,927 1,927 2,304 280,669 344,698

Total P=3,712,232 P=1,409,444 P=504,558 P=397,125 P=2,705,288 P=8,728,647

Shown gross of allowance for impairment and credit losses

2010

Past Due but not Individually Impaired

Less than 30 days

31 to 60 days

61 to 90 days

91 to 180 days

Over 180 days Total

Loans and receivables Receivables from customers: Consumption loans P=1,104,087 P=554,285 P=205,851 P=228,124 P=546,289 P=2,638,636 Real estate loans 1,287,399 481,089 124,651 88,471 165,770 2,147,380 Commercial loans 81,717 22,542 11,762 2,505 14,245 132,771 Personal loans 141,988 61,253 37,412 90,753 1,898,237 2,229,643 Bills discounted – – – – 11,671 11,671 Other receivables: Accrued interest receivable 19,339 9,409 4,224 5,659 50,638 89,269 Sales contract receivable 28,499 10,704 1,446 2,691 11,553 54,893 Accounts receivable 42,281 15,539 530 1,415 279,568 339,333

Total P=2,705,310 P=1,154,821 P=385,876 P=419,618 P=2,977,971 P=7,643,596

Shown gross of allowance for impairment and credit losses

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b. Market risk

Market risk management covers the areas of trading and interest rate risks. The Bank utilizes various measurement and monitoring tools to ensure that risk-taking activities are managed within instituted market risk parameters. The Bank revalues its trading portfolios on a daily basis and checks the revenue or loss generated by each portfolio in relation to their level of market risk.

The Bank’s risk policies and implementing guidelines are regularly reviewed by the Assets and Liabilities Committee (ALCO), RMC and BOD to ensure that these are up-to-date and in line with changes in the economy, environment and regulations. The RMC and the BOD set the comprehensive market risk limit structure and define the parameters of market activities that the Bank can engage in.

Market risk is the risk to earnings and capital arising from changes in the value of traded portfolios of financial instruments (trading market risk) and from movements in interest rates (interest rate risk). The Bank’s market risk originates primarily from holding peso and dollar-denominated debt securities. The Bank utilizes Value-at-Risk (VaR) to measure and manage market risk exposure. VaR estimates the potential decline in the value of a portfolio, under normal market conditions, for a given confidence level over a specified holding period.

Trading activities

The Bank’s trading portfolios are currently composed of peso and dollar-denominated sovereign debt securities that are marked-to-market daily. The Bank also uses VaR to measure the extent of market risk exposure arising from these portfolios.

VaR is a statistical measure that calculates the maximum potential loss from a portfolio over a holding period, within a given confidence level. The Bank’s current VaR model uses historical simulation for Peso and USD HFT portfolios with confidence level at 99% and a 1 day holding period. It utilizes a 260 days rolling data most recently observed daily percentage changes in price for each asset class in its portfolio.

VaR reports are prepared on a daily basis and submitted to the President, Treasury and RMO. The Bank’s BOD and management are advised whenever potential losses exceed prudent levels. VaR reports are reported to the RMC and BOD on a monthly basis.

When there is a breach in VaR limits, Treasury is expected to close or reduce their position and bring it down within the limit unless approval from the President is obtained to retain the same. All breaches are reported to the President for regularization. In addition to the regularization and approval of the President, breaches in VaR limits and special approvals are likewise reported to the RMC and BOD for their information and confirmation.

Back testing is employed to verify the effectiveness of the VaR model. The bank performs back-testing to validate the VaR model and stress testing to determine the impact of extreme market movements on the portfolios. Results of backtesting are reported to the RMC and BOD on a monthly basis. Stress testing is also conducted, based on historical maximum percentage daily movement and on an ad-hoc rate shock to estimate potential losses in a crisis situation.

The Bank has established position, VaR, stop loss, loss trigger, and modified duration limits for its trading portfolios. Daily profit or loss of the trading portfolios is closely monitored against loss triggers and stop-loss.

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Responsibility for managing the Bank’s trading market risk remains with the RMC. With the support of RMO, the RMC recommends to the BOD changes in market risk limits, approving authorities and other activities that need special consideration.

Discussed below are the limitations and assumptions applied by the Bank on its VaR methodology:

a. VaR is a statistical estimate and thus, does not give the precise amount of loss; b. VaR is not designed to give the probability of bank failure, but only attempts to quantify

losses that may arise from a bank’s exposure to market risk; c. Historical simulation does not involve any distributional assumptions, scenarios that are

used in computing VaR are limited to those that occurred in the historical sample; and d. VaR systems are backward-looking. It attempts to forecast likely future losses using past

data. As such, this assumes that past relationships will continue to hold in the future. Major shifts therefore (i.e. an unexpected collapse of the market) are not captured and may inflict losses much bigger than anything the VaR model may have calculated.

The Bank’s interest rate VaR follows (in thousands):

2011 2010

As of year-end P=– P=11,770 Year to date average 7,256 5,760 High 75,764 21,206 Low 4 3

Non-trading activities

Interest Rate Risk The Bank follows a prudent policy on managing its assets and liabilities to ensure that

exposure to fluctuations in interest rates are kept within acceptable limits. One method by which the Bank measures the sensitivity of its assets and liabilities to interest

rate fluctuations is by way of “gap” analysis. This analysis provides the Bank with a static view of the maturity and repricing characteristics of the positions of its statement of condition. An interest rate gap report is prepared by classifying all assets and liabilities into various time period categories according to contracted maturities or anticipated repricing dates, whichever is earlier. The difference in the amount of assets and liabilities maturing or being repriced in any time period category would then give the Bank an indication of the extent to which it is exposed to the risk of potential changes in net interest income.

The interest rate sensitivity gap report measures interest rate risk by identifying gaps between

the repricing dates of assets and liabilities. The Bank’s sensitivity gap model calculates the effect of possible rate movements on its interest rate profile.

The Bank uses sensitivity gap model to estimate Earnings-at-Risk (EaR) should interest rates

move against its interest rate profile. The Bank’s EaR limits are based on a percentage of the Bank’s projected earnings for the year. The Bank also performs stress-testing analysis to measure the impact of extreme interest rate movements.

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The ALCO is responsible for managing the Bank’s structural interest rate exposure. The

ALCO’s goal is to achieve a desired overall interest rate profile while remaining flexible to interest rate movements and changes in economic conditions. The RMO and RMC review and oversee the Bank’s interest rate risks.

The tables below demonstrate the sensitivity of net interest income and equity to reasonably

possible changes in interest rates. Net interest income sensitivity was calculated by assuming interest rate shifts upon repricing of floating-rate financial instruments. Equity sensitivity was computed by calculating mark-to-market changes of AFS debt instruments, assuming a parallel shift in the yield curve.

2011

Sensitivity of Equity

Change in

basis points

Sensitivity of

net interest

income

0 up to

6 months

Over

6 months

to 1 year

Over

1 year to

5 years

More than

5 years Total

(Amounts in Pesos) Currency

PHP +10 (172,187,538) (350,333) – 335,411 (374,750,463) (374,765,385) USD +10 52,102,363 – – – 147,479,486 147,479,486

Currency

PHP -10 172,187,538 (24,480) – 994,777 141,787,920 142,758,217 USD -10 (52,102,363) – – – 269,161,151 269,161,151

2010

Sensitivity of Equity

Change in basis points

Sensitivity of net interest

income 0 up to

6 months

Over 6 months to 1 year

Over 1 year to 5 years

More than 5 years Total

(Amounts in Pesos) Currency PHP +10 165,249,172 (252,395) – (1,176,552) (139,912,232) (141,341,179) USD +10 7,661,877 – – – (3,895,799) (3,895,799) Currency PHP -10 (165,191,732) 252,578 – 1,198,973 142,512,815 143,964,366 USD -10 (7,661,877) – – – 3,928,773 3,928,773

The impact on the Bank’s equity excludes the impact on transactions affecting the statement

of income.

Foreign Currency Risk Foreign currency risk is the risk of an investment's value changing due to an adverse

movement in currency exchange rates. It arises due to a mismatch in the Bank's foreign currency assets and liabilities.

The Bank’s policy is to maintain foreign currency exposure within the approved

position and loss limit and within existing regulatory guidelines. To compute for VaR, the Bank uses Bloomberg’s historical simulation model for USD/PHP FX position, with confidence level at 99% and a 1 day holding period. The Bank’s VaR for its foreign exchange position for trading and non-trading activities are as follows (in thousands):

2011 2010

As of year-end P=370 P=1,252 Year to date Average 646 762 High 1,775 2,631 Low 2 4

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The table below summarizes the Bank’s exposure to foreign exchange risk as of December 31,

2011 and 2010. Included in the table are the Bank’s assets and liabilities at carrying amounts (in thousands).

2011 2010

Assets Cash $1,807 $1,782 Due from other banks 80,561 164,014 FVPL investments 1,250 1,617 AFS investments 112,707 12,744 HTM investments 68,816 49,847

Total assets 265,141 230,004

Liabilities Deposit liabilities Savings deposits 22,040 19,908 Time deposits 240,192 268,285 Accrued taxes, interest and other expenses 370 335 Other liabilities 258 458

Total liabilities 262,860 288,986

Net exposure $2,281 ($58,982)

c. Liquidity Risk

The Bank’s policy on liquidity management emphasizes on three elements of liquidity, namely, cashflow management, ability to borrow in the interbank market, and maintenance of a stock of high quality liquid assets. These three approaches complement one another with greater weight being given to a particular approach, depending upon the circumstances. The Bank’s objective in liquidity management is to ensure that the Bank has sufficient liquidity to meet obligations under normal and adverse circumstances and is able to take advantage of lending and investment opportunities as they arise.

The main tool that the Bank uses for monitoring its liquidity is the Maximum Cumulative Outflow (MCO) reports, which is also called liquidity gap or maturity matching gap reports. The MCO is a useful tool in measuring and analyzing the Bank’s cash flow projections and monitoring liquidity risks. The liquidity gap report shows the projected cash flows of assets and liabilities representing estimated funding sources and requirements under normal conditions, which also forms the basis for the Bank’s Contingency Funding Plan (CFP). The CFP projects the Bank’s funding position during both temporary and long-term liquidity changes to help evaluate the Bank’s funding needs and strategies under changing market conditions.

The Bank discourages dependence on large funds providers (LFPs) by capping the concentration of LFPs as a percentage of total deposits. This ensures that the Bank will not be vulnerable to a substantial drop in deposit level as a result of an outflow due to large depositors.

Financial assets Analysis of equity and debt securities at FVPL and AFS investments into maturity groupings is

based on the expected date on which these assets will be realized. For other assets, the analysis into maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date the assets will be realized.

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Financial liabilities

The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date and does not consider the behavioral pattern of the creditors. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Bank can be required to pay.

Analysis of Financial Assets and Liabilities by Remaining Maturities

The tables below show the maturity profile of the Bank’s financial assets and liabilities based on contractual undiscounted repayment obligations (in millions):

2011

On demand

Up to

1 month

Over 1 to

3 months

Over 3 to

6 months

Over 6 to

12 months

Total within

1 year

Beyond

1 year Total

Financial Assets

FVPL investments

HFT - Government Securities P=– P=– P=– P=– P=– P=– P=– P=–

Derivatives - ROP warrants 55 – – – – 55 – 55

AFS investments

Government securities – 456 19 5,212 575 6,262 37,465 43,727

Quoted equity securities – – – – – – 5 5

Unquoted equity securities – – – – – – 1 1

HTM investments

Treasury notes – 45 185 410 429 1,069 24,403 25,472

Government bonds – 640 16 – 30 686 1,025 1,711

Loans and receivables

Loans and advances to banks

Due from BSP 2,494 – 1,271 540 – 4,305 – 4,305

Due from other banks 3,736 – – – – 3,736 – 3,736

Interbank loans receivable and SPURA – 10,484 – – – 10,484 – 10,484


Consumption loans 142 1,020 1,869 2,890 5,323 11,244 18,654 29,898

Real estate loans 15 401 932 1,533 3,089 5,970 24,485 30,455

Commercial loans 144 452 642 604 1,092 2,934 10,204 13,138

Personal loans 2,782 22 91 263 737 3,895 4,872 8,767

Bills discounted 12 – – – – 12 – 12

Other receivables:

Accrued interest receivable 873 236 55 – – 1,164 – 1,164

Sales contract receivable – 9 17 25 49 100 555 655

Unquoted debt instrument – – – 106 9 115 310 425

Accounts receivable 516 – – 1 1 518 6 524

Other assets:

Security deposits – 3 2 6 9 20 67 87

RCOCI 20 – – – – 20 – 20

P=10,789 P=13,768 P=5,099 P=11,590 P=11,343 P=52,589 P=122,052 P=174,641

Financial Liabilities

Deposit liabilities

Demand P=11,422 P=– P=– P=– P=– P=11,422 P=– P=11,422

Savings 11,668 – – – – 11,668 – 11,668

Time – 54,956 7,212 1,261 1,957 65,386 17,881 83,267

23,090 54,956 7,212 1,261 1,957 88,476 17,881 106,357

Subordinated notes

Treasurer’s, cashier’s and manager’s checks 655 – – – – 655 – 655

Accrued interest payable – 191 – – – 191 – 191

Accrued other expenses payable 917 – – – – 917 – 917

Other liabilities

Accounts payable – – – 754 – 754 – 754

Other credits 96 – – – – 96 – 96

Bills purchased-contra 65 – – – – 65 – 65

Due to Treasurer of the Philippines 7 – – – – 7 – 7

Deposit for keys 1 – – – – 1 – 1

Others 1 – – – – 1 – 1

P=24,832 P=55,147 P=7,212 P=2,015 P=1,957 P=91,163 P=17,881 P=109,044

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2010

On demand Up to

1 month Over 1 to 3 months

Over 3 to 6 months

Over 6 to 12 months

Total within 1 year

Beyond 1 year Total

Financial Assets FVPL investments HFT - Government Securities P=– P=– P=– P=– P=23 P=23 P=1,244 P=1,267 Derivatives - ROP warrants 71 – – – – 71 – 71 AFS investments Government securities – 38 25 535 1,693 2,291 39,191 41,482 Quoted equity securities – – – – – – 5 5 Unquoted equity securities – – – – – – 1 1

HTM investments Treasury notes – 161 16 200 669 1,046 16,908 17,954 Government bonds – 41 9 23 74 147 1,812 1,959 Loans and receivables Loans and advances to banks Due from BSP 1,330 3 1,573 – – 2,906 – 2,906 Due from other banks 7,521 – – – – 7,521 – 7,521 Interbank loans receivable and

SPURA 3,587 – – – – 3,587 – 3,587 Receivables from customers: Consumption loans 241 910 1,824 2,528 4,686 10,189 16,156 26,345 Real estate loans 55 383 874 1,415 2,855 5,582 23,529 29,111

Commercial loans 284 830 628 656 1,154 3,552 8,407 11,959 Personal loans 2,301 243 595 840 1,439 5,418 737 6,155 Bills discounted 12 – – – – 12 – 12 Other receivables: Accrued interest receivable 658 184 43 – – 885 – 885 Sales contract receivable 1 12 23 36 67 139 825 964 Unquoted debt instrument – 1 7 19 – 27 420 447 Accounts receivable 521 – – – – 521 – 521 Bills purchased 54 – – – – 54 – 54 Other assets: Security deposits – 4 2 3 11 20 74 94 RCOCI 28 – – – – 28 – 28

P=16,664 P=2,810 P=5,619 P=6,255 P=12,671 P=44,019 P=109,309 P=153,328

Financial Liabilities Deposit liabilities Demand P=7,170 P=– P=– P=– P=– P=7,170 P=– P=7,170 Savings 10,148 – – – – 10,148 – 10,148 Time – 47,458 8,108 1,110 991 57,667 16,951 74,618

17,318 47,458 8,108 1,110 991 74,985 16,951 91,936 Subordinated notes – 2,051 – – – 2,051 – 2,051 Treasurer’s, cashier’s and manager’s

checks 649 – – – – 649 – 649 Accrued interest payable 1 163 37 – – 201 – 201

Accrued other expenses payable 753 – – – – 753 – 753 Other liabilities Accounts payable – – – 677 – 677 – 677 Other credits 186 – – – – 186 – 186 Bills purchased-contra 54 – – – – 54 – 54 Due to Treasurer of the

Philippines 6 – – – – 6 – 6 Deposit for keys 1 – – – – 1 – 1 Others 2 – – – – 2 – 2

P=18,970 P=49,672 P=8,145 P=1,787 P=991 P=79,565 P=16,951 P=96,516

6. Segment Information

The Bank’s operating segments are organized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit that offers different products and serves different markets. The Bank’s reportable segments are as follows:

(a) Consumer Banking - principally provides consumer-type loans generated by the Home Office; (b) Corporate Banking - principally handles loans and other credit facilities for corporate and

institutional customers acquired in the Home Office; (c) Branch Banking - serves as the Bank’s main customer touch point which offers consumer and

corporate banking products; and

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(d) Treasury - principally handles institutional deposit accounts, providing money market, trading

and treasury services, as well as managing the Bank’s funding operations by use of government securities and placements and acceptances with other banks.

These segments are the bases on which the Bank reports its primary segment information. The

Bank evaluates performance on the basis of information about the components of the Bank that Chief Operating Decision Maker (CODM) uses to make decisions about operating matters. There are no other operating segments than those identified by the Bank as reportable segments. There were no inter-segment revenues and expenses included in the financial information. The Bank has no single customer with revenues from which is 10.00% or more of the Bank’s total revenue.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Primary segment information (by business segment) for the years ended December 31, 2011, 2010 and 2009 follows (in thousands):

2011

Consumer

Banking

Corporate

Banking

Branch

Banking Treasury Total

Operating Income Interest income P=1,513,696 P=381,437 P=5,626,918 P=1,454,536 P=8,976,587

Service fees and commissions 109,924 43,730 623,395 – 777,049

Other operating income 42,503 17,625 259,971 922,369 1,242,468

Total operating income 1,666,123 442,792 6,510,284 2,376,905 10,996,104

Non-cash expenses

Depreciation and amortization 113,934 14,509 298,033 1,602 428,078

Provision for credit and impairment losses 192,103 227,051 236,935 – 656,089

Amortization of other intangible assets 20,929 3,709 28,014 472 53,124

Total non-cash expenses 326,966 245,269 562,982 2,074 1,137,291

Interest expense – – 2,104,518 1,162,615 3,267,133

Service fees and commissions expense 6,248 2,486 35,437 – 44,171

Subtotal 6,248 2,486 2,139,955 1,162,615 3,311,304

Compensation and fringe benefits 341,956 81,488 1,463,329 12,925 1,899,698

Taxes and licenses 113,703 26,874 476,182 147,426 764,185

Occupancy and equipment - related costs 34,257 5,744 445,131 145 485,277 Security, messengerial and janitorial

services 40,665 3,303 149,462 494 193,924

Miscellaneous 193,954 44,536 886,603 83,204 1,208,297

Subtotal 724,535 161,945 3,420,707 244,194 4,551,381

Income before share in net income of an associate and a joint venture and income tax 608,374 33,092 386,639 968,022 1,996,127

Share in net income of an associate and a joint venture – 8,272 – – 8,272

Income before income tax 608,374 41,364 386,639 968,022 2,004,399

Benefit from income tax (24,360)

Net income P=2,028,759

Segment assets P=20,986,922 P=7,665,449 P=39,901,337 P=49,320,383 P=117,874,091

Investments in an associate and a joint venture 1,238,145

Deferred tax asset 1,139,490

Total assets P=120,251,726

Segment liabilities P=505,277 P=116,192 P=72,141,350 P=31,947,852 P=104,710,671

- 48 -

2010

Consumer Banking

Corporate Banking

Branch Banking Treasury Total

Operating Income Interest income P=1,611,072 P=172,645 P=5,291,378 P=838,002 P=7,913,097 Service fees and commissions 117,953 48,238 592,438 – 758,629 Other operating income 69,750 2,330 215,828 2,244,546 2,532,454

Total operating income 1,798,775 223,213 6,099,644 3,082,548 11,204,180

Non-cash expenses Depreciation and amortization 95,787 13,026 242,332 893 352,038 Provision for credit and impairment

losses 290,786 401,697 219,799 – 912,282 Amortization of other intangible assets 17,178 3,297 21,006 212 41,693


Interest expense – – 1,996,974 903,721 2,900,695 Service fees and commissions expense 10,409 4,257 52,281 – 66,947

Subtotal 10,409 4,257 2,049,255 903,721 2,967,642

Compensation and fringe benefits 348,600 91,464 1,291,192 9,360 1,740,616 Taxes and licenses 118,728 29,895 415,237 213,275 777,135 Occupancy and equipment - related costs 42,090 7,384 374,369 435 424,278 Security, messengerial and janitorial

services 33,569 2,989 126,852 526 163,936 Miscellaneous 347,919 48,852 796,959 19,198 1,212,928

Subtotal 890,906 180,584 3,004,609 242,794 4,318,893

Income (loss) before in net income of an associate and a joint venture and income tax 493,709 (379,648) 562,643 1,934,928 2,611,632

Share in net income of an associate and a joint venture 41,563

Income before income tax 2,653,195 Provision for income tax 845,080



Investments in an associate and a joint venture 829,874

Deferred tax asset 705,361



2009

Consumer Banking

Corporate Banking


Operating Income Interest income P=1,535,965 P=144,319 P=5,539,707 P=309,541 P=7,529,532 Service fees and commissions 94,149 43,129 505,643 – 642,921 Other operating income 86,252 26,975 172,421 555,971 841,619

Total operating income 1,716,366 214,423 6,217,771 865,512 9,014,072

Non-cash expenses Depreciation and amortization 93,360 9,553 223,504 2,119 328,536 Provision for credit and impairment

losses 340,309 408,408 201,079 159,960 1,109,756 Amortization of other intangible assets 10,703 2,392 14,274 393 27,762


Interest expense – – 1,532,559 1,163,496 2,696,055 Service fees and commissions expense 6,836 3,131 36,713 – 46,680

Subtotal 6,836 3,131 1,569,272 1,163,496 2,742,735

Compensation and fringe benefits 296,481 80,889 1,094,701 16,562 1,488,633 Taxes and licenses 106,462 23,780 317,653 111,881 559,776 Occupancy and equipment - related costs 33,104 5,727 322,910 1,129 362,870 Security, messengerial and janitorial

services 27,850 2,139 117,112 876 147,977 Miscellaneous 238,398 35,457 629,522 14,265 917,642

Subtotal 702,295 147,992 2,481,898 144,713 3,476,898

(Forward)

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2009

Consumer Banking

Corporate Banking


Income (loss) before share in net income of an associate and a joint venture P=562,863 (P=357,053) P=1,727,744 (P=605,169) P=1,328,385

Share in net income of an associate and a joint venture 45,130

Income before income tax 1,373,515 Provision for income tax 133,501



Investments in an associate and a joint venture 788,310

Deferred tax asset 1,256,530



7. Interbank Loans Receivable and Securities Purchased Under Resale Agreements

This account consists of the following:

2011 2010

Interbank loans receivable P=– P=2,586,560,000 SPURA 10,480,000,000 1,000,000,000

P=10,480,000,000 P=3,586,560,000

SPURA are lending to counterparties collateralized by government securities. The Bank is not allowed to resell to third parties collateral held under SPURA.

Interest income on interbank loans receivable and SPURA consists of:

2011 2010 2009

Interbank loans receivable P=11,425,626 P=13,031,027 P=7,315,639 SPURA 178,173,681 147,481,667 102,448,542

P=189,599,307 P=160,512,694 P=109,764,181

8. Fair Value Through Profit or Loss, Available-for-Sale and Held-to-Maturity Investments

FVPL investments consist of the following:

2011 2010

HFT securities P=– P=798,230,717 ROP warrants 81,437,118 81,437,118

81,437,118 879,667,835 Less unrealized loss on FVPL investments 26,643,080 11,351,393

P=54,794,038 P=868,316,442

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As of December 31, 2011 and 2010, the Bank has outstanding ROP paired warrants which give the Bank the option or right to exchange its holdings of ROP Global Bonds (Paired Bonds) into peso-denominated government securities upon occurrence of a predetermined credit event. Paired Bonds shall be risk weighted at 0.00%, provided that the 0.00% risk weight shall be applied only to the Bank’s holdings of Paired Bonds equivalent to not more than 50.00% of the total qualifying capital. Further, the Bank’s holdings of said warrants booked in the FVPL category are likewise exempted from capital charge for market risk as long as said instruments are paired with ROP Global Bonds up to a maximum of 50.00% of the total qualifying capital.

On August 19, 2009, the BSP approved the Bank’s application for Type 3 Limited User Authority for plain vanilla foreign exchange (FX) forwards which is limited to outright buying or selling of FX forwards at a specific price and date in the future and do not include non-deliverable forwards. As of December 31, 2011 and 2010, the Bank has no outstanding forward buy and sell contracts.

AFS investments consist of the following:

2011 2010

Government securities (Note 30) P=18,688,690,188 P=16,195,916,217 Equity securities: Quoted 5,194,005 5,194,005 Unquoted 45,239,002 45,239,002

18,739,123,195 16,246,349,224 Less allowance for impairment losses 46,010,167 46,010,167

P=18,693,113,028 P=16,200,339,057

On December 1, 2010, the Philippine Government, as part of its Domestic Debt Consolidation program to manage its liabilities, made an offer to owners of certain eligible bonds and to new investors (the Invitation). The Government invited owners of series of Eligible Bonds to submit offers to exchange series of Eligible bonds for New Bonds due 2020 (10-year Benchmark Bonds) or 2035 (25-year Benchmark Bonds) or to tender Eligible Bonds for cash. The Government also invited new investors to submit offers to subscribe 25-year Benchmark Bonds.

In 2010, the Bank participated in the said bond exchange transaction and exchanged its HFT and AFS investment securities for 10-year Benchmark Bonds with a minimum coupon of 5.88% and face value of P=798.2 million at a price of 100.00% and 25-year Benchmark Bonds with a minimum coupon of 8.13% and face value of P=11.7 billion at a price of 100.00%, respectively. The Bank realized net trading gain of P=1.2 billion from the bond exchange transaction.

Movements in the net unrealized gain (loss) on AFS investments follow:

2011 2010

Balance at beginning of year P=355,151,266 P=819,829,053

Net gain from sale of AFS investments taken to profit or loss (937,165,140) (2,323,447,276)

Changes in fair values of AFS investments 2,981,761,679 1,858,769,489

2,044,596,539 (464,677,787)

Balance at end of year P=2,399,747,805 P=355,151,266

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In 2010, the Bank reclassified certain fully impaired government securities with cost of P=92.5 million from AFS investments to accounts receivable. In 2011, there were no movements in the allowance for impairment losses on AFS quoted and unquoted equity securities amounting to P=2.2 million and P=43.8 million, respectively.

HTM investments consist of the following:

2011 2010

Treasury notes (Note 29) P=8,005,971,558 P=5,570,500,179 Government bonds 4,307,843,476 3,592,084,780

P=12,313,815,034 P=9,162,584,959

As of December 31, 2011 and 2010, treasury bills (classified under HTM investments) with total face value of P=50.0 million are pledged by the Bank to MBTC to secure its payroll account with MBTC (see Note 29).

Interest income on investment securities consists of:

2011 2010 2009

AFS investments P=1,374,710,363 P=1,077,452,402 P=1,595,771,154 FVPL investments 18,227,678 38,762,928 60,178,392 HTM investments 846,573,654 598,526,804 288,920,434

P=2,239,511,695 P=1,714,742,134 P=1,944,869,980

Peso-denominated AFS investments bear nominal annual interest rates ranging from 0.00% to 14.00% in 2011, 2010 and 2009 while foreign currency-denominated AFS investments bear nominal annual interest rates ranging from 6.38% to 9.50% in 2011 and from 6.50% to 10.63% in 2010 and 2009.

Peso-denominated HTM investments bear nominal annual interest rates ranging from 4.57% to 18.25% in 2011, 2010 and 2009 while foreign currency-denominated HTM investments bear nominal annual interest rates ranging from 6.38% to 9.50% in 2011, 2010, and 2009.

Trading and securities gains - net on investment securities consist of:

2011 2010 2009

FVPL investments:

Realized P=6,022,728 (P=93,163,129) P=51,536,548 Unrealized (15,492,338) (793,423) (11,127,300)

(9,469,610) (93,956,552) 40,409,248 AFS investments 937,165,140 2,323,447,276 503,223,604

P=927,695,530 P=2,229,490,724 P=543,632,852

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9. Loans and Receivables

This account consists of:

2011 2010

Receivables from customers: Consumption loans P=31,162,678,656 P=27,496,864,284 Real estate loans 19,040,156,924 17,512,923,273 Commercial loans 10,249,689,344 9,711,712,998 Personal loans 5,603,418,276 5,728,150,973 Bills discounted 11,469,846 11,792,346

66,067,413,046 60,461,443,874 Less unearned discounts 5,929,104,358 5,327,384,627

60,138,308,688 55,134,059,247 Other receivables: Accrued interest receivable 1,164,237,425 885,186,590 Accounts receivable (Note 8) 524,134,234 521,344,187 Sales contract receivables 461,262,705 640,088,026 Unquoted debt instrument 395,610,552 495,610,552 Bills purchased (Note 19) 65,166,130 54,332,644

62,748,719,734 57,730,621,246 Less allowance for credit losses (Note 15) 4,558,567,579 4,522,986,086

P=58,190,152,155 P=53,207,635,160

Personal loans comprise deposit collateral loans, employee salary and consumer loan products such as Money Card, multi-purpose loan and flexi-loan.

Unquoted debt instrument represents investments in convertible notes and in private bonds. The convertible notes amounting to P=95.6 million are provided with 100% allowance for credit losses as of December 31, 2011 and 2010.

As of December 31, 2011, 2010 and 2009, 44.23%, 55.09% and 48.51%, respectively, of the total receivables from customers are subject to periodic interest repricing. Remaining receivables earned average annual fixed interest rates of 14.23%, 14.74% and 15.39% in 2011, 2010 and 2009, respectively.

Interest income on loans and receivables consists of:

2011 2010 2009

Receivables from customers: Consumption loans P=2,696,080,211 P=2,260,849,552 P=1,896,953,617 Real estate loans 1,766,540,597 1,649,959,185 1,465,738,219

Personal loans 982,080,383 926,817,250 945,735,689 Commercial loans 944,613,254 918,727,776 977,615,675 Bills discounted 392,245 233,354 460,547 Other receivables: Sales contract receivables 50,485,179 65,388,714 63,606,126 Unquoted debt instrument 32,668,750 50,230,846 25,957,769

P=6,472,860,619 P=5,872,206,677 P=5,376,067,642

Interest income accreted on impaired loans and receivables classified under real estate loans and commercial loans amounted to P=82.4 million, P=72.4 million and P=104.3 million in 2011, 2010 and 2009, respectively.

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Interest income from restructured loans amounted to P=87.1 million, P=101.2 million and P=112.2 million in 2011, 2010 and 2009, respectively.

Included in the loan portfolio are receivables purchased from Balikatan Housing Finance, Inc. (BHFI) amounting to P=194.9 million and P=260.2 million as of December 31, 2011 and 2010, respectively.

BSP Reporting

The breakdown of loans and receivables from customers (gross of unearned discounts) as to secured and unsecured and as to type of security follows:

2011 % 2010 %

Secured by: Chattel P=31,159,873,967 47.16 P=27,496,864,284 45.48 Real estate 20,313,619,083 30.75 21,290,164,034 35.21 Deposit hold-out 373,553,706 0.57 198,151,608 0.33 Others 436,672,340 0.66 – –

52,283,719,096 79.14 48,985,179,926 81.02 Unsecured 13,783,693,950 20.86 11,476,263,948 18.98

P=66,067,413,046 100.00 P=60,461,443,874 100.00

Details of NPLs follow:

2011 2010

Unsecured P=2,194,686,739 P=2,392,225,160 Secured 2,074,887,566 1,960,892,609

P=4,269,574,305 P=4,353,117,769

Generally, NPLs refer to loans and receivables whose principal and/or interest is unpaid for thirty

(30) days or more after due date or after they have become past due in accordance with existing BSP rules and regulations. This shall apply to loans payable in lump sum and loans payable in quarterly, semi-annual, or annual installments, in which case, the total outstanding balance thereof shall be considered nonperforming.

In the case of loans and receivables that are payable in monthly installments, the total outstanding balance thereof shall be considered nonperforming when three (3) or more installments are in arrears.

In the case of loans and receivables that are payable in daily, weekly, or semi-monthly installments, the total outstanding balance thereof shall be considered nonperforming at the same time that they become past due in accordance with existing BSP regulations, i.e., the entire outstanding balance of the receivable shall be considered as past due when the total amount of arrearages reaches ten percent (10%) of the total receivable balance.

Loans and receivables are classified as nonperforming in accordance with BSP regulations, or when, in the opinion of management, collection of interest or principal is doubtful. Receivables are not reclassified as performing until interest and principal payments are brought current or the loans are restructured in accordance with existing BSP regulations, and future payments appear assured.

Restructured loans and receivables which do not meet the requirements to be treated as performing receivables shall also be considered as NPLs.

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Current banking regulations allow banks with no unbooked valuation reserves and capital adjustments to exclude from nonperforming classification loans classified as Loss in the latest examination of the BSP which are fully covered by allowance for credit and impairment losses, provided that interest on said receivables shall not be accrued.

The NPLs of the Bank not fully covered by allowance for credit losses follow:

2011 2010

Total NPLs P=4,269,574,305 P=4,353,117,769 NPLs fully covered by allowance for credit losses (2,544,987,776) (2,737,974,312)

P=1,724,586,529 P=1,615,143,457

Restructured loans as of December 31, 2011 and 2010 amounted P=834.8 million and P=938.7 million, respectively. The Bank’s loan portfolio includes non-risk loans as defined under BSP regulation totaling P=10.9 billion and P=4.0 billion as of December 31, 2011 and 2010, respectively.

Loan concentration as to economic activity follows (gross of unearned discounts):

2011 % 2010 %

Other community, social and personal activities P=18,783,403,490 28.43 P=19,332,703,363 31.98

Real estate 19,114,414,763 28.93 17,726,774,884 29.32 Wholesale and retail trade 14,814,216,975 22.42 10,739,412,101 17.76 Public utilities 5,210,564,531 7.89 5,062,908,930 8.37 Banks, insurance and other financial

institutions 1,816,539,010 2.75 2,001,898,357 3.31 Manufacturing 740,735,928 1.12 862,201,288 1.43 Services 576,168,023 0.87 585,662,677 0.97 Mining and quarrying 13,723,731 0.02 15,967,948 0.03 Agriculture 5,584,652 0.01 614,169,127 1.01 Others 4,992,061,943 7.56 3,519,745,199 5.82

P=66,067,413,046 100.00 P=60,461,443,874 100.00

Others relates to economic activities classified as electricity, gas and water, construction, health and social work, public administration and defense, extra-territorial organization and bodies, education and fishing.

Thrift banks are not covered by the loan concentration limit of 30% prescribed by the BSP.

10. Investments in an Associate and a Joint Venture

The composition of this account follows:

2011 2010

Investment in an associate P=523,249,436 P=458,921,659 Investment in a joint venture 714,895,965 370,952,096

P=1,238,145,401 P=829,873,755

Investment in an Associate The Banks owns 2,500,000 shares of TFSPC representing 25% ownership.

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The following illustrates the summarized financial information of TFSPC:

2011 2010

Total assets P=21,211,441,318 P=18,775,952,714 Total liabilities 19,095,276,084 16,936,261,946 Net assets 2,116,165,234 1,839,690,768 Gross revenue for the year 1,869,282,620 1,720,926,662 Net income for the year 257,311,109 262,826,678

Movement in this account follows:

2011 2010

Acquisition cost P=270,546,789 P=270,546,789

Accumulated equity in net income: Balance at beginning of year 188,374,870 122,668,200 Share in net income 64,327,777 65,706,670

Balance at end of year 252,702,647 188,374,870

Carrying value P=523,249,436 P=458,921,659

Investment in a Joint Venture In August 2009, the Bank entered into a joint venture agreement (JVA) with Sumitomo Corporation, Sumitomo Corporation of the Philippines and Philippine Savings Bank Retirement Fund. The objective of the parties was to establish a joint venture that will primarily engage in the business of providing financing in the form of lending and leasing services for the purchase of motorcycles. The JVA outlines the roles and responsibilities of each party, pre-incorporation activities, formation of the joint venture corporation, pre-emptive rights, funding and financial support of the parties, shareholders and board of directors’ matters, composition of key management personnel as nominated by the parties, pre-emptive rights and rights of first refusal.

On September 11, 2009, the BSP approved the Bank’s application to form a joint venture with Sumitomo Corporation. SMFC, the joint venture company was incorporated on November 26, 2009. The Bank owns 8,000,000 shares of SMFC representing 40% ownership.

SMFC started its commercial operations in March 2010.

The following illustrates the summarized financial information of the Bank’s investment in SMFC:

2011 2010

Share in the joint venture’s statement of financial condition:

Current assets P=675,731,245 P=347,314,556 Non-current assets 78,813,630 49,747,029 Non-current liabilities (39,648,910) (26,109,489)

Equity P=714,895,965 P=370,952,096

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2011 2010

Share in the joint venture’s statement of income: Other income P=61,388,288 P=25,400,098 Pre-operating expenses (138,261,955) (62,506,255)

Loss before income tax (76,873,667) (37,106,157) Benefit from income tax 20,817,536 12,962,905

Loss for the year (P=56,056,131) (P=24,143,252)

The following illustrates the summarized financial information of SMFC:

2011 2010

Total current assets P=1,689,328,111 P=868,286,391 Non-current assets 197,034,076 124,367,571 Non-current liabilities 99,122,275 65,273,723 Total other income 153,470,719 63,500,245 Operating expenses 345,654,887 156,265,639 Benefit from income tax 52,043,840 32,407,263

Movement in this account follows:

2011 2010

Acquisition cost P=400,000,000 P=400,000,000

Capital infusion 400,000,000 – Accumulated share in net losses: Balance at beginning of year (29,047,904) (4,904,652) Share in net loss (56,056,131) (24,143,252)

Balance at end of year (85,104,035) (29,047,904)

Carrying value P=714,895,965 P=370,952,096

In 2011, the Bank invested an additional P=400.0 million in SMFC in accordance with the provisions of the BSP approval issued on September 11, 2009 which allowed the Bank to invest up to 40% interest or P=800.0 million in SMFC. The Bank initially invested P=400.0 million in SMFC in 2009.

The Bank has no share of any contingent liabilities of SMFC or capital commitments to SMFC as of December 31, 2011 and 2010.

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11. Property and Equipment The composition of and movements in this account follow:

2011

Land Building

Furniture,

Fixtures and

Equipment

Leasehold

Improvements Total

Cost

Balance at beginning of year P=208,802,981 P=1,415,703,891 P=1,463,189,972 P=288,314,516 P=3,376,011,360

Acquisitions 17,074,889 105,912,788 295,416,452 125,404,593 543,808,722

Disposals – – (50,224,985) – (50,224,985)

Reclassification (Note 12) – 95,432,414 – – 95,432,414

Balance at end of year 225,877,870 1,617,049,093 1,708,381,439 413,719,109 3,965,027,511

Accumulated Depreciation and

Amortization

Balance at beginning of year – 194,158,581 899,508,042 175,028,115 1,268,694,738

Depreciation – 25,547,773 224,091,576 47,069,645 296,708,994

Disposals – – (25,252,317) – (25,252,317)

Reclassification (Note 12) – 42,723,978 – – 42,723,978

Balance at end of year – 262,430,332 1,098,347,301 222,097,760 1,582,875,393

Net Book Value P=225,877,870 P=1,354,618,761 P=610,034,138 P=191,621,349 P=2,382,152,118

2010

Land Building

Furniture, Fixtures and Equipment

Leasehold Improvements Total

Cost Balance at beginning of year P=208,802,981 P=1,347,901,391 P=1,232,145,141 P=248,060,915 P=3,036,910,428 Acquisitions – 67,802,500 288,045,940 40,916,681 396,765,121 Disposals – – (57,001,109) (663,080) (57,664,189)

Balance at end of year 208,802,981 1,415,703,891 1,463,189,972 288,314,516 3,376,011,360

Accumulated Depreciation and

Amortization Balance at beginning of year – 164,690,306 733,504,557 153,240,833 1,051,435,696 Depreciation – 20,970,370 199,136,045 30,381,376 250,487,791 Disposals – – (33,132,560) (96,189) (33,228,749) Reclassification – 8,497,905 – (8,497,905) –

Balance at end of year – 194,158,581 899,508,042 175,028,115 1,268,694,738

Net Book Value P=208,802,981 P=1,221,545,310 P=563,681,930 P=113,286,401 P=2,107,316,622

Reclassification pertains to units in the Bank’s premises that were previously leased out to various parties but are now occupied by the Bank.

Gain on sale of property and equipment amounted to P=3.3 million, P=2.4 million and P=9.8 million in 2011, 2010 and 2009, respectively.

The details of depreciation and amortization under the statements of income follow:

2011 2010 2009

Property and equipment P=296,708,994 P=250,487,791 P=225,113,914 Investment properties (Note 12) 64,987,625 62,360,031 59,779,588 Chattel mortgage properties

(Note 14) 66,381,668 39,190,286 43,642,104

P=428,078,287 P=352,038,108 P=328,535,606

The Bank declared loss on properties arising from casualty brought about by the calamities in 2011 and 2009 amounting to P=0.7 million and P=4.9 million respectively included under ‘Miscellaneous expense’.

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As of December 31, 2011 and 2010, property and equipment of the Bank with gross carrying amounts of P=613.7 million and P=531.9 million, respectively, are fully depreciated but are still being used.

12. Investment Properties The composition of and movements in this account follow:

2011

Land

Building

Improvements Total

Cost Balance at beginning of year P=1,748,837,263 P=1,653,007,949 P=3,401,845,212

Additions (Note 32) 218,381,596 381,801,210 600,182,806 Disposals (287,228,367) (198,659,074) (485,887,441)

Reclassification (Note 11) – (95,432,414) (95,432,414)

Balance at end of year 1,679,990,492 1,740,717,671 3,420,708,163

Accumulated Depreciation

Balance at beginning of year – 376,002,088 376,002,088 Depreciation (Note 11) – 64,987,625 64,987,625

Disposals – (25,569,923) (25,569,923) Reclassification (Note 11) – (42,723,978) (42,723,978)

Balance at end of year – 372,695,812 372,695,812

Allowance for Impairment Losses Balance at beginning of year 226,489,697 27,044,495 253,534,192

Provisions for the year (Note 15) 4,791,406 6,183,484 10,974,890

Disposals (13,938,603) (4,817,562) (18,756,165)

Balance at end of year 217,342,500 28,410,417 245,752,917

Net Book Value P=1,462,647,992 P=1,339,611,442 P=2,802,259,434

2010

Land Building

Improvements Total

Cost Balance at beginning of year P=1,709,420,443 P=1,500,141,233 P=3,209,561,676 Additions (Note 32) 300,157,262 399,579,969 699,737,231 Disposals (260,740,442) (246,713,253) (507,453,695)

Balance at end of year 1,748,837,263 1,653,007,949 3,401,845,212

Accumulated Depreciation Balance at beginning of year – 366,846,356 366,846,356 Depreciation (Note 11) – 62,360,031 62,360,031 Disposals – (53,204,299) (53,204,299)

Balance at end of year – 376,002,088 376,002,088

Allowance for Impairment Losses Balance at beginning of year 224,809,168 35,138,447 259,947,615 Provisions for the year (Note 15) 28,558,362 1,565,766 30,124,128 Disposals (26,877,833) (9,659,718) (36,537,551)

Balance at end of year 226,489,697 27,044,495 253,534,192

Net Book Value P=1,522,347,566 P=1,249,961,366 P=2,772,308,932

Depreciation and provision for impairment losses on investment properties amounted to

P=59.8 million and P=153.0 million, respectively, in 2009 (See Notes 11 and 15).

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The details of the net book value of investment properties follow:

2011 2010

Real estate properties acquired in settlement of loans and receivables P=2,590,970,221 P=2,492,947,062

Bank premises leased to third parties and held for capital appreciation 211,289,213 279,361,870

P=2,802,259,434 P=2,772,308,932

As of December 31, 2011 and 2010, the aggregate fair value of investment properties amounted to P=3.0 billion.

Gain on foreclosure of investment properties amounted to P=208.8 million, P=224.4 million and P=206.1 million in 2011, 2010 and 2009, respectively.

Loss on sale of investment properties amounted to P=22.1 million in 2011. Gain on sale of investment properties amounted to P=15.2 million and P=31.6 million in 2010 and 2009, respectively.

Rental income on investment properties included in miscellaneous income amounted to P=66.4 million, P=61.8 million and P=52.9 million in 2011, 2010 and 2009, respectively (see Notes 23 and 25).

Operating expenses incurred in maintaining investment properties amounted to P=10.0 million, P=7.5 million and P=5.2 million in 2011, 2010 and 2009, respectively.

13. Goodwill and Intangible Assets


2011 2010

Goodwill P=53,558,338 P=53,558,338

Intangible assets Software costs 174,097,353 163,002,477 License fees 27,523,737 24,123,737

201,621,090 187,126,214

P=255,179,428 P=240,684,552

The movements of intangible assets follow:

2011

Software Costs License Fees Total

Balance at beginning of year P=163,002,477 P=24,123,737 P=187,126,214 Additions 64,219,168 3,400,000 67,619,168

Amortization (53,124,292) – (53,124,292)

Balance at end of year P=174,097,353 P=27,523,737 P=201,621,090

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2010

Software Costs License Fees Total

Balance at beginning of year P=120,790,777 P=23,123,737 P=143,914,514 Additions 83,904,411 1,000,000 84,904,411 Amortization (41,692,711) – (41,692,711)

Balance at end of year P=163,002,477 P=24,123,737 P=187,126,214

Amortization of software costs in 2009 amounted to P=27.8 million.

14. Other Assets This account consists of:

2011 2010

Chattel mortgage properties - net P=381,841,919 P=233,529,702 Creditable withholding tax 100,120,295 55,395,096 Prepayments 87,910,482 419,782,914 Security deposits 87,416,908 76,324,741 RCOCI 20,181,320 27,841,860 Documentary stamps on hand 18,840,609 28,203,719 Deferred charges 17,863,642 6,450,781 Stationeries and supplies on hand 11,279,859 8,838,714 Inter-office float items 6,416,341 12,844,125 Sundry debits 6,323,099 11,396,210 Others 3,474,095 3,513,037

P=741,668,569 P=884,120,899

Prepayments include prepaid insurance, prepaid taxes on investment securities, prepaid rent, and other prepaid expenses.

The movements of chattel mortgage properties - net follow:

2011 2010

Cost Balance at beginning of year P=267,189,373 P=206,398,160 Additions (Note 32) 667,187,188 639,569,321 Disposals (491,222,891) (578,778,108)

Balance at the end of year 443,153,670 267,189,373

Accumulated Depreciation Balance at beginning of year 33,043,581 25,344,468 Depreciation (Note 11) 66,381,668 39,190,286 Disposals (38,729,588) (31,491,173)

Balance at the end of year 60,695,661 33,043,581

Allowance for Impairment Losses Balance at beginning and end of year 616,090 616,090

Net Book Value P=381,841,919 P=233,529,702

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Loss on foreclosure of chattel mortgage properties amounted to P=105.9 million, P=108.4 million and P=92.0 million in 2011, 2010 and 2009, respectively.

Gain on sale of chattel mortgage properties amounted to P=47.2 million, P=45.4 million and P=41.8 million in 2011, 2010 and 2009, respectively.

15. Allowance for Credit and Impairment Losses

Details of the provision for credit and impairment losses charged to current operations follow:

2011 2010 2009

Loans and receivables P=645,114,031 P=882,158,108 P=863,603,391 Investment properties (Note 12) 10,974,890 30,124,128 153,037,103

AFS investments (Note 8) – – 92,500,000 Chattel mortgage properties (Note 14) – – 616,090

P=656,088,921 P=912,282,236 P=1,109,756,584

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Changes in the allowance for credit losses on loans and receivables follow (in thousands):

Receivables from Customers

Other Receivables

Accrued

Interest

Accounts Sales Contract Unquoted Debt

Bills

Purchased

2011

Consumption

Real Estate

Commercial

Personal

Receivable

Receivable

Receivable

Investm

ent

Total

Balance at beginning of year

P=475,202

P=172,913

P=769,060

P=2,236,199

P=267,735

P=476,961

P=28,002

P=95,611

P=1,303

P=4,522,986

Provisions for the year charged against profit or

loss

142,325

5,326

193,635

230,398

73,430

–

–

–

–

645,114

Reversal of allowance

–

–

–

–

(47,690)

(12,228)

(4,103)

–

–

(64,021)

Amount written off

(75,354)

–

–

(470,157)

–

–

–

–

–

(545,511)

Balance at end of year

P=542,173

P=178,239

P=962,695

P=1,996,440

P=293,475

P=464,733

P=23,899

P=95,611

P=1,303

P=4,558,568

Individual impairment

P=–

P=138,675

P=591,700

P=–

P=59,266

P=177,680

P=18,313

P=95,611

P=–

P=1,081,245

Collective impairment

542,173

39,564

370,995

1,996,440

234,209

287,053

5,586

–

1,303

3,477,323

P=542,173

P=178,239

P=962,695

P=1,996,440

P=293,475

P=464,733

P=23,899

P=95,611

P=1,303

P=4,558,568

Gross amount of loans individually impaired,

before deducting any individual impairment

allowance

P=–

P=359,998

P=993,506

P=–

P=304,096

P=177,680

P=18,313

P=95,611

P=–

P=1,949,204

Receivables from Customers

Other Receivables

Accrued

Interest

Accounts Sales Contract Unquoted Debt

Bills

Purchased

2010

Consumption

Real Estate

Commercial

Personal

Receivable

Receivable

Receivable

Investment

Total

Balance at beginning of year

P=568,372

P=171,341

P=682,776

P=1,725,616

P=181,371

P=415,157

P=31,554

P=95,611

P=5,930

P=3,877,728

Provisions for the year charged against profit or

loss

77,405

1,572

86,284

593,414

121,616

1,867

–

–

–

882,158

Reversal of allowance

–

–

–

–

(35,252)

(32,563)

(3,552)

–

–

(71,367)

Amount written off

(170,575)

–

–

(82,831)

–

–

–

–

(4,627)

(258,033)

Reclassification

–

–

–

–

–

92,500

–

–

–

92,500

Balance at end of year

P=475,202

P=172,913

P=769,060

P=2,236,199

P=267,735

P=476,961

P=28,002

P=95,611

P=1,303

P=4,522,986

Individual impairment

P=–

P=127,746

P=574,569

P=–

P=52,409

P=178,256

P=18,313

P=95,611

P=–

P=1,046,904

Collective impairment

475,202

45,167

194,491

2,236,199

215,326

298,705

9,689

–

1,303

3,476,082

P=475,202

P=172,913

P=769,060

P=2,236,199

P=267,735

P=476,961

P=28,002

P=95,611

P=1,303

P=4,522,986

Gross amount of loans individually impaired,

before deducting any individual impairment

allowance

P=–

P=320,827

P=1,127,174

P=–

P=234,456

P=178,256

P=18,313

P=95,611

P=–

P=1,974,637

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16. Deposit Liabilities

As of December 31, 2011 and 2010, under existing BSP regulations, non-FCDU deposit liabilities are subject to statutory reserve of 8.00% and 6.00%, respectively. On the other hand, liquidity reserve remained at 2.00% as of December 31, 2011 and 2010. As of December 31, 2011 and 2010, the Bank is in compliance with such regulations.

Available reserves follows:

2011 2010

Cash P=3,842,089,880 P=3,083,626,629 Due from BSP 1,907,485,425 1,047,234,412 AFS investments 1,787,289,752 1,490,060,774

P=7,536,865,057 P=5,620,921,815

Deposit liabilities earned average fixed interest rate of 3.39%, 3.29%, and 3.53% in 2011, 2010 and 2009, respectively.

17. Subordinated Notes

On October 14, 2010, the BOD of the Bank approved the option to call the Notes on January 27, 2011. The request of the Bank to exercise the call option on the Note was approved by the BSP on December 10, 2010. The Bank exercised the call option on January 28, 2011.

The redemption fell under the call provisions of the bond, which had an original maturity of ten years until 2016. The call option allowed the Bank to buy back the bonds after five years from the date of issuance.

The Bank recorded an expense amounting to P=22.9 million for the amortization of the remaining unamortized debt issuance cost relative to the redemption of the Notes.

The movements in subordinated notes payable follow:

2011 2010

Amortized cost P=1,977,141,032 P=1,973,881,534 Amortization of debt issuance costs 22,858,968 3,259,498 Settlement of subordinated notes (2,000,000,000) –

P=– P=1,977,141,032

On October 27, 2011, the Bank’s BOD approved the issuance of unsecured notes. The issuance of the Notes under the terms approved by the BOD was approved by the BSP on December 29, 2011.

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18. Accrued Taxes, Interest and Other Expenses This account consists of:

2011 2010

Accrued interest payable P=191,368,152 P=200,096,655 Accrued other taxes and licenses payable 100,114,764 179,253,734 Accrued other expenses payable 916,541,540 752,778,952

P=1,208,024,456 P=1,132,129,341

Accrued other expenses payable consists of accruals for salaries and wages, fringe benefits, insurance on deposits, professional fees, advertisements and information technology expenses.

19. Other Liabilities This account consists of:

2011 2010

Accounts payable P=753,599,153 P=676,738,250 Net retirement liability (Note 24) 171,991,637 192,844,011 Other credits 96,345,442 186,437,555 Bills purchased-contra (Note 9) 65,166,130 54,332,644 Withholding taxes payable 64,115,051 55,645,940 Dividends payable (Note 21) 35,370,001 – Sundry credits 32,678,044 18,794,710 Due to the Treasurer of the Philippines 7,004,003 6,303,446 SSS, Medicare, ECP & HDMF premium payable 6,142,476 6,061,448 Miscellaneous 65,385,243 65,720,627

P=1,297,797,180 P=1,262,878,631

Accounts payable includes payable to suppliers and service providers, and loan payments and other charges received from customers in advance.

Other credits represent long-outstanding unclaimed balances from inactive and dormant accounts.

Miscellaneous liabilities include incentives for housing loan customers that are compliant with the payment terms amounting to P=46.2 million and P=44.7 million as of December 31, 2011 and 2010, respectively.

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20. Maturity Analysis of Assets and Liabilities

The following table shows an analysis of assets and liabilities analyzed according to whether they are expected to be recovered or settled within one year and beyond one year from statement of condition date (in thousands):

2011 2010

Within

One Year

Beyond

One Year Total

Within One Year

Beyond One Year Total

Financial Assets Cash and other cash items P=3,921,289 P=– P=3,921,289 P=3,163,940 P=– P=3,163,940 Due from BSP 4,303,595 – 4,303,595 2,899,592 – 2,899,592 Due from other banks 3,736,073 – 3,736,073 7,520,836 – 7,520,836 Interbank loans receivable and SPURA 10,480,000 – 10,480,000 3,586,560 – 3,586,560 FVPL investments 54,794 – 54,794 70,990 797,326 868,316 AFS investments - gross (Note 8) 161,418 18,577,705 18,739,123 690,170 15,556,179 16,246,349 HTM investments 790,860 11,522,955 12,313,815 509,379 8,653,206 9,162,585 Loans and receivables - gross (Note 9) 12,309,422 56,368,402 68,677,824 11,149,148 51,908,858 63,058,006 Other assets - gross* (Note 14) 20,536 87,417 107,953 48,169 56,384 104,553

35,777,987 86,556,479 122,334,466 29,638,784 76,971,953 106,610,737

Nonfinancial Assets Investment in an associate and joint venture – 1,238,145 1,238,145 – 829,874 829,874 Property and equipment - gross (Note 11) – 3,965,028 3,965,028 – 3,376,011 3,376,011 Investment properties - gross (Note 12) – 3,420,708 3,420,708 – 3,401,845 3,401,845 Deferred tax assets – 1,139,490 1,139,490 59,809 645,552 705,361 Other assets - gross** (Note 14) 613,376 276,135 889,511 770,642 250,226 1,020,868

613,376 10,039,506 10,652,882 830,451 8,503,508 9,333,959

Less: Allowance for credit and impairment losses 4,850,947 4,823,146

Accumulated depreciation (Notes 11 and 12) 1,955,571 1,644,696

Unearned discounts (Note 9) 5,929,104 5,327,385

12,735,622 11,795,227

P=36,391,363 P=96,595,985 P=120,251,726 P=30,469,235 P= 85,475,461 P=104,149,469 * Others assets under financial assets comprise of petty cash fund, shortages, RCOCI and security deposits. ** Other assets under nonfinancial assets comprise of inter-office float items, prepaid expenses, stationery and supplies on hand,

sundry debits, documentary stamps on hand, deferred charges, postages stamps, chattel mortgage properties, goodwill and intangible assets.

2011 2010

Within

One Year

Beyond

One Year Total

Within One Year

Beyond One Year Total

Financial Liabilities Deposit liabilities P=85,185,741 P=16,364,595 P=101,550,336 P=73,074,011 P=14,444,798 P=87,518,809 Subordinated notes – – – 1,977,141 – 1,977,141 Treasurer’s, cashier’s and manager’s checks 654,514 – 654,514 649,434 – 649,434 Accrued other expenses payable 916,542 – 916,541 752,779 – 752,779 Accrued interest payable 191,368 – 191,368 200,097 – 200,097 Other liabilities Accounts payable 753,598 – 753,599 676,738 – 676,738 Other credits – 96,345 96,345 – 186,438 186,438 Bills purchased-contra 65,166 – 65,166 54,333 – 54,333 Dividends payable 35,370 – 35,370 – – – Due to Treasurer of the Philippines – 7,004 7,004 – 6,303 6,303 Deposits for keys 982 – 982 1,040 – 1,040 Others* 1,269 – 1,269 1,764 – 1,764

87,804,550 16,467,944 104,272,494 77,387,337 14,637,539 92,024,876

Nonfinancial Liabilities Accrued other taxes and licenses payable 100,115 – 100,115 179,254 – 179,254 Other liabilities** 276,022 62,040 338,062 7,315 328,947 336,262

376,137 62,040 438,177 186,569 328,947 515,516

P=88,180,687 P=16,529,984 P=104,710,671 P=77,573,906 P=14,966,486 P=92,540,392

* Others under financial liabilities comprise of payment orders payable and overages. ** Other liabilities under nonfinancial liabilities comprise of advance rentals on bank premises, sundry credits, withholding taxes, SSS, Medicare, ECP & HDMF premium payable, net retirement liability, and miscellaneous liabilities.

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21. Equity Issued Capital

The Bank’s capital stock consists of:

2011 2010

Shares Amount Shares Amount

Authorized common stock - P=10 par value 425,000,000 P=4,250,000,000 425,000,000 P=4,250,000,000

Issued and outstanding Balance at beginning and end of year (Note 28) 240,252,491 P=2,402,524,910 240,252,491 P=2,402,524,910

Dividends Paid and Proposed

Details of the Bank’s dividend distributions as approved by the Bank’s BOD and the BSP follow:

Cash Dividends

Date of declaration Per share Total amount Date of BSP approval Record date Payment date

October 28, 2008 0.15 36,037,874 March 6, 2009 March 26, 2009 April 15, 2009 January 20, 2009 0.15 36,037,874 June 29, 2009 July 23, 2009 August 7, 2009 May 18, 2009 0.15 36,037,874 August 17, 2009 September 15, 2009 September 30, 2009 July 28, 2009 0.15 36,037,874 October 20, 2009 November 13, 2009 December 1, 2009 October 13, 2009 0.15 36,037,874 December 15, 2009 January 14, 2010 January 28, 2010 January 19, 2010 0.15 36,037,874 March 8, 2010 March 31, 2010 April 16, 2010 February 19, 2010 2.75 660,694,350 April 22, 2010 May 17, 2010 May 31, 2010 May 17, 2010 0.15 36,037,874 June 15, 2010 July 13, 2010 August 3, 2010 July 27, 2010 0.15 36,037,874 September 6, 2010 September 29, 2010 October 14, 2010 October 14, 2010 0.15 36,037,874 November 15, 2010 December 8, 2010 December 23, 2010 January 20, 2011 0.15 36,037,874 February 23, 2011 March 18, 2011 April 4, 2011 April 4, 2011 0.15 36,037,874 May 13, 2011 August 4, 2011 August 19, 2011 August 1, 2011 0.15 36,037,874 August 16, 2011 September 8, 2011 September 23, 2011 October 27, 2011 0.15 36,037,874 November 23, 2011 December 20, 2011 January 5, 2012 January 24, 2012 0.15 36,037,874 February 09, 2012 March 8, 2012 March 23, 2012

Capital Management The primary objectives of the Bank’s capital management are to ensure that the Bank complies with externally imposed capital requirements, as mandated by the BSP, and that the Bank maintains healthy capital ratios in order to support its business and maximize returns for its shareholders. The Bank considers its paid in capital and surplus as its capital.

The Bank manages its capital structure and makes adjustments in the light of changes in economic conditions and the risk characteristic of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders or issue capital securities. The major activities in this area include the following:

• On March 2, 2005, the Bank’s BOD approved an amendment to the Bank’s Dividend Policy which provides for an annual regular cash dividend of 6.00% of the par value of the total capital stock payable quarterly at the rate of 1.50% or P=0.15 per share payable not later than March 31, June 30, September 30 and December 31 of each year.

• The Bank has issued additional common shares for its qualified stockholders in 2008 and 2006 through stock rights offerings that raised P=2.0 billion and P=750.0 million in capital, respectively.

Regulatory Capital Under Section 9 of the Thrift Banks Act, the combined capital accounts of each bank should not be less than an amount equal to 10.00% of its risk assets. Risk assets consist of total assets after exclusion of cash on hand, due from BSP, loans covered by hold out or assignment of deposits, loans or acceptances under letters of credit to the extent covered by margin deposits and other non-risk items as determined by the Monetary Board.

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On June 2, 2006, the Monetary Board of the BSP approved major revisions to the risk-based capital adequacy framework which took effect on July 1, 2007, to align the existing Basel I-compliant framework with the new Basel II standards. As approved, the BSP decided to maintain the present minimum overall capital adequacy ratio (CAR) of banks and quasi-banks at 10.00%. However, consistent with Basel II recommendations, it approved major methodological revisions to the calculation of minimum capital that universal banks, commercial banks and their subsidiary banks and quasi-banks should hold against actual credit risk exposures.

The guidelines for allocating minimum capital to cover market risk was also amended to some

extent, primarily to align specific market risk charges on trading book assets with the revised credit risk exposure guidelines. A completely new feature is the introduction of bank capital charge for operational risk. The required disclosures to the public of bank capital structure and risk exposures are also enhanced to promote greater market discipline in line with the so-called Pillar 3 of the Basel II recommendations.

The determination of the Bank’s compliance with regulatory requirements and ratios is based on the amount of the Bank’s “unimpaired capital” (regulatory net worth) as reported to the BSP, which is determined on the basis of regulatory accounting practices which differ from PFRS in some respects.

The Bank complied with all externally imposed capital requirement throughout the period.

The table below shows the Bank’s CAR as of December 31, 2011 and 2010 as reported to the BSP (in millions).

2011 2010

Tier 1 capital P=12,047 P=9,960 Tier 2 capital 578 2,506

Gross qualifying capital 12,625 12,466 Less required deductions 2,794 1,844

Total qualifying capital P=9,831 P=10,622

Risk weighted assets P=70,584 P=69,091

Tier 1 capital adequacy ratio 13.93% 12.35%

Capital adequacy ratio 13.93% 15.37%

Regulatory capital consists of Tier 1 capital, which comprises capital stock, surplus, surplus reserves, cumulative translation adjustment and net unrealized losses on AFS investments. Certain adjustments are made to PFRS-based results and reserves, as prescribed by the BSP. The other component of regulatory capital is Tier 2 capital, which is comprised of the Bank’s subordinated notes. Certain items are deducted from the regulatory Gross Qualifying Capital, such as but not limited to equity investments in financial allied undertakings, but excluding insurance companies (for solo basis); investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis); equity investments in subsidiary insurance companies and subsidiary non-financial allied undertakings; and reciprocal investments in equity of other banks/enterprises.

Risk-weighted assets are determined by assigning defined risk weights to amounts of on-statement of condition exposures and to the credit equivalent amounts of off-statement of condition exposures. Certain items are deducted from risk-weighted assets, such as the excess of general loan loss provision over the amount permitted to be included in Tier 2 capital.

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The issuance of BSP Circular No. 639 covering the Internal Capital Adequacy Assessment Process (ICAAP) in 2009 supplements the BSP’s risk-based capital adequacy framework under Circular No. 538. In compliance with this new circular, the Metrobank Group has adopted and developed its ICAAP framework to ensure that appropriate level and quality of capital are maintained by the Group. Under this framework, the assessment of risks extends beyond the Pillar 1 set of credit, market and operational risks and onto other risks deemed material by the Group. The level and structure of capital are assessed and determined in light of the Group’s business environment, plans, performance, risks and budget; as well as regulatory directives. The Bank follows the Group’s ICAAP framework and submits the result of its assessment to the Parent Company. The BSP requires submission of an ICAAP document every January 31 of each year.

Financial Performance The following basic ratios measure the financial performance of the Bank:

2011 2010 2009

Return on average equity 14.94% 15.99% 12.73% Return on average assets 1.81% 1.83% 1.48% Net interest margin on average earning assets 5.49% 5.57% 6.43%

22. Net Service Fees and Commission Income


2011 2010 2009

Service Fees and Commission Income

Deposit related and other fees received P=395,843,819 P=381,902,596 P=293,022,473 Credit related fees and commissions 373,311,437 369,748,426 345,031,112 Trust fees 7,894,245 6,977,608 4,867,453

777,049,501 758,628,630 642,921,038

Service Fees and Commission Expense Commissions 33,574,487 54,734,353 41,041,024 Brokerage 10,596,836 12,212,795 5,638,657

44,171,323 66,947,148 46,679,681

Net Service Fees and Commission Income P=732,878,178 P=691,681,482 P=596,241,357

23. Miscellaneous Income This account consists of:

2011 2010 2009

Rent (Notes 12 and 25) P=68,638,888 P=64,271,909 P=55,586,122 Insurance commission income 8,619,990 20,158,376 5,739,049 Others 105,661,188 24,519,537 26,958,795

P=182,920,066 P=108,949,822 P=88,283,966

Rent income arises from the lease of properties and safety deposit boxes of the Bank.

Others include income from recovery of charged-off assets, dividend income and other miscellaneous income.

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24. Retirement Benefits The Bank has a funded, noncontributory defined benefit plan covering substantially all of its

employees. The benefits are based on years of service and final compensation.

The retirement expense amount included in ‘Compensation and fringe benefits’ in the statement of income follows:

2011 2010

Current service cost P=79,717,354 P=61,963,347 Interest cost 72,208,877 54,098,714 Expected return on plan assets (46,000,472) (41,426,599) Net actuarial gain recognized during the year (1,778,133) (2,275,838)

Net retirement expense P=104,147,626 P=72,359,624

The amount of net retirement liability recognized in the statements of condition under ‘Other liabilities’ follow:

2011 2010

Present value of defined benefit obligation P=895,110,600 P=647,032,949 Fair value of plan assets (Note 29) 705,320,018 556,233,035

Deficit 189,790,582 90,799,914 Unrecognized actuarial gains (17,798,945) 102,044,097

Net retirement liability P=171,991,637 P=192,844,011

The movements in net retirement liability recognized in the statements of condition follow:

2011 2010

Balance at beginning of year P=192,844,011 P=120,484,387 Retirement expense 104,147,626 72,359,624 Contributions (125,000,000) –

Balance at end of year P=171,991,637 P=192,844,011

Changes in the present value of the defined benefit obligation are as follows:

2011 2010

Balance at beginning of year P=647,032,949 P=512,298,428 Current service cost 79,717,354 61,963,347 Interest cost 72,208,877 54,098,714 Benefits paid (44,082,676) (16,290,008) Actuarial loss 140,234,096 34,962,468


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Changes in the fair value of plan assets are as follows:

2011 2010

Balance at beginning of year P=556,233,035 P=490,836,483 Expected return 46,000,472 41,426,599 Contributions 125,000,000 – Benefits paid (44,082,676) (16,290,008) Actuarial gains 22,169,187 40,259,961


The actual return on plan assets amounted to P=68.17 million and P=81.69 million in 2011 and 2010, respectively.

The movements in unrecognized actuarial gains are as follows:

2011 2010

Balance at beginning of year P=102,044,097 P=99,022,442 Actuarial losses for the year - obligation (140,234,096) (34,962,468) Actuarial gains for the year - plan assets 22,169,187 40,259,961 Actuarial gains recognized (1,778,133) (2,275,838)

Balance at end of year (P=17,798,945) P=102,044,097

The Bank expects to contribute P=114.7 million to its noncontributory defined benefit plan in 2012. The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2011 2010

Equity instruments 99.45% 90.4% Other assets 0.55% 9.6%

Other assets include investment in savings and time deposits, and accrued interest receivable.

The following table shows the aggregate fair value of equity instruments included in the plan assets:

2011 2010

Bank’s shares P=381,610,390 P=310,595,481 SMFC 200,000,000 100,000,000 Other listed companies 118,157,890 89,239,280

P=699,768,280 P=499,834,761

The principal actuarial assumptions used in determining retirement liability as of January 1, 2011 and 2010 are shown below:

2011 2010

Average remaining working life 21 21 Discount rate 11.16% 10.56% Expected rate of return on assets 8.27% 8.44% Future salary increases 9.00% 8.00%

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The overall expected rate of return on assets is determined based on market prices prevailing on the date of the valuation, applicable to the period over which the obligation is to be settled.

As of December 31, 2011, the discount rate used in determining retirement obligation is 6.30%. There has been a widening spread between the rates of return on risk-free fixed income securities and the rates of return on high quality fixed-income securities that reflect credit or risk premiums in 2008. This increased spread has resulted in higher yields-to-maturity and, accordingly, higher discount rates.

Information on the Bank’s retirement plan for the current and previous years follows:

2011 2010 2009 2008 2007

Present value of unfunded obligation P=895,110,600 P=647,032,949 P=512,298,428 P=354,045,351 P=433,309,127 Fair value of plan assets (705,320,018) (556,233,035) (490,836,483) (309,231,332) (385,586,980)

Deficit 189,790,582 90,799,914 21,461,945 44,814,019 47,722,147 Experience adjustments on plan liabilities (134,759,004) 21,694,823 (29,041,046) (54,151,522) (23,289,277) Experience adjustments on plan assets 22,169,187 40,259,961 131,631,692 (159,193,210) 50,211,854

25. Leases

The Bank leases the premises occupied by its branches for periods ranging from 1 to 20 years renewable under certain terms and conditions. Various lease contracts include escalation clauses, most of which bear an annual rent increase of 10.00%. Rentals charged against profit or loss under these lease contracts amounting to P=349.6 million in 2011, P=293.2 million in 2010 and P=261.8 million in 2009 are shown under ‘Occupancy and equipment-related costs’ in the statement of income.

Future minimum rentals payable under non-cancelable operating leases are as follows:

2011 2010

Within one year P=229,850,483 P=213,444,471 After one year but not more than five years 564,167,767 529,572,538 More than five years 301,475,007 304,859,316

P=1,095,493,257 P=1,047,876,325

The Bank entered into commercial property leases on its surplus office space. These non-

cancelable leases have remaining non-cancelable lease terms between 1 and 5 years. As of December 31, 2011 and 2010, there is no contingent rental income. Rent income of the Bank related to these property leases amounting to P=66.4 million in 2011 and P=61.8 million in 2010, P=52.9 million in 2009 are shown under ‘Miscellaneous income’ in the statement of income.

Future minimum rentals receivable under non-cancelable operating leases are as follows:

2011 2010

Within one year P=57,635,660 P=61,416,868 After one year but not more than five years 52,150,432 111,983,488

P=109,786,092 P=173,400,356

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26. Miscellaneous Expenses This account consists of:

2011 2010 2009

Insurance P=243,985,774 P=195,235,643 P=158,506,606

Advertising 185,498,427 155,924,174 100,586,400 Information technology 181,330,604 141,207,719 110,418,684 Litigation 118,692,442 115,923,187 123,384,434 Communications 112,408,381 111,515,834 100,864,563

Transportation and traveling 82,417,797 75,311,632 59,416,287 Repairs and maintenance 79,863,439 70,140,352 55,149,320 Stationery and supplies 61,626,045 111,403,081 31,159,010 Management and professional fees 34,366,528 41,200,354 55,108,460

Supervision and examination fees 28,141,769 17,652,078 26,432,612 Fines, penalties and other charges 20,510,728 21,937,212 20,952,591 Banking activities expenses 11,108,238 25,028,402 5,628,722 Membership fees and dues 7,891,814 7,436,067 5,341,052

Training and seminars 6,506,744 15,957,749 11,175,319 Rewards and incentives 5,899,131 7,273,273 5,026,581 Meeting allowance 2,343,859 2,729,876 3,265,093 Entertainment, amusement and recreation

(EAR) (Note 27) 1,759,511 3,617,682 2,328,921 Donations and charitable contributions 1,213,237 22,442,565 12,179,450 Others 22,732,526 70,990,702 30,718,089

P=1,208,296,994 P=1,212,927,582 P=917,642,194

Insurance expense includes premiums paid to the Philippine Deposit Insurance Corporation amounting to P=189.1 million, P=172.1 million and P=132.2 million in 2011, 2010 and 2009, respectively.

Other expenses include sponsorship expenses, home free loan expenses, appraisal fees and notarial fees. It also include payments to union members amounting to P=8.88 million, P=9.25 million and P=6.72 in 2011, 2010 and 2009, respectively, for the successful completion of the collective bargaining agreement.

27. Income and Other Taxes Under Philippine tax laws, the Bank is subject to percentage and other taxes (presented as ‘Taxes

and licenses’ in the statement of income) as well as income taxes. Percentage and other taxes paid consist principally of gross receipts tax (GRT) and documentary stamps taxes (DST).

Income taxes include corporate income tax, discussed below, and final taxes paid at the rate of 20.00%, which is a final withholding tax on gross interest income from government securities, and other deposit substitutes.

Effective November 1, 2005, Republic Act (RA) No. 9337, an act amending the National Internal Revenue Code (NIRC of 1997), provides that the RCIT rate shall be 35.00% until January 1, 2009. Starting January 1, 2009 the RCIT rate shall be 30.00%. Interest allowed as a deductible expense is reduced by an amount equivalent to 42.00% of interest income subjected to final tax starting November 1, 2005 until December 31, 2008. Starting January 1, 2009, interest allowed as deductible expense shall be reduced by 33.00%.

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The NIRC of 1997 also provides for rules on the imposition of a 2.00% MCIT on the gross income as of the end of the taxable year beginning on the fourth (4th) taxable year immediately following the taxable year in which the Company commenced its business operations. Any excess MCIT over the RCIT can be carried forward on an annual basis and credited against the RCIT for the three (3) immediately succeeding taxable years.

Starting July 1, 2008, the Optional Standard Deduction (OSD) equivalent to 40.00% of gross income may be claimed as an alternative deduction in computing for the RCIT. The Bank elected to claim itemized expense deductions instead of the OSD in computing for the RCIT in 2011 and 2010.

On March 15, 2011, the BIR issued RR No. 4-2011 which prescribes the attribution and allocation of expenses between FCDUs/EFCDUs or OBU and RBU, and further allocation within RBU based on different income earning activities. Pursuant to the regulations, the Bank made an allocation of its expenses in calculating income taxes due for RBU and FCDU.

Current tax regulations also provide for the ceiling on the amount of EAR expense that can be claimed as a deduction against taxable income. Under the regulations, EAR expense allowed as a deductible expense for a service company is limited to the actual EAR paid or incurred but not to exceed 1.00% of net revenue. The regulations also provide for MCIT of 2.00% on modified gross income and allow a NOLCO. The MCIT and NOLCO may be applied against the Bank’s income tax liability and taxable income, respectively, over a three-year period from the year of inception.

FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income (income from residents) is subject to 10.00% income tax. In addition, interest income on deposit placements with other FCDUs and offshore banking units (OBUs) is taxed at 7.50%.

Under current tax regulation, the income derived by the FCDU from foreign currency transactions with non-residents, OBUs, local commercial banks, including branches of foreign banks, is tax-exempt while interest income on foreign currency loans from residents other than OBUs or other depository banks under the expanded system is subject to 10.00% income tax.

Provision for (benefit from) income tax consists of:

2011 2010 2009

Current:

Final tax P=399,950,508 P=293,911,402 P=216,715,098 RCIT 69,627,255 69,561,338 62,504,782

469,577,763 363,472,740 279,219,880 Deferred (493,938,013) 481,607,494 (145,718,829)

(P=24,360,250) P=845,080,234 P=133,501,051

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Net deferred tax asset consists of:

2011 2010

Deferred tax asset on: Allowance for credit and impairment losses P=1,340,022,160 P=798,540,262 Carryforward benefits of MCIT – 59,809,450 Net pension liability 57,853,203 57,853,203 Accumulated depreciation on investment properties 57,412,730 50,196,685 Accrued rent 38,408,448 38,408,448 Unamortized pension cost contribution 14,208,135 20,294,967 Unrealized foreign exchange loss – 4,598,296

1,507,904,676 1,029,701,311

Deferred tax liability on: Net unrealized gain on investment properties (263,619,975) (256,132,063) Accretion of interest on impaired loans (90,126,748) (68,208,031)

Unrealized foreign exchange gain (14,668,173) –

(368,414,896) (324,340,094)

P=1,139,489,780 P=705,361,217

As of December 31, 2011 and 2010, the Bank did not recognize deferred tax asset from its allowance for credit losses amounting to P=102.7 million and P=635.3 millon, respectively.

Details of the Bank’s excess MCIT follow:

Inception Year Amount Applied Balance Expiry Year

2007 P=27,510,337 P=27,510,337 P=– 2010 2008 46,721,314 46,721,314 – 2011 2009 55,139,137 55,139,137 – 2012

P=129,370,788 P=129,370,788 P=–

As of December 31, 2011, the Bank had already applied the remaining P=59.8 million of its excess

MCIT against its RCIT due.

The reconciliation between the statutory income tax and effective income tax follows:

2011 2010 2009

Statutory income tax P=601,320 P=795,959 P=412,055

Tax effect of: FCDU Income (56,710) (167,694) (183,502) Tax-paid and tax-exempt income (466,573) (621,778) (190,877) Nondeductible expenses 408,139 168,141 95,825

Effect of deferred income tax (510,536) 670,452 –

Effective income tax (P=24,360) P=845,080 P=133,501

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28. Earnings Per Share The following table presents information used to calculate basic EPS:

2011 2010 2009

a. Net income P=2,028,758,682 P=1,808,115,339 P=1,240,014,416

b. Weighted average number of common shares for basic EPS 240,252,491 240,252,491 240,252,491

c. Basic/Diluted EPS (a/b) P=8.44 P=7.53 P=5.16

As of December 31, 2011 and 2010, there were no potential common shares with dilutive effect on

the basic EPS of the Bank.

29. Related Party Transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the

other party or exercise significant influence over the other party in making financial and operating decisions. Corporate entities are also considered to be related if they are subjected to common control or common significant influence. Transactions between related parties are based on terms similar of those offered to non-related parties.

In the ordinary course of business, the Bank has loans and other transactions with its affiliates, and

with certain DOSRI. Under the Bank's policy, these loans and other transactions are made substantially on the same terms as with other individuals and businesses of comparable risks. The General Banking Law limits the amount of direct credit accommodations to DOSRI, 70.00% of which must be secured and should not exceed the total of their respective deposits and book value of their respective investments in the Bank. In the aggregate, loans to DOSRI generally should not exceed the lower of the Bank's total equity or 15.00% of the Bank's total loan portfolio.

BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts.

The following table shows information relating to the loans, other credit accommodations and guarantees classified as DOSRI accounts under regulations existing prior to said circular and new DOSRI loans and other credit accommodations granted under said circular as of December 31, 2011 and 2010:

2011 2010

Total outstanding DOSRI accounts P=1,284,499,649 P=2,996,655,559 Percent of DOSRI accounts granted under

regulations existing prior to BSP Circular No. 423 to total loans 1.94% 4.96%

Percent of new DOSRI accounts granted under BSP Circular No. 423 to total loans – –

Percent of unsecured DOSRI accounts to total DOSRI accounts 19.34% 9.68%

Percent of past due DOSRI accounts to total DOSRI accounts 42.57% 19.83%

Percent of nonperforming DOSRI accounts to total DOSRI accounts 42.57% 19.83%

- 76 -

As of December 31, 2011 and 2010, the Bank has no loans, other credit accommodations and guarantees, as well as availments of previously approved loans and committed credit lines not considered DOSRI accounts prior to the issuance of said circular but are allowed a transition period of two years from the effectivity of the said circular until said circular or said loan, other credit accommodations and guarantees become past due, or are extended, renewed or restructured, whichever comes later.

On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. Under the said circular, the total outstanding exposures to each of the bank's subsidiaries and affiliates shall not exceed 10.00% of bank's net worth, the unsecured portion of which shall not exceed 5.00% of such net worth. Further, the total outstanding exposures to subsidiaries and affiliates shall not exceed 20.00% of the net worth of the lending bank. BSP Circular No. 560 became effective February 15, 2007.

Total interest income from DOSRI loans amounted to P=60.3 million, P=63.6 million and P=60.8 million in 2011, 2010 and 2009, respectively.

The following table shows the other related party transactions included in the financial statements (in thousands):

Elements of Transaction

Statements of Condition Statements of Income

Related Party Relationship Nature of Transaction 2011 2010 2011 2010 2009

Metropolitan Bank & Trust Company

Parent Company Due from other banks P=572,168 P=2,179,284

Misc. assets - security deposit 3,595 2,098

Misc. liabilities - security deposit 5,589 5,589

Accrued other expense

payable 12,549 9,513 Interest income P=2,035 P=4,058 P=5,244 Interest expense 1,427 4,851

Information technology

expense 12,549 9,513 64,445 Toyota Financial

Services (Philippines) Corporation

Associate Investment in an associate 523,249 458,922

Share in net earnings of an

associate 64,328 65,707 50,034 Sumisho Motor

Finance Corporation

Joint venture Investment in a joint venture 714,896 370,952

Share in net loss of a joint venture (56,056) (24,143) (4,905)

Misc. liabilities - security

deposit 2,068 – First Metro Investment

Corporation Indirect Interest Income 8,475 8,744 – Metrobank Card

Corporation Indirect Due from other banks 4,988 6,362 Bank commission 4,988 6,362 5,694 First Metro Asset

Management. Inc. Indirect Misc. liabilities - security

deposit 221 221 First Metro Insurance

Brokers Corporation Indirect

Misc. liabilities - security deposit 474 343

Deposit liabilities include deposits of related parties amounting to P=10.5 billion in 2011 and P=6.2 billion in 2010. The related interest expense from these deposits amounted to P=77.0 million, P=56.4 million and P=22.4 million in 2011, 2010 and 2009, respectively.

- 77 -

The total assets of the retirement fund of employees amounting to P=705.3 million and P=556.2 million as of December 31, 2011 and 2010, respectively, is being managed by the Bank’s Trust Department (see Note 30).

For the years ended December 31, 2011, 2010 and 2009, HFT and AFS investment securities transactions with related parties include outright purchases totaling to P=16.3 billion, P=9.6 billion and P=15.9 billion, respectively, and outright sales totaling to P=10.6 billion, P=12.7 billion and P=17.0 billion, respectively.

Compensation of key management personnel (covering assistant vice presidents and up) included

under ‘Compensation and fringe benefits’ in the statements of income follows:

2011 2010

Short-term employee benefits P=176,843,592 P=171,664,182 Post-employment pension benefits 17,741,113 2,890,081

P=194,584,705 P=174,554,263

Short-term employee benefits include salaries and other non-monetary benefits.

Included in the fund assets of the Bank’s retirement fund are investment in the Bank’s capital stock in the amount of P=381.6 million in 2011 and P=310.6 million in 2010. It also includes investment in SMFC in the amount of P=200.0 million in 2011 and P=100.0 million in 2010.

As of December 31, 2011 and 2010, treasury bills (classified under HTM investments) with total face value of P=50.0 million are pledged by the Bank to MBTC to secure its payroll account with MBTC. As of December 31, 2011 and 2010, MBTC has assigned to the Bank, government securities with total face value of P=3.0 billion to secure the Bank’s deposits to MBTC.

30. Trust Operations Securities and other resources held by the Bank in fiduciary or agency capacity for its customers

are not included in the accompanying statements of condition since these are not assets of the Bank.

In connection with the trust functions of the Bank, government securities (classified under AFS investments) with face value of P=30.0 million as of December 31, 2011 and 2010, are deposited with the BSP in compliance with trust regulations.

For 2011, the Bank did not appropriate any surplus reserve resulting from the operations of the

Bank’s Trust Department since it is still running at a net loss. No part of such surplus reserve shall at any time be paid out in dividends, but losses accruing in the course of its trust business may be charged against surplus.

31. Commitments and Contingent Liabilities In the normal course of the Bank's operations, there are various outstanding commitments and

contingent liabilities such as guarantees and commitments to extend credit, which may not reflected in the accompanying financial statements. The Bank, however, does not anticipate significant losses as a result of these transactions.

- 78 -

The following is a summary of the Bank’s commitments and contingent liabilities at their

equivalent peso contractual amounts:

2011 2010

Trust department accounts (Note 30) P=1,122,081,012 P=631,063,745 Stand-by credit lines 97,307,821 112,514,393 Late deposits/payments received 68,471,099 58,460,284 Items held for safekeeping 363,447 336,370 Others 15,704 24,994

Also, several suit and claims, in behalf or against the Bank in relation to its lending operations and labor-related cases are pending before the courts and quasi-judicial bodies. In the opinion of management, these suits and claims, if decided adversely, will not involve an amount having a material effect on the financial statements.

32. Non-cash Investing Activities

The following is a summary of certain non-cash investing activities that relate to the analysis of the statements of cash flows:

2011 2010 2009

Addition to investment properties in

settlement of loans P=391,431,665 P=475,374,811 P=381,532,020 Addition to chattel mortgage in

settlement of loans 667,187,188 639,569,321 498,026,288 Net unrealized gain (loss) in AFS

Investment 2,044,596,539 (464,677,787) 1,497,117,558 Cumulative translation adjustment (1,693,565) (6,878,392) 7,904,401

33. Subsequent Events

On January 24, 2012, the BOD of the Bank declared a 1.50% regular cash dividend for the fourth quarter of 2011 amounting to P=36.0 million or P=0.15 per share which was approved by the BSP on February 09, 2012.

On February 20, 2012, the Bank issued P=3.0 billion, in Unsecured Subordinated Notes with an interest rate of 5.75% due 2022 (the Notes).

Among the significant terms and conditions of the issuance of the Notes are:

a. Issue price at 100.00% of the face value of each Note;

b. The Notes bear interest at the rate of 5.75% per annum from and including February 20, 2012

but excluding February 20, 2022. The interest shall be payable quarterly in arrears at end of each interest period on every 20th of May, August, November and February of each year, commencing on February20, 2012 until the maturity date.

- 79 -

c. The Notes will constitute direct, unconditional and unsecured obligations of the Bank. The

Notes will be subordinated in right of payment of principal and interest to all depositors and other creditors of the Issuer and will rank pari passu and without any preference among themselves, but in priority to the right and claims of holders of all classes of equity securities of the Bank, including holders of preferred shares, if any.

d. Subject to satisfaction of certain regulatory approval requirements, the Bank may redeem the

Notes in whole and not only in part at a redemption price equal to 100% of the principal amount together with the accrued and unpaid interest upon at least thirty (30) days notice prior to call option date.

34. Report on the Supplementary Information Required Under Revenue Regulations (RR) No. 19-2011 and 15-2010

Supplementary Information Under RR No. 19-2011 In addition to the required supplementary information under RR No. 15-2010, on December 9, 2011, the Bureau of Internal Revenue (BIR) issued RR No. 19-2011 which prescribes the new annual income tax forms that will be used for filing effective taxable year 2011. Specifically, companies are required to disclose certain tax information in their respective notes to financial statements.

For the taxable year December 31, 2011, the Bank reported the following revenues and expenses for income tax purposes:

Revenues

Services/operations P=6,178,139,301

Non-operating and taxable other income: Service charges, fees and commissions P=774,382,775 Others 190,716,975

P=965,099,750

Expenses

Cost of services: Compensation and fringe benefits P=1,217,506,570 Others 3,268,351,077

P=4,485,857,647

Itemized deductions: Compensation and fringe benefits P=562,930,344 Rent 308,148,792 Depreciation 283,403,627 Communication, light and water 224,141,742 Security, messengerial and janitorial 176,646,041 Information technology 165,148,207 Repairs and maintenance 71,878,435 Transportation and travel 62,028,843 Management and professional fees 34,366,528 EAR 1,759,511 Others 534,838,483

P=2,425,290,553

- 80 -

Supplementary Information Under RR No. 15-2010 On November 25, 2010, the BIR issued RR No. 15-2010 to amend certain provisions of RR 21-2002. The Regulations provide that starting 2010 the notes to financial statements shall include information on taxes, duties and license fees paid or accrued during the taxable year.

The Bank reported and/or paid the following types of taxes for the year:

Taxes and Licenses As of December 31, 2011, taxes and licenses of the Bank consist of:

Gross receipts tax P=453,167,073Documentary stamps tax 265,728,854Local taxes 25,917,152Real property tax 10,632,124Fringe benefit tax 5,841,887Others 2,898,292

P=764,185,382

Withholding Taxes Details of total remittances of withholding taxes as of December 31, 2011 are as follows:

Withholding taxes on compensation and benefits P=302,633,724 Expanded withholding taxes 58,556,775 Final withholding taxes 455,211,683

P=816,402,182

35. Approval for the Release of the Financial Statements

The accompanying comparative financial statements were reviewed and approved for release by the Bank’s Audit Committee and the BOD on February 29, 2012.

SCHEDULE OF STANDARDS AND INTERPRETATIONS AS OF DECEMBER 31, 2011

Remarks

Philippine Financial Reporting Standards (PFRS)

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards

Adopted

PFRS 2, Share-based Payment Adopted

PFRS 3, Business Combinations Adopted PFRS 4, Insurance Contracts Not Applicable

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations

Adopted

PFRS 6, Exploration for and Evaluation of Mineral Resources Not Applicable PFRS 7, Financial Instruments: Disclosures Adopted

PFRS 8, Operating Segments Adopted

Philippine Accounting Standards (PAS)

PAS 1, Presentation of Financial Statements Adopted PAS 2, Inventories Adopted

PAS 7, Statement of Cash Flows Adopted

PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors

Adopted

PAS 10, Events after the Reporting Period Adopted

PAS 11, Construction Contracts Not Applicable

PAS 12, Income Taxes Adopted

PAS 16, Property, Plant and Equipment Adopted PAS 17, Leases Adopted

PAS 18, Revenue Adopted

PAS 19, Employee Benefits Adopted

PAS 20, Accounting for Government Grants and Disclosure of Government Assistance

Not Applicable

PAS 21, The Effects of Changes in Foreign Exchange Rates Adopted

PAS 23, Borrowing Costs Adopted

PAS 24, Related Party Disclosures Adopted

PAS 26, Accounting and Reporting by Retirement Benefit Plans

Not Applicable

PAS 27, Consolidated and Separate Financial Statements Not Applicable

PAS 28, Investments in Associates Adopted

PAS 29, Financial Reporting in Hyperinflationary Economies Not Applicable PAS 31, Interests in Joint Ventures Adopted

PAS 32, Financial Instruments: Presentation Adopted

PAS 33, Earnings per Share Adopted

PAS 34, Interim Financial Reporting Adopted PAS 36, Impairment of Assets Adopted

PAS 37, Provisions, Contingent Liabilities and Contingent Assets

Adopted

PAS 38, Intangible Assets Adopted PAS 39, Financial Instruments: Recognition and Measurement Adopted

PAS 40, Investment Property Adopted

PAS 41, Agriculture Not Applicable

Philippine Interpretations IFRIC

Philippine Interpretation IFRIC–1, Changes in Existing Decommissioning, Restoration and Similar Liabilities

Not Applicable

Philippine Interpretation IFRIC–2, Members' Shares in Co- Not Applicable

Remarks

operative Entities and Similar Instruments

Philippine Interpretation IFRIC–4, Determining whether an Arrangement contains a Lease

Adopted

Philippine Interpretation IFRIC–5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

Not Applicable

Philippine Interpretation IFRIC–6, Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

Not Applicable

Philippine Interpretation IFRIC–7, Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

Not Applicable

Philippine Interpretation IFRIC–9, Reassessment of Embedded Derivatives

Adopted

Philippine Interpretation IFRIC–10, Interim Financial Reporting and Impairment

Adopted

Philippine Interpretation IFRIC–12, Service Concession Arrangements

Not Applicable

Philippine Interpretation IFRIC–13, Customer Loyalty Programmes

Adopted

Philippine Interpretation IFRIC–14, PAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Adopted

Philippine Interpretation IFRIC–16, Hedges of a Net Investment in a Foreign Operation

Not Applicable

Philippine Interpretation IFRIC–17, Distributions of Non-cash Assets to Owners

Not Applicable

Philippine Interpretation IFRIC–18, Transfers of Assets from Customers

Adopted

Philippine Interpretation IFRIC–19, Extinguishing Financial Liabilities with Equity Instruments

Not Applicable

Philippine Interpretations SIC

Philippine Interpretation SIC–7, Introduction of the Euro Adopted

Philippine Interpretation SIC–10, Government Assistance - No Specific Relation to Operating Activities

Not Applicable

Philippine Interpretation SIC–12, Consolidation - Special Purpose Entities

Not Applicable

Philippine Interpretation SIC–13, Jointly Controlled Entities - Non-Monetary Contributions by Venturers

Not Applicable

Philippine Interpretation SIC–15, Operating Leases – Incentives

Adopted

Philippine Interpretation SIC–21, Income Taxes - Recovery of Revalued Non-Depreciable Assets

Not Applicable

Philippine Interpretation SIC–25, Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

Not Applicable

Philippine Interpretation SIC–27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease

Adopted

Philippine Interpretation SIC–29, Service Concession Arrangements: Disclosures

Not Applicable

Philippine Interpretation SIC–31, Revenue - Barter Transactions Involving Advertising Services

Not Applicable

Philippine Interpretation SIC–32, Intangible Assets - Web Site Costs

Not Applicable


CAPITAL STOCK

Summary of Stock Issuances

Number of Shares Issued

A. On October 1994, through an initial public offering, the Bank issued 1,782,220 common shares at P338 per share. As of December 31, 1994, the Bank had a total of 7,122,425 outstanding shares and 6,455 subscribed shares.

7,128,880

B. In 1995, the BOD and stockholders approved the following resolutions which were approved by the BSP and SEC in August 1995:

b.1 stock split of one share with a par value of P100 into ten shares with a par value of P10 per share

64,159,920

b.2 declaration of 52.6% stock dividends involving 37,500,000 shares 37,500,000

C. On September 14, 1995, the BOD approved the offering for subscription of 21,757,760 by way of pre-emptive rights offering to existing stockholders of the Bank at the proportion of one (1) right share for every five (5) existing common shares.

21,757,760

D. On February 18, 1997 and April 14, 1997, the stockholders and the BOD, respectively, approved the declaration of 25% stock dividends or 32,636,640 shares. Such declaration was approved by the BSP and the SEC on March 31, 1997 and October 8, 1997, respectively.

32,636,640

E. On February 22, 1999, the BOD approved the declaration of stock dividends from outstanding common shares equivalent to 10% or 16,318,320 shares. Such declaration was approved by the BSP on March 25, 1999.

16,318,320

F. On February 6, 2006, the BOD approved the offering for subscription of 22,437,690 at an exercise price of P33.50 per share, by way of pre-emptive rights offering to existing stockholders of the Bank at the proportion of of one (1) right share for every eight (8) existing common shares.

22,436,795

G. On August 28, 2007, the BOD approved the offering for subscription of 38,314,176 at an exercise price of P52.20 per share, by way of pre-emptive rights offering to existing stockholders of the Bank at the proportion of one (1) right share for every 5.27059 existing common shares.

38,314,176

TOTAL SHARES ISSUED 240,252,491

PHILIPPINE SAVINGS BANK SCHEDULE A – FINANCIAL ASSETS

As of December 31, 2011

Name of Issuing entity and association of each issue

(i)

Number of shares or

principal amount of bonds and

notes

Amount shown in the balance

sheet (ii)

Valued based on market quotation

at end of reporting period

(iii)

Income accrued

Financial Assets at Fair Value Through Profit or Loss

Derivatives 81,437,118 54,794,038 54,794,038

-

Available for Sale Investment

ROP

US718286BB24

87,680,000 117,372,832 117,372,832

3,152,218

US718286BB24

1,096,000,000 1,467,160,400 1,467,160,400

39,402,722

US718286BD89

438,400,000 517,377,760 517,377,760

12,887,133

US718286BG11

1,139,840,000 1,358,632,288 1,358,632,288

13,725,573

US71828AY36

964,480,000 1,480,544,313 1,480,544,313

37,922,818

3,726,400,000 4,941,087,593 4,941,087,593 107,090,464

Fixed Treasury Notes

Home Guaranty - HGCZ0713K030 395,000,000 378,342,401 378,342,401

-

National Food Authority - NFAB1018A016 500,000,000 557,294,365 557,294,365 13,406,250

SPTB1012A021 160,010,000 161,418,088 161,418,088 9,396,143

PIBD0313A199 30,000,000 31,069,200 31,069,200 761,250

PIBD1016I420 50,000,500 60,333,103 60,333,103 1,482,827

PIBD1020L525 528,230,717 562,967,169 562,967,169 1,293,065

PIBD1021D531 500,000,000 548,410,000 548,410,000 5,687,500

PIBD2031G171 4,464,051,272 5,371,146,490 5,371,146,490 160,705,846

PIBD2535L086 4,981,305,645 6,076,621,778 6,076,621,778 16,863,795

11,608,598,134 13,747,602,596 13,747,602,596 209,596,676

Equity Securities

Meralco 187,220 348,233 348,233

-

PLDT 558,300 404,145 404,145

-

Capitol Hills Golf & Country Club 650,000 50,000 50,000

-

Alabang Country Club 841,700 1,100,000 1,100,000

-

Manila Southwoods Club 1,010,000 600,000 600,000

-


(i)

Number of shares or


notes


sheet (ii)



(iii)

Income accrued

Riviera Golf Club 1,053,000 200,000 200,000

-

Certificate of Capital Stock of MBTC 100,000 72,963 72,963

-

Valley Golf and Country Club 777,000 230,000 230,000

-

Class A JAKA Holding 800,000 800,000 800,000

-

One Corporate Share - Tower Club Inc 617,500 617,500 617,500

-

6,594,720 4,422,840 4,422,840

15,341,592,854 18,693,113,028 18,693,113,028 316,687,140

Held to Maturity Investment

ROP

US718286AL15

43,840,000 55,877,940 63,073,923

809,822

US718286AP29

131,520,000 196,348,400 206,871,754

4,075,750

US718286AT41

263,040,000 267,242,944 283,333,536

8,943,360

US718286AU14

219,200,000 231,190,557 246,060,768

8,338,733

US718286AW79

87,680,000 93,299,743 106,103,322

2,248,018

US718286BG11

832,960,000 920,560,769 992,846,672

10,030,227

US71828AY36

657,600,000 878,002,454 1,009,462,032

25,856,462

USY6972CAJ63

329,457,600 374,390,117 416,006,112

6,726,426

2,565,297,600 3,016,912,925 3,323,758,118 67,028,798

Fixed Treasury Notes

PIBD0712D395

200,000,000 199,927,887 206,606,355

4,025,000

PIBD1013E320

30,000,000 30,151,180 33,984,937

450,417

PIBD2525K015

16,000,000 18,398,101 35,590,064

259,556

PIBD1019B485

1,100,000,000 1,110,850,530 1,307,483,870

31,762,500

PIBD2028L151

100,000,000 107,469,868 138,735,071

712,500

PIBD2030E166

3,143,330,000 3,206,533,814 4,108,741,631

25,976,130

PIBD2031G171

450,000,000 455,110,371 540,958,728

16,200,000

PIBD2534K062

500,000,000 500,000,000 683,370,133

7,194,444

PIBD2535L086

2,300,000,000 2,393,173,602 2,798,771,633

7,786,458

7,839,330,000 8,005,969,887 9,854,242,422 94,367,005


(i)

Number of shares or


notes


sheet (ii)



(iii)

Income accrued

Special Purpose Treasury Bond

591,290,000 590,932,221 597,028,987 34,721,863

National Food Authority Bond

500,000,000 500,000,000 534,871,585 5,489,583

Land Bank of the Philippines

200,000,000 200,000,000 215,588,309 886,111

11,695,917,600

12,313,815,034

14,525,489,422

202,493,361

Unquoted Debt Securities

San Miguel Brewery

300,000,000

329,206,813

329,206,813

-

i. Each issue shall be stated separately, except that reasonable grouping, without enumeration may be made of (a) securities issued or guaranteed by the Philippine Government or its agencies and (b) securities issued by others for which the amounts in the aggregate are not more than two percent of total assets.

ii. State the basis of determining the amounts shown in the column. This column shall be totaled to correspond to the respective balance sheet caption or captions.

iii. This column may be omitted if all amounts that would be shown are the same as in the immediate preceding column.

PHILIPPINE SAVINGS BANK SCHEDULE B – AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS,

EMPLOYEES, RELATED PARTIES, AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES) As of December 31, 2011

Name and Designation

of Debtor (i)

Balance at Beginning of

the Period Additions

Amounts Collected

(ii)

Amounts Written-off

(iii) Current Not Current

Balance at End of the

Period

NONE TO REPORT

i. Show separately accounts receivables and note receivable. In case of notes receivable,

indicate pertinent information such as the due date, interest rate, terms or repayment and collateral, if any.

ii. If collection was other than in cash, explain. iii. Give reasons for write-off.

PHILIPPINE SAVINGS BANK SCHEDULE C – AMOUNTS RECEIVABLE FROM RELATED PARTIES WHICH

ARE ELIMINATED DURING THE CONSOLIDATION OF FINANCIAL STATEMENTS


Name and Designation of debtors

Balance at

beginning of period

Additions

Amounts collected

(i)

Amounts written

off (ii)

Current Not

Current

Balance at end of the period

NOT APPLICABLE

(i) If collection was other than in cash, explain. (ii) Give reasons for write off.

PHILIPPINE SAVINGS BANK SCHEDULE D – INTANGIBLE ASSETS


Description (i)

Beginning Balance

Additions at Cost (ii)

Charge to cost and expenses

Charge to other

accounts

Other changes additions

(deductions) (iii)

Ending Balance

Goodwill

53,558,338

- - - -

53,558,338

Software Costs 163,002,477 64,219,168 (53,124,292) - -

174,097,353

License Fees 24,123,737 3,400,000 - - - 27,523,737

240,684,552

67,619,168

(53,124,292)

-

-

255,179,428

(i) The information required shall be grouped into (a) intangibles shown under the caption intangible

assets and (b) deferrals under the caption Other Assets in the related balance sheet. Shown by major classifications.

(ii) For each type representing anything other than an acquisition, clearly state the nature of the change and the other accounts affected. Describe cost of additions representing other than cash expenditures.

(iii) If provision for amortization of intangible assets is credited in the books directly to intangible asset account, the amounts shall be stated with explanations including the accounts charged. Clearly state the nature of deductions if these represent anything other than regular amortization.

PHILIPPINE SAVINGS BANK SCHEDULE E – LONG TERM DEBT


Title of Issue and type of obligation

(i)

Amount authorized by indenture

Amount shown under caption

“Current portion of Long-Term Debt” in

related balance sheet

(ii)

Amount shown under caption

“Long-Term Debt” in related balance

sheet (iii)

NONE TO REPORT

(i) Include in this column each type of obligation authorized. (ii) This column is to be totaled to correspond to the related balance sheet caption. (iii) Include in this column details as to interest rates, amounts or number of periodic installments, and

maturity dates.

PHILIPPINE SAVINGS BANK SCHEDULE F – INDEBTEDNESS TO RELATED PARTIES

(LONG TERM LOANS FROM RELATED PARTIES) As of December 31, 2011

Name of Related Party (i)

Balance at Beginning of the Period

Balance at the End of the Period

(ii)

NONE TO REPORT

(i) The related parties named shall be grouped as in Schedule D. The information called for shall be stated separately for any persons whose investments were shown separately in such related schedule.

(ii) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase during the period that is in excess of 10 percent of the related balance sheet at either the beginning or end of the period.

PHILIPPINE SAVINGS BANK SCHEDULE G – GUARANTEES OF SECURITIES OF OTHER ISSUES


Name of issuing entity of securities

guaranteed by the company for which the statement is

filed

Title of issue of each class of

securities guaranteed

Total amount guaranteed and

outstanding (i)

Amount owned by person for

which statement if

filed

Nature of guarantee

(ii)

NONE TO REPORT

i. Each issue shall be stated separately, except that reasonable grouping, without enumeration may be made of (a) securities issued or guaranteed by the Philippine Government or its agencies and (b) securities issued by others for which the amounts in the aggregate are not more than two percent of total assets.

ii. State the basis of determining the amounts shown in the column. This column shall be totaled to correspond to the respective balance sheet caption or captions.

iii. This column may be omitted if all amounts that would be shown are the same as in the immediate preceding column.

PHILIPPINE SAVINGS BANK SCHEDULE H – CAPITAL STOCK


Title of Issue (i)

Number of Shares

Authorized

Number of Shares

Issued and Outstanding

at shown under related

Balance Sheet caption

Number of Shares

reserved for Options,

Warrants, Conversion and Other

Rights

Number of Shares Held by related

parties (ii)

Directors, Officers, and Employees

Others (iii)

Common Stock - P10 par value

425,000,000 240,252,491 - 182,535,895 8,914 57,707,682

(i) Include each type of issue authorized. (ii) Related parties referred to include persons for which separate financial statements are filed and

those included in consolidated financial statements, other than the issuer of the particular security. (iii) Indicate in a note any significant changes since the date of the last balance sheet filed.

21 June 2012 THE PHILIPPINE STOCK EXCHANGE … · 21 June 2012 THE PHILIPPINE STOCK EXCHANGE 3F...

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Transcript of 21 June 2012 THE PHILIPPINE STOCK EXCHANGE … · 21 June 2012 THE PHILIPPINE STOCK EXCHANGE 3F...