COVER SHEET 6 0 3 0 SEC Registration Number
S E C U R I T Y B A N K C O R P O R A T I O N
(Company’s Full Name)
S e c u r i t y B a n k C e n t r e , 6 7 7 6 A y a l a A v e n u e , M a k a t i C i t y
(Business Address: No. Street City/Town/Province)
Joselito E. Mape 888-7291 (Contact Person) (Company Telephone Number)
1 2 3 1 1 7 - A 0 4 3 0 Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)
(Secondary License Type, If Applicable)
Corporate Finance Dept. Dept. Requiring this Doc. Amended Articles Number/Section
Total Amount of Borrowings 2,176 Total No. of Stockholders Domestic Foreign
To be accomplished by SEC Personnel concerned
File Number LCU
Document ID Cashier
S T A M P S
Remarks: Please use BLACK ink for scanning purposes.
TABLE OF CONTENTS
Part I – BUSINESS AND GENERAL INFORMATION
Item 1 Business 1 Item 2 Properties 12 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders 12
Part II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5 Market for Issuer’s Common Equity and Related Stockholder Matters 12 Item 6 Management’s Discussion and Analysis or Plan of Operation 14 Item 7 Financial Statements 24 Item 8 Information on Independent Accountant and Other Related Matters 24
Part III – CONTROL AND COMPENSATION INFORMATION
Item 9 Directors and Executive Officers of the Issuer 25 Item 10 Executive Compensation 37 Item 11 Security Ownership of Certain Beneficial Owners and Management 38 Item 12 Certain Relationships and Related Transactions 41
Part IV – EXHIBITS AND SCHEDULES
Item 13 Exhibits and Reports on SEC Form 17-C 42
SIGNATURES 43
INDEX TO EXHIBITS 44
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 58
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
A. Description of Business
1) Business Development
Security Bank Corporation (PSE: SECB) is a publicly listed Philippine universal bank which serves wholesale and retail clients. Established in 1951, Security Bank has, for over 67 years, remained steadfast in its focus and commitment to serve its clients and stakeholders with distinction. Its headquarters are located at the Security Bank Centre, 6776 Ayala Avenue, Makati City, Metro Manila, Philippines.
Security Bank ranked as the 6th largest in total assets and 5th in capital funds ((P=767 billion and ((P=109 billion respectively) and 5th largest in market capitalization among listed private domestic universal banks in the Philippines. In terms of financial results, Security Bank ranks 9th in return on shareholders’ equity and 3rd in asset quality (having the second lowest NPL ratio. The Bank’s strategy, execution and results are guided by its strong focus on shareholder value.
Security Bank’s major businesses include wholesale banking, financial markets and retail banking. It is among the leading local players in government fixed income securities distribution, capital markets services, foreign exchange and derivatives products distribution, equities brokerage, and cash management. Security Bank continues to grow its consumer finance business. The Security Bank group has a total of 305 branches all over the country as of year-end 2018.
In 2016, Security Bank forged a strategic partnership with The Bank of Tokyo-Mitsubishi UFJ, Ltd. now known as MUFG Bank, Ltd (MUFG), the largest bank in Japan and a member of the Mitsubishi UFJ Financial Group, to help Security Bank achieve accelerated growth through capital infusion and business collaboration. MUFG invested P=36.9 billion in Security Bank representing a 20% equity stake.
Security Bank ended the year 2018 with a net income of P=8.6 billion and a return on equity of 8.1%. Total loans grew by 12.5% to P416.3 billion while deposits increased by 18.3% to P488.9 billion as of year-end 2018. This translated to a 30.0% increase in net interest income. The net interest margin in 2018 was 3.27%, slightly higher than the 3.20% in 2017. The non-interest income line item decreased to P4.8 billion mainly due to decrease in trading gains. The cost-to-income ratio was 53.9%. The Bank ended the year with total assets of P766.9 billion for a 10.5% growth rate. Return on assets was 1.20%.
Security Bank was a recipient of various awards in 2018 among which the Bank was named as Bank of the Year- Philippines 2018 by The Banker; The Best Retail Bank in the Philippines for 2018 by The Asian Banker; Best Retail Bank in the Philippines 2018 by Alpha Southeast Asia; Best Bank in the Philippines 2018 by Global Finance; Asia’s Best CEO (Investor Relations, Philippines) for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations, Philippines) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia; and People Program of the Year Award for Security Bank’s Total Wellness Program by People Management Association of the Philippines (PMAP).
In 2017, Security Bank earned a net income of P10.3 billion which translated to a return on equity of 10.2%. Security Bank was a recipient of various awards in 2017 among which the Bank was named as Best Bank in the Philippines by Alpha Southeast Asia of Singapore, and Best Digital Bank Philippines 2017 by Capital Finance International of London. Security Bank was also recipient of the following awards in 2017: Best Bank for SMEs–Philippines by Asiamoney; Deposit Product of the Year, AllAccess Account by The Asian Banker’s Philippine Country Awards 2017; Top Bank for Government Bonds, Top Bank for Corporate Bonds, and Top Investment House by The Asset Benchmark Research Awards 2017; Best Regional Specialist (Public Sector), Philippines, and Best in Treasury and Working Capital (Public Sector), Philippines by The Asset; Special Citation on Industrial Peace and Harmony from KAPATID 2017 Awards of the Employers Confederation of the Philippines; Asia’s Best CEO (Investor Relations) for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia of Hong Kong; and Advertising Campaign of the Year-Philippines, Credit Card Initiative of the Year-Philippines, and Mortgage and Home Loan Product of the Year-Philippines from Asian Banking and Finance.
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In 2016, Security Bank earned a net income of P8.6 billion which translated to a return on equity of 10.37%. Security Bank was a recipient of various awards in 2016 among which the Bank was named as Bank of the Year – Philippines by The Banker of London; Philippines’ Best Bank by Euromoney of London; and Best Managed Company in the Philippines (Mid-Cap), Best Executive in the Philippines (Mr. Alberto S. Villarosa, Chairman), and Best for Investor Relations in the Philippines by Asiamoney. Security Bank was also recipient of the following awards in 2016: Best Improved Retail Bank in Asia Pacific, Central Asia, Africa and the Gulf Region by The Asian Banker of Singapore; Highly Commended as Best Bancassurance by Retail Banker International; Award for Excellence for the Better Banking Campaign from the Philippine Quill Awards; and Best Electronic Bank for the Philippines, Best Cash Management and Treasury and Working Capital Bank by The Asset.
2) Business of Issuer
(a) Description of Registrant
(i) Principal Products or Services and their Markets
The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served with each segment representing a strategic business unit. The Bank’s principal business activities are organized as follows: Financial Markets Segment, Wholesale Banking Segment, Retail Banking Segment, and All Other Segments.
Financial Markets Segment - this segment focuses on providing money market, foreign exchange, financial derivatives, securities distribution, asset management, trust and fiduciary services, as well as the management of the funding operations for the Group.
The Financial Markets segment represents 14.8% of the Group’s 2018 total revenue.
Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and public sector markets. Services include relationship management, lending and other credit facilities, trade, cash management, deposit-taking and leasing services provided by the Group. It also provides structured financing and advisory services relating to debt and equity capital raising, project financing, and mergers and acquisitions. The Group’s equity brokerage operations are also part of this segment.
The Wholesale Banking segment constitutes 36.8% of total revenues in 2018.
Retail Banking Segment - this segment addresses the individual, retail, small-and-medium enterprise and middle markets. It covers deposit-taking and servicing, commercial and consumer loans, credit card facilities and bancassurance.
The Retail Banking Segment makes up 37.8% of the Group’s total revenue in 2018.
All Other Segments - this segment includes but not limited to branch banking support and other support services. Other operations of the Group comprise the operations and financial control groups.
All Other Segments make up 10.7% of the Group’s total revenue in 2018.
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Subsidiaries and Joint Venture
Security Bank Corporation (Parent Bank) *
99.54% 100.00% 100.00% 100.00% 60.00% 100.00% 0%
SB Finance Company, Inc. Landlink Property SB Capital Investment SB Cards SB Forex, FWD Life Insurance (Formerly Security Bank Investments (SPV- SBM Leasing, Inc. ** Corporation Corporation Incorporated*** Corporation ***** Savings Corporation) AMC), Inc. ****
100.00% 100.00% 100.00% SB International SB Rental Corporation SB Equities, Inc. Services, Inc. ****
* MUFG ow ns 20% of voting shares of SBC (as of December 31, 2018) Common Shares: Par value is P10.00; Total Outstanding Shares – 753,538,887 Preferred Shares: Par Value is P0.10; Total Outstanding Shares – 1,000,000,000 ** Joint venture *** Non-operating **** Pre-operating ***** With irrevocable pow er of attorney/proxy to vote certain shares of FWD Life Insurance Corporation
SB Finance Company, Inc. (formerly Security Bank Savings), formerly a private development bank incorporated in 1960 as Premiere Development Bank, renamed Security Bank Savings (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the BSP approved the approved the integration (i.e., acquisition of all assets and assumption of all liabilities) of SBS into SBC, which was completed by March 2015. On 26 January 2016, the BOD of SBS approved the extension of the existing thrift bank license under a dormant status for another year pending the firm up of its business model. On 26 May 2016, the BSP approved the request of SBS to extend the license and retain the vehicle on a dormant status for another year or until 25 January 2017. On 24 November 2016 and 15 December 2016, the BOD and stockholders of SBS, respectively, approved the conversion of SBS from a savings bank to a finance company. On 11 April 2017, the Monetary Board of the BSP, in its resolution No. 616, approved the voluntary surrender of SBS of its thrift bank, trust and FCDU licenses, subject to submission of certain regulatory requirements.
On 4 August 2017, the SEC approved the conversion of SBS from a savings bank to a finance company. On the same date, SEC also approved the Amended Articles of Incorporation and By-Laws of SBS to operate as a financing company in accordance with the Financing Act of 1998 (Republic Act. No. 8556) under the name of SB Finance Company, Inc.
In September 2017, the BOD of SBFCI approved the organizational structure of the Company.
SB Capital Investment Corporation (SB Capital), Security Bank’s wholly-owned investment banking arm, is currently one of the most stable and active investment houses in the Philippines. It provides a wide range of investment banking and financial services aimed at satisfying the diverse financial needs of institutions and individuals. Since its commercial operations in 1996, SB Capital has participated in a myriad of big-ticket and significant investment banking transactions involving top-tier business conglomerates, middle-market clients and the public sector.
In 2018, SB Capital played a major role in various capital raising initiatives done during the year totaling P=283 billion.
SB Capital remained an active player in the country’s debt capital markets supporting both corporate as well as public issuances. Its notable engagements include San Miguel Corporation’s P20 billion fixed rate bond and P10 billion enrolled corporate notes issuances where SB Capital acted as a Joint Issue Manager, Joint Lead Underwriter and Joint Bookrunner and as Co-Manager, respectively. SB Capital was also Joint Issue Manager for the Republic of the Philippines’ P181 billion Retail Treasury Bond in June 2018.
3 In the project finance space, SB Capital played major roles in big-ticket transactions for the funding of projects that are in line with the government’s priority projects. This included the P21.30 billion syndicated project finance facility of San Miguel Consolidated Power Corporation where SB Capital acted as a Joint Lead Arranger. SB Capital was also involved in MP CALA Holdings’ P24.2 billion syndicated project finance loan facility to partly finance the construction of the 45-kilometer Cavite Laguna Expressway toll road project as well as the P19 billion project finance loan facility of Metro Pacific Tollways Corp. unit Cebu Cordova Link Expressway Corporation to fund the construction of the 8.5-kilometer Cebu-Cordova Link Expressway which aims to connect Cebu City and Cordova in Cebu province.
Capitalizing on the growth of corporate notes issuances, SB Capital expanded its client base and supported first time issuers such as HC Consumer Finance (Philippines) Inc.’s where SB Capital acted as Participating Arranger for the company’s P5 billion one-year corporate notes issuance in November 2018. SB Capital also acted as a Joint Lead Underwriter for the P10 billion corporate notes issuance of Vista Land & Lifescapes Inc.
SB Capital was a recipient of various recognitions in 2018 from international award giving bodies for landmark investment banking deals where SB Capital was involved with. Eagle Cement Corp.’s P8.6 billion IPO where SB Capital was Joint Issue Manager, Joint Lead Underwriter and Bookrunner received the “IPO Deal of the Year – Philippines” award from the Asian Banking and Finance. Alpha Southeast Asia bestowed the “Best Corporate Bond Deal in Southeast Asia” and “Best Project Finance Deal in Southeast Asia” during the 12th Annual Alpha Southeast Asia Deal & Solutions Awards 2018 for San Miguel Corporation’s P10 billion corporate bond issue and for GN Power Dinginin’s US$420 million project finance loan facility where SB Capital acted as Joint Issue Manager, Joint Lead Underwriter and Bookrunner and Co-Lead Arranger, respectively
SB Rental Corporation (SBRC) is a wholly owned subsidiary of SB Capital, with the primary purpose of engaging in the business of renting, leasing (excluding financial leases) and hiring a wide range of machineries and equipment, automotive equipment, automobiles, a wide range of motor vehicles and all kinds of land, air or water transportation system.
SB Equities, Inc., a subsidiary of SB Capital, was incorporated on August 1, 1987 and continues to be a top performer ranking 11th overall among domestic brokerages in the country in terms of volume turnover according to the PSE.
SB Cards Corporation (SB Cards) was incorporated on 09 October 1980 as Security Diners International Corporation and formerly also known as Security International Card Corporation, SB Cards acquired the exclusive franchise ownership of Diners Club international credit card in the Philippines. In September 2016, SB Cards sold the Diners Card portfolio to BDO.
SBM Leasing, Inc. (SBMLI, formerly Security Finance, Inc. incorporated on August 1, 1994) is a joint venture leasing company of Security Bank Corporation (60%) and Marubeni (40%). SBMLI specializes in heavy equipment (construction and mining) and services the clientele of Maxima (a Marubeni joint venture and exclusive distributor of Komatsu in the Philippines) and of Security Bank.
SB Forex, Incorporated (SBFI) was incorporated on September 27, 1994 to handle the foreign exchange brokerage business of the Bank but has been inactive due to changes in the regulatory environment. The Bank has absorbed the foreign exchange business previously coursed through SBFI. The operations for this subsidiary were suspended in 2008.
Landlink Property Investments (SPV-AMC), Inc., was incorporated on September 17, 2004 as a wholly owned subsidiary for the purpose of exploring possible non-performing assets (NPA) disposal solutions. In line with regulatory requirements, ownership in the subsidiary will be reduced to 5% in the event that a prospective NPA disposal solution is finalized.
4 (ii) Percentage of Sales or Revenues and Net Income Contributed by Foreign Sales
This is not relevant to the operations of the Group.
(iii) Distribution Network
The Bank's principal office is located along Ayala Avenue, Makati City. As of December 31, 2018, Security Bank had a network of 305 on-line branches, 173 branches of which are strategically located in Metro Manila and 132 situated outside Metro Manila.
The Bank also has 760 ATMs which are part of the Bancnet consortium as of December 31, 2018. Of this, 322 are on-site while 438 are off-site.
(iv) Status of Publicly-Announced New Product or Service
All publicly-announced new products or services of the Bank are in commercial distribution.
(v) Competition
The Philippine banking industry is characterized by a high level of regulation and highly competitive price and service offerings. All banks have generic products and compete via differentiation in servicing and targeting specific niches. In 2018, the industry experienced intensified competition alongside increased customer service standards.
There are a total of 21 universal banks in the Philippine banking system, of which 12 are domestic private universal banks, three are government banks and six are branches/subsidiaries of foreign banks, as of February 2019. In addition, there are 25 commercial banks in the country. Six domestic universal banks have branches and/or remittance offices abroad while Security Bank and the rest of the players in the industry compete mainly in the domestic market, serving their respective mix of corporate, middle market and retail clients.
Based on disclosures (published Balance Sheets) as of 31 December 2018, Security Bank was 9th among private domestic universal banks in return on equity. Among the private domestic universal banks, it is ranked 6th in terms of assets, 6th in terms of loans and deposits and 5th in capital. There are three big banks which dominate the industry with resources of at least P2.09 trillion and capital funds of at least P248 billion. The other eight banks are clustered in the category where asset size is between P154 billion to P975 billion, and capital funds are between P15 billion to P119 billion.
Security Bank has distinguished itself against competition in its 67 years of banking service with its record of financial strength and stability over this period and its service quality to its loyal clientele base. Solid earnings performance coupled with emphasis on asset quality places Security Bank among the top performing banks. In January 2016, Security Bank forged a strategic partnership with The Bank of Tokyo-Mitsubishi UFJ Ltd. Now known as MUFG Bank, Ltd. (MUFG). MUFG invested P36.9 billion and took a 20% stake in Security bank. This gave Security Bank the unique advantage of being a local independent bank with the global network of MUFG.
(vi) Sources and Availability of Raw Materials and Names of Principal Suppliers
This is not relevant to the operations of the Bank.
(vii) Customer Concentration
The Bank has a diversified customer base with its loan portfolio and deposit mix skewed towards a robust client list of our Corporate and Commercial segments. That said, Bank is not dependent upon a single customer, the loss of any or more of which would have a material adverse effect on the Bank and its subsidiaries taken as a whole.
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(viii) Transactions with and/or Dependence on Related Parties
In the ordinary course of business, the Bank has loan transactions with some subsidiaries and with certain directors, officers, stockholders and related interests. Under the Bank’s policies, these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks.
(ix) Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions and Royalty Agreements Held
For the MasterCard product, the Bank signed a perpetual license agreement with MasterCard International on October 6, 1997.
The Bank has the following registered trademarks with respective expiration dates:
REGISTRATION EXPIRATION TRADEMARK DATE DATE SECURITY BANK BETTER WHEELS BETTER DEALS 3/24/2016 3/24/2026 SECURITY BANK BETTER WHEELS BETTER DEALS 3/24/2016 3/24/2026 SECURITY BANK EASY ACCOUNT 5/19/2016 5/19/2026 SECURITY BANK ALLACCESS 5/19/2016 5/19/2026 SECURITY BANK EASY ACCOUNT 5/19/2016 5/19/2026 SECURITY BANK ALLACCESS 5/19/2016 5/19/2026 KEEPS GETTING BETTER 7/14/2016 7/14/2026 BETTER MATTERS 7/14/2016 7/14/2026 SECURITY BANK ALL ACCESS 7/14/2016 7/14/2026 KEEPS GETTING BETTER 7/14/2016 7/14/2026 BETTER MATTERS 7/14/2016 7/14/2026 SECURITY BANK ALL ACCESS 7/14/2016 7/14/2026 SECURITY BANK, BUILD-UP SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, ESECURE SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, MONEY BUILDER SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, BUSINESS PLUS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, JR. ONE SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, BUILD-UP SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, ESECURE SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, MONEY BUILDER SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, BUSINESS PLUS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK, JR. ONE SAVINGS ACCOUNT 7/28/2016 7/28/2026 SECURITY BANK GOALS 11/10/2016 11/10/2026 SECURITY BANK GOALS 11/10/2016 11/10/2026 SECURITY BANK GOALS 5/18/2017 5/18/2027 SECURITY BANK GOALS 5/18/2017 5/18/2027 YOU DESERVE BETTER. 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 No Verbal Elements 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 BETTERBANKING 7/29/2017 7/29/2027 YOU DESERVE BETTER. 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 No Verbal Elements 7/29/2017 7/29/2027
6 REGISTRATION EXPIRATION TRADEMARK DATE DATE SECURITY BANK 7/29/2017 7/29/2027 BETTERBANKING 7/29/2017 7/29/2027 DIGIBANK 3/15/2018 3/15/2028 DIGIBANKER 3/15/2018 3/15/2028 DIGIBANK 3/15/2018 3/15/2028 DIGIBANKER 3/15/2018 3/15/2028 BALE NG BAYAN 4/26/2018 4/26/2028 AUTO SINGIL 4/26/2018 4/26/2028 BALE NG BAYAN 4/26/2018 4/26/2028 AUTO SINGIL 4/26/2018 4/26/2028
The Bank has the following registered patents with respective registration dates:
REGISTRATION PATENT DATE Cash Remittance System Using Virtual or Electronic Gift Card (eGiftCard) 2-Jul-14 A System For Improving Availability Of Communication Services In A 16-Mar-15 Network-Based Automated Electronic Loan Processing
(x) Need for Government Approval of Principal Products or Services
The Group’s principal products and services are offered to customers only upon receipt of the necessary regulatory approvals or clearances. The Group strictly complies with the related regulatory requirements such as reserves, liquidity position, loan exposure limits, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements.
(xi) Effect of Existing or Probable Governmental Regulations on the Business
The Group strictly complied with the Bangko Sentral ng Pilipinas (BSP) requirements in terms of capitalization reserves, liquidity position, limits on loan exposure, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements as well as other regulatory agencies such as the Securities and Exchange Commission, Philippine Stock Exchange, Philippine Deposit Insurance Corporation and the Bureau of Internal Revenues, among others as applicable.
(xii) Amount Spent on Research and Development Activities
2018 2017 2016 Cost ( in ’000) P=545,500.58 P=248,123.17 P=317,762.65 Ratio to Revenues 2.13% 0.99% 1.53%
The Bank’s research and development activities are mainly driven by investments in new information technology (IT) software. The efficient use of technology is expected to boost productivity, reduce transaction processing costs, improve management information preparation and delivery, and result to alternative customer channels, efficient business communications, and more timely risk management. It would also assist in reducing operations at the branch level, thereby allowing branch personnel to focus more on customer service.
(xiii) Costs and Effects of Compliance with Environmental Laws
The Bank is compliant with all Environmental Laws pertaining to their industry standards. There are no added costs and effect implications of the compliance on the operations of the Bank.
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(xiv) Manpower Complement
In support of the Group’s strategic growth initiatives, complement increased from 5,438 in 2017 to 5,903 in 2018. The budgeted manpower complement by the end of 2019 is 7,084.
2018 2017 2016 Officers 3,660 3,480 3,225 Rank and File 2,243 1,958 1,811 5,903 5,438 5,036
As of December 2018, 38.0% of the Bank’s employees were rank and file employees who are subject to collective bargaining agreements (CBA). The current CBA will expire on August 31, 2021.
The employees receive salaries, bonuses and other usual bank benefits. Aside from these, they have no other compensation plan or arrangement with the Bank. There are no warrants or options held by directors, officers and staff.
(xv) Risk Management
The Bank’s risk management organization and culture is a fundamental component of its corporate governance.
Policy Statement
The Board of Directors and Management of Security Bank Corporation and its subsidiaries commit to the principles and best practices that promote good corporate governance such as the “Principles for Enhancing Corporate Governance” issued by the Basel Committee on Banking Supervision as embodied in the regulations of the regulatory authorities of the Philippines such as the Bangko Sentral ng Pilipinas and the Securities and Exchange Commission.
Security Bank’s shareholders, Board of Directors and Senior Management believe that corporate governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness and ensure compliance with corporate governance policies and practices within the organization.
Under the Bank’s Governance System, the Board of Directors has ultimate responsibility for the Bank's business and risk strategy, organization, financial soundness and governance.
Accordingly, the Board should approve and monitor the overall business strategy of the Bank. The Board confirms the applicability and adequacy of the mission and vision statement of the Bank during the January Board meeting. The Board reviews and approves the strategic plans in relation to the operational plans of the Bank, taking into account the Bank's long-term financial interests, its exposure to risk and its ability to manage risk effectively.
Risk Management Organization
The Bank’s risk management organization works under such framework to address and manage the risks it faces across its banking operations.
Risks arising from Credit, Market and Operating factors are managed through an organizational structure supervised by the Board of Directors.
Primary oversight begins with the delegation of responsibilities to the Risk Oversight Committee to ensure the effective implementation of the risk management framework.
Reporting to the Risk Oversight Committee, the Risk Management Group, headed by the Parent Bank’s Chief Risk Officer, develops and refines the policies that comprise the framework used to manage risk in general.
8 General Principles
Security Bank develops and utilizes policies as the framework to manage the Bank’s business activities and growth across the different risk environments.
Supporting the framework is a series of limit structures that define the Bank’s Risk appetite.
Feedback is established through a reporting mechanism which enables the Bank’s Risk Management Group to evaluate and identify potential sources of risk to the general health of the Institution.
Consequently, through this feedback mechanism, the Bank would then be able to refine its policy framework or develop measures to neutralize the potential risks it has identified.
The general cycle of risk management (identification and assessment, monitoring, and mitigation) is a continuous process utilized by the Group as it pursues its strategic goals.
Credit Risk
The Group’s credit risk is managed by policies and procedures which are regularly reviewed and updated to reflect the changes in the Group’s operating environment.
The primary means of control is through the Credit Policy Manual which provides the framework for managing Credit within the Bank Group. Limits are established to control exposures to single borrowers and group names, as well as industry exposures.
The quality of the Group’s portfolio is managed and classified through the use of an internal rating system and augmented as necessary through the use of external ratings. Likewise, analysis of the outstanding portfolio is conducted on a periodic basis, and covers concentration risks, credit migration, and residual risks across the Group.
Market Risk
The Bank’s exposure to Market forces is managed through a combination of policies, procedures and limits designed to minimize risk.
Value at Risk is the primary statistical approach used to quantify and monitor the risk in the Bank’s trading portfolios. The Bank uses the variance-covariance methodology, as well as the historical approach for all trading activities. VaR is augmented on a periodic basis by stress scenarios to determine the impact of black swan events on outstanding portfolio positions. VaR models are also back-tested periodically to ensure their integrity.
For Interest Rate Risk in the Banking Book, the Bank utilizes gapping reports and Earnings at Risk limits to assess and quantify the risks taken. These reports are also augmented on a periodic basis by additional stress tests and stress driver analysis.
Liquidity Risk is managed through the use of MCO limits, and augmented through period liquidity stress tests. Likewise, the Bank has established Contingency Funding Plans to counter potential liquidity crisis situations...
Operational Risk Management
Operational Risk Management is considered a critical element in the Bank’s commitment to sound management and corporate governance.
Under the Bank’s operational risk management framework and operational risk manual, a risk-based approach is used in mapping operational risks along critical/key business processes, addressing any deficiencies/weaknesses through the proactive process of identifying, assessing and limiting impact of risk in every business/operational area.
9 Group policies on internal control, information security, and other operational risk aspects have been established. Key Risk Indicators and Risk Assessment Guidelines have been implemented and disseminated to different sectors of the Group to provide alerts for operational risk vulnerabilities. Operations Risk follows a Basic Indicator Approach where all Business Units undertake a Risk Control and Self-Assessment Program. Issues and incidents are elevated through the Incidence Escalation Process. Information is collected and analyzed through a series of Key Risk Indicators and assessed through a Risk Mapping Process to further improve and minimize the incidence of Operations Risks.
In addition, the Bank has an established a Business Continuity Plan to ensure continued bank operations in the face of potential disruptions to operations.
Information Security
Information Security is considered critical in all aspects of the Bank’s operation. Information Security programs are built around the core objectives of (C)onfidentiality, (I)ntegrity, and (A)vailability of Systems and business data. These objectives ensure that sensitive information is only disclosed to authorized parties (confidentiality), prevent unauthorized modification of data (integrity) and guarantee the data can be accessed by authorized parties when requested (availability).
The primary means of control is through the approved and published Information Security documentations composed of Policies, Standards/Guidelines, and Procedures. All information security control implementations are anchored in our Information Security documentations and are being reviewed independently by Internal Audit and Compliance for consistency and effectiveness.
Risk Assessment is a major portion of Information Security program. All information assets needs to be identified, valued in the perspective of CIA, threats / vulnerabilities and probabilities are applied to come up with Risk Treatment Plan.
All information security incidents and issues are escalated to top management and the Risk Oversight Committee to ensure Governance and Oversight is happening as committed.
Capital
The Bank has a well-documented Internal Capital Adequacy Assessment Process (ICAAP) for managing and maintaining adequate capital to sustain its strategic directions. Strategic plans over the medium term provide the starting point, and risks to capital are taken into consideration and incorporated into the capital planning process. Capital buffers and trigger points would be provided as necessary. Paired with the said document is the Bank’s Recovery Plan, which details the actions that will be taken by the Bank during times of extreme duress, i.e. when its viability is put on the line due to significant deterioration in its financial condition.
The Finance Committee, established in 2015 to oversee the Bank’s Internal Capital Adequacy Process, recommends measures to safeguard the capital of the Group and reviews and endorses the Capital Management Plan that covers Basel III compliance, dividend policy, ROE and CAR management for the Bank and all its subsidiaries. The Committee is responsible for disseminating the capital plans to the Bank’s management structure and monitoring its implementation.
Non-Financial Risks
The Bank’s commitment to sound risk management practices, judicious corporate governance system, the active role maintained by the Board of Directors, and the corporate values developed by the Bank’s management provides an effective means to manage reputational risks and regulatory issues.
10 The Bank has an effective customer service and corporate communications department to manage customer complaints and the impressions of the general public.
(b) Additional Requirements as to Certain Issues or Issuers
(i) Debt Issues
On February 17, 2012, the Bank issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of P=5.0 billion.
On August 15, 2012, the Bank issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of P=5.0 billion.
In July 2014, the Bank issued P10.0 billion worth of Unsecured Subordinated Notes due 2024, callable after five years. The Bank remains in compliance with the terms and conditions of the Notes.
In February 2015, the Bank issued US$300 million worth of 3.95% Bonds due 2020. The Bank remains in compliance with the terms and conditions of the bonds.
On November 8, 2017, the Bank issued 3.875% fixed coupon rate (EIR of 4.01%) unsecured LTNCD at par value of P=8.6 billion.
On May 2, 2018, the Bank issued 4.50% fixed coupon rate (EIR of 4.69%) unsecured LTNCD at par value of P=5.78 billion.
In September 2018, the Bank issued $300.0 million senior unsecured notes (“Senior Notes”) due on September 25, 2023. The Bank remains in compliance with the terms and conditions of the bonds.
(ii) Equity Issues
In the third quarter of 2009, the Security Bank board, PSE and SEC approved the offer of Stock Rights to Eligible Shareholders to raise gross proceeds of approximately Php 2.5 billion. Pursuant to the Rights Issue, 89,285,714 new ordinary shares were offered at Php 28.00 on the basis of approximately one Rights Share for every 3.7 existing shares held on record as of 9:00am of November 5, 2009. The offer period was from November 5-12, 2009. The offer was fully subscribed and total number of shares outstanding after the offer was 418,631,411.
On September 1, 2011, 83,727,102 shares were distributed in relation to 20% stock dividend approved by the Bank’s BOD and shareholders on March 29, and May 30, 2011, respectively. Outstanding shares as a result of stock dividend payment was 502,358,513.
On January 2, 2014, 100,472,596 shares were distributed in relation to 20% stock dividend approved by the Bank’s BOD and shareholders on March 19 and May 28, 2013, respectively. Outstanding shares as a result of stock dividend distribution were 602,831,109.
In the second quarter of 2014, the BSP and SEC approved the Preferred Shares Rights Offer to Eligible Shareholders to raise gross proceeds of approximately Php 60.3 million. Pursuant to the Rights Issue, 602,831,109 new non-convertible, non-cumulative, non-participating, voting preferred shares were offered at Php 0.10 on the basis of one Preferred Share for every one existing Common Share held on record as of 16 June 2014. The offer period was from June 23 to July 4, 2014. The offer was fully subscribed and total number of preferred shares outstanding after the offer was 602,831,109.
On April 1, 2016, Security Bank issued 150,707,778 new common shares and 200,000,000 new preferred shares to The Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU), representing 20% of total outstanding shares. An additional 197,168,891 preferred shares were also issued to existing Filipino stockholders. Total number of outstanding common shares after the BTMU transaction was 753,538,887 while total number of outstanding preferred shares was 1,000,000,000.
11 Item 2. Properties
The Bank has its corporate headquarters at 6776 Ayala Avenue, Makati City. The Bank has ownership of approximately 78.9% of the 6776 Ayala Avenue property which is not limited by any mortgage or lien.
Of the Bank's network of 305 domestic branches, the Bank has ownership of the premises where 46 branches are located. The Bank leases the premises occupied by the rest of its branches where the Bank incurred P634.5 million in rentals for 2018 Most of the lease contracts include renewal options which give the Bank the right to extend the lease for varying periods at terms agreed upon with the lessors. The Bank intends to lease branch premises for the new branches targeted in 2019.
There are no plans for the acquisition of bank property over the next twelve (12) months.
Item 3. Legal Proceedings
The Bank is a party in legal proceedings which arose from normal business activities. However, management believes that these cases are without merit or that the ultimate liability, if any, resulting therefrom, has no material effect to the Bank’s financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 2018 to a vote of security holders, through the solicitation of proxies or otherwise.
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer's Common Equity and Related Stockholder Matters
(1) Market Information
The Bank's shares were officially listed and first traded at the Philippine Stock Exchange on 08 June 1995.
The price performance of the shares for each quarter within the last two years has been as follows:
(Philippine Peso) High Low Quarter ended March 2017 220.40 188.80 Quarter ended June 2017 228.00 201.20 Quarter ended September 2017 263.00 215.00 Quarter ended December 2017 268.20 235.00 Quarter ended March 2018 260.00 225.00 Quarter ended June 2018 240.00 186.80 Quarter ended September 2018 213.00 152.50 Quarter ended December 2018 167.80 132.10 End of day March 20, 2019 173.00 165.00
(2) Holders
The Bank had approximately 1,777 common shareholders and 397 preferred shareholders of 28 February 2019. Common shares outstanding as of said date stood at 753,538,887 and outstanding Preferred shares stood at 1,000,000,000.
The top 20 Shareholders as of 28 February 2019 are:
12 Common Shares
% to Total Stockholders Name No. of Shares Voting Shares 1 PCD NOMINEE CORPORATION (NON-FILIPINO) 348,054,445 19.85% 2 PCD NOMINEE CORP. 262,359,854 14.96% 3 ASIASEC EQUITIES, INC. 32,018,625 1.83% 4 FREDERICK Y. DY 31,329,741 1.79% 5 FREDERICK Y. DY &/OR EVELYN DY 27,271,008 1.56% 6 SOCIAL SECURITY SYSTEM 20,000,000 1.14% 7 ASIASEC EQUITIES, INC. A/C# 1058 6,681,676 0.38% 8 ANASTASIA S. DY 6,444,716 0.37% 9 GOODWOOD RESOURCES DEVELOPMENT INC 6,283,322 0.36% 10 SB EQUITIES, INC. 3,088,571 0.18% 11 JAMES JK HUNG 2,406,708 0.14% 12 ASI SECURITIES, INC. 1,495,579 0.09% 13 MEPCO EMPLOYEES RETIREMENT PLAN 331,709 0.02% 14 RAFAEL F. SIMPAO, JR. 217,296 0.01% 15 SAMANTHA MAE TAN SZE 216,000 0.01% 16 SB EQUITIES, INC. FAO L0015 175,902 0.01% 17 CENTRAL COLLEGES OF THE PHILS. 159,214 0.01% 18 BEE BEE S. CHUA 138,212 0.01% 19 JAMES G. DY 126,406 0.01% 20 ELECTRONIC TELEPHONE SYSTEMS IND. INC. 117,936 0.01%
Preferred Shares
% to Total Stockholders Name No. of Shares Voting Shares 1 FREDERICK Y. DY 248,000,000 14.14% 2 DANIEL DY 221,236,644 12.62% 3 THE BANK OF TOKYO-MITSUBISHI UFJ LTD. (BTMU) 200,000,000 11.41% 4 ASIASEC EQUITIES INC. 95,996,204 5.47% 5 RAFAEL F. SIMPAO, JR. 41,099,696 2.34% 6 ALBERTO S. VILLAROSA 41,000,000 2.34% 7 SOCIAL SECURITY SYSTEM 37,644,495 2.15% 8 ANASTASIA Y. DY 33,000,000 1.88% 9 GOODWOOD RESOURCES DEVELOPMENT INC 21,014,591 1.20% 10 GERALDINE DY 17,024,165 0.97% 11 SB EQUITIES INC. 12,252,527 0.70% 12 DEUTSCHE BANK MANILA-CLIENTS OBO A/C 6,367,204 0.36% 13 SBDEUB1000000 EQUTIES INC. 3,200,000 0.18% 14 HSBC OBO A/C 000-595686-550 2,188,129 0.12% 15 SB EQUITIES INC. 2,184,329 0.12% 16 BPI SECURITIES CORPORATION 2,150,799 0.12% 17 HSBC OBO A/C 026-100297-557 1,846,813 0.11% 18 ABACUS SECURITIES CORPORATION 1,771,202 0.10% 19 ASIASEC EQUITIES INC. 1,524,917 0.09% 20 SCB OBO RBC INVESTOR SERVICES TRUST CLIENT 1,260,000 0.07% ACCOUNT
13
(3) Dividends
Dividends are declared and paid out of the earned surplus or net profits of the Bank as often and at such times as the Board of Directors may determine and in accordance with the provisions of law and the regulations of the BSP. Cash dividends declared for the two most recent fiscal years are as follows:
Common Shares Dividend Total Dividend Record Payment Per Share Amount Date Date P1.50 P1.130 billion May 11, 2017 May 25, 2017 P1.50 P1.130 billion November 17, 2017 November 24, 2017 P1.50 P1.130 billion April 13, 2018 April 26, 2018 P1.50 P1.130 billion November 19, 2018 November 29, 2018
Preferred Shares Dividend Total Dividend Record Payment Per Share Amount Date Date P0.004805 P1.91 million March 17, 2017 April 3, 2017 P0.0039 P2.35 million June 26, 2017 July 10, 2017 P0.004805 P1.91 million March 14, 2018 April 2, 2018 P0.0039 P2.35 million June 26, 2018 July 10, 2018
Security Bank has adopted a Conservative Dividend Policy that will enable the Bank to weather the uncertainties and volatilities in the market; comply with the tighter requirements of Basel III and the BSP; maintain strong credit ratings; minimize the need for capital calls in the medium-term; and provide a capital base for business expansion that will create value over the long-term for all stakeholders. In declaring dividend pay-outs, Security Bank uses a combination of regular and special dividends such that the total dividend pay-out shall range from 15% to 30% of prior year’s NIAT.
Capital structure is managed in the light of changes in economic conditions, risk characteristics of activities and assessment of prospective business directions. Capital management begins with an assessment of regulatory capital and capital adequacy, followed by the determination of the optimal capital structure based on a risk-based capital planning approach, taking into consideration risk appetite, risk exposures, provision of a capital buffer, capital mix, leverage, target ROE, opportunities in the capital markets and sustainability.
(4) Recent Sales of Unregistered Securities
There were no sales of unregistered securities within the past three (3) years.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following tables present information from the Bank's Consolidated Financial Statements as of December 31, 2018, 2017 and 2016, and for the three years ended December 31, 2018, 2017 and 2016 as audited by SyCip Gorres Velayo & Co. (SGV), independent public accountants.
(in million pesos) Key Statement of Financial Position Data: As of December 31 2018 2017 2016 Total Assets 766,860.94 694,026.64 642,096.68 Total Deposit Liabilities 488,890.18 413,103.88 346,597.92 Loans and Receivables (net) 416,317.69 370,189.76 289,657.80 Total Liquid Assets 336,159.26 311,446.13 340,625.19 Total Earning Assets 664,853.60 618,005.37 576,763.24 Total Equity 109,482.14 105,078.43 97,126.92
14
(in million pesos) Key Statements of Income Data: For the Years Ended December 31 2018 2017 2016 Interest Income 33,961.58 28,794.82 22,825.17 Interest Expense 13,141.57 9,408.94 6,931.72 Net Interest Income 20,820.01 19,385.88 15,893.45 Other Income 4,778.84 5,699.22 4,938.36 Operating Expenses 13,791.16 12,482.71 10,456.55 Provision for Credit and Impairment Losses 721.80 651.14 944.37 Provision for Income Tax 2,476.11 1,686.15 877.22
Net Income 8,609.77 10,265.09 8,553.66 Attributable to Minority Interest 1.08 0.30 0.11 Attributable to Equity Holders of the Parent Company 8,608.69 10,264.80 8,553.55
Earnings per Share (weighted/adjusted) P=11.42 P=13.62 P=11.95
Key Performance Indicators
The Bank monitors its performance and benchmarks itself with the other players in the banking industry in terms of the following indicators:
December 31
Key Performance Indicators: 2018 2017 2016
Capital Adequacy Capital to Risk Assets Ratio 18.70% 18.66% 20.53%
Asset Quality Non-performing Loan (NPL) Ratio 0.41% 0.02% 0.17% Non-performing Loan (NPL) Cover 110.90% 239.37% 203.93%
Profitability Return on Average Equity 8.07% 10.12% 10.07% Net Interest Margin 3.27% 3.20% 3.12% Cost to Income 53.87% 49.76% 50.20%
Liquidity Liquid Assets to Total Assets 43.84% 44.88% 53.05%
15 The manner by which the Bank calculates the above indicators is as follows:
Key Performance Indicator Formula Capital to Risk Assets Ratio BSP prescribed formula:
Total Qualifying Capital Market, Credit and Operational Risk Weighted Exposures
Non-performing Loan (NPL) Ratio (Based on Non-performing Loans_(net of specific allowance) Circulars 941 and 1011 in 2018)(Based on Circular Gross Loans 772 in 2016 and 2017) Non-performing Loan (NPL) Cover (Based on Allowance for Probable Losses Loans Circulars 941 and 1011 in 2018) Non-performing Loans (gross of specific allowance) (Based on Circular 772 in 2016 and 2017) Liquid Assets to Total Assets Total Liquid Assets Total Assets
Return on Average Equity Annualized Net Income Attributable to Parent Company Average Total Equity Attributable to Parent Company for the Period
Net Interest Margin Annualized Net Interest Income Average Interest Earning Assets for the Period
2018 versus 2017 Results of Operations
Financial Position
Total Assets grew by 10.5% to P766.9 billion on account of increases in Cash and Other Cash Items, Due from Bangko Sentral ng Pilipinas, Due from Other Banks, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income, Loans and Receivables, Investment in Subsidiaries and a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets, Other Assets.
Increase in Cash and Other Cash Items by P4.0 billion or 49.9% can be attributed to the Bank’s daily operations. Due from BSP increased by P7.0 billion or 12.4% due to decrease in Demand Deposit Account while Due from Other Banks grew by 32.2% or P2.2 billion due to increased level of placements and working balances with counterparty banks. Interbank Loans Receivable decreased by 96.3% or P5.5 billion due to decreased level of placements.
Financial Assets at Fair Value Through Profit or Loss expanded by P0.4 billion or 7.8% to P4.9 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income increased to P34.3 billion due to reclassification from HTC to FVTOCI category due to updated business model in managing financial assets and acquisitions for the year.
Investment Securities at Amortized Cost decreased by 7.6% to P212.1 billion due to reclassification from HTC to FVTOCI category due to updated business model in managing financial assets of the Parent Company.
Loans and Receivables grew by 12.5% to P416.3 billion due to increased lending activities.
Property and Equipment increased by 0.4% to P4.1 billion while Investment Properties went up by 2.7% to P812.8 million in 2018.
Deferred Tax Assets expanded to P1.9 billion versus P1.8 billion as of year-end 2018. Intangible Assets grew to P2.3 billion from P2.0 billion due to the acquisition of software during the year.
Other Assets grew by 57.3% to P4.1 billion due to increase in cash collaterals related to Bank’s trading activities.
16
Total Liabilities went up by 11.6% or P68.4 billion to P657.4 billion mainly due to increases in Deposit Liabilities, Derivative Liabilities Designated as Hedges, Margin Deposits and Cash Letters of Credit, Notes Payable, Subordinated Note, Accrued Interest, Taxes and Other Expenses and Other Liabilities, offset by the decline in Financial Liabilities at Fair Value through Profit or Loss, Bills Payable and Securities Sold Under Repurchase Agreements, Acceptances Payable, Manager’s and Certified Checks Outstanding and Income Tax Payable.
Deposit Liabilities rose to P488.9 billion from 2017’s P413.1 billion translating to 18.3% growth contributed by increase in Demand and Time Deposit.
Financial Liabilities at Fair Value through Profit or Loss declined by 11.9% to P1.8 billion from P2.0 billion of prior year attributable to lower volume of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedge is P1.5 billion in 2018 and nil in 2017. Bills Payable and Securities Sold Under Repurchase Agreements decreased by 21.3% to P103.2 billion due to decrease in the Bank’s repo transactions.
Acceptances Payable decreased by 9.6% to P618.8 million while Margin Deposits and Cash Letters of Credit increased by 44.3% to P938.7 million. Manager’s and Certified Checks Outstanding at P3.3 billion declined by 9.2% from year-end 2017’s P3.6 billion level.
Income Tax Payable decreased to P30.3 million from previous year’s P681.1 million due to lower income tax liability for the last quarter of 2018 versus the last quarter of 2017. Notes Payable increased by 110.1% to P31.4 billion due to additional issuance amounting to P16.1 billion (USD 297.7 million), amortization and foreign currency translation adjustment. Subordinated Note increased by P6.4 million due to amortization of debt issue costs. Accrued Interest, Taxes and Other Expenses grew by 34.1% to P5.4 billion. Other Liabilities increased by 27.9% to P10.4 billion due to higher OCPAC and higher cash collateral received from counterparties related to trading activities.
Total Equity grew by 4.2% to P109.5 billion on account of net income during the year. Capital Stock and Additional Paid-in Capital didn’t move from the 2017 balances. Surplus Reserves was up 89.3% mainly due to increase in reserves for trust business and sinking fund for self-insurance. Surplus was up 6.4% due to the net income during the year, net of dividend payments. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent decreased 572.1% while that of the Subsidiaries also decreased by 31.2% due to decrease in market valuation of outstanding debt securities purchased and transferred from HTC to financial assets at FVTOCI. Cumulative Foreign Currency Translation grew by P35.0 million.
The Capital Adequacy Ratio (CAR) increased to 18.70% due to decrease in risk-weighted assets in 2018. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets.
Results of Operations
Net income attributable to the Bank’s equity holders amounted to P8.6 billion in 2018 from 2017 level of P10.3 billion. This translates to earnings per share of P11.42 from P13.62 in 2017. The total operating income grew by 2.0% or P0.5 billion partly offset by increase in total operating expenses (including provision for credit and impairment losses) by 10.5% or P1.4 billion and provision for income tax by 46.8% or P790.0 million.
Interest Income Interest Income ended higher than prior year by 17.9% or P5.2 billion on account of increase in loan-related activities during the year. Interest Income on Loans and Receivables grew by 37.9% or P6.6 billion due to continued expansion of consumer and wholesale loans during the year. Interest Income on Financial Investments decreased by P1.2 billion or 11.1% on account of lower level of securities portfolio. Increase in Interest Income on Interbank Loans Receivables by P14.5 million was on the account of increase in volume of placements during the period. Interest Income on Deposits with Banks and Others declined by 68.3% to P100.2 million.
17
Interest Expense Interest Expenses went up by 39.7% or P3.7 billion during the year. Interest Expense on Deposits increased by 57.3% or P3.0 billion due to increase in deposit volume. Interest Expense on Derivative Instruments went up by 34.2% while Interest Expenses on Derivatives Designated as Hedges went down by P4.2 million. Interest Expense on Subordinated Note, Bills Payable and Securities Sold under Repurchase Agreements and Other Borrowings grew by 15.0% or P537.5 million due to increase in repo transactions cost and new unsecured notes, USD 300.0 million.
Net Interest Income increased to P20.8 billion, a 7.4% or P1.4 billion growth from prior year.
Other Income Other Income decreased to P4.8 billion due to nil Gain on Disposal of Investment Securities at Amortized Cost. Rent Income increased by P129.7 million due to increase in rental income from SB Rental. Trading and Securities Gains increased to P366.1 million. Foreign Exchange Gains reflected a growth of P250.0 million. Service Charges, Fees and Commissions grew by P606.5 million or 26.1% driven by credit card, bancassurance, loan fees and deposit charges. Profit from Assets Sold/Exchanged grew by P6.1 million during the year on account of higher gains on acquisition and sale of foreclosed properties. Miscellaneous Income grew by P96.5 million. Share in Net Income of a Joint Venture of P26.5 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period.
Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher at P13.8 billion, up by 10.5%. Compensation and Fringe Benefits increased by 16.0%, Taxes and Licenses by 13.9%, Occupancy Costs by 20.1%, Depreciation and Amortization by 20.6%, Amortization of Software Costs by 51.6%, and Miscellaneous Expenses decreased by 0.6%. Provision for Credit Losses was pegged at P714.5 million in 2018 as compared to previous year’s P656.5 million. Provision for Impairment Loss was at P7.3 million in 2018.
Provision for Income Tax Provision for Income Tax amounted to P2.5 billion in 2018 or 46.8% higher than P1.7 billion reported in the previous year due to higher deferred taxes in 2018.
Comprehensive Income Total Comprehensive Income for the year amounted to P7.3 billion from P10.2 billion in the previous year on account of lower net income and net unrealized loss on financial assets at fair value through other comprehensive income (net of tax).
2017 versus 2016 Results of Operations
Financial Position
Total Assets grew by 8.1% to P694.0 billion on account of increases in Cash and Other Cash Items, Interbank Loans & Receivables, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income, Loans and Receivables, Investment in Subsidiaries and a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets.
Increase in Cash and Other Cash Items by P263.6 million or 3.4% can be attributed to the Bank’s daily operations while the decline in Due from BSP by P15.1 billion or 21.0% is due to decrease in Demand Deposit Account. Due from Other Banks declined by 38.3% or P4.2 billion while Interbank Loans & Receivables grew to P5.7 billion due to increased level of placements and working balances with counterparty banks.
Financial Assets at Fair Value Through Profit or Loss expanded by P1.2 billion or 35.5% to P4.6 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income increased by 12.4% to P200.3 million due to increase in market valuation of securities held.
Investment Securities at Amortized Cost decreased by 6.7% to P229.6 billion due to the sales of securities for the held-to-collect portfolio during the year.
18
Loans and Receivables grew by 27.8% to P370.2 billion due to increased lending activities.
Property and Equipment increased by 18.7% to P4.1 billion from P3.5 billion while Investment Properties went up by 20.1% to P791.3 million in 2017.
Deferred Tax Assets expanded to P1.8 billion versus P1.1 billion as of year-end 2017. Intangible Assets grew to P2.0 billion from P1.9 billion due to the acquisition of additional branch license and software during the year.
Other Assets declined by 27.7% to P2.6 billion due to decrease in cash collaterals related to Bank’s trading activities.
Total Liabilities went up by 8.1% or P44.0 billion to P588.9 billion mainly due to increases in Deposit Liabilities, Financial Liabilities at Fair Value through Profit or Loss, Margin Deposits and Cash Letters of Credit, Manager’s and Certified Checks Outstanding, Income Tax Payable, Notes Payable, Subordinated Note, Accrued Interest, Taxes and Other Expenses and Other Liabilities, offset by the decline in Derivative Liabilities Designated as Hedges, Bills Payable and Securities Sold Under Repurchase Agreements and Acceptances Payable.
Deposit Liabilities rose to P413.1 billion from 2016’s P346.6 billion translating to a 19.2% growth contributed by increase in Demand and Time Deposit.
Financial Liabilities at Fair Value through Profit or Loss grew by 206.8% to P2.0 billion from P656.3 million of prior year attributable to higher volume of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedge is nil in 2017 from previous year’s P3.8 million. Bills Payable and Securities Sold Under Repurchase Agreements decreased by 17.0% to P131.2 billion due to decrease in the Bank’s repo transactions.
Acceptances Payable decreased by 8.7% to P684.7 million while Margin Deposits and Cash Letters of Credit increased by 69.1% to P650.3 million. Manager’s and Certified Checks Outstanding at P3.6 billion went up by 18.0% from year-end 2016’s P3.1 billion level.
Income Tax Payable increased to P681.1 million from previous year’s P54.7 million due to higher income tax liability for the last quarter of 2017 versus the last quarter of 2016. Notes Payable increased by 0.5% to P14.9 billion due to amortization of debt issue costs and foreign currency translation and Subordinated Note increased by P6.1 million due to amortization of debt issue costs. Accrued Interest, Taxes and Other Expenses grew by 23.1% to P4.0 billion. Other Liabilities increased by 9.6% to P8.1 billion due to higher accounts payable.
Total Equity grew by 8.2% to P105.1 billion on account of net income during the year. Capital Stock and Additional Paid-in Capital didn’t move from the 2016 balances. Surplus Reserves was up 85.7% mainly due to increase in reserves for trust business and sinking fund for self-insurance. Surplus was up 15.3% due to the net income during the year, net of dividend payments. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent increased by 26.3% due to increase in market valuation of securities held and that of the Subsidiaries also increased by 16.3%. Cumulative Foreign Currency Translation declined by P297.3 million.
The Capital Adequacy Ratio (CAR) decreased to 17.72% due to increase in risk-weighted assets in 2017. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets.
Results of Operations
Net income attributable to the Bank’s equity holders amounted to P10.3 billion in 2017 from 2016 level of P8.6 billion. This translates to earnings per share of P13.62 from P11.95 in 2016. The increase is mainly due to growth in total operating income by 20.4% or P4.3 billion partly offset by increase in total operating expenses (including provision for credit and impairment losses) by 15.2% or P1.7 billion and provision for income tax by 92.2% or P808.9 million.
19 Interest Income Interest Income ended higher than prior year by 26.2% or P6.0 billion on account of increase in loan-related and financial investment-related activities during the year. Interest Income on Loans and Receivables grew by 30.4% or P4.0 billion due to expansion in Loans & Receivables during the year. Interest Income on Financial Investments increased by P1.9 billion or 21.0% due to the growth in accrual income brought about by the build-up of held-to-collect securities during first semester of 2017. Decrease in Interest Income on Interbank Loans Receivables by P61.1 million was on the account of decrease in volume of placements during the period. Interest Income on Deposits with Banks and Others grew by 34.3% to P316.5 million due to increase in transactions.
Interest Expense Interest Expenses went up by 35.7% or P2.5 billion during the year. Interest Expense on Deposits increased by 49.4% or P1.7 billion due to increase in deposit volume. Interest Expense on Derivative Instruments went down by 26.1% while Interest Expenses on Derivatives Designated as Hedges went down by 74.6%. Interest Expense on Subordinated Note, Bills Payable and Securities Sold under Repurchase Agreements and Other Borrowings grew by 37.0% or P968.6 million due to increase in repo transactions.
Net Interest Income increased to P19.4 billion, a 22.0% or P3.5 billion growth from prior year.
Other Income Other Income increased to P5.7 billion due to higher Gain on Disposal of Investment Securities at Amortized Cost by P739.8 million and growth in Rent Income by P111.5 million due to increase in rental income from SB Rental. Trading and Securities Gains declined to P27.0 million. Foreign Exchange Gains reflected a decline of P28.1 million. Service Charges, Fees and Commissions grew by P147.6 million due to higher transaction volumes. Profit from Assets Sold/Exchanged grew by P36.8 million during the year on account of higher gains on acquisition and sale of foreclosed properties. Miscellaneous Income declined by P135.2 million. Share in Net Income (Loss) of a Joint Venture of P25.5 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period.
Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher at P12.5 billion, up by 19.4%. Compensation and Fringe Benefits increased by 13.9%, Taxes and Licenses by 27.3%, Occupancy Costs by 18.4%, Depreciation and Amortization by 47.5%, Amortization of Software Costs by 80.8%, and Miscellaneous Expenses by 16.7%. Provision for Credit Losses was pegged at P656.5 million in 2017 as compared to previous year’s P937.5 million. Recovery of Impairment Loss was at P5.3 million.
Provision for Income Tax Provision for Income Tax amounted to P1.7 billion in 2017 or 92.2% higher than P877.2 million reported in the previous year due to higher deferred and current taxes in 2017.
Comprehensive Income Total Comprehensive Income for the year amounted to P10.2 billion from P8.6 billion in the previous year on account of higher net income and net unrealized gain on financial assets at fair value through other comprehensive income (net of tax) offset by lower cumulative translation adjustments.
2016 versus 2015 Results of Operations
Financial Position
Total Assets grew by 26.7% to P642.1 billion on account of increases in Cash and Other Cash Items, Due from Bangko Sentral ng Pilipinas (BSP), Due from Other Banks, Interbank Loans & Receivables, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income, Investment Securities at Amortized Cost, Loans and Receivables, Investment in Subsidiaries and a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets and Other Assets.
Increase in Cash and Other Cash Items by P1.0 billion or 15.7% can be attributed to the Bank’s daily operations while the growth in Due from BSP by P14.8 billion or 26.0% is due to reserve requirements and
20 asset-liability management. Due from Other Banks grew by 89.4% or P5.2 billion and Interbank Loans & Receivables grew to P0.7 billion due to increased level of placements and working balances with counterparty banks.
Financial Assets at Fair Value Through Profit or Loss expanded by P0.5 billion or 15.9% to P3.4 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income increased by 7.2% to P178.2 million due to increase in market valuation of securities held.
Investment Securities at Amortized Cost grew by 31.7% or P59.2 billion due to the purchase of securities for the held-to-collect portfolio during the year.
Loans and Receivables improved by 21.8% to P289.7 billion due to increased lending to various industries, such as power, infrastructure, wholesale and retail trade, food and agriculture and consumer goods.
Property and Equipment increased by 33.1% to P3.5 billion from P2.6 billion while Investment Properties went up by 24.9% to P659.1 million in 2016.
Deferred Tax Assets expanded to P1.1 billion versus P1.0 billion as of year-end 2016. Intangible Assets grew to P1.9 billion from P1.6 billion due to the acquisition of additional branch licenses and software during the year.
Other Assets grew by 29.1% to P3.6 billion due to increase in cash collaterals related to Bank’s trading activities.
Total Liabilities went up by 20.2% or P91.5 billion to P545.0 billion mainly due to increases in Deposit Liabilities, Bills Payable and Securities Sold Under Repurchase Agreements, Acceptances Payable, Margin Deposits and Cash Letters of Credit, Manager’s and Certified Checks Outstanding, Notes Payable, Subordinated Note, and Accrued Interest, Taxes and Other Expenses, offset by the decline in Financial Liabilities at Fair Value through Profit or Loss, Derivative Liabilities Designated as Hedges, Income Tax Payable and Other Liabilities.
Deposit Liabilities rose to P346.6 billion from 2015’s P289.5 billion translating to a 19.7% growth contributed by increase in Demand and Time Deposit, partly offset by a decline in Savings Deposit.
Financial Liabilities at Fair Value through Profit or Loss declined by 10.7% to P656.3 million from P734.5 million of prior year attributable to lower valuation of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedge declined to P3.8 million from previous year’s P17.7 million. Bills Payable and Securities Sold Under Repurchase Agreements expanded by 26.8% to P158.0 billion due to increase in the Bank’s repo transactions.
Acceptances Payable increased by 119.1% to P749.7 million while Margin Deposits and Cash Letters of Credit increased by 18.3% to P384.5 million. Manager’s and Certified Checks Outstanding at P3.1 billion went up by 10.2% from year-end 2015’s P2.8 billion level.
Income Tax Payable went down to P54.7 million from previous year’s P109.6 million due to lower income tax liability for the last quarter of 2016 versus the last quarter of 2015. Notes Payable increased by 5.7% to P14.9 billion due to amortization of debt issue costs and foreign currency translation and Subordinated Note increased by P5.8 million due to amortization of debt issue costs. Accrued Interest, Taxes and Other Expenses grew by 11.6% to P3.3 billion. Other Liabilities declined by 9.0% to P7.4 billion due to lower bills purchased - contra, withholding taxes payable and miscellaneous liabilities.
Total Equity grew by 82.5% to P97.1 billion on account of net income during the year and the BTMU capital infusion. Capital Stock was up 25.4% while Additional Paid-in Capital was up 1100.1% due to the issuance of new common and preferred shares to BTMU. Surplus Reserves was up 45.7% mainly due to increase in reserves for trust business and sinking fund for preferred shares. Surplus was up 15.5% due to the net income during the year, net of dividend payments. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent increased by 28.5% due to increase in market valuation of securities held while that of the Subsidiaries declined by 9.8%. Cumulative Foreign Currency Translation grew by P126.3 million.
21 The Capital Adequacy Ratio (CAR) increased to 20.53% with the BTMU capital infusion. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets.
Results of Operations
Net income attributable to the Bank’s equity holders amounted to P8.6 billion in 2016 from 2015 level of P7.7 billion. This translates to earnings per share of P11.95 from P12.77 in 2015. The increase is mainly due to growth in total operating income by 13.8% or P2.5 billion partly offset by increase in total operating expenses (including provision for credit and impairment losses) by 13.9% or P1.4 billion.
Interest Income Interest Income ended higher than prior year by 24.4% or P4.5 billion on account of increase in loan-related and financial investment-related activities during the year. Interest Income on Loans and Receivables grew by 22.5% or P2.4 billion due to expansion in Loans & Receivables during the year. Interest Income on Financial Investments increased by P1.7 billion or 22.9% due to the growth in accrual income brought about by the build-up of held-to-collect securities during the year. Increase in Interest Income on Interbank Loans Receivables by P171.3 million was on the account of increase in volume of placements during the period. Interest Income on Deposits with Banks and Others grew by 255.3% to P235.6 million due to increase in transactions.
Interest Expense Interest Expenses went up by 16.5% or P981.8 million during the year. Interest Expense on Deposits increased by 9.5% or P303.8 million due to increase in deposit volume. Interest Expense on Derivative Instruments went down by 12.5% while Interest Expenses on Derivatives Designated as Hedges went down by 35.1%. Interest Expense on Subordinated Note, Bills Payable and Securities Sold under Repurchase Agreements and Other Borrowings grew by 44.1% or P800.9 million due to increase in repo transactions.
Net Interest Income increased to P15.9 billion, a 28.2% or P3.5 billion growth from prior year.
Other Income Other Income went down to P4.9 billion due to lower Gain on Disposal of Investment Securities at Amortized Cost by P457.5 million and lower Trading and Securities Gains to P142.7 million. Foreign Exchange Gains reflected a decline of P144.3 million. Service Charges, Fees and Commissions grew by P63.2 million due to higher transaction volumes. Profit from Assets Sold/Exchanged grew by P30.1 million during the year on account of higher gains on acquisition and sale of foreclosed properties while the growth in Rent Income by P99.9 million was due to rental of Bank properties. Miscellaneous Income expanded by P96.3 million. Share in Net Income (Loss) of a Joint Venture of P21.2 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period.
Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher at P10.5 billion, up by 11.4%. Compensation and Fringe Benefits increased by 19.6%, Occupancy Costs by 10.3%, Depreciation and Amortization by 16.5%, Amortization of Software Costs by 24.2%, and Miscellaneous Expenses by 8.8%. Taxes and Licenses declined by 3.6%. Provision for Credit Losses was pegged at P937.5 million in 2016 as compared to previous year’s P628.2 million. Provision for Impairment Loss was at P6.8 million.
Provision for Income Tax Provision for Income Tax amounted to P877.2 million in 2016 or 4.1% lower than P914.6 million reported in the previous year due to lower deferred and current taxes in 2016.
Comprehensive Income Total Comprehensive Income for the year amounted to P8.6 billion from P7.6 billion in the previous year on account of higher net income, cumulative translation adjustments, and net unrealized gain on financial assets at fair value through other comprehensive income (net of tax).
22
Liquidity
The Bank’s liquidity is adequate with a liquid-assets-to-total-assets ratio of 43.83% in 2018, 44.88% in 2017 and 53.05% in 2016. Liquid assets consist of cash and other cash items, due from BSP, due from other banks, interbank loans receivable, financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and investment securities at amortized cost. Liquidity risk is the risk of not being able to meet funding obligations such as the repayment of liabilities or payment of asset purchases. Liquidity risk is monitored and managed using the Maximum Cumulative Outflows (MCO) and funding diversification/ concentration limits. A Contingency Funding Plan is likewise in place to ensure readiness for every liquidity crisis situation. The Bank’s Asset and Liability Committee (ALCO) is directly responsible for liquidity risk exposures. ALCO regularly monitors the Bank’s positions and sets the appropriate fund transfer prices to effectively manage movement of funds across business activities. The Bank does not anticipate any cash flow or liquidity problems within the next twelve months, and is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments. All payables have been paid by the Bank within the stated terms. There are no known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Bank’s liquidity increasing or decreasing in any material way.
Events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation
There were no events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation.
Off-Balance Sheet Transactions, Arrangements, Contingent Obligations and Other relationships of the company with unconsolidated entities or other persons
The Bank has outstanding commitments, contingent liabilities, bank guarantees and tax assessments that arose from the normal course of operations. The Bank does not anticipate losses that will materially affect its financial position and results of operations as a result of these transactions.
The following is a summary of the Group’s commitments and contingent liabilities at their equivalent peso contractual amounts:
Group’s commitments and contingent liabilities (in million pesos) 2018 2017 2016 Committed loan line P49,556 P83,860 P56,582 Trust department accounts 49,015 50,194 54,287 Unused commercial letters of credit 27,056 24,837 33,528 Unutilized credit limit of credit card holders 22,995 13,215 8,562 Outstanding guarantees 2,734 1,221 2,170 Inward bills for collection 787 500 1,486 Late Deposit/Payment Received 511 6 630 Outward bills for collection 488 295 370 Financial guarantees with commitment 99 86 60
Material Commitments for Capital Expenditures
The Bank’s commitments for capital expenditures will be funded out of cash flows from operations. This covers investments in electronic systems to comply with regulatory requirements (e.g. electronic money laundering monitoring system), investments in other systems (e.g. credit evaluation system), upgrades of existing systems (e.g. telecommunications system), expansion of the Bank’s electronic banking channels, ATM installations, renovation or relocation or branch premises, and investments for new branches.
23
Material Impact on Income from Continuing Operations
In the normal course of operations, the Bank’s activities are affected by changes in interest rates, foreign currency exchange rates and other market changes. The Bank follows a prudent policy on managing its assets and liabilities so as to ensure that exposure to fluctuations in interest rates and foreign currency exchange rates are kept within acceptable limits and within regulatory guidelines.
Significant Elements of Income or Loss that did not arise from Continuing Operations
There are no significant elements of income or loss that did not arise from continuing operations of the Bank.
Seasonal aspects that have a material effect on the financial position or results of operations.
The Bank’s financial position or results of operations are not affected by seasonal aspects.
Future Prospects
The Philippine economy is again in a growth trajectory, with our 2019 forecast for GDP growth at 6.4% from last year's 6.2%. Despite the slowdown in 2018, the economy still retained its label as one of the fastest growing in the Asian region, and we expect it to remain that way. Apart from the country's strong macroeconomic fundamentals and inflation easing this year, factors that will push economic growth are improved domestic and external demand, bigger infrastructure spending, higher tourism arrivals, and solid policy reforms.
Item 7. Financial Statements
The consolidated financial statements of the Bank are filed as part of this Form 17-A (please refer to Financial Statements and Supplementary Schedules on page 58).
Item 8. Information on Independent Accountant and Other Related Matters
(1) External Audit Fees and Services
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Group’s external auditors are summarized as follows:
Aggregate Fees Nature of Services Rendered (in millions)
2018 2017
Regular audit of the Group's financial statements P5.96 P4.58 Senior Unsecured Notes with limited review 6.00 − Issuance of comfort letter for LTNCD offering 2.13 2.58 Consultancy service 0.44 0.45 Total Fees P14.53 P7.61
The fees billed for the audit of the Group’s annual financial statements are P5.96 million for 2018 and P4.58 Million for 2017. In 2018, the Bank engaged the services of SGV for the review of interim condensed consolidated financial statements of the Group as of June 30, 2018 and issuance of a comfort letter related to the offering of Senior Unsecured Notes. The related engagement fee amounted to P6.0 million. In 2018 and 2017, the Bank engaged SGV for the issuance of comfort letter related to the offering of long term negotiable certificates of time deposit (LTNCD) with engagement fees amounting to P2.13 million and P2.58 million, respectively. In 2018 and 2017, relative to the implementation of the final version PFRS 9 (classification and measurement and hedge accounting), the Bank engaged SGV for certain consultancy services with engagement fees amounting to P0.44 million and P0.45 million, respectively.
The Bank did not engage SGV for tax accounting services in the last two years.
24 Audit Committee’s Approval Policies and Procedures for the Above Services
The Bank’s Audit Committee reviews the eligibility of the incumbent external auditor for retention, considering certain criteria, during the first quarter of each year. Failing so, the Audit Committee then follows the selection process. The Audit Committee selects from among the qualified external auditors and presents their recommendation to the Board of Directors for approval.
Before the start of each year’s audit, the external auditor presents to the Audit Committee for approval its proposed audit plan, describing the areas of focus for the audit, as well as any new accounting standards, laws and new regulatory rules that need to be taken into account in the course of the audit. The audit schedule is also presented. The audit fees are agreed with the external auditor by management. When the audit is completed and before the Bank’s Board meeting in February of the following year, the external auditor presents the audited financial statements and accompanying notes to the Audit Committee. Thereafter, the Audit Committee endorses the financial statements and accompanying notes to the Board for notation in its February meeting, well ahead of tax filing in April.
(2) Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There were no changes in and disagreements with SyCip Gorres Velayo & Co. (SGV), the Bank’s external auditor, on accounting and financial disclosure.
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
(a) Directors
THE BOARD OF DIRECTORS/NOMINEES FOR THE TERM 2019-2020
Date Elected To The Name Position Board Citizenship Age Frederick Y. Dy Chairman Emeritus April 4, 1989 Filipino 64 Alberto S. Villarosa Chairman October 30, 2002 Filipino 68 Anastasia Y. Dy Vice Chairman April 30, 1996 Filipino 61 Alfonso L. Salcedo, Jr. Director April 28, 2015 Filipino 63 Diana P. Aguilar Director April 26, 2017 Filipino 55 Cirilo P. Noel Director April 24, 2018 Filipino 62 Takahiro Onishi Director April 1, 2016 Japanese 52 Rafael F. Simpao Jr. Director April 26, 2016 Filipino 75 Masaaki Suzuki Director April 1, 2019 Japanese 54 Philip T. Ang Independent Director February 21, 1980 Filipino 77 Joseph R. Higdon Independent Director May 29, 2012 American 77 James J.K. Hung Independent Director April 24, 1990 Taiwanese 72 Ramon R. Jimenez, Jr. Independent Director April 26, 2017 Filipino 63 Jikyeong Kang Independent Director April 26, 2017 Korean 57 Napoleon L. Nazareno Lead Independent Director April 26, 2017 Filipino 69 Gerard H. Brimo Independent Director Nominee for election Filipino 67
FREDERICK Y. DY, 64, was elected Chairman Emeritus on April 28, 2015. He was elected Vice Chairman of the Board on April 4, 1989 before assuming the Chairman’s position from April 1991 to April 2015. He is the Chairman of St. Luke’s Medical Center (since August 2011), Chairman of City Industrial Corporation (since June 1994), Independent Director of PLC-Nickel Asia Corporation (since September 2010) and a Director of Ponderosa Leather Goods Co., Inc. (since May 1980).
25 ALBERTO S. VILLAROSA, 68, was elected Chairman of the Board on April 28, 2015. He was elected to the Board on October 2002 before assuming the position of President and Chief Executive Officer of the Bank on January 5, 2004. Prior to this, he was Senior Executive Vice President and Chief Operating Officer.
He is currently a member of the Executive, Nominations and Remuneration, Corporate Governance, Restructuring and Finance Committees. He is a Member of the Society of Fellows of the Institute of Corporate Directors (since July 2006). He is a Director of Catholic Travel, Inc. (since March 2009).
He was the President of the Bankers Association of the Philippines (from April 2012 to March 2013) and Director (from March 2014 to October 2015). He was the Chairman and Director of SB Capital Investment Corporation (from April 2004 to August 2016), Security Bank Savings Corporation (from February 2012 to May 2015) and SB Rental Corporation (from May 2014 to May 2015). He was the Chairman of SBM Leasing, Inc. (from July 2011 to May 2014) and a Director of SB Cards Corporation (from December 2012 to June 2013). Mr. Villarosa has extensive banking experience in the areas of Treasury, Investment Banking and Consumer Banking. Prior to joining the Bank, he was the Executive Vice President and Treasurer of Bank of the Philippine Islands (BPI) (from October 1996 to October 2002). During that time, he was a Director in several BPI subsidiaries, among which were BPI Family Bank, BPI Forex Corporation and BPI Investment Management, Inc. Prior to joining BPI, he was Director/President of CityTrust Securities Corp. (from 1998 to 2003) and with CityTrust Banking Corporation (from 1987 to 1996) where the last position he held was Executive Vice President/Treasurer and President of CityTrust Investment Philippines (from 1997 to 1998). Prior to this, he was a Vice President of Citibank N.A. (from 1984 to 1987). He graduated with a Bachelor of Science Degree in Commerce from University of San Carlos, Cebu City and earned his Master’s Degree in Business Management from the Asian Institute of Management.
ANASTASIA Y. DY, 61, was elected to the Board in April 1996 and appointed Vice Chairman in April 2018. She was the Bank’s Corporate Treasurer (from 1994 to September 2004) and Executive Director (from September 2004 to April 2018).
She is the Chairman of the Transformation Committee. She is a member of the Corporate Governance, Nominations and Remuneration, and Finance Committees, and an alternate member of the Executive Committee.
She is a Director of Woodchild Holdings (since 1991), Woodson Holdings (since 1991) and Ponderosa Leather Goods, Co., Inc. (since 1995). She is a Trustee of Tany Foundation, Inc., Security Bank Foundation, Inc., Precept Ministries International of the Phil. Islands, CCF Life Academy Foundation Inc., Uplift Cares Global Movement Foundation Inc. and Center for Community Transformation Inc.
She graduated from the University of the Philippines with a degree in Business Administration and earned units for a Master’s degree in Business Administration from De La Salle University.
ALFONSO L. SALCEDO, JR., 63, was elected Director and appointed President and Chief Executive Officer of the Bank on April 28, 2015. He is a member of the Trust, Restructuring and Finance Committees. He is also Vice Chairman of the Executive Committee.
He is the Chairman of SB Finance, formerly Security Bank Savings Corporation (since May 2015). He is a Director and Vice Chairman of SB Capital Investment Corporation (since May 2015). He is also a Director of SB Cards Corporation (since May 2015), SB Rental Corporation (since May 2015) and SB Equities, Inc. (since August 2016). He is a Trustee of Security Bank Foundation (since April 2015). He is a Director of the Bankers Association of the Philippines (from October 2015 to March 2018).
Prior to joining the Bank, he was a former executive of the Bank of the Philippine Islands (from 2000 to March 2015), with his last position as Executive Vice President in charge of Corporate Clients Segment. He served as President of BPI Family Savings Bank (from 2004 to 2010), BPI Insurance Group (from 2000 to 2004) and Allstate Life Insurance (Philippines) in 1999. He served in the retail banking operations of Citibank Philippines as Country Marketing Director and Retail Bank Business Manager for 10 years before joining BPI. He served as Marketing Director for Nippon Vicks KK (Japan) based in Osaka for five years (from 1983-1987). He was a member of the Board of BPI’s subsidiaries and affiliates, specifically: BPI Capital Corporation, BPI Direct Savings Bank, BPI-Philam Life Assurance Corporation, BPI Rental Corporation, BPI Leasing Corporation and Ayala Automotive Holdings Corporation. He received his AB Economics Honors degree (with honors) from
26 the Ateneo de Manila University in 1977 and completed the Advanced Management Program at Harvard Business School in 2006.
DIANA P. AGUILAR, 55, was elected to the Board on April 25, 2017. Prior to this, she was a Director of Security Bank Corporation (from November 2010 to April 2016) and was appointed as Senior Advisor to the Board on July 26, 2016.
She is the Chairperson of the Trust Committee and a member of the Related Party Transactions Committee. She is a Commissioner of the Social Security System (since August 2010). She also serves as Chairperson of SB Capital Investment Corporation (since August 2016).
She is a Commissioner of the Social Security System (since August 2010). Recently, she was elected as one of the members of the Board of Governors of the Employers Confederation of the Philippines (since January 2017), Member of the Board of Directors of Ionics Inc. (since December 2016), Consultant and Senior Advisor to the Board of PLC- Phil. Seven Corporation (since January 2015), Board Member of Capital Markets Development Board (since 2013), Director of Wenphil Corporation (since 2012), Director of Electronic Commerce Payment Networks, Inc. (since 2004) and Treasurer of De la Salle Santiago Zobel School (since 2004).
She was a member of the Board of Directors of the PLC- Philex Petroleum Corporation (from 2014 to 2017), Director of Phoenix Petroleum Philippines, Inc. (from 2010 to 2013) and CLSA Exchange Capital Corp. (from 2001 to 2002). She was a member of the Board of Trustees of De La Salle Santiago Zobel School (from 2004 to 2010), Director of PLC – Phil. Seven Corporation (from 1999 to 2015) and Vice President for Corporate Finance of Jardine Fleming Exchange Capital Corporation Group, Inc. (from 1988 to 2001).
She holds a Master's degree in Business Administration major in International Business and Finance from Pepperdine University in California and is a Bachelor of Science in Computer Studies from De La Salle University in Manila.
CIRILO P. NOEL, 62, was elected to the Board on April 24, 2018. He is the Vice Chairman of the Bank’s Risk Oversight Committee. He is a member of the Executive, Audit and Transformation Committees.
He is the Chairman of Palm Concepcion Power Corporation (since June 2018). He is a member of the Board of Directors of Amber Kinetics Holdings Co., PTE Ltd. (since March 2018), PLC-Globe Telecom, Inc. (since April 2018), LH Paragon Group, Golden ABC (since January 2018), PLC-JG Summit Holdings (since May 2018), Philippine Airlines (since May 2018), PLC-PAL Holdings, Inc. (since May 2018), Cal Comp Technology (Philippines) Inc. (since June 2018), and PLC-San Miguel Foods and Beverage, Inc. (since September 2018). He is also a member of the Board of Trustees of St. Luke’s Medical Center (since April 2018) and St. Luke’s Medical Center College of Medicine (since April 2018).
He is also currently affiliated with the Makati Business Club, Harvard Law School, Harvard Club and SGV Foundation.
Prior to joining the Bank, he held various positions in SGV & Co. including Chairman (from 2010 to 2017), Managing Director (from 2009 to 2010), Vice Chairman & Deputy Managing Director (from 2004 to 2009), Head of Tax Division (from 2001 to 2008) and Partner, Tax Services (from 1993 to 2017).
He graduated from the University of the East with a Bachelor of Science degree in Business Administration. He earned his degree in Bachelor of Laws from the Ateneo Law School and took Master of Laws from Harvard Law School.
TAKAHIRO ONISHI, 52, was elected to the Board on April 1, 2016. He is a member of the Bank’s Risk Oversight Committee.
Prior to joining the Bank, he held various positions in BTMU (now MUFG Bank Ltd.) including Deputy General Manager of the Global Corporate Banking Division of BTMU, Deputy General Manager of the Asian Investment Banking Division in Hong Kong (from 2013 to 2015), Chief Manager of the Asian Investment Banking Division in Singapore (from 2012 to 2013), Assistant General Manager of the Investment Banking Department of the Bangkok Branch, Thailand (from 2009 to 2012), Senior Manager of the Global Markets Marketing Division of BTMU (from 2007 to 2009), Associate Director of Tokyo Mitsubishi International in
27 London (from 2003 to 2007), and Manager of the Derivatives and Structured Products Division (from 1999 to 2003). He graduated from the Faculty of Law at Waseda University.
RAFAEL F. SIMPAO JR., 75, was re-elected to the Board on April 26, 2016. He was a Director of the Bank (from June 1995 to March 2016). Prior to this, he was the President of the Bank from (October 1995 to January 2004), Executive Vice President (from 1991 to 1995) and Senior Vice President (from 1985 to 1991).
He is the Chairman of the Bank's Executive and Restructuring Committees, and a member of the Risk Oversight Committee..
He is the Chairman of Security Bank Foundation, Inc. (since 1997). He is also the Chairman of Keyland-Ayala Corporation, formerly known as Security Land Corporation (since 2011); ; a Trustee and Treasurer of New Tribes Church Planters of the Philippines (since 2004); and a Trustee of Tany Foundation, Inc. (since 2007). He was a Director of SB Capital Investment Corporation (from 1995 to 2018), a Director of the Bankers’ Association of the Philippines (from 2002 to 2004), a Director and Treasurer of LGU Guaranty Corporation (from 2000 to 2005), Trustee and Treasurer of Christ's Commission Fellowship (from 2006 to 2009) and International Graduate School of Leadership (from 1994 to 2014), and a Trustee of the Cultural Center of the Philippines (from 2000 to 2001). He graduated from the Ateneo de Manila University with a Bachelor of Science degree in Economics and is a candidate for a Master’s degree in Business Administration from De La Salle University.
MASAAKI SUZUKI, 54, was elected to the Board in March 2019, effective April 1, 2019. He is a member of the Bank’s Corporate Governance Committee.
He is the Deputy Chief Operating Officer-International (COO-I) and Deputy Head of the Global Commercial Banking Business Unit (since April 2019) and an Executive Officer (since April 2018) of MUFG Bank Ltd. Prior to this, he held various positions in MUFG Bank Ltd. including Assistant COO-I (from July 2018 to March 2019); Senior Executive Vice President, Head of JPC/MNC Banking of Bank of Ayudha PCL (from July 2015 to June 2018); and General Manager of the Global Planning Division (from June 2015 to July 2015). He first joined The Bank of Tokyo, Ltd. in April 1988. He graduated from the Faculty of Economics of Yokohama National University.
Independent Directors
PHILIP T. ANG, 77, was elected to the Board on February 21, 1980.
He is the Chairman of the Nominations and Remuneration Committee. He is a member of the Related Party Transactions Committee and a non-voting member of the Bank's Executive Committee.
He is the Vice Chairman (since August 2018) and Director (since September 2008) of Hinatuan Mining Corporation and Cagdianao Mining Corporation; Vice Chairman and Director of PLC-Nickel Asia Corporation (since July 2008) and Taganito Mining Corporation (since May 2005). He is a Director of Rio Tuba Nickel Mining Corporation (since 2013). He was an Independent Director of SB Capital Investment Corporation (from February 2010 to February 2018). He was an Independent Director of SBM Leasing Inc. (from May 2010 to February 2017) and Chairman and President of Solid Mills, Inc. until his retirement in late 2002. He graduated from Oregon University with a degree in Business Administration and a Master’s degree in Business Administration from the University of Denver.
JOSEPH R. HIGDON, 77, was elected the Board on May 29, 2012.
He is the Vice Chairman of the Bank’s Audit Committee and a member of the Corporate Governance, and Nominations and Remuneration Committees.
He is an Independent Director of PLC-International Container Terminal Services, Inc. (since 2007) and PLC- SM Investments Corporation (since 2011). He was a member of the Advisory Board of Coca-Cola Bottling Company, Philippines (from 2007 to 2012) and a Director of BPI Globe BanKO Inc. (from 2010 to 2012). He joined Capital Research and Management, a Los Angeles-based international investment management firm, as a Senior Vice President (from 1974 to 2006) and has covered Philippines stocks (from 1989 to 2006). Prior to this, he was a US Peace Corps Volunteer in the Philippines (from 1962 to 1964). Mr. Higdon holds a Bachelor of Science degree from the University of Tennessee System..
28 JAMES J. K. HUNG, 72, was elected to the Board on April 24, 1990.
He is the Chairman of the Bank’s Audit Committee and a member of the Nominations and Remuneration Committee and the Risk Oversight Committee.
He is the Chairman of Asia Securities Global Group (Hong Kong, since 1993) and Xingya Real Estate Development Co. (China, since 1993). He is a Director of Franklin Templeton Investment Fund (Luxembourg, since 2001). He was a Director in Templeton Emerging Markets Trust Placements (from 1989 to 1999), Taiwan Index Fund Limited (from 1991 to 2003) and Franklin Sealand Fund Management Co. Ltd (from 2012 to January 2018). He graduated from Babson College with a Master’s degree in Business Administration major in Finance.
RAMON R. JIMENEZ, JR., 63, was elected to the Board on 25 April 2017.
He is the Chairman of the Bank’s Related Party Transactions Committee. He is also the Vice Chairman of the Trust Committee and a member of the Risk Oversight Committee.
Prior to his appointment as Independent Director of the Bank, he was the Secretary of the Department of Tourism (from September 2011 to June 2016). He has over 35 years of experience in the field of advertising and has been closely associated with the rise of many home-grown Philippine brands, starting his career as Associate Creative Director in Ace Compton Advertising (from 1976 to 1988). He was the Joint Chief Executive Officer of JimenezBasic Advertising - a start-up boutique agency called Jimenez & Partners which after several mergers, became known in 2011 as Publicis JimenezBasic (from 1989 to 2008). He was likewise the Joint Chief Executive Officer and Senior Consultant of Winning Over Obstacles (WOO) Consultants (from 1988 to 1989). He was the Vice President and Creative Director of Ace-Saatchi & Saatchi Advertising (from 1988 to 1989). He graduated from the University of the Philippines with a Bachelor’s degree in Fine Arts, major in Visual Communications.
DR. JIKYEONG KANG, 57, was elected to the Board on April 25, 2017. She is the Chairperson of the Corporate Governance Committee and a member of the Risk Oversight and Transformation Committees.
Dr. Kang is the President and Dean of the Asian Institute of Management (AIM) and holds the MVP Chair in Marketing. Prior to assuming her post at AIM, Dr. Kang was Director of the DBA Program at Manchester Business School (MBS) from 2010 to 2014. At MBS, she also served as Director of the Postgraduate Centre in charge of their MBA Programs from 2001 to 2007, where she was instrumental in propelling the full-time MBA Program’s Financial Times ranking from 47th in the world in 2002 to 22nd in 2007, the highest ranking it has ever achieved. Whilst she was in charge of the MBA Programs, MBS became one of the first schools in the world to earn triple accreditation from AACSB, EQUIS, and AMBA.
Dr. Kang currently serves on the International Board of AACSB, the world’s largest business education alliance, and on the Board of EFMD, an international 900-member organization of business schools and corporations. She is also an Independent Director of Kesoram Industries, which is part of the B K Birla Group of Companies in India.
Dr. Kang earned her PhD from the University of Minnesota, her Master’s degree from Colorado State University and her Bachelor’s degree from Hanyang University, Seoul, Korea.
NAPOLEON L. NAZARENO, 69, was elected to the Board on 25 April 2017. He is the Chairman of the Bank’s Risk Oversight Committee and Vice Chairman of the Corporate Governance Committee.
He was a Member of the Supervisory Board of Rocket Internet (from 2014 to 2017), Trustee of Philippine Disaster Recovery Foundation, Inc. (from 2013 to 2015) and Ideaspace (from 2012 to 2015), President and Trustee of First Pacific Leadership Academy (from 2012 to 2015) and Chairman of the Board of Trustees and Board of Governors of the Asian Institute of Management (from 2011 to 2017). He was the Chairman of several subsidiaries of PLDT and Smart including PLDT Communications and Energy Ventures, Inc. (“PCEV”), ePLDT, Inc. (from 2013 to 2015), Digital Telecommunications Phils., Inc. (Digitel) (from 2012 to 2015), Digitel Mobile Philippines Inc. (Digitel Mobile) (from 2012 to 2015), Smart Broadband Inc. (from 2005 to 2015) and i-Contacts Corporation (from 2001 to 2015). He was the President and Chief Executive Officer of PLC-Philippine Long Distance Telephone Company (PLDT) (from February 2004 to 2015), PLC-Smart Communications, Inc. (from January 2000 to 2015), Connectivity Unlimited Resources Enterprise, Inc. (from
29 2008 to 2015), Aces Philippines Cellular Satellite Corporation (from 2000 to 2015) and PLDT Communications and Energy Ventures (2004 to 2011). He likewise served as Director of PLC-Manila Electric Company, PLDT Global 17 Corporation, Mabuhay Satellite Corporation, Rufino Pacific Tower Condominium and Operation Smile. He was a non-executive director of First Pacific, a Hong Kong Stock Exchange-listed company, and a Supervisory Board Member of Rocket Internet AG, a company which provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China. Mr. Nazareno’s business experience spans several countries in over 40 years and his exposure cuts across a broad range of industries, namely, packaging, bottling, petrochemicals, real estate and, in the last 16 years, telecommunications and information technology. Mr. Nazareno received his Master’s degree in Business Management from the Asian Institute of Management, completed the INSEAD Executive Program of the European Institute of Business Administration in Fountainbleu, France, and was conferred a Doctor of Technology degree (Honoris Causa) by the University of San Carlos in Cebu City.
GERARD H. BRIMO, 67, is the new nominee to the Board of Directors of Security Bank Corporation.
He is the Chairman and Chief Executive Officer of PLC-Nickel Asia Corporation (since August 2018). He is also the Chairman of Rio Tuba Nickel Mining Corporation (since August 2018), Taganito Mining Corporation (since August 2018), Cagdianao Mining Corporation (since August 2018), Hinatuan Mining Corporation (since August 2018) and Cordillera Exploration Co., Inc. (since August 2018). He is the President of Newminco Nickel Mining Corporation (since 2007).
Prior to his career in mining, he worked for Citibank for a period of eight years, resigning as Vice President of the Capital Markets Group in Hong Kong, before joining Philex Mining Corporation as Vice President-Finance. He served as Chairman and CEO of Philex Mining Corporation from 1994 until his retirement in December 2003. He served as President of the Chamber of Mines of the Philippines from 1993 to 1995, and as Chairman from 1995 to 2003. He was again elected Chairman in 2017, a position he currently holds.
He received his Bachelor of Science degree in Business Administration from Manhattan College, USA, and his Master in Business Management degree from the Asian Institute of Management.
Corporate Secretary
ATTY. JOEL RAYMOND R. AYSON, 55, was elected Corporate Secretary on July 29, 2004.
He is a Partner in Quasha, Ancheta, Peña & Nolasco Law Offices (since May 1998 to present). He is a member of Integrated Bar of the Philippines, Philippine Bar Association, Immigration Lawyers Association of the Philippines and University of the Philippines Law Alumni Association. He is a founding member of Students Law for Integrity and Democracy – UP College of Law and UP Association of Political Science Majors.
He is the Chairman of Unigrowth Resources & Development Corporation and President and Director of Dubor Backtrenmittel Und Apparatebau AG (Philippines), Inc., President of Bristol Technology System and ATRM Property Holdings, Inc. and Vice President and Director of Amtel Trading Corporation.
He is a Director of ATRM 2 property Holdings, Inc., Quo Vadis Palawan Resort, Inc., Back Office Superior Services, Inc., Asiamed Inc. and Parex Realty Corporation.
He is also a Corporate Secretary and Director of IXSFORALL, Inc., List International, Blue Sky Searesort Corp., Bohol Agro Marine Development Corp., Artbank Holdings, Inc., Tembuli Development Corp., Metropolitan Philippines Resort Corporation and Corporate Secretary of Lapu-Lapu Resort Development, Inc., Bohol Resort Dev., Inc., Lapu-Lapu Resort. He is a Resident Agent of Ceragon Network (HK) Ltd., Medical Services of America Inc., Tanis Food Tec BV, Wagenborg Shipping Holdings BV, Dubor RHQ and OTV France Philippines. .
He was the Treasurer and Vice President/Director of the Integrated Bar of the Philippines, Makati City Chapter (from 2001-2009) before he assumed his position as President (from 2009 to 2011). His practice areas are Civil Litigation, Administrative Law, Immigration Law, Insurance Law, Regulatory, General Practice and Special Projects.
30 He graduated Cum Laude with a degree in Political Science and took post graduate studies of Bachelor of Laws at the University of the Philippines.
(b) Executive Officers as of February 28, 2019
Position Name Age Citizenship
President and Chief Executive Officer Alfonso L. Salcedo, Jr. * 63 Filipino
Executive Vice Presidents Leslie Y. Cham 53 Filipino Joselito E. Mape 56 Filipino Takahiro Onishi* 52 Japanese Eduardo M. Olbes 49 Filipino Raul Martin A. Pedro 51 Filipino Charles M. Rodriguez 54 Filipino Tina Marie Stockdale 50 American Ma. Cristina A. Tingson 58 Filipino Daniel U. Yu 58 Filipino
Senior Vice Presidents Jason T. Ang 49 Filipino Melissa R. Aquino 62 Filipino Belen W. Au 68 Filipino Ronald I. Austria 47 Filipino Aaron Fernando D. Baldivia III 52 Filipino Abigail Marie D. Casanova 44 Filipino Jonathan C. Diokno 46 Filipino Gina S. Go 59 Filipino Orencio Andrei P. Ibarra III 45 Filipino Jeanette Keh 66 Filipino Luis Gregorio M. Maloles 50 Filipino Yvonne Joanna P. Marcelo 48 Filipino Yutaka Nakabayashi 44 Japanese Jorge Lindley S. Ong 46 Filipino Ma. Patricia N. Tan 44 Filipino Carol P. Warner 50 Filipino Price Edward C. Yap 46 Filipino
*Member of the Board of Directors
LESLIE Y. CHAM, 53, is Executive Vice President and Head of the Branch Banking Group since October 1, 2008.
He is a member of the Bank’s Assets & Liabilities Committee. He is also a Director of SB Finance Company, Inc., formerly known as Security Bank Savings Corporation, (since February 2012). He has over 25 years of work experience and has extensive exposure in the field of sales, distribution, wealth management, international banking, trust and investment services and Bancassurance. He served as Senior Vice President and Head of Sales and Distribution of Chinatrust Phils. Commercial Bank Corp. until September 2008. He served in various positions in other institutions, including: First Vice President of Standard Chartered Bank (from 1999 to 2003) and Vice President of Philippine Commercial International Bank (from 1997 to 1999), and Vickers Ballas Asset Management LTD PTE (from 1995 to 1997). He was an Assistant Vice President of Citytrust Banking Corporation (from 1987 to 1995). He received a Bachelor of Science degree in Commerce, Major in Marketing Management from De La Salle University and completed with Distinction the one year course of the Trust Institute Foundation of the Philippines. .
31 JOSELITO E. MAPE, 56, is Executive Vice President and the Chief Financial Officer.
He is the Chairman of the Bank’s Finance and Investigation Committees. He is a member of the Bank’s Risk Oversight, Acquired Assets, Assets & Liabilities, Technology Execution Excellence Committees. He is likewise a Director of SB Equities, Inc. (since May 2015), and SB Forex, Inc. (since July 2003), Director and Treasurer of SB Rental Corporation (since May 2014). He is the Treasurer of SBM Leasing, Inc. (since 2011) and Landlink Property Investments and Trustee/Treasurer of Security Bank Foundation, Inc. (since April 2009). He is the Chairman and President of Tany Foundation (since October 2012) and an Independent Director of Cityland for Social Progress Foundation, Inc. (since january 2018). He was a Director of Security Land Corporation (from 2010 to 2015). Prior to joining the Bank in July 1996, he was a Senior Manager of Cityland Development Corporation’s Financial Management Services Division. He is a Certified Public Accountant and graduated from the University of Santo Tomas (Cum Laude) with a Bachelor of Science degree in Commerce, Major in Accounting.
EDUARDO M. OLBES, 49, is Executive Vice President for the Wholesale Banking Segment.
He is the Chairman of the Bank’s Credit Committee. He is a member of the Bank’s Assets & Liabilities and Technology Execution Excellence Committees. He is also the Chairman of SB Rental Corporation (since May 2015), SBM Leasing, Inc. (since May 2014) and SB Equities, Inc. (since 2010). He is a Director of SB Capital Investment Corporation (since 2010). He is also a member of Finex (since November 2010), the Management Association of the Philippines (since December 2010) and Shareholders of the Philippines (since November 2014). He is also a Trustee of the SBC Retirement Plan (since 2011).
Prior to joining the Bank in June 2010, he held various positions in Citibank NA (Philippines) Global Banking Unit (from 2006 to 2010) including his last position as Director responsible for the local corporate unit under Citi’s Global Corporate & Investment Bank. Between 2003 and 2006, he was a restructuring advisor to various Philippine-based corporates. Previously, he worked in the Investment Banking Division of Morgan Stanley & Co. in New York (from 2000 to 2003) and prior to that, in the Investment Banking Division of Bear, Stearns & Co. Inc. in New York (from 1997 to 2000). In his prior positions, he worked in several areas within Investment Banking across various geographies and industries including the Global Communications and Media (New York and San Francisco/Menlo Park) and Global Retail and Consumer (New York) groups. He holds a Master’s degree in Finance and Management from Leonard N. Stern School of Management, New York University and a BA degree, major in Economics from the University of California, Berkeley. .
RAUL MARTIN A. PEDRO, 51, is Executive Vice President and Treasurer of the Bank. He is a member of the Bank’s Assets & Liabilities, Finance and Credit Committees. He is the Chairman of SB Forex, Inc. since May 2016. He is the Bank’s representative to the BAP’s Open Market Committee.
Prior to joining the Bank in November 2005, he was a First Vice President of Equitable PCI Treasury Department, Head of Foreign Fixed Income Trading and Derivatives. He also worked as a Forward FX Trader for Deutsche Bank AG, Manila. He holds a Masters’ Degree in Business Administration from Rutgers, the State University of New Jersey, USA and a Bachelor of Science degree in Business Administration from the University of the Philippines in Diliman.
CHARLES M. RODRIGUEZ, JR., 54, is Executive Vice President and Corporate Banking Group Head under the Wholesale Banking Segment of the Bank.
He is a member of the Bank’s Assets & Liabilities Committee and an alternate member of the Credit Committee.
Prior to joining the Bank in August 2018, he was the Acting CEO and Head of Corporate Institutional Coverage of ANZ Banking Group Limited (from 2010 to July 2017). He held various position from Far East Bank and Trust Company (from 1985 to 1996), FEB Investments, Inc. (from 1996 to 1998), ABN Amro Bank NV (from 1998 to 2002) and BDO Unibank (from 1997 to 2018). He has extensive experience in Corporate and Institutional Banking.
He graduated with a Master’s Degree in Business Administration major in Finance from the University of Cincinnati, USA and Bachelor of Science degree in Management Engineering from the Ateneo de Manila University, Philippines.
32 TINA M. STOCKDALE, 50, is Executive Vice President and Chief Transformation Officer of the Bank.
She is a member of the Bank’s Transformation and People Empowerment Committees. She is also the Chairperson of the Technology Execution Excellence Committee. Prior to joining the Bank in 2017, she served in various position in TransUnion Information Solution, Inc. (Philippines), ANZ Global Services and Operations, Intelenet Global (Philippines) Inc., Household International/Hong Kong Shanghai Banking Corporation, Michigan Bell Telephone Company, and Skyway Precision Manufacturing. She attended the MBA Program and several courses relevant to her career from John Clements Philippines.
MA. CRISTINA A. TINGSON, 58, is Executive Vice President and Head of the Retail Banking Segment.
She is a member of the Bank’s Management, Assets & Liabilities, and Technology Execution Excellence Committees. She is President (since May 2017) and Director (since February 2012) of SB Finance Company, Inc., formerly known as Security Bank Savings Corporation, Director of SB Cards Corporation (since December 2012) and SB Rental Corporation (since May 2014). She was the President of SB Cards Corporation (from 2015 to 2017). Previously, she was Senior Vice President and Head of Corporate Banking until 2012. She joined the Bank as an Account Assistant in 1982 and assumed various positions including Relationship Manager and Head of Enterprise Risk Management of the Corporate Banking Division before assuming her position as Corporate Banking Head in 2008. She holds a Bachelor of Arts degree in Business Administration from Maryknoll College.
DANIEL U. YU, 58, is Executive Vice President and Head of the Alternate Channels and Transaction Banking Group.
He joined the Bank in 1992 as Head of the Information Technology Group and eventually moved to the business side as Head of TBG handling the Bank’s Cash Management and eChannel Divisions for the past six years. He is a member of the Bank’s Anti-Money Laundering, and Assets & Liabilities Committees. He is a member Operations Committee of Bancnet Incorporated. He also chairs the Technology Committee of both Bancnet and PCHC. Prior to joining the Bank, he had five years’ experience as IT Head of Operations for United Saudi Commercial Bank in Saudi Arabia. Prior to his Middle East stint, he was an IT Consultant at SGV-Arthur Andersen Consulting for two years. He graduated from the University of Santo Tomas with a degree in Industrial Engineering and earned units for a Master’s degree in Computer Science from the Ateneo de Manila University.
JASON T. ANG, 49, is Senior Vice President and Region Head for the Visayas and Mindanao Area.
He joined the Bank in 2007 as First Vice President and Area Head for Visayas and Mindanao. Prior to this, he was Vice President and Region Head of International Exchange Bank. Previously, he was with Citytrust Banking Corporation where he held various positions (from 1991 to 1996). He graduated from the Ateneo de Davao University with a Bachelor of Science and Commerce degree, Major in Accounting.
MELISSA R. AQUINO, 62, is Senior Vice President, Chief of Staff and Head of the Legal and Regulatory Affairs Group.
She is a Director of SB Forex, Inc. (since May 2006). She is also a Trustee/Secretary of Security Bank Foundation, Inc. (since August 2003) and Trustee of St. Luke’s Foundation, Inc. (since November 2015). She was the Bank’s Assistant Corporate Secretary (from 2002 to 2018), Corporate Secretary of SB Cards Corporation (from 2002 to 2018), SB Capital Investment Corporation (from 2002 to 2018), SB Equities, Inc. (from 2006 to 2018) and SBM Leasing, Inc. (from 2006 to 2018). She was a Director of Security Land Corporation (from 2011 to 2015).
She joined Security Bank in 1982 as Investment Analyst for Trust. She assumed the position of Corporate Planning Head in 1989, a position she held until 2011. Prior to Security Bank, she was an Analyst at the Commercial Bank and Trust Company and an instructor for Accounting and Finance at the University of the Philippines College of Business Administration. She is a Certified Public Accountant and graduated from the University of the Philippines with a Bachelor of Science degree in Business Administration and Accountancy (Cum Laude) and a Master’s degree in Business Administration.
33
BELEN W. AU, 68, is Senior Vice President and a Senior Advisor in the Office of the Executive Director for cross organizational matters. Prior to being a Senior Advisor she was the Head of the Head Office Operations Group handling International Banking Services, Loan Operations and Support, Credit division, Treasury Operations, Banking Center Operations, SB Equities Operations and Cables Department. She is the President and Director of SB Forex, Inc. (since December 2007) and Managing Director of SB Equities, Inc. (since December 2008); a member of the Operations Committee of Bankers Association of the Philippines (BAP) and the Bank’s Voting Representative to the Bankers Institute of the Philippines (BAIPHIL). She is a Certified Public Accountant, graduated from the University of the East with a Bachelor’s degree in Business Administration (major in Accounting) and has earned units for a Master’s degree in Business Administration from the University of the East.
RONALD I. AUSTRIA, 47, is Senior Vice President and Region 2 Head under Branch Banking Group. He joined the Bank in November 2009 as First Vice President and Area Head. Prior to this, he served various positions in Far East Bank and Trust Company (from 1995 to 1996), Citytrust Banking Group (from 1992 to 1996), PCI Bank (from 1996 to 1999) and Standard Chartered Bank (from 1999 to 2008). He holds a Bachelor of Arts degree in Economics from the Ateneo de Manila University.
AARON FERNANDO D. BALDIVIA III, 52, is Senior Vice President and Chief Compliance Officer of the Bank.
Prior to joining the Bank in July 2018, he was the Senior Vice President and Global Head Sanctions of UOB Limited in Singapore (from 2017 to 2018). He held various position from Commerzbank AG Singapore Branch (from 2015 to 2017), Oversea-Chinese Banking Corporation, Singapore (2008 to 2015), Standard Chartered Bank, Manila (from 2001 to 20018), Citibank NA, Manila (from 1997 to 2001) and Interphil Laboratories Inc. (from 1989 to 1994). He has extensive exposure in compliance and anti-money laundering.
He graduated with a Bachelor of Science degree in Chemical Engineering from the University of the Philippines and earned his Master of Business Administration degree in Finance from Owen Graduate School of Management, Vanderbilt University in Tennessee, USA.
ABIGAIL MARIE D. CASANOVA, 44, is Senior Vice President and Consumer Business and Operations Group Head under Retail Banking Segment.
She joined the Bank in 2015 as First Vice President and Retail Credit Operations Group Head. She has extensive exposure in the field of credit cycle and consumer loans. She served as Vice President and Home Loans Channel Head of Banco de Oro. She likewise held various position from GE Money Bank (from 2007 to 2009) and Citibank NA (from 1995 to 2007).
She graduated with a Bachelor of Science degree in Business Economics (cum laude) from the University of the Philippines.
JONATHAN C. DIOKNO, 46, is Senior Vice President and Cash Management Head under Transaction Banking Group of the Bank.
He has extensive exposure in the field of cash management services, remittance origination and retail banking. Prior to joining the Bank in February 2019, he was First Senior Vice President and Global Filipino Banking Head of Rizal Commercial Banking Corporation (from 2017 to January 2019). He served in various position in the Bank of the Philippine islands/Citytrust Banking Corporation (from 1884 to 1997), Standard Chartered Bank (from 1997 to 1999), Citibank NA (from 1999 to 2001) and Banco de Oro (from 2001 to 2016)
He graduated with a Bachelor of Science degree in Business Administration from the University of the Philippines.
34 GINA S. GO, 59, is Senior Vice President and Chief Risk Officer of the Bank. She is a member of the Bank’s Credit and Assets & Liabilities Committees.
She was the President of SB Finance Company, Inc., formerly known as Security Bank Savings Corporation, (from February 2012 to 2016). Previous to these positions, she was Chief Risk Officer of the Bank (2006 to 2011) and Head of Remedial Management Division immediately (2000- 2005). Prior to joining the Bank in September 2000, she was connected with Equitable PCIBank where she accumulated 20 years of solid credit experience having assumed various responsibilities in their Corporate Banking, Middle Market Lending and Specialized Financial Services Divisions. She graduated from the University of the Philippines with a Bachelor’s Degree in Business Economics and a Master’s Degree in Business Administration.
ORENCIO ANDRE P. IBARRA III, 45, is Senior Vice President and Deputy Treasurer. Prior to this, he was First Vice President and Head of the ALM and Trading Division. He joined the Bank as Manager in 2000 and assumed various positions in the Treasury Group before he assumed the position of Chief Dealer in 2013. He is a Director of Asia Spice 101 Inc. (since January 2012) and Treasurer of Done Deals Asia, Inc. (since May 2004) and 7107 Spices Inc. (since December 2009). He holds a Bachelor of Arts degree in Management Economics from the Ateneo de Manila University and a Master’s Degree in Business Management from the Asian Institute of Management.
JEANETTE S. KEH, 66, is Senior Vice President and Advisor to the President. Prior to this she was the Head of the Banking Centers Group and Team Head of Kalookan Banking Center.
She is a member of the Bank’s Assets & Liabilities Committee. She is also a member of the Credit Committee and an Advisor to the President in the Executive Committee. She is a Director of SB Forex, Inc. (since July 1999). Prior to joining the Bank in 1996, she was First Vice President of BSA Finance and Leasing Corp. and had been with State Investment Trust, Inc. She graduated from the College of Holy Spirit with Bachelor of Science degree in Commerce, Major in Accountancy and she earned her Master’s degree in Business Administration from De La Salle University.
LUIS GREGORIO M. MALOLES, 50, is Senior Vice President and Senior Relationship Manager and Team Head under the Corporate Banking Group of the Bank. He joined the Bank in 2016. He has extensive exposure in the field of portfolio management and account origination. He was the Executive Director and Segment Head for Local ASEAN International Corporations and Commodities, Trading and Agricultural clients of Standard Chartered Bank (from 2013 to 2015). He held various positions in Citibank NA Hong Kong (from 2011 to 2013), Citibank Philippines (from 2004 to 2009), Asia United Bank (from 2001 to 2004), Banco de Oro Santander (from 1999 to 2000), Philippine Commercial International Bank (from 1996 to 1999), Far East Bank and Trust Company (from 1995 to 1996) and Rizal Commercial Banking Corporation (from 1992 to 1995).
He graduated with a Bachelor of Arts degree in Development Studies from the University of the Philippines.
YVONNE JOANNA P. MARCELO, 48, is Senior Vice President and Senior Relationship Manager and Team Head under the Corporate Banking Group of the Bank. She joined the Bank in 2001. She has extensive experience in corporate and project finance in infrastructure, real estate, power and energy, utilities, mining, and other industries. She was a Relationship Manager in Far East Bank and Trust Company (from 1996 to 2000), Assistant Manager in Union Bank of the Philippines (from 1995 to 1996), and Management Trainee and Pro-Manager in Bank of Commerce (from 1991 to 1994). She graduated with a Bachelor of Science degree in Business Economics from the University of the Philippines and earned units for a Master’s degree in Business Administration from the Ateneo de Manila University.
YUTAKA NAKABAYASHI, 44, is Senior Vice President and Head of the Japan Desk. He is a secondee of MUFG to Security Bank. He first joined Security Bank as the Deputy Head of the Alliance Segment. He served as Chief Manager in charge of Krungsri, East Asia and Asia Oceania Head Quarters at the Global Planning Division in Tokyo. He held various positions in MUFG/BTMU including Senior Manager for Regional Strategy Planning, in charge of Americas Business at the Global Planning Division in Tokyo, Senior Manager for the intelligence and Research Office in charge of liaison with Japanese Financial Services Agency with regard to Global Business at the Global Planning Division in Tokyo, Manager/Senior Manager for Strategic Planning /Legal at the Planning Division for the Americas/Legal Division for the Americas in New York, Manager for Business Promotions: Japanese and Hong Kong Corporates at the Hong Kong Branch/Kowloon Branch in Hong Kong, seconded to Chiyoda Corporation, Project Finance Division
35 (Japanese Gas/Oil Plan Engineering Company), Associate for Corporate Banking at the Corporate Banking Division No. 4 in Tokyo and Associate for Commercial Banking at the Ueno Branch in Tokyo.
He graduated from Keio University, Tokyo, Japan with a Bachelor of Arts in Law degree and from the University of Pennsylvania law School with a Master of Laws degree. He was admitted to the Bar in the State of New York.
JORGE LINDLEY S. ONG, 46, is Senior Vice President and Head of the Banking Centers Group. He is a member of the Bank’s Credit Committee. He joined the Bank in 2007. He was the Head of Kalookan and North Metro Banking Center. Prior to joining the Bank, he was a Senior Relationship Manager in BDO Unibank (from 1995 to 2007). He graduated from University of Santo Tomas with a Bachelor of Science degree in Commerce.
MA. PATRICIA N. TAN, 44, is Senior Vice President and Head of Retail Marketing.
Prior to joining the Bank in 2013, she served as Cards Marketing Head of Union Bank of the Philippines (from 1997 to 2004), Marketing Head of Globe Telecom (from 2004 to 2006) and OFW Segment Head of Philippine National Bank (from 2006 to 2013).
She graduated with a Bachelor’s degree in Management of Financial Institutions from De la Salle University.
CAROL P. WARNER, 50, is Senior Vice President and Chief Audit Executive of the Bank. She joined the Bank in September 2006 as Head of Internal Audit Department before her appointment as Chief Audit Executive-OIC in January 2012 and Chief Audit Executive in June 2012.
Prior to joining the Bank, she was a Risk Manager of JP Morgan Chase Bank NA – PCCC, Chase Card Services (from March to August 2006), IS Audit Department Head of Security Bank Corporation from August 2003 to February 2006, IT Auditor and Systems Risk Analyst of Rizal Commercial Banking Corporation (from January 1992 to December 2001, and December 2001 to August 2003) and Auditor of Sycip, Gorres, Velayo & Co. (from December 1989 to 1991).
She graduated with a Bachelor of Arts degree, Major in Mathematics and a Bachelor’s degree in Commerce, Major in Accounting from De La Salle University.
PRICE EDWARD C. YAP, 46, is Senior Vice President and Sales Division Head under Treasury Group. Prior to joining the Bank in June 2016, he accumulated 22 years of work experience from Mitsubishi UFJ Securities (Singapore), Ltd. (from May 2011 to December 2015), held various positions in Citigroup, Inc. (from November 2000 to May 2011) and as Manager of Solid Bank Corporation (from May 1997 to July 2000). He graduated with a Bachelor of Science degree in Management, major in Legal Management from Ateneo de Manila University. He earned his Master’s degree in Business Administration from the Ateneo Graduate School of Business.
The Executive Officers are appointed/elected by the Board of Directors at the organizational meeting following the stockholders’ meeting, each to hold office for a period of one (1) year.
(c) Significant Employees
The Bank values its human resources and considers the entire manpower force as significant employees. For the Complete Table of Organization, please refer to Exhibit 4 on page 57.
(d) Family Relationships
Ms. Anastasia Y. Dy is the sister of the Bank’s Chairman Emeritus, Mr. Frederick Y. Dy.
36
(e) Involvement in Certain Legal Proceedings
To the knowledge and information of the Bank, none of the above-named directors and executive officers have been involved in any material legal proceedings or subject to the following legal proceedings during the past five (5) years:
i. Bankruptcy petition against any business of which such director was a general partner or executive officer whether at the time of the bankruptcy or within two (2) years prior the that time
ii. Conviction by final judgment, in a criminal proceeding, domestic or foreign or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses
iii. To any order, judgment or decree, not subsequently reversed, suspended or vacated of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking services
iv. Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or Foreign Exchange or other organized trading market or self regulatory organization, to have violated a securities or commodities law or regulation, and the judgment has not been reversed, suspended, or vacated.
(f) Certain Relationships and Related Transactions
During the last fiscal year, no director or executive officers of the Bank received any benefit by reason of a contract made with the company, a related corporation, a firm of which the director is a member or a company in which a director has a substantial financial interest.
In the ordinary course of business, the Bank has loan transactions with certain directors, officers, stockholders and related interest (DOSRI). Under Bank policies, these loans are made substantially on the same terms as loans to other individuals and borrowers of comparable risk. Full disclosures for these transactions were made to the Bangko Sentral ng Pilipinas (BSP). The Bank is in full compliance with the BSP regulations on DOSRI loans and transactions. Details on related party transactions are further explained in Note 33 of the Audited Financial Statements. The Bank is not a subsidiary of any corporation.
(g) Resignation of Directors
No director has informed the registrant in writing that he intends to oppose any action to be taken by the registrant at the Annual Stockholders’ Meeting.
Item 10. Executive Compensation
Information as to the aggregate compensation during the last two fiscal years and to be paid in ensuing fiscal year 2019 to the Bank's Chief Executive Officer and four other most highly compensated executive officers and all other officers and directors as a group are as follows:
Chief Executive Officer and four other most highly compensated executive officers*:
Executive Compensation Bonuses Total 2019 - Php50,000,000** Php55,000,000** Php105,000,000** 2018 - 43,059,000* 52,000,000* 95,059,000* 2017 - 37,603,000* 49,952,000* 87,555,000*
*Refers to Messrs. Alfonso L. Salcedo, Jr., Eduardo M. Olbes, Raul Martin A. Pedro, Tina M. Stockdale and Ma. Cristina A. Tingson **Estimated amount
37 All officers and directors as a group unnamed:
Executive Compensation Bonuses Total 2018 - Php3,100,000,000* Php1,000,000,000 Php4,100,000,000* 2018 - 2,838,904,786 891,671,171 3,730,575,957 2017 - 2,044,662,425 783,286,636 2,827,949,061
*Estimated amount
The directors receive fees, bonuses and allowances that are already included in the amounts stated above, with per diem of P14.9 million estimated for 2019, P10.5 million per diem paid in 2018 and P4.12 million in per diem paid in 2017. Aside from the said amounts, they have no other compensation plan or arrangement with the Bank.
The executive officers receive salaries, bonuses, and other usual bank benefits that are also already included in the amounts stated above. Aside from the said amounts, they have no other compensation plan or arrangement with the Bank.
There are no warrants or options held by the registrant's officers and directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Record and Beneficial Owners
Owners of record of more than 5% of the Bank’s voting securities as of February 28, 2019 were as follows:
% to Name, Address or Record Owner / Name of Title of No. of shares Total Beneficial Owner and Relationship Beneficial Citizenship Class Held Voting with Issuer Owners Shares Common THE BANK OF TOKYO BTMU (MUFG) Japanese 150,707,778 8.59% Preferred MITSUBISHI UFJ, LTD. (BTMU) 200,000,000 11.41% (now known as MUFG BANK, LTD.) Marunouchi, Chiyoda-ku, Tokyo, Japan Common FREDERICK Y. DY Frederick Y. Dy Filipino 86,865,273* 4.95% Preferred 23F Security Bank Centre 253,207,671 14.44% 6776 Ayala Ave., Makati City
PCD NOMINEE CORPORATION Various Filipino 228,081,165** 13.01% Common Common GF Makati Stock Exchange Stockholders
Ayala Avenue, Makati City Client
+ Common DANIEL S. DY Daniel S. Dy Filipino 6,014,165 0.34% \ Preferred 116 Valero St., Makati City 221,236,044 12.62%
PCD NOMINEE CORPORATION Various Non-Filipino 197,346,667*** 11.25% CommCommon GF Makati Stock Exchange Stockholders Client Ayala Avenue, Makati City
*Inclusive of 28,264,524 shares of Frederick Y. Dy lodged with PCD Nominee Corp. **Net of 28,264,524 shares of Frederick Y. Dy and 6,014,165 shares of Daniel S. Dy ***Net of 150,707,778 shares of The Bank of Tokyo-Mitsubishi UFJ, Ltd. lodged in PCD Nominee Corp. (Non-Filipino)
PCD Nominee Corporation, now known as Philippine Depository & Trust Corporation (PDTC) is the registered owner of the shares in the books of the Bank’s transfer agent, Stock Transfer Service, Inc. The beneficial owners of such shares are PCD’s participants, who hold the shares on their behalf or on behalf of their clients. The shares beneficially owned by participants are in individual quantities representing less than 5% of the Bank’s voting securities. The participants have the power to decide how the PCD shares are to be voted. .
38 The Deputy President, Chief Executive – Global Commercial Banking Business Unit and Chief Operating Officer – International has the power to decide on how The Bank of Tokyo Mitsubishi UFJ, LTD (now known as MUFG Bank, Ltd) shares in Security Bank are to be voted.
(b) Security Ownership of Management
I. The following are the number of shares of the Bank’s capital stock (all of which are voting shares) owned of record by the directors, key officers of the Bank, and nominees for election as director, as of March 26, 2019:
A. Title of Class: Common Stock
No. of Nature of % to Total Shares Held Beneficial Voting Name of Beneficial Owner Position Citizenship Ownership Shares Frederick Y. Dy Chairman Emeritus Filipino 86,865,273 Direct 4.95% Alberto S. Villarosa Chairman Filipino 3,720,533 Direct 0.21% Anastasia Y. Dy Vice Chairman Filipino 14,523,968 Direct 0.83% Diana P. Aguilar Director Filipino 10 Direct 0.00% Philip T. Ang Director Filipino 124 Direct 0.00% Joseph R. Higdon Director Filipino 12,000 Direct 0.00% James J.K. Hung Director Taiwanese 4,553,588 Direct 0.26% Ramon R. Jimenez, Jr. Director Filipino 10 Direct 0.00% Jikyeong Kang Director Korean 10 Direct 0.00% Atsushi Murakami* Director Japanese 1 Direct 0.00% Napoleon L. Nazareno Director Filipino 10 Direct 0.00% Cirilo P. Noel Nominee Filipino 10 Direct 0.00% Takahiro Onishi Director Japanese 5 Direct 0.00% Alfonso L. Salcedo, Jr. Director/President Filipino 327,010 Direct 0.02% Rafael F. Simpao Jr. Director Filipino 217,296 Direct 0.01% Masaaki Suzuki** Director Filipino 3 Direct 0.00% Gerard H. Brimo Nominee Filipino 10 Direct 0.00% Joselito E. Mape Executive VP Filipino 11,619 Direct 0.00% Eduardo M. Olbes Executive VP Filipino 1,000 Direct 0.00% Daniel U. Yu Executive VP Filipino 4,722 Direct 0.00% Jason T. Ang Senior VP Filipino 5,202 Direct 0.00% Belen W. Au Senior VP Filipino 200 Direct 0.00% Melissa R. Aquino Senior VP Filipino 147,392 Direct 0.01% Abigail Marie D. Casanova Senior VP Filipino 2,340*** Indirect 0.00% Gina S. Go Senior VP Filipino 32,458 Direct 0.00% Yvonne Joanna P. Marcelo Senior VP Filipino 3,700 Direct 0.00% Patricia N. Tan Senior VP Filipino 15,000 Direct 0.00%
*Resigned effective March 31, 2019 *Elected as Director effective April 1, 2019 ***Shares held by spouse
39 B. Title of Class: Preferred Stock
Nature of % to Total No. of Beneficial Voting Name of Beneficial Owner Position Citizenship Shares Held Ownership Shares Frederick Y. Dy Chairman Emeritus Filipino 253,207,671 Direct 14.44% Alberto S. Villarosa Director/Chairman Filipino 41,000,000 Direct 2.34% Anastasia Y. Dy Vice Chairman Filipino 33,000,000 Direct 1.88% Philip T. Ang Director Filipino 99 Direct 0.00% Rafael F. Simpao, Jr Director Filipino 41,217,296 Direct 2.35% Eduardo M. Olbes Executive VP Filipino 4,000 Direct 0.00% Daniel U. Yu Executive VP Filipino 722 Direct 0.00%
The aggregate number of shares owned of record by all or key officers and directors as a group as of March 26, 2019 is 478,873,281 shares or approximately 27.31% of the Bank’s outstanding capital stock..
II. The following are the trading records of the directors, key officers of the Bank, and nominees for election as director as of March 26, 2019:
A. Title of Class: Common Stock
Beginning Movement Acquired Ending Balance No. of Shares (A) or Balance - Name of Beneficial No. of Shares (from 1/1/2018 Disposed No. of Shares Owner Position (as of YE 2017) to 3/26/2019) (D) (as of 3/26/19) Frederick Y. Dy Chairman Emeritus 86,865,273 − − 86,865,273 Alberto S. Villarosa Chairman 3,720,533 − − 3,720,533 Anastasia Y. Dy Vice Chairman 14,523,968 − − 14,523,968 Diana P. Aguilar Director 10 − − 10 Philip T. Ang Director 124 − − 124 Joseph R. Higdon Director 12,000 − − 12,000 James J.K. Hung Director 4,553,588 − − 4,553,588 Ramon R. Jimenez, Jr. Director 10 − − 10 Jikyeong Kang Director 10 − − 10 Atsushi Murakami* Director − 4 A (3) D 1 Napoleon L. Nazareno Director 10 − − 10 Cirilo P. Noel Director − 10 A 10 Takahiro Onishi Director 5 − − 5 Alfonso L. Salcedo, Jr. Director/President 327,010 − − 327,010 Rafael F. Simpao Jr. Director 217,296 − − 217,296 Masaaki Suzuki** Director − 3 A 3 Joselito E. Mape Executive VP 11,619 − − 11,619 Eduardo M. Olbes Executive VP 1,000 − − 1,000 Daniel U. Yu Executive VP 4,722 − − 4,722 Jason T. Ang Senior VP 5,202 − − 5,202 Belen W. Au Senior VP − 200 A 200 Melissa R. Aquino Senior VP 147,392 − − 147,392 Abigail Marie D. Casanova Senior VP − 2,340*** A 2,340 Gina S. Go Senior VP 32,458 − − 32,458 Yvonne Joanna P. Marcelo Senior VP 3,700 − − 3,700 Patricia N. Tan Senior VP − 15,000 A 15,000
* Resigned as Director effective March 31, 2019 ** Elected as Director effective April 1, 2019 *** Shares held by spouse
40
B. Title of Class: Preferred Stock
Beginning Movement Acquired (A) Ending Balance No. of Shares or Disposed Balance - No. of Shares (from 1/1/2018 (D) No. of Shares Name of Beneficial Owner Position (as of YE 2017) to 3/26/2019) (as of 3/26/19) Frederick Y. Dy Chairman Emeritus 253,207,671 − − 253,207,671 Alberto S. Villarosa Chairman 41,000,000 − − 41,000,000 Anastasia Y. Dy Vice Chairman 33,000,000 − − 33,000,000 Philip T. Ang Director 99 − − 99 Rafael F. Simpao, Jr Director 41,217,296 − − 41,217,296 Eduardo M. Olbes Executive VP 4,000 − − 4,000 Daniel U. Yu Executive VP 722 − − 722
(c) Voting Trust Holders of 5% or more
The company is not aware of shareholders holding any Voting Trust Agreement of 5% or more or any such similar agreement.
(d) Changes in Control
There has been no change in the control of the Bank since the beginning of its last fiscal year.
Item 12. Certain Relationships and Related Transactions
In the ordinary course of business, the Bank has loan transactions with subsidiaries, and with certain directors, officers, stockholders and related interests (DOSRI). Under the Bank’s policies, these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks.
On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that shall govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi- banks. Under the said circular, the total outstanding loans, credit accommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10% of bank’s net worth, and the unsecured portion shall not exceed 5% of such net worth. Further, the total outstanding exposures shall not exceed 20% of the net worth of the lending bank. The said Circular is effective February 15, 2007 and the Bank is in compliance with such regulations.
BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further, BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts.
A detailed discussion on related party transactions can be found in Note 33 of the 2018 Audited Financial Statements.
41
PART IV - EXHIBITS AND SCHEDULES
Item 13. Exhibits and Reports on SEC Form 17-C
(a) Exhibits - Please refer to the Index to Exhibits on page 44.
The other exhibits as indicated in the Exhibit Table of Revised Securities Act Forms are either not applicable to the Bank or require no answer.
(b) Reports on SEC Form 17-C
The following reports on SEC Form 17-C were filed in the last six months of 2018 and in the first quarter of 2019:
Date of Report Items Reported 7/03/2018 Resignation of Officer (Executive Vice President) 7/04/2018 Hiring of Officer (Chief Compliance Officer) 8/28/2018 Hiring of Officer (Executive Vice President and Corporate Banking Group Head) 8/30/2018 Establishment of a USD 1.0 Billion Medium Term Note Programme 9/19/2018 Drawdown of USD 300 million of Security Bank’s USD 1 billion MTN Programme Board approval on the Cash Dividend Declaration for Common Shares. Record date 10/30/2018 is set on November 19, 2018 and payment date on November 29, 2018 11/28/2018 Change in shareholdings of officer 12/14/2018 Change in designation/Appointment of Assistant Corporate Secretary 12/17/2018 Board approval on the establishment of a Peso Bond Program of up to Php50 billion 1/29/2019 Approval on the hiring of officer (SVP / CASH MANAGEMENT HEAD) 2/19/2019 Board approval on the annual cash dividend declaration of preferred shares Board approval on the Cash Dividend Declaration for Common Shares. Record date 3/26/2019 is set on April 10, 2019 and payment date on April 25, 2019 Board approval on (1) Issuance of Long Term Negotiable Certificates of Deposit 3/26/2019 (LTNCD) and (2) Exercise of option to call on Security Bank Corporation’s P10Bn 5.375% Unsecured Subordinated Notes. 3/26/2019 Board approval on the (1) resignation of director and (2) election of director
42 43
Index to Exhibits Form 17-A Item 14
Exhibit Number Page
(1) Subsidiaries of the Registrant 45
Additional Exhibits
(2) List of Bank-owned Branches 46
(3) List of Leased Branches 47
(4) Table of Organization 57
44
Exhibit (1): Subsidiaries of the Registrant
Security Bank Corporation's subsidiaries include: Percentage Ownership
SB Finance Company, Inc. (formerly Security Bank Savings 99.54% Corporation)
SB Capital Investment Corporation and Subsidiaries 100%
SB Rental Corporation 100%
SB Equities, Inc. 100%
SB International Services, Inc. (pre-operating stage) 100%
SB Cards Corporation 100%
SBM Leasing, Inc. (joint venture) 60%
SB Forex, Incorporated* 100%
Landlink Property Investments (SPV-AMC), Inc. (pre-operating stage) 100%
*This entity has suspended operations in 2002 and until to date.
45 Exhibit (2): List of Bank-owned Branches
BANK-OWNED SBC BRANCHES ADDRESS 1 Alabang 235 Montillano St., Rotonda Alabang-Muntinlupa MM 2 Angeles SBC Building, Mc. Arthur Highway, Balibago, Angeles City 3 Bacolod-North Drive SBC Bldg., BS Aquino Drive corner Hilado Extension, Bacolod City 4 Baguio SBC Bldg., corner Chugum and Abanao Sts., Baguio City 5 Batangas Rizal Avenue near cor. P. Zamora St., Batangas City 6 BF Homes - Parañaque SBC Bldg., President's Avenue. BF Homes, Paranaque City 7 Binan National Highway, Barrio San Vicente, Binan, Laguna 8 CDO - Osmena Sergio Osmena St., Cagayan De Oro City 9 CDO - Velez A. Velez corner Montalban St., Cagayan De Oro City 10 Commonwealth SBC Bldg., Lot 10, Block 9, Commonwealth Avenue, Quezon City 11 Concepcion 612 JP Rizal St., Concepcion, Marikina City 12 Dagupan SBC Bldg., MH Del Pilar St., Dagupan City 13 Dasmarinas Gen. Emilio Aguinaldo Highway, Dasmarinas, Cavite 14 Davao - Main No. 358 R. Magsaysay Avenue, Davao City 15 Davao - Monteverde Monteverde corner Bruno Gempesaw Sts., Davao City 16 Davao - Panabo Quezon Blvd., Panabo City, Davao Del Norte 17 Del Monte G/F SBC Bldg., Lot 19, Blk. 344 Del Monte Ave., Quezon City 18 Edsa Magallanes EDSA cor. Magallanes Ave., Brgy. Magallanes, Makati 19 General Santos Lot 1341 Ireneo Santiago Blvd., Gen. Santos City 20 Guadalupe No. 2185 Magsaysay St., Guadalupe, Makati City 21 Head Office (CCAD) 6776 Ayala Avenue, Makati City 22 Iligan Quezon Avenue corner Miguel Obach St., Poblacion, Iligan City No. 266 Rizal Avenue Extension, between 5th and 6th Ave., Grace Park, 23 Kalookan Kalookan City 24 Lipa CM Recto Avenue, Lipa City, Batangas 25 Malabon No. 2 Manapat St corner Rizal Avenue extension., Malabon City, MM. 26 Medical Plaza Makati G-103 Medical Plaza Bldg., Dela Rosa corner Amorsolo Sts., Makati City 27 Montalban J.P. Rizal Ave., Manggahan, Montalban, Rizal 28 Novaliches - Bayan 897 Quirino Hi-way, Brgy.Gulod, Novaliches, Q.C. 29 Pandacan No. 2339 Palumpong St., Pandacan, Manila 30 Pasay Libertad Libertad corner Colayco Sts., Pasay City 31 Paseo de Roxas Corporate Business Center, No. 151 Paseo De Roxas cor. Arnaiz Ave., M.C 32 Roman Square Roman Square Bldg., No. 979-981 Soler corner Roman St., Binondo, Manila 33 Rosario G/F SBC Bldg., Gen. Trias Drive, Rosario, Cavite 34 Salcedo LPL Plaza Bldg., No. 124 L. P Leviste St., Salcedo Village, Makati City 35 Sampaloc 1700 G. Tuazon St. cor M. Dela Fuente St., Sampaloc, Manila 36 San Pedro Mabini Street, Poblacion, San Pedro, Laguna 37 Sangandaan 32 A. Mabini St., Sangandaan, Caloocan City 38 Sta. Rosa Brgy. Pulong , Sta. Cruz, Sta. Rosa, Laguna 39 Sta. Rosa - Balibago National Hi-way, Brgy. Balibago, Sta. Rosa, Laguna 40 Sucat SBC Bldg., Dr. A. Santos Ave. cor. St. Peter St., Sucat, Paranaque City 41 Tagaytay SBC Bldg., Aguinaldo Highway, Mendez Crossing, Tagaytay City 42 Taytay - Ortigas Extension SBC Bldg., Km. 23, Ortigas Avenue Extension, Taytay, Rizal
46 BANK-OWNED SBC BRANCHES ADDRESS 43 Tektite G/F East Tektite Towers, Exchange Road., Ortigas Center, Pasig City 44 Tuguegarao A. Bonifacio corner Washington Sts., Tuguegarao, Cagayan 45 Zamboanga Veterans Avenue, Zamboanga City. 46 Ylaya - Tondo No. 938, Ylaya Street, Tondo, Manila City
Exhibit (3): List of Leased Branches
Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Units 1644 and 1646 along Angel Linao 1 A. Linao - Paco St., Paco, Manila 926,255.00 10/26/16 5 10/25/21 E. Rodriguez Jr. Ave. (C-5), Libis, Quezon 2 Acropolis City 2,880,839.12 04/01/14 5 03/31/19 G/F, AIC Empire Tower, ADB Avenue 3 ADB Avenue corner Sapphire Road, Ortigas Center, Pasig City 2,482,978.29 05/01/14 5 04/30/19 Adriatico - 1325 M. Adriatico St., manila 4 Faura 1,583,890.62 09/01/18 2 08/31/20 G/F Kingston Tower, Acacia Ave., Alabang - 5 Madrigal Business Park, Alabang, Acacia Muntinlupa City 3,430,651.54 10/15/11 10 10/14/21 Insurlar Life Corporate Centre, Insular Life Alabang - 6 Drive, Filinvest Corporate City, Alabang, Insular Muntinlupa 3,293,840.93 04/01/18 3 03/31/21 Alabang - Indo-China Drive, Northgate Cyberzone, 7 Northgate Filinvest, Alabang, Muntinlupa City 1,827,843.57 01/01/16 5 12/31/20 Level 2 Alimall Phase II, Brgy Socorro, 8 Ali Mall Cubao, Quezon City 2,723,980.00 10/01/18 3 09/30/21 National Highway (Maharlika Highway), 9 Alicia - Isabela Poblacion, Alicia, Isabela 675,281.25 08/01/11 10 07/31/21 Angeles - McArthur Highway cor. San Pablo Street, 10 McArthur Angeles City, Pampanga Highway 1,008,000.00 05/01/18 5 04/30/23 Angeles - 292 Sto Rosario Street, Angeles City 11 Sto.Rosario 1,896,189.72 08/16/18 1 08/15/19 CMDL Bldg., Circumferencial Road, Brgy. 12 Antipolo San Roque, Antipolo Rizal 1,259,779.65 01/01/19 3 12/31/21 920-922 Pasay Road, Makati City 13 Arnaiz Avenue 1,918,485.96 11/15/14 5 11/14/19 Aseana One Building, Bradco Avenue, 14 Aseana City Aseana City, Parañaque City 2,232,173.86 07/01/12 9 01/14/21 Units 3 & 4, Aseana Square Building, 15 Aseana Square Macapagal Blvd., Aseana City, Parañaque City 2,008,320.00 06/15/17 5 06/14/22 6797 Ayala Avenue., Makati City 16 Ayala - Rufino 41,349,488.69 10/01/17 5 09/30/22 El Molito Bldg., Madrigal Business Park, 17 Ayala Alabang Madrigal Avenue, Ayala Alabang, Muntinlupa City 8,263,508.92 06/01/16 3 05/31/19 Bacolod - Ground Floor, Insular Life Building, Lacson 18 Lacson corner Galo Street, Bacolod City 1,121,423.17 07/01/15 5 06/30/20 Bacolod - Ground Floor, O Residences, Lacson 19 Mandalagan Street, Mandalagan, Bacolod City 853,146.00 09/01/15 5 12/31/20 Baguio BGH CYA Centrum Building, Military Cut-Off 20 Rotonda Road, Baguio City 1,240,000.00 05/01/16 5 04/30/21 Galeria Victoria, J. P. Rizal Street, 21 Balanga Poblacion Balanga City 670,560.00 04/01/17 10 03/31/27 317 B.S. Aquino Ave., Baliwag, Bulacan 22 Baliwag 1,124,941.24 06/16/10 10 06/15/20 No. 49 Honorio Lopez Blvd., corner 23 Balut Rosario Nicasio St., Balut, Tondo, Manila 1,181,964.36 09/01/17 5 08/31/22
47 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Oroquieta St. corner Bambang, Sta. Cruz, 24 Bambang Manila 984,375.00 08/01/17 3 07/31/20 Banawe - Nos. 34-36 Banawe corner Kitanlad Sts., 25 Kitanlad Quezon City 2,641,188.00 06/01/15 5 05/31/20 Banawe - G/F GLC Building, Banawe Ave. cor 26 Malaya Malaya Street, Quezon City 1,815,000.00 10/15/17 5 10/14/22 Banawe - No. 247-249 Banaue Street, Barangay 27 Quezon Ave. Lourdes, Sta. Mesa Heights, Quezon City 1,501,060.27 11/16/17 5 11/15/22 Bangoy - 2nd Floor, Yahu Plaza, Bangoy Street, 28 Chinatown Davao City 1,494,000.00 04/16/16 5 04/15/21 G/F City Gold Bldg., Calamba Premier Batino - 29 Industrial Park Complex - Batino, Calamba Calamba, Laguna 851,978.82 04/03/18 5 04/02/23 No. 40, Jupiter St., Bel-air, Makati City 30 Bel-air 1,334,625.83 09/08/17 2 08/25/19 1264-66 Benavidez St., Sta Cruz, Manila 31 Benavidez 1,166,886.00 09/01/18 5 08/31/23 BF Parañaque- No. 178 Aguirre Avenue, BF Homes, 32 Aguirre Parañaque City 1,678,950.00 07/01/16 5 06/30/21 BF RESORT - #21 & 23 One Princeway Bldg., BF Resort 33 LAS PIÑAS Drive, BF Resort Village, Las Piñas City 1,177,570.08 03/16/17 5 03/15/22 #39 Doña Soledad Ave., Better Living, 34 Bicutan Parañaque City 836,962.88 12/16/13 10 12/15/23 Nos. 463-469 Ewan Bldg., Quintin 35 Binondo Paredes St., Binondo, Manila 11,407,143.48 05/01/16 5 04/30/21 Chinese Gen. Hospital, Blumentritt cor. 36 Blumentritt Aurora Blvd., Sta. Cruz, Manila 3,705,115.04 09/16/17 5 09/15/22 McArthur Highway, Wakas Bocaue, 37 Bocaue Bulacan 990,000.00 02/16/17 10 03/15/27 Unit No. 3 Bonifacio Residences Condo, 38 Boni Avenue 612 Boni Ave. corner Sikap Street., Mandaluyong City 1,318,351.16 12/01/18 3 11/30/21 Omron Building, No. 40 Buendia Avenue, 39 Buendia - Dian Brgy. San Isidro, Makati City 2,082,016.35 08/22/17 5 08/21/22 Bukidnon Sayre Highway, Poblacion, Valencia City, 40 Valencia Bukidnon 1,440,000.00 11/22/16 10 11/21/26 J.C. Aquino Ave., Butuan City, Agusan del 41 Butuan Norte 922,798.45 11/02/11 10 11/01/21 C. Palanca- 302 - 304 C. Palanca (Echague) corner P. 42 Quiapo Gomez Street, Quiapo, Manila 1,500,000.00 06/15/17 5 05/31/22 Dr. D Building, Del Pilar Street, 43 Cabanatuan Cabanatuan City, Nueva Ecija 1,013,557.50 04/01/15 5 03/31/20 Cabanatuan - Km 112 Maharlika Hiway, Cabanatuan City 44 Maharlika 1,146,031.60 06/01/18 5 05/31/23 Calamba National Highway, Crossing, Calamba, 45 Crossing Laguna 2,037,894.74 11/01/15 5 10/31/20 MDC Building, National Highway, Malihan 46 Calamba LISP Manoto Subdivision, Brgy. Real, Calamba City 750,000.00 03/01/16 10 02/28/26 G/F H&M Center Bldg. J. P Rizal St., Brgy. 47 Calapan Camilmil, Calapan City, Oriental Mindoro 900,375.00 07/25/17 5 07/25/22 Caloocan-10th Unit 488-490, Rizal Avenue Ext. cor, 10th 48 Ave. Avenue, Caloocan City 1,345,794.36 03/16/17 5 03/15/22 Caloocan-A. GF, One Aster Place, A. Mabini Street, 49 Mabini Caloocan City 1,551,840.00 09/04/16 5 09/03/21 Fairway Residences Condo - Capitol Hills 50 Capitol Hills Drive corner Alpha Road, Capitol Hills, Quezon City 1,672,800.03 10/01/17 5 09/30/22 The Junction Strip Mall Wisdom Avenue 51 Carmelray I corner Knowledge Avenue, Carmel Town, Canlubang, Calamba, Laguna 1,488,000.00 05/01/16 5 04/30/21 Unit 4, Admin. Building, Carmelray 52 Carmelray II Industrial Park II, Calamba, Laguna 1,254,960.00 04/01/16 5 03/31/21
48 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Ground Floor 88 Building, Governor’s 53 Carmona Drive, Maduya, Carmona, Cavite 607,600.00 07/30/16 5 07/29/21 G.H. Del Pilar corner Marcos Sts., 54 Catarman Catarman, Northern Samar 401,224.04 09/01/10 12 08/31/22 #076 Maharlika Highway, Cauayan City, 55 Cauayan Isabela 865,568.34 07/01/16 10 06/30/26 CDO - George Georgetown Cybermall, Rodolfo Pelaez 56 Town Cybermall Blvd., Kauswagan, Cagayan De Oro 1,677,382.27 08/01/18 5 07/31/23 CDO - 1st Level, East Concourse Annex Bldg., 57 Limketkai Limketkai Mall, Cagayan de Oro City 2,216,161.32 08/22/18 3 07/31/21 Cebu A.S. TPR Building, A.S. Fortuna St., Banilad, 58 Fortuna Cebu City 956,970.00 04/25/14 5 04/24/19 Cebu Business Mindanao Ave., Cebu Business Park, 59 Park Cebu City 4,329,186.75 08/15/17 5 08/14/22 Princetown Danao, Juan Luna Street, 60 Cebu Danao Danao City, Cebu 540,000.00 03/01/17 5 02/28/22 Island Central Mactan IT Complex, Mactan 61 Cebu Mactan Economic Zone, M.L. Quezon National Highway, Pusok, Lapu-lapu City, Cebu 1,550,285.10 01/07/17 5 01/06/22 Tipolo Square, Mandaue Highway, Tipolo, 62 Cebu Mandaue Mandaue City, Cebu 897,196.32 12/15/16 6 12/14/22 Osmena Boulevard, Cebu City 63 Cebu Osmena 2,585,829.89 08/01/12 10 07/31/22 Cebu Juan Osmena Boulevard, Cebu City 64 Luna 1,030,680.00 03/17/15 6 03/16/21 Cebu Uptown 154 Osmeña Boulevard corner V. Urgello 65 Osmeña Street, Cebu City 1,805,895.00 01/16/14 5 01/15/19 Chino Roces - 2224 Chino Roces Avenue cor Don Bosco 66 Don Bosco St., Makati 1,972,961.12 05/01/18 5 04/30/23 Clark Center Two Building - Retail 3, Berthaphil Compound III, Clark Center, J. 67 Clark - Angeles Abad Santos Ave., Clarkfield Zone, Angeles 1,313,877.00 04/01/09 10 03/31/19 100 Gatwick Gateway, Sabah Al-Ahmad, Clark - Medical 68 Global Gateway Logistics City, Industrial City Estate 5, Clark Freeport Zone, Pampanga 2,000,407.14 06/16/15 5 06/15/20 Congressional Avenue corner EDSA, 69 Congressional Quezon City 1,472,113.54 12/08/15 5 12/07/20 Congressional Town Center, No. 23 Congressional 70 Congressional Avenue, Brgy. Bahay Toro, Tower Quezon City 1,560,028.80 10/17/17 3 10/16/20 Northeast Square Bldg., #47 Connecticut 71 Connecticut Street, Northeast Greenhills, San Juan City 2,102,675.41 09/01/12 10 08/31/22 GF, RO-MA Bldg., #020 Sinsuat Avenue, 72 Cotabato City Poblacion 6, Cotabato City 254,464.29 09/27/18 5 09/26/23 Quezon Theater Bldg., Gen. Roxas St., 73 Cubao Araneta Center, Cubao, Quezon City 2,510,535.82 11/01/16 5 10/31/21 Dagupan - Dagupan-Binmaley Road, Lucao District, 74 Lucao Dagupan City, Pangasinan 844,192.00 05/01/16 10 04/30/26 Dasmariñas - Governor’s Drive, Dasmariñas, Cavite 75 FCIE 1,530,900.00 10/01/16 5 09/30/21 BI Zone - Phase 2, J. Laurel Ave., Bajada, 76 Davao - Bajada Davao City 488,443.50 10/01/18 5 10/01/23 J.P. Laurel Ave., Insular Village, Phase 2, 77 Davao - Lanang Lanang, Davao City 1,112,940.00 07/01/17 5 06/30/22 GF, Plaza Luisa II, Matina IT Park, 78 Davao - Matina McArthur Highway, Matina, Davao City 325,500.00 09/27/18 5 09/26/23 Anda corner Rizal Sts., Davao City 79 Davao - Rizal 1,035,254.85 04/01/17 5 03/31/22 Mars Building, Saavedra Street, Toril, 80 Davao - Toril Davao City 438,019.83 05/15/18 5 05/14/23 G/F King's Court II Bldg., 2129 Pasong 81 Dela Rosa Tamo cor. Dela Rosa Sts., Makati City 3,225,077.40 04/01/18 5 03/31/23
49 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Poblacion, Digos City 82 Digos 960,498.00 06/01/18 5 05/31/23 Diliman - No. 24 Matalino St., Brgy Central, Dist IV, 83 Matalino Quezon city 2,027,908.85 07/02/18 5 07/01/23 Quezon Avenue, Dipolog City 84 Dipolog 423,690.75 08/20/13 10 08/19/23 Pasilio A. Ledesma Bldg., No. 853 Tabora 85 Divisoria St., Binondo, Manila 1,139,544.00 07/01/17 5 06/30/22 Divisoria - Sto. Sto. Cristo Street, Manila 86 Cristo 1,291,909.50 05/01/14 5 04/30/19 Don Antonio Unit 2 L24, B6 Don Antonio Heights, Holy 87 Heights Spirit Drive, Brgy Holy Spirit, Quezon City 2,362,944.15 08/05/18 3 08/04/21 Portal West Bldg., Silliman Ave. cor. 88 Dumaguete Hibbard Avenue, Dumaguete City 1,394,846.96 02/01/16 5 01/31/21 No. 970 E. Rodriguez Sr. Avenue, Quezon 89 E. Rodriguez City 312,400.00 03/14/08 10 03/13/18 E. Rodriguez - 1791 E. Rodriguez Sr. Ave,. Near corner 90 New York Ave. New York Street., Quezon City 1,069,645.50 12/01/17 5 11/30/22 Units 104 to 107 MAB, St. Lukes Medical E. Rodriguez - 91 Center E. Rodriguez Sr. Avenue, Quezon SLMC City 2,963,270.60 06/01/12 10 05/31/22 Unit LG-3-5 to Unit LG 3-6, Ground Floor, 92 Eastwood Le Grand 3, E-Commerce Avenue, Eastwood, Quezon City 2,276,812.80 05/03/15 5 01/31/20 512 EDSA near corner Urbano Plata St., 93 EDSA Caloocan Caloocan City 630,873.47 09/16/09 10 09/15/19 PSA Bldg. Elcano corner San Nicolas St., 94 Elcano Binondo, Manila 1,939,100.63 03/01/16 5 02/28/21 Emerald G/F, The Taipan Place, Emerald Ave., 95 Avenue Ortigas center, Pasig City 2,782,071.33 09/01/09 10 08/31/19 UN Ave. corner Bocobo & Churucca Sts., 96 Ermita Ermita, Manila 1,821,813.41 07/01/16 5 06/30/21 España 1880 España Boulevard Sampaloc, Manila 97 Boulevard 1,756,440.00 07/16/16 5 07/15/21 Evangelista 450 Evangelista cor. Paterno St., Sta. 98 Quiapo Cruz, Manila 1,495,000.00 02/15/12 15 02/14/27 Fairview B2 L21 Commonwealth Ave., Fairview, 99 Commonwealth Quezon city 1,750,329.00 10/15/18 3 10/14/21 Panorama Tower 34th St corner Lane A 100 Fort - Panorama Bonifacio Global City, Taguig City 3,144,310.00 06/01/16 10 05/30/26 Fort Bonifacio - G/F, The Infinity Tower, 26th St., Fort 101 Infinity Bonifacio Global City, Taguig City, MM. 3,097,269.88 07/15/15 5 07/14/20 Fort Bonifacio - NAC Tower, 32nd Street, Bonifacio Global 102 NAC Tower City, Taguig 4,184,359.88 03/15/18 5 03/14/23 G/F, Net Cube, 3rd Ave. cor. 30th St., E' Fort Bonifacio - 103 Square Zone, Fort Bonifacio, Global City, Net Cube Taguig 4,461,872.68 09/15/15 5 09/14/20 Fort Bonifacio - G/F Medical Arts bldg., SLMC-Global City, 104 SLMC Fort Bonifacio Global City, Taguig 2,808,958.81 05/01/10 10 04/30/20 G/F, Fairways Tower, McKinley corner 5th 105 Fort Fairways Avenue, Bonifacio Global City, Taguig City 1,446,938.64 05/01/14 5 04/30/19 Ground Floor, Grand Hamptons Tower 2, Fort Grand 106 1st Avenue corner 31st Street, Fort Hamptons II Bonifacio Global City, Taguig City 1,697,400.00 07/01/16 5 06/30/21 Ground Floor, Philplans Corporate Center, Fort Triangle 107 1012 Triangle Drive, North Bonifacio, Drive Bonifacio Global City, Taguig City 1,755,735.80 03/01/15 5 02/28/20 GF-Unit B, W City Center, 7th Avenue cor. Fort–W City 108 30th Street, Bonifacio Global City, Taguig Center City 7,103,909.48 10/16/16 5 10/15/21 Unit 007, G/F Oasis Commercial Center, FPIP - Sto. 109 FPIP – Special Economic Zone, R.S. Diaz Tomas Avenue, Brgy. Sta. Anastacia, Sto. Tomas, 1,201,095.00 07/14/16 5 07/13/21
50 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Batangas
G. Araneta No. 128 G. Araneta Avenue. Brgy. Doña 110 Avenue Imelda, Quezon City 1,505,622.92 12/01/17 5 11/30/22 Luz Building, 116 Gamboa Street, Legazpi 111 Gamboa Village, Makati City 434,500.00 11/01/18 5 10/31/23 General Santos National Highway corner C.M. Recto St., 112 National General Santos City, South Cotabato Highway 720,000.00 09/15/17 10 09/14/27 G/F Divine Grace Medical Hospital Bypass 113 General Trias Road, Brgy. Tejero, Gen. Trias, Cavite 1,071,428.52 01/01/18 5 12/31/22 Unit 101 A, G/F, Oppen Building, 349 Sen. 114 Gil Puyat Gil J. Puyat Avenue, Makati City 2,969,347.32 02/01/14 5 01/31/19 G/F Gramercy Residences, Kalayaan Ave., 115 Gramercy Makati City 1,791,035.73 02/01/14 5 01/31/19 G/F Greenhills Mansions, Annapolis St., 116 Greenhills Greenhills, San Juan, MM. 2,766,745.61 02/01/09 10 01/31/19 Quadstar Bldg., No. 80 Ortigas Ave. 117 Greenhills West Greenhills, San Juan 2,298,682.20 10/01/17 5 09/30/22 Guadalupe Guadalupe Commercial Complex, EDSA 118 Commercial Guadalupe, Makati City Complex 1,832,185.00 12/01/18 3 11/30/21 G/F Alpha Salcedo Bldg., HV Dela Costa 119 H.V. Dela Costa St., Salcedo Village, Brgy. Bel - air, Makati City 2,737,384.32 08/25/16 5 08/24/21 G/F Exchange Bldg.,No. 107 V.A Rufino 120 Herrera Herrera Bolanos & Esteban Sts. Legaspi Village, Makati City 3,242,076.79 02/19/18 5 02/18/23 Iloilo Business BPO Building A, Festival Walk, Iloilo 121 Park Business Park, Iloilo City 2,073,146.40 08/01/16 5 07/31/21 Iloilo - General Insular Life Building, General Luna St., 122 Luna Brgy. San Felix, Molo, Iloilo City 750,389.06 11/01/15 5 10/31/20 G/F, John A. Tan Bldg., Iznart St., Iloilo 123 Iloilo - Iznart City 1,031,873.65 12/01/18 5 11/30/23 Charly Resources Bldg., corner Ledesma 124 Iloilo Ledesma and Quezon Sts., Iloilo City 2,026,381.35 03/01/16 5 02/28/21 G/F 680 Home Appliances Bldg., 125 Imus Aguinaldo Highway, Tanzang Luma, Imus, Cavite 1,139,388.20 11/16/09 10 11/15/19 1839 J.Abad Santos St., Tondo, Manila 126 J. Abad Santos 1,126,894.72 09/01/16 5 08/31/21 Juan Luna - 514 Juan Luna St., Binondo, Manila 127 Binondo 2,880,000.00 04/16/14 5 06/30/19 Milza Arcade 3, J.Y. Perez Highway, Brgy. 128 Kabankalan Talubangi, Kabankalan City, Negros Occidental 672,000.00 04/01/17 5 03/31/22 New Panaderos Ext., Mandaluyong City 129 Kalentong 1,458,607.56 01/01/18 5 12/31/22 No. 263 Roxas Avenue, Kalibo, Aklan 130 Kalibo 663,855.14 07/01/15 5 06/30/20 1418 Kamias Rd. corner Anonas 131 Kamias Extension, Sikatuna Village, Q.C. 1,203,351.24 01/06/18 5 01/05/23 G/F, PRDC Building 257 Mc Arthur 132 Karuhatan Highway, Karuhatan, Valenzuela City 1,347,753.33 01/01/17 6 12/31/22 G/F The Xanland Condominium Building., 133 Katipunan Katipunan Avenue, Loyola Heights, Q.C. 2,199,976.63 04/15/15 5 04/14/20 KEYLAND- 114 Valero St., Salcedo Village, Makati 134 VALERO City 52,889,378.85 07/01/17 5 06/30/22 601 General Santos Drive, Koronadal City 135 Koronadal 1,071,428.52 09/01/10 10 08/31/20 JC - 084 Brgy. Pico, Km. 5 National 136 La Trinidad Highway, La Trinidad, Benguet 1,154,188.24 09/01/08 15 08/31/23 G/F Kenny Plaza, Quezon Avenue, San 137 La Union 900,000.00 06/06/11 10 06/05/21
51 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Fernando City, La Union Bonanza Plaza Bldg., Quirino Highway, 138 Lagro Lagro Quezon City 1,667,053.07 06/15/17 5 06/14/22 G/F, LC Square, J.P. Rizal Street cor. 139 Laoag Balintawak, Laoag City 1,062,875.61 06/01/15 5 05/30/20 M. L Quezon National Highway corner 140 Lapu - Lapu Patalinhug Avenue, Pajo, Brgy. Sangi, Lapu Lapu City, Cebu 1,410,000.00 01/01/18 2 12/31/19 Landco Business Park, Legazpi City 141 Legazpi 1,437,639.97 04/01/13 10 03/31/23 GF, Sola Grande Center, Ilustre Avenue, 142 Lemery Palanas, Lemery, Batangas 765,114.75 03/22/16 5 03/21/21 The Outlet at Lipa, Lima Technology 143 Lima Center, Brgy. Bugtong na Pulo, Lipa City Batangas 291,600.00 09/01/18 5 08/31/23 Lipa Medics GF, Old MAB, Lipa Medix Hospital, 144 Hospital National Highway, Lipa City, Batangas 1,361,520.00 05/01/16 5 04/30/21 Doña Cristina Bldg., corner Tagaro & 145 Lucena Merchan Sts., Lucena City 1,556,245.44 01/01/18 5 12/31/22 Nos. 1025-1027 HLC Bldg., Masangkay 146 Magdalena cor. Soler Sts., binondo, Manila 1,329,709.90 10/18/17 5 10/17/22 Makati Avenue Makati avenue corner Constellation Street., 147 Constellation Brgy. Bel - air, Makati City 1,831,761.00 11/01/17 5 10/31/22 Unit 2, Ground Floor, Zuellig Building, Makati Avenue 148 Makati Avenue corner Paseo de Roxas, Zuellig Makati City 5,460,035.31 03/01/17 5 02/28/22 Malabon - Units 8 &9 G/F Mary Grace Bldg., 142 Mc 149 Potrero Arthur Highway, Potrero, Malabon City 640,693.34 02/01/16 5 01/31/21 Malabon - 137 M.H. del Pilar St., Brgy. Tugatog, 150 Tugatog Malabon City 808,823.40 08/17/15 5 08/31/20 M. Adriatico corner San Andres St., 151 Malate Malate, Manila 934,238.18 09/01/16 5 08/31/21 No. 271 Paso de Blas, Valenzuela City 152 Malinta 474,590.56 10/01/08 15 09/30/23 G/F Feliza Jazz Bldg., Mc. Arthur 153 Malolos Highway, Sumapang Matanda, Malolos City, Bulacan 1,237,866.84 05/05/18 5 05/04/23 No. 360 Shaw Center Mall, Shaw Blvd. 154 Mandaluyong corner Nueve de Febrero, Addition Hills, Mandaluyong City 2,406,174.79 10/16/14 5 10/15/19 Mandaluyong - No. 167 EDSA, Mandaluyong 155 EDSA 2,436,977.82 04/01/18 5 03/31/23 MANDALUYON Units 7 & 8, Level 1,SOHO Central, Shaw 156 G- Boulevard., Greenfield District, GREENFIELD Mandaluyong City 2,078,839.73 05/01/16 3 04/30/19 Mandaluyong - DM Guevarra St. cor. Calbayog St., 157 Libertad Mandaluyong 1,272,372.70 08/16/18 2 08/15/20 Mandaluyong - G/F Madison Square Plaza, Pioneer corner 158 Pioneer Sheridan Street, Mandaluyong City 886,104.12 10/15/17 5 10/14/22 Mandaue North National Highway, Tabok, Mandaue City 159 Road 1,346,812.80 04/16/17 5 04/30/22 Bayan-bayanan Avenue, Concepcion, 160 Marikina Marikina City 2,214,451.25 08/03/11 10 08/02/21 Marikina - Gil B6 L10 Almon St., cor Gil Fernando Ave, 161 Fernando Ave Brgy San Roque, Marikina 1,513,305.28 04/15/18 5 04/14/23 157-A, G/F, Market Market Mall, Bonifacio 162 Market Market Global City, Taguig, MM. 4,124,250.00 10/01/18 1 09/30/19 APN Bldg., No. 172 A. Mabini St., 163 Maypajo Maypajo, Kalookan City 974,177.35 08/05/18 5 08/04/23 G/F Commerce & Industry Plaza Bldg., 164 McKinley Hill McKinley Hill, Fort Bonifacio, Taguig City 4,258,028.96 02/01/14 5 01/31/19 G/F Medical Arts Tower, The Medical City 165 Medical City 2,265,120.00 12/05/14 10 12/03/24
52 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Hospital., Ortigas Avenue, Pasig City La Consolacion College Manila, No. 8 166 Mendiola Mendiola Street, San Miguel, Manila City 1,430,186.85 07/19/15 5 07/18/20 G/F suntree Tower, No. 13 Meralco 167 Meralco Avenue Avenue, Ortigas Center, Pasig City 3,034,632.96 11/01/17 5 10/31/22 Meycauayan College Bldg., Mc. Arthur 168 Meycauayan Highway, Calvario, Meycauayan, Bulacan 688,199.44 07/22/16 5 07/21/21 G/F Metro North Medical Center & Mindanao 169 Hospital, Mindanao Ave., Bahay Toro, Avenue Quezon City 1,050,719.64 05/01/18 1 04/30/19 G/F EVY Bldg., Molino Blvd., Molino, 170 Molino Bacoor, Cavite 1,558,272.79 03/16/11 15 03/15/26 Ground Floor, Morgan Suites Executive Morgan Suites 171 Residences, Florence Way, McKinley Hill, McKinley Fort Bonifacio, Taguig 1,802,016.48 04/11/16 5 04/10/21 LAM Building, Peñafrancia Avenue, Zone 172 Naga 4, San Francisco, Naga City 1,361,900.81 09/27/14 8 09/26/22 Naga Diversion M. roxas Avenue, Naga City, Camarines 173 Road Sur 625,117.56 04/01/18 5 03/31/23 2/Farrival Lobby, NAIA Complex, Pasay 174 NAIA City 1,556,755.20 01/01/18 1 12/31/18 Stall No. 15, Arrival Lobby of Terminal 3, NAIA Terminal 175 Ninoy Aquino International Airport, Pasay 3 City 237,888.00 08/20/18 1 08/19/19 318 Northbay Blvd. South, Navotas City 176 Navotas 1,076,919.64 04/01/14 10 03/31/24 G1 & G2, Asian Mansion 2, dela rosa cor. 177 Nieva Nieva Sts, Legaspi Village., Makati City 2,072,150.54 12/01/15 5 11/30/20 Ninoy Aquino G/F PAIR - PAGS Centre,NAIA Complex., 178 Avenue Ninoy Aquino Ave., Paranaque City 1,732,192.68 10/01/16 5 09/30/21 Unit D G/F, Aspire Tower at Nuvo City, Nuvo City 179 150 E.Rodriguez Jr. Ave., corner Calle Aspire Industria, Bagumbayan, Quezon City 1,614,192.30 03/28/14 5 03/27/19 Unit. No. 2 G/F, RM Centrepoint Building, 180 Olongapo Rizal Ave. cor. Magsaysay Drive, East Tapinac, Olongapo City 1,579,118.46 08/05/18 2 08/05/20 One Mall 6008 Gen. T. De Leon St., Brgy. Gen T. De 181 Valenzuela Leon, Valenzuela City 2,114,616.00 05/06/17 5 05/05/22 Strata Gold Tower Cond., Ongpin St., 198,232,096.2 182 Ongpin Binondo, manila 4 06/15/18 5 06/14/23 Niko's Ark Bldg., Real St., Ormoc City, 183 Ormoc Leyte 1,295,476.84 09/01/11 10 08/31/21 SBC Building, No. 228 Ortigas Ave., 184 Ortigas Greenhills, San Juan, MM. 16,401,360.29 01/01/14 5 01/31/19 Capistrano Street, Ozamiz City, 7200 185 Ozamis Misamis Occidental 904,500.00 10/29/16 5 10/28/21 P. Guevarra - Unit GF03 Metro Pointe Center, P. 186 Wilson Guevarra cor. N. Averilla St., San Juan 1,312,746.75 06/28/18 5 06/30/23 Poblacion, Pagadian City 187 Pagadian 530,357.14 01/01/15 5 12/31/19 No. 1924 Taft Avenue corner Bernabe 188 Pasay - Taft Street., Pasay City 902,947.56 09/01/17 5 08/31/22 Lot 1 & 2-A Good harvest Complex, C. Pasig - C. 189 Raymundo Ave., Brgy. Caniogan, Pasig Raymundo City 1,200,000.00 03/15/17 5 03/14/22 Mabini cor Del Pilar St., Kapasigan, Pasig 190 Pasig - Mabini City 1,166,886.00 04/15/17 5 04/14/22 Mercedes Avenue corner M. Suarez Pasig - 191 Avenue (Market Avenue), Brgy. San Mercedes Ave. Miguel, Pasig City 1,050,280.00 09/01/14 5 08/31/19 Pasig - G/F Unit 101 - A AD Center Square, A. 192 Santolan Rodriguez corner Evangelista, Santolan, 1,002,803.30 04/01/18 5 03/31/23
53 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Pasig City Pasig - Shaw G/F Freemont Arcade, Shaw Boulevard, 193 Blvd. pasig City 943,021.92 05/15/13 7 05/14/20 Elements Bldg., Shaw Boulevard cor 194 Pasig Boulevard Rosemarie Lane, Brgy. Kapitolyo, Pasig ity 646,816.97 04/01/17 5 03/31/22 G/F Narra Bldg., Pasong Tamo Extension, 195 Pasong Tamo Makati City 1,773,089.30 09/01/14 5 08/31/19 Pasong Tamo - 1120 Don Chino Roces Ave., Makati City 196 La Paz 1,139,103.00 07/01/18 5 06/30/23 G/F Plaza Plaridel Building, No. 263 Padilla 197 Plaridel Road, Banga 1st, Plaridel Bulacan 600,946.50 04/01/14 5 03/31/19 Rizal Avenue, Puerto Princesa City, 198 Puerto Princesa Palawan 1,218,998.05 03/09/12 10 03/08/22 G/F, Capitol Medical Center Bldg. III, 199 Quezon Ave. Quezon Ave. corner Scout. Magbanua, Quezon City 2,340,719.89 11/16/10 9 11/15/19 Quezon Ave. - JR Building, 1520 Quezon Avenue, South 200 South Triangle Triangle, Quezon City 1,061,000.00 11/16/18 5 11/15/23 Quirino No. 360 Quirino Highway, Sangandaan, 201 Highway Novaliches, Quezon City 1,800,000.00 01/16/18 5 01/15/23 Regalado Angelus Bldg., #22 Regalado Ave., West 202 Fairview Fairview, Q.C. 1,083,016.08 04/02/18 5 04/01/23 No. 1040 Reina Regente St., Binondo, 203 Reina Regente Manila 830,144.39 05/01/17 5 04/30/22 Reposo - JP 1747 N. Garcia St., Barangay Poblacion, 204 Rizal Makati 1,312,746.72 01/15/18 5 01/14/23 Retiro Street corner Mayon Street, La 205 Retiro Loma, Quezon City 2,380,855.68 09/01/17 5 08/30/22 Roosevelt Avenue, SFDM, Quezon City 206 Roosevelt 875,772.27 02/01/12 10 01/31/22 Lawaan Highway corner Sacred Heart of 207 Roxas Jesus Street, Pueblo de Panay, Lawaan Roxas City 401,117.10 07/01/12 10 06/30/22 Unit 4103, VIP Building, Roxas Boulevard Roxas 208 cor Nuestra Senora de Guia Street, Ermita, Boulevard Manila 2,113,125.00 08/01/17 5 07/31/22 G/F Doña Sevilla Bldg., Mc. Arthur 209 San Fernando Highway, Brgy. Dolores ,San Fernando City, Pampanga 1,074,939.82 12/01/08 12 11/30/20 San Fernando - AMHSCO Building, Mac Arthur Highway, 210 Dolores Dolores, San Fernando City, Pampanga 1,195,560.00 10/01/18 5 09/30/23 San Fernando- MC Square Plaza, McArthur Highway, 211 Sindalan Sindalan, San Fernando City, Pampanga 1,171,800.00 01/01/17 5 12/31/21 SAN Quezon St., Brgy. Dos, San Francisco, FRANCISCO - Agusan del Sur 212 AGUSAN DEL SUR 672,897.24 04/23/17 5 04/22/22 SAN JOSE- SBC Building, Maharlika Highway, Brgy. 213 NUEVA ECIJA F.E. Marcos, San Jose City, Nueva Ecija 855,731.50 06/16/17 10 06/15/27 San Juan - One Roxas Square Building, F. Roxas cor. 214 Blumentritt F. Blumentritt, San Juan City 1,774,613.25 07/01/16 10 06/30/26 San Juan - No. 18 Pinaglabanan cor. Paraiso St., Brgy 215 Pinaglabanan Corazon de jesus, San Juan 911,629.68 06/01/18 2 12/31/19 No. 101 Medico Bldg., San Miguel corner 216 San Miguel Louredes St., Pasig City 1,806,936.86 04/15/12 9 04/14/21 Rizal Avenue corner P. Zamora Sts., San 217 San Pablo Pablo, Laguna 1,158,789.52 07/01/16 5 06/30/21 San Pedro - Allen Building, National Highway, Pacita 218 Pacita Complex Complex, San Pedro, Laguna 1,162,846.13 10/01/16 5 09/30/21 G/F Flora Sy Bldg., Maharlika Highway, 219 Santiago Victory Norte, Santiago City, Isabela 660,000.00 03/01/15 5 02/28/20 Unit 1001B, Lower Ground Level, East 220 SHANGRI-LA 522,680.00 08/16/18 5 08/31/23
54 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract PLAZA EAST Wing, EDSA, Shaw Blvd. and St. Francis WING St. Mandaluyong City G/F Silver City, Tiendesitas Complex, 221 Silver City Frontera Verde, Brgy. Ugong, Pasig City 3,008,528.40 03/01/16 5 02/28/21 Benigno Aquino Avenue, Poblacion South, 222 Solano Solano Nueva Vizcaya 1,010,526.36 03/06/17 5 03/05/22 G/F, Le Mar Ben Bldg., along San 223 Soler Bernardo St., Sta. Cruz, Manila 1,657,966.32 03/16/17 5 03/15/22 St. Ignatius - No. 119 Katipunan Avenue, Quezon City 224 Katipunan 1,331,768.66 03/09/12 10 03/08/22 3/F, 168 Shopping Mall, Sta. Elena St., 225 Sta. Elena Binondo Manila 1,271,919.43 01/01/07 15 12/31/21 Gov. F. Halili Ave., Brgy. Bagabaguin, Sta. 226 Sta. Maria Maria, Bulacan 882,457.54 07/01/11 10 06/30/21 Sta. Rosa - Laguna Central - Greenfield City, don Jose, 227 Greenfield Sta Rosa City 1,845,604.80 10/01/18 3 09/30/21 Starmall Las Starmall, C.V. Starr Ave., Philamlife 228 Piñas Village, Pamplona II, Las Piñas City 807,354.45 07/01/16 5 06/30/21 Formosa Tower, Subic Commercial & 229 Subic Light Industrial Park, Manila Avenue, Subic Bay Freeport Zone 2,434,828.90 04/01/18 2 03/31/20 R106 & 107, Upper Ground Floor, Blanca SUCAT-AMAIA Building, Amaia Steps Sucat, Dr. A. Santos 230 STEPS Avenue, Brgy. San Antonio, Sucat, Parañaque 930,568.50 01/27/17 5 09/30/21 G/F Silicon Bldg., No. 167, Sumulong 231 Sumulong Highway, Mayamot, Antipolo City 1,688,735.26 11/01/16 5 10/31/21 San Nicolas corner Diez Sts., Surigao City 232 Surigao 1,372,914.28 02/01/14 5 01/31/19 G/F, Roqson Bldg., Rizal Avenue corner 233 Tacloban Burgos St and Rizal Avenue., Tacloban City 1,918,646.35 10/12/17 5 09/30/22 Tacloban GF, Insular Life Building, Avenida 234 Veteranos Veteranos, Tacloban City 691,441.92 07/01/16 5 06/30/21 Benigno Aquino Avenue, Poblacion South, 235 Tacurong Solano Nueva Vizcaya 1,131,813.12 06/01/17 5 05/31/22 SM Lazo Medical Clinic, 1755 Taft Avenue 236 Taft - Nakpil cor. Nakpil Street, Malate, Manila 1,384,869.12 07/01/17 5 06/30/22 Unit 3 G/F 2 Torre Lorenzon Condominium, 237 Taft - Vito Cruz Taft Ave cor Vito Cruz, Malate, Manila 1,624,542.62 11/12/18 3 11/11/21 No. 27 CPG Avenue, Tagbilaran City, 238 Tagbilaran Bohol 854,000.00 11/01/18 5 10/31/23 G/F Uy Ching Siong Commercial Building, 239 Tagum Pioneer Ave. cor. Quezon St., Poblacion, Tagum City 2,648,368.83 10/15/09 10 10/14/19 400 Tandang Sora Ave., Barangay Culiat, 240 Tandang Sora Q.C. 1,067,822.27 01/21/18 2 01/21/20 G/F Intellect Building, along MacArthur 241 Tarlac Highway, Brgy. San Sebastian, Tarlac City 1,474,987.71 05/01/11 10 04/30/21 Tañedo corner Zapiro Street, San Nicolas, 242 Tarlac-Tañedo Tarlac City 821,947.50 09/01/16 10 06/30/26 137 Rizal Ave., Taytay, Rizal 243 Taytay 916,525.76 09/17/15 5 09/16/20 Taytay-Manila Ground Floor, Verde Oro East Plaza, 244 East Manila East Road, Taytay, Rizal 1,470,000.00 08/01/16 5 07/31/21 Toyoma Group Center Bldg.,22 Timog 245 Timog Ave. Ave., Brgy. Laging Handa, Quezon City 1,660,365.00 02/01/14 10 01/31/24 G/F Maine Bldg., Tomas Morato Avenue, 246 Tomas Morato South Triangle, Quezon City 4,041,639.27 10/30/09 10 10/29/19 Tuguegarao Pulsar Commercial Complex Plaza, Buntun 247 Buntun Highway, Tuguegarao City 1,080,625.00 06/15/16 5 06/14/21 G/F Quadricentennial Pavillion, UST Cpd., 248 U.S.T. Espana, Manila 3,404,210.47 03/18/18 5 03/17/23
55 Rent for the Leased SBC year ended Lease Address Branches December 31, Start of Term End of 2018 Contract (years) Contract Units 1110 & 1112 Dolmar Bldg., U.N. 249 UN Ave. Avenue, Paco, Manila 846,775.99 08/01/14 5 07/31/19 G/F CSI Bldg., Mc. Arthur Highway, Brgy. 250 Urdaneta Nancayasan, Urdaneta City 1,691,353.41 06/02/18 5 06/01/23 Km. 14, Mc. Arthur Highway, Malinta, 251 Valenzuela Valenzuela City 1,504,871.05 01/16/15 5 01/15/20 E. Rodriguez Jr. Ave. corner Borres St., 252 Valle Verde Brgy. Bagong Ilog, Pasig City 1,189,813.73 02/01/18 5 01/30/23 VICMICO PMC Bldg., Osmeña Highway, 253 Victorias Victorias City, Negros Occidental 526,315.83 02/25/16 5 02/24/21 Luisita Trading 254 Vigan 1,584,000.00 04/01/14 5 03/31/19 Visayas Ave. - 53 Visayas Avenue, Brgy Vasra, Project 6, 255 Project 6 QC. 1,356,505.04 11/01/18 5 10/31/23 G/F Lee Gardens, Shaw Blvd corner Lee 256 Wack Wack St., Wack Wack, Mandaluyong City 2,261,717.24 07/01/17 5 06/30/22 No. 4 Bulletin St. corner West Avenue, 257 West Avenue Quezon City 1,507,227.75 05/15/13 10 05/14/23 Zamboanga - Mayor Jaldon St., Brgy. Canelar, 258 Canelar Zamboanga City 1,280,371.28 01/09/12 10 01/08/22 Unit 1716 17F Medical Arts Tower Don Medical City – 259 Eugenio Lopez Sr., Medical Complex, OBO Ortigas Avenue, Brgy. Ugong, Pasig City 781,200 04/18/17 5 04/17/22
56 Exhibit (4): Table of Organization
BOARD OF DIRECTORS
CHAIRMAN EMERITUS
CHAIRMAN
VICE CHAIRMAN
OFFICE OF THE CORPORATE SEC.
CORPORATE NOMINATIONS AND RELATED PARTY TECHNOLOGY EXECUTIVE RISK OVERSIGHT RESTRUCTURING TRUST FINANCE TRANSFORMATION AUDIT COMMITTEE GOVERNANCE REMUNERATION TRANSACTIONS STEERING COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE COMMITTEE
PEOPLE CREDIT ASSETS AND AUDIT COMPLIANCE EMPOWERMENT RISK TRUST AND ASSET CHIEF COMMITTEE LIABILITIES COMMITTEE MANAGEMENT MANAGEMENT TRANSFORMATION COMMITTEE OFFICER
AMLA ACQUIRED INNOVATION OUTSOURCING COMMITTEE ASSETS EPMO COMMITTEE COMMITTEE
INTEGRITY COMMITTEE PRESIDENT / CEO
LEGAL AND REGULATORY INVESTOR RELATIONS AFFAIRS
CORPORATE SECURITY COMMUNICATIONS
OCCUPATIONAL SAFETY AND HEALTH COMMITTEE
WHOLESALE BANKING CHIEF FINANCIAL OFFICER SHARED SERVICES RETAIL BANKING SEGMENT ALLIANCE SEGMENT FINANCIAL MARKET SEGMENT SEGMENT SEGMENT
STRATEGIC BRANCH BANKING TREASURY FINANCIAL CONTROL RELATIONSHIP INITIATIVES OPERATIONS RETAIL CASA AND FEE PRODUCT CHANNEL CONSUMER FINANCE CHANNELS SUPPORT MANAGEMENT INCOME
CORPORATE INFORMATION HEAD OFFICE CORPORATE TRANSACTION CHANNEL NETWORK PLANNING TECHNOLOGY OPERATIONS CONSUMER RBS PLANNING AND BANKING BANKING BUSINESS AND RETAIL MARKETING BRANCH BANKING MIS OPERATIONS CORPORATE CORPORATE HUMAN BANKING CENTERS ENTERPRISE FRAUD SERVICES RESOURCES MORTGAGE CUSTOMER BANCASSURANCE SERVICE QUALITY BANKING CONTACT
SECURITY BANK ACADEMY CARDS BUSINESS WEALTH E-COMMERCE DEV’T. & OPS MANAGEMENT
DIGITAL STRATEGY AND EXECUTION 57 Index to Financial Statements and Supplementary Schedules
Form 17-A Item 7
Page
Statement of Management's Responsibility for Financial Statements 59
Independent Auditors’ Report Exhibit 5
Consolidated Statements of Financial Positions -do- as of December 31, 2018 and 2017
Consolidated Statements of Income -do- for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income -do- for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Equity -do- for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows -do- for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements -do-
58
59 60
- 2 -
The Parent Company is the Ultimate Parent Company of the Group.
In 2017, the SEC approved the conversion of SBS from a savings bank to a finance company under the name of SBFCI (see Note 15).
In 2016, the MUFG Bank, Ltd. (MUFG) acquired a 20.0% voting interest in the Parent Company (see Note 27).
In 2016, SBCC sold a substantial portion of its existing Diners Club International credit card portfolio and its cardholder base (see Note 15).
In 2014, the Parent Company entered into a distribution agreement with FWD Life Insurance Corporation (FWD) for the marketing of the FWD’s life insurance products through the Parent Company’s marketing and distribution network. The distribution agreement was approved by the BSP on December 22, 2014 under Monetary Board Resolution No. 2073, through its letter to the Parent Company dated January 7, 2015, and the Insurance Commission on January 12, 2015. As required under BSP Circular 844, Cross-selling of Collective Investment Schemes and Other Amendments to Circular No. 801 on Revised Cross-selling Framework which amended Section X172 of the MORB Cross-Selling Framework, cross-selling of financial products within the bank premises should be done by a regulated financial entity belonging to the same financial conglomerate. Accordingly, a voting trust agreement executed by FWD took effect upon BSP approval of the distribution agreement where the Parent Company can exercise 10% voting rights at any of FWD’s shareholders’ meeting.
2. Summary of Significant Accounting Policies
Basis of Preparation The accompanying consolidated financial statements include the financial statements of the Parent Company and its subsidiaries.
The accompanying financial statements have been prepared on a historical cost basis except for financial assets and financial liabilities at Fair Value through Profit or Loss (FVTPL), financial assets at Fair Value through Other Comprehensive Income (FVTOCI) and derivative assets and liabilities designated as hedges that have been measured at fair value. The carrying values of recognized loans and receivables and investment securities at amortized cost that are hedged items in fair value hedges, and otherwise carried at amortized cost, are adjusted to record changes in fair value attributable to the risks that are being hedged. The financial statements are presented in Philippine Peso and all values are rounded to the nearest thousand peso (P=000) except when otherwise indicated.
The financial statements of the Parent Company include the accounts maintained in the Regular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The functional currency of the RBU and the FCDU is the Philippine peso and United States dollar (USD), respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBU are translated into their equivalents in Philippine peso, which is the Parent Company’s presentation currency. The financial statements individually prepared for these units are combined after eliminating inter-unit accounts.
The consolidated financial statements provide comparative information in respect of the previous period.
*SGVFS032853* - 3 -
Each entity in the Group determines its own functional currency and the items included in the financial statements of each entity are measured using that functional currency. The functional currency of each of the Parent Company’s subsidiaries is the Philippine Peso.
Statement of Compliance The accompanying financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).
Basis of Consolidation The consolidated financial statements of the Group are prepared for the same reporting period as the subsidiaries, using consistent accounting policies.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
∂ Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); ∂ Exposure, or rights, to variable returns from its involvement with the investee; and ∂ The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
∂ The contractual arrangement with the other vote holders of the investee; ∂ Rights arising from other contractual arrangements; and ∂ The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equity holders of the Parent Company and to the non-controlling interests, even if this results in the non- controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies used in line with those used by the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
∂ derecognizes the assets (including goodwill) and liabilities of the subsidiary; ∂ derecognizes the carrying amount of any non-controlling interests; ∂ derecognizes the cumulative translation differences recorded in equity; ∂ recognizes the fair value of the consideration received; ∂ recognizes the fair value of any investment retained; *SGVFS032853* - 4 -
∂ recognizes any surplus or deficit in profit or loss; and ∂ reclassifies the Parent Company’s share of components’ gains (losses) previously recognized in OCI to profit or loss or surplus, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
Non-controlling Interest Non-controlling interest represents the portion of profit or loss and net assets not owned, directly or indirectly, by the Parent Company.
Non-controlling interests are presented separately in the consolidated statement of income, consolidated statement of comprehensive income, and within equity in the consolidated statement of financial position, separately from equity attributable to the Parent Company. Any losses applicable to the non-controlling interests are allocated against the interests of the non-controlling interest even if this results in the non-controlling interest having a deficit balance. Acquisitions of non-controlling interests that do not result in a loss of control are accounted for as equity transactions, whereby the difference between the consideration and the fair value of the share of the net assets acquired is recognized as an equity transaction and attributed to the owners of the Parent Company.
Changes in Accounting Policies Except for the following standards and amended PFRS which were adopted as of January 1, 2018, the accounting policies and methods of computation adopted in the preparation of the financial statements are consistent with those followed in the previous financial year. These new and revised accounting standards have no impact to the Group, except for PFRS 9 and PFRS 15.
New Standards and Interpretations ∂ PFRS 9 (2014), Financial Instruments ∂ PFRS 15, Revenue from Contracts with Customers ∂ Philippine Interpretation IFRIC 22, Foreign Currency Transaction and Advance Consideration
Amendments to Standards ∂ Amendments to PAS 40, Investment Property, Transfers of Investment Property ∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle) ∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions ∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4
Final version of PFRS 9 Adoption The Group adopted the final version of PFRS 9 effective January 1, 2018. As a result, the Group changed to the following accounting policies beginning 2018. a. Classification and Measurement The Group early adopted the 2009 version of PFRS 9 in December 2010. The version adopted by the Group specified how an entity should classify and measure its financial assets. It requires all financial assets to be classified in their entirety on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are measured either at amortized cost or fair value.
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The final version of PFRS 9 introduced a new FVTOCI classification for debt instruments where the objective of the business model is both to collect contractual cash flows and to realize fair value changes. As a result of the change in the Parent Company’s business models in the fourth quarter of 2017, on January 1, 2018, the Parent Company reclassified certain debt securities previously carried at amortized cost to FVTOCI (see Note 13). This resulted in increase in net unrealized gain reported in other comprehensive income amounting to P=812.6 million. b. Impairment The Group records expected credit losses (ECL) for all loans and other debt financial assets not classified as FVTPL, together with loan commitments and financial guarantee contracts.
ECL represents credit losses that reflect an unbiased and probability-weighted amount which 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. ECL allowances are measured at amounts equal to either (i) 12-month ECL or (ii) lifetime ECL for those financial instruments which have experienced a significant increase in credit risk (SICR) since initial recognition (General Approach). The 12-month ECL is the portion of lifetime ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date. Lifetime ECL are credit losses that results from all possible default events over the expected life of a financial instrument.
Staging assessment A three-stage approach for impairment of financial assets is used, based on whether there has been a significant deterioration in the credit risk of a financial asset. These three stages then determine the amount of impairment to be recognized.
For non-credit-impaired financial instruments: ∂ Stage 1 is comprised of all financial instruments which have not experienced a SICR since initial recognition or is considered of low credit risk as of the reporting date. The criteria for determining whether an account should be assessed under Stage 1 are as follows: (i) current or past due up to 30 days; (ii) unclassified; or (iii) no significant increase in the probability of default (PD). For the wholesale loans, stage 1 criteria (i), (ii), and (iii) are considered; while for the retail loans, stage 1 criteria (i), and (ii) are used. The Group recognizes a 12-month ECL for Stage 1 financial instruments. ∂ Stage 2 is comprised of all financial instruments which have experienced a SICR as of reporting date compared to initial recognition. A SICR is generally deemed present in accounts with: (i) more than 30 days up to 90 days past due; (ii) loan especially mentioned or substandard; or (iii) with significant increase in PD. For the wholesale loans, stage 2 criteria (i), (ii), and (iii) are considered; while for the retail loans, only stage 2 criteria (i) is used. The Group recognizes a lifetime ECL for Stage 2 financial instruments.
For credit-impaired financial instruments: ∂ Stage 3 is comprised of all financial assets that have objective evidence of impairment as a result of one or more loss events that have occurred after initial recognition with a negative impact on the estimated future cash flows of a loan or a portfolio of loans. The Group’s criteria for Stage 3 accounts are generally aligned with the definition of “default” which is explained in the next paragraph. The Group recognizes a lifetime ECL for Stage 3 financial instruments.
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Definition of “default” and “restored” The Group classifies loans, investments, receivables, or any financial asset as in default when it is credit impaired, becomes past due on its contractual payments for more than 90 days, considered non-performing, under litigation or is classified as doubtful or loss. As part of a qualitative assessment of whether a customer is in default, the Group considers a variety of instances that may indicate unlikeliness to pay. When such events occur, the Group carefully considers whether the event should result in treating the customer as defaulted. An instrument is considered to be no longer in default (i.e. restored) if there is sufficient evidence to support that full collection is probable and payments are received for at least six months.
Credit risk at initial recognition The Group uses internal credit assessment and approvals at various levels to determine the credit risk of exposures at initial recognition. Assessment can be quantitative or qualitative and depends on the materiality of the facility or the complexity of the portfolio to be assessed.
For accounts originated before the transition date, an approximation of the initial PD at origination was utilized. Average PD per portfolio was used as approximated initial PD at origination. Average of the Point-in-Time PDs was used since most of the accounts were booked in the same year.
Significant increase in credit risk The assessment of whether there has been a significant increase in credit risk is based on an increase in the probability of a default occurring since initial recognition. The SICR criteria vary by portfolio and include quantitative changes in probabilities of default and qualitative factors, including a backstop based on delinquency. The credit risk of a particular exposure is deemed to have increased significantly since initial recognition if, based on the Group’s internal credit assessment, the borrower or counterparty is determined to require close monitoring or with well- defined credit weaknesses. For exposures without internal credit grades, if contractual payments are more than 30 days past due, the credit risk is deemed to have increased significantly since initial recognition. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. In subsequent reporting periods, if the credit risk of the financial instrument improves such that there is no longer a SICR since initial recognition, the Group shall revert to recognizing a 12-month ECL
ECL parameters and methodologies ECL is a function of the probability of default (PD), loss given default (LGD) and exposure at default (EAD), with the timing of the loss also considered, and is estimated by incorporating forward-looking economic information and through the use of experienced credit judgment.
The PD is an estimate of the likelihood of default over a 12-month horizon for Stage 1 or lifetime horizon for Stages 2 and 3. The PD for each individual instrument is modelled based on historic data and is estimated based on current market conditions and reasonable and supportable information about future economic conditions. The Group segments its credit exposures based on homogenous risk characteristics and developed a corresponding PD methodology for each portfolio. The PD methodology for each relevant portfolio is determined based on the underlying nature or characteristic of the portfolio, behavior of the accounts and materiality of the segment as compared to the total portfolio.
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LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from any collateral. It makes use of defaulted accounts that have either been identified as cured, restructured, or liquidated. The Group segmented its LGD based on homogenous risk characteristics and calculated the corresponding segment-level averages.
EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
Forward-looking information The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and its measurement of ECL. A broad range of forward-looking information are considered as economic inputs, such as GDP growth, exchange rate, interest rate, inflation rate and other economic indicators. The inputs and models used for calculating ECL may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays are occasionally made as temporary adjustments when such differences are significantly material.
The key forward-looking economic variables used in each of the economic scenarios for the ECL calculations are unemployment rate, household expenditure, PSE all shares index, interest rate benchmark for 3 months and 20 years.
The following table reconciles the aggregate opening allowances for credit losses under PAS 39 and provisions for loan commitments and financial guarantee contracts under PAS 37, Provisions, Contingent Liabilities and Contingent Assets to ECL allowances under PFRS 9 on January 1, 2018:
Consolidated Re- ECLs under PAS 39 measurement PFRS 9 Loans and receivables P=3,851,108 P=1,366,910 P=5,218,018 Investment securities at amortized cost – 151,518 151,518 Financial assets at fair value through other comprehensive income – 113,779 113,779 Interbank loans receivable – 44,118 44,118 Due from other banks – 7,342 7,342 Other assets – 178 178 P=3,851,108 1,683,845 5,534,953 Financial guarantees, loans and other commitments – 312,020 312,020 P=3,851,108 P=1,995,865 P=5,846,973
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Parent Company Re- ECLs under PAS 39 measurement PFRS 9 Loans and receivables P=3,757,419 P=1,353,407 P=5,110,826 Investment securities at amortized cost – 151,518 151,518 Financial assets at fair value through other comprehensive income – 113,779 113,779 Interbank loans receivable – 44,118 44,118 Due from other banks – 7,206 7,206 Other assets – 178 178 P=3,757,419 1,670,206 5,427,625 Financial guarantees, loans and other commitments – 312,020 312,020 P=3,757,419 P=1,982,226 P=5,739,645
At January 1, 2018, the Group determined the amount of provision for credit losses under the ECL model. This resulted in increase in the allowance for credit losses, miscellaneous liabilities, other comprehensive income and deferred tax assets amounting to =1.6P billion, =0.3P billion, P=0.1 billion and =0.5P billion, respectively and decrease in surplus amounting to P=1.5 billion. c. Hedge Accounting The Group aligns the accounting for hedge relationships with its risk management activities and permit hedge accounting to be applied more broadly to a greater variety of hedging instruments and risks eligible for hedge accounting.
Beginning 1 January 2018, the hedge documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements: ∂ There is an economic relationship between the hedged item and the hedging instrument. ∂ The effect of credit risk does not dominate the value changes that result from that economic relationship. ∂ The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Under PFRS 9, the Group no longer needs to perform a retrospective quantitative effectiveness assessment using the 80.0% - 125.0% bright lines. A prospective effectiveness assessment is still required at inception and on an ongoing basis.
PFRS 9 also introduces the concept of rebalancing, where adjustments are made to the designated quantities of the hedged item or the hedging instrument of an already existing hedging relationship for the purpose of maintaining a hedge ratio that complies with the hedge effectiveness requirements. On rebalancing, the hedge ineffectiveness of the hedging relationship is determined and recognized immediately before adjusting the hedging relationship.
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An entity shall not de-designate and thereby discontinue a hedging relationship that: ∂ still meets the risk management objective on the basis of which it qualified for hedge accounting (i.e. the entity still pursues that risk management objective); and ∂ continues to meet all other qualifying criteria (after taking into account any rebalancing of the hedging relationship, if applicable).
Discontinuation of hedge accounting shall be applied prospectively from the date on which the qualifying criteria are no longer met.
The adoption of the new hedge accounting policies under PFRS 9 does not have an impact on the Group as there were no hedge relationships designated under hedge accounting as of December 31, 2017. As of December 31, 2018, the Parent Company has outstanding interest rate swaps designated as effective hedging instruments in a fair value hedge.
The Group applied PFRS 9 retrospectively but not on comparative basis which is in compliance with the standards.
The Group has applied its existing governance framework to ensure that appropriate controls and validations are in place over key processes and judgments in implementing PFRS 9. The Group is continuously testing and refining the new accounting processes, internal controls and governance framework necessitated by the adoption of PFRS 9.
PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. The Group adopted PFRS 15 effective January 1, 2018.
The Group operates various reward programs for its credit card business whereby reward entitlement varies according to the type of card and available points earned by the credit cardholder. Prior to adoption of PFRS 15, the loyalty program of the Group resulted in the recognition of ‘Other liabilities’ and ‘Service charges, fees and commissions’ in the statements of income. The new standard requires the Group to allocate a portion of the service fee (interchange fee) to the loyalty points awarded to the credit card holders, as the loyalty points give rise to a separate performance obligation. The allocated service fee for the loyalty points is recognized as revenue upon fulfillment of its obligation, i.e. actual redemption of the loyalty points.
The Group recognizes the incremental cost of obtaining contracts with customers and the costs incurred in fulfilling the contracts with customers that are directly associated with the contract as an asset if those costs are expected to be recoverable. Incremental costs of obtaining contracts are those costs that the Group incurs to obtain a contract with a customer that would not have been incurred if the contract had not been obtained.
The Group has applied the new standard retrospectively without restatement, with the cumulative effect of initial application, if any, recognized as an adjustment to the opening balance of Surplus Free at January 1, 2018. The effect of the new standard was not material to the Group’s consolidated financial statements.
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Restatement In 2018, following the BSP regulations and as prescribed by the BSP, management reassessed the statement of financial position presentation of due from other banks and bills payable. Based on such reassessment, it was concluded that certain inter-unit transactions between RBU and FCDU books amounting to P=62.8 billion, should have been eliminated for statement of financial position presentation. The 2017 statement of financial position presentation and related notes to financial statements have been changed to be consistent with the 2018 presentation. Such change resulted in a decrease in the 2017 total assets and total liabilities by =62.8P billion. A third statement of financial position was not presented as the effects are limited to the mentioned accounts and considered immaterial in relation to the overall financial statements. Furthermore, the change in the statement of financial position presentation did not have any impact on the Group’s basic and diluted earnings per share.
Fair Value Measurement For measurement and disclosure purposes, the Group determines the fair value of an asset or liability at initial measurement or at each statements of financial position date.
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 (i.e., an exit price). 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 the Group.
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 economic best interest.
If the asset or liability measured at fair value has a bid and ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value, regardless of where the input is categorized within the fair value hierarchy.
A 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 Group 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.
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 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable ∂ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable *SGVFS032853* - 11 -
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group 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.
External appraisers are involved for valuation of significant non-financial assets, such as investment properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosures, the Group 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 (see Note 6).
Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Regular way purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market, except for derivatives, are recognized on the settlement date. Settlement date is the date on which the transaction is settled by delivery of the assets that are the subject of the agreement. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the Group, 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 Group. Deposits, amounts due to banks and customers, loans and receivables and spot transactions are recognized when cash is received by the Group or advanced to the borrowers.
Derivatives are recognized on trade date - the date that the Group becomes a party to the contractual provisions of the instrument. Trade date accounting refers to (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) 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.
Initial recognition of financial instruments All financial assets and financial liabilities are recognized initially at fair value plus any directly attributable cost of acquisition or issue, except in the case of financial assets and financial liabilities at FVTPL.
‘Day 1’ difference Where the transaction price is different from the fair value based on other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group immediately recognizes the difference between the transaction price and the fair value of the instrument (a ‘Day 1’ difference) in the statement of income unless it qualifies for recognition as some other type of asset or liability. In cases where data used is not observable, the difference between the transaction price and model value is only recognized in the statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ difference amount.
Classification and Measurement of Financial Assets For purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is a non- derivative and meets the definition of ‘equity’ from the point of view of the issuer (under PAS 32, Financial Instruments: Presentation), except for certain non-derivative puttable instruments presented as equity by the issuer. All other non-derivative financial instruments are ‘debt instruments’. *SGVFS032853* - 12 -
Business model assessment The Group determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective. The Group's business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as:
∂ How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity's key management personnel ∂ The risks that affect the performance of the business model (and the financial assets held within thatbusiness model) and, in particular, the way those risks are managed ∂ The expected frequency, value and timing of sales are also important aspects of the Group’s assessment
The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stresscase’ scenarios into account. If cash flows after initial recognition are realized in a way that is different from the Group's original expectations, the Group does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.
The solely payments of principal and interest (SPPI) test As a second step of its classification process the Group assesses the contractual terms of financial assets to identify whether they meet the SPPI test.
‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortization of the premium/discount).
The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money and credit risk. To make the SPPI assessment, the Group applies judgement and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL.
Financial assets at amortized cost Debt financial assets are measured at amortized cost if both of the following conditions are met:
∂ the asset is held within the Group’s business model whose objective is to hold assets in order to collect contractual cash flows; and ∂ the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Debt financial assets meeting these criteria are measured initially at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment in value, with the interest calculated recognized as ‘Interest income’ in the statement of income. The Group classified ‘Cash and other cash items (COCI)’, ‘Due from BSP’, ‘Due from other
*SGVFS032853* - 13 - banks’, ‘Interbank loans receivable and Securities purchased under resale agreements (SPURA) with the BSP’, ‘Investment securities at amortized cost’, ‘Loans and receivables’, and cash collateral deposits and security deposits (included under ‘Other assets’) as financial assets at amortized cost.
Loans and receivables include receivables arising from transactions on credit cards issued directly by the Parent Company and SBCC which have tie-up arrangements with MasterCard and Diners Club, Inc. (DCI), respectively. In 2016, SBCC sold a substantial portion of its existing DCI portfolio and cardholder base. As of December 31, 2018, no outstanding receivable arising from DCI credit cards is included as ‘Loans and receivables’.
The Group may irrevocably elect at initial recognition to classify a debt financial asset that meets the amortized cost criteria above as at FVTPL if that designation eliminates or significantly reduces an accounting mismatch had the debt financial asset been measured at amortized cost.
As of December 31, 2018 and 2017, the Group has not made such designation.
Financial assets at FVTPL Debt financial assets that do not meet the amortized cost criteria, or that meet the criteria but the Group has chosen to designate as at FVTPL at initial recognition, are measured at fair value through profit or loss.
Equity investments are classified as at FVTPL, unless the Group designates an investment that is not held for trading as at FVTOCI at initial recognition.
A financial asset is held for trading if:
∂ it has been acquired principally for the purpose of selling it in the near term; or ∂ on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or ∂ it is a derivative that is not designated and effective as a hedging instrument or a financial guarantee.
The Group’s financial assets at FVTPL include government securities, private bonds and equity securities held for trading purposes, debt and hybrid instruments that do not meet the amortized cost criteria, and equity investments not designated as at FVTOCI.
As of December 31, 2018 and 2017, the Group has not designated any debt instrument that meets the amortized cost criteria as at FVTPL.
Financial assets at FVTPL are carried at fair value and gains and losses on these instruments are recognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned on these investments is reported in the statement of income under ‘Interest income’ while dividend income is reported in the statement of income under ‘Miscellaneous income’ when the right of payment has been established. Quoted market prices, when available, are used to determine the fair value of these financial instruments. If a financial asset at FVTPL has a bid and ask price, the price within the bid- ask spread that is most representative of fair value in the circumstances shall be used to measure fair value. If quoted market prices are not available, their fair values are estimated based on market observable inputs. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques.
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The fair value of financial assets denominated in a foreign currency is determined in that foreign currency and translated at the Bankers Association of the Philippines (BAP) closing rate at the statements of financial position date. The foreign exchange component forms part of its fair value gain or loss. For financial assets classified as at FVTPL, the foreign exchange component is recognized in the statement of income. For foreign currency-denominated debt instruments classified as at amortized cost, the foreign exchange gains and losses are determined based on the amortized cost of the asset and are recognized in the statement of income.
Equity instruments at FVTOCI At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument basis) to designate equity investments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading.
Equity investments as at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value, with no deduction for sale or disposal costs. Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in ‘Net unrealized gain on financial assets at FVTOCI’ in the statements of financial position. Where the asset is disposed of, the cumulative gain or loss previously recognized in ‘Net unrealized gain on financial assets at FVTOCI’ is not reclassified to profit or loss, but is reclassified to ‘Surplus’. Equity instruments at FVTOCI are not subject to an impairment assessment.
As of December 31, 2018 and 2017, the Group has designated certain equity instruments that are not held for trading as at FVTOCI on initial application of PFRS 9 (see Note 12).
Dividends earned on holding these equity instruments are recognized in the statement of income when the Group’s right to receive the dividends is established in accordance with PFRS 9, unless the dividends clearly represent recovery of a part of the cost of the investment. Dividends earned are recognized under ‘Miscellaneous income’ in the statement of income.
Debt instruments at FVTOCI (Policy applicable from 1 January 2018) The Group applies the new category under PFRS 9 of debt instruments measured at FVTOCI when both ofthe following conditions are met:
∂ The instrument is held within a business model, the objective of which is achieved by both collectingcontractual cash flows and selling financial assets ∂ The contractual terms of the financial asset meet the SPPI test
Debt instruments at FVTOCI are subsequently measured at fair value with gains and losses arising due to changesin fair value recognized in OCI. Interest income and foreign exchange gains and losses are recognized in profit or loss in the same manner as for financial assets measured at amortized cost. On derecognition, cumulative gains or losses previously recognized in OCI are reclassified from OCI to profit or loss.
Derivative instruments The Parent Company uses derivative instruments such as cross-currency swaps, interest rate swaps, foreign currency forward contracts, options on foreign currencies and bonds and interest rate futures. These derivatives are entered into as a service to customers and as a means for reducing or managing the Parent Company’s respective foreign exchange and interest rate exposures, as well as for trading purposes. Such derivative instruments are initially recorded at fair value and carried as financial assets at FVTPL when their fair value is positive and as financial liabilities at FVTPL when their fair value is negative.
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Any gains or losses arising from changes in fair value of derivative instruments (except for foreign currency forwards) are recognized as ‘Trading and securities gain - net’. For foreign currency forwards, changes in fair value are recognized in ‘Foreign exchange gain - net’ in the statement of income.
Interest income is recognized in the statement of income if the “receive leg” is higher than the “pay leg” of interest-earning derivatives. Interest expense is recognized in the statement of income if the “pay leg” is higher than the “receive leg” of interest-bearing derivatives.
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of PFRS 9 (2014) (e.g., financial liabilities and non-financial host contracts) are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
The Group assesses the existence of an embedded derivative on the date it first becomes a party to the contract, and performs re-assessment only where there is a change to the contract that significantly modifies the contractual cash flows.
As of December 31, 2018 and 2017, the Parent Company’s hybrid financial instruments are classified as at FVTPL (see Note 10).
Reclassification of financial assets The Group can reclassify financial assets if the objective of its business model for managing those financial assets changes. The Group is required to reclassify the following financial assets:
∂ from amortized cost to FVTPL if the objective of the business model changes so that the amortized cost criteria are no longer met; and ∂ from FVTPL to amortized cost if the objective of the business model changes so that the amortized cost criteria start to be met and the instrument’s contractual cash flows meet the amortized cost criteria.; and ∂ from FVTOCI to amortized cost if the objective of the business model changes so that the fair value criteria are no longer met but the amortized cost criteria is still met and the instrument’s contractual cash flows meet the amortized cost criteria.
Reclassification of financial assets designated as at FVTPL or equity financial assets at FVTOCI at initial recognition is not permitted.
A change in the objective of the Group's business model must be effected before the reclassification date. The reclassification date is the beginning of the next reporting period following the change in the business model.
Impairment of Financial Assets on or after January 1, 2018 The Group and the Parent Company record the allowance for expected credit losses for all loans and receivables and other debt financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts, all referred to as ‘financial instruments’. Equity instruments are not subject to impairment under PFRS 9.
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime ECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12-month ECL, as outlined in Note 2 Changes in Accounting Policies. The Group’s policies for determining if there has been a significant increase in credit risk are set out in Note 2 Changes in Accounting Policies. *SGVFS032853* - 16 -
Both lifetime ECL and 12-month ECL are calculated on an individual and collective basis.
The Group has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. This is further explained in Note 2 Changes in Accounting Policies.
Debt instruments measured at fair value through OCI The ECLs for debt instruments measured at FVTOCI do not reduce the carrying amount of these financial assets in the statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets are measured at amortized cost is recognized in OCI as an accumulated impairment amount, with a corresponding charge to profit or loss. The accumulated loss recognized in OCI is recycled to the profit and loss upon derecognition of the assets.
Consumer loans and credit card receivables The Group does not limit its exposure to credit losses to the contractual notice period, but, instead calculates ECL over a period that reflects the Group’s expectations of the customer behaviour, its likelihood of default and the Group’s future risk mitigation procedures, which could include reducing or cancelling the facilities. Based on past experience and the Group’s expectations, the period over which the Group calculates ECLs for these products, is up to seven years.
Restructured loans Where possible, the Group 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 as past due. Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur.
Write-offs The Group’s accounting policy for write-offs remains the same as it was under previous version of PFRS 9. The Group has also not written off corporate outstanding loans and receivables that are still subject to enforcement activity as of December 31, 2018.
Impairment of Financial Assets before January 1, 2018 The Group assesses at each statements of financial position date whether there is any 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 as a result of one or more events that had occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. a. Financial assets carried at amortized cost (other than credit card receivables and consumer loans) The Group 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. For individually assessed financial assets, the amount of the loss is measured as the difference between the assets’ carrying amount and the present value of *SGVFS032853* - 17 -
estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (EIR). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flow that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in ‘Provision for credit losses’ in the statement of income. Interest income continues to be recognized based on the original EIR of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write off is later recovered, the recovery is credited to ‘Recovery on charged-off assets’ in the statement of income.
If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. 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 of impairment.
For the purpose of a collective assessment of impairment, financial assets are grouped on the basis of the industry of the borrower. Future cash flows on a group of financial assets that are collectively assessed for impairment are estimated on the basis of historical loss experience for the 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 on 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 year to year. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. b. Consumer loans and credit card receivables The Group’s consumer loans and receivables from credit cardholders are assessed for impairment collectively because these receivables are not individually significant. The allowance for credit losses is determined based on the results of the net flow to write-off methodology. Net flow tables are derived from account-level monitoring of monthly peso movements between different age buckets, from 1 day past due to 180 days past due. The net flow to write-off methodology relies on the historical data of net flow tables to establish a percentage (‘net flow rate’) of receivables that are current or in any state of delinquency (i.e., 30, 60, 90, 120, 150 and 180 days past due) as of reporting date that will eventually result in write-off. The gross provision is then computed based on the outstanding balances of these receivables from credit cardholders and consumer loans as of the statements of financial position date and the net flow rates determined for the current and each delinquency bucket. The carrying amounts of receivables from consumer loans and credit cardholders are reduced for impairment through the use of an allowance account. c. Restructured loans Where possible, the Group 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 as past due. *SGVFS032853* - 18 -
Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur. The loan continues to be subject to an individual impairment calculated using the original EIR or collective impairment.
Financial Liabilities Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.
Financial liabilities held for trading include:
∂ derivative liabilities that are not accounted for as hedging instruments; ∂ obligations to deliver financial assets borrowed by a short seller (i.e., an entity that sells financial assets it has borrowed and does not yet own); ∂ financial liabilities that are incurred with an intention to repurchase them in the near term (e.g., a quoted debt instrument that the issuer may buy back in the near term depending on changes in its fair value ); and ∂ financial liabilities that are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent pattern of short-term profit-taking.
Management may designate a financial liability as at FVTPL upon initial recognition when the following criteria are met, and designation is determined on an instrument-by-instrument basis:
∂ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing gains or losses on them on a different basis; or ∂ The liabilities are part of a group of financial liabilities 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.
Financial liabilities at FVTPL are recorded in the statements of financial position at fair value. Changes in fair value of financial instruments are recorded in ‘Trading and securities gain - net’ in the statement of income. Interests incurred are recorded in ‘Interest expense’ in the statement of income.
Bills payable and other borrowed funds Bills payable and other borrowed funds are issued financial instruments or their components, which are not financial liabilities at FVTPL. They are classified as such when the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.
After initial measurement, bills payable and similar financial liabilities not qualified as and not recognized as financial liabilities at FVTPL, are subsequently measured at 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.
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Derecognition of Financial Assets and Liabilities
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; or ∂ the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or ∂ the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset, but has transferred control over the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the Group’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 Group could be required to repay.
Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Financial Guarantees (Policy applicable from 1 January 2018) In the ordinary course of business, the Parent Company provides financial guarantees. 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 in accordance with PFRS 15. The financial guarantee is subsequently carried at the higher of the amount of loss allowance determined in accordance with the expected credit loss model and the amount initially recognized, less when appropriate, the cumulative amount of income recognized in accordance with PFRS 15.
Financial Guarantees (Policy applicable before 1 January 2018) 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 guarantee liability is subsequently carried at the higher of the amortized amount and the present value of any expected payment (when a payment under the guaranty has become probable).
Hedge Accounting beginning January 1, 2018 Part of the Parent Company’s risk management strategies is to always manage the interest rate risk of its HTC portfolio. Consistent with its Market and Liquidity Risk Management framework, the Parent Company recognizes interest rate risk as a material risk which it should manage. The Parent Company identifies that interest rate risk, especially in the banking book, is the risk that its earnings will decline, immediately or over time, due to adverse movements in interest rates. It is cognizant that interest rate risk arises through some specific products with fixed rates or, more generally because the overall structure of the firm’s balance sheet creates an interest rate risk exposure. Thus, the Parent
*SGVFS032853* - 20 -
Company deploys risk control and mitigation approaches, such as risk limits and proactive, ongoing asset liability management, including the use of financial products, e.g. swaps, futures and/ or other approved instruments.
The Parent Company makes use of derivative instruments to manage exposures to interest rate risks, and applies hedge accounting for transactions which meet specified criteria. The risk being hedged pertains to changes in the fair value of certain layers of the hedged items arising from adverse movements in interest rates during the identified hedge period. The Parent Company hedges an item in its entirety. Only prospective assessment shall be made on a cumulative basis and when circumstances affecting hedge effectiveness requirements change significantly.
Possible sources of ineffectiveness are the following: ∂ Difference in measuring floating interest rates which are quarterly versus semi-annual for the hedging instruments and the hedged items, respectively ∂ Origination date of the hedged item and the hedging instrument
An economic relationship exists when the hedging instrument and the hedged item have values that generally move in opposite directions in response to movements in the same risk (hedged risk). Given that the terms of the hedging instrument is closely aligned with the terms of the hedged item, the economic relationship is easily observable, and the offsetting nature readily apparent. The main objective for hedging is to address risk of changes in the fair value attributable to interest rates. It is expected that changes in credit risk will not dominate the value changes from the economic relationship as the interest rate swap shall be governed by the International Swaps and Derivatives Association (ISDA) Master Agreement of the Parent Company with the counterparty. Particularly, the Credit Support Annex (CSA) of the said agreement contains the provisions that minimize and/ or mitigate the impact of credit risk (e.g. counterparty default risk on both sides).
The hedge ratio, i.e. the quantity or volume of the hedging instrument per quantity or volume of the hedged item is 1:1. Specifically, ∂ The defined notional amount of the hedged item or bond is also the notional amount on the hedging instrument or interest rate swap. ∂ The interest rate used to determine the fixed coupon cash flows for the bond is also the rate on the fixed leg of the interest rate swap.
These result in 100% matching of the fixed interest rate exposure for the bond/ hedged item, which is susceptible to fair value changes due to interest rate movements.
Fair value hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized under ‘Trading and securities gain - net’ in the statement of income. Meanwhile, the change in the fair value of the hedged item attributable to the hedged risk is recorded as part of the carrying value of the hedged item and is also recognized in ‘Trading and securities gain - net’ in the statements of income.
As of December 31, 2018, the Parent Company has outstanding interest rate swaps designated as effective hedging instruments in a fair value hedge.
Hedge Accounting before January 1, 2018 The Parent Company makes use of derivative instruments to manage exposures to interest rate risks, and applies hedge accounting for transactions which meet specified criteria.
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At inception of the hedge relationship, the Parent Company formally designates and documents the relationship between the hedged item and the hedging instrument, including the nature of the risk being hedged, the objective and strategy for undertaking the hedge, and the method that will be used to assess the effectiveness of the hedging relationship. Also, a formal assessment is undertaken to ensure that the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed each quarter. A hedge is expected to be highly effective if the cumulative change in the fair value of the hedging instrument during the period is expected to offset the cumulative change in the fair value attributable to the hedged risk of the hedged item by 80.0% to 125.0%.
Fair value hedges For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized under ‘Trading and securities gain - net’ in the statement of income. Meanwhile, the change in the fair value of the hedged item attributable to the hedged risk is recorded as part of the carrying value of the hedged item and is also recognized in ‘Trading and securities gain - net’ in the statement of income.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the hedged item using the effective interest method. If the hedged item is derecognized, the unamortized fair value adjustment is recognized immediately in the statement of income.
As of December 31, 2017, the Parent Company has no outstanding interest rate swaps designated as effective hedging instruments in a fair value hedge.
Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount is 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 either 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, therefore, the related assets and liabilities are presented gross in the statements of financial position.
Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents consist of ‘COCI’, ‘Due from BSP’ and ‘Due from other banks’ that are convertible to known amounts of cash, with original maturities of three months or less from dates of placements and that are subject to insignificant risk of changes in value. ‘Due from BSP’ includes the statutory reserves required by the BSP which the Parent Company considers as cash equivalents wherein drawings can be made to meet cash requirements.
Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase 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 ‘Securities sold under repurchase agreements (SSURA)’, 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 SPURA, and is considered a loan to the counterparty. The difference between the purchase price and resale price is treated as interest income and is accrued over the life of the agreement using the effective interest method. *SGVFS032853* - 22 -
Foreign Currency Translation Transactions and balances For financial reporting purposes, the foreign currency-denominated assets and liabilities in the RBU are translated into their equivalents in Philippine pesos based on the BAP closing rate prevailing at the statements of financial position date and foreign currency-denominated income and expenses, at the prevailing exchange rate at the date of transaction. Foreign exchange differences arising from revaluation and translation of foreign-currency denominated assets and liabilities are credited to or charged against operations in the year in which the rates change.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
FCDU As at the reporting date, the assets and liabilities of the FCDU of the Parent Company are translated into the Parent Company’s presentation currency (the Philippine Peso) at BAP closing rate prevailing at the statements of financial position date, and its income and expenses are translated at BAP weighted average rate (BAPWAR) for the year. Exchange differences arising on translation to the presentation currency are taken to the statement of comprehensive income under ‘Cumulative translation adjustment’. Upon disposal of the FCDU or upon actual remittance of FCDU profits to RBU, the deferred cumulative amount recognized in the statement of comprehensive income is recognized in the statement of income.
Investments in Subsidiaries and a Joint Venture Investment in subsidiaries Subsidiaries pertain to all entities over which the Group has control.
Interest in a joint venture A joint venture is a type of joint arrangement where the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The Group’s investment in a joint venture represents its 60.0% interest in SBM Leasing, Inc. (SBML).
The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries.
The Group and the Parent Company’s investment in its subsidiaries and joint venture are accounted for using the equity method. Under the equity method, the investment in a subsidiary and/or joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group and the Parent Company’s share of net assets of the subsidiary and/or joint venture since the acquisition date. Goodwill relating to the subsidiary and/or joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The statement of income reflects the Group and the Parent Company’s share of the results of operations of the subsidiary and/or joint venture. Any change in OCI of the investee is presented as part of the Group and the Parent Company’s OCI. In addition, when there has been a change recognized directly in the equity of the subsidiary and/or joint venture, the Group and the Parent Company recognizes its share of any changes, when applicable, in the statements of changes in
*SGVFS032853* - 23 - equity. Unrealized gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture.
The aggregate of the Group’s share of profit or loss of a subsidiary and joint venture is shown on the face of the statement of income under ‘Share in net income of subsidiaries and a joint venture’ and represents profit or loss after tax and non-controlling interests in the subsidiaries and the joint venture.
The financial statements of the subsidiaries and joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group and the Parent Company determine whether it is necessary to recognize an impairment loss on its investment in subsidiaries and joint venture. At each statements of financial position date, the Group and the Parent Company determines whether there is objective evidence that the investment in subsidiaries and joint venture is impaired. If there is such evidence, the Group and the Parent Company calculate the amount of impairment as the difference between the recoverable amount of the subsidiaries and joint venture and their carrying value, then recognizes the loss in the statement of income.
Upon loss of joint control over the subsidiary and/or joint venture, the Group and the Parent Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control and the fair value of the retained investment and proceeds from disposal is recognized in the statement of income.
Transfer of business from subsidiary to the Parent The Parent Company accounts for the transfer as if it has effectively received a distribution that it accounts for at the fair value of the business received. Any excess in the fair value of the net assets received over the consideration is recognized in the statement of income. This reflects the assets acquired and liabilities assumed at their fair value, including goodwill, which will be measured as at the date of the transfer. These transfers have no effect on the consolidated financial statements.
Property and Equipment Land is stated at cost less any impairment in value. Depreciable properties including building and improvements, furniture, fixtures and equipment, transportation equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization, and any impairment in value.
The initial cost of property and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance are charged against operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of 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. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts, and any resulting gain or loss is reflected as income or loss in the statement of income.
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Depreciation is computed using the straight-line method based on the estimated useful life (EUL) of the depreciable assets. The range of EUL of property and equipment follows:
Years Building 20 Furniture, fixtures and equipment 3-5 Transportation equipment 5 Leasehold improvements 5-15
Leasehold improvements are amortized over the applicable EUL of the improvements or the terms of the related leases, whichever is shorter.
The EUL and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amounts (see accounting policy on Impairment of Non-financial Assets).
Investment Properties Investment properties are measured initially at cost including transaction costs. An investment property acquired through an exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured in which case the investment property acquired is measured at the carrying amount of asset given up. Any gain or loss on exchange is recognized in the statement of income. Foreclosed properties are classified under ‘Investment properties’ upon:
∂ entry of judgment in case of judicial foreclosure; ∂ execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or ∂ notarization of the Deed of Dacion in case of payment in kind (dacion en pago).
Real properties acquired Depreciable real properties acquired are carried at cost, which is the fair value at acquisition date, less accumulated depreciation and any impairment in value. Land is carried at cost less any impairment in value. Transaction costs, which include non-refundable capital gains tax and documentary stamp tax, incurred in connection with foreclosure are capitalized as part of the cost of the real properties acquired.
The Group applies the cost model in accounting for investment properties. Depreciation is computed on a straight-line basis over the EUL of 10 years. The EUL 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 real properties acquired.
The carrying values of the real 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 value exceeds 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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Investments in real estate Investments in real estate consist of investments in land and building. Investments in land are carried at cost less impairment in value. Building is carried at cost less accumulated depreciation and impairment in value. All costs that are directly attributable to the acquisition and development of property are capitalized, including borrowing costs incurred to finance the property development. Depreciation is computed on a straight-line basis over 10-15 years.
Investment properties are derecognized when they have either been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on retirement or disposal of investment properties are recognized in the statement of income in the year of retirement or disposal as ‘Profit from assets sold/exchanged’.
Other Properties Acquired Other properties acquired include chattel mortgage properties acquired in settlement of loan receivables. The Group applies the cost model in accounting for other properties acquired. 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 EUL of 3 years. The EUL 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).
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 included in the statement of income as ‘Profit from assets sold/exchanged’ in the year the asset is derecognized.
Intangible Assets Intangible assets consist of software costs, exchange trading right and branch licenses. An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group.
Software costs Costs related to software purchased by the Group for use in operations are amortized on a straight- line basis over 3 to 5 years. The amortization period and the amortization method for software cost are reviewed periodically to be consistent with the changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset. The amortization expense on software costs is recognized in the statement of income.
Exchange trading right The exchange trading right of SBEI is an intangible asset regarded as having an indefinite useful life as there is no foreseeable limit to the period over which this asset is expected to generate cash inflows. It is carried at the amount allocated from the original cost of the exchange membership seat
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(after a corresponding allocation was made to the value of the Philippine Stock Exchange shares) less impairment in value. SBEI does not intend to sell the exchange trading right in the near future.
Branch licenses Branch licenses have been acquired and granted by the BSP, and capitalized on the basis of the cost incurred to acquire and bring to use in operation. Branch licenses are determined to have indefinite useful lives and are tested for impairment annually.
The carrying values of intangible assets with definite useful lives 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).
Business Combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in ‘Miscellaneous expense’ in the statement of income.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and is within the scope of PFRS 9 is measured at fair value with changes in fair value either in profit or loss or as a change to OCI. If the contingent consideration is not within the scope of PFRS 9, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill Goodwill is initially measured at cost, being the excess of the aggregate of fair value of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the Group assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of assets acquired over the aggregate consideration transferred, then the gain is recognized in statement of income.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of *SGVFS032853* - 27 - the Group’s CGUs or a group of CGUs, which are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment in accordance with PFRS 8.
Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstance is measured based on the relative values of the disposed operation and the portion of the CGU retained.
When an entity reorganizes its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has been allocated, the goodwill shall be reallocated to the units affected. This reallocation shall be performed using a relative value approach similar to that used when an entity disposes of an operation within a cash-generating unit, unless the entity can demonstrate that some other method better reflects the goodwill associated with the reorganized units.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill is recognized in the statement of income.
Impairment of Non-financial Assets Non-financial assets include property and equipment, investment properties, investment in subsidiaries and a joint venture, software costs, goodwill, exchange trading right, branch licenses and other properties acquired.
Property and equipment, investments in subsidiaries and a joint venture, investment properties, and other properties acquired The Group assesses at each statements of financial position date whether there is any indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less cost to sell and its value in use (VIU). Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing VIU, 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. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair value indicators. Any impairment loss is charged to operations in the year in which it arises.
An assessment is made at each statements of financial position 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 Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income. 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 life.
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Intangible assets - branch licenses, exchange trading right and software costs Intangible assets with indefinite useful lives are tested for impairment annually at each statement of financial position date either individually or at the cash generating unit level, as appropriate or when circumstances indicate that the intangible asset may be impaired. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Goodwill Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has been allocated, an impairment loss is recognized immediately in the statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods.
Income Taxes Current income tax Current income tax assets and liabilities for the current periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the statements of financial position date.
Deferred tax Deferred tax is provided on all temporary differences at the statements of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
∂ Where the deferred tax liability arises from the initial recognition of goodwill or 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; and ∂ In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that future taxable income will be available against which the deductible temporary differences and carryforward of unused MCIT and unused NOLCO can be utilized except:
∂ Where the deferred tax asset relating to the deductible temporary difference 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; and ∂ In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized. *SGVFS032853* - 29 -
The carrying amount of deferred tax assets is reviewed at each statements of financial position date and reduced to the extent that it is no longer probable that sufficient future taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each statements of financial position date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statements of financial position date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as principal in all of its revenue arrangements.
PFRS 15 supersedes PAS 11, Construction Contracts, PAS 18, Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. PFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. The five- step model is as follows: a. Identify the contract(s) with a customer b. Identify the performance obligations in the contract c. Determine the transaction price d. Allocate the transaction price to the performance obligation in the contract e. Recognize revenue when (or as) the entity satisfies a performance obligation
Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The standard requires the Group to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract.
Except for the recognition of revenues from the Parent Company’s credit card business, the specific recognition criteria that must be met before revenue is recognized across the Group’s revenue streams did not materially change from PAS 18.
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The following specific recognition criteria must also be met before revenue is recognized:
Revenues within the scope of PFRS 15:
Service charges and penalties Service charges and penalties are recognized only upon collection or accrued when there is reasonable degree of certainty as to its collectibility.
Fees and commissions a. Fee income earned from services that are provided over time Fees earned for the provision of services over a period of time are accrued over that period. Loan commitment fees are recognized as earned over the term of the credit lines granted to each borrower. However, loan commitment fees for loans that are likely to be drawn are deferred (together with any incremental costs) and recognized as an adjustment to the EIR on the loan.
Fees received in connection with the issuance of credit cards are deferred and amortized on a straight-line basis over the period the cardholder is entitled to use the card. b. Bancassurance fees Non-refundable access fees are recognized on a straight-line basis over the term of the period of the provision of the access.
Refundable access fees and milestone fees are recognized in reference to the stage of achievement of the milestones. c. Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as underwriting fees, corporate finance fees, and brokerage fees for the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognized on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognized after fulfilling the corresponding criteria. Loan syndication fees are recognized in the statement of income when the syndication has been completed and the Group retains no part of the loans for itself or retains part at the same EIR as for the other participants.
Discounts earned and awards revenue on credit cards Discounts received are taken up as income upon receipt from member establishments of charges arising from credit availments by the Group’s cardholders and other credit card companies’ cardholders when the Group is acting as an acquirer. These discounts are computed based on certain agreed rates and are deducted from the amounts remitted to the member establishments.
Award credits under customer loyalty programmes are accounted for as a separately identifiable component of the transaction in which they are granted. The fair value of the consideration received in respect of the initial sale is allocated based on the estimated stand-alone selling prices. The amount allocated to the loyalty programmes is deferred and recognized as revenue when the award credits are redeemed. Income generated from customer loyalty programmes is recognized in ‘Service charges, fees and commissions’ in the statements of income.
Other income Income from the sale of services is recognized upon completion of service. Income from sale of properties is recognized upon completion of earnings process and the collectibility of the sales price is reasonably assured under ‘Profit from assets sold/exchanged’ in the statement of income.
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Revenues outside the scope of PFRS 15:
Interest income Interest on interest-bearing financial assets at FVTPL and Held-for-Trading (HFT) investments are recognized based on the contractual rate. Interest on financial instruments measured at amortized cost and fair value through other comprehensive income are recognized based on the effective interest method of accounting.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or interest expense over the relevant period.
The EIR is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the EIR, the Group estimates cash flows from the financial instrument (e.g., prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the EIR, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized thereafter using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Trading and securities gain - net Results arising from trading activities include all gains and losses from changes in fair value of financial assets and financial liabilities at FVTPL, gains and losses from disposal of investment securities at amortized cost and any ineffectiveness recognized on accounting hedges. Costs of investment securities sold are determined using the weighted average cost method.
Dividend income Dividend income is recognized when the Group’s right to receive the payment is established.
Rental income Rental income arising on leased premises is accounted for on a straight-line basis over the lease terms on ongoing leases.
Expense Recognition Expenses are recognized when decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. Expenses are recognized when incurred.
Operating expenses Operating expenses constitute costs which arise in the normal business operation and are recognized when incurred.
Taxes and licenses This includes all other taxes, local and national, including gross receipts taxes (GRT), documentary stamp taxes, real estate taxes, licenses and permit fees and are recognized when incurred.
Pension Cost The Parent Company and certain subsidiaries have a non-contributory defined benefit plan that defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The Group’s retirement cost *SGVFS032853* - 32 - is determined using the projected unit credit method. The retirement cost is generally funded through payments to a trustee-administered fund, determined by periodic actuarial calculations.
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
Defined benefit costs comprise the following:
∂ Service cost ∂ Net interest on the net defined benefit liability or asset ∂ Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non- routine settlements are recognized as expense in the statement of income. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as interest income or expense in the statement of income.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise and are closed to surplus at the end of the year. Remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations).
Discontinued operations A disposal group qualifies as discontinued operations if it is a component of an entity that has either been disposed of, or is classified as held for sale and:
∂ represents a major line of business or geographical area of operations; ∂ is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or ∂ is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of the continuing operations in the statement of income, statement of comprehensive income and statements of cash flows.
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All other notes to the financial statements include amounts for continuing operations, unless otherwise mentioned.
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).
Group as 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 statement of income on a straight-line basis over the lease term. Contingent rents are recognized as an expense in the period in which they are incurred.
Group as lessor Finance leases where the Group transfers substantially all the risks and benefits incidental to the ownership of the leased item to the lessee are included in the statements of financial position under ‘Loans and receivables’. A lease receivable is recognized at an amount equivalent to the net investment (asset cost) in the lease. All income resulting from the receivable is included in ‘Interest income’ in the statement of income.
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Provisions and Contingencies Provisions are recognized when the Group 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 Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as ‘Interest expense’ in the statement of income.
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Contingent liabilities are not recognized but are disclosed in the financial statements unless the possibility of an outflow of assets embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the financial statements when an inflow of economic benefits is probable.
Debt Issue Costs Issuance, underwriting and other related costs incurred in connection with the issuance of debt instruments are deferred and amortized over the terms of the instruments using the effective interest method. Unamortized debt issuance costs are included in the carrying amount of the debt instrument in the statements of financial position.
Earnings Per Share Basic earnings per share (EPS) is computed by dividing the net income for the year attributable to equity holders of the Parent Company after deducting dividends declared to preferred shareholders by the weighted average number of common shares outstanding during the year after giving retroactive effect to stock dividends declared and stock rights exercised during the year, if any.
Diluted EPS is calculated by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the year adjusted for the effects of any dilutive potential common shares.
Equity ‘Capital stock’ is measured at par value for all shares issued and outstanding. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to ‘Additional paid-in capital’. Direct costs incurred related to equity issuance, such as underwriting, accounting and legal fees, printing costs and taxes are chargeable to ‘Additional paid-in capital’. If the additional paid-in capital is not sufficient, the excess is charged against ‘Surplus’.
When the Group issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued.
‘Surplus’ represents accumulated earnings of the Group less dividends declared.
Dividends on Common Shares and Preferred Shares Cash dividends on common shares and preferred shares are recognized as a liability and deducted from equity when approved by the BOD of the Parent Company, while stock dividends are deducted from equity when approved by the BOD and shareholders of the Parent Company.
Segment Reporting The Group’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. If the Group changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the corresponding information for earlier periods, including interim periods, shall be restated unless the information is not available and the cost to develop it would be excessive. Financial information on business segments is presented in Note 36.
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 Parent Company acts in a fiduciary capacity such as nominee, trustee or agent.
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Events after the Reporting Period Any post-year-end event that provides additional information about the Group’s position at the statements of financial position date (adjusting event) is reflected in the financial statements. Any post-year-end events that are not adjusting events are disclosed when material to the financial statements.
Standards Issued but Not Yet Effective Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. The listing consists of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt these standards when they become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PAS, PFRS and Philippine Interpretations to have significant impact on the consolidated financial statements.
Effective beginning on or after 1 January 2019 PFRS 16, Leases Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements. The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs.
The Group is currently assessing the impact of adopting PFRS 16. The Group expects that total assets and total liabilities will increase while total equity will decrease on adoption date.
Amendments to PAS 19, Plan Amendment, Curtailment or Settlement The amendments to PAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:
∂ Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. ∂ Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset).
The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss.
An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income. *SGVFS032853* - 36 -
The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after January 1, 2019, with early application permitted. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Group.
Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in PFRS 9 applies to such long-term interests.
The amendments also clarified that, in applying PFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying PAS 28, Investments in Associates and Joint Ventures.
The amendments should be applied retrospectively and are effective from January 1, 2019, with early application permitted.
Amendments to PFRS 9, Prepayment Features with Negative Compensation The amendments to PFRS 9 allow debt instruments with negative compensation prepayment features to be measured at amortized cost or fair value through other comprehensive income. An entity shall apply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlier application is permitted.
Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments Philippine Interpretation IFRIC 23 addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.
The interpretation specifically addresses the following: ∂ Whether an entity considers uncertain tax treatments separately ∂ The assumptions an entity makes about the examination of tax treatments by taxation authorities ∂ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates ∂ How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed.
The Group is currently assessing the impact of adopting this interpretation.
Annual Improvements 2015-2017 Cycle (issued in December 2017) These improvements include: Amendments to PFRS 3 and PFRS 11 - Previously held interest in a joint operation The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.
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A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.
Amendments to PAS 12, Income tax consequences of payments on financial instruments classified as equity The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period.
Amendments to PAS 23, Borrowing costs eligible for capitalization The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted.
Effective beginning on or after 1 January 2020 Amendments to PFRS 3, Definition of a Business The amendments to PFRS 3 were issued to help entities determine whether an acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements to be a business, remove the assessment of a market participant’s ability to replace missing elements, and narrow the definition of outputs. The amendments add guidance to assess whether an acquired process is substantive and add illustrative examples. The amendments introduce an optional concentration test to permit a simplified assessment. The amendments are effective for annual reporting periods beginning on or after January 1, 2020 and apply prospectively. Earlier application is permitted.
Amendments to PAS 1 and PAS 8, Definition of Material The amendedments were issued to clarify and align the definition of material. The amendments are intended to improve the understanding of the existing requirements rather than to significantly impact an entity’s materiality judgements. The amendments must be applied prospectively for annual periods beginning on or after January 1, 2020, with earlier application permitted.
Effective beginning on or after 1 January 2021 PFRS 17, Insurance Contracts PFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4 Insurance Contracts (PFRS 4) that was issued in 2005. PFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of PFRS 17 is to provide an *SGVFS032853* - 38 -
accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are largely based on grandfathering previous local accounting policies, PFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of PFRS 17 is the general model, supplemented by:
∂ A specific adaptation for contracts with direct participation features (the variable fee approach) ∂ A simplified approach (the premium allocation approach) mainly for short-duration contracts
PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparative figures required. Early application is permitted, provided the entity also applies PFRS 9 and PFRS 15 on or before the date it first applies IFRS 17.
Deferred effectivity Amendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. On January 13, 2016, the FRSC postponed the original effective date of January 1, 2016 of the said amendments until the IASB has completed its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.
3. Significant Accounting Judgments and Estimates
The preparation of the financial statements in compliance with PFRS requires the Group to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosures of contingent assets and contingent liabilities. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the financial statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Judgments a. Leases Operating lease Group as lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined based on the evaluation of the terms and conditions of the arrangements (i.e., the lease does not transfer the ownership of the asset to the lessee by the end of the lease term, the lessee has no option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option is exercisable and the lease term is not for the major part of the asset’s economic life), that it retains all the significant risks and rewards *SGVFS032853* - 39 -
of ownership of these properties which are leased and so accounts for the contracts as operating leases.
Group as lessee The Group has entered into leases on premises it uses for its operations. The Group has determined, based on the evaluation of the terms and conditions of the lease agreements (i.e. the lease does not transfer ownership of the asset to the lessee by the end of the lease term and the lease term is not for the major part of the asset’s economic life), that the lessor retains all significant risks and rewards of the ownership of these properties and so accounts for these contracts as operating leases.
Finance lease Group as lessor The Group has determined based on an evaluation of terms and conditions of the lease arrangements (i.e., present value of minimum lease payments amounts to at least substantially all of the fair value of leased asset, lease term is for the major part of the economic useful life of the asset, and lessor’s losses associated with the cancellation are borne by the lessee) that it has transferred all significant risks and rewards of ownership of the properties it leases out on finance leases. b. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recognized or disclosed in the statements of financial position cannot be derived from active markets, these are determined using internal valuation techniques using generally accepted market valuation 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 judgments may include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives. c. Business model test The Group manages its financial assets based on business models that maintain adequate level of financial assets to match expected cash outflows and maintain adequate level of high quality liquid assets while maintaining a strategic portfolio of financial assets for trading activities.
The Group’s business model can be to hold financial assets to collect contractual cash flows even when sales of certain financial assets occur. PFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a portfolio of financial assets carried at amortized cost and those sales are more than insignificant in value (either individually or in aggregate), the entity should assess whether and how such sales are consistent with the objective of collecting contractual cash flows.
In making this judgment, the Group considers the circumstances surrounding the disposal as well as the requirements of BSP Circular No. 1011, Guidelines on the adoption of PFRS 9. d. Cash flow characteristics test In determining the classification of financial assets under PFRS 9, the Group assesses whether the contractual terms of these financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding, with interest representing time value of money and credit risk associated with the principal amount outstanding. The assessment as to whether the cash flows meet the test is made in the currency in which the financial asset is denominated. Any other contractual term that changes the timing or amount of cash flows *SGVFS032853* - 40 -
(unless it is a variable interest rate that represents time value of money and credit risk) does not meet the amortized cost criteria. e. Contingencies The Group is currently involved in various legal proceedings, claims and assessments. The estimate of the probable costs for the resolution of these claims and assessments has been developed in consultation with outside counsel handling the Group’s defense in these matters and is based on an analysis of potential results. The Group currently does not believe that these proceedings will have a material adverse effect on the financial statements. 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 35). f. Functional currency PAS 21, The Effects of Changes in Foreign Exchange Rates, 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 Group considers the following:
∂ the currency that mainly influences sales prices for financial instruments and services (this will often be the currency in which sales prices for its financial instruments and services are denominated and settled); ∂ the currency in which funds from financing activities are generated; and ∂ the currency in which receipts from operating activities are usually retained. g. Consolidation and joint arrangements The Group has determined that it controls and consolidates the subsidiaries in which it owns majority of the shares.
The Group has a Joint Venture Agreement (JVA) with Marubeni Corporation (Marubeni) where it owns 60.0% of SBML. Under the JVA, the parties agreed to use SBML as a joint venture entity and requires the unanimous consent of both the Parent Company and Marubeni for any significant decisions made in the ordinary course of business of SBML. The Group has (after considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and the Group's rights and obligations arising from the arrangement) classified its interest in SBML under PFRS 11. Based on the foregoing, it continues to accounts for its investment in SBML using the equity method. h. Discontinued operations The Group has determined that the sale of SBCC's credit card portfolio in 2016 will not be reported as discontinued operations in the Group financial statements since the portfolio sold does not represent a separate major line of business.
Estimates a. Fair value of financial instruments The fair values of financial instruments that are not quoted in active markets are determined using valuation techniques such as discounted cash flow analysis and standard option pricing models for some derivative instruments. Where valuation techniques are used to determine fair values, they are reviewed by qualified personnel independent of the area that created them. All financial models are reviewed before they are used and to the extent practicable, financial models use only observable data, however, areas such as credit risk (both own and counterparty) volatilities and correlations require management to make estimates. Changes in assumptions about these factors
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could affect reported fair value of financial instruments. Refer to Note 6 for the fair value measurements of financial instruments. b. Impairment of financial assets Effective on or after January 1, 2018 The measurement of impairment losses under PFRS 9 across all categories of financial assets requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.
The Group’s ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are considered accounting judgements and estimates include: ∂ Internal credit grading model, which assigns PDs to the individual grades ∂ Criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets should be measured on a life time CL basis and the qualitative assessment ∂ The segmentation of financial assets when their ECL is assessed on a collective basis ∂ Development of ECL models, including the various formulas and the choice of inputs ∂ Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels and collateral values, and the effect on PDs, EADs and LGDs ∂ Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models
The ECL models and all ECL-related policies are approved by the Risk Oversight Committee and the Board of Directors. The Credit Risk Management Unit calculates the ECL for all credit risk exposures. The total ECL that will be booked by the Financial Controllership Division is approved by both the Chief Financial Officer and the Chief Risk Officer.
Effective before January 1, 2018 Loans and receivables The Group reviews its individually significant loans and receivables at each statement of financial position date to assess whether an impairment loss should be recorded in the statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgments about the counterparty’s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors including the financial condition of the counterparty, estimated future cash flows, probability of collections, observable market condition, prices and net realizable value of the collateral. The actual results may differ, resulting in future changes to the recognized impairment loss.
Loans and receivables that have been assessed individually and found not to be impaired and all individually insignificant loans and receivables are then assessed collectively, in groups of assets with similar characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio, concentrations of risks and economic data.
The carrying values of loans and receivables and the related allowance for credit losses of the Group and the Parent Company, as applicable, are disclosed in Note 14.
*SGVFS032853* - 42 - c. Recognition of deferred tax assets The Group reviews the carrying amounts of deferred tax assets at each statements of financial position date and reduces it to the extent that it is no longer probable that sufficient future taxable income will be available to allow all or part of the deferred tax assets to be utilized. Significant judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable income together with future tax planning strategies. The recognized net deferred tax assets and unrecognized deferred tax assets of the Group and the Parent Company are disclosed in Note 29. d. Impairment of non-financial assets Investments in subsidiaries and a joint venture and other non-financial assets The Parent Company and SBCIC assess impairment on its investments in subsidiaries and a joint venture whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Among others, the factors that the Parent Company and SBCIC consider important which could trigger an impairment review on its investments include the following:
∂ Deteriorating or poor financial condition; ∂ Recurring net losses; and ∂ Significant changes with an adverse effect on the subsidiary or associate have taken place during the period, or will take place in the near future, the technological, market, economic, or legal environment in which the subsidiary operates.
The Group assesses impairment on other non-financial assets (i.e., ‘Property and equipment’, ‘Investment properties’, ‘Software costs’, and ‘Other properties acquired’) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group 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 nonfinancial assets or the strategy for overall business; and ∂ significant negative industry or economic trends.
The Group recognizes an impairment loss whenever the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is computed based on the higher of the asset’s fair value less cost to sell or VIU. Recoverable amounts are estimated for individual nonfinancial assets or, if it is not possible, for the CGU to which the nonfinancial asset belongs.
The Group is required to make estimates and assumptions that can materially affect the carrying amount of the asset being assessed.
As of December 31, 2018 and 2017, the carrying values of the Parent Company’s investments in subsidiaries and a joint venture are disclosed in Note 15.
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The carrying values of the Group’s and the Parent Company’s non-financial assets (other than ‘Goodwill’) follow:
Consolidated Parent Company 2018 2017 2018 2017 Property and equipment (Note 16) P=4,119,187 P=4,104,073 P=2,876,304 P=3,148,305 Investment properties (Note 17) 812,794 791,306 815,002 793,772 Branch licenses (Note 18) 1,460,000 1,460,000 1,445,000 1,445,000 Software costs (Note 18) 875,945 550,539 872,317 548,709 Other properties acquired (Note 18) 97,556 36,770 97,057 36,792 Exchange trading right (Note 18) 8,500 8,500 – −
The provision for (recovery of) impairment losses on non-financial assets of the Group and the Parent Company are disclosed in Notes 17 and 18.
Intangible assets with indefinite useful life Intangible assets with indefinite useful lives such as exchange trading right and branch licenses are tested for impairment annually at statement of financial position date either individually or at the cash generating unit level, as appropriate.
Goodwill Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has been allocated, an impairment loss is recognized immediately in the statement of income. The carrying value of goodwill is disclosed in Note 4. e. Estimated useful lives of property and equipment, investment properties, software costs and other properties acquired The Group reviews on an annual basis the estimated useful lives of property and equipment, depreciable investment properties, software costs and other properties acquired based on expected asset utilization as anchored on business plans and strategies that also consider expected future technological developments and market behavior. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property and equipment, depreciable investment properties, software costs and other properties acquired would decrease their respective balances and increase the recorded depreciation and amortization expense.
The carrying values of depreciable property and equipment, investment properties, software costs and other properties acquired follow:
Consolidated Parent Company 2018 2017 2018 2017 Property and equipment (Note 16)* P=3,761,347 P=3,747,251 P=2,478,064 P=2,751,083 Investment properties (Note 17)* 235,777 185,225 312,094 261,333 Software costs (Note 18) 875,945 550,539 872,317 548,709 Other properties acquired (Note 18) 97,556 36,770 97,057 36,792 *Excludes land
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f. Pension benefits The cost of defined benefit pension plans and other post employment medical benefits as well as the present value of the pension obligation are determined using actuarial valuations. The actuarial valuation involves making various assumptions. These include the determination of the discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
The present value of the defined benefit obligation of the Group and the Parent Company are disclosed in Note 30.
In determining the appropriate discount rate, management considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country and is modified accordingly with estimates of mortality improvements. Future salary increases and pension increases are based on expected future inflation rates.
Further details about the assumptions used are provided in Note 30.
Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees. The undiscounted liability for leave expected to be settled wholly before twelve months after the end of the annual reporting period is recognized for services rendered by employees up to the end of the reporting period. As of December 31, 2018 and 2017, accrual for other employee benefit obligations and expenses included under ‘Accrued other expenses payable’ (included under ‘Accrued interest, taxes and other expenses’ in the statements of financial position) amounted to P=1.0 billion and P=1.1 billion, respectively for the Group, and P=1.0 billion and =1.1P billion, respectively for the Parent Company (see Note 24).
4. Goodwill
Impairment Testing of Goodwill In 2012, goodwill acquired through business combination has been allocated to SBS as the CGU. In 2015, the entire goodwill was reallocated to the 23 branches of SBS which were transferred to the Parent Company as a single CGU (see Note 15). As of December 31, 2018 and 2017, the carrying amount of goodwill amounted to =841.6P million and there was no impairment loss recognized in 2018 and 2017.
The recoverable amount of the CGU has been determined based on a VIU calculation using cash flow projections from financial budgets approved by senior management covering a four-year period. Key assumptions in VIU calculation of CGUs are most sensitive to discount rates and growth rates used to project cash flows. Future cash flows and growth rates were based on experiences and strategies developed and prospects. The discount rate used for the computation of the net present value is the cost of equity and was determined by reference to a comparable entity. In 2018 and 2017, the post- tax discount rate applied to cash flow projections is 14.31% and 9.15%, respectively, while the growth rate used to extrapolate cash flows beyond the four-year period is 3.0% for both years.
Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the goodwill to materially exceed its recoverable amount
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5. Financial Risk Management Objectives and Policies
Introduction Integral to the Parent Company’s value creation process is risk management. It therefore operates an integrated risk management system to address the risks it faces in its banking activities, including credit, market, liquidity and operational risks. Exposures across these risk areas are regularly identified, measured, controlled, monitored and reported to Senior Management, Risk Oversight Committee (ROC) and the BOD.
Risk Management Structure
Board of Directors The BOD directs the Parent Company’s over-all risk management strategy. The risk management processes of the subsidiaries are the separate responsibilities of their respective BOD. The BOD performs an oversight function on the Parent Company’s implementation of its risk policies through various committees that it has created as follows:
Risk Oversight Committee The ROC reviews, approves, and ensures effective implementation of the risk management framework. It approves risk-related policies, oversees limits to discretionary authority that the BOD delegates to management, and evaluates the magnitude, distribution and direction of risks in the Parent Company.
Corporate Governance Committee The Corporate Governance Committee oversees the compliance function and assists the BOD in fulfilling its corporate governance responsibilities. It is responsible for ensuring the BOD’s effectiveness and, due observance of corporate governance principles and guidelines.
Audit Committee The Audit Committee through the Internal Audit Division provides the independent assessment of the overall effectiveness of, and compliance with the Parent Company’s risk management policies and processes.
Executive Committee The Executive Committee approves credit risk limit for large exposures except for directors, officers, stockholders and related interests (DOSRI) loans, which are approved by the BOD regardless of amount.
Loan Restructuring Committee The Loan Restructuring Committee focuses on substandard or non-performing loans (NPLs) and approves the remedial strategy and action plan for these exposures.
Related Party Transaction Committee The Related Party Transaction Committee ensures that transactions with related parties are handled in a sound and prudent manner, with integrity, and in compliance with applicable laws and regulations to protect the interest of depositors, creditors and other stakeholders.
Nominations and Remunerations Committee The Nominations and Remunerations Committee has oversight over Board nominees and other appointments requiring Board approval, as well as their remuneration commensurate with corporate and individual performance.
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Finance Committee The Finance Committee has oversight of the financial management of the group, including capital and liquidity management, reviewing financial performance ensuring that it is compliance with regulatory requirements.
Trust Committee The Trust Committee ensures that funds and properties held in trust or in any fiduciary capacity shall be administered with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in like capacity and familiar matters, would exercise in the conduct of an enterprise of like character and with similar aims.
Technology Steering Committee The Technology Steering Committee oversees the development, implementation and performance of information technology systems in the Group.
The Parent Company’s organizational structure includes the Risk Management Group (RMG), which is responsible for driving the following risk management processes of the Group:
∂ Independent assessment, measurement, monitoring and reporting of the Group’s risk-taking activities; and ∂ Formulation, review and recommendation of risk-related policies and control structures.
Nevertheless, the Group’s risk management framework adopts the basic tenet that risks are owned by the respective business and process owners. Everyone in the organization is therefore expected to proactively manage the risks inherent to their respective area by complying with the Group’s risk management framework, policies and standards.
The Parent Company and its subsidiaries manage their respective financial risks separately. The subsidiaries have their own risk management procedures but are structured similar to that of the Parent Company. To a certain extent, the respective risk management programs and objectives are the same across the Group.
Risk Measurement and Reporting The Parent Company’s risks are measured using various methods compliant with Basel III standards. The Parent Company also runs worst case scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact, occur.
Expected credit loss models are developed and maintained by Risk Management Group. These models are used as a tool for the Parent Company’s risk management process and management reporting systems. The applicable results of the calculations are used as the basis for the assessment of expected credit losses.
Monitoring and controlling risks are primarily performed based on limits established by the Parent Company. These limits reflect the business strategy and market environment of the Parent Company as well as the level of risk that the Parent Company is willing to take. In addition, the Parent Company monitors and measures the overall risk-bearing capacity in relation to the aggregate risk exposure across all risk types and activities.
For all levels throughout the Parent Company, specifically tailored risk reports are prepared and distributed in order to ensure that all business divisions have access to extensive, necessary and up-to-date information. These reports include aggregate credit exposure, credit metric forecasts, limit exceptions, Value-at-Risk (VaR), liquidity ratios and risk profile changes. *SGVFS032853* - 47 -
Credit Risk Management prepares detailed reporting of risks per industry, customer risk rating and classification. Senior management assesses the appropriateness of allowance for credit losses on a yearly basis or as the need arises. The ROC and the heads of the concerned business units receive a comprehensive credit risk report monthly which is designed to provide all the necessary information to assess and conclude on the credit risks of the Parent Company.
In the case of market risk, a monthly report is presented to the ROC on the utilization of market limits and liquidity, plus any other risk developments.
Information compiled from all the businesses is examined and processed in order to analyze, control and identify risks early. This information is presented and explained to the BOD, the ROC, and the head of each business unit.
Risk Mitigation As part of its market risk management, the Parent Company uses derivatives and other instruments to manage exposures resulting from changes in interest rates and foreign currencies. For interest rate risk from HTC securities (fair value hedge), the Parent Company entered into Interest Rate Swaps. The risk management objective is to protect the fair value of the HTC securities against adverse movements in interest rates, specifically due to an aggressive rate hike cycle in the identified hedge period. This objective also allows the Parent Company to safeguard its net interest margin and keep its pool of high-quality liquid assets.
In accordance with the Parent Company’s policy, the risk profile of the Parent Company is assessed before entering into hedge transactions, which are authorized by the appropriate committees. The effectiveness of hedges is assessed by the RMG. The effectiveness of all the hedge relationships is monitored by the RMG monthly. In situations of ineffectiveness, the Parent Company will enter into a new hedge relationship to mitigate risk on a continuous basis.
The Parent Company actively uses collateral to reduce its credit risks.
Excessive Risk Concentration Concentrations arise when a number of counterparties are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Parent Company’s performance to developments affecting a particular industry or geographic location.
The Parent Company manages concentration risks by setting exposure limits to borrowing groups, industries, and where appropriate, on products and facilities. These limits are reviewed as the need arises but at least annually.
In order to avoid excessive concentrations of risk, the Parent Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of risks are controlled and managed accordingly.
Credit Risk Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its obligations during the life of the transaction. This includes risk of non-payment by borrowers or issuers, failed settlement of transactions and default on contracts.
The Parent Company drives credit risk management fundamentally via its Credit Policy Manual (CPM), the provisions of which are regularly reviewed and updated to reflect changing risk *SGVFS032853* - 48 - conditions. The CPM defines the principles and parameters governing credit activities, ensuring that each account’s creditworthiness is thoroughly understood and regularly reviewed. Relationship Managers assume overall responsibility for the management of credit exposures while middle and back office functions are clearly defined to provide independent checks and balance to credit risk- taking activities. A system of approving and signing limits ensures adequate senior management involvement for bigger and more complex transactions. Large exposures of the Group are kept under rigorous review as these are subjected to stress testing and scenario analysis to assess the impact of changes in market conditions or key risk factors (examples are economic cycles, interest rate, liquidity conditions or other market movements) on its profile and earnings.
The risk management structure of policies, accountabilities and responsibilities, controls and senior management involvement is similarly in place for non-performing assets.
Derivative financial instruments Credit risk in respect of derivative financial instruments is limited to those with positive fair values, which are included under ‘Financial assets at FVTPL’. As a result, the maximum credit risk, without taking into account the fair value of any collateral and netting agreements, is limited to the amounts in the statements of financial position.
Credit-related commitments The Parent Company makes available to its customers, guarantees which may require the Parent Company to make payments on their behalf and enter into commitments to extend credit lines to secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit) commit the Parent Company to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Parent Company to similar risks to loans and these are mitigated by the same control processes and policies. This also includes the unutilized credit limit of the Group’s credit card customers.
Maximum exposure to credit risk of on-balance sheet credit risk exposures with collaterals held or other credit enhancements The tables below show the maximum exposure to on-balance sheet credit risk exposures of the Group and the Parent Company after taking into account any collaterals held or other credit enhancements (amounts in millions):
Consolidated Maximum Financial Associated Carrying Fair Value of Exposure to Effect of ECL Amount Collateral Credit Risk Collateral December 31, 2018 Credit risk exposure relating to on- balance sheet assets Receivable from customers - net (exclusive of SBEI): Corporate lending P=323,661 P=95,505 P=246,442 P=77,219 P=4,027 Consumer lending 33,265 29,050 18,533 14,732 477 Small business lending 1,368 625 888 480 27 Residential mortgages 43,900 34,769 22,294 21,606 279 Receivable from customers - net (SBEI): Corporate 610 3,873 248 362 – Individual 139 3,454 27 112 1 Other receivables 7,315 88 7,201 114 62 Credit card receivables - individual 6,060 – 6,060 – 136 P=416,318 P=167,364 P=301,693 P=114,625 P=5,009
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Consolidated Maximum Financial Carrying Fair Value of Exposure to Effect of Amount Collateral Credit Risk Collateral December 31, 2017 Credit risk exposure relating to on-balance sheet assets Receivable from customers - net (exclusive of SBEI): Corporate lending P=303,883 P=131,336 P=236,118 P=67,765 Consumer lending 15,156 7,422 11,287 3,869 Small business lending 4,691 3,700 2,910 1,781 Residential mortgages 35,426 24,368 20,604 14,822 Receivable from customers - net (SBEI): Corporate 959 2,233 249 710 Individual 284 1,306 171 113 Other receivables 6,650 707 5,987 663 Credit card receivables - individual 3,141 – 3,141 – P=370,190 P=171,072 P=280,467 P=89,723
Parent Company Maximum Financial Carrying Fair Value of Exposure to Effect of Associated Amount Collateral Credit Risk Collateral ECL December 31, 2018 Credit risk exposure relating to on- balance sheet assets Receivable from customers - net (exclusive of SBEI): Corporate lending P=325,913 P=95,505 P=248,693 P=77,220 P=4,422 Consumer lending 30,411 29,050 15,681 14,730 214 Small business lending 1,368 625 888 480 27 Residential mortgages 43,704 34,769 22,098 21,606 279 Other receivables 6,957 88 6,869 88 64 Credit card receivables - individual 6,060 – 6,060 – 136 P=414,413 P=160,037 P=300,289 P=114,124 P=5,142
Parent Company Maximum Financial Carrying Fair Value of Exposure to Effect of Amount Collateral Credit Risk Collateral December 31, 2017 Credit risk exposure relating to on-balance sheet assets Receivable from customers - net: Corporate lending P=304,637 P=131,336 P=236,872 P=67,765 Consumer lending 14,006 7,420 10,138 3,868 Small business lending 4,691 3,700 2,910 1,781 Residential mortgages 35,200 24,368 20,378 14,822 Other receivables 6,313 90 6,223 90 Credit card receivables – individual 3,141 – 3,141 – P=367,988 P=166,914 P=279,662 P=88,326
The maximum exposure to credit risks for the other financial assets is limited to the carrying value as of December 31, 2018 and 2017.
Credit card receivables and receivables of SBEI are presented separately for the purpose of identifying receivables that are subjected to different credit risk rating systems.
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Other receivables include accrued interest receivable, accounts receivable, sales contracts receivable and dividend receivable.
Risk concentrations of the maximum exposure to credit risk The Group considers concentration risk to be present in its loans and receivables when the total exposure to a particular industry exceeds 15.0% of the total loan portfolio (internal definition for most industry segments), which is more conservative than the BSP requirement of 30.0%.
The distribution of financial assets and off-balance sheet items by industry sector of the Group and the Parent Company, before taking into account collateral held or other credit enhancements (maximum exposure) follows (amounts in millions):
Consolidated Loans and Loans and Financial Advances to Receivables Investments* Banks** Others*** Total December 31, 2018 Financial intermediaries P=35,015 P=219,844 P=75,203 P=619 P=330,681 Power, electricity and water distribution 77,396 – – 27,160 104,556 Wholesale and retail trade 67,581 7,180 – 7,821 82,582 Trading and manufacturing 46,754 – – 4,560 51,314 Real estate 46,151 3,872 – 2,233 52,256 Transportation, storage and communication 26,065 2,269 – 18,956 47,290 Others 117,356 18,235 – 42,748 178,339 P=416,318 P=251,400 P=75,203 P=104,097 P=847,018 December 31, 2017 (As restated – Note 2) Financial intermediaries P=38,096 P=198,015 P=64,557 P=6,807 P=307,475 Power, electricity and water distribution 69,713 98 – 48,675 118,486 Wholesale and retail trade 65,278 7,213 – 4,098 76,589 Trading and manufacturing 42,144 14 – 9,263 51,421 Transportation, storage and communication 22,257 4,520 – 21,377 48,154 Real estate 42,476 3,898 – 77 46,451 Others 90,226 20,628 – 34,038 144,892 P=370,190 P=234,386 P=64,557 P=124,335 P=793,468
Parent Company Loans and Loans and Financial Advances to Receivables Investments* Banks** Others*** Total December 31, 2018 Financial intermediaries P=37,334 P=219,844 P=75,067 P=619 P=332,864 Power, electricity and water distribution 77,396 – – 27,160 104,556 Wholesale and retail trade 66,829 7,180 – 7,821 81,830 Trading and manufacturing 46,744 – – 4,560 51,304 Transportation, storage and communication 26,063 2,269 – 18,956 47,288 Real estate 46,151 3,872 – 2,233 52,256 Others 113,896 18,196 – 42,747 174,839 P=414,413 P=251,361 P=75,067 P=104,096 P=844,937 December 31, 2017 (As restated – Note 2) Financial intermediaries P=39,095 P=198,015 P=64,472 P=6,805 P=308,387 Power, electricity and water distribution 69,712 1 – 48,675 118,388 Wholesale and retail trade 65,276 7,213 – 4,098 76,587 Trading and manufacturing 42,140 14 – 9,263 51,417 Transportation, storage and communication 22,255 4,520 – 21,377 48,152 Real estate 42,475 3,898 – 75 46,448 Others 87,035 20,579 – 34,038 141,652 P=367,988 P=234,240 P=64,472 P=124,331 P=791,031 * Consists of Financial assets at FVTPL and FVTOCI, and Investment securities at amortized cost ** Consists of Other cash items, Due from BSP, Due from other banks, Interbank loans receivables and SPURA and Cash collateral deposits (included in ‘Other assets’) *** Consists of Contingent liabilities relating to inward and outward bills for collections, outstanding guarantees, letters of credit, unutilized credit limit of credit card holders, committed loan lines, security deposits and financial guarantees with commitment
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For details of the composition of the loans and receivables portfolio, refer to Note 14.
Offsetting of financial assets and financial liabilities The Parent Company has various derivative financial instruments with various counterparties transacted under the International Swaps and Derivatives Association (ISDA) which are subject to enforceable master netting agreements. Under the agreements, the Parent Company has the right to settle its derivative financial instruments either: (1) upon election of the parties; or (2) in the case of default and insolvency or bankruptcy. The Parent Company, however, has no intention to net settle or to gross settle the accounts simultaneously. Also, the enforceability of netting upon default is contingent on a future event, and so the offsetting criteria under PAS 32 are not met. Consequently, the gross amount of the derivative asset and the gross amount of the derivative liability are presented separately in the Parent Company’s statements of financial position.
Cash collaterals have also been received from and pledged to the counterparties for the net amount of exposures from the derivative financial instruments. These cash collaterals do not meet the offsetting criteria in under PAS 32 since it can only be set off against the net amount of the derivative asset and derivative liability in the case of default and insolvency or bankruptcy, in accordance with an associated collateral arrangement.
The Parent Company has entered into sale and repurchase agreements with various counterparties that are accounted for as collateralized borrowing. The Parent Company has also entered into a reverse sale and repurchase agreements with various counterparties that are accounted for as a collateralized lending. These transactions are subject to a global master repurchase agreement with a right of set- off only against the collateral securities upon default and insolvency or bankruptcy and therefore do not meet the offsetting criteria under PAS 32. Consequently, the related SSURA is presented separately from the collateral securities in the Parent Company’s statements of financial position.
The table below presents the recognized financial instruments of the Group and the Parent Company that are offset, or subject to enforceable master netting agreements or other similar arrangements but not offset, as at December 31, 2018 and 2017, taking into account the effects of over-collateralization.
Gross amounts Effect of remaining rights of set-off in Net amount set-off that do not meet PAS 32 Gross amounts of accordance with presented in offsetting criteria recognized the PAS 32 statements of financial offsetting financial Financial Financial instruments criteria position instruments collateral Net exposure [a] [b] [c]=[a]-[b] [d] [e]=[c]-[d] 2018 Financial Assets Derivative assets (Notes 6 and 10) P=2,457,877 P=− P=2,457,877 P=1,097,520 P=14,800 P=1,345,557 Financial Liabilities Derivative liabilities including designated as hedges (Notes 6, 11 and 20) P=3,310,407 P=− P=3,310,407 P=1,097,520 P=1,231,730 P=981,157 SSURA (Note 21) 59,274,353 − 59,274,353 − 59,274,353 − P=62,584,760 P=− P=62,584,760 P=1,097,520 P=60,506,083 P=981,157 2017 Financial Assets Derivative assets (Notes 6 and 10) P=1,465,486 P=− P=1,465,486 P=569,866 P=168,338 P=727,282 Financial Liabilities Derivative liabilities including designated as hedges (Notes 6, 11 and 20) P=2,013,182 P=− P=2,013,182 P=569,866 P=76,655 P=1,366,661 SSURA (Note 21) 107,630,850 − 107,630,850 − 107,630,850 − P=109,644,032 P=− P=109,644,032 P=569,866 P=107,707,505 P=1,366,661
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. The Group follows guidelines on the acceptability of types of collateral and valuation parameters. *SGVFS032853* - 52 -
The main types of collateral obtained are as follows: ∂ For corporate accounts - cash, guarantees, securities and physical collaterals (e.g., real estate, chattels, inventory, etc.); as a general rule, commercial, industrial and residential lots are preferred. ∂ For retail lending - mortgages on residential properties and financed vehicles.
Management monitors the market value of real property collateral on an annual basis and as needed for marketable securities to preserve collateral cover. The existing market value of collateral is considered during the review of the credit facilities and adequacy of the allowance for credit losses.
It is the Parent Company’s policy to dispose assets acquired in an orderly fashion. The proceeds from the sale of the foreclosed assets (classified as ‘Investment properties’ in the statements of financial position) are used to reduce or repay the outstanding claim. In general, the Parent Company does not use repossessed properties for business.
Credit quality per class of financial assets In compliance with BSP Circular No. 855, the Parent Company has developed and continually reviews and calibrates its internal risk rating system for credit exposures aimed at uniformly assessing its credit portfolio in terms of risk profile. Where appropriate, it obtains security, enters into master netting agreements, and limits the duration of exposures to maintain and even further enhance the quality of the Parent Company’s credit exposures.
The credit quality of financial assets is monitored and managed using internal ratings and where available, external ratings.
The credit quality of trading and financial investment securities is generally monitored through the external ratings of eligible external credit rating institutions. Presented below is the mapping of the credit risk rating from external rating agencies to the Parent Company’s internal risk rating for investment securities:
Agency High Grade S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Moody's Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Fitch AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- PhilRatings AAA Aa+ Aa Aa- A+ A A- Baa+ Baa Baa-
Agency Medium Grade Low Grade S&P BB+ BB BB- B+ B B- Below B- Moody's Ba1 Ba2 Ba3 B1 B2 B3 Below B3 Fitch BB+ BB BB- B+ B B- Below B- PhilRatings Ba+ Ba Ba- B+ B B- Below B-
For loan exposures, the credit quality is generally monitored using its internal credit risk ratings system. It is the Parent Company’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates management to focus on major potential risk and the comparison of credit exposures across all lines of business, demographics and products. The rating system is supported by a variety of financial analytics, combined with an assessment qualitative factors such as of management and market information to provide the main inputs for the measurement of credit or counterparty risk. Other variables that may impact the borrower’s creditworthiness but are not yet factored into the baseline rating are considered in the model overlay to arrive at the final PD rating . All PD ratings are tailored with various categories and are derived in accordance with the Group’s rating policy. The attributable risk ratings are assessed and updated regularly.
*SGVFS032853* - 53 -
The Group uses PD Ratings to classify the credit quality of its receivables portfolio. This is currently undergoing upgrade to enhance credit evaluation parameters across different market segments and achieve a more sound and robust credit risk assessment. The description of the loan grades used by the Group for receivable from customers, except credit card receivables and receivables of SBEI, are as follows:
Effective after January 1, 2018 Wholesale Banking Segment Scorecards The Parent Company has two (2) Wholesale Banking Segment scorecards, differentiated according to the asset size of the borrower: Big Accounts scorecard for borrowers with more than P=300.0 million asset size, and Small Accounts scorecard for borrowers with up to P=300.0 million asset size. Both scorecards produce a 14-grade scale with each grade having a corresponding probability of default (PD).
High Grade (PD Rating of 1 to 8) Accounts in this category have a low probability of defaulting on their obligations over the next 12 months. A comfortable degree of stability and diversity can be found in these borrowers.
Medium Grade (PD Rating of 9 to 12) The probability of default (PD) of accounts in this category is slightly higher than high grade borrowers. Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. These accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in a significant way and therefore, default risk is present under such adverse conditions. Repayment ability is more or less assured if economic and industry conditions remain stable.
Low Grade (PD Rating of 13 to 14) Accounts for which default risk are very much present and those that have defaulted already are included in this category.
For credit card receivables, the Parent Company classifies accounts that are neither past due nor impaired as follows:
High Grade – Accounts with tenure of 24 months or more which are under the current classification and have never reached 30 days past due for the last 12 months from year-end.
Medium Grade – Accounts with tenure of 12 months or more which are under the current classification and have never reached 30 days past due for the last 12 months from year-end.
Low Grade – Accounts with tenure of less than 12 months which are under the current classification and have never reached 30 days past due for the last 12 months from year-end.
Unrated – Current but non-active accounts and accounts that have reached 30 days past due for the last 12 months from year-end.
For SBEI’s receivable portfolio, the Group classifies accounts that are neither past due nor impaired as follows:
High Grade – receivables from counterparties with no history of default and with apparent ability to settle the obligation. In case of receivables from customers, the outstanding amount must be more than 200.0% secured by collateral.
*SGVFS032853* - 54 -
Medium Grade – receivable from counterparties with no history of default, with apparent ability to settle the obligation and the outstanding amount must be 100.0% – 200.0% secured by collateral.
Low Grade – receivable from counterparties with history of default and partially secured or unsecured accounts.
Unrated – Receivables from employees and refundable deposits.
Effective before January 1, 2018
A. Large Corporate Scorecard
High Grade (ICRR 1 to ICRR 5) Accounts belonging to this category have a low probability of defaulting on their obligations within the coming year. A comfortable degree of stability and diversity can be found in these borrowers. Borrowers with this rating have access to the capital markets and have a history of successful financial performance.
Standard Grade (ICRR 6 to ICRR 10) Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. These accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in a significant way and therefore, default risk is present under such adverse conditions. Repayment ability is more or less assured if economic and industry conditions remain stable.
Substandard Grade (ICRR 11 to ICRR 14) Accounts for which default risk are very much present are included in this category. The financial ratios of the accounts are virtually at the inflection point separating the current loans and potential problem loans. Any deterioration on the economic or industry front will push the accounts into NPL category in the future.
Unrated This category includes accounts not required to be rated under BSP regulation, equity securities, accounts receivables and sales contract receivables. The Group is currently building a separate credit rating system for its consumer loans portfolio to enhance credit evaluation parameters across different market segments and achieve a more sound and robust credit risk assessment.
B. Middle Market Scorecard
Standard Grade (ICRR 4 to ICRR 5) Accounts belonging to this category have a low probability of defaulting on their obligations within the coming year. A comfortable degree of stability and diversity can be found in these borrowers. Borrowers with this rating have access to the capital markets and have a history of successful financial performance.
ICCR 4 is the maximum/highest rating class that a Middle Market account can attain. The rating classes for the middle market are comparable to those for the large corporate group. In other words, a “4” in the middle market is comparable to a “4” in the large corporate.
Standard Grade (ICRR 6 to ICRR 10) Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. These accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in a
*SGVFS032853* - 55 -
significant way and therefore, default risk is present under such adverse conditions. Repayment ability is more or less assured if economic and industry conditions remain stable.
Substandard Grade (ICRR 11 to ICRR 14) Accounts for which default risk are very much present are included in this category. The financial ratios of the accounts are virtually at the inflection point separating the current loans and potential problem loans. Any deterioration on the economic or industry front will push the accounts into NPL category in the future.
For credit card receivables, the Parent Company classifies accounts that are neither past due nor impaired as follows: ∂ High Grade - Accounts with tenure of 24 months or more which are under the current classification and have never reached 30 days past due for the last 12 months from year-end. ∂ Standard Grade - Accounts with tenure of 12 months or more which are under the current classification and have never reached 30 days past due for the last 12 months from year-end. ∂ Substandard Grade - Accounts with tenure of less than 12 months which are under the current classification and have never reached 30 days past due for the last 12 months from year-end. ∂ Unrated - Current but non-active accounts and accounts that have reached 30 days past due for the last 12 months from year-end. For SBEI's receivable portfolio, the Group classifies accounts that are neither past due nor impaired as follows:
∂ High Grade - receivables from counterparties with no history of default and with apparent ability to settle the obligation. In case of receivables from customers, the outstanding amount must be more than 200.0% secured by collateral. ∂ Standard Grade - receivable from counterparties with no history of default, with apparent ability to settle the obligation and the outstanding amount must be 100.0% - 200.0% secured by collateral. ∂ Substandard Grade - receivable from counterparties with history of default and partially secured or unsecured accounts. ∂ Unrated - Receivables from employees and refundable deposits.
Financial assets of the Group and the Parent Company for which no available external ratings are available are classified as unrated.
The tables below show the credit quality by class of financial assets (gross of allowance for credit losses and net of unearned discounts and deferred credits) of the Group and the Parent Company:
Consolidated Neither Past Due nor Individually Impaired Past Due but Standard/ Substandard/ not Individually Individually High Grade Medium Grade Low Grade Unrated Impaired Impaired Total December 31, 2018 Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P= – P= – P= – P= – P= – P=2,445,910 Private bonds 18,651 2,741 – 8,105 – – 29,497 Equity securities – – – 4 – – 4 Total HFT investments 2,464,561 2,741 – 8,109 – – 2,475,411 Derivative assets: Interest rate swaps 1,029,830 – – – – – 1,029,830 Currency forwards 505,635 – – 397,835 – – 903,470 Cross-currency swaps 276,904 – – 247,673 – – 524,577 Total derivative assets 1,812,369 – – 645,508 – – 2,457,877 Others 370 – – 15,117 – – 15,487 Total financial assets at FVTPL P=4,277,300 P=2,741 P=– P=668,734 P=– P=– P=4,948,775
(Forward) *SGVFS032853* - 56 -
Consolidated Neither Past Due nor Individually Impaired Past Due but Standard/ Substandard/ not Individually Individually High Grade Medium Grade Low Grade Unrated Impaired Impaired Total Treasury notes and bills* P=17,637,261 P=– P=– P=– P=– P=– P=17,637,261 Treasury bonds* 11,615,697 – – – – – 11,615,697 Private bonds* 3,584,582 – – 1,196,476 – – 4,781,058 Equity instruments (Golf and PSE – – – – shares) – 269,553 269,553 P=32,837,540 P=– P=– P=1,466,029 P=– P=– P=34,303,569 Financial assets at amortized cost (excluding loans and receivables)* Due from BSP P=63,605,386 P=– P=– P=– P=– P=– P=63,605,386 Due from other banks 9,020,979 – – – – – 9,020,979 Interbank loans receivable and SPURA 210,320 – – – – – 210,320 Investment securities at amortized cost Treasury bonds 169,437,001 – – – – – 169,437,001 Private bonds 24,028,110 – – 1,051,600 – – 25,079,710 Treasury notes and bills 17,766,283 – – – – – 17,766,283 211,231,394 – – 1,051,600 – – 212,282,994 P=284,068,079 P=– P=– P=1,051,600 P=– P=– P=285,119,679 December 31, 2017 (As restated - Note 2) Financial assets at FVTPL: HFT investments: Government securities P=2,965,152 P=– P=– P=– P=– P=– P=2,965,152 Private bonds 37,464 99,842 – 9,056 – – 146,362 Equity securities – – – 8 – – 8 Total HFT investments 3,002,616 99,842 – 9,064 – – 3,111,522 Derivative assets: Currency forwards 488,568 9,244 10,810 98,649 – – 607,271 Interest rate swaps 666,382 – – – – – 666,382 Cross-currency swaps 85,606 – – 105,965 – – 191,571 Interest rate future 262 – – – – – 262 Total derivative assets 1,240,818 9,244 10,810 204,614 – – 1,465,486 Others 370 – – 15,117 – – 15,487 Total financial assets at FVTPL P=4,243,804 P=109,086 P=10,810 P=228,795 P=– P=– P=4,592,495 Financial assets at FVTOCI Equity instruments (Golf and PSE shares) P=43,081 P=– P=– P=157,190 P=– P=– P=200,271 Financial assets at amortized cost (excluding loans and receivables) Due from BSP P=56,592,042 P=– P=– P=– P=– P=– P=56,592,042 Due from other banks 6,822,992 – – – – – 6,822,992 Interbank loans receivable and SPURA 5,688,647 – – – – – 5,688,647 Investment securities at amortized cost Treasury bonds 175,794,191 – – – – – 175,794,191 Private bonds 28,409,907 – – 7,530,250 – – 35,940,157 Treasury notes and bills 17,858,967 – – – – – 17,858,967 222,063,065 – – 7,530,250 – – 229,593,315 P=291,166,746 P=– P=– P=7,530,250 P=– P=– P=298,696,996 *Carried at Stage 1 in 2018
Parent Company Neither Past Due nor Individually Impaired Past Due but Standard/ Substandard/ not Individually Individually High Grade Medium Grade Low Grade Unrated Impaired Impaired Total December 31, 2018 Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P= – P= – P= – P= – P= – P=2,445,910 Private bonds 18,651 2,741 – 8,105 – – 29,497 Total HFT investments 2,464,561 2,741 – 8,105 – – 2,475,407 Derivative assets: Interest rate swaps 1,029,830 – – – – – 1,029,830 Currency forwards 505,635 – – 397,835 – – 903,470 Cross-currency swaps 276,904 – – 247,673 – – 524,577 Interest rate future – – – – – – – Total derivative assets 1,812,369 – – 645,508 – – 2,457,877 Others 370 – – 15,094 – – 15,464 Total financial assets at FVTPL P=4,277,300 P=2,741 P= – P=668,707 P= – P= – P=4,948,748 Financial assets at FVTOCI Treasury notes and bills* P=17,637,261 P=– P=– P=– P=– P= – P=17,637,261 Treasury bonds* 11,615,697 – – – – – 11,615,697 Private bonds* 3,584,582 – – 1,196,476 – – 4,781,058 Equity instruments (Golf and PSE – – – – shares) – 230,500 230,500 P=32,837,540 P=– P=– P=1,426,976 P=– P=– P=34,264,516
(Forward)
*SGVFS032853* - 57 -
Parent Company Neither Past Due nor Individually Impaired Past Due but Standard/ Substandard/ not Individually Individually High Grade Medium Grade Low Grade Unrated Impaired Impaired Total Financial assets at amortized cost (excluding loans and receivables)* Due from BSP P=63,605,386 P=– P=– P=– P=– P=– P=63,605,386 Due from other banks 8,886,542 – – – – – 8,886,542 Interbank loans receivable and SPURA 210,320 – – – – – 210,320 Investment securities at amortized cost Treasury bonds 169,437,001 – – – – – 169,437,001 Private bonds 24,028,110 – – 1,051,600 – – 25,079,710 Treasury notes and bills 17,766,283 – – – – – 17,766,283 211,231,394 – – 1,051,600 – – 212,282,994 283,933,642 P=– P=– P=1,051,600 P=– P=– P=284,985,242 December 31, 2017 (As restated – Note 2) Financial assets at FVTPL: HFT investments: Government securities P=2,965,152 P=– P=– P=– P=– P=– P=2,965,152 Private bonds 37,464 2,746 – 9,056 – – 49,266 Total HFT investments 3,002,616 2,746 – 9,056 – – 3,014,418 Derivative assets: Currency forwards 488,568 9,244 10,810 98,649 – – 607,271 Interest rate swaps 666,382 – – – – – 666,382 Cross-currency swaps 85,606 – – 105,965 – – 191,571 Interest rate future 262 – – – – – 262 Total derivative assets 1,240,818 9,244 10,810 204,614 – – 1,465,486 Others 370 – – 15,117 – – 15,487 Total financial assets at FVTPL P=4,243,804 P=11,990 P=10,810 P=228,795 P=– P=– P=4,495,369 Financial assets at FVTOCI Equity instruments (Golf and PSE shares) P=– P=– P=– P=151,370 P=– P=– P=151,370 Financial assets at amortized cost (excluding loans and receivables) Due from BSP P=56,592,042 P=– P=– P=– P=– P=– P=56,592,042 Due from other banks 6,737,508 – – – – – 6,737,508 Interbank loans receivable and SPURA 5,688,647 – – – – – 5,688,647 Investment securities at amortized cost Treasury bonds 175,794,191 – – – – – 175,794,191 Private bonds 28,409,907 – – 7,530,250 – – 35,940,157 Treasury notes and bills 17,858,967 – – – – – 17,858,967 222,063,065 – – 7,530,250 – – 229,593,315 P=291,081,262 P=– P=– P=7,530,250 P=– P=– P=298,611,512 *Carried at Stage 1 in 2018
Consolidated December 31, 2018 December 31, 2017 Stage 1 Stage 2 Stage 3 Total Total Receivable from customers: Corporate lending Neither Past Due nor Individually Impaired High grade P=289,272,484 P=2,612,009 P=– P=291,884,493 P=14,954,179 Standard/Medium grade 23,647,692 7,545,506 – 31,193,198 196,646,304 Substandard/Low Grade – 2,934,440 – 2,934,440 70,070,555 Unrated – – – – 7,784,296 Past due but not impaired – 345,967 – 345,967 70,836 Individually impaired – – 1,329,413 1,329,413 16,933,775 312,920,176 13,437,922 1,329,413 327,687,511 306,459,945 Consumer lending Neither Past Due nor Individually Impaired High grade – – – – – Substandard/Low Grade – – – – – Unrated 32,547,241 117,516 – 32,664,757 15,437,549 Past due but not impaired – 304,700 – 304,700 283,296 Individually impaired – – 772,425 772,425 – 32,547,241 422,216 772,425 33,741,882 15,720,845 Small business lending Neither Past Due nor Individually Impaired High grade 1,255,828 – – 1,255,828 3,751 Standard/Medium grade 66,940 – – 66,940 371,620 (Forward)
*SGVFS032853* - 58 -
Consolidated December 31, 2018 December 31, 2017 Stage 1 Stage 2 Stage 3 Total Total Substandard/Low Grade P=– P=– P=– P=– P=40,530 Unrated – – – – 4,251,488 Past due but not impaired – 38,669 – 38,669 30,182 Individually impaired – – 32,859 32,859 79,034 1,322,768 38,669 32,859 1,394,296 4,776,605 Residential mortgages Neither Past Due nor Individually Impaired High grade 2,010,827 – – 2,010,827 – Standard/Medium grade – – – – 579,689 Substandard/Low Grade – – – – 43,988 Unrated 40,768,418 193,667 – 40,962,085 34,556,334 Past due but not impaired – 703,729 – 703,729 648,911 Individually impaired – – 502,287 502,287 – 42,779,245 897,396 502,287 44,178,928 35,828,922 Credit card receivables - individual Neither Past Due nor Individually Impaired High grade 1,955,341 – – 1,955,341 1,260,777 Standard/Medium grade 811,635 – – 811,635 535,328 Substandard/Low Grade 2,361,821 – – 2,361,821 636,435 Unrated 574,592 – – 574,592 676,243 Past due but not impaired – 492,457 – 492,457 137,517 5,703,389 492,457 – 6,195,846 3,246,300 Receivable from customers (SBEI) Neither Past Due nor Individually Impaired High grade 144,140 – – 144,140 239,063 Standard/Medium grade 568,729 – – 568,729 943,264 Substandard/Low Grade 481 – – 481 798 Past due but not impaired – 36,414 – 36,414 60,394 713,350 36,414 – 749,764 1,243,519 Total receivable from customers 395,986,169 15,325,074 2,636,984 413,948,227 367,276,136 Other receivables Neither Past Due nor Individually Impaired High grade 5,617,728 18,506 – 5,636,234 3,881,648 Standard/Medium grade 544,072 25,354 – 569,426 1,634,439 Substandard/Low Grade 10,472 11,391 – 21,863 286,676 Unrated 472,756 570,266 – 1,043,022 782,011 Past due but not impaired – 43,708 – 43,708 21,284 Individually impaired – – 64,348 64,348 158,672 6,645,028 669,225 64,348 7,378,601 6,764,730 Other assets Neither Past Due nor Individually Impaired High grade 2,371,164 – – 2,371,164 1,016,454 Unrated 381,969 – – 381,969 321,154 2,753,133 – – 2,753,133 1,337,608 P=405,384,330 P=15,994,299 P=2,701,332 P=424,079,961 P=375,378,474
*SGVFS032853* - 59 -
Parent Company December 31, 2018 December 31, 2017 Stage 1 Stage 2 Stage 3 Total Total Receivable from customers: Corporate lending Neither Past Due nor Individually Impaired High grade P=291,920,623 P=2,612,009 P=– P=294,532,632 P=14,954,179 Standard/Medium grade 23,647,692 7,545,506 – 31,193,198 197,246,304 Substandard/Low Grade – 2,934,440 – 2,934,440 70,619,819 Unrated – – – – 7,784,296 Past due but not impaired – 345,966 – 345,966 70,836 Individually impaired – – 1,329,413 1,329,413 16,909,718 315,568,315 13,437,921 1,329,413 330,335,649 307,585,152 Consumer lending Neither Past Due nor Individually Impaired Unrated 29,756,735 116,477 – 29,873,212 13,899,264 Past due but not impaired – 226,877 – 226,877 236,143 Individually impaired – – 523,965 523,965 – 29,756,735 343,354 523,965 30,624,054 14,135,407 Small business lending Neither Past Due nor Individually Impaired High grade 1,255,828 – – 1,255,828 3,751 Standard/Medium grade 66,905 – – 66,905 371,620 Substandard/Low Grade – – – – 40,530 Unrated – – – – 4,251,442 Past due but not impaired – 38,669 – 38,669 30,182 Individually impaired – – 32,859 32,859 79,035 1,322,733 38,669 32,859 1,394,261 4,776,560 Residential mortgages Neither Past Due nor Individually Impaired High grade 2,010,827 – – 2,010,827 – Standard/Medium grade – – – – 579,689 Substandard/Low Grade – – – – 43,988 Unrated 40,573,186 193,667 – 40,766,853 34,330,293 Past due but not impaired – 703,730 – 703,730 648,911 Individually impaired – – 502,287 502,287 – 42,584,013 897,397 502,287 43,983,697 35,602,881 Credit card receivables - individual Neither Past Due nor Individually Impaired High grade 1,955,341 – – 1,955,341 1,260,777 Standard/Medium grade 811,635 – – 811,635 535,328 Substandard/Low Grade 2,361,821 – – 2,361,821 636,435 Unrated 574,592 – – 574,592 676,243 Past due but not impaired – 492,457 – 492,457 137,517 5,703,389 492,457 – 6,195,846 3,246,300 Total receivable from customers 394,935,185 15,209,798 2,388,524 412,533,507 365,346,300 Other receivables Neither Past Due nor Individually Impaired High grade 5,741,825 18,506 – 5,760,331 3,875,164 Standard/Medium grade 200,935 25,354 – 226,289 1,275,554 Substandard/Low Grade – 11,391 – 11,391 300,355 Unrated 399,016 570,267 – 969,283 804,279 Past due but not impaired – 31,724 – 31,724 21,284 Individually impaired – – 22,387 22,387 122,744 6,341,776 657,242 22,387 7,021,405 6,399,380 Other assets Neither Past Due nor Individually Impaired High grade 2,371,164 – – 2,371,164 1,016,454 Unrated 381,742 – – 381,742 317,070 2,752,906 – – 2,752,906 1,333,524 P=404,029,867 P=15,867,040 P=2,410,911 P=422,307,818 P=373,079,204
*SGVFS032853* - 60 -
As of December 31, 2018 and 2017, allowance on individually impaired receivables amounted to P=1.2 billion and =2.4P billion, respectively for the Group, and =1.0P billion and P=2.4 billion, respectively for the Parent Company (see Note 14).
The following table provides the analysis of the Group and the Parent Company’s restructured receivables by class (included in the preceding table for the credit quality by class of financial assets) as of December 31, 2018 and 2017:
Consolidated December 31, 2018 December 31, 2017 Stage 1 Stage 2 Stage 3 Total Total Corporate lending Neither Past Due nor Individually Impaired P=285,857 P=100,317 P=– P=368,174 P=6,163 Past due but not impaired – – – – 2,762 Individually impaired – – 107,962 107,692 55,400 285,857 100,317 107,962 494,136 64,325 Consumer lending Neither Past Due nor Individually Impaired 12,722 – – 20,778 6,635 Past due but not impaired – 1,588 – 3,404 1,658 Individually impaired – – 9,872 9,872 – 12,722 1,588 9,872 24,182 8,293 Small business lending Neither Past Due nor Individually Impaired – – 1,165 1,165 – Past due but not impaired – – – – 4,569 Individually impaired – – – – 9,250 – – 1,165 1,165 13,819 Residential mortgages Neither Past Due nor Individually Impaired 4,650 – 4,009 8,659 5,759 4,650 – 4,009 8,659 5,759 P=303,229 P=101,905 P=123,008 P=528,142 P=92,196
Parent Company December 31, 2018 December 31, 2017 Stage 1 Stage 2 Stage 3 Total Total Corporate lending Neither Past Due nor Individually Impaired P=285,857 P=100,317 P=– P=386,174 P=6,163 Past due but not impaired – – – – 2,762 Individually impaired – – 107,962 107,962 55,400 285,857 100,317 107,962 494,136 64,325 Consumer lending Neither Past Due nor Individually Impaired 6,828 – – 6,828 1,139 Past due but not impaired – – – – 1,027 Individually impaired – – 9,872 9,872 – 6,828 – 9,872 16,700 2,166 Small business lending Past due but not impaired – – – – 4,569 Individually impaired – – 1,165 1,165 9,250 – – 1,165 1,165 13,819 Residential mortgages Neither Past Due nor Individually Impaired 4,650 – – 4,650 5,759 Individually impaired – – 4,009 4,009 – 4,650 – 4,009 8,659 5,759 P=297,335 P=100,317 P=123,008 P=520,660 P=86,069
*SGVFS032853* - 61 -
Aging analysis of past due but not impaired financial assets per class The table below shows the aging analysis of past due but not impaired loans receivables per class of the Group and the Parent Company.
Consolidated Within 30 days 31 to 60 Days 61 to 90 days Over 90 days Total December 31, 2017 Corporate lending P=44,504 P=20,570 P=3,001 P=2,761 P=70,836 Consumer lending 76,819 59,887 115,657 228,844 481,207 Residential mortgages 311 27,265 146,606 474,729 648,911 Small business lending – 2,058 14,231 13,893 30,182 Others 210 683 5,112 15,279 21,284 Total P=121,844 P=110,463 P=284,607 P=735,506 P=1,252,420
Parent Company Within 30 days 31 to 60 Days 61 to 90 days Over 90 days Total December 31, 2017 Corporate lending P=44,504 P=20,570 P=3,000 P=2,762 P=70,836 Consumer lending 15,071 58,649 104,264 195,676 373,660 Residential mortgages 311 27,265 146,606 474,729 648,911 Small business lending – 2,058 14,231 13,893 30,182 Others 210 683 5,112 15,279 21,284 Total P=60,096 P=109,225 P=273,213 P=702,339 P=1,144,873
Impairment assessment Effective January 1, 2018, the Group calculates ECLs either on a collective or an individual basis.
Asset classes where the Group calculates ECL on an individual basis include: ∂ The corporate lending portfolio ∂ The large and unique exposures of the small business lending portfolio ∂ The treasury, trading and interbank relationships (such as investment securities not held for trading, due from other banks, interbank loans and cash collateral deposits)
Asset classes where the Group calculates ECL on a collective basis include: ∂ The smaller and more generic balances of the Parent Company’s small business lending ∂ Residential mortgages and consumer lending
The Group groups these exposures into smaller homogeneous portfolios, based on a combination of internal and external characteristics of the loans. It includes but not limited to product type, property type, geographic location, internal grade, exposure value, utilization and collateral type, as applicable.
As of December 31, 2017, the Group and the Parent Company recognize impairment losses based on the results of its individual and collective assessment of its credit exposures. Impairment has taken place when there is a presence of known difficulties in the servicing of cash flows by counterparties, a significant credit rating downgrade, infringement of the original terms of the contract has happened, or when there is inability to pay principal or interest overdue beyond a certain threshold. These and other factors, either singly or together with other factors, constitute observable events and/or data that meet the definition of an objective evidence of impairment.
Liquidity Risk Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
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Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due under both normal and stress circumstances. Liquidity risk is monitored and managed using Maximum Cumulative Outflows (MCO) limits. A Contingency Funding Plan is likewise in place to ensure readiness for identified liquidity crisis situation.
The Parent Company’s Asset and Liability Committee (ALCO) is directly responsible for market and liquidity risk exposures. ALCO regularly monitors the Parent Company’s positions and sets the appropriate transfer pricing rate to effectively manage movements of funds across business activities.
Analysis of financial instruments by remaining contractual maturities The table below shows the maturity profile of the Group’s and the Parent Company’s financial instruments, based on the Group’s and the Parent Company’s internal methodology that manages liquidity based on remaining contractual undiscounted cash flows.
Financial assets Maturity profile of financial assets held for liquidity purposes is shown below. Analysis of equity and debt securities at FVTPL into maturity groupings is based on the expected date on which these assets will be realized. For other assets, the analysis into maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date the assets will be realized.
Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date, except for savings deposits which are based on expected withdrawals. When a counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay.
Consolidated Within 30 61 to 181 to Over On Demand Days 31 to 60 Days 180 Days 360 Days 360 Days Total December 31, 2018 Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=– P=2,445,910 P=– P=– P=– P=– P=2,445,910 Private bonds – 29,497 – – – – 29,497 Equity securities – 4 – – – – 4 Total HFT investments – 2,475,411 – – – – 2,475,411 Others – – – – – 15,487 15,487 Total financial assets at FVTPL – 2,475,411 – – – 15,487 2,490,898 Financial assets at amortized cost: COCI and due from BSP 75,531,758 – – – – – 75,531,758 Due from other banks 9,017,042 – – – – – 9,017,042 Interbank loans receivable and SPURA with BSP – 210,409 – – – – 210,409 Investment securities at amortized cost – 248,980 381,433 990,617 4,827,410 335,410,130 341,858,570 Receivable from customers and other receivables 27,354 79,214,635 29,699,365 61,400,248 39,885,582 262,504,717 472,731,901 Total financial assets at amortized cost 84,576,154 79,674,024 30,080,798 62,390,865 44,712,992 597,914,847 899,349,680 Financial assets at FVTOCI – 6,630 2,198,084 6,774,837 10,143,619 20,887,643 40,010,813 Total financial assets P=84,576,154 P=82,156,065 P=32,278,882 P=69,165,702 P=54,856,611 P=618,817,977 P=941,851,391
Financial Liabilities Deposit liabilities: Demand P=124,920,436 P=– P=– P=– P=– P=– P=124,920,436 Savings – 10,085,652 1,756,872 4,826,440 7,881,137 93,339,946 117,890,047 Time – 64,557,024 31,441,096 34,263,278 13,346,772 90,910,600 234,518,770 LTNCD – – 5,292,201 216,978 5,373,569 16,618,867 27,501,615 Total deposit liabilities 124,920,436 74,642,676 38,490,169 39,306,696 26,601,478 200,869,413 504,830,868 Bills payable and SSURA – 66,634,690 5,066,867 7,565,793 – 25,396,100 104,663,450 Subordinated note – 137,361 – 134,375 273,229 2,590,451 3,135,416 Notes payable – – 318,460 358,859 676,069 34,747,186 36,100,574 Acceptances payable – – – – – 618,831 618,831 Margin deposits and cash letters of credit – – – – – 938,659 938,659 Manager’s and certified checks outstanding – 3,275,753 – – – – 3,275,753 Accrued interest, expense and other liabilities – 10,450,352 – – – 384,051 10,834,403 Total financial liabilities P=124,920,436 P=155,140,832 P=43,875,496 P=47,365,723 P=27,550,776 P=265,544,691 P=664,397,954 *SGVFS032853* - 63 -
Consolidated Within 30 61 to 181 to Over On Demand Days 31 to 60 Days 180 Days 360 Days 360 Days Total December 31, 2017 (As restated – Note 2) Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=– P=2,965,152 P=– P=– P=– P=– P=2,965,152 Private bonds – 146,362 – – – – 146,362 Equity securities – 8 – – – – 8 Total HFT investments – 3,111,522 – – – – 3,111,522 Others – – – – – 15,487 15,487 Total financial assets at FVTPL – 3,111,522 – – – 15,487 3,127,009 Financial assets at amortized cost: COCI and due from BSP 64,548,409 – – – – – 64,548,409 Due from other banks 6,822,992 – – – – – 6,822,992 Interbank loans receivable and SPURA with BSP – 5,580,563 – – 114,200 – 5,694,763 Investment securities at amortized cost – 964,796 1,517,748 3,750,188 3,886,382 273,313,174 283,432,288 Receivable from customers and other receivables 1,797,286 56,631,280 34,276,154 56,534,864 25,839,832 295,609,425 470,688,841 Total financial assets at amortized cost 73,168,687 63,176,639 35,793,902 60,285,052 29,840,414 568,922,599 831,187,293 Financial assets at FVTOCI – – – – – 200,271 200,271 Total financial assets P=73,168,687 P=66,288,161 P=35,793,902 P=60,285,052 P=29,840,414 P=569,138,357 P=834,514,573 Financial Liabilities Deposit liabilities: Demand P=109,706,357 P=– P=– P=– P=– P=– P=109,706,357 Savings 110,061,024 761,332 594,423 1,710,073 2,184,609 2,773,673 118,085,134 Time – 43,954,509 27,572,930 36,034,158 17,875,690 43,297,151 168,734,438 LTNCD – – 225,719 220,651 449,147 20,401,101 21,296,618 Total deposit liabilities 219,767,381 44,715,841 28,393,072 37,964,882 20,509,446 66,471,925 417,822,547 Bills payable and SSURA – 102,039,007 14,840,621 6,167,051 1,318,635 8,417,185 132,782,499 Subordinated note – 137,361 – 134,375 273,229 13,135,417 13,680,382 Notes payable – – 302,409 – 297,479 16,180,420 16,780,308 Acceptances payable – – – – – 684,690 684,690 Margin deposits and cash letters of credit – – – – – 650,277 650,277 Manager’s and certified checks outstanding – 3,607,138 – – – – 3,607,138 Accrued interest, expense and other liabilities – 8,716,619 – – – 458,105 9,174,724 Total financial liabilities P=219,767,381 P=159,215,966 P=43,536,102 P=44,266,308 P=22,398,789 P=105,998,019 P=595,182,565
Parent Company Within 61 to 181 to Over On Demand 30 Days 31 to 60 Days 180 Days 360 Days 360 Days* Total December 31, 2018 Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=– P=2,445,910 P=– P=– P=– P=– P=2,445,910 Private bonds – 29,497 – – – – 29,497 Total HFT investments – 2,475,407 – – – – 2,475,407 Others – – – – – 15,464 15,464 Total financial assets at FVTPL – 2,475,407 – – – 15,464 2,490,871 Financial assets at amortized cost: COCI and due from BSP 75,531,733 – – – – – 75,531,733 Due from other banks 8,880,800 – – – – – 8,880,800 Interbank loans receivable and SPURA with BSP – 210,409 – – – – 210,409 Investment securities at amortized cost – 248,980 381,433 990,617 4,827,410 335,410,130 341,858,570 Receivable from customers and other receivables – 78,902,259 29,700,648 61,637,838 40,056,239 260,842,069 471,139,053 Total financial assets at amortized cost 84,412,533 79,361,648 30,082,081 62,628,455 44,883,649 596,252,199 897,620,565 Financial assets at FVTOCI – 6,630 2,198,084 6,774,837 10,143,619 20,618,090 39,741,260 Total financial assets P=84,412,533 P=81,843,685 P=32,280,165 P=69,403,292 P=55,027,268 P=616,885,753 P=939,852,696 Financial Liabilities Deposit liabilities: Demand P=125,091,230 P=– P=– P=– P=– P=– P=125,091,230 Savings – 10,172,430 1,756,872 4,826,440 7,881,137 93,339,946 117,976,825 Time – 65,758,614 31,441,096 34,535,368 13,346,772 90,910,600 235,992,450 LTNCD – – 5,292,201 216,978 5,373,569 16,618,867 27,501,615 Total deposit liabilities 125,091,230 75,931,044 38,490,169 39,578,786 26,601,478 200,869,413 506,562,120 Bills payable and SSURA – 66,393,690 4,982,867 7,565,793 – 25,396,100 104,338,450 Acceptances payable – – – – – 618,831 618,831 Margin deposits and cash letters of credit – – – – – 938,659 938,659 Manager’s and certified checks outstanding – 3,275,753 – – – – 3,275,753 Notes payable – – 318,460 358,859 676,069 34,747,186 36,100,574 Subordinated note – 137,361 – 134,375 273,229 2,590,451 3,135,416 Accrued interest, expense and other liabilities – 10,177,896 – – – 477,801 10,655,697 Total financial liabilities P=125,091,230 P=155,915,744 P=43,791,496 P=47,637,813 P=27,550,776 P=265,638,441 P=665,625,500
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Parent Company On Within 31 to 60 61 to 181 to Over Demand 30 Days Days 180 Days 360 Days 360 Days* Total December 31, 2017 (As restated – Note 2) Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=– P=2,965,152 P=– P=– P=– P=– P=2,965,152 Private bonds – 49,266 – – – – 49,266 Total HFT investments – 3,014,418 – – – – 3,014,418 Others – – – – – 15,465 15,465 Total financial assets at FVTPL – 3,014,418 – – – 15,465 3,029,883 Financial assets at amortized cost: COCI and due from BSP 64,548,384 – – – – – 64,548,384 Due from other banks 6,737,508 – – – – – 6,737,508 Interbank loans receivable and SPURA with BSP – 5,580,563 – – 114,200 – 5,694,763 Investment securities at amortized cost – 964,796 1,517,748 3,750,188 3,886,382 273,313,174 283,432,288 Receivable from customers and other receivables – 56,578,841 34,262,479 56,534,787 25,839,640 295,605,810 468,821,557 Total financial assets at amortized cost 71,285,892 63,124,200 35,780,227 60,284,975 29,840,222 568,918,984 829,234,500 Financial assets at FVTOCI – – – – – 151,370 151,370 Total financial assets P=71,285,892 P=66,138,618 P=35,780,227 P=60,284,975 P=29,840,222 P=569,085,819 P=832,415,753 Financial Liabilities Deposit liabilities: Demand P=110,512,177 P=– P=– P=– P=– P=– P=110,512,177 Savings 110,245,127 997,232 867,892 1,873,705 2,184,609 2,773,673 118,942,238 Time – 44,201,672 27,588,753 36,034,158 17,875,690 43,297,151 168,997,424 LTNCD – – 225,719 220,651 449,147 20,401,101 21,296,618 Total deposit liabilities 220,757,304 45,198,904 28,682,364 38,128,514 20,509,446 66,471,925 419,748,457 Bills payable and SSURA – 102,039,007 14,840,621 6,167,051 1,318,635 8,267,185 132,632,499 Acceptances payable – – – – – 684,690 684,690 Margin deposits and cash letters of credit – – – – – 650,277 650,277 Manager’s and certified checks outstanding – 3,607,138 – – – – 3,607,138 Notes payable – – 302,409 – 297,479 16,180,420 16,780,308 Subordinated note – 137,361 – 134,375 273,229 13,135,417 13,680,382 Accrued interest, expense and other liabilities – 6,764,296 – – – 574,584 7,338,880 Total financial liabilities P=220,757,304 P=157,746,706 P=43,825,394 P=44,429,940 P=22,398,789 P=105,964,498 P=595,122,631 *For items within the “Over 360 Days” bucket, further analysis is made based on time buckets. The table below shows the contractual expiry by maturity of the Group’s and the Parent Company’s contingent liabilities and commitments.
Within 61 to 181 to Over On Demand 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total December 31, 2018 Committed loan line P=– P=– P=32,258 P=9,724,359 P=18,081,891 P=21,717,881 P=49,556,389 Unused commercial letters of credit 1,443,555 3,336,463 4,880,278 7,729,870 8,329,760 1,336,108 27,056,034 Unutilized credit limit of credit card holders 22,994,800 – – – – – 22,994,800 Outstanding guarantees 2,734,035 – – – – – 2,734,035 Inward bills for collection 670,613 107,918 4,021 – 4,267 – 786,819 Outward bills for collection – – 488,192 – – – 488,192 Financial guarantees with commitment – 94,761 330 3,199 323 – 98,613 P=27,843,003 P=3,539,142 P=5,405,079 P=17,457,428 P=26,416,241 P=23,053,989 P=103,714,882 December 31, 2017 Committed loan line P=– P=2,000,000 P=– P=17,543,827 P=45,518,693 P=18,797,391 P=83,859,911 Unused commercial letters of credit 742,273 2,666,925 4,021,866 8,707,931 7,192,221 1,505,600 24,836,816 Unutilized credit limit of credit card holders 13,214,507 – – – – – 13,214,507 Outstanding guarantees 1,220,768 – – – – – 1,220,768 Inward bills for collection 87,552 281,643 122,769 639 7,697 – 500,300 Outward bills for collection 65,894 17,254 211,590 – – – 294,738 Financial guarantees with commitment – 23,179 22,544 10,754 30,000 – 86,477 P=15,330,994 P=4,989,001 P=4,378,769 P=26,263,151 P=52,748,611 P=20,302,991 P=124,013,517
Market Risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. The Group classifies exposures to market risk into either trading or non-trading portfolios and manages those portfolios separately.
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The Group manages its market risk exposures through various established structures, processes and measurement tools. ∂ Treasury Group, the unit in charge of managing customer flows, liquidity and interest rate risk in the banking book, and that which handles most of the proprietary trading of the Group, is assigned with risk limits by the ROC. Similarly, limits are assigned to the equities trading arm of the Group, Equities Investment Unit. ∂ The Risk Management Group performs daily monitoring of compliance with policies, procedures and risk limits and accordingly makes recommendations, where appropriate. ∂ The ALCO is the senior decision making body for the management of all market risks related to asset and liability management, and the trading and accrual books. ∂ VaR is the statistical model used by the Group to measure the market risk of its trading portfolio, with the confidence level set at 99.0%. On top of VaR and to account for market liquidity, the Group applies various liquidity factors per product type as approved by the ROC.
The market risk measurement models are subjected to periodic back testing to ensure validity of market assumptions used.
Other risk management tools utilized by the Parent Company are as follows: ∂ Loss limits ∂ Position and duration limits, where appropriate ∂ Mark-to-market valuation ∂ VaR limits ∂ Earnings-at-Risk (EaR) limits Additional risk monitoring tools were likewise adopted to better cope with the fluid market environment. This came mainly in the form of sensitivity analyses to pinpoint vulnerabilities in terms of profit or loss and capital erosion.
Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments. The Parent Company follows a prudent policy on managing its assets and liabilities so as to ensure that exposure to fluctuations in interest rates are kept within acceptable limits.
Interest rate risk exposures are reported via the weekly repricing gap schedule. The repricing gap report highlights mismatches in the repricing tenors of assets and liabilities. Repricing gaps are calculated by distributing the statements of financial position accounts into time buckets based on the next repricing dates of individual items. For non-maturing deposits, distinction is made between the core (i.e. stable) and non-core portions, where the former is spread in time buckets aligned with Basel’s IRRBB Document while the latter is bucketed in short-term tenors. The resulting difference between the amount of the assets and the amount of the liabilities that will reprice within a particular time bucket constitutes a repricing gap.
The Group employs gap analysis to measure the sensitivity of its assets and liabilities to fluctuations in market interest rates for any given period. A positive gap occurs when the amount of interest rate- sensitive assets exceeds the amount of interest rate-sensitive liabilities and is favorable to the Group during a period of rising interest rates since it is in a better position to invest in higher yielding assets more quickly than it would need to refinance its interest bearing liabilities. Conversely, during a period of falling interest rates, a positively gapped position could result in a restrained growth or even a declining net interest income.
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The following tables set forth the asset-liability gap position of the Group and of the Parent Company as of December 31, 2018 and 2017 (amounts in millions):
Consolidated Within 61 to 181 to Over 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total December 31, 2018 Rate-sensitive Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=2,446 P=– P=– P=– P=– P=2,446 Private bonds 29 – – – – 29 Total HFT investments 2,475 – – – – 2,475 Total financial assets at FVTPL 2,475 – – – – 2,475 Financial assets at amortized cost: Due from BSP and other banks and Interbank loans receivable and SPURA with the BSP 9,233 – – – – 9,233 Investment securities at amortized cost 58 – 12 3,348 208,865 212,283 Receivable from customers and other receivables - gross 179,841 10,628 23,482 21,584 178,886 414,421 Total financial assets at amortized cost 189,132 10,628 23,494 24,932 387,751 635,937 Financial assets at FVTOCI 2,634 8,778 5,389 700 16,533 34,034 Total rate-sensitive assets 194,241 19,406 28,883 25,632 404,284 672,446 Rate-sensitive Financial Liabilities Deposit liabilities 94,214 36,761 29,567 18,455 185,073 364,070 Bills payable and SSURA 65,474 4,966 7,486 – 25,254 103,180 Notes payable – – – – 31,548 31,548 Subordinated note – – – – 10,000 10,000 Total rate-sensitive liabilities 159,688 41,727 37,053 18,455 251,875 508,798 Asset-Liability Gap P=34,553 (P=22,321) (P=8,170) P=7,177 P=152,409 P=163,648 December 31, 2017 (As restated – Note 2) Rate-sensitive Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=2,965 P=– P=– P=– P=– P=2,965 Private bonds 146 – – – – 146 Total HFT investments 3,111 – – – – 3,111 Total financial assets at FVTPL 3,111 – – – – 3,111 Financial assets at amortized cost: Due from BSP and other banks and Interbank loans receivable and SPURA with the BSP 7,123 – – – – 7,123 Investment securities at amortized cost – 348 99 98 229,048 229,593 Receivable from customers and other receivables - gross 51,172 49,692 35,620 19,021 212,227 367,732 Total financial assets at amortized cost 58,295 50,040 35,719 19,119 441,275 604,448 Total rate-sensitive assets 61,406 50,040 35,719 19,119 441,275 607,559 Rate-sensitive Financial Liabilities Deposit liabilities 141,570 42,475 23,456 19,713 185,963 413,177 Bills payable and SSURA 101,982 14,798 6,128 1,250 7,021 131,179 Notes payable – – – – 14,948 14,948 Subordinated note – – – – 10,000 10,000 Total rate-sensitive liabilities 243,552 57,273 29,584 20,963 217,932 569,304 Asset-Liability Gap (P=182,146) (P=7,233) P=6,135 (P=1,844) P=223,343 P=38,255
Parent Company Within 61 to 181 to Over 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total December 31, 2018 Rate-sensitive Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=2,446 P=– P=– P=– P=– P=2,446 Private bonds 29 – – – – 29 Total HFT investments 2,475 – – – – 2,475 Total financial assets at FVTPL 2,475 – – – – 2,475
(Forward)
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Parent Company Within 61 to 181 to Over 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total Financial assets at amortized cost: Due from BSP and other banks and Interbank loans receivable and SPURA with the BSP P=9,097 P=– P=– P=– P=– P=9,097 Investment securities at amortized cost 58 – 12 3,348 208,865 212,283 Receivable from customers and other receivables - gross 175,996 10,579 23,625 21,981 180,824 413,005 Total financial assets at amortized cost 185,151 10,579 23,637 25,329 389,689 634,385 Financial assets at FVTOCI 2,634 8,778 5,389 700 16,533 34,034 Total rate-sensitive assets 190,260 19,357 29,026 26,029 406,222 670,894 Rate-sensitive Financial Liabilities Deposit liabilities 95,502 36,761 29,839 18,455 185,073 365,630 Bills payable and SSURA 65,474 4,966 7,486 – 24,929 102,855 Notes payable – – – – 31,548 31,548 Subordinated note – – – – 10,000 10,000 Total rate-sensitive liabilities 160,976 41,727 37,325 18,455 251,550 510,033 Asset-Liability Gap P=29,284 (P=22,370) (P=8,299) P=7,574 P=154,672 P=160,861 December 31, 2017 (As restated – Note 2) Rate-sensitive Financial Assets Financial assets at FVTPL: HFT investments: Government securities P=2,965 P=– P=– P=– P=– P=2,965 Private bonds 49 – – – – 49 Total HFT investments 3,014 – – – – 3,014 Total financial assets at FVTPL 3,014 – – – – 3,014 Financial assets at amortized cost: Due from BSP and other banks and Interbank loans receivable and SPURA with the BSP 7,037 – – – – 7,037 Investment securities at amortized cost – 348 99 98 229,048 229,593 Receivable from customers and other receivables - gross 49,040 48,569 35,619 19,021 213,547 365,796
Total financial assets at amortized cost 56,077 48,917 35,718 19,119 442,595 602,426 Total rate-sensitive assets 59,091 48,917 35,718 19,119 442,595 605,440 Rate-sensitive Financial Liabilities Deposit liabilities 143,481 42,475 23,456 19,713 185,978 415,103 Bills payable and SSURA 101,982 14,798 6,128 1,250 6,871 131,029 Notes payable – – – – 14,948 14,948 Subordinated note – – – – 10,000 10,000 Total rate-sensitive liabilities 245,463 57,273 29,584 20,963 217,797 571,080 Asset-Liability Gap (P=186,372) (P=8,356) P=6,134 (P=1,844) P=224,798 P=34,360
The following table provides for the average effective interest rates by period of repricing (or by period of maturity if there is no repricing) of the Group and of the Parent Company as of December 31, 2018 and 2017:
Consolidated Parent Company Less than 3 months Greater Less than 3 3 months Greater 3 months to 1 year than 1 year months to 1 year than 1 year December 31, 2018 Peso Financial Assets Due from BSP 2.78% – – 2.78% – – Due from banks 1.35% – – 1.35% – – Interbank loans 5.23% – – 5.23% – – Investment securities* 5.25% 6.05% 6.93% 5.25% 6.05% 6.93% Loans and receivables 4.37% 4.85% 4.70% 4.37% 4.85% 4.70%
Financial Liabilities Deposit liabilities other than LTNCD 5.62% 3.85% 4.51% 5.62% 3.85% 4.51% LTNCD – 5.50% 4.28% – 5.50% 4.28% Bills payable and SSURA 10.12% 5.35% 8.00% – 5.35% 8.00% Subordinated note – – 5.46% – 5.46% Notes payable – – 4.68% – – 4.68%
(Forward)
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Consolidated Parent Company Less than 3 months Greater Less than 3 3 months Greater 3 months to 1 year than 1 year months to 1 year than 1 year USD Financial Assets Due from banks 0.01% – – 0.01% – – Interbank loans receivable and SPURA 2.55% – – 2.55% – – Investment securities* 2.36% 2.18% 4.20% 2.36% 2.18% 4.20% Loans and receivables 4.96% 3.16% 4.76% 4.96% 3.16% 4.76% Financial Liabilities Deposit liabilities 2.69% 2.96% 2.26% 1.85% 2.06% 2.26% Bills payable 3.58% 1.87% 2.00% 3.58% 1.87% 2.00% Notes payable – – 4.05% – – 4.05% December 31, 2017 Peso Financial Assets Due from BSP 2.78% – – 2.78% – – Due from banks 1.00% – – 1.00% – – Interbank loans 3.13% – – 3.13% – – Investment securities* 2.64% 2.82% 4.81% 2.64% 2.82% 4.81% Loans and receivables 5.30% 6.09% 6.81% 5.30% 6.09% 6.81%
Financial Liabilities Deposit liabilities other than LTNCD 2.42% 2.13% 2.30% 2.42% 2.13% 2.30% LTNCD – – 5.62% – – 5.62% Bills payable and SSURA – – 8.00% – – 8.00% Subordinated note – – 5.46% – – 5.46%
USD Financial Assets Due from banks 0.01% – – 0.01% – – Interbank loans receivable and SPURA – – 3.50% – – 3.50% Investment securities* – – 3.58% – – 3.58% Loans and receivables 4.40% 3.53% 4.65% 4.40% 3.53% 4.65% Financial Liabilities Deposit liabilities 1.85% 2.06% 2.26% 1.85% 2.06% 2.26% Bills payable 3.58% 1.87% 2.00% 3.58% 1.87% 2.00% Notes payable – – 4.04% – – 4.04% * Consists of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost
Market Risk in the Trading Book The Parent Company needs to measure VaR in order to have an idea on how the market value of an asset or of a portfolio of assets is likely to decrease over a certain time period as market factors randomly change.
VaR computation is a two-step process which involves calculation of the changes in the relevant risk factors then computing for the corresponding impact on the exposure’s value. A risk factor is defined as a variable that causes a change in the value of a financial instruments or a portfolio of financial instruments.
VaR Methodology The Parent Company uses two different approaches - Variance-Covariance and Historical Model.
Variance-Covariance approach is based on the assumption that the market factors have a multivariate Normal distribution. Using this assumption, portfolio profits and losses follow a conditional normal distribution, i.e., the standardized return – the return divided by the forecasted deviation - follow the characteristic of the Normal curve whilst the returns themselves do not necessarily follow a Normal distribution. Due to this assumption, it is possible to have an explicit formula for the quantile, since a relationship exists between standard deviation and confidence level, which will be used for the VaR computation.
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Historical model assumes that asset returns in the future will have the same distribution that they had in the past. It estimates VaR by reliving history, which involves using historical changes in market factors to construct a distribution of potential profits and losses, and then reading off the loss that is exceeded at a specified confidence level and period. The Parent Company employs Historical model in two forms: one is a full revaluation while the other is a Taylor expansion composed of sensitivities (“Greeks”) characterizing market behavior.
The Group uses the Historical model in calculating the VaR of most fixed income securities (except government securities), foreign exchange outrights, forwards and swaps, and other derivative instruments. For equities, the Variance-Covariance approach is used.
VaR Parameters The Group uses a 99.0% confidence level which translates to 2.326 standard deviations. To give a better picture, a 99.0% VaR can be taken as the 10th lowest of 1,000 profit and loss observations.
Since VaR is computed based on the volatility of market factors irrespective of market liquidity, the Parent Company has assigned liquidity factors to account for the market’s ability to absorb the Bank’s positions if it were to unload it the next day. The liquidity-adjusted 1-day VaR replaces the use of various defeasance assumption, meant to represent the length of time it takes to fully close positions on a specific product/portfolio. While the Parent Company uses a fixed 1 day defeasance assumption across all products, liquidity factors is subject to a periodic review.
The VaR figures are backtested against actual and hypothetical profit and loss to validate the robustness of the VaR model. Likewise, to complement the VaR measure, the Parent Company performs stress tests wherein the trading portfolios are valued under extreme market scenarios not covered by the confidence interval of the VaR model.
Since VaR is an integral part of the Parent Company’s market risk management, VaR limits are set annually for all financial trading activities based on its risk appetite level. Exposures are then monitored daily against the established VaR limits.
The following table provides the VaR summary of the Parent Company for the year ended December 31, 2018 and 2017 (amounts in millions):
Interest FX and Fixed Rate Swap Other FX Swaps Income Agreements* Derivatives 31-Dec-18 2018-Average Daily P=9.253 P=32.214 P=21.507 P=7.773 2018-Highest 22.247 229.841 40.005 13.341 2018-Lowest 1.544 1.463 10.379 4.242 As of Dec. 31, 2018 9.997 42.875 12.937 7.515
31-Dec-17 2017-Average Daily P=7.231 P=52.554 P=26.638 P=10.745 2017-Highest 38.818 311.940 39.624 31.677 2017-Lowest 1.679 3.061 15.612 6.306 As of Dec. 31, 2017 5.306 116.181 36.300 8.521
*Includes interest rate swap transactions of same currency, e.g., PHP fix/float, and cross currency swaps, e.g., USD/PHP fix/fix
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The Parent Company’s trading in fixed income securities together with the interest rate swaps are exposed to movements in interest rates. Foreign exchange swaps and other derivatives such as options and gold forwards are exposed to multiple risk factors including foreign exchange rates, interest rates, and sometimes even the volatility of these factors, e.g., for options, the volatility of the FX rates are also being traded.
The high and low of the total portfolio may not equal to the sum of the individual components as the high and low of individual portfolios may have occurred on different trading days.
Equity price risk Equity price risk is the risk that the fair values of equities will decrease as a result of changes in the levels of equity indices and the value of individual stocks.
The following tables set forth the impact of changes in the PSE Index (PSEi) on the Group’s and the Parent Company’s unrealized gain (loss) (in absolute amounts):
Financial Assets at FVTPL Consolidated 2018 2017 Changes in PSEi 4.28% -4.28% 13.92% -13.92% Change on trading income of equity portfolio under: Financial intermediaries P=75 (P=75) P=32 (P=32) Holding firms – – 883 (883) Industrial companies 11 (11) 209 (209) Property 4 (4) 11 (11) Services 3 (3) – – 93 (93) P=1,135 (P=1,135) As a percentage of the Group’s net unrealized gain (loss) for the year 0.00% 0.00% 0.00% 0.00%
There is no impact in the change of the PSEi to the Parent Company.
Financial Assets at FVTOCI Consolidated 2018 2017 Changes in PSEi 4.28% -4.28% 13.92% -13.92% Change in net unrealized loss of SBEI’s PSE shares P=793,070 (P=793,070) P=4,364,687 (P=4,364,687) As a percentage of SBEI’s net unrealized gain (loss) for the year 10.62% (10.62%) 1,456.39% (1,456.39%)
The Group, except for SBEI, has no equity securities classified under Financial assets at FVTOCI as of December 31, 2018 and 2017 which are affected by changes in the PSEi as these securities are mainly golf and club shares.
Market Risk in the Non-Trading Book The accrual book pertains to the assets and liabilities that make up the Parent Company’s balance sheet. Such accrual positions are sensitive to changes in interest rates. The Parent Company monitors the exposure of non-trading assets and liabilities to fluctuations in interest rates by measuring the impact of interest rate movements on its interest income.
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The following tables set forth, for the period indicated, the sensitivity of the Parent Company’s net interest income and equity to reasonably possible changes in interest rates with all other variables held constant: 2018 Currency PHP USD Changes in interest rates (in basis points) +100 -100 +100 -100 Change in annualized net interest income* P=816 (P=816) (P=803) P=803
2017 Currency PHP USD Changes in interest rates (in basis points) +100 -100 +100 -100 Change in annualized net interest income* P=99 (P=99) (P=1,237) P=1,237 *Amounts in millions
Earnings-at-Risk (EAR) or the sensitivity of the statement of income is the effect of the assumed changes in interest rates on the net interest income for one year, based on the floating rate non-trading financial assets and financial liabilities held at each statements of financial position date. This approach focuses on the impact in profit or loss of holding on to the gaps over a 1-year time frame.
To control the interest rate repricing risk in the banking books, the Parent Company sets a limit on the EAR measure.
The Parent Company recognizes, however, that this metric assumes a “business-as-usual” scenario and, therefore, do not show potential losses under a “stress” scenario. To address this limitation, the Parent Company performs regular stress testing to test its ability to cope with adverse changes in interest rates under different stress scenarios. This process involves applying one-time interest rate shocks of different magnitudes to the current repricing gap positions in the balance sheet.
Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
Foreign currency-denominated deposits are generally used to fund the Parent Company’s foreign currency-denominated loan and investment portfolio in the FCDU. Banks are required by the BSP to match the foreign currency-denominated liabilities with the foreign currency-denominated assets held under the FCDU books. As of December 31, 2017, BSP requires a 30.00% liquidity reserve on all foreign currency liabilities held under the FCDU.
Effective January 1, 2018, the liquid asset cover requirements for FCDU and Expanded FCDU (EFCDU) liabilities shall be as follows: (a) for universal and commercial banks, 0% liquid asset cover, and (b) for thrift, rural and cooperative banks, 30.0% liquid asset cover. Further, beginning on 1 January 2018, the liquid asset cover requirement for FCDU and EFCDU liabilities for all banks shall be 0%. FCDUs and EFCDUs of universal banks and commercial banks may maintain its foreign currency cover in any foreign currency acceptable with the BSP. However, FCDUs and EFCDUs of thrift banks and rural banks are required to maintain foreign currency cover in the same currency as that of the corresponding foreign currency deposit liability until 31 December 2018. Beginning 1 January 2018, FCDUs and EFCDUs of thrift banks and rural banks may maintain its foreign currency cover in any foreign currency acceptable with the BSP. FCDUs and EFCDUs of universal banks, commercial banks, and thrift banks have the option to maintain foreign currency deposits with the BSP equivalent to 15.0% of their foreign currency deposit liabilities as a form of foreign currency cover. The Parent Company adopts this regulation as prescribed by BSP and addresses this on an ongoing basis. As reported to the BSP, the Parent Company is in compliance with said regulation as of December 31, 2018. *SGVFS032853* - 72 -
The Group’s policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory guidelines.
The following tables summarize the Group’s and the Parent Company’s exposure to currency risk as of December 31, 2018 and 2017. Included in the tables are the Group’s and the Parent Company’s assets and liabilities at carrying amounts, categorized by currency (amounts in Philippine Peso equivalent).
Consolidated 2018 2017 USD Others* Total USD Others* Total Financial Assets Cash and cash equivalents P=– P=477,891 P=477,891 P=– P=141,732 P=141,732 Due from other banks 3,247,625 889,441 4,137,066 2,705,077 1,030,691 3,735,768 Financial assets at FVTPL 154,917 – 154,917 144,939 – 144,939 Investment securities at amortized cost – – – 10,394,834 – 10,394,834 Loans and receivables 5,864,059 17,730 5,881,789 3,483,934 40,760 3,524,694 Other assets 1,215,006 – 1,215,006 207,709 6,141 213,850 Total financial assets 10,481,607 1,385,062 11,866,669 16,936,493 1,219,324 18,155,817 Financial Liabilities Deposit liabilities – 1,185,537 1,185,537 – 1,210,278 1,210,278 Bills payable and SSURA 12,234,847 974 12,235,821 74,137,728 570 74,138,298 Acceptances payable 569,913 17,730 587,643 583,049 40,631 623,680 Margin deposits and cash letters of credit 882,188 – 882,188 597,567 – 597,567 Accrued interest, taxes and other expenses – 77,526 77,526 – 51,526 51,526 Other liabilities 25,729 1,484 27,213 43,002 177 43,179 Total financial liabilities 13,712,677 1,283,251 14,995,928 75,361,346 1,303,182 76,664,528 Currency Swaps and Forwards 1,550,925 39,956 1,590,881 52,728,803 – 52,728,803 Net Exposure (P=1,680,145) P=141,767 (P=1,538,378) (P=5,696,050) (P=83,858) (P=5,779,908)
Parent Company 2018 2017 USD Others* Total USD Others* Total Financial Assets Cash and cash equivalents P=– P=477,891 P=477,891 P=– P=141,732 P=141,732 Due from other banks 3,247,625 889,441 4,137,066 2,705,077 1,030,691 3,735,768 Financial assets at FVTPL 154,917 – 154,917 144,939 – 144,939 Investment securities at amortized cost – – – 10,394,834 – 10,394,834 Loans and receivables 5,864,059 17,730 5,881,789 3,483,934 40,760 3,524,694 Other assets 1,215,006 – 1,215,006 207,709 6,141 213,850 Total financial assets 10,481,607 1,385,062 11,866,669 16,936,493 1,219,324 18,155,817 Financial Liabilities Deposit liabilities – 1,185,537 1,185,537 – 1,210,278 1,210,278 Bills payable and SSURA 12,234,847 974 12,235,821 74,137,728 570 74,138,298 Acceptances payable 569,913 17,730 587,643 583,049 40,631 623,680 Margin deposits and cash letters 882,188 – 882,188 597,567 – 597,567 of credit Accrued interest, taxes and other expenses – 77,526 77,526 – 51,526 51,526 Other liabilities 25,729 1,484 27,213 43,002 177 43,179 Total financial liabilities 13,712,677 1,283,251 14,995,928 75,361,346 1,303,182 76,664,528 Currency Swaps and Forwards 1,550,925 39,956 1,590,881 52,728,803 – 52,728,803 Net Exposure (P=1,680,145) P=141,767 (P=1,538,378) (P=5,696,050) (P=83,858) (P=5,779,908) * Consists of Euro, British pound, Australian dollar, Canadian dollar, Hong Kong dollar, Singapore dollar, New Zealand dollar, Swiss franc, Japanese yen, Danish kroner, Thai baht, Chinese yuan, and South Korean won
Information relating to the Parent Company’s currency derivatives are disclosed in Note 6. The Parent Company has outstanding cross-currency swaps with notional amount of USD108.8 million and USD84.1 million as of December 31, 2018 and 2017, respectively, and foreign currency forward transactions with notional amount of USD1.2 billion (bought) and USD1.2 billion (sold) as of December 31, 2018, and USD1.6 billion (bought) and USD558.5 million (sold) as of December 31, 2017. *SGVFS032853* - 73 -
The impact of the range of reasonably possible changes in the US Dollar-Philippine Peso exchange rate (except those in the FCDU books) on the Parent Company’s non-consolidated pre-tax income in 2018 and 2017 has been included in the VaR summary per product line.
Operational Risk Operational risk is the probability of loss arising from fraud, unauthorized activities, errors, omissions, system failures or from external events. This is the broadest risk type encompassing product development and delivery, operational processing, systems development, computing systems, complexity of products and services, and the internal control environment.
Operational Risk Management is considered a critical element in the Bank’s commitment to sound management and corporate governance. Under the Bank’s operational risk management framework and operational risk manual, a risk-based approach is used in mapping operational risks along critical/key business processes, addressing any deficiencies/weaknesses through the proactive process of identifying, assessing and limiting impact of risk in every business/operational area.
Group policies on internal control, information security, and other operational risk aspects have been established. Key Risk Indicators and Risk Assessment Guidelines have been implemented and disseminated to different sectors of the Group to provide alerts for operational risk vulnerabilities. The Bank has instituted a Risk and Control Assessment process, as well as an Issue Escalation procedure to ensure that issues or incidents where lapses in controls occur are captured, evaluated and elevated for correction. There is a continuous effort to expand the Operational Loss Database covering loss event categories as defined by Basel II. In addition, the Bank has an established a Business Continuity Plan to ensure continued bank operations in the face of potential disruptions to operations as well as Fraud Management Framework for the prevention, detection, investigation and recovery strategies to manage fraud, both internal and external.
6. Fair Value Measurement and Derivative Transactions
The following table provides the fair value hierarchy of the Group’s and the Parent Company’s assets and liabilities measured at fair value and those for which fair values should be disclosed:
Consolidated Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Measured at Fair Value Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P=2,445,910 P=2,445,910 P=– P=– Private bonds 29,497 29,497 29,497 – – Equity securities 4 4 4 – – Total HFT investments 2,475,411 2,475,411 2,475,411 – – Derivative assets: Interest rate swaps 1,029,830 1,029,830 – 1,029,830 – Currency forwards 903,470 903,470 – 903,470 – Cross-currency swaps 524,577 524,577 – 524,577 – Total derivative assets 2,457,877 2,457,877 – 2,457,877 – Others 15,487 15,487 23 – 15,464
(Forward)
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Consolidated Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) Total financial assets at FVTPL P=4,948,775 P=4,948,775 P=2,475,434 P=2,457,877 P=15,464 Financial assets at FVTOCI: Treasury notes and bills 17,637,261 17,637,261 17,637,261 – – Treasury bonds 11,615,697 11,615,697 11,615,697 – – Private bonds 4,781,058 4,781,058 4,781,058 – – Equity securities 269,553 269,553 – 269,553 – 34,303,569 34,303,569 34,034,016 269,553 – P=39,252,344 P=39,252,344 P=36,509,450 P=2,727,430 P=15,464 Assets for which Fair Values are Disclosed Financial Assets Financial assets at amortized cost Investment securities at amortized cost: Treasury bonds P=169,437,000 P=158,491,355 P=158,491,355 P=– P=– Private bonds 24,944,832 22,953,353 22,953,353 – – Treasury notes and bills 17,666,283 14,762,225 14,762,225 – – Total investment securities at amortized cost 212,148,115 196,206,933 196,206,933 – – Receivable from customers: Corporate lending 324,271,000 327,844,512 – – 327,844,512 Consumer lending 39,463,424 42,323,711 – – 42,323,711 Small business lending 1,367,541 1,364,830 – – 1,364,830 Residential mortgages 43,899,586 44,214,115 – – 44,214,115 Total receivable from customers 409,001,551 415,747,168 – – 415,747,168 Other receivables 7,316,139 7,316,139 – – 7,316,139 Other assets 381,969 321,574 – – 321,574 Total financial assets at amortized cost 628,847,774 619,591,814 196,206,933 – 423,384,881 Non-financial Assets Investment properties 812,794 1,130,608 – – 1,130,608 P=629,660,568 P=620,722,422 P=196,206,933 P=– P=424,515,489 Liabilities Measured at Fair Value Financial liabilities at FVTPL: Derivative liabilities: Interest rate swaps P=1,073,342 P=1,073,342 P=– P=1,073,342 P=– Currency forwards 578,457 578,457 – 578,457 – Cross-currency swaps 121,792 121,792 – 121,792 – Total financial liabilities at FVTPL 1,773,591 1,773,591 – 1,773,591 – Derivative Liabilities Designated as Hedges 1,536,816 1,536,816 – 1,536,816 – P=3,310,407 P=3,310,407 P=– P=3,310,407 P=– Liabilities for which Fair Values are Disclosed Deposit liabilities excluding LTNCD P=464,609,047 P=464,681,748 P=– P=– P=464,681,748 LTNCD 24,281,130 23,304,459 – – 23,304,459 Subordinated note 9,957,248 9,992,314 – – 9,992,314 Notes payable 31,408,760 31,738,550 31,738,550 – – Bills payable and SSURA 103,180,029 103,347,844 – – 103,347,844 P=633,436,214 P=633,064,915 P=31,738,550 P=– P=601,326,365 December 31, 2017 (As restated – Note 2) Assets Measured at Fair Value Financial assets at FVTPL: HFT investments: Government securities P=2,965,152 P=2,965,152 P=2,965,152 P=– P=– Private bonds 146,362 146,362 146,362 – – Equity securities 8 8 8 – – Total HFT investments 3,111,522 3,111,522 3,111,522 – – Derivative assets: Interest rate swaps 666,382 666,382 – 666,382 – Currency forwards 607,271 607,271 – 607,271 – Cross-currency swaps 191,571 191,571 – 191,571 – Interest rate futures 262 262 – 262 – Total derivative assets 1,465,486 1,465,486 – 1,465,486 – Others 15,487 15,487 – – 15,487 Total financial assets at FVTPL 4,592,495 4,592,495 3,111,522 1,465,486 – Financial assets at FVTOCI 200,271 200,271 – 200,271 – P=4,792,766 P=4,792,766 P=3,111,522 P=1,665,757 P=15,487 (Forward) *SGVFS032853* - 75 -
Consolidated Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) Assets for which Fair Values are Disclosed Financial Assets Financial assets at amortized cost Investment securities at amortized cost: Treasury bonds P=175,794,191 P=173,501,074 P=173,501,074 P=– P=– Private bonds 35,940,157 35,933,280 35,933,280 – – Treasury notes and bills 17,858,967 16,892,112 16,892,112 – – Total investment securities at amortized cost 229,593,315 226,326,466 226,326,466 – – Receivable from customers: Corporate lending 304,842,003 308,316,235 – – 308,316,235 Consumer lending 18,580,772 18,571,239 – – 18,571,239 Small business lending 4,691,339 4,707,919 – – 4,707,919 Residential mortgages 35,426,264 35,791,068 – – 35,791,068 Total receivable from customers 363,540,378 367,386,461 – – 367,386,461 Other receivables 6,649,380 6,649,380 – – 6,649,380 Other assets 321,154 288,959 – – 288,959 Total financial assets at amortized cost 600,104,227 600,651,266 226,326,466 – 374,324,800 Non-financial Assets Investment properties 791,306 1,223,667 – – 1,223,667 P=600,895,533 P=601,874,933 P=226,326,466 P=– P=375,548,467 Liabilities Measured at Fair Value Financial liabilities at FVTPL: Derivative liabilities: Currency forwards P=1,416,071 P=1,416,071 P=– P=1,416,071 P=– Interest rate swaps 593,305 593,305 – 593,305 – Warrants 3,151 3,151 – 3,151 – Interest rate futures 655 655 – 655 – Total financial liabilities at FVTPL P=2,013,182 P=2,013,182 P=– P=2,013,182 P=– Liabilities for which Fair Values are Disclosed Deposit liabilities excluding LTNCD P=394,577,401 P=394,355,302 P=– P=– P=394,355,302 LTNCD 18,526,475 18,698,646 – – 18,698,646 Subordinated note 9,950,814 9,991,168 – – 9,991,168 Notes payable 14,948,402 15,522,407 15,522,407 – – Bills payable and SSURA 131,179,238 130,772,666 – – 130,772,666 P=569,182,330 P=569,340,189 P=15,522,407 P=– P=553,817,782
Parent Company Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) December 31, 2018 Assets Measured at Fair Value Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P=2,445,910 P=2,445,910 P=– P=– Private bonds 29,497 29,497 29,497 – – Total HFT investments 2,475,407 2,475,407 2,475,407 – – Derivative assets: Interest rate swaps 1,029,830 1,029,830 – 1,029,830 – Currency forwards 903,470 903,470 – 903,470 – Cross-currency swaps 524,577 524,577 – 524,577 – Total derivative assets 2,457,877 2,457,877 – 2,457,877 – Others 15,464 15,464 – – 15,464 Total financial assets at FVTPL 4,948,748 4,948,748 2,475,407 2,457,877 15,464
(Forward)
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Parent Company Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) Financial assets at FVTOCI: Treasury notes and bills P=17,637,261 P=17,637,261 P=17,637,261 P=– P=– Treasury bonds 11,615,697 11,615,697 11,615,697 – – Private bonds 4,781,058 4,781,058 4,781,058 – – Equity securities 230,500 230,500 – 230,500 – 34,264,516 34,264,516 34,034,016 230,500 – P=39,213,264 P=39,213,264 P=36,509,423 P=2,688,375 P=15,464 Assets for which Fair Values are Disclosed Financial Assets Financial assets at amortized cost: Investment securities at amortized cost: Treasury bonds P=169,437,000 P=158,491,355 P=158,491,355 P=– P=– Private bonds 24,944,832 22,953,353 22,953,353 – – Treasury notes and bills 17,766,283 14,762,225 14,762,225 – – Total investment securities at amortized cost 212,148,115 196,206,933 196,206,933 – – Receivable from customers: Corporate lending 325,913,165 329,486,677 – – 329,486,677 Consumer lending 36,470,635 39,332,102 – – 39,332,102 Small business lending 1,367,507 1,364,795 – – 1,364,795 Residential mortgages 43,704,354 44,018,883 – – 44,018,883 Total receivable from customers 407,455,661 414,202,457 – – 414,202,457 Other receivables 6,957,042 6,957,042 – – 6,957,042 Other assets 381,742 321,383 – – 321,383 Total financial assets at amortized cost 626,942,560 617,687,815 196,206,933 – 421,480,882 Non-financial Assets Investment properties 815,002 1,129,426 – – 1,129,426 P=627,757,562 P=618,817,241 P=196,206,933 P=– P=422,610,308 Liabilities Measured at Fair Value Financial liabilities at FVTPL: Derivative liabilities: Interest rate swaps P=1,073,342 P=1,073,342 P=– 1,073,342 P=– Currency forwards 578,457 578,458 – P=578,458 – Interest rate futures 121,792 121,792 – 121,792 – Total financial liabilities at FVTPL 1,773,591 1,773,592 – 1,773,592 – Derivative Liabilities Designated as Hedges 1,536,816 1,536,816 – 1,536,816 – P=3,310,407 P=3,310,408 P=– P=3,310,408 P=– Liabilities for which Fair Values are Disclosed Financial liabilities at amortized cost: Deposit liabilities excluding LTNCD P=466,340,299 P=466,416,741 P=– P=– P=466,416,741 LTNCD 24,281,130 23,304,459 – – 23,304,459 Subordinated note 9,957,248 9,992,314 – – 9,992,314 Notes payable 31,408,760 31,738,550 31,738,550 – – Bills payable and SSURA 102,855,029 103,022,844 – – 103,022,844 P=634,842,466 P=634,474,908 P=31,738,550 P=– P=602,736,358
Parent Company Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) December 31, 2017 (As restated – Note 2) Assets Measured at Fair Value Financial assets at FVTPL: HFT investments: Government securities P=2,965,152 P=2,965,152 P=2,965,152 P=– P=– Private bonds 49,266 49,266 49,266 – – Total HFT investments 3,014,418 3,014,418 3,014,418 –
(Forward)
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Parent Company Fair Value Quoted Prices Significant Significant in active observable unobservable Carrying market inputs inputs Value Total (Level 1) (Level 2) (Level 3) Derivative assets: Interest rate swaps P=666,382 P=666,382 P=– P=666,382 P=– Currency forwards 607,271 607,271 – 607,271 – Cross-currency swaps 191,571 191,571 – 191,571 – Interest rate futures 262 262 – 262 – Total derivative assets 1,465,486 1,465,486 – 1,465,486 – Others 15,465 15,465 – 15,465 Total financial assets at FVTPL 4,495,369 4,495,369 3,014,418 1,465,486 – Financial assets at FVTOCI 151,370 151,370 – 151,370 – P=4,646,739 P=4,646,739 P=3,014,418 P=1,616,856 P=15,465 Assets for which Fair Values are Disclosed Financial Assets Financial assets at amortized cost: Investment securities at amortized cost: Treasury bonds P=175,794,191 P=173,501,074 P=173,501,074 P=– P=– Private bonds 35,940,157 35,933,280 35,933,280 – – Treasury notes and bills 17,858,967 16,892,112 16,892,112 – – Total investment securities at amortized cost 229,593,315 226,326,466 226,326,466 – – Receivable from customers: Corporate lending 304,636,648 308,110,880 – – 308,110,880 Consumer lending 17,146,477 17,141,696 – – 17,141,696 Small business lending 4,691,293 4,707,873 – – 4,707,873 Residential mortgages 35,200,223 35,565,027 – – 35,565,027 Total receivable from customers 361,674,641 365,525,476 – – 365,525,476 Other receivables 6,313,620 6,313,620 – – 6,313,620 Other assets 317,070 285,284 – – 285,284 Total financial assets at amortized cost 597,898,646 598,450,846 226,326,466 – 372,124,380 Non-financial Assets Investment properties 793,772 1,222,033 – – 1,222,033 P=598,692,418 P=599,672,879 P=226,326,466 P=– P=373,346,413 Liabilities Measured at Fair Value Financial liabilities at FVTPL: Derivative liabilities: Cross-currency forwards P=1,416,071 P=1,416,071 P=– P=1,416,071 P=– Interest rate swaps 593,305 593,305 – 593,305 – Warrants 3,151 3,151 – 3,151 – Interest rate futures 655 655 – 655 Total financial liabilities at FVTPL P=2,013,182 P=2,013,182 P=– P=2,013,182 P=– Liabilities for which Fair Values are Disclosed Financial liabilities at amortized cost: Deposit liabilities excluding LTNCD P=396,503,309 P=396,281,210 P=– P=– P=396,281,210 LTNCD 18,526,475 18,698,646 – – 18,698,646 Subordinated note 9,950,814 9,991,168 – – 9,991,168 Notes payable 14,948,402 15,522,407 15,522,407 – – Bills payable and SSURA 131,029,238 130,622,666 – – 130,622,666 P=570,958,238 P=571,116,097 P=15,522,407 P=– P=555,593,690
During the years ended December 31, 2018 and 2017, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
The methods and assumptions used by the Group in estimating the fair value of its financial instruments are:
COCI, due from BP and other banks and interbank loans receivable and SPURA with the BSP The carrying amounts approximate fair values considering that these accounts consist mostly of overnight deposits and floating rate placements.
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Debt securities Fair values are generally based upon quoted market prices, if available. If the market prices are not readily available, fair values are estimated using either values obtained from independent parties offering pricing services or adjusted quoted market prices of comparable investments or using the discounted cash flow methodology.
Equity securities Fair values of quoted equity securities are based on quoted market prices. Fair values of unquoted equity securities are derived based on the adjusted net asset value method.
Receivable from customers and sales contracts receivable (included under ‘Other receivables’) Fair values of loans and receivables are estimated using the discounted cash flow methodology, using the Group’s current incremental lending rates for similar types of loans and receivables.
Other receivables - Accounts receivable and accrued interest receivable Carrying amounts approximate fair values given their short-term nature.
Investment properties Fair value of investment properties are determined by independent or in-house appraisers using the market data approach. Valuations were derived on the basis of recent sales of similar properties in the same area as the investment properties and taking into account the economic conditions prevailing at the time the valuations were made and comparability of similar properties sold with the property being valued. Significant unobservable inputs in determining fair values include the following:
Location Location of comparative 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.
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 perceptions of the market over time, in which case, the current data is superior to historic data.
Discount Generally, asking prices in advertisements 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.
Other financial assets The carrying amounts approximate fair values due to their short-term nature.
Derivative instruments Derivative products are valued using valuation techniques using market observable inputs including foreign exchange rates and interest rate curves prevailing at the statements of financial position date. For interest rate swaps, cross-currency swaps and foreign exchange contracts, discounted cash flow model is applied. This valuation model discounts each cash flow of the derivatives at a rate that is dependent on the tenor of the cash flow.
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Deposit liabilities (demand and savings deposits excluding long-term savings deposits) The carrying amounts approximate fair values considering that these are due and demandable.
Long-term negotiable certificates of deposit (LTNCD) and subordinated note Fair values of LTNCD and subordinated note are estimated using adjusted quoted market prices of comparable investments. The adjustments on market quoted prices are unobservable inputs.
Other financial liabilities For accrued interest and other expenses and other financial liabilities, the carrying amounts approximate fair values due to their short-term nature.
Derivative Financial Instruments The following tables set out the information about the Group’s and the Parent Company’s derivative financial instruments and the related fair values:
2018 2017 Derivative Derivative Derivative Derivative Notional Asset Liability Notional Asset Liability Amounts (Note 10) (Note 20) Amounts (Note10) (Note 20) Forward exchange bought USD1,173,203 P=320,569 P=573,810 USD1,620,370 P=300,790 P=1,416,071 Forward exchange sold USD1,156,992 582,901 4,647 USD558,463 306,481 – Interest rate swaps P=163,817,301 1,029,830 1,073,342 P=186,609,322 666,382 593,305 Warrants USD250,258 – – USD250,258 – 3,151 Interest rate futures USD– – – USD60,000 262 655 Cross-currency swaps USD108,810 524,577 121,792 USD84,110 191,571 – P=2,457,877 P=1,773,591 P=1,465,486 P=2,013,182
The movements in the Group’s and the Parent Company’s derivative financial instruments follow:
2018 2017 Derivative Assets Balance at beginning of year P=1,465,486 P=1,532,938 Fair value changes during the year 520,857 (161,614) Settled transactions 471,534 94,162 Balance at end of year P=2,457,877 P=1,465,486 Derivative Liabilities Balance at beginning of year P=2,013,182 P=656,265 Fair value changes during the year (432,688) 1,335,877 Settled transactions 193,097 21,040 Balance at end of year P=1,773,591 P=2,013,182
Fair value changes of derivatives other than forward contracts amounting to P=182.8 million loss and =8.1P million gain in 2018 and 2017, respectively, are recognized as ‘Trading and securities gain - net’ in the statements of income (see Note 9), while fair value changes on forward contracts amounting to =1.1P billion gain in 2018 and =1.5P billion loss in 2017 are recognized as ‘Foreign exchange gain - net’ in the statements of income.
On December 20, 2013, the BSP approved the Parent Company’s application for additional Type 2 derivatives authority on the following derivative products: a. Non-Deliverable/Net settled/Cash Settled European and American Options on FX, Bonds and Gold b. Deliverable American Options on FX, Bonds and Gold c. Deliverable Exotic Options on FX, Bonds and Gold (Barriers and Digitals) d. Gold Forwards *SGVFS032853* - 80 - e. Bond Forwards f. Non-Deliverable Swaps g. Asset Swaps
On February 7, 2012, the BSP approved the Parent Company’s application for additional Type 3 derivatives authority on the following instruments: a. European and American foreign currency options (plain vanilla and exotic) b. Bond and gold forwards c. Credit default swaps
On August 13, 2008, the BSP approved the Parent Company’s application for a Type 2 Limited Dealer Authority and Type 3 Limited User Authority under BSP Circular No. 594 dated January 8, 2008 to engage in the following types of derivatives:
Type 2 Limited Dealer Authority (Stand-alone only): a. Foreign exchange forwards (including non-deliverable forwards) b. Forward rate agreements c. Options d. Interest rate swaps e. Currency swaps/cross currency swaps/foreign exchange swaps
Type 3 End-User Authority a. Credit-linked notes b. Range accrual notes/swaps
As of December 31, 2018 and 2017, the Parent Company has positions in the following types of derivatives:
Forwards Forward contracts are contractual agreements to buy or sell a specified instrument at a specific price and date in the future. Forwards are customized contracts transacted in the over-the-counter market.
Swaps Swaps are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts, in relation to movements in a specified underlying index such as interest rate, foreign currency rate or equity index.
Interest rate swaps relate to contracts taken out by the Parent Company with other financial institutions in which the Parent Company either receives or pays a floating rate in return for paying or receiving, respectively, a fixed rate of interest. The payment flows are usually netted against each other, with the difference being paid by one party to the other.
In a currency swap, the Parent Company pays a specified amount in one currency and receives a specified amount in another currency. Currency swaps are mostly gross-settled.
Interest rate futures Futures contract is a contractual agreement made on a futures exchange to buy or sell particular assets at a predetermined price in the future. Futures contracts standardize the quality and quantity of the underlying asset.
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Derivative financial instruments held or issued for trading purposes The Parent Company’s derivative trading activities relate to deals with customers which are normally laid off with counterparties. The Parent Company may also take positions with the expectation of generating profit from favorable movements in prices and rates on indices. Also included under this heading are any derivatives which do not meet hedge accounting requirements.
Derivative financial instruments held or issued for hedging purposes As part of its asset and liability management, the Parent Company used derivatives for hedging purposes in order to reduce its exposure to market risks that is achieved by hedging portfolios of fixed rate financial instruments.
The accounting treatment explained in Note 2 to the financial statements, Hedge Accounting, varies according to the nature of the item hedged and compliance with the hedge criteria. Hedges entered into by the Parent Company which provide economic hedges but do not meet the hedge accounting criteria are treated as Derivatives Held or Issued for Trading Purposes.
Fair value hedges Fair value hedges are used by the Parent Company to protect its portfolio against changes in fair value of financial assets due to movements in interest rates. The financial instruments hedged for interest rate risk represents receivables from customers. The Parent Company uses interest rate swaps to hedge against identified interest rate risks (see Note 11).
7. Due from Other Banks
This account consists of: Consolidated Parent Company 2017 2017 (As restated - (As restated - 2018 Note 2) 2018 Note 2) Foreign banks P=8,346,538 P=6,233,951 P=8,346,538 P=6,233,951 Local banks 674,441 589,041 540,004 503,557 9,020,979 6,822,992 8,886,542 6,737,508 Allowance for credit losses ECL allowance as at January 1, 2018 under PFRS 9 (Note 2) 7,342 – 7,206 – Recovery of credit losses (Note 14) (3,405) – (1,464) – 3,937 – 5,742 – P=9,017,042 P=6,822,992 P=8,880,800 P=6,737,508
In 2018, due from other banks were carried at stage 1 and there were no transfer into and out of stage 1.
For the years ended December 31, 2018, 2017 and 2016, Peso-denominated due from other banks bear nominal annual interest rates ranging from 0.001% to 0.50%, while foreign currency- denominated due from other banks bear nominal annual interest rates ranging from 0.025% to 1.85%.
Total interest income on ‘Due from other banks’ earned by the Group amounted to P=76.2 million, P=53.0 million and =46.5P million for the years ended December 31, 2018, 2017 and 2016, respectively, while total interest income on ‘Due from other banks’ earned by the Parent Company amounted to
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P=76.0 million, P=52.8 million and P=46.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, included in ‘Interest income on deposits with banks and others’ in the statements of income.
8. Interest Income on Financial Investments
This account consists of interest income on:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Investment securities at amortized cost (Note 13) P=8,070,804 P=10,399,086 P=8,264,024 P=8,070,804 P=10,399,086 P=8,264,024 Financial assets at FVTOCI (Note 12) 845,485 – – 845,485 – – 8,916,289 10,399,086 8,264,024 8,916,289 10,399,086 8,264,024 Financial assets at FVTPL (Note 10): Derivatives 811,429 516,029 748,980 811,429 516,029 748,980 Held-for-trading 56,339 86,592 82,367 56,339 84,371 82,367 867,768 602,621 831,347 867,768 600,400 831,347 P=9,784,057 P=11,001,707 P=9,095,371 P=9,784,057 P=10,999,486 P=9,095,371
Peso-denominated HFT investments earn annual interest rates ranging from 2.13% to 8.75% in 2018 and from 2.13% to 14.38% in 2017 and 2016, while foreign currency-denominated HFT investments earn annual interest rates ranging from 2.25% to 10.63%, from 2.75% to 11.63%, and from 3.70% to 9.88% in 2018, 2017 and 2016, respectively.
Peso-denominated investment securities at amortized cost earn annual interest rates ranging from 3.50% to 8.13%, from 3.50% to 8.13%, and from 4.00% to 8.00% in 2018, 2017 and 2016, respectively, while USD-denominated investment securities at amortized cost earn annual interest rates ranging from 3.68% to 9.50%, from 3.70% to 10.63%, and from 3.70% to 10.63% in 2018, 2017 and 2016, respectively.
Peso-denominated debt financial assets at FVTOCI earn annual interest rates ranging from 5.50% to 6.60% in 2018, while USD-denominated debt financial assets at FVTOCI earn annual interest rates ranging from 3.00% to 10.63% in 2018.
9. Trading and Securities Gain
Net gains (losses) from trading/disposal of investment securities and derivatives follow:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Financial Assets at FVTOCI (Note 12) P=508,634 P=− P=− P=508,634 P=− P=− Financial instruments at FVTPL: Held-for-trading investments (Note 10) (50,336) 18,879 81,515 (50,339) 19,945 81,691 Derivatives (Note 6) (92,237) 8,086 61,179 (92,237) 8,087 61,179 (142,573) 26,965 142,694 (142,576) 28,032 142,870 P=366,061 P=26,965 P= 142,694 P=366,058 P=28,032 P=142,870 Investment securities at amortized cost (Note 13) P=− P=2,349,270 P= 1,609,502 P=− P=2,349,270 P=1,609,502
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10. Financial Assets at Fair Value Through Profit or Loss
This account consists of:
Consolidated Parent Company 2018 2017 2018 2017 Held-for-trading: Government securities P=2,445,910 P=2,965,152 P=2,445,910 P=2,965,152 Private bonds 29,497 146,362 29,497 49,266 Equity securities 4 8 – – 2,475,411 3,111,522 2,475,407 3,014,418 Derivative assets (Note 6): Interest rate swaps 1,029,830 666,382 1,029,830 666,382 Currency forwards 903,470 607,271 903,470 607,271 Cross-currency swaps 524,577 191,571 524,577 191,571 Interest rate futures – 262 – 262 2,457,877 1,465,486 2,457,877 1,465,486 Others 15,487 15,487 15,464 15,465 P=4,948,775 P=4,592,495 P=4,948,748 P=4,495,369
As of December 31, 2018 and 2017, equity instruments under ‘Others’ pertain to the Parent Company’s and SBCIC’s equity investments with aggregate carrying amount of P=15.5 million, which are not designated as at FVTOCI. These financial assets are not held for trading purposes.
As of December 31, 2018 and 2017, ‘Financial assets at FVTPL’ include net unrealized gain of P=2.4 billion and =1.5P billion, respectively, for the Group and the Parent Company.
Fair value gains or losses on financial assets at FVTPL (other than currency forwards) are included in ‘Trading and securities gain - net’ (see Note 9) in the statements of income. Fair value gains or losses on currency forwards are included in ‘Foreign exchange gain - net’ in the statements of income (see Note 6).
11. Derivatives Designated as Hedges
The following table sets out the information about the Group’s derivative financial instruments designated as hedges and the related fair values:
December 31, 2018 Notional Derivative Derivative Amount Assets Liabilities Interest rate swaps USD2,781,571 P=– P=1,536,816
For the years ended December 31, 2018, 2017 and 2016, net interest expense on derivative liabilities designated as hedges amounted to nil, =4.2P million, and P=16.4 million, respectively. The change in fair value of the hedging instruments amounted to P=1.5 billion loss for the year ended December 31, 2018.
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The following table sets out the information about the Group’s hedged assets presented under ‘Investment securities at amortized cost’ in the statement of financial position:
December 31, 2018 Accumulated amount of Carrying amount of fair value adjustments on hedged items the hedged items Fixed rate government securities P=156,103,547 P=1,627,600
For the year ended December 31, 2018, the hedge ineffectiveness amounting to =90.8P million is presented under ‘Trading and securities gain - net’ in the statements of income.
12. Financial Assets at Fair Value through Other Comprehensive Income
This account consists of:
Consolidated Parent Company 2018 2017 2018 2017 Debt instruments Treasury notes and bills P=17,637,261 P=– P=17,637,261 P=– Treasury bonds (Note 21) 11,615,697 – 11,615,697 – Private bonds 4,781,058 – 4,781,058 – 34,034,016 – 34,034,016 – Equity instruments Golf shares 237,460 157,480 230,500 151,370 PSE shares 32,093 42,791 – – 269,553 200,271 230,500 151,370 P=34,303,569 P=200,271 P=34,264,516 P=151,370
An analysis of changes in the fair value of debt instruments and the corresponding ECL allowances follow:
2018 Fair value as at January 1, 2018 P= 28,353,304 New assets originated or purchased 62,157,125 Assets derecognized or repaid (56,650,960) Change in fair value (1,418,840) Foreign exchange adjustments 1,593,387 P= 34,034,016 ECL allowance as at January 1, 2018 under PFRS 9 (Note 2) P= 113,779 Recovery of credit losses (Note 14) (79,103) P= 34,676
In 2018, debt instruments at FVTOCI were carried at stage 1 and there were no transfers into and out of stage 1.
On January 19, 2018, the Parent Company participated in the Republic of the Philippines’ cash tender program and submitted its holdings of eligible ROP bonds classified as FVTOCI securities with face value of USD128.6 million (P=6.6 billion), resulting in gain amounting to USD4.3 million (P=220.0 million) recorded under ‘Trading and securities gain - net’ (see Note 9).
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As discussed in Note 13, the Parent Company reclassified certain HTC securities to financial assets at FVTOCI due to change in its business model in managing its financial assets in accordance with the final version of PFRS 9.
As of December 31, 2018, Peso and USD-denominated debt financial assets at FVTOCI amounted to P=3.6 billion and =30.4P billion, respectively.
As of December 31, 2018, certain treasury bond securities with carrying amount of P=8.6 billion were pledged with foreign banks as collateral for SSURA.
PSE shares were obtained by SBEI in 2001 as a result of the demutualization of its membership shares in the stock exchange. These investments were for long-term strategic purpose. SBEI designated these equity securities as financial assets at FVTOCI as management believes that this provides a more meaningful presentation for medium or long-term strategic investments, rather than reflecting changes in fair value immediately in the statements of income. The Group also adopted the same classification for its investments in golf shares.
The movements in ‘Net unrealized gain on financial assets at FVTOCI’ follow:
Consolidated Parent Company 2018 2017 2018 2017 Balance at beginning of year P=112,391 P=90,446 P=100,964 P=85,266 Effect of change in business model (Note 13) 812,632 − 812,632 − 925,023 90,446 913,596 85,266 Unrealized gains (losses) for the year (747,874) 21,945 (747,874) 15,698 Amount realized in profit or loss (591,835) − (591,836) − Balance at end of year (P=414,686) P=112,391 (P=426,114) P=100,964
13. Investment Securities at Amortized Cost
This account consists of investments by the Parent Company in: 2018 2017 Treasury bonds (Note 21) P=169,437,000 P=175,794,191 Private bonds 25,079,711 35,940,157 Treasury notes and bills (Note 28) 17,766,283 17,858,967 212,282,994 229,593,315 Allowance for credit losses 134,879 − P=212,148,115 P=229,593,315
An analysis of changes in the gross carrying amount and the corresponding ECLs is, as follows:
2018 Gross carrying amount as at January 1, 2018 P=229,593,315 New assets originated or purchased 1,986,718 Assets derecognized or repaid (excluding write-offs) (28,540,672) Accumulated amount of fair value adjustments on the hedged items 1,627,600 Foreign exchange adjustments 7,616,033 P=212,282,994 (Forward)
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2018 ECL allowance as at January 1, 2018 under PFRS 9 (Note 2) P=151,518 Recovery of credit losses (Note 14) (16,639) P=134,879
In 2018, investment securities at amortized cost were carried at stage 1 and there were no transfers into and out of stage 1.
During the fourth quarter of 2017, the Parent Company disposed certain USD-denominated government securities classified as HTC securities with a carrying amount of USD1.0 billion (P=52.2 billion). The disposals resulted in a gain of USD24.2 million (P=1.2 billion) recorded in the statements of income under ‘Gain on disposal of investment securities at amortized cost’.
Management obtained the approval of its ROC and the BOD for the disposal of these securities, which proceeds would be used to fund the growth in its lending business.
As part of the approval, management expressed the need to change its business model for managing its HTC securities considering the reassessment of its funding strategy vis-à-vis the business requirements and funding sources. The change in business model will be considered in relation to the adoption of the final version of PFRS 9.
Accordingly, in December 2017, the ROC and the BOD of the Parent Company approved the proposed business models in managing its financial assets in accordance with the final version of PFRS 9. The new business models included categories of financial assets as to amortized cost, FVTPL and FVTOCI.
On January 1, 2018, as a result of the change in business model, certain USD-denominated and Peso- denominated HTC securities with a carrying amount of USD517.6 million (P=25.8 billion) and P=1.7 billion, respectively, have been reclassified to the ‘Financial assets at FVTOCI’ category. The reclassification resulted in a valuation gain of P=812.6 million recorded under ‘Net unrealized gain (loss) on financial assets at fair value through other comprehensive income’ (see Note 12).
In November 2017, the Parent Company participated in the cash tender offer of a private entity of its USD-denominated 2019 bonds classified as HTC with a carrying amount of USD10.0 million (P=501.5 million). The issuer subsequently redeemed the bonds not tendered in the offer in December 2017 in accordance with the terms and conditions of the bonds. The participation in the cash tender offer resulted in a gain of USD0.7 million (P=37.6 million) recorded in the statements of income under ‘Gain on disposal of investment securities at amortized cost’.
In April 2017, the Parent Company participated in the cash tender offer by another private entity of its USD-denominated 2021 bonds classified as HTC with a carrying amount of USD57.8 million (P=2.9 billion). The disposal resulted in a gain of USD5.5 million (P=275.3 million) recorded in the statements of income under ‘Gain on disposal of investment securities at amortized cost’.
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The Parent Company concluded that the participation in tender offers in April and November 2017 resulting in disposals of HTC securities was not inconsistent with the Parent Company’s HTC business model as supported by the following:
∂ The main motivation of the Parent Company in participating was to protect itself from potential adverse effects of reduced liquidity of the bonds following the tender offers. In addition, for the securities tendered in November, the issuer also had a program to redeem all securities not tendered. Hence, the Parent Company decided to participate in the tender offer that provided the higher price. ∂ The securities submitted were purchased by the Parent Company based on their yield and credit prior to the issuers’ decision to make a tender offer.
In January 2017, as part of the general cash management program and broader program to manage its external liabilities, the Republic of the Philippines executed a cash tender offer. Under the cash tender offer, the government offered selected USD-denominated securities for buyback. The Parent Company submitted its holdings of eligible bonds that resulted in the derecognition of certain HTC securities. USD-denominated investment securities at amortized cost with carrying amount of USD455.6 million (P=22.7 billion) were tendered which resulted in a gain of USD16.1 million (P=803.7 million) recorded in the statements of income under ‘Gain on disposal of investment securities at amortized cost’. The Parent Company concluded that the participation in the tender offer was not inconsistent with the Parent Company’s HTC business model as supported by the following:
∂ The Parent Company participated in the tender offer to protect itself from the possible adverse impact on the liquidity of the eligible securities. There is a high likelihood that the securities will become illiquid after the offerings as it substantially reduces the outstanding issue size of the eligible securities. ∂ The government has no program explicitly set that requires it to undertake a debt swap activity regularly. There is no guarantee that it will announce such an undertaking at any point in time until the government makes the announcement on the actual offer date. ∂ The securities submitted for the offerings were purchased by the Parent Company prior to the announcement of the government of the securities eligible for the offerings.
BSP Circular No. 708 also provides that derecognition of financial assets attributable to changes in the payment structure as initiated by the creditor like bond swap or exchange is not considered inconsistent with an HTC business model.
In February 2016, the Parent Company participated in the bond swap offer by the Republic of the Philippines. USD-denominated investment securities at amortized cost with a carrying amount of USD686.3 million (P=32.6 billion) were swapped which resulted in a gain of USD30.0 million (P=1.4 billion) recorded in the statements of income under ‘Gain on disposal of investment securities at amortized cost’. The Parent Company concluded that the participation in these government-initiated offerings was not inconsistent with its HTC business model as explained above.
On March 10, 2016, the BSP adopted Basel III's Liquidity Coverage Ratio (LCR) requirements under Circular No. 905. The new liquidity rule requires banks to have available high quality liquid assets (HQLA) to meet anticipated net cash outflow for a 30-day period under stress conditions. The standard, which initially covers universal and commercial banks, prescribes that, under a normal situation, the value of the liquidity ratio be no lower than 100% on a daily basis because the stock of unencumbered HQLA is intended to serve as a defense against potential onset of liquidity stress. The guidelines provide for an observation period from July 1, 2016 to December 31, 2017. During the observation period, no minimum ratio has to be complied with. However, to encourage transitioning *SGVFS032853* - 88 - internally to the new standard and to monitor level of compliance, banks are required to submit quarterly reports to the BSP.
In response to the effect of this new regulatory requirement to the Group and the Parent Company’s LCR, the Parent Company, with the approval of its Risk Oversight Committee, embarked on a program to comply with the LCR requirements which includes, among others, the following: i. To maximize the allowed cap for USD-denominated sovereign bonds that will qualify as HQLA by freeing up USD-denominated HTC securities that are encumbered by short-term borrowings through repurchase agreements, the Parent Company changed its intention on certain USD- denominated HTC securities with face value of US$207.0 million (P=10.4 billion) to be able to comply with the LCR requirements. ii. Invest in Peso-denominated qualifying HQLA Level 1 assets such as, but not limited to, fixed income government securities and placement in the BSP’s Term Deposit Auction Facility.
Pursuant to the program to comply with the LCR requirements, the Parent Company disposed certain USD-denominated securities under the HTC business model in October and November 2016 with face value of $75.0 million and carrying amount of US$93.6 million (P=4.6 billion) resulting in a gain amounting to P=184.0 million included under ‘Gain on disposal of investment securities at amortized cost’ in the statements of income. The Parent Company concluded that the disposal is a permissible sale under the Parent Company’s HTC business model since it was attributable to a significant increase in regulatory liquidity requirements that caused the Parent Company to downsize the HTC portfolio by selling securities under the amortized cost category and was attributable to an isolated event that was beyond the Parent Company’s control, was infrequent and could not have been reasonably anticipated. Accordingly, since the business model to hold and collect contractual cash flows of the remaining USD-denominated HTC securities as of December 31, 2016 with face value amounting to US$3.7 billion (P=183.2 billion) did not change, the portfolio for the said securities remained in HTC.
Also as part of the program to comply with the LCR requirements, the Parent Company introduced the HTC business model for its Peso-denominated government securities and acquired securities amounting to P=530.9 million in 2016. The Parent Company deemed it necessary to introduce the HTC business model for Peso-denominated government securities since (a) BSP Circular 905 capped the USD-denominated government securities that will qualify as HQLA and (b) the Parent Company previously ceased its HTC business model for Peso-denominated government securities. The Bank will comply with the requirements of BSP Circular 905 to demonstrate liquidity of qualifying HQLA securities under the HTC business model through various methods allowed under the circular that are consistent with the HTC business model as described under PFRS 9. This includes, but not limited to, proxy monetization of similar securities under the Bank’s FVTPL business model.
As of December 31, 2018 and 2017, government securities included under ‘Investment securities at amortized cost’ with a total face value of =508.1P million and P=550.0 million, respectively, were deposited with the BSP in compliance with the requirements of the General Banking Law relative to the Parent Company’s trust functions (see Note 28).
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14. Loans and Receivables
This account consists of:
Consolidated Parent Company 2018 2017 2018 2017 Receivable from customers: Corporate lending P=328,581,056 P=307,656,447 P=330,619,184 P=307,822,998 Residential mortgages 44,190,825 35,875,036 43,995,593 35,648,996 Consumer lending (Note 15) 40,253,855 19,331,927 36,994,561 17,455,207 Small business lending 1,395,350 4,777,603 1,395,315 4,777,557 414,421,086 367,641,013 413,004,653 365,704,758 Less unearned discounts and deferred credits 472,859 364,877 471,146 358,457 413,948,227 367,276,136 412,533,507 365,346,301 Accrued interest receivable (Note 33) 6,499,863 5,674,402 6,453,886 5,666,786 Accounts receivable (Notes 18 and 33) 789,336 999,510 478,117 641,775 Sales contracts receivable 89,402 90,818 89,402 90,818 421,326,828 374,040,866 419,554,912 371,745,680 Less allowance for credit losses 5,009,138 3,851,108 5,142,209 3,757,419 P=416,317,690 P=370,189,758 P=414,412,703 P=367,988,261
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to corporate lending follow:
Consolidated Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=278,875,149 P=22,356,834 P=6,424,464 P=307,656,447 New assets originated or purchased 685,883,926 – – 685,883,926 Assets derecognized or repaid (excluding write offs) (652,031,935) (9,384,966) (3,473,694) (664,890,595) Transfers to Stage 1 15,644,519 (12,931,423) (2,713,096) – Transfers to Stage 2 (13,377,139) 13,377,139 – – Transfers to Stage 3 (1,140,848) (19,612) 1,160,460 – Amounts written off – – (68,722) (68,722) P=313,853,672 P=13,397,972 P=1,329,412 P=328,581,056 ECL allowance as at January 1, 2018 under PFRS 9 P=3,948,942 P=340,187 P=115,251 P=4,404,380 Provisions for (recovery of) credit losses (255,330) 144,446 154,223 43,339 Assets derecognized or repaid (excluding write offs) (395,963) – – (395,963) Transfers to Stage 1 126,479 (117,528) (8,951) – Transfers to Stage 2 (771,002) 771,002 – – Transfers to Stage 3 (762,974) (12,315) 775,289 – Amounts written off – – (58,229) (58,229) Foreign exchange adjustments 17,184 8,462 7,348 32,994 P=1,907,336 P=1,134,254 P=984,931 P=4,026,521
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Parent Company Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=279,041,700 P=22,356,834 P=6,424,464 P=307,822,998 New assets originated or purchased 645,948,274 – – 645,948,274 Assets derecognized or repaid (excluding write offs) (610,224,707) (9,384,996) (3,474,694) (623,083,366) Transfers to Stage 1 15,644,519 (12,931,423) (2,713,096) – Transfers to Stage 2 (13,377,139) 13,377,139 – – Transfers to Stage 3 (1,140,848) (19,612) 1,160,460 – Amounts written off – – (68,722) (68,722) P=315,891,800 P=13,397,942 P=1,328,412 P=330,619,184 ECL allowance as at January 1, 2018 under PFRS 9 P=3,948,942 P=340,187 P=115,251 P=4,404,380 Provisions for (recovery of) credit losses (255,330) 144,446 154,223 43,339 Transfers to Stage 1 126,479 (117,528) (8,951) – Transfers to Stage 2 (771,002) 771,002 – – Transfers to Stage 3 (762,975) (12,315) 775,290 – Amounts written off – – (58,229) (58,229) Foreign exchange adjustments 17,184 8,462 7,348 32,994 P=2,303,298 P=1,134,254 P=984,932 P=4,422,484
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to consumer lending follow: Consolidated Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=18,281,495 P=350,420 P=700,012 P=19,331,927 New assets originated or purchased 64,883,627 – – 64,883,627 Assets derecognized or repaid (excluding write offs) (42,366,819) (190,258) (166,395) (42,723,472) Transfers to Stage 1 154,485 (84,931) (69,554) – Transfers to Stage 2 (511,564) 517,712 (6,148) – Transfers to Stage 3 (1,639,944) (34,619) 1,674,563 – Amounts written off – – (1,238,227) (1,238,227) P=38,801,280 P=558,324 P=894,251 P=40,253,855 ECL allowance as at January 1, 2018 under PFRS 9 208,849 19,451 560,715 789,114 Provisions for (recovery of) credit losses 265,397 (14,048) 524,832 776,181 Transfers to Stage 1 740 (594) (146) – Transfers to Stage 2 (8,312) 8,326 (14) – Transfers to Stage 3 (105,039) (5,429) 110,468 – Amounts written off – – (951,237) (951,237) 361,635 7,706 244,618 614,058
Parent Company Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=16,895,619 P=338,646 P=220,941 P=17,455,206 New assets originated or purchased 49,137,372 – – 49,137,372 Assets derecognized or repaid (excluding write offs) (28,463,150) (152,871) (81,068) (28,697,089) Transfers to Stage 1 154,485 (84,666) (69,819) – Transfers to Stage 2 (409,000) 415,148 (6,148) – Transfers to Stage 3 (1,442,363) (34,620) 1,476,983 – Amounts written off – – (900,928) (900,928) P=35,872,963 P=481,637 P=639,961 P=36,994,561
(Forward)
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Parent Company Stage 1 Stage 2 Stage 3 Total ECL allowance as at January 1, 2018 under PFRS 9 P=177,119 P=7,400 P=100,566 P=285,085 Provisions for (recovery of) credit losses 155,236 694 522,188 678,118 Transfers to Stage 1 740 (594) (146) – Transfers to Stage 2 (6,747) 6,761 (14) – Transfers to Stage 3 (75,350) (5,429) 80,779 – Amounts written off – – (613,939) (613,939) P=250,998 P=8,832 P=89,434 P=349,264
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to small business lending follow:
Consolidated Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=4,685,004 P=40,400 P=52,199 P=4,777,603 New assets originated or purchased 20,451,581 – – 20,451,581 Assets derecognized or repaid (excluding write offs) (23,751,946) (38,494) (18,645) (23,809,085) Transfers to Stage 1 2,408 (753) (1,655) – Transfers to Stage 2 (38,669) 38,669 – – Transfers to Stage 3 (24,653) (1,153) 25,806 – Amounts written off – – (24,749) (24,749) P=1,323,725 P=38,669 P=32,956 P=1,395,350 ECL allowance as at January 1, 2018 under PFRS 9 P=38,959 P=1,804 P=4,884 P=45,647 Provisions for (recovery of) credit losses (15,739) (548) 22,144 5,857 Transfers to Stage 1 19 (5) (14) – Transfers to Stage 2 (1,017) 1,017 – – Transfers to Stage 3 (14,246) (537) 14,783 – Amounts written off – – (24,750) (24,750) P=7,976 P=1,731 P=17,047 P=26,754
Parent Company Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=4,684,958 P=40,400 P=52,199 P=4,777,557 New assets originated or purchased 20,451,581 – – 20,451,581 Assets derecognized or repaid (excluding write offs) (23,751,935) (38,494) (18,645) (23,809,074) Transfers to Stage 1 2,408 (753) (1,655) – Transfers to Stage 2 (38,669) 38,669 – – Transfers to Stage 3 (24,652) (1,153) 25,805 – Amounts written off – – (24,749) (24,749) P=1,323,691 P=38,669 P=32,955 P=1,395,315 ECL allowance as at January 1, 2018 under PFRS 9 P=38,959 P=1,804 P=4,884 P=45,647 Provisions for (recovery of) credit losses (15,739) (548) 22,144 5,857 Transfers to Stage 1 19 (5) (14) – Transfers to Stage 2 (1,017) 1,017 – – Transfers to Stage 3 (14,246) (537) 14,783 – Amounts written off – – (24,749) (24,749) P=7,976 P=1,731 P=17,048 P=26,755
*SGVFS032853* - 92 -
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to residential mortgages lending follow:
Consolidated Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=35,094,444 P=498,398 P=282,194 P=35,875,036 New assets originated or purchased 15,454,381 – – 15,454,381 Assets derecognized or repaid (excluding write offs) (6,951,179) (12,820) (9,123) (6,973,122) Transfers to Stage 1 580,829 (553,291) (27,538) – Transfers to Stage 2 (689,722) 706,824 (17,102) – Transfers to Stage 3 (357,696) (81,790) 439,486 – Amounts written off – – (165,470) (165,470) P=43,131,057 P=557,321 P=502,447 P=44,190,825 ECL allowance as at January 1, 2018 under PFRS 9 P=106,631 P=42,223 172,107 P=320,961 Provisions for (recovery of) credit losses 27,502 49,834 (72,577) 4,759 Transfers to Stage 1 1,329 (1,020) (309) – Transfers to Stage 2 (10,560) 10,660 (100) – Transfers to Stage 3 (36,854) (14,815) 51,669 – Amounts written off – – (46,377) (46,377) P=88,048 86,882 104,413 P=279,343
Parent Company Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=34,868,404 P=498,398 P= 282,194 P=35,648,996 New assets originated or purchased 15,454,381 – – 15,454,381 Assets derecognized or repaid (excluding write offs) (6,920,370) (12,820) (9,123) (6,942,313) Transfers to Stage 1 580,829 (553,291) (27,538) – Transfers to Stage 2 (689,722) 706,824 (17,102) – Transfers to Stage 3 (357,696) (81,791) 439,487 – Amounts written off – – (165,471) (165,471) P=42,935,826 P=557,320 P=502,447 P=43,995,593 ECL allowance as at January 1, 2018 under PFRS 9 P=106,631 P=42,223 P=172,107 P=320,961 Provisions for (recovery of) credit losses 27,502 49,834 (72,577) 4,759 Transfers to Stage 1 1,329 (1,020) (309) – Transfers to Stage 2 (10,560) 10,660 (100) – Transfers to Stage 3 (36,854) (14,815) 51,669 – Amounts written off – – (46,377) (46,377) P=88,048 P=86,882 P=104,413 P=279,343
An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to other receivables follow:
Consolidated Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=6,744,573 P=200,176 P=141,256 P=7,086,005 New assets originated or purchased 97,814,038 – – 97,814,038 Assets derecognized or repaid (excluding write offs) (97,334,478) (93,776) (59,218) (97,487,472) Transfers to Stage 1 1,416 (1,098) (318) – Transfers to Stage 2 (28,642) 28,821 (179) – Transfers to Stage 3 (84,054) (3,999) 88,053 – Amounts written off (6,343) – (27,627) (33,970) P=7,106,510 P=130,124 P=141,967 P=7,378,601 *SGVFS032853* - 93 -
Consolidated Stage 1 Stage 2 Stage 3 Total ECL allowance as at January 1, 2018 under PFRS 9 P=20,750 P=2,814 P=31,192 P=54,756 Provisions for (recovery of) credit losses 7,804 127 19,235 27,166 Assets derecognized or repaid (excluding write offs) (2,296) – – (2,296) Transfers to Stage 1 1,482 (99) (1,383) – Transfers to Stage 2 (446) 921 (475) – Transfers to Stage 3 (6,453) 6,426 27 – Amounts written off – – (17,164) (17,164) P=20,841 P=10,189 P=31,432 P=62,462
Parent Company Stage 1 Stage 2 Stage 3 Total Gross carrying amount as at January 1, 2018 P=6,095,587 P=195,576 P=108,217 P=6,399,380 New assets originated or purchased 33,913,235 – – 33,913,235 Assets derecognized or repaid (excluding write offs) (33,107,072) (92,904) (57,263) (33,257,239) Transfers to Stage 2 (25,938) 25,938 – – Transfers to Stage 3 (74,615) (2,064) 76,679 – Amounts written off (6,344) – (27,627) (33,971) P=6,794,853 P=126,546 P=100,006 P=7,021,405 ECL allowance as at January 1, 2018 under PFRS 9 P=20,750 P=2,814 P=31,192 P=54,756 Provisions for (recovery of) credit losses 2,006 49 24,717 26,772 Transfers to Stage 2 – (547) 547 – Transfers to Stage 3 (1,175) – 1,175 – Amounts written off (17,164) (17,164) P=21,581 P=2,316 P=40,467 P=64,364
The increase in ECLs of the portfolio was driven by an increase in the gross size of the portfolio and movements between stages as a result of changes in credit risk.
In October 2017, the Parent Company sold, on a without recourse basis, certain personal loans to SBFCI amounting to =1.4P billion, in line with the Parent Company’s direction to grow personal loans - public portfolio under SBFCI. The Parent Company has assessed that the sale does not affect the HTC objective of the remaining loans and receivables as the sale was a one-off transaction and the amount was not significant in relation to the total loan portfolio of the Parent Company.
Receivable from customers consist of:
Consolidated Parent Company 2018 2017 2018 2017 Loans (Note 33) P=383,190,427 P=347,716,144 P=381,773,994 P=345,779,888 Customers’ liabilities under letters of credit and trust receipts 20,709,339 13,804,059 20,709,339 13,804,059 Credit card receivables 6,354,600 3,297,755 6,354,600 3,297,755 Bills purchased (Note 25) 3,547,889 2,138,365 3,547,889 2,138,365 Customers’ liabilities under acceptances 618,831 684,690 618,831 684,691 414,421,086 367,641,013 413,004,653 365,704,758 Less unearned discounts and deferred credits 472,859 364,877 471,146 358,457 P=413,948,227 P=367,276,136 P=412,533,507 P=365,346,301
*SGVFS032853* - 94 -
Regulatory Reporting Current banking regulations allow banks that have no unbooked valuation reserves and capital adjustments to exclude from nonperforming classification receivables classified as loss in the latest examination of the BSP which are fully covered by allowance for credit losses, provided that interest on said receivables shall not be accrued for regulatory accounting purposes.
As of December 31, 2018 and 2017, net NPLs of the Group amounted =1.7P billion and =81.04P million, respectively, while the gross NPL the Group amounted to P=3.0 billion and =2.6P billion, respectively.
Restructured receivables of the Group and the Parent Company amounted to P=528.1million and P=520.7 million, respectively, as of December 31, 2018 and P=92.2 million and P=86.1 million, respectively, as of December 31, 2017. Interest income on these restructured receivables amounted to P=7.3 million in 2018, =3.1P million in 2017, and P=16.1 million in 2016 for the Group and P=7.3 million in 2018, P=3.1 million in 2017, and =10.3P million in 2016 for the Parent Company.
Movements in the allowance for credit losses on loans and receivables in 2017 follow:
Consolidated Small Corporate Business Consumer Residential Lending Lending Lending Mortgages Others Total December 31, 2017 Balance at beginning of year P=2,915,170 P=46,400 P=222,618 P=478,659 P=127,778 P=3,790,625 Provision for (recovery of) credit losses 64,516 38,867 649,139 (56,249) (39,804) 656,469 Accounts charged-off and transfers (34,563) – (522,440) (19,387) (39,602) (615,992) Interest accrued on impaired receivables – – – (366) – (366) Others 3,382 – 14,643 – 2,347 20,372 Balance at end of year P=2,948,505 P=85,267 P=363,960 P=402,657 P=50,719 P=3,851,108
Individual impairment P=2,315,700 P=35,381 P=– P=– P=39,974 P=2,391,055 Collective impairment 632,805 49,886 363,960 402,657 10,745 1,460,053 P=2,948,505 P=85,267 P=363,960 P=402,657 P=50,719 P=3,851,108 Gross amount of loans individually determined to be impaired P=16,946,683 P=79,157 P=– P=– P=159,322 P=17,185,162
Parent Company Small Corporate Business Consumer Residential Lending Lending Lending Mortgages Others Total December 31, 2017 Balance at beginning of year P=2,915,170 P=46,400 P=159,854 P=478,659 P=126,347 P=3,726,430 Provision for (recovery of) credit losses 64,516 38,867 583,174 (56,249) (986) 629,322 Accounts charged-off and transfers (34,563) – (522,440) (19,387) (39,602) (615,992) Interest accrued on impaired receivables – – – (366) – (366) Others 3,382 – 14,643 – – 18,025 Balance at end of year P=2,948,505 P=85,267 P=235,231 P=402,657 P=85,759 P=3,757,419
Individual impairment P=2,315,700 P=35,381 P=– P=– P=12,821 P=2,363,902 Collective impairment 632,805 49,886 235,231 402,657 72,938 1,393,517 P=2,948,505 P=85,267 P=235,231 P=402,657 P=85,759 P=3,757,419 Gross amount of loans individually determined to be impaired P=16,946,683 P=79,157 P=– P=– P=132,169 P=17,158,009
*SGVFS032853* - 95 -
Provision for (recovery of) credit losses on financial assets in the statements of income are as follows:
Consolidated December 31, 2018 December 31 Stage 1 Stage 2 Stage 3 Total 2017 2016 Due from other banks P=– P=– (Note 7) (P=3,405) (P=3,405) P=– P=– Interbank loans receivable and SPURA with BSP (43,799) – – (43,799) – – Financial assets at FVTOCI (Note 12) (79,103) – – (79,103) – – Investment securities at amortized cost (Note 13) (16,639) – – (16,639) – – Loans and receivables (4,086) 179,811 681,576 857,301 656,469 937,544 Cash collateral deposits (Note 18) 639 – – 639 – – Financial guarantees, loan and other commitments (Note 35) 60,814 (60,771) (554) (511) – – (P=85,579) P=119,040 P=681,022 P=714,483 P=656,469 P=937,544
Parent Company December 31, 2018 December 31 Stage 1 Stage 2 Individual Individual Stage 3 Total 2017 2016 Due from other banks (Note 7) (P=1,464) P=– P=– (P=1,464) P=– P=– Interbank loans receivable and SPURA with BSP (43,799) – – (43,799) – – Financial assets at FVTOCI (Note 12) (79,103) – – (79,103) – – Investment securities at amortized cost (Note 13) (16,639) – – (16,639) – – Loans and receivables (86,325) 194,475 650,695 758,845 629,322 877,028 Cash collateral deposits (Note 18) 639 – – 639 – – Financial guarantees, loan and other commitments (Note 35) 60,814 (60,771) (554) (511) – – (P=165,877) P=133,704 P=650,141 P=617,968 P=629,322 P= 877,028
As of December 31, 2018 and 2017, the fair value of the collateral held relating to the total loan portfolio amounted to =160.0P billion and =171.1P billion, respectively, for the Group and P=160.0 billion and =166.9P billion, respectively, for the Parent Company. The collateral consists of cash, securities, letters of guarantee and real and personal properties.
The Group and the Parent Company took possession of various properties previously held as collateral. As of December 31, 2018 and 2017, the carrying values of such properties based on BSP guidelines amounted to =438.8P million and =307.8P million, respectively for the Group and the Parent Company.
The following table shows the breakdown of receivable from customers as to secured and unsecured and the breakdown of secured receivables from customers as to the type of security as of December 31, 2018 and 2017 (amounts in millions):
Consolidated Parent Company 2018 2017 2018 2017 Amount % Amount % Amount % Amount % Secured by: Real estate P=48,431 11.7 P=42,522 11.6 P=48,236 11.7 P=42,296 11.6 Assignment of projects/ company assets/contracts 28,007 6.8 32,474 8.8 28,007 6.8 32,474 8.9 Mortgage trust indenture 14,352 3.5 5,171 1.4 14,352 3.5 5,171 1.4 Chattel 11,607 2.8 5,468 1.5 11,607 2.8 5,468 1.5 Deposit hold-out 2,908 0.7 2,723 0.7 2,908 0.7 2,723 0.7 Others 3,096 0.7 1,782 0.5 2,346 0.6 539 0.1 108,401 26.2 90,140 24.5 107,456 26.0 88,671 24.2 Unsecured 306,020 73.8 277,501 75.5 305,549 74.0 277,034 75.8 P=414,421 100.0 P=367,641 100.0 P=413,005 100.0 P=365,705 100.0 *SGVFS032853* - 96 -
As of December 31, 2018 and 2017, information on the concentration of credit as to industry follows (amounts in millions):
Consolidated Parent Company 2018 2017 2018 2017 Amount % Amount % Amount % Amount % Power, electricity and water distribution P=77,417 18.7 P=69,272 18.8 P=77,417 18.7 P=69,272 18.9 Wholesale and retail trade 68,058 16.4 66,275 18.0 68,058 16.5 66,275 18.1 Manufacturing 47,243 11.4 42,502 11.6 47,243 11.4 42,502 11.6 Real estate 42,359 10.2 42,851 11.7 42,359 10.3 42,851 11.7 Financial intermediaries 34,848 8.4 34,009 9.3 37,496 9.1 35,159 9.6 Transportation, storage and communication 25,512 6.2 22,169 6.0 25,512 6.2 22,169 6.1 Others 118,984 28.7 90,563 24.6 114,920 27.8 87,477 23.9 P=414,421 100.0 P=367,641 100.0 P=413,005 100.0 P=365,705 100.0
Interest income on loans and receivables consists of:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Loans P=22,226,265 P=16,244,613 P=12,308,484 P=21,759,574 P=16,177,584 P=12,346,373 Credit card receivables 932,090 602,860 566,716 932,090 602,860 421,642 Customers’ liabilities under letters of credit and trust receipts 771,410 493,323 403,243 771,410 493,323 403,243 Sales contracts receivable 7,446 8,536 9,599 7,446 8,536 9,599 Bills purchased 5,919 7,208 4,501 5,919 7,208 4,501 Interest income accrued on impaired loans and receivables − 366 20,827 − 366 20,827 Unquoted debt instruments − − 1 − − − P=23,943,130 P=17,356,906 P=13,313,371 P=23,476,439 P=17,289,877 P=13,206,185
Of the total receivables from customers of the Group and of the Parent Company, 53.4% and 53.6%, respectively as of December 31, 2018, and 53.5% and 53.8%, respectively as of December 31, 2017, are subject to periodic interest repricing. Remaining receivables from customers, for the Group and the Parent Company, earn annual fixed interest rates, as follows (in percentages):
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Peso-denominated 1.50-36.83 1.17-36.83 1.50-58.63 1.50-36.83 1.17-36.83 1.50-58.63 Foreign currency-denominated 0.76-9.14 0.76-9.14 0.08-9.15 0.76-9.14 0.76-9.14 0.08-9.15
Sales contracts receivable earns interest rates ranging from 6.0% to 13.5% in 2018, 6.0% to 14.0% in 2017, and 6.0% to 15.0% in 2016 for the Group and the Parent Company.
15. Investments in Subsidiaries and a Joint Venture
Investments in Subsidiaries and Non-controlling Interest This account consists of investments in:
% of Ownership Consolidated Parent Company 2018 2017 2018 2017 2018 2017 Subsidiaries: Cost: SBFCI (Note 4) 99.54 99.54 P=– P=– P=1,734,875 P=1,734,875 SBCIC 100.00 100.00 – – 500,000 500,000 SBCC 100.00 100.00 – – 325,000 325,000 LPII 100.00 100.00 – – 125,000 125,000 SBFI 100.00 100.00 – – 50,000 50,000 – – 2,734,875 2,734,875
(Forward) *SGVFS032853* - 97 -
% of Ownership Consolidated Parent Company 2018 2017 2018 2017 2018 2017 Accumulated equity in net income Balance at beginning of year – – 698,349 708,242 Effect of adopting PRFS 9 – – (9,547) – – – 688,802 708,242 Share in net income – – 290,669 185,107 Dividends receivable – – (162,500) (195,000) Dividends – – – – Balance at end of year – – 816,971 698,349 Accumulated equity in OCI Remeasurement gains on defined benefit plans – – 70,517 70,801 Net unrealized gain on financial assets at fair value through other comprehensive income – – 8,494 15,176 Balance at end of year – – 79,011 85,977 – – 3,630,857 3,519,201 Joint Venture (SBML) Cost 60.00 60.00 150,058 150,058 150,058 150,058 Accumulated equity in net income Balance at beginning of year 116,797 91,345 116,797 91,345 Share in net income 26,461 25,452 26,461 25,452 Balance at end of year 143,258 116,797 143,258 116,797 293,316 266,855 293,316 266,855 P=293,316 P=266,855 P=3,924,173 P=3,786,056
The details of the dividends by the subsidiaries to the Parent Company are provided below:
Subsidiary Date of declaration Per share Total amounts in thousands SBCC June 29, 2018 P=50.0 per share P=162,500 SBCC June 29, 2017 P=60.0 per share P=195,000 SBCIC December 16, 2016 30.0 per share 150,000
Disposal of Diners Club International Credit Cards On June 14, 2016, SBCC signed a Portfolio Sale and Purchase Agreement (PSPA) with BDO Unibank, Inc. (BDO), whereby BDO accepted SBCC’s offer to sell its rights as the exclusive issuer and acquirer of Diners Club International credit cards in the Philippines effective September 30, 2016. The move is a strategic decision to focus on the existing MasterCard as the main credit card offering. The acquisition includes SBCC’s existing Diners Club portfolio and its cardholder base. Pursuant to the PSPA, SBCC transferred a substantial portion of its credit card receivables with carrying values of P=586.7 million to BDO for a consideration of P=751.7 million. SBCC recognized a gain of =165.0P million from this transaction included under ‘Miscellaneous income’ (see Note 32).
As part of the PSPA, SBCC shall provide transition services, including operational and system support for automated teller machine transactions of the cardholders to facilitate the continued management and servicing of the sold portfolio. The transition fees received by SBCC amounted to nil in 2018 and P=73.9 million in 2017, included under ‘Service fees - miscellaneous’ (see Note 31).
Integration of SBS to the Parent Company On February 25, 2014, the Parent Company’s BOD approved the integration of SBS. On January 8, 2015, the BSP approved the purchase of all assets and assumption of all liabilities of SBS by the Parent Company. On January 14, 2015, the BSP clarified that SBS will not become a shell corporation after the integration because it will retain cash to meet its capital requirement as a thrift bank, and after one year of dormancy, shall go back to the BSP for consideration to resume its banking operations. On its letter dated January 29, 2015, the PDIC also granted the consent to the proposed sale of all assets and assumption of all liabilities of SBS to the Parent Company under the Resolution No. 2014-12-290 dated December 19, 2014.
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Assets and liabilities with carrying values of =8.3P billion and =9.6P billion, respectively, in the books of SBS were sold/transferred to SBC at their fair values of P=8.4 billion and =9.7P billion, respectively on transfer date. SBS paid the Parent Company for the difference between the fair value of the assets and liabilities transferred amounting to P=1.3 billion.
On May 26, 2016, the BSP approved the request of SBS to extend the license and retain the vehicle on a dormant status for another year or until January 25, 2017.
Conversion of SBS to SBFCI On November 24, 2016 and December 15, 2016, the BOD and stockholders of SBS, respectively, approved the conversion of SBS from a savings bank to a finance company. On April 11, 2017, the Monetary Board (MB) of the BSP, in its Resolution No. 616, approved the voluntary surrender of SBS of its thrift bank, trust and FCDU licenses, subject to submission of certain regulatory requirements.
On August 4, 2017, the SEC approved the conversion of SBS from a savings bank to a finance company. On the same date, the SEC also approved the Amended Articles of Incorporation and By-Laws of SBS to operate as a financing company in accordance with the Financing Act of 1998 (Republic Act. No. 8556) under the name of SBFCI.
On September 28, 2017, the BOD of SBFCI approved the organizational structure of the Company.
Interest in a Joint Venture The summarized financial information of the joint venture and reconciliation of the carrying amount of the investment in consolidated financial statements are set out below (in millions):
2018 2017 Cash and cash equivalents P=20 P=124 Loans and other receivables - current 2,002 1,167 Non-current assets 761 1,050 Current liabilities (1,984) (1,583) Non-current liabilities (352) (355) Others 41 42 Equity P=488 P=445 Proportion of the Group’s ownership 60% 60% Carrying amount of the investment P=293 P=267
2018 2017 Income Leasing and other income P=155 P=123 Interest expense (58) (38) Net interest income 97 85 Other income 35 42 Operating expenses (67) (67) Income before income tax 65 60 Provision for income tax (21) (18) Net income P=44 P=42 Group’s share for the year P=26 P=25
Depreciation expense amounting to P=4.9 million in 2018 and P=4.0 million in 2017 is included under ‘Operating expenses’. SBML has no contingent liabilities or capital commitments as of December 31, 2018 and 2017.
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16. Property and Equipment
The composition of and movements in the Group’s and the Parent Company’s property and equipment follow:
Consolidated Furniture, Building and Fixtures and Transportation Leasehold Land Improvements Equipment Equipment Improvements Total December 31, 2018 Cost Balance at beginning of year P=362,447 P=2,428,934 P=2,866,319 P=1,232,242 P=507,822 P=7,397,764 Additions − 73,005 368,419 672,489 127,329 1,241,242 Disposals − (89) (104,481) (76,207) (49,398) (230,175) Amortization of leasehold improvements − − − − (178,566) (178,566) Reclassifications − 25,039 (29,157) (78,333) 4,321 (78,130) Balance at end of year 362,447 2,526,889 3,101,100 1,750,191 411,508 8,152,135 Accumulated Depreciation Balance at beginning of year − 1,375,884 1,549,103 360,055 − 3,285,042 Depreciation − 139,079 393,161 365,093 − 897,333 Disposals − (21) (102,657) (48,931) − (151,609) Reclassifications − 22,167 4,014 (30,776) − (4,595) Balance at end of year − 1,537,109 1,843,621 645,441 − 4,026,171 Allowance for Impairment Loss Balance at beginning of year 5,625 3,024 − − − 8,649 Recovery of impairment losses (Note 17) (1,018) (854) − − − (1,872) Balance at end of year 4,607 2,170 − − − 6,777 Net Book Value at End of Year P=357,840 P=987,610 P=1,257,479 P=1,104,750 P=411,508 P=4,119,187
December 31, 2017 Cost Balance at beginning of year P=366,832 P=2,324,024 P=2,460,921 P=680,930 P=418,839 P=6,251,546 Additions − 105,791 583,696 578,370 291,717 1,559,574 Disposals (4,385) (881) (179,483) (34,290) (5,171) (224,210) Amortization of leasehold improvements − − − − (197,563) (197,563) Reclassifications − − 1,185 7,232 − 8,417 Balance at end of year 362,447 2,428,934 2,866,319 1,232,242 507,822 7,397,764 Accumulated Depreciation Balance at beginning of year − 1,274,488 1,308,734 185,803 − 2,769,025 Depreciation − 101,884 403,736 195,902 − 701,522 Disposals − (488) (164,318) (27,702) − (192,508) Reclassifications − − 951 6,052 − 7,003 Balance at end of year − 1,375,884 1,549,103 360,055 − 3,285,042 Allowance for Impairment Loss Balance at beginning of year 20,485 4,603 − − − 25,088 Recovery of impairment losses (Note 17) (14,860) (1,579) − − − (16,439) Balance at end of year 5,625 3,024 − − − 8,649 Net Book Value at End of Year P=356,822 P=1,050,026 P=1,317,216 P=872,187 P=507,822 P=4,104,073
Parent Company Furniture, Building and Fixtures and Transportation Leasehold Land Improvements Equipment Equipment Improvements Total December 31, 2018 Cost Balance at beginning of year P=427,120 P=2,415,430 P=2,493,792 P=214,860 P=506,370 P=6,057,572 Additions − 73,005 366,773 51,395 127,192 618,365 Disposals − (90) (104,125) (45,438) (49,398) (199,051) Amortization of leasehold improvements − − − − (178,092) (178,092) Reclassifications − 2,313 (95,492) 3,328 4,321 (85,530) Balance at end of year 427,120 2,490,658 2,660,948 224,145 410,393 6,213,264 Accumulated Depreciation Balance at beginning of year − 1,364,295 1,408,711 106,123 − 2,879,129 Depreciation − 139,090 391,182 38,428 − 568,700 Disposals − (20) (102,322) (31,404) − (133,746) Reclassifications − − (6,145) 756 − (5,389) Balance at end of year − 1,503,365 1,691,426 113,903 − 3,308,694
(Forward)
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Parent Company Furniture, Building and Fixtures and Transportation Leasehold Land Improvements Equipment Equipment Improvements Total Allowance for Impairment Loss Balance at beginning of year P=29,898 P=240 P=− P=− P=− P=30,138 Recovery of impairment losses (Note 17) (1,018) (854) − − − (1,872) Balance at end of year 28,880 (614) − − − 28,266 Net Book Value at End of Year P=398,240 P=987,907 P=969,522 P=110,242 P=410,393 P=2,876,304
December 31, 2017 Cost Balance at beginning of year P=431,505 P=2,311,542 P=2,164,773 P=181,589 P=415,733 P=5,505,142 Additions − 105,791 494,676 50,543 290,572 941,582 Disposals (4,385) (1,903) (165,657) (17,272) (2,955) (192,172) Amortization of leasehold improvements − − − − (196,980) (196,980) Balance at end of year 427,120 2,415,430 2,493,792 214,860 506,370 6,057,572 Accumulated Depreciation Balance at beginning of year − 1,261,335 1,171,045 81,377 − 2,513,757 Depreciation − 103,448 361,502 36,107 − 501,057 Disposals − (488) (123,836) (11,361) − (135,685) Balance at end of year − 1,364,295 1,408,711 106,123 − 2,879,129 Allowance for Impairment Loss Balance at beginning of year 41,575 5,159 − − − 46,734 Recovery of impairment losses (Note 17) (11,677) (4,919) − − − (16,596) Balance at end of year 29,898 240 − − − 30,138 Net Book Value at End of Year P=397,222 P=1,050,895 P=1,085,081 P=108,737 P=506,370 P=3,148,305
As of December 31, 2018 and 2017, the cost of fully depreciated property and equipment still in use amounted to P=1.7 billion for the Group and the Parent Company.
The details of depreciation and amortization recognized in the statements of income follow:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Property and equipment P=897,333 P=701,522 P=500,635 P=568,700 P=501,057 P=397,306 Leasehold improvements 178,566 197,563 111,572 178,092 196,980 110,554 Investment properties (Note 17) 38,243 29,369 15,406 37,194 28,463 13,689 Other properties acquired (Note 18) 24,396 15,510 12,454 24,403 15,659 12,207 P=1,138,538 P=943,964 P=640,067 P=808,389 P=742,159 P=533,756
17. Investment Properties
The composition of and movements in the Group and the Parent Company’s investment properties follow:
Consolidated Building and Land Improvements Total December 31, 2018 Cost Balance at beginning of year P=630,418 P=251,477 P=881,895 Additions (Note 38) 65,830 111,878 177,708 Disposals (101,396) (24,487) (125,883) Balance at end of year 594,852 338,868 933,720 (Forward)
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Consolidated Building and Land Improvements Total Accumulated Depreciation Balance at beginning of year P=– P=54,056 P=54,056 Depreciation (Note 16) – 38,243 38,243 Disposals – (7,316) (7,316) Balance at end of year – 84,983 84,983 Allowance for Impairment Loss Balance at beginning of year 24,337 12,196 36,533 Provision for (recovery of) impairment losses (224) 6,901 6,677 Disposals (6,278) (989) (7,267) Balance at end of year 17,835 18,108 35,943 Net Book Value at End of Year P=577,017 P=235,777 P=812,794 December 31, 2017 Cost Balance at beginning of year P=597,304 P=147,517 P=744,821 Additions (Note 38) 111,053 142,102 253,155 Disposals (77,939) (38,142) (116,081) Balance at end of year P=630,418 P=251,477 P=881,895
Accumulated Depreciation Balance at beginning of year P=– P=52,672 P=52,672 Depreciation (Note 16) – 29,369 29,369 Disposals – (27,985) (27,985) Balance at end of year – 54,056 54,056 Allowance for Impairment Loss Balance at beginning of year 26,537 6,561 33,098 Provision for impairment losses 4,080 6,391 10,471 Disposals (6,280) (756) (7,036) Balance at end of year 24,337 12,196 36,533 Net Book Value at End of Year P=606,081 P=185,225 P=791,306
Parent Company Building and Land Improvements Total December 31, 2018 Cost Balance at beginning of year P=565,854 P=334,645 P=900,499 Additions (Note 38) 65,830 111,878 177,708 Disposals (100,515) (24,117) (124,632) Balance at end of year 531,169 422,406 953,575 Accumulated Depreciation Balance at beginning of year – 61,037 61,037 Depreciation (Note 16) – 37,194 37,194 Disposals – (6,935) (6,935) Balance at end of year – 91,296 91,296 Allowance for Impairment Loss Balance at beginning of year 33,415 12,275 45,690 Provision for impairment losses 858 7,730 8,588 Disposals (6,012) (989) (7,001) Balance at end of year 28,262 19,016 47,277 Net Book Value at End of Year P=502,908 P=312,094 P=815,002 (Forward)
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Parent Company Building and Land Improvements Total December 31, 2017 Cost Balance at beginning of year P=530,523 P=224,817 P=755,340 Additions (Note 38) 111,053 142,102 253,155 Disposals (75,722) (32,274) (107,996) Balance at end of year 565,854 334,645 900,499 Accumulated Depreciation Balance at beginning of year – 53,770 53,770 Depreciation (Note 16) – 28,463 28,463 Disposals – (21,196) (21,196) Balance at end of year – 61,037 61,037 Allowance for Impairment Loss Balance at beginning of year 30,234 6,267 36,501 Provision for impairment losses 7,000 6,775 13,775 Disposals (3,819) (767) (4,586) Balance at end of year 33,415 12,275 45,690 Net Book Value at End of Year P=532,439 P=261,333 P=793,772
Investment properties include real estate properties acquired in settlement of loans and receivables. The difference between the fair value of the asset upon foreclosure and the carrying value of the loan is recognized under ‘Profit from assets sold/exchanged’.
The fair values of investment properties are disclosed in Note 6.
As of December 31, 2018 and 2017, the carrying value of investment properties still subject to redemption amounted to =132.5P million and =173.5P million, respectively, for the Group and the Parent Company.
In 2018, 2017 and 2016, rental income (included under ‘Rent’ in the statements of income) on investment properties, which are leased out under operating leases, amounted to =0.1P million, =0.6P million, and P=0.3 million, respectively, for the Group and the Parent Company. In 2018, 2017 and 2016, direct operating expenses, consisting of depreciation and amortization and repairs and maintenance (included under ‘Occupancy costs’ in the statements of income) pertaining to investment properties amounted to P=47.8 million, P=35.4 million, and P=19.0 million, respectively, for the Group and P=44.4 million, P=36.3 million, and P=19.0 million, respectively, for the Parent Company.
Provision for (recovery of) impairment losses on non-financial assets in the statements of income are as follows:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Property and equipment (Note 16) (P=1,872) (P=16,439) P=− (P=1,872) (P=16,596) P=− Investment properties 6,677 10,471 6,519 8,588 13,775 9,271 Other properties acquired (Note 18) 2,511 640 310 2,120 641 346 P=7,316 (P=5,328) P=6,829 P=8,836 (P=2,180) P=9,617
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18. Intangible and Other Assets
Intangible assets consist of:
Consolidated Parent Company 2018 2017 2018 2017 Branch licenses P=1,460,000 P=1,460,000 P=1,445,000 P=1,445,000 Software costs 875,945 550,539 872,317 548,709 Exchange trading right 8,500 8,500 – – P=2,344,445 P=2,019,039 P=2,317,317 P=1,993,709
Branch licenses of the Group amounting to P=1.5 billion represents the following: a. 1 branch license acquired by the Parent Company from the BSP in 2017 amounting to =20.0P million; b. 4 branch licenses acquired by the Parent Company from the BSP in 2016 amounting to =80.0P million; c. 11 branch licenses acquired by the Parent Company from the BSP in 2014 amounting to =220.0P million; d. 24 branch licenses acquired by the Parent Company from the BSP in 2013 amounting to =480.0P million; e. 15 branch licenses acquired by the Parent Company from the BSP in 2012 amounting to =300.0P million; and f. 24 branch licenses acquired by the Parent Company from the business combination on February 1, 2012 amounting to P=360.0 million.
Movements in software costs follow:
Consolidated Parent Company 2018 2017 2018 2017 Cost Balance at beginning of year P=1,239,417 P=1,005,388 P=1,096,212 P=848,488 Additions 545,501 248,123 542,708 247,724 Disposals (28,837) (14,094) (28,836) − Balance at end of year 1,756,081 1,239,417 1,610,084 1,096,212 Accumulated Amortization Balance at beginning of year 688,878 570,245 547,503 424,613 Amortization 191,258 126,127 190,264 122,890 Disposals − (7,494) − − Balance at end of year 880,136 688,878 737,767 547,503 Net Book Value at End of Year P=875,945 P=550,539 P=872,317 P=548,709
As of December 31, 2018 and 2017, the latest transacted price of SBEI’s exchange trading right amounted to =8.5P million.
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Other assets consist of:
Consolidated Parent Company 2018 2017 2018 2017 Cash collateral deposits P=2,371,164 P=1,016,454 P=2,371,164 P=1,016,454 Rental and security deposits (Note 33) 381,969 321,154 381,742 317,070 Documentary stamps 349,214 318,717 345,994 317,949 Prepaid expenses 392,998 284,174 228,653 141,088 Pension asset (Note 30) 33,425 254,610 2,765 221,329 Returned checks and other cash items 37,610 43,619 37,610 43,619 Other properties acquired – net 97,556 36,770 97,057 36,792 Miscellaneous 446,107 342,096 425,748 323,720 4,110,043 2,617,594 3,890,733 2,418,021 Allowance for credit and impairment losses Balance at beginning of year 13,150 13,150 – – ECL allowance as at January 1, 2018 under PFRS 9 (Note 2) 178 – 178 – 13,328 13,150 178 – Provision for credit losses (Note 14) 638 – 638 – 13,966 13,150 816 – P=4,096,077 P=2,604,444 P=3,889,917 P=2,418,021
Cash collateral deposits represent the Parent Company’s restricted deposits for its treasury transactions such as interest rate swaps and SSURA. The fair value of these deposits approximates their carrying amount.
In 2018, the gross carrying amount and corresponding ECL of cash collateral securities were carried at stage 1 and there were no transfers into and out of stage 1.
As of December 31, 2018 and 2017, ‘Other assets – miscellaneous’ includes prepaid employee benefits under car plan program amounting to P=141.1 million and =126.75P million for the Group, respectively, and P=138.5 million and P=125.04 million for the Parent Company, respectively.
Other properties acquired represent chattel mortgages foreclosed from loan borrowers. Gain or loss upon foreclosure is included under ‘Profit from assets sold/exchanged’ in the statements of income.
Movements in the other properties acquired by the Group and the Parent Company follow:
Consolidated Parent Company 2018 2017 2018 2017 Cost Balance at beginning of year P=52,286 P=56,590 P=52,161 P=55,718 Additions (Note 38) 192,849 47,762 192,350 47,762 Disposals (122,191) (52,066) (122,067) (51,319) Balance at end of year 122,944 52,286 122,444 52,161 Accumulated Depreciation Balance at beginning of year 14,796 12,074 14,649 10,457 Depreciation (Note 16) 24,396 15,510 24,403 15,659 Disposals (15,866) (12,788) (15,729) (11,467) Balance at end of year 23,326 14,796 23,323 14,649 Accumulated Impairment Loss Balance at beginning of year 720 373 720 438 Provision for impairment losses (Note 17) 2,511 640 2,120 641 Disposal (1,169) (293) (776) (359) Balance at end of year 2,062 720 2,064 720 Net Book Value at End of Year P=97,556 P=36,770 P=97,057 P=36,792
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19. Deposit Liabilities
On May 8, 2014, the BSP, through BSP Circular 832, approved the 1.0% increase in reserve requirements effective May 30, 2014, thereby further increasing the reserve requirements on non- FCDU deposit liabilities of the Parent Company and SBS from 19.0% to 20.0% and from 7.0% to 8.0%, respectively. On February 15, 2018, the BSP, through BSP Circular 997, approved the 1.0% reduction in reserve requirements effective March 2, 2018 thereby reducing the reserve requirements on non-FCDU deposit liabilities of the Parent Company from 20.0% to 19.0%.
As mandated by the Circular, only demand deposit accounts maintained by banks with the BSP are eligible for compliance with reserve requirements, thereby excluding government securities and cash in vault as eligible reserves. Further, deposits maintained with the BSP in compliance with the reserve requirement shall no longer be paid interest.
On May 24, 2018, the BSP, through BSP Circular 1004, approved the 100-basis-point reduction in the reserve requirement ratios of selected reservable liabilities of the Parent Company effective June 1, 2018.
As of December 31, 2018 and 2017, the Group and the Parent Company has set aside ‘Due from BSP’ as reserves amounting to =63.6P billion and =56.3P billion, respectively.
As reported to the BSP, the Group was in compliance with such regulations as of December 31, 2018 and 2017.
Long-term Negotiable Certificates of Deposit maturing on February 17, 2019 On February 17, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of =5.0P billion.
The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the BSP on November 24, 2011.
Long-term Negotiable Certificates of Deposit maturing on August 16, 2019 On August 15, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of =5.0P billion.
The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the BSP on April 26, 2012.
Long-term Negotiable Certificates of Deposit maturing on May 8, 2023 On November 8, 2017, the Parent Company issued 3.875% fixed coupon rate (EIR of 4.01%) unsecured LTNCD at par value of =8.6P billion. The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the BSP on October 5, 2017.
Long-term Negotiable Certificates of Deposit maturing on November 2, 2023 On May 2, 2018, the Parent Company issued 4.50% fixed coupon rate (EIR of 4.69%) unsecured LTNCD at par value of =5.78P billion. The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the BSP on October 5, 2017.
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The movement of unamortized debt issue costs on LTNCDs follows:
2018 2017 Beginning balance P=73,525 P=27,262 Addition 53,506 58,711 Amortization (27,161) (12,448) Balance at end of year P=99,870 P=73,525
Interest expense on deposit liabilities consists of:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Demand P=127,938 P=151,869 P=171,354 P=128,465 P=152,860 P=172,724 Savings 3,175,584 1,770,434 1,486,034 3,186,923 1,782,254 1,491,804 Time 3,841,770 2,695,651 1,282,539 3,850,509 2,679,442 1,259,055 LTNCD 1,082,471 611,510 560,448 1,082,471 611,510 560,448 P=8,227,763 P=5,229,464 P=3,500,375 P=8,248,368 P=5,226,066 P=3,484,031
Ranges of annual fixed interest on deposit liabilities excluding LTNCD follow (in percentages):
2018 2017 2016 Peso-denominated 0.10-6.75 0.10-2.65 0.10-2.00 Foreign currency-denominated 0.25-3.50 0.125-4.25 0.25-3.00
20. Financial Liabilities at Fair Value through Profit or Loss
This account consists of:
2018 2017 Derivative liabilities (Note 6): Interest rate swaps P=1,073,342 P=593,305 Currency forwards 578,457 1,416,071 Cross-currency swaps 121,792 – Warrants – 3,151 Interest rate futures – 655 P=1,773,591 P=2,013,182
Interest expense on derivative instruments consists of:
2018 2017 2016 Interest rate swaps P=580,690 P=430,246 P=737,191 Cross-currency swaps 208,529 157,997 59,322 P=789,219 P=588,243 P=796,513
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21. Bills Payable and Securities Sold Under Repurchase Agreements
This account consists of borrowings from:
Consolidated Parent Company 2017 2017 (As restated - (As restated - 2018 Note 2) 2018 Note 2) SSURA P=59,274,353 P=107,630,850 P=59,274,353 P=107,630,850 Foreign banks 25,822,254 16,686,606 25,822,254 16,686,606 Local government banks with relending facilities 13,694,071 209,292 13,694,071 209,292 BSP - rediscounting 2,541,491 – 2,541,491 – Local banks 1,847,860 6,652,490 1,522,860 6,502,490 P=103,180,029 P=131,179,238 P=102,855,029 P=131,029,238
The following are the carrying values of the investment securities pledged and transferred under SSURA transactions of the Group:
December 31, 2018 December 31, 2017 Carrying Carrying Value Fair Value Value Fair Value Investment securities at amortized cost (Note 13) Treasury bonds P=67,805,474 P=64,076,037 P=129,597,599 P=127,579,271 Financial assets at FVTOCI (Note 12) Treasury bonds 8,596,372 8,596,372 − − P=76,401,846 P=72,672,409 P=129,597,599 P=127,579,271
For the years ended December 31, 2018, 2017 and 2016, interest expense on bills payable and SSURA, notes payable, subordinated notes and other borrowings in the statements of income consist of the following:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Bills payable and SSURA P=2,735,682 P=2,423,061 P=1,490,445 P=2,726,774 P=2,417,270 P=1,487,931 Notes Payable (Note 22) 838,357 613,404 577,787 838,357 613,404 577,787 Subordinated note (Note 23) 543,934 543,590 540,293 543,934 543,590 540,293 Others (Note 30) 6,617 7,021 9,931 6,617 7,021 10,049 P=4,124,590 P=3,587,076 P=2,618,456 P=4,115,682 P=3,581,285 P=2,616,060
Annual fixed interest rate ranges on the Group’s and the Parent Company’s interbank borrowings and rediscounting availments follow (in percentages):
2018 2017 2016 Interbank borrowings: Peso-denominated 2.53-8.00 2.50-8.00 2.50-8.00 Foreign currency-denominated 1.25-3.58 0.68-2.12 0.09-1.75 Rediscounting availments: Peso-denominated 5.06-5.38 – –
*SGVFS032853* - 108 -
22. Notes Payable
Senior Unsecured Notes due 2020 In February, 2015, the Parent Company issued $300.0 million senior unsecured notes (“Senior Notes”) due on February 3, 2020. The Senior Notes, which are listed in the Singapore Stock Exchange, were priced at par with a coupon rate of 3.95% (EIR of 4.04%) payable on a semi-annual basis commencing on August 3, 2015. The Parent Company incurred debt issue costs amounting to P=61.0 million.
Senior Unsecured Notes due 2023 In September 2018, the Parent Company issued $300.0 million senior unsecured notes (“Senior Notes”) due on September 25, 2023. The Senior Notes, which are listed in the Singapore Stock Exchange, were priced at a discount, with a coupon rate of 4.50% fixed rate (EIR of 4.68%) payable on a semi-annual basis commencing on March 25, 2019. The Parent Company incurred debt issue costs amounting to P=57.6 million.
The movements in unamortized discount follow:
December 31, 2018 December 31, 2017 Discount on issuance of notes P=30,598 P=46,603 Additions 132,354 – Amortization (21,608) (16,382) Translation adjustment (2,104) 377 Balance at end of year P=139,240 P=30,598
23. Subordinated Note
Tier 2 Unsecured Subordinated Notes due 2024 On July 11, 2014, the Parent Company issued =10.0P billion Unsecured Subordinated Notes (2024 Sub Notes) due on July 11, 2024 qualifying as Tier 2 Capital. The Notes will initially bear interest at the rate of 5.375% per annum (EIR of 5.464%) from and including July 11, 2014 to but excluding July 11, 2019. Unless the 2024 Sub Notes are redeemed on July 12, 2019, the initial interest rate will be reset at the equivalent of the five-year PDST-R1 plus a spread of 1.575% per annum, and such interest will be payable commencing on July 12, 2019 up to and including July 11, 2024. The interest on the 2024 Sub Notes for the entire term will be payable quarterly in arrears on the 11th of January, April, July, and October of each year, commencing on October 11, 2014.
The 2024 Sub Notes also contain a tax redemption option and a regulatory redemption option which will allow the Parent Company to redeem no less than all of the outstanding 2024 Sub Notes, at an amount equal to 100% of the face value of the 2024 Sub Notes plus accrued interest at the interest rate relating to the current interest period up to but excluding the date of such redemption, upon the happening of certain events that are triggered by changes in laws and regulations.
The 2024 Sub Notes also have a loss absorption feature which means that the notes are subject to a Non-Viability Write-Down in case of the occurrence of a Non-Viability Event, subject to certain conditions, when the Parent Company is considered non-viable as determined by the BSP. Non- Viability is defined as a deviation from a certain level of Common Equity Tier 1 (CET1) Ratio or the inability of the Parent Company to continue business (closure) or any other event as determined by the BSP, whichever comes earlier. Upon the occurrence of a Non-Viability Event, the Parent Company shall write-down the principal amount of the notes to the extent required by the BSP, which *SGVFS032853* - 109 -
could go down to as low as zero. A Non-Viability Trigger Event shall be deemed to have occurred if the BSP notifies the Issuer in writing that it has determined that a: (i) Write-Down of the notes and other capital instruments of the Parent Company is necessary because, without such Write-Down, the Parent Company would become non-viable, (ii) public sector injection of capital, or equivalent support, is necessary because, without such injection or support, the Parent Company would become non-viable, or (iii) Write-Down of the notes and other capital instruments of the Parent Company is necessary because, as a result of the closure of the Parent Company, it has become non-viable. A Non-Viability Write-Down shall have the following effects: (a) reduce the claim on the notes in liquidation; (b) reduce the amount re-paid when a call or redemption is properly exercised; and (c) partially or fully reduce the interest payments on the notes.
The issuance of the 2024 Sub Notes under the terms approved by the BOD was approved by the BSP on May 21, 2014, subject to the Parent Company’s compliance with certain conditions.
The movements in unamortized discount follow:
2018 2017 Balance at beginning P=49,186 P=55,276 Amortization (6,434) (6,090) Balance at end P=42,752 P=49,186
24. Accrued Interest, Taxes and Other Expenses
This account consists of:
Consolidated Parent Company 2018 2017 2018 2017 Accrued interest payable (Note 33) P=3,478,353 P=2,119,515 P=3,479,089 P=2,119,780 Accrued other expenses payable 1,509,218 1,636,876 1,452,895 1,596,835 Accrued other taxes and licenses payable 429,358 281,593 415,755 277,917 Pension liability - net (Notes 30 and 33) 878 1,185 – – P=5,417,807 P=4,039,169 P=5,347,739 P=3,994,532
Accrued other expenses payable includes accrual for various operating expenses such as payroll, repairs and maintenance, utilities, rental, and contractual services. This also includes estimated provision for probable losses arising from various legal cases of the Group (see Note 35).
25. Other Liabilities
This account consists of:
Consolidated Parent Company 2018 2017 2018 2017 Accounts payable (Note 33) P=2,634,769 P=3,188,971 P=2,418,227 P=2,306,209 Bills purchased - contra (Note 14) 2,485,623 1,001,299 2,485,623 1,001,299 Unearned initial milestone fee 942,209 – 942,209 – Payable to brokers 753,845 1,124,687 – – Other deferred credits 529,864 448,660 529,864 448,660 (Forward) *SGVFS032853* - 110 -
Consolidated Parent Company 2018 2017 2018 2017 Withholding taxes payable P=255,398 P=186,471 P=245,837 P=181,009 Due to the Treasurer of the Philippines 45,412 46,068 45,412 46,068 Subscription payable 30,000 30,000 123,750 123,750 Dividends payable 16,393 19,556 16,393 19,556 Deposits for keys of safety deposit boxes 6,789 6,566 6,789 6,566 Miscellaneous 2,650,489 2,038,065 2,082,216 1,918,879 P=10,350,791 P=8,090,343 P=8,896,320 P=6,051,996
Miscellaneous liabilities includes the ECL on loan commitments and financial guarantees of the Group and the Parent Company amounting to P=311.5 million as of December 31, 2018, Parent Company’s unearned access fee received from FWD amounting to nil and P=83.9 million as of December 31, 2018 and 2017, respectively (see Note 31), Social Security System pension for the Group’s depositors amounting to =163.0P million and =140.2P million as of December 31, 2018 and 2017, respectively, and items in process for clearing amounting to P=0.5 billion and =1.0P billion as of December 31, 2018 and 2017, respectively, which were subsequently reversed.
26. Maturity Analysis of Assets and Liabilities
The table below shows an analysis of assets and liabilities analyzed according to when they are expected to be recovered or settled (amounts in millions):
Consolidated Parent Company Within Over Within Over One Year One Year Total One Year One Year Total December 31, 2018 Financial Assets Cash and other cash items P=11,926 P=– P=11,926 P=11,926 P=– P=11,926 Due from BSP 63,605 – 63,605 63,605 – 63,605 Due from other banks 9,017 – 9,017 8,881 – 8,881 Interbank loans receivable and SPURA 210 – 210 210 – 210 Financial assets at FVTPL: HFT investments 2,476 – 2,476 2,476 – 2,476 Derivative assets 2,458 – 2,458 2,458 – 2,458 Others – 15 15 – 15 15 Total financial assets at FVTPL 4,934 15 4,949 4,934 15 4,949 Financial assets at FVTOCI 18,551 15,753 34,304 18,551 15,714 34,265 Investment securities at amortized cost 524 211,624 212,148 524 211,624 212,148 Loans and receivables - at gross 213,545 208,255 421,800 212,719 207,307 420,026 Other assets 2,388 407 2,795 2,371 382 2,753 Total financial assets 324,700 436,054 760,754 323,721 435,042 758,763 Non-financial Assets Investments in subsidiaries and a joint venture – 293 293 – 3,924 3,924 Property and equipment – 4,119 4,119 – 2,876 2,876 Investment properties – 813 813 – 815 815 Deferred tax assets – 1,877 1,877 – 1,783 1,783 Goodwill – 842 842 – 842 842 Intangible assets – 2,344 2,344 – 2,317 2,317 Other assets 78 1,223 1,301 – 1,137 1,137 Total non-financial assets 78 11,511 11,589 – 13,694 13,694 P=324,778 P=447,565 772,343 P=323,721 P=448,736 772,457 Less: Allowance for credit losses 5,009 5,142 Unearned discounts and 473 471 deferred credits Total Assets P=766,861 P=766,844
*SGVFS032853* - 111 -
Consolidated Parent Company Within Over Within Over One Year One Year Total One Year One Year Total Financial Liabilities Deposit liabilities P=301,498 P=187,392 P=488,890 P=303,229 P=187,392 490,621 Financial liabilities at FVTPL 1,774 – 1,774 1,774 – 1,774 Derivative liabilities designates as – 1,537 1,537 – 1,537 1,537 hedges Bills payable and SSURA 79,075 24,105 103,180 78,750 24,105 102,855 Acceptances payable – 619 619 – 619 619 Margin deposits and cash letters of credit – 939 939 – 939 939 Manager’s and certified checks outstanding 3,276 – 3,276 3,276 – 3,276 Subordinated note – 9,957 9,957 – 9,957 9,957 Notes payable – 31,409 31,409 – 31,409 31,409 Accrued interest, taxes and other expenses 4,662 312 4,974 4,630 302 4,932 Other liabilities 5,821 228 6,049 5,548 176 5,724 Total financial liabilities 396,106 256,498 652,604 397,207 256,436 653,643 Non-financial Liabilities Income tax payable 30 – 30 25 – 25 Accrued interest, taxes and other 444 – 444 416 – 416 expenses Other liabilities 3,909 392 4,302 2,643 529 3,172 Total non-financial liabilities 4,383 392 4,775 3,084 529 3,613 Total Liabilities P=400,489 P=256,890 P=657,379 P=400,291 P=256,965 P=657,256 December 31, 2017 (As restated – Note 2) Financial Assets Cash and other cash items P=7,956 P=− P=7,956 P=7,956 P=− P=7,956 Due from BSP 56,592 − 56,592 56,592 − 56,592 Due from other banks 6,823 − 6,823 6,737 − 6,737 Interbank loans receivable and SPURA 5,689 − 5,689 5,689 − 5,689 Financial assets at FVTPL: HFT investments 3,112 − 3,112 3,014 − 3,014 Derivative assets 1,466 − 1,466 1,466 − 1,466 Others − 15 15 − 15 15 Total financial assets at FVTPL 4,578 15 4,593 4,480 15 4,495 Financial assets at FVTOCI − 200 200 − 151 151 Investment securities at amortized cost 545 229,048 229,593 545 229,048 229,593 Loans and receivables - at gross 160,047 214,359 374,406 158,200 213,904 372,104 Other assets 1,016 322 1,338 1,016 317 1,333 Total financial assets 243,246 443,944 687,190 241,215 443,435 684,650 Non-financial Assets Investments in subsidiaries and a joint venture − 267 267 − 3,786 3,786 Property and equipment − 4,104 4,104 − 3,148 3,148 Investment properties − 791 791 − 794 794 Deferred tax assets − 1,763 1,763 − 1,580 1,580 Goodwill − 842 842 − 842 842 Intangible assets − 2,019 2,019 − 1,994 1,994 Other assets 634 632 1,266 503 582 1,085 Total non-financial assets 634 10,418 11,052 503 12,726 13,229 P=243,880 P=454,362 698,242 P=241,718 P=456,161 697,879 Less: Allowance for credit losses 3,851 3,757 Unearned discounts and 365 358 deferred credits Total Assets P=694,026 P=693,764 Financial Liabilities Deposit liabilities P=349,532 P=63,572 P=413,104 P=351,458 P=63,572 P=415,030 Financial liabilities at FVTPL 2,013 − 2,013 2,013 − 2,013 Bills payable and SSURA 123,285 7,894 131,179 123,135 7,894 131,029 Acceptances payable − 685 685 − 685 685 Margin deposits and cash letters of credit − 650 650 − 650 650
(Forward)
*SGVFS032853* - 112 -
Consolidated Parent Company Within Over Within Over One Year One Year Total One Year One Year Total Manager’s and certified checks outstanding P=3,607 P=− P=3,607 P=3,607 P=− P=3,607 Subordinated note − 9,951 9,951 − 9,951 9,951 Notes payable − 14,948 14,948 − 14,948 14,948 Accrued interest, taxes and other expenses 3,382 375 3,757 3,437 279 3,716 Other liabilities 6,036 82 6,118 4,029 295 4,324 Total financial liabilities 487,855 98,157 586,012 487,679 98,274 585,953 Non-financial Liabilities Income tax payable 681 − 681 659 − 659 Accrued interest, taxes and other 282 − 282 278 − 278 expenses Other liabilities 1,523 450 1,973 1,279 449 1,728 Total non-financial liabilities 2,486 450 2,936 2,216 449 2,665 Total Liabilities P=490,341 P=98,607 P=588,948 P=489,895 P=98,723 P=588,618
27. Equity
As of December 31, 2018 and 2017, the Parent Company’s capital stock consists of:
Shares* Amount Common stock - P=10 par value Authorized 1,000,000,000 P=10,000,000 Issued and outstanding Balance at the beginning and end of the period 753,538,887 7,535,389 Preferred stock - P=0.10 par value Authorized 1,000,000,000 100,000 Issued and outstanding Balance at the beginning and end of the period 1,000,000,000 100,000 1,753,538,887 P=7,635,389 *Absolute number of shares
On November 26, 2013, the Parent Company’s stockholders approved and authorized the following:
1. Creation of 1.0 billion non-cumulative, non-participating, non-convertible voting Preferred Stock with par value of =0.1P each and issuance of approximately 602.8 million of such Preferred Stock; and 2. Increase in authorized capital stock from =10.0P billion to =10.1P billion broken down into P=10.0 billion Common Stock and =100.0P million Preferred Stock.
The Preferred Stock was offered to eligible common stockholders, with each eligible stockholder entitled to subscribe to one voting preferred share for every one common stock held as of the record date, June 16, 2014.
On July 10, 2014, the Parent Company issued 602,831,109 non-cumulative, non-participating, non- convertible Preferred Stock with =0.1P par value. The dividend rate is 3.9% repricing every 10 years. The Preferred Stock is redeemable at the sole option of the Parent Company at its issue price. Redemption shall at all times be subject to regulation of the BSP and shall require (i) prior approval of the BSP; (ii) replacement with at least an equivalent amount of newly paid-in shares; (iii) a lapse of at least five (5) years from the date of issuance; and (iv) solvency of the Parent Company. *SGVFS032853* - 113 -
Redemption shall not be allowed when the Parent Company is insolvent or if such redemption will cause insolvency, impairment of capital or inability of the Parent Company to meet its debts as they mature.
A sinking fund for the redemption of Preferred Shares amounting P=100.0 million is created upon their issuance, to be effected by the transfer of free surplus to a restricted surplus account and shall not be available for dividend distribution.
On January 14, 2016, the Parent Company’s BOD approved the following in its special meeting: a. The acceptance of the Offer from MUFG to invest in a 20.0% voting interest in the Parent Company; b. The issuance of 150,707,778 common shares to MUFG from the unissued authorized shares of the Parent Company at a price of P=245.0 per common share, or a total of P=36,923,405,610; c. The listing of these newly issued common shares in the Philippine Stock Exchange, subject to the approval of shareholders (if needed); and d. The issuance of all unissued authorized voting preferred shares totaling to 397,168,891 at par value of =0.1P per share.
The application for investment has been approved by the Monetary Board of the BSP on February 24, 2016. The shares were issued to MUFG on April 1, 2016. Upon ratification of the stockholders of the investment by MUFG on April 26, 2016, shares issued to MUFG were listed with the Philippine Stock Exchange on June 28, 2016. The attributable costs of the issuance of common and preferred shares amounting to P=102.2 million have been charged directly to equity as a reduction from ‘Additional paid-in capital’, while costs amounting to P=41.6 million were charged directly to expense.
Details of the Parent Company’s cash dividend distribution follow:
Dividend Total amounts Shares Date of declaration Per share in thousands Record date Payment date Common October 30, 2018 P=1.00 P=753,539 November 19, 2018 November 29, 2018 Common October 30, 2018 0.5000 376,770 November 19, 2018 November 29, 2018 Common March 27, 2018 1.00 753,539 April 13, 2018 April 26, 2018 Common March 27, 2018 0.5000 376,770 April 13, 2018 April 26, 2018 Preferred February 27, 2018 0.0039 2,351 June 26, 2018 July 10, 2018 Preferred February 27, 2018 0.0048 1,908 March 14, 2018 April 2, 2018 Common October 27, 2017 1.00 753,539 November 17, 2017 November 24, 2017 Common October 27, 2017 0.50 376,770 November 17, 2017 November 24, 2017 Preferred April 25, 2017 0.0039 2,350 June 26, 2017 July 10, 2017 Common April 25, 2017 1.00 753,539 May 11, 2017 May 25, 2017 Common April 25, 2017 0.50 376,770 May 11, 2017 May 25, 2017 Preferred February 28, 2017 0.0048 1,908 March 17, 2017 April 3, 2017 Common October 25, 2016 1.00 753,539 November 10, 2016 November 24, 2016 Common April 26, 2016 1.00 753,539 May 11, 2016 May 26, 2016 Preferred April 26, 2016 0.0039 2,351 June 27, 2016 July 11, 2016
The computation of surplus available for dividend declaration in accordance with SEC Memorandum Circular No. 11 issued in December 2008 differs to a certain extent from the computation following BSP guidelines including capital adequacy requirements and other considerations such as general loan loss reserves. The amount declared as dividends is the amount approved by the BSP. However, on September 17, 2015, the BSP through MB Resolution No. 1516, allowed banks to declare and pay dividends without prior BSP verification provided that pre-qualification criteria including capital adequacy requirements are met. *SGVFS032853* - 114 -
The track record of the Parent Company’s registration of securities in compliance with the Securities Regulation Code Rule 68 Annex 68-D 1(I) follows: a. Authorized Shares
Date of SEC Approval Type of Shares Authorized Number of Shares* April 8, 2014 Preferred 1,000,000,000 November 11, 2013 Common 1,000,000,000 July 29, 1998 Common 600,000,000 February 19, 1997 Common 450,000,000 June 8, 1995 Common 200,000,000 * Absolute number of shares b. Stock Dividends
Date of BSP Approval Percentage July 11, 2013 20.00% March 29, 2011 20.00% May 26, 1998 13.75% April 29, 1997 20.00% March 26, 1996 20.00% c. Stock Rights Offering
Date of SEC Approval Number of shares Registered* Offer Price October 8, 2009 89,285,714 P=28.00 per share February 19, 1997 65,037,768 25.00 per share *Absolute number of shares d. Number of Shareholders
Year End Number of shareholders December 31, 2018 2,176 December 31, 2017 2,185 December 31, 2016 2,184
In the consolidated financial statements, a portion of the Group’s surplus corresponding to the accumulated net earnings of the subsidiaries amounting to P=817.0 million and P=699.0 million as of December 31, 2018 and 2017, respectively, is not available for dividend declaration. This accumulated equity in net earnings becomes available for dividend declaration upon receipt of dividends from the investees, subject also to SEC and BSP rules on dividend declaration.
Surplus reserves of the Group and the Parent Company consist of:
Consolidated Parent Company 2018 2017 2018 2017 Reserve for self-insurance P=2,111,200 P=945,200 P=2,111,200 P=945,200 Reserve for trust business 277,500 255,600 277,500 255,600 Reserve for redemption of preferred stock 100,000 100,000 100,000 100,000 Others 34,545 32,185 − − P=2,523,245 P=1,332,985 P=2,488,700 P=1,300,800 *SGVFS032853* - 115 -
In compliance with existing BSP regulations, 10.0% of the net profits realized by the Parent Company from its trust business is appropriated to surplus reserve. The yearly appropriation is required until the surplus reserve for trust business equals 20.0% of the Parent Company’s regulatory capital.
To comply with Securities Regulation Code Rule 49.1 (B), Reserve Fund, requiring broker dealers to annually appropriate a certain minimum percentage of its audited profit after tax as reserve fund, a portion of the Group’s surplus corresponding to the net earnings of SBEI amounting to P=34.5 million and P=32.2 million as of December 31, 2018 and 2017, respectively, has been appropriated in the consolidated financial statements and is not available for dividend declaration.
The following table shows the components of comprehensive income closed to Surplus:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Net income attributable to the equity holders of the Parent Company P=8,608,694 P=10,264,797 P=8,553,545 P=8,650,134 P=10,309,267 P=8,496,993 Remeasurement gains (losses) on defined benefit plans (Notes 15 and 30) 2,478 226,618 (133,247) 2,478 226,618 (133,250) P=8,611,172 P=10,491,415 P=8,420,298 P=8,652,612 P=10,535,885 P=8,363,743
Capital Management The Group considers the equity attributable to the equity holders of the Parent Company as the capital base of the Group. The primary objectives of the Group’s capital management are to ensure that it complies with externally imposed capital requirements and that it maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value.
The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities and assessment of prospective business requirements or directions. In order to maintain or adjust the capital structure, the Group may adjust the amount and mode of dividend payment to shareholders, issue capital securities or undertake a share buy-back. The processes and policies guiding the determination of the sufficiency of capital for the Group relative to its business risks are the very same methodology that have been incorporated into the Group’s ICAAP in compliance with the requirements of BSP Circular No. 639 for its adoption. Under this framework, the assessment of risks extends beyond the Pillar 1 set of credit, market and operational risks and onto other risks deemed material by the Group. The level and structure of capital are assessed and determined in light of the Group’s business environment, plans, performance, risks and budget; as well as regulatory edicts. BSP requires submission of an ICAAP document every March 31. In 2015, while the Group has revised and created additional triggers for its CET I capital, respectively, on top of it 2013 ICAAP to its original capital management process, no changes were made in the objectives and policies from previous years (see Note 13). In 2015, the Group has established the Finance Committee to oversee the Group’s ICAAP. It recommends measures to safeguard the capital of the Group.
Regulatory Qualifying Capital Under existing BSP regulations, the determination of the Parent Company’s compliance with regulatory requirements and ratios is based on the amount of the Parent Company’s ‘unimpaired capital’ (regulatory net worth) reported to the BSP, which is determined on the basis of regulatory policies. In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifying *SGVFS032853* - 116 - capital to risk-weighted assets, should not be less than 10.0% for both solo basis (head office and branches) and consolidated basis (parent company and subsidiaries engaged in financial allied undertakings). Qualifying capital and risk-weighted assets are computed based on BSP regulations.
The regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1 (core) and Tier 2 (supplementary) capital. Tier 1 capital comprises share capital, retained earnings (including current year profit) and non-controlling interest less required deductions such as deferred tax, benefit pension fund asset, intangible assets and unsecured credit accommodations to DOSRI and subsidiaries. Tier 2 capital includes unsecured subordinated note, revaluation reserves and general loan loss provision. Certain items are deducted from the regulatory Gross Qualifying Capital, such as but not limited to equity investments in unconsolidated subsidiary banks and other financial allied undertakings, but excluding investments in debt capital instruments of unconsolidated subsidiary banks (for solo basis) and equity investments in subsidiary nonfinancial allied undertakings.
Risk-weighted assets are determined by assigning defined risk weights to statements of financial position exposures and to the credit equivalent amounts of off-balance sheet exposures. Certain items are deducted from risk-weighted assets, such as the excess of general loan loss provision over the amount permitted to be included in Tier 2 capital. The risk weights vary from 0.0% to 150.0% depending on the type of exposure, with the risk weights of off-balance sheet exposures being subjected further to credit conversion factors. For the purpose of determining the relevant risk weight, third party credit assessments provided by Standard & Poor’s, Moody’s, Fitch and PhilRatings were used.
Following is a summary of risk weights and selected exposure types:
Risk weight Exposure/Asset type* 0% Cash on hand; claims collateralized by securities issued by the non-government, BSP; loans covered by the Trade and Investment Development Corporation of the Philippines; real estate mortgages covered by the Home Guarantee Corporation 20% COCI, claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit quality; claims guaranteed by foreign incorporated banks with the highest credit quality; loans to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation 50% Housing loans fully secured by first mortgage on residential property; Local Government Unit (LGU) bonds which are covered by Deed of Assignment of Internal Revenue allotment of the LGU and guaranteed by the LGU Guarantee Corporation 75% Direct loans of defined Small Medium Enterprise and microfinance loans portfolio
100% All other assets (e.g., real estate assets) excluding those deducted from capital (e.g., deferred tax) and nonperforming housing loans fully secured by first mortgage 150% All NPLs (except nonperforming housing loans fully secured by first mortgage) and all nonperforming debt securities * Not all inclusive
With respect to off-balance sheet exposures, the exposure amount is multiplied by a credit conversion factor (CCF), ranging from 0.0% to 100.0%, to arrive at the credit equivalent amount, before the risk weight factor is multiplied to arrive at the risk-weighted exposure. Direct credit substitutes (e.g., guarantees) have a CCF of 100.0%, while items not involving credit risk has a CCF of 0.0%.
In the case of derivatives, the credit equivalent amount (against which the risk weight factor is multiplied to arrive at the risk-weighted exposure) is generally the sum of the current credit exposure or replacement cost (the positive fair value or zero if the fair value is negative or zero) and an estimate of the potential future credit exposure or add-on. The add-on ranges from 0.0% to 1.5% (interest rate-related) and from 1.0% to 7.5% (exchange rate-related), depending on the residual *SGVFS032853* - 117 - maturity of the contract. For CLNs and similar instruments, the risk-weighted exposure is the higher of the exposure based on the risk weight of the issuer’s collateral or the reference entity or entities.
As of December 31, 2018 and 2017, the Group was in compliance with the required capital adequacy ratio (CAR).
The CAR of the Group and of the Parent Company as reported to the BSP as of December 31, 2018 and 2017 follows:
Consolidated Parent Company 2018 2017 2018 2017 Tier 1 capital P=107,840,717 P=103,223,871 P=107,977,432 P=103,333,294 Less Required deductions 6,836,161 6,366,321 13,005,108 10,803,928 101,004,556 96,857,550 94,972,324 92,529,366 Excess from Tier 2 deducted to Tier 1 Capital* – – – – Net Tier 1 Capital 101,004,556 96,857,550 94,972,324 92,529,366 Tier 2 capital 14,174,245 13,672,970 14,167,650 13,624,052 Less: Required deductions − – − – 14,174,245 13,672,970 14,167,650 13,624,052 Excess of Tier 2 deducted to Tier 1 Capital* – – – – Net Tier 2 Capital 14,174,245 13,672,970 14,167,650 13,624,052 Total Qualifying Capital P=115,178,801 P=110,530,520 P=109,139,974 P=106,153,418 Risk Weighted Assets P=615,936,742 P=623,685,364 P=610,008,396 P=617,280,615 Tier 1 CAR 16.40% 15.53% 15.57% 14.99% Total CAR 18.70% 17.72% 17.89% 17.20% *Deductions to Tier 2 Capital are capped at its total gross amount and any excess shall be deducted from Tier 1 Capital.
On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on Minimum Capital Requirements, which provides the implementing guidelines on the revised risk- based capital adequacy framework particularly on the minimum capital and disclosure requirements for universal banks and commercial banks, as well as their subsidiary banks and quasi-banks, in accordance with the Basel III standards. The circular is effective on January 1, 2014.
The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1 capital ratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital. The BSP’s existing requirement for Total CAR remains unchanged at 10% and these ratios shall be maintained at all times.
Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility criteria for capital instruments under the revised capital framework shall no longer be recognized as capital upon the effectivity of Basel III. Capital instruments issued under BSP Circular Nos. 709 and 716 (the circulars amending the definition of qualifying capital particularly on Hybrid Tier 1 and Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781, shall be recognized as qualifying capital until December 31, 2015. In addition to changes in minimum capital requirements, this Circular also requires various regulatory adjustments in the calculation of qualifying capital.
On June 27, 2014, the BSP issued Circular No. 839, REST Limit for Real Estate Exposures, which provides the implementing guidelines on the prudential REST limit for universal, commercial, and thrift banks on their aggregate real estate exposures. The Circular sets out a minimum REST limit of 6.0% CET1 capital ratio and 10.0% risk-based capital adequacy ratio, on a solo and consolidated
*SGVFS032853* - 118 -
basis, under a prescribed write-off rate of 25.0% on the Group’s real estate exposure. These limits shall be complied with at all times.
On June 9, 2015, the BSP issued Circular No. 881, Implementing Guidelines on the Basel III Leverage Ratio Framework, which provides implementing guidelines for universal, commercial, and their subsidiary banks/quasi banks. The circular sets out a minimum leverage ratio of 5.0% on a solo and consolidated basis and shall be complied with at all times.
The Group has taken into consideration the impact of the foregoing requirements to ensure that the appropriate level and quality of capital are maintained on an ongoing basis.
28. Trust Operations
Securities and other properties held by the Parent Company in a fiduciary or agency capacity for clients and beneficiaries are not included in the accompanying statements of financial position since these are not assets of the Parent Company.
Treasury notes and bills included under ‘Investment securities at amortized cost’ as of December 31, 2018 and 2017 with a total face value of =508.1P million and =550.0P million, respectively, were deposited with the BSP in compliance with the requirements of the General Banking Law relative to the Parent Company’s trust functions (see Note 13).
29. Income Taxes
Provision for income tax consists of:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Current: Final P=504,622 P=504,727 P=158,952 P=497,681 P=498,910 P=149,670 Corporate 1,559,588 1,823,964 813,268 1,531,075 1,765,074 736,278 2,064,210 2,328,691 972,220 2,028,756 2,263,984 885,948 Deferred 411,902 (642,539) (95,004) 317,636 (636,640) 10,183 P=2,476,112 P=1,686,152 P=877,216 P=2,346,392 P=1,627,344 P=896,131
The Group’s provision for income tax - current represents final tax, RCIT of the Parent Company’s RBU, SBEI, SBCC, SBFCI and SBRC, and MCIT of the Parent Company’s FCDU and other subsidiaries.
Under Philippine tax laws, the Parent Company and its financial intermediary subsidiaries are subject to percentage and other taxes (presented as ‘Taxes and licenses’ in the statements of income) as well as income taxes. Percentage and other taxes paid consist principally of documentary stamp tax and gross receipts tax.
Current tax regulations provide that the RCIT rate shall be 30.0%. Interest expense allowed as a deductible expense is reduced by 33.0%.
An MCIT of 2.0% on modified gross income is computed and compared with the RCIT. Any excess of the MCIT over the RCIT is deferred and can be used as a tax credit against future income tax liability for the next three years. In addition, the NOLCO is allowed as a deduction from the taxable
*SGVFS032853* - 119 - income in the next three years from the year of inception. Current tax regulations also set a limit on the amount of entertainment, amusement and recreation (EAR) expenses that can be deducted for income tax purposes. EAR expenses are limited to 1.0% of net revenue for sellers of services. In 2018, 2017 and 2016, EAR expenses (included under ‘Miscellaneous expenses’ in the statements of income) amounted to P=221.7 million, P=589.8 million and P=490.2 million, respectively, for the Group and P=211.3 million, =579.7P million and P=475.2 million, respectively, for the Parent Company (see Notes 15 and 32).
Republic Act (RA) No. 9294, which became effective in May 2004, provides that the income derived by the FCDU from foreign currency transactions with non-residents, offshore banking units (OBUs), and local commercial banks, including branches of foreign banks, is tax-exempt while interest income on foreign currency-denominated loans from residents other than OBUs or other depository banks under the expanded system is subject to 10.0% income tax.
Components of net deferred tax assets follow:
Consolidated Parent Company 2018 2017 2018 2017 Deferred tax assets on: Allowance for credit and impairment losses P=1,543,390 P=1,248,109 P=1,457,005 P=1,086,438 Unrealized loss on derivative liabilities 367,940 478,247 367,940 478,247 Accrued expenses 303,025 26,015 301,160 25,869 Unamortized past service cost 120,749 128,112 114,485 118,253 Undrawn commitments 87,591 − 87,591 − Accumulated depreciation on investment properties 32,492 20,612 34,386 22,706 NOLCO/MCIT − 19,056 − − Others 36,688 267,975 24,274 258,016 2,491,875 2,188,126 2,386,841 1,989,529 Deferred tax liabilities on: Unrealized gain on derivative assets 569,193 313,292 569,193 313,292 Retirement asset 10,327 76,602 829 66,399 Unrealized gain on financial assets at FVTOCI 1,283 4,485 – – Accrued rent income 781 1,410 781 1,410 Others 33,725 28,905 33,332 28,905 615,309 424,694 604,135 410,006 Net deferred tax assets P=1,876,566 P=1,763,432 P=1,782,706 P=1,579,523
As of December 31, 2018 and 2017, deferred tax assets of the Group and of the Parent Company that have not been recognized in respect of the deductible temporary differences follow:
Consolidated Parent Company 2018 2017 2018 2017 NOLCO P=25,088 P=112 P=24,974 P=– MCIT 702 – 258 – P=25,790 P=112 P=25,232 P=–
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Details of the NOLCO follow:
Consolidated Inception Year Amount Used/Expired Balance Expiry Year 2015 P=41,720 P=41,720 P=– 2018 2016 11,339 11,227 112 2019 2017 114 – 114 2020 2018 83,400 – 83,400 2021 P=136,573 P=52,947 P=83,626
Parent Company Inception Year Amount Used/Expired Balance Expiry Year 2018 P=83,247 P=– P=83,247 2021
Details of the MCIT follow:
Consolidated Inception Year Amount Used/Expired Balance Expiry Year 2015 P=7,952 P=7,952 P=– 2018 2016 958 958 – 2019 2017 2,113 2,113 – 2020 2018 702 – 702 2021 P=11,725 P=11,023 P=702
Parent Company Inception Year Amount Used/Expired Balance Expiry Year 2015 P=982 P=982 P=– 2018 2016 934 934 – 2019 2018 258 – 258 2021 P=2,174 P=1,916 P=258
A reconciliation between the applicable statutory income tax rate to the effective income tax rate follows:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Statutory income tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Tax effect of: FCDU net income (7.43) (13.46) (17.50) (7.49) (13.47) (17.57) Non-deductible expenses 4.74 4.12 4.39 4.13 4.06 4.40 Interest income from tax-paid and exempt investments (4.55) (4.22) (1.69) (4.53) (4.18) (1.59) Change in unrecognized deferred tax assets 0.17 (2.26) (2.79) (0.71) (2.21) 0.11 Non-taxable income (0.58) (0.07) (3.11) (0.06) (0.57) (5.81) Effective income tax rate 22.35% 14.11% 9.30% 21.34% 13.63% 9.54%
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30. Pension Obligations
The Group provides non-contributory defined benefit pension plans for all employees. Provisions for pension obligations are established for benefits payable in the form of retirement pensions. Benefits are dependent on years of service and the respective employee’s final compensation. The most recent actuarial valuation was carried out as of December 31, 2018. The present value of the defined benefit obligation, and the related current service cost and past service cost were measured using the projected unit credit actuarial method.
The amounts of defined benefit plans are presented in the statements of financial position as follows:
Consolidated Parent Company 2018 2017 2018 2017 Other assets (Note 18) (P=33,425) (P=254,610) (P=2,765) (P=221,329) Accrued interest, taxes and other expenses (Note 24) 878 1,186 – – Net pension asset (P=32,547) (P=253,424) (P=2,765) (P=221,329)
Changes in net defined benefit liability of the Group and the Parent Company in 2018 and 2017 are as follows:
Consolidated Present Value Fair Value of Net Retirement of DBO Plan Assets Liability/(Asset) December 31, 2018 Balance at beginning of year P=3,109,099 (P=3,362,523) (P=253,424) Net Benefit Cost in Statements of Income Current service cost 268,351 – 268,351 Net interest 174,425 (187,376) (12,951) 442,776 (187,376) 255,400 Benefits paid (183,152) 183,152 – Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount included in net interest) – 281,820 281,820 Actuarial changes arising from experience adjustments 86,902 – 86,902 Actuarial changes arising from changes in financial assumptions (371,200) – (371,200) (284,298) 281,820 (2,478) Contributions paid – (32,045) (32,045) Balance at end of year P=3,084,425 (P=3,116,972) (P=32,547)
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Consolidated Present Value Fair Value of Net Retirement of DBO Plan Assets Liability/(Asset) December 31, 2017 Balance at beginning of year P=2,919,680 (P=2,820,724) P=98,956 Net Benefit Cost in Statements of Income Current service cost 258,030 – 258,030 Net interest 147,916 (141,539) 6,377 405,946 (141,539) 264,407 Benefits paid (129,948) 129,948 – Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount included in net interest) – (140,039) (140,039) Actuarial changes arising from changes in demographic assumptions 776 – 776 Actuarial changes arising from experience adjustments 22,551 – 22,551 Actuarial changes arising from changes in financial assumptions (109,906) – (109,906) (86,579) (140,039) (226,618) Contributions paid – (390,169) (390,169) Balance at end of year P=3,109,099 (P=3,362,523) (P=253,424)
Parent Company Present Value Fair Value of Net Retirement of DBO Plan Assets Liability (Asset) December 31, 2018 Balance at beginning of year P=3,080,590 (P=3,301,919) (P=221,329) Net Benefit Cost in Statements of Income Current service cost 264,539 – 264,539 Net interest 172,821 (185,238) (12,417) 437,360 (185,238) 252,122 Benefits paid (177,125) 177,125 – Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount included in net interest) – 278,915 278,915 Actuarial changes arising from experience adjustments 85,727 – 85,727 Actuarial changes arising from changes in financial assumptions (367,406) – (367,406) (281,679) 278,915 (2,764) Contributions paid – (30,794) (30,794) Balance at end of year P=3,059,146 (P=3,061,911) (P=2,765) December 31, 2017 Balance at beginning of year P=2,755,769 (P=2,618,649) P=137,120 Net Benefit Cost in Statements of Income Current service cost 244,399 – 244,399 Net interest 141,095 (134,075) 7,020 385,494 (134,075) 251,419 Benefits paid (118,373) 118,373 – Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount included in net interest) – (137,269) (137,269) Actuarial changes arising from experience adjustments 33,214 – 33,214 Actuarial changes arising from changes in financial assumptions (109,026) – (109,026) (75,812) (137,269) (213,081) Contributions paid – (388,539) (388,539) Transferred liability (asset) 133,512 (141,760) (8,248) Balance at end of year P=3,080,590 (P=3,301,919) (P=221,329) *SGVFS032853* - 123 -
The fair value of plan assets by each class as at the end of the reporting period follow:
Consolidated Parent Company 2018 2017 2018 2017 Amount % Amount % Amount % Amount % Debt instruments: Government Securities P=874,518 P=945,156 P=859,744 P=925,214 High Grade 264,362 253,645 249,393 237,921 Standard Grade 319,675 336,040 305,067 321,155 1,458,555 46.7 1,534,841 44.9 1,414,204 46.1 1,484,290 44.2 Equity instruments: Financial intermediaries 892,525 1,042,644 889,739 1,038,957 Power, electricity and water distribution 58,628 142,138 57,828 141,235 Wholesale/Retail Trade 106,251 89,185 106,251 89,185 Transport, storage and communication 67,054 67,373 67,054 67,373 Real estate 181,249 220,467 181,249 220,467 Manufacturing 497 530 – 530 Others 15,561 35,374 15,561 35,374 1,321,765 42.3 1,597,711 46.8 1,317,682 43.0 1,593,121 47.5 Deposits in banks 6,185 0.2 1,408 0.0 4,932 0.2 972 0.0
Investments in Unit Investment Trust Funds P=48,817 1.6 P=167,065 4.9 P=44,466 1.5 P=162,398 4.8 Loans and other receivables: Government Securities 15,603 16,922 15,397 16,669 High Grade 2,074 1,982 1,993 1,902 Standard Grade 3,305 3,294 3,205 3,194 Not rated 265,299 93,217 264,561 93,188 286,281 9.2 115,415 3.4 285,156 9.3 114,953 3.4 Total fund asset 3,121,603 100.0 3,416,440 100.0 3,066,440 100.0 3,355,734 100.0 Total fund liability (4,631) (53,917) (4,529) (53,815) Net fund asset P=3,116,972 P=3,362,523 P=3,061,911 P=3,301,919
All equity and debt instruments held have quoted prices in an active market. The remaining plan assets do not have quoted market prices in active market. The plan assets consist of diverse investments and is not exposed to any concentration risk.
The principal actuarial assumptions used in determining retirement liability of the Parent Company and some of its subsidiaries as of January 1, 2018 and 2017 are shown below:
2018 2017 Average Average Duration of Duration of Benefit Salary Rate Discount Benefit Salary Rate Discount Payments Increase Rate Payments Increase Rate Parent Company 9 7.00% 5.61% 17 7.00% 5.12% SBCIC 10 7.00% 5.66% 16 7.00% 5.10% SBEI 9 7.00% 5.60% 17 7.00% 5.16% SBRC 10 7.00% 5.70% – – – SBCC – – – 18 7.00% 5.23%
Discount rates used in computing for the present value of the obligation of the Parent Company and significant subsidiaries as of December 31, 2018 and 2017 follow:
Parent Company SBCIC SBEI SBRC SBCC 2018 7.34% 7.40% 7.40% 7.47% – 2017 5.61% 5.66% 5.60% 5.70% 5.22%
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The sensitivity analysis as of December 31, 2018 shown below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming all other assumptions were held constant:
Consolidated Parent Company Increase Increase (decrease) Amount (decrease) Amount Discount rates 1.00% (P=176,881) 1.00% (P=175,131) (1.00%) 213,498 (1.00%) 211,432
Turnover rate 10.00% (26,061) 10.00% (25,885) (10.00%) 26,061 (10.00%) 25,885
Future salary increases 1.00% 210,467 1.00% 208,426 (1.00%) (182,312) (1.00%) (180,510)
Shown below is the maturity analysis of the undiscounted benefit payments: Consolidated Parent Company 2018 2017 2018 2017 Less than 1 year P=1,069,776 P=1,003,724 P=1,063,842 P=994,598 More than 1 year to 5 years 952,733 776,940 943,231 768,700 More than 5 years to 10 years 2,162,774 1,835,606 2,143,852 1,811,893 More than 10 years to 15 years 2,336,701 2,331,747 2,301,334 2,304,402 More than 15 years to 20 years 10,179,324 9,036,167 9,928,467 8,831,956 Total P=16,701,308 P=14,984,184 P=16,380,726 P=14,711,549
There are no reimbursement rights recognized as a separate asset as of December 31, 2018 and 2017. The Group and the Parent Company expect to contribute P=246.1 million in 2019 to its defined benefit plans.
31. Service Charges, Fees and Commissions
This account consists of service charges, fees and commissions on:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Bancassurance P=696,030 P=486,389 P=387,573 P=696,030 P=486,389 P=387,573 Deposits 582,472 440,074 367,888 582,472 440,074 367,888 Loans 578,763 375,294 442,665 555,202 375,294 442,657 Credit cards 575,075 363,344 332,676 575,075 363,343 275,851 Stock brokerage 257,536 234,676 236,774 – – – Advisory 54,085 170,613 264,672 – – – Remittance 11,337 14,453 12,256 11,337 14,453 12,256 Miscellaneous (Note 15) 171,585 235,587 128,358 171,099 161,696 100,858 P=2,926,883 P=2,320,430 P=2,172,862 P=2,591,215 P=1,841,249 P=1,587,083
In 2014, the Parent Company entered into a distribution agreement with FWD for the marketing of FWD’s life insurance products through the Parent Company’s marketing and distribution network. The distribution agreement was approved by the BSP on December 22, 2014 under Monetary Board Resolution No. 2073, through its letter to the Parent Company dated January 7, 2015, and by the Insurance Commission on January 12, 2015. The term of the distribution agreement shall not be less than 11 years but no longer than 19 years.
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Bancassurance revenues include recognized portion of access fees, recognized portion of milestone fees, commissions and bonuses from the Bancassurance agreement. The Parent Company will also receive milestone fees and performance bonuses over the term of the agreement.
32. Miscellaneous Income and Expenses
Miscellaneous income consists of:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Income from trust operations P=219,084 P=224,561 P=213,690 P=219,084 P=224,561 P=213,690 Recovery on charged-off assets 199,518 131,432 150,463 161,477 85,573 123,894 Dividend income 6,810 6,679 11,877 5,085 5,431 10,608 Gain on sale of Diner’s Club credit card portfolio (Note 15) − − 165,000 − − − Miscellaneous (Notes 15 and 17) 87,879 54,074 10,874 56,096 37,329 7,053 P=513,291 P=416,746 P=551,904 P=441,742 P=352,894 P=355,245
Miscellaneous expenses consists of:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Insurance expenses P=988,062 P=776,198 P=633,659 P=981,076 P=770,469 P=628,894 Security, clerical, messengerial and janitorial services 637,106 503,893 478,053 633,236 496,203 462,886 Management and other professional fees 627,981 452,686 420,457 510,344 332,966 304,885 Advertising and publicity 575,240 643,284 599,113 508,430 633,621 545,570 Information technology 266,567 210,124 163,309 389,901 210,124 163,309 Banking fees 240,867 199,865 153,420 240,867 199,646 152,601 Postage, telephone and cables and telegrams 223,675 205,331 194,392 208,483 197,591 157,991 Entertainment, amusement and recreation (Note 29) 221,663 589,790 490,209 211,263 579,653 475,245 Litigation/assets acquired expenses 127,124 112,909 103,421 127,124 112,909 103,421 Donations and charitable contributions 126,400 248,425 148,212 116,200 212,125 99,217 Stationery and supplies used 117,965 124,779 100,291 117,382 121,841 95,894 Brokerage fees 18,285 28,724 41,916 18,285 28,724 41,916 Miscellaneous 487,119 591,417 491,136 275,798 499,454 370,548 P=4,658,054 P=4,687,425 P=4,017,588 P=4,338,389 P=4,395,326 P=3,602,377
Miscellaneous expense includes travelling expenses amounting to P=162.3 million, P=145.5 million, and P=123.2 million for the Group and P=160.8 million, =143.9P million, and P=123.2 million for the Parent Company for the years ended December 31, 2018, 2017 and 2016, respectively. It also includes athletics and other events amounting to P=50.1 million, P=56.4 million, and P=47.9 million for the Group and P=49.9 million, P=56.4 million, and P=47.9 million for the Parent Company, freight expenses amounting to P=46.2 million, =37.9P million, and P=36.5 million for the Group and P=46.1 million, P=35.6 million, and =31.5P million for the Parent Company, and fuel and lubricants amounting to P=37.8 million, =31.1P million, and P=26.8 million for the Group and P=37.3 million, P=30.6 million, and =26.8P million for the Parent Company for the years ended December 31, 2018, 2017 and 2016, respectively.
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33. 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. The Group’s related parties include:
∂ key management personnel, close family members of key management personnel and entities which are controlled, significantly influenced by or for which significant voting power is held by key management personnel or their close family members, ∂ subsidiaries, joint ventures and their respective subsidiaries, ∂ entities under the same group (other affiliates), and ∂ post-employment benefit plans for the benefit of the Group’s employees.
The Group has several business relationships with related parties. Transactions with such parties are made in the ordinary course of business and on substantially same terms, including interest and collateral, as those prevailing at the time for comparable transactions with other parties and are usually settled in cash. These transactions also did not involve more than the normal risk of collectability or present other unfavorable conditions.
Transactions of the Parent Company with Subsidiaries
December 31, 2018 Amount/ Outstanding Category Volume Balances Terms ad Conditions/ Nature Loans and receivables P=2,648,139 Short-term, unsecured, with interest ranging from 2.75% to 3.5% Grants P=2,625,001 Settlements 1,126,126 Accrued interest receivable 106,167 19,324 Interest income and accrued interest receivable Accounts receivable 72,329 On demand, unsecured, non-interest bearing Dividend receivable 162,500 – Dividends earned Deposit liabilities 1,729,804 Earns interest at the respective bank deposit rates Deposits 159,101,957 Withdrawals 159,282,724 Accrued interest payable 34,943 1,934 Interest expense and accrued interest payable Accounts payable 17,204 On demand, unsecured, non-interest bearing Rent income 17,641 Lease of office spaces for periods ranging from 1 to 5 years Rent expense 17,602 Lease of transpo equipment for 3 years Other assets 2,320 Security deposits Other liability 183 Security deposits Miscellaneous income 312 Trust fees Commitments - credit facility 13,000,000 Unsecured
December 31, 2017 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Loans and receivables P=1,149,264 Short-term, unsecured, with interest ranging from 2.75% to 3.5% Grants P=1,102,000 Settlements 449,750 Accrued interest receivable 17,860 5,670 Interest income and accrued interest receivable Accounts receivable 68,583 On demand, unsecured, non-interest bearing Dividend receivable 195,000 195,000 Dividends earned Deposit liabilities 1,910,571 Earns interest at the respective bank deposit rates Deposits 76,738,347 Withdrawals 77,052,186 Accrued interest payable 702 Interest expense and accrued interest payable Accounts payable 16,281 On demand, unsecured, non-interest bearing Rent income 17,841 Lease of office spaces for periods ranging from 1 to 5 years Rent expense 17,792 Lease of transpo equipment for 3 years Other Assets 2,358 Security deposits Other liability 212 Security deposits Miscellaneous income 522 Trust fees Commitments - credit facility 8,840,422 Unsecured *SGVFS032853* - 127 -
Accounts receivable from subsidiaries pertains to expenses paid by the Parent Company, which were later billed for reimbursement. Accounts payable to SBCC pertains to collections received from credit cardholders on behalf of the Parent Company.
The Parent Company has lease agreements with some of its subsidiaries for periods ranging from 1 to 5 years. The lease agreements include the share of the subsidiaries in the maintenance of the building.
The foregoing transactions were eliminated in the consolidated financial statements of the Group. Other related party transactions conducted in the normal course of business includes the following, as detailed in the Memorandum of Agreement (MOA) between the Parent Company and its subsidiaries (except for SBCC):
∂ Human resource-related services ∂ Finance/accounting functions including audit ∂ Collection services (for legal action) ∂ Preparation of reports ∂ Processing of credit application (for property appraisal and credit information) ∂ General services ∂ Legal documentation ∂ Information technology related service
Expenses allocated to SBFCI, SBCIC, SBEI and SB Rental pertaining to the above services amounted to =66.3P million in 2018. P=36.3 million in 2017 and P=26.6 million in 2016. The Parent Company has not charged expenses to the other subsidiaries since the levels of their operations remain low.
Transaction of the Group with the Joint Venture
December 31, 2018 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Receivables purchased P=636,351 P=1,445,172 Assignment of rights on a without recourse basis Collection Fee 203 4,482 Collection fee expense and prepaid collection fee, equivalent to 0.2% of the selling price of the lease receivables amortized over the lease term Loans receivable: 484,395 1-month to 5-year term; earns 2.90% to 4.74% interest Grants 1,155,300 Settlement 1,298,508 Accrued interest receivable 23,505 1,000 Interest income and accrued interest receivable Accounts receivable 1,962 Expenses advanced by the Parent Company and outstanding accounts payable (on demand, unsecured, non- interest bearing). Deposit liabilities: 19,855 Earns interest at the respective bank deposit rates Deposits 4,156,755 Withdrawals 4,268,559 Accrued interest payable 74 Interest expense and accrued interest payable Rent income 2,719 Rental income for space occupied by SBML Refundable deposits 17 557 Unsecured, non-interest bearing Commitments - credit facility 1,530,000 Unsecured
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December 31, 2017 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Receivables purchased P=210,432 P=808,821 Assignment of rights on a without recourse basis Collection fee 2,391 4,279 Collection fee expense and prepaid collection fee, equivalent to 0.2% of the selling price of the lease receivables amortized over the lease term Loans receivable: 627,603 1-month to 5-year term; earns 2.90% to 4.74% interest Grants 1,537,000 Settlement 1,146,789 Accrued interest receivable 15,668 803 Interest income and accrued interest receivable Accounts receivable 1,155 2,521 Expenses advanced by the Parent Company and outstanding accounts payable (on demand, unsecured, non- interest bearing). Deposit liabilities: 131,659 Earns interest at the respective bank deposit rates Deposits 4,291,839 Withdrawals 4,233,198 Accrued interest payable 128 Interest expense and accrued interest payable Rent income 3,192 Rental income for space occupied by SBML Refundable deposits 242 540 Unsecured, non-interest bearing Commitments - credit facility 602,397 Unsecured
In 2018, 2017 and 2016, SBML sold various loans and lease receivables to the Parent Company with carrying amounts of P=625.1 million, =231.6P million and =302.1P million, respectively, and realized gains amounting to P=11.3 million, P=6.6 million and P=16.2 million, respectively.
The Parent Company’s proportionate share in the gain on sale of lease receivables was eliminated in the consolidated financial statements of the Group.
Transactions of the Parent Company with Other Affiliates
December 31, 2018 Amount/ Outstanding Category Volume Balances Ters and Conditions/ Nature Due from other banks USD966 Earns interest at the respective bank deposit rates Deposits USD33,347 Withdrawals 32,773 Due from other banks JPY67,542 Earns interest at the respective bank deposit rates Deposits JPY3,514,979 Withdrawals 3,510,429 Loans and receivables USD4,910 Call loans bought Accounts receivable P=1,278 Unsecured, noninterest bearing Accrued interest receivable P=49,787 P=26,376 Interest income and accrued interest receivable Deposit liabilities USD416 Earns interest at the respective bank deposit rates Deposits USD727 Withdrawals 705 Deposit liabilities P=240,850 Earns interest at the respective bank deposit rates Deposits P=25,501,915 Withdrawals 25,458,730 Bills payable (USD) USD40 1 – 6 months term; earns 1.08% to 1.70% interest Availments USD175,200 Payments 175,160 Accrued interest payable P=134,709 P=89,973 Interest expense and accrued
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December 31, 2017 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Due from other banks USD392 Earns interest at the respective bank deposit rates Deposits USD26,045 Withdrawals 26,778 Due from other banks JPY62,992 Earns interest at the respective bank deposit rates Deposits JPY2,207,999 Withdrawals 2,134,909 Loans and receivables USD630 Call loans bought Accounts receivable P=375 Unsecured, noninterest bearing Accrued interest receivable P=39,824 P=22,546 Interest income and accrued interest receivable Deposit liabilities USD394 Earns interest at the respective bank deposit rates Deposits USD680 Withdrawals 602 Deposit liabilities P=197,665 Earns interest at the respective bank deposit rates Deposits P=15,970,834 Withdrawals 15,972,708 Bills payable (USD) USD- 1 – 6 months term; earns 1.08% to 1.70% interest Availments USD31,400 Payments 71,800 Accrued interest payable P=13,255 P=29,952 Interest expense and accrued
Transaction of the Group with another Related Party As part of the Group’s continuing support for worthwhile education and livelihood projects, it has made donations to SB Foundation, Inc. (SB Foundation), a non-stock, non-profit organization registered with the SEC and accredited by the Philippine Council for Non-Governmental Organization, as follows:
Donor 2018 2017 Parent Company P=93,010 P=200,000 SBEI 14,400 14,900 SBCIC − 17,200 Total P=107,410 P=232,100
The Parent Company also recognized trust fees amounting to P=0.5 million both in 2018 and 2017, for acting as the Investment Manager of SB Foundation’s fund.
Transactions of the Group with Key Management Personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The Group considers senior officers to constitute key management personnel.
Consolidated December 31, 2018 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Deposit liabilities P=928,715 Earns interest at respective bank deposit rates
Consolidated December 31, 2017 Amount/ Outstanding Category Volume Balances Terms and Conditions/ Nature Deposit liabilities P=701,038 Earns interest at respective bank deposit rates
Parent Company December 31, 2018 Outstanding Category Amount/Volume Balances Terms and Conditions/ Nature Deposit liabilities P=927,463 Earns interest at respective bank deposit rates
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Parent Company December 31, 2017 Outstanding Category Amount/Volume Balances Terms and Conditions/ Nature Deposit liabilities P=693,821 Earns interest at respective bank deposit rates
Compensation of key management personnel follows:
Consolidated Parent Company 2018 2017 2016 2018 2017 2016 Salaries and other short-term benefits P=249,499 P=231,383 P=234,600 P=218,759 P=196,264 P=180,926 Post-employment benefits 10,417 14,200 24,161 9,779 12,593 21,485 P=259,916 P=245,583 P=258,761 P=228,538 P=208,857 P=202,411
There are no agreements between the Group and any of its directors and key officers providing for benefits upon termination of employment, except for such benefits to which they may be entitled under the Group’s retirement plan.
Transactions of the Group with Retirement Plans Under PFRS, certain post-employment benefit plans are considered as related parties. The Parent Company has business relationships with a number of its retirement plans pursuant to which it provides trust and management services to these plans. Income earned by the Parent Company from such services amounted to P=3.74 million and P=4.2 million in 2018 and 2017, respectively.
As of December 31, 2018 and 2017, the fair values of the plan assets of the Parent Company and some of its subsidiaries in the retirement funds amounted to P=3.1 billion and P=3.4 billion, respectively, of which =3.1P billion and P=3.3 billion, respectively, pertains to the Parent Company.
Relevant information on statements of financial position of carrying values of the Parent Company’s retirement funds:
Consolidated Parent Company 2018 2017 2018 2017 Debt instruments P=1,458,555 P=1,534,841 P=1,414,204 P=1,484,290 Equity instruments 1,321,765 1,597,711 1,317,682 1,593,120 Loans and other receivables 286,281 115,415 285,156 114,954 Investments in Unit Investment Trust Funds 48,817 167,065 44,466 162,398 Deposits in banks 6,185 1,408 4,932 972 Total Fund Assets P=3,121,603 P=3,416,440 P=3,066,440 P=3,355,734 Total Fund Liability P=4,631 P=53,917 P=4,529 P=53,815
Debt instruments include government and private securities.
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The Group’s retirement funds may hold or trade the Parent Company’s shares or securities. Significant transactions of the retirement fund, particularly with related parties, are approved by the Trust Investment Committee. A summary of transactions with related party retirement plans follows (amounts in thousands except number of shares and market value per share):
Consolidated Parent Company 2018 2017 2018 2017 Dividend income P=2,806 P=5,621 P=2,806 P=5,611 Interest income − 4 − 4 Number of Parent Company’s shares held by plan - common 1,870,400 1,873,640 1,870,400 1,873,640 Number of Parent Company’s shares held by plan - preferred 2,060,400 2,060,400 2,060,400 2,060,400 Market value per common share P=155.00 P=251.40 P=155.00 P=251.40
Voting rights over the Parent Company’s shares are exercised by an authorized trust officer.
Regulatory Reporting In the ordinary course of business, the Parent Company has loan transactions with subsidiaries and with certain DOSRI. Under the Parent Company’s policies, these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks.
On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that shall govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. Under the said circular, the total outstanding loans, credit accommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10.00% of the bank’s net worth, the unsecured portion shall not exceed 5.00% of such net worth. Further, the total outstanding exposures shall not exceed 20.00% of the net worth of the lending bank. The said Circular became effective on February 15, 2007.
BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further, BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts. The following table shows information relating to DOSRI accounts of the Parent Company:
2018 2017 Total outstanding DOSRI accounts (in billions) P=0.373 P=0.343 Percent of DOSRI accounts granted prior to effectivity of BSP Circular No. 423 to total loans 0.09 0.09 Percent of DOSRI accounts granted after effectivity of BSP Circular No. 423 to total loans – – Percent of DOSRI accounts to total loans 0.09 0.09 Percent of unsecured DOSRI accounts to total DOSRI loans 7.58 7.59 Percent of past due DOSRI accounts to total DOSRI loans – – Percent of nonperforming DOSRI accounts to total DOSRI loans – –
Total interest income on DOSRI accounts in 2018, 2017 and 2016 amounted to P=132.9 million, P=22.1 million, P=17.2 million, respectively.
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34. Long-term Leases
The Group has entered into commercial property leases with various tenants on its investment property portfolio and part of its bank premises, consisting of the Group’s surplus offices and real properties acquired. These non-cancellable leases have remaining lease terms of between 1 and 5 years as of December 31, 2018 and 2017. Various lease contracts include escalation clauses, most of which bear an annual rent increase of 5.0%. Rent income from long-term leases (included in ‘Rent income’ in the statements of income) amounted to to P=419.2 million in 2018, P=289.6 million in 2017 and P=178.1 million in 2016 for the Group, of which, =29.7P million in 2018, =38.5P million in 2017and P=48.2 million in 2016 pertain to the Parent Company (see Note 15).
Future minimum rental receivable under non-cancellable operating leases follow:
Consolidated Parent Company 2018 2017 2018 2017 Within one year P=379,925 P=181,929 P=12,106 P=18,394 After one year but not more than five years 313,399 106,900 21,956 46,281 More than five years 3,342 10,871 3,342 10,871 P=696,666 P=299,700 P=37,404 P=75,546
The Parent Company leases the premises occupied by some of its branches (about 15.13% of the branch sites are Parent Company-owned). Some of its subsidiaries also lease the premises occupied by their head offices and most of their branches. The lease contracts are for periods ranging from 1 to 20 years and are renewable at the Parent Company’s option under certain terms and conditions. Various lease contracts include escalation clauses, most of which bear an annual rent increase of 5.0%. In 2018, 2017 and 2016, rent expense (included in ‘Occupancy costs’ in the statements of income) amounted to P=747.0 million, P=654.1 million, =547.7P million, respectively, for the Group, of which, P=751.2 million, P=656.8 million and P=521.1 million, respectively, pertain to the Parent Company.
Future minimum rental payable under non-cancelable operating leases are as follows:
Consolidated Parent Company 2018 2017 2018 2017 Within one year P=469,362 P=438,656 P=465,880 P=435,459 After one year but not more than five years 1,094,517 1,206,054 1,086,931 1,184,587 More than five years 27,585 52,076 27,585 33,331 P=1,591,464 P=1,696,786 P=1,580,396 P=1,653,377
35. Commitments and Contingent Liabilities
In the normal course of operations of the Group, there are outstanding commitments and contingent liabilities and bank guarantees that are not reflected in the financial statements. The Group does not anticipate losses that will materially affect its financial position and financial performance as a result of these transactions.
There are several suits, claims and assessments that remain unsettled. Management believes, based on the opinion of its legal counsels, that the ultimate outcome of such cases and claims will not have a material effect on the Group’s financial position and financial performance.
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Regulatory Reporting The following is a summary of the Group’s and of the Parent Company’s commitments and contingent liabilities at their equivalent peso contractual amounts:
2018 2017 Committed loan line P=49,556,389 P=83,859,911 Trust department accounts 49,015,310 50,193,693 Unused commercial letters of credit 27,056,034 24,836,816 Unutilized credit limit of credit cardholders 22,994,800 13,214,507 Outstanding guarantees 2,734,035 1,220,768 Inward bills for collection 786,819 500,300 Late deposit/payment received 511,335 5,539 Outward bills for collection 488,192 294,738 Financial guarantees with commitment 98,613 86,477
Changes in allowance for credit losses on financial guarantees, loan and other commitments of the Group and Parent Company follow:
Stage 1 Stage 2 Stage 3 Total ECL allowance as at January 1, 2018 under PFRS 9 (Note 2) P= 246,594 P= 64,759 P= 667 P= 312,020 Provision for (recovery of) credit losses (Note 14) 60,814 (60,771) (554) (511) Transfers to Stage 2 (18,129) 18,129 − − Transfers to Stage 3 (467) − 467 − P= 288,812 P= 22,117 P= 580 P= 311,509
36. Segment Information
The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served with each segment representing a strategic business unit.
The Group derives revenues from the following main operating business segments:
Financial Markets Segment - this segment focuses on providing money market, foreign exchange, financial derivatives, securities distribution, asset management, trust and fiduciary services, as well as the management of the funding operations for the Group.
Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and public sector markets. Services include relationship management, lending and other credit facilities, trade, cash management, deposit-taking and leasing services provided by the Group. It also provides structured financing and advisory services relating to debt and equity capital raising, project financing, and mergers and acquisitions. The Group’s equity brokerage operations are also part of this segment.
Retail Banking Segment - this segment addresses the individual, retail, small-and-medium enterprise and middle markets. It covers deposit-taking and servicing, commercial and consumer loans, credit card facilities and bancassurance. The Group includes SBFCI as part of this segment.
All Other Segments - this segment includes but not limited to branch banking and other support services. Other operations of the Group comprise the operations and financial control groups. *SGVFS032853* - 134 -
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income after taxes, which is measured in a manner consistent with PFRS as shown in the statements of income. This is regularly reported to the Group’s Chief Operating Decision Maker. The Group’s Chief Operating Decision Maker is the Parent Company’s President and Chief Executive Officer.
Segment assets are those operating assets that are employed by a segment in its operating activities and that either directly attributable to the segment or can be allocated to the segment on a reasonable basis.
Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
The Group’s revenue-producing assets are located in the Philippines (i.e., one geographical location), therefore, geographical segment information is no longer presented.
The Group has no significant customers which contribute 10.0% or more of the consolidated revenue, net of interest expense.
The segment results include internal transfer pricing adjustments across business units as deemed appropriate by management. Transactions between segments are conducted at estimated market rates on an arm’s length basis. Interest is charged/credited to the business units based on a pool rate which approximates the marginal cost of funds.
Segment information follows (amounts in millions):
December 31, 2018 Financial Wholesale Retail All Other Markets Banking Banking Segments Elimination Total Statement of Income Net interest income: Third party P=5,363 P=11,696 P=4,230 (P=469) P=− P=20,820 Intersegment (2,549) (3,830) 2,723 3,656 − − 2,814 7,866 6,953 3,187 − 20,820 Noninterest income 974 1,544 2,721 (165) (295) 4,779 Revenue - net of interest expense 3,788 9,410 9,674 3,022 (295) 25,599 Noninterest expense 2,410 6,158 4,398 1,547 14,513 Income before income tax 1,378 3,252 5,276 1,475 (295) 11,086 Provision for income tax 706 199 539 1,032 2,476 Non-controlling interest in net income of subsidiaries − − − 1 − 1 Net income for the year attributable to the Parent Company P=672 P=3,053 P=4,737 P=442 (P=295) P=8,609 Statement of Financial Position Total assets P=298,026 P=350,245 P=107,894 P=10,696 P=− P=766,861 Total liabilities P=157,163 P=307,118 P=174,456 P=18,642 P=− P=657,379 Other Segment Information Capital expenditures P=6 P=387 P=443 P=334 P=− P=1,170 Depreciation and amortization P=6 P=377 P=431 P=325 P=− P=1,139 Provision for (recovery of) credit and impairment losses (P=140) P=385 P=477 P=− P=− P=722
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December 31, 2017 Financial Wholesale Retail All Other Markets Banking Banking Segments Elimination Total Statement of Income Net interest income: Third party P=7,120 P=10,200 P=2,557 (P=491) P=− P=19,386 Intersegment (863) (4,001) 1,675 3,189 − − 6,257 6,199 4,232 2,698 − 19,386 Noninterest income 2,593 1,259 1,994 64 (211) 5,699 Revenue - net of interest expense 8,850 7,458 6,226 2,762 (211) 25,085 Noninterest expense 1,421 4,876 3,990 2,847 − 13,134 Income before income tax 7,429 2,582 2,236 (85) (211) 11,951 Provision for income tax 366 466 321 545 (12) 1,686 Net income for the year attributable to the Parent Company P=7,063 P=2,116 P=1,915 (P=630) (P=199) P=10,265 Statement of Financial Position Total assets P=341,653 P=288,145 P=48,101 P=16,128 P=− P=694,027 Total liabilities P=176,354 P=277,926 P=116,609 P=18,059 P=− P=588,948 Other Segment Information Capital expenditures P=13 P=380 P=738 P=429 P=− P=1,560 Depreciation and amortization P=7 P=230 P=447 P=260 P=− P=944 Provision for (recovery of) credit and impairment losses P=− P=538 P=653 (P=540) P=− P=651
December 31, 2016 Financial Wholesale Retail All Other Markets Banking Banking Segments Elimination Total Statement of Income Net interest income: Third party P=6,296 P=8,504 P=1,572 (P=479) P=− P=15,893 Intersegment (608) (3,293) 1,533 2,368 − − 5,688 5,211 3,105 1,889 − 15,893 Noninterest income 2,121 1,182 1,847 40 (252) 4,938 Revenue - net of interest expense 7,809 6,393 4,952 1,929 (252) 20,831 Noninterest expense 1,497 4,701 3,622 1,639 (58) 11,401 Income before income tax 6,312 1,692 1,330 290 (194) 9,430 Provision for income tax 113 385 221 247 (89) 877 Net income for the year attributable to the Parent Company P=6,199 P=1,307 P=1,109 P=43 (P=105) P=8,553
Statement of Financial Position Total assets P=342,382 P=294,081 P=45,145 P=13,374 P=− P=694,982 Total liabilities P=204,085 P=247,582 P=127,889 P=18,299 P=− P=597,855
Other Segment Information Capital expenditures P=16 P=332 P=839 P=497 P=− P=1,684 Depreciation and amortization P=6 P=126 P=319 P=189 P=− P=640 Provision for credit and impairment losses P=− P=159 P=756 P=87 (P=58) P=944
No operating segments have been aggregated to form the above reportable operating business segments.
The Group’s share in net income of a joint venture amounting to P=26.5 million in 2018, P=25.5 million in 2017 and P=21.2 million in 2016 are included under ‘All Other Segments’.
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37. Financial Performance
The following basic ratios measure the financial performance of the Group and the Parent Company:
Consolidated Parent Company 2017 2016 2017 2016 (As restated - (As restated - (As restated - (As restated - 2018 Note 2) Note 2) 2018 Note 2) Note 2) Return on average equity 8.07% 10.12% 10.07% 8.10% 10.18% 10.08% Return on average assets 1.20% 1.48% 1.50% 1.20% 1.48% 1.49% Net interest margin 3.27% 3.20% 3.12% 3.21% 3.20% 3.09%
Basic earnings per share amounts were computed as follows (amounts in thousands except earnings per share and weighted average number of outstanding common shares):
2018 2017 2016 a. Net income attributable to the equity holders of the Parent Company P= 8,608,694 P=10,264,797 P=8,553,545 b. Dividends declared to Preferred Shares 4,259 4,259 2,351 c. Weighted average number of outstanding common shares 753,538,887 753,538,887 715,861,943 d. Earnings per share [(a-b)/c] P= 11.42 P=13.62 P=11.95
As of December 31, 2018, 2017 and 2016, the Parent Company has no potentially dilutive common shares.
38. Notes to the Statements of Cash Flows
The amounts of interbank loans receivables and securities purchased under agreements to resell considered as cash and cash equivalents follow:
2018 2017 Interbank loans receivable and SPURA P=206,223 P=5,578,217 Interbank loans receivable and SPURA not considered as cash and cash equivalents – 110,430 P=206,223 P=5,688,647
As of December 31, 2018 and 2017, the Parent Company recognized allowance for credit losses on ‘Due from other banks’ and ’Interbank loans receivable and securities purchased under agreements to resell’ as follows:
2018 2017 Due from other banks (Note 7) P=2,307 P=– Interbank loans receivable and SPURA 4,097 – P=6,404 P=–
As discussed in Note 13, the Parent Company reclassified certain HTC securities to financial assets at FVTOCI due to change in business model in managing its financial assets in accordance with the final version of PFRS 9.
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Significant non-cash transactions of the Group and the Parent Company include foreclosures of investment properties and chattels as disclosed in Notes 17 and 18, respectively. Reconciliation of liabilities arising from financing activities follows:
Consolidated Cashflows Non-cash changes Foreign Amortization Beginning Proceeds/ exchange of transaction Ending Balance Availments Payments movement costs Balance December 31, 2018 Bills payable and SSURA P=131,179,238 P=2,530,024,152 P=2,565,298,292 P=7,274,931 P= − P=103,180,029 Notes payable 14,948,402 16,136,646 − 302,103 21,609 31,408,760 LTNCD 18,526,475 5,727,494 − − 27,161 24,281,130 Subordinated note 9,950,814 − − − 6,434 9,957,248 P=174,604,929 P=2,551,888,292 P=2,565,298,292 P=7,577,034 P=55,204 P=168,827,167 December 31, 2017 Bills payable and SSURA P=157,992,642 P=1,984,831,943 P=2,013,737,221 P=2,091,874 P=– P=131,179,238 Notes payable 14,869,397 – – 62,623 16,382 14,948,402 LTNCD 9,972,738 8,541,289 – – 12,448 18,526,475 Subordinated note 9,944,724 – – – 6,090 9,950,814 P=192,779,501 P=1,993,373,232 P=2,013,737,221 P=2,154,497 P=34,920 P=174,604,929
Parent Company Cashflows Non-cash changes Foreign Amortization Beginning Proceeds/ exchange of transaction Ending Balance Availments Payments movement costs Balance December 31, 2018 Bills payable and SSURA P=131,029,238 P=2,529,484,152 P=2,564,933,292 P=7,274,931 P=− P=102,855,029 Notes payable 14,948,402 16,136,646 − 302,103 21,609 31,408,760 LTNCD 18,526,475 5,727,494 − − 27,161 24,281,130 Subordinated note 9,950,814 − − − 6,434 9,957,248 P=174,454,929 P=2,551,348,292 P=2,564,933,292 P=7,577,034 P=55,204 P=168,502,167 December 31, 2017 Bills payable and SSURA P=157,902,642 P=1,984,458,943 P=2,013,424,221 P=2,091,874 P=− P=131,029,238 Notes payable 14,869,397 − − 62,623 16,382 14,948,402 LTNCD 9,972,738 8,541,289 − − 12,448 18,526,475 Subordinated note 9,944,724 − − − 6,090 9,950,814 P=192,689,501 P=1,993,000,232 P=2,013,424,221 P=2,154,497 P=34,920 P=174,454,929
39. Events after the Reporting Period
The Parent Company’s BOD, in its meeting held on February 19, 2019, approved the declaration of first annual cash dividend of P=0.004805 per preferred share, representing 4.805% of par value, equivalent to the 10-year PDST-R2 on the issue date of the second tranche of preferred shares, payable on April 1, 2019 to preferred stockholders of record March 18, 2019. The declaration is in accordance with the terms and conditions of the Parent Company’s preferred shares.
The Parent Company’s BOD, in its meeting held on February 19, 2019, approved the declaration of second annual cash dividend of P=0.0039 per preferred share, representing 3.90% of par value, equivalent to the 10-year PDST-R2 on the issue date of the first tranche of preferred shares, payable on July 10, 2019 to preferred stockholders of record June 26, 2019. The declaration is in accordance with the terms and conditions of the Parent Company’s preferred shares.
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40. Approval of the Release of the Financial Statements
The BOD of the Parent Company reviewed and approved the release of the accompanying consolidated and parent company financial statements on February 19, 2019.
41. Supplementary Information Required Under Revenue Regulation No. 15-2010
On November 25, 2010, the BIR issued Revenue Regulation (RR) No. 15-2010 to amend certain provisions of RR No. 21-2002. The Regulations provide that starting 2010, the notes to financial statements shall include information on taxes and licenses paid or accrued during the taxable year. In compliance with the requirements set forth by RR No. 15-2010, hereunder are the information on taxes, duties and license fees paid or accrued during the calendar year ended December 31, 2018:
Gross receipt tax (GRT) The Parent Company is subject to GRT on its gross income from Philippine sources. GRT is imposed on interest, fees and commissions from lending activities at 5.0% or 1.0%, depending on the loan term, and at 7.0% on non-lending fees and commissions, trading and foreign exchange gains and other items constituting gross income.
In FCDU, income classified under Others, which is subject to corporate income tax, is also subject to GRT at 7.0%.
The details of the Parent Company’s GRT payments and corresponding GRT tax base in 2018 are as follows:
GRT GRT tax base Income from lending activities P=829,525 P=24,325,967 Other income 173,572 2,479,604 P=1,003,097 P=26,805,571
Taxes and Licenses This includes all other taxes, local and national, incurred in 2018 and lodged under ‘Taxes and licenses’ in the statement of income, as follows:
Amount Documentary stamp taxes P=576,931 Fringe benefit taxes 45,939 Mayor’s permit 50,928 Real estate taxes 16,026 Other taxes 24,551 P=714,375
Other taxes include car registration fees, privilege taxes and other permits.
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Withholding Taxes Details of total remittances in 2018 and balances as of December 31, 2018 are as follows:
Total Remittance Balance Withholding taxes on compensation and benefits P=639,664 P=80,203 Expanded withholding taxes 374,598 40,532 Final withholding taxes 1,539,037 137,428 P=2,553,299 P=258,163
Tax Assessments and Cases As of December 31, 2018, the Parent Company has no deficiency tax assessments and has no tax cases, litigation and/or prosecution in courts or bodies outside the BIR.
*SGVFS032853* SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A), Philippines November 6, 2018, valid until November 5, 2021
INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors Security Bank Corporation Security Bank Centre 6776 Ayala Avenue Makati City
We have audited, in accordance with Philippine Standards on Auditing, the financial statements of Security Bank Corporation and Subsidiaries (the Group) as at December 31, 2018 and 2017 and for each of the three years in the period ended December 31, 2018, included in the Form 17-A, and have issued our report thereon dated February 19, 2019. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to the Financial Statements and Supplementary Schedules are the responsibility of the Group’s management. These schedules are presented for purposes of complying with the Securities Regulation Code Rule 68, As Amended (2011) and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and in our opinion, fairly state, in all material respects, the information required to be set forth therein in relation to the basic financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Aris C. Malantic Partner CPA Certificate No. 90190 SEC Accreditation No. 0326-AR-4 (Group A), April 26, 2018, valid until April 25, 2021 Tax Identification No. 152-884-691 BIR Accreditation No. 08-001998-54-2018, February 26, 2018, valid until February 25, 2021 PTR No. 7332573, January 3, 2019, Makati City
February 19, 2019
*SGVFS032853*
A member firm of Ernst & Young Global Limited SECURITY BANK CORPORATION AND SUBSIDIARIES INDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES DECEMBER 31, 2018
Schedule Content Page No. Part I I Schedule of Reconciliation of Retained Earnings Available for Dividend Declaration (Part 1 4C, Annex 68-C) 1 II Schedule of All Effective Standards and Interpretations under PFRS (Part 1 4J) 2-5 III Map Showing Relationships Between and Among Parent, Subsidiaries and a Joint Venture (Part 1 4H) 6
Part II A Financial Assets ∂ Financial assets at fair value through profit or loss ∂ Financial assets at fair value through other comprehensive income ∂ Investment securities at amortized cost (Part II 6D, Annex 68-E, A) 7 B Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) (Part II 6D, Annex 68-E, B) 8 C Amounts Receivable from Related Parties which are Eliminated During the Consolidation of Financial Statements (Part II 6D, Annex 68-E, C) 9 D Intangible Assets - Other Assets (Part II 6D, Annex 68-E, D) 10 E Long-Term Debt (Part II 6D, Annex 68-E, E) 11-22 F Indebtedness to Related Parties (Included in the Consolidated Statements of Financial Position) (Part II 6D, Annex 68-E, F) 23 G Guarantees of Securities of Other Issuers (Part II 6D, Annex 68-E, G) 24 H Capital Stock (Part II 6D, Annex 68-E, H) 25
Part III Schedule of Financial Soundness Indicators 26 SECURITY BANK CORPORATION SCHEDULE I RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION DECEMBER 31, 2018 (Amounts in Thousands)
Unappropriated Retained Earnings at Beginning of Year P=54,017,773 Adjustments on beginning balance: Unrealized FX gains - net (except those attributable to Cash & Cash Equivalents) (607,272) Fair value adjustments (mark to market gains) (858,215) Fair value gain at foreclosure date (129,064) Interest accrued on impaired financial assets (366) Remeasurement losses on defined benefit plans 424,307 Accumulated share in net income of subsidiaries and joint venture (822,339) Deferred tax assets (1,579,523) Unappropriated Retained Earnings, as adjusted, beginning 50,445,301 Add: Net income actually earned/realized during the year Net Income during the year 8,650,133 Less: Non-actual/unrealized income net of tax during the year Unrealized FX gains - net (except those attributable to Cash & Cash Equivalents) 903,471 Fair value adjustments (mark to market gains) 1,554,406 Interest accrued on impaired financial assets (366) Fair value loss at foreclosure date (38,882) Share in net income subsidiaries and joint venture (net of dividends) 317,130 Recognized deferred tax asset (317,636) Sub-total 2,418,123 Add: Non-actual losses/realized income during the year Realized income categorized as unrealized in previous years 1,465,486 Net income actually earned during the period 7,697,496 Add (Less): Dividend declarations during the year (2,264,876) Appropriations of retained earnings during the period (1,187,900) Total Retained Earnings Available for Dividend Declaration at End of Year P=54,690,021 SECURITY BANK CORPORATION SCHEDULE II LIST OF PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS) EFFECTIVE AS OF DECEMBER 31, 2018
PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2018 Adopted Early Adopted Applicable Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics PFRSs Practice Statement Management Commentary Philippine Financial Reporting Standards PFRS 1 First-time Adoption of Philippine Financial Reporting (Revised) Standards Amendments to PFRS 1: Additional Exemption for First- time Adopters Amendments to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters Amendments to PFRS 1: Government Loans Amendment to PFRS 1: Meaning of Effective PFRSs PFRS 2 Share-based Payment Amendments to PFRS 2: Vesting Conditions and Cancellations Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions Amendment to PFRS 2: Definition of Vesting Condition Amendments to PFRS 2: Classification and Measurement of Share-based Payment Transactions* PFRS 3 Business Combinations (Revised) Amendment to PFRS 3: Accounting for Contingent Consideration in a Business Combination Amendment to PFRS 3: Scope Exceptions for Joint Arrangements PFRS 4 Insurance Contracts Amendments to PFRS 4: Financial Guarantee Contracts Amendments to PFRS 4: Applying PFRS 9, Financial Instruments with PFRS 4, Insurance Contracts* PFRS 5 Non-current Assets Held for Sale and Discontinued operation Amendment to PFRS 5: Changes in methods of disposal PFRS 6 Exploration for and Evaluation of Mineral Resources PFRS 7 Financial Instruments: Disclosures Amendments to PFRS 7: Transition Amendments to and PFRS 7: Reclassification of Financial Assets Amendments to PFRS 7: Reclassification of Financial Assets - Effective Date and Transition Amendments to PFRS 7: Improving Disclosures about Financial Instruments Amendments to PFRS 7: Disclosures - Transfers of Financial Assets Amendments to PFRS 7: Disclosures - Offsetting Financial Assets and Financial Liabilities Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures Amendments to PFRS 7: Additional hedge accounting disclosures (and consequential amendments) resulting from the introduction of the hedge accounting chapter in PFRS 9 - 2 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2018 Adopted Early Adopted Applicable Amendments to PFRS 7: Servicing Contracts and Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements PFRS 8 Operating Segments Amendments to PFRS 8: Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets PFRS 9 Financial Instruments: Classification and Measurement of Financial Assets (2010) Financial Instruments: Classification and Measurement of Financial Liabilities (2010) PFRS 9, Financial Instruments (2014) PFRS 10 Consolidated Financial Statements Amendments to PFRS 10: Transition Guidance Amendments to PFRS 10: Investment Entities Amendments to PFRS 10: Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture** Amendments to PFRS 10: Investment Entities: Applying the Consolidation Exception PFRS 11 Joint Arrangements Amendments to PFRS 11: Transition Guidance Amendments to PFRS 11: Accounting for Acquisitions of Interests in Joint Operations PFRS 12 Disclosures of Interests in Other Entities Amendments to PFRS 12: Transition Guidance Amendments to PFRS 12: Investment Entities Amendments to PFRS 12: Investment Entities Applying the Consolidation Exception PFRS 13 Fair Value Measurement Amendment to PFRS 13: Short-term Receivables and Payables Amendment to PFRS 13: Portfolio Exception PFRS 14 Regulatory Deferral Accounts PFRS 15 Revenue from Contracts with Customers* Amendments to PFRS 15, Clarifications to PFRS 15* Not early adopted PFRS 16 (Effective Leases January 1, 2019) Philippine Accounting Standards PAS 1 Presentation of Financial Statements (Revised) Amendments to PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to PAS 1: Presentation of Items of Other Comprehensive Income Amendments to PAS 1 (Revised): Disclosure Initiative PAS 2 Inventories PAS 7 Statement of Cash Flows Amendments to PAS 7: Disclosure Initiative PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors PAS 10 Events after the Reporting Period PAS 11 Construction Contracts PAS 12 Income Taxes Amendments to PAS 12- Deferred Tax: Recovery of Underlying Assets Amendments to PAS 12: Recognition of Deferred Tax Assets for Unrealized Losses - 3 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2018 Adopted Early Adopted Applicable PAS 16 Property, Plant and Equipment Amendment to PAS 16: Revaluation Method – Proportionate Restatement of Accumulated Depreciation on Revaluation Amendments to PAS 16: Clarification of Acceptable Methods of Depreciation and Amortization Amendments to PAS 16, Agriculture: Bearer Plants PAS 17 Leases PAS 18 Revenue PAS 19 Employee Benefits (Revised) Amendments to PAS 19: Defined Benefit Plans: Employee Contribution Amendments to PAS 19: Discount Rate: Regional Market Issue PAS 20 Accounting for Government Grants and Disclosure of Government Assistance PAS 21 The Effects of Changes in Foreign Exchange Rates Amendment: Net Investment in a Foreign Operation PAS 23 Borrowing Costs (Revised) PAS 24 Related Party Disclosures (Revised) Amendments to PAS 24: Key Management Personnel PAS 26 Accounting and Reporting by Retirement Benefit Plans PAS 27 Separate Financial Statements (Amended) Amendments for investment entities Amendments to PAS 27: Equity Method in Separate Financial Statements PAS 28 Investments in Associates and Joint Ventures (Amended) Amendments to PAS 28 (Amended): Sale or Contribution of Assets between an Investor and its Associate or Joint Venture** Amendments to PAS 28 (Amended): Investment Entities: Applying the Consolidation Exception PAS 29 Financial Reporting in Hyperinflationary Economies PAS 32 Financial Instruments: Disclosure and Presentation Amendments to PAS 32: Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to PAS 32: Classification of Rights Issues Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities PAS 33 Earnings per Share PAS 34 Interim Financial Reporting Amendment to PAS 34: Disclosure of information ‘Elsewhere in the Interim financial report’ PAS 36 Impairment of Assets Amendments to PAS 36: Recoverable Amount Disclosures for Non-Financial Assets PAS 37 Provisions, Contingent Liabilities and Contingent Assets PAS 38 Intangible Assets Amendments to PAS 38 : Revaluation Method – Proportionate Restatement Of Accumulated Amortization Amendments to PAS 38: Clarification of Acceptable Methods of Depreciation and Amortization PAS 39 Financial Instruments: Recognition and Measurement Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions - 4 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2018 Adopted Early Adopted Applicable Amendments to PAS 39: The Fair Value Option Amendments to PAS 39: Financial Guarantee Contracts Amendments to PAS 39: Reclassification of Financial Assets Amendments to PAS 39: Reclassification of Financial Assets - Effective Date and Transition Amendment to PAS 39: Embedded Derivatives Amendment to PAS 39: Eligible Hedged Items Amendment to PAS 39: Novation of Derivatives and Continuation of Hedge Accounting Amendments to PAS 39: Hedge Accounting PAS 40 Investment Property Amendments to PAS 40: Clarifying the Interrelationship between PFRS 3 and PAS 40 when Classifying Property as Investment Property or Owner-Occupied Property PAS 41 Agriculture Amendments to PAS 41, Agriculture: Bearer Plants Philippine Interpretations IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2 Members’ Share in Co-operative Entities and Similar Instruments IFRIC 4 Determining Whether an Arrangement Contains a Lease IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 9 Reassessment of Embedded Derivatives Amendments to Philippine Interpretation IFRIC-9: Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendments to Philippine Interpretations IFRIC - 14, Prepayments of a Minimum Funding Requirement IFRIC 16 Hedges of a net Investment in a Foreign Operation IFRIC 17 Distributions of Non-cash Assets to Owners IFRIC 18 Transfers of Assets from Customers IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine IFRIC 21 Levies SIC-7 Introduction of the Euro SIC-10 Government Assistance - No Specific Relation to Operating Activities SIC-15 Operating Leases - Incentives SIC-25 Income Taxes- Changes in the Tax Status of an Entity or its Shareholders SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC-29 Service Concession Arrangements: Disclosures - 5 -
PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Not Adopted/Not Not Effective as of December 31, 2018 Adopted Early Adopted Applicable SIC-31 Revenue - Barter Transactions Involving Advertising Services SIC-32 Intangible Assets - Web Site Costs
* Subject to approval by the Board of Accountancy ** Original effective date of January 1, 2016 of the amendment was postponed by the FRSC on January 13, 2016, until the IASB has completed its broader review of the research project on equity accounting.
Standards and Interpretations applicable to annual periods beginning on or after January 1, 2019 (where early application is allowed) will be adopted by the Group as they become effective. - 6 -
SCHEDULE III MAP SHOWING RELATIONSHIPS BETWEEN AND AMONG PARENT SUBSIDIARIES AND A JOINT VENTURE
Security Bank Corporation (Parent Bank) *
99.54% 100.00% 100.00% 100.00% 60.00% 100.00% 0%
SB Finance Company, Inc. Landlink Property SB Capital Investment SB Cards SB Forex, FWD Life Insurance (Formerly Security Bank Investments (SPV- SBM Leasing, Inc. ** Corporation Corporation Incorporated*** Corporation ***** Savings Corporation) AMC), Inc. ****
100.00% 100.00% 100.00% SB International SB Rental Corporation SB Equities, Inc. Services, Inc. ****
* MUFG ow ns 20% of voting shares of SBC (as of December 31, 2018) Common Shares: Par value is P10.00; Total Outstanding Shares – 753,538,887 Preferred Shares: Par Value is P0.10; Total Outstanding Shares – 1,000,000,000 ** Joint venture *** Non-operating **** Pre-operating ***** With irrevocable pow er of attorney/proxy to vote certain shares of FWD Life Insurance Corporation - 7 -
Security Bank Corporation and Subsidiaries Schedule A – Financial Assets December 31, 2018
(Amounts and Number of Shares in Thousands) Number of shares or Valued based on market Name of issuing entity and association Amount shown on the principal amount of quotation at balance sheet Income accrued of each issue balance sheet bonds or notes date
Financial assets at fair value through profit or loss Philippine government 2,570,377 2,445,376 2,445,376 27,675 Private corporations 30,204 29,497 29,497 385 Publicly-listed companies (Equity securities – held for trading) (in number of shares) 1 4 4 Privately held companies (Equity securities) – (in number of shares) 29 15,487 15,487 Philippine government Other government 526 535 535 20 Private corporations Various derivative counterparties 2,457,876 2,457,876 722,582 4,948,775 4,948,775 750,662 Financial assets at fair value through other comprehensive income Philippine government 29,328,480 29,252,958 29,252,958 185,426 Private corporations 4,823,252 4,781,058 4,781,058 83,342 Equity Securities 178 269,553 269,553 – 34,303,569 34,303,569 268,768 Investment securities at amortized cost Private corporations Philippine government 173,970,237 187,068,405 173,253,580 2,699,539 Philippine government Other government Private corporations 25,079,710 25,079,710 22,953,353 168,139 212,148,115 196,206,933 2,867,678 - 8 -
Security Bank Corporation and Subsidiaries
Schedule B - Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) December 31, 2018
Balance at Amounts Amounts Non- Balance at end Name of Debtor beginning of Additions Written- Current Collected Current of period period off None to Report
Receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders are subject to usual terms in the normal course of business. - 9 -
Security Bank Corporation and Subsidiaries Schedule C - Amounts Receivable from Related Parties which are eliminated during the consolidation of financial statements December 31, 2018
(Amounts in Thousands)
Deductions Balance at Amounts Amounts Non- Balance at end of Name of Debtor beginning of Additions Current Collected Written-off Current period period
Philippine Peso SB Cards Corporation P=254,363 P=493,660 P=682,338 P=– P=65,685 P=– P=65,685 SB Capital Investment – Corporation 1,850 17,298 17,725 1,423 1,423 – – SB Equities, Inc. 4,290 21,484 24,148 1,626 1,626 – – SB Rental Corporation 550,943 860,234 715,547 695,630 695,630 Landlink Property – – – – Investments (SPV-AMC), Inc. – 19 19 SB Forex, Inc. – 22 22 – – – – SB Finance Company, Inc. 607,070 1,892,004 523,645 – 1,975,429 – 1,975,429 P=1,418,516 P=3,284,721 P=1,963,444 P=– P=2,739,793 P=– P=2,739,793
Security Bank Corporation and Subsidiaries - 10 -
Schedule D - Intangible Assets - Other Assets December 31, 2018
(Amounts in Thousands)
Other changes Beginning Additions at Charged to cost Charged to other Description (i) additions Ending Balance Balance Cost (ii) and expenses accounts (deductions) (iii) Branch Licenses P=1,460,000 P=– P=– P=– P=– P=1,460,000 Goodwill 841,602 – – – – 841,602 Software costs 550,539 516,664 (191,258) – – 875,945 Exchange trading right 8,500 – – – – 8,500 P=2,860,641 P=516,664 (=P191,258) P=– P=– P=3,186,047
______
(i) The information required shall be grouped into (a) intangibles shown under the caption intangible assets and (b) deferrals shown under the caption Other Assets in the related balance sheet. Show by major classifications. (ii) For each change representing other than an acquisition, clearly state the nature of the change and the other accounts affected. Describe cost of additions representing other than cash expenditures. (iii) If provision for amortization of intangible assets is credited in the books directly to the intangible asset account, the amounts shall be stated with explanations, including the accounts charged. Clearly state the nature of deductions if these represent anything other than regular amortization. - 11 -
Security Bank Corporation and Subsidiaries Schedule E - Long-Term Debt December 31, 2018
(Amounts in Millions) Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date
Long-term Negotiable Certificates of Deposit (maturing on February 17, 4,993 4,993 5.50% 02/17/2019 2019)
Long-term Negotiable Certificates of Deposit (maturing on August 16, 4,991 4,991 5.50% 08/15/2019 2019)
Long-term Negotiable Certificates of 8,543 8,543 3.88% 05/8/2023 Deposit (maturing on May 8, 2023)
Long-term Negotiable Certificates of 5,732 5,732 4.50% 11/2/2023 Deposit (maturing on Nov 2, 2023)
Bills Payable and Securities Sold Under Repurchased Agreements Bills Payable - DBP Funded 28 28 8.00% 8/25/2031 Bills Payable - DBP Funded 29 29 8.00% 8/25/2031 Bills Payable - DBP Funded 15 15 8.00% 8/25/2031 Bills Payable - DBP Funded 37 37 8.00% 8/25/2031 Bills Payable - DBP Funded 40 40 8.00% 8/25/2031 Bills Payable - DBP Funded 45 45 8.00% 8/25/2031 Bills Payable - IBTL 1,400 1,400 5.25% 1/2/2019 - 12 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - IBTL 13,500 13,500 5.25% 1/2/2019 Bills Payable - IBTL 630 630 5.16% 1/2/2019 Bills Payable - IBTL 1,000 1,000 5.06% 1/2/2019 Bills Payable - IBTL 416 416 4.94% 1/2/2019 Bills Payable - IBTL 526 526 2.86% 1/11/2019 Bills Payable - IBTL 1,052 1,052 3.58% 1/3/2019 Bills Payable - IBTL 1,314 1,314 3.58% 1/4/2019 Bills Payable - IBTL 1,052 1,052 2.97% 1/11/2019 Bills Payable - IBTL 1,052 1,052 3.16% 5/13/2019 Bills Payable - IBTL 1,315 1,315 2.83% 1/31/2019 Bills Payable - IBTL 1,052 1,052 3.01% 2/11/2019 Bills Payable - IBTL 1,314 1,314 3.46% 5/9/2019 Bills Payable - IBTL 1,314 1,314 3.52% 6/4/2019 Bills Payable - IBTL 1,314 1,314 3.28% 6/26/2019 Bills Payable - IBTL 789 789 2.80% 1/15/2019 Bills Payable - IBTL 789 789 3.06% 2/27/2019 Bills Payable - IBTL 999 999 2.38% 1/2/2019 Bills Payable - IBTL 1,314 1,315 2.49% 1/2/2019 Bills Payable - IBTL 736 736 2.50% 1/4/2019 Bills Payable - IBTL 7,887 7,887 3.67% 7/12/2021 Bills Payable - SSURA 417 417 3.00% 1/24/2019 Bills Payable - SSURA 836 836 3.00% 1/24/2019 Bills Payable - SSURA 1,339 1,339 2.75% 2/21/2019 Bills Payable - SSURA 763 763 2.78% 1/23/2019 Bills Payable - SSURA 398 398 2.78% 1/23/2019 Bills Payable - SSURA 1,679 1,679 3.10% 1/31/2019 Bills Payable - SSURA 1,264 1,264 3.10% 1/31/2019 Bills Payable - SSURA 1,672 1,672 3.00% 1/4/2019 - 13 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - SSURA 1,756 1,756 3.25% 1/17/2019 Bills Payable - SSURA 2,301 2,301 3.25% 1/16/2019 Bills Payable - SSURA 1,157 1,157 3.28% 1/25/2019 Bills Payable - SSURA 6,325 6,325 3.28% 1/25/2019 Bills Payable - SSURA 1,098 1,098 3.15% 1/11/2019 Bills Payable - SSURA 634 634 3.15% 1/11/2019 Bills Payable - SSURA 3,029 3,029 2.75% 1/14/2019 Bills Payable - SSURA 2,708 2,708 3.10% 1/22/2019 Bills Payable - SSURA 2,118 2,118 3.10% 1/22/2019 Bills Payable - SSURA 2,526 2,526 3.68% 1/28/2019 Bills Payable - SSURA 1,269 1,269 3.20% 1/17/2019 Bills Payable - SSURA 1,273 1,273 3.20% 1/17/2019 Bills Payable - SSURA 3,150 3,150 3.20% 1/18/2019 Bills Payable - SSURA 1,316 1,316 3.20% 1/18/2019 Bills Payable - SSURA 1,270 1,270 3.05% 1/18/2019 Bills Payable - SSURA 2,143 2,143 3.30% 1/22/2019 Bills Payable - SSURA 1,828 1,828 3.44% 1/15/2021 Bills Payable - SSURA 779 779 3.53% 1/22/2024 Bills Payable - SSURA 1,810 1,810 3.17% 1/15/2021 Bills Payable - SSURA 1,290 1,290 2.41% 2/1/2028 Bills Payable - SSURA 2,085 2,085 2.40% 3/30/2026 Bills Payable - SSURA 2,599 2,599 2.44% 2/1/2028 Bills Payable - SSURA 614 614 2.48% 2/1/2028 Bills Payable - SSURA 1,730 1,730 2.48% 2/1/2028 Bills Payable - SSURA 366 366 2.95% 1/15/2021 Bills Payable - SSURA 1,225 1,225 3.27% 1/20/2020 Bills Payable - SSURA 2,507 2507 3.00% 1/4/2019 Bills Payable - Rediscounted 9 9 5.38% 3/13/2019 - 14 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 6 6 5.38% 5/17/2019 Bills Payable - Rediscounted 2 2 5.06% 2/1/2019 Bills Payable - Rediscounted 1 1 5.06% 2/1/2019 Bills Payable - Rediscounted 1 1 5.13% 2/15/2019 Bills Payable - Rediscounted 2 2 5.13% 2/15/2019 Bills Payable - Rediscounted 3 3 5.38% 3/8/2019 Bills Payable - Rediscounted 2 2 5.38% 3/22/2019 Bills Payable - Rediscounted 3 3 5.38% 4/12/2019 Bills Payable - Rediscounted 14 14 5.31% 2/11/2019 Bills Payable - Rediscounted 1 1 5.38% 4/10/2019 Bills Payable - Rediscounted 1 1 5.31% 1/28/2019 Bills Payable - Rediscounted 1 1 5.31% 3/7/2019 Bills Payable - Rediscounted 2 2 5.38% 4/24/2019 Bills Payable - Rediscounted 2 2 5.38% 4/24/2019 Bills Payable - Rediscounted 2 2 5.31% 2/27/2019 Bills Payable - Rediscounted 77 77 5.31% 2/20/2019 Bills Payable - Rediscounted 52 52 5.38% 4/1/2019 Bills Payable - Rediscounted 3 3 5.38% 5/28/2019 Bills Payable - Rediscounted 1 1 5.38% 5/15/2019 Bills Payable - Rediscounted 40 40 5.38% 4/17/2019 Bills Payable - Rediscounted 59 59 5.38% 4/17/2019 Bills Payable - Rediscounted 5 5 5.38% 4/29/2019 Bills Payable - Rediscounted 3 3 5.38% 4/24/2019 Bills Payable - Rediscounted 5 5 5.38% 4/24/2019 Bills Payable - Rediscounted 3 3 5.38% 4/8/2019 Bills Payable - Rediscounted 1 1 5.38% 4/8/2019 Bills Payable - Rediscounted 1 1 5.38% 4/8/2019 Bills Payable - Rediscounted 5 5 5.38% 4/8/2019 - 15 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 2 2 5.38% 5/28/2019 Bills Payable - Rediscounted 53 53 5.31% 2/21/2019 Bills Payable - Rediscounted 20 20 5.31% 3/20/2019 Bills Payable - Rediscounted 19 19 5.31% 3/20/2019 Bills Payable - Rediscounted 15 15 5.38% 4/26/2019 Bills Payable - Rediscounted 5 5 5.38% 4/12/2019 Bills Payable - Rediscounted 18 18 5.38% 4/12/2019 Bills Payable - Rediscounted 5 5 5.38% 4/25/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 5 5 5.38% 5/17/2019 Bills Payable - Rediscounted 52 52 5.31% 3/20/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 2 2 5.38% 5/3/2019 Bills Payable - Rediscounted 1 1 5.38% 5/3/2019 Bills Payable - Rediscounted 2 2 5.38% 5/13/2019 Bills Payable - Rediscounted 19 19 5.31% 3/15/2019 Bills Payable - Rediscounted 19 19 5.06% 2/14/2019 Bills Payable - Rediscounted 3 3 5.13% 2/18/2019 Bills Payable - Rediscounted 17 17 5.38% 3/28/2019 Bills Payable - Rediscounted 8 8 5.38% 3/7/2019 Bills Payable - Rediscounted 15 15 5.31% 3/18/2019 Bills Payable - Rediscounted 16 16 5.38% 4/5/2019 Bills Payable - Rediscounted 28 28 5.38% 6/14/2019 Bills Payable - Rediscounted 1 1 5.38% 5/20/2019 Bills Payable - Rediscounted 1 1 5.38% 6/7/2019 Bills Payable - Rediscounted 5 5 5.31% 3/5/2019 Bills Payable - Rediscounted 27 27 5.31% 3/13/2019 Bills Payable - Rediscounted 16 16 5.38% 4/12/2019 - 16 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 15 15 5.38% 5/17/2019 Bills Payable - Rediscounted 18 18 5.38% 5/22/2019 Bills Payable - Rediscounted 77 77 5.31% 2/18/2019 Bills Payable - Rediscounted 3 3 5.31% 2/6/2019 Bills Payable - Rediscounted 10 10 5.31% 3/4/2019 Bills Payable - Rediscounted 7 7 5.31% 3/4/2019 Bills Payable - Rediscounted 12 12 5.31% 3/4/2019 Bills Payable - Rediscounted 5 5 5.38% 4/15/2019 Bills Payable - Rediscounted 38 38 5.38% 4/5/2019 Bills Payable - Rediscounted 15 15 5.38% 4/10/2019 Bills Payable - Rediscounted 63 63 5.38% 4/10/2019 Bills Payable - Rediscounted 19 19 5.38% 5/3/2019 Bills Payable - Rediscounted 3 3 5.38% 5/10/2019 Bills Payable - Rediscounted 2 2 5.38% 5/14/2019 Bills Payable - Rediscounted 4 4 5.38% 5/10/2019 Bills Payable - Rediscounted 11 11 5.38% 5/14/2019 Bills Payable - Rediscounted 65 65 5.38% 5/10/2019 Bills Payable - Rediscounted 28 28 5.38% 3/22/2019 Bills Payable - Rediscounted 48 48 5.38% 5/13/2019 Bills Payable - Rediscounted 3 3 5.38% 5/13/2019 Bills Payable - Rediscounted 10 10 5.38% 5/13/2019 Bills Payable - Rediscounted 9 9 5.38% 5/15/2019 Bills Payable - Rediscounted 10 10 5.38% 6/5/2019 Bills Payable - Rediscounted 52 52 5.38% 6/5/2019 Bills Payable - Rediscounted 14 14 5.38% 6/10/2019 Bills Payable - Rediscounted 7 7 5.38% 6/10/2019 Bills Payable - Rediscounted 0 0 5.31% 2/13/2019 Bills Payable - Rediscounted 0 0 5.31% 2/13/2019 - 17 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 0 0 5.31% 2/13/2019 Bills Payable - Rediscounted 1 1 5.38% 6/4/2019 Bills Payable - Rediscounted 12 12 5.38% 4/24/2019 Bills Payable - Rediscounted 6 6 5.38% 4/10/2019 Bills Payable - Rediscounted 35 35 5.38% 4/5/2019 Bills Payable - Rediscounted 51 51 5.38% 4/26/2019 Bills Payable - Rediscounted 148 148 5.38% 5/3/2019 Bills Payable - Rediscounted 98 98 5.31% 2/6/2019 Bills Payable - Rediscounted 7 7 5.31% 3/5/2019 Bills Payable - Rediscounted 8 8 5.31% 3/5/2019 Bills Payable - Rediscounted 5 5 5.31% 3/5/2019 Bills Payable - Rediscounted 16 16 5.38% 3/18/2019 Bills Payable - Rediscounted 28 28 5.38% 4/17/2019 Bills Payable - Rediscounted 14 14 5.38% 5/10/2019 Bills Payable - Rediscounted 15 15 5.38% 5/10/2019 Bills Payable - Rediscounted 30 30 5.38% 5/9/2019 Bills Payable - Rediscounted 26 26 5.38% 4/10/2019 Bills Payable - Rediscounted 3 3 5.38% 3/19/2019 Bills Payable - Rediscounted 4 4 5.31% 2/12/2019 Bills Payable - Rediscounted 3 3 5.38% 3/26/2019 Bills Payable - Rediscounted 5 5 5.38% 3/20/2019 Bills Payable - Rediscounted 21 21 5.38% 4/10/2019 Bills Payable - Rediscounted 10 10 5.38% 4/5/2019 Bills Payable - Rediscounted 5 5 5.38% 3/27/2019 Bills Payable - Rediscounted 22 22 5.06% 1/14/2019 Bills Payable - Rediscounted 5 5 5.06% 1/21/2019 Bills Payable - Rediscounted 3 3 5.06% 1/21/2019 Bills Payable - Rediscounted 22 22 5.38% 3/18/2019 - 18 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 85 85 5.38% 3/7/2019 Bills Payable - Rediscounted 59 59 5.38% 3/7/2019 Bills Payable - Rediscounted 11 11 5.38% 4/12/2019 Bills Payable - Rediscounted 5 5 5.38% 4/5/2019 Bills Payable - Rediscounted 5 5 5.38% 4/17/2019 Bills Payable - Rediscounted 2 2 5.38% 4/5/2019 Bills Payable - Rediscounted 1 1 5.31% 2/6/2019 Bills Payable - Rediscounted 8 8 5.31% 3/8/2019 Bills Payable - Rediscounted 8 8 5.31% 3/19/2019 Bills Payable - Rediscounted 1 1 5.13% 2/22/2019 Bills Payable - Rediscounted 1 1 5.31% 2/1/2019 Bills Payable - Rediscounted 1 1 5.38% 4/17/2019 Bills Payable - Rediscounted 1 1 5.38% 4/23/2019 Bills Payable - Rediscounted 1 1 5.38% 3/8/2019 Bills Payable - Rediscounted 1 1 5.38% 3/13/2019 Bills Payable - Rediscounted 1 1 5.38% 5/10/2019 Bills Payable - Rediscounted 3 3 5.38% 4/8/2019 Bills Payable - Rediscounted 0 0 5.38% 3/15/2019 Bills Payable - Rediscounted 7 7 5.38% 3/7/2019 Bills Payable - Rediscounted 1 1 5.38% 5/2/2019 Bills Payable - Rediscounted 5 5 5.38% 5/27/2019 Bills Payable - Rediscounted 3 3 5.31% 2/18/2019 Bills Payable - Rediscounted 4 4 5.31% 2/26/2019 Bills Payable - Rediscounted 3 3 5.31% 3/1/2019 Bills Payable - Rediscounted 4 4 5.38% 3/22/2019 Bills Payable - Rediscounted 1 1 5.38% 3/15/2019 Bills Payable - Rediscounted 4 4 5.38% 3/22/2019 Bills Payable - Rediscounted 2 2 5.38% 4/24/2019 - 19 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 4 4 5.38% 4/26/2019 Bills Payable - Rediscounted 2 2 5.38% 5/8/2019 Bills Payable - Rediscounted 2 2 5.31% 2/21/2019 Bills Payable - Rediscounted 1 1 5.31% 2/11/2019 Bills Payable - Rediscounted 3 3 5.31% 2/21/2019 Bills Payable - Rediscounted 1 1 5.31% 2/13/2019 Bills Payable - Rediscounted 2 2 5.31% 3/11/2019 Bills Payable - Rediscounted 1 1 5.31% 2/22/2019 Bills Payable - Rediscounted 40 40 5.38% 4/12/2019 Bills Payable - Rediscounted 6 6 5.38% 4/17/2019 Bills Payable - Rediscounted 2 2 5.38% 3/27/2019 Bills Payable - Rediscounted 3 3 5.31% 1/29/2019 Bills Payable - Rediscounted 7 7 5.38% 6/5/2019 Bills Payable - Rediscounted 4 4 5.38% 4/10/2019 Bills Payable - Rediscounted 4 4 5.38% 4/10/2019 Bills Payable - Rediscounted 4 4 5.38% 4/10/2019 Bills Payable - Rediscounted 3 3 5.38% 5/6/2019 Bills Payable - Rediscounted 3 3 5.38% 4/10/2019 Bills Payable - Rediscounted 4 4 5.38% 5/6/2019 Bills Payable - Rediscounted 3 3 5.38% 5/6/2019 Bills Payable - Rediscounted 4 4 5.38% 5/6/2019 Bills Payable - Rediscounted 4 4 5.38% 5/13/2019 Bills Payable - Rediscounted 3 3 5.38% 5/13/2019 Bills Payable - Rediscounted 2 2 5.38% 3/26/2019 Bills Payable - Rediscounted 2 2 5.38% 3/26/2019 Bills Payable - Rediscounted 2 2 5.38% 3/26/2019 Bills Payable - Rediscounted 3 3 5.38% 3/26/2019 Bills Payable - Rediscounted 3 3 5.38% 3/26/2019 - 20 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 3 3 5.38% 3/26/2019 Bills Payable - Rediscounted 3 3 5.38% 3/26/2019 Bills Payable - Rediscounted 2 2 5.38% 3/26/2019 Bills Payable - Rediscounted 2 2 5.38% 3/26/2019 Bills Payable - Rediscounted 3 3 5.38% 4/26/2019 Bills Payable - Rediscounted 3 3 5.38% 4/26/2019 Bills Payable - Rediscounted 3 3 5.38% 5/21/2019 Bills Payable - Rediscounted 5 5 5.38% 5/22/2019 Bills Payable - Rediscounted 4 4 5.38% 5/30/2019 Bills Payable - Rediscounted 4 4 5.38% 5/30/2019 Bills Payable - Rediscounted 4 4 5.38% 5/3/2019 Bills Payable - Rediscounted 4 4 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 3 3 5.38% 5/3/2019 Bills Payable - Rediscounted 4 4 5.38% 5/3/2019 Bills Payable - Rediscounted 5 5 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 5/30/2019 Bills Payable - Rediscounted 3 3 5.38% 4/16/2019 Bills Payable - Rediscounted 4 4 5.38% 4/16/2019 Bills Payable - Rediscounted 4 4 5.38% 4/16/2019 Bills Payable - Rediscounted 3 3 5.38% 5/17/2019 Bills Payable - Rediscounted 2 2 5.38% 5/17/2019 - 21 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 3 3 5.38% 5/24/2019 Bills Payable - Rediscounted 7 7 5.38% 3/19/2019 Bills Payable - Rediscounted 12 12 5.38% 3/27/2019 Bills Payable - Rediscounted 10 10 5.38% 3/27/2019 Bills Payable - Rediscounted 12 12 5.38% 3/22/2019 Bills Payable - Rediscounted 12 12 5.38% 4/10/2019 Bills Payable - Rediscounted 6 6 5.38% 4/10/2019 Bills Payable - Rediscounted 13 13 5.38% 4/10/2019 Bills Payable - Rediscounted 13 13 5.38% 4/12/2019 Bills Payable - Rediscounted 18 18 5.38% 4/12/2019 Bills Payable - Rediscounted 12 12 5.38% 4/12/2019 Bills Payable - Rediscounted 18 18 5.38% 4/12/2019 Bills Payable - Rediscounted 9 9 5.31% 3/15/2019 Bills Payable - Rediscounted 11 11 5.31% 3/15/2019 Bills Payable - Rediscounted 12 12 5.31% 3/5/2019 Bills Payable - Rediscounted 17 17 5.38% 3/22/2019 Bills Payable - Rediscounted 9 9 5.38% 3/27/2019 Bills Payable - Rediscounted 13 13 5.38% 4/3/2019 Bills Payable - Rediscounted 16 16 5.38% 4/5/2019 Bills Payable - Rediscounted 7 7 5.38% 4/5/2019 Bills Payable - Rediscounted 4 4 5.31% 2/13/2019 Bills Payable - Rediscounted 1 1 5.31% 1/15/2019 Bills Payable - Rediscounted 4 4 5.31% 1/22/2019 Bills Payable - Rediscounted 3 3 5.31% 2/27/2019 Bills Payable - Rediscounted 2 2 5.31% 2/26/2019 Bills Payable - Rediscounted 1 1 5.31% 2/27/2019 Bills Payable - Rediscounted 1 1 5.38% 4/26/2019 Bills Payable - Rediscounted 1 1 5.38% 4/26/2019 - 22 -
Title of issue and type of obligation (i) Amount shown Amount Amount shown under caption authorized by under caption “Long-Term Interest Rate indenture “Current portion” Debt” % Maturity Date Bills Payable - Rediscounted 1 1 5.31% 2/22/2019 Bills Payable - Rediscounted 3 3 5.38% 5/8/2019 Bills Payable - Rediscounted 2 2 5.38% 5/8/2019 Bills Payable - Rediscounted 2 2 5.38% 4/24/2019 Bills Payable - Rediscounted 3 2 5.38% 3/20/2019 Bills Payable - Rediscounted 2 2 5.31% 2/25/2019 Bills Payable - Rediscounted 2 2 5.38% 3/8/2019 Bills Payable 80 80 - - Bills Payable 30 30 5.38% 5/14/2019 Bills Payable 54 54 5.38% 5/14/2019 Bills Payable 41 41 5.38% 5/14/2019 Bills Payable 53 53 5.38% 5/14/2019 Bills Payable 55 55 5.38% 5/14/2019 Bills Payable 72 72 5.38% 5/14/2019 Bills Payable 20 20 5.38% 5/14/2019 Total Bills Payable 103,180 80,773 22,407 Unsecured Subordinated note - Net 9,957 9,957 5.38% 07/11/2024 Notes Payable – Net 31,409 9,994 21,415 3.95% 02/03/2020
______
(i) Include in this column each type of obligation authorized - 23 -
Schedule F - Indebtedness to Related Parties (included in the consolidated statements of financial position) December 31, 2018
Name of Related Parties (i) Balance at beginning of period Balance at end of period (ii)
None to Report
______(i) The related parties named shall be grouped as in Schedule D. The information called shall be stated for any persons whose investments shown separately in such related schedule. (ii) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase during the period that is in excess of 10 percent of the related balance at either the beginning or end of the period. - 24 -
Security Bank Corporation and Subsidiaries Schedule G - Guarantees of Securities of Other Issuers December 31, 2018
Name of issuing entity of Total amount of securities guaranteed by Title of issue of each class Amount owned by person guaranteed and Nature of guarantee (ii) the company for which this of securities guaranteed of which statement is filed outstanding (i) statement is filed
None to Report
______(i) Indicate in a note any significant changes since the date of the last balance sheet file. If this schedule is filed in support of consolidated financial statements, there shall be set forth guarantees by any person included in the consolidation except such guarantees of securities which are included in the consolidated balance sheet. (ii) There must be a brief statement of the nature of the guarantee, such as “Guarantee of principal and interest”, “Guarantee of Interest”, or “Guarantee of Dividends”. If the guarantee is of interest, dividends, or both, state the annual aggregate amount of interest or dividends so guaranteed. - 25 -
Security Bank Corporation and Subsidiaries Schedule H - Capital Stock December 31, 2018
(Absolute number of shares) Number of Number of shares issued shares reserved Number of and outstanding Number of Directors, for options, Title of Issue (i) shares as shown under shares held by officers and Others (iii) warrants, authorized the related related parties (ii) employees conversion and balance sheet other rights caption
Common stock - P=10 par value Authorized 1,000,000,000 Issued and outstanding 753,538,887 110,443,484 Preferred stock - P=0.10 par value Authorized 1,000,000,000 Issued and outstanding 1,000,000,000 368,429,788
______(i) Include in this column each type of issue authorized (ii) Related parties referred to include persons for which separate financial statements are filed and those included in the consolidated financial statements, other than the issuer of the particular security. (iii) Indicate in a note any significant changes since the date of the last balance sheet filed. - 26 -
SECURITY BANK CORPORATION AND SUBSIDIARIES SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS (Amounts in Millions of Philippine Pesos)
2018 2017 a) Liquid to total assets 43.83 44.88 b) Loans (net) to deposit ratio 85.16 89.61 c) Debt-to-equity ratio 6.00 5.61 d) Asset-to-equity ratio 7.00 6.61 e) Interest rate coverage ratio 1.84 2.27 f) Return on assets 1.20 1.48 g) Return on equity 8.07 10.12 h) Net interest margin 3.27 3.20 i) Cost to income ratio 53.87 49.76 j) Non-performing loans ratio 0.41 0.02 k) Non-performing loan cover 110.90 239.37