looking towards

a brighter future
2017 ANNUAL REPORT
 looking towards
a brighter future
2017 ANNUAL REPORT

ABOUT
the Cover
LOOKING TOWARDS A BRIGHTER FUTURE
Bank of Commerce has always been about giving the most unique banking experience to our customers.
Driven by this commitment, we have been forward-looking in the way we serve our clients, anticipating their
every need to ensure that they only get what they deserve whenever they bank with us and become their
partner for success in every aspect of their lives. Our progressive approach has fueled us to work harder to
bring our products and services to greater heights – from expanding our portfolio of products and providing
superior service, to improving our systems, processes, and enhancing the talent and skills of our people.

Our cover shows how we, as an institution, backed by capable people, come together to work as one in
achieving a common goal: to provide a banking experience that helps customers attain a brighter future.
Expect Bank of Commerce to not rest on its laurels as it continues to break new ground and blaze the trail
towards changing the way people bank today. We Think Customers and we will always be driven by our
unwavering commitment to meet the wants and needs of our clients as they look towards a better tomorrow.
 TABLE
of Contents

2 Company Profile
4 Vision, Mission, and Service Promise
5 Economic Forecast
7 Report from the Chairman and the President & CEO
10 Products and Services
12 Financial Highlights
14 Operational Highlights
20 Corporate Social Responsibility
24 Corporate Governance
32 Table of Organization
34 Board of Directors
39 Senior Executive Team
42 Management Committees
44 Risk Management
54 Capital Management
58 Consumer Protection
60 Internal Audit Division Report
61 Statement of Management's Responsibility
for Financial Statements
62 Audited Financial Statements
63 Report of Independent Auditors
66 Statements of Financial Position
68 Statements of Income
69 Statements of Comprehensive Income
70 Statements of Changes in Equity
72 Statements of Cash Flows
74 Notes to the Financial Statements

174 Senior Officers

177 Branch / ATM Directory

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2017 annual report

company
Profile
Bank of Commerce (the Bank) is one of the country’s progressive
commercial banks and is licensed by the Bangko Sentral ng Pilipinas
(BSP). The Bank has been in operation since 1963 and traces its origins
to the Overseas Bank of Manila with headquarters in Binondo, Manila.

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 LOOKING TOWARDS A BRIGHTER FUTURE

The Bank has since evolved through different phases

of growth. In 1980, Overseas Bank of Manila changed
its name to Commercial Bank of Manila. The following
year, the Government Service Insurance System (GSIS)
acquired the Commercial Bank of Manila and used
“ComBank” as the Bank’s short name. In 1984, ComBank
acquired Royal Savings Bank. The First National Bank
of Boston, one of the oldest and leading banks in the
United States, and a local investment group acquired
ComBank in 1988 and was then renamed Boston Bank
of the Philippines.

In November 1991, the Bank changed its official name to

Bank of Commerce. The buyout of the majority interest
of the First National Bank of Boston was completed in
1993, placing Bank of Commerce under complete Filipino
ownership. As part of its growth plans, Bank of
Commerce acquired Pan Asia Bank and purchased
selected assets and liabilities of Trader’s Royal Bank in
2001. These takeovers significantly increased the Bank’s
presence in the banking industry.

Filipino-owned San Miguel Properties, Inc., a subsidiary

of San Miguel Corporation (SMC), and San Miguel
Corporation Retirement Fund, the registered retirement
plan of SMC Group employees, became the controlling
shareholders of Bank of Commerce in 2008. San Miguel
Properties, Inc. has 39.89% of ownership and San Miguel
Corporation Retirement Fund has 39.94% of ownership,
as of December 31, 2017. On January 16, 2013, the
Securities and Exchange Commission (SEC) approved
the extension of the corporate life of Bank of Commerce
for another 50 years from December 13, 2013.

Bank of Commerce provides innovative banking

solutions and a complete range of products and services
in deposit, commercial loans, credit card services,
consumer banking, corporate banking, treasury, asset
management, and trust and investments. In terms
of service reach, the Bank relaunched the Retail and
Corporate Internet Banking facilities with enhanced
features to encourage consumers and corporate clients
to transact regular banking services such as bills
payment, fund transfers, card loading, and other services
via the internet banking platform.

The Bank has a network of 136 Branches and 252

Automated Teller Machines (ATMs) strategically located
nationwide, as of December 31, 2017.

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2017 annual report

About Us
Vision
To be the Bank of choice for the business community,
delivering a total banking experience characterized
by friendly and outstanding service with the desire to
provide a better quality of life for all.

Mission
Our business is professional banking.
We commit to serve our clients with the highest
standards of integrity and quality. We strongly believe
in our human resources and dedicate ourselves to their
continuous development.

We will create value for our stakeholders by being

among the top banks in the industry.
In so doing, we contribute to nation building.

We are Bank of Commerce.

Service Promise
With integrity and financial stability,
we commit to deliver superior service
to you, our discerning customers.

Through competent and warm professionals

who understand, anticipate, and fulfill your needs
with a sense of urgency in a safe and guest-friendly
environment, we promise you a meaningful
banking experience.

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 LOOKING TOWARDS A BRIGHTER FUTURE

ECONOMIC
Forecast
The Philippines continues to exhibit an improving and more vibrant
economy that is poised for steady growth. The country’s performance
in 2017 is a solid indication of its tenacity to rise above current challenges
and remain focused and unperturbed in strengthening all sectors of its
economy to become a force to be reckoned with in the global market.

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2017 annual report

“
With these strong indicators,
expect Bank of Commerce to ride the
wave of the country’s economic growth
as it eyes a better banking experience
for its customers.
”
The 2017 last-quarter GDP growth rate of 6.6%, while not as The Philippine economic gains further earned confidence from
impressive as the 6.9% achieved from the previous year, was still major international credit-rating agencies. Fitch upgraded the
a strong finish that brought the country’s full-year expansion to country’s sovereign rating from BBB- to BBB stable, citing
6.7%. With this remarkable achievement, the Philippines remains domestic demand and foreign direct investment as evidence
one of the fastest-growing economies in Asia, trailing behind for strong investor sentiment and the country’s impressive GDP
China at 6.9% and Vietnam at 6.8%. performance in the third quarter.

The gains achieved the past year were fueled by continuous The growth displayed by the country is expected to continue
growth in the manufacturing, trade, real estate, and business as the government remains focused on its desire to bring about
sectors. The services sector remains a strong driver of this economic reforms anchored on stronger governance. For 2018,
growth with a 7.1% year-on-year growth. The industry sector NEDA expects the country’s GDP to grow between 7% to 8%,
provided a much-needed support to achieve an impressive GDP while the ADB, IMF, World Bank, S&P, and Nomura all pegged
rate for 2017, with manufacturing climbing from 7% in 2016 to the country’s growth next year between 6.5% to 6.9%.
8.8%, boosted by the mining and quarrying sectors which also
posted an 8.8% growth rate. Construction also recorded a 2.8% The strong economic performance showcased by the country
increase from 10.7% during the last quarter of 2017. Agriculture has been backed by the solid support provided by the Philippine
surprisingly showed a positive turnaround, posting 2.4% from banking industry. As Nestor A. Espenilla Jr. takes over the reins
1.3% in 2016. as the new BSP governor, the banking industry has set its
sights on complementing the gains achieved by the domestic
The country's GDP performance was also boosted by higher economy through faster delivery of services and more secure
consumer spending, which grew to 6.1%. Government products for customers. Philippine banks have complemented
spending jumped to 11% from last year's 4.5%, buoyed by BSP’s efforts by establishing a strong presence in the Southeast
the government's delivery of public services and social Asian region through the ASEAN Banking Integration
protection. Capital formation, on the other hand, eased Framework (ABIF) that is expected to be completed by 2020.
from 8.7% from the same period last year to 8.2% this year,
as exports and imports provided a strong finish at 18.6% and With these strong indicators, expect Bank of Commerce to
17.5%, respectively. be one with the country as it continues to achieve high marks
towards economic growth. We are one with the nation as it eyes
Cash remittances, while not as impressive as the previous a brighter future for generations to come, setting our sights
years’, remained resilient, posting a total of USD28.1 billion in towards giving our customers a better banking experience.
2017, up from 4.3% from USD26.9 billion in 2016. Remittances From improving our systems and portfolio of products to
mostly came from OFWs working in the USA, UAE, Saudi enhancing our processes and security features, we are leaving
Arabia, Singapore, Japan, United Kingdom, Qatar, Kuwait, no stone unturned to ensure that a better tomorrow awaits
Germany, and Hong Kong. every Filipino, whenever they bank with us.

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 LOOKING TOWARDS A BRIGHTER FUTURE

jose T. pardo roberto c. benares

chairman president and ceo

REPORT FROM
THE CHAIRMAN
and the President & CEO
The Philippine economy received many accolades for its performance in 2017.
With a 6.7% GDP growth rate, it was the third fastest-growing economy in Asia.
Both domestic and foreign entities made substantial capital investments in the
country whose economy is characterized by steady inflow of remittances and
high consumer spending growth. With Fitch’s December 2017 credit upgrade,
the credit rating of the Philippines now stands at two notches above investment
grade. It is not surprising then that the World Bank predicts the Philippines
to be the fastest-growing economy in the ASEAN region from 2018 to 2020.

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2017 annual report

By maintaining a low interest rate regime, the Bangko Sentral

ng Pilipinas (BSP) has supported an expanding economy
which has exhibited 76 consecutive quarters of uninterrupted
growth. The government spent PHP568.8 billion, equivalent to
3.6% of GDP, on infrastructure and other capital outlays. The
industrial sector posted a 9.4% year-on-year growth and the
services sector posted a 7.1% year-on-year growth. Both are
among the primary drivers of progress. On the demand side,
growth is pushed by robust private consumption and capital
investments. Fortunately, observed growth is broad-based
and comes from various sources.

The Philippines’ sound macroeconomic fundamentals and

positive growth prospects have also encouraged a record high
of USD10 billion in Foreign Direct Investment (FDI) inflows, up
21.4% from 2016. FDIs are actual inflows from overseas which
may be in the form of equity capital, reinvestment of earnings,
or borrowings of affiliates. This validates the country’s status
as a primary investment destination.

As stated by Governor Nestor A. Espenilla Jr., who took

over the reins of the BSP in July 2017, the Philippine banking
system remains sound and stable. The banking industry’s
performance in 2017 showed sustained growth in assets (up
11%), deposits (up 11%), loans (up 18%), and capital (up 15%).
As such, the banking industry continues to exhibit improving
asset quality, adequate liquidity, and strong capitalization.

For 2017, Bank of Commerce (the Bank) recorded a net income

of PHP626 million, up 2.5% from the previous year, while total
assets grew to PHP140.5 billion from PHP138.7 billion in 2016.
Total loan portfolio reached a record high of PHP64 billion, as
both the corporate and consumer loan portfolios registered
marked growth. While there was substantial demand for loans,
competition among banks was stiff, resulting in lower-than-
expected net interest income. The sale of a number of long-held
acquired assets significantly brought up non-interest income,
and prudent management of expenses allowed the Bank to
exceed its previous year’s net income.

Continuing the Bank’s commitment to expanding and

strengthening its branch network, it opened two new
branches, relocated six sub-optimally performing branches,
and upgraded three flagship provincial branches.

The Bank successfully implemented the Corporate

Internet Banking Direct Auto-Debit Arrangement module,
the in-house developed bRemit system, Check Image

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 LOOKING TOWARDS A BRIGHTER FUTURE

Clearing System (CICS), SWIFT infrastructure updates, and

EMV-related projects, among others.

The Bank likewise rolled out Priority Access, a proprietary

program which provides personalized and privileged
services, as well as exclusive benefits and perks, aimed at
enhancing relationships with select clients.

Recognizing that its people are its most valuable resource,

the Bank continues to seek training opportunities not only
for the staff and junior officers but for the senior officers
as well. Last year, a well-established consulting firm was
engaged to provide selected senior officers with training
modules to enhance their skills in strategic thinking,
customer centricity, innovation, digitalization, financial
technology, and leadership transformation.

Together with trusted organizations such as the International

Care Ministries (ICM), San Miguel Foundation, Habitat for
Humanity, and World Vision, the Bank remained committed
to its Corporate Social Responsibility pursuits, aimed at
uplifting the conditions of underprivileged communities.
These were in the form of conducting training programs to
enhance life skills, educating pregnant women regarding
prenatal and maternal care, and encouraging volunteer work
to improve educational and housing facilities.

To remain competitive in an ever-evolving industry where

technology and innovation constantly shape the landscape, the
Bank’s Information Technology Services Division is expected to
play a key role in ensuring security of bank systems, completion
of the Data Integration Platform (DIP) project, and rollout of a
robust Mobile Internet Banking (MIB).

Given the consensus forecast of a more rapidly growing

economy in 2018 and the rise of the country’s favorable
demographics (majority of the population will be of working
age), much more business opportunities are expected. With
the Bank’s continuous investments in systems and people, the
Bank is strategically positioned to seize these opportunities,
take its legacy further to even greater heights, and be one
with our customers as they plan ahead for a brighter future.

jose T. pardo roberto c. benares

chairman president and ceo

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 2017 annual report

PRODUCTS
& Services
Retail Products • SSS Pension Account

• Savings Account with Debit Card

• US Veterans Pension Savings Account (PHP and USD)

• Savings Account with Passbook

• Payroll Savings Account

• Savings Account Plus

• Philippine Retirement Authority (PRA) Savings and
Time Deposit Accounts (PHP and USD)
• Checking Account
• Complete Checking Account
• Cash Card

• US Dollar Savings Account

Consumer Loans
• Euro Savings Account
• Home Loan
• Junior Smart Savers Savings Account
• Auto Loan
• One Passbook Investment Account
• Salary Loan
• Time Deposit
• One-Year Time Deposit
Credit Card
• US Dollar Time Deposit
• Bank of Commerce Mastercard
• Euro Time Deposit

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 LOOKING TOWARDS A BRIGHTER FUTURE

digital Channels • Bank Statement Downloading

• ATM
• SOA Download (MultiCash, MT940 formats)

• Corporate Internet Banking

• Fund Transfer to Own Accounts

• Retail Internet Banking

• Payments Management Solutions
• Fund Transfer to Third Party Accounts

Trust Products and Services • Auto Credit Arrangement (ACA)

• Investment Management Account • Payroll Crediting Service

• Unit Investment Trust Funds • Manager's Check Cutting Service

• Diversity Money Market Fund • Collections Management Solutions

• Diversity Peso Bond Fund • Auto Debit Arrangement (ADA)

• Diversity Dollar Bond Fund • Other Cash Management Services

• Diversity Dividend Focused Fund • Deposit Pick-Up Service

• Trust and Other Fiduciary Services • Bills Payment Facility

• Personal Management Trust • Payroll Plus

• Employee Benefit Trust • Post-Dated Check Warehousing Facility

• Facility / Loan Agency • Customs, Duties and Taxes Payments

• Trust Under Indenture (via BoC PAS5 Facility)

• Collateral Trust • BancNet - BIR Electronic Filing and Payment System

• Escrow Agency (BIR eFPS)

• Buyer and Seller Escrow • BancNet - eGovernment Facility (SSS, Pag-IBIG and

• POEA Escrow PhilHealth Payments)

• BIR Escrow
• HLURB Escrow
Remittance Services
• Source Code Escrow
• SikapPinoy OFW Account

• Other Types of Escrow

• Credit to Accounts with Bank of Commerce

• Other Institutional Trust / Agency Accounts

• Credit to Accounts with Other Philippine Banks
• Cash Home Delivery

Treasury Products • Cash Pick-up Services via Bank of Commerce Branches

• Fixed Income Government Securities (Peso / Dollar) from Partners & Tie-ups:

• Corporate Bonds • Al Ansari Exchange LLC

• Foreign Exchange • Al Ghurair Exchange LLP

• Al Mulla International Exchange Co.
Corporate Banking • Arab National Bank
• Working Capital Loan • Bank Al Jazira
• Term Loan • Prabhu Money Transfer
• Capital Expenditure Financing • TransFast
• Project Financing • Eastern & Allied Pty Ltd (HaiHa Money Transfer)
• Small Business Loan – Term Loan • U Remit International Corp
• Small Business Loan – Business Credit Line • Family Express Canada
• Foreign Currency Denominated Loan • WorldRemit Ltd
• Trade Financing • MoneyGram
• Letters of Credit • Cash Pick-up Services via Payout Partners:
• Export Packing Credit • M Lhuillier
• Export Bills Purchase • Cebuana
• Domestic Bills Purchase • LBC Express
• Palawan Pawnshop
Cash Management • eGovernment Payments of OFWs through Remittance
and Payment Services Partners:
• Funds Manager Solutions • SSS Contributions / Loan Payments
• Deposit Inquiry Services • PhilHealth Contributions
• Account Transaction History • Pag-IBIG Contributions / Loan Payments

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 2017 annual report

FINANCIAL
Highlights

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2017 2016
profitability
Total Net Interest Income 3.4 3.3
Total Non-Interest Income 1.4 1.1
Total Non-Interest Expenses (3.8) (3.6)
Expense from Income Tax (0.4) (0.3)
Pre-provision profit 0.6 0.5
Reversal of Credit and Impairment Losses 0.0 0.1
Net Income 0.6 0.6

selected balance sheet data

Liquid Assets 59.4 68.0
Gross Loans 64.0 49.8
Total Assets 140.5 138.7
Deposits 118.8 117.5
Total Equity 17.8 17.3

selected ratios
Return on Equity 3.6% 3.5%
Return on Assets 0.5% 0.5%
CET 1 Capital Ratio (for UBs/KBs) 16.4% 17.5%
TIER 1 Capital Ratio (for UBs/KBs) 16.4% 17.5%
Capital Adequacy Ratio 17.1% 18.1%

per common share data

Net Income per share:
Basic 5.6 5.4
Diluted 5.6 5.4
Book Value 158.6 154.2

Others
Cash Dividends Declared N/A N/A
Headcount 1,720 1,624
Officers 804 754
Staff 916 940

(Amounts in PHP billion, Except Ratios, Per Common Share & Headcount)

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 2017 annual report

operational
Highlights
Driven by our commitment to helping customers achieve a brighter future,
we made 2017 the year of introducing a bigger and better Bank of Commerce.
Taking a cue from what our clients need, we worked on enhancements after
enhancements in every aspect of our business to ensure that our products and
services are aligned with their personal and professional goals, and that we
become the banking partner they can lean on to make their lives even better.

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 LOOKING TOWARDS A BRIGHTER FUTURE

were set in motion, such as the introduction of the BBG

Branch Banking Group
Sales Standards and the BBG Way of Life, to ensure another
Branch Banking Group (BBG) continued to perform well in
fruitful year in 2018 and beyond.
2017, growing its core CASA deposit portfolio by nearly PHP3.7
billion on Year-to-Date ADB basis, on the back of more than
41,000 new customers acquired during the year. Forty percent CORPORATE BANKING GROUP
of this portfolio growth came organically from satisfied existing The loan portfolio of the Corporate Banking Group (CBG)

customers. Total branch-generated consumer loans also in 2017 expanded significantly by 32% to PHP50.79 billion,

breached the PHP1 billion mark in 2017, tallying at over PHP1.4 compared to the end-2016 level of PHP38.43 billion. CBG

billion by the end of the year, which is almost 45% higher than was able to make inroads in the financial markets by

the previous year. Account referrals to Trust and Treasury concentrating and further developing close relationships

services likewise remained robust, with higher than PHP2 billion with the country’s Top 1,000 corporations.

in additional investments. Branches also contributed to new and

recurring fee income streams generated from their heightened Growth in CBG was seen in all lending divisions and

promotion of the Bank’s Cash Management solutions. continued improvement in asset quality was evident with no
new significant past due loans.

Two new branches were opened simultaneously on July 24,

2017. Riding on the upbeat prospects of Baliuag, Bulacan, the Loan portfolio remained heavily skewed towards industries

Bank opened its second branch at this bustling town, located that are currently benefiting from the favorable local

along Doña Remedios Trinidad (DRT) Highway. Meanwhile, economic environment, particularly in real estate, power,

the Bank’s entry into the Iligan City market bodes well with infrastructure, and construction. For 2018, the Bank’s focus in

its commitment to helping rebuild the communities in that lending will continue to be opportunistic as CBG intends to

part of Mindanao. maximize asset growth and yields to support the Bank.

Relentless in its vision to actualize its repositioning strategy, The Cash Management and Digital Channels Division through

BBG pursued six relocations: Cebu-Banilad, Commonwealth, its Corporate Internet Banking (CIB) facility, the Bank's

Tutuban, Tanauan, Bicutan, and the bold move from Rosario corporate cash management platform, continued to expand

to Imus, Cavite. It also updated the look and feel of its flagship its suite of payment and liquidity management solutions for

branches in Cebu-Fuente, Iloilo-Iznart, and Bacolod-Lacson. the non-retail market. Noteworthy of these new solutions is
the Direct ADA (Auto Debit Arrangement) which handled

Efficiency building and operational enhancements likewise 1,433 transactions amounting to PHP1.23 billion since its

continued, with savings generated from space reductions, inception in March 2017. The CIB's non-retail customer count

localized purchasing, and funding cost realignments. reached 508 clients by end of 2017, a 61.27% jump from 2016's

Alongside this, people nurturance remained a priority, end customer base. These clients contributed a combined

with BBG conducting its annual Service Clinics and branch Year-To-Date CASA deposit ADB of PHP7.39 billion.

officers development programs to increase quality and focus.

In the final quarter of 2017, new groundwork preparations CONSUMER GROUP
The Bank’s Consumer Loans portfolio grew 31% with a total
of PHP8.9 billion in housing, auto, and salary loans. The
steady growth resulted from the implementation of strategic
and organizational reinforcements to further increase the
Bank’s Consumer Loan business.

The Consumer Lending Group follows a focused, two-way

management approach to achieve this goal: the Auto Loan
and Home Loan Departments deliver on strengthening
business relationships with dealers and developers while the
Organic Channels Division is tasked to service, support, and
process applications from the branches.

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 2017 annual report

In 2017, the Bank’s auto loan portfolio increased by 21%

from PHP2.4 billion to PHP2.9 billion. Contributing to
consistent performance in recent years, the branch network
continued to leverage on its client base while strengthening
partnerships with car dealers.

Home loans grew more than 41%, from PHP3.7 billion to

PHP5.3 billion. Diverse business partners from the real
estate development industry and branch network referrals
served as the main drivers for consistent growth in the
business segment.

In order to sustain growth in the years ahead, the Consumer

Group will focus on building partnerships with more business
players, developing a more systematic approach in loan
processing, improving backroom operations, introducing
attractive promos, and expanding its reach through
technology-aided applications and providers. The Consumer
Group will also need to continue its coordination with the
Branch Banking Group to enhance client origination.

CREDIT CARD UNIT

The Credit Card portfolio grew 33% in 2017, following the
year-on-year increase since the Bank of Commerce Mastercard
Credit Card was launched in 2014. Promotional merchant tie-
ups, seasonal usage campaigns, and flexible payment terms
contributed to an increase in card spend by 65% and gross
income by 66% compared to the same period last year.

Top-of-the-line card products were designed to cater to the

affluent segment of the Bank’s Credit Card business. The
Bank introduced the Priority Access Platinum Mastercard
for existing high-net worth clients and completed the
development of Bank of Commerce World Mastercard which
offers premium global benefits such as Airport Lounge
Access, Mastercard Concierge, Airport Limousine Service,
and other cardholder privileges in leading hotels worldwide.

To further enhance card security measures, the migration

to EMV (Europay, Mastercard, and Visa) chip card from
magstripe was completed in September 2017. For additional
protection from fraud and identity theft for online purchases,
the Online Protect feature was also launched in 2017. This is a
feature that provides a one-time password before checking
out of online shopping transactions.

Bank of Commerce Credit Card stressed the importance of

using paperless statements for monthly billings. Under our
E-SOA facility, cardholders can opt to receive their monthly
statements via email instead of courier delivery in a timely
and convenient manner. In 2017, more cardholders were

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 LOOKING TOWARDS A BRIGHTER FUTURE

encouraged to enroll in E-SOA, which will result in savings in a wait-and-see stance for the most part of the year, which
printing and delivery costs. presented less trading opportunities.

INTERNATIONAL OPERATIONS Given this backdrop, Treasury continued to be cautious in

DIVISION its buying and selling activities. Moreover, the downside

The International Operations Division (IOD) achieved a 41% risk remained magnified by a rising interest rate scenario.

increase in transaction volume and a 28% increase in the Focus shifted instead on flows business, particularly in the

amount of Overseas Filipino Worker (OFW) remittances exchange of foreign currencies. The FX desk concentrated

in 2017. This strong performance elevated the potential of on forging FX business synergy with the Bank’s clients and

the Bank’s remittance business to reach higher levels of partners. At the same time, it continued to be vigilant on the

significance in a competitive market. changing landscape of domestic and foreign economies and
its effect on currencies, allowing it to take advantage of the

For 2017, IOD deployed its in-house developed bRemit swings in the foreign exchange market.

System to all Bank of Commerce branches. This system

allows branches to accept and pay out cash pick-up Vigilance was also important to spot the few opportunities

transactions between Bank of Commerce branches, credit in the bond market in 2017. The fixed income trading desk

Bank of Commerce accounts in real time, and remit to other was able to capitalize on the sporadic rally in the local

banks' accounts on the same day. Through this system, government securities market. Meanwhile, foreign interest

the Bank was granted accreditation by the Social Security rate trading put more attention on more liquid US Treasuries.

System (SSS) as an E-Collection Agent under its Electronic Money management strategies were also employed along

Payment System. Bank of Commerce is one of the four banks the way to protect gains realized by the team. To further

accredited by SSS to accept payments from members and contribute to the Bank’s bottom line, accrual income was

employers here and abroad. bolstered by repopulating the Bank’s held-to-maturity

portfolio. This move allowed the Bank to generate interest

With the continuing and growing partnership from countries income while keeping its exposure on price risk in check.

to further reach out to OFWs around the world, Bank of

Commerce signed an agreement with Bank Al Jazira- The rising interest rates likewise put pressure on the Bank’s

FAWRI, located in the Kingdom of Saudi Arabia, to process cost of funds. Its management became crucial in maintaining

remittances. The Bank also recently renewed its contract the Bank’s competitive presence in its chosen markets.

with Peragram for the payout fulfilment of incoming

remittances from all over the world through Moneygram. TRUST SERVICES DIVISION
Bank of Commerce signed up with WorldCom Finance, a True to 2017’s thrust on sustainability, Trust Services Division
customer-oriented company specializing in developing (TSD) has built a larger client base, increasing Asset Under
internet platforms for instant money transfer from Israel, Management (AUM) and significant growth in net income to
United Kingdom, and Hong Kong. highlight its 2017 performance. TSD has invested on strategic
positioning specific to accounts retention, new and long-
In 2018, IOD targets an increase in transaction volume term business, diversified investment outlets, high-margin
with the new domestic and foreign business partnerships, products/services, and cost-saving initiatives which realized
offering new products and services such as Bills Payment an impressive three-year Compounded Annual Growth Rate
for OFWs, Domestic Cash Remit for Partners, and Domestic of 43% in net income, closing the year at PHP50 million.
Remit to Account. AUM has steadily grown to PHP24.7 billion with Investment
Management Accounts (IMA) supporting the volume at 93%

TREASURY MANAGEMENT GROUP or PHP22.9 billion on a three-year CAGR of 12%.

The year 2017 proved to be a tough year for financial

markets. Uncertainties in policy implementation by new TSD’s unified efforts this 2018 shall revolve around active

administrations in the USA and in the Philippines ushered in servicing of clients, dynamic asset sourcing, and product

new challenges in navigating the foreign exchange and fixed development while riding the wave of a changing industry

income markets. On top of this, global economic growth landscape, capital market developments, investment-

and interest rate normalization remained at the background. oriented public, and opportunity to capitalize on a rich

Volatility went down as market players were relegated to growing economy.

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 2017 annual report

SUPPORT INITIATIVES

HUMAN RESOURCE MANAGEMENT

AND DEVELOPMENT DIVISION
In 2017, the Bank continued with its core,
functional, and leadership programs,
but emphasis was given to the further
strengthening of its Senior Management
Team. This was done through an extensive
leadership development program which
was conducted over a span of five months,
undertaken in partnership with John
Clements Consultants, Inc. This program
focused on Strategic Thinking and
Execution, Customer Centricity, Innovation,
Digitalization, Financial Technology, and
Leadership Transformation.

The program took a blended learning

approach where learning resources used
were from the Harvard Business School case
studies and articles. Case analyses were
facilitated by foreign and local discussion
leaders. Participants presented their action
learning projects at the end of the 15-day
program, and a number of these projects
were considered by Management for further
assessment and implementation.

After the thorough Job Evaluation (JE)

exercise which commenced in 2016, the
Job Evaluation Committee completed the
assessment of 100% of the jobs in April 2017
which was approved by Management for
implementation on June 1, 2017.

The Bank also invested in a new Human

Resource Information System (HRIS), aimed
at providing a more precise and system-
based management of its HR processes.

The HRIS is to be implemented in phases

or modules which include personnel
information, recruitment management,
performance management, timekeeping,
payroll processing, and employee self-
service. Development started in the last
quarter of 2017 with the payroll module
expected to be operational by the 2nd
quarter of 2018.

18
 LOOKING TOWARDS A BRIGHTER FUTURE

INFORMATION TECHNOLOGY SERVICES DIVISION collaborations with the burgeoning Fintech industry (Lendr.
The Information Technology Services Division (ITSD) com and Coins.ph). In line with providing support for
provided support for the operational requirements of the external client requirements, ITSD is continuously developing
Bank as technology becomes a centralized force in all of electronic payment and fund transfer systems for Cash
the Bank’s digitally synergistic services delivered for the Management, Consumer Lending Group, Branch Banking
customers’ ultimate satisfaction. Group, and Product Development.

In 2017, ITSD was involved primarily in system, IT upgrade, Upgrading security was among the top concerns in a riskier
automation, and security enhancements. IT-financial landscape. ITSD ensured that the Bank’s security
measures were not only in place but also modernized
ITSD delivered major regulatory and BSP-mandated projects and equipped to withstand online threats and counterfeit
such as the full implementation of the Check Imaging schemes. Among the upgrades were Anti-Virus and
Clearing System (CICS), Financial Reporting Package System Ransomware patches, SWIFT infrastructure updates, data
(FRPS), BDS recompilation and upgrade of BDS Server to communication enhancements, hardware infrastructure
Windows 2012 and BDS Workstation to Windows 7 across upgrades, and other regular security features and updates
136 branches. ITSD also managed the completion of Europay, for continuous protection against new security attacks.
Mastercard, and Visa (EMV)-related projects, namely,
BancNet Terminal Integration Certificate (TIC), deployment Moving towards a customer-centric digital banking practice
of Smartvista (SV), and ATOS interface, CASUI migration in 2018, ITSD will manage the completion of the Data
file for identified Head Office employees, PIN mailer print Integration Platform (DIP), Mobile Internet Banking (MIB),
production, and conversion of ATMs. Corporate Website, ROPA automation, and the in-house HR
Package Payroll System.
Income-generating initiatives, such as the domestic front-
end bRemit System and RFID, were given full backup in all From this year onwards, ITSD will continue to assist in the
areas of IT-related development. ITSD has also supported Bank's masterplan to transform into a digital platform.

19
 2017 annual report

CORPORATE
Social Responsibility
The vision of Bank of Commerce to help its customers achieve a brighter
future is likewise reflected in its commitment to effecting a positive change
in society through the numerous corporate social responsibility (CSR)
initiatives that were laid out the past year. Community development and
volunteerism, the thrusts that continue to drive the Bank, perfectly summed
up the efforts shown by its compassionate employees who inspired community
members to help themselves in working harder to improve their lives.

20
 LOOKING TOWARDS A BRIGHTER FUTURE

The Bank’s 2017 CSR efforts centered on a wide variety of

activities that focused on providing better opportunities and
services for those in need and elevating their quality of life.
In partnership with highly respected institutions, the Bank
was able to further expand the help and assistance it initially
provided the communities and strongly showcased the
inherent bayanihan spirit among its employee-volunteers.

Team Malasakit
The Bank’s solid partnership with San Miguel Foundation
in making a positive impact in the communities continued
with their joint efforts to bring to fruition the objectives
of the Team Malasakit initiatives. Bank volunteers were
given the opportunity to serve and give a helping hand to
underprivileged communities through two important
CSR programs.

Habitat for Humanity

House-Build Activity in Calauan, Laguna
The Bank’s employee-volunteers from Calamba and San
Pedro branches came together to participate in a house-
painting activity at the National Housing Authority (NHA)
community in Calauan, Laguna. Participants helped in the
painting and refurbishing of the façade and interiors of the
low-cost houses of former homeless and informal settlers.

Brigada Eskwela
Bagong Silangan Elementary School, Batasan Hills,
Quezon City
2017 marked the second year that Bank of Commerce and
San Miguel Foundation participated in the Department
of Education’s (DepEd) Brigada Eskwela project. The
activity was the biggest annual CSR event organized by the
foundation in terms of volunteer count.

For this activity, employee-volunteers worked together

to refurbish three classrooms at the Bagong Silangan
Elementary School in Batasan Hills, Quezon City, as well as
participated in the repainting of classrooms and cleanup of
the entire school.

Brigada Eskwela provided employee-volunteers a chance to

do their share in giving today’s students a comfortable space
that is more conducive for learning as they welcomed school
year 2017-2018. Brigada Eskwela is part of DepEd’s Adopt-A-
School Project, which invites companies and organizations to
support public senior high schools in the implementation of
the K-12 program.

21
 2017 annual report

Happy Si Mommy, Malusog Si Baby Livelihood Project World Vision

San Fernando, Pampanga; Bacolod, Negros Occidental; Community-Managed Savings and Credit Association
and Barangay Darong, Davao del Sur (CoMSCA)
Laurel, Batangas
A pilot project of the San Miguel Foundation, the Happy Si
Bank of Commerce’s three-year CSR collaboration with
Mommy, Malusog Si Baby livelihood project aimed to address
World Vision culminated in 2017 by continuing the
the stunting growth of children in San Miguel communities.
Community-Managed Savings and Credit Association
In collaboration with Bank of Commerce, the foundation’s
(CoMSCA) project, a system designed to create a local pool
objective was to raise awareness among expectant
of capital that can be accessed by members in lump sums
mothers through an information education campaign
for whatever important need they may have. Members can
that underscores the importance of the first 1,000 days of
use this fund to meet predictable expenses, reduce shocks
pregnancy. The campaign provided would-be moms an
to vulnerable livelihoods, facilitate household cash-flow
opportunity to ensure the health, well-being, and cognitive
management, or make short-term investments on income-
development of their developing babies.
generating activities. The project supported a CoMSCA
community in Molinete, Laurel, Batangas.
Through the project, 108 expectant mothers benefited
from the lectures and workshops given by experts which
As a complementary program to the CoMSCA, Bank of
touched on topics like maternal and child care and cooking,
Commerce and World Vision also helmed CoMSCA Children,
as well as other subjects that can help boost their current
a program for children of the same community which aims to
living conditions such as backyard gardening and livelihood
help them manage their own savings. Through this program,
training. The project was implemented from July to
children learn the value of saving while giving them the
December 2017 in communities located in San Fernando,
opportunity to help their parents financially through saving
Pampanga; Bacolod, Negros Occidental; and Barangay
with CoMSCA.
Darong, Davao del Sur.

The Happy Si Mommy, Malusog Si Baby livelihood

project received positive feedback from community
participants, garnering a 98% attendance rate every
month. Participants likewise showed great interest in
the livelihood training and cooking demonstrations
conducted, based on the survey ran by the foundation in
December 2017.

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 LOOKING TOWARDS A BRIGHTER FUTURE

The CoMSCA and CoMSCA Children programs are expected

to generate positive results that include creating livelihood
opportunities through an increase in family income,
improving and sustaining the health of families, enhancing
the ability of families to send their kids to school, developing
leaders that can encourage community participation,
building disaster-resilient communities, and boosting
community members’ sense of ownership and accountability.
To date, around 553 community members from Molinete
have already benefited from the project.

The first two years of the project helped contribute to the

economic development of Batangas through the creation of
CoMSCA groups. From the original target of six, the groups
have grown to 30, which resulted in helping the communities
generate additional resources for their families to meet
their basic, education, and healthcare needs, as well as their
business ventures.

Moreover, community members were able to share what

they have learned from the program as CoMSCA Agents.
About 42 community members attended the series of
CoMSCA Agent training that were held from January to June
2017. On top of this, the CoMSCA Congress was held in April
2017 where participants were able to share and learn from
one another using CoMSCA’s best practices. Families in ultrapoverty live on less than P24 per day and
reside in inadequate, crowded shelters. They suffer from

International Care Ministries chronic hunger and malnutrition, and lack of access to
support networks that could help them.
Foundation, Inc. (ICMFI)
Transform Program
Communities in Bacolod, Tagbilaran, and Roxas City
Bacolod, Negros Occidental; Tagbilaran, Bohol;
benefited from the intensive 16-week course designed to
and Roxas City, Capiz
establish new networks of support and social cohesion for
For the third consecutive year, Bank of Commerce partnered
the poor; provide “VHL” education to strengthen the families’
with International Care Ministries Foundation, Inc. (ICMFI) to
Values (promote character qualities that underpin intact
support the latter’s Transform program. Organized under the
families), Health (improve primary health knowledge and
Bank’s Community Development Program, Transform aims
practices), and Livelihood (provide financial literacy and
to strengthen families living in ultrapoverty by empowering
job-skills training for sustained income generation); and
them through a life-skills, capacity-building course designed
distribute nutrition supplements, medical kits, and livelihood
to meet their needs.
resources for new skills.

Employee volunteerism was definitely alive as Bank

employees happily participated in the meal-packing
activity and the distribution of meal packs to Transform
communities. Not only were they generous in lending their
time but their money, too, as they voluntarily donated
financial help to raise more nutritious meal packs to top the
previous year’s. The employees’ personal donation helped in
alleviating malnutrition in the ultrapoor communities.

23
 2017 annual report

corporate
Governance

24
 LOOKING TOWARDS A BRIGHTER FUTURE

and materiality thresholds for Related Party Transactions

MANUAL ON CORPORATE
to be vetted by the RPTCom and approved by the Board.
GOVERNANCE
The Bank’s RPT policy and database of Related Parties are
The Manual on Corporate Governance was adopted pursuant
updated annually or as often as necessary to incorporate
to Securities and Exchange Commission (SEC) Memorandum
changes pursuant to regulatory issuances.
Circular No. 6 Series of 2009 and Section X141 of the Manual
of Regulations for Banks, as amended. It is updated every
year or as often as needed for significant changes in laws and
BOARD GOVERNANCE
The Board of Directors (the Board) is primarily responsible
regulations or best industry practices. Its recent amendment,
for the sound governance of the Bank. Setting the tone
following the issuance of BSP Circular 969, The Enhanced
from the top, it approves and oversees the implementation
Corporate Governance Guidelines for BSP Supervised
of the Bank’s strategic objectives. Corollary to setting the
Financial Institutions, was approved by the Bank’s Board of
policies for the accomplishment of corporate objectives, it
Directors in January 2018. The Manual also incorporates the
also provides an independent check on Management. It is the
applicable provisions of the General Banking Law of 2000.
Board’s responsibility to foster the long-term success of the
Bank, and to sustain its competitiveness and profitability in a
The Manual contains the principles of sound corporate
manner consistent with its corporate objectives and the best
governance which shall be adhered to by all directors, officers,
interest of the stockholders and other stakeholders.
and employees of Bank of Commerce as they discharge their
respective duties and responsibilities. It emphasizes the Board
of Directors’ commitment to prudently manage the Bank, BOARD OF DIRECTORS
thereby preserving the trust and confidence reposed on it by The Bank’s Board of Directors is comprised of fifteen

its clients and other stakeholders. It is a valuable reference (15) members, where five (5) of the total Board seats

in the implementation of sound governance policies and are independent directors. This number of independent

practices, and serves as a guide to the attainment of the Bank’s directors is compliant with the representation of

vision, mission, and strategic objectives. independent directors required by the BSP and SEC.
The Board is a healthy mix of individuals with diverse

The Manual on Corporate Governance highlights the Board of experiences, backgrounds, and perspectives. The

Directors’ duties and responsibilities to ensure that the Bank membership of the Board is a combination of executive and

is run in a sound and prudent manner. It also contains the non-executive directors such that no director or small group

qualification of directors/independent directors, as well as of directors dominates the decision-making process. All

their mandated duties and responsibilities. directors were chosen based on their qualifications, namely,
integrity, probity, market reputation, conduct and behavior,

Cognizant that transactions between and among related relevant education and training, physical and mental

parties create business synergy and economic benefits, fitness, knowledge, and experience. All directors possess

a policy on dealings with related parties was adopted such qualifications and stature that enable each of them to

which included the creation of a Board-level Related Party effectively participate in the deliberations of the Board.

Transactions Committee (RPTCom) in 2014, preceding the

regulatory mandate for an overarching policy on handling An Independent Director is one who, apart from the

related party transactions under BSP Circular 895 of 2015 required minimum shareholding, is independent of

and BSP Circular 969 of 2017. The policy provides guidelines management and free from any business or other

on the definition of a Related Party Transaction and who relationship, other than transactions which are conducted

are to be considered Related Parties of the Bank. It also at arm’s length that could interfere with his exercise

includes San Miguel Corporation’s conglomerate structure of independent judgment when carrying out his

and a database of the Bank’s related parties which concerned responsibilities as a director. Further, an Independent

business unit can use as reference in determining if an Director is not a retained professional adviser or consultant,

account is a Related Party. The policy also defines guidelines not a nominee of any director or substantial stockholder, or

for handling related party transactions, including managing member of any advisory board. An Independent Director

of conflicts of interests or potential conflicts of interests only serves as such for a maximum cumulative term of

to ensure that related party transactions are entered into nine (9) years reckoned from 2012, after which, he shall be

on arm’s length basis and are consistent with the interest perpetually barred from serving as an Independent Director

of the Bank and its shareholders. The policy sets the limits but may continue to serve as a regular director.

25
 2017 annual report

The Board has adopted guidelines on the maximum To effectively carry out their duties and responsibilities, the
number of directorships that its members can hold, taking members of the Board are required to attend a program
into consideration the capacity of a director to diligently on corporate governance conducted by a duly accredited
and efficiently perform his duties and responsibilities as training provider by the BSP. The Board has likewise
director of the Bank. adopted a policy on continuing education and training
across all segments of the Bank’s manpower complement,
Pursuant to SEC Advisory dated 31 March 2016, commensurate with their duties and responsibilities. This is
independent directors elected in 2012 may be reelected as in order to keep abreast with developments in the banking
such until 2017, when the two (2) year cooling-off period industry, ensure that skills and knowledge remain relevant,
shall commence. and that requirements of the law, rules, and regulations are
understood and complied with.
If there are no suitable replacements, said independent
directors may be reelected in 2017 until 2021, at which time, For the year 2017, the Board held twelve (12) meetings.
they may no longer be qualified as independent directors
Composition Attendance %
for the same companies.
Jose T. Pardo, Chairman/Independent 12/12 100%
Francis C. Chua, Vice-Chairman 11/12 92%
The said reelection in 2017 until 2021 shall be with prior Roberto C. Benares, President/CEO 12/12 100%
written notice and justification from the SEC. Amor C. Iliscupidez 12/12 100%
Marito L. Platon 12/12 100%

A Director’s office, being one of trust and confidence, is Carolina G. Diangco 12/12 100%
Melinda Gonzales-Manto, Independent 11/12 92%
expected to act in the best interest of the Bank and in a
Aniano A. Desierto, Independent 12/12 100%
manner characterized by transparency, accountability,
Benedicta Du-Baladad 10/12 83%
and fairness. As a member of the Board upon which the Fe B. Barin 11/12 92%
corporate powers of the Bank is bestowed and exercised, Alexander R. Magno 12/12 100%

and through which the Bank’s strategic objectives, risk Jose C. Nograles, Independent 12/12 100%
Rebecca Maria A. Ynares, Independent 10/12 83%
strategy, corporate governance and corporate values
Mariano T. Katipunan Jr.* 5/5 100%
are set, a Director should exude leadership, observe
Ronnie U. Collado* 5/7 71%
prudence, exercise sound and objective judgment, and Ramon A. De La Llana** 7/7 100%
maintain integrity in directing the Bank towards sustained Rolando L. Macasaet** 3/5 60%
progress. The Board formulates the Bank’s vision, mission,
* Director Katipunan was replaced by Director Collado who was elected
strategic objectives, policies, and procedures that guide in June 2017
its activities, including the means to effectively monitor ** Director Macasaet was elected as Member in August 2017 to replace
Director De La Llana
Management’s performance.

security ownership of directors

Number of direct and Number of Changes in the
Name of Director Percentage of Shares
indirect shares held Years served Composition

Jose T. Pardo 1 14 0.00%

Francis C. Chua 1 9 0.00%
Roberto C. Benares 1 4 0.00%
Amor C. Iliscupidez 1 9 0.00%
Marito L. Platon 1 7 0.00%
Carolina G. Diangco 1 5 0.00%
Melinda Gonzales-Manto 1 4 0.00%
Aniano A. Desierto 1 4 0.00%
Benedicta Du-Baladad 1 3 0.00%
Fe B. Barin 1 3 0.00%
Alexander R. Magno 1 3 0.00%
Jose C. Nograles 1 1 0.00%
Rebecca Maria A. Ynares 1 1 0.00%
Ronnie U. Collado 1 6 months 0.00% Elected in June 27, 2017
Ramon A. De La Llana 1 4 0.00% Resignation-August 29, 2017
Rolando L. Macasaet 1 4 months 0.00%

26
 LOOKING TOWARDS A BRIGHTER FUTURE

BOARD COMMITTEES
The Board has constituted the following committees to assist
it in its supervision over the Bank’s activities and to guide
Management in implementing sound corporate governance:
Executive Committee; Audit Committee; Board Risk Oversight
Committee; Corporate Governance Committee; Nominations,
Compensation, and Remuneration Committee; Trust and
Investment Committee; and Related Party Transactions
Committee. These committees regularly convene as mandated
in their respective Charters. In the appointment of members
of each committee, knowledge, skills, training, and experience,
among others, are considered to ensure an optimal mix of
knowledge and experience to allow the members to fully
understand, be critical, and objectively evaluate the issues and
promote healthy and objective discussions.

EXECUTIVE COMMITTEE
The Executive Committee is empowered to approve and/
or implement all corporate acts within the competence of
the Board of Directors (BOD) except those acts expressly
reserved by the Corporation Code for the Board of Directors.

The Committee is composed of five (5) members and held

twenty-seven (27) meetings in 2017.

Composition Attendance %
Francis C. Chua, Chairman 22 81%
Roberto C. Benares, President/CEO 21 78%
Amor C. Iliscupidez 26 96%
Carolina G. Diangco 24 89%
Fe B. Barin 26 96%

AUDIT COMMITTEE
The Audit Committee oversees the institution’s financial
reporting policies and practices, and controls the internal and
external audit functions.

The Committee is composed of five (5) members, three

(3) of whom, including the committee chairman, are
independent directors. It held twelve (12) regular meetings
in 2017.

Composition Attendance %
Melinda Gonzales-Manto, Chairman/Independent 12 100%
Jose C. Nograles, Independent 12 100%
Benedicta Du-Baladad 10 83%
Ramon A. De La Llana* 8 100%
Rolando L. Macasaet** 3 75%
Mariano T. Katipunan Jr.*** 4 67%
Ronnie U. Collado**** 4 67%

* Replaced as Member in August 2017

** Appointed as Member in August 2017
*** Replaced as Member in June 2017
**** Appointed as Member in June 2017

27
 2017 annual report

BOARD RISK OVERSIGHT

COMMITTEE
The Board Risk Oversight Committee (BROC) is responsible
for the development and supervision of the risk management
program of the Bank and its trust unit.

The Committee is composed of five (5) members, majority

of whom are independent directors. Its chairman is a non-
executive director. It held twelve (12) meetings in 2017.

Composition Attendance %
Marito L. Platon, Chairman 12 100%
Roberto C. Benares, President/CEO 7 58%
Melinda Gonzales-Manto, Independent 12 100%
Benedicta Du-Baladad 10 83%
Jose C. Nograles, Independent 12 100%

CORPORATE GOVERNANCE
COMMITTEE
The Corporate Governance Committee (CGCom) assists the
Board in fulfilling its corporate governance responsibilities.
It is responsible for ensuring the Board’s effectiveness and
due observance of corporate governance principles and
guidelines across all levels of the Bank’s personnel.

The Committee is composed of five (5) members, majority of

whom, including the committee chairman, are independent
directors. It held twelve (12) meetings in 2017.

Composition Attendance %
Jose T. Pardo, Chairman/Independent 12 100%
Marito L. Platon 12 100%
Jose C. Nograles, Independent 12 100%
Fe B. Barin 11 92%
Mariano T. Katipunan Jr. * 4 80%
Ronnie U. Collado** 5 71%

* Replaced as Member in June 2017

** Appointed as Member in August 2017

NOMINATIONS, COMPENSATION,
AND REMUNERATION COMMITTEE
The Nominations, Compensation, and Remuneration
Committee (NCRC) reviews and evaluates the
qualifications of all persons nominated to the Board,
as well as those nominated to other positions requiring
appointment by the Board.

The Committee is composed of five (5) members, two

(2) of whom, including the committee chairman, are
independent directors. It held nine (9) meetings in 2017.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Composition Attendance % Majority of the Committee members, including the

Jose T. Pardo, Chairman/Independent 9 100% committee chairman, are independent directors. It held
Amor C. Iliscupidez 9 100% eleven (11) meetings and one (1) special meeting in 2017.
Aniano A. Desierto, Independent 9 100%
Alexander R. Magno 9 100% Composition Attendance %
Ramon A. De La Llana* 5 71% Aniano A. Desierto, Chairman/Independent 12 100%
Rolando L. Macasaet** 2 100% Melinda Gonzales-Manto, Independent 12 100%
Marito L. Platon 12 100%
* Replaced as Member in September 2017
Carolina G. Diangco 11 92%
** Appointed as Member in September 2017
Rebecca Maria A. Ynares, Independent 10 83%

TRUST AND INVESTMENTS

COMMITTEE THE CORPORATE SECRETARY
The Trust and Investments Committee (TIC) is primarily The Corporate Secretary plays a significant role in ensuring
responsible for overseeing the trust and other fiduciary that the Board is able to deliver its responsibilities. The
activities of the Bank. Office of the Corporate Secretary prepares the agenda
and sends out the required notices and the materials for
The Committee is composed of five (5) members, three (3) discussion prior to the meeting, and distributes the minutes
of whom are non-executive directors, including its chairman of the previous meeting. The Office is responsible for
who is an independent director, the President of the Bank the safekeeping and preservation of the integrity of the
who is also a director, and the Bank’s Trust Officer. It held minutes of the meetings of the Board and its committees,
twelve (12) meetings in 2017. as well as other official records of the Bank.

Composition Attendance %
Loyal to the mission, vision, and objectives of the Bank,
Jose T. Pardo, Chairman/Independent 12 100%
Roberto C. Benares, President/CEO 12 100%
the Corporate Secretary must work fairly and objectively
Amor C. Iliscupidez 12 100% with the Board, Management, stockholders, and other
Alexander R. Magno 12 100% stakeholders. He should be aware of the laws, rules, and
Amalia Q. Belarmino, Trust Officer-In-Charge 8 67% regulations essential to the performance of his duties
and responsibilities, and should ensure that all the Board
RELATED PARTY procedures, rules, and regulations are strictly followed by
TRANSACTIONS COMMITTEE the members.
The Related Party Transactions Committee (RPTCom) assists
the Board in fulfilling its responsibility of ensuring that THE COMPLIANCE OFFICER
transactions with related parties are handled in an efficient The Board appointed a Chief Compliance Officer (CCO)
and prudent manner, with integrity, and in compliance with who reports to the Board of Directors through the
relevant laws and regulations to protect the interest of Corporate Governance Committee. The CCO is responsible
depositors, creditors, and other stakeholders. for coordinating, monitoring, and facilitating compliance
with existing laws, rules, and regulations. As such, he
For this purpose, the RPTCom evaluates on an ongoing should have the skills and expertise to provide appropriate
basis existing relations between and among businesses guidance and direction to the Bank on the development,
and counterparties to ensure that all related parties are implementation, and maintenance of the Compliance
continuously identified, RPTs are monitored, and subsequent Program. The CCO is delegated with appropriate
changes in relationships with counterparties (from non- authority and provided with appropriate support and
related to related and vice versa) are captured. It likewise resources to ensure that compliance with laws, rules
evaluates all material RPTs to ensure that these are not and regulations, and observance of best practices are
undertaken on more favorable economic terms to such carried out by the entire Bank. If any breach or violation
related parties than similar transactions with non-related of significant regulation is found, the matter is reported
parties under identical circumstances. to the appropriate level of management or to the Board,
together with appropriate recommendations to prevent
The Committee is composed of five (5) members, all of recurrence and the necessity of imposing disciplinary
whom are independent and non-executive directors. action, when called for.

29
 2017 annual report

CHIEF RISK OFFICER peer banks. Likewise, employee performance is recognized

The Board also appointed a Chief Risk Officer (CRO) who through periodic performance assessments. This process
is independent from executive, operations, and revenue- provides the measure for commensurate salary increases
generating functions within the Bank and possesses and performance bonuses.
sufficient stature and authority within the Bank. Without
compromising his independence, the CRO shall have As provided for in the Bank’s By-Laws, dividends may be
the ability to engage in discussion with the Board, Chief declared from the surplus profits arising from the business
Executive Officer, and other senior management members of the Bank at such time and in such percentage as the
on key risk issues and to access such information as he Board of Directors may deem proper. No dividends may be
deems necessary to form his judgment. The CRO has direct declared that will impair the capital of the Bank and Stock
access to the Board and reports at least monthly to the dividends shall be declared in accordance with the law.
Board Risk Oversight Committee. The CRO is responsible for
identifying, measuring, and monitoring key risk exposures remuneration and
and for assessing whether decisions to accept particular risks Succession Plan/Program
are consistent with the risk appetite approved by the Board. The Bank has a sustainable succession planning program in
place. Each year, incumbents are assessed on their readiness
BOARD PERFORMANCE to assume senior management positions. The Human
AND EVALUATION Resource Management and Development Division (HRMDD)
The Board holds monthly meetings to enable directors sends an evaluation form to the Group/Division Heads of each
to discharge their mandated duties and responsibilities unit requesting them to identify and assess their successors.
of overseeing and monitoring the implementation of the
Bank’s strategic objectives and ensuring that its business The collated succession Table of Organization/Plan
is consistently carried out with compliance and corporate of the Bank is being presented to the Nominations,
governance standards. Special meetings are also held Compensation, & Remuneration Committee (NCRC) and
from time to time as the need arises. In addition to the to the Board for notation.
Board meetings, the directors attend the meetings of their
respective Board Committees. The Bank has an existing retirement program for its
employees. Every regular and permanent employee is
The Board of Directors annually assesses its performance entitled to the retirement benefits under the program in
and effectiveness as a body, as well as the various accordance with the conditions applicable at the time of
committees and the individual director through self, peer, the employee’s separation from the Bank which may be
committee, and board evaluation system facilitated by the due to normal retirement, early/optional retirement, death,
Corporate Governance Committee. permanent and/or total disability, or separation. The Bank
bears the full cost of providing the benefits in the Plan.
REMUNERATION FOR
DIRECTORS AND OFFICERS ADEQUATE AND TIMELY
The Bank observes overall compensation program on par INFORMATION
with industry standards and aligned with the requirements Complete, adequate, and timely information on matters
of labor laws, rules, and regulations. The program considers to be taken up during Board and committee meetings is
performance and is commensurate with the individual’s important to enable the members of the Board to properly
qualifications, experience, and expertise. Corollary to this, the fulfill their duties and responsibilities. The information
Bank utilizes data gathered from industry survey to ensure allows them to address matters at hand and participate
that remuneration packages of the Bank’s directors, senior in exchanges and discussions during meetings in order to
executives, and officers are within industry standards. arrive at informed decisions. Prior to Board and committee
meetings, members of the Board are provided with the
Directors are entitled to per diem allowance for their required information. They are given independent access to
attendance at Board of Directors and Board Committee the Management and Corporate Secretary at all times for
meetings. The Bank ensures these allowances are on par with the proper discharge of their functions.

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 LOOKING TOWARDS A BRIGHTER FUTURE

FINANCIAL REPORTING CODE OF ETHICS AND STANDARDS

CONTROLS AND AUDIT The Board upholds the Bank’s Code of Conduct. It
The Board envisions to protect shareholders’ value through regularly reviews this Code, updates it whenever
adequate internal controls. Thus, the Board encourages a necessary, and communicates it to all the officers and
collaborative setting that fosters and encourages a corporate employees of the Bank. It ensures that compliance of
environment of strong internal controls, sound fiscal this Code is incorporated in the Bank’s performance
accountability, high ethical standards, and compliance with assessment system.
laws, rules and regulations, and codes of conduct.
DISCLOSURE AND TRANSPARENCY
The Board also has a bounden duty to its shareholders to The Board commits to transparency and disclosure
present a balanced and understandable assessment of the such that all essential and material information about
Bank’s performance and financial position. Specifically, the Bank which could adversely affect its viability or
the Board commits to accurate Financial Reporting, the interest of its stockholders and other stakeholders
Transparency, robust Internal Control, and adherence to shall be adequately and timely disclosed. Aside from
accepted Accounting Standards and Auditor Independence. information and reports required by the BSP and the
SEC to be published, information like earnings result,
STOCKHOLDERS’ RIGHTS AND acquisition or disposition of assets, off-balance sheet

PROTECTION OF MINORITY transactions, related party transactions, and other indirect

remuneration of members of the Board and Management,
STOCKHOLDERS’ INTEREST
among others, shall remain disclosed.
The Board respects the rights of the stockholders as
provided for in the Corporation Code and ensures that they
can freely vote on all matters that require their consent ownership structure
or approval, exercise their preemptive right to all stock
san miguel corporation
issuances of the Bank, inspect the Bank’s books and records, 98.45%
and access information on dividends and appraisal right. The
Board likewise promotes transparency, accountability, and
fairness to stockholders of the Bank. It remains cognizant
of its responsibility to foster the long-term success of san miguel properties San Miguel Corporation
incorporated Retirement Plan
the institution, and to sustain its competitiveness and 39.89% 39.94%
profitability in a manner consistent with its corporate
objectives and the best interest of its stockholders.

STAKEHOLDERS Bank of Commerce

24.25%
Beyond preservation of the financial value of the Bank,
the Board recognizes the needs of its other stakeholders
such as its customers, creditors, suppliers/contractors,
personnel, and the community at large. The Board has
BIC INVESTMENT AND
formulated policies that prioritize customer needs, promote CAPITAL CORPORATION
consumer protection, rationalize selection and evaluation
of suppliers/service providers, and develop employees’ As of December 31, 2017

potentials through continuing education, leadership training,

and seminars. The Bank has adopted policies that created
an open channel of communication for the Bank’s various
stakeholders, so they can express their concerns and other
views to the Bank. It recognizes their rights as mandated by
law and encourages their active participation in promoting
financially sound and socially responsible endeavors.

31
 2017 annual report

table
of Organization
Branch
Banking
Group
BOARD Risk Risk
Oversight Management
Committee division
Corporate
Banking
Group 1

Audit INTERNAL
Committee audit division

Corporate
Banking
Group 2
Nominations,
Compensation, &
Remuneration
Committee
Corporate Treasury
Secretary Management
Group

Board of Directors President

& CEO

Consumer
Group

Executive
Committee

Credit
Group

Corporate
Compliance
Governance
division
Committee

operations
group

Trust & Trust

Investment Services
Committee division
finance &
controllership
group
related
party
transactions
committee
executive
support
group

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 LOOKING TOWARDS A BRIGHTER FUTURE

Corporate product legal Human Resource

development, Security
Planning services management &
marketing, & department
division division development
credit cards
division
division

Branch Banking division

(Metro Manila 1) Branch
(Metro Manila 2) Operations
(Luzon) DIVISION
(VisMin)

Corporate 2 Corporate 3 cash remedial foreign

DIVISION DIVISION management management currency
large corporation large corporation division DEPARTMENT deposit unit

corporate 1 corporate 4 corporate 5

DIVISION DIVISION division
smc group sme vis/min

Fixed Treasury Structures Financial

Liquidity FOREIGN
Income Marketing & & Investment Institutions
division EXCHANGE
trading sales division division division
division
division

Consumer Consumer CONSUMER

Loans Credit Collections
DIVISION DIVISION & recovery
DEPARTMENT

Credit Credit
Evaluation investigation
& Review & appraisal
division division

international loan Electronic treasury centralized

operations operations Banking & operations operations
division division Card Support division support
division division

general icaap &

financial
accounting business unit strategic
accounting
& financial financial finance & tax
& control
systems control department
DIVISION
control division department

business
systems & information Project acquired
general technology Management assets
services services DIVISION division
division division

33
 2017 annual report

board
of Directors
JOSE T. PARDO ROBERTO C. BENARES FRANCIS C. CHUA
Chairman (Independent Director) Member, President & CEO Member & Vice Chairman

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 LOOKING TOWARDS A BRIGHTER FUTURE

AMOR C. ILISCUPIDEZ MELINDA GONZALES-MANTO

Member Member (Independent Director)

MARITO L. PLATON ANIANO A. DESIERTO

Member Member (Independent Director)

CAROLINA G. DIANGCO
Member

35
 2017 annual report

BENEDICTA DU-BALADAD JOSE C. NOGRALES

Member Member (Independent Director)

FE B. BARIN REBECCA MARIA A. YNARES

Member Member (Independent Director)

ALEXANDER R. MAGNO
Member

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 LOOKING TOWARDS A BRIGHTER FUTURE

ronnie u. collado ramon s. ang

Member Senior Adviser

rolando jose l. macasaet AURORA T. CALDERON

Member Adviser

37
 2017 annual report

FERDINAND K. CONSTANTINO CECILE L. ANG

Adviser Adviser

MARGARITO B. TEVES EVITA C. CABALLA

Adviser Corporate Secretary

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 LOOKING TOWARDS A BRIGHTER FUTURE

senior
Executive Team

Roberto C. Benares
President & Chief Executive Officer

EVP Felipe svp edwin t.

Martin F. amahan
Timbol Branch Banking
Treasury Management Group Head
Group Head

39
 2017 annual report

SVP manuel a. SVP Rafael C.

castaÑeda Bueno, jr.
Corporate Banking Corporate Banking
Group I Head Group II Head

SVP Edward SVP Jay S.

Dennis J. Velasco
Zshornack Operations Group
Executive Support Head
Group Head
concurrent Finance
and Controllership
Group Head

SVP Reginald FVP Jose mari

c. Nery m. zerna
Chief Audit Executive Consumer Group
Head

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 LOOKING TOWARDS A BRIGHTER FUTURE

FVP Juan VP Maria Ana

Angel L. Tinio P. dela Paz
Chief Information Credit Group Head
Officer

VP Amalia Q. VP Corazon T.
Belarmino Llagas
Trust Services Division Chief Compliance
Officer-in-Charge Officer

VP Jeremy H. FVP Alfredo J.

Reyes Bautista
Chief Risk Officer Corporate Planning
Division Head
concurrent Business
Systems Division Head
SET Secretariat

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 2017 annual report

MANAGEMENT
Committees
ANTI-MONEY LAUNDERING COMMITTEE BIDS AND AWARDS COMMITTEE
Chairperson Corazon T. Llagas OIC / Vice Chairperson Sheilah R. Apostol
Members Wilson C. Vinoya Members Maria Ana P. Dela Paz
Jeremy H. Reyes Edwin T. Amahan
Jay S. Velasco Jay S. Velasco
George E. Consul Secretariat Maritess C. Claveria
Paulyn V. Bernabe
Amalia Q. Belarmino
Advisers Edward Dennis J. Zshornack BUSINESS CONTINUITY MANAGEMENT
Reginald C. Nery
COMMITTEE (BCP TEAM)
Secretariat Lilibeth L. Sansait
Chairperson Edwin T. Amahan
Vice Chairperson Edward Dennis J. Zshornack
Members Dominador Anthony P. Banaag Jr.
ASSET LIABILITY MANAGEMENT George E. Consul
COMMITTEE Jaqueline A. Domingo
Chairperson Roberto C. Benares Ma. Eleanor Christina S. Castañeda
Members Felipe Martin F. Timbol Cenen R. Grajo
Edward Dennis J. Zshornack Paul John T. Reyes
Edwin T. Amahan Sheilah O. Apostol
Rafael C. Bueno Jr. Evelyn G. Brucales
Manuel A. Castañeda Marie Kristin G. Mayo
Alfredo J. Bautista Joel O. Longalong
Jose Mari M. Zerna Rommelwin A. Ardidon
Advisers Jeremy H. Reyes Joel L. Tinio
Amalia Q. Belarmino Orlando M. Bibares
Secretariat Monette G. De Leon Anna Marie A. Cruz
Secretariat Roderick M. Martinez
Emelito R. Papa

business continuity management

committee (crisis management team)
Chairperson Roberto C. Benares CLEAHR (CONTROLLERSHIP,
Vice Chairperson Jay S. Velasco COMPLIANCE, LEGAL, AUDIT, HUMAN
Members Edwin T. Amahan RESOURCES AND RISK) COMMITTEE
Jose Mari M. Zerna Chairperson Jeremy H. Reyes
Rafael C. Bueno, Jr.
Members Louella P. Ira
Manuel A. Castañeda
Corazon T. Llagas
Maria Ana P. Dela Paz
Marie Kristin G. Mayo
Edward Dennis J. Zshornack
Reginald C. Nery
Felipe Martin F. Timbol
Secretariat Grace S. Cruz
Corazon T. Llagas
Jeremy H. Reyes
Reginald C. Nery
Secretariat Roderick M. Martinez
Emelito R. Papa

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 LOOKING TOWARDS A BRIGHTER FUTURE

COMMITTEE ON DISCIPLINARY ACTION ICAAP (INTERNAL CAPITAL ADEQUACY

Chairman Marie Kristin G. Mayo ASSESSMENT PROCESS) COMMITTEE
Vice Chairperson Alfredo J. Bautista Chairperson Edward Dennis J. Zshornack
Members Louella P. Ira Vice Chairperson Jeremy H. Reyes
Morena V. Abadilla Members Edwin T. Amahan
Jeremy H. Reyes Corazon T. Llagas
Bernadette C. Basobas Jose Mari M. Zerna
Anna Marie A. Cruz Rafael C. Bueno Jr.
Secretariat Jocelyn Isabel S. Legaspi Alfredo J. Bautista
Anna-Lyn R. Tarrayo Jay S. Velasco
Felipe Martin F. Timbol
CREDIT AND COLLECTION COMMITTEE
Adviser Reginald C. Nery
Chairperson Roberto C. Benares
Secretariat Ma. Cerriza C. Monteclaro
Vice Chairperson Maria Ana P. Dela Paz
Glenda F. Angeles
Members Felipe Martin F. Timbol
Edward Dennis J. Zshornack
Rafael C. Bueno, Jr. OPERATIONS AND POLICIES COMMITTEE
Manuel A. Castañeda Chairperson Jay S. Velasco
Jay S. Velasco Vice Chairperson Alfredo J. Bautista
Edwin T. Amahan Members George E. Consul
Jose Mari M. Zerna Anna Marie A. Cruz
Advisers Corazon T. Llagas Morena V. Abadilla
Jeremy H. Reyes Chona C. Lacson
Carmen Dee P. Sallan Jeremy H. Reyes
Secretariat Maria Monica L. Jimenez-Bigbig Joel L. Tinio
Sheilah R. Apostol

INFORMATION TECHNOLOGY STEERING Louella P. Ira

Advisers Corazon T. Llagas
COMMITTEE
Reginald C. Nery
Chairperson Roberto C. Benares
Observer Celestino C. Mendiola
Vice Chairperson Edward Dennis J. Zshornack
Secretariat Orlan M. Bibares
Members Marito L. Platon
Marielisa B. Cruz
Edwin T. Amahan
Felipe Martin F. Timbol
Jose Mari M. Zerna
SECURITY COMMITTEE
Numeriano V. Amparo
Chairperson Jay S. Velasco
Maria Ana P. Dela Paz
Vice Chairperson Januario G. Caringal
Jay S. Velasco
Members Edward Dennis J. Zshornack
Joel L. Tinio
Edwin T. Amahan
Anna Marie A. Cruz
Juan Angel L. Tinio
Alfredo J. Bautista
Advisers Reginald C. Nery
Jeremy H. Reyes
Jeremy H. Reyes
Corazon T. Llagas
Corazon T. Llagas
Reginald C. Nery
Wilson C. Vinoya
Secretariat David S. Chua
Secretariat Cenen R. Grajo
Erma D. Pagkatipunan

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 2017 annual report

RISK
Management

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 LOOKING TOWARDS A BRIGHTER FUTURE

RISK PHILOSOPHY AND GUIDING

PRINCIPLES
The Bank’s goal is to generate steady returns to
shareholders’ capital. With this objective in mind, the
Bank’s business principles, strategies, and operations are
designed to achieve cash flows in excess of its obligations
to its fund providers and stakeholders. To realize this,
the Bank takes risks that are inherent in the conduct of
its commercial banking franchise. Risk taking presents
opportunities to earn more-than-expected returns,
provided that the risk-taking process is intentional,
investigated, and controlled. The Bank’s risk-taking
activities are guided by the following principles:
• The Bank is in the business of taking risks.
• The Bank takes risks after a deliberate process to
identify the risks, to dimension them, and to decide
whether to reduce, avoid, accept, or transfer the risk.
• The Bank adopts risk management practices suited to
the scope and sophistication of its business and in line
with global best practices.
• The Bank’s risk management is the concern of
everyone.
• The Bank recognizes the independence of risk
managers and risk takers from each other.

RISK MANAGEMENT OVERSIGHT

The Bank’s Board of Directors (BOD), Board Risk Oversight
Committee (BROC), and Risk Management Division (RSK)
are responsible for setting the overall risk management
framework and risk appetite of the Bank. The BOD is the sole
arbiter of the risks taken by the organization, with the sole
discretion of determining what manner (strategic direction)
and magnitude (risk appetite) of risk are suitable for the
organization. The BOD develops both the strategic direction
and the risk appetite with inputs provided by Management.

The Board established the BROC to oversee the promotion

of a risk management culture within the Bank. The BROC
is responsible for establishing and maintaining a sound risk
management system. It assists the Board in its risk oversight
function by:
• Identifying and evaluating risk exposures
• Developing risk management strategies
• Implementing and periodically reviewing the risk
management framework
• Promoting a culture that is conscious of the importance
of risk management and capital adequacy

45
 2017 annual report

The Bank considers the understanding and the management of risk as a key part of its business strategy. The RSK is mandated to
strengthen the Bank’s risk management infrastructure to meet the requirements of its business.

The RSK implements the risk management directives of the Board and the BROC by:
• Formulating and recommending policies to manage market, liquidity, credit, operational, information technology, and trust risks
arising from the business of the Bank
• Implementing the risk management framework approved by the Board of Directors
• Actively promoting a culture of risk awareness and risk management
• Coordinating with Finance and Controllership Group on the adequacy of the Bank’s capital in absorbing the risks present in the
Bank’s business

The RSK reports to the Board through the BROC and is independent from the risk-taking business units of the Bank. Headed by the
Chief Risk Officer, it comprises of the following departments:

Board of Directors

board risk
oversight committee

chief risk
officer

market and
operational information
credit risk asset liability trust risk
risk technology risk
risk

CREDIT RISK MANAGEMENT portfolios. The CRM is also in charge of developing and
The Credit Risk Management Department (CRM) consists updating the Bank’s credit risk rating systems. It is the
of three sections, each focusing on a major segment of the department’s duty to monitor credit risk exposures against
credit risk management process. The CRM is responsible established limits and report portfolio performance,
for developing and recommending policies that will aid in including significant movements, asset quality, and levels
the management of credit risk present in the Bank’s asset of concentration to the BROC on a timely basis. Credit risk

46
 LOOKING TOWARDS A BRIGHTER FUTURE

models are developed, maintained, and updated by CRM innovation in products and services delivered on an
to make sure that the Bank is always in compliance with information technology platform. It ensures the soundness
the continuously evolving landscape of credit risk within of the organization’s information technology systems by
the banking industry. providing an effective assessment of inherent risks in its
IT infrastructure. The ITRM also ensures the continuous
MARKET AND ASSET LIABILITY relevance and enforcement of the Bank’s IT Risk
RISK MANAGEMENT Management Framework and Information Security Policies
The Market and Asset Liability Risk Management and Procedures.
Department (MRM) oversees the identification,
assessment, monitoring, and control of risks arising TRUST RISK MANAGEMENT
from adverse movements in market risk factors and The Trust Risk Management (TRM) ensures the
the related risk of the Bank not being able to meet its management of risks in the business operations of the Trust
short-term financial obligations. It is responsible for Services Division and reports to the Trust and Investment
recommending market and liquidity risk management Committee (TIC) and the BROC. The TRM develops and
policies which set uniform standards of risk assessment enhances the policies and procedures in operational,
and capital adequacy. The MRM also provides Senior credit, liquidity, and market risks in accordance with the
Management with risk assessments of Treasury-managed risk management framework of the Bank to ensure that
assets as well as the overall liquidity and repricing risk risk management practices continue to be effective and
profile of the Bank’s balance sheet. These are done relevant to the ever-evolving trust business. It is responsible
through the use of Value-at-Risk and sensitivity metrics for overseeing the implementation of approved strategies
for the Treasury exposures and through liquidity and and for ensuring that controls are in place relative to its
repricing gap analyses for the balance sheet profile. business activities that will limit fiduciary risks and reinforce
These metrics are evaluated against Board-approved compliance with laws and regulations.
limits and any exceptions are analyzed by the MRM and
reported to the Board through the BROC. Anti-Money Laundering
Governance and Culture
OPERATIONAL RISK MANAGEMENT The Bank is committed to complying with the
The Operational Risk Management Department requirements of the AML Law, rules, and regulations
(ORMD) monitors the comprehensiveness and as embodied in its Money Laundering and Terrorist
effectiveness of internal control systems employed Financing Prevention Program (MLPP). This is regularly
by the Bank. The ORMD oversees the performance updated or as need arises to reflect the constantly
of these systems to minimize operational risks and evolving regulations, the emerging money laundering/
detect vulnerabilities while the consequences are still terrorist financing risks, and global best practices.
manageable or avoidable. While Compliance Division monitors its implementation,
the Bank’s oversight board and management level
The ORMD provides timely assessments of inherent committees, the Corporate Governance Committee, and
general and functional risks to ensure the operational AML Committee, respectively, are tasked to oversee and
soundness of the organization as an ongoing concern. implement the Bank’s compliance with money laundering
The ORMD also assists the operating units in improving and terrorist financing prevention program and policies.
the operational and system risk management capabilities
through policy formulation. Identification of compliance risks enables the Bank to
establish measures to mitigate such risks. Through the
INFORMATION TECHNOLOGY conduct of independent testing of branches and head
RISK MANAGEMENT office units, the Bank is able to identify the segment in the
The Information Technology Risk Management (ITRM) operational process where money laundering and terrorist
focuses on the identification, monitoring, advisory, and financing risks are higher, and based on the testing results,
reporting of risk issues arising from the technology implement improvements in the processes and segregate
transformation efforts of the Bank and the speed of responsibilities among the units/personnel involved.

47
 2017 annual report

Testing results are monitored until corrected and reported by RSK, another independent party, in-house or external,
to the oversight committees to enable them to have an conducts a validation exercise.
accurate assessment of the effectiveness and efficiency
of the Bank’s money laundering and terrorist financing Market risks are measured by mark-to-market and Value-
prevention program. at-Risk analyses on the overall exposure, on a portfolio
level, and on each individual financial instrument. These
The Compliance Division, in partnership with HRMDD, is exposures are also subjected to stress testing using a variety
responsible in providing bank personnel with appropriate of historical and hypothetical scenarios.
knowledge to achieve the Bank’s goal of promoting
effective implementation of the AML and CFT policies and Quality of credit is measured via risk classifications of
procedures in the entire organization. The Bank provides accounts using an Internal Credit Risk Rating System that
trainings designed based on the level of money laundering/ incorporates the BSP risk classifications of borrowing
terrorist financing exposure, with varying focus for new accounts. The Bank’s front office recommends the credit
employees, front line staff and officers, internal audit, senior risk rating of borrowing accounts and classifications and
management, and directors. All employees are also required allowances for losses, including changes thereon, when
to undergo annual refresher training which highlight their necessary. All risk information are processed, analyzed, and
responsibilities under the MLPP. The Bank’s AML training consolidated for proper reporting to the BOD through the
aims to instill not only knowledge and awareness but also BROC, TIC, AuditCom, Senior Executive Team, and various
inculcate the attitude of compliance with AML Law, rules and management committees of the Bank.
regulations, and internal policies and procedures.
Actual and estimated risk exposures and losses at Treasury,
The Bank endeavors to create a robust compliance culture Corporate and Consumer Banking, Operations, and
where the programs and systems in place are adequate Branches are consolidated for regular reporting. Reports
and effective to ensure that any risk associated with money include, among others, portfolio mix, liquidity and maturity
laundering and terrorist financing is mitigated and thus, matching, interest rate matching, trading gains and losses,
ensures that the interest of the Bank, its clients, and other sensitivity and backtesting results, top borrowers, non-
stakeholders is protected. performing assets and loans, industry exposures, large
exposures, fines and penalties, employee fraud cases, status
RISK MEASUREMENT of legal cases, service level of major information technology
AND REPORTING SYSTEMS systems, and ATMs.
The Bank’s capital adequacy is determined by measuring
credit, market, and operational risk exposures using The RSK streamlined the reporting of the enterprise-wide
standardized or basic approaches as allowed by the Bangko risk profile of the Bank through the periodic presentation
Sentral ng Pilipinas (BSP). Risk exposures are measured both and publication of the Risk Dashboard. This provides a
individually and in aggregate amounts. Risk measurements readily available snapshot that highlights risk concerns
are done by respective risk taking personnel and groups encompassing the major business risk areas: Market, Asset
but are independently validated, analyzed, and reported by and Liability, Credit, Corporate, Commercial and Consumer
the RSK. In cases where the risk measurement is performed Lending, Operations, Information Technology, and Trust.

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 LOOKING TOWARDS A BRIGHTER FUTURE

RISK EXPOSURES AND ASSESSMENTS

(as reported to the Bangko Sentral ng Pilipinas)

RISK-WEIGHTED ASSETS
Bank of Commerce’s risk-weighted assets at the end of 2017 totalled PHP87.3 billion.

RISK-WEIGHTED ASSETS 2017 2016

Credit Risk 80,164 65,018
On Balance Sheet 76,989 62,860
Commitments 3,162 2,146
Counterparty Risk-Weighted Assets in the Trading Book 13 12
Contingencies - -
Deduction: GLLP (in excess to 1% of Credit Risk-Weighted Assets) - -
Market Risk 266 7,330
Interest Rate Risk 49 7,065
Foreign Exchange Risk 217 265
Operational Risk 6,913 6,761
Total Risk-Weighted Assets 87,343 79,109
*Amounts in millions

CREDIT RISK
The Bank considers credit risk as the possibility of loss arising from the customer’s inability or unwillingness to settle his/her
obligations on time or in full as expected or previously contracted. The Bank uses the standardized approach in calculating its
credit risk-weighted exposure. The straightforward nature of this approach enables the Bank to utilize a wider differentiation of risk
weights and a wider recognition of risk mitigation techniques without taking in excessive complexity in the process.

Under this approach, the Bank assigns a specific risk weight to each asset and multiplies it by the credit risk exposure. The risk
weights are based on the ratings provided by an External Credit Assessment Institution recognized by the BSP. For the end of 2017,
the credit risk exposures of the Bank include PHP137.6 billion in balance sheet exposure.

All exposures arising from balance sheet items are net of provisions set aside to absorb credit losses:

ON-BALANCE SHEET ITEMS ASSESSED WEIGHT FOR CREDIT RISK 2017 2016
Cash & Other Cash Items 1,385 1,636
Due From Banks (including ILR and Due from BSP) 31,078 39,353
Securities 29,791 4,117
Sovereign 25,887 -
Bank - -
Corporate 3,904 4,117
Loan Portfolio 62,653 48,423
Loans to Corporates 53,152 40,971
Loans to Individuals - Qualified Residential REM 5,119 3,654
Loans to Individuals - Other Loans 4,166 3,640
Defaulted Exposures - Qualified Residential REM 92 47
Defaulted Exposures - Other Loans 124 111
Loan & Receivables Arising RPA 4,131 13,809
Sales Contracts Receivable 1,160 653
Real & Other Properties Acquired 2,542 2,743
Other Assets 4,866 5,879
TOTAL ON-BALANCE SHEET ITEMS WEIGHTED FOR CREDIT RISK 137,606 116,613
*Amounts in millions

49
 2017 annual report

As of December 31, 2017 and 2016, other assets have been subjected to the following deductions:

2017 2016
Total Assets 138,500 136,843
General Loan Loss Provisions 628 465
Deductions 134,261 131,429
Total Exposures Excluding other Assets 132,740 110,734
Financial Assets Held for Trading 101 19,191
Deferred Tax Assets 386 384
Other Intangible Assets 238 278
Other Equity Investments in Non-Financial Allied Undertakings and Non-Allied Undertakings 48 49
Significant Minority Instruments - -
Reciprocal Equity Investments 21 20
Accumulated Market gains /(losses) on AFS - -
Total Carrying Amount of Securitization Exposures 727 773
total OTHER assets 4,867 5,879
*Amounts in millions

The Bank considers credit risk mitigation as a means to lower its exposure to credit risk. At the end of 2017, PHP1.393 billion in credit
risk exposures carried mitigation in the form of qualified collateral from third parties.

ON-BALANCE SHEET ITEMS COVERED BY CREDIT RISK MITIGATION 2017 2016

Exposures Covered by Credit Risk Mitigation 1,393 661
Items Covered by Guarantee (After Risk Weighing) - -
Items Covered by Collateral (After Risk Weighing) - -
*Amounts in millions

The Bank uses a credit conversion factor as prescribed by banking regulations to account for the potential credit exposure arising
from having committed to extend credit to a customer. The total loan equivalent exposure of the Bank to such commitments at the
end of 2017 was PHP3.1 billion.

COMMITMENTS TO LEND (LOAN EQUIVALENT EXPOSURE) 2017 2016

Direct Client Substitutes 1,250 1,766
Transaction Related Contingencies 1,838 8
Trade Related Contingencies 75 372
Other Commitments - -

TOTAL COMMITMENTS TO LEND (LOAN EQUIVALENT EXPOSURE) 3,163 2,146

*Amounts in millions

Net credit risk-weighted exposure at the end of 2017 was PHP80.16 billion. This credit exposure represents 91.78% of total
risk-weighted assets.

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 LOOKING TOWARDS A BRIGHTER FUTURE

The on-balance sheet credit risk-weighted assets without credit mitigation were PHP76.98 billion. On-balance sheet exposure
makes up 96% of the total credit risk-weighted assets while the remainder is mostly in off-balance sheet assets, particularly on
commitments to lend.

ON-BALANCE SHEET ITEMS ASSESSED WEIGHT FOR CREDIT RISK 2017 2016
Cash & Other Cash Items - 3
Due From Banks (including ILR) 2,656 4,026
Securities 3,745 823
Sovereign 2,964 -
Bank - -
Corporate 781 823
Loan Portfolio 60,690 47,284
Loans to Corporates 52,108 40,628
Loans to Individuals - Qualified Residential REM 4,487 3,120
Loans to Individuals - Other Loans 3,816 3,322
Defaulted Exposures - Qualified Residential REM 92 47
Defaulted Exposures - Other Loans 187 167
Loan & Receivables Arising RPA - -
Sales Contracts Receivable 1,220 729
Real & Other Properties Acquired 3,813 4,114
Other Assets 4,866 5,879

TOTAL ON-BALANCE SHEET ITEMS WEIGHTED FOR CREDIT RISK 76,990 62,858
*Amounts in millions

MARKET RISK
The Bank measures its exposure to market risk using the standardized approach under the Philippine Banking Regulation. Under this
approach, the Bank applied risk weights defined by regulation to outstanding exposures to interest rates and to foreign exchange
rates. Total of market risk-weighted assets at the end of 2017 was PHP266 million.

MARKET RISK-WEIGHTED ASSETS 2017 2016

Interest Rate Specific to the Issuer of the Debt Instruments 13 1,364
Interest Rate Risk Attributable to Market Conditions 36 5,701
Foreign Exchange Risk 217 265

TOTAL MARKET RISK-WEIGHTED ASSETS 266 7,330

*Amounts in millions

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 2017 annual report

OPERATIONAL RISK
The Bank measures its exposure to operational risk using the basic indicator approach under the Philippine Banking Regulation. The
approach utilizes the historical total annual gross income as the measure of risk exposure. Total of operational risk-weighted assets
at the end of 2017 was PHP6.913 billion.

operational RISK-WEIGHTED ASSETS 2017 2016

Average Income of the Previous Three Years 3,687 3,606
Capital Charge (15 pct of Average Income) 553 541
Calibration (Capital Charge times 1.25) 691 676

TOTAL OPERATIONAL RISK-WEIGHTED ASSETS

6,913 6,761
(Calibrated Capital Charge times 10)
*Amounts in millions

SECURITIZATION STRUCTURES
The Bank’s MRT Tranche 3 Note holdings is booked as part of unquoted debt securities classified as loans and is carried at cost. The
Note regularly redeems part of its principal every month and is expected to be fully paid on February 7, 2025. The Bank’s current
carrying value as of December 31, 2017 was PHP727 million.

securitization exposure 2017 2016

MRT Tranche 3 727 773

TOTAL 727 773

*Amounts in millions

OTHER RISK DISCLOSURES

Compliance Risk Management, Corporate Governance Committee, and the
The Bank addresses compliance risk through strengthening Board for immediate/appropriate resolution.
its compliance infrastructure. This infrastructure requires all
persons within the organization to know the laws, rules, and Monitoring and assessment of the Bank’s adherence to laws,
regulations attendant to their functions. In addition, the units rules, and regulations are performed regularly, creating
in charge of compliance (legal, regulatory, tax) regularly a comfort level that compliance continues to function
disseminate any new issuances for the understanding of effectively and efficiently. For this purpose, the Bank
concerned units. implements the three-pronged approach in Compliance
Testing: the Compliance Self-Assessment performed by the
The Compliance Division provides Business Operating Unit units themselves; the Independent Compliance Testing, a
(BOU) guidance on the interpretation and application of BSP validation exercise performed by the Compliance Division on
rules and regulations and other regulatory issuances with selected units and branches; and supplemented by validation
respect to the activities of the Bank. Breaches/deviations performed by Internal Audit on all units and branches
from these regulations are appropriately reported to the included in the Annual Audit Plan.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Deputy Compliance Officers (DCO) are appointed within document review to ensure that relevant laws are complied
each of the operating and business units, following a with, Bank interest is duly protected, and identified risks are
Compliance Program that is anchored on self-assessment. imparted to responsible units of the Bank. The LSD handles
Compliance Self-Assessment is done periodically using cases filed for and against the Bank and provides Senior
the Compliance Self-Assessment Checklist. The result Management, the Corporate Governance Committee, and the
of Compliance Self-Assessment is validated through the BROC regular updates on any lawsuits involving the Bank.
Independent Compliance Testing. Results of Compliance
Self-Assessment and Independent Compliance Testing are PENSION RISK
reported to the Corporate Governance Committee and The Bank enlists the assistance of third-party consultants
appropriate levels of Management. Follow-through is being to conduct actuarial evaluation on the condition of the
done until findings/exceptions are fully corrected. retirement plan once a year in order to address any erosion
in the explanatory power or significance of the actuarial
REPUTATIONAL RISK models used to project benefit obligations.
Reputational risk proceeds from negative public opinion
and has the potential to erode the perception of the Bank Valuation of both the projected benefit obligation and
as a worthy counterparty or investment target. Negative the present value of the plan assets assumes rates of
perception on the part of customers, providers of funding, or discount, asset return, and compensation growth. These
regulators can adversely affect a bank’s ability to maintain parameters may properly reflect market conditions at the
existing, or establish new, business relationships or to time of measurement but later be non-reflective as market
continue accessing sources of funding. conditions change.

As the Bank presently neither uses capital market sensitive The annual third-party actuarial evaluation of the
funding nor publicly listed stock, its funding cost and equity condition of the retirement plan considers the relevance
value remain shielded from reputational risk events and of the assumption used in valuation and recommends the
market discipline rendering fair estimate difficult to quantify. necessary adjustments to properly reflect the value of
plan assets and liabilities. The valuation assumptions last
Nevertheless, the impact on reputation of events that may underwent review and adjustment during the actuarial
occur in the regular course of business remains a top priority report of 2017.
of Senior Management and the Board.
MODEL RISK
LEGAL RISK The Bank contracts external entities to validate internal
Legal risk arises from failure in the implementation of necessary models used to measure market, asset and liability risks,
control measures as well as imperfect documentation of as well as rating models for the classification of borrowers’
transactions. The primary functions of the Bank’s Legal credit risk. Results of these validation exercises are reported
Services Division (LSD) comprise of rendering legal advice and to Management, the BROC, and the Audit Committee.

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 2017 annual report

CAPITAL
Management
The Board recognizes that capital adequacy is the foundation of institutional strength
and therefore ensures that Bank of Commerce (the Bank) maintains an adequate level
of capital to support business growth and maintain depositor and creditor confidence.

The Bank’s capital management framework is designed to ensure that regulatory

requirements are met at all times, and are cognizant of the Bank’s risk profile
and target ratios as approved by the Board. In addition, the Bank has its Internal
Capital Adequacy Assessment Process (ICAAP), which enables the Bank to assess
the capital impact of other risks apart from credit, market, and operational risks.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Regulatory Capital Oversight

The Board oversees the deployment of capital funds bank-wide, ensuring that Capital-to-Risk Weighted Assets Ratio (CAR) of
the Bank meets or exceeds the minimum regulatory requirements. The following tables exhibit the Bank’s capital condition as of
December 31, 2017 and 2016:

Amounts in millions 2017 2016*

Gross Qualifying Capital 16,375 15,829
Less: Regulatory deductions 1,420 1,504
Total Qualifying Capital 14,955 14,325

Credit risk-weighted assets 80,164 65,018

Market risk-weighted assets 266 7,330
Operational risk-weighted assets 6,913 6,761
Total Risk-Weighted Assets 87,343 79,110

Capital Adequacy Ratio or “CAR”

17% 18%
Regulatory minimum is 10%

Tier 1 Capital Ratio

16% 17%
Regulatory minimum is 7.5%

Common Equity Tier 1 Ratio 16% 17%

*2016 CAR was restated based on the resubmitted BASEL III

CAR report due to the Bangko Sentral ng Pilipinas (BSP) Audit Comment on market capital charge of AFS

The above ratios represent a measure of capital supply relative to the total risk-weighted assets and are measured against
regulatory minimum requirements. As of December 31, 2017 and 2016, the Bank has complied with the minimum regulatory
required capital.

Tier 1 Capital comprised common stock, additional paid-in capital, and surplus. Common equity tier 1 represents ordinary share
capital, share premium, and retained earnings, including cumulative translation adjustment.

Risk-weighted assets are determined based on standardized regulatory approach for credit risk (both on-and-off balance sheet
exposures) and market risk, while operational risks are based on Basic Indicator Approach (BIA).

December 31, 2017 december 31, 2016

Risk-Weighted Capital Risk-Weighted Capital
Amounts in millions
Assets Requirements Assets Requirements

Credit Risk 80,164 8,016 65,018 6,502

Market Risk 266 27 7,330 733
Operational Risk 6,913 691 6,761 676
Total 87,343 8,734 79,110 7,911

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 2017 annual report

The following tables exhibit the elements of the Bank's -Total Qualifying Capital- as of December 31, 2017 and 2016.

Amounts in millions December 31, 2017 December 31, 2016

Paid-up Common Stock 11,224 11,224
Additional Paid-in Capital 5,594 8,749
Retained Earnings/(Deficit) (259) (3,863)
Other Comprehensive Income (827) (762)
Gross Common Equity Tier 1 (CET1) Capital 15,732 15,347
Appraisal Increment Reserve – Bank Premises 15 17
General Loan Loss Provision 628 465
Gross Tier 2 Capital 643 482
Less: Regulatory Deductible Adjustments To Qualifying Capital
Deferred Tax Assets 386 384
Other Intangible Assets 238 278
Other Equity Investments In Non-Financial Allied Undertakings And
Non-Allied Undertakings 48 49

Reciprocal Equity Investments 21 20

Securitization Tranches And Structured Products Which Are Rated
Below Investment Grade Or Are Unrated 727 773

Total Regulatory Deductible Adjustments To Qualifying Capital 1,420 1,504

Adjusted CET1 Capital 14,312 13,843
Adjusted Tier 2 Capital, mainly adding back the General Loan
643 482
Loss Provisions
Total Qualifying Capital 14,955 14,325

Components of the regulatory qualifying capital are determined based on the BSP’s regulatory accounting policy (RAP), which
differs from the Capital based on the Philippine Financial Reporting Standards (PFRS) in some respects.

Full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements follows:

DECEMBER 31, 2017 DECEMBER 31, 2016

Audited Audited
Qualifying Reconciling Qualifying Reconciling
Financial Financial
Capital Items Capital Items
Statements Statements
(in millions)
Tier 1 capital/Total equity
Capital stock 11,224 - 11,224 11,224 - 11,224
Paid-in surplus 5,594 - 5,594 8,749 - 8,749
Surplus reserves 159 - 159 153 - 153
Retained earnings (Deficit) (418) 1,921 1,503 (4,017) 4,635 618
Net unrealized losses on AFS securities (648) 14 (634) (596) 29 (567)
Remeasurement losses on retirement liability (177) - (177) (164) - (164)
Share in other comprehensive loss of associate (1) * (1) (1) * (1)
Cumulative translation adjustment (1) (8) (9) * 2 1
Deductions (1,420) 1,420 - (1,504) 1,504 -
14,312 3,347 17,659 13,843 3,015 16,858
Tier 2 capital
Revaluation increment on PPE
15 127 142 17 430 447
and investment properties
General loan loss provision 628 (628) - 465 (465) -
643 (501) 142 482 (35) 447
Total qualifying capital/Total equity 14,995 2,846 17,801 14,325 2,980 17,305
*Amount is below PHP1 million

Certain adjustments are made to PFRS-based results and reserves, as prescribed by the BSP for prudential reporting and vice versa.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Internal Capital Adequacy • Evaluates the Regulator’s findings and recommendations

Assessment Process (ICAAP) regarding the ICAAP of the Bank and oversees its plans to
Oversight address the Regulator’s findings on ICAAP
The Board oversees the ICAAP of the Bank and recognizes
the applicability of regulatory changes, such as Basel III, in its The ICAAP Report is issued by the ICAAP Committee to the
ICAAP. The ICAAP enables the Bank to properly understand Board annually, conveying the results of the evaluation of the
the risks in its strategic plans and also to assess how much Bank’s ICAAP. The 2017 ICAAP Report highlighted the sufficiency
capital is required to withstand these risks. Integrating of the Bank’s compliance with regulatory and internal capital
ICAAP into the organization creates a culture of collective requirements considering the strategic plans from 2018 through
responsibility and accountability to preserve and maximize the 2020, and the sufficiency of Management’s Capital Contingency
value of invested capital. Plan as well as Capital Build-up Program.

The Bank’s management constantly monitors compliance with The Bank’s intended primary source of emergency capital would
the minimum regulatory capital requirements, as well as with be through issuance of additional Tier 1 capital (common stock),
internal capital requirements, as determined under its ICAAP. as discussed and approved at the ICAAP Steering Committee and
Board levels.
Management regularly reports to the Board the state of capital
adequacy compliance to enable the Board to make proper The Bank’s long-term capital management plan that was approved
decisions regarding risk and capital. by the Board back in 2014 consists of the following key components,
which have materialized in a timely manner as follows:
The Board Of Directors And 1. Starting with its 2014 Audited Financial Statements, the
The Board Risk Oversight Bank was able to finally resolve the long outstanding
Committee qualifications in the external Auditors’ Opinion pertaining
The Board of Directors, as the body responsible for the governance to prior years’ unrecognized losses that should have
of the Bank, is the sole arbiter of the risks taken by the Bank and otherwise reduced Total Capital. As of December 31, 2014,
alone exercises discretion over the manner (strategic direction) the Bank’s Capital (PFRS basis) had been updated with
and magnitude (risk appetite) in which the Bank’s capital is placed the full write down of the required allowance for certain
at risk in pursuit of the Bank’s strategic growth and profit targets. non-performing assets that had been acquired in 2002
from Trader's Royal Bank, as well as the full charge-off
The Board of Directors establishes an infrastructure that provides of deferred losses that had been actually incurred on the
regular reports to ensure that the Board has sufficient information 2005 and 2007 sales of non-performing assets to special
to make proper decisions on risk and capital. purpose vehicles.
2. Pursuant to Securities and Exchange Commission's (SEC)
The Board of Directors established within itself a Board Risk Certificate of Approval of Equity Restructuring, the Bank
Oversight Committee (BROC) that oversees the risk management was allowed by SEC to effect in the Audited Financial
infrastructure of the Bank, including the review of the ability of the Statements as of December 31, 2016 the wipeout of
Bank to absorb the risks where it has exposure. its Deficit as of December 31, 2015 in the amount of
PHP3,154,450,041.00 against the Additional Paid-in
Icaap Steering Committee Capital (APIC) of PHP8,748,529,678.00.
The ICAAP Steering Committee is a management committee that
3. As part of ongoing capital management, the Bank
is responsible for overseeing the development of the assessment
continues to evaluate the forward-looking capital
process and for monitoring the implementation and integration of
requirements to support future business expansion and
the ICAAP. The Committee:
risk-taking strategies. The Board has directed Management
• Evaluates the Bank’s compliance with mandated
to escalate for deliberation and approval by the Board
minimum capital requirements;
any proposed capital-raising exercise and accordingly, to
• Oversees the ICAAP to ensure it effectively approximates
pursue the necessary regulatory approvals.
the Bank’s ability to absorb losses;
• Formulates and recommends guidelines, policies, and
procedures which enable the Bank to maintain a level of
qualified capital appropriate to its risk profile; and

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 2017 annual report

CONSUMER
Protection
With the Financial Consumer Protection framework set in motion during
the preceding year, Bank of Commerce went forward in intensifying its
security measures in 2017 to protect its customers in the following areas:

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 LOOKING TOWARDS A BRIGHTER FUTURE

Disclosure and Transparency. The Bank exerted more The Operating Policies and Procedures Manual (OPPM) on
diligence in ensuring that various marketing collaterals Customer Complaint Management/Consumer Protection
displayed in its branches were updated and bore the was routed in July. Sign-off of concerned units was secured
mandatory statement of the Bangko Sentral ng Pilipinas. between August to December.
An updated version of the Banking Needs Pamphlet (also
known as the “Bank Anywhere” flyer) was distributed to Financial Education and Awareness. The Bank completed
the branches in July which carried the Bank’s “We Think the Community Managed Savings and Credit Association
Customers” tagline. (CoMSCA) project with World Vision at Laurel, Batangas.
The project focused on teaching the basics of saving to kids
The Bank’s brochures were also given a fresh look in August. and adults, and practicing wise spending.
Aside from putting the prescribed financial consumer
protection details, the Bank updated certain product The Bank also ran the "Bank Anywhere" program which
information, such as the ADB requirements of certain CASA allowed clients to transact with the Bank beyond their
and TD products, improvements on TD product terms, and branch of account and via online through its internet banking
new details related to the Mastercard EMV Debit Card. The channels. On top of these efforts, sales blitzes to promote
Bank also took the opportunity to enhance its product the Junior Smart Savers Savings Account in schools located
descriptions to have a more consumer-friendly tone. in Manila, Quezon City, Malabon, Bataan, and La Union
served as an avenue to inculcate financial awareness among
Effective Recourse. To provide customers more ways to the youth.
easily access the Bank for their banking concerns, Customer
Care domestic toll-free numbers were announced to the
branches in December. All reminders and new standees
with Customer Care hotline numbers and email address
designated for customer feedback were released and
installed in the branches starting in the third quarter of 2017.

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 2017 annual report

INTERNAL AUDIT
Division Report

T
he Internal Audit Division (IAD) is an independent unit of the Bank that conducts objective assurance and consulting
activities designed to add value and help improve the operations of the Bank. The IAD evaluates the effectiveness of the
Bank’s risk management and governance processes and provides reasonable assurance that the Bank’s key organizational
and procedural controls are effective, appropriate, and complied with. The IAD periodically audits all branches, area
offices, branch operations control centers, head office units, as well as systems, applications, and mission-critical projects of the
Bank, using a risk-based approach.

Over the years, the IAD has also significantly enhanced the use of computer-assisted audit techniques (CAATs). Tools such as ACL
(a data extraction and analysis software), and the advanced use of MS Excel allow the IAD to apply a more efficient, effective, and
comprehensive approach in reviewing and analyzing data for selected audits and validations as well as in generating randomly
and sending confirmation letters regarding account balance of selected clients. Based on the results of audit and other assurance
activities performed in 2017, the Chief Audit Executive declared that the Bank’s systems of governance, internal controls, and risk
management are reasonably adequate to address strategic, financial, regulatory (including AMLA), compliance, operational, and
fraud-related risks.

As such, the systems of internal control established and maintained by the Bank promote reliability of financial and management
reporting, operational efficiency, system reliability, data integrity, asset protection and prompt detection and/or prevention of
errors and/or irregularities in processing and reporting the Bank’s transactions and accounts. It is worthy to note that the Bank
has been consistently improving its internal controls, governance, and risk management processes to address emerging risks
faced by the institution, to attune itself with new laws and regulations, and to respond to technology changes, competition, and
industry movements.

A structured program for continuing professional development is in place to help the Bank’s auditors further enhance their
knowledge, skills, and other competencies with regard to auditing. The program is also aimed at making the auditors informed
about current developments in governance, risk, information technology (IT), regulations, and control processes relevant to the
Bank. Furthermore, auditors are strongly encouraged to demonstrate their proficiency by obtaining appropriate professional
certification related to internal auditing, internal control, risk management, IT security, and governance.

The IAD maintains a quality assurance and improvement program that covers all aspects of the internal audit activity. The program
includes, but is not limited to, an evaluation of the internal audit activity’s conformance with The Institute of Internal Auditors’ (IIA)
International Standards for the Professional Practice of Internal Auditing (the “Standards” or ISPPIA) and an evaluation of whether
internal auditors apply the Code of Ethics. The program also assesses the efficiency and effectiveness of the internal audit activity
and identifies opportunities for improvement.

An internal assessment is conducted annually while external assessment is conducted by a qualified external quality assessment
provider at least once every five years. The results of the internal and external assessments are both presented to the Audit
Committee. The Bank is undertaking these assessments to demonstrate the IAD’s continuing compliance with the Standards.

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 LOOKING TOWARDS A BRIGHTER FUTURE

statement of management's responsibility

for Financial Statements
The management of Bank of Commerce (the “Bank”) is responsible for the preparation and fair presentation of the financial statements,
including the schedules attached therein, for the years ended December 31, 2017 and 2016, in accordance with the prescribed financial
reporting framework indicated therein, 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.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern,
disclosing, as applicable matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Bank’s financial reporting process.

The Board of Directors reviews and approves the financial statements, including the schedules attached therein, and submits the same
to the stockholders.

R.G. Manabat & Co., the independent auditors appointed by the stockholders, has audited the financial statements of the Bank in
accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of
presentation upon completion of such audit.

JOSE T. PARDO ROBERTO C. BENARES

Chairman of the Board President and Chief Executive Officer

EDWARD DENNIS J. ZSHORNACK

Senior Vice President and Controller

Subscribed and sworn to before me this 3rd day of April 2018, affiants exhibiting their Senior Citizen Identification No. and Passport
No., as follows:

Names Identification Nos. Date of Issue Place of Issue

Jose T. Pardo Senior Citizen ID No. 1725634 July 31, 2002 Muntinlupa City
Roberto C. Benares Passport No. EC2113502 September 16, 2014 DFA NCR East
Edward Dennis J. Zshornack Passport No. P2464204A March 25, 2017 DFA NCR East

Doc. No. 101

Page No. 22
Book No. IV
Series of 2018

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 2017 annual report

AUDITED
Financial Statements

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 LOOKING TOWARDS A BRIGHTER FUTURE

R.G. Manabat & Co.

The KPMG Center, 9/F
6787 Ayala Avenue, Makati City
Philippines 1226
Telephone +63 (2) 885 7000
Fax +63 (2) 894 1985
Internet www.kpmg.com.ph
Email [email protected]

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and the Stockholders

Bank of Commerce
San Miguel Properties Centre
No. 7, St. Francis Street
Mandaluyong City

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Bank of Commerce (the “Bank”), which
comprise the statements of financial position as at December 31, 2017 and 2016, and
the statements of income, statements of comprehensive income, statements of changes
in equity and statements of cash flows for the years then ended, and notes, comprising
significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements present fairly, in all material
respects, the financial position of the Bank as at December 31, 2017 and 2016, and its
financial performance and its cash flows for the years then ended in accordance with
Philippine Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing. Our

responsibilities under those standards are further described in the Auditors’
Responsibilities for the Audit of the Financial Statements section of our report. We are
independent of the Bank in accordance with the Code of Ethics for Professional
Accountants in the Philippines (Code of Ethics) together with the ethical requirements
that are relevant to our audit of the financial statements in the Philippines, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the
Code of Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

PRC-BOA Registration No. 0003, valid until March 15, 2020

SEC Accreditation No. 0004-FR-5, Group A, valid until November 15, 2020
IC Accreditation No. F-2017/010-R, valid until August 26, 2020
R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent BSP - Selected External Auditors, Category A, valid for 3-year audit period
member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. (2017 to 2019)

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 2017 annual report

Responsibilities of Management and Those Charged with Governance for the Financial
Statements

Management is responsible for the preparation and fair presentation of the 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.

In preparing the financial statements, management is responsible for assessing the

Bank’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Bank or to cease operations, or has no realistic alternative
but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial
reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Philippine Standards on Auditing will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these
financial statements.

As part of an audit in accordance with Philippine Standards on Auditing, we exercise

professional judgment and maintain professional skepticism throughout the audit. We
also:

 Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit 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 Bank’s internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

 Conclude on the appropriateness of management’s use of the going concern basis

of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on
the Bank’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors’ report to the
related disclosures in the financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditors’ report. However, future events or conditions may cause
the Bank to cease to continue as a going concern.

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 LOOKING TOWARDS A BRIGHTER FUTURE

 Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.

Report on the Supplementary Information Required Under Revenue Regulations

No. 15-2010 of the Bureau of Internal Revenue

Our audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information in Note 37 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 supplementary information is
the responsibility of management. The supplementary information has been subjected to
the auditing procedures applied in our audit of the basic financial statements. In our
opinion, the supplementary information is fairly stated in all material respects in relation
to the basic financial statements taken as a whole.

R.G. MANABAT & CO.

ALINE A. NOVILLA
Partner
CPA License No. 0109938
BSP - Selected External Auditor, Category A, valid for 3-year audit
period (2017 to 2019)
SEC Accreditation No. 1488-A, Group A, valid until May 20, 2018
Tax Identification No. 228-271-641
BIR Accreditation No. 08-001987-32-2017
Issued September 5, 2017; valid until September 4, 2020
PTR No. 6615147MD
Issued January 3, 2018 at Makati City

March 26, 2018

Makati City, Metro Manila

65
 2017 annual report

Statements
of Financial Position
BANK OF COMMERCE
STATEMENTS OF FINANCIAL POSITION

December 31
Note 2017 2016
ASSETS
Cash and Other Cash Items P1,384,981,849 P1,635,564,614
Due from Bangko Sentral ng Pilipinas 18 25,704,211,852 31,232,966,983
Due from Other Banks 3,185,995,822 3,839,466,066
Interbank Loans Receivable and Securities
Purchased Under Resale Agreement 7 6,316,149,870 18,076,096,271
Financial Assets at Fair Value through Profit
or Loss 8 101,046,229 93,511,228
Available-for-Sale Securities - net 9, 17, 33, 34 17,106,651,172 23,325,779,989
Held-to-Maturity Investments 10, 34 12,529,887,205 -
Loans and Receivables - net 11, 17, 34 65,411,128,471 50,790,241,751
Non-current Assets Held for Sale 12 48,121,557 53,667,264
Investment in Associate - net 13, 17, 34 46,149,665 48,265,331
Property and Equipment - net 14, 17
At cost 478,285,349 429,706,361
At appraised values 811,715,955 840,453,110
Investment Properties 15 5,801,661,936 6,213,588,230
Deferred Tax Assets - net 31 108,225,028 168,489,161
Other Assets - net 16, 17 1,421,631,448 1,937,985,894
P140,455,843,408 P138,685,782,253

LIABILITIES AND EQUITY

Deposit Liabilities 18, 34
Demand P26,863,176,630 P24,422,977,807
Savings 74,895,962,109 68,709,645,591
Time 17,008,912,478 24,363,391,426
118,768,051,217 117,496,014,824
Bills Payable 19 267,208 484,385
Manager’s Checks 560,296,206 716,059,911
Accrued Interest, Taxes and Other Expenses 20, 34 906,866,282 941,943,850
Other Liabilities 21, 34 2,418,959,935 2,225,833,783
Total Liabilities 122,654,440,848 121,380,336,753
Forward

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 LOOKING TOWARDS A BRIGHTER FUTURE

December 31
Note 2017 2016
Equity
Capital stock 23 P11,224,111,200 P11,224,111,200
Paid-in surplus 23 5,594,079,646 5,594,079,646
Surplus reserves 24 159,442,049 152,581,050
Retained earnings 23 1,503,397,896 618,096,016
Revaluation increment on property and equipment
and investment properties - net of tax 14, 15 141,587,083 447,151,737
Net unrealized losses on available-for-sale
securities 9 (633,965,463) (566,622,743)
Remeasurement losses on retirement liability 28 (176,743,526) (164,228,770)
Share in other comprehensive loss of associate 13 (1,339,715) (1,023,607)
Cumulative translation adjustment (9,166,610) 1,300,971
Total Equity 17,801,402,560 17,305,445,500
P140,455,843,408 P138,685,782,253

See Notes to the Financial Statements.

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 2017 annual report

Statements BANK OF COMMERCE

STATEMENTS OF INCOME
of Income
Years Ended December 31
Note 2017 2016
INTEREST INCOME
Loans and receivables 11, 16, 34 P2,846,991,127 P2,875,606,204
Debt securities 25, 34 950,859,818 882,450,722
Due from Bangko Sentral ng Pilipinas and
other banks 18 241,070,180 241,093,330
Interbank loans receivable and securities
purchased under resale agreement 7 230,657,897 190,577,104
4,269,579,022 4,189,727,360

INTEREST EXPENSE
Deposit liabilities 18, 34 867,108,835 862,628,893
Bills payable and others 19 15,011,452 646,798
882,120,287 863,275,691
NET INTEREST INCOME 3,387,458,735 3,326,451,669

OTHER INCOME
Service charges, fees and commissions 26, 34 476,725,037 324,203,760
Fair value gain from investment properties 15 409,097,160 47,586,165
Gains on foreclosure and sale of property
and equipment and foreclosed assets - net 12, 14, 15, 16, 34 317,645,099 257,113,853
Foreign exchange gains - net 84,655,566 51,341,679
Trading and investment securities gains - net 27 56,259,849 342,427,184
Reversal of credit and impairment losses 17 14,974,524 108,038,780
Miscellaneous 9, 15, 29, 34 86,292,088 83,777,604
1,445,649,323 1,214,489,025

OTHER EXPENSES
Compensation and fringe benefits 28, 34 1,389,262,388 1,381,603,312
Rent and utilities 29 629,326,820 671,243,535
Taxes and licenses 15, 31 492,223,314 480,727,818
Insurance 220,569,326 209,021,659
Depreciation and amortization 14, 16 178,840,936 194,611,245
Entertainment, amusement and recreation 31 145,056,262 155,850,059
Management and professional fees 34 111,900,913 70,412,561
Amortization of software costs 16 107,666,376 111,164,255
Miscellaneous 30 552,854,592 347,218,102
3,827,700,927 3,621,852,546

INCOME BEFORE SHARE IN NET LOSS OF

ASSOCIATE AND INCOME TAX 1,005,407,131 919,088,148
SHARE IN NET LOSS OF ASSOCIATE 13, 34 1,799,558 1,410,096
INCOME BEFORE INCOME TAX 1,003,607,573 917,678,052
INCOME TAX EXPENSE 31 377,690,413 307,280,056
NET INCOME P625,917,160 P610,397,996

See Notes to the Financial Statements.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Statements BANK OF COMMERCE

STATEMENTS OF COMPREHENSIVE INCOME
of Comprehensive Income
Years Ended December 31
Note 2017 2016
NET INCOME P625,917,160 P610,397,996
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may not be reclassified to profit or loss
Net change in revaluation increment on property and
equipment and investment properties - net of tax 14, 15 (39,318,935) 56,301,911
Net change in remeasurement losses on retirement
liability 28 (12,514,756) 67,462,036
(51,833,691) 123,763,947

Items that may be reclassified to profit or loss

Net change in net unrealized loss on available-for-
sale securities 9 (67,342,720) (180,066,546)
Net movement in cumulative translation adjustment (10,467,581) 20,900,042
Share in other comprehensive (loss) income of
associate 13 (316,108) 504,187
(78,126,409) (158,662,317)
(129,960,100) (34,898,370)
TOTAL COMPREHENSIVE INCOME P495,957,060 P575,499,626

See Notes to the Financial Statements.

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70
Statements
BANK OF COMMERCE
STATEMENTS OF CHANGES IN EQUITY
of Changes in Equity
2017 annual report

Revaluation
Increment
on Property and
Equipment Net Unrealized Remeasurement Share in Other
and Investment Losses on Losses on Comprehensive
Paid-in Surplus Retained Properties - Available-for-Sale Retirement Loss of Cumulative
Capital Stock Surplus Reserves Earnings net of tax Securities Liability Associate Translation
Note (Note 23) (Note 23) (Note 24) (Note 23) (Notes 14 and 15) (Note 9) (Note 28) (Note 13) Adjustment Total Equity

Balance as at December 31, 2016 P11,224,111,200 P5,594,079,646 P152,581,050 P618,096,016 P447,151,737 (P566,622,743) (P164,228,770) (P1,023,607) P1,300,971 P17,305,445,500

Net income for the year - - - 625,917,160 - - - - - 625,917,160

Other comprehensive income (loss) for
the year:
Items that may not be reclassified to
profit or loss:
Net change in revaluation increment on
property and equipment and
investment properties - net of tax - - - - (39,318,935) - - - - (39,318,935)
Net change in remeasurement losses
on retirement liability - - - - - - (12,514,756) - - (12,514,756)
Items that may be reclassified to profit or
loss:
Net changes in fair value of available-
for-sale (AFS) securities taken to
profit or loss - - - - - (37,554,250) - - - (37,554,250)
Net changes in fair value of AFS
securities - - - - - (29,788,470) - - - (29,788,470)
Net movement in cumulative
translation adjustment - - - - - - - - (10,467,581) (10,467,581)
Share in other comprehensive loss of
associate - - - - - - - (316,108) - (316,108)
Total comprehensive income for the year - - - 625,917,160 (39,318,935) (67,342,720) (12,514,756) (316,108) (10,467,581) 495,957,060

Transactions within equity:

Transfer of revaluation increment on
property and equipment and
investment properties realized
through disposal 14, 15 - - - 260,694,715 (260,694,715) - - - - -
Appropriation of surplus for trust
business 24 - - 6,860,999 (6,860,999) - - - - - -
Transfer of revaluation increment on
property and equipment realized
through depreciation - - - 5,551,004 (5,551,004) - - - - -
- - 6,860,999 259,384,720 (266,245,719) - - - - -

Balance as at December 31, 2017 P11,224,111,200 P5,594,079,646 P159,442,049 P1,503,397,896 P141,587,083 (P633,965,463) (P176,743,526) (P1,339,715) (P9,166,610) P17,801,402,560

Forward
 Revaluation
Increment
on Property and
Equipment and Net Unrealized Remeasurement Share in Other
Retained Investment Losses on Losses on Comprehensive
Paid-in Surplus Earnings Properties - Available-for-Sale Retirement Loss of Cumulative
Capital Stock Surplus Reserves (Deficit) net of tax Securities Liability Associate Translation
Note (Note 23) (Note 23) (Note 24) (Note 23) (Notes 14 and 15) (Note 9) (Note 28) (Note 13) Adjustment Total Equity

Balance as at December 31, 2015 P11,224,111,200 P8,748,529,687 P146,692,129 (P3,154,450,041) P404,436,767 (P386,556,197) (P231,690,806) (P1,527,794) (P19,599,071) P16,729,945,874
Net income for the year - - - 610,397,996 - - - - - 610,397,996
Other comprehensive income (loss) for
the year:
Items that may not be reclassified to
profit or loss:
Net change in revaluation increment on
property and equipment and
investment properties - net of tax - - - - 56,301,911 - - - - 56,301,911
Net change in remeasurement losses
on retirement liability - - - - - - 67,462,036 - - 67,462,036
Items that may be reclassified to profit or
loss:
Net changes in fair value of available-
for-sale (AFS) securities taken to
profit or loss - - - - - (352,685,478) - - - (352,685,478)
Net changes in fair value of AFS
securities - - - - - 172,618,932 - - - 172,618,932
Net movement in cumulative
translation adjustment - - - - - - - - 20,900,042 20,900,042
Share in other comprehensive income
of associate - - - - - - - 504,187 - 504,187
Total comprehensive income for the year - - - 610,397,996 56,301,911 (180,066,546) 67,462,036 504,187 20,900,042 575,499,626

Transactions within equity:

Application of paid-in surplus against
deficit 23 - (3,154,450,041) - 3,154,450,041 - - - - - -
Appropriation of surplus for trust
business 24 - - 5,888,921 (5,888,921) - - - - - -
Transfer of revaluation increment on
property and equipment realized
through depreciation - - - 13,586,941 (13,586,941) - - - - -
- (3,154,450,041) 5,888,921 3,162,148,061 (13,586,941) - - - - -

Balance as at December 31, 2016 P11,224,111,200 P5,594,079,646 P152,581,050 P618,096,016 P447,151,737 (P566,622,743) (P164,228,770) (P1,023,607) P1,300,971 P17,305,445,500

See Notes to the Financial Statements.

LOOKING TOWARDS A BRIGHTER FUTURE

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 2017 annual report

Statements BANK OF COMMERCE

of Cash Flows
STATEMENTS OF CASH FLOWS

Years Ended December 31

Note 2017 2016
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax P1,003,607,573 P917,678,052
Adjustments for:
Fair value gain from investment properties 15 (409,097,160) (47,586,165)
Gain on foreclosure and sale of
property and equipment and foreclosed
assets - net 12, 14, 15, 16, 34 (317,645,099) (257,113,853)
Depreciation and amortization 14, 16 178,840,936 194,611,245
Amortization of software costs 16 107,666,376 111,164,255
Gain on sale of available-for-sale securities 9, 27 (37,554,250) (352,685,478)
Reversal of credit and impairment losses 17 (14,974,524) (108,038,780)
Share in net loss of associate 13 1,799,558 1,410,096
Unrealized loss (gain) on financial assets and
liabilities at fair value through profit or loss 27 811,909 (86,897,122)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets at fair value through profit
or loss (8,346,910) 1,694,857,667
Loans and receivables (14,168,823,884) (7,789,297,227)
Other assets (67,454,743) (178,348,163)
Increase (decrease) in:
Deposit liabilities 1,272,036,393 323,872,602
Manager’s checks (155,763,705) 215,948,299
Accrued interest, taxes and other expenses (30,801,533) 25,191,733
Other liabilities 178,665,163 130,257,230
Net cash absorbed by operations (12,467,033,900) (5,204,975,609)
Income taxes paid (299,471,805) (270,459,994)
Net cash used in operating activities (12,766,505,705) (5,475,435,603)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale or redemption of:
Available-for-sale securities 11,384,200,916 14,266,362,002
Investment properties 464,945,531 185,239,074
Property and equipment 59,363,216 59,005,907
Non-current assets held for sale 6,860,800 5,736,000
Additions to:
Available-for-sale securities (14,118,596,338) (14,743,010,137)
Held-to-maturity investments (2,896,564,194) -
Property and equipment 14 (246,585,112) (194,443,501)
Deferred software costs 16 (67,795,996) (63,133,883)
Investment properties (1,392,901) (3,953,862)
Net cash used in investing activities (5,415,564,078) (488,198,400)

CASH FLOWS FROM A FINANCING

ACTIVITY
Settlement of bills payable 19 (217,177) (204,465)
EFFECT OF EXCHANGE RATE
DIFFERENCES (10,467,581) 20,900,042
NET DECREASE IN CASH AND CASH
EQUIVALENTS (18,192,754,541) (5,942,938,426)
Forward

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 LOOKING TOWARDS A BRIGHTER FUTURE

Years Ended December 31

2017 2016
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
Cash and other cash items P1,635,564,614 P2,253,631,232
Due from Bangko Sentral ng Pilipinas 31,232,966,983 49,802,020,338
Due from other banks 3,839,466,066 3,287,775,229
Interbank loans receivable and securities purchased
under resale agreement 18,076,096,271 5,383,605,561
54,784,093,934 60,727,032,360

CASH AND CASH EQUIVALENTS AT

END OF YEAR
Cash and other cash items 1,384,981,849 1,635,564,614
Due from Bangko Sentral ng Pilipinas 25,704,211,852 31,232,966,983
Due from other banks 3,185,995,822 3,839,466,066
Interbank loans receivable and securities purchased
under resale agreement 6,316,149,870 18,076,096,271
P36,591,339,393 P54,784,093,934

OPERATIONAL CASH FLOWS FROM INTEREST

AND DIVIDENDS
Interest received P4,120,671,923 P4,063,503,779
Interest paid 841,783,482 837,948,378
Dividends received 13,871,853 11,590,456

See Notes to the Financial Statements.

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 2017 annual report

notes to the BANK OF COMMERCE

Financial Statements
NOTES TO THE FINANCIAL STATEMENTS

1. Reporting Entity

Bank of Commerce (the “Bank”) is a domestic corporation registered with the

Philippine Securities and Exchange Commission (SEC) on December 16, 1963. It
provides commercial banking services such as deposit products, loans and trade
finance, domestic and foreign fund transfers, foreign exchange, and trust services.

San Miguel Properties, Inc. (SMPI) and San Miguel Corporation Retirement
Plan (SMCRP) hold 39.94% and 39.89% ownership of the Bank’s issued shares,
respectively, as at December 31, 2017 and 2016, with each having significant
influence over the Bank.

The Bank’s original authority for its banking license was approved under Monetary
Board (MB) Resolution No. 1045 dated October 4, 1963 as The Overseas Bank of
Manila. The Bank received its Foreign Currency Deposit Unit (the “FCDU”) license
and launched its FCDU operations on September 23, 1983. The Bank received its
Expanded FCDU license on March 10, 2010. The Bank was renamed Commercial
Bank of Manila, Inc. on October 20, 1980, further renamed Boston Bank of the
Philippines on July 27, 1988, and finally, Bank of Commerce on November 28, 1991.

On July 13, 2010, the Bangko Sentral ng Pilipinas (BSP) approved the Bank’s
proposed change of location of its head office and the conversion of its former main
office branch as Ayala Avenue Branch and San Miguel Properties Centre Branch to
Main Office Branch. Subsequently on February 25, 2011, upon receipt of the related
SEC approval of its amended Articles of Incorporation and amended By-laws
reflecting this change, the Bank’s principal place of business was changed from Phil.
First Building, 6764 Ayala Avenue, Makati City to San Miguel Properties Centre,
No. 7, St. Francis Street, Mandaluyong City. The Bank has a total of 134 and
132 branches nationwide as at December 31, 2017 and 2016, respectively.

On January 17, 2012, the Board of Directors (BOD) of the Bank approved the
amendment of Article IV of its Amended Articles of Incorporation to extend the
corporate life of the Bank, before its expiry date of December 16, 2013, for another
50 years or up to December 16, 2063. The said Amended Articles of Incorporation of
the Bank were approved by the SEC on January 16, 2013.

2. Basis of Preparation

Statement of Compliance
The financial statements of the Bank have been prepared in compliance with
Philippine Financial Reporting Standards (PFRSs). PFRSs are based on
International Financial Reporting Standards issued by the International Accounting
Standards Board. PFRSs which are adopted and issued by the Philippine Financial
Reporting Standards Council (FRSC), consist of PFRSs, Philippine Accounting
Standards (PASs), and Philippine Interpretations.

The accompanying financial statements of the Bank were approved and authorized
for issue by the BOD on March 26, 2018.

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 LOOKING TOWARDS A BRIGHTER FUTURE

Basis of Measurement
The financial statements of the Bank have been prepared on a historical cost basis,
except for the following items:

Items Measurement bases

Financial assets and Financial liabilities at Fair value
fair value through profit or loss (FVPL)
Available-for-sale (AFS) securities Fair value1
Investment properties Fair value
Land and buildings included in Revalued amount
“Property and equipment - net”
Net retirement liability Present value of the defined benefit
obligation less fair value of plan assets
1
Except those whose fair value cannot be reliably measured thus, carried at cost less impairment.

Functional and Presentation Currency

The accompanying financial statements include accounts maintained in the Regular
Banking Unit (the “RBU”) and the FCDU. The functional currency of the RBU and the
FCDU is Philippine Peso (PHP) and United States Dollar (USD), respectively.
For financial reporting purposes, FCDU accounts and foreign currency-denominated
accounts in the RBU are translated to their equivalents in PHP (see Note 3, Foreign
Currency Transactions and Translation). The financial statements individually
prepared for these units are combined after eliminating inter-unit accounts.

All values are rounded to the nearest peso unless otherwise stated.

Presentation of Financial Statements

The Bank presents its statements of financial position broadly in order of liquidity.
An analysis regarding recovery of assets or settlement of liabilities within 12 months
after the reporting date (current) and more than 12 months after the reporting date
(non-current) is presented in Note 22.

3. Summary of Accounting Policies

The accounting policies set out below have been applied consistently to all years
presented in these financial statements except for the changes in accounting policies
as explained below.

Adoption of New or Revised Standards, Amendments to Standards and

Interpretations
The Bank has adopted the following amendments to standards starting
January 1, 2017 and accordingly, changed its accounting policies. Except as
otherwise indicated, the adoption of these amendments to standards did not have
any significant impact on the Bank’s financial statements.

 Disclosure initiative (Amendments to PAS 7, Statement of Cash Flows).

The amendments address financial statements users’ requests for improved
disclosures about an entity’s net debt relevant to understanding an entity’s cash
flows. The amendments require entities to provide disclosures that enable users
of financial statements to evaluate changes in liabilities arising from financing
activities, including both changes arising from cash flows and non-cash changes
- e.g., by providing a reconciliation between the opening and closing balances in
the statement of financial position for liabilities arising from financing activities.
The Bank has provided the required information in Note 36 to the financial
statements. As allowed under the transition provisions of the standards, the Bank
did not present comparative information for the year ended December 31, 2016.

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 2017 annual report

 Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to

PAS 12, Income Taxes). The amendments clarify that:

 the existence of a deductible temporary difference depends solely on a

comparison of the carrying amount of an asset and its tax base at the end of
the reporting period, and is not affected by possible future changes in the
carrying amount or expected manner of recovery of the asset;

 the calculation of future taxable profit in evaluating whether sufficient taxable

profit will be available in future periods excludes tax deductions resulting
from the reversal of the deductible temporary differences;

 the estimate of probable future taxable profit may include the recovery of
some of an entity's assets for more than their carrying amount if there is
sufficient evidence that it is probable that the entity will achieve this; and

 an entity assesses a deductible temporary difference related to unrealized

losses in combination with all of its other deductible temporary differences,
unless a tax law restricts the utilization of losses to deduction against income
of a specific type.

 Annual Improvements to PFRSs 2014 - 2016 Cycle. This cycle of improvements

contains amendments to three standards. Below is the amendment to PFRSs
effective for annual periods beginning on or after January 1, 2017, which is
relevant but has no significant effect on the financial statements of the Bank:

 Clarification of the scope of the standard (Amendments to PFRS 12,

Disclosure of Interests in Other Entities). The amendments clarify that the
disclosure requirements for interests in other entities also apply to interests
that are classified as held for sale or distribution. The amendments are
applied retrospectively, with early application permitted.

Foreign Currency Transactions and Translation

Foreign exchange differences arising from foreign currency transactions and
re-translations of foreign currency-denominated assets and liabilities to functional
currency are credited to or charged as part of “Foreign exchange gains - net”
account in the statements of income, except for differences arising from the
re-translations of AFS equity securities which are recognized directly in “Net change
in net unrealized loss on AFS securities” in other comprehensive income (OCI).

The books of accounts of the FCDU of the Bank are maintained in USD with various
transactions in foreign currencies. The foreign currency-denominated income and
expenses in the books of accounts are translated into their USD equivalent based on
the exchange rates prevailing at the time of transaction. The foreign
currency-denominated assets and liabilities at the reporting dates are translated into
USD using the Philippine Dealing System (PDS) closing rate at the reporting date.

The foreign currency-denominated monetary assets and liabilities in the RBU are
translated in PHP based on the PDS closing rate prevailing at end of the year and
foreign currency-denominated income and expenses, at the exchange rates
prevailing at transaction dates. 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. For reporting purposes, the FCDU income and
expenses are translated to their equivalent in PHP based on the PDS weighted
average rate (PDSWAR) for the reporting period. The assets and liabilities of the
FCDU at the reporting date are translated into PHP using PDS closing rate at the
reporting date.

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 LOOKING TOWARDS A BRIGHTER FUTURE

In accordance with the Manual of Regulations for Banks (MORB), BSP Circular No.
691 issued on June 23, 2010 and PAS 21, The Effects of Changes in Foreign
Exchange Rates, the exchange differences arising from translation (i.e. PDSWAR vs.
PDS closing rate) of FCDU accounts to PHP are taken directly to OCI under “Net
movement in cumulative translation adjustment” in the statements of comprehensive
income. Foreign exchange differences arising from remeasurement of foreign
currency-denominated monetary assets and liabilities in the RBU are credited or
charged to “Foreign exchange gains - net” account in the statements of income in the
year in which the rates change.

Financial Instruments - Initial Recognition and Subsequent Measurement

(i) Date of Recognition
Regular way purchases and sales of financial assets that require delivery of
assets within the time frame established by regulation or convention in the
marketplace are recognized on settlement date. Settlement date accounting
refers to: (a) the recognition of an asset on the day it is received by the Bank,
and (b) the derecognition of an asset and recognition of any gain or loss on
disposal on the day that it is delivered by the Bank. Deposit liabilities, bills
payable and loans and receivables are recognized when cash is received by the
Bank or advanced to the borrowers.

Derivatives are recognized on trade date basis. Trade date is the date when an
entity commits itself to purchase or sell an asset. Trade date accounting refers
to: (a) the recognition of an asset to be received or the liability to be paid on the
trade date, and (b) the derecognition of an asset that is sold, recognition of any
gain or loss on disposal and the recognition of a receivable from the buyer for
payment on the trade date.

(ii) Initial Recognition of Financial Instruments

All financial instruments, whether financial assets or financial liabilities, are
initially measured at fair value. Except for financial assets and financial liabilities
valued at FVPL, initial measurement includes transaction costs. The Bank
classifies its financial assets into financial assets at FVPL, AFS securities, held-
to-maturity (HTM) investments and loans and receivables, while financial
liabilities are classified as financial liabilities at FVPL and other financial liabilities.
The category depends on the purpose for which the financial instruments were
acquired or incurred and whether they are quoted in an active market and for
HTM investments, the ability and intention to hold the investment until maturity.
Management determines the category of its financial instruments at initial
recognition and where allowed and appropriate, re-evaluates such designation at
every reporting date.

(iii) Classification
(a) Financial Assets and Financial Liabilities at FVPL
Financial assets and financial liabilities at FVPL include financial assets held
for trading purposes, derivative instruments and financial assets or liabilities
designated at FVPL upon initial recognition.

a. Held for Trading

Trading assets and trading liabilities are initially recognized and
subsequently measured at fair value in the statements of financial
position, with transaction costs recognized in the statements of income.

Trading assets and trading liabilities are those that the Bank acquire or
incur principally for the purpose of selling or repurchasing in the near
term, or hold as part of a portfolio that is managed together for short-term
profit or position-taking.

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 2017 annual report

b. Derivatives Recorded at FVPL

The Bank is a counterparty to derivative contracts, such as currency
forwards and warrants. These derivatives are entered into as a service to
customers and as a means of reducing or managing and hedging the
Bank’s respective foreign exchange rate exposures, as well as for trading
purposes. Such derivative financial instruments are initially recorded at
fair value on the date when the derivative contracts are entered into and
are subsequently remeasured at fair value. Any changes in the fair value
of derivatives (except those accounted for as accounting hedges) are
recognized as part of “Trading and investment securities gains - net”
account in the statements of income. Derivatives are carried as derivative
financial assets when the fair value is positive and as derivative financial
liabilities when the fair value is negative.

For hedge accounting purposes, hedges 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 to variability in cash flows
attributable to an asset or liability or a forecasted transaction (cash flow
hedge). In 2017 and 2016, the Bank did not apply hedge accounting
treatment for any of its derivative transactions.

Embedded derivatives that are bifurcated from the host contracts are
also carried at fair value with fair value changes being reported in the
statements of income when the entire hybrid contracts (composed of
both the host contract and the embedded derivative) are not accounted
for as financial assets at FVPL, when their economic risks and
characteristics are not closely related to those of their respective host
contracts, and when a separate instrument with the same terms as the
embedded derivatives would meet the definition of a derivative.

The Bank assesses whether embedded derivatives are required to be

separated from the host contracts when the Bank first becomes a party to
the contract. Reassessment of embedded derivatives is only done when
there are changes in the contract that significantly modifies the
contractual cash flows.

As at December 31, 2017 and 2016, the Bank has no outstanding

embedded derivatives.

c. Financial Assets or Financial Liabilities Designated at FVPL

Financial assets or financial liabilities may be designated at FVPL on
initial recognition when any of the following criteria is 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.

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 LOOKING TOWARDS A BRIGHTER FUTURE

There are no financial assets and financial liabilities designated at

FVPL as at December 31, 2017 and 2016.

Financial assets and financial liabilities designated at FVPL are initially

recorded in the statements of financial position at fair value. Changes in
fair value are recognized as part of “Trading and investment securities
gains - net” account in the statements of income.

In general, interest earned or incurred is recorded as interest income or

interest expense, respectively, while dividend income is recorded under
“Miscellaneous income” account in the statements of income when the right
to receive payment has been established.

(b) 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 reclassifies or sells other than an insignificant amount of HTM
investments, the entire category would be tainted and reclassified as AFS
securities. The Bank would then be unable to categorize financial
instruments as HTM investments for the next two (2) years.

After initial measurement, these investments are subsequently measured at

amortized cost using the effective interest method, less any 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 investments’
effective interest rate (EIR). The amortization is included under “Interest
income on debt securities” account in the statements of income. Gains and
losses are recognized in the statements 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 under “Credit and impairment losses” account,
while reversals of impairment of such investments are recognized under
“Reversal of credit and impairment losses” account. The two accounts are
netted off in the statements of income. The effects of revaluing foreign
currency-denominated HTM investments are recognized in the statements of
income.

In 2014, the Bank has tainted its HTM investments when the management
decided to transfer certain government securities (GS) under “HTM
investments” account to “AFS securities” account. The tainting rule under
PAS 39, Financial Instruments: Recognition and Measurement prohibits the
Bank from classifying securities as HTM investments in the 2 succeeding
financial years: 2015 and 2016. The prohibition of classifying securities as
HTM investments ended as at December 31, 2016.

(c) Loans and Receivables

Loans and receivables include cash and other cash items (COCI) exclusive
of cash on hand, amounts due from BSP and other banks, interbank loans
receivable and securities purchased under resale agreement (SPURA), loans
and receivables from customers, sales contract receivables, unquoted debt
securities, accrued interest receivable, accounts receivable and other
receivables. These are 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 under any other financial asset category.

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After initial measurement, loans are subsequently measured at amortized

cost using the effective interest method, less any 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 recognized in the statements of income as interest
income.

When the estimated cash flows from the financial assets are revised, the
carrying amount of the financial asset shall be adjusted to reflect the actual
and revised estimated cash flows. The carrying amount shall be computed as
the present value of estimated future cash flows at the financial instrument’s
original EIR, or, when applicable, the revised EIR. Any impairment losses
shall be recognized as “Credit and impairment losses” account, while
reversals are recognized under “Reversal of credit and impairment losses”
account. The two accounts are netted off in the statements of income.

Where there is a subsequent increase in the estimate of future cash receipts

as a result of increased recoverability of those cash receipts, the effect of
that increase shall be recognized as an adjustment to the effective interest
rate from the date of the change in estimate rather than as an adjustment to
the carrying amount of the asset at the date of the change in estimate.

(d) AFS Securities

AFS securities are those which are designated as such or do not qualify to
be classified as financial assets at FVPL, HTM investments or loans and
receivables. They are purchased and may be held indefinitely, and may be
sold in response to liquidity requirements or changes in market conditions.
AFS securities include equity securities, money market instruments, GS and
private debt securities.

After initial recognition, AFS securities are subsequently measured at fair

value. The effective yield component of AFS debt securities is reported in the
statements of income. The impact of translation adjustment on foreign
currency-denominated AFS debt securities is also reported in the statements
of income. The unrealized gains and losses arising from the fair valuation of
AFS securities are excluded, net of tax, from the statements of income and
reported as OCI and presented under “Net unrealized losses on AFS
securities” account in the equity section of the statements of financial
position.

When the AFS securities are disposed, the cumulative gains or losses
previously recognized in equity are recognized in the period of disposal
under “Trading and investment securities gains - net” account in the
statements of income. Where the Bank holds more than one (1) investment
in the same security, these are deemed to be disposed on a first-in first-out
basis. Interest earned on holding AFS debt securities are reported as part of
“Interest income on debt securities” in the statements of income using the
effective interest method. Dividends earned on holding AFS equity securities
are recognized in the statements of income as “Miscellaneous income” when
the right to receive payment has been established. The losses arising from
impairment of such investments are recognized under “Credit and
impairment losses” account, while reversals of impairment of such
investments are recognized under “Reversal of credit and impairment losses”
account. The two accounts are netted off in the statements of income.

Investments in unquoted equity instruments whose fair value cannot be

reliably measured are carried at cost less impairment loss.

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(e) Other Financial Liabilities

Issued financial instruments or their components are classified as liabilities
under appropriate financial liability accounts 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, exchange financial
assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Bank, 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 its own equity securities. 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.

After initial measurement, borrowed funds and similar financial liabilities not
qualified as and not designated as FVPL, are subsequently measured at cost
or amortized cost using the effective interest 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. This accounting policy relates to
financial liabilities included under “Accrued interest, taxes and other
expenses” and “Other liabilities” accounts, except those that are due and
expected to be paid within 1 year from reporting date.

(iv) Reclassification of Financial Assets

A financial asset held for trading is reclassified out of the FVPL category when
the following conditions are met:

 The financial asset is no longer held for the purpose of selling or

repurchasing it in the near term; and

 There is a rare circumstance affecting the assumptions made by the Bank in

classifying the financial asset as part of FVPL.

A financial asset that is reclassified out of the FVPL category is reclassified at its
fair value on the date of reclassification. Any gain or loss previously recognized
in the statements of income is not reversed. The fair value of the financial asset
on the date of reclassification becomes its new cost or amortized cost, as
applicable.

Trading assets and trading liabilities are not reclassified subsequent to their initial
recognition, except non-derivative trading assets not designated at FVPL if they
are no longer held for the purpose of being sold or repurchased in the near term.

The Bank may also reclassify certain AFS securities to HTM investments when
there is a change of intention and the Bank has the ability to hold the financial
instruments to maturity.

Derecognition of Financial Assets and Financial Liabilities

(i) Financial Assets
A financial asset (or, where applicable a part of a financial asset or part of a
group of financial assets) is derecognized when:

 the rights to receive cash flows from the asset have expired;

 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

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 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 ownership
of the asset; or (b) has neither transferred nor retained the risks and rewards
of ownership of the asset but has transferred the control of 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 ownership of the asset nor
transferred control of 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.

(ii) Financial Liabilities

A financial liability is derecognized when the obligation under the liability is
discharged, cancelled or has expired. Where an existing financial liability is
replaced by another financial liability 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. The difference in the respective
carrying amounts is recognized in the statements of income.

Repurchase and Reverse Repurchase Agreements

Securities sold under repurchase agreements at a specified future date (“repos”) are
not derecognized from the statements of financial position. The corresponding cash
received, including accrued interest, is recognized in the statements of financial
position as liability of the Bank, reflecting the economic substance of such
transaction.

Conversely, securities purchased under agreements to resell at a specified future

date (“reverse repos”) are not recognized in the statements of financial position.
The corresponding cash paid, including accrued interest, is recognized in the
statements of financial position as securities purchased under resale agreement, and
is considered as a loan to the counterparty. The Bank is not permitted to sell or
re-pledge the collateral in the absence of default by the owner of the collateral.
The difference between the purchase price and resale price is treated as interest
income in the statements of income and is amortized over the life of the agreement
using the effective interest method.

Impairment of Financial Assets

The Bank assesses at each reporting date whether there is objective evidence that a
financial asset or a 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 1 or more events that occurred after the initial
recognition of the asset (an incurred “loss event”) and that loss event (or events)
have 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.

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(i) Financial Assets Carried at Amortized Cost

For financial assets carried at amortized cost, which include HTM investments
and loans and receivables, the Bank first assesses 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 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.

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 discounted at
the original EIR of the financial asset (excluding future credit and impairment
losses that have not been incurred). The carrying amount of the asset is reduced
through the use of an allowance account and the amount of loss is charged
against current operations. Interest income continues to be recognized based on
the original EIR of the asset. Loans and receivables and HTM investments,
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 impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognized such as an improvement in the debtor's credit rating, the
previously recognized impairment loss shall be reversed either directly or by
adjusting an allowance account. The reversal shall not result in a carrying
amount of the financial asset that exceeds what the amortized cost would have
been had the impairment not been recognized at the date the impairment is
reversed. The amount of the reversal shall be recognized under “Reversal of
credit and impairment losses” in the statements of income. Meanwhile,
collections from defaulted customers not yet written-off are charged-off against
“Allowance for credit and impairment losses” under “Loans and receivables - net”
in the statements of financial position.

If a future write-off is later recovered due to subsequent collections from the

defaulted customer, any amounts formerly charged against operations are
credited to “Recovery for charged-off asset” included under “Miscellaneous
income” account in the statements of income.

The estimated future cash flows are discounted at the financial asset’s original
EIR. If a financial asset carried at amortized cost 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.

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For the purpose of a collective evaluation of impairment, financial assets are

grouped on the basis of such credit risk characteristics as industry, past-due
status and term. 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.

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 of 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 the
future payments are likely to occur. The loans continue to be subject to an
individual or collective impairment assessment, calculated using the loan’s
original EIR. The difference between the recorded value of the original loan and
the present value of the restructured cash flows, discounted at the original EIR, is
recognized as “Reversal of credit and impairment losses” in the statements of
income.

(ii) AFS Securities

For AFS securities, the Bank assesses at each reporting date whether there is
objective evidence that a financial asset or group of financial assets is impaired.

In case of equity securities classified as AFS securities, this would include

a significant or prolonged decline in the fair value of the investments below its
cost. Where there is objective evidence of impairment, the cumulative loss –
measured as the difference between the acquisition cost and the current fair
value, less any impairment loss on the equity securities previously recognized in
the statements of income – is taken out from “Net unrealized losses on AFS
securities” under equity and recognized in the statements of income for the
period. Impairment losses recognized in the statements of income on equity
securities classified as AFS are not reversed through the statements of income
but recognized directly in equity as part of OCI.

If there is objective evidence that an impairment loss on financial assets carried

at cost had been incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial
asset. Such impairment losses for AFS securities carried at cost are not reversed
in subsequent periods.

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In the case of debt instruments classified as AFS securities, 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 recognized in the
statements of income as part of interest income. If, in subsequent year, 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, the impairment
loss is reversed through the statements of income for the period.

‘Day 1’ Difference
Where the transaction price in a non-active market is different from the fair value of
other observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable markets, the
Bank recognizes the difference between the transaction price and fair value
(a ‘Day 1’ difference) as part of current operations in the period when the asset is
acquired or the liability is incurred. In cases where the transaction price used is
based on inputs which are not observable, the difference between the transaction
price and model value is only recognized as part of current operations in the period
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.

Offsetting
Financial assets and financial liabilities are offset with the net amount reported in the
statements of financial position, 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, as the related assets and
liabilities are presented gross in the statements of financial position.

As at December 31, 2017 and 2016, the Bank did not have any financial instrument
that qualified for offsetting.

Income and expenses are presented on a net basis only when permitted by the
accounting standards.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include COCI,
amounts due from BSP and other banks and interbank loans receivable and SPURA
with original maturities of three (3) months or less from dates of placement and that
are subject to insignificant risk of changes in value.

COCI consist of cash on hand and checks and other cash items. Cash on hand
refers to the total amount of cash in the Bank’s vault in the form of notes and coins
under the custody of the cashier/cash custodian or treasurer, including notes in the
possession of tellers and those kept in automated teller machines (ATMs).

Financial Guarantees
In the ordinary course of business, the Bank issues financial guarantees in favor of
other parties. Financial guarantees are initially recognized in the financial statements
at fair value, and the initial fair value is amortized over the life of the financial
guarantee. The guaranteed liability is subsequently carried at the higher of the
amortized amount and the present value of any expected payment (when a payment
under the guarantee has become probable).

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Investment in Associate
An associate is an entity over which the Bank has significant influence but no control.
This is a rebuttable presumption in case the equity interest of the Bank in an entity is
between 20.0% and 50.0%. The Bank’s equity investment in BIC Management and
Consultancy, Inc. (formerly Bancommerce Investment Corporation) (BIC) represents
24.25% of BIC’s capital stock. Accordingly, the Bank’s equity investment in BIC is
treated as an investment in an associate accounted for under the equity method of
accounting since there is no indication of control.

Under the equity method, an investment in an associate is carried in the statements

of financial position at cost plus post-acquisition changes in the Bank’s share in the
net assets of the associate. Goodwill relating to an associate is included in the
carrying value of the investment and is not amortized. The Bank’s share in an
associate’s post-acquisition profits or losses is recognized in the statements of
income, and its share of post-acquisition movements in the associate’s equity
reserves is recognized directly in equity. When the Bank’s share of losses in an
associate equals or exceeds its interest in the associate, 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. Profits and losses
resulting from transactions between the Bank and an associate are eliminated to the
extent of the Bank’s interest in the associate.

The reporting period of BIC is on a calendar year basis. BIC’s accounting policies
conform to those used by the Bank for like transactions and events in similar
circumstances.

Property and Equipment

The initial cost of property and equipment comprises its purchase price, including
import duties and non-refundable purchase taxes after deducting trade discounts and
rebates, and any cost that are directly attributable to bringing the property and
equipment to its location and condition necessary for it to be capable of operating in
the manner intended by management. Expenditures incurred after the property and
equipment have been put to operation, such as repairs and maintenance, are
normally charged against operations in the period in which the costs are incurred.
In situations where it can be clearly demonstrated that the expenditures have
resulted in the increase in the future economic benefits to be obtained from the use
of an item of property and equipment beyond its originally assessed standard of
performance, the expenditures are capitalized as an additional cost of property and
equipment.

Land and building are stated at appraised values less any subsequent accumulated
depreciation on buildings and any subsequent impairment in value recognized after
the date of revaluation. Revaluations are made with sufficient regularity to ensure
that the fair value of a revalued asset does not differ materially from its carrying
amount. The fair value of the revalued asset is reassessed after 3 years from the
previous revaluation, except when indicators of significant movement in fair value
exist.

If the carrying amount of land and building is increased as a result of a revaluation,

the increase shall be recognized in OCI and accumulated in equity under
“Revaluation increment on property and equipment and investment properties - net
of tax” account in the statements of financial position. However, the increase shall be
recognized in the statements of income to the extent that it reverses a revaluation
decrease of the same asset previously recognized in the statements of income.

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If the carrying amount of land and building is decreased as a result of a revaluation,

the decrease shall be recognized in the statements of income. However, the
decrease shall be recognized in OCI to the extent of any revaluation gains existing in
the revaluation increment on property and equipment. The decrease recognized in
OCI reduces the amount accumulated in equity under “Revaluation increment on
property and equipment and investment properties - net of tax” account in the
statements of financial position.

An annual transfer from asset revaluation increment on property and equipment is

made for the difference between depreciation based on the revalued carrying
amount of the assets and depreciation based on the assets’ original cost.
Additionally, accumulated depreciation as at the revaluation date is eliminated
against the gross carrying amount of the asset and the net amount is restated to the
revalued amount of the asset. Upon disposal, any revaluation reserve relating to the
particular asset being sold is transferred in full directly to “Retained Earnings”
account in the statements of financial position.

Leasehold improvements and furniture, fixtures and equipment are carried at cost
less accumulated depreciation and amortization, and any impairment in value.

Depreciation and amortization are calculated on a straight-line basis over the

estimated useful life of the depreciable assets. Leasehold improvements are
amortized over the estimated useful life of the improvements or the terms of the
related lease, whichever is shorter.

Estimated useful lives of property and equipment are as follows:

Years
Buildings 50
Furniture, fixtures and equipment 3-7
Leasehold improvements 5 - 15

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
from derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is recognized in the
statements of income in the period the asset is derecognized.

The asset’s residual values, useful lives and methods of depreciation and
amortization are reviewed, and adjusted if appropriate, at each reporting date.

Investment Properties
Investment properties are composed of assets acquired from foreclosure or dacion
en pago and land and building that are vacant and no longer used for administrative
purposes (previously owner-occupied property), and are initially measured at cost
including transaction costs. An investment property acquired through an exchange
transaction is initially recognized at the fair value of the asset acquired unless the fair
value of each asset cannot be measured, in which case the investment property
acquired is measured at the carrying amount of the asset given up. Foreclosed
properties are classified under investment properties from foreclosure date.

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Subsequent to initial recognition, investment properties acquired from foreclosure or

dacion en pago are carried at fair value, which reflects the prevailing market
conditions at the reporting date. Gains or losses resulting from the changes in the fair
values of investment properties are recognized under “Fair value gain from
investment properties” account in the statements of income in the period in which
they arise. Fair value is determined by reference to market-based measurement. The
valuations performed by the appraisers are based on active market prices, adjusted
for any difference in the nature, location or condition of the specific property.

An investment property previously used as owner-occupied property is carried at fair

value and any difference at the date of the change between the carrying amount of
the property and its fair value shall be recognized as OCI and accumulated in equity
under “Revaluation increment on property and equipment and investment
properties - net of tax” in accordance with PAS 16, Property, Plant and Equipment,
even if the property was previously measured using the cost model under PAS 16.
Any existing or arising revaluation increment previously recognized in OCI is not
transferred to the statements of income at the date of transfer. However, on
subsequent disposal, any existing revaluation increment that was previously
recognized when the Bank applied the PAS 16 revaluation model to the property sold
is transferred in full to retained earnings.

Repairs and maintenance costs relating to investment properties are normally

charged to statements of income in the period in which the costs are incurred.

An investment property is derecognized when it has either been disposed of or when

it is permanently withdrawn from use and no future benefit is expected from its
disposal. Any gain or loss on derecognition of an investment property is recognized
in the statements of income under “Gains on foreclosure and sale of property and
equipment and foreclosed assets - net” account in the period of derecognition.

Transfers are made to investment property when, and only when, there is a change
in use, evidenced by the end of owner-occupation or the start of an operating lease
to another party. Transfers are made from investment property when, and only when,
there is a change in use, evidenced by the start of owner-occupation or of
development with a view to sell.

Other Properties Acquired

Other properties acquired, included under “Other assets” account in the statements
of financial position, include chattel mortgage properties foreclosed in settlement of
loan receivables. The Bank applies the cost model in accounting for these assets.
Under the cost model, these assets are carried at cost, which is the fair value at
acquisition date, less accumulated depreciation and any impairment in value.

Depreciation is computed on a straight-line basis over the estimated useful life of 3 to

5 years. The estimated useful life and the depreciation method are reviewed
periodically to ensure that the period and the method of depreciation are consistent
with the expected pattern of economic benefits from items of other properties
acquired.

The carrying values of the other properties acquired are reviewed for impairment
when events or changes in circumstances indicate that the carrying value may not be
recoverable. If any such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their recoverable
amounts (see accounting policy on Impairment of Non-financial Assets).

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An item of other properties acquired 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 recognized in the
statements of income under “Gains on foreclosure and sale of property and
equipment and foreclosed assets - net” account in the period of derecognition.

Intangible Assets
Intangible assets consist of software costs and branch licenses. Intangible assets
acquired separately, included under “Other assets” account in the statements of
financial position, are measured on initial recognition at cost. The cost of an
intangible asset acquired in a business combination is its fair value at the date of
acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortization and accumulated impairment losses. Internally generated
intangible assets are not capitalized but recognized in the statements of income in
the period when 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 economic useful 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 each reporting date.
Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are accounted for by changing the
amortization period or method, as appropriate, and treated as changes in accounting
estimates.

The amortization expense on intangible assets with finite lives is recognized in the
statements of income under the expense category consistent with the function of the
intangible asset. 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 statements of income in the period
when the asset is derecognized.

Branch Licenses
Branch licenses are granted by BSP and capitalized on the basis of the costs
incurred to acquire and bring to use in operation. Branch licenses are determined to
have indefinite useful lives and are tested for impairment annually.

Software Costs
Software costs include costs incurred relative to the purchase of the Bank’s software
and are amortized on a straight-line basis over 5 years. Software costs are carried at
cost less accumulated amortization and any impairment in value.

Non-current Assets Held for Sale

Non-current assets held for sale include assets with or without improvements that
are to be recovered principally through a sale transaction rather than through
continuing use, available for immediate distribution in their present condition, highly
probable to be sold within one year, and are included in the sales auction program
for the year. Assets held for sale are stated at the lower of its carrying amount and
fair value less costs to sell.

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The Bank measures a non-current asset that ceases to be classified as held for sale
at the lower of:

 the carrying amount before the non-current asset was classified as held for sale,
adjusted for any depreciation, amortization or revaluations that would have been
recognized had the non-current asset not been classified as held for sale; and

 the recoverable amount at the date of the subsequent decision not to sell.

The Bank includes any required adjustment to the carrying amount of a non-current
asset that ceases to be classified as held for sale in income from continuing
operations in the year in which the asset ceases to be held for sale.

Impairment of Investment in Associate and Non-financial Assets

Non-current Assets Held for Sale, Investment in Associate, Property and Equipment,
Other Properties Acquired and Intangible Assets under “Other Assets”
At each reporting date, the Bank assesses whether there is any indication of
impairment on non-current assets held for sale, investment in associate, property
and equipment, other properties acquired and intangible assets, or whether there is
any indication that an impairment loss previously recognized for an asset in prior
years may no longer exist or may have decreased. 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 net recoverable amount. The net 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 net recoverable amount is assessed as part of
the cash-generating unit to which it belongs. Value in use is the present value of
future cash flows expected to be derived from an asset or cash-generating unit while
fair value less cost to sell is the amount obtainable from the sale of an asset or cash-
generating unit in an arm’s length transaction between knowledgeable and willing
parties less any costs of disposal. Where the carrying amount of an asset (or cash-
generating unit) exceeds its net 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 against operations in the period in which it arises,

unless the asset is carried at a revalued amount, in which case the impairment loss
is charged first to the revaluation increment of the said asset.

An assessment is made at each reporting 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 net 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 net recoverable amount since the last
impairment loss was recognized. If that is the case, the carrying amount of the asset
is increased to its net recoverable amount. That increased amount cannot exceed
the carrying amount that would have been determined, net of depreciation and
amortization, had no impairment loss been recognized for the asset in prior years.
Such a reversal is recognized in the statements of income.

After such a reversal, the depreciation expense is adjusted in future years to allocate
the asset’s revised carrying amount, less any residual value, on a systematic basis
over its remaining useful life.

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Fair Value Measurement

The Bank measures financial instruments, such as, financial assets and financial
liabilities at FVPL, AFS securities, and non-financial assets such as investment
properties, property and equipment, and net retirement liability which is measured at
present value of the defined benefit obligation less fair value of plan assets, at fair
value at each reporting date. Also, fair values of financial instruments measured at
amortized cost are disclosed in Note 6.

Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either:

 In the principal market for the asset or liability, or

 In the absence of a principal market, in the most advantageous market for the
asset or liability.

The principal or the most advantageous market must be accessible to by the Bank.

The fair value of an asset or a liability is measured using the assumptions that
market participants would use when pricing the asset or liability, assuming that
market participants act in their best economic interest.

The fair value measurement of a non-financial asset takes into account a market
participant’s ability to generate economic benefits by using the asset in its highest
and best use or by selling it to another market participant that would use the asset in
its highest and best use.

The Bank uses valuation techniques that are appropriate in the circumstances and
for which sufficient data are available to measure fair value, maximizing the use of
relevant observable inputs and minimizing the use of unobservable inputs.

The Bank determines the policies and procedures for recurring fair value
measurement, such as for financial assets at FVPL, AFS securities, investment
properties, and land and building.

External valuers are involved for valuation of significant assets such as investment
properties and property and equipment. Selection criteria include market knowledge,
reputation, independence and whether professional standards are maintained.

For the purpose of fair value disclosures, the Bank has determined classes of assets
and liabilities on the basis of the nature, characteristics and risks of the asset or
liability and the level of the fair value hierarchy as explained in Note 6.

Revenue and Expense Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will
flow to the Bank and the income can be reliably measured. Expense is recognized
when a decrease in future economic benefit related to a decrease in an asset or an
increase of a liability has arisen to the Bank that can be measured reliably.

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Determining whether the Bank is Acting as a Principal or an Agent

The Bank assesses its revenue arrangements against the following criteria to
determine whether it is acting as a principal or an agent:

 whether the Bank has primary responsibility for providing the services;
 whether the Bank has discretion in establishing prices; and
 whether the Bank bears the credit risk.

The Bank has determined that it is acting as a principal in its revenue arrangements
except for activities where the Bank acts in a fiduciary or custodian capacity such as
nominee, trustee, or agent. The Bank recognizes income from fiduciary and
custodianship activities under “Service charges, fees and commission” account in the
statements of income.

The following specific recognition criteria must also be met before income and
expense are recognized:

Interest Income and Interest Expense

Interest income and interest expense are recognized in the statements of income for
all financial instruments measured at amortized cost and interest-bearing financial
instruments classified as AFS securities as they accrue, using the EIR. EIR 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 the contractual terms of the financial instruments including any fees
or incremental costs that are directly attributable to the instrument and are integral
part of the effective interest rate, but not future credit losses. The EIR is established
on initial recognition of the financial asset and liability and is not revised
subsequently. The carrying amount of the financial asset or liability is adjusted if the
Bank revises its estimates of payments or receipts. The change in carrying amount is
recognized in statements of income as interest income or expense.

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 applied to the new carrying amount.

Trading and Investment Securities Gains or Losses

Trading and investment securities gains or losses represent results arising from
disposal of AFS securities and trading activities (realized gains and losses) and from
the changes in fair value of financial assets and financial liabilities at FVPL
(unrealized gains or losses).

Service Charges, Fees and Commissions

Fees and commission income is recognized to the extent that an inflow of economic
benefits is probable and that the amount of revenue can be reliably measured. Fees
and commission income is recognized at the fair value of the consideration
received/receivable.

Fees and commission income and expenses that are integral to the EIR of a financial
asset or liability are included in the measurement of the EIR. If the fees are received
upfront, these are either recognized outright or amortized over time as the related
services are performed. Commitment fees for facilities where a drawdown is not
generally expected must be recognized over the facility period.

Service charges and penalties are recognized only upon collection or accrued when
there is reasonable degree of certainty as to their collectability. Fees earned for the
provision of services over a period of time are accrued over that period.

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Fees and commissions include loan upfront fees, commitment fees, guarantee fees,
investment fund fees, custodian fees, fiduciary fees, portfolio and other management
fees.

Fees and commission expense are recognized when incurred.

Dividends
Dividends are recognized when the Bank’s right to receive the dividends is
established.

Rental Income
Payments received under operating lease arrangements are recognized in the
statements of income on a straight-line basis over the term of the lease.

Employee Benefits
Short-term Employee Benefits
Short-term employee benefits are expensed as the related service is provided. A
liability is recognized for the amount expected to be paid if the Bank has presented
legal or constructive obligation to pay this amount as a result of past service provided
by the employer and the obligation can be estimated reliably.

Retirement Benefits
The Bank has a funded, noncontributory defined benefit plan administered by a
trustee. A defined benefit plan is a pension plan that defines an amount of pension
benefit that an employee will receive upon retirement, usually dependent on one or
more factors such as age, years of service and compensation. The retirement cost is
generally funded through payments to a trustee-administered fund, determined by
annual actuarial calculations.

The retirement benefits liability recognized in the statements of financial position in

respect of the defined benefits retirement plan (see Note 28) is the present value of
the defined benefits obligation at the valuation date less the fair value of plan assets.
The defined benefits obligation is calculated annually by an independent actuary
using the projected unit credit method. When the calculation results in a potential
asset for the Bank, the recognized asset is limited to the present value of economic
benefits available in the form of any future refunds from the plan or reductions in
future contributions to the plan.

The present value of the defined benefits obligation is determined by discounting the
estimated future cash outflows using interest rate on high quality government bonds
that are denominated in the currency in which the benefits will be paid and that have
terms to maturity approximating the terms of the related retirement liability.

Remeasurements of the defined benefit liability, which include actuarial gains and
losses, the return on plan assets (excluding interest) and the effect of the asset
ceiling (if any, excluding interest), are recognized immediately in OCI. The Bank
determines the net interest expense (income) on the retirement benefit liability
(asset) for the period by applying the discount rate used to measure the defined
benefit obligation at the beginning of the annual period to the retirement benefit
liability (asset), taking into account any changes in the retirement liability (asset)
during the period as a result of contributions and benefit payments. Net interest
expense and other expenses related to the defined benefit plan are recognized in the
statements of income.

When the benefits of a plan are changed or when a plan is curtailed, the resulting
change in benefit that relates to past service or the gain or loss on curtailment is
recognized immediately in the statements of income.

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The Bank recognizes gains and losses on the settlement of a defined benefit plan
when the settlement occurs.

Leases
The determination of whether an arrangement is, or contains a lease is based on the
substance of the arrangement and requires an assessment of whether the fulfillment
of the arrangement is dependent on the use of a specific asset or assets and 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 gave 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
Leases where the lessor retains substantially all the risks and benefits of ownership
of the asset are classified as operating leases. Operating lease payments are
recognized as an expense in the statements of income on a straight-line basis over
the lease term.

Bank as a Lessor
The Bank is also a party to operating leases as a lessor. Initial direct costs incurred
in negotiating operating leases are added to the carrying amount of the leased asset
and amortized over the lease term on the same basis as the rental income.
Contingent rentals are recognized as income in the period in which they are earned.

Income Taxes
Current Tax
Current income tax is the expected tax payable on the taxable income for the year
using the tax rates enacted at the reporting date.

Deferred Tax
Deferred tax is provided on all temporary differences at the reporting date between
the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes.

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Deferred tax liabilities are recognized for all taxable temporary differences. Deferred
tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits from the excess minimum corporate income
tax (MCIT) over regular corporate income tax (RCIT) and unused net operating loss
carry-over (NOLCO) to the extent that it is probable that taxable income will be
available against which the deductible temporary differences and carryforward
benefits of unused MCIT and unused NOLCO can be utilized. Deferred tax, however,
is not recognized when it arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting income nor taxable income.

The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable income will
be available to allow all or part of the deferred tax assets to be utilized.

Deferred tax assets and deferred tax liabilities are measured at the tax rates that are
applicable to the year 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
reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right
exists to offset current tax assets against current tax liabilities and deferred taxes
related to the same taxable entity and the same taxation authority.

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 charged
to current operations, 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 Assets and Contingent Liabilities

Contingent liabilities are not recognized in the financial statements but are disclosed
in the notes to the financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not
recognized in the financial statements but are disclosed in the notes to the financial
statements when an inflow of economic benefits is probable.

Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly,
to control or exercise significant influence over the other party in making financial
and operating decisions. Parties are also considered to be related if they are subject
to common control or common significant influence. Related parties may be
individual or corporate entities.

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Events After the Reporting Date

Post year-end events that provide additional information about the Bank’s position at
the reporting 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.

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 and Amendments to Standards Issued But Not Yet Adopted

A number of new standards and amendments to standards are effective for annual
periods beginning after January 1, 2017. The Bank has not applied the following new
or amended standards in preparing these financial statements. Unless otherwise
stated, none of these are expected to have significant impact on the Bank’s financial
statements.

The Bank will adopt these new standards and amendments to standards in the
respective effective dates as discussed below:

To be Adopted on or after January 1, 2018

 PFRS 9, Financial Instruments (2014). PFRS 9 (2014) replaces PAS 39 and

supersedes the previously published versions of PFRS 9 that introduced new
classifications and measurement requirements (in 2009 and 2010) and a new
hedge accounting model (in 2013). PFRS 9 includes revised guidance on the
classification and measurement of financial assets, including a new expected
credit loss model for calculating impairment, guidance on own credit risk on
financial liabilities measured at fair value and supplements the new general
hedge accounting requirements published in 2013. PFRS 9 incorporates new
hedge accounting requirements that represent a major overhaul of hedge
accounting and introduces significant improvements by aligning the accounting
more closely with risk management.

The new standard is to be applied retrospectively for annual periods beginning

on or after January 1, 2018 but comparative information is not compulsory. The
Bank plans to adopt the new standard on the mandatory effective date and will
not restate comparative information. The impact of the adoption of PFRS 9 will
be recognized in the opening January 1, 2018 Retained Earnings and OCI as if
the Bank had always followed the new requirements.

a. Classification and Measurement

PFRS 9 contains a new classification and measurement approach for
financial assets that reflects the business model in which assets are
managed and their cash flow characteristics. PFRS 9 includes three principal
classification categories for financial assets: measured at amortized cost, fair
value through other comprehensive income (FVOCI), or FVPL.

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A financial asset whose contractual terms give rise on specified dates to

cash flows that are solely payments of principal and interest on the principal
amount outstanding can be measured as either at amortized cost if the
financial asset is managed on a “hold to collect” basis or at FVOCI if it is
managed on a “hold to collect and for sale” basis. All financial assets not
classified as measured at amortized cost or FVOCI are measured at FVPL.
The Bank may irrevocably designate a financial asset as at FVPL if doing so
eliminates or significantly reduces an accounting mismatch that would
otherwise arise.

On initial recognition of an equity instrument that is not held for trading, the
Bank may irrevocably elect to present subsequent changes in fair value in
OCI.

The standard will affect the classification and measurement of financial

assets held as at January 1, 2018 as follows:

i. Trading assets and derivative assets, which are classified as held-for-

trading and measured at FVPL under PAS 39, will also be measured at
FVPL under PFRS 9.
ii. Loans and advances to banks and to customers that are classified as
loans and receivables and measured at amortized cost under PAS 39 will
generally be measured at amortized cost under PFRS 9.
iii. HTM investments measured at amortized cost under PAS 39 will
generally be measured at amortized cost under PFRS 9.
iv. Debt securities that are classified as AFS securities under PAS 39 are
expected to be classified under PFRS 9 as either at amortized cost or
FVOCI with recycling to profit or loss depending on how the debt
securities will be managed by the Bank.
v. Equity securities that are classified as AFS securities under PAS 39 are
expected to be measured at FVPL, except for certain equity securities
that will be designated as FVOCI with no recycling to profit or loss.

The Bank does not expect any significant change in the classification and
measurement of its financial liabilities held as at January 1, 2018.

b. Impairment
PFRS 9 replaces the “incurred loss” model in PAS 39 with a forward-looking
“expected credit loss” (ECL) model. The new impairment model applies to all
debt financial assets that are not measured at FVPL, including loan
commitments and financial guarantee contracts but not to equity securities.

Expected credit loss methodology

Under PFRS 9, the Bank shall measure ECL in a way that reflects an
unbiased and probability-weighted amount that is determined by evaluating a
range of possible outcomes, the time value of money and reasonable and
supportable information about past events, current conditions and forecasts
of future economic conditions. PFRS 9 requires a loss allowance to be
recognized at an amount equal to either 12-month ECL or lifetime ECL for
those financial instruments which have experienced a significant increase in
credit risk (SICR) since initial recognition. Lifetime ECLs are the ECLs that
result from all possible default events over the expected life of a financial
instrument, whereas 12-month ECLs are the portion of ECLs that result from
default events that are possible within 12 months after the reporting date.
Under the “incurred loss” model in PAS 39, lifetime ECLs are recognized only
when there is objective evidence of impairment, while under the ECL model
in PFRS 9, the “incurred loss event” is eliminated and lifetime ECLs are
recognized earlier.

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Staging assessment
For non-impaired financial instruments:
 Stage 1: Comprised of performing financial instruments which have not
experienced significant increase in credit risk since initial recognition.
This stage recognizes a 12-month ECL for the financial instruments
categorized under this group.

 Stage 2: Comprised of under-performing financial instruments which

have experienced a SICR since initial recognition. This stage recognizes
a lifetime ECL for the financial instruments categorized under this group.

For credit-impaired financial instruments:

 Stage 3: Comprised of non-performing financial instruments with one or
more loss events occurring since the original recognition. Financial
instruments falling within this stage have objective evidence of
impairment thus requiring the recognition of lifetime ECL.

Definition of “default” and “cure”

The Bank generally classifies a financial instrument as in default when it is
credit impaired, or becomes past due on its contractual payments for more
than 90 days. In assessing whether a borrower is in default, the Bank will
consider indicators that are qualitative (i.e. breach of covenant) and
quantitative (i.e. overdue status and non-payment on another obligation of
the same borrower/issuer to the Bank). An instrument is considered to be no
longer in default (i.e. to have cured) when there is sufficient evidence to
support that full collection of principal and interests is probable and payments
are received for at least six (6) months. This definition is consistent with the
definition of non-performing loans (NPL) under BSP Circular No. 941,
Amendments to the Regulations on Past Due and Non-Performing Loans.

Credit risk at initial recognition

The Bank makes full use of its Internal Credit Risk Rating System (ICRRS) to
determine the credit risk of exposures at initial recognition. The ICRRS is
devised to assess the level of risk associated with each borrower using a
combination of both quantitative and qualitative factors. Subsequent credit
assessments and approvals are also considered in determining the credit
risk.

Significant increase in credit risk

The definition for the SICR will vary by portfolio. The determination of the
change in credit risk includes both quantitative and qualitative factors.

The credit risk of rated financial instruments is deemed to have increased

significantly since initial recognition if the credit worthiness of the
counterparty deteriorated, exhibited by a significant credit rating downgrade,
which suggests an inherent credit weakness. For unrated financial
instruments, the significant increase in credit risk is measured using the
number of days past due and a specific threshold. This is also consistent
with the staging criteria presented above.

ECL parameters and methodologies

ECL is a function of the following credit risk parameters: i) Probability of
Default (PD), ii) Loss Given Default (LGD), and iii) Exposure at Default
(EAD).

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The PD is the measure of likelihood that a borrower will be unable to settle

his or her obligation/s on time and in full. The PD can be modelled to
estimate the probability of going into default within a 12-month horizon and/or
lifetime horizon using historical data as well as future economic outlooks. The
Bank uses its internal credit risk rating system to segment exposures with
homogenous risk characteristics. PD estimate being one of the fundamental
basis for credit risk modelling, plays a vital role in the estimation of expected
credit losses for the Bank.

LGD measures the percentage amount of credit losses incurred and not
recovered at the time of default. LGD estimation can be modelled based on
historical cash flow recoveries paired with supportable information about
future economic condition. Calculating the LGD may be pretty straightforward
for some assets but most of the time, several parameters need to be
considered in order to come up with a more reliable LGD estimate including
the collateral data.

EAD is defined as the outstanding amount of credit exposure at the time of

default. EAD is estimated by modelling the historical data on both the actual
drawn and undrawn amounts for each credit facility. This provides a more
robust estimate of the total amount to the Bank is exposed.

The Bank is in the process of completing its assessment of the impact of PFRS 9
on its financial statements and is yet to have reasonable estimates of quantitative
impact. The Bank expects that it could have a significant impact on its allowance
for credit and impairment losses due to changes brought by the new ECL
requirements of PFRS 9.

 PFRS 15, Revenue from Contracts with Customers replaces PAS 11,
Construction Contracts, PAS 18, Revenue, IFRIC 13, Customer Loyalty
Programmes, IFRIC 18, Transfer of Assets from Customers and SIC-31,
Revenue - Barter Transactions Involving Advertising Services. The new standard
introduces a new revenue recognition model for contracts with customers which
specifies that revenue should be recognized when (or as) a company transfers
control of goods or services to a customer at the amount to which the company
expects to be entitled. Depending on whether certain criteria are met, revenue is
recognized over time, in a manner that best reflects the company’s performance,
or at a point in time, when control of the goods or services is transferred to the
customer. The standard does not apply to insurance contracts, financial
instruments or lease contracts, which fall within the scope of other PFRS. It also
does not apply if 2 companies in the same line of business exchange non-
monetary assets to facilitate sales to other parties. Furthermore, if a contract with
a customer is partly in the scope of another PFRS, then the guidance on
separation and measurement contained in the other PFRSs takes precedence.

The new standard is effective for annual periods beginning on or after

January 1, 2018, with early adoption permitted.

The Bank is in the early stages of assessing the potential impact on its financial
statements resulting from the application of PFRS 15 and is yet to have
reasonably estimable information on such impact. However, the Bank expects
that it could have an impact on the Bank’s service fees and commissions due to
the changes in the revenue recognition model under PFRS 15.

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 Transfers of Investment Property (Amendments to PAS 40, Investment property)

amends the requirements on when an entity should transfer a property asset to,
or from, investment property. A transfer is made when and only when there is an
actual change in use - i.e., an asset meets or ceases to meet the definition of
investment property and there is evidence of the change in use. A change in
management intention alone does not support a transfer.

The amendments are effective for annual periods beginning on or after

January 1, 2018, with early adoption permitted. An entity may apply the
amendments to transfers that occur after the date of initial application and also
reassess the classification of property assets held at that date or apply the
amendments retrospectively, but only if it does not involve the use of hindsight.

 Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance

Consideration. The amendments clarifies that the transaction date to be used for
translation of foreign currency transactions involving an advance payment or
receipt is the date on which the entity initially recognizes the prepayment or
deferred income arising from the advance consideration. For transactions
involving multiple payments or receipts, each payment or receipt gives rise to a
separate transaction date. The interpretation applies when an entity pays or
receives consideration in a foreign currency and recognizes a non-monetary
asset or liability before recognizing the related item.

The interpretation is effective for annual periods beginning on or after

January 1, 2018, with early adoption permitted.

To be Adopted on or after January 1, 2019

 PFRS 16, Leases supersedes PAS 17, Leases and the related Philippine
Interpretations. The new standard introduces a single lease accounting model for
lessees under which all major leases are recognized on-balance sheet, removing
the lease classification test. Lease accounting for lessors essentially remains
unchanged except for a number of details including the application of the new
lease definition, new sale-and-leaseback guidance, new sub-lease guidance and
new disclosure requirements. Practical expedients and targeted reliefs were
introduced including an optional lessee exemption for short-term leases (leases
with a term of 12 months or less) and low-value items, as well as the permission
of portfolio-level accounting instead of applying the requirements to individual
leases. New estimates and judgmental thresholds that affect the identification,
classification and measurement of lease transactions, as well as requirements to
reassess certain key estimates and judgments at each reporting date were
introduced.

PFRS 16 is effective for annual periods beginning on or after January 1, 2019.

Earlier application is permitted for entities that apply PFRS 15 at or before the
date of initial application of PFRS 16.

The Bank will be assessing the potential impact of PFRS 16 and plans to adopt
this new standard on leases on the required effective date.

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 Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

clarifies how to apply the recognition and measurement requirements in PAS 12
when there is uncertainty over income tax treatments. Under the interpretation,
whether the amounts recorded in the financial statements will differ to that in the
tax return, and whether the uncertainty is disclosed or reflected in the
measurement, depends on whether it is probable that the tax authority will accept
the Company’s chosen tax treatment. If it is not probable that the tax authority
will accept the Company’s chosen tax treatment, the uncertainty is reflected
using the measure that provides the better prediction of the resolution of the
uncertainty - either the most likely amount or the expected value. The
interpretation also requires the reassessment of judgements and estimates
applied if facts and circumstances change - e.g., as a result of examination or
action by tax authorities, following changes in tax rules or when a tax authority’s
right to challenge a treatment expires.

The interpretation is effective for annual periods beginning on or after

January 1, 2019. Earlier application is permitted.

 Prepayment Features with Negative Compensation (Amendments to PFRS 9).

The amendments cover the following areas:

 Prepayment features with negative compensation. The amendment clarifies

that a financial asset with a prepayment feature could be eligible for
measurement at amortized cost or fair value through other comprehensive
income irrespective of the event or circumstance that causes the early
termination of the contract, which may be within or beyond the control of the
parties, and a party may either pay or receive reasonable compensation for
that early termination.

The amendment is effective for annual periods beginning on or after

January 1, 2019 with early adoption permitted. Retrospective application is
required, subject to relevant transitional reliefs.

 Modification of financial liabilities. The amendment to the Basis for

Conclusions on PFRS 9 clarifies that the standard provide an adequate basis
for an entity to account for modifications and exchanges of financial liabilities
that do not result in derecognition and the treatment is consistent with the
requirements for adjusting the gross carrying amount of a financial asset
when a modification does not result in the derecognition of the financial asset
- i.e. the amortized cost of the modified financial liability is recalculated by
discounting the modified contractual cash flows using the original effective
interest rate and any adjustment is recognized in profit or loss.

If the initial application of PFRS 9 results in a change in accounting policy for

these modifications or exchanges, then retrospective application is required,
subject to relevant transition reliefs.

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4. Critical Judgments and Estimates

The preparation of financial statements in conformity with PFRSs requires

management to make judgments, estimates and assumptions that affect the
application of policies and reported amounts of assets, liabilities, income and
expenses, and disclosures of contingent assets and contingent liabilities.
The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgments about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognized in the period in which the estimate
is revised if the revision affects only that period or in the period of the revision and
future periods if the revision affects both current and future periods.

Significant Judgments
In the process of applying the Bank’s accounting policies, management has made
the following significant judgments, apart from those involving estimations, which
may have the most significant effect on amounts recognized in the financial
statements:

(a) 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;

b) the currency in which funds from financing activities are generated; and

c) the currency in which receipts from operating activities are usually retained.

(b) Embedded Derivatives

Derivatives may be embedded in another contractual arrangement (a “host

contract”). The Bank accounts for an embedded derivative separately from the
host contract when the host contract is not itself carried at fair value through
profit or loss, the terms of the embedded derivative would meet the definition of a
derivative if they were contained in a separate contract, and the economic
characteristics and risks of the embedded derivatives are not closely related to
the economic characteristics and risks of the host contract. Separated embedded
derivatives are accounted for depending on their classification, and are
presented in the statements of financial position under “Financial Assets at
FVPL” account (see Note 8).

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(c) 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.

(d) Provisions and Contingencies

The Bank, in the ordinary course of business, sets up appropriate provisions for
its present legal or constructive obligations in accordance with its policies on
provisions and contingencies. Judgment is exercised by management to
distinguish between provisions and contingencies (see Note 32).

(e) Operating Leases

Bank as Lessor
The Bank has entered into commercial property lease agreements for its
property and equipment, and investment properties. The Bank has determined
that it retains all the significant risks and rewards of ownership of these
properties which are leased out under operating lease agreements.

Bank as Lessee
The Bank has entered into operating lease agreements for the premises it uses
for its operations. The Bank has determined that all significant risks and rewards of
ownership of the properties it leases on operating lease arrangements are retained
by the lessor.

In determining whether or not a lease should be treated as an operating lease,

the retention of ownership title to the leased property, period of lease contract
relative to the estimated economic useful life of the leased property and bearer of
executory costs, among others, are considered.

Estimates
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that may have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial
period are discussed below:

(a) Fair Value of Financial Instruments

Where the fair values of financial assets and financial liabilities (including
derivatives) recognized in the statements of financial position cannot be derived
from active markets, they are determined using a variety of valuation techniques
that include the use of mathematical models. The inputs to these models are
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. Changes in
assumptions about these factors could affect the reported fair values of financial
instruments.

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(b) Impairment of AFS Securities

The Bank classifies certain financial assets as AFS securities and recognizes
movements in their fair values as OCI. When their fair values decline,
management makes assumptions about the decline in value to determine
whether it is an objective evidence of impairment. The recognition of an
impairment loss, representing the net unrealized losses previously reported as
part of equity, may be appropriate when there is evidence of deterioration in the
financial health, industry and sector performance, and operational and financing
cash flows of the investee.

The Bank treats AFS equity securities 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
20.0% or more of the original cost of the investment, and “prolonged” if greater
than 6 months. In addition, the Bank evaluates other factors, including normal
volatility in share prices for quoted equity securities, and the future cash flows
and the discount factors for unquoted equities.

The Bank determines that AFS debt securities are impaired based on the same
criteria as loans and receivables.

The carrying values of AFS securities and the related allowance for impairment
losses are disclosed in Notes 9 and 17.

(c) Credit and Impairment Losses on Loans and Receivables

The Bank reviews its loans and receivables portfolio to assess impairment at
least on an annual basis or more frequently as deemed necessary. Loans and
receivables that are individually significant are assessed to determine whether
objective evidence of impairment exists on an individual basis, while those that
are not individually significant are assessed for objective evidence of impairment
on a collective basis. In determining whether an impairment loss should be
recognized in the statements of income, the Bank makes judgments as to
whether there are any observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of loans and
receivables. This evidence may include observable data indicating that there has
been an adverse change in the payment status of borrowers in a group, or
national or local economic conditions that correlate with defaults on assets in the
group. Management uses estimates based on historical loss experience for
assets with credit risk characteristics and objective evidence of impairment
similar to those in the portfolio when scheduling its future cash flows. The
methodology and assumptions used for estimating both the amount and timing of
future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.

The Bank determines the appropriate allowance for individual accounts whose
outstanding balance as at reporting date is either past due or under litigation as
at reporting date.

Based on the allowance provided by the Bank for credit and impairment losses,
management believes that the Bank has sufficient allowance to cover any losses
that the Bank may incur from non-collection or non-realization of its receivables.

The carrying values of loans and receivables and the related allowance for credit
losses are disclosed in Notes 11 and 17.

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(d) Impairment of Investment in Associate and Non-financial Assets

Non-current Assets Held for Sale, Investment in Associate, Property and

Equipment, Other Properties Acquired, and Intangible Assets under “Other
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;

 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 net recoverable amount. Net recoverable amounts are
estimated for individual assets or, if it is not possible, for the cash-generating unit
to which the asset belongs.

The carrying values of non-current assets held for sale, investment in associate,
property and equipment, other properties acquired and intangible assets under
“Other Assets” are disclosed in Notes 12, 13, 14 and 16, respectively.

(e) Estimated Useful Lives of Property and Equipment, Other Properties Acquired
and Software Costs

The useful lives and depreciation and amortization method are reviewed
periodically to ensure that the period and method of depreciation and
amortization are consistent with the expected pattern of economic benefits from
property and equipment and computer software.

The estimated useful lives of property and equipment, other properties acquired
and software costs are disclosed in Note 3.

(f) Fair Value Determination of Investment Properties and Revaluation of Property

and Equipment

The Bank carries its investment properties at fair value, with changes in fair value
being recognized in the statements of income for investment properties acquired
from foreclosure or dacion en pago and in the OCI for investment properties
previously used as owner-occupied property. In addition, it measures land and
building under “Property and equipment - net” in the statements of financial
position at revalued amounts with changes in appraised value being recognized
in OCI. Fair value of investment properties is derived on the basis of recent sales
of similar properties in the same areas where the investment properties are
located taking into account the economic conditions prevailing at the time of the
valuation made. The Bank engaged various accredited independent appraisers
to determine the appraised value of land and building on a periodic basis. The
valuations performed by the appraisers are based on market prices of similar
properties in the same areas the land and building are located, adjusted for any
difference in the nature, location or condition of the specific property.

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The appraised value of land and building and the fair value of investment
properties are disclosed in Notes 14 and 15, respectively.

(g) Recognition of Deferred Tax Assets

Deferred tax assets are recognized for all unused tax losses to the extent that it
is probable that sufficient taxable income will be available against which the
related tax benefits can be utilized. Significant management judgment is required
to determine the amount of deferred tax assets that can be recognized, based
upon the forecasted timing and amount of future taxable income together with
future tax planning strategies.

The estimates of future taxable income indicate that certain temporary

differences will be realized in the future. The recognized and the unrecognized
deferred tax assets are disclosed in Note 31.

(h) Present Value of Retirement Benefit Obligation

The cost of retirement benefits and other post-employment benefits are

determined using actuarial valuation. The actuarial valuation involves making
assumptions about discount rates, future salary increases and mortality rates.
Due to the long-term nature of the plan, such estimates are subject to significant
uncertainty.

The assumed discount rates were determined using the prevailing market yields
on Philippine government bonds with terms consistent with the expected
employee benefit payout as at reporting date. The present value of the Bank’s
retirement obligation and the fair value of plan assets are disclosed in Note 28.

(i) Contingencies

The Bank is currently involved in various legal proceedings. The estimate of the
probable costs for the resolution of these claims has been developed by
management, in consultation with the legal counsels handling the Bank’s legal
defense in these matters, and is based upon an analysis of potential results.
The Bank’s management currently does not believe that these proceedings will
have a material adverse effect on its financial position. It is possible, however,
that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of the strategies relating to these proceedings
(see Note 32).

5. Financial Risk Management Objectives and Policies

Introduction
The business of banking involves financial risks which must be measured, monitored
and managed by an effective risk management system embedded throughout the
whole organization. Effective risk management ensures that financial risks are
properly identified, assessed, measured and managed. The diligent monitoring and
management of all financial risks, notably credit, market, and liquidity risk require the
development of a risk-conscious culture that will influence daily business activities
and decision-making.

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The Bank believes that effective risk management will not only minimize potential or
actual losses but will also optimize earnings by correctly pricing its products and
services commensurate to the risks taken. Its risk mission and objectives are to
consistently and accurately measure risks, to always consider risk and return in
evaluating transactions and exposures while preserving and maintaining adequate
risk-based capital and to ensure adequate returns on such capital. Risk mitigation
strategies form an integral part of risk management activities.

Risk Management Structure

The BOD is ultimately responsible for identifying and controlling risks; however, there
are separate independent units at the BOD and management levels, responsible for
managing and monitoring financial risk.

BOD
The BOD has the responsibility of promoting the highest standards of ethics and
integrity. The BOD has management oversight for establishing and maintaining a
sound risk management system for the whole institution. The BOD approves and
reviews the institutional tolerance for risks, business strategies and risk philosophy.

Corporate Governance Committee

The Corporate Governance Committee is tasked to assist the BOD in fulfilling its
corporate governance responsibilities and in providing oversight in the
implementation of the Bank’s Compliance System.

Related Party Transactions Committee (RPTCom)

The RPTCom assists the BOD in fulfilling its corporate governance responsibility with
respect to related parties and transactions with them. It covers proper identification of
related parties, recording and vetting of transactions with them including disclosures
in financial reports, which must be consistent with relevant legal and regulatory
requirements, and Bank policies.

Audit Committee
The Audit Committee represents and assists the BOD in its general oversight of the
Bank’s financial reporting policies, practices and control and internal and external
audit functions. It oversees the relationship with the independent external auditors,
receives information and provides advice, counsel and general direction, as it deems
appropriate, to management and the auditors, taking into account the information it
receives, discussions with the auditor, and the experience of the Committee’s
members in business, financial and accounting matters.

Board Risk Oversight Committee (BROC)

The BROC, a sub-committee of the BOD, oversees the Bank’s risk management
system. It has the power to approve procedures for implementing risk and capital
management policies. The BROC shall assist the BOD with its oversight function to
identify and evaluate risk exposures, develop risk management strategies,
implement and periodically review the risk management framework and promote a
risk management culture in the Bank.

Risk Management Division (RSK)

The RSK is responsible for the creation and oversight of the Bank’s corporate risk
policy. It is responsible for making recommendations to the BOD on corporate
policies and guidelines for risk measurement, management and reporting. It also
reviews the system of risk limits, compliance to said limits and validates the reports
of the risk-taking personnel. The RSK reports to the BROC.

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Asset Liability Management Committee (ALCO)

The ALCO shall be responsible for setting, developing and implementing the Bank’s
Asset Liability Management and hedging policy. It also reviews the allocation of
resources, pricing products and foreign exchange position of the Bank.

ICAAP Steering Committee (ICAAPcom)

The ICAAPcom is responsible for overseeing the Bank’s ICAAP to ensure that
mandated minimum capital requirements are met and that capital levels are sufficient
to cover the Bank’s risk exposures driven by its strategic plans.

Credit and Collections Committee (Crecom)

The Crecom is responsible for the evaluation and approval of credit proposals based
on a hierarchy of delegated credit authorities from the BOD. It is also tasked to
review other credit-related matters, including amendments or revisions to existing
policies as well as proposed credit risk policies for BOD approval. They are tasked
with formulating standards for credit evaluation/analysis, diligence in credit
assessment and reporting disclosure. It recommends credit risk management
policies for BOD approval.

Internal Audit Division

Internal Audit Division is an independent unit of the Bank that conducts objective
assurance and consulting activities designed to add value and improve the Bank’s
operations. It helps the Bank accomplish its objectives by bringing a systematic,
disciplined approach to examine, evaluate and improve the effectiveness of risk
management, internal control and governance processes of the Bank.

Legal Services Division

The primary functions of the Bank’s Legal Services Division are composed of
rendering legal advice and document review to ensure that relevant laws are
complied with, the Bank’s interest is duly protected, and identified risks are either
eliminated or minimized and imparted to responsible units of the Bank. The Division
also handles cases filed for and against the Bank.

Compliance Division
The Compliance Division oversees the management of the Bank’s compliance with
regulatory requirements. It is responsible for implementing the Bank’s Compliance
Program and the Money Laundering and Terrorist Financing Prevention Program.

Risk Measurement and Reporting Systems

The Bank’s capital adequacy is determined by measuring credit, market and
operational risk exposures using standardized or basic approaches as suggested by
BSP. Risk exposures are measured both individually and in aggregate amounts.

Risk measurements are done by respective risk-taking personnel and groups but are
independently validated, analyzed and reported by the RSK.

Market risks are measured by mark-to-market and Value-at-Risk analyses on the

overall exposure, on a portfolio level, and on each individual financial instrument.
These exposures are also subjected to stress testing using a variety of historical and
hypothetical scenarios.

Quality of credit risks are measured via risk classifications of accounts using ICRRS
together with BSP risk classification of borrowing accounts. Senior management
evaluates the required provisions for loan losses based on these data on a monthly
basis. All risk information are processed, analyzed and consolidated for proper
reporting to the BOD through the BROC and Audit Committee as well as the Senior
Executive Team of the Bank.

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Actual and estimated risk exposures/losses at Treasury, Credit Management,

Consumer Business and Credit Cards, Operations and Information Technology,
Trust and Branches are consolidated for regular reporting. Reports include, among
others, portfolio mix, liquidity and maturity matching, interest rate matching, trading
gains and losses, sensitivity and back-testing results, top borrowers, non-performing
assets and loans, industry exposures, large exposures, fines and penalties,
employee fraud cases, service level of major information technology systems and
ATMs.

Risk Mitigation
To mitigate market risk exposures, other financial instruments are used to manage
exposures resulting from changes in foreign currency and interest rate risk. The
Bank also observes limits on positions, losses, and market sensitivities to contain
these risk exposures.

The Bank maintains a capital adequacy ratio (CAR) of ten percent (10.0%) or better
at all times, for regulatory compliance purposes. Internally, based on its ICAAP, the
Bank maintains an Internal CAR threshold of 12% which is the minimum level of
CAR acceptable to the Board and a 14% Management Action Trigger which shall
serve as alert and will trigger discussions among Senior Management and the Board
for the necessary strategic direction or tactical steps related to the Bank’s capital
contingency plan.

Risk Concentration
The Bank manages loan concentration by controlling its mix of counterparties or
borrowers in accordance with conditions permitted by regulators. Borrowers that are
considered large in size are regularly monitored and reported to the BROC.
Also, the limits for exposure on specific economic activity groups are in place
allowing the Bank to maintain a strategic breakdown of credit risk of different
segments. Having these controls in place allows the Bank to proactively monitor
exposure status and act upon limit breaches whenever necessary.

Credit Risk
The Bank considers credit risk as the possibility of loss arising from the
counterparty’s or customer’s inability or unwillingness to settle his/her obligations on
time or in full as expected or previously contracted.

The Bank has in place a credit policy manual that defines all practices, policies and
procedures regarding loan activities from identification of target markets, credit
initiation, documentation and disbursement, loan administration, remedial
management and loan unit organization and staffing. Also, it has in place credit
approval authorities and respective limits duly approved by the BOD.

The Bank’s primary element of credit risk management is the detailed risk
assessment of every credit exposure associated with the counterparty. Risk
assessment procedures consider both the creditworthiness of the counterparty and
the risks related to the specific type of underlying credit exposures as mandated by
circulars issued by BSP. The risk assessment not only affects the structuring of the
transaction and the outcome of the credit decision, but also influences the monitoring
procedure applied to the ongoing exposures.

There has been no material change to the Bank’s exposure to credit risk or the
manner in which it manages and measures the risk since prior financial year.

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Derivative Financial Instruments

The Bank enters into currency forward contracts to manage its foreign exchange
risks. Currency forwards are contractual agreements to buy or sell a specified
currency at a specific price and date in the future. These derivatives are accounted
for as non-hedges, with the fair value changes being reported in the statements of
income for the period under “Foreign exchange gains - net” account. Credit risk in
respect of derivative financial instruments is limited to those with positive fair values,
which are reported as financial assets at FVPL.

Credit-related Commitment Risks

The Bank makes available to its customers guarantees which may require the Bank
to make payment on their behalf. Such payments are collected from customers
based on the terms of the letters of credit. They expose the Bank to risks similar to
loans and these are mitigated by the same control processes and policies.

Credit Risk Exposures

The table below shows the Bank’s maximum exposure for receivables from
customers and sales contract receivables, net of unearned interest income and
allowance for credit and impairment losses, before and after collateral to credit risk
as at December 31, 2017 and 2016:
December 31, 2017 December 31, 2016
Maximum Exposure Maximum Exposure
After Financial Effect After Financial Effect
Before of Collateral or Before of Collateral or
Collateral Credit Enhancement Collateral Credit Enhancement
Receivables from customers:
Term loans P50,041,066,198 P46,120,809,685 P38,359,254,539 P33,814,301,380
Housing loans 5,297,974,117 3,176,187,491 3,741,296,674 3,292,025,040
Auto loans 2,995,660,391 876,607,131 2,543,549,166 376,339,689
Bills purchased, import bills
and trust receipts 1,297,355,954 1,270,787,129 1,176,598,301 1,172,310,909
Agri-agra loans 1,058,708,467 1,003,121,320 938,257,916 732,266,777
Direct advances 884,468,678 75,895,907 749,487,667 66,533,060
Others 1,004,720,921 953,463,806 834,206,895 783,440,061
62,579,954,726 53,476,872,469 48,342,651,158 40,237,216,916
Sales contract receivables 1,150,301,593 53,812,556 640,901,403 53,859,820
P63,730,256,319 P53,530,685,025 P48,983,552,561 P40,291,076,736

As at December 31, 2017 and 2016, fair value of collateral held for loans and
receivables amounted to P30.2 billion and P43.3 billion, respectively.

For the other financial assets, the carrying amounts represent the maximum
exposure to credit risk as at December 31, 2017 and 2016.

Collateral and Other Credit Enhancements

The amount and type of collateral required depends on the assessment of the credit
risk of the borrower or counterparty. Guidelines are implemented regarding the
acceptability of types of collateral valuation and parameters.

The main types of collateral obtained are as follows:

 For securities lending and reverse repurchase transactions: cash or securities;

 For commercial lending: mortgages over real properties, inventory and trade
receivables and chattel mortgages; and

 For retail lending: mortgages over real properties and financed vehicles.

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Management monitors the market value of collateral and requests additional

collateral in accordance with the underlying agreement, in the event that the value of
the collateral depreciates due to various factors affecting the collateral.

It is the Bank’s policy to dispose of repossessed properties in the most expeditious

manner possible. Sale is facilitated by offering incentives to the Bank’s accredited
brokers and through formulating programs to attract buyers like offering fixed interest
rates for an extended period of time and reduced rates for downpayment as
compared to prevailing market rates as examples.

Borrower Risk Rating (BRR) Disclosure

In compliance with BSP, the Bank implemented in 2007 a credit risk classification
that is compliant with global rating standards. The BRR is the evaluation of the credit
worthiness of an existing or prospective borrower. The account is evaluated
independent of any influence from any transactional factors. The BRR measures the
company’s credit quality by looking into three major aspects, namely, financial
condition, industry analysis and management quality. Each section was given the
following point allocation:

Section Maximum Points Section Rating

Financial Condition 240 40%
Industry Analysis 210 30%
Management Quality 150 30%
TOTAL: 600 100%

There are several rating factors per section which can earn points depending on the
4 quality judgment levels as follows:

Good - 30 points
Satisfactory - 20 points
Still Acceptable - 10 points
Poor - 0 point

If there is no available information for a specific factor, a rating of “Poor” will be

given.

The BRR is used to determine the credit quality of the Bank’s loan accounts. Loan
accounts are classified according to a 1 - 10 rating scale based on BRR results, as
follows:

Final
Score Equivalent Risk Rating Calculated BRR
High Grade >177 Excellent 1
150 - 176 Strong 2
123 - 149 Good 3
Standard Grade 96 - 122 Satisfactory 4
68 - 95 Acceptable 5
<68 Watchlist 6
Substandard Grade Special Mention 7
Impaired Substandard 8
Doubtful 9
Loss 10

High Grade or accounts with BRR of 1-3 are loans where the risk of the Bank are
good to excellent in terms of risk quality and where the likelihood of the non-payment
of obligation is less likely to happen.

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Excellent - BRR 1
These are loans with access to raise substantial amounts of funds through the public
markets at any time, strong debt servicing capacity, conservative statements of
financial position leverage vis-a-vis the industry in which the borrower operates, very
good profit track record, timely payments, no history of payment delinquencies, high
level of liquidity, strong operating trends and no likely existing or future disruptions.

Strong - BRR 2
These are loans with good access to public funds, strong market, strong overall debt
servicing, cash flow which can very well cover debt services, usually with quality of
multinational or well-capitalized local corporations, no history of payment
delinquencies and with adequate liquidity.

Good - BRR 3
These are loans which cover smaller corporations with access to public markets or
alternative financial markets, quite low probability of default, susceptible to cyclical
changes and more concentration of business risk by product or market, profitable for
the last 3 years, no history of payment default in the last 12 months, satisfactory
payment record, unlikely to be affected by existing or future disruptions and
competent under current business model.

Standard Grade or accounts with BRR of 4-6 are loans where the risk of the Bank
ranges from satisfactory to acceptable with some form of weakness and where
repayment capacity needs to be watched.

Satisfactory - BRR 4
These are loans where there are certain clear risk elements present, volatility of
earnings and overall performance, normally have limited access to financial markets,
can withstand normal business cycles but prolonged unfavorable economic period
would affect/deteriorate performance, good matching of assets and cash flows,
adequate debt servicing, reported profits in the fiscal year, with expectations of a
profitable outcome in the current year, adequate to marginal liquidity, generally
meeting obligations, likely to experience disruptions from external factors but the
borrower has a great chance to overcome them and with recent departure of key
employees or lack of key experience.

Acceptable - BRR 5
These are loans with sufficiently pronounced risk elements, still able to withstand
normal business cycles, prolonged economic and financial crisis which can have an
immediate effect on the company’s operations, sufficient cash flow in spite of an
economic downturn, with extraordinary developments that can present higher risk,
marginal liquidity, declining trend in profits but repayment is still within satisfactory
level, and with turnovers or unfilled key management positions.

Watchlist - BRR 6
These are loans that are in current status but require monitoring as the account may
experience potential problems due to declining operating performance, unfavorable
industry condition or significant economic downturn and company-specific risk
factors.

Except for program loans, start-up companies including those with less than 3 years
of operations, politically exposed borrowers, borrowers getting out of core
competency or those changing business models and accounts with documents still
pending for submission shall also be classified as Watchlist.

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Special Mention - BRR 7

Substandard Grade or accounts with BRR of 7 are loans observed to have potential
weaknesses and require a closer observation than the accounts under the Standard
rating since if weaknesses are uncorrected, repayment of the loan may be affected
increasing the credit risk to the Bank.

Impaired accounts are loans classified by the Bank as Substandard, Doubtful and
Loss where there are experiences of past due accounts and there are well-defined
weaknesses where collection or liquidation of obligation may be or is already
jeopardized.

Substandard - BRR 8
These are loans or portions thereof which involve a substantial and unreasonable
degree of risk to the Bank because of unfavorable record or unsatisfactory
characteristics. There is a possibility of future loss to the Bank unless given closer
supervision. These are also loans not necessarily past due but with well-defined
weaknesses that jeopardize liquidation. Weaknesses include adverse trend or
development of financial, managerial, economic or political nature or a significant
weakening of the fair value of the collateral.

Doubtful - BRR 9
These are loans, not necessarily past due, which have weaknesses inherent to those
classified as Substandard with added characteristics that existing facts, conditions
and values make collection or liquidation in full highly improbable and in which
substantial loss is probable.

Loss - BRR 10
These are loans, not necessarily past due, which are considered uncollectible or
worthless and of such little value that their continuance as bankable assets is not
warranted although the loans may have some recovery or salvage value.

The BRR can be subject to an upgrade/downgrade on the basis of the following:

Group Affiliation:
1) When a borrower belongs to a group of companies, it can be upgraded up to the
rating of the parent company provided that the parent company has a BRR of 4
or better.

2) However, if the BRR of the subsidiary is better than the parent, a downgrade can
be considered especially if the parent has a BRR of 5 or worse.
3) If the parent has a BRR of 5 or lower and the subsidiary was also rated 5 or
worse, it can retain its own rating.

4) If there are criteria such as the medium and long-term outlook, special risks that
can grievously affect the company and outweigh the other criteria, a possible
downgrade can be considered.

5) Companies with rapid expansion without a strong driving force or only on

account of a single customer are also potential for downgrading.

Facility Risk Factor (FRF):

1) The FRF is an adjustment in the BRR that considers the transactional influence.
It takes into account the quality of each facility. It is important to note that a
Borrower can have only 1 BRR but several FRF for its multiple facilities.
FRF evaluates the different security arrangements; the quantity and the quality of
the collateral cover for each facility.

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2) Collaterals are assessed at the net realizable value in a liquidation scenario.

In evaluating the worthiness of the collateral, the quality of the documentation
and the possible subordination of the Bank’s claim should also be considered.

The adjustment on the BRR based on the FRF will be based on the following:

Upgrade The facility is cash collateralized or covered by marketable

securities
Full collateralization of other assets
3rd party guarantees in accordance with the BRR of the guarantor
An upgrade should be set to the BRR of the guarantor
Downgrade Borrower is a potential candidate for a downgrade if the facility is
clean or a major part of the facilities are pledged to other creditors

Credit Quality Per Class of Financial Assets

The credit quality of financial assets is assessed and managed by the Bank using
external and internal credit ratings.

The following table shows the credit quality of financial assets, net of unearned
interest income (in thousands).
December 31, 2017
Loans and
Loans and Advances to Investment
Receivables Banks* Securities** Total
Neither past due nor impaired P64,209,981 P35,206,358 P29,737,585 P129,153,924
Past due but not impaired 193,329 - - 193,329
Impaired 3,419,454 - 306,925 3,726,379
Gross 67,822,764 35,206,358 30,044,510 133,073,632
Less allowance for credit and impairment losses 2,411,636 - 306,925 2,718,561
Net P65,411,128 P35,206,358 P29,737,585 P130,355,071

*Comprised of Due from BSP, Due from other banks and Interbank loans receivable and SPURA
** Comprised of Financial assets at FVPL, AFS securities, and HTM investments

December 31, 2016

Loans and
Loans and Advances to Investment
Receivables Banks* Securities** Total
Neither past due nor impaired P49,631,351 P53,148,529 P23,419,291 P126,199,171
Past due but not impaired 134,853 - - 134,853
Impaired 3,481,564 - 300,158 3,781,722
Gross 53,247,768 53,148,529 23,719,449 130,115,746
Less allowance for credit and impairment losses 2,457,526 - 300,158 2,757,684
Net P50,790,242 P53,148,529 P23,419,291 P127,358,062

*Comprised of Due from BSP, Due from other banks and Interbank loans receivable and SPURA
** Comprised of Financial assets at FVPL, AFS securities, and HTM investments

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The table below shows the credit quality by class of assets for loans and receivables,
excluding unquoted debt securities (gross of allowance for credit losses and
unearned interest income) based on the Bank’s internal credit rating (in thousands).
December 31, 2017
Neither Past Due nor Individually Impaired
Standard Past Due or
High Grade Grade Substandard Unrated Impaired Total
Loans and receivables:
Receivable from
customers P25,555,003 P26,883,065 P259,438 P8,858,222 P2,466,080 P64,021,808
Sales contract receivables - - - 1,035,915 168,199 1,204,114
Accounts receivable - - - 297,624 518,493 816,117
Accrued interest
receivable - - - 638,558 168,434 806,992
Returned checks and
other check items
(RCOCI) - - - 4,527 - 4,527
P25,555,003 P26,883,065 P259,438 P10,834,846 P3,321,206 P66,853,558

December 31, 2016

Neither Past Due nor Individually Impaired
Standard Past Due or
High Grade Grade Substandard Unrated Impaired Total
Loans and receivables:
Receivable from
customers P16,652,001 P23,626,089 P455,800 P6,617,205 P2,440,736 P49,791,831
Sales contract receivables - - - 494,945 199,816 694,761
Accounts receivable - - - 350,574 511,729 862,303
Accrued interest
receivable - - - 666,689 172,558 839,247
RCOCI - - - 9,057 - 9,057
P16,652,001 P23,626,089 P455,800 P8,138,470 P3,324,839 P52,197,199

Loans with renegotiated terms

The contractual terms of a loan may be modified for a number of reasons, including
changing market conditions, customer retention and other factors not related to a
current or potential credit deterioration of the customer. The Bank renegotiates
receivable from customers in financial difficulties to maximize collection opportunities
and minimize the risk of default. Carrying amount per class of loans and receivables
whose terms have been renegotiated follows:

2017 2016
Term loans P1,093,953,286 P1,179,473,257
Agri-Agra loans 17,663,370 17,663,370
Housing loans 10,879,498 12,747,747
P1,122,496,154 P1,209,884,374

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For financial assets such as amounts due from BSP and other banks, interbank
loans receivable and SPURA, financial assets at FVPL, AFS securities, HTM
investments, and unquoted debt securities classified as loans, the credit quality is
assessed using external credit rating (such as Standard & Poors, Fitch, Moody’s,
etc.) of the respective counterparties considering relevant BSP mandates as follows:

December 31, 2017

BBB and Below
AA - A or Unrated Total
Loans and advances to banks:
Due from BSP P25,704,211,852 P - P25,704,211,852
Due from other banks 410,493,118 2,775,502,704 3,185,995,822
Interbank loans receivable and SPURA 6,316,149,870 - 6,316,149,870
32,430,854,840 2,775,502,704 35,206,357,544

Financial assets at FVPL:

Government securities held for trading 34,383,875 41,697,354 76,081,229
Derivative assets* - 24,965,000 24,965,000
Private debt securities held for trading - - -
34,383,875 66,662,354 101,046,229

AFS securities - gross:

Quoted government securities 13,758,293,520 2,329,768,408 16,088,061,928
Quoted private debt securities 881,950,553 - 881,950,553
Quoted equity securities - 104,081,292 104,081,292
Unquoted equity securities - 339,482,792 339,482,792
14,640,244,073 2,773,332,492 17,413,576,565

HTM investments:
Quoted government securities 6,026,012,842 3,512,386,150 9,538,398,992
Quoted private debt securities 2,991,488,213 - 2,991,488,213
9,017,501,055 3,512,386,150 12,529,887,205

Loans and receivables - gross:

Unquoted debt securities 1,259,933,889 226,942,931 1,486,876,820
1,259,933,889 226,942,931 1,486,876,820
P57,382,917,732 P9,354,826,631 P66,737,744,363

* Unrated derivatives pertain to warrants

December 31, 2016

BBB and Below
AA - A or Unrated Total
Loans and advances to banks:
Due from BSP P31,232,966,983 P - P31,232,966,983
Due from other banks 268,973,198 3,570,492,868 3,839,466,066
Interbank loans receivable and SPURA 18,076,096,271 - 18,076,096,271
49,578,036,452 3,570,492,868 53,148,529,320

Financial assets at FVPL:

Government securities held for trading 31,222,276 37,124,173 68,346,449
Derivative assets* - 24,860,000 24,860,000
Private debt securities held for trading - 304,779 304,779
31,222,276 62,288,952 93,511,228

AFS securities - gross:

Quoted government securities 13,530,862,811 5,568,753,425 19,099,616,236
Quoted private debt securities 4,084,626,732 - 4,084,626,732
Quoted equity securities - 106,605,293 106,605,293
Unquoted equity securities - 335,089,789 335,089,789
17,615,489,543 6,010,448,507 23,625,938,050

HTM investments:
Quoted government securities - - -
Quoted private debt securities - - -
- - -

Loans and receivables - gross:

Unquoted debt securities 1,352,793,966 291,578,201 1,644,372,167
1,352,793,966 291,578,201 1,644,372,167

P68,577,542,237 P9,934,808,528 P78,512,350,765

* Unrated derivatives pertain to warrants

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Aging Analysis of Past Due but not Impaired

Past due loans and receivables include those that are only past due for a few days.
An analysis of past due loans, by age, is provided below.
December 31, 2017
1-30 Days 31-60 Days 61-90 Days Total
Receivable from customers (gross):
Housing loans P20,178,094 P40,526,079 P17,601,394 P78,305,567
Auto loans 33,014,085 18,657,934 12,612,855 64,284,874
Term loans 472,587 - - 472,587
Others 9,498,265 3,225,461 1,569,187 14,292,913
Sales contract receivables 26,109,076 3,213,696 6,650,257 35,973,029
P89,272,107 P65,623,170 P38,433,693 P193,328,970

December 31, 2016

1-30 Days 31-60 Days 61-90 Days Total
Receivable from customers (gross):
Housing loans P15,205,602 P12,691,292 P3,664,570 P31,561,464
Auto loans 22,600,503 14,505,552 9,737,225 46,843,280
Term loans 20,941,861 - 650,149 21,592,010
Others 3,106,957 335,523 238,150 3,680,630
Sales contract receivables 23,899,377 3,963,659 3,312,792 31,175,828
P85,754,300 P31,496,026 P17,602,886 P134,853,212

Impairment Assessment
The main consideration for the loan impairment assessment is an objective evidence
of occurrence of events that would have an impact on the estimated future cash
flows of the asset. This includes whether any payments of principal or interest are
overdue by more than 90 days or there are any known difficulties in the cash flows of
counterparties, credit rating downgrades, or infringement of the original terms of the
contract. The Bank addresses impairment assessment in 2 areas: individually assessed
allowances and collectively assessed allowances.

BSP Regulatory Reporting - Credit Risk

The Bank calculates its credit risk-weighted assets using the standardized approach,
the simplest of the 3 broad approaches to credit risk. This approach allows the Bank
to utilize a wider differentiation of risk weights and a wider recognition of risk
mitigation techniques without taking in excessive complexity in the process.

Below is the summary of risk weights and selected exposure types:

Standardized Credit Risk Weights
Credit Assessment AAA AA+ to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B- Below B- Unrated
Sovereigns 0% 0% 20% 50% 100% 100% 150% 100%
Multilateral Development Banks (MDBs) 0% 20% 50% 50% 100% 100% 150% 100%
Banks other than MDBs 20% 20% 50% 50% 100% 100% 150% 100%
Interbank Call Loans 20%
Local Government Units 20% 20% 50% 50% 100% 100% 150% 100%
Government Corporations (GCs) 20% 20% 50% 100% 100% 150% 150% 100%
Corporations other than GCs 20% 20% 50% 100% 100% 150% 150% 100%
Housing Loans 50%
Micro, Small and Medium Enterprise
qualified portfolio 75%
Defaulted Exposures
Housing Loans 100%
Others 150%
Real and Other Properties Acquired 150%
All other assets 100%

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Credit risk-weighted assets as at December 31, 2017 and 2016 as reported to BSP
follows (amounts in thousands):

2017 2016
Risk-weighted on-balance sheet assets P76,989,108 P62,859,689
Risk-weighted off-balance sheet assets 3,162,430 2,145,819
Counterparty risk-weighted assets in the trading
book 12,545 12,492
P80,164,083 P65,018,000

The Bank’s credit risk-weighted exposures arising from on-balance sheet assets
amounting to P77.0 billion contribute 96.0% of the credit exposures of the Bank.
Credit risk-weighted off-balance sheet assets and counterparty risk-weighted assets
in the trading book make up the remainder. The off-balance sheet assets, consisting
of direct credit substitutes, e.g. guarantees and financial standby letter of credit, and
transaction and trade-related contingencies, are weighted at 100%, 50% and 20%,
respectively.

The Bank’s credit exposures are risk-weighted based on third party credit
assessment of the individual exposure as obtained from third party credit
assessment institutions recognized by BSP. In the calculation of risk weighted assets
in both the banking and trading books, the Bank utilizes the disclosed ratings from
Standard & Poors, Moody’s, Fitch Ratings, and Philratings, whenever available. In
cases where there are 2 or more ratings which correspond into different risk weights,
the higher of the 2 lowest risk weights is used. For peso denominated exposures to
the Philippine National Government and BSP, the risk weight shall be 0.0%.

The breakdown of risk-weighted on-balance sheet assets follows (amounts in

thousands):
December 31, 2017
Exposures
Covered by
Credit Risk
Mitigation
Exposures, (CRM), Gross of Exposures
Net of Specific Materiality not Covered Risk Weights
Provisions Threshold by CRM 0% 20% 50% 100% 150% Total
Cash on hand P1,384,982 P - P1,384,982 P1,384,982 P - P - P - P - P1,384,982
COCI - - - - - - - - -
Due from BSP 25,706,545 - 25,706,545 25,706,545 - - - - 25,706,545
Due from other banks 5,265,081 - 5,265,081 - 307,145 4,769,846 188,090 - 5,265,081
AFS securities 17,114,379 - 17,114,379 13,839,017 892,420 2,382,942 - - 17,114,379
HTM investments 12,676,740 - 12,676,740 6,119,695 3,011,878 3,545,167 - - 12,676,740
Loans and receivables 62,759,660 1,393,315 61,366,345 106,862 1,263,799 59,871,272 124,412 61,366,345
Loans and receivables
arising from
repurchase
agreements 4,131,137 - 4,131,137 4,131,137 - - - - 4,131,137
Sales contract
receivables 1,159,921 - 1,159,921 - - - 1,040,582 119,339 1,159,921
Real and other
properties acquired
(ROPA) 2,542,022 - 2,542,022 - - - - 2,542,022 2,542,022
Total exposures,
excluding other
assets 132,740,467 1,393,315 131,347,152 51,181,376 4,318,305 11,961,754 61,099,944 2,785,773 131,347,152
Other assets 4,865,966 - 4,865,966 - - - 4,865,966 - 4,865,966
Total exposures,
including other
assets P137,606,433 P1,393,315 P136,213,118 P51,181,376 P4,318,305 P11,961,754 P65,965,910 P2,785,773 P136,213,118

Total risk-weighted on-

balance sheet assets not
covered by CRM P863,661 P5,980,877 P65,965,910 P4,178,660 P76,989,108
Total risk-weighted on-
balance sheet assets
covered by CRM - - - - -
Total risk-weighted
on-balance sheet assets P863,661 P5,980,877 P65,965,910 P4,178,660 P76,989,108

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December 31, 2016

Exposures
Covered by
Credit Risk
Mitigation (CRM),
Exposures, Net Gross of Exposures
of Specific Materiality not Covered Risk Weights
Provisions Threshold by CRM 0% 20% 50% 100% 150% Total
Cash on hand P1,618,103 P - P1,618,103 P1,618,103 P - P - P - P - P1,618,103
COCI 17,462 - 17,462 - 17,462 - - - 17,462
Due from BSP 31,243,694 - 31,243,694 31,243,694 - - - - 31,243,694
Due from other banks 8,003,516 - 8,003,516 - 343,382 7,447,180 212,954 - 8,003,516
AFS securities 4,117,359 - 4,117,359 - 4,117,359 - - - 4,117,359
HTM investments - - - - - - - - -
Loans and receivables 48,529,343 660,870 47,868,473 - 105,891 1,067,802 46,583,388 111,392 47,868,473
Loans and receivables
arising from
repurchase
agreements 13,808,759 - 13,808,759 13,808,759 - - - - 13,808,759
Sales contract
receivables 653,026 - 653,026 - - - 500,761 152,265 653,026
ROPA 2,742,634 - 2,742,634 - - - - 2,742,634 2,742,634
Total exposures,
excluding other
assets 110,733,896 660,870 110,073,026 46,670,556 4,584,094 8,514,982 47,297,103 3,006,291 110,073,026
Other assets 5,878,840 - 5,878,840 - - - 5,878,840 - 5,878,840
Total exposures,
including other
assets P116,612,736 P660,870 P115,951,866 P46,670,556 P4,584,094 P8,514,982 P53,175,943 P3,006,291 P115,951,866

Total risk-weighted on-

balance sheet assets not
covered by CRM P916,819 P4,257,491 P53,175,943 P4,509,437 P62,859,689
Total risk-weighted on-
balance sheet assets
covered by CRM - - - - -
Total risk-weighted
on-balance sheet assets P916,819 P4,257,491 P53,175,943 P4,509,437 P62,859,689

The Bank uses credit risk mitigation techniques in order to obtain capital relief as
allowed by regulations. With regard to the Bank’s on-balance sheet assets, a few
receivables from government corporations and from private corporations are covered
by eligible mitigants. In these cases, the documentation used in collateralized
transactions and in guarantees has been reviewed to be legally enforceable in all
relevant jurisdictions.

The breakdown of risk-weighted on-balance sheet assets covered by CRM follows

(amounts in thousands):
December 31, 2017
Total Total exposures
Exposures Covered by CRM,
Covered Gross of
Guaranteed by Risk Weights Materiality
Portion CRM 0% 20% Total Threshold
Loans and Receivables
Private corporations P1,043,905 P1,043,905 P1,043,905 P - P1,043,905 P1,043,905
Loans to individuals for
consumption and other
purposes 349,410 349,410 349,410 - 349,410 349,410
Total exposures covered by
CRM P1,393,315 P1,393,315 P1,393,315 P - P1,393,315 P1,393,315

Risk-weighted on-balance sheet

assets covered by CRM P - P -

December 31, 2016

Total Total exposures
Exposures Covered by CRM,
Guaranteed Covered by Risk Weights Gross of Materiality
Portion CRM 0% 20% Total Threshold
Loans and Receivables
Private corporations P342,626 P342,626 P342,626 P - P342,626 P342,626
Loans to individuals for
consumption and other
purposes 318,244 318,244 318,244 - 318,244 318,244
Total exposures covered by
CRM P660,870 P660,870 P660,870 P - P660,870 P660,870

Risk-weighted on-balance sheet

assets covered by CRM P - P -

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Liquidity Risk and Funding Management

Liquidity risk is the risk to the Bank’s earnings and capital arising from its inability to
meet funding requirements in a timely manner. To measure and monitor this risk, the
Bank has a report on future cash flows and liquidity on a daily basis. To ensure
sufficient liquidity, the Bank has a set of internal limits incorporated in its annual
budget that allocates a portion of its liabilities into cash, investment securities and
other liquid assets.

The Bank has available credit lines from various counterparties that it can utilize to
meet sudden liquidity demands. The liquidity position is assessed and managed
under a variety of scenarios, giving due consideration to stress factors relating both
to the market in general and to events specific to the Bank. A contingency funding
plan, which covers quantitative and procedural measures, is in place and may be
applied under different stress scenarios. The Bank also manages its liquidity position
through the monitoring of a Maximum Cumulative Outflow against a Board-approved
limit. This process measures and estimates projected funding requirements that the
Bank will need at specific time horizons.

There has been no material change to the Bank’s exposure to liquidity and funding
management risk or the manner in which it manages and measures the risk since
prior financial year.

Analysis of Financial Liabilities by Remaining Contractual Maturities

The table below summarizes the maturity profile of the Bank’s financial liabilities as
at December 31, 2017 and 2016 based on contractual undiscounted repayment
obligations (in thousands).

December 31, 2017

Less than 3 to 1 to Over
On Demand 3 Months 12 Months 5 Years 5 Years Total
Deposit liabilities:
Demand P26,863,177 P - P - P - P - P26,863,177
Savings 20,899,444 52,119,184 1,950,044 - - 74,968,672
Time 20,087 12,292,028 3,669,379 1,161,775 - 17,143,269
Bills payable - 7 39 302 - 348
Manager’s checks - 560,296 - - - 560,296
Accrued interest and
other expenses* - 526,612 - - - 526,612
Other liabilities** - - 1,912,576 266,379 - 2,178,955
Total undiscounted
financial liabilities P47,782,708 P65,498,127 P7,532,038 P1,428,456 P - P122,241,329

*amounts exclude accrued employee and other benefits, accrued taxes payable and accrued lease liability
**amounts exclude withholding tax payable and retirement liability

December 31, 2016

Less than 3 to 1 to Over
On Demand 3 Months 12 Months 5 Years 5 Years Total
Deposit liabilities:
Demand P24,422,978 P - P - P - P - P24,422,978
Savings 18,882,591 45,044,494 4,882,819 - - 68,809,904
Time 38,639 20,780,471 2,297,189 1,449,436 - 24,565,735
Bills payable - 12 37 600 - 649
Manager’s checks - 716,060 - - - 716,060
Accrued interest and
other expenses* - 509,007 - - - 509,007
Other liabilities** - - 1,825,636 263,575 - 2,089,211
Total undiscounted
financial liabilities P43,344,208 P67,050,044 P9,005,681 P1,713,611 P - P121,113,544

*amounts exclude accrued employee and other benefits, accrued taxes payable and accrued lease liability
**amounts exclude withholding tax payable and retirement liability

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The table below shows the contractual expiry by maturity of the Bank’s contingent
liabilities and commitments (in thousands):

December 31, 2017

Less than 3 to 1 to
On Demand 3 Months 12 Months 5 Years Total
Commitments P1,316,628 P1,060,623 P2,032,924 P1,121,827 P5,532,002
Contingent liabilities 23,007,979 1,115,026 26,527 2,724,103 26,873,635
P24,324,607 P2,175,649 P2,059,451 P3,845,930 P32,405,637

December 31, 2016

Less than 3 to 1 to
On Demand 3 Months 12 Months 5 Years Total
Commitments P933,431 P186,390 P1,872,047 P2,840,280 P5,832,148
Contingent liabilities 20,966,104 811,866 1,576,838 2,000,035 25,354,843
P21,899,535 P998,256 P3,448,885 P4,840,315 P31,186,991

Market Risk
Market risk is the potential loss that may arise from decrease in earnings and value
of holdings due to the decline in prices or present value of future cash flows of
financial instruments. The value of these financial instruments may change as a
result of changes in interest rates, foreign exchange rates, equity prices and other
market changes. The Bank’s market risk originates from its inventory of foreign
exchange, debt and equity securities and freestanding derivatives.

There has been no material change to the Bank’s exposure to market risk or the
manner in which it manages and measures the risk since prior financial year.

BSP Regulatory Reporting - Market Risk

Market risk-weighted assets by type of exposure as at December 31, 2017 and 2016
as reported to BSP follows (amounts in thousands):

2017 2016
Foreign exposures P216,549 P265,108
Interest rate exposures 49,326 7,065,327
P265,875 P7,330,435

Interest Rate Risk

One of the Bank’s primary business functions is providing financial products that meet
the needs of its customers. To satisfy their needs, loans and deposits are tailored to
the customers’ requirements. The difference between the yield earned on assets,
such as loans, and the rate paid on the liabilities (including customer deposits or
other borrowings) used to fund them gives the Bank its Net Interest Income (NII).

NII in the current period is the result of customer transactions and the related
contractual rates which originated in prior periods as well as new transactions in the
current period; those prior period transactions will be impacted by changes in rates
on floating rate assets and liabilities in the current period.

The Bank’s financial performance is subject to some degree of risk due to changes in
interest rates. In order to manage these risks effectively, the Bank modified the
pricing on new customer loans subject to the BRR policy. The BRR is the evaluation
of the creditworthiness of an existing or prospective borrower. The account is
evaluated independent of any influence from any transactional factors. BRR for asset
size of P15.0 million and above measures the customers’ credit quality by looking
into 3 major aspects, namely: financial condition, industry analysis and management
quality. BRR for asset size of below P15.0 million measures the customers’ credit
quality using the cash, relationship, administration, market, production and security
analyses.

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The Bank also measures the sensitivity of its assets and liabilities to interest rate
fluctuations by way of asset-liability gap analysis on a monthly basis. This analysis
focuses on the repricing profile of its rate sensitive assets and liabilities, and its
influence on the Bank’s accrual earnings. The interest rate repricing gap report
assigns all assets and liabilities into various time buckets according to the remaining
days to maturity for fixed-rate items, remaining days to next re-pricing for floating-
rate items, or based on behavioral assumptions if more applicable. Loans,
investments and deposits are entered in the time band according to its contracted
maturity if fixed rate or to its next re-pricing date if floating. Moreover, the Bank
assumes no prepayment on the loans. Cash and non-maturity deposits, on the other
hand, are considered non-rate sensitive.

The difference between the total of the repricing (interest rate-sensitive) assets and
repricing (interest rate-sensitive) liabilities gives an indication of the Bank’s repricing
risk exposure. A positive gap means more assets mature or have to be repriced than
liabilities. In this case, the Bank is said to be “asset sensitive” in that time bucket and
it benefits from an increase of interest rates as the assets will be repriced faster than
liabilities.

A bank with a negative gap is considered “liability sensitive” since it has more
liabilities to be repriced during such period than assets. It is negatively affected by a
hike in interest rates. An example would be a bank that uses short-term deposits to
fund long-term loans at fixed rates. It may encounter a decline in its net interest
income if the interest rates increase since the cost of funds (the deposit rates) will
increase while the earnings from loans remain fixed.

RSK regularly monitors the mismatches in the repricing of its asset and liabilities
through the interest rate gap reports to ALCO and BROC. To ensure that the Bank’s
net interest income is protected, the Bank has a set limit for the maximum repricing
gap, either positive or negative, for tenors up to 1 year. These limits are reviewed
annually and form part of the Bank’s risk appetite statements.

The table sets forth the Bank’s interest rate repricing gap as at December 31, 2017
and 2016.
December 31, 2017
Up to 1 1-3 3-6 6-12 1 -3 Beyond Non-rate
In Millions Month Months Months Months Years 3-5 Years 5 Years Sensitive Total
RESOURCES
Cash and COCI P - P - P - P - P - P - P - P1,385 P1,385
Due from BSP 1,500 - - - - - - 24,204 25,704
Due from other banks - - - - - - - 5,265 5,265
Interbank loans receivable 4,237 - - - - - - - 4,237
Financial assets at FVPL - - - - - - - 101 101
AFS securities - net 976 2,411 4,736 3,588 5,149 - 345 (236) 16,969
HTM investments - - 332 - 2,379 956 8,919 (21) 12,565
Other investments - net - - - - - - 727 38 765
Loans - net 21,916 6,874 6,009 3,550 3,628 10,425 7,595 1,659 61,656
Other resources 543 457 3 31 1 - - 8,818 9,853
P29,172 P9,742 P11,080 P7,169 P11,157 P11,381 P17,586 P41,213 P138,500

LIABILITIES AND EQUITY

Deposit liabilities P49,295 P15,066 P4,210 P1,373 P943 P121 P - P47,760 P118,768
Demand deposits - - - - - - - 26,863 26,863
Savings deposits - - - - - - - 20,897 20,897
Time deposits 49,295 15,066 4,210 1,373 943 121 - - 71,008
Other liabilities - - - - - - - 3,985 3,985
49,295 15,066 4,210 1,373 943 121 - 51,745 122,753
Capital funds - - - - - - - 15,747 15,747
P49,295 P15,066 P4,210 P1,373 P943 P121 P - P67,492 P138,500

Total periodic gap (P20,123) (P5,324) P6,870 P5,796 P10,214 P11,260 P17,586 (P26,279) P -

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December 31, 2016

Up to 1 1-3 3-6 6-12 Beyond Non-rate
In Millions Month Months Months Months 1 -3 Years 3-5 Years 5 Years Sensitive Total
RESOURCES
Cash and COCI P - P - P - P - P - P - P - P1,636 P1,636
Due from BSP 10,000 - - - - - - 21,233 31,233
Due from other banks - - - - - - - 8,004 8,004
Interbank loans receivable 13,912 - - - - - - - 13,912
Financial assets at FVPL - - - - - - - 94 94
AFS securities - net 1,091 2,472 4,784 9,329 2,252 1,007 2,774 (528) 23,181
HTM investments - - - - - - - - -
Other investments - net - - - - - - 773 35 808
Loans - net 9,536 15,844 793 2,619 1,997 7,710 7,832 1,356 47,687
Other resources 429 59 6 - 1 - - 9,793 10,288
P34,968 P18,375 P5,583 P11,948 P4,250 P8,717 P11,379 P41,623 P136,843

LIABILITIES AND EQUITY

Deposit liabilities P40,964 P24,704 P3,005 P4,107 P260 P1,042 P - P43,414 P117,496
Demand deposits - - - - - - - 24,423 24,423
Savings deposits - - - - - - - 18,991 18,991
Time deposits 40,964 24,704 3,005 4,107 260 1,042 - - 74,082
Other liabilities - - - - - - - 3,982 3,982
40,964 24,704 3,005 4,107 260 1,042 - 47,396 121,478
Capital funds - - - - - - - 15,365 15,365
P40,964 P24,704 P3,005 P4,107 P260 P1,042 P - P62,761 P136,843

Total periodic gap (P5,996) (P6,329) P2,578 P7,841 P3,990 P7,675 P11,379 (P21,138) P -

The Bank manages interest rate risk separately for its RBU and FCDU books. The
interest rate risk of the RBU of the Bank from its accounts is managed in PHP while
the FCDU of the Bank, regardless of original currency is managed in USD. The
following table demonstrates the sensitivity to a reasonably possible change in
interest rates, with all other variables held constant, of the Bank’s results of
operations and OCI:

December 31, 2017

Sensitivity
Sensitivity Of Trading
Of Net Gains -
Changes in Interest net on Sensitivity
Interest Rates Income FA at FVPL Of OCI
Currency (In Basis Points) (In Millions) (In Millions) (In Millions)
PHP +200 (P958.99) (P0.14) (P776.37)
USD +100 (0.42) (5.43) (184.40)
PHP -200 958.99 0.14 776.37
USD -100 0.42 5.43 184.40

December 31, 2016

Sensitivity
Of Trading
Sensitivity Gains -
Changes in Of Net net on Sensitivity
Interest Rates Interest Income FA at FVPL Of OCI
Currency (In Basis Points) (In Millions) (In Millions) (In Millions)
PHP +200 (P854.02) (P0.27) (P1,017.49)
USD +100 (0.27) (2.91) (426.13)
PHP -200 854.02 0.27 1,017.49
USD -100 0.27 2.91 426.13

The sensitivity of the results of operations is measured as the effect of the assumed
changes in interest rates on the net interest income for 1 year based on the floating
rate of financial assets and financial liabilities held as at December 31, 2017 and
2016. The sensitivity of “Trading and investment securities gains - net” and OCI is
calculated by revaluing fixed-rate financial assets at FVPL and AFS debt securities,
respectively as at December 31, 2017 and 2016. The total sensitivity of OCI is based
on the assumption that there are parallel shifts in the yield curve, while the analysis
by maturity band displays the sensitivity to non-parallel changes.

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Equity Price Risk

Given the nature and amount of the Bank’s equity investments portfolio in 2017 and
2016, management believes the Bank’s exposure to equity price risk is considered
minimal.

Currency Risk
The Bank’s policy is to maintain foreign currency exposure within acceptable limits
and within existing regulatory guidelines. The Bank believes that its profile of foreign
currency exposure based on its assets and liabilities is within conservative limits for a
financial institution engaged in a type of business similar to that of the Bank.

Foreign currency deposits are generally used to fund the foreign currency-
denominated loan and investment portfolios in the FCDU. Banks are required by
BSP to match the foreign currency liabilities held in the FCDU with foreign currency
assets. In addition, BSP requires a 30.0% liquidity reserve on all foreign currency
liabilities held in the FCDU.

The Bank employs risk limits and analytical models to manage the risk that possible
interest or currency movements pose. Such limits are prudently set and the position
status is monitored on a daily basis.

The table below summarizes the Bank’s exposure to foreign exchange risk as at
December 31, 2017 and 2016. Included in the table are the Bank’s assets and
liabilities at carrying amounts, categorized by currency (based on USD equivalents in
thousands):

December 31, 2017

USD Euro Others Total
Assets
Due from other banks $800 $525 $1,008 $2,333
Interbank loans receivable 3,650 - - 3,650
Loans and receivables 770 - - 770
Total assets 5,220 525 1,008 6,753
Liabilities
Deposit liabilities - 590 - 590
Other liabilities 146 3 10 159
Total liabilities 146 593 10 749
Net Exposure $5,074 ($68) $998 $6,004
Amount in PHP P253,345 (P3,395) P49,830 P299,780

December 31, 2016

USD Euro Others Total
Assets
Due from other banks $779 $2,787 $858 $4,424
Interbank loans receivable 5,200 - - 5,200
Loans and receivables 1,122 - - 1,122
Total assets 7,101 2,787 858 10,746
Liabilities
Deposit liabilities - 3,290 - 3,290
Other liabilities 91 64 4 159
Total liabilities 91 3,354 4 3,449
Net Exposure $7,010 ($567) $854 $7,297
Amount in PHP P348,537 (P28,191) P42,461 P362,807

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The table below indicates the currencies which the Bank has significant exposure to
as at December 31, 2017 and 2016 based on its foreign currency-denominated
assets and liabilities and its forecasted cash flows. The analysis calculates the effect
of a reasonably possible movement of other currency rates against the PHP, with all
other variables held constant on the results of operations (due to the fair value of
currency sensitive monetary assets and liabilities) and OCI. A negative amount in the
table reflects a potential net reduction of net income or OCI while positive amount
reflects a net potential increase. Change in currency rates are based on the historical
movements of each currency for the same period:

Effect on Effect on
Philippine Peso Profit before Tax Philippine Peso Profit before Tax
Appreciates by (In Millions) Depreciates by (In Millions)
December 31, 2017
Currency
USD P1.00 (P5.07) (P1.00) P5.07
Euro 0.50 0.03 (0.50) (0.03)
Others 0.40 (0.40) (0.40) 0.40
December 31, 2016
Currency
USD P1.00 (P7.01) (P1.00) P7.01
Euro 0.50 0.28 (0.50) (0.28)
Others 0.40 (0.34) (0.40) 0.34

Given the nature and amount of the Bank’s equity investments portfolio in 2017 and
2016, management believes the Bank’s exposure to currency risk is considered
minimal.

6. Categories and Fair Value Measurement

The methods and assumptions used by the Bank in estimating the fair values of
financial and non-financial assets and liabilities are as follows:

COCI, Due from BSP and Other Banks and Interbank Loans Receivable and
SPURA - Fair values approximate carrying amounts given the short-term nature of
the instruments.

Quoted Debt Securities (Financial Assets at FVPL, AFS Securities, and HTM
Investments) - Fair values are based on quoted market prices.

Quoted Equity Securities - Fair values are determined based on market prices
quoted in an established exchange, or on published quotes by accredited brokers.

Derivative Instruments - Fair values are determined based on published quotes or

price valuations provided by counterparties or calculations using market-accepted
valuation techniques.

Loans and Receivables – The estimated fair value of long-term receivables from
customers and sales contract receivables are equivalent to the estimated future cash
flows expected to be received which are discounted using current market rates
(i.e. PDST and Libor). Fair value of short-term receivable from customers, sales
contract receivables, accounts receivables, accrued interest receivables and RCOCI
approximates carrying amounts given the short-term nature of the accounts.

Property and Equipment and Investment Properties - Fair value is determined using
market data approach. The valuations performed by the appraisers are based on
recent sales or market prices of similar properties in the same areas the properties
are located, quoted from other appraisers and real estate brokers, and adjusted for
any difference in the nature, location or condition of the specific property.

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Inputs considered in determining fair values include the following:

Location Location of comparable properties whether on a main road, or

secondary road. Road width could also be a consideration if
data is available. As a rule, properties located along a main
road are superior to properties located along a secondary
road.
Size Size of lot in terms of area. Evaluate if the lot size of property
or comparable conforms to the average cut of the lots in the
area and estimate the impact of the lot size differences on
land value.
Shape Particular form or configuration of the lot. A highly irregular
shape limits the usable area whereas an ideal lot configuration
maximizes the usable area of the lot which is associated in
designing an improvement which conforms with the highest
and best use of the property.
Corner influence Bounded by 2 roads
Discount Generally, asking prices in ads posted for sale are negotiable.
Discount is the amount the seller or developer is willing to
deduct from the posted selling price if the transaction will be in
cash or equivalent.
Time Element An adjustment for market conditions is made if general
property values have appreciated or depreciated since the
transaction dates due to inflation or deflation or a change in
investor’s perception of the market over time, in which case,
the current data is superior to historic data.

Deposit Liabilities - Fair values of time deposits are estimated using the discounted
cash flow methodology, where future cash flows are discounted using the current
market rate (i.e. PDST and Libor) and with maturities consistent with those remaining
for the liability being valued. For demand and savings deposits, carrying amounts
approximate fair values considering that these are currently due and demandable.

Bills Payable - Fair values are estimated using the discounted cash flow
methodology, where future cash flows are discounted using the current market rate
and with maturities consistent with those remaining for the liability being valued.

Manager’s Checks, Accrued Interest and Other Expenses and Other Liabilities
(excluding non-financial liabilities) - Carrying amounts approximate fair values due to
the short-term nature of the accounts.

Fair Value Hierarchy

All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the fair value measurement as a
whole:

 Level 1 - quoted (unadjusted) market prices in active markets for identical assets
or liabilities.

 Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liabilities, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).

 Level 3 - inputs for the asset or liability that are not based on observable market
data (unobservable inputs).

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For assets and liabilities that are recognized in the financial statements on a
recurring basis, such as financial assets at FVPL, the Bank determines whether
transfers have occurred between levels in the hierarchy by re-assessing
categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

The following table provides the fair value hierarchy of the Bank’s assets and
liabilities measured at fair value and those for which fair values should be disclosed
(in thousands):

December 31, 2017

Carrying Total Fair
Value Level 1 Level 2 Level 3 Value
Assets Measured at Fair Value
Financial Assets
Financial assets at FVPL:
Government securities held for
trading P76,081 P76,081 P - P - P76,081
Derivative assets 24,965 - 24,965 - 24,965
Private debt securities held for
trading - - - - -
AFS securities:
Quoted government securities 16,088,062 16,088,062 - - 16,088,062
Quoted private debt securities 881,951 881,951 - - 881,951
Quoted equity securities 97,916 - 97,916 - 97,916
17,168,975 17,046,094 122,881 - 17,168,975

Non-financial Assets
Property and equipment* 811,716 - 811,716 - 811,716
Investment properties 5,801,662 - 5,801,662 - 5,801,662
P23,782,353 P17,046,094 P6,736,259 P - P23,782,353

Assets for which Fair Values are

Disclosed
Financial Assets
HTM investments:
Quoted government securities P9,538,399 P9,378,265 P - P - P9,378,265
Quoted private debt securities 2,991,488 2,966,885 - - 2,966,885
Loans and receivables:
Receivable from customers 62,629,449 - 64,363,899 - 64,363,899
Less unearned interest 49,494 - 49,494 - 49,494
62,579,955 - 64,314,405 - 64,314,405
Sales contract receivables 1,204,114 - 1,230,260 - 1,230,260
P76,313,956 P12,345,150 P65,544,665 P - P77,889,815

Liabilities for which Fair Values are

Disclosed
Financial Liabilities
Time deposit liabilities P17,008,912 P - P15,696,470 P - P15,696,470
Bills payable 267 - 300 - 300
P17,009,179 P - P15,696,770 P - P15,696,770

*Land and building

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December 31, 2016

Carrying Total Fair
Value Level 1 Level 2 Level 3 Value
Assets Measured at Fair Value
Financial Assets
Financial assets at FVPL:
Government securities held for
trading P68,346 P68,346 P - P - P68,346
Derivative assets 24,860 - 24,860 - 24,860
Private debt securities held for
trading 305 305 - - 305
AFS securities:
Quoted government securities 19,099,616 19,099,616 - - 19,099,616
Quoted private debt securities 4,084,627 4,084,627 - - 4,084,627
Quoted equity securities 106,605 - 106,605 - 106,605
23,384,359 23,252,894 131,465 - 23,384,359

Non-financial Assets
Property and equipment* 840,453 - 840,453 - 840,453
Investment properties 6,213,588 - 6,213,588 - 6,213,588
P30,438,400 P23,252,894 P7,185,506 P - P30,438,400

Assets for which Fair Values are

Disclosed
Financial Assets
HTM investments:
Quoted government securities P - P - P - P - P -
Quoted private debt securities - - - - -
Loans and receivables:
Receivable from customers 48,356,797 - 49,818,548 - 49,818,548
Less unearned interest 14,146 - 14,146 - 14,146
48,342,651 - 49,804,402 - 49,804,402
Sales contract receivables 640,901 - 774,538 - 774,538
P48,983,552 P - P50,578,940 P - P50,578,940

Liabilities for which Fair Values are

Disclosed
Financial Liabilities
Time deposit liabilities P24,363,391 P - P22,882,806 P - P22,882,806
Bills payable 484 - 558 - 558
P24,363,875 P - P22,883,364 P - P22,883,364

*Land and building

For 2017 and 2016, there have been no transfers into and out of each of the levels of
the fair value hierarchy.

As at December 31, 2017 and 2016, the carrying values of the Bank’s financial
assets and financial liabilities, not included in the table above, as reflected in the
statements of financial position and related notes approximate their respective fair
values.

Fair value information has not been disclosed for the Bank’s unquoted equity and
debt securities included under “AFS securities” and “Loans and receivables”,
respectively, that are carried at cost because fair value cannot be measured reliably.
The equity securities represent ordinary shares from a foreign financial institution
and a telecommunications company that are not quoted on any market. The debt
securities represent investments in a transportation company acquired by the Bank
through a special purpose vehicle. The Bank does not intend to dispose of these
investments in the foreseeable future.

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7. Interbank Loans Receivable and Securities Purchased under Resale Agreement

This account consists of:

2017 2016
SPURA P4,130,362,361 P13,806,170,420
Interbank loans receivable 2,185,787,509 4,269,925,851
P6,316,149,870 P18,076,096,271

Interest income on interbank loans receivable and SPURA follows:

2017 2016
SPURA P220,005,172 P173,221,178
Interbank loans receivable 10,652,725 17,355,926
P230,657,897 P190,577,104

Peso-denominated interbank loans receivable bear interest rates ranging from 2.5%
to 3.2% in 2017 and from 2.5% to 2.6% in 2016. Dollar-denominated interbank loans
receivable bear interest rates ranging from 0.2% to 1.5% in 2017 and from 0.2% to
1.0% in 2016.

SPURA bears interest rate of 3.0% in 2017 and interest rates ranging from 3.0% to
4.0% in 2016.

8. Financial Assets at Fair Value through Profit or Loss

Financial assets at FVPL consist of:

2017 2016
Government securities held for trading P76,081,229 P68,346,449
Derivative assets 24,965,000 24,860,000
Private debt securities held for trading - 304,779
P101,046,229 P93,511,228

As at December 31, 2017 and 2016, financial assets and liabilities through FVPL are
adjusted for unrealized loss of P0.8 million and unrealized gain of P86.9 million,
respectively (see Note 27).

As at December 31, 2017 and 2016, there are no outstanding embedded derivatives.

Derivative Financial Instruments

This includes warrants amounting to $50 thousand acquired by the Bank in June
2008. The warrants give the Bank the option or right to exchange its holding of
certain Republic of the Philippines Global Bonds into peso-denominated GS upon
occurrence of a predetermined credit event. The warrants will mature in November
2032.

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The table below shows the fair values of derivative financial instruments entered into
by the Bank, recorded as derivative assets or derivative liabilities, together with the
notional amount and leverage exposure. The leverage exposure is the amount of a
derivative’s underlying asset, reference rate or index and is the basis upon which
changes in the value of derivatives are measured. The leverage exposure indicates
the volume of transactions outstanding as at December 31, 2017 and 2016 and is
not indicative of either market risk or credit risk.

December 31, 2017 December 31, 2016

Derivative Notional Leverage Derivative Notional Leverage
Assets Amount Exposure Assets Amount Exposure
Freestanding derivatives:
Warrants P24,965,000 $50,000 $ - P24,860,000 $50,000 $ -

9. Available-for-Sale Securities

This account consists of:

Note 2017 2016

Quoted AFS Securities
Government securities 10, 16, 33 P16,088,061,928 P19,099,616,236
Private debt securities 10 881,950,553 4,084,626,732
Equity securities, net of allowance for
impairment losses of P6.2 million and
nil as at December 31, 2017 and 2016,
respectively 17 97,916,000 106,605,293
17,067,928,481 23,290,848,261
Unquoted AFS Securities
Equity securities, net of allowance for
impairment losses of P300.8 million and
P300.2 million as at December 31,
2017 and 2016, respectively 17 38,722,691 34,931,728
P17,106,651,172 P23,325,779,989

Unquoted AFS Securities

Unquoted AFS securities include the Bank’s 8.57% equity interest in Banco National
de Guinea Equatorial (BANGE) as part of its partnership with the National
Government of the Republic of Equatorial Guinea. Dividend income received from
BANGE in 2017 and 2016 amounted to P8.9 million and P4.5 million, respectively
(see Note 34).

Net Unrealized Losses on AFS Securities

The movements of net unrealized losses on AFS securities follow:

Note 2017 2016

Balance at beginning of year (P566,622,743) (P386,556,197)
Net unrealized (loss) gain recognized
as OCI (29,788,470) 172,618,932
Realized gains taken to profit or loss 27 (37,554,250) (352,685,478)
Balance at end of year 10, 11 (P633,965,463) (P566,622,743)

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10. Held-to-Maturity Investments

This account consists of:

Note 2017 2016

Government securities 9 P9,538,398,992 P -
Private debt securities 9 2,991,488,213 -
P12,529,887,205 P -

Reclassification of Investment Securities

The Bank transferred certain securities from “AFS securities” account to “HTM
investments” account on various dates in January 2017 (reclassification dates) after
the prescription period under the tainting rule has expired. The move was made to
reclassify securities primarily intended to be held until maturity.

Details of reclassified securities follow (amounts in thousands):

Carrying Carrying Unamortized Amortization
Value at Value at Fair Value at Net Unrealized Of Net
Reclassification December 31, December 31, Loss Deferred Unrealized
Face Value Date 2017 2017 in Equity Loss
(in original currency)
Peso-denominated
Government securities P3,198,484 P3,112,193 P3,129,559 P3,033,220 (P179,275) P15,674
Private debt securities 3,012,210 2,986,441 2,991,488 2,966,885 (20,701) 5,059
P6,210,694 P6,098,634 P6,121,047 P6,000,105 (P199,976) P20,733

Dollar-denominated
government securities $63,770 $70,793 $70,346 $70,447 ($2,695) $208
Amount in PHP P3,184,036 P3,509,111 P3,512,386 P3,517,417 (P134,548) P10,409

Had these securities not been transferred to HTM investments, additional fair value
loss that would have been charged against the statements of comprehensive income
in 2017 amounted to P100.5 million and P19.5 million for peso denominated GS and
private debt securities, respectively, and additional fair value gain of $0.3 million
(P15.4 million) for dollar denominated GS.

The EIRs on peso denominated GS and private debt securities at reclassification

dates ranged from 3.9% to 4.9% and from 4.5% to 6.8%, respectively. The EIRs on
dollar denominated GS at reclassification dates ranged from 2.0% to 3.9%. The Bank
expects to recover 100% of the principal and interest due on these reclassified
securities. These securities are unimpaired as at December 31, 2017.

The unrealized losses deferred under “Net unrealized losses on AFS securities” at
reclassification date amounted to P194.9 million, P25.8 million and $2.9 million
(P143.7 million) on peso denominated GS, peso denominated private debt securities
and dollar denominated GS, respectively.

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11. Loans and Receivables

This account consists of:

Note 2017 2016

Receivables from customers:
Term loans P50,853,198,403 P39,207,590,391
Housing loans 5,333,897,931 3,769,805,510
Auto loans 3,156,510,357 2,659,437,935
Bills purchased, import bills and
trust receipts 21 1,370,260,653 1,250,494,385
Agri-agra loans 1,075,247,714 995,278,647
Direct advances 1,014,523,212 878,291,599
Others 1,218,169,908 1,030,932,972
64,021,808,178 49,791,831,439
Less unearned interest income 49,494,222 14,145,839
63,972,313,956 49,777,685,600
Sales contract receivables 1,204,114,149 694,761,223
Unquoted debt securities 1,018,700,594 1,064,714,656
Accounts receivable 816,116,579 862,302,717
Accrued interest receivable:
Loans and receivables 16 545,099,123 637,361,405
Trading and investment securities 8, 9, 10 258,625,623 188,554,122
Due from BSP and other banks 2,333,333 10,727,083
Interbank loans receivable and
SPURA 934,348 2,604,539
RCOCI 4,526,608 9,056,769
67,822,764,313 53,247,768,114
Less allowance for credit losses 17 2,411,635,842 2,457,526,363
P65,411,128,471 P50,790,241,751

Bills purchased, import bills and trust receipts includes bills purchased with contra
account in “Bills purchased - contra” under “Other Liabilities” amounting to 1.2 billion and
P1.1 billion as at December 31, 2017 and 2016, respectively (see Notes 21 and 34).

Other receivables from customers pertain to consumer loans such as benefit loans,
salary loans, and credit cards.

Sales contract receivables arise mainly from the sale of foreclosed properties booked
under “Investment properties” and “Non-current assets held for sale” accounts.

Accounts receivable mainly consists of amounts due from customers and other
parties under open-account arrangements, advances for buyers of foreclosed
properties, receivables from employees and other miscellaneous receivables.

Unquoted Debt Securities

In June 2016, the Bank transferred its investment in MRT III Bonds from “AFS
securities” account to “Unquoted debt securities” under “Loans and receivables”
account in the statements of financial position due to unavailability of a quoted price
in an active market that can provide a reliable evidence of the investment’s fair value.
The investment has a total face value of $28.8 million (P1.4 billion) with an amortized
cost and carrying value of $17.4 million (P817.8 million) and $15.9 million
(P748.1 million), respectively, at the time of reclassification.

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As at December 31, 2017 and 2016, the carrying value of MRT III Bonds amounted
to $14.6 million (P727.1 million) and $15.5 million (P773.1 million), respectively.
Effective interest rate on MRT III Bond at reclassification date is 12.8%. The Bank
expects to recover 100% of the principal and interest due on MRT III Bond. This
security is unimpaired as at December 31, 2017.

The unrealized losses deferred under “Net unrealized losses on AFS securities”
at reclassification date amounted to $1.5 million (P69.7 million). As at
December 31, 2017 and 2016, unamortized net unrealized losses amounted to
$1.2 million (P57.5 million) and $1.4 million (P68.2 million), respectively.
Amortization of net unrealized loss amounted to $0.2 million (P11.0 million) and
$0.1 million (P5.6 million) in 2017 and 2016, respectively.

Regulatory Reporting
As at December 31, 2017 and 2016, the breakdown of receivables from customers
as to collateral follows (amounts in thousands, except percentages):

2017 2016
Amount % Amount %
Loans secured by:
Real estate P5,593,700 8.7 P6,421,722 12.9
Chattel 2,470,369 3.9 2,650,238 5.3
Deed of assignment 2,096,452 3.3 2,269,620 4.6
Deposit hold-out 1,512,774 2.4 1,198,255 2.4
Others 3,092,462 4.8 2,843,278 5.7
14,765,757 23.1 15,383,113 30.9
Unsecured 49,256,051 76.9 34,408,718 69.1
P64,021,808 100.0 P49,791,831 100.0

As at December 31, 2017 and 2016, information on the concentration of credit as to

industry follows (amounts in thousands, except percentages):

2017 2016
Amount % Amount %
Real estate activities P15,571,886 24.3 P12,577,229 25.3
Manufacturing 10,377,046 16.2 4,447,776 8.9
Construction 8,610,270 13.5 8,673,005 17.4
Electricity, gas, steam, and
air-conditioning supply 6,362,954 9.9 3,669,670 7.4
Financial and insurance
activities 6,053,096 9.5 3,966,176 8.0
Transportation and storage 4,044,839 6.3 3,602,677 7.2
Wholesale and retail trade,
repair of motor vehicles and
motorcycles 2,577,977 4.0 3,410,904 6.9
Arts, entertainment and
recreation 2,000,000 3.1 - 0.0
Administrative and support
service activities 1,890,587 3.0 2,840,663 5.7
Agriculture, forestry and fishing 1,499,690 2.3 918,459 1.8
Accommodation and food
service activities 252,554 0.4 1,493,296 3.0
Others* 4,780,909 7.5 4,191,976 8.4
P64,021,808 100.0 P49,791,831 100.0
*Others include Mining and Quarrying, Information and Communication, Education and other various activities

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BSP considers that concentration of credit risk exists when the total loan exposure to
a particular industry or economic sector exceeds 30.0% of total loan portfolio.
The BROC constantly monitors the credit risk concentration of the Bank. As at
December 31, 2017 and 2016, the Bank does not have credit concentration in any
particular industry.

Under Section X309.1 of MORB, NPLs refer to loans whose principal and/or interest
remain unpaid for 30 days or more after due date or after they have become past
due in accordance with existing 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
non-performing. In the case of receivables that are payable in monthly installments,
the total outstanding balance thereof shall be considered non-performing when 3 or
more installments are in arrears.

In the case of receivables that are payable in daily, weekly, or semi-monthly

installments, the total outstanding balance thereof shall be considered non-
performing 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 10.0% of the
total receivable balance).

Effective January 1, 2013, the exclusion of NPLs classified as loss and are fully
covered by allowance was removed by BSP in the non-performing classification
through Circular No. 772. In addition, BSP Circular No. 772 requires banks to
compute their net NPLs by deducting the specific allowance for credit losses on the
total loan portfolio (inclusive of interbank loans receivable) from the gross NPLs. The
specific allowance for credit losses shall not be deducted from the total loan portfolio
in computing the NPL ratio.

As at December 31, 2017 and 2016, the NPLs of the Bank, as reported to BSP are
as follows:

2017 2016
Gross NPLs P1,905,184 P1,777,798
Less deductions as required by BSP 1,689,148 1,619,043
Net NPLs P216,036 P158,755

Gross and net NPL ratios of the Bank are 2.8% and 0.3%, respectively, as at
December 31, 2017 and 2.8% and 0.2%, respectively, as at December 31, 2016.

As at December 31, 2017 and 2016, restructured loans amounted to P1.1 billion and
P1.2 billion, respectively. Restructured receivables which do not meet the
requirements to be treated as performing receivables shall also be considered as
NPLs. As at December 31, 2017 and 2016, restructured receivables from customers
considered as NPLs amounted to P0.5 billion.

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Interest Income on Loans and Receivables

This account consists of:

Note 2017 2016

Receivable from customers:
Term loans P1,963,878,813 P1,992,349,587
Housing loans 286,828,683 211,042,226
Auto loans 237,443,581 198,525,693
Direct advances 32,391,099 34,753,886
Agri-agra loans 28,074,400 21,388,835
Bills purchased, import bills and
trust receipts 3,850,087 7,524,649
Others 145,634,739 116,710,626
2,698,101,402 2,582,295,502
Unquoted debt securities 103,915,635 53,996,597
Sales contract receivable 44,974,090 58,152,284
Legal interest on PEACe bonds 16 - 181,161,821
P2,846,991,127 P2,875,606,204

Others pertain to interest income from consumer loans such as benefit loans, salary
loans, and credit cards.

As at December 31, 2017 and 2016, 59.6% and 45.1%, respectively, of the total
receivables from customers were subject to periodic interest repricing.
Peso-denominated loans earn annual fixed interest rates ranging from 1.7% to
54.0% in 2017 and 2016. Dollar-denominated loans earn annual fixed interest rates
ranging from 0.1% to 13.0% in 2017 and 2016.

Unquoted debt instruments bear EIR per annum of 12.8% in 2017 and 2016.

Sales contract receivables bear fixed interest rates ranging from 3.4% to 13.2% and
3.4% to 14.3% in 2017 and 2016, respectively.

12. Non-current Assets Held for Sale

As at December 31, 2017 and 2016, these non-current assets were stated at
carrying amount and comprised the following:
2017 2016
Note Land Buildings Total Land Buildings Total
Balance at beginning
of year P - P53,667,264 P53,667,264 P11,156,167 P58,090,670 P69,246,837
Reclassifications 15 - - - (4,304,682) (1,414,106) (5,718,788)
Disposals - (5,545,707) (5,545,707) (6,851,485) (3,009,300) (9,860,785)
Balance at end of year P - P48,121,557 P48,121,557 P - P53,667,264 P53,667,264

In 2017 and 2016, gains on sale of non-current assets held for sale under “Gains on
foreclosure and sale of property and equipment and foreclosed assets - net”
amounted to P6.7 million and P14.8 million, respectively.

In 2016, the Bank ceased to classify certain properties with carrying value of
P5.7 million as non-current assets held for sale due to unlikelihood of the sale.
The properties were reclassified from “Non-current assets held for sale” account to
“Investment properties” account in the statements of financial position.
No adjustment to the carrying amount of the properties was recognized in the
statements of income.

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There is no cumulative income or expenses included in OCI relating to non-current

assets held for sale.

13. Investment in Associate

The details of movements of the Bank’s equity investment in BIC follow:

Note 2017 2016

Acquisition cost (24.25%-owned) P75,395,200 P75,395,200
Accumulated equity in net loss and OCI:
Balance at beginning of year (21,204,083) (20,298,174)
Share in net loss (1,799,558) (1,410,096)
Share in other comprehensive income (loss) (316,108) 504,187
Balance at end of year (23,319,749) (21,204,083)
Allowance for impairment loss 17 (5,925,786) (5,925,786)
34 P46,149,665 P48,265,331

The following table shows the summarized financial information of BIC:

2017** 2016*
Assets P193,514,285 P196,100,349
Liabilities (3,206,386) (3,679,224)
Net assets 190,307,899 192,421,125
Revenues 4,635,867 1,684,777
Net loss for the year (2,140,966) (11,697,139)
OCI for the year 27,741 (1,316,496)
Total comprehensive loss for the year (2,113,225) (13,013,635)
*Based on 2016 audited financial statements
**Based on 2017 unaudited numbers

During the BOD meeting on January 18, 2011, the Board of the Bank approved a
resolution which provides that the Bank is not willing to invest in additional capital
stock of BIC and that it is willing to sell its shares in BIC to any interested and
qualified buyer. Further, the Bank will formally request BIC to amend its Articles of
Incorporation to reflect a change of name in order to remove Bancommerce from its
name, the Bank not being a majority stockholder of the investee, and not having any
participation in its operations.

On April 18, 2013, by a majority vote of BIC’s BOD and by the vote of the
stockholders owning or representing at least two-thirds of the outstanding capital
stock, a motion has been presented and approved to change the corporate name
from BIC Investment and Capital Corporation to BIC Management and Consultancy,
Inc. and to amend its articles of incorporation to drop and withdraw its license as an
investment house. BIC submitted a letter to the SEC dated April 22, 2013, about the
report of corporate approval to amend the Articles of Incorporation to change the
corporate name and the primary purpose of the corporation. On July 23, 2014, SEC
approved the said change of corporate name and the amendment of its articles of
incorporation.

As at December 31, 2017 and 2016, the Bank’s subscribed capital stock in BIC
amounted to P75.8 million out of BIC’s outstanding capital stock of P312.5 million.

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14. Property and Equipment

The movements in property and equipment follow:

December 31, 2017

Furniture,
Fixtures and Leasehold
At Cost Equipment Improvements Total
Cost
Balance at January 1 P1,664,853,505 P750,932,154 P2,415,785,659
Additions 210,079,290 25,887,373 235,966,663
Disposals (120,219,252) - (120,219,252)
Balance at December 31 1,754,713,543 776,819,527 2,531,533,070
Accumulated Depreciation
and Amortization
Balance at January 1 1,344,065,154 642,014,144 1,986,079,298
Depreciation and amortization 91,641,098 40,778,577 132,419,675
Disposals (65,251,252) - (65,251,252)
Balance at December 31 1,370,455,000 682,792,721 2,053,247,721
Net Book Value at December 31 P384,258,543 P94,026,806 P478,285,349

December 31, 2017

At Appraised Values Note Land Buildings Total
Revalued Amount
Balance at January 1 P129,803,199 P823,122,868 P952,926,067
Additions - 10,618,449 10,618,449
Disposals - (24,624,703) (24,624,703)
Fair value adjustments - (5,202,992) (5,202,992)
Reclassifications - - -
Balance at December 31 129,803,199 803,913,622 933,716,821
Accumulated Depreciation
Balance at January 1 - 97,739,757 97,739,757
Depreciation - 28,007,937 28,007,937
Disposals - (16,165,688) (16,165,688)
Fair value adjustments - (2,314,340) (2,314,340)
Reclassifications - - -
Balance at December 31 - 107,267,666 107,267,666
Allowance for impairment
losses 17 (14,733,200) - (14,733,200)
Net Book Value at December 31 P115,069,999 P696,645,956 P811,715,955

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December 31, 2016

Furniture,
Fixtures and Leasehold
At Cost Equipment Improvements Total
Cost
Balance at January 1 P1,647,309,686 P715,508,684 P2,362,818,370
Additions 133,493,793 36,409,687 169,903,480
Disposals (115,949,974) (986,217) (116,936,191)
Balance at December 31 1,664,853,505 750,932,154 2,415,785,659
Accumulated Depreciation
and Amortization
Balance at January 1 1,295,469,827 601,129,494 1,896,599,321
Depreciation and amortization 107,183,908 40,884,650 148,068,558
Disposals (58,588,581) - (58,588,581)
Balance at December 31 1,344,065,154 642,014,144 1,986,079,298
Net Book Value at December 31 P320,788,351 P108,918,010 P429,706,361

December 31, 2016

At Appraised Values Note Land Buildings Total
Revalued Amount
Balance at January 1 P129,803,199 P1,480,488,329 P1,610,291,528
Additions - 24,540,021 24,540,021
Disposals - - -
Fair value adjustments - - -
Reclassifications 15 - (681,905,482) (681,905,482)
Balance at December 31 129,803,199 823,122,868 952,926,067
Accumulated Depreciation
Balance at January 1 - 167,525,357 167,525,357
Depreciation - 36,206,566 36,206,566
Disposals - - -
Fair value adjustments - - -
Reclassifications 15 - (105,992,166) (105,992,166)
Balance at December 31 - 97,739,757 97,739,757
Allowance for impairment
losses 17 (14,733,200) - (14,733,200)
Net Book Value at December 31 P115,069,999 P725,383,111 P840,453,110

In 2017 and 2016, net gains on sale of property and equipment under “Gains on
foreclosure and sale of property and equipment and foreclosed assets - net” account
in the statements of income amounted to P1.0 million and P0.7 million, respectively.

The Bank engaged various accredited independent appraisers to determine the fair
value of its land and buildings. Fair value is determined by reference to
market-based evidence. The valuations performed by the appraisers are based on
market prices of similar properties in the same areas the land and building are
located, adjusted for any difference in the nature, location or condition of the specific
property. Land and buildings were appraised in 2014.

In 2017, the Bank recognized decrease in fair value of buildings included under
“Property and equipment” and “Investment properties” accounts of P2.9 million and
P84.1 million, respectively (see Note 15). The reappraised properties were
subsequently sold at fair value through an installment sale and the full transfer of
revaluation increment - net of tax to retained earnings amounting to P3.8 million and
P256.9 million, respectively, was presented in the statements of changes in equity.
The tax effect on the uncollected consideration P89.4 million is lodged under
deferred tax liability on revaluation increment pending its collection (see Note 31).

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The fair value measurement for land and buildings has been categorized as a
Level 2 recurring fair value based on the inputs to the valuation technique used
(see Note 6).

As at December 31, 2017 and 2016, appraisal increment for land and building,
including revaluation increment for the reclassified properties to “Investment
properties” account, as presented under “Revaluation increment on property and
equipment and investment properties - net of tax” account amounted to
P202.3 million and P638.8 million, respectively. These amounts are gross of deferred
tax effect amounting to P60.7 million and P191.6 million, respectively (see Note 31).

In 2016, land and building, with carrying value of P575.9 million and fair value of
P650.5 million, which are vacant and no longer used for administrative purposes,
were reclassified from “Property and equipment” account to “Investment properties”
account in the statements of financial position. As at December 31, 2017 and 2016,
the appraisal increment of the land and building reclassified to “Investment
properties” account amounted to P79.7 million and P502.3 million, respectively,
gross of deferred tax effect amounting to P23.9 million and P150.7 million,
respectively (see Note 31).

As at December 31, 2017 and 2016, the cost of fully depreciated property and
equipment still in use amounted to P1.1 billion and P1.0 billion, respectively.

If land and buildings were measured using the cost model, the carrying amounts
would have been as follows:
December 31, 2017 December 31, 2016
Land Buildings Total Land Buildings Total
Cost P41,570,353 P838,758,342 P880,328,695 P41,570,353 P842,955,164 P884,525,517
Accumulated depreciation - (176,496,736) (176,496,736) - (165,842,160) (165,842,160)
P41,570,353 P662,261,606 P703,831,959 P41,570,353 P677,113,004 P718,683,357

15. Investment Properties

The movements in investment properties follow:

December 31, 2017

Note Land Buildings Total
Balance at January 1 P4,436,639,326 P1,776,948,904 P6,213,588,230
Additions 275,126,656 61,657,470 336,784,126
Changes in market value
recognized in profit of loss 406,054,037 3,043,123 409,097,160
Changes in market value
recognized in OCI 14 - (55,660,257) (55,660,257)
Reclassifications 12,14 - - -
Disposals 14 (551,104,434) (551,042,889) (1,102,147,323)
Balance at December 31 P4,566,715,585 P1,234,946,351 P5,801,661,936

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December 31, 2016

Note Land Buildings Total
Balance at January 1 P4,178,608,537 P1,222,811,948 P5,401,420,485
Additions 336,093,102 58,985,972 395,079,074
Changes in market value
recognized in profit of loss 65,073,872 (17,487,707) 47,586,165
Changes in market value
recognized in OCI 14 - - -
Reclassifications 12, 14 4,304,682 651,935,748 656,240,430
Disposals 14 (147,440,867) (139,297,057) (286,737,924)
Balance at December 31 P4,436,639,326 P1,776,948,904 P6,213,588,230

The fair values of the Bank’s investment properties have been determined by
BSP-accredited appraisers or in-house appraisers depending on their respective
amounts, on the basis of recent sales of similar properties in the same areas where
the investment properties are located taking into account the economic conditions
prevailing at the time the valuations were made. The recurring fair value
measurement for investment property has been categorized as a Level 2 fair value
based on the inputs to the valuation technique used (see Note 6).

Gain on foreclosure and sale of investment properties under “Gains on foreclosure

and sale of property and equipment and foreclosed assets - net” consists of the
following:

2017 2016
Gain on foreclosure P187,371,212 P250,186,685
Gain (loss) on assets sold 115,382,724 (11,794,216)
P302,753,936 P238,392,469

Rental income on investment properties (included in “Miscellaneous income” account

in the statements of income) in 2017 and 2016 amounted to P0.85 million and
P1.3 million, respectively.

Direct operating expenses on investment properties that generated rental income

(included under “Litigation and acquired assets” in “Other expenses - miscellaneous”
account and “Taxes and licenses” account in the statements of income) in 2017 and
2016 amounted to nil and P3.6 million, respectively. Direct operating expenses on
investment properties such as litigation expenses, included under “Litigation and
acquired assets” in “Other expenses - miscellaneous” account, and real estate taxes,
included under “Taxes and licenses” account in the statements of income, that did
not generate rental income in 2017 and 2016 amounted to P70.7 million and
P72.9 million, respectively (see Note 30).

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16. Other Assets

This account consists of:

Note 2017 2016

Creditable withholding tax P711,650,302 P588,735,746
Intangible assets* 328,421,324 368,515,704
Sinking fund 23 266,378,791 263,575,455
Other properties acquired* 44,018,299 41,988,535
Prepaid expense 37,670,546 36,158,980
Documentary stamps 30,283,539 55,413,765
Withholding tax on PEACe bonds - 580,336,854
Miscellaneous assets 35 4,620,746,949 4,619,697,320
6,039,169,750 6,554,422,359
Less allowance for impairment losses 17 4,617,538,302 4,616,436,465
P1,421,631,448 P1,937,985,894
*net of accumulated amortization/depreciation, gross of allowance for impairment losses

Withholding Tax on PEACe Bonds

This account represents capitalized taxes withheld by the Bureau of Treasury (BTr)
when the Bank’s investment in Poverty Eradication and Alleviation
Certificates (PEACe) bonds matured on October 18, 2011. This was in relation to the
Bureau of Internal Revenue (BIR) ruling No. 370 - 2011 dated October 7, 2011
imposing a 20.0% withholding tax on accumulated interest income on the PEACe
bonds.

On October 17, 2011, the Bank, along with a consortium of other banks with
investment in PEACe bonds filed a petition with the Supreme Court seeking a
temporary restraining order (TRO) against the implementation of the said BIR ruling.
The Supreme Court (SC) issued a TRO, and in a resolution, enjoined to prohibit the
implementation of the BIR ruling and directed that the 20.0% final withholding
tax (FWT) on interest income from PEACe bonds withheld be remitted to the banks
and placed in escrow account pending resolution of the petition.

In a decision dated January 13, 2015, the SC en banc nullified BIR Ruling
Nos. 370-211 and DA 378-2011, reprimanded the BTr for its continued retention of
the amount corresponding to the 20.0% FWT despite the SC’s directive in the TRO
and ordered it to immediately release and pay the banks the amount corresponding
to the 20.0% FWT.

The SC also stated that should the PEACe bonds be found to be within the coverage
of deposit substitutes, the BTr must nevertheless pay the face value of the PEACe
bonds to the banks and for the BTr to collect the unpaid FWT directly from RCBC
Capital (underwriter). Respondents BIR and BTr and intervenor RCBC and RCBC
Capital sought a reconsideration of the above decision in March 2015, seeking the
reversal of the above findings.

In a Resolution promulgated on August 16, 2016, the SC denied the motion for
reconsideration of Respondents BIR and BTr while the SC partially granted that of
RCBC and RCBC capital. The SC agreed that RCBC and RCBC Capital together
with other petitioner banks merely relied on the opinions of the BIR on their vested
rights to exemption from FWT. The SC ordered BTr to immediately release to and
pay the banks the amount of P4.96 billion representing the 20% FWT on the PEACe
bonds plus legal interest at 6.0% per annum from October 19, 2011 until full
payment.

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Respondents BIR and BTr filed a motion on October 19, 2016 for leave to file anew
and admit its motion for partial reconsideration of the Resolution dated
August 16, 2016. However, the SC denied the motion in a minute Resolution dated
November 22, 2016 because a second motion for reconsideration is a prohibited
pleading under the Rules of Court. The SC moreover declared that it shall accept no
further pleading or motion and directed the issuance of Entry of Judgment.

In 2016, the Bank recognized full reversal of the P290.2 million allowance for
impairment losses on PEACe bonds included under “Reversal of credit and
impairment loses” in the statements of income based on Management’s assessment
of the recoverability of the disputed amount and in light of the development in the
status of the related legal case.

By virtue of the Notice of Resolution dated January 17, 2017, the decision of the SC
directing the BTr to immediately release to and pay the banks the 20% FWT on the
PEACe bonds plus legal interest at 6.0% per annum from October 19, 2011 until full
payment has attained finality.

In February 2017, the Bank accrued interest income on PEACe bonds amounting to
P181.2 million included under “Interest income on loans and receivables” in the
statements of income as at December 31, 2016 after qualifying as an adjusting event
after the reporting date (see Note 11).

The BTr and the petitioner banks started negotiations for a settlement agreement in
March 2017. Based on the agreement, each petitioner bank will agree to receive as
payment the total amount withheld and 4% interest per annum in the form
of securities, instead of receiving the total amount withheld and 6% interest per
annum based on the Notice of Resolution dated January 17, 2018.

On April 11, 2017, the settlement agreement was executed in which the Bank
received the withheld amount and 4.0% interest per annum from October 19, 2011 to
April 11, 2017 in the form of 3-year Retail Treasury Bonds with interest of 4.25% per
annum included under "AFS securities” (see Note 9). The settlement resulted in a
loss of P54.0 million which is included under “Miscellaneous expense” (see Note 30).

Intangible Assets
Intangible assets consist of:

2017 2016
Software costs* P268,421,324 P308,515,704
Branch licenses 60,000,000 60,000,000
328,421,324 368,515,704
Less allowance for impairment losses 90,278,696 90,278,696
P238,142,628 P278,237,008
*net of accumulated amortization, gross of allowance for impairment losses

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Movements in software costs follow:

2017 2016
Cost
Balance at January 1 P638,382,285 P580,729,124
Additions 67,795,996 63,133,883
Disposals and others (630,000) (5,480,722)
Balance at end of year 705,548,281 638,382,285
Accumulated Amortization
Balance at January 1 329,866,581 224,183,048
Amortization for the year 107,666,376 111,164,255
Disposals and others (406,000) (5,480,722)
Balance at end of year 437,126,957 329,866,581
Less allowance for impairment losses 90,278,696 90,278,696
Net Book Value P178,142,628 P218,237,008

Other Properties Acquired

Movements in the other properties acquired follow:

2017 2016
Cost
Balance at January 1 P52,178,714 P18,673,404
Additions 58,058,000 52,853,000
Disposals (50,450,192) (19,347,690)
Balance at end of year 59,786,522 52,178,714
Accumulated Depreciation
Balance at January 1 10,190,179 3,648,185
Depreciation for the year 18,413,324 10,336,121
Disposals (12,835,280) (3,794,127)
Balance at end of year 15,768,223 10,190,179
Less allowance for impairment losses 7,188 382,361
Net Book Value P44,011,111 P41,606,174

In 2017 and 2016, gain on foreclosure amounted to P1.0 million and P1.1 million,
respectively. Gain on sale of other properties acquired under “Gains on foreclosure
and sale of property and equipment and foreclosed assets - net” amounted to
P6.2 million and P2.0 million in 2017 and 2016, respectively (see Note 34).

Deferred Charges - Loss on Sale to SPV

The Bank sold certain non-performing assets (NPAs) to a special purpose vehicle
(SPV) in 2007 and 2005. Pursuant to the requirements of PFRSs, the losses arising
from the sale of the NPAs amounting to P432.1 million and P1.5 billion in 2007 and
2005, respectively, were recognized in full in the period such losses were incurred.
The NPLs were sold for cash to an SPV pursuant to Republic Act (RA) No. 9182,
The Special Purpose Vehicle Act of 2002.

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For its separate prudential reporting to BSP, the Bank continues to defer and
amortize the losses from the sale of NPLs over ten years as provided under
RA No. 9182:

End of Period from Cumulative Write-down of

Date of Transaction Deferred Charges
Year 1 5%
Year 2 10%
Year 3 15%
Year 4 25%
Year 5 35%
Year 6 45%
Year 7 55%
Year 8 70%
Year 9 85%
Year 10 100%

For the purpose of computing the Bank’s income tax expense, the loss is treated as
an ordinary loss and will be carried over as a deduction from the Bank’s taxable
gross income for a period of 5 consecutive taxable years immediately following the
year of sale. For income tax reporting, the deferred losses were fully recognized in
2012 and 2010, respectively.

Miscellaneous Assets
This account includes NPAs amounting to P4.4 billion as at December 31, 2017 and
2016 which were assumed by the Bank in connection with the Purchase and Sale
Agreement (PSA) entered into by the Bank with Traders Royal Bank (TRB) in 2002
(see Note 35). Pursuant to the requirements of PFRS, the impairment losses on the
NPAs amounting to P4.4 billion as at December 31, 2017 and 2016, were charged in
full in the period incurred.

For its separate prudential reporting to BSP, the Bank was allowed under the
MB Resolution No. 1751, dated November 8, 2001, as further amended by
MB Resolution No. 489, dated April 3, 2003 and pursuant to MB Resolution
No. 1950, dated November 21, 2013, to defer the full recognition of the impairment
losses. The Bank annually recognizes provisions for impairment losses to gradually
meet the foregoing provisioning requirement based on the net yield earned by the
Bank from the Financial Assistance Agreement (FAA) with Philippine Deposit
Insurance Corporation (PDIC) until November 29, 2013 when the collateralized GS
was sold and the obligation was fully settled. In 2017 and 2016, provisions for
impairment losses recognized for prudential reporting to BSP amounted to
P159.3 million and P158.9 million, respectively (see Note 35).

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17. Allowance for Credit and Impairment Losses

Movements in allowance for credit and impairment losses are summarized as follows
(amounts in thousands):

December 31, 2017

Property Other
AFS Loans and and Assets*
Securities Receivables Equipment (Notes 13
(Note 9) (Note 11) (Note 14) and 16) Total
Balance at beginning of year P300,158 P2,457,526 P14,733 P4,622,362 P7,394,779
(Reversal of) credit and
impairment losses for the year 6,165 (22,335) - 1,195 (14,975)
Accounts charged-off - (24,474) - (93) (24,567)
Foreign exchange differences 602 919 - - 1,521
Balance at end of year P306,925 P2,411,636 P14,733 P4,623,464 P7,356,758

*Includes allowance for impairment loss on investment in associate (see Note 13) and other assets
(see Note 16)

December 31, 2016

Property Other
AFS Loans and and Assets*
Securities Receivables Equipment (Notes 13
(Note 9) (Note 11) (Note 14) and 16) Total
Balance at beginning of year P299,990 P2,338,501 P14,733 P4,858,705 P7,511,929
(Reversal of) credit and
impairment losses for the year - 128,109 - (236,148) (108,039)
Accounts charged-off - (22,017) - (195) (22,212)
Foreign exchange differences 168 12,933 - - 13,101
Balance at end of year P300,158 P2,457,526 P14,733 P4,622,362 P7,394,779

*Includes allowance for impairment loss on investment in associate (see Note 13) and other assets
(see Note 16)

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146
A reconciliation of the allowance for credit losses for loans and receivables follows:

December 31, 2017

2017 annual report

Bills
Purchased,
Import
Direct Agri-agra Bills, and
Note Term Loans Advances Loans Trust Receipts Housing loans Auto loans Others* Total
Balance at beginning of year P981,424,006 P126,131,270 P8,203,792 P77,954,954 P28,508,836 P115,739,834 P1,119,563,671 P2,457,526,363
(Reversal of) credit losses for the year (208,166,077) (873,684) 8,104,077 (5,050,256) 11,446,652 63,631,345 108,572,706 (22,335,237)
Accounts charged-off - - - - (4,031,675) (18,521,435) (1,920,960) (24,474,070)
Foreign exchange differences 518,462 - - - - - 400,324 918,786
Balance at end of year P773,776,391 P125,257,586 P16,307,869 P72,904,698 P35,923,813 P160,849,744 P1,226,615,741 P2,411,635,842
Total Credit Allowance 11
Individual impairment P1,952,777,237
Collective impairment 458,858,605
P2,411,635,842
Gross amount of loans and receivables,
individually determined to be impaired P3,419,455,553
*Includes other receivable from customers, i.e. credit cards and salary or personal loans, accounts receivable, sales contract receivable, accrued interest receivable and unquoted debt securities

December 31, 2016

Bills
Purchased,
Import
Direct Agri-agra Bills, and
Note Term Loans Advances Loans Trust Receipts Housing loans Auto loans Others* Total
Balance at beginning of year P1,051,895,363 P56,562,192 P6,935,179 P90,591,352 P35,939,770 P44,823,213 P1,051,753,890 P2,338,500,959
(Reversal of) credit losses for the year (58,831,766) 69,569,078 1,268,613 (12,636,398) (7,430,934) 70,916,621 65,253,606 128,108,820
Accounts charged-off (19,737,504) - - - - - (2,279,466) (22,016,970)
Foreign exchange differences 8,097,913 - - - - - 4,835,641 12,933,554
Balance at end of year P981,424,006 P126,131,270 P8,203,792 P77,954,954 P28,508,836 P115,739,834 P1,119,563,671 P2,457,526,363
Total Credit Allowance 11
Individual impairment P1,976,227,774
Collective impairment 481,298,589
P2,457,526,363
Gross amount of loans and receivables,
individually determined to be impaired P3,481,564,099
*Includes other receivable from customers, i.e. credit cards and salary or personal loans, accounts receivable, sales contract receivable, accrued interest receivable and unquoted debt securities

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Movement of the individual and collective allowance for credit losses on loans and
receivables:
December 31, 2017 December 31, 2016
Individual Collective Individual Collective
Impairment Impairment Total Impairment Impairment Total
Balance at beginning of
year P1,976,227,774 P481,298,589 P2,457,526,363 P1,893,322,276 P445,178,683 P2,338,500,959
(Reversals of) credit
losses for the year (22,437,000) 101,763 (22,335,237) 72,251,410 55,857,410 128,108,820
Accounts charged-off (1,920,960) (22,553,110) (24,474,070) (2,279,466) (19,737,504) (22,016,970)
Foreign exchange
differences 907,423 11,363 918,786 12,933,554 - 12,933,554
Balance at end of year P1,952,777,237 P458,858,605 P2,411,635,842 P1,976,227,774 P481,298,589 P2,457,526,363

18. Deposit Liabilities

Effective May 30, 2014, non-FCDU deposit liabilities are subject to reserve
requirement equivalent to 20.0% under BSP Circular No. 832. The required reserves
shall be kept in the form of deposits placed in bank’s Demand Deposit Accounts
(DDAs) with BSP and any government securities which are previously used as
compliance until they mature.

On June 2016, BSP-Special Deposit Accounts (SDA) were replaced with

BSP- Overnight Deposit Accounts (ODA).

As at December 31, 2017 and 2016, the Bank is in compliance with such reserve
requirements. Due from BSP-DDA amounting to P24.2 billion and P21.2 billion as at
December 31, 2017 and 2016, respectively, is available for meeting these reserve
requirements as reported to BSP.

On February 15, 2018, BSP issued Circular No. 997, which amends the reserve
requirement on non-FCDU deposit liabilities from 20.0% to 19.0% effective on
March 2, 2018.

In 2017 and 2016, Due from BSP-ODA earned interest rate of 2.5% and Due from
BSP-Term Deposit Accounts earned interest rates ranging from 3.0% to 3.5% and
from 2.9% to 3.5%, respectively. Due from BSP-SDA earn interest rate of 2.5% in
2016.

Interest expense on deposit liabilities follows:

2017 2016
Demand P244 P848
Savings 636,030,314 670,100,219
Time 231,078,277 192,527,826
P867,108,835 P862,628,893

Peso-denominated deposits are subject to annual interest rates ranging from 0.1% to
4.0% and from 0.1% to 4.5% in 2017 and 2016, respectively. Foreign currency-
denominated deposits are subject to annual interest rates ranging from 0.1% to 2.3%
in 2017 and from 0.1% to 1.9% in 2016.

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19. Bills Payable

This account consists of short-term peso denominated borrowings from local banks
and borrowings from the rediscounting facility availed by TRB from Social Security
System, which was assumed by the Bank in connection with the PSA entered into by
the Bank with TRB in 2002. Borrowings from rediscounting facility were collateralized
by certain receivables from customers amounting to P0.3 million. As at
December 31, 2017 and 2016, there are no short-term borrowings from local banks.

Borrowings from rediscounting facility are subject to annual interest rates ranging
from 8.0% to 12% in 2017 and 5% to 12% in 2016. Short-term borrowings from local
banks are subject to annual interest rates ranging from 2.7% to 3.0% in 2017 and
2.5% to 2.6% in 2016.

Interest expense on short-term borrowings amounted to P0.5 million and P0.1 million
in 2017 and 2016, respectively. In 2017, “Interest expense on bills payable and
others” under the statements of income includes interest expense on tax settlement
amounting to P13.8 million.

20. Accrued Interest, Taxes and Other Expenses

This account consists of:

Note 2017 2016

Accrued interest payable:
Deposit liabilities 18 P200,070,129 P159,732,239
Bills payable 19 4,085 5,170
200,074,214 159,737,409
Accrued taxes payable 151,549,883 178,506,796
Accrued employee and other benefits 154,306,096 172,463,403
Accrued insurance 116,363,721 112,159,680
Accrued lease liability 74,398,052 81,966,906
Accrued penalties 64,966,606 87,705,991
Accrued equipment-related expenses 47,207,586 29,949,206
Accrued management and professional
fees 20,879,898 10,010,866
Other accrued expenses 77,120,226 109,443,593
P906,866,282 P941,943,850

Other accrued expenses include accruals for utilities expenses, security services,
janitorial, messengerial and various expenses attributable to the Bank’s operations.

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21. Other Liabilities

This account consists of:

Note 2017 2016

Bills purchased - contra 11 P1,247,740,827 P1,098,815,398
Accounts payable 473,086,703 551,859,236
Due to preferred shareholders 23 266,378,791 263,575,455
Retirement liability 28 185,446,237 84,036,498
Withholding tax payable 54,558,880 52,586,188
Due to Treasurer of the Philippines 53,480,731 28,677,661
Miscellaneous 138,267,766 146,283,347
P2,418,959,935 P2,225,833,783

Accounts payable mainly pertains to advance payments from customers, inward and
outward remittances received by the Bank pending payment or application to
designated accounts.

Miscellaneous include unearned income from bank guarantee, unclaimed salaries of

resigned employees and other credit dormant accounts.

22. Maturity Profile of Assets and Liabilities

The following tables present the maturity profile of the assets and liabilities of the
Bank based on the amounts to be recovered or settled within and/or after more than
12 months after the reporting period (in thousands):
2017 2016
Within Over Within Over 12
Note 12 Months 12 Months Total 12 Months Months Total
Financial Assets - gross
COCI P1,384,982 P - P1,384,982 P1,635,565 P - P1,635,565
Due from BSP 18 25,704,212 - 25,704,212 31,232,967 - 31,232,967
Due from other banks 3,185,996 - 3,185,996 3,839,466 - 3,839,466
Interbank loans receivable
and SPURA 7 6,316,150 - 6,316,150 18,076,096 - 18,076,096
Financial assets at FVPL: 8
Government securities
held-for-trading 76,081 - 76,081 68,346 - 68,346
Derivative assets - 24,965 24,965 - 24,860 24,860
Private debt securities - - - - 305 305
AFS securities - gross: 9
Quoted government
securities 4,714,350 11,373,711 16,088,061 4,992,023 14,107,593 19,099,616
Quoted other debt
securities - 881,951 881,951 42,406 4,042,221 4,084,627
Quoted equity securities - 104,081 104,081 - 106,606 106,606
Unquoted equity securities - 339,483 339,483 - 335,089 335,089
HTM investments: 10
Quoted government
securities - 9,538,399 9,538,399 - - -
Quoted other debt
securities - 2,991,488 2,991,488 - - -
Loans and receivables -
gross: 11
Receivable from
customers:
Term loans 27,834,297 23,018,901 50,853,198 16,255,869 22,951,721 39,207,590
Housing loans 17,994 5,315,904 5,333,898 9,854 3,759,952 3,769,806
Auto loans 100,358 3,056,152 3,156,510 77,756 2,581,682 2,659,438
Bills purchased, import
bills and trust receipts 1,370,261 - 1,370,261 1,250,494 - 1,250,494
Agri-agra loans 1,005,056 70,192 1,075,248 831,185 164,094 995,279
Direct advances 1,001,185 13,338 1,014,523 855,519 22,773 878,292
Others 613,473 604,697 1,218,170 543,134 487,798 1,030,932
Sales contract receivables 174,079 1,030,036 1,204,115 79,456 615,305 694,761
Unquoted debt securities - 1,018,700 1,018,700 - 1,064,715 1,064,715
Accrued interest receivable 806,992 - 806,992 839,247 - 839,247
Accounts receivable 816,116 - 816,116 862,303 - 862,303
RCOCI 4,527 - 4,527 9,057 - 9,057
Investment in associate 13 - 75,395 75,395 - 75,395 75,395
75,126,109 59,457,393 134,583,502 81,500,743 50,340,109 131,840,852

Forward

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2017 2016
Within Over Within Over 12
Note 12 Months 12 Months Total 12 Months Months Total
Non-financial Assets - gross
Non-current assets held for
sale 12 P48,122 P - P48,122 P53,667 P - P53,667
Property and equipment 14 - 3,465,250 3,465,250 - 3,368,712 3,368,712
Investment properties 15 - 5,801,662 5,801,662 - 6,213,588 6,213,588
Deferred tax assets - net 31 - 108,225 108,225 - 168,489 168,489
Other assets 16 956,732 5,535,333 6,492,065 848,139 6,046,340 6,894,479
1,004,854 14,910,470 15,915,324 901,806 15,797,129 16,698,935

P76,130,963 P74,367,863 150,498,826 P82,402,549 P66,137,238 148,539,787

Less:
Allowance for credit and
impairment losses 17 7,356,758 7,394,779
Accumulated equity in net
loss 13 23,320 21,204
Accumulated
depreciation and
amortization 14, 16 2,613,411 2,423,876
Unearned interest 11 49,494 14,146
Total P140,455,843 P138,685,782

2017 2016
Within Over 12 Within Over 12
Note 12 Months Months Total 12 Months Months Total
Financial Liabilities
Deposit liabilities 18
Demand P26,863,177 P - P26,863,177 P24,422,978 P - P24,422,978
Savings 74,895,962 - 74,895,962 68,709,645 - 68,709,645
Time 15,945,691 1,063,222 17,008,913 23,061,522 1,301,870 24,363,392
Bills payable 19 20 247 267 - 484 484
Manager’s checks 560,296 - 560,296 716,060 - 716,060
Accrued interest and
other expenses* 20 526,612 - 526,612 509,007 - 509,007
Other liabilities** 21 1,912,576 266,379 2,178,955 1,825,636 263,575 2,089,211
120,704,334 1,329,848 122,034,182 119,244,848 1,565,929 120,810,777

Non-financial Liabilities
Accrued taxes and other
expense payable 20 380,254 - 380,254 432,937 - 432,937
Other liabilities 21 240,005 - 240,005 136,623 - 136,623
620,259 - 620,259 569,560 - 569,560

P121,324,593 P1,329,848 P122,654,441 P119,814,408 P1,565,929 P121,380,337

*amounts exclude accrued employee and other benefits, accrued taxes payable and accrued lease liability
**amounts exclude withholding tax payable and retirement liability

23. Capital

As at December 31, 2017 and 2016, the Bank has 112,241,112 common shares
issued and subscribed with a par value of P100 and has no outstanding preferred
shares. However, the Bank has outstanding liability for the unpaid portion of the
redemption price of preferred shares amounting to P266.4 million and P263.6 million
as at December 31, 2017 and 2016, respectively, which is recorded as “Due to
preferred shareholders” account under “Other liabilities” in Note 21 to the financial
statements. As at December 31, 2017 and 2016, the related sinking fund which is
recorded as “Miscellaneous assets” account amounting to P266.4 million and
P263.6 million, respectively, has been set up to fund the eventual settlement of this
liability (see Note 16).

On April 8, 2010, the SEC approved the Bank’s application for the increase in
authorized capital stock from P6.0 billion divided into 52.5 million common shares;
7.5 million preferred shares both with the par value of P100 each, to P22.0 billion
divided into P212.5 million common shares; 7.5 million preferred shares both with the
par value of P100 each. The related amendment to the Articles of Incorporation of
the Bank relative to its proposed increase in authorized capital stock from P6.0 billion
to P22.0 billion, was approved by BSP and the SEC on March 26, 2010 and
April 8, 2010, respectively.

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During its meeting on January 18, 2011, the BOD of the Bank passed a resolution
approving the following:

 the sale of fully paid shares of Valiant Ventures & Development Holdings, Inc.
(Valiant) in the Bank to SMPI and SMCRP amounting to 2,800,000 shares and
1,972,735 shares, respectively; and

 the assignment of subscription rights of Valiant to SMPI amounting to

523,726 shares (Tranche 1) and 4,713,539 shares (Tranche 2).

In this connection, the Bank secured the approval of the MB of BSP for such sale of
shares and assignment of subscription of the shares of Valiant. This is mandated in
BSP’s MORB since the total shareholdings of Valiant entitles it to a board seat.
The Board has also agreed that the sale of shares and assignment of subscription
rights be recorded in the stock and transfer book of the Bank only after the approval
of the MB has been obtained.

On March 30, 2011, the MB of BSP approved the sale of shares of Valiant. In 2011,
the Bank’s subscribed common stock totaling 59,741,113 shares have been fully
paid in accordance with the subscription agreement.

Equity Restructuring
On May 31, 2016, the BOD approved the Bank to undergo equity restructuring to
wipe out the deficit amounting to P3,154,450,041 as at December 31, 2015 through
the use of the Bank’s Paid-in surplus.

On August 6, 2016, the Bank received from BSP a “No Objection” response to the
Bank’s application for equity restructuring with the SEC subject to the (1) Bank’s
compliance with the SEC’s other requirements; and (2) condition that the Bank shall
provide BSP a certified true copy of SEC’s approval of the equity restructuring within
5 days from Bank receipt thereof.

On December 22, 2016, the Bank, through a letter dated December 14, 2016, filed
an application with the SEC through the Company Registration and Monitoring
Department (CRMD) requesting approval of the Equity Restructuring Plan. Upon
filing with the CRMD, the Bank was advised to forward the Application to the Market
and Securities Regulation Department (MSRD) for endorsement. In its letter dated
December 23, 2016, the MSRD interposed no objection to the Application provided
that the Bank submits a certification that it is still in compliance with certain
reportorial conditions after the SEC’s approval of the Application.

On February 8, 2017, the Application was reverted to the CRMD.

On February 13, 2017, the SEC, through the CRMD, formally approved the equity
restructuring to wipe-out the deficit as at December 31, 2015 amounting to
P3.15 billion against the Paid-in surplus of P8.75 billion subject to the conditions that
the remaining Paid-in surplus of P5.59 billion shall not be used to wipe-out future
losses without further approval from SEC.

Capital Management
The Bank’s capital base, comprised of capital stock, paid-in surplus, surplus reserves
and revaluation increment on property, is actively being managed to cover risks
inherent in the Bank’s operations. In 2009, SMPI and SMCRP infused additional
capital amounting to P3.3 billion in the form of paid-up common stock.
On February 18, 2010 and March 1, 2010, major stockholders infused P271.9 million
and P2.1 billion, respectively, into the Bank in the form of advances for future stock
subscriptions, which shall be treated as part of the Bank’s paid-up capital upon the
SEC’s approval thereon and on the increase in the Bank’s authorized capital stock.

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On October 29, 2014, BSP issued Circular 854 amending Subsection X111.1 of the
MORB regarding the minimum capitalization requirement applicable for the Bank
(commercial banks with more than 100 branches) from P2.4 billion to P15.0 billion
effective November 13, 2014. Banks which comply with the new capital levels shall
submit to BSP a certification to this effect within 30 calendar days from the date of
the effectivity of the circular while banks which are not meeting the required minimum
capital must submit to BSP an acceptable capital build-up program within 1 year from
the date of effectivity of the circular.

The issuance of BSP Circular No. 639 covering the ICAAP in 2009 supplements
BSP’s risk-based capital adequacy framework under Circular No. 538. In compliance
with this new circular, the Bank has adopted and developed its ICAAP framework to
ensure that appropriate level and quality of capital are maintained. 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 Bank. The level
and structure of capital are assessed and determined in light of the Bank’s business
environment, plans, performance, risks and budget; as well as regulatory edicts.
Pursuant to MB Resolution No. 84 dated January 14, 2015, the deadline for
submission of ICAAP documents was amended from January 31 of each year to
March 31 effective 2015 (BSP Circular No. 869 dated January 30, 2015).

As at December 31, 2017 and 2016, the reported unimpaired capital of P16.2 billion
and P15.7 billion, respectively, exceeded the required minimum regulatory capital of
P15.0 billion for commercial banks with more than 100 branches.

The Bank’s overall strategy on capital management remains unchanged since prior
financial year.

Regulatory Qualifying Capital

Under existing BSP regulations, 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 BSP, which is determined on the basis
of Regulatory Accounting Principles which differ from PFRSs in some respects.

The BSP sets and monitors compliance to minimum capital requirements for the
Bank. In implementing current capital requirements, BSP issued Circular 538 which
implemented the Revised Risk-Based Capital Adequacy Framework under Basel II
effectively July 1, 2007. It requires the Bank to maintain a prescribed risk-based
capital adequacy ratio (expressed as a percentage of qualifying capital to risk-
weighted assets) of not less than 10.0%.

Under BSP Circular 538, the regulatory qualifying capital of the Bank consists of
Tier 1 (core) and Tier 2 (supplementary) capital. Tier 1 capital comprised common
stock, additional paid-in capital and surplus. Tier 2 composed upper tier 2 and lower
tier 2. Upper tier 2 consists of preferred stock, revaluation increment reserve, general
loan loss provision and deposit for common stock subscription. Lower tier 2 consists
of the unsecured subordinated debt.

On January 15, 2013, BSP issued Circular 781 which contains the revised risk-based
capital adequacy framework for the Philippine Banking system in accordance with
the Basel III standards. The said Circular took effect on January 1, 2014. The
following are the revised minimum capital requirements for UBs and KBs and their
subsidiary banks and quasi-banks (QBs):

 6.0% Common Equity Tier 1 (CET1)/Risk-Weighted Assets (RWAs)

 7.5% Tier 1 Capital/RWAs, and
 10.0% Total Qualifying Capital (Tier1 plus Tier2)/RWAs

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The Qualifying Capital must consist of the sum of the following elements, net of
required deductions: Tier 1-‘going concern’ [CET1 plus Additional Tier 1(ATI)] and
Tier 2 -‘gone concern.’ A bank/quasi-bank must ensure that any component of capital
included in qualifying capital complies with all the eligibility criteria for the particular
category of capital in which it is included. The Circular further describes the
elements/criteria that a domestic bank should meet for each capital category.
Regulatory adjustments and calculation guidelines for each capital category are also
discussed.

In conformity with the Basel III standards, a Capital Conservation Buffer (CCB) of
2.5% of RWAs, comprised of CET1 capital, has been required of U/KBs and their
subsidiary banks and quasi-banks. This buffer is meant to promote the conservation
of capital and build-up of adequate cushion that can be drawn down by banks to
absorb losses during financial and economic stress. The restrictions on distribution
that a bank must meet at various levels of CET1 capital ratios are established, as
shown in below table. Restrictions will be imposed if a bank has no positive earnings,
has CET1 of not more than 8.5% (CET Ratio of 6.0% plus conservation buffer of
2.5%) and has not complied with the minimum 10% CAR.

Level of CET 1 capital Restriction on Distributions

<6.0 No distribution
No distribution until more than 7.25% CET1 capital is
6.0%-7.25% met
>7.25%-8.5% 50% of earnings may be distributed
>8.5% No restriction on the distribution

On June 9, 2015, MB issued BSP Circular No. 881, Implementing Guidelines on the
Basel III Leverage Ratio Framework, which approved the guidelines for the
implementation of the Basel III Leverage Ratio in the Philippines and designed to act
as supplementary measure to the risk-based capital requirements. It is defined as
the capital measure (numerator) divided by the exposure measure (denominator).
The leverage ratio shall not be less than 5.0% computed on both solo (head office
plus branches) and consolidated bases (parent bank plus subsidiary financial allied
undertakings but excluding insurance companies).

On March 10, 2016, MB approved the liquidity standards and issued BSP Circular
No. 905, Implementation of BASEL III Framework on Liquidity Standards-Liquidity
Coverage Ratio (LCR) and Disclosure Standards, The LCR is the ratio of HQLAs to
total net cash outflows. Under normal situation, the value of the ratio should be no
lower than 100% on a daily basis because the stock of unencumbered HQLA is
intended to serve as a defense against the potential onset of liquidity stress.
The compliance with the LCR minimum requirement will commence on
January 01, 2018 and the prescribed minimum shall be set initially at 90% for 2018
and shall rise to the minimum level of 100% on January 01, 2019.

This applies to U/KBs as well as their subsidiary banks and quasi-banks with the
framework anchored on the international standards issued by the Basel Committee
on Banking Supervision known as the Basel 3 reforms.

As at December 31, 2017 and 2016, based on the CAR reports submitted to BSP,
the Bank’s CAR of 17.1% and 18.1%, respectively, exceeded the minimum 10.0%
requirement as computed and monitored using the rules and ratios established by
the Basel Committee on Banking Supervision (“BIS rules/ratios”), based on the Basel
III framework.

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The breakdown of the Bank’s risk-weighted assets as at December 31, 2017 and
2016 as reported to BSP follows (amounts in thousands):

2017 2016
Credit risk-weighted assets P80,164,083 P65,018,000
Market-risk weighted assets 265,875 7,330,435
Operational risk-weighted assets 6,912,747 6,761,263
P87,342,705 P79,109,698

The Bank is also required to maintain a minimum Tier 1 capital ratio of 7.5% in 2017
and 2016 (in millions) which was complied as per below:

2017 2016
Tier 1 capital P14,312 P13,843
Tier 2 capital 643 482
Total qualifying capital P14,955 P14,325
Risk-weighted assets P87,343 P79,110
Tier 1 capital ratio 16.4% 17.5%
Total capital ratio 17.1% 18.1%

Certain adjustments are made to PFRSs results and reserves to calculate CAR
which included the Bank’s accounting of the following transactions that require
different accounting treatments under PFRSs:

a) calculation of reserves for allowance for credit losses on loans and receivables;
b) non-performing assets and operating losses of TRB capitalized as miscellaneous
assets and subject to staggered allowance provisioning through offset of net
yield earned from the financial assistance;
c) deferral of losses on sold NPLs to SPV Company; and
d) accounting for investment properties.

For items a, b and d, the recognition of the Bank is based on the accounting
treatment approved by BSP (see Notes 11, 15, 16 and 34). For item c, the
accounting treatment is based on the provisions of the SPV law.

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

2017 2016
Return on average equity 3.6% 3.5%
Return on average assets 0.5% 0.5%
Net interest margin on average earning assets 3.3% 3.6%

24. Surplus Reserves

2017 2016
Reserve for trust business P99,442,049 P92,581,050
Reserve for self-insurance 60,000,000 60,000,000
P159,442,049 P152,581,050

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In compliance with existing BSP regulations, 10.0% of the Bank’s profit from trust
business is appropriated to surplus reserve. This yearly appropriation is required until
the surplus reserve for trust business equals 20.0% of the Bank’s authorized capital
stock.

Reserve for self-insurance represents the amount set aside to cover losses due to
fire, defalcation and other unlawful acts of the Bank’s personnel or third parties.

25. Interest Income on Debt Securities

This account consists of:

Note 2017 2016

Financial assets at FVPL: 8
Government securities held for
trading P14,902,334 P29,696,887
Private debt securities held for
trading 7,169 23,250
AFS securities: 9
Quoted government securities 428,168,321 575,949,001
Quoted private debt securities 59,222,004 224,907,965
Unquoted debt securities 11 - 51,873,619
HTM investments: 10
Quoted government securities 289,987,783 -
Quoted private debt securities 158,572,207 -
P950,859,818 P882,450,722

Foreign currency-denominated financial assets at FVPL bear EIRs ranging from

2.3% to 9.9% in 2017 and from 2.8% to 9.9% in 2016. Peso-denominated financial
assets at FVPL bear EIRs ranging from 3.6% to 8.1% in 2017 and 2016.

Foreign currency-denominated AFS securities bear EIRs ranging from 0.5% to 4.8%
in 2017 and from 0.3% to 12.8% in 2016. Peso-denominated AFS securities bear
EIRs ranging from 2.0% to 7.0% in 2017 and from 2.3% to 4.6% in 2016.

Foreign currency-denominated and peso-denominated HTM investments bear EIRs

ranging from 2.0% to 3.9% and 3.9% to 6.8%, respectively, in 2017.

26. Service Charges, Fees and Commissions

This account consists of:

2017 2016
Service charges P163,628,784 P145,330,699
Trust income 81,234,451 68,586,939
Commitment and other loan-related charges 55,380,619 11,532,305
Fees and commissions 48,947,595 8,392,354
Credit card fees 38,691,565 37,021,664
Penalty charges 37,027,014 14,093,204
Telegraphic transfer fees 13,051,704 8,177,396
Letters of credit fees 12,675,118 11,353,977
Others 26,088,187 19,715,222
P476,725,037 P324,203,760

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Service charges include charges on loans and deposit taking-related activities.

Others include acceptance and remittance fee.

27. Trading and Investment Securities Gains - net

This account consists of realized and unrealized gains (losses) from the following
securities:

Note 2017 2016

Financial assets and liabilities at FVPL:
Debt securities
Realized P19,517,508 (P97,155,416)
Unrealized 8 (811,909) 86,897,122
AFS securities 9 37,554,250 352,685,478
P56,259,849 P342,427,184

28. Employee Benefits

Retirement Plan
The Bank has a funded noncontributory defined benefit retirement plan covering its
regular and permanent employees. Contributions and costs are determined in
accordance with the actuarial studies made for the plan. Annual cost is determined
using projected unit credit method.

The Bank’s retirement benefits are based on the employee’s years of service and a
percentage of his gross monthly salary. An employee shall be retired and shall be
entitled to full retirement benefits upon his attainment of 60 years of age.

An employee, upon reaching the age of 50 years and with the completion of no less
than 10 years of service as a regular employee and with 30 days prior notice to the
Bank, may retire at his option and shall be entitled to the retirement benefits.

An employee who has at least 10 years of service as a regular employee, but who
has not reached the age of 50 years, may retire at his option and shall be entitled to
the retirement benefits but such retirement benefit shall be subject to the pertinent
requirements of the BIR.

The Bank’s retirement plan is registered with the BIR as a tax-qualified plan under
RA No. 4917, as amended, and complies with the minimum retirement benefit
specified under RA No. 7641, the “New Retirement Law.”

The retirement fund is being managed and administered by the Bank’s Trust
Services Division which is covered by an Investment Management Account (IMA)
Agreement (agency relationship).

The date of the last actuarial valuation is December 18, 2017. Valuations are
performed on an annual basis.

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As at December 31, 2017 and 2016, the principal actuarial assumptions used in
determining retirement benefits liability for the Bank’s retirement plan are shown
below:

2017 2016
Average working life 13.0 13.0
Discount rate 5.8% 5.6%
Future salary increases 6.6% 6.6%

The following table shows reconciliation from the opening balances to the closing
balances for net retirement benefit liability and its components (in thousands).

Defined Benefits Fair Value of Net Retirement

Obligation Plan Assets Benefit Liability
2017 2016 2017 2016 2017 2016
Balance at January 1 P783,066 P790,969 (P699,030) (P655,583) P84,036 P135,386
Included in profit or loss
Current service cost 84,189 89,906 - - 84,189 89,906
Interest expense (income) 43,852 39,548 (39,146) (32,779) 4,706 6,769
128,041 129,454 (39,146) (32,779) 88,895 96,675

Included in OCI
Remeasurement loss (gain):
Actuarial loss (gain) arising from:
Financial assumptions (19,609) (56,941) - - (19,609) (56,941)
Experience adjustment 1,669 (17,444) - - 1,669 (17,444)
Return on plan assets excluding
interest income - - 30,455 6,923 30,455 6,923
(17,940) (74,385) 30,455 6,923 12,515 (67,462)

Others
Contributions paid by the employer - - - (80,563) - (80,563)
Benefits paid (24,737) (62,972) 24,737 62,972 - -
(24,737) (62,972) 24,737 (17,591) - (80,563)

Balance at December 31 P868,430 P783,066 (P682,984) (P699,030) P185,446 P84,036

The movements of the remeasurement losses on retirement liability of the Bank

follow:

2017 2016
Balance at beginning of year P164,228,770 P231,690,806
Remeasurement losses (gains) on:
Defined benefits obligation (17,940,245) (74,385,806)
Plan assets 30,455,001 6,923,770
12,514,756 (67,462,036)
Balance at end of year P176,743,526 P164,228,770

The actual return on plan assets amounted to P8.7 million and P25.9 million in 2017
and 2016, respectively.

The Bank expects to contribute P120.4 million to its defined benefits retirement plan
in 2018.

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The major categories of the fair value of plan assets as at December 31, 2017 and
2016 follow:

2017 2016
AFS securities:
Government and other debt securities P315,979,407 P250,944,735
Quoted equity securities 167,777,511 186,054,904
Unquoted equity securities 9,801,117 10,393,282
Loans receivables 142,042,107 172,314,725
Deposits with the Bank 32,940,073 74,133,875
Other receivables 14,443,350 5,188,175
Total Plan Assets P682,983,565 P699,029,696

As at December 31, 2017 and 2016, the carrying value of the plan assets of the
Bank amounted to P675.9 million and P672.6 million, respectively.

Sensitivity Analysis
Reasonably possible changes to one of the relevant actuarial assumptions, with all
other assumptions constant, would have affected the net retirement liability of the
Bank by the amounts shown below:
December 31, 2017
Discount Rate Salary Increase Rate
+0.50% -0.50% +0.50% -0.50%
Present value of the defined benefit obligation P816,303,787 P912,854,279 P909,573,077 P818,817,537
Fair value of plan assets 682,983,565 682,983,565 682,983,565 682,983,565
Net retirement liability P133,320,222 P229,870,714 P226,589,512 P135,833,972

December 31, 2016

Discount Rate Salary Increase Rate
+0.50% -0.50% +0.50% -0.50%
Present value of the defined benefit obligation P739,871,912 P830,102,053 P826,997,096 P742,245,936
Fair value of plan assets 699,029,696 699,029,696 699,029,696 699,029,696
Net retirement liability P40,842,216 P131,072,357 P127,967,400 P43,216,240

The maturity analyses of the undiscounted benefit payments as at

December 31, 2017 and 2016 are as follows:

2017 2016
1 - 5 years P319,464,874 P294,041,786
6 - 10 years 516,922,281 450,848,558
11 - 15 years 922,061,325 832,547,879
16 years and up 4,011,013,118 3,865,341,875

The defined benefit plans expose the Bank to actuarial risks, such as longevity risk,
interest risk, and market (investment risk).

The overall investment policy and strategy of the retirement plan is based on the
Bank’s suitability assessment, as provided by its Trust Services Division, in
compliance with BSP requirements.

The weighted average duration of the defined benefit obligations is equal to the
expected average remaining working lives as at December 31, 2017 and 2016.

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Compensation and Fringe Benefits

The details of the following accounts for the year ended December 31 follow:

2017 2016
Salaries and allowances P777,246,524 P740,030,450
Employee benefits 288,793,368 266,982,972
Bonuses 206,748,204 249,314,702
Retirement 88,894,983 99,144,257
Overtime 27,579,309 26,130,931
P1,389,262,388 P1,381,603,312

29. Lease Contracts

Bank as Lessee
The Bank leases the premises occupied by most of its branches. The lease contracts
are for periods ranging from 1 to 25 years and are renewable upon mutual
agreement between the Bank and the lessors. Various lease contracts include
escalation clauses, most of which bear an annual rent increase of 3.0% to 15.0%.
Rent expense charged against current operations (included under “Rent and utilities”
account in the statements of income) amounted to P298.0 million and P302.8 million
in 2017 and 2016, respectively.

There are no contingent rentals and restrictions imposed by lease arrangements as

at December 31, 2017 and 2016.

Future minimum rentals payable under non-cancellable operating leases follows

(amounts in millions):

2017 2016
Within 1 year P162.7 P193.4
After 1 year but not more than 5 years 308.1 362.9
After 5 years 71.7 108.9

Bank as Lessor
The Bank entered into commercial property leases for office space. These non-
cancellable leases have remaining lease terms ranging from 2 to 3 years. As at
December 31, 2017 and 2016, there is no contingent rental income. Rent income of
the Bank related to these property leases amounting to P4.6 million and P5.5 million
in 2017 and 2016, respectively, are shown under “Miscellaneous” in the “Other
income” account in the statements of income.

Future minimum rentals receivable under non-cancellable operating leases follows

(amounts in millions):

2017 2016
Within 1 year P1.2 P5.8
After 1 year but not more than 5 years 1.6 5.1

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30. Miscellaneous Expenses

Note 2017 2016

Service fees and commissions P72,012,936 P37,300,997
Litigation and acquired assets-related
expenses 15 67,178,048 56,602,376
Messengerial services 56,458,708 65,731,229
Loss on settlement on PEACe bonds 16 53,964,703 -
Marketing 52,528,838 38,577,817
Communications 46,891,960 40,846,678
Supervision and examination fee 39,011,421 34,029,438
Forms and supplies 36,555,879 25,500,493
Fines and penalties 25,613,444 30,759,131
Transportation and travel 13,574,594 12,228,075
Others 89,064,061 5,641,868
P552,854,592 P347,218,102

Others include management fee on deposits, subscription fee and membership dues.

31. Income and Other Taxes

Income and other taxes are comprised of RBU and FCDU taxes which are discussed
as follows:

Regular Banking Unit

Under Philippine tax laws, the Bank is subject to percentage and other taxes
(presented under “Taxes and licenses” account in the statements of income) as well
as income taxes. Percentage and other taxes paid consist principally of gross
receipts tax (GRT) and documentary stamp taxes.

Income taxes include corporate income tax, as discussed below, and final taxes paid
at the rate of 20.0%, which is a final withholding tax on gross interest income from
GS and other deposit substitutes.

The corporate income tax rate is 30.0%. Interest allowed as a deductible expense is
reduced by an amount equivalent to 33.0% of interest income subjected to final tax.

The regulations also provide for MCIT of 2.0% on modified gross income and allow
NOLCO. The MCIT and NOLCO may be applied against the Bank’s income tax
liability and taxable income, respectively, over a 3-year period from the year of
incurrence.

In addition, Revenue Regulations (RR) No. 10-2002 provides for the ceiling on the
amount of entertainment, amusement and representation (EAR) expense that can be
claimed as a deduction against taxable income. Under the regulation, EAR expense
allowed as a deductible expense for a service company like the Bank is limited to the
actual EAR paid or incurred but not to exceed 1.0% of net revenue. Nondeductible
EAR expenses amounted to P53.6 million in 2017 and P114.6 million in 2016.
EAR expense is included under “Entertainment, amusement and recreation” account
in the statements of income.

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In 2011, the BIR issued RR 4-2011, Proper allocation of costs and expenses
amongst income earning of banks and other financial institutions for income tax
reporting purposes, which requires banks to allocate and claim as deduction only
those costs and expenses attributable to RBU to arrive at the taxable income of the
RBU subject to regular income tax. Any cost or expense related with or incurred for
the operations FCDU are not allowed as deduction from the RBU’s taxable income.
In computing for the amount allowable as deduction from RBU operations, all costs
and expenses should be allocated between the RBU and FCDU by specific
identification and by allocation.

Foreign Currency Deposit Unit

RA No. 9294, the existing applicable tax regulation governing the taxation of FCDU
provides, among others, the following:

 Offshore income or the income derived by FCDUs from foreign currency

transactions with nonresidents, Offshore Banking Units (OBUs) in the
Philippines, local commercial banks including branches of foreign banks that may
be authorized by BSP to transact business with FCDUs and other depository
banks under the foreign currency deposit system shall be exempt from all taxes,
except net income from such transactions as may be specified by the Secretary
of Finance, upon recommendation by the MB to be subject to the regular income
tax payable by banks.

 Gross onshore income or interest income from foreign currency loans granted by
FCDUs to residents through offshore units in the Philippines or other depository
banks under the expanded system shall be subject to final tax at a rate of 10.0%;
and

 Interest income derived by resident individual or corporation on deposits with

FCDUs and OBUs are subject to 7.5% final tax.

Effective January 1, 2018, the final tax rate on interest income from a depository
bank under the expanded foreign currency deposit system is amended from
7.5% to 15.0% under the Republic Act No. 10963 commonly known as the Tax
Reform for Acceleration and Inclusion (TRAIN) Law.

Income tax expense consists of:

2017 2016
Current:
Final P243,315,219 P230,233,339
MCIT 53,578,087 45,683,810
RCIT 1,303,000 5,212,289
298,196,306 281,129,438
Deferred 79,494,107 26,150,618
P377,690,413 P307,280,056

The amount of deferred tax income relates to the origination and reversal of
temporary differences.

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The reconciliation of the income tax expense computed at the statutory tax rate to
the effective income tax shown in the statements of income follows:

2017 2016
Income before income tax P1,003,607,573 P917,678,052
Income tax at statutory rate P301,082,272 P275,303,416
Additions to (reductions in) income taxes
resulting from the tax effects of:
Nondeductible expenses 230,390,965 223,896,092
Changes in unrecognized deferred tax
assets (123,372,672) (93,019,929)
Tax paid income (114,873,639) (109,530,913)
FCDU income (26,950,671) (53,108,642)
Nontaxable income (13,912,461) (44,069,445)
Others 125,326,619 107,809,477
Effective income tax P377,690,413 P307,280,056

The components of net deferred tax assets and deferred tax liabilities in the
statements of financial position follow:
Beginning Amount Ending
Balance (Charged) Amount Balance
(2016 Tax Credited to Recognized in (2017 Tax
Effect) Profit or Loss OCI Effect)
Deferred tax asset:
Allowance for credit and impairment
losses P1,000,201,680 P - P - P1,000,201,680
Unrealized loss on foreclosed properties 45,655,091 (2,360,649) - 43,294,442
Accrued rent expense 21,618,266 (3,512,301) - 18,105,965
Retirement benefits - 2,610,813 - 2,610,813
Other accrued expenses 91,385,208 (5,281,193) - 86,104,015
1,158,860,245 (8,543,330) - 1,150,316,915

Deferred tax liability:

Unrealized gain on foreclosed properties (713,932,581) (80,403,687) - (794,336,268)
Revaluation increment on property and
equipment and investment properties (191,636,459) 22,345,261 19,229,974 (150,061,224)
Gain on investment properties sold under
installments (37,855,393) (22,774,094) - (60,629,487)
Retirement benefits (24,057,682) 24,057,682 - -
Unrealized foreign exchange gain (22,538,444) (14,526,464) - (37,064,908)
Valuation gain on derivatives and financial
assets carried at FVPL (350,525) 350,525 - -
(990,371,084) (70,950,777) 19,229,974 (1,042,091,887)

Net Deferred Tax Assets P168,489,161 (P79,494,107) P19,229,974 P108,225,028

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Management believes that certain future deductible items may not be realized in the
near foreseeable future as future taxable income may not be sufficient for the related
tax benefits to be realized. Accordingly, the Bank did not set up deferred tax assets
on the following temporary differences and carry forward benefits of NOLCO and
MCIT:
2017 2016
Deductible Deductible
Temporary Deferred Temporary Deferred
Differences Tax Asset Differences Tax Asset
Allowance for credit and impairment losses P1,818,594,090 P545,578,227 P1,898,049,096 P569,414,729
NOLCO 216,116,007 64,834,802 575,877,406 172,763,222
MCIT 139,567,352 139,567,352 127,882,350 127,882,350
Unrealized loss on financial assets at FVPL 1,595 479 - -
Others 138,489,621 41,546,886 149,467,057 44,840,117
Deferred tax items not recognized in profit
or loss 2,312,768,665 791,527,746 2,751,275,909 914,900,418

Remeasurement losses on retirement

liability 176,743,526 53,023,058 164,228,770 49,268,631
Unrealized loss on AFS securities 45,965,509 13,789,653 25,373,530 7,612,059
Deferred tax items not recognized in OCI 222,709,035 66,812,711 189,602,300 56,880,690

P2,535,477,700 P858,340,457 P2,940,878,209 P971,781,108

Details of the Bank’s RBU NOLCO and MCIT as at December 31, 2016 follow:

NOLCO
Inception
Year Amount Used/Expired Balance Expiry Year
2014 P359,761,397 (P359,761,397) P - 2017
2015 198,213,009 - 198,213,009 2018
2016 17,903,000 - 17,903,000 2019
P575,877,406 (P359,761,397) P216,116,009

Out of the P359.8 million NOLCO from 2014, P118.1 million was used to offset the
Bank’s taxable income while the remaining balance expired in 2017.

MCIT
Inception
Year Amount Expired Balance Expiry Year
2014 P41,893,085 (P41,893,085) P - 2017
2015 40,305,455 - 40,305,455 2018
2016 45,683,810 - 45,683,810 2019
2017 53,578,087 - 53,578,087 2020
P181,460,437 (P41,893,085) P139,567,352

32. Commitments and Contingencies

In the normal course of operations, the Bank makes various commitments, such as
guarantees, commitments to extend credit, etc., which are not reflected in the
accompanying financial statements. The Bank does not anticipate any material
losses as a result of these transactions.

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

peso equivalent contractual amounts arising from off-books accounts as at
December 31, 2017 and 2016:

2017 2016
Contingent assets:
Future/spot exchange bought P467,694,759 P299,407,128
Fixed income securities purchased 51,273,423 -
Outward bills for collection 39,680 1,040,840
P519,007,862 P300,447,968
Commitments and contingent
liabilities:
Trust department accounts 33 P24,681,431,305 P22,964,556,910
Committed credit line 34 3,379,677,419 4,601,667,315
Credit card lines 1,316,628,264 933,430,502
Outstanding guarantees 1,084,782,041 1,582,713,394
Future/spot exchange sold 1,066,849,174 647,421,250
Unused commercial letters of credit 835,697,160 297,050,492
Late deposits/payments received 38,047,439 159,765,207
Inward Bills For Collection-Domestic 2,024,390 -
Fixed income securities sold 461,743 -
Items held for safekeeping/securities
held as collateral 38,552 385,986
P32,405,637,487 P31,186,991,056

The Bank has several loan-related suits and claims that remain unsettled. It is not
practicable to estimate the potential financial impact of these contingencies.
However, in the opinion of management, in consultation with its legal counsels, the
suits and claims, if decided adversely, will not involve sums having a material effect
on the Bank’s financial statements.

Other Commitments
The assets pledged by the Bank are strictly for the purpose of providing collateral for
the counterparty. To the extent that the counterparty is permitted to sell and/or
re-pledge the assets, they are classified in the statements of financial position as
pledged collateral. The pledged assets will be returned to the Bank when the
underlying transaction is terminated but, in the event of the Bank’s default, the
counterparty is entitled to apply the collateral in order to settle the liability.

As at December 31, 2017 and 2016, no asset is being pledged by the Bank to secure
outstanding liabilities.

33. Trust Assets

Securities and other properties (other than deposits) held by the Bank in fiduciary or
agency capacities for its customers are not included in the accompanying statements
of financial position since these are not assets of the Bank (see Note 32). Total
assets held by the Bank’s Trust Services Division amounted to P24.7 billion and
P23.0 billion as at December 31, 2017 (unaudited) and 2016, respectively.

In compliance with the requirements of current banking regulations relative to the

Bank’s trust functions, GS with a face value of P272.0 million, which have been
included under “AFS securities” (see Note 9), are deposited with BSP in 2017 and
2016.

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34. 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. Parties are also considered to be related if
they are subjected to common control or common significant influence. Related
parties may be individuals or corporate entities.

The Bank has various transactions with its related parties and with certain directors,
officers, stockholders and related interests (DOSRI). These transactions usually
arise from normal banking activities such as lending, borrowing, deposit
arrangements and trading of securities, among others. Under existing policies of the
Bank, transactions with related parties are made substantially on the same terms as
with other individuals and businesses of comparable risks.

Under current banking regulations, the amount of individual loans to DOSRI, of which
70.0% must be secured, should not exceed the amount of their respective
unencumbered 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 regulatory capital or 15.0% of the total loan portfolio. On
March 15, 2004, BSP issued Circular No. 423 which provides for the amended
definition of DOSRI accounts which was further amended by BSP Circular 914 on
June 23, 2016.

The following table shows information relating to DOSRI loans:

2017 2016
Total outstanding DOSRI loans P2,915,375 P3,826,247
Percent of DOSRI loans to total loans 0.00% 0.01%
Percent of unsecured DOSRI loans to total
DOSRI loans Nil Nil
Percent of past due DOSRI loans to total
DOSRI loans Nil Nil
Percent of non-performing DOSRI loans to
total DOSRI loans Nil Nil

On June 23, 2016, BSP Circular No. 914, Amendments to Prudential Policy on
Loans, Other Credit Accommodations, and Guarantees Granted to Directors,
Officers, Stockholders, and their Related Interests (DOSRI), Subsidiaries and
Affiliates, was issued providing the rules and revised 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 affiliates shall not exceed 10.0% of bank’s net worth, the
unsecured portion of which shall not exceed 5.0% of such net worth. Further, the
total outstanding exposures to subsidiaries and affiliates shall not exceed 20.0% of
the net worth of the lending bank. BSP Circular 914 took effect on July 14, 2016.

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The details of significant related party transactions of the Bank follow (amounts in
thousands):

Amount/ Outstanding
Category Note Volume Balance Nature, Terms and Conditions
Associate
2017
Investment in associate 13 P - P46,150 24.25% equity interests in BIC which
is a stockholder of the Bank
Share in net loss of 13 1,800 - Share in net loss of BIC
associate

2016
Investment in associate 13 - 48,265 24.25% equity interests in BIC which
is a stockholder of the Bank
Share in net loss of 13 1,410 - Share in net loss of BIC
associate
Unless otherwise stated, RPTs disclosed are unsecured.

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 December 31, 2017 December 31, 2016
Amount/ Outstanding Amount/ Outstanding
Category Note Volume Balance Volume Balance Nature, Terms and Conditions
Other related parties
AFS securties: 9
Unquoted equity securities P - P18,836 P - P16,362 8.57% equity interest in BANGE
Quoted debt securities 42,410 881,951 - 2,951,251 Short-term and long-term bonds with interest rates ranging from
4.0% to 6.6% with maturity years ranging from 2017 to 2025
HTM investments 10 - 1,915,228 - - Long-term bonds with interest rates ranging from 4.0% to 6.5%
with maturity years ranging from 2020 to 2025.
Loans and receivables - net: 11
Receivable from customers 25,232,710 22,228,933 Term loans with interest rates ranging from 2.8% to 9.1% and
Availments P65,711,059 - P43,430,535 - with maturity of less than 1 year to 15 years; Collateral
Settlements 62,533,005 - 43,500,558 - includes unregistered chattel mortgage, assignment of
contract and concession agreement, mortgage trust indenture
and pledge agreement on shares;
Sales contract receivables - 34,766 - 3,826 Sales contract receivables with annual interest of 6.3% and
Availments 63,406 - - - 10.5%, respectively and with maturity of 1 year and 5 years,
Settlements 32,467 - 855 - respectively
Accrued interest receivable 1,682,659 279,291 1,207,448 209,284 Interest income and accrued interest receivables;
Deposit liabilities 18 - 25,707,440 - 22,752,220 Consists of current, savings and time deposits which earn
Deposits 4,537,753,260 - 4,530,150,856 - interest at the respective bank deposit rates
Withdrawals 3,285,163,490 - 3,301,859,783 -
Accrued interest and other 20 Interest expense and accrued interest payable and other
expenses: expenses payable include accruals for rent and utilities; On
Accrued interest payable 109,094 5,055 107,982 5,806 demand, unsecured and non-interest bearing.
Accrued other expenses payable 127,369 1,213 119,594 7,147
Other liabilities 21 - 1,964 - 1,044 Consists of accounts payable to Bank’s officers; On demand,
unsecured and non-interest bearing.
Gain on sale of foreclosed 15 96,261 - - Gain from the cash sale transactions of foreclosed properties
assets -
Service fees and commissions 26 49,118 - 17,975 - Loan and investment-related fees and commission
Miscellaneous income 9 8,930 - 4,538 - Dividend received from BANGE
Management and professional Professional fees for assistance in tax assessment and per diem
fees 33,000 - 26,812 - of Directors
Commitments and contingent Undrawn committed credit line, bank guarantees in favor of
liabilities 32 - 4,782,190 - 6,355,986 related party and outstanding sight import letters of credit
Unless otherwise stated, RPTs disclosed are unsecured.
LOOKING TOWARDS A BRIGHTER FUTURE

167
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 2017 annual report

As at December 31, 2017 and 2016, outstanding bills purchased of related parties with
contra account in “Miscellaneous liabilities” amounted to P1.2 billion and P0.9 billion,
respectively (see Notes 11 and 21).

Other related parties are companies linked directly or indirectly to the Bank through one
or more intermediaries or are members of the same group, is controlled by, is under the
same significant influence, or is under common control with the Bank.

The related party transactions shall be settled in cash. The outstanding balances of
related party transactions, except for investment in associate (see Note 13), are not
impaired as at December 31, 2017 and 2016.

Transactions with Retirement Plans

The Bank’s retirement plan is managed and administered by the Bank’s Trust Services
Division which is covered by an IMA Agreement (agency relationship). The carrying
values of the plan per the Trustee Financial Statements amounted to P675.9 million and
P672.6 million as at December 31, 2017 and 2016, respectively. The fair values of the
plan per the Independent Actuarial Report amounted to P683.0 million and
P699.0 million as at December 31, 2017 and 2016, respectively (see Note 28).

Related information on assets/liabilities and income/expense of the funds as at and for

the years ended December 31, 2017 (unaudited) and 2016 (audited) follow:

2017 2016
AFS securities:
Government and other debt securities P312,697,602 P241,443,053
Quoted equity securities 166,034,952 179,039,844
Unquoted equity securities 9,699,322 10,001,411
Deposits with the Bank 32,597,952 71,338,714
Receivables 154,860,178 170,810,286
Total Plan Assets 675,890,006 P672,633,308
Trust fee payable P431,023 P799,354
Other liabilities 400 1,800
Total Plan Liabilities P431,423 P801,154

Plan Income 2017 2016

Interest income P17,130,655 P16,761,279
Dividend income and others 21,718,072 10,475,853
P38,848,727 P27,237,132
Plan Expense
Trust fees P1,563,075 P1,627,774
Reversal of probable losses on equity securities (255,059) (434,959)
Other expenses 901,138 158,110
P2,209,154 P1,350,925

As at December 31, 2017 and 2016, the retirement plan assets of the Bank include
73,067 shares of the Bank classified under AFS equity securities. The allowance for
probable losses on the retirement plan’s shares of the Bank amounted to
P12.4 million and P12.0 million as at December 31, 2017 and 2016, respectively.
Limitations and restrictions are covered by the IMA Agreement and anything outside
the IMA Agreement must be explicitly authorized by the Board of Trustees (BOT).

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As at December 31, 2016, receivables include accrued interest on deposit with the
Bank amounting to P93,347. Interest income on deposit with the Bank amounted to
P21,200 and P68,139 as at December 31, 2017 and 2016, respectively. Investments
are subject to the limitations of the agreement and all other actions pertaining to the
fund are to be executed only upon explicit authority by the BOT of the fund.

As at December 31, 2017 and 2016, the Bank’s contribution to its defined benefits
retirement plan amounted to nil and P80.6 million, respectively. Benefits paid out of
the Bank’s plan assets amounted to P24.7 million and P63.0 million in 2017 and
2016, respectively (see Note 28).

Compensation of Key Management Personnel of the Bank

The remuneration of directors and other members of key management included in
the “Compensation and fringe benefits” account in the statements of income for the
years ended December 31, 2017 and 2016 follows:

2017 2016
Short-term employee benefits P411,679,683 P447,324,581
Post-employment benefits 25,779,545 31,726,162
P437,459,228 P479,050,743

35. Acquisition of Selected Assets and Assumption of Certain Liabilities of TRB

A summary of the significant transactions related to the PSA entered into by the
Bank with TRB on November 9, 2001 follows:

a. TRB sold and transferred, in favor of the Bank, identified recorded assets owned
by TRB both real and personal, or in which TRB has title or interest, and which
are included and deemed part of the assets listed and referred to in TRB’s
Consolidated Statement of Condition (CSOC) as at August 31, 2001. The said
assets are inclusive of the banking goodwill of TRB, bank premises, licenses to
operate its head office and branches, leasehold rights and patents used in
connection with its business or products. In consideration of the sale of identified
recorded assets, the Bank assumed identified recorded TRB liabilities including
contingent liabilities as listed and referred to in its CSOC as at August 31, 2001.
The liabilities assumed do not include the liability for the payment of
compensation, retirement pay, separation benefits and any labor benefits
whatsoever arising from, incidental to, or connected with employment in, or
rendition of employee services to TRB, whether permanent, regular, temporary,
casual or contractual and items in litigation, both actual and prospective, against
TRB.

b. The Bank is allowed to avail of certain BSP incentives including but not limited to
the following: (a) full waiver of the liquidated damages on the emergency loan of
TRB and penalties related to reserve deficiencies and all other outstanding
penalties at the time of acquisition may be paid over a period of 1 year,
(b) relocation of branches shall be allowed within 1 year from the date of BSP
approval of the PSA. Relocation shall be allowed in accordance with
BSP Circular No. 293. The 90-day notice requirement on branch relocation has
been waived, and (c) availment of rediscounting facility window subject to
present BSP regulations.

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 2017 annual report

c. The Bank paid the outstanding emergency advances owed by TRB to BSP
originally amounting to P2.4 billion through dacion en pago with mandatory
buy-back agreement of certain assets of the Bank and TRB at a price set at
80.0% of the appraised value of those assets (see discussions on Settlement of
Liabilities of TRB below).

d. The Bank arranged with PDIC a liquidity facility for the first year following the
effectivity date in the amount not to exceed 10.0% of the assumed deposit
liabilities of TRB to service unanticipated withdrawals by TRB depositors, subject
to terms and conditions as may be imposed by PDIC.

Settlement of Liabilities of TRB

Part of the liabilities of TRB assumed by the Bank includes P2.4 billion emergency
advances from BSP. As settlement for the emergency advances, a dacion en pago
with mandatory buy-back agreement involving certain bank premises and ROPA
(with a dacion price equivalent to 80.0% of the average appraised value of the
dacion properties) was executed. The dacion en pago with mandatory buy-back
agreement contained the following significant terms and conditions:

a. The Bank may repurchase the bank premises and ROPA within 10 years from
the execution of the agreement.

b. The buy-back price for the ROPA is the dacion price plus, if applicable, real
estate taxes paid by BSP. The buy-back price for the bank premises used in
operations shall be the dacion price plus 6.0% simple interest per annum plus
50.0% of rental rates based on prevailing rates in the locality as mutually agreed
by the parties with a 4.3% yearly increment.

c. Any gain on sale of the dacion properties within the 10-year holding period, in
excess or over the buy-back price, net of any taxes paid related to the sale, shall
be shared 70-30 between the Bank and BSP, respectively.

As approved by BSP, properties of the Bank and TRB with net book value
amounting to P2.3 billion fully settled the liabilities to BSP assumed by the Bank
from TRB amounting to P2.4 billion at the time of dacion; the difference
amounting to P102.0 million was credited to other deferred credits (ODC)
account. Expenses incurred related to the dacion of properties were offset
against ODC.

The Bank fully settled its emergency loan with BSP in June 2012 through cash
settlement and permanent transfer of dacioned properties.

FAA
The summary of significant transactions related to the FAA entered into by the Bank
with the PDIC, for acting as a “White Knight” by agreeing to the terms and conditions
of the PSA with TRB, follows:

a. The PDIC granted the Bank a loan amounting to P1.8 billion representing the
amount of insured deposits of TRB as at June 30, 2001, which should have been
paid by PDIC under a closure scenario. The proceeds of the loan were used to
purchase a 20-year GS with a coupon rate of 15.0% per annum to be pledged as
collateral for the loan. Yield on the 20-year GS (net of 20.0% withholding tax and
the 3.0% interest to be paid on the loan from PDIC) shall be used to offset on a
staggered basis, for prudential reporting purposes, against TRB’s unbooked
valuation reserves on NPAs with a total face value of P4.5 billion, which was
approved by BSP to be booked as “Miscellaneous assets”. Pursuant to the
requirements of PFRS, the impairment losses on the NPAs amounting to
P4.4 billion as at December 31, 2017 and 2016 were charged in full in the period
incurred (see Note 16).

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 LOOKING TOWARDS A BRIGHTER FUTURE

On November 29, 2013, the Bank fully settled its loan from PDIC amounting to
P1.8 billion.

b. The Bank infused additional fresh capital amounting to P200.0 million in 2001
and commits to infuse additional capital in the event a shortfall in order to comply
with BSP’s pertinent regulations on minimum capital requirement.

c. The Bank agrees to comply with certain regulatory requirements, to provide

information as required by the PDIC, to pursue realization of performance targets
based on the financial plan, to secure PDIC’s written consent for the appointment
of an external auditor, and to entitle PDIC to appoint a consultant.

d. The Bank shall not, among others, without the prior written consent of PDIC,
grant new DOSRI loans, make any single major or significant total capital
expenditures within 5 years as defined in the FAA, establish new banking offices
or branches, dispose all or substantial portion of its assets except in the ordinary
course of business, declare or pay cash dividends, effect any profit sharing or
distribution of bonuses to directors and officers of the Bank not in accordance
with the financial plan and other transactions or activities not in accordance with
the financial plan.

On September 22, 2009, the Bank and PDIC signed a Supplemental Agreement
to the 2002 FAA with the following additional terms:

 To the extent and in the context relevant to the terms of the FAA, PDIC
hereby agrees to a limited adjustment of TRB's unbooked valuation
reserves/deferred charges/accumulated operating losses, so as to include
operating losses accumulated from the period October 2001 to July 2002
in the amount of P596.0 million which shall bring TRB's total unbooked
valuation reserves, deferred charges and accumulated operating losses to
P4.5 billion;

 Extension of the FAA for such limited period as shall exactly be sufficient to
fully set off on staggered basis the MA-TRB against the net yield of the new
series 20-year GS to be purchased to replace the maturing GS in March
2022 and likewise to be pledged to PDIC; and

 Income resulting from the difference between the dacion price and book
value of the assets as collateral to BSP, if any, as well as future collections
derived by the Bank from NPLs covered by the unbooked valuation reserves
shall be deducted from the above amount of P4.5 billion. Such set-off shall
be formally and officially reported by BSP to PDIC.

The foregoing Supplemental Agreement did not constitute a significant modification

of the terms of the PDIC’s below-market loan to the Bank. Had the modification been
significant, it would have resulted to the derecognition of the old liability and the
recognition of the new liability at its fair value.

In addition, as part of the PSA, there were transactions allowed and approved by
BSP, which required different treatment under PFRSs. These transactions and their
effects are described below:

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 2017 annual report

Assumption of NPAs of TRB

In addition to the provisions of FAA and subsequent to the approval by BSP and
PDIC to recognize NPAs of P144.2 million as miscellaneous assets, the Bank
negotiated with BSP and PDIC to include as miscellaneous assets the additional
operating losses of TRB amounting to P595.6 million incurred during the transition
period of the Bank’s assumption of TRB’s assets and liabilities. As at
December 31, 2002, a portion of the additional operating losses of TRB amounting to
P227.2 million was approved by BSP and PDIC to be included as additional
miscellaneous assets. On April 28, 2003, BSP approved the deferral of operating
losses amounting to P596.4 million (instead of P595.6 million which was previously
negotiated by the Bank and P227.2 million which was previously approved by BSP)
thereby increasing the TRB-related bookings to miscellaneous assets to P4.5 billion
(see Note 16). NPL included under miscellaneous assets comprised TRB’s loans
amounting to P3.1 billion as at August 31, 2001 which is excluded in the
determination of financial ratios, provisioning and computation of CAR based on the
agreed term sheet. Also, BSP considered these miscellaneous assets as non-risk
assets and are not subject to classification.

Pursuant to the requirements of PFRS, the impairment losses on the NPAs

amounting to P4.4 billion as at December 31, 2017 and 2016 were charged in full in
the period incurred (see Note 16).

For its separate prudential reporting to BSP, the Bank continues to recognize the
P4.4 billion impairment losses on a staggered basis as provided under MB
No. 1950 (see Note 16).

36. Notes to Statements of Cash Flows

The following is a summary of noncash activities of the Bank:

2017 2016
Noncash investing activities:
Reclassification of AFS securities to HTM
investments P9,633,323,011 P -
Settlement of PEACe Bonds 707,530,000 -
Reclassification of AFS securities to Unquoted
debt securities included under Loans and
receivables - 773,136,455
Additions to investment properties and other
properties acquired in settlement of loans 393,449,225 443,914,994
Increase in sales contract receivables from
sale of property and equipment, investment
properties and non-current assets held for
sale 762,023,950 140,757,060

The following table shows the reconciliation analysis of liabilities arising from
financing liabilities for period ended December 31, 2017:

Beginning balance P484,385

Cash flows during the year
Proceeds 1,950,000,000
Settlements (1,950,217,177) (217,177)
Non-cash movement
Foreign exchange movement -
Ending balance P267,208

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 LOOKING TOWARDS A BRIGHTER FUTURE

As allowed by PAS 7, short-term borrowings from local banks amounting to

P1.95 billion in 2017 and P1.7 billion in 2016 are presented in statements of cash
flows on a net basis.

37. Supplementary Information Required Under Revenue Regulations (RR)

No. 15-2010

The Bureau of Internal Revenue (BIR) has issued RR No. 15-2010 which requires
certain tax information to be disclosed in the notes to financial statements. The Bank
reported and/or paid the following types of taxes for the year:

A. Other Taxes and Licenses

This includes all other taxes, local and national, including real estate taxes,
licenses and permit fees lodged under the ‘Taxes and Licenses’ account in the
Bank’s statement of income.

Details of taxes and licenses for the year consist of the following:

Documentary stamp tax P218,978,570

Gross receipts tax 202,131,882
License and permit fees 22,850,316
Real estate taxes 18,417,916
Fringe benefits 6,396,172
Capital gains tax 1,310,884
Transfer taxes 857,376
Others 21,280,198
P492,223,314

B. Withholding Tax Remittances to BIR

As withholding agent, the Bank remitted the following withheld taxes during the
year:

Tax on compensation and benefits P220,035,569

Final withholding taxes 184,188,116
Expanded withholding taxes 53,824,914
P458,048,599

C. Deficiency Tax Assessments

Period Covered Amount*

2003 P3,095,735
*Amount of deficiency tax assessments, whether protested or not.

Management, in consultation with its legal counsels, believes that the deficiency
tax assessment above is without legal basis. Accordingly, the Bank has filed
abatement on January 27, 2006 for the closure of the case. The said abatement
is pending decision by the BIR.

D. Tax Cases

As at December 31, 2017, the Bank has no outstanding tax cases and
assessments.

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 2017 annual report

senior
Officers
Roberto C. Benares Edward Dennis J. Zshornack Monette G. De Leon Jose Mari M. Zerna
President & CEO Group Head / Officer-in-Charge Division Head Group Head
Office of the President Executive Support Group TMG-Liquidity & Asset Consumer Group
concurrent Finance and Liability Management
Controllership Group Division concurrent Financial VICE PRESIDENTS
EXECUTIVE VICE Institution Division
PRESIDENT FIRST VICE Morena V. Abadilla
PRESIDENTS Marie Antoinette L. Dela Cruz Division Head
Felipe Martin F. Timbol Division Head OG-International Operations
Group Head Numeriano Manuel V. OG-Treasury Operations Division
Treasury Management Group Amparo Division
Division Head Sheilah R. Apostol
SENIOR VICE CBG I-Cash Management and Louella P. Ira Division Head
PRESIDENTS Digital Channels Division Division Head FCG-General Accounting and
Legal Services Division Financial Systems Control
Edwin T. Amahan Bernadette C. Basobas Division
Group Head Division Head Chona C. Lacson
Branch Banking Group BBG-Metro Manila Division I Division Head Amalia Q. Belarmino
BBG-Metro Manila Division II Officer-In-Charge /
Rafael C. Bueno, Jr. Alfredo J. Bautista concurrent Metro Manila Department Head
Group Head Division Head East Area Trust Services Division
Corporate Banking Group II Corporate Planning Division concurrent Investment
concurrent ESG-Business Maria Leticia D.G. Madridejos & Portfolio Management
Manuel A. Castañeda III Systems & General Division Head / Special Department
Group Head Services Division Assistant to the President
Corporate Banking Group I CBG II-Corporate Banking I Georgina M. Borcelis
Danielyn P. Casaul Division concurrent Office Area Head
Anna Marie A. Cruz Division Head of the President BBG-MMD I-Metro Manila
Division Head CBG I-Corporate Banking II North Area
Product Development, Division Marie Kristin G. Mayo
Marketing Services & Division Head Andrew D. Cajucom
Credit Card Division Ma. Eleanor Christina Human Resource Department Head
S. Castañeda Management & Development PDMSCCD-Credit Card Sales &
Reginald C. Nery Division Head Division Marketing Department
Chief Audit Executive CoG-Consumer Loans
Internal Audit Division Division-Organic Channels Marieta Bernadette A. Sevilla David Marcelino Rock
Division Head S. Chua
Paul John T. Reyes Antonio Basilio C. De CBG II-Corporate Banking IV Division Head
Division Head & Chief Dealer Guzman Division ESG-Project Management
TMG-Foreign Exchange Division Head Division
Trading Division TMG-Product Engineering Juan Angel L. Tinio
Structures & Investments Chief Information Officer George E. Consul
Jay S. Velasco Division ESG-Information Technology Division Head
Group Head Services Division BBG-Branch Operations
Operations Group Division

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 LOOKING TOWARDS A BRIGHTER FUTURE

Maria Ana P. Dela Paz Dino Joseph A. Ramirez Ma. Clariza M. Ang Augusto Manuel M. Briones
Group Head Division Head Branch Head Department Head
Credit Group TMG-Fixed Income Trading BBG-MMD II-MA-Ayala Branch TMG-TMSD-Wholesale
Division Department I
Annalyn D. Delos Santos Cristina T. Ang Dy Pay
Area Head Cecilia A. Rentoy Branch Head Rafael Lito D. Carbonell
BBG-MMD II-Makati Area Area Head BBG-MMD I-QCA-Del Monte Area Head
BBG-VMD-Eastern Visayas Branch BBG-Branch Operations
Jacqueline A. Domingo Area Division
Division Head Rommelwin M. Ardidon
BBG-BOD-Branch Jeremy H. Reyes Department Head Januario G. Caringal
Operations Control Center Chief Risk Officer RMD-IT Risk Management Chief Security Officer
Risk Management Division Department Security Department
Noel R. Godoy
Division Head Fe Fortunata R. Rio Lourdes V. Arriola Lolita B. Carlos
CoG-Consumer Credit Division Department Head Branch Head Branch Head
PDMSCCD-Card Operations BBG-MMD I-MMNA BBG-MMD II-MA-Dela Costa
Marlene P. Ignacio Department Malabon I Branch Alfaro Branch
Division Head
CBG-Corporate Banking III Ma. Theresa G. Soriano Joie Zendel A. Bacar Nicole Francine Ariadne C.
Division Area Head Branch Head Chua
BBG-MMD II-Metro Manila BBG-MMD II-MMEA-Main Department Head
Jocelyn Isabel S. Legaspi South Area Office Branch TMG-FITD-US Treasury
Department Head Trading Department
LSD-Operations Department Ma. Consuelo M. Tan Liberty A. Balgemino
Division Head Branch Head Peter M. Co
Ma. Isabel D. Lipana BBG-VisMin Division BBG-MMD II-MMEA-Main Branch Head
Division Head Office Branch BBG-MMD II-MA-Pasong
BBG-Luzon Division Girlie Isabel D. Umali-Requizo Tamo Ext. Branch
Department Head Hazel V. Batocael
Corazon T. Llagas CBG I-Remedial Management Area Head Leah Antoinette C. Cruz
Chief Compliance Officer Department BBG-VMD-Mindanao Area Department Head
Compliance Division HRMDD-Learning &
Baldwin V. Villena Paulyn V. Bernabe Development, Employee &
Arturo Gerard T. Medrano III Department Head Division Head Labor Relations Department
Division Head HRMDD-Compensation & TMG-Treasury Marketing &
ESG-Acquired Assets Division Benefits Administration Sales Division Renato B. De Leon
Department Department Head
Marlo D. Montelibano Orlando M. Bibares CPD-MIS/Budget Department
Area Head Aiveth D. Yuseco Division Head
BBG-VMD-Western Visayas Department Head OG-Loan Operations Division Marian G. De Los Reyes
Area CBG-I-CMDCD-Cash Department Head
Management Products Rowel H. Bijasa CBG I-CBD II Metro Manila /
Helen D. Paciencia Department Division Head Luzon II
Department Head / Project OG-Centralized Operations
Manager Support Division Johnny W. Dee
ESG-ITSD-Applications ASSISTANT VICE Area Head
Interface & Support PRESIDENTS Percelin T. Billate BBG-MMD I-Manila Proper
Department Department Head / Area
Medallon R. Abrena Applications Development.
Department Head and Maintenance Manager
ESG-BSGSD-Methods & ESG-ITSD-Applications
Standards Department Development & Maintenance
175
Department
 2017 annual report

Joanne A. Del Rosario Manolo B. Kimpo Jr. Patricia M. Onda Rowena O. Tan
Department Head Department Head Sales & Marketing Unit Head Department Head
OG-LOD-Corporate Branch TMG-LALM-Domestic Fund ESG-AMRD-AAMD-Sales & OG-TOD-International
Loans Department Management Department Marketing Section Treasury Operations
Department
Aurora R. Del Rosario Romil D. Langones Katherine Anne E.
Area Head Division Head Ongchangco Rizaldy D. Tolentino
BBG-MMD I-Quezon City Area CBG II-CBD V Visayas / Department Head Department Head
Mindanao TSD-Business Development CBG I-CBD II-Metro Manila /
Milliel D. Dela Rosa and Account Management Luzon
Section Head Joey R. Laqueo Department
CoG-CCD-Housing Loans Branch Head Arlyn C. Valero
Credit Evaluation Section BBG-MMD I-MMNA-Malabon Juline A. Peña Division Head
Gen. Luna Branch Branch Head ESG-BSGSD-General Services
Joseph Alfred R. Estiva BBG-MMD I-QCA-Broadcast Division
Department Head Joel O. Longalong City Branch
TMG-FITD-Domestic Fixed Department Head Carolina R. Vicente
Income Department IAD-IT Audit Department Belen T. Ramos Project Manager
Branch Head ESG-ITSD-AISD-Applications
Lena R. Galang Augustus Caesar B. Lopez BBG-MMD I-MPA-Soler Branch Interface Section
Department Head Section Head
CERD-Credit Evaluation CoG-CCD-Auto Loans Credit Camilla Genevieve A. Wilson C. Vinoya
Department Evaluation Section Rimando Department Head
Department Head LSD-Litigation Department
Cecilia Ruby D. Gloria Lawrence L. Lusung CBG I-CMDCD-Digital
Branch Head Area Head Channels Department Cherry Anne G. Yap
BBG-LD-SLA-San Pedro BBG-LD-Central Luzon Area Area Head
Branch Carmen Dee P. Sallan BBG-LD-North Luzon Area
Paul V. Manlongat Department Head
Francisco Raymund P. Area Head LSD-Documentation
Gonzales BBG-LD-South Luzon Area Department
Department Head
PDMSCCD-Payment Solutions Ester S. Maraat Alfredo T. San Juan Jr.
& Consumer Protection Quality Assurance Officer Department Head
Department BBG-BOD-BOQC-VisMin CoG-CLD-Auto Loans
Division Department
Cenen R. Grajo
Division Head Roderick M. Martinez Don M. San Juan
OG-Electronic Banking & Department Head / Network Quality Assurance Officer
Card Support Division & Communications Services BBG-BOD-BOQC-Luzon
Manager Division
Rosanne D. Ignacio ESG-ITSD-Network
Department Head Management Department Rio Generoso F. Santiago
PDMSCCD-Marketing Services Branch Head
Department BBG-MMD I-QCA-Cubao
Branch

(As of December 31, 2017)

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BRANCH / ATM
Directory
METRO manila atms branches
Caloocan 4 2
METRO ATM Available
MANILA
Las Piñas City 3 1
Makati City 13 11
Malabon 2 2 makati avenue-ZUELLIg
Mandaluyong City 8 2 Unit 2, G/F Zuellig Bldg. Makati
Manila 20 12 Makati Area Ave. cor. Paseo de Roxas and Sta.
Marikina 5 3 Potenciana Sts., Makati City
Muntinlupa 4 1 AYALA 961-7628 / 219-0127 /
G/F IAcademy Bldg., 961-8364 (Fax)
Parañaque 4 3
6764 Ayala Ave., Makati City
Pasay City 7 4
Pasig City 7 2
219-0255 / 810-0651 (Fax) PASAY ROAD
1006 Cedar Executive Building A.
Quezon City 26 15
BEL-AIR PETRON Arnaiz Ave. (Pasay Road),
San Juan 1 1
No. 363 Sen. Gil Puyat Avenue, San Lorenzo Village, Makati City
Taguig 6 2 Brgy. Bel-Air, Makati City 840-5612 / 219-0261 /
Valenzuela 3 1 898-2309 / 219-0279 / 576-5035 / 840-5640 (Fax)
896-7085 (Fax)
luzon
Albay 2 1
PASONG TAMO
BONIFACIO EXTension
Baguio 3 1
HIGH STREET 2295 OPVI Centre, Pasong Tamo
Bataan 3 1 G/F Active Fun Bldg., Extension, Magallanes, Makati City
Batangas 7 4 9th Ave. cor. 28th St., 892-9700 / 219-0271 /
Bulacan 5 4 Fort Bonifacio, Taguig City 817-9300 (Fax)
Cagayan 2 1 779-8023 / 957-9320 /
Camarines Sur 1 1 779-8024 (Fax) ROCKWELL
Cavite 4 2 P1 Concourse Level,
Ilocos Norte 1 1 DELA COSTA-ALFARO The Power Plant Mall,
Ilocos Sur 4 2 G/F #100 Don Chua Lamko Rockwell Center, Makati City
Isabela 2 2 Building, H.V. Dela Costa cor. 898-1523 / 219-0114 /
La Union 4 1 Leviste Sts., Salcedo Village, 898-1522 (Fax)
Laguna 13 3 Makati City
840-2789 / 261-0762 / SALCEDO
Nueva Ecija 1 1
840-2719 (Fax) G/F Aguirre Bldg.,
Oriental Mindoro 1 1
Palawan 1 1 Tordesillas cor.
DELA ROSA H.V. Dela Costa St.,
Pampanga 13 5
G/F King's Court II Building, Salcedo Village, Makati City
Pangasinan 6 3 2129 Chino Roces Ave. cor. Dela 813-2220 / 813-2734 (Fax)
Quezon 1 1 Rosa St., Makati City
Rizal 4 1 831-7156 / 831-7155 (Fax)
Tarlac 1 1
Zambales 6 3 fort BONIFACIO Metro Manila
visayas GLOBAL CITY North Area
G/F Kensington Place,
Aklan 3 1
Burgos Circle, BALIUAG
Bohol 1 1 Fort Bonifacio, Taguig City G/F Doña Victoria Building,
Capiz 1 1 856-1707 / 219-0107 / Gil Carlos Cor. Año Streets,
Cebu 13 7 856-1696 (Fax) Poblacion, Baliuag, Bulacan
Iloilo 6 4 (044) 766-7701 /
Leyte 2 2 JUPITER (044) 766-2811 (Fax)
Negros Occidental 7 4 64/66 Jupiter St., Brgy.
Negros Oriental 1 1 Bel-Air, Makati City BALIUAG DRT HIGHWAY
828-4397 / 219-0258 / G/F 3006 Augustine Square
mindanao 869-8812 (Fax) Commercial Complex,
Agusan Del Norte 3 1 Doña Remedios Trinidad (DRT)
Bukidnon 2 1 magallanes Highway, Baliuag, Bulacan
Davao Del Norte 1 1 G/F Tritan Plaza Bldg., (044) 798-1799
Davao Del Sur 5 3 Paseo de Magallanes,
General Santos 2 1 Makati City BANAWE
851-1424 / 219-0153 / 128-B. WAS Bldg.,
Lanao Del Norte 1 1
854-9611 (Fax) Banawe St., Quezon City
Misamis Oriental 1 3
711-9454 / 711-9456 /
Zamboanga 5 1
410-1730 (fax)
grand total 252 136

177
 2017 annual report

CALOOCAN BICUTAN ERMITA CONCEPCION

100 8th Avenue corner G/F FilHome Builders Building, 1312 A. Mabini St., Ermita, Manila 52 A.M. PACLEB Building,
A. Del Mundo St. Brgy 058, #68 Doña Soledad Avenue, 254-7549 / 219-0178 Bayan-Bayanan Avenue,
Caloocan City Betterliving Subdivision, Concepcion Uno, Marikina City
287-2344 / 287-4709 (Fax) Don Bosco, Parañaque City DASMARIÑAS - 941-0714 / 219-0125 /
219-0129 / 776-4146 / 831-2546 / BINONDO 942-0429 (Fax)
GRACE PARK 823-2321 (Fax) G/F No. 304 STP Building,
G/F HGL Bldg., Dasmariñas cor. Marquina Streets, EASTWOOD - PETRON
554 EDSA cor. Biglang-Awa St., DASMARIÑAS, CAVITE Binondo, Manila 188 E. Rodriguez Jr. Ave. (C-5),
Caloocan City Veluz-Frances Plaza Bldg., 247-1472 / 247-1473 Bagumbayan, Quezon City
361-1832 / 219-0126 / Aguinaldo Highway, 654-0084 / 211-9543 /
361-0931 (Fax) Dasmarinas, Cavite 655-1204 (Fax)
JUAN LUNA
Manila line: (02) 529-8129 (Fax)
No. 465 MCU Building,
FAIRVIEW PETRON Cavite line: (046) 416-2335 GREENHILLS
Juan Luna Street, Binondo, Manila
Petron Fairview, Commonwealth 241-0234 / 241-0407 (Fax) No. 7 Eisenhower Tower,
Ave., Fairview, Quezon City imus Eisenhower Street, Greenhills,
376-1023 / 376-1025 (Fax) G/F Lot 3, Block 1, Anabu 1-B, San Juan City
port area
Aguinaldo Highway, Imus City, 723-5380 / 219-0207 /
G/F Mary Bachrach Building,
MALABON Cavite 727-4936 to 39 / 723-5380 (Telefax)
25th corner Delgado Streets,
No. 29 Gov. Pascual Avenue, (046) 438-8451 (Fax)
Port Area, Manila
Brgy. Acacia, Malabon City 527-7986 / 219-0191 / MAIN OFFICE -
291-0254 / 446-7385 / LAS PIÑAS 527-3978 (Fax) SAN MIGUEL
288-7571 (Fax) G/F Pelayo Building, Unit A, G/F San Miguel Properties
Alabang-Zapote Road,
QUIAPO Center, No.7 St. Francis Street,
MALABON - GEN. LUNA Manuela Subdivision, Pamplona-III, Mandaluyong City
609 Sales St., Quiapo, Manila
55 Gen. Luna St., Las Piñas City 635-5517 / 219-0213 /
733-9326 / 733-9366 (Fax)
San Agustin, Malabon City (02) 219-0128 / 556-1507 / 556-1501 633-2430 (Fax)
441-0977 / 332-5392 / / 556-1506 (Fax)
SOLER
281-5612 (Fax) No. 1004 Reina Regente Cor. MARCOS HIGHWAy
NAIA Soler Streets, Binondo, Manila Unit #10, No. 4 Thaddeus Arcade,
MALOLOS IPT Building Arrival Lobby Gil Fernando Avenue corner
244-7003 / 219-0120 /
Paseo del Congreso, Terminal 1, Sto. Niño, Pasay City Pitpitan Street, San Roque,
244-7001 (Fax)
Malolos, Bulacan (02) 219-0132 / 853-0712 / Marikina City
(044) 791-0342 / 833-0713 (Fax) 647-7172 / 219-2723
STO. CRISTO
(044) 791-2542 (Fax) Kim Siu Ching Foundation Bldg.,
NAIA terminal 3 471-483 Sto. Cristo cor. MARIKINA
san jose del monte Stall No. 14, Arrival Lobby NAIA 258 J.P Rizal Street, Sta. Elena,
Jaboneros St., Binondo, Manila
G/F Block 2, Lot 12, Quirino Highway Terminal 3, Brgy. 183, Pasay City Marikina City
241-4151 / 242-0842 (Fax)
cor. Diamond Crest Village, 833-7295 / 833-7293 (Fax) 646-1808 / 219-3453 /
Brgy. San Manuel, TAFT AVE 646-1802 (Fax)
San Jose Del Monte City, Bulacan NINOY AQUINO AVENUE G/F, Endriga Bldg.,
(044) 802-8866 Unit W & Y, No. 707 Columbia PASIG
2270 Taft Ave., Malate
Airfreight Complex, Renaissance 2000 Tower,
523-2297 / 219-0194 / 521-9124R
VALENZUELA Ninoy Aquino Ave., Brgy. Sto. Niño, Meralco Ave., Pasig City
Unit 12 & 13 Puregold Shopping Parañaque City 635-0392 / 219-0229 /
219-0185 / 851-2680 / TAFT - PGH
Complex, McArthur Highway, G/F Mirasol Building, 635-3661 / 631-3769 (Fax)
Brgy. Dalandanan, Valenzuela City 854-0471 (Fax) / 0917-8351523
854 G. Apacible Street corner Taft
322-2260 / 794-6058 / Avenue, Brgy. 676, Ermita, Manila PASIG BOULEVARD
794-6064 (Fax) RESORTS WORLD 536-4959 / 219-0199 / 152 Pasig Blvd.,
G/F Resorts World Complex, Brgy. Bagong Ilog, Pasig City
526-6049 (Fax)
Newport City, Pasay City 217-3403 / 650-6560 /
219-0197 / 551-3521 / 551-3520 (Fax)
Metro Manila TUTUBAN 650-6561 (Fax)
G/F, Units LS-CM19 & 20,
South Area SUCAT Center Mall II, Tutuban Center, WACK-WACK PETRON
No. 8338 Fortuna-II Building, No. 553 Shaw Boulevard,
C.M. Recto Avenue, Binondo, Manila
ALABANG Dr. A. Santos Avenue, San Isidro,
219-0124 / 356-0086 (Fax) Brgy. Wack-Wack Greenhills East,
Unit-6 El Molito-II Building, Parañaque City Mandaluyong City
Madrigal Avenue cor. 826-8415 / 219-0169 / 738-1984 / 219-0242 /
820-7747 (Fax) Un Avenue
Alabang-Zapote Road, 429 Victoria Building, 738-1985 (Fax)
Ayala Alabang, Muntinlupa City United Nations Avenue,
850-8718 / 219-0121 / Ermita, Manila
850-1574 (Fax) MANILA 526-0590 / 219-0226 / Quezon City
B.F. HOMES proper AREA 524-9935 (Fax)
Area
33 President's Ave.,
Brgy. BF Homes, aduana BROADCAST CITY
Parañaque City G/F FEMII Building, A. Soriano
Metro Manila Capitol Hills Drive,
219-0149 / 403-8941 (Fax) Street, Intramuros, Manila East Area Brgy. Balara, Quezon City
527-2893 / 219-0180 / 932-4628 /219-0188 /
527-2947 (Fax) CAINTA 932-4969 (Fax)
40 Felix Ave., San Isidro,
Cainta, Rizal
682-8524 / 219-0214 /
682-6243 (Fax)
178
 LOOKING TOWARDS A BRIGHTER FUTURE

COMMONWEALTH
G/F, Verde Oro Building, luzon VIGAN
Plaza Maestro Commercial
TARLAC
Unit 110-112 Rising Sun Bldg.,
No. 535 Commonwealth Ave., Brgy. Complex, Jacinto cor. Florentino Block 4, Brgy. San Nicolas,
Matandang Balara, Quezon City North Luzon Area Sts., Vigan City, Ilocos Sur McArthur Highway, Tarlac City
952-7990 / 216-7636 / (077) 722-2119 / (045) 982-5401 /
952-7989 (Fax) (077) 632-0802 (Fax) (045) 982-5365 (Fax)
BAGUIO
CUBAO G/F YMCA Baguio Bldg., mabalacat
Post Office Loop (Upper Session
Unit 1, G/F Harvester Corporate
Road), Baguio City Central Luzon McArthur Highway, San Francisco,
Center, P. Tuazon cor. 7th & 8th Mabalacat City
Ave., Brgy. Socorro, Cubao, (074) 619-0073 / Area (045) 649-4407 / (045) 308-0516
Quezon City (074) 619-0072 (Fax)
911-2486 / 219-0202 / ANGELES
911-2485 (Fax) CANDON McArthur Highway cor. B. Aquino
National Highway, Brgy. San Jose, St., Lourdes Sur East, Angeles City
South Luzon Area
Candon City, Ilocos Sur (045) 626-2010 (Fax) /
E. RODRIGUEZ (077) 674-0623 / (045) 323-4130 (Fax) BATANGAS - CAEDO
No. 84 Hemady St., New Manila, (077) 644-0288 (Fax) Caedo Commercial Complex,
Brgy. Mariana, Quezon City Calicanto, Batangas City
705-1943 / 722-2197 /
ANGELES NEPOMART (043) 723-6773 / (043) 723-1410 (Fax)
CARMEN G/F Entec Bldg., Teresa Ave.,
722-2379 McArthur Highway, Carmen West, NepoMart Complex, Brgy. Cutcut,
Rosales, Pangasinan Angeles City BATANGAS - P. BURGOS
DEL MONTE (075) 582-7365 / (045) 497-0551 No. 27 P. Burgos St.,
Bank of Commerce Bldg., (075) 582-7370 (Fax) Batangas City
Del Monte Ave. cor. (043) 723-0275 /
D. Tuazon St., Quezon City
BALANGA (043) 723-0909 (Fax)
CAUAYAN CITY, Paterno St., Poblacion,
410-8025 / 219-3786 /
ISABELa Balanga City, Bataan
743-2541 (Fax)
G/F Majesty Commercial Bldg., (047) 237-7622 / CALAMBA
National Highway, Brgy. Fermin, (047) 237-2366 (Fax) Unit 6 & 7, New Parian Business
DILIMAN Cauayan City, Isabela Center, National Road, Brgy. Parian,
Commonwealth Avenue cor. (078) 652-2339 Calamba City, Laguna
Masaya Street, Old Capitol Site,
BALIBAGO (049) 502-7922 /
Mc Arthur Highway cor. Victor St.,
Quezon City (049) 502-8508 (Fax)
DAGUPAN Balibago, Angeles City
927-6074 / 219-7093 /
G/F Eastgate Plaza, A.B. Fernandez (045) 892-0875 / (045) 331-3389 /
920-2324 (Fax)
Ave., Dagupan City, Pangasinan (045) 625-5586 (Fax) CALAPAN
(075) 522-8691 / Leona Yap Ong Bldg., J.P. Rizal St.,
KAMUNING (075) 522-8963 (Fax) Calapan City, Oriental Mindoro
Tomas Morato Avenue Cor. Dr.
CABANATUAN (043) 288-4496 /
VP Bldg., Maharlika Highway,
Lascano Street, Sacred Heart, (043) 288-4031 (Fax)
LAOAG Brgy. H. Concepcion,
Quezon City
Rizal corner General Hizon Sts., Cabanatuan City, Nueva Ecija
261-0766 / 922-7981 /
Laoag, Ilocos Norte (044) 940-1254 / LEGAZPI CITY
922-7982 (Fax) G/F Diabetes One-Stop Center,
(077) 677-2572 / (077) 617-1363 / (044) 940-1263 (Fax)
(077) 617-1603 (Fax) LANDCO Business Park,
Legazpi City
KATIPUNAN - PETRON IBA
Katipunan Avenue Cor. Mangyan LA UNION (052) 742-0691 /
TRB Bldg., Ramon Magsaysay Ave.,
Northway Plaza, National Highway, (052) 480-6054
Road, La Vista, Brgy. Pansol, Iba, Zambales
Quezon City Brgy. Sevilla, San Fernando City, (047) 602-1866 /
921-4020 / 219-0174 / La Union (047) 811-1025 (Fax) LIPA
921-4042 (Fax) (072) 700-1618 / No. 7, Bank of Commerce Building,
(072) 242-5683 (Fax) C.M. Recto Avenue, Brgy. 9-A, Lipa
SAN FERNANDO City, Batangas
QUEZON AVE. Insular Life Bldg.,
SANTIAGO CITY, (043) 756-4214 /
Sto. Domingo Church Compound, McArthur Highway,
(043) 756-2588 (Fax)
#8 Biak na Bato St. cor. Quezon ISABELA San Fernando, Pampanga
Ave., Quezon City G/F Oryza Building, (045) 961-1624 /
712-2534 / 732-8360 (Fax) Maharlika Highway, Brgy. Villasis, (045) 961-1680 (Fax) LUCENA
Santiago City, Isabela G/F Bank of Commerce Building,
Quezon Avenue cor. Lakandula
VISAYAS AVENUE (078) 305-5360 STA. CRUZ Street, Brgy. IX, Lucena City,
No. 15 Visayas Ave Ext. Barangay National Road cor. Misola St.,
Quezon
Culiat, Quezon City TUGUEGARAO Poblacion South,
(042) 710-9691 /
219-0155 / 426-4854 (Fax) 27 Bonifacio cor. Washington Sts., Sta. Cruz, Zambales
(042) 710-9692 (Fax)
Tuguegarao City, Cagayan (047) 831-1113 (Telefax)
WEST AVENUE (078) 844-8041 / NAGA
68 West Avenue, Brgy. West (078) 844-8044 (Fax) SUBIC freeport Romar-I Bldg.,
Triangle, Quezon City G/F, The Venue Annex Building, Elias Angeles St., Naga City
374-5544 / 219-0168 / URDANETA Rizal Highway, Subic Bay Freeport Manila Line: (02) 250-8093 (Fax) /
374-5548 (Fax) The Pentagon Bldg., Zone 2222, Olongapo City, (054) 473-4080 / (054) 811-8931
McArthur Highway, Nancayasan, Zambales
WEST TRIANGLE Urdaneta City, Pangasinan (047) 252-1851 /
1451 Quezon Ave. cor. Examiner St., (075) 656-1017 / (047) 252-1863 (Fax) PUERTO PRINCESA
Quezon City (075) 656-1018 (Fax) J.P. Rizal Avenue, Brgy. Manggahan,
925-1209 / 219-0160 / Puerto Princesa City, Palawan
927-4063 (Fax) (048) 434-2171 / (048) 434-2172 /
(048) 434-2170 (Fax)

179
 2017 annual report

san pedro MANDAUE NRA ILOILO - IZNART DAVAO - LANANG

Pacita Commercial Complex, G/F Mantawe Ave., Brgy. Tipolo, TCT Bldg., Iznart St., Iloilo City G/F Consuelo Bldg., Km. 07,
San Pedro, Laguna North Reclamation Area, Brgy. (033) 335-0710 / (033) 335-0712 Barangay Lanang, Davao City,
808-2026 / 808-2002 / Tipolo, Mandaue City, Cebu Davao Del Sur
(049) 307-1637 (Fax) (032) 268-4693 / (032) 316-9926 / ILOILO - J.M. BASA (082) 234-1042 /
(032) 564-3249 (Fax) TTW Building, Mapa Street, Brgy. (082) 221-2590 (Fax)
STA. ROSA Ortiz, Iloilo City, Iloilo
Shop 1-A, Paseo-III, Embarcadero ORMOC (033) 337-8721 / DAVAO - RIZAL
Lane, Paseo De Santa Rosa, Brgy. H. Serafica Building, Real Street, (033) 335-1020 (Fax) CAP Dev't Center Bldg.,
Don Jose, Sta. Rosa City, Laguna Ormoc City, Leyte Rizal St., Davao City
(049) 541-1546 / (053) 561-8523 / KABANKALAN (082) 226-2223 /
(049) 541- 1795 (Fax) (053) 255-4366 (Fax) Guanzon St., Kabankalan City, (082) 222-0904 (Fax)
Negros Occidental
TANAUAN TACLOBAN (034) 471-2853
GENERAL SANTOS
G 04 The City Walk #2 Pres. Laurel Door Nos. 12 & 13, RUL Building,
G/F, Sunshine Hardware Bldg.,
Highway Brgy. Darasa, Justice Romualdez St., Brgy. 15, KALIBO Santiago Blvd.,
Tanauan City, Batangas Tacloban City 1280 Garcia Bldg. C. Laserna St. General Santos City
(043) 784-6990 / (053) 832-2866 Kalibo, Aklan (083) 552-9375 /
(043) 784-6994 (Fax) (036) 262-5294 / (083) 552-5236 (Fax)
TAGBILARAN (036) 268-9032 (Fax)
G/F 0025 Karan's Building,
iligan city
visayas B. Inting St., 2nd District, Brgy.
Poblacion 2, Tagbilaran City, Bohol
ROXAS CITY
Gaisano Arcade, Arnaldo Blvd.,
G.F, M. Badelles cor. De Leon
Street, Barangay Poblacion,
(038) 411-5400 / Roxas City, Capiz Iligan City, Lanao del Norte
Eastern Visayas (038) 411-3773 (Fax) (036) 621-0845 (063) 224-6488
Area
MARAMAG
CEBU - f. cabahug Western Visayas mindanao G/F, TRB Building, Sayre Highway,
Units 5 & 6 GPH Central, F. Cabahug Area North Poblacion, Maramag,
Bukidnon
corner President Roxas Streets, Bgy
Kasambagan, Cebu City Mindanao Area +63917 516 0606
(032) 342-7144 (Telefax /
BACOLOD - ARANETA
Yusay Arcade, Araneta St.,
(032) 316-9913 / (0917) 835-1316 BUTUAN PAGADIAN
Bacolod City
G/F, Cesia Bldg., Montilla Blvd., F.S. Pajares Avenue, Gatas District,
(034) 433-4667 /
CEBU - BANILAD Butuan City, Agusan del Norte Pagadian City, Zamboanga Del Sur
(034) 433-2267 (Fax)
First Jomica Realty & Dev. Bldg., (085) 815-9633 / (085) 342-9321 / (062) 925-3399
No. 888 A.S. Fortuna St., (085) 342-6248 (Fax)
bacolod - capitol
Brgy. Banilad, Mandaue City, Cebu
GR 04 & 05, 888 Chinatown TAGUM CITY
(032) 231-6704 / (032) 316-3321 / cagayan de oro - Units 104-105 PLJ Building,
Premier Mall, Cottage Road corner
(032) 231-6706 (Fax)
Gatuslao St., Brgy. 8, Bacolod City,
carmen Apokon Road, Magugpo Poblacion,
Eric Tan Building, Vamenta Blvd., Tagum City, Davao Del Norte
Negros Occidental
CEBU - MAIN (034) 432-3287
Carmen, Cagayan de Oro City (084) 216-5364
G/F Cebu Woman's Club Building, (088) 231-4167 / (0917) 515-3215
B. Rodriguez St. Cor. Osmeña Blvd.,
BACOLOD - LACSON ZAMBOANGA -
Cebu City
Corner 12th & Lacson Streets,
CAGAYAN DE ORO - VETERANS
(032) 253-1951 / (032) 316-9912 / LAPASAN Veterans Avenue cor. Camachile
Brgy. 4, Bacolod City,
(032) 255-4223 (Fax) Suites 6 & 7, Gateway Tower-1, Street, Brgy. Zone 3, Zamboanga
Negros Occidental
(034) 433-4238 / Limketkai Center, Lapasan City, Zamboanga Del Sur
CEBU STO. NIÑO - (034) 433-1139 (Fax) Highway, Cagayan De Oro City, (062) 991-2381 /
MAGALLANES Misamis Oriental (062) 991-2980
G/F Unit-2, Martina Sugbo Bldg., (088) 856-3991 /
DUMAGUETE
P. Burgos cor. Magallanes St., (088) 856-3977 (Fax)
G/F CAP Building, Rizal Avenue,
Brgy. Sto. Niño, Cebu City Brgy. 5, Dumaguete City,
(032) 254-1825 / (032) 316-9925 / Negros Oriental CAGAYAN DE ORO
(032) 253-3999 / (035) 225-7668 / - VELEZ
(032) 253-7708 (Fax) (035) 422-6896 (Fax) Don A. Velez-Akut Sts.,
ESTANCIA Cagayan de Oro City
LAPU LAPU Clement St., Estancia, Iloilo (088) 856-4371 (Fax)
Unit 3-5 AJS Building, M.L. Quezon (033) 397-0222 /
National Highway, Pusok, (033) 397-0220 (Fax) DAVAO - CITY HALL
Lapu-Lapu City, Mactan, Cebu Valgoson's Realty Bldg.,
(032) 341-3854 / (032) 316-9927 / City Hall Drive, Davao City
(032) 341-3855 (Fax)
ILOILO - ATRIA (082) 226-4074 /
F & B 2, UPMC Bldg., Atria Park
(082) 226-4075 (Fax)
District, Brgy. San Rafael,
MANDAUE Iloilo City, Iloilo
Entienza Bldg., National Hi-way, (033) 501-6013 / (033) 517-0684
Mandaue City, Cebu
(032) 346-6901 / (032) 316-9262 /
(032) 346-6902 (Fax)

180
 san miguel properties centre
No. 7 St. Francis St., Mandaluyong City
www.bankcom.com.ph

For inquiries, call Bank of Commerce Customer Care Hotline: (02) 632-2265, Domestic Toll-Free numbers:
(PLDT) 1800-10-982-6000 and (Globe Lines) 1800-8-982-6000, or send us an email at [email protected]

Bank of Commerce is supervised by the Bangko Sentral ng Pilipinas

with telephone number (02) 708-7087 and e-mail address: [email protected]

The corporate logo of San Miguel Corporation is a registered trademark of San Miguel Corporation, and is used under license.