16 March 2012

MS. JANET A. ENCARNACION Head, Disclosure Department Philippine Stock Exchange Disclosure Department Listing & Disclosure Group 3rd Floor Philippine Stock Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City

Dear Ms. Encarnacion:

We are pleased to furnish your good office with a copy of our SEC Form 20 Information Statement Preliminary (pursuant to section 20 of the Securities Regulation Code) filed with the Securities and Exchange Commission (SEC).

For your information and guidance.

Very truly yours,

ALEXANDER C. ESCUCHA First Vice President & Corporate Information Officer

1 COVER SHEET

8745 cor. Villar St., 1226 Makati City 4 4 3 SEC Registration Number

C H I N A B A N K I N G C O R P O R A T I O N

(Company’s Full Name)

1 1 F C H I N A B A N K B L D G 8 7 4 5 P A S E O

D E R O X A S C O R V I L L A R S T M A K A T I (Business Address: No., Street City/ Town / Province)

ATTY. LEILANI B. ELARMO 885-5145 Contact Person Company Telephone Number

Preliminary Information Statement 0 3 1 2 2 0 - I S 0 5 0 5 Month Day FORM TYPE Month Day Annual Meeting

Secondary License Type, If Applicable

C F D Dept. Requiring this Doc. Amended Articles Number / Section

Total Amount of Borrowings 2,035 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

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS

INFORMATION STATEMENT PURSUANT TO SECTION 20 OF THE SECURITIES REGULATION CODE

1. Check the appropriate box:

[ X ] Preliminary Information Statement [ ] Definitive Information Statement

2. Name of Registrant as specified in its charter: China Banking Corporation

3. Province, country or other jurisdiction of incorporation or organization:

4. SEC Identification Number: 443

5. BIR Tax Identification Code: 320-000-444-210

6. Address of principal office: China Bldg., 8745 Paseo de Roxas Postal Code: 1226 cor. Villar St., Makati City

7. Registrant’s telephone number, including area code: (632) 885-5555

8. Date, time and place of the meeting of security holders:

Date: May 3, 2012 Time: 4:00 p.m. Place: Penthouse, China Bank Bldg., 8745 Paseo de Roxas cor. Villar St., Makati City

9. Approximate date on which the Information Statement is first to be sent or given to security holders: April 3, 2012

10. Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the RSA:

Title of Each Class Number of Shares Outstanding Amount of Debt Outstanding Short Term : P212,158,991,881.00 Common 117,987,668 Long Term : P11,036,912,282.00

11. Are any or all of registrant’s securities listed in a Stock Exchange? Yes [X ] No [ ]

The above common shares are listed in the Philippine Stock Exchange.

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A. GENERAL INFORMATION

1. Date, Time and Place of Meeting of Security Holders Date : May 3, 2012 Time : 4:00 P.M. Place : Penthouse, China Bank Bldg. 8745 Paseo de Roxas cor. Villar St., Makati City

Mailing address of principal office: China Bank Bldg., 8745 Paseo de Roxas cor. Villar St., Makati City

Approximate date on which copies of the Information Statement are first to be sent or given to security holders : April 3, 2012

We are not asking you for a proxy and you are requested not to send us a proxy

2. Dissenter’s Right of Appraisal A stockholder has a right to dissent and demand payment of the fair value of his shares in any of the following instances under Section 81 of The Corporation Code (B.P. Blg. 68): (a) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; (b) in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets; and (c) in case of merger or consolidation.

There are no matters or proposed corporate actions included in the agenda of the meeting which may give rise to the exercise by a security holder of the right of appraisal.

However, should any proposed corporate action be passed upon at the meeting which may give rise to the right of appraisal, any stockholder who votes against the proposed corporate action may avail himself of the right of appraisal by making a written demand on the Bank within thirty (30) days after the meeting for the payment of the fair value of his shares. In order to perfect such right, the stockholder shall follow the procedures as described under Sections 81 to 86 of The Corporation Code.

3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon No director, officer, nominee for election as director, or any associate of the foregoing persons, has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon as contained in the agenda of the meeting other than election to office.

No director has informed the Bank in writing that he intends to oppose any action to be taken as contained in the agenda of the meeting.

B. CONTROL AND COMPENSATION INFORMATION

4. Voting Securities and Principal Holders Thereof

(a) Class of Voting Securities: 117,987,668 common shares entitled to vote as of March 22, 2012

(b) Record Date: Stockholders of record as of March 28, 2012 are entitled to notice of and vote at the meeting

(c) Nomination and Election of Directors and Independent Directors and Manner of Voting: In accordance with Sections 23 and 27 of The Corporation Code, Section 15 of The General Banking Law (R.A. No. 8791), Section 38 of The Securities Regulation Code, Section 38.1 of the Amended Implementing Rules and Regulations of the Securities Regulation Code, and Section X141 of the Manual of Regulations for , the Bank’s Nominations and Corporate Governance Committees adopted rules governing the nomination and election of directors. The rules pertinently state that the nomination forms shall be submitted to any of the members of the Committees or 4 to the Corporate Secretary on or before March 8, 2012. The rules likewise state that the Committees shall pre-screen the qualifications of the nominees and prepare a final list of candidates, indicating the nominees for independent directors.

As to the manner of voting, Article III, Section 7 of the Bank’s By-Laws specifies that any stockholder who is not delinquent in his subscription shall be allowed to vote either in person or by proxy executed in writing by the stockholder or his duly authorized attorney-in-fact in accordance with the requirements of existing rules and regulations. Following Section 24 of The Corporation Code, a stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit, provided that the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the Bank multiplied by the whole number of directors to be elected.

(d) Security Ownership of Certain Record and Beneficial Owners and Management

(i) Record and beneficial owners holding 5% or more of voting securities as of February 29, 2012:

Name of Beneficial Owner Title of Name, Address of Record Owner & No. of & Relationship with Record Citizenship Percentage Class Relationship with Issuer Shares Held Owner

Sysmart Corporation , Sr. 10th Floor L.V. Locsin Bldg., Common (Indirect ownership) Filipino 17,448,136 14.788% 6752 Ayala Avenue, Makati City Stockholder Stockholder

SM Investments Corporation Henry Sy, Sr. 10th Floor L.V. Locsin Bldg., Common (Indirect ownership) Filipino 19,526,951 16.550% 6752 Ayala Avenue, Makati City Stockholder Stockholder

PCD Nominee Corporation * 37th Floor, Tower I, The Enterprise Various Common Center, 6766 Ayala Ave. corner Non-Filipino 27,801,461 23.563% stockholders/clients Paseo de Roxas, Makati City Stockholder

PCD Nominee Corporation * 37th Floor, Tower I, The Enterprise Various Common Center, 6766 Ayala Ave. corner Filipino 12,005,238 10.175% stockholders/clients Paseo de Roxas, Makati City Stockholder

* Based on the list provided by the Philippine Depository and Trust Corp. to the Bank’s transfer agent, Stock Transfer Service, Inc., as of 29 February 2012, only The Hongkong and Banking Corporation Ltd. holds 5% or more of the Bank’s securities at 25,373,674 or 21.505%.

Mr. Henry Sy, Sr. is the record and beneficial owner of the following common shares as of February 29, 2012:

No. of Shares Held Percentage Direct Holdings: 1,152,359 0.98% Indirect Holdings: Holdings from various brokers 1,246,817 1.06% Indirect ownership in SM Investments Corporation, Shoemart and Sysmart Corporation 11,757,042 9.96% Total 14,156,218 12.00%

5

Mr. Henry Sy, Sr.’s family is known to have substantial holdings in Shoemart, Inc., SM Investments Corporation and Sysmart Corporation and, as such, could direct the voting or disposition of the shares of said companies.

Except as stated above, the Bank has no knowledge of any person holding more than 5% of the Bank’s outstanding shares under a voting trust or similar agreement. The Bank is likewise not aware of any arrangement which may result in a change in control of the Bank, or of any additional shares which the above-listed beneficial or record owners have the right to acquire within thirty (30) days, from options, warrants, rights, conversion privilege or similar obligation, or otherwise.

(ii) Directors and Management as of February 29, 2012:

Amount & Nature of Title of Class Name Position Beneficial/Record Citizenship Percent Ownership (a) Directors Common Hans T. Sy Chairman of the Board 140,535 Filipino 0.1191% Common Gilbert U. Dee Vice Chairman 627,813 Filipino 0.5321% Common Peter S. Dee President & CEO 218,092 Filipino 0.1848% Common Joaquin T. Dee Director 2,593,377 Filipino 2.1980% Common Dy Tiong Independent Director 10,873 Filipino 0.0092% Common Herbert T. Sy Director 22,439 Filipino 0.0190% Common Harley T. Sy Director 5,114 Filipino 0.0043% Common Alberto S. Yao Independent Director 390 Filipino 0.0003% Common Roberto F. Kuan Independent Director 1,482 Filipino 0.0013% Common Jose T. Sio Director 154 Filipino 0.0001% Common Ricardo R. Chua Director, EVP & COO 6,403 Filipino 0.0054% Total 3,626,672 3.0736% (b) Executive Officers (in addition to Messrs. Gilbert U. Dee, Peter S. Dee and Ricardo R. Chua) Common Nancy D. Yang Senior Vice President 129,682 Filipino 0.1099% Common Samuel L. Chiong Senior Vice President 2,327 Filipino 0.0020% Common Rene J. Sarmiento Senior Vice President 1,164 Filipino 0.0010% Common Margarita L. San Juan Senior Vice President 4,185 Filipino 0.0035% Common Rosemarie C. Gan First Vice President 1,402 Filipino 0.0012% Common Gerard T. Dee First Vice President 345 Filipino 0.0003% Total 139,105 0.1179% GRAND TOTAL 3,765,777 3.1915%

5. Directors and Executive Officers

(a) Incumbent Directors and Advisors

Hans T. Sy, 56, Chairman of the Board since 2011 and of the Executive Committee since 1989, holds a Bachelor of Science degree in Mechanical Engineering from the De La Salle University. He has been a Director of the Bank since 1986. He was formerly the Chairman/President of North Edsa Marketing Inc. and Wonderfoods, Inc. He currently holds directorships in various companies, which include SM Prime Holdings, Inc., SM Land, Inc. (formerly Shoemart, Inc.), and Highlands Prime, Inc.

Henry Sy, Sr., 87, Honorary Chairman of and Advisor to the Board, holds an Associate in Commercial Science degree from the Far Eastern University and was conferred the degree of Doctor in Business Management (Honoris Causa) by the De La Salle University in 1999. He is presently the Chairman of a number of corporations, including First Asia Realty Development Corporation, Sysmart Corporation, SM Land, Inc. (formerly Shoemart, Inc.), Highlands Prime, Inc., SM Synergy Properties Holdings Corp., and SM Investments Corporation. He is also the Chairman Emeritus of Unibank, Inc.

Gilbert U. Dee, 76, Vice Chairman of the Board, holds a Bachelor of Science degree in Banking from the De La Salle University. He obtained his Masters in Business Administration (MBA) in Finance from the University of Southern 6 California. He has been a Director of the Bank since 1969, and Chairman of the Board from 1989 to May 2011. He was formerly Director of Philippine Pacific Capital Corporation, Philex Mining Corporation, and CBC Finance Corporation, and President of GAB Investment Corporation. He is currently the Chairman of Union Motor Corporation and of the Bank subsidiary CBC Properties and Computer Center, Inc. (CBC-PCCI), and Director of Super Industrial Corporation. Peter S. Dee, 70, Director and President & Chief Executive Officer since 1985, holds a Bachelor of Science degree in Commerce from the De La Salle University/University of the East. He also finished a Special Banking course from the American Institute of Banking. Before joining the Bank in 1972, he worked with Rizal Commercial Banking Corporation as Assistant Vice President from 1963 to 1971. Presently, he holds directorships in Bank affiliates/subsidiaries CBC-PCCI and China Bank Insurance Brokers, Inc. (CBC-IBI), as well as in other corporations such as Cityland Development Corporation, Hydee Management & Resources Corporation, GDSK Development Corporation, and GPL Holdings, Inc.

Joaquin T. Dee, 76, Director since 1984, holds a Bachelor of Science degree in Commerce from the Letran College. He used to be the Vice President for Sales and Administration of Wellington Flour Mills from 1964 to 1994. At present, he functions as Director and President of JJACCIS Development Corporation and Enterprise Realty Corporation, and Director and Treasurer of Suntree Holdings Corporation.

Dy Tiong, 82, Independent Director, holds a Bachelor of Science degree in Business Administration from the National Jean Kuan College. He has been a Director of the Bank since 1985. He was formerly the President of CBC Finance, Inc. from 1980 to 2001 and of Panelon Development Corporation from 1990 to 1994. Presently, he is the Chairman of Panelon Philippines, Inc., Honorary Chairman of Chiang Kai Shek College, and Chairman Emeritus of the Dr. Sun Yat Sen Society.

Herbert T. Sy, 55, Director, holds a Bachelor of Science degree in Management from the De La Salle University. Aside from having been a Director of the Bank since 1993, he has also been a director and/or officer for more than five (5) years in companies engaged in food retailing, rubber manufacturing, investment, car service and car accessories, real estate development and mall operations. He presently holds the following positions: President of Supervalue, Inc., Syper Holdings, Inc., and Sondrik, Inc., and Director of SM Prime Holdings Corp., and Best Rubber Corporation, among others.

Harley T. Sy, 52, Director, holds a Bachelor of Science degree in Commerce, Major in Finance, from the De La Salle University. He became a Director in May 2001. He is the President of SM Investments Corporation, Treasurer of SM Land, Inc. (formerly Shoemart, Inc.), and Director of SM Synergy Properties Holdings Corporation, Ace Hardware Philippines, Inc., Sybase Equity Investments Corporation, and Supervalue, Inc., to name a few.

Alberto S. Yao, 65, Independent Director, holds a Bachelor of Science degree in Business Administration from the Mapua Institute of Technology. He became a Director of the Bank in 2004. From 1968 to 1975, he was the Vice President for Merchandising of Zenco Sales, Inc. He currently serves as President of other corporations which include Richwell Trading Corporation, Richwell Philippines, Inc., Europlay Distributor Co., Inc., Richphil House Incorporated, and Megarich Property Ventures Corp. He is also an Independent Director of Savings, Inc. (CBSI).

Robert F. Kuan, 63, Independent Director, holds a Bachelor of Science degree in Business Administration from the University of the Philippines, a Masters in Business Management (MBM) from the Asian Institute of Management (AIM), and a Doctorate degree on Humanities Honoris Causa from the Lyceum North Western University in Dagupan. He also attended the Top Management Program conducted by AIM in Bali, Indonesia in 1993. He started as Director of the Bank in 2005. He counts as among his present affiliations his directorships/ trusteeships in St. Luke’s Medical Center, St. Luke’s College of Medicine, Far Eastern University, Brent International School, Inc., Seaoil Phils., Inc., and CBSI.

Jose T. Sio, 72, Director, holds a Bachelor of Science degree in Commerce, Major in Accounting, from the University of San Agustin, and an MBA from New York University. He has been a Director of the Bank since 2007. He used to be a partner at Sycip Gorres Velayo & Co. (SGV) from 1977 to 1990, Director of BDO Capital Investment Corp. from 1999 to 2007, and Director of Fortune Cement Corp. from 1999 to 2001. He is presently the Executive Vice President and Chief Financial Officer of SM Investments Corporation, Director of SM Keppel Land, Inc., Consolidated Prime Development Corporation, and First Asia Realty Development Corporation, and Advisor to the Board of Banco de Oro Unibank, Inc., among others. 7 Ricardo R. Chua, 60, Director and Senior Executive Vice President (SEVP) effective 07 March 2012 & Chief Operating Officer (COO), holds a Bachelor of Science degree in Business Administration, Major in Accounting, from the University of the East and an MBM from AIM. He became a Director of the Bank in 2008 and has been the Bank’s EVP & COO since 1995. He used to be the Director/Treasurer of CBC Venture Capital Corp. from 1989 to 2003. He is presently the Chairman of the Board of CBSI, and Chairman of Bancnet, Inc., CBC-PCCI, CAVACON Corporation, and Sun & Earth Development & Construction Corporation, among others.

Pilar N. Liao, 81, Advisor to the Board of the Bank, holds a Bachelor’s degree in Home Economics from the College of the Holy Spirit. She has been a Director of the Bank from 1985 to1986, 1999 to 2000, 2001 to 2002, and 2003 to 2008, and Advisor to the Board from 2000 to 2001, 2002 to 2003 and 2008 to present. She is the Chairman of Speed Office Systems and has held directorships in Security Mutual Fund Corporation and Occidental Data Corporation.

Note: Messrs. Gilbert U. Dee and Peter S. Dee are related within the fifth civil degree of consanguinity. Messrs. Hans T. Sy, Herbert T. Sy, and Harley T. Sy are related within the second civil degree of consanguinity; Mr. Henry Sy, Sr. is their father.

For the period January to December 2011, the Board had 15 meetings, including the organizational meeting. The incumbent directors attended/participated in more than 50% of all the meetings, as follows:

Director Attendance Hans T. Sy 13 Gilbert U. Dee 14 Peter S. Dee 15 Joaquin T. Dee 15 Dy Tiong 14 Herbert T. Sy 13 Harley T. Sy 15 Alberto S. Yao 14 Roberto F. Kuan 15 Jose T. Sio 13 Ricardo R. Chua 15

(b) Executive Officers

Nancy D. Yang, 72, Senior Vice President, is the Head of the Branch Banking Group and Business Center. She holds a Bachelor of Arts degree from the Philippine Women’s University and a post graduate scholarship grant in Human Development & Child Psychology from Merrill Palmer Institute in Detroit, Michigan, USA. She has attended the Allen Management Program, BAI Retail Banking in San Francisco, USA, Environmental Risk Management Program for Bankers conducted by the Bank of America, BAI Retail Delivery Conference in Miami Beach, Florida and BAI Retail Delivery Conference in Orlando, Florida. She is a Director of CBC-IBI and Vice Chairman of the Board of CBSI. She is related within the second civil degree of consanguinity to Mr. Peter S. Dee, President & CEO.

Samuel L. Chiong, 62, Senior Vice President, is the Deputy Group Head of Branch Banking Group. He obtained a Bachelor of Arts degree in Economics from the Ateneo de University, attended law school in Ateneo de Davao University and Xavier University, and finished the Advanced Bank Management Program from AIM. He was previously connected with The Consolidated Bank & Trust Corporation and State Investment House, Inc. He is presently a Director and Treasurer of CBC-PCCI and CBC-IBI, and Director and member of the Executive Committee of CBSI.

Antonio S. Espedido, Jr., 56, Senior Vice President, is the Head of Treasury Group. He holds a Bachelor of Science degree in Business Administration from the University of San Francisco. He has had trainings on fund transfer pricing conducted by The Asian Banker, project management by Euromoney, and portfolio management by Wardley Investment (HK). He was connected with the Bank of the Philippine Islands from 1984 to 1993, Citytrust/BPI from 1995 to 2004, and ACI Phils. (Forex) as Director from 1996 to 1997. He is currently a Director of CBC Forex Corp. (CBC Forex) and Director / Treasurer of CBSI.

Ramon R. Zamora, 63, Senior Vice President, is the Head of Centralized Operations Group, Head of Remittance Business Division, and concurrent Head of Correspondent Banking. He obtained his Bachelor of Arts degree in Economics from the Ateneo de Manila University and has attended various seminars in financial products, risk

8 management and finance professional modules. Prior to joining the Bank in 1997, he was connected with Citibank N.A. as Vice President. He is a Director of CBC Forex, CBC-PCCI and CBSI.

Rhodora Z. Canto, 62, Senior Vice President, is the Head of Credit Management Group and Investment Banking Group. A certified public accountant, she obtained her Bachelor of Science degree in Business Administration, Major in Accounting, from the University of the Philippines and her MBM from AIM. Prior to joining the Bank, she spent many years in lending and investment banking and managed major transactions in the capital markets. She was Vice President and Corporate Finance Head of Citicorp Investment Philippines, Vice President & Chief Operating Officer of CityTrust Investment Philippines, Director and President of BPI Securities Corporation, and Director of . She is currently a Director of CBSI.

William C. Whang, 53, Senior Vice President, is the Head of Institutional Banking Group (formerly called Account Management Group) effective 02 November 2011. He obtained Bachelor of Science degree in Commerce, Major in Business Management, from the De La Salle University. He has more than 30 years of banking experience gained from , Republic National Bank of New York, First Philippine International Bank, Westmont Bank, International Exchange Bank, of the Philippines, Corporation, and Sterling Bank of Asia.

Margarita L. San Juan,* 58, Senior Vice President, is the Head of Institutional Banking Group (formerly called Account Management Group). She holds a Bachelor of Science degree in Business Administration, Major in Financial Management, from the University of the Philippines, and finished the Advance Bank Management Program from AIM. She has been with the Bank for more than 31 years. She was previously connected with Ayala Investment and Development Corporation and with Commercial Bank and Trust Co. She is presently a Director of CBSI. (*retired effective February 15, 2012)

Rabboni Francis B. Arjonillo, 53, Senior Vice President, is the Chief Risk Officer and Head of Risk Management Group. He obtained a Bachelor of Arts (Accelerated Program) degree in Economics from the De La Salle University and MBM from AIM. He has more than 25 years of banking experience gained from Citibank, N.A., Bank of the Philippine Islands, and United Coconut Planters Bank. A part-time lecturer of De La Salle University (1980-1989) and TCP-lecturer of the Bankers Association of the Philippines, he also founded and became the first president of the Junior Philippine Economics Society (1979-1980). He was also a former Director and President of the Money Market Association of the Philippines (2003) and Director and Vice President of ACI Phils. (Forex). Prior to joining the Bank, he was Consumer Bank Treasurer of Citibank Australia and before that, Country Treasurer and FICC (Fixed Income, Currencies & Commodities) Head of Citibank Vietnam, where he also founded and became the first chairman of the Vietnam Bond Market Association.

Rene J. Sarmiento, 58, Senior Vice President effective 01 January 2012, is the Head of Trust Group. A certified public accountant, he obtained his Bachelor of Science degree in Commerce, Major in Accounting, magna cum laude, from the De La Salle University, and his MBM from AIM. Before joining the Bank, he was connected with Ayala Investment and Development Corporation, Far East Bank & Trust Company, and Security Bank Corporation. He is currently a Director of CBSI.

Alexander C. Escucha, 55, First Vice President II, is the Head of Corporate Planning Division and the Bank’s Investor Relations Officer. He holds a Bachelor of Arts degree in Economics, cum laude, from the University of the Philippines. He used to be connected with the International Corporate Bank (InterBank). He was President of the Corporate Planning Society of the Philippines (CPSP) in 1989, and President of the Bank Marketing Association of the Philippines (BMAP) from 1998 to 1999. In 2005, he was President of the Philippine Economic Society (PES) and concurrently Chairman of the Federation of ASEAN Economic Associations (FAEA). He is an international resource person at The Asian Banker. He is currently a Director of CBSI. He is Vice Chairman of the UP Foundation, Inc.

Alberto Emilio V. Ramos, 52, Senior Vice President effective 01 March 2012, used to be the Head of Private Banking Group until he was seconded to CBSI and elected as its President effective 01 August 2011. He obtained a Bachelor of Arts degree in Political Science and a Bachelor of Science degree in Marketing Management from the De La Salle University and his MBM from AIM. Prior to joining the Bank in 2006, he was President of Philam Asset Management, Inc., and has held several officership positions in Bank of the Philippine Islands, Citytrust Banking Corporation, Western State Bank, Tokai Bank of California, Urban Development Bank, and Filinvest Credit Corporation. He is a recipient of the Treasury Professional Certificate from the Banker’s Association of the 9 Philippines. He has also attended trainings on credit and financial analysis, performance appraisal and asset-liability management, Treasury products, and strategic marketing planning.

Philip S.L. Tsai, 61, First Vice President, is the Region Head for Branch Banking Group-Metro Manila South and Southern Branches. He holds a Bachelor of Science degree in Business Administration from the University of the Philippines and obtained his MBA from Roosevelt University in Chicago, Illinois, USA. He has also attended the International Management Training conducted by Chemical Bank New York, and the BAI Retail Delivery Conference in Las Vegas, Nevada, USA.

Rosemarie C. Gan, 54, First Vice President, is the Center Head of Binondo Business Center- the strong foothold of the Bank at Chinatown. She graduated magna cum laude, with a Bachelor of Science degree in Business Administration, Major in Management, from the University of Santo Tomas, and was a recipient of Rector’s Award and the Philippine Association of Collegiate Schools of Business Excellence Award. She has been with the Bank for over 30 years, having extensive exposure in marketing and training in financial analysis, credit portfolio management, strategic planning, and corporate governance.

Gerard T. Dee, 48, First Vice President effective 01 January 2012, is the Head of Institutional Banking Group’s Division II. He holds a Bachelor of Science degree in Marketing from the De La Salle University and obtained his MBA from the New Hampshire College. He has more than 10 years of work experience in the banking industry, having previously worked with Security Bank Corporation, TA Bank of the Philippines, and Banco de Oro. He is related within the first civi l degree of consanguinity to Mr. Gilbert U. Dee, Vice Chairman of the Board.

Note: All the foregoing officers have been involved in the banking industry for more than five (5) years.

Corazon I. Morando, Vice President and Corporate Secretary, is a Bachelor of Laws graduate of the University of the Philippines. She took up graduate studies under the MBA-Senior Executive Program from the Ateneo de Manila University. She was formerly the Director of the Corporate and Legal Department of the Securities and Exchange Commission of the Philippines. She holds various positions in the SM Group of Companies, such as Senior Vice President, Corporate Legal Affairs, and Compliance Officer in SM Investments Corporation, SM Prime Holdings, Inc. and SM Development Corporation. She is also the Corporate Secretary/Compliance Officer of Highlands Prime, Inc. and Pico de Loro Beach and Country Club.

(c) Nominees for election as Directors and Independent Directors

Nominee as Person who nominated and Nominee as Director Person who nominated Independent Director Relationship with Nominee Hans T. Sy Sysmart Corporation Dy Tiong Johnny Cheng T.K., Jr., Son-in-Law

Gilbert U. Dee Linda Susan T. Mendoza Alberto S. Yao Lucky Securities, Inc., no relation

Peter S. Dee Nancy D. Yang Robert F. Kuan Regina Capital Development. Corp., no relation

Joaquin T. Dee Christopher T. Dee

Herbert T. Sy Sysmart Corporation

Harley T. Sy SM Investments Corporation

Jose T. Sio SM Investments Corporation

Ricardo R. Chua Zenaida C. Milan

Upon initial determination, based on the Nomination Forms and attachments submitted to the Nominations and Corporate Governance Committees, the nominees for directors and independent directors were found to possess all the qualifications and none of the disqualifications of a director or independent director.

10 The Nominations Committee is composed of Messrs. Dy Tiong (Chairman), Joaquin T. Dee, and Hans T. Sy.

(d) Involvement in Legal Proceedings For the past five (5) years, the Bank, its affiliates, subsidiaries, directors and officers, have not been involved in any legal proceedings that would affect their ability, competence or integrity, and/or involving a material or substantial portion of their property before any court of law or administrative body in the Philippines or elsewhere, save in the usual routine cases of the Bank arising from the ordinary conduct of its business.

All legal proceedings involving the Bank are efficiently and competently attended to and managed by a group of thirteen (13) in-house lawyers who are graduates of reputable law schools in the country. As its external counsels, the Bank retains the services of respected law firms, including Abello Concepcion Regala & Cruz Law Offices, Medialdea Ata Bello Guevarra & Suarez, and Chato & Vinzons-Chato Law Offices.

(e) Significant Employees The Bank values its human resources. It expects each employee to do his share in achieving the Bank’s set goals.

(f) Relationships and Related Transactions In the ordinary course of business, the Bank has loans and other transactions with its directors, officers, stockholders, and related interests (DOSRI), which were made substantially on terms not less favorable to the Bank than those offered to others. Full disclosures for these transactions were made through reports with the appropriate regulatory agency.

The Bank has the following subsidiaries or affiliates: i. CBC Properties and Computer Center, Inc.(CBC-PCCI) – incorporated on April 14, 1982 to render general services of computer and other computer-related products and services solely to the Bank. It is 100% owned by the Bank, with one (1) share each assigned to Messrs. Gilbert U. Dee, Peter S. Dee, Ricardo R. Chua, Samuel L. Chiong, and Ramon R. Zamora, all officers of the Bank. ii. CBC Forex Corporation – incorporated on February 18, 1997, with the primary purpose of engaging in the business of dealing and brokering in all currencies, entering into spot and forward foreign exchange contracts with local or foreign individuals and other entities, acting as brokers for the purpose of bringing together sellers and buyers of foreign exchange. It is 100% owned by the Bank. On May 7, 2009, the Board of Directors and stockholders of the Bank approved, confirmed and ratified the amendment of the Articles of Incorporation of the company to shorten its corporate term to until December 31, 2009, in accordance with Section 20 of The Corporation Code. To date, the corporation is still completing the remaining documents required by SEC. iii. China Bank Insurance Brokers, Inc. – incorporated on November 3, 1998, with the primary purpose to act as a broker in soliciting, procuring, negotiating, receiving, managing and forwarding applications for fire, casualty, plate glass, automobiles, trucks and other motor vehicles accident, health, burglary, rent, marine, credit, disability, life insurance, and all other kinds of insurance, including reinsurance contracts, or in any other manner aiding in taking out insurance, collecting payments of premiums due on such policies, and doing such other business as may be delegated to brokers or such companies in the conduct of a general insurance brokerage business. It is 100% owned by the Bank with one (1) share each assigned to Messrs. Peter S. Dee, Ricardo R. Chua, Samuel L. Chiong and Ms. Nancy D. Yang, all officers of the Bank. iv. Manulife China Bank Life Assurance Corporation (MCBLife) – the Board approved on August 2, 2006 the joint project proposal of the Bank with The Manufacturers Life Insurance Company (Manulife). In September 2007, BSP approved the Bank’s request to invest in a life insurance company owned by Manulife and such company will be offering innovative insurance and financial products for health, wealth and education through the Bank’s branches nationwide. The life insurance company was incorporated as The Pramerica Life Insurance Company, Inc. in 1998 but the name was changed to Manulife China Bank Life Assurance Corporation (MCBLife) on March 23, 2007. The Bank has 5% interest in MCBLife. v. China Bank Savings, Inc. (CBSI) – formerly known as The Manila Banking Corporation (TMBC), the Bank now owns 95.17% of the total outstanding capital stock thereof. In pursuance of such acquisition, the Board approved 11 on October 3, 2007 the use, appropriation and registration of the names “China Bank Savings, Inc.” as TMBC’s corporate name and “ChinaBank Savings” as its business name or tradename, as well as all other proprietary rights and privileges appurtenant thereto, subject to conditions, and subject further to the approval by the regulatory offices. On July 16, 2008, the Bangko Sentral ng Pilipinas and the Securities and Exchange Commission approved the change in name. Some of the directors/officers of the Bank were appointed as concurrent directors and/or officers of CBSI.

6. Compensation of Directors and Executive Officers

Bonuses & Other Name Year Salary TOTAL Compensation

Total for the 5 most highly 2012 compensated executive officers* (estimates) P37,869,461.00 P36,487,971.00 P74,357,432.00 2011 (actual) 35,392,020.00 41,400,310.00 76,792,330.00 2010 (actual) 33,040,992.00 33,600,877.00 66,641,869.00

Total for all officers and directors 2012 (estimates) P607,107,550.00 P344,939,652.00 P952,047,202.00 2011 (actual) 572,742,972.00 391,976,877.00 964,719,849.00 2010 (actual) 519,963,000.00 310,846,328.00 830,809,328.00 * Messrs. Gilbert U. Dee, Peter S. Dee, Ricardo R. Chua, Antonio S. Espedido, Jr. and Ms. Nancy D. Yang.

There are no actions to be taken as regards any bonus, profit sharing, pension or retirement plan, granting of extension of any option warrant or right to purchase any securities between the Bank and its directors and officers.

In accordance with Article IV, Section 11, and Article VIII, Section 1(a) of the Bank’s Amended By-Laws, the members of the Board of Directors are entitled to a per diem of P500.00 for attendance at each meeting of the Board or of any committees and to 4% of the Bank’s net earnings.

7. Independent Public Accountants

Sycip Gorres Velayo & Co. (SGV & Co.) / Ernst & Young has been the Bank's independent accountant for more than 20 years and is again recommended for appointment at the scheduled annual stockholders' meeting.

None of the Bank's external auditors have resigned during the two most recent fiscal years (2010 and 2011) or any interim period. In compliance with SEC Memorandum Circular No. 8, Series of 2003, and Amendments to SRC Rule 68 on the rotation of external auditors or signing partners of a firm every after five (5) years of engagement, Ms. Vicky B. Lee-Salas was assigned in 2011 as SGV & Co./Ernst & Young’s partner-in-charge for the Bank, replacing Ms. Josephine Adrienne A. Abarca who was assigned since 2007.

Representatives of SGV & Co./ Ernst & Young are expected to be present at the meeting to respond to any matter that may be pertinently raised during the meeting. Their representative will be given the opportunity to make a statement if they so desire.

Fiscal Year Audit Fees and Other Related Fees Tax Fees 2011 P1,680,000.00 --- 2010 P1,600,000.00 ---

The above audit fees are inclusive of other assurance and related services by the external auditor that are reasonably related to the performance of the audit or review of the Bank's financial statements. The matter of the 2011 audit fees was taken up and approved by the Audit Committee at its regular meeting on February 15, 2012.

Apart from the matter of audit fees, the Audit/Executive/Risk Management Committee likewise discussed/approved to engage the services of SGV & Co./Ernst & Young in non-audit work, particularly, in the Bank’s preparation for the

12 implementation/adoption of PFRS 9 to comply with BSP Circular No. 708, as amended by BSP Circular No. 733 (October 26, 2011); in the ongoing implementation of Internal Capacity Adequacy Assessment Process (ICAAP), and strengthening of risk management and audit processes through project engagements which include ICAAP for Internal Audit, ICAAP Phase 2, and ICRRS (July 20, 2011); and validation of risk models (October 12, 2011).

The Bank's Audit Committee, which is composed of Messrs. Alberto S. Yao (Chairman), Joaquin T. Dee, and Dy Tiong, approves the audit fees and fees for non-audit services, if any, of external auditors, as emphasized in Article IV, paragraph I of the Committee's Charter.

Per SGV & Co. Ernst & Young's representation during the Audit Committee meeting on February 15, 2012, they confirm that they did not have any disagreement with Management that could be significant to the Bank’s financial statements or their auditor’s report. Further, there are no matters that in their professional judgment may reasonably be thought to bear on their independence or that they gave consideration to in reaching the conclusion that independence has not been impaired.

8. Compensation Plans – Not applicable

C. ISSUANCE AND EXCHANGE OF SECURITIES

9. Authorization or Issuance of Securities Other than for Exchange – not applicable

10. Modification or Exchange of Securities – not applicable

11. Financial and Other Information (a) Brief Description of the general nature and scope of the business of the Bank, attached as Annex “A” (b) Market Information, Dividends, and Top 20 Stockholders, attached as Annex “B” (c) Discussion of Compliance with leading practice on Corporate Governance, attached as Annex “C” (d) Management’s Discussion and Analysis or Plan of Operation, attached as Annex “D” (e) Statement of Management Responsibility for Financial Statements, attached as Annex “E” (f) Audited Financial Statements, attached as Annex “F”

12. Mergers, Consolidations, Acquisitions and Similar Matters

As of December 31, 2011, the Bank’s ownership of CBSI totaled 95.17%.

13. Acquisition or Disposition of Property Not applicable.

14. Restatement of Accounts Not applicable.

D. OTHER MATTERS

15. Action with Respect to Reports

The following are to be submitted for approval during the stockholders' meeting:

(a) Minutes of the Stockholders' Meeting held on May 5, 2011, which contain, among others, the (i) annual report to stockholders and approval of financial statements, (ii) ratification of all acts of the Board of Directors, Executive Committee, Management and other Committees during the fiscal year 2010 and immediately preceding the meeting, (iii) election of the Board of Directors, (iv) appointment of external and internal auditors, and (v) approval/ratification of the declaration of 10% stock dividend and 12% cash dividend;

(b) Annual Report to Stockholders;

(c) Approval of the Financial Statements for the year ended December 31, 2011;

13 (d) Ratification of all acts of the Board of Directors, Executive Committee, Management and other Committees during the year 2011;

(e) Election of the Board of Directors;

(f) Appointment of external and internal auditors; and

(g) All matters as contained in the agenda of the meeting, and other businesses as may properly come before the stockholders.

16. Matters Not Required to be Submitted Not applicable.

17. Amendment of Charter, By-laws or Other Documents Not applicable.

18. Other Proposed Action Not applicable.

19. Voting Procedures

In accordance with Article III, Section 6 of the Bank's Amended By-Laws, no meeting of stockholders shall be competent to transact business unless a majority of the outstanding capital stock is represented. Unless The Corporation Code of the Philippines requires otherwise, the majority vote of the shares present or represented at the stockholders’ meeting, provided there is a quorum, shall be required to carry a stockholders’ action on any matter taken up during the meeting.

With respect to the election of the members of the Board of Directors, Article III, Section 7 of the Bank's Amended By-Laws specifies that any stockholder who is not delinquent in his subscription shall be allowed to vote either in person or by proxy executed in writing by the stockholder or his duly authorized attorney-in-fact in accordance with the requirements of existing rules and regulations. Following Section 24 of The Corporation Code, a stockholder may vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit, provided that the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books of the Bank multiplied by the whole number of directors to be elected. Eleven (11) nominees receiving the highest number of votes shall be elected directors.

In accordance with Article VI, Section 8 of the Amended By-Laws, the Corporate Secretary shall act as the election inspector at the annual stockholders’ meeting and shall be authorized to count the votes to be cast.

14

ANNEX “A” BUSINESS AND GENERAL INFORMATION

1. Description of Business

China Banking Corporation (CHIB, China Bank) was incorporated on July 20, 1920 and commenced business on August 16 of the same year as the first privately owned local commercial bank in the Philippines. It resumed operations after World War II on July 23, 1945 and played a key role in the post-war reconstruction and economic recovery by providing financial support to businesses and entrepreneurs. CHIB was listed on the local stock exchange in 1947 and acquired its universal banking license in 1991. The Bank started by mainly catering to the Chinese- Filipino commercial sector, but has since expanded its market scope to include the retail and consumer segments. Its core banking franchise stems mainly from its 91-year history in the Philippines, a factor that has enabled it to become deeply entrenched within the socioeconomic fabric of the Chinese-Filipino community. The Bank’s market comprises the corporate, commercial, middle and retail markets. It provides a wide range of domestic and international banking services, and is one of the largest commercial banks in the country in terms of assets and capital.

Key milestones of China Bank (CHIB) history include: a. 1920 - CHIB was established as the first privately owned local commercial bank in the Philippines b. 1947 - CHIB was listed on the local stock exchange c. 1969 - CHIB became the first bank in Southeast Asia to process deposit accounts on-line d. 1988 - CHIB was the first Philippine bank to offer telephone banking; joined seven other banks in setting up BancNet, the country’s largest ATM network e. 1991 - CHIB acquired its universal banking license f. 1996 - CHIB accessed offshore capital markets by issuing USD50MN FRCD g. 2005 - CHIB launched China Bank Online e-banking portal for retail and corporate customers h. 2006 - CHIB completed its first international secondary share offering i. 2007 - CHIB acquired Manila Bank with 75 branch licenses; bancassurance joint venture with Manulife Phils. through a 5% equity stake in Manulife China Bank Life Assurance Corp. (MCB Life) j. 2008-CHIB issued its maiden offering of 5-year long-term negotiable certificate of deposits (LTNCD); former Manila Banking Corporation main office in Ayala Avenue was relaunched as the ChinaBank Savings headquarters; branch network exceeded the 200-mark k. 2009 - CHIB is cited as one of the 11 Philippine companies and one of two Phil. banks which outperformed their peers of Top 100 publicly-listed Asean companies in creating wealth for shareholders, based on the study by Stern Stewart & Co. l. 2010 - Silver awardee on corporate governance, one of the top-scoring Publicly Listed Company by the Institute of Corporate Directors (ICD) m. 2011 - Best Wealth Management House in the Philippines awarded by Asset Triple A Investment Awards in HongKong; also cited as a “rising star”—an emerging private banking powerhouse in the country - Gold awardee (95%) in corporate governance awarded by Institute of Corporate Directors (ICD)

CHIB’s main business include corporate and SME lending, retail loans including mortgage and auto loans, treasury and foreign exchange trading, trust and investment management, wealth management, cash management, insurance products through China Bank Insurance Brokers, Inc. & MCBLife, internet banking and mobile banking services and remittances through tie-ups with remittance companies and exchange houses in the Middle East, Asia and major US cities. The Bank recently expanded its foreign currency deposits to include Yuan, offering China Bank Yuan Savings Account to cater to clients' trade, investment and remittance requirements in this currency.

China Bank offers a wide range of financial products and services through 293 branches nationwide. Complementing this vast branch network are convenient and secure electronic banking channels for 24/7 banking service — 475 ATMs nationwide, China Bank Online (mobile and internet banking), and China Bank TellerPhone (phone banking).

16 The Bank has the following subsidiaries and affiliates:

Effective Percentages of Ownership Country of Subsidiary and Affiliate 2011 2010 Incorporation Principal Activities CBC Properties and Computer Center, Inc. 100.00% 100.00% Philippines Computer Services CBC Forex Corporation 100.00% 100.00% Philippines Foreign Exchange Chinabank Insurance Brokers, Inc. 100.00% 100.00% Philippines Insurance Brokerage China Bank Savings, Inc 95.17% 95.08% Philippines Retail and Consumer Banking Manulife China Bank Life Assurance Corp 5.00% 5.00% Canada Insurance Products

2. Business of Issuer

(a) Principal Products and Services

CHIB’s main businesses include deposit taking, corporate and middle market lending, retail loans including mortgage and auto loans, insurance products through its subsidiaries, treasury and foreign exchange trading, trust and investment management, wealth management, cash management, internet banking and mobile banking services, inward remittances through tie-ups with remittance companies and exchange houses in the Middle East, Asia and major US cities. The income from these products/services is divided into two categories, namely (1) interest income from the Bank’s deposit taking and lending/investment activities which accounts for 75% of revenues and (2) other income (includes service charges, fees & commissions, trading gain, foreign exchange gain, trust fees, income from sale of acquired assets and other miscellaneous income) which account for 25% of revenues.

DEPOSITS AND RELATED SERVICES Peso Deposits: Checking, Savings Time, Foreign Currency Deposits: (US Dollar, Euro and Yuan) Savings, Time, Manager’s Check/Gift Checks, Safety Deposit Box, SSS Pension Accounts, Payroll Servicing Facility, Direct Deposit Facility for US Pensioner, Night Depository Services, Armored Car Deposit Pick-up Services, Domestic Collections

REMITTANCE SERVICES Foreign and Domestic Remittances, China Bank On-Time Remittance, China Bank Smart Money Card, Western Union Money Transfer Services, Philippine Retirement Authority Remittances and Deposits, Overseas Kababayan Savings (OKS)

LOANS AND CREDIT FACILITIES Agriculture, Commercial and Industrial Financing, Special Lending Programs: Countryside Loan Funds; BSP Rediscounting; Industrial Guarantee Loan Fund; Environmental Development Program; Sustainable Logistics Development;, Industrial and Large Projects, Guarantee Programs, Consumer Loans: HomePlus Real Estate Loans; Contract to Sell Financing; AutoPlus Vehicle Loans; Personal Loans, Foreign Currency Loans (US Dollar, Euro and Japanese Yen)

INTERNATIONAL BANKING PRODUCTS & SERVICES Import and Export Financing, Foreign and Domestic Commercial Letters of Credit, Standby Letters of Credit, Collection of Clean and Documentary Bills, Bank Guaranty (Shipside Bond), Purchase and Sale of Foreign Exchange, Travel Funds, Servicing of Foreign Loans and Investments, Trade Inquiry, Trust Receipt Facility, Correspondent Banking Services

TREASURY SERVICES Peso-Denominated Instruments: Government and Corporate Bond Issues, Foreign Currency Denominated Instruments: Government and Corporate Bond Issues, Foreign Exchange: Spot, Forward; Swaps

TRUST SERVICES Corporate and Institutional Trust: Fund Management; Employee Benefit Planning; Retirement Plan; Provident/Savings Plan; Escrow Services; Collateral/Mortgage Trust; Loan Agency Services, Wealth Management: Estate Planning - Living Trust, Life Insurance Trust; Investment Management Arrangement - Investment Advisory, Investment Agency, Unit Investment Trust Funds: China Bank Money Market Fund; China Bank Dollar Fund; China Bank GS Fund; China Bank Balanced Fund

17 PAYMENT AND SETTLEMENT SERVICES Electronic Banking Channels: China Bank (ATM); China Bank TellerPhone; China Bank Online (Internet & Mobile Banking; Cashless Shopping (POS), Cash Management Services: (1) Collections: Check Depot Post-Dated Check Warehousing Service, Sure Collect Check Deposit Pick-up Services, Bills Pay Multi-Channel Bills Payment Services, BancNet Payment System, Provincial Cash Deposit Pick Up Services, Automatic Credit Arrangement; (2) Disbursements: Check Write Plus (Corporate and Manager’s Check Writing System), Upload Pro File Delivery System, BIR eFPS Online Tax Payments, Comprehensive Payroll Offering (Crediting and Outsourcing), SSSNet Loan Repayment and Employee Contribution Facility, Automatic Debit Arrangement, Stockholders’ Dividend Credit Facility; (3) Liquidity Management: China Bank Online (Corporate), Sure Sweep (Account Sweeping/Pooling), Customized Bank Statement Generation System, Bills Payments/Donations: BIR, PhilHealth, SSS, Credit Cards, Loans, Internet & Telecommunications, Utility and Cable TV Companies, Insurance/Pre-need, Schools, Charitable Institutions, Others

INSURANCE PRODUCTS Bancassurance: Income Protection, Critical Illness, Retirement, Savings & Education, Investment with Protection Individual Life Insurance: Mortgage Redemption Insurance; Term Insurance, Group Life Insurance, Non-Life Insurance: Fire Insurance: Residential; Commercial; Trust Receipts, Motor Car Insurance, Aviation Insurance, Marine Insurance: Hull/Vessel; Cargo, Electronic Equipment Insurance, Liability Insurance: Comprehensive General Liability (C.G.L.); Product Directors and Officers Liability Insurance, Accident and Health: Medical Insurance – HMO; Personal Accident – Individual/Group; Travel Insurance, Casualty: Money Insurance; Fidelity Guarantee; Property Floater, All Risks Insurance: Contractor’s All Risk (CAR); Insurance/Erector’s All Risk; Insurance Bonds (Judicial/Performance/Fidelity/Surety, etc), Specialized Insurance Programs

(b) Distribution Methods of Products and Services:

China Bank’s products and services are made available across multiple distribution and delivery channels: 293 branch network (of which 268 are China Bank branches and 25 ChinaBank Savings branches); 475 ATM network (288 in- branch and 187 off-site ATMs nationwide; founding member of the BancNet consortium, access to almost 13,000 ATMs nationwide of BancNet, and networks; online banking (through the Bank’s e-portal www.chinabank.ph); mobile banking (available to subscribers of all major telecommunication companies); China Bank EZPay Kiosk (tax payment); and TellerPhone (phone banking). Its head office is located at 8745, Paseo de Roxas corner Villar Streets, Makati City.

CHINA BANK BRANCHES

Metro Manila Branches 1. MAKATI MAIN BRANCH (Head Office) - CBC Bldg., 8745 Paseo de Roxas cor. Villar Sts., Makati City*** 2. BINONDO BUSINESS CENTER - CBC Bldg., Dasmariñas cor. Juan Luna Sts. Binondo, Manila* 3. ANTIPOLO CITY BRANCH - G/F Budget Lane Arcade, No. 6, Provincial Road, Bgy. San Jose, Antipolo City, Rizal* 4. ARANETA AVE. BRANCH - Philippine Whithasco Bldg., 420 Araneta Avenue, cor. Bayani St., * 5. ARRANQUE BRANCH - Don Felipe Building, 675 Tomas Mapua St., Sta. Cruz, Manila* 6. ASUNCION BRANCH - Units G6 & G7 Chinatown Steel Towers, Asuncion St., San Nicolas, Manila* 7. AYALA-ALABANG BRANCH - G/F, CBC-Building Acacia Ave., Madrigal Business Park, Ayala Alabang, Muntinlupa City* 8. AYALA-COLUMNS BRANCH – G/F The Columns Tower 3, Ayala Avenue, Makati City* 9. BALINTAWAK-BONIFACIO BR. - 657 A. Bonifacio Avenue, Balintawak, Quezon City* 10. BALUT BRANCH - North Bay Shopping Center, Honorio Lopez Boulevard, Balut, Tondo, Manila* 11. BANAWE BRANCH - CBC Building, 680 Banawe Avenue, Sta. Mesa Heights, District I, Quezon City* 12. BANAWE-MA. CLARA BRANCH – G.F Property Bldg., Banawe, Quezon City* 13. BETTER LIVING SUBD. BRANCH – 128 Doña Soledad Ave., Parañaque City* 14. BF HOMES BRANCH - Aguirre cor. El Grande Aves., United BF Homes, Parañaque City* 15. BF HOMES-AGUIRRE BRANCH – Margarita Centre, Aguirre Ave. cor. Elsie Gaches Street, BF Homes, Parañaque City* 16. BF RESORT VILLAGE BRANCH - BF Resort Drive cor. Gloria Diaz St., BF Resort Village Talon Dos, Las Piñas City* 17. BEL-AIR BRANCH - 48 Avant Bldg. Jupiter cor. Mars Sts. Bel Air Village, Makati City* 18. BLUMENTRITT BRANCH - 1777-1781 Cavite corner Leonor Rivera St., Blumentritt, Sta. Cruz, Manila* 19. BO. KAPITOLYO BRANCH - G/F P&E Building, 12 United corner First Sts. Bo. Kapitolyo, Pasig City* 20. BONNY-SERRANO BRANCH – G/F, Greenhills Garden, Garden Square No. 297 Col Bonny Serrano Ave., Quezon City* 21. CAINTA BRANCH - CBC Bldg (Beside Sta. Lucia East Mall), Felix Ave. (Imelda Ave.), Cainta, Rizal* 22. CAPITOL HILLS BRANCH - G/F Design Pro Building Capitol Hills, Old Balara, Quezon City* 23. COMMONWEALTH AVENUE BRANCH - LGF Ever Gotesco Mall, Commonwealth Center Commonwealth Ave cor Don Antonio Road, QC* 24. CONGRESSIONAL AVENUE BRANCH – G/F Unit C The Arete Square, Congressional Ave., Project 8, Quezon City* 18 25. CORINTHIAN HILLS BRANCH - G/F The Clubhouse, Corinthian Hills, Temple Drive Bgy. Ugong Norte, Quezon City* 26. CUBAO-ARANETA BRANCH Shopwise Arcade Building, Time Square St., Araneta Shopping Center, Cubao, Quezon City* 27. CUBAO-AURORA BRANCH - 911 Aurora Boulevard Extension corner Miami Street, Cubao, Quezon City 28. D. TUAZON BRANCH - 174 A-B D. Tuazon St., Bgy. Maharlika, Sta. Mesa Heights, Quezon City 29. DASMARIÑAS VILLAGE BRANCH - 2283 Pasong Tamo Ext. corner Lumbang Street Makati City* 30. DON ANTONIO BRANCH - G/F Royale Place, Don Antonio Ave., Bgy. Old Balara, Quezon City* 31. DEL MONTE AVENUE BRANCH - G. Araneta Avenue corner Del Monte Avenue, Quezon City* 32. DEL MONTE – MATUTUM BRANCH – No. 202 Del Monte Avenue cor. Matutum St., Brgy. St. Peter, Quezon City* 33. -STA. ELENA BRANCH - Unit G-22 New Divisoria Condominium Ctr Sta. Elena St. near cor Tabora St. Binondo 34. EDSA-KALOOKAN BRANCH - No. 531 (Lot 5 Block 30) EDSA near corner Biglang Awa Street, Kalookan City* 35. E. RODRIGUEZ SR. BLVD. BRANCH - CBC Bldg., #286 E. Rodriguez Sr. Blvd., Brgy. Damayang Lagi, Quezon City* 36. E. RODRIGUEZ-HILLCREST BRANCH – No. 402 E. Rodriguez Sr. Blvd., Cubao, Quezon City* 37. ELCANO BRANCH – G/F Elcano Tower, Elcano Street, San Nicolas, Manila 38. ERMITA BRANCH - Ground Floor A, Ma. Natividad Bldg., #470 T. M. Kalaw cor. Cortada Sts., Ermita, Manila* 39. ESPAÑA BRANCH - España cor. Valencia Sts., Sampaloc, Manila* 40. EVANGELISTA BRANCH – Evangelista corner Gen Estrella St., Makati City* 41. EXAMINER BRANCH - No. 1525 Quezon Ave. cor. Examiner St., West Triangle, Quezon City* 42. FAIRVIEW BRANCH - G/F Angelenix House, Fairview Ave. corner Camaro St., Quezon City* 43. FILINVEST CORPORATE CITY BRANCH - G/F Wilcon Depot, Alabang- Zapote road cor. Bridgeway Ave. Filinvest Corporate City, Alabang, Muntinlupa City* 44. FORT BONIFACIO GLOBAL CITY BRANCH – G/F Marajo Tower 26th St., Fort Bonifacio Global City, Taguig City* 45. GIL PUYAT AVENUE BRANCH - G/F HPL Bldg., No. 60 Sen. Gil Puyat Ave., Makati City* 46. 1 BRANCH - G/F Greenbelt 1, Legaspi St. near corner Paseo de Roxas, Makati City* 47. GREENHILLS BRANCH - G/F Gift Gate Bldg, Greenhills Shopping Center, San Juan, Metro Manila** 48. GREENHILLS-ORTIGAS BRANCH - CBC-Building, 14 Ortigas Avenue Greenhills, San Juan, Metro Manila* 49. HEROES HILLS BRANCH – Quezon Ave. cor. J. Abad Santos St., Heroes Hills, Quezon City* 50. ILAYA BRANCH - #947 APL-YSL Bldg., Ilaya, Tondo, Manila 51. INTRAMUROS BRANCH - No. 409 A. Soriano Ave, Intramuros Manila* 52. J. ABAD SANTOS AVENUE BRANCH - 2159 J. Abad Santos Ave., cor. Batangas St., Tondo, Manila* 53. JUAN LUNA BRANCH – G/F Aclem Bldg., 501 Juan Luna St., Binondo, Manila* 54. KALOOKAN BRANCH - CBC Bldg., 167 Rizal Avenue Extension, Grace Park, Kalookan City* 55. KALAYAAN AVE. BRANCH – G/F PPS Building, Kalayaan Avenue, Quezon City* 56. KALOOKAN-CAMARIN BRANCH – Annex Bldg., Space No. 3, Zabarte Town Center, No. 588 Camarin road corner Zabarte Road, Kalookan City* 57. KALOOKAN-MONUMENTO BRANCH - 779 Mc Arthur Highway, Kalookan City* 58. KAMIAS BRANCH – G/F CRM Bldg., 116 Kamias Road cor. Kasing-Kasing St., Quezon City* 59. KARUHATAN BRANCH - No. 248 McArthur Highway, Karuhatan, Valenzuela City* 60. KATIPUNAN AVE.-ST. IGNATIUS BRANCH – CBC Building, No. 121 Katipunan Ave., Brgy. St. Ignatius, Quezon City* 61. LAS PIÑAS BRANCH - CBC- Bldg., Alabang-Zapote Road cor. Aries St., Pamplona Park Subd., Las Piñas City* 62. LAS PIÑAS- MANUELA BRANCH - Alabang-Zapote Road cor.Philamlife Ave., Pamplona Dos, Las Piñas City* 63. LEGASPI VILLAGE -AIM BRANCH - G/F Cacho-Gonzales Bldg, 101 Aguirre cor. Trasierra Streets, Legaspi Village, Makati City* 64. LEGASPI VILLAGE -C. PALANCA BRANCH - Suite A, Basic Petroleum Bldg 104 C. Palanca Jr. St Legaspi Village, Makati City* 65. LEGASPI VILLAGE-PEREA BRANCH- G/F, Greenbelt Mansion, 106 Perea St., Legaspi Vill., Makati City* 66. LEGASPI VILLAGE - SALCEDO BRANCH - G/F Fedman Suites, 199 Salcedo Street Legaspi Village, Makati City* 67. BRANCH –Unit D, Techno Plaza One, Eastwood City Cyberpark, E. Rodriguez Jr. Ave., (C-5) Bagumbayan, QC* 68. MAGALLANES VILLAGE BRANCH – G/F, DHI Bldg, # Lapu-Lapu St., cor EDSA, Magallanes Vill, Makati City* 69. MAKATI AVENUE BRANCH - G/F CBC Building, Makati Ave. cor. Hercules St. Makati City* 70. MALABON-CONCEPCION BRANCH - Gen. Luna corner Paez Streets, Concepcion, Malabon* 71. MALABON-GOV. PASCUAL BRANCH – CBC Building, Gov. Pascual Avenue, Malabon City* 72. MALABON-POTRERO BRANCH - CBC Bldg., McArthur Highway, Potrero, Malabon* 73. MALANDAY BRANCH - CBC Bldg. McArthur Highway , Malanday, Valenzuela City** 74. MALINTA BRANCH - AGT Building, 425 Gen. Luis Street Paso de Blas, Malinta, Valenzuela City* 75. MANDALUYONG-BONI AVE. BR. - G/F VOS Bldg. Boni Avenue corner San Rafael Street Mandaluyong City* 76. MANDALUYONG-PIONEER BR. - UG-05 Plaza Tower I Pioneer Street, Mandaluyong City* 77. MARIKINA BRANCH - 308 J.P. Rizal Street, Sta. Elena, Marikina City* 78. MARIKINA - FAIRLANE BRANCH– G/F E&L Patricio Building, No. 809 J.P. Rizal Ave., Concepcion Uno, Marikina City* 79. MARIKINA-SSS VILLAGE BRANCH - Lilac cor. Rainbow Sts. SSS Village, Concepcion Dos, Marikina City* 80. MASANGKAY BRANCH - 959-961 G. Masangkay Street, Binondo, Manila* 19 81. MASANGKAY-LUZON BRANCH – 1192 G. Masangkay St., Sta. Cruz, Manila* 82. MAYON BRANCH – 561-B, Mayon St., Bgy N.S. Amoranto, Quezon City* 83. MEZZA RESIDENCES BRANCH – G/F Mezza Residences, Aurora Blvd. cor. Araneta Avenue, Brgy. Doña Imelda, QC* 84. N. DOMINGO BRANCH – G/F The Main Place, No.1 Pinaglabanan cor. N. Domingo Sts., San Juan City* 85. NAVOTAS BRANCH No. 500 M. Naval St. near corner Lacson St. Brgy. North Bay Boulevard North (NBBN) Navotas City* 86. NOVALICHES BRANCH - 954 Quirino Highway, Novaliches Proper, Novaliches, Quezon City* 87. NOVALICHES-SANGANDAAN BRANCH – CBC Building, Quirino Highway cor. Tandang Sora Ave., Brgy. Sangandaan, Novaliches, Quezon City* 88. NOVALICHES-TALIPAPA BRANCH - 528 Copengco Bldg., Quirino Highway, Talipapa, Novaliches, Quezon City* 89. NOVALICHES-ZABARTE – G/F C.I. Bldg 1151 Quirino Highway cor. Zabarte Road, Brgy. Kaligayahan, Novaliches, QC* 90. NUEVA BRANCH – Unit Nos 557 & 559 G/F, Ayson Bldg, Yuchengco St., Binondo, Manila* 91. ONGPIN BRANCH - G/F Se Jo Tong Building, 808 Ongpin Street, Sta. Cruz, Manila* 92. ORTIGAS-ADB AVE. BRANCH - LGF City & Land Mega Plaza ADB Ave. cor. Garnet Rd. Ortigas Ctr. Pasig City * 93. ORTIGAS-AVE. EXT.-RIVERSIDE BRANCH – Unit 2-3 Riverside arcade Ortigas Avenue Ext cor. Riverside Drive, Brgy. Sta. Lucia, Pasig City* 94. ORTIGAS CENTER BRANCH - Unit 101 Parc Chateau Condominium Onyx corner Sapphire Streets, Ortigas Center, Pasig City* 95. ORTIGAS COMPLEX BRANCH - G/F Padilla Building, Emerald Avenue cor. Ruby Road, Ortigas Center, Pasig City* 96. ORTIGAS-JADE DRIVE BRANCH - Unit G-03, Antel Global Corporate Center Jade Drive, Ortigas Center, Pasig* 97. PACO BRANCH - Gen. Luna corner Escoda Street, Paco, Manila* 98. PACO-OTIS BRANCH – G/F Union Motor Corporation Bldg., 1760 Dra. Paz Guanzon St., Paco, Manila* 99. PADRE FAURA BRANCH - G/F, Regal Shopping Center, A. Mabini cor Padre Faura Sts., Ermita Manila* 100. PARAÑAQUE-DR. A. SANTOS AVE. BRANCH - Unit 1 & 2 Kingsland Bldg, Dr. A. Santos Avenue, Sucat, Parañaque City* 101. PARAÑAQUE-SUCAT BRANCH-No. 8260 (bet AMA Computer School and PLDT), Dr. A. Santos Ave., Brgy. San Isidro Parañaque City* 102. -LIBERTAD BRANCH - CBC-Building, 184 Libertad Street, Antonio Arnaiz Ave., Pasay City* 103. PASAY-ROXAS BLVD. BRANCH - GF Unit G-01 Antel Seaview Towers 2626 Roxas Blvd., Pasay City* 104. PASIG-C. RAYMUNDO BRANCH – G/F MicMar Apartments No. 6353 C. Raymundo Avenue, Brgy. Rosario, Pasig City* 105. PASIG- MERCEDES BRANCH - Commercial Motors Corp. Compound Mercedes Ave., Pasig City* 106. PASIG-SANTOLAN BRANCH - G/F Felmarc Business Center, Amang Rodriguez Avenue, Santolan, Pasig City* 107. PASIG-SM SUPERCENTER BRANCH – SM Supercenter Pasig, Frontera Drive, C-5 Pasig City* 108. PASO DE BLAS BRANCH – G/F CYT Bldg, No 178 Paseo de Blas, Valenzuela City * 109. PASONG TAMO-CITYLAND BRANCH - Units UG30-UG32 Cityland Pasong Tamo Tower 2210 Pasong Tamo St., Makati City* 110. PASONG TAMO-BAGTIKAN BRANCH – G/F Trans-Phil House 1177 Chino Roces Ave. cor. Bagtikan St., Makati City* 111. PHILAM BRANCH - #8 East Lawin Drive, Philam Homes, Quezon City* 112. QUEZON AVE. BRANCH - No. 18 GND Bldg., Quezon Ave. cor. D. Tuazon St., Quezon City* 113. QUIAPO BRANCH - 216-220 Villalobos St., Quiapo, Manila 114. ROOSEVELT AVE. BRANCH - CBC Bldg., #293 Roosevelt Ave., San Francisco Del Monte, Quezon City* 115. SALCEDO VILLAGE-TORDESILLAS BRANCH - G/F Prince Tower Condo 14 Tordesillas St., Salcedo Vill, Makati City* 116. SALCEDO VILLAGE-VALERO BRANCH - G/F Valero Tower, 122 Valero Street Salcedo Village, Makati City* 117. SALES-RAON BRANCH – 611 Sales St., Quiapo, Manila* 118. SAN JUAN BRANCH - 17 (new) F. Blumentritt St., San Juan, Metro Manila* 119. SHAW-HAIG BRANCH – G/F, First of Shaw Bldg, Shaw Blvd, cor Haig St, Mandaluyong City* 120. SHAW-PASIG BRANCH - G/F RCC Center, No. 104 Shaw Boulevard, Pasig City* 121. SHAW-SUMMIT ONE BRANCH - Unit 102 Summit One Office Tower 530 Shaw Boulevard Mandaluyong City* 122. SM CITY BICUTAN BRANCH - LGF, Bldg. B, SM City Bicutan Doña Soledad Ave. cor. West Service Rd.,Parañaque City** 123. SM CITY MARIKINA BRANCH – G/F SM City Marikina, Marcos Highway, Bgy Calumpang, Marikina City* 124. SM CITY NORTH EDSA ANNEX BRANCH – UGF, SM City North EDSA, New Annex Bldg, EDSA, Quezon City* 125. SM CITY SAN LAZARO BRANCH UGF (Units 164-166) SM City San Lazaro, Felix Huertas Street corner A.H. Lacson Ext, Sta. Cruz, Manila* 126. SM CITY TAYTAY - Unit 147 Bldg. B, SM City Taytay, Manila East Road, Bgy. Dolores, Taytay, Rizal* 127. SM FAIRVIEW BRANCH - LGF, SM City Fairview Quirino Avenue corner Regalado Avenue Fairview, Quezon City* 128. SM MALL OF ASIA - G/F Main Mall Arcade, SM Mall of Asia, Bay Blvd., Pasay City** 129. SM MEGAMALL BRANCH - LGF Building A, SM Megamall, E. delos Santos Ave cor J. Vargas St., Mandaluyong City* 130. SM NORTH EDSA BRANCH - Cyberzone Carpark Bldg., SM City North Ave cor EDSA, Quezon City* 131. SM SOUTHMALL BRANCH - SM Southmall, Alabang-Zapote Road Talon-Almanza, Las Piñas City * 132. SM CITY MASINAG BRANCH SM City Masinag, Marcos Highway, Masinag, Antipolo City 133. SOLER-168 BRANCH – G/F R&S Bldg., Soler St., Manila* 134. STO. CRISTO BRANCH - 711-715 Sto. Cristo cor. Commercio Sts. Binondo, Manila 135. TAFT AVE. – QUIRINO BRANCH – 2178 Taft Avenue near cor. Quirino Avenue, Malate, Manila* 136. T. ALONZO BRANCH - Abeleda Business Center 908 T. Alonzo corner Espeleta Streets, Sta. Cruz, Manila* 137. TIMOG AVE. BRANCH - G/F Prince Jun Condominium, 42 Timog Ave., Quezon City* 20 138. EDSA-TIMOG AVE. BRANCH G/F Richwell Corporate Center, 102 Timog Ave., Brgy. Sacred Heart, Quezon City* 139. TRINOMA BRANCH - Unit P002, Level P1, Triangle North of Manila, North Avenue corner EDSA, Quezon City* 140. BRANCH - Cluster Bldg. 1, Tutuban Center, C.M. Recto Ave. cor. Dagupan Street, Manila** 141. TUTUBAN PRIME BLOCK BR - Rivera Shophouse, Podium Area, Tutuban Ctr Prime Block, C.M. Recto Ave. cor Rivera St, Manila* 142. UP TECHNO HUB BRANCH – UP Ayala Land Techno Hub, Commonwealth Ave, Quezon City* 143. VALENZUELA BRANCH - CBC-Bldg., Mc Arthur Highway cor. V. Cordero St., Marulas, Valenzuela City* 144. VISAYAS AVE. BRANCH - CBC-Building, Visayas Avenue corner Congressional Ave. Ext., Quezon City* 145. WEST AVE. BRANCH - 82 West Avenue, Quezon City* 146. XAVIERVILLE BRANCH - 65 Xavierville Ave., Loyola Heights, Quezon City*

Provincial Branches 1. ANGELES CITY BRANCH - CBC-Building, 949 Henson St., Angeles City* 2. ANGELES CITY-MARQUEE MALL BRANCH – G/F Marquee Mall, Angeles City, * 3. ANGELES- MCARTHUR HIGHWAY BRANCH- CBC Bldg. San Pablo St. corner Mc Arthur Highway, Angeles City* 4. ANGELES CITY-BALIBAGO- Diamond Square, Service Rd, McArthur Highway cor Charlotte St., Balibago, Angeles City* 5. ANTIQUE- SAN JOSE BRANCH - Felrosa Building, Gen. Fullon St. corner Cerdena St., San Jose, Antique* 6. APALIT BRANCH – CBC Building, McArthur Highway, San Vicente, Apalit, Pampanga* 7. -ARANETA BRANCH -CBC-Building, Araneta corner San Sebastian Streets, Bacolod City* 8. BACOLOD-NORTH DRIVE BRANCH - Anesa Bldg., B.S. Aquino Drive, Bacolod City* 9. BACOLOD – MANDALAGAN BRANCH - Lacson Street, Mandalagan, Bacolod City, 10. CITY BRANCH - G/F Juniper Bldg., A. Bonifacio Rd., Baguio City* 11. BAGUIO CITY-ABANAO BRANCH – G/F Paladin Hotel, No. 136 Abanao Ext. cor. Cariño St., Baguio City* 12. BALANGA CITY BRANCH - G/F Dilig Building, Don Manuel Banzon Street, Balanga City, Bataan* 13. BALIWAG BRANCH – Km 51, Doña Trinidad (DRT) Highway, Baliwag Bulacan* 14. BATANGAS CITY BRANCH - P. Burgos Street, Batangas City* 15. BAYBAY CITY-LEYTE BRANCH – Magsaysay Ave, Baybay City, Leyte* 16. BORONGAN BRANCH – Balud II, Poblacion Borongan, Eastern Samar* 17. CITY BRANCH CBC Building J.C. Aquino Avenue Butuan City* 18. CABANATUAN CITY - Melencio cor. Sanciangco Sts. Cabanatuan City 19. CABANATUAN-MAHARLIKA BRANCH - CBC-Building, Maharlika Highway Cabanatuan City* 20. -BORJA BRANCH - J. R. Borja Street, Cagayan de Oro City* 21. CAGAYAN DE ORO-CARMEN BRANCH - G/F GT Realty Bldg, Max Suniel St. cor Yakal St., Carmen, Cgy de Oro City* 22. CAGAYAN DE ORO- DIVISORIA BRANCH - RN Abejuela St., South Divisoria, Cgy de Oro City* 23. CAGAYAN DE ORO-LAPASAN BRANCH - CBC Bldg, Claro M. , Lapasan, Cgy de Oro City* 24. CALAPAN BRANCH – J.P. Rizal St., Calapan City, Mindoro* 25. CARMONA BRANCH – CBC Bldg, Paseo de Carmona, Bgy Maduya, Carmona, Cavite* 26. CATARMAN BRANCH – Cor Rizal & Quirino Sts, Catarman, Northern Samar* 27. CATBALOGAN BRANCH - CBC Bldg. Del Rosario St. cor. Taft Avenue, Catbalogan City, Samar* 28. CAUAYAN CITY BRANCH - G/F Prince Christopher Bldg. Maharlika Highway, Cauayan City, Isabela* 29. CAVITE-DASMARIÑAS BRANCH - G/F CBC Bldg., Gen. E. Aguinaldo Highway, Dasmarinas, Cavite** 30. CAVITE-IMUS BRANCH - G/F CBC Bldg., Nueno Avenue Tanzang Luma, Imus, Cavite* 31. CAVITE-ROSARIO BRANCH - G/F CBC Building, Gen Trias Drive, Rosario, Cavite** 32. CAVITE- SM CITY BACOOR BRANCH - LGF SM City Bacoor Tirona Highway corner Aguinaldo Highway Bacoor, Cavite* 33. -BANILAD BRANCH - CBC Bldg., AS Fortuna St., Banilad, * 34. CEBU BUSINESS CENTER-CBC Bldg., Samar Loop cor. Panay Rd., , Cebu City* 35. CEBU-CARCAR BRANCH – Dr Jose Rizal St, Barrio Poblacion, Carcar, Cebu City* 36. CEBU-CONSOLACION BRANCH – Foods Saversmart Corp, Bgy Poblacion Oriental National Highway, Consolacion, Cebu* 37. CEBU-F. RAMOS BRANCH - F. Ramos Street, Cebu City* 38. CEBU-GUADALUPE BRANCH - CBC Building, M. Velez Street, cor. V. Rama Ave., Guadalupe, Cebu City* 39. CEBU-LAHUG BRANCH - JY Square Mall, No. 1 Salinas Dr., Lahug, Cebu City* 40. CEBU-LAPU LAPU BRANCH G/F Coast Pacific Suites, President Quezon National Highway, Pusok, Lapu-Lapu City* 41. CEBU-MAGALLANES BRANCH (MAIN) - CBC Bldg., Magallanes corner Jakosalem Sts., Cebu City* 42. CEBU-MANDAUE BRANCH - SV Cabahug Building 155-B SB Cabahug Street, Bgy. Centro, Mandaue City, Cebu* 43. CEBU-MANDAUE NORTH ROAD BRANCH- G/F Units G1-G3, Basak Commercial Building (Kel-2) Basak, Mandaue City* 44. CEBU MANDAUE CABANCALAN BRANCH - M.L. Quezon St., Cabancalan, Mandaue City, Cebu* 45. CEBU-SM CITY BRANCH - Upper G/F, SM City Cebu, Juan Luna cor. A. Soriano Avenue, Cebu City** 46. CEBU- SUBANGDAKU BRANCH - G/F Mandaue Friendship Building I, Subangdaku, Mandaue City, Cebu* 21 47. CEBU-TALISAY BRANCH - CBC Bldg., 1055 Cebu South National Road Bulacao, Talisay City, Cebu* 48. CEBU-MINGLANILLA – Unit 9 Plaza Margarita, Lipata, Minglanilla, Cebu* 49. CEBU-MANDAUE – J. CENTRE MALL – LGF Centre Mall, A.S. Fortuna Ave., Mandaue City, Cebu* 50. COTABATO CITY BRANCH - No. 76 S.K. Pendatun Avenue, Cotabato City, Maguindanao* 51. DAGUPAN - PEREZ BRANCH - Siapno Building, Perez Boulevard, Dagupan City* 52. DAGUPAN-M.H. DEL PILAR BRANCH – Carried Realty Bldg., No. 28 M.H. del Pilar St., Dagupan City* 53. DAVAO-BAJADA BRANCH - Km. 3, J.P. Laurel Ave., Bajada, * 54. DAVAO-BUHANGIN BRANCH - Buhangin Road, Davao City* 55. DAVAO-LANANG BRANCH – Insular Village I, Km. 8, Lanang, Davao City* 56. DAVAO-MATINA BRANCH - Km. 4 McArthur Highway, Matina, Davao City* 57. DAVAO-RECTO BRANCH - CBC Bldg., C.M. Recto Ave. cor. J. Rizal St. Davao City* 58. DAVAO-STA. ANA BRANCH - R. Magsaysay Avenue corner F. Bangoy Street, Sta. Ana District, Davao City 59. DAVAO-TAGUM BRANCH - 153 Pioneer Avenue, Tagum, Davao del Norte* 60. DAVAO-TORIL – McArthur highway cor St. Peter St., Crossing Bayabas, Toril Davao City* 61. DIPOLOG CITY BRANCH - CBC Building, Gen Luna corner Gonzales Streets Dipolog City* 62. DUMAGUETE CITY BRANCHCBC Bldg., Real Street Dumaguete City Negros Oriental* 63. GAPAN BRANCH – Walterman Ctr, Gapan, Maharlika Highway, Bgy Bayanihan, Gapan, Nueva Ecija* 64. GEN. SANTOS CITY BRANCH - CBC Bldg., I. Santiago Blvd., Gen. Santos City South Cotabato* 65. ILIGAN CITY BRANCH - Lai Building, Quezon Avenue Extension Pala-o, Iligan City* 66. ILOILO-IZNART BRANCH - G/F John A. Tan Bldg., Iznart St., Iloilo City* 67. ILOILO-MABINI BRANCH - A. Mabini Street, Iloilo City* 68. ILOILO-RIZAL BRANCH - CBC Building, Rizal cor. Gomez Streets, Bgy. Ortiz, Iloilo City* 69. ILOILO-MANDURRIAO-Benigno Aquino Ave., Brgy, San Rafael, Mandurriao, Iloilo City* 70. KALIBO BRANCH – Waldorf Garcia Bldg, Osmeña Ave., Kalibo Aklan* 71. KIDAPAWAN CITY BRANCH- G/F EVA Building, Quezon Blvd. cor. Tomas Claudio St., National Highway, Kidapawan City* 72. KORONADAL CITY – Gen. Santos Drive cor Aquino St. Koronadal City, South Cotabato* 73. LA TRINIDAD BRANCHG/F SJV Bulasao Building, Km. 4, La Trinidad, * 74. LA UNION BRANCH - Quezon Avenue, National Highway, San Fernando, La Union* 75. LAGUNA - CALAMBA BRANCH - CBC-Building, National Highway, Crossing, Calamba, Laguna* 76. LAGUNA - STA. CRUZ BRANCH - A. Regidor Street, Sta. Cruz, Laguna 77. LAOAG CITY BRANCH - Liberato Abadilla Street, Bgy 17 San Francisco Laoag City* 78. LEGAZPI CITY BRANCH - G/F Emma Chan Bldg., F. Imperial St., Legazpi City* 79. LUCENA CITY BRANCH - 233 Quezon Avenue, Lucena City* 80. MABALACAT-DAU BRANCH - R.D. Policarpio Bldg., McArthur Highway, Dau, Mabalacat, Pampanga* 81. MARILAO BRANCH- G/F, SM City Marilao Km. 21, Bgy. Ibayo, Marilao, Bulacan* 82. MASBATE BRANCH - Domingo cor. Zurbito Sts., Masbate, Masbate* 83. CITY BRANCH- G/F, SIC Bldg., Tomas Oppus St., Brgy. Tunga-Tunga, Maasin, City, Southern Leyte* 84. Malolos City Branch - G/F Graceland Mall, BSU Grounds, McArthur Highway, Guinhawa, Malolos City, Bulacan 85. NAGA CITY BRANCH - Penafrancia corner Panganiban Streets Naga City* 86. ORMOC CITY BRANCHCBC Building, Real cor. Lopez Jaena Sts., Ormoc City, Leyte* 87. OZAMIZ CITY BRANCH - Gomez corner Burgos Streets, Ozamiz City* 88. PAGADIAN CITY BRANCH - Marasigan Building, F.S. Pajares Avenue, Pagadian City* 89. PANGASINAN-ALAMINOS CITY BRANCH – Marcos Avenue, Brgy, Palamis, Alaminos City* 90. PANGASINAN-URDANETA BRANCH -EF Square Bldg., Mc Arthur Highway, Poblacion Urdaneta City, Pangasinan* 91. PASEO DE STA. ROSA BRANCH - Unit 3, Paseo 5, Paseo de Sta. Rosa, Sta. Rosa City, Laguna* 92. PUERTO PRINCESA CITY BRANCH - Malvar Street near corner Valencia Street Puerto Princesa City, Palawan* 93. ROXAS CITY BRANCH - 1063 Roxas Ave. cor. Bayot Drive, Roxas City , Capiz* 94. SAN FERNANDO BRANCH - CBC Bldg., V. Tiomico Street City of San Fernando, Pampanga* 95. SAN FERNANDO-DOLORES BRANCH - CBC Bldg., McArthur Highway, Dolores, City of San Fernando, Pampanga* 96. SAN FERNANDO-SINDALAN – Jumbo Jenra Sindalan, Brgy. Sindalan, San Fernando City, Pamnpanga* 97. SAN JOSE CITY BRANCH - Maharlika Highway, Bgy. Malasin, San Jose City* 98. SAN PABLO CITY BRANCH - M. Paulino Street, San Pablo City* 99. SANTIAGO CITY - Navarro Bldg., Maharlika Highway near corner Bayaua St., Santiago City, Isabela* 100. SILAY CITY BRANCH - Rizal St., Silay City, Negros Occidental* 101. SM CITY CLARK BRANCH - G/F SM City Clark, M. Roxas St., CSEZ, Angeles City, Pampanga** 102. SM CITY LIPA BRANCH - G/F SM City Lipa, Ayala Highway, Bgy. Maraouy, Lipa City, Batangas* 103. SM CITY PAMPANGA - Unit AX3 102, Building 4, SM City Pampanga, Mexico, Pampanga* 22 104. SM CITY STA. ROSA BRANCH - G/F SM City Sta. Rosa, Bo. Tagapo, Sta. Rosa, Laguna* 105. SM CITY SAN PABLO BRANCH - G/F SM City San Pablo National Highway, Brgy. San Rafael, San Pablo City, Laguna* 106. SM CITY NAGA BRANCH - SM City Naga, CBD II, Brgy. Triangulo Naga City* 107. SM CITY-DASMARIÑAS BRANCH – LGF SM City Dasmariñas, Gov Drive, Pala-pala, Cavite City* 108. SM City OLONGAPO BRANCH - SM City Olongapo Magsaysay Dr. cor. Gordon Ave., Brgy. Pag-asa, Olongapo City, Zambales 109. SOLANO BRANCH – National Highway, Bgy Quirino, Solano, Nueva Vizcaya* 110. SORSOGON BRANCH - CBC Bldg., Ramon Magsaysay Ave., Sorsogon City, Sorsogon* 111. SUBIC BAY FREEPORT ZONE BRANCH – CBC Bldg, Subic Bay Gateway Park, Subic Bay Freeport Zone, Subic, Zambales* 112. SURIGAO CITY – CBC Building, Amat St., Barrio Washington, Surigao City, Surigao Del Norte* 113. TABACO CITY BRANCH - Ziga Ave. corner Berces Street, Tabaco City, Albay* 114. TACLOBAN CITY BRANCH- Uytingkoc Building, Avenida Veteranos, Tacloban City, Leyte * 115. TAGBILARAN CITY BRANCH - G/F Melrose Bldg. Carlos P. Garcia Avenue, Tagbilaran City, Bohol* 116. TAGAYTAY CITY BRANCH – Olivarez Plaza Tagaytay, E. Aguinaldo Highway, Silang Crossing, Tagaytay City, Cavite* 117. TARLAC BRANCH - CBC Building, Panganiban near corner F. Tanedo Street, Tarlac City, Tarlac* 118. CITY BRANCH - A. Bonifacio Street, Tuguegarao, Cagayan * 119. VALENCIA BRANCH - A. Mabini Street, Valencia, Bukidnon* 120. VIGAN CITY BRANCH – Burgos Street near corner Rizal Street, Vigan City, Ilocos Sur* 121. BRANCH - CBC-Building, Gov. Lim Avenue corner Nuñez Street, Zamboanga City** 122. ZAMBOANGA-GUIWAN BRANCH - G/F Yang’s Tower, M.C. Lobregat National Highway, Guiwan, Zamboanga City*

CHINA BANK SAVINGS, INC.

Metro Manila Branches 1. AYALA BRANCH – Manila Bank Bldg., Ayala Avenue, Makati City** 2. ALABANG HILLS BRANCH – G/F Alabang Commercial CitiArcade, Lot 116 Block 2 Don Jesus Blvd., Alabang Hills, Cupang Muntinlupa City* 3. GREENHILLS-WILSON BRANCH – No.219 Wilson St., Greenhills, San Juan* 4. KALOOKAN BRANCH – A.L. Guanzon Building, Rizal Avenue, Grace Park, Kalookan City* 5. LAS PINAS BRANCH - G/F Parco Supermarket, J. Aguilar Ave. (formerly CAA Road), Las Pinas* 6. MCKINLEY HILL BRANCH - U-B Commerce & Industry Plaza, McKinley Towncenter, Fort Bonifacio, Taguig* 7. MARIKINA BRANCH - 33 Bayan-Bayanan Ave., Brgy. Concepcion Uno, Marikina* 8. PATEROS BRANCH - 500 Elisco Road, Sto. Rosario, Pateros* 9. QUEZON AVENUE BRANCH – G/F GJ Bldg., No. 385 Quezon Avenue, Quezon City* 10. VALENZUELA BRANCH- 385 McArthur Highway, Malinta, Valenzuela City*

Provincial Branches 1. BACOLOD BRANCH - SKT Saturn Building, Lacson St corner Rizal St, Bacolod* 2. BAGUIO BRANCH- UGF KDC Bldg., 91 Marcos Highway, Baguio City Benguet* 3. CABANATUAN BRANCH- Km 115 Maharlika Highway, Cabanatuan City* 4. CAGAYAN DE ORO BRANCH - Sergio Osmena St., Cogon District, Cagayan de Oro* 5. CEBU CITY BRANCH – G/F Skyrise 3 IT Building, Brgy, Apas, Cebu City* 6. DAGUPAN BRANCH - G/F Lyceum-Northwestern University, Tapuac District, Dagupan City* 7. DARAGA BRANCH – Rizal St., Brgy, San Roque Daraga, Albay, Bicol* 8. DAVAO BRANCH - G/F 8990 Corporate Center, Quirino Ave., Davao City* 9. IMUS BRANCH- General Emilio Aguinaldo Highway, Anabu II, Imus, Cavite* 10. LIPA BRANCH - G/F Tibayan Building, 1705 CM Recto Ave., corner Rizal St, Lipa* 11. MANDAUE BRANCH – a. Del Rosario Ave., Manduyong, Mandaue City* 12. SAN FERNANDO BRANCH - KHY Trading Building, San Fernando - Gapan Road, San Fernando City, Pampanga* 13. SANTIAGO BRANCH - City Road Centro East, Santiago City, Isabela 14. TARLAC BRANCH – Camiling-Baguio Bypass Road, Tarlac City* 15. ZAMBOANGA BRANCH - Nuñez Extension, Camino Nuevo, Zamboanga City

* Branches with 1 ATM ** Branches with 2 ATMs *** Branches with 3 ATMs

23

OFF BRANCH ATM DIRECTORY

Metro Manila 1. 168 MALL - 3/F Food Court, 168 , Sta. Elena St., Binondo Manila 2. - Alabang Town Center, Alabang-Zapote Road, Muntinlupa City 3. - ATM Booth #1, Upper G/F Ali Mall, P. Tuazon Blvd., Araneta Center, Cubao Quezon City 4. ALI MALL 2 - Times Square Entrance, P. Tuazon Blvd., Araneta Center, Quezon City 5. ATENEO DE MANILA UNIVERSITY – Ateneo de Manila Univ., G/F Kostka Hall, Katipunan Ave., Loyola Heights, QC 6. CASH AND CARRY – 2/F Cash and Carry Mall, bet. South Super Highway and Filmore near corner Buendia, Makati City 7. CHERRY FOODARAMA - Cherry Foodarama, Shaw Boulevard Mandaluyong City 8. CHIANG KAI SHEK - Chiang Kai Shek College, 1274 P. Algue, Manila 9. CHINA BANK ONLINE CENTER - Starbucks, China Bank Building, 8745 Paseo de Roxas cor. Villar St., Makati City 10. DASMARIÑAS VILLAGE ASSOCIATION OFFICE - 1417 Campanilla St., Dasmariñas Village, Makati City 11. EASTWOOD-CYBERMALL- 2/F Eastwood CyberMall, Eastwood Avenue, Eastwood City Cyberpark, Bagumbayan, QC 12. GATEWAY MALL - Booth 4, Level 2 Gateway Mall, Cubao, Quezon City 13. 4 - Betw een Tequilla Joe’s and Banana Leaf, Glorietta 4, Makati City 14. GLORIETTA 5 - G/F, near National Bookstore, Glorietta 5, Makati City 15. GREENBELT 3 - Greenbelt 3, Makati Avenue Drop-Off Area, Makati City 16. GREENHILLS THEATRE MALL - Main Entrance, Greenhills Theatre Mall, San Juan, Metro Manila 17. JACKMAN EMPORIUM - G/F Jackman Emporium Dept Store Bldg (beside LRT Station and Gotesco Grand Central) Grace Park, City 18. JGC ALABANG - JGC PHILS. Building, Prime St., Madrigal Business Park-Phase III, Ayala Alabang, Muntinlupa City 19. LANDMARK-TRINOMA – ATM Slot #4, 3rd Flr Landmark Trinoma, EDSA cor. Ave. Extension, Pagasa, QC 20. MALABON CITY SQUARE - G/F ATM 4, C4 Road cor. Dagat-dagatan Ave., Malabon City 21. MARKET! MARKET! 1 - Market! Market!, Bonifacio Global City, Taguig, Metro Manila 22. MARKET! MARKET! 2 - 2/F Market! Market! Bonifacio Global City, Taguig, Metro Manila 23. MARKET! MARKET! 3 - G/F ATM Center, Fiesta Market, Market! Market! Bonifacio Global City, Taguig, Metro Manila 24. MEDICAL CITY - Medical City, Ortigas Ave., Pasig City 25. METRO POINT MALL - 3/F Metro Point Mall, EDSA cor. Taft Ave., Pasay City 26. - ATM 1 Building C, G/F Metrowalk Commercial Complex, Meralco Ave., Pasig City 27. MRT-BONI STATION - EDSA, Mandaluyong City 28. MRT-CUBAO STATION - EDSA, Quezon City 29. MRT-NORTH AVENUE STATION - EDSA, Quezon City 30. MRT-SHAW BOULEVARD STATION - EDSA, Mandaluyong City 31. NOVA SQUARE - G/F Nova Square, 689 Quirino Highway cor. P. Dela Cruz, Brgy. San Bartolome, Novaliches, QC 32. ONE E-COMMERCE - SM Mall of Asia, Palm Coast Ave. facing Esplanade, Pasay City 33. PEOPLE SUPPORT CENTER- G/F People Support Center, Ayala Ave., cor. Sen. Gil Puyat Ave., Makati City 34. PUREGOLD – E-RODRIGUEZ – ATM # 1, Cosco Building, E. Rodriguez Ave., corner G. Araneta Ave., Quezon City 35. ROBINSON'S GALLERIA 1 - Level 1-181, Robinson's Galleria, EDSA cor. Ortigas Ave., Pasig City 36. ROBINSON'S GALLERIA 2 - Level 1-181, Robinson's Galleria, EDSA cor. Ortigas Ave., Pasig City 37. ROBINSON'S PLACE-MANILA - G/F Padre Faura Wing Entrance, Pedro Gil cor. Adriatico St., Ermita, Manila 38. ROCKWELL P1 (Concourse) – Stall No. 060, Ground Level, , Makati City 39. SAVERS CENTER – G/F, Right Side of Main Entrance, along EDSA near cor. Taft Ave., Pasay City 40. SHOP AND RIDE - #248 Gen. Luis St., Novaliches, Quezon City 41. SM HYPERMARKET – G/F, SM Hypermarket, SM Mall of Asia, Pasay City 42. SM MANILA – ATM #3, Upper Ground Floor Main Entrance, Arroceros Side, SM City Manila 43. SM MEGAMALL BLDG. B - Level 2, Building B, SM Megamall, EDSA cor. Julia Vargas St., Mandaluyong City 44. SM SUPERCENTER MUNTINLUPA – Grd Flr, ATM 2 beside rear entrance Bgy Tunasan, National Road, Muntinlupa City 45. SOUTHGATE MALL - Southgate Mall, EDSA cor. Pasong Tamo Extension, Makati City 46. ST. JUDE COLLEGE – Dimasalang St. cor. Don Quijote St., Sampaloc Manila 47. ST. LUKE’S – THE FORT 1 - Basement, St. Luke's Medical Center, 5th Ave., The Fort, Taguig City 48. TAFT-U.N - G/F Times Plaza, T.M. Kalaw cor. Gen. Luna St., Manila 49. THE A VENUE - G/F Valdez Site, The A Venue, 7829 Makati Ave., Makati City 50. THE FORT - G/F Bonifacio Technology Center, 31st Str. cor. 2nd Ave., Bonifacio Global City, Taguig City 51. - People’s Village (beside Mail and More), Frontera Verde, Ortigas Ave. corner C-5, Pasig City 52. TRINOMA OFF 1 – Level 1 near Landmark and Chowking, North Ave cor. EDSA, Quezon City 53. TRINOMA OFF 2 (X BOUTIQUE) – Level 1 near X Boutique, North Ave cor. EDSA, Quezon City 24 54. VICTORY CENTRAL MALL – G/F, ATM 2, below escalator, #717 Old Victory Cpd, Rizal Ave., Monumento, Cal City 55. WACK-WACK GOLF AND COUNTRY CLUB - Wack-Wack Golf and Country Club, Shaw Blvd., Mandaluyong City 56. WALTERMART – MAKATI - G/F Waltermart Makati (near Mercury Drug), 790 Chino Roces Ave. cor Antonio Arnaiz Ave., Makati City 57. WALTERMART MAKATI 2 – 3/F, Center Makati, 790 Chino Roces cor.. Antonio Arnaiz Ave., Makati City 58. WALTERMART NORTH EDSA - Walter Mart Bldg., EDSA, Quezon City 59. DIAMOND ARCADE – G/F Diamond Arcade, Aurora Blvd. corner St. Mary’s St., Cubao, QC 60. EASTWOOD CITY WALK 2 – G/F atm1 (Fronting Adidas) Eastwood City Walk, Phase II, Eastwood City Cyberpark, 188 E. Rodriguez Ave., QC 61. EASTWOOD MALL – Level 1 ATM 2 Phase 2, Eastwood Mall, E. Rodriguez Ave., C-5 Bagumbayan, QC 62. PUREGOLD – BLUMENTRITT – 286 Bulemtritt Street, Sta Cruz, Manila 63. SM-HYPERMART-MANDALUYONG – 121 Shaw Blvd., cor. E. Magalona St., Mandaluyong City 64. SM NORTH EDSA – Pedestrian Walk – Jeepney Terminal, SM City North EDSA, SM City Complex, Pag-asa 1 65. ST FRANCIS SQUARE – Basement 1, Dona Julia Vargas Ave. cor Bank Drive, Ortigas Center, Mandaluyong City 66. UST HOSPITAL – UST Hospital, Espana, Street, Manila 67. ZABARTE TOWN CENTER – 588 Camarin Road cor Zabarte Road, North Caloocan City 68. UPM-PGH- Faculty medical Arts bldg., PGH Compound, Taft Ave. Manila 69. UNIVERSITY MALL – Level2, Taft Ave., Malate, Manila 70. 999 SHOPPING MALL- Basement lobby, Soler St. Brgy. 293, Binondo, Manila 71. LANDMARK-MAKATI- The Landmark bldg., Makati Ave., Ayala Center, Makati City 72. COMEMBO COMMERCIAL COMPLEX- J.P. Rizal Ext. Cor Sampaguita St. Comembo, Makati City 73. KIMSTON PLAZA-P. Victor St. cor P. Burgos St., Guadalupe, Nuevo, Makati City 74. NORTHEAST SQUARE - #47 Connecticut St., Northeast Greenhills, San Juan City 75. SHOP AND RIDE 2, ATM2, Den. Luis St., Brgy. Nova Proper, Novaliches, Quezon City 76. SHOPWISE COMMONWEALTH - Blk 17., Commonwealth Ave., Don Antonio, Quezon City 77. ST. LUKE’S – QUEZON CITY – St. Luke’s Medical Center, Medical Arts Bldg., E. Rodriguez Sr Blvd., Quezon City 78. AYALA ALABANG VILLAGE- Neighborhood Center Narra St., Ayala Alabang Village, Muntinlupa City 79. AYALA ALABANG-CUENCA- Cuenca Covered Court, Nasugbu St., Ayala Alabang Village, Muntinlupa City 80. PEOPLE SUPPORT-ROCKWELL BUSINESS CENTER- Rockwell business Center, Ortigas Ave., Pasig City 81. MOLITO COMMERCIAL COMPLEX-Madrigal Ave. cor. Alabang Zapote Road, Muntinlupa City

Luzon 1. 268 MALL - CK Building, Plaridel Extension, Sto. Rosario, Angeles City 2. ADVENTIST UNIVERSITY OF THE PHILIPPINES - Adventist Univ. of the Phils., Puting Kahoy, Silang, Sta. Rosa, Cavite 3. A G & P - Atlantic, Gulf, and Pacific Company of Manila, Inc., San Roque, Bauan, Batangas 4. CALTEX-SLEX 1 - South Luzon Expressway – Northbound, Brgy. San Antonio, San Pedro, Laguna 5. DLSU DASMARIÑAS – College of Engineering, De La Salle University, Dasmariñas, Cavite City 6. DLSU - HEALTH SCIENCE CAMPUS - DLSU Health Campus, Inc., Congressional Road, Dasmariñas, Cavite 7. GOOD SAMARITAN HOSPITAL - Good Samaritan Compound, Burgos Ave., Cabanatuan City 8. HOLY ANGEL UNIVERSITY 2 – G/F Holy Angel University Student’s Center, Sto Rosario St., Angeles City 9. JENRA MALL - Jenra Grand Mall, Angeles City, Pampanga 10. LORMA HOSPITAL - Lorma Hospital, City of San Fernando, La Union 11. MAGIC MALL – G/F, ITTI Shoes (Entrance B), Alexander St., Poblacion, Urdaneta, Pangasinan 12. MAGIC STARMALL - UG/F, Magic Star Mall, Romulo Blvd., Brgy. Cut-Cut 1, Tarlac City 13. MARITON GROCERY - Buntun, Tuguegarao City, Cagayan Valley 14. MARQUEE MALL 1 (Activity Center) - G/F Activity Center Marquee Mall, Don Bonifacio Road, Angeles City, Pampanga 15. NEPO MALL-ANGELES - Dona Teresa Ave. cor. St. Joseph St., Nepo Mart Complex, Angeles City 16. OUR LADY OF PILLAR – G/F near Emergency Room, Tamsui Ave, Bayan Luma, Imus Cavite 17. ORCHARD GOLD & COUNTRY CLUB - Gate 2, The Orchard Golf and Country Club Inc., Aguinaldo Highway, Dasmariñas Cavite 18. PACIFIC MALL - Landco Business Park, F. Imperial St. cor. Circumferential Road, Legaspi City 19. PAVILLION MALL - G/F Building A, Pavilion Mall, San Antonio, Biñan, Laguna 20. SM CITY BAGUIO - SM City Baguio, Luneta Hill, Upper cor. Governor Park Road, Baguio City 21. SM CITY BALIWAG - ATM2, SM City Baliwag, DRT Highway, Brgy. Pagala, Baliwag, Bulacan 22. SM CITY BATANGAS – ATM -1, SM City Batangas, Pallocan West, Batangas City 23. SM CITY CLARK OFF-BRANCH – ATM #1, SM City Clark (Fronting Transport Terminal), M. Roxas St., CSEZ, Angeles City 24. SM CITY DASMARINAS – Offsite ATM 2, SM City Dasmariñas, Cavite City 25. SM CITY LIPA OFF-BRANCH – ATM 2 (Near Transport Terminal), SM City Lipa, Ayala Highway, Lipa City 26. SM CITY MARILAO OFF-BRANCH – ATM# 1, SM City Marilao, Marilao, Bulacan 27. SM CITY PAMPANGA – ATM 2, Main Entrance beside Covered Walk, SM City Pampanga, Brgy. San Jose, San Fernando Pampanga 25 28. SM CITY TAYTAY OFF-BRANCH – Unit 147, Bldg. B, SM City Taytay, Manila East Road, Brgy. Dolores, Taytay, Rizal 29. SM SUPERCENTER MOLINO – G/F SM Supercenter Molino, SCMC, Brgy. Molino 4, Molino Road, Bacoor, Cavite 30. TARGET MALL 1 - G/F near Star Search, Sta. Rosa Commercial Complex, Brgy. Balibago, Sta. Rosa, Laguna 31. TARGET MALL 2 – ATM 4, Canopy Area, Sta. Rosa Commercial Complex, Brgy. Balibago, Sta. Rosa, Laguna 32. UNION CHRISTIAN COLLEGE - Union Christian College, Widdoes St., Brgy. II, San Fernando, La Union 33. WALTERMART STA. ROSA – UG/F Waltermart Sta. Rosa Nat’l Highway Mall Entrance, San Lorenzo Village, Balibago Road, Sta. Rosa Laguna 34. WALTERMART STA. ROSA 2 – UG/F Waltermart Sta. Rosa (between Goldilocks and Mall Exit), San Lorenzo Village, Balibago Road, Sta. Rosa, Laguna 35. WESLEYAN UNIVERSITY - Wesleyan University of the Philippines, Mabini Extension, Cabanatuan City 36. ANGELES UNIVERSITY FOUNDATION - McArthur Highway corner San Pablo St., Angeles City 37. DAGUPAN-NEPO MALL – G/F. Arellano St., Dagupan City 38. LCC PENARANDA – LCC Supermarket, Penaranda, cor Rizal St., Legazpi City 39. LOTUS CENTRAL MALL – G/F Central Mall, Nuevo Avenue, Imus Cavite 40. NOTRE DAME DE CHARTRES HOSPITAL – Notre Dame de Chartres Hospital, No. 25 Gen Luna Road, Baguio City 41. ROYAL DUTY FREE – Subic Bay, Freeport Zone, Zambales City 42. SAVEMORE – SOLANO – National Road, Poblacion North, Solano, Nueva Vizcaya 43. SM CALAMBA 1- G/F – Ground Floor, National Road, Brgy. Real, Calamba City Laguna 44. SM TARLAC – G/F McArthur Highway, San Roque, Tarlac City 45. WALTERMART – CALAMBA – Real St., Brgy. Real, Calamba, Laguna 46. WALTERMART – DASMA – G/F, Barrio Burol Aguinaldo Highway, Dasmariñas, Cavite 47. WALTERMART – TANAUAN – J.P. Laurel National highway, Brgy. Darasa, Tanauan, Batangas 48. MALOLOS OFF-BRANCH- G/F Graceland Mall, BSU Grounds, McArthur highway, Malolos City, Bulacan 49. SM CITY CALAMBA 2- 2nd Flr., National road, Brgy. Real, Calamba City, Laguna 50. SM CITY CALAMBA 3 – Near Main Entrance, National road, Brgy. Real, Calamba City, Laguna 51. SHOPWISE SAN PEDRO – Along National highway, Brgy. Landayan, Pacita. San Pedro, Laguna 52. LAGUNA-STA CRUZ – A. Regidor St., Sta. Cruz, Laguna 53. WALTERMART-SAN FERNANDO – Brgy. San Agustin, McArthur highway, San Fernando, Pampanga 54. SAN FERNANDINO HOSPITAL – along McArthur Highway, Dolores, City of San Fernando, Pampanga 55. SHOPWISE ANTIPOLO – MLQuezon St. corner Circumferential Road, San Roque, Antipolo City 56. CB MALL URDANETA – McArthur Highway, Nancayasan, Urdaneta City, Pangasinan 57. PANGASINAN MEDICAL CENTER – Nable Street, Dagupan City 58. EMBARCADERO DE LEGAZPI – Ground Level, Victory Village, Legazpi City 59. AEGIS PEOPLE SUPPORT – BAGUIO – SM Fiesta Strip, Harrison Road, Baguio City 60. WALTERMART – GEN. TRIAS – Governor’s Drive, Gen Trias, Cavite City 61. WALTERMART – CARMONA – G/F, Waltermart center, Carmona, Macaria Bus Center, Gov. drive, Mabuhay Carmona, Cavite City 62. NUEVA ECIJA DOCTORS HOSPITAL – Maharlika Highway, Cabanatuan City 63. ARAULLO UNIVERSITY 0 Maharlika Highway, Bitas, Cabanatuan City 64. PURISIMO L. TIAM COLLEGE – PLT Bldg., Dumlao Blvd., Nueva Vizcaya

Visayas 1. CEBU DOCTOR’S HOSPITAL - Osmena Blvd, Cebu City 2. CEBU DOCTOR’S UNIVERSITY - #1 Potenciano Larrazabal Ave., North Reclamation Area, Mandaue City 3. GAISANO TALISAY CEBU - G/F Gaisano Fiesta Mall, Tabunok, Talisay, Cebu City 4. LA NUEVA SUPERMART - La Nueva Supermart, Inc., G.Y. Dela Serna St., Lapu-Lapu, Cebu City 5. LAPU-LAPU CITY - Gaisano Mactan Mall, Pusok, Lapu-Lapu City, Cebu 6. LEE SUPER PLAZA - G/F Lee Super Plaza, M. Perdices cor. San Jose St., Dumaguete City 7. LOPUE EAST CENTER - Burgos St. cor. Carlos Hilado Highway, Bacolod City 8. MACTAN MARINA MALL – G/F, Mactan Marina Mall, MEPZ 1, Lapu-lapu City 9. ORMOC OFFSITE – Hotel Don Felipe Bldg., A. Bonifacio St., 6541, Ormoc City, Leyte 10. SKYRISE REALTY - G/F Skyrise IT Bldg., Gorordo Ave., cor. N. Escario St., Cebu City 11. SM BACOLOD - G/F Building A, ATM # 3, SM City Bacolod Reclamation Area, Bacolod City 12. UNIVERSITY OF BOHOL - Along Ma. Clara St., Tagbilaran City 13. - University of San Carlos, Main University Building, P. Del Rosario St., Cebu City 14. LE NUEVA – MINGLANILLA – La Nueva Supermart, Poblacion, Minglanilla, Cebu 15. LEE HYPERMART – G/F Lee Hypermarket, Valencia Road, Bagacay, Dumaguete City, Negros Oriental 16. ROBINSONS PLACE – TACLOBAN – G/F, National Highway, Tabaon, Marasbaras, Tacloban City 26 17. PRINCE MALL – BAYBAY – Andres Bonifacio & Manuel L. Quezon St., Baybay City, Leyte

Mindanao 1. CDO MEDICAL CENTER - CDO Medical Center Bldg. 2, Tiano cor. Nacalaban St., Cagayan de Oro City 2. CORPUS CHRISTI – Corpus Christi School, Tomas Saco St., Macasandig, Cagayan de Oro City 3. DIPOLOG CENTER MALL - Dipolog Center Mall, 138 Rizal Ave., Dipolog City 4. GAISANO – ILIGAN - G/F, Gaisano Citi Super Mall, Iligan City 5. GAISANO MALL-BAJADA DAVAO - G/F (fronting Hang Ten) , J.P. Laurel Ave., Bajada, Davao City 6. GAISANO MALL-CAGAYAN DE ORO – Unit # 3, 2nd Level Atrium Gaisano Mall, Corrales Ext, cor. CM Recto Ave., Cgy de Oro City 7. KCC MALL –GENSAN - G/F KCC Mall GenSan, J. Catolico Sr. Ave., General Santos City, South Cotabato 8. LB SUPERMARKET – ZAMBOANGA – Veteran's Avenue Extension, Zamboanga City 9. LIM KET KAI MALL – M4-193 B, LimKetKai Mall, Cagayan de Oro City 10. SM CITY CAGAYAN DE ORO – ATM Center (2), Main Entrance, SM City Cagayan de Oro City 11. SM CITY DAVAO – ATM Center (1) SM City -Davao, Quimpo Blvd., Ecoland Subdivision, Brgy. Matina, Davao City 12. SOUTHWAY MALL - Southway Square Mall, Gov. Lim Purisima St. cor Magno St., Zamboanga City 13. XAVIER UNIVERSITY – G/F, Library Annex, Xavier University, Corrales Ave., Cagayan de Oro City 14. BUDGET WISE SUPERMARKET – Veterans Ave., Zamboanga City 15. MA. REYNA HOSPITAL – Hospital Entrance, Ma Reyna Hospital, T.J. Hayes, Cagayan de Oro City 16. MALL – J.P. Laurel Avenue, Bajada, Davao City 17. DAVAO ADVENTIST HOSPITAL – KM 7 , Mc Arthur highway, Bangkal, Davao City

3. Status of Publicly Announced New Products and Services

Product Status ¥uan Savings Account Fully operational China Bank Overseas Kababayan Savings Account Fully operational

4. Competition As of December 2011, the number of commercial banks (KB) totaled 37, of which 17 are private domestic commercial banks, 18 are branches/subsidiaries of foreign banks and 2 are government-controlled banks.

Based on the published Statement of Conditions (SOCs) as of December 2011, key financial indicators such as resources, net and gross loans, deposits, trust and equity posted positive growths for the KB industry while investment securities portfolio slightly shrank from year-end 2010. Total assets reached P7.0 trillion, a 7.15% growth from P6.53 trillion in 2010. The top banks namely BDO Unibank, Inc., Metrobank, BPI, Landbank and RCBC comprised 55.56% of the total assets.

Loans (net) of the commercial banking industry grew by 18.60% to P3.29 trillion, year-on-year. Total deposits were registered at P5.08 trillion, up by 5.78% from P4.80 trillion in 2010. Top 5 banks comprised 58.83% of the total deposits. Meanwhile, total equity of the commercial banking industry stood at P744.84 billion, up by 16.38% from last year’s P640.03 billion.

2011 was nevertheless a good year for Philippine banks as they showed resiliency amid difficult external environment brought about by the fiscal uncertainties in the major economies. Domestically, strong loans growth, active branch expansion and stronger capital base, along with improving macroeconomic fundamentals, propelled the industry’s growth. As of June 2011, the capital adequacy ratio (CAR) of Philippine banks improved to 16.34% on solo basis and 17.25% on consolidated basis surpassing the 10% minimum set by the BSP and the 8% by the Bank for International Settlements. Meanwhile, universal and commercial banks’ non-performing loan (NPL) ratio improved to 2.23% in December, lower than 2010’s 2.86%. The BSP issued Circular 709 which defined qualifying capital of local banks as the first step towards the implementation of BASEL 3. BASEL 3 combined with the Internal Capital Adequacy Assessment Process (ICAAP) is expected to improve the way banks manage business risks and the quality of bank capital.

CHIB consistently delivered value to its clients & stakeholders in terms of market capitalization and profits of P5.0 billion. Based on published Statement of Condition (SOCs) as of Dec 2011, CHIB ranked as the 10th largest commercial bank with assets of P263 billion and was the 5th largest bank in terms of market value. Total branch network reached 293 by year-end 2011. 27 5. Transactions with and/or dependence on related parties In the ordinary course of business, the Bank has loans and other transactions with its subsidiaries and affiliates, and with certain directors, officers, stockholders and related interest (DOSRI). These loans and other transactions are made on the same terms as with other individuals and businesses of comparable risks and in compliance with all regulatory requirements. Other related party transactions conducted in the normal course of business include the availment of computer and general banking services of an affiliate to meet the Bank’s reporting requirements.

6. Trademarks, Licenses, Franchises, etc. China Bank is operating under a universal banking license obtained in 1991.

7. Sources and Availability of raw materials and the names of principal suppliers. Not applicable.

8. Disclose how dependent the business is upon a single customer or a few customers. Not applicable.

9. Need for any government approval of principal products or services. The Bank secures BSP approval of all its products and services, as required.

10. Effect of existing or probable governmental regulations on the business. The Bank strictly complied with the Bangko Sentral ng Pilipinas (BSP) requirements in terms of reserves, liquidity position, limits on loan exposure, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements.

11. Amount spent on research and development activities

(In ‘000) 2011 2010 2009 Education & Training 22,987 20,429 21,756 Advertising Expenses 13,070 41,439 19,924 Technology 92,949 145,608 117,667

12. Cost and effect of compliance with environmental laws. Not applicable.

13. Total number of employees

Below is the breakdown of the manpower complement in 2011 as well as the projected headcount for 2012:

2012 2011 Officer Staff TOTAL Officer Staff TOTAL Marketing 945 772 1,717 727 626 1,353 Operations 377 1,992 2,369 311 1,771 2,082 Support 254 962 1,216 185 759 944 Technical 132 246 378 94 160 254 TOTAL 1,708 3,972 5,680 1,317 3,316 4,633

*Excludes contractual employees

The Bank will end its two-year CBA with the CBC Employees Association (CBCEA), on 01 August 2012 and will start its three-year CBA on 01 August 2012 to 01 August 2015.

28 ANNEX “B”

MARKET INFORMATION AND RELATED MATTERS

1. Market Information

? Principal market where the equity is traded – Philippine Stock Exchange, Inc. (PSE)

? Market Value

Actual Prices: 2011 HIGH LOW CLOSE Jan – Mar 447.00 400.00 418.00 Apr – Jun 452.00 398.00 399.60 Jul – Sept 414.00 370.00 385.20 Oct – Dec 403.00 380.00 398.00

Adjusted Prices (for 10% stock dividend): 2011 HIGH LOW CLOSE Jan - Mar 406.36 363.64 380.00 Apr - Jun 417.00 377.27 399.60 Jul - Sept 414.00 370.00 385.20 Oct - Dec 403.00 380.00 398.00

Actual Prices 2010 HIGH LOW CLOSE Jan - Mar 375.00 345.00 367.50 Apr - Jun 477.50 362.50 455.00 Jul - Sept 467.50 393.00 442.00 Oct - Dec 475.00 425.00 434.00

Adjusted Prices (for 10% stock dividend): 2010 HIGH LOW CLOSE Jan - Mar 340.91 313.64 334.09 Apr - Jun 434.09 329.55 413.64 Jul - Sept 453.00 393.00 442.00 Oct - Dec 475.00 425.00 434.00

? Market value as of December 29, 2011 (last trading day): P398.00

? Price Information as of February 29, 2012 (latest practicable trading date): P441.00

29 2. Holders

? Top 20 Stockholders (As of February 29, 2012)

Name of Stockholder Number of Shares Percent 1. PCD Nominee Corporation (Non-Filipino) 27,801,461 23.563% 2. SM Investments Corporation 19,526,951 16.550% 3. Sysmart Corporation 17,448,136 14.788% 4. PCD Nominee Corporation (Filipino) 12,005,238 10.175% 5. Shoe Mart, Inc. 3,850,803 3.264% 6. CBC Employees Retirement Plan 2,664,357 2.258% 7. Joaquin Dee &/or Family 2,654,425 2.250% 8. JJACCIS Development Corporation 2,333,240 1.978% 9. GDSK Development Corporation 1,806,021 1.531% 10. Henry Sy, Sr. 1,198,137 1.015% 11. SM Development Corporation 832,422 0.706% 12. Domingo T. Dee 732,583 0.621% 13. Hydee Management & Resource Corp. 645,516 0.547% 14. Gilbert U. Dee 627,813 0.532% 15. Estate of Allen Cham 551,325 0.467% 16. Robert Y. Dee, Jr. 501,148 0.425% 17. Regina Y. Dee 365,809 0.310% 18. The First Resources Mgt. & Sec. Corp. 362,252 0.307% 19. Reliance Commodities, Inc. 343,984 0.292% 20. Suntree Holdings Corporation 327,291 0.277% TOTAL 96,578,912 81.855%

Total number of shareholders (As of February 29, 2012) – 2,035

3. Dividend History

2011 2010 2009 2008 2007 Stock Dividend 10% 10% 10% 15% 25% Cash Dividend 12% 12% 12% 20% 25%

Authorized and Issued Capital

Authorized Capital - P20.0 billion divided into 200 million shares Issued Shares - 117,987,668

There is no restriction that limits the ability of the Bank to pay dividends other than what is required under The Corporation Code. However, any dividends declared by the Bank are subject to the approval primarily of the Bangko Sentral ng Pilipinas, Philippine Stock Exchange, and Securities and Exchange Commission.

4. Unregistered Securities There were no unregistered securities sold by the Bank for the past three (3) years. However, there were new securities issued resulting from the declaration of 10% stock dividend to come from the Bank’s unissued shares, which securities distribution was exempt from registration requirement under Sec 10.1 (d) of the Securities Regulation Code.

5. Free Float Level Based on the Public Ownership Report of the Bank as of December 31, 2011, 57.915% of the total outstanding shares are owned by the public.

30 ANNEX “C”

DISCUSSION OF COMPLIANCE WITH LEADING PRACTICE ON CORPORATE GOVERNANCE

China Bank has always looked at corporate governance as more than just compliance with regulatory requirements. We believe that by performance, not just compliance, we have created more opportunities to strengthen our internal process, enhance business and deliver a stronger customer and shareholder value.

Awards The Institute of Corporate Directors (ICD) has again cited China Bank as one of the Leading Publicly Listed Companies in the practice of good corporate governance. This is the third time that China Bank was cited by the ICD. China Bank has moved up to the gold category from its silver award last year. China Bank is the only bank out of sixteen (16) Gold Awardees. Gold is awarded to score of 95% and higher.

Corporate Governance Manual The Corporate Governance Manual (CG Manual) of China Bank was updated and approved by its Board of Directors last 2009 pursuant to Securities and Exchange Commission (SEC) Memorandum Circular No. 6, Series of 2009, or the Revised Code of Corporate Governance. The CG Manual embodies the corporate governance rules and principles of both the SEC and Bangko Sentral ng Pilipinas (BSP) as well as best practices to ensure that interest of stockholders and other stakeholders are protected.

To enjoin bankwide compliance, a copy of the Manual is available in the Compliance Office Public Folder for easy access of all employees of the Bank. Likewise, the Corporate Governance Compliance Officer is always available to respond to inquiries from Bank officials and personnel as regards good corporate governance policies and practices.

Board of Directors Our Board of Directors is primarily and collectively responsible for the governance of the Bank. In 2011, our Board is comprised of eleven Directors and two Advisors. Of the eleven, three (3) are executive Directors and the rest are non- executive Directors. The members were selected for, among other things, their integrity, independence, leadership, ability to exercise sound judgment, and experience at policy-making levels involving issues affecting business, government, as well as areas relevant to the Bank’s operations.

Due to the significant and crucial roles of Independent Directors in the Board and to ensure a strong element of independence, we have three (3) Independent Directors, which have exceeded the requirements of BSP and SEC.

All Directors have full and timely access to all relevant information about the Bank so that they can effectively discharge their duties and responsibilities as Directors. The Directors are provided Board materials related to the agenda sufficiently in advance of Board meetings to allow them to prepare for discussion of the items at the meeting. They likewise have access to the Corporate Secretary who is responsible for ensuring that the Board procedures and related rules and regulations are followed.

All the members of the Board have attended the required Corporate Governance Seminar.

Upon their election, the members of the Board are issued a copy of their general and specific duties and responsibilities as prescribed by the Manual of Regulations for Banks (MORB), which they acknowledge to have received and certify that they read and fully understand the same. Copies of the acknowledgement receipt and certification are submitted to BSP within the prescribed period. Moreover, the Directors also individually submit a Sworn Certification that they possess all the qualifications as enumerated in the MORB. These certifications are submitted to BSP after their election. Additional certifications are executed by Independent Directors to comply with Securities Regulation Code and BSP rules which are then submitted to the SEC.

The China Bank Board meets every first Wednesday of each month. In 2011, the Board had 15 meetings. All the Directors were notified in advance and provided with the pertinent materials and information prior to each Board meeting to allow them to prepare for discussion of the items at the meeting. Special meetings were held when necessary. It is the Board’s policy to encourage Board of Directors attendance at all scheduled Board meetings and all meetings of the Bank’s stockholders.

31

Corporate Governance Committee China Bank has a Corporate Governance Committee, which is responsible for the review and evaluation of the qualifications of all persons nominated to the Board, as well as those nominated to other positions requiring appointment by the Board of Directors. It is also responsible for ensuring the Board’s effectiveness and due observance of Corporate Governance principles and guidelines, and it oversees the periodic evaluation of the Board and its Committees and Executive Management.

Corporate Governance Office China Bank’s Corporate Governance Office is under the Compliance Office Division, headed by the Chief Compliance Officer (CCO). The Bank’s CCO ensures and monitors that the provisions in the Manual on Corporate Governance are complied with. Violation thereof is reported to the Chairman of the Board through the Corporate Governance Committee with appropriate enforcement action as approved by the Board. As of 2011, the Bank has sufficiently complied with the provisions of the Manual on Corporate Governance. The CCO also identifies, monitors, and controls compliance risk.

The Corporate Governance Office of the Bank has submitted the following in compliance with existing rules and regulations on corporate governance:

? 2011 Annual certification of compliance on corporate governance to both the SEC and PSE. The Bank has certified therein that provisions in the Bank’s CG Manual are satisfactorily complied. The certification was submitted on 13 January 2012 to the SEC and the Philippine Stock Exchange (PSE).

? Scorecard for the Publicly Listed Companies to ICD.

Information The Directors have full and timely access to all relevant information about the Bank so that they can effectively discharge their duties and responsibilities. China Bank highly recognizes the right of stockholders to information. The Board is committed to protect this right by ensuring that at all times, all material information about the Bank are disclosed in a timely manner to the SEC and PSE, particularly information that could affect share price.

Evaluation System In compliance with the existing rules and international best practices, our Board of Directors conducts an annual self- assessment of its collective performance. There are also self-assessments for the individual directors, the President, and various Board Committees, such as Audit, Compensation or Remuneration, Corporate Governance, Risk Management, and Compliance Committee, and also for Compliance Office.

The results of the evaluation are summarized by the CCO, discussed by the Corporate Governance Committee, and reported to the Board. Based on the results of the annual evaluation, there are no significant deviations and in general, the Bank has complied with the provisions and requirements of the CG Manual.

Education and Trainings Compliance Office is conducting briefings on a regular basis to branches and head office Compliance Coordinators which aims to raise the level of awareness and understanding of the principles, concepts, and elements of good corporate governance. The Compliance Coordinators then cascade these down to their respective areas.

Basic orientation on Compliance System, which includes corporate governance, are given to all newly-hired employees of the Bank. This introduces to the new employees the compliance environment of the Bank.

The Compliance Office has ongoing seminars on the Base60 Automated Anti-Money Laundering System and the basics of Anti-Money Laundering Act (AMLA) and current trends to ensure that our people have sufficient knowledge of AML law and regulations; and that they are able to identify and be aware of risks and opportunities for money laundering and the financing of terrorism, including the prevailing techniques, methods, and trends; comply with ‘Know Your Customer Policy’ and take adequate Customer Due Diligence measures and identify suspicious transactions of money laundering, in compliance with AMLA Regulations. There were eight (8) conducts of AMLA seminars in 2011. Compliance Office also conducts lectures in the Officers Development Program (ODP) and Supervisory Development Program (SDP) training programs of the Bank. This strengthens the compliance culture of the Bank. 32

Code of Ethics and Policy on Conflict of Interest China Bank in carrying out its functions and in dealing with its clients is guided by its Core Values, namely: Integrity, High Performance Standards, Commitment to Quality, Customer Service Focus, Concern for People, Efficiency and Resourcefulness/Initiative. These core values also are the foundation of our existing Code of Ethics, which was approved by the Board of Directors in 1996.

To ensure that business are carried out in compliance with relevant laws and in the protection of the interest of our customers, shareholders and other stakeholders, our Human Resources Division has disseminated our Code of Ethics to all employees, especially to the new hires. Employees are required to sign the acknowledgement receipt that they have a copy of the Code.

To further enhance this commitment, HRD ensures that all new employees undergo a New Employees’ Orientation Course (NEOC) wherein the Code is discussed comprehensively - the standard behavior, business conduct, and corresponding sanctions for violations.

Embodied in the Bank’s Code of Ethics is the principle of ensuring that Bank’s interest is superior to personal interest of directors and officers. The directors and officers should not obtain personal gain or profit by reason of their position in the Bank.

33 ANNEX “D”

MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Last Three Years 2011, 2010, 2009)

1. Financial and Operating Highlights

Balance Sheet

In Million Pesos 2011 2010 2009

Assets 262,214 257,379 233,865 Investments 61,192 75,548 72,472 Loan Portfolio (Net) 145,239 117,186 110,219 Total Deposits 216,134 213,042 193,290 Capital 39,289 35,453 30,198

Balance Sheet – 2011 vs 2010

Total assets slightly increased by 1.88% from P257.38 billion to P262.21 billion driven by growth in loans supported by higher low-cost deposits. Cash and other cash (COCI) items was slightly down by 6.00% to P6.05 billion from P6.44 billion in 2010 as the bank closely monitored its cash in vault (CIV) levels. Due from BSP (DFBSP) dropped by 18.86% to P30.12 billion in 2011 from P 37.12 billion in 2010 mainly due to the decrease in the Bank’s placements in Special Deposit Accounts with BSP. Due from Other Banks (DFOB) was also down by 53.62% to P2.75 billion from P5.92 billion from lower placements with foreign banks. Excess liquidity funds were placed in overnight lending/placements with BSP expanding Interbank Loans to P671 million, 23.80% higher than P542 million recorded in 2010. Investment Securities which composed of Financial Assets at Fair Value through Profit & Loss (FAVPL), Available For Sale Financial Assets (AFS) and Held-to-Maturity Financial Assets (HTM) totaled P61.19 billion which was down by 19.00% from P75.55 billion in Dec 2010 as the Bank reduced its securities holdings. This represents 23.34% of total assets from 29.35% share last year in line with the bank’s on- going asset reallocation to manage interest volatility and market risk. FAVPL was down by 58.83% to P2.45 billion from P5.94 billion as the bank decreased its holdings of tradable government securities. AFS was also down by 10.33% from P51.06 billion in December 2010 to P45.78 billion from sale of both peso and dollar bonds. HTM was down by 30.13% or P5.59 billion from P18.55 billion to P12.96 billion from maturity of dollar denominated government bond holdings. The Bank’s liquidity ratio (the ratio of liquid assets to total assets) was lower at 38.43% from 48.79% in Dec-end 2010 because of the shift from investment securities holdings and BSP placements to loan portfolio.

Gross loans (exclusive of UDSCL) from customers also grew by 32% to P150.03 billion from growth across all fronts: corporates at 32%, commercial at 37%, and consumer at 28%. Loans-net (inclusive of UDSCL) grew by 23.94% to P145.24 billion from P117.19 billion as of year-end 2010. Accrued interest receivables which include accruals of interest income from AFS and HTM declined by 4.71% from P1.85 billion to P1.77 billion following the decline in AFS and HTM volume and lower loan interest rates. Investment in Associates grew by 18.09% to P24.48 million from P20.73 million as the Bank acquired additional minority shares in the Manila Banking Corp. (now known as ChinaBank Savings, Inc.) Bank Premises, FFEs slightly increased by 1.75% from P4.84 billion to P4.92 billion. Investment properties was up by 2.70% to P3.41 billion from P3.33 billion as the Bank continues to acquire properties for settlement of loans. Deferred tax assets was down by 1.45% from P912.42 million to P899.15 million. Other assets increased by 50.20% from P2.97 billion to P4.47 billion from the P1.63 billion in accounts receivable representing final withholding taxes (FWT) assessed by the BIR and withheld by the BTr from the proceeds of the PEACe bonds which matured on October 18, 2011.

On the liabilities side, total deposits stood at P216.13 billion, a 1.45% growth from P213.04 billion in December 2010 as savings deposits fell by 0.98%, mainly due to the decline in the volume of Diamond Savings (a special savings product that earns higher interest). The 4.57% drop in time deposit accounts can be attributed to the drop in dollar time deposits. Demand deposits grew by 13.73% boosting low-cost deposits. The Bank’s low-cost CASA level grew 34 by 13.2% to P 81.28 billion from P 71.82 billion as the Bank sustained its branch marketing efforts and branch network expansion which also resulted in improved ratio of CASA to total peso deposits at 48.67% from 44.87% year- on-year. Bills payable dropped by 46.33% from P3.06 billion to P1.64 billion as a result of lower volume of participation in government lending programs. Meanwhile, manager’s and gift checks increased by 43.04% from P340.52 million to P487.06 million as there was higher demand for this product. Income tax payable was up by 126.84% to P30.67 million from P13.52 million due to increase in income subject to MCIT. Accrued interest and Other Expenses dropped by 26.71% from P1.97 billion to P1.45 billion which can be attributed to the drop in interest rates and maturity of some long-term deposits. Derivative Liabilities were down by 87.83% to P146.62 million from P1.20 billion due to positive mark to market valuation of the Bank’s forward contracts. Other liabilities increased by 32.46% to P3.04 billion from P2.29 billion mainly from the growth in accounts payable and miscellaneous liabilities.

Total equity (including minority interest) improved by 10.82% to P39.29 billion from P35.45 billion mainly from profits earned for the year. Net realized gain on available for sale securities increased by P 27.19 million or 1.46% from mark-to-market gains during the 2nd and 4th quarters of this year. The Bank declared a 10% stock dividend for 2011 resulting in distributable stock divi dend of P1.07 billion and a cash dividend of P12/share amounting to P 1.29 billion with the record date of July 1 and payment and issuance date of July 27. The cumulative translation adjustment increased by 140.69% to P25.34 million from (P62.27) million due to the strengthening of the peso against the US dollar. The Bank’s Tier 1 and total CAR remained strong at 16.98% and 17.80%, respectively. The difference in the Tier 1 and Total CAR represents general loan loss provision limited to 1% of credit risk weighted assets which can absorb potential losses.

Balance Sheet – 2010 vs 2009

Total assets expanded by 10.05% from P233.87 billion to P257.38 billion mainly from higher loans and short term placements supported by growth in low cost deposits.

Cash and other cash items (COCI) increased by 11.06% to P6.44 billion from P5.80 billion in 2009 due to higher year-end cash requirements and increase in the number of branches. Excess funds were invested in BSP placements via its Special Deposit Account (SDA) facility boosting Due from BSP by 219.46% to P37.12 billion in 2010 from P 11.62 billion in 2009. Meanwhile, Due from Other Banks fell by 12.57% to P 5.92 billion from P6.77 billion in 2009 from lower placements with foreign banks. Interbank loans receivable was down by 95.48% to P542 million from P11.98 billion primarily from the lower overnight term placements of the Bank with the BSP.

The decline in bond yields offered opportunities to unlock bond profits and accumulate GS portfolio at very attractive rates. Consequently, Financial Assets at Fair Value through Profit & Loss (FAVPL) increased by 20.23% to P5.94 billion from P4.94 billion and Available For Sale Financial Assets (AFS) increased by 12.29% from P45.47 billion to P51.06 billion. Held to Maturity Assets were down by 15.92% or P3.51 billion from P22.06 billion to P18.55 billion from disposal of dollar denominated government bond holdings. Total investment in debt and equity securities comprised 29.35% of total assets down from 30.99% share in 2009, from the bank’s on-going asset reallocation to manage market and interest rate risks.

There was much progress in our drive to diversify core businesses, led by the 10.53% year-on-year growth in loans to corporate, commercial and branch-based accounts, which boosted credit portfolio from customers to P 113.65 billion. This thrust for loan expansion was balanced by a corresponding improvement in portfolio quality - as measured by better borrower risk ratings and a broader spectrum of clients from the small & medium enterprises, energy, food production and project financing sectors. Net loan portfolio (inclusive of UDSCL) grew by 6.32% to P117.19 billion from P110.22 billion in Dec 2009. Non-performing loans (NPL) ratio was registered at 4.30% as intensive monitoring of accounts at the Management and Board level continued. Accrued interest receivables which include accruals of interest income from AFS and HTM, declined by 9.30% from P2.12 billion to P1.92 billion following the decline in HTM volume and yields. Investments in Associates was up by 22.08% to P20.73 million from P16.98 million due to the Bank’s additional investment in MCBLife (P3.71 million) to meet the BSP required minimum 5% ownership. Bank premises & FFE slightly grew by 1.02% from P4.79 billion to P4.84 billion. Investment properties, which consist entirely of real estate properties acquired in settlement of loans and receivables, fell by 13.67% to P3.33 billion from P3.85 billion as the Bank continued to sell off its foreclosed properties. Deferred tax assets were also down by 0.16% from P913.89 million to P912.42 million. Other assets increased by 11.22% from P2.61 billion to P2.91 billion mainly from increase in accounts receivables, prepaid expenses and sales contract receivables. 35

On the liabilities side, total deposits grew by 10.22% from P193.29 billion in 2009 to P213.04 billion in 2010 as both demand and savings deposits expanded. Our low cost deposit (CASA) levels were up by 22% or P13 billion to reach an unprecedented level of P71.82 billion by year-end 2010. The sustained branch marketing efforts and expansion of the branch network resulted in improved ratio of CASA to total peso deposits at 44.82% from 41.29% last year. During the last five years, the branch banking group has opened branches in metropolitan hubs, secondary cities and provincial trading centers to geographically expand our franchise. Time deposits were down by 4.87% from P55.23 billion in 2009 to P52.54 billion in 2010 from maturing long-term deposits such as Money Lift. Bills payable also declined by 47.14% in 2010 to P3.06 billion from P5.79 billion in 2009 as the Bank’s rediscounting line from BSP fell to P73.33 million from P3.57 billion in 2009. Manager’s Checks dropped by 24.97% to P340.52 million from P453.82 million due to lower demand for this product. Income tax payable grew 39.19% to P13.52 million from P9.71 million mainly from minimum corporate income tax (MCIT) liability. Accrued Interest, Taxes and Other Expenses grew by 5.93% from P1.86 billion to P1.97 billion. The loss in mark to market valuation of the Bank’s forward contracts led to higher Derivative Liability by 255.62% to P1.20 billion from P338.81 million. Other liabilities grew by 19.09% to P2.29 billion in 2010 due to growth from outstanding acceptances and sundry credits.

Total capital funds reached P35.45 billion, 17.40% higher than 2009, primarily from this year’s profits and the recovery in net unrealized gains on available-for-sale financial assets. Capital stock rose by P975.18 million or 10% mainly from the 10% stock dividend distributed in 2010. The Surplus account grew by 14.96% to P21.61 billion driven by the retained net income for the year net of cash dividend payout of P 12/share, totaling P1.17 billion. Net unrealized gains on available for sale financial assets grew by 334.60% or P1.43 billion from the revaluation gains on AFS portfolio. The change in functional currency (exchange differences arising on translation are taken directly to the statement of comprehensive income under ‘Cumulative Translation adjustment’) resulted in the recognition of cumulative translation adjustment loss of (P62.27) million in 2010 from (P53.89) million in 2009.

36 Income Statement

In Million Pesos 2011 2010 2009

Interest Income 12,677 13,213 13,410 Interest Expense 4,125 4,580 5,174 Net Interest Income 8,552 8,633 8,236 Non-Interest Income 4,192 4,686 4,104 Provision for Impairment & Credit Losses 155 496 792 Operating Expenses 7,032 7,129 6,948 Net Income 5,009 5,004 4,103

Income Statement – For the years ended December 31, 2011 and 2010

Even with the Bank’s ongoing expansion, China Bank (China Bank, stock symbol CHIB) reported a net income of P5.01 billion, up by 0.10% from P5.00 billion reported last year. This translates to return on equity (ROE) of 13.72% and return on assets (ROA) of 2.04%. The higher volume of gross loan portfolio and continuous build up of our low cost deposits eased the impact of lower yields and thinning margins. Higher contribution from trust fees, sale of acquired assets and bancassurance business compensated for the lower trading and forex gain.

Interest income declined by 4.06% to P12.68 billion from P13.21 billion. Interest income from loans and receivables grew by 0.36% to P8.16 billion from P8.13 billion as lower yields offset the impact of higher volume in customer loans. Interest income from trading & investment securities was down by 14.35%, from P4.57 billion to P3.91 billion due to lower volume as well as yields for government bond holdings. However, interest income from Due from BSP and other banks grew by 17.42% to P605.12 million from P515.34 million as the Bank’s excess liquidity was placed in BSP’s Special Deposit Account during the first half of 2011.

Interest expense fell by 9.94% to P4.12 billion from P4.58 billion in 2011. Interest expense on deposit liabilities was down by 8.17% to P3.99 billion from P4.35 billion mainly due to the drop in deposit rates for both high-cost and dollar deposits as well as lower volume of high-cost deposits. Interest expense on bills payable and other borrowings also dropped by 42.97% from P233.24 million to P133.02 million due to lower utilization of our BSP rediscounting line and lower participation in government lending programs. Overall, net interest income before provision for probable losses slightly dropped by 0.94% to P8.55 billion from P8.63 billion. Net interest margin was computed at 3.76% vs. 3.97% last year. As the Bank has already more than adequately provided for possible loan losses during the previous years, lower loan loss provisions of P155.10 million were booked this year, as against P495.83 million year-on-year. Loan loss coverage ratio improved to 143.90% even with this slow down in provisioning.

Thinning margins and mark-to-market losses from trading portfolio and foreign exchange transactions resulted in a 10.55% slide of fee-based income to P4.19 billion from P4.69 billion. Trading and securities gain declined by 16.14% from P1.75 billion to P1.47 billion mainly due to the uptick in dollar bond rates that diminished opportunities for trading gains. Income from service charges, fees and commissions declined by 12.13% to P985.26 million from P1.12 billion following the drop in branch service charges as a result of implementing BSP Circular 681 or the Revised Check Clearing and Settlement Processes. Trust fee income increased by 11.06% to P517.29 million from P465.76 million as higher volume of trust placements compensated for the drop in trust fee rate. Income from foreign exchange gain dropped by 80.35% to P107.06 million from P544.98 million due to lower income from swaps and revaluation losses as the peso strengthens against the US dollar.

Gain on asset foreclosure and dacion transactions grew significantly by 98.62% to P310.68 million from P156.41 million due to mark-to-market revaluation gain on the Bank’s foreclosed properties. The increase in miscellaneous income of 41.87% to P555.09 million from P391.26 million can be attributed to higher income from participation fees and bancassurance business. Share of fee-based income to total revenues went down to 24.85% from 26.18% of last year.

37 Operating expenses (including provision for losses) decreased by 5.74% to P7.19 billion from P7.62 billion while operating expenses (excluding provision for losses) was 1.36% or P96.73 million lower at P7.03 billion from P7.13 billion year on year. Compensation and fringe benefits dropped by 4.31% to P2.51 billion from P2.62 billion. Occupancy costs which include power, light, rental, security service, messengerial and janitorial costs increased by 8.73% to P901.71 million from P829.35 million from on-going branch expansion and renovations. Taxes & licenses grew by 3.94% to P750.21 million from P721.78 million. Depreciation and amortization cost of P716.10 million was 10.72% or P69.31 million higher than the P646.79 million registered last year which can be attributed to acquisition of property and equipment for additional branches put up by the Bank, relocation and renovation of some existing branches and head office units as well as various technology upgrades and maintenance. Insurance costs slightly grew by 0.46% to P459.00 million from P456.88 million. Stationery & supplies grew by 4.66% to P489.65 million from P467.84 million due to the Bank’s growing branch network. Repairs and maintenance declined by 26.89% to P162.80 million from P222.70 million due to lesser renovations and repairs made during the year. Transportation & traveling declined by 11.73% to P215.82 million from P244.49 million as volume in business and training related travel costs declined. Entertainment, amusement and recreation expenses declined by 30.55% from P258.96 million to P179.85 million due to lower marketing and selling-related costs. Professional fees, marketing and related services dropped by 42.30% to P112.54 million from P195.04 million due to lower management & professional fees paid during the year. Miscellaneous expenses expanded by 15.76% to P533.34 million from P460.72 million because of higher ROPA-related expenses and provision for year-end expenses. Cost- to-income ratio was computed at 55.18% from 53.52% registered last year.

Income Statement – For the years ended December 31, 2010 and 2009

China Bank reported a net income of P5.0 billion in 2010, a growth of 21.97% from the P4.10 billion registered in the same period last year. Total gross revenues was registered at P17.90 billion, a 2.20% increase from the P17.51 billion in 2009 while gross expenses fell by 3.85% to P12.90 billion from P13.41 billion mainly driven by a 11.47% drop in interest expenses. This income performance translates to a 15.37% return on equity and 2.10% return on assets, still among the best in the industry.

Interest income declined slightly by 1.47% to P13.21 billion from P13.41 billion. Even as loans volume grew, interest income from loans and receivables dropped by 2.61% to P8.13 billion from P8.35 billion due to the decline in lending rates. Interest income from debt securities, interbank loans receivable, due from other banks and others was up by 0.65% in 2009, from P4.54 billion to P4.57 billion as higher volume of government bond holdings compensated for the drop in yields.

Interest expense on deposit liabilities, bills payable and other borrowings was down by 11.47% for this year to P4.58 billion from P5.17 billion in 2009. Lower interest cost on deposits and maturing long-term placements contributed to the decline in interest expense on deposits by 11.65% or P573 million. Lower volume of bills payable and other borrowings resulted in an 8.01% drop in interest expense from bills payable and other borrowings.

Overall, net interest income improved by 4.82% to P8.63 billion, as lower interest income on loans due to very liquid market conditions was offset by lower interest expense driven by the growth in low-cost CASA deposits. Net interest margin remained strong at 3.97%. With sufficient coverage for probable losses already in the books, the Bank booked lower loan loss provisions of P496 million from P792 million last year, but still improved loan loss coverage ratio to 126.73% from 119.54%.

Higher income from trading gains resulted in increase in fee-based income by P581.87 million or 14.18% from P4.10 billion to P4.69 billion in the same period last year. Trading and securities gain jumped by 47.36% from P1.19 billion to P1.75 billion from a declining interest rate environment and sustained recovery in bond prices which provided trading opportunities. Income from service charges, fees and commissions was up by 12.56% to P1.12 billion from P996.14 million which can be attributed to higher commissions on LCs, remittance & factoring service charges and BancNet fees. Income from trust fees was slightly up by 1.68% to P465.76 million from P458.08 million as higher volume of trust placements compensated for the drop in trust fee rate. Income from foreign exchange gain dropped by 32.54% to P544.98 million from P807.85 million from lower revaluation gains due to the strengthening of the peso against the dollar and lower income from swaps. Gain on asset foreclosure and dacion transactions increased by 4.93% to P255.37 million from P243.37 million from revaluation gain on the Bank’s foreclosed properties. Gain on sale of investment properties significantly grew by 149.31% to P156.41 million from P 62.74 million due to higher income realized from sales of ROPA properties and chattels. Miscellaneous income 38 grew by 12.48% to P391.26 million from P347.86 million mainly from higher contribution from our bancassurance and private banking businesses. Consequently, other income’s share to total revenues increased to 26.18% from 23.44% in the same period of last year.

Lower provision for losses led to the drop in total operating expenses by 1.49% or P115.68 million from 2009. Excluding provisions, operating expense growth was also managed tightly to P7.13 billion, a growth of 2.60% from P6.95 billion in 2009, translating to an improved cost efficiency ratio of 53.52% (vs 56.30% in 2009) that ranks among the best in the industry. Compensation and fringe benefits increased by 5.47% to P2.62 billion from P2.49 billion mainly from the CBA-related salary adjustments and hiring of additional manpower. Occupancy costs which include power, light, rental, security service, messengerial and janitorial costs increased by 15.04% to P829.35 million from P720.89 million from the on-going branch expansion and various renovations. Taxes & licenses declined by 2.63% to P721.78 million from P741.28 million. Depreciation and amortization cost also dropped by 3.17% to P 646.79 million from P667.97 million. Stationery, supplies and postage increased by 3.94% to P467.84 million from P450.10 million. Insurance costs slightly grew by 4.55% to P456.88 million from P436.98 million. Repairs and maintenance dropped by 39.16% to P222.70 million from P366.04 million due to reclassification of technology- related service fees to miscellaneous expenses done in 2010. Transportation and traveling expenses dropped by 15.53% to P244.49 million from P289.43 million in 2010 due to lower training-related and branch-related traveling expenses. Entertainment, amusement and recreation expenses increased by 2.71% from P252.12 million to P258.96 million due to higher marketing and selling-related costs. Professional fees, marketing and other related services dropped by 12.39% from P222.62 million to P195.04 million from lower management & professional fees. The transfer of technology-related service fees led to the increase in miscellaneous expenses by 47.47% to P460.72 million from P312.43 million.

2. Key Performance Indicators

Definition of Ratios

Return on Average Equity - Net Income After Income Tax Average Total Equity

Return on Average Assets - Net Income after Income Tax Average Total Assets

Cost to Income Ratio - Operating Expenses Less Provision for Impairment and Credit Losses Net Interest Income + Other Income

Net Interest Margin - Net Interest Income Average Interest Earning Assets

Liquid to Total Assets - Total Liquid Assets Total Assets

Loans to Deposit Ratio - Loans (Net) Deposit Liabilities

Non-Performing Loan (NPL Ratio) - Non-Performing Loans (net of NPLs Classified as Loss) Gross Loans (including UDSCL) (net of NPLs Classified as Loss)

Non-Performing Loan (NPL) Cover - Allowance for Probable Losses Loans (net of NPLs Classified as Loans) Non-Performing Loans (net of NPLs Classified as Loans)

Capital to risk assets ratio - BSP prescribed formula: Total Qualifying Capital Total Risk Weighted Exposures

39

In Percent 2011 2010 2009 PROFITABILITY Return on Assets 2.04 2.10 1.90 Return on Equity 13.72 15.37 14.49 Net Interest Margin 3.76 3.97 4.16 Cost to Income Ratio 55.18 53.52 56.30

LIQUIDITY Liquid Assets to Total Assets 38.43 48.79 46.46 Loans (net) to Deposit Ratio 67.20 55.01 57.02

ASSET QUALITY Non-Performing Loans Ratio 2.93 3.89 4.02 Non-performing Loan (NPL) Cover 143.90 134.17 127.03

CAPITALIZATION Capital Adequacy Ratio Tier 1 16.98 15.68 11.92 Total CAR 17.80 16.56 12.80

Profitability CHIB’s 2011 net income of P5.01 billion resulted in a ROE of 13.72% and ROA of 2.04% that reflects industry-best performance. Cost to income ratio stood at 55.18% vs 53.52% in 2010 and 56.30% in 2009, still one of the best in the industry in terms of cost efficiency as higher revenues continued to cover for the additional cost of branch expansion, hiring and capital investments. Net interest margin was lower at 3.76% (vs. 3.97% in 2010 and 4.16% in 2009) due to the drop in yields.

Liquidity The Bank’s liquidity ratio (the ratio of liquid assets to total assets) was registered at 38.43% from 48.79% in Dec-end 2010 and 46.46% in 2009 as more liquid funds were allocated to expand loan portfolio. Consequently, loans-net to deposit ratio was higher at 67.20% in 2011 from 55.01% in 2010 and 57.02% in 2009.

Asset Quality NPL ratio was registered at 2.93% in 2011 from 3.89% in 2010 and 4.02% in 2009 from the Bank’s tighter monitoring of asset quality amid the loan expansion. Loan loss coverage ratio was at 143.90% in 2011 from 134.17% in 2010 and 127.03% in 2009, as the bank continued to provide a buffer against lending risks.

Capitalization China Bank’s financial position remains strong with Tier 1 CAR ratio of 16.98% and total CAR of 17.80%. The Bank’s capital is largely comprised of Tier 1 (core) capital, the increase in which was mainly due to current year profits. The Bank’s sustained profitability contributed to its capital strength and enabled it to pay regular dividends to shareholders.

40 3. Past Financial Conditions and Results of Operations

GDP decelerated to 3.7% in 2011 from 7.6% reported in 2010 from the effects of the Eurozone sovereign crisis and uncertainty surrounding the US recovery. Compounding the weakness in the external sector was the delay in the implementation of government’s PPP program, which led to less-than expected fiscal stimulus. The sustained demand from the household sector combined with the resiliency in the services sector partly cushioned the economy from the 6.86% drop in exports and slower growth in OFW remittance volume of 7.2%. On the positive side, the country has merited a series of upgrades in its sovereign credit rating and outlook since the start of the Aquino administration. Underpinning these upgrades were improvements in fiscal consolidation, sustained macroeconomic stability and robust external payment position. The positive trend in the country’s economic fundamentals argue for an upgrade in the credit rating to investment grade during the next 12 months.

As inflation remained moderate, the BSP retained its accommodative stance in terms of monetary policy that kept the costs of funding and lending at low levels while recalibrating the reserve requirement for banks. Consequently, the financial markets remained highly liquid (combined RRP and SDA placements with the BSP topped P 1.83 TN) and stable despite the volatility affecting the more developed economies. Benchmark rates for government securities closed at their historical lows in ten years. The Philippine banking industry turned in a respectable performance for the year as the solid expansion in lending, branching footprint, fee-based business and capitalization offset the pressure in loan margins. As of June 2011, the banking system reported an average capital adequacy ratio (CAR) of 16.34% on solo basis and 17.25% on consolidated basis up from 15.23% CAR on solo basis & 16.21% on consolidated basis last year. Both measures topped the 10% minimum set by the BSP and the 8% floor set by the Bank for International Settlements. Meanwhile, universal and commercial banks’ non-performing loan (NPL) ratio improved to 2.23% in December, lower than 2010’s 2.86%. The BSP plans to release the final guidelines for BASEL 3 implementation by the latter part of 2012, with compliance by the banking industry to be monitored by 2014. In the interim, BSP has issued Circular No 709 allowing banks to comply with the minimum requirements for BASEL 3 capital adequacy. These guidelines and the Internal Capital Adequacy Assessment Process (ICAAP) which improves the way banks manage business risks are expected to enhance the quality of bank capital and its ability to absorb business risks.

China Bank (CBC) reported a net income of P5.01 billion, up by 0.10% from P5.00 billion reported last year despite competitive pressures on lending margins as well as the cost impact of the ongoing business expansion for both the main bank & CBC Savings. Our above industry growth rate of 32% in gross loan portfolio and the 13% build up in low-cost deposits partly compensated for the drag of lower market yields on our net interest margin. Overall, the higher contribution from trust fees, sale of acquired assets and bancassurance business were offset by a decline in trading and forex gain. The keener competition for commercial & middle-middle accounts as well as branch-based business limited the revenue potential from traditional banking activities – compelling banks to step up their cross- selling efforts for fee-based services.

In 2011, a total of twenty four (24) branches - 15 for China Bank and 9 for China Bank Savings, were opened for business, bringing the total branch network to 293. Our renewed focus on the retail & consumer front meant channeling greater resources to CBC Savings in terms of management talent and branch infrastructure while sustaining capital investments in mostly technology upgrades at the bank proper. Our thrust includes the standardization of business policies & procedures, credit evaluation and the transactional processing platform for both CBC & CBSI to leverage not only on economies of scale but further improve existing turnaround time and consistency of service quality. In spite of these hefty investments, the Bank continued to report one of the best cost-to-income ratios of 55.18%. CBC’s commitment to cost-efficient business expansion was greatly evident in the 8% or P 1.04 BN reduction in total expenses which more than offset the 6 % decrease in total revenues of P 1.03 BN.

The Bank’s continuing resilience in the face of more challenging business conditions has deepened its presence in both traditional and evolving markets that allowed it to turn in a consistent level of performance every year for 92 years – as evident in its return on equity and assets of 13.72% and 2.04%, respectively. With their support, CBC has provided respectable returns to its shareholders which in 2011, amounted to cash and stock dividends of P 12 per share and 10% stock dividends, respectively. China Bank’s capital funds increased to P39.29 billion which translates to a capital adequacy ratio of 17.80% - still one of the strongest in the industry.

41 Total assets grew by 1.88% to P262.21 billion as gross loan portfolio expanded by 32% to P150.03 billion from growth across all fronts: corporates at 32%, commercial at 37%, and consumer at 28%. The rapid expansion in market share was achieved without compromising our standards for credit quality. In fact, non-performing loans ratio improved to 2.93%. Meanwhile, low cost deposits grew by 13% as checking and savings accounts (CASA) deposits rose to an unprecedented level of P81.28 billion. High cost placements declined by 3% as part of our strategy to manage funding cost and match sources & uses of funds.

The Bank has consistently proven its excellence in governance by being awarded the Gold award (as the only bank among the gold awardee companies) by the Institute of Corporate Directors (ICD) in its 2010 Corporate Governance Scorecard (with a score of 95% & above), recognizing its performance in protecting the rights and equitable treatment of its shareholders, role of stakeholders, disclosure and transparency, and Board responsibilities. China Bank’s Private Banking Group (PBG) was awarded “Best Wealth Management House in the Philippines” and was also cited as a “rising star”—an emerging private banking powerhouse in the country— at The Asset Triple A Investment Awards held in Hong Kong. Also in 2011, the Bank received Straight Through Processing (STP) award for being a top Commercial Payment Bank in the Philippines given by Bank of America Merrill Lynch. In addition, Fitch Ratings affirmed its credit ratings (individual rating of C/D) and the national rating of AA- which is one notch below the top bank rating in the country. Capital Intelligence rating agency also affirmed its credit rating for China Bank (Financial Strength BBB-) and recently upgraded its Foreign Currency Long-Term rating to BB from BB- following the upgrade in the Philippines’ sovereign rating.

4. Future Prospects

Given predictions that the US and EU recovery would most likely be a gradual process, we expect much of the growth momentum to shift to Asia and other newly developing regions. However, persistent geopolitical risks may stoke uncertainties in the global marketplace and dampen demand for Asian exports at a time when China is taking steps to cool down its domestic sector while India confronts higher inflation and slower investment inflows. The US Federal Reserve has already announced its intention to keep interest rates low until 2014, with 2012 as an election year. In the face of ample liquidity and manageable inflation, the BSP could further bring down policy rates in support of economic activity.

For the Philippines, we foresee modest growth for the first half of 2012 as exports remain sluggish and the full benefits of infrastructural spending under the PPP have yet to come on stream. GDP could still surpass the 3.7% reported in 2011 because of the growing demand for domestic services and strong capital inflows. Inflation should be fairly stable provided that there are no oil price shocks and disruptions in fuel supply. For the second half, GDP may accelerate beyond 4.0% as pump-priming projects begin to stimulate the economy.

Generally, the outlook for this year and the next for the banking industry remains bullish. An upbeat investor sentiment could support double-digit loans growth by Philippine banks although the bigger corporates may turn to the capital markets for their term funding needs. Fitch ratings forecasted that lower trading gains will pull down banks’ profitability this year, particularly as bond rates fall to their all-time lows. The implementation of PFRS-9 by 2015 will compel banks to formalize an investment strategy for their trading and hold-to-maturity holdings. The 2014 timeline for BASEL 3 compliance would encourage intensive capital build-up among Philippine banks as a buffer against possible impact of market shocks. The BSP also intends to scrap the interest-earning portion of banks’ reserves and impose a lower & uniform reserve requirement – which may cause short term adjustments in the industry’s loan & deposit pricing mechanism.

China Bank’s 3-year (2012-2014) business plan builds on the four core strategies with emphasis on market focus and segmentation. The centerpiece of the plan is the full implementation of the most rapid network expansion in China Bank’s 91-year history, both for China Bank and China Bank Savings.

China Bank will continue to strengthen revenue growth for its core businesses and diversify its revenue sources, sustain its network expansion and distribution channels, maximize total customer relationship as well as strengthen the organization and operational efficiency for better competitiveness.

The Bank will expand and diversify revenue streams while continuing to put emphasis on lending whereby loan and fee-based revenues would gradually replace gains from trading and investments. CBC will target more corporate borrowers and explore opportunities in the public-private-partnerships (PPPs) projects, infrastructure and mining. The 42 expansion of the branch network and business partnerships will support growth in market share for commercial & middle-market loans. The synergy with the Bank’s holding company, the SM Group and their tenants & suppliers as well as other affiliates like Manulife will be tapped to increase our share of the consumer & retail markets. This strategy requires further sharpening of focus on our target markets, establishing the necessary organization and assigning accountability for handling their needs.

Scheduled for launching this year is CBC’s line up of derivative products (subject to approval of our BSP license), credit cards and cash cards. Fee-based business have become a key component of our revenue diversification as profit contributions from bancassurance, remittances, cash management and private banking continue to increase. The generation of low-cost deposits is essential to preserving a healthy level of net interest margin. With a renewed focus on loans quality, intensive monitoring of the environment and closer supervision of accounts becomes even more important to reduce or limit past due/NPLs. Loan loss cover is projected to exceed 100% over the next three years.

The Bank will continue to pursue its branch expansion program by growing its network from 293 in 2011 to 400 branches by 2014 including China Bank Savings, which will grow from 25 to 85 branches. This growth will be achieved organically or by the acquisition of another institution. These enhancements would also extend to alternative banking channels such as ATMs, kiosk, online and mobile banking that support the efficient delivery of services to our retail and consumer segments. A broader menu of distribution channels essentially allows the Bank to provide better access and convenience to a larger customer base, while maintaining service quality levels.

Customer satisfaction and retention are key drivers for success, so the institutionalization of a service-oriented culture would be the basis for a sustainable competitive advantage. Hence, attaining the kind of business growth laid out in its banking strategy would call for drastic improvements in process efficiencies plus substantial investments in the Bank’s technology and infrastructure. It would also require allocating substantial resources to hiring the right people, developing skills of our existing teams, and identifying, training, and retaining the Bank’s talents, in order to support the Bank’s growth strategy and ensure that it is adequately staffed to achieve its targets.

The next few years would be challenging period for the Bank, but CBC stands firm in its commitment to provide excellent service, build an organization that is rooted in integrity & accountability, manage its clients’ assets with prudence while delivering superior returns to its stakeholders.

43

5. Material Changes

(a) 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

(b) All material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting period

In the normal course of the CHIB’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these transactions.

The following is a summary of contingencies and commitments of the Bank with their equivalent peso contractual amounts:

2011 2010 Trust department accounts 140,378,040,276 100,598,864,502 Unused commercial letters of credit 11,281,076,629 11,340,867,273 Outstanding guarantees issued 937,504,015 1,451,217,830 Deficiency claims receivable 270,758,946 289,815,905 Late deposits/payments received 414,363,620 312,509,340 Inward bills for collection 348,726,102 193,161,090 Outward bills for collection 49,762,006 49,504,645 Others 2,370,422,774 1,538,518,745

(c) Any Material Commitments for Capital Expenditure and Expected Funds Branch network expansion and technology upgrades will account for the bulk of the Bank’s capital expenditures for 2012. Capital expenditures will be funded from internal sources.

UNDERTAKING

The Bank undertakes to furnish a copy of its Annual Report (SEC Form 17-A) exclusive of attachments, free of charge, upon the written request of the stockholder addressed to the Office of the Corporate Secretary, 11th Floor China Bank Building, 8745 Paseo de Roxas cor. Villar St., Makati City.

44

ANNEX “E”

ANNEX “F”

4 4 3 SEC Registration Number

C H I N A B A N K I N G C O R P O R A T I O N A N D S U B S I D I A R I E S

(Company’s Full Name)

8 7 4 5 P a s e o d e R o x a s c o r n e r V i l l a r

S t r e e t s , M a k a t i C i t y

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

Delia Marquez 885-5555 (Contact Person) (Company Telephone Number)

1 2 3 1 A A F S Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Total Amount of Borrowings 2, 025 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.

China Banking Corporation and Subsidiaries

Financial Statements December 31, 2011 and 2010 and for the Years Ended December 31, 2011, 2010 and 2009 and

Independent Auditors’ Report

SyCip Gorres Velayo & Co. SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph

BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-2

INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of Directors China Banking Corporation

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of China Banking Corporation and Subsidiaries (the Group) and the parent company financial statements of China Banking Corporation (the Parent Company), which comprise the consolidated and parent company balance sheets as at December 31, 2011 and 2010, and the consolidated and parent company statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

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

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

*SGVMC116556*

A member firm of Ernst & Young Global Limited

- 2 -

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

Opinion

In our opinion, the consolidated and the parent company financial statements present fairly, in all material respects, the financial position of the Group and of the Parent Company as at December 31, 2011 and 2010, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with Philippine Financial Reporting Standards.

Report on the Supplementary Information Required Under Revenue Regulations 15-2010 and 19-2011

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 15-2010 and 19-2011 in Notes 33 and 34 to the consolidated and the parent company financial statements, respectively, is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of China Banking Corporation. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Vicky B. Lee-Salas Partner CPA Certificate No. 86838 SEC Accreditation No. 0115-AR-2 (Group A), February 11, 2010, valid until February 10, 2013 Tax Identification No. 129-434-735 BIR Accreditation No. 08-001998-53-2009, June 1, 2009, Valid until May 31, 2012 PTR No. 3174802, January 2, 2012, Makati City

March 7, 2012

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES BALANCE SHEETS

Consolidated Parent Company December 31 2011 2010 2011 2010 ASSETS Cash and Other Cash Items (Note 15) P=6,050,366,433 P=6,436,427,163 P=5,902,040,106 P=6,362,296,658 Due from Bangko Sentral ng Pilipinas (Note 15) 30,122,324,047 37,124,917,961 29,571,232,355 37,053,152,975 Due from Other Banks 2,745,404,931 5,918,907,525 2,729,474,436 5,970,000,543 Interbank Loans Receivable and Securities Purchased Under Resale Agreements 671,000,000 542,000,000 – 50,000,000 Financial Assets at Fair Value through Profit or Loss (Note 7) 2,446,064,218 5,940,893,137 2,446,064,218 5,940,893,137 Available-for-Sale Financial Assets (Note 7) 45,784,601,478 51,056,967,596 44,676,609,090 50,470,093,918 Held-to-Maturity Financial Assets (Note 7) 12,960,937,205 18,549,752,774 12,877,757,205 18,466,572,774 Loans and Receivables (Notes 8 and 27) 145,238,662,573 117,185,910,049 143,426,574,049 116,201,862,888 Accrued Interest Receivable (Note 14) 1,765,726,064 1,851,874,877 1,734,364,664 1,837,212,849 Investment in Subsidiaries (Note 9) – – 1,526,180,870 1,177,238,690 Investment in Associates (Note 9) 24,480,868 20,730,869 21,245,838 17,495,838 Bank Premises, Furniture, Fixtures and Equipment (Note 10) 4,922,208,392 4,837,579,580 4,226,814,198 4,107,606,504 Investment Properties (Note 11) 3,414,896,222 3,325,072,088 3,305,272,865 3,182,078,166 Deferred Tax Assets (Note 25) 899,146,127 912,421,115 894,051,431 904,402,283 Branch Licenses (Note 12) 477,600,000 477,600,000 455,000,000 450,501,931 Goodwill (Note 12) 222,841,201 222,841,201 222,841,201 222,841,201 Other Assets (Note 13) 4,467,426,545 2,975,418,058 4,081,734,220 2,624,221,038 P=262,213,686,304 P=257,379,313,993 P=258,097,256,746 P=255,038,471,393

LIABILITIES AND EQUITY Liabilities Deposit Liabilities (Notes 15 and 27) Demand P=54,627,745,221 P=48,032,066,057 P=54,217,174,543 P=47,641,724,164 Savings 111,366,522,296 112,468,714,215 109,231,601,827 111,531,824,520 Time 50,139,445,784 52,540,829,181 48,524,077,921 51,812,955,828 216,133,713,301 213,041,609,453 211,972,854,291 210,986,504,512 Bills Payable (Note 16) 1,641,473,347 3,058,243,162 1,641,473,347 3,058,243,162 Manager’s Checks 487,057,846 340,516,064 445,940,641 304,438,108 Income Tax Payable 30,667,483 13,519,636 23,145,879 13,519,636 Accrued Interest and Other Expenses (Note 17) 1,446,533,180 1,973,594,528 1,417,595,676 1,946,895,772 Derivative Liabilities (Note 23) 146,616,341 1,204,881,662 146,616,341 1,204,881,662 Other Liabilities (Note 18) 3,038,300,110 2,293,664,901 3,228,833,471 2,180,979,932 222,924,361,608 221,926,029,406 218,876,459,646 219,695,462,784 Equity Equity Attributable to Equity Holders of the Parent Company Capital stock (Note 21) 11,798,766,800 10,726,061,700 11,798,766,800 10,726,061,700 Capital paid in excess of par value 671,504,726 671,504,726 671,504,726 671,504,726 Surplus reserves (Notes 21 and 26) 678,182,490 626,607,259 678,182,490 626,607,259 Surplus (Notes 21 and 26) 24,205,703,726 21,607,769,897 24,186,694,908 21,522,829,639 Net unrealized gains on available-for-sale financial assets (Note 7) 1,885,084,757 1,857,899,586 1,860,311,032 1,858,279,002 Cumulative translation adjustment 25,337,144 (62,273,717) 25,337,144 (62,273,717) 39,264,579,643 35,427,569,451 39,220,797,100 35,343,008,609 Non-controlling Interest 24,745,053 25,715,136 – – 39,289,324,696 35,453,284,587 39,220,797,100 35,343,008,609 P=262,213,686,304 P=257,379,313,993 P=258,097,256,746 P=255,038,471,393

See accompanying Notes to Financial Statements.

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES STATEMENTS OF INCOME

Consolidated Parent Company Years Ended December 31 2011 2010 2009 2011 2010 2009 INTEREST INCOME Loans and receivables (Notes 8 and 27) P=8,158,228,327 P=8,128,917,815 P=8,346,871,977 P=7,986,157,528 P=8,014,136,140 P=8,226,058,576 Trading and investments (Note 7) 3,913,249,272 4,569,035,286 4,539,476,971 3,857,166,402 4,522,379,979 4,493,234,086 Due from BSP and other banks 605,120,370 515,338,550 523,501,914 574,124,245 511,593,793 443,746,979 12,676,597,969 13,213,291,651 13,409,850,862 12,417,448,175 13,048,109,912 13,163,039,641 INTEREST EXPENSE Deposit liabilities (Notes 15 and 27) 3,991,837,571 4,347,085,432 4,920,273,594 3,870,059,041 4,285,144,835 4,840,281,437 Bills payable and other borrowings (Note 16) 133,021,342 233,239,114 253,540,545 133,021,342 233,211,604 253,536,031 4,124,858,913 4,580,324,546 5,173,814,139 4,003,080,383 4,518,356,439 5,093,817,468 NET INTEREST INCOME 8,551,739,056 8,632,967,105 8,236,036,723 8,414,367,792 8,529,753,473 8,069,222,173 Trading and securities gain - net (Notes 7 and 19) 1,468,637,209 1,751,292,148 1,188,455,664 1,453,123,700 1,714,887,281 1,188,455,664 Service charges, fees and commissions (Note 19) 985,257,308 1,121,278,949 996,138,359 849,127,833 1,002,896,244 952,619,656 Trust fee income (Note 26) 517,288,169 465,760,038 458,083,159 515,752,305 464,494,130 456,939,706 Gain on asset foreclosure and dacion transactions (Note 11) 310,677,828 156,414,782 243,365,389 304,776,902 156,414,782 239,975,032 Gain on sale of investment properties 247,787,229 255,369,413 62,738,489 228,756,708 246,714,440 61,995,153 Foreign exchange gain - net (Note 23) 107,063,636 544,979,438 807,845,249 106,956,091 545,145,362 807,910,971 Miscellaneous (Notes 9 and 11) 555,087,095 391,260,304 347,858,849 510,292,275 413,182,090 256,432,229 TOTAL OPERATING INCOME 12,743,537,530 13,319,322,177 12,340,521,881 12,383,153,606 13,073,487,802 12,033,550,584 Compensation and fringe benefits (Notes 22 and 27) 2,511,109,999 2,624,307,309 2,488,128,768 2,347,787,949 2,505,995,746 2,390,506,003 Occupancy cost (Note 24) 901,711,635 829,346,895 720,891,802 837,412,398 791,154,722 707,454,474 Taxes and licenses 750,210,547 721,781,710 741,284,343 715,120,851 706,119,794 717,876,859 Depreciation and amortization (Notes 10 and 11) 716,104,851 646,793,238 667,970,721 665,727,176 613,661,673 645,432,778 Stationery, supplies and postage 489,649,771 467,838,465 450,100,503 477,540,719 455,294,161 435,765,940 Insurance 458,998,134 456,883,780 436,982,823 458,871,679 452,675,699 432,826,542 Transportation and traveling 215,824,972 244,492,828 289,430,953 200,829,432 236,247,210 283,426,518 Entertainment, amusement and recreation 179,846,324 258,961,894 252,122,103 168,035,429 250,470,182 247,113,568 Repairs and maintenance 162,803,387 222,697,870 366,043,443 154,751,809 217,670,557 360,202,825 Provision for impairment and credit losses (Note 14) 155,097,500 495,830,652 792,384,146 155,097,500 495,830,652 792,384,146 Professional fees, marketing and other related services 112,542,338 195,042,883 222,616,409 109,829,246 191,147,348 220,307,349 Miscellaneous 533,342,849 460,724,501 312,427,518 497,649,972 436,250,548 294,269,289 TOTAL OPERATING EXPENSES 7,187,242,307 7,624,702,025 7,740,383,532 6,788,654,160 7,352,518,292 7,527,566,291 INCOME BEFORE INCOME TAX 5,556,295,223 5,694,620,152 4,600,138,349 5,594,499,446 5,720,969,510 4,505,984,293 PROVISION FOR INCOME TAX (Note 25) 547,408,214 690,798,526 497,509,028 519,226,442 680,688,685 484,893,558 NET INCOME P=5,008,887,009 P=5,003,821,626 P=4,102,629,321 P=5,075,273,004 P=5,040,280,825 P=4,021,090,735 Attributable to: Equity holders of the parent (Note 30) P=5,009,341,564 P=5,003,386,250 P=4,100,418,318 P=5,075,273,004 P=5,040,280,825 P=4,021,090,735 Non-controlling interest (454,555) 435,376 2,211,003 – – – P=5,008,887,009 P=5,003,821,626 P=4,102,629,321 P=5,075,273,004 P=5,040,280,825 P=4,021,090,735 Basic/Diluted Earnings Per Share (Note 30) P=42.46 P=42.41* P=34.75*

*Restated to show the effects of stock dividend distributed in 2011 (Note 21).

See accompanying Notes to Financial Statements. *SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME

Consolidated Parent Company Years Ended December 31 2011 2010 2009 2011 2010 2009 Net Income P=5,008,887,009 P=5,003,821,626 P=4,102,629,321 P=5,075,273,004 P=5,040,280,825 P=4,021,090,735 Other Comprehensive Income (Loss): Change in net unrealized gain on available-for-sale financial assets (Note 7) 28,353,993 1,430,475,406 1,635,544,965 2,032,030 1,434,122,595 1,625,696,552 Cumulative translation adjustment 87,610,861 (8,384,856) (137,832,937) 87,610,861 (8,384,856) (137,832,937) Other Comprehensive Income for the Year, net of tax 115,964,854 1,422,090,550 1,497,712,028 89,642,891 1,425,737,739 1,487,863,615 Total Comprehensive Income for the Year P=5,124,851,863 P=6,425,912,176 P=5,600,341,349 P=5,164,915,895 P=6,466,018,564 P=5,508,954,350 Total Comprehensive Income attributable to: Equity holders of the Parent Company P=5,124,137,596 P=6,425,405,261 P=5,598,130,346 Non-controlling interest 714,267 506,915 2,211,003 P=5,124,851,863 P=6,425,912,176 P=5,600,341,349

See accompanying Notes to Financial Statements.

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY

Consolidated Equity Attributable to Equity Holders of the Parent Company Net Unrealized Gains/(Losses) on Capital Paid in Surplus Available-for- Cumulative Non-controlling Capital Stock Excess of Reserves Surplus Sale Financial Translation Interest Total (Note 21) Par Value (Notes 21 and 26) (Notes 21 and 26) Assets (Note 7) Adjustment Total (Note 9) Equity Balance at January 1, 2011 P=10,726,061,700 P=671,504,726 P=626,607,259 P=21,607,769,897 P=1,857,899,586 (P=62,273,717) P=35,427,569,451 P=25,715,136 P=35,453,284,587 Total comprehensive income for the year – – – 5,009,341,564 27,185,171 87,610,861 5,124,137,596 714,267 5,124,851,863 Additional acquisition of non-controlling interest – – – – – – – (1,684,350) (1,684,350) Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – – – Cash dividends - =P12 per share – – – (1,287,127,404) – – (1,287,127,404) – (1,287,127,404) Balance at December 31, 2011 P=11,798,766,800 P=671,504,726 P=678,182,490 P=24,205,703,726 P=1,885,084,757 P=25,337,144 P=39,264,579,643 P=24,745,053 P=39,289,324,696

Balance at January 1, 2010 P=9,750,877,200 P=671,504,726 P=580,157,846 P=18,796,122,824 P=427,495,719 (P=53,888,861) P=30,172,269,454 P=25,680,881 P=30,197,950,335 Total comprehensive income for the year – – – 5,003,386,250 1,430,403,867 (8,384,856) 6,425,405,261 506,915 6,425,912,176 Additional acquisition of non-controlling interest – – – – – – – (472,660) (472,660) Transfer from surplus to surplus reserves – – 46,449,413 (46,449,413) – – – – – Stock dividends - 10% 975,184,500 – – (975,184,500) – – – – – Cash dividends - =P12 per share – – – (1,170,105,264) – – (1,170,105,264) – (1,170,105,264) Balance at December 31, 2010 P=10,726,061,700 P=671,504,726 P=626,607,259 P=21,607,769,897 P=1,857,899,586 (P=62,273,717) P=35,427,569,451 P=25,715,136 P=35,453,284,587

Balance at January 1, 2009 P=8,864,346,900 P=671,504,726 P=534,463,875 P=16,691,650,405 (P=1,208,049,246) P=83,944,076 P=25,637,860,736 P=68,281,493 P=25,706,142,229 Total comprehensive income for the year – – – 4,100,418,318 1,635,544,965 (137,832,937) 5,598,130,346 2,211,003 5,600,341,349 Share of non-controlling interest in China Bank Savings’ net assets – – – – – – – 16,224 16,224 Additional acquisition of non-controlling interest – – – – – – – (44,827,839) (44,827,839) Transfer from surplus to surplus reserves – – 45,693,971 (45,693,971) – – – – – Stock dividends - 10% 886,530,300 – – (886,530,300) – – – – – Cash dividends - =P12 per share – – – (1,063,721,628) – – (1,063,721,628) – (1,063,721,628) Balance at December 31, 2009 P=9,750,877,200 P=671,504,726 P=580,157,846 P=18,796,122,824 P=427,495,719 (P=53,888,861) P=30,172,269,454 P=25,680,881 P=30,197,950,335 See accompanying Notes to Financial Statements.

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY

Parent Company Net Unrealized Gains/(Losses) on Capital Paid in Surplus Available-for- Cumulative Capital Stock Excess of Reserves Surplus Sale Financial Translation Total (Note 21) Par Value (Notes 21 and 26) (Notes 21 and 26) Assets (Note 7) Adjustment Equity Balance at January 1, 2011 P=10,726,061,700 P=671,504,726 P=626,607,259 P=21,522,829,639 P=1,858,279,002 (P=62,273,717) P=35,343,008,609 Total comprehensive income for the year – – – 5,075,273,004 2,032,030 87,610,861 5,164,915,895 Transfer from surplus to surplus reserves – – 51,575,231 (51,575,231) – – – Stock dividends - 10% 1,072,705,100 – – (1,072,705,100) – – – Cash dividends - =P12 per share – – – (1,287,127,404) – – (1,287,127,404) Balance at December 31, 2011 P=11,798,766,800 P=671,504,726 P=678,182,490 P=24,186,694,908 P=1,860,311,032 P=25,337,144 P=39,220,797,100 Balance at January 1, 2010 P=9,750,877,200 P=671,504,726 P=580,157,846 P=18,674,287,991 P=424,156,407 (P=53,888,861) P=30,047,095,309 Total comprehensive income for the year – – – 5,040,280,825 1,434,122,595 (8,384,856) 6,466,018,564 Transfer from surplus to surplus reserves – – 46,449,413 (46,449,413) – – – Stock dividends - 10% 975,184,500 – – (975,184,500) – – – Cash dividends - =P12 per share – – – (1,170,105,264) – – (1,170,105,264) Balance at December 31, 2010 P=10,726,061,700 P=671,504,726 P=626,607,259 P=21,522,829,639 P=1,858,279,002 (P=62,273,717) P=35,343,008,609 Balance at January 1, 2009 P=8,864,346,900 P=671,504,726 P=534,463,875 P=16,649,143,155 (P=1,201,540,145) P=83,944,076 P=25,601,862,587 Total comprehensive income for the year – – – 4,021,090,735 1,625,696,552 (137,832,937) 5,508,954,350 Transfer from surplus to surplus reserves – – 45,693,971 (45,693,971) – – – Stock dividends - 10% 886,530,300 – – (886,530,300) – – – Cash dividends - =P12 per share – – – (1,063,721,628) – – (1,063,721,628) Balance at December 31, 2009 P=9,750,877,200 P=671,504,726 P=580,157,846 P=18,674,287,991 P=424,156,407 (P=53,888,861) P=30,047,095,309

See accompanying Notes to Financial Statements.

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS

Consolidated Parent Company December 31 2011 2010 2009 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=5,556,295,223 P=5,694,620,152 =4P,600,138,349 P=5,594,499,446 P=5,720,969,510 =4P,505,984,293 Adjustments for: Provision for impairment and credit losses (Note 14) 155,097,500 495,830,652 792,384,146 155,097,500 495,830,652 792,384,146 Depreciation and amortization (Notes 10 and 11) 716,104,851 646,793,238 667,970,722 665,727,176 613,661,673 645,432,778 Gain on sale of investment properties (247,787,229) (255,369,413) (62,738,489) (228,756,708) (246,714,440) (61,995,153) Gains on asset foreclosures and dacion transactions (310,677,828) (156,414,782) (243,365,389) (304,776,902) (156,414,782) (239,975,032) Trading and securities gain on available-for-sale investments (Note 19) (1,649,670,998) (1,402,058,073) (408,289,472) (1,634,157,490) (1,365,653,205) (408,289,472) Unrealized market valuation loss (gain) on derivative assets and liabilities (Note 23) (906,927,956) 1,175,761,287 (966,547,678) (906,927,956) 1,175,761,287 (966,547,678) Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial instruments at FVPL 4,401,756,875 (2,183,944,933) (1,956,229,659) 4,401,756,875 (2,183,944,933) (1,956,229,659) Loans and receivables (28,445,295,808) (7,591,823,440) (717,889,596) (27,579,649,432) (7,301,370,865) (805,150,162) Other assets (1,493,091,335) (247,633,744) 331,894,029 (1,457,402,731) (201,135,555) 187,371,098 Increase (decrease) in the amounts of: Deposit liabilities 3,092,103,848 19,751,570,207 19,510,783,156 986,349,779 19,187,159,141 19,903,688,361 Manager’s checks 146,541,782 (113,305,449) 103,773,632 141,502,533 (128,958,361) 86,079,859 Accrued interest and other expenses (527,061,348) 110,476,366 (86,685,264) (529,300,096) 112,171,106 (85,702,348) Other liabilities (313,630,112) 1,233,790,492 (388,902,106) (362,167,682) 1,230,982,360 (416,734,014) Net cash generated from (used in) operations (19,826,242,535) 17,158,292,560 21,176,296,381 (21,058,205,688) 16,952,343,588 21,180,317,017 Income taxes paid (518,041,465) (686,992,256) (519,933,410) (497,381,297) (676,882,415) (504,846,149) Net cash provided by (used in) operating activities (20,344,284,000) 16,471,300,304 20,656,362,971 (21,555,586,985) 16,275,461,173 20,675,470,868 CASH FLOWS FROM INVESTING ACTIVITIES Additions to bank premises, furniture, fixtures and equipment (Note 10) (705,749,909) (584,031,635) (712,134,538) (675,277,043) (492,999,072) (675,495,250) Proceeds from disposal of bank premises, furniture, fixtures and equipment (Note 10) 50,759,378 19,796,429 27,631,519 46,263,014 19,288,220 27,494,943 Proceeds from sale of investment properties 632,372,288 1,047,066,217 541,570,200 556,996,574 1,011,115,059 532,633,608 Additions to equity investments (Note 9) (3,750,000) (3,750,000) (2,500,000) (5,434,350) (4,222,659) (16,269,582) Purchases of: Held-to-maturity financial assets – (798,515,260) (563,376,089) – (798,515,260) 2,248,737,943 Available-for-sale financial assets (60,773,830,107) (106,775,806,293) (85,226,995,913) (59,575,774,559) (105,350,194,387) (84,810,138,130) Proceeds from sale/Maturity of: Held-to-maturity financial assets 5,588,815,569 4,310,147,289 2,248,737,943 5,588,815,569 4,310,147,289 70,752,997,179 Available-for-sale financial assets 67,828,091,112 104,064,027,337 71,976,971,546 67,091,191,720 102,442,351,788 486,351,589 Net cash provided by (used in) investing activities 12,616,708,331 1,278,934,084 (11,710,095,332) 13,026,780,925 1,136,970,978 ( 11 , 4 5 3 , 6 87 ,700) (Forward)

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Consolidated Parent Company December 31 2011 2010 2009 2011 2010 2009 CASH FLOWS FROM FINANCING ACTIVITIES Payments of bills payable (P=1,465,762,235) (P=11,765,855,891) (P=8,536,204,766) (P=1,465,762,235) (P=11,765,855,891) (P=8,536,204,766) Availments of bills payable 48,992,420 9,038,427,401 10,416,413,371 48,992,420 9,038,427,401 10,416,413,371 Acqusitions of non-controlling interest (Note 9) (1,684,350) (472,660) (13,769,582) – – – Payments of cash dividends (Note 21) (1,287,127,404) (1,170,105,264) (1,063,721,628) (1,287,127,404) (1,170,105,264) (1,063,721,628) Net cash provided by (used in) financing activities (2,705,581,569) (3,898,006,414) 802,717,395 (2,703,897,219) (3,897,533,754) 816,486,977 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,433,157,238) 13,852,227,974 9,748,985,034 (11,232,703,279) 13,514,898,397 10,038,270,145 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items 6,436,427,163 5,795,456,440 4,075,518,568 6,362,296,658 5,756,920,133 4,049,328,721 Due from Bangko Sentral ng Pilipinas 37,124,917,961 11,621,324,385 13,708,932,849 37,053,152,975 11,553,930,023 13,595,936,653 Due from other banks 5,918,907,525 6,770,243,850 4,236,588,224 5,970,000,543 6,761,701,623 4,217,016,260 Interbank loans receivable and securities purchased under resale agreements 542,000,000 11,983,000,000 4,400,000,000 50,000,000 11,848,000,000 4,020,000,000 50,022,252,649 36,170,024,675 26,421,039,641 49,435,450,176 35,920,551,779 25,882,281,634 CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items 6,050,366,433 6,436,427,163 5,795,456,440 5,902,040,106 6,362,296,658 5,756,920,133 Due from Bangko Sentral ng Pilipinas 30,122,324,047 37,124,917,961 11,621,324,385 29,571,232,355 37,053,152,975 11,553,930,023 Due from other banks 2,745,404,931 5,918,907,525 6,770,243,850 2,729,474,436 5,970,000,543 6,761,701,623 Interbank loans receivable and securities purchased under resale agreements 671,000,000 542,000,000 11,983,000,000 – 50,000,000 11,848,000,000 P=39,589,095,411 P=50,022,252,649 =36P ,170,024,675 P=38,202,746,897 P=49,435,450,176 =35P ,920,551,779

OPERATING CASH FLOWS FROM INTEREST

Consolidated Parent Company December 31 2011 2010 2009 2011 2010 2009 Interest paid P=4,240,779,972 P=4,598,644,446 P=6,000,452,531 P=4,129,661,850 P=4,534,805,223 P=5,918,270,586 Interest received 12,611,580,103 13,410,408,745 13,284,898,658 12,596,074,030 13,233,984,273 13,105,371,581

See accompanying Notes to Financial Statements.

*SGVMC116556*

CHINA BANKING CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

China Banking Corporation (the Parent Company) is a publicly listed commercial bank incorporated in the Philippines. The Parent Company acquired its universal banking license in 1991. It provides expanded commercial banking products and services such as deposit products, loans and trade finance, domestic and foreign fund transfers, treasury products, trust products, foreign exchange, corporate finance and other investment banking services through a network of 268 local branches.

The Parent Company has the following subsidiaries:

Effective Percentages of Ownership Country of Subsidiary 2011 2010 Incorporation Principal Activities Chinabank Insurance Brokers, Inc. (CIBI) 100.00% 100.00% Philippines Insurance brokerage CBC Properties and Computer Center, Inc. (CBC-PCCI) 100.00% 100.00% Philippines Computer services CBC Forex Corporation 100.00% 100.00% Philippines Foreign exchange China Bank Savings, Inc. (CBSI) 95.17% 95.08% Philippines Retail and consumer banking

The Parent Company has no ultimate parent company. SM Investments Corporation, its significant investor, has effective ownership in the Parent Company of 20.27% as of December 31, 2011 and 2010.

The Parent Company’s principal place of business is at 8745 Paseo de Roxas corner Villar Streets, Makati City.

The accompanying consolidated and parent company financial statements were authorized for issue by the Parent Company’s Board of Directors (BOD) on March 7, 2012.

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 (collectively referred to as “the Group”).

The accompanying financial statements have been prepared on a historical cost basis except for financial assets at fair value through profit or loss (FVPL), available-for-sale (AFS) financial assets, and derivative financial instruments that have been measured at fair value. The financial statements are presented in Philippine pesos, and all values are rounded to the nearest peso except when otherwise indicated.

The financial statements of the Parent Company reflect the accounts maintained in the Regular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The financial statements of these units are combined after eliminating inter-unit accounts.

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Statement of Compliance The financial statements of the Group and the Parent Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Basis of Consolidation and Investments in Subsidiaries The consolidated financial statements of the Group are prepared for the same reporting year as the Parent Company, using consistent accounting policies.

Subsidiaries are all entities over which the Parent Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Parent Company controls another entity.

All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are eliminated in full.

Subsidiaries are consolidated from the date on which control is transferred to the Parent Company. Control is achieved when the Parent Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidation of subsidiaries ceases when control is transferred out of the Group.

When a change in ownership interest in a subsidiary occur which result in loss of control over the subsidiary, the Parent Company:

• Derecognizes the assets (including goodwill) and liabilities of the subsidiary • Derecognizes the carrying amount of any non-controlling interest • Derecognizes the related other comprehensive income (OCI) recorded in equity and recycle the same to profit or loss or surplus • Recognizes the fair value of the consideration received • Recognizes the fair value of any investment retained • Recognizes the remaining difference in profit or loss

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition up to the date of disposal, as appropriate.

In the separate or parent company financial statements, investments in subsidiaries are carried at cost, less accumulated impairment in value. Dividends earned on these investments are recognized in the Parent Company’s statement of income as declared by the respective BOD of the investees.

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 balance sheet, separately from parent shareholders' equity. 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

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does not result in a loss of control are accounted for as equity transaction, 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 and Disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended PFRS adopted as of January 1, 2011:

• Philippine Accounting Standards (PAS) 24 (Amendment), Related Party Disclosures The amended standard clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The amendment only affected the disclosures in Note 27 to the financial statements.

• PFRS 7, Financial Instruments: Disclosures (Improvements to PFRSs 2010) The improvement was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Group presented the revised disclosure requirements in Note 6 to the financial statements.

The following new, amendments and improvements to existing PFRS and Interpretations, which became effective in January 1, 2011, did not have a significant impact on the accounting policies, financial condition or performance of the Group.

New and amended standards and interpretations • PFRS 7, Financial Instruments: Disclosures (Amendments) - Disclosures - Transfers of Financial Assets • PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues • Philippine Interpretation IFRIC-14 (Amendment) - Prepayments of a Minimum Funding Requirement • Philippine Interpretation IFRIC-19, Extinguishing Financial Liabilities with Equity Instruments

Improvements to PFRSs 2010 • PAS 1, Presentation of Financial Statements • PAS 27, Consolidated and Separate Financial Statements • PFRS 3, Business Combinations • Philippine Interpretation IFRIC-13, Customer Loyalty Programmes

Significant Accounting Policies

Foreign Currency Translation The consolidated financial statements are presented in Philippine pesos, which is the Parent Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of the Parent Company’s subsidiaries is the Philippine pesos.

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Transactions and balances The books of accounts of the RBU are maintained in Philippine pesos, the RBU’s functional currency, while those of the FCDU are maintained in United States (US) dollars, the FCDU’s functional currency. For financial reporting purposes, the foreign currency-denominated monetary assets and liabilities in the RBU are translated in Philippine pesos based on the Philippine Dealing System (PDS) closing rate prevailing at end of the year, and foreign currency-denominated income and expenses, at the PDS weighted average rate (PDSWAR) for the year. Foreign exchange differences arising from restatements of foreign currency-denominated assets and liabilities are credited to or charged against operations in the period in which the rates change.

FCDU As at the reporting date, the assets and liabilities of the FCDU are translated into the Parent Company’s presentation currency (the ) at the PDS closing rate prevailing at the balance sheet date, and its income and expenses are translated at the PDSWAR for the year. Exchange differences arising on translation are taken directly to the statement of comprehensive income under ‘Cumulative translation adjustment’.

Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items, due from Bangko Sentral ng Pilipinas (BSP) and other banks, and interbank loans receivable and securities purchased under resale agreements (SPURA) with original maturities of three months or less from dates of placements and that are subject to insignificant risk of changes in value.

Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the trade date (i.e., the date that the Group commits to purchase or sell the asset). Derivatives are also recognized on a trade date basis. Deposits, amounts due to banks and customers and loans are recognized when cash is received by the Group or advanced to the borrowers. Securities transactions and related commission income and expense are recorded on a trade date basis.

Initial recognition of financial instruments All financial instruments, including trading and investment securities and loans and receivables, are initially recognized at fair value. Except for financial assets and financial liabilities at FVPL, the initial measurement of financial instruments includes transaction costs. The Group classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) financial assets, AFS financial assets, and loans and receivables while financial liabilities are classified as financial liabilities at FVPL and financial liabilities carried at amortized cost. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

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

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For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

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

Financial assets and financial liabilities at fair value through profit or loss Financial assets and financial liabilities at FVPL include financial assets and liabilities held for trading purposes, financial assets and financial liabilities designated upon initial recognition as at FVPL, and derivative instruments.

Financial assets and financial liabilities are classified as held for trading (HFT) if they are acquired for the purpose of selling and repurchasing in the near term. Included in this classification are debt and equity securities which have been acquired principally for trading purposes.

Financial assets and financial liabilities are designated as at FVPL by management on initial recognition when any of the following criteria are met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis; or • the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or • the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

As of December 31, 2011 and 2010, the Group has no financial instruments designated as at FVPL.

Financial assets and financial liabilities at FVPL are recorded in the balance sheet at fair value. Changes in fair value are recognized in ‘Trading and securities gain - net’ in the statement of income. Interest earned or incurred is recorded in ‘Interest income’ or ‘Interest expense’, respectively, while dividend income is recorded in ‘Miscellaneous income’ when the right to receive payment has been established.

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Derivatives recorded at fair value through profit or loss The Parent Company is a party to derivative instruments, particularly, forward exchange contracts. These contracts are entered into as a service to customers and as a means of reducing and managing the Parent Company’s foreign exchange risk, as well as for trading purposes, but are not designated as hedges. Such derivative financial instruments are stated at fair value through profit or loss.

Embedded derivatives that are bifurcated from the host financial and non-financial contracts are also accounted for at FVPL.

An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at fair value through profit or loss. The Group assesses whether embedded derivatives are required to be separated from the host contracts when the Group first becomes a party to the contract. Reassessment of embedded derivatives is only done when there are changes in the contract that significantly modifies the contractual cash flows that would otherwise be required.

Held-to-maturity financial assets HTM financial assets are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group’s management has the positive intention and ability to hold to maturity. Where the Group would sell other than an insignificant amount of HTM financial assets, the entire category would be tainted and reclassified as AFS financial assets.

After initial measurement, these investments are subsequently measured at amortized cost using the effective interest method, less any impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate (EIR). The amortization is included in ‘Interest income’ in the statement of income. Gains and losses are recognized in income when the HTM financial assets are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments are recognized in the statement of income under ‘Provision for impairment and credit losses’. The effects of translation of foreign currency-denominated HTM financial assets are recognized in the statement of income.

Loans and receivable This accounting policy relates to the balance sheet captions ‘Due from BSP’, ‘Due from other banks’, ‘Interbank loans receivable and SPURA’, ‘Loans and receivables’, and ‘Accrued interest receivable’. It also applies to accounts receivable and other financial instruments shown under ‘Other assets’. These are financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as FVPL or as AFS financial assets.

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

*SGVMC116556* - 7 -

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

After initial measurement, AFS financial assets are subsequently measured at fair value. The effective yield component of AFS debt securities, as well as the impact of translation of foreign currency-denominated AFS debt securities, is reported in the statement of income. The unrealized gains and losses arising from the fair valuation of AFS financial assets are excluded, net of tax, from reported earnings and are reported as ‘Net unrealized gain (loss) on AFS financial assets’ under OCI.

When the security is disposed of, the cumulative gain or loss previously recognized in OCI is recognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned on holding AFS debt securities are reported as ‘Interest income’ using the EIR. Dividends earned on holding AFS equity instruments are recognized in the statement of income as ‘Miscellaneous income’ when the right to the payment has been established. The losses arising from impairment of such investments are recognized as ‘Provision for impairment and credit losses’ in the statement of income.

Reclassification of Financial Assets The Group may reclassify, in certain circumstances, non-derivative financial assets out of the HFT investments category and into the AFS investments, Loans and Receivables or HTM investments categories. The Group may also reclassify, in certain circumstances, financial instruments out of the AFS investment to Loans and Receivables category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortized cost.

The Group may reclassify a non-derivative trading asset out of HFT investments and into the Loans and Receivable category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial assets for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate.

For a financial asset reclassified out of the AFS investments category, any previous gain or loss on that asset that has been recognized in OCI is amortized to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the effective interest method. If the asset is subsequently determined to be impaired then the amount recorded in OCI is recycled to the statement of income. Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Group does not reclassify any financial instrument into the FVPL category after initial recognition.

Other financial liabilities These are issued financial instruments or their components which are not designated as at FVPL and where 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 its own equity shares. The components of issued financial instruments that contain both liability and

*SGVMC116556* - 8 -

equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

After initial measurement, other financial liabilities not qualified and not designated as at FVPL 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.

This accounting policy relates to the balance sheet captions ‘Deposit liabilities’, ‘Bills payable’, ‘Manager’s checks’, ‘Accrued interest and other expenses’ and ‘Other liabilities’.

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 of 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 of 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 the 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. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.

Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase at a specified future date (‘repos’) are not derecognized from the balance sheet. The corresponding cash received, including accrued interest, is recognized in the balance sheet as a loan to the Group, 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 balance sheet. The corresponding cash paid, including accrued interest, is recognized in the balance sheet 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.

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Impairment of Financial Assets The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost For financial assets carried at amortized cost, 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.

If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to the statement of income. Interest income continues to be recognized based on the original EIR of the asset. The financial assets, 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 the Group determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, collateral type and past-due status.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period 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 period to period (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred

*SGVMC116556* - 10 -

losses in the Group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to ‘Provision for impairment and credit losses’.

Financial assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Available-for-sale financial assets For AFS financial assets, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In the case of equity investments classified as AFS financial assets, this would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the statement of income - is removed from OCI and recognized in the statement of income. Impairment losses on equity investments are not reversed through the statement of income. Increases in fair value after impairment are recognized directly in OCI.

In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of ‘Interest income’ in the statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income.

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 past due. Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR. The difference between the recorded value of the original loan and the present value of the restructured cash flows, discounted at the original EIR, is recognized in ‘Provision for impairment and credit losses’ in the statement of income.

*SGVMC116556* - 11 -

Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheet.

Investments in Associates Associates pertain to all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20.00% and 50.00% of the voting rights. In the consolidated financial statements, investments in associates are accounted for under the equity method of accounting.

Under the equity method, an investment in an associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate. Goodwill relating to an associate is included in the carrying value of the investments and is not amortized. The statement of income reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Profits or losses resulting from transactions between the Group and an associate are eliminated to the extent of the interest in the associate.

The financial statements of the associate are prepared for the same reporting period as the Parent Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

In the separate or parent company financial statements, investments in associates are carried at cost, less accumulated impairment in value. Dividends earned on these investments are recognized in the Parent Company’s statement of income as declared by the respective BOD of the investees.

Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. 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 a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments classified as FVPL and AFS financial assets, interest income is recorded at the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the

*SGVMC116556* - 12 -

financial instrument (for example, prepayment options), includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, as applicable, but not future credit losses. The adjusted carrying amount is calculated based on the original EIR. The change in carrying amount is recorded as ‘Interest income’.

Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original EIR applied to the new carrying amount.

Loan fees and service charges Loan commitment fees are recognized as earned over the terms of the credit lines granted to each borrower. Loan syndication fees are recognized upon completion of all syndication activities and where the Group does not have further obligations to perform under the syndication agreement.

Service charges and penalties are recognized only upon collection or accrued where there is a reasonable degree of certainty as to their collectibility.

Dividend income Dividend income is recognized when the Group’s right to receive payment is established.

Trading and securities gains This represent results arising from trading activities including all gains and losses from changes in fair value of financial assets held for trading and designated at FVPL. It also includes gains and losses realized from sale of AFS financial assets.

Rental income Rental income arising on leased properties is accounted for on a straight-line basis over the lease terms on ongoing leases and is recorded in the statement of income under ‘Miscellaneous income’.

Bank Premises, Furniture, Fixtures and Equipment Land is stated at cost less any impairment in value while depreciable properties including buildings, leasehold improvements, and furniture, fixture and equipment are stated at cost less accumulated depreciation and amortization, and any impairment in value. Such cost includes the cost of replacing part of the bank premises, furniture, fixtures and equipment when that cost is incurred and if the recognition criteria are met, but excluding repairs and maintenance costs.

Depreciation and amortization is calculated on the straight-line method over the estimated useful life (EUL) of the depreciable assets as follows:

EUL Buildings 50 years Furniture, fixtures and equipment 3 to 5 years Leasehold improvements Shorter of 6 years or the related lease terms

The depreciation and amortization method and useful life are reviewed periodically to ensure that the method and period of depreciation and amortization are consistent with the expected pattern of economic benefits from items of bank premises, furniture, fixtures and equipment.

*SGVMC116556* - 13 -

An item of bank premises, furniture, fixtures and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized.

Investment Properties Investment properties include real properties acquired in settlement of loans and receivables which are measured initially at cost including certain transaction costs. Investment properties acquired through a nonmonetary asset exchange is measured initially at fair value unless (a) the exchange lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any accumulated impairment in value.

Investment properties are derecognized when they have either been disposed of or when the investment properties are permanently withdrawn from use and no future benefit is expected from their disposal. Any gain or loss on the derecognition of an investment property is recognized as ‘Gain on sale of investment properties’ in the statement of income in the year of derecognition.

Expenditures incurred after the investment properties have been put into operation, such as repairs and maintenance costs, are normally charged to income in the period in which the costs are incurred.

Depreciation is calculated on a straight-line basis using the EUL of the building and improvement components of investment properties which ranged from 10 to 20 years from the time of acquisition of the investment properties.

Transfers are made to investment properties when, and only when, there is a change in use evidenced by ending of owner occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is a change in use evidenced by commencement of owner occupation or commencement of development with a view to sale.

Business Combinations and Goodwill 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 charged to profit or loss.

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.

*SGVMC116556* - 14 -

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with IAS 39 either in profit or loss or as a charge to OCI. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.

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 difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Impairment of Goodwill For the purpose of impairment testing, goodwill acquired in a business combination is, from the date of acquisition, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that 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 or group of units. Each unit or group of units 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 identified for segment reporting purposes.

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

When subsidiaries are disposed of, the difference between the selling price and the net assets plus related OCI (excluding revaluation increment) and unamortized goodwill is recognized in the statement of income.

Intangible Assets Intangible assets include branch licenses resulting from the Parent Company’s acquisition of CBSI (see Note 12).

The branch licenses are initially measured at fair value as of the date of acquisition and are deemed to have an indefinite useful life as there is no foreseeable limit to the period over which they are expected to generate net cash inflows for the Group.

Such intangible assets are not amortized, instead they are tested for impairment annually either individually or at the cash generating unit level. Impairment is determined by assessing the recoverable amount of each cash-generating unit (or group of cash-generating units) to which the intangible asset relates. Recoverable amount is the higher of the cash-generating unit’s fair value less costs to sell and its value in use. Where the recoverable amount of the cash-generating units is less than its carrying amount, an impairment loss is recognized.

Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in earnings when the asset is derecognized. *SGVMC116556* - 15 -

Impairment of Nonfinancial Assets At each reporting date, the Group assesses whether there is any indication that its nonfinancial assets (e.g., investment properties, bank premises, furniture, fixtures and equipment and intangible assets) may be impaired. When an indicator of impairment exists or when an annual impairment testing for an asset is required, the Group makes a formal estimate of recoverable amount.

Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable amount, the asset (or cash generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash generating unit).

An impairment loss is charged to operations in the year in which it arises.

For nonfinancial assets, excluding goodwill and branch licenses, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed, except for goodwill, only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of income. 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.

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.

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Group as lessor 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.

Retirement Benefits The Group has a noncontributory defined benefit retirement plan.

The retirement cost of the Parent Company and its subsidiaries is determined using the projected unit credit method. Under this method, the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period.

The asset recognized in the balance sheet in respect of defined benefit pension plans is the fair value of plan assets as at the balance sheet date less present value of the defined benefit obligation, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rate on government bonds that have terms to maturity approximating the terms of the related retirement liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited to or charged against income when the net cumulative unrecognized actuarial gains and losses at the end of the previous period exceeded 10% of the higher of the defined benefit obligation or the fair value of plan assets at that date. These excess gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

Past-service costs, if any, are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period.

The defined benefit asset or liability comprises the present value of the defined benefit obligation less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Group nor can they be paid directly to the Group. Fair value is based on market price information and in the case of quoted securities it is the published bid price. The value of any plan asset recognized is restricted to the sum of any past service costs not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

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

*SGVMC116556* - 17 -

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 an interest expense.

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

Income Taxes Current Tax Current tax assets and liabilities for the current and prior 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 as of the balance sheet date.

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

Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carry forward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences that arise 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.

Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries and associates.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit 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 balance sheet date.

Current tax and deferred tax relating to items recognized directly in equity is also recognized in equity and not in the statement of income.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority. *SGVMC116556* - 18 -

Earnings per Share Basic earnings per share (EPS) is computed by dividing net income for the year by the weighted average number of common shares outstanding during the year after giving retroactive effect to stock dividends declared and stock rights exercised during the year, if any.

The Parent Company has no outstanding dilutive potential common shares.

Dividends on Common Shares Dividends on common shares are recognized as a liability and deducted from equity when approved by the respective shareholders of the Parent Company and its subsidiaries. Dividends declared during the year that are approved after the balance sheet date are dealt with as an event after the balance sheet date.

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. Financial information on business segments is presented in Note 29. The Group’s revenue producing assets are located in the Philippines (i.e., one geographical location). Therefore, geographical segment information is no longer presented.

Fiduciary Activities Assets and income arising from fiduciary activities together with related undertakings to return such assets to customers are excluded from the financial statements where the Parent Company acts in a fiduciary capacity such as nominee, trustee or agent.

Events after the Reporting Period Post-year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting event) are reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed when material to the financial statements.

Future Changes in Accounting Policies

The Group will adopt the Standards and Interpretations enumerated below when these become effective. Except as otherwise indicated, the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have significant impact on its financial statements.

Effective 2012 PAS 12, Income Taxes (Amendment) - Deferred Tax: Recovery of Underlying Assets The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale.

PFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognized assets to enable the user to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendment affects disclosures only and has no impact on the Group’s financial position or performance. *SGVMC116556* - 19 -

Effective 2013 PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information, which is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments to PFRS 7 are to be retrospectively applied for annual periods beginning on or after January 1, 2013. The amendments affect disclosures only and has no impact on the Group’s financial position or performance.

PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC) - 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The Group will assess the impact of this standard in the consolidated financial statements as it becomes effective.

PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities: Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.

PFRS 12, Disclosure of Involvement with Other Entities PFRS 12 includes all of the disclosures that were previously in PAS 27 relating to consolidated financial statements, as well as all of the disclosures that were previously included in PAS 31 and PAS 28. A number of new disclosures are also required.

PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the balance sheet and statement of income. *SGVMC116556* - 20 -

PAS 1, Financial Statement Presentation: Presentation of Items of Other Comprehensive Income The amendments to PAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group’s balance sheet and statement of income.

PAS 19, Employee Benefits (Amendment) There are numerous amendments to PAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The Group is currently assessing the full impact of the remaining amendments.

PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The Parent Company will assess the impact of the revised standard in its separate financial statements as it becomes effective.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamed to Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The Group will assess the impact of the revised standard as it becomes effective.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”) and provides guidance on the recognition of production stripping costs as an asset and measurement of the stripping activity asset.

Effective 2014 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. While the amendment is expected not to have any impact on the net assets of the Group, any changes in offsetting is expected to impact leverage ratios and regulatory capital requirements. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. The Group is currently assessing impact of the amendments to PAS 32.

Effective 2015 PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, 2015. In subsequent phases, impairment, hedge accounting and derecognition will be addressed. The completion of this project is expected on the first half of 2012. The adoption of the first phase of

*SGVMC116556* - 21 -

PFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture of the impact on the Group’s financial position and performance.

Philippine Interpretation IFRIC-15, Agreement for Construction of Real Estate This Interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion. The Securities and Exchange Commission (SEC) and the Financial Reporting Standards Council have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in accordance with PFRS requires the Group to make judgments and estimates that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent liabilities. Future events may occur which will cause the judgments and assumptions used in arriving at the estimates to change. The effects of any change in judgments and estimates are reflected in the financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments a. Operating leases 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 of ownership of these properties which are leased out under operating leases.

The Group has also entered into leases on premises it uses for its operations. The Group has determined, based on the evaluation of the lease agreement, that all significant risks and rewards of ownership of the properties it leases are not transferrable to the Group.

b. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the balance sheet or disclosed in the notes cannot be derived from active markets, they are determined using a variety of valuation techniques acceptable to the market as alternative valuation approaches *SGVMC116556* - 22 -

that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives. c. HTM financial assets The classification to HTM financial assets requires significant judgment. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than in certain specific circumstances - for example, selling an insignificant amount close to maturity - it will be required to reclassify the entire portfolio as part of AFS financial assets. The investments would therefore be measured at fair value and not at amortized cost. d. Financial assets not quoted in an active market The Group classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination of whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions conducted on an arm’s length basis. e. Functional currency PAS 21 requires management to use its judgment in determining 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.

Estimates a. Impairment losses on loans and receivables The Group reviews its loans and receivables at each reporting date to assess whether an allowance for credit losses should be recorded in the balance sheet and any changes thereto 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 level of allowance required. Such estimates are based on assumptions about a number of factors. Actual results may also differ, resulting in future changes to the allowance.

In addition to specific allowance against individually significant loans and receivables, the Group also makes a collective impairment assessment on exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. The resulting collective allowance is based on any deterioration in the internal rating of the loan or investment since it was granted or acquired. These internal ratings take into consideration factors such as any deterioration in country risk, industry, and technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows.

*SGVMC116556* - 23 -

As of December 31, 2011 and 2010, the allowance for impairment and credit losses on loans and receivables of the Group amounted to P=7.57 billion and =P7.76 billion, respectively (see Notes 8 and 14). Loans and receivables of the Group amounted to =P145.24 billion and P=117.19 billion as of December 31, 2011 and 2010, respectively (see Note 8). As of December 31, 2011 and 2010, the allowance for impairment and credit losses on loans and receivables of the Parent Company amounted to P=7.40 billion and =P7.58 billion, respectively (see Notes 8 and 14). Loans and receivables of the Parent Company amounted to P=143.43 billion and P=116.20 billion as of December 31, 2011 and 2010, respectively (see Note 8). b. Fair value of financial instruments The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (e.g., financial models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All financial models are certified before they are used and are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, the 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 could affect reported fair value of financial instruments (see Note 5). c. Impairment of AFS equity investments The Group treats AFS equity investments as impaired when there has been a significant or prolonged decline in their fair values below their costs or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. The Group treats ‘significant’ generally as 20.00% or more of the original cost of investment, and ‘prolonged’ as greater than 12 months. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and future cash flows and discount factors for unquoted equities.

As of December 31, 2011 and 2010, allowance for impairment losses on AFS equity securities amounted to =P2.08 million and =P3.25 million, respectively, for the Group and P=1.20 million and =P2.15 million, respectively, for the Parent Company (see Note 14). As of December 31, 2011 and 2010, the carrying value of AFS equity securities (included under AFS financial assets) amounted to P=141.22 million and P=170.03 million, respectively, for the Group and P=133.74 million and P=170.03 million, respectively, for the Parent Company (see Note 7). d. Recognition of deferred income taxes Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Management discretion is required to determine the amount of deferred tax assets that can be recognized, based on the forecasted level of future taxable profits and the related future tax planning strategies.

The Group believes it will be able to generate sufficient taxable income in the future to utilize its recorded deferred tax assets. Taxable income is sourced mainly from interest income from lending activities and earnings from service charge, fees, commissions and trust activities.

As discussed in Note 25, the Group recognized net deferred tax assets as of December 31, 2011 and 2010 amounting to =P899.15 million and =P912.42 million, respectively. The Parent Company’s net deferred tax assets as of December 31, 2011 and 2010 amounted to

*SGVMC116556* - 24 -

P=894.05 million and P=904.40 million, respectively. Deferred tax assets on deductible temporary differences which the Group and the Parent Company did not recognize are disclosed in Note 25. e. Net plan assets and retirement expense The determination of the Group’s net plan assets and annual retirement expense is dependent on the selection of certain assumptions used in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan assets, salary increase rates and projected plan asset yields (see Note 22).

In accordance with PFRS, actual results that differ from the Group’s assumptions, subject to the 10.00% corridor test, are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded net plan assets in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences between actual experiences and assumptions may materially affect the Group’s net plan assets and annual retirement expense.

As of December 31, 2011 and 2010, the Group’s net plan assets amounted to =P224.59 million and =P232.74 million, respectively. As of December 31, 2011 and 2010, the Parent Company’s net plan assets amounted to =P246.45 million (see Note 22). f. Estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties The Group estimates the useful lives of its bank premises, furniture, fixture and equipment, and investment properties. This estimates are reviewed periodically to ensure that the period of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of bank premises, furniture, fixture and equipment, and investment properties. A reduction in the estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties would increase the recorded depreciation and amortization expense and decrease noncurrent assets. The estimated useful lives of bank premises, furniture, fixture and equipment, and investment properties are disclosed in Note 2.

As of December 31, the carrying values of depreciable bank premises, furniture, fixtures and equipment and investment properties follow:

Consolidated Parent Company 2011 2010 2011 2010 Bank premises, furniture, fixtures and equipment (Note 10) P=2,471,458,462 P=2,383,312,150 P=1,904,984,162 P=1,782,258,968 Investment properties (Note 11) 639,207,618 808,652,913 589,677,199 744,396,313 g. Impairment on investments in subsidiaries and associates and other nonfinancial assets The Parent Company assesses impairment on its investments in subsidiaries and associate whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Among others, the factors that the Parent Company considers important which could trigger an impairment review on its investments in subsidiaries and associate include the following:

• deteriorating or poor financial condition; • recurring net losses; and

*SGVMC116556* - 25 -

• significant changes on the technological, market, economic, or legal environment which had an adverse effect on the subsidiary or associate during the period or in the near future, in which the subsidiary operates.

The Group also assesses impairment on its nonfinancial assets (e.g., investment properties and bank premises, furniture, fixtures and equipment) and considers the following impairment indicators:

• significant underperformance relative to expected historical or projected future operating results; • significant changes in the manner of use of the acquired assets or the strategy for overall business; and • significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Except for investment properties where recoverable amount is determined based on fair value less cost to sell, the recoverable amount of all other nonfinancial assets is determined based on the asset’s value in use computation which considers the present value of estimated future cash flows expected to be generated from the continued use of the asset. 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, 2011 and 2010, the carrying values of the Group and Parent Company’s nonfinancial assets follow:

Consolidated Parent Company 2011 2010 2011 2010 Bank premises, furniture, fixtures and equipment (Note 10) P=4,922,208,392 P=4,837,579,580 P=4,226,814,198 P=4,107,606,504 Investment properties (Note 11) 3,414,896,222 3,325,072,088 3,305,272,865 3,182,078,166

As of December 31, 2011 and 2010, the total carrying values of the Parent Company’s investment in subsidiaries and associate amounted to =P1.55 billion and =P1.19 billion (see Note 9). No impairment loss was recognized on the Parent Company’s investments in subsidiaries and associate in 2011, 2010 and 2009. h. Impairment of Goodwill and Branch Licenses The Group conducts an annual review for any impairment in value of the goodwill. Goodwill is written down for impairment where the net present value of the forecasted future cash flows from the business is insufficient to support its carrying value. The Group estimated the discount rate used for the computation of the net present value by reference to industry cost of capital. Future cash flows from the business are estimated based on the theoretical annual income of the cash generating units. Average growth rate was derived from the average increase in annual income during the last 5 years. The recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 12.19% and 14.38% in 2011 and 2010, respectively. Key assumptions in value-in-use calculation of CGUs are most sensitive to discount rates and growth rates used to project cash flows.

*SGVMC116556* - 26 -

As of December 31, 2011 and 2010, goodwill amounted to =P222.84 million for the Group and Parent Company (see Note 12).

i. Contingencies The Group is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside legal counsels handling the underlying legal cases and is based on thorough analyses of the potential results by the business units involved and top management. The Group currently does not believe that these proceedings will have a material adverse effect on its financial position. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Note 28).

4. Financial Instrument Categories

The following table presents the total carrying amount of the Group’s and Parent Company’s financial instruments per category:

Consolidated Parent Company 2011 2010 2011 2010 Financial assets Cash and other cash items P=6,050,366,433 P=6,436,427,163 P=5,902,040,106 P=6,362,296,658 Financial assets at FVPL 2,446,064,218 5,940,893,137 2,446,064,218 5,940,893,137 AFS financial assets 45,784,601,478 51,056,967,596 44,676,609,090 50,470,093,918 HTM financial assets 12,960,937,205 18,549,752,774 12,877,757,205 18,466,572,774 Loans and receivables: Due from BSP 30,122,324,047 37,124,917,961 29,571,232,355 37,053,152,975 Due from other banks 2,745,404,931 5,918,907,525 2,729,474,436 5,970,000,543 Interbank loans receivable and SPURA 671,000,000 542,000,000 – 50,000,000 Loans and receivables - net 145,238,662,573 117,185,910,049 143,426,574,049 116,201,862,888 Accrued interest receivable 1,765,726,064 1,851,874,877 1,734,364,664 1,837,212,849 Other assets* 3,914,670,031 2,359,692,316 3,529,271,713 2,134,392,197 184,457,787,646 164,983,302,728 180,990,917,217 163,246,621,452 Total financial assets P=251,699,756,980 P=246,967,343,398 P=246,893,387,836 P=244,486,477,939 * Other assets exclude net plan assets and creditable withholding taxes (see Note 13).

Consolidated Parent Company 2011 2010 2011 2010 Financial liabilities Other financial liabilities: Deposit liabilities P=216,133,713,301 P=213,041,609,453 P=211,972,854,291 P=210,986,504,512 Bills payable 1,641,473,347 3,058,243,162 1,641,473,347 3,058,243,162 Manager’s checks 487,057,846 340,516,064 445,940,641 304,438,108 Accrued interest and other expenses 1,446,533,180 1,973,594,528 1,417,595,676 1,946,895,772 Other liabilities* 2,935,405,552 2,174,850,312 3,151,374,803 2,078,682,942 222,644,183,226 220,588,813,519 218,629,238,758 218,374,764,496 Financial liabilities at FVPL: Derivative liabilities 146,616,341 1,204,881,662 146,616,341 1,204,881,662 Total financial liabilities P=222,790,799,567 P=221,793,695,181 P=218,775,855,099 P=219,579,646,158 * Other liabilities exclude withholding taxes payable (see Note 18) and retirement liabilities (see Note 22).

*SGVMC116556* - 27 -

5. Fair Value Measurement

The table below presents a comparison of carrying amounts and estimated fair values of all of the Group’s and Parent Company’s financial instruments as of December 31:

Consolidated 2011 2010 Carrying Value Fair Value Carrying Value Fair Value Financial Assets Cash and other cash items P=6,050,366,433 P=6,050,366,433 P=6,436,427,163 P=6,436,427,163 Due from BSP 30,122,324,047 30,122,324,047 37,124,917,961 37,124,917,961 Due from other banks 2,745,404,931 2,745,404,931 5,918,907,525 5,918,907,525 Interbank loans receivable and SPURA 671,000,000 671,000,000 542,000,000 542,000,000 Financial assets at FVPL Held-for-trading Treasury notes 1,016,047,753 1,016,047,753 2,473,765,465 2,473,765,465 Government bonds 820,631,783 820,631,783 2,405,612,065 2,405,612,065 Treasury bills 11,364,803 11,364,803 359,705,660 359,705,660 Private bonds and commercial papers 379,995,818 379,995,818 344,478,918 344,478,918 Derivative assets 218,024,061 218,024,061 357,331,029 357,331,029 AFS financial assets Quoted: Government bonds 39,300,379,188 39,300,379,188 44,585,806,199 44,585,806,199 Private bonds 880,342,597 880,342,597 680,326,166 680,326,166 Equities 114,523,809 114,523,809 150,615,066 150,615,066 Unquoted: Credit-linked notes (host) 4,343,028,942 4,343,028,942 4,416,367,876 4,416,367,876 Private bonds and commercial papers 1,119,631,842 1,119,631,842 1,204,439,584 1,204,439,584 Equities 26,695,100 26,695,100 19,412,705 19,412,705 HTM financial assets Government bonds 12,537,787,260 15,345,648,714 18,128,972,171 21,280,151,473 Private bonds 423,149,945 489,218,777 420,780,603 490,381,790 Loans and receivables Loans and discounts Corporate lending - net 116,930,631,836 125,077,122,900 93,951,276,444 92,801,531,182 Consumer lending - net 16,809,722,532 17,765,193,534 12,933,120,737 12,804,534,343 Others - net 172,232,254 103,595,319 124,909,822 123,673,127 Customers’ liabilities under letters of credit or trust receipt 9,387,584,062 9,387,584,062 8,635,295,994 8,635,295,995 Bills purchased 1,938,491,889 1,938,491,889 1,541,307,052 1,541,307,052 Accrued interest receivable 1,765,726,064 1,765,726,064 1,851,874,877 1,851,874,877 Other assets* 3,914,670,031 3,825,022,177 2,359,692,316 2,237,353,587 Total financial assets P=251,699,756,980 P=263,517,364,543 P=246,967,343,398 P=248,786,216,808 Financial Liabilities Deposit liabilities P=216,133,713,301 P=216,728,454,818 P=213,041,609,453 P=213,641,130,042 Bills payable 1,641,473,347 1,595,162,850 3,058,243,162 2,960,372,680 Manager’s checks 487,057,846 487,057,846 340,516,064 340,516,064 Accrued interest and other expenses 1,446,533,180 1,446,533,180 1,973,594,528 1,973,594,528 Derivative liabilities 146,616,341 146,616,341 1,204,881,662 1,204,881,662 Other liabilities** 2,935,405,552 2,935,405,552 2,174,850,312 2,174,850,312 Total financial liabilities P=222,790,799,567 P=223,339,230,587 P=221,793,695,181 P=222,295,345,288 ** Other assets exclude net plan assets and creditable withholding taxes (see Note 13). ** Other liabilities exclude withholding taxes payable (see Note 18) and retirement liabilities (see Note 22).

Parent Company 2011 2010 Carrying Value Fair Value Carrying Value Fair Value Financial Assets Cash and other cash items P=5,902,040,106 P=5,902,040,106 P=6,362,296,658 P=6,362,296,658 Due from BSP 29,571,232,355 29,571,232,355 37,053,152,975 37,053,152,975 Due from other banks 2,729,474,436 2,729,474,436 5,970,000,543 5,970,000,543 Interbank loans receivable and SPURA – – 50,000,000 50,000,000 (Forward)

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Parent Company 2011 2010 Carrying Value Fair Value Carrying Value Fair Value Financial assets at FVPL Held-for-trading Treasury notes P=1,016,047,753 P=1,016,047,753 P=2,473,765,465 P=2,473,765,465 Government bonds 820,631,783 820,631,783 2,405,612,065 2,405,612,065 Treasury bills 11,364,803 11,364,803 359,705,660 359,705,660 Private bonds and commercial papers 379,995,818 379,995,818 344,478,918 344,478,918 Derivative assets 218,024,061 218,024,061 357,331,029 357,331,029 AFS financial assets Quoted: Government bonds 38,199,866,695 38,199,866,695 43,998,932,521 43,998,932,521 Private bonds 880,342,597 880,342,597 680,326,166 680,326,166 Equities 114,326,309 114,326,309 150,615,066 150,615,066 Unquoted: Credit-linked notes (host) 4,343,028,942 4,343,028,942 4,416,367,876 4,416,367,876 Private bonds and commercial papers 1,119,631,842 1,119,631,842 1,204,439,584 1,204,439,584 Equities 19,412,705 19,412,705 19,412,705 19,412,705 HTM financial assets Government bonds 12,537,787,260 15,345,648,714 18,128,972,171 21,280,151,473 Private bonds 339,969,945 405,197,536 337,600,603 404,862,856 Loans and receivables Loans and discounts Corporate lending - net 116,545,265,908 124,785,886,217 93,462,858,239 92,313,112,978 Consumer lending - net 15,455,428,449 16,255,817,135 12,442,732,198 12,314,145,804 Others - net 99,803,741 98,318,526 119,669,405 118,432,711 Customers’ liabilities under letters of credit or trust receipt 9,387,584,062 9,387,584,062 8,635,295,994 8,635,295,994 Bills purchased 1,938,491,889 1,938,491,889 1,541,307,052 1,541,307,052 Accrued interest receivable 1,734,364,664 1,734,364,664 1,837,212,849 1,837,212,849 Other assets* 3,529,271,713 3,439,496,494 2,134,392,197 2,082,103,750 Total financial assets P=246,893,387,836 P=258,716,225,442 P=244,486,477,939 P=246,373,062,698 Financial Liabilities Deposit liabilities P=211,972,854,291 P=212,567,595,808 P=210,986,504,512 P=211,586,025,101 Bills payable 1,641,473,347 1,595,162,850 3,058,243,162 2,960,372,680 Manager’s checks 445,940,641 445,940,641 304,438,108 304,438,108 Accrued interest and other expenses 1,417,595,676 1,417,595,676 1,946,895,772 1,946,895,772 Derivative liabilities 146,616,341 146,616,341 1,204,881,662 1,204,881,662 Other liabilities** 3,151,374,803 3,151,374,803 2,078,682,942 2,078,682,942 Total financial liabilities P=218,775,855,099 P=219,324,286,119 P=219,579,646,158 P=220,081,296,265 ** Other assets exclude net plan assets and creditable withholding taxes (see Note 13). ** Other liabilities exclude withholding taxes payable (see Note 18).

The methods and assumptions used by the Group and Parent Company in estimating the fair values of the financial instruments follow:

Cash and other cash items, due from BSP and other banks, interbank loans receivable and securities purchased under agreements to resell and accrued interest receivable - The carrying amounts approximate their fair values in view of the relatively short-term maturities of these instruments.

Debt securities - Fair values are generally based on quoted market prices. If the market prices are not readily available, fair values are estimated using either values obtained from independent parties offering pricing services or adjusted quoted market prices of comparable investments or using the discounted cash flow methodology.

Equity securities - For publicly traded equity securities, fair values are based on quoted prices published in the Philippine equity markets. For unquoted equity securities for which no reliable basis for fair value measurement is available, these are carried at cost net of impairment, if any.

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Loans and receivables and sales contract receivable (SCR) included in other assets - Fair values of loans and receivables and SCR are estimated using the discounted cash flow methodology, using the Group’s current incremental lending rates for similar types of loans and receivables.

Accounts receivable and returned checks and other cash items in process of collection (RCOCI) included in other assets - Quoted market prices are not readily available for these assets. These are reported at cost and are not significant in relation to the Group’s total portfolio of securities.

Derivative instruments (included under FVPL) - Fair values are estimated based on quoted market prices provided by independent parties or accepted valuation models (either based on discounted cash flow techniques or option pricing models, as applicable).

Bifurcated embedded derivatives (included under Derivative assets) - Fair values are estimated based on a valuation model from Bloomberg using inputs provided by counterparty banks.

Deposit liabilities (time, demand and savings deposits) - Fair values of time deposits are estimated using the discounted cash flow methodology, using the Group’s current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued. For demand and savings deposits, carrying amounts approximate fair values considering that these are currently due and demandable.

Bills payable - Fair values are estimated using the discounted cash flow methodology using the current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued.

Manager’s checks and accrued interest and other expenses - Carrying amounts approximate fair values due to the short-term nature of the accounts.

Other liabilities - Quoted market prices are not readily available for these liabilities. These are reported at cost and are not significant in relation to the Group’s total portfolio.

Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted prices in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3: inputs that are not based on observable market data or unobservable inputs.

As of December 31, 2011 and 2010, the fair value hierarchy of the Group’s and Parent Company’s financial instruments measured at fair values are presented below:

Consolidated 2011 Level 1 Level 2 Total Financial assets at FVPL Held-for-trading: Treasury notes P=1,016,047,753 P=– P=1,016,047,753 Government bonds 820,631,783 – 820,631,783 Treasury bills 11,364,803 – 11,364,803 (Forward)

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Consolidated 2011 Level 1 Level 2 Total Private bonds and commercial papers P=379,995,818 P=– P=379,995,818 Derivative assets – 218,024,061 218,024,061 AFS financial assets Government bonds 39,300,379,188 – 39,300,379,188 Quoted equity shares 114,523,809 – 114,523,809 Credit-linked notes (host) – 4,343,028,942 4,343,028,942 Private bonds and commercial papers - net 880,342,597 1,119,631,842 1,999,974,439 P=42,523,285,751 P=5,680,684,845 P=48,203,970,596 Financial liabilities at FVPL Derivative liabilities P=– P=146,616,341 P=146,616,341

Consolidated 2010 Level 1 Level 2 Total Financial assets at FVPL Held-for-trading: Treasury notes P=2,473,765,465 P=– P=2,473,765,465 Government bonds 2,405,612,065 – 2,405,612,065 Treasury bills 359,705,660 – 359,705,660 Private bonds and commercial papers 344,478,918 – 344,478,918 Derivative assets – 357,331,029 357,331,029 AFS financial assets Government bonds 44,585,806,199 – 44,585,806,199 Quoted equity shares 150,615,066 – 150,615,066 Credit-linked notes (host) – 4,416,367,876 4,416,367,876 Private bonds and commercial papers - net 680,326,166 1,204,439,584 1,884,765,750 P=51,000,309,539 P=5,978,138,489 P=56,978,448,028 Financial liabilities at FVPL Derivative liabilities P=– P=1,204,881,662 P=1,204,881,662

Parent Company 2011 Level 1 Level 2 Total Financial assets at FVPL Held-for-trading: Treasury notes P=1,016,047,753 P=– P=1,016,047,753 Government bonds 820,631,783 – 820,631,783 Treasury bills 11,364,803 – 11,364,803 Private bonds and commercial papers 379,995,818 – 379,995,818 Derivative assets – 218,024,061 218,024,061 AFS financial assets Government bonds 38,199,866,695 – 38,199,866,695 Quoted equity shares 114,326,309 – 114,326,309 (Forward)

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Parent Company 2011 Level 1 Level 2 Total Credit-linked notes (host) P=– P=4,343,028,942 P=4,343,028,942 Private bonds and commercial papers - net 880,342,597 1,119,631,842 1,999,974,439 P=41,422,575,758 P=5,680,684,845 P=47,103,260,603 Financial liabilities at FVPL Derivative liabilities P=– P=146,616,341 P=146,616,341

Parent Company 2010 Level 1 Level 2 Total Financial assets at FVPL Held-for-trading: Treasury notes P=2,473,765,465 P=– P=2,473,765,465 Government bonds 2,405,612,065 – 2,405,612,065 Treasury bills 359,705,660 – 359,705,660 Private bonds and commercial papers 344,478,918 – 344,478,918 Derivative assets – 357,331,029 357,331,029 AFS financial assets Government bonds 43,998,932,521 – 43,998,932,521 Quoted equity shares 150,615,066 – 150,615,066 Credit-linked notes (host) – 4,416,367,876 4,416,367,876 Private bonds and commercial papers - net 680,326,166 1,204,439,584 1,884,765,750 P=50,413,435,861 P=5,978,138,489 P=56,391,574,350 Financial liabilities at FVPL Derivative liabilities P=– P=1,204,881,662 P=1,204,881,662

As of December 31, 2011 and 2010, there were no financial instruments measured based on Level 3 inputs.

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 in 2011 and 2010.

6. Financial Risk Management Objectives and Policies

The Group’s activities are principally related to the profitable use of financial instruments. Risks are inherent in these activities but are managed by the Group through a rigorous, comprehensive and continuous process of identification, measurement, monitoring and mitigation of these risks, partly through the effective use of risk and authority limits, process controls and monitoring, and independent controls. As reflected in its corporate actions and organizational improvements, the Group has placed due importance on expanding and strengthening its risk management process and considers it as a vital component to the Group’s continuing profitability and financial stability. Central to the Group’s risk management process is its adoption of a risk management program intended to avoid unnecessary risks, manage and mitigate unavoidable risks and maximize returns from taking acceptable risks necessary to sustain its business viability and good financial position in the market.

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The key financial risks that the Group faces are: credit risk, market risk (i.e. interest rate risk, foreign currency risk and equity price risk) and liquidity risk. The Group’s risk management objective is primarily focused on controlling and mitigating these risks. The Parent Company and its subsidiaries manage their respective financial risks separately. The subsidiaries, particularly CBSI, have their own risk management processes 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. The gravity of the risks, the magnitude of the financial instruments involved, and regulatory requirements are primary considerations to the scope and extent of the risk management processes put in place for the subsidiaries.

Risk Management Structure The BOD of the Parent Company is ultimately responsible for the oversight of the Parent Company’s risk management process. On the other hand, the risk management processes of the subsidiaries are the separate responsibilities of their respective BODs. The BOD of the Parent Company created a separate board-level independent committee with explicit authority and responsibility for managing and monitoring risks.

The BOD has delegated to the Risk Management Committee (RMC) the implementation of the risk management process which includes, among others, the development of various risk strategies and principles, control guidelines policies and procedures, implementation of risk measurement tools, monitoring of key risk indicators, and the imposition and monitoring of risk limits. The RMC is composed of four members of the BOD.

The Risk Management Group (RMG) is the direct support of the RMC in the day-to-day risk management and the implementation of the risk management strategies approved by the RMC. The implementation cuts across all departments of the Parent Company and involves all of the Parent Company’s financial instruments, whether “on-books” or “off-books.” The RMG is likewise responsible for monitoring the implementation of specific risk control procedures and enforcing compliance thereto. The RMG is also directly involved in the day-to-day risk measurement and monitoring to make sure that the Parent Company, in its transactions and dealings, engages only in acceptable and manageable financial risks. The RMG also ensures that risk measurements are accurately and completely captured on a timely basis in the management reporting system of the Parent Company. The RMG regularly reports the results of the risk measurements to the RMC. The RMG is headed by the Chief Risk Officer (CRO).

Apart from RMG, each business unit has created and put in place various process controls which ensure that all the external and internal transactions and dealings of the unit are in compliance with the unit’s risk management objectives.

The Internal Audit Division also plays a crucial role in risk management primarily because it is independent of the business units and reports exclusively to the Audit Committee which, in turn, is comprised of independent directors. The Internal Audit Division focuses on ensuring that adequate controls are in place and on monitoring compliance to controls. The regular audit covers all processes and controls, including those under the risk management framework handled by the RMG. The audit of these processes and controls is undertaken at least annually. The audit results and exceptions, including recommendations for their resolution or improvement, are discussed initially with the business units concerned before these are presented to the Audit Committee.

Risk Management Reporting The CRO and other members of the RMG report to the RMC and are a resource to the Management Committee (ManCom) on a monthly and a weekly basis, respectively. The CRO reports on key risk indicators and specific risk management issues that would need resolution from *SGVMC116556* - 33 -

top management. This is undertaken after the risk issues and key risk indicators have been discussed with the business units concerned.

The key risk indicators were formulated on the basis of the financial risks faced by the Parent Company. The key risk indicators contain information from all business units that provide measurements on the level of the risks taken by the Parent Company in its products, transactions and financial structure. Among others, the report on key risk indicators includes information on the Parent Company’s aggregate credit exposure, credit metric forecasts, hold limit exceptions, VaR analysis, utilization of market and credit limits, liquidity ratios, overall loan loss provisioning and risk profile changes. Loan loss provisioning and credit limit utilization are, however, discussed in more detail in the Credit Committee. On a monthly basis, detailed reporting of industry, customer and geographic risks is included in the discussion with the RMC and ManCom. A comprehensive risk report is submitted to the BOD every quarter for an overall assessment of the level of risks taken by the Parent Company. On the other hand, the Chief Internal Auditor reports to the Audit Committee on a monthly basis on the results of branch or business unit audits and for the resolution of pending but important internal audit issues.

The Parent Company has acquired a new risk management system which, for market and liquidity risk, will greatly improve its risk measurement and reporting, particularly those related to treasury products. To date, the Parent Company is still in the process of testing and implementation.

Risk Mitigation The Parent Company uses derivatives, structured products and other financial instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity prices, credit valuations, and exposures arising from forecast transactions. However, the nature and extent of use of these financial instruments to mitigate risks are limited to those allowed by the BSP for the Parent Company and its subsidiaries.

To further mitigate risks throughout its different business units, the Parent Company created new risk management policies and made vast improvements to existing policies (e.g., The Risk Management Manual, Operational Risk Management Policy Manual, Product Approval and Review Policy, and Market Risk and Liquidity Risk Management Policies). These policies further serve as the framework and set of guidelines in the creation or revisions of operating policies and manuals for each business unit. In the process design and implementation, process controls are preferred over detection controls. Clear delineation of responsibilities and separation of incompatible duties among officers and staff, as well as, among business units are reiterated in these policies. To the extent possible, reporting and accounting responsibilities are segregated from units directly involved in operations and front line activities (i.e., players must not be scorers). This is to improve the credibility and accuracy of management information. Any

inconsistencies in the operating policies and manuals with the risk framework created by the RMG are taken up and resolved in the RMC and ManCom.

Based on the approved Operational Risk Assessment Program, RMG spearheaded the bankwide (all Head Office units and branches) risk identification and self-assessment process. This would enable determination of priority risk areas, assessment of mitigating controls in place, and institutionalization of additional measures to ensure a controlled operating environment. RMG was also mandated to maintain and update the Bank’s Centralized Loss Database wherein all reported incidents of losses shall be encoded to enable assessment of weaknesses in the processes and come up with viable improvements to avoid recurrence.

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Monitoring and controlling risks are primarily performed based on various limits established by the top management covering the Group’s transactions and dealings. These limits reflect the Group’s business strategies and market environment, as well as, the levels of risks that the Group is willing to tolerate, with additional emphasis on selected industries. 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.

The Group’s Management identified the need for an asset-liability management (ALM) application to strategically manage risks arising from mismatches between the Parent Company’s assets and liabilities, particularly in the areas of interest rate risk and liquidity risk. An ALM would support high-level decisions with regards to funds pricing and resource allocation.

In 2009, the Parent Company’s Technology Steering Committee approved management’s recommendation to convene an ALM Task Force to determine the Bank’s requirements and selection criteria as well as evaluate proposals from software providers. In 2010 to 2011, after the careful evaluation of ALM system solutions from short listed providers, the Parent Company selected and began project implementation of the ALM system solution. Target completion will be on the 1st half of 2012.

BSP issued Circular 639 dated January 15, 2009 which mandated the use of the Internal Capital Adequacy Assessment Process (ICAAP) by all universal and commercials banks to determine their minimum required capital relative to their business risk exposures. In this regard, the Board approved the engagement of the services of a consultant to assist in the bank-wide implementation and embedding of the ICAAP, as provided for under Pillar 2 of Basel II and BSP Circular 639.

As of December 31, 2009, the Parent Company has completed its top-down risk prioritization and has finalized the top risks of the Parent Company based on the results of the Risk Self-assessment Survey and the voting conducted among selected members of the BOD and Senior Management. In addition, ICAAP Technical Committees have been designated per risk area and have been regularly meeting since October 2009.

The Parent Company had submitted its 2010 and 2011 ICAAP documents, in compliance with BSP requirements, on January 31, 2011 and 2012, respectively. The documents disclosed that the Parent Company has an appropriate level of internal capital relative to the Bank’s risk profile.

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 geographical location.

In order to avoid excessive concentrations of risk, the Parent Company's policies and procedures include specific guidelines focusing on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.

Credit Risk Credit Risk and Concentration of Assets and Liabilities and Off-Balance Sheet Items Credit risk is the risk of financial loss on account of a counterparty to a financial product failing to honor its obligation. The Group faces potential credit risks every time it extends funds to borrowers, commits funds to counterparties, guarantees the paying performance of its clients, invests funds to issuers (i.e., investment securities issued by either sovereign or corporate entities) *SGVMC116556* - 35 -

or enters into either market-traded or over-the-counter derivatives, through implied or actual contractual agreements (i.e., on or off-balance sheet exposures). The Group manages its credit risk at various levels (i.e., strategic level, portfolio level down to individual credit or transaction).

The Group has risk limits setting for purposes of monitoring and managing credit risk from individual counterparties and groups of counterparties. It also conducts periodical assessment of the creditworthiness of its counterparties. In addition, the Group obtains collateral where appropriate, enters into master netting agreements and collateral arrangements with counterparties, and limits the duration of exposures.

In compliance with BSP requirements, the Group established an internal Credit Risk Rating System (CRRS) for the purpose of measuring credit risk for corporate borrowers in a consistent manner, as accurately as possible, and thereafter uses the risk information for business and financial decision making. The CRRS covers corporate borrowers with total assets, total facilities, or total credit exposures amounting to P=15.00 million and above.

Further, the CRRS was designed within the technical requirements defined under BSP Circular No. 439. It has two components, namely: a) Borrower Risk Rating (BRR) which provides an assessment of the creditworthiness of the borrower, without considering the proposed facility and security arrangements, and b) Loan Exposure Rating (LER) which provides an assessment of the proposed facilities as mitigated or enhanced by security arrangements. The CRRS rating scale consists of ten grades, six of which fall under unclassified accounts, with the remaining four falling under classified accounts in accordance with regulatory provisioning guidelines. To date, the Parent Company is in the process of developing an internal credit system in preparation for the Advanced Measurement Approach for credit risk under Basel II.

In 2011, the Parent Company launched the Borrower Credit Score (BCS), a credit scoring system designed for retail small and medium entities and individual loan accounts. The BCS is currently implemented on a test run basis.

Credit risk, in respect of derivative financial products, is limited to those with positive fair values, which are included under Financial Assets at FVPL (see Note 7). 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 on the balance sheet plus commitments to customers such as unused commercial letters of credit, outstanding guarantees and others as disclosed in Note 28 to the financial statements.

The distribution of the Group’s and Parent Company’s assets, liabilities, and credit commitment items (see Note 28) by geographic region as of December 31, 2011 and 2010 (in millions) follows:

Consolidated 2011 2010 Credit Credit Assets Liabilities Commitments Assets Liabilities Commitments Geographic Region: Philippines P=235,703 P=221,517 P=10,663 P=230,407 P=220,363 P=10,160 Asia 6,836 409 2,988 3,788 396 3,790 Europe 1,376 115 344 258 150 354 United States 7,096 749 547 12,494 885 15 Others 689 1 47 20 – 12 P=251,700 P=222,791 P=14,589 P=246,967 P=221,794 P=14,331

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Parent Company 2011 2010 Credit Credit Assets Liabilities Commitments Assets Liabilities Commitments Geographic Region: Philippines P=231,020 P=217,502 P=10,663 P=227,931 P=218,149 P=10,160 Asia 6,836 409 2,988 3,788 396 3,790 Europe 1,376 115 344 258 150 354 United States 6,972 749 547 12,489 885 15 Others 689 1 47 20 – 12 P=246,893 P=218,776 P=14,589 P=244,486 P=219,580 P=14,331

Information on credit concentration as to industry of loans and receivables is presented in Note 8 to the financial statements.

Maximum exposure to credit risk The table below provides the analysis of the maximum exposure to credit risk of the Parent Company’s financial instruments (the maximum exposure to credit risk of subsidiaries were no longer disclosed as they are not material to the Group), excluding those where the carrying values as reflected in the balance sheets and related notes already represent the financial instrument’s maximum exposure to credit risk, before and after taking into account collateral held or other credit:

Parent Company 2011 Fair value of Financial effect collateral or of collateral or Gross maximum credit credit exposure enhancement Net exposure enhancement Credit risk exposure relating to on- balance sheet items are as follows: Loans and receivables Corporate loans P=122,281,906,010 P=77,682,089,334 P=74,182,727,441 P=48,099,178,569 Consumer loans 16,206,656,645 10,678,180,610 8,736,302,149 7,470,354,496 Others 100,650,187 – 100,650,187 – 138,589,212,842 88,360,269,944 83,019,679,777 55,569,533,065 Sales contracts receivable 270,686,216 897,797,841 – 270,686,216 P=138,859,899,058 P=89,258,067,785 P=83,019,679,777 P=55,840,219,281

Parent Company 2010 Fair value of Financial effect collateral or of collateral or Gross maximum credit credit exposure enhancement Net exposure enhancement Credit risk exposure relating to on- balance sheet items are as follows: Loans and receivables Corporate loans P=100,338,581,343 P=55,333,843,525 P=54,527,220,956 P=45,811,360,387 Consumer loans 13,146,576,269 17,556,166,660 3,079,125,130 10,067,451,139 Others 119,868,258 – 119,868,258 – 113,605,025,870 72,890,010,185 57,726,214,344 55,878,811,526 Sales contracts receivable 474,819,839 997,280,491 – 474,819,839 P=114,079,845,709 P=73,887,290,676 P=57,726,214,344 P=56,353,631,365

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Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines are implemented with regard to the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows: • For securities lending and reverse repurchase transactions - cash or securities • For consumer lending - real estate and chattel over vehicle • For corporate lending - real estate, chattel over properties, assignment of deposits, shares of stocks, bonds, and guarantees

Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement, and monitors the market value of collateral obtained during its review of the adequacy of the allowance for credit losses.

It is the Group's policy to dispose of repossessed properties in an orderly fashion. The proceeds are used to reduce or repay the outstanding claim. In most cases, the Parent Company does not occupy repossessed properties for business use.

Collaterals foreclosed in 2011 and 2010 and are still held by the Bank as of December 31, 2011 and 2010 amounted to =P571.70 million and P=429.26 million, respectively. These collaterals comprised of real estate properties.

Credit quality per class of financial assets The credit quality of financial assets is managed by the Group using an internal credit rating system for the purpose of measuring credit risk in a consistent manner as accurately as possible. The model on risk ratings is assessed and updated regularly because the Group uses this information as a tool for business and financial decision making.

It is the Parent Company’s policy to maintain accurate and consistent risk ratings across the credit portfolio. This facilitates focused management of the applicable risks and the comparison of credit exposures across all lines of business, geographic regions and products. The rating system is supported by a variety of financial analytics, combined with processed market information to provide the main inputs for the measurement of counterparty risk. All internal risk ratings are tailored to the various categories and are derived in accordance with the Parent Company’s rating policy. The attributable risk ratings are assessed and updated regularly. The standard credit rating equivalent grades are relevant only for certain exposures in each risk rating class.

The following table shows the description of the internal CRRS grade:

CRRS Grade Description 1 Excellent 2 Strong 3 Good 4 Satisfactory 5 Acceptable 6 Watchlist 7 Special Mention 8 Substandard 9 Doubtful 10 Loss

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The credit grades are defined as follows:

Excellent and Strong – This category applies to a borrower with a very low probability of going into default in the coming year. The borrower has a high degree of stability, substance and diversity. It has access to raise substantial amounts of funds through the public markets at any time. The borrower has a strong market and financial position with a history of successful performance. The critical balance sheet ratios are conservative. The borrower has a very strong debt service capacity and a conservative use of balance sheet leverage. The track record in profit terms is very good. The borrower is of highest quality under virtually all economic conditions.

Good – This category covers the smaller corporations with limited access to public capital markets or access to alternative financial markets. This access is however limited to favorable economic and/or market conditions. Typical for this type of borrower is the combination of comfortable asset protection and acceptable balance sheet structure. The debt service capacity, as measured based on cash flows, is strong.

Satisfactory – This category represents those borrowers where clear risk elements exist and the probability of default is somewhat greater. This probability is reflected in volatility of earnings and overall performance. Borrowers in this category normally have limited access to public financial markets. Borrowers should be able to withstand normal business cycles, but any prolonged unfavorable economic period would create deterioration beyond acceptable levels. Typical for this kind of borrower is the combination of reasonably sound asset and cash flow protection. The debt service capacity, as measured by cash flow, is deemed adequate. The borrower has reported profits for the past fiscal year and is expected to report a profit in the current year.

Acceptable – The risk elements for the Parent Company are sufficiently pronounced, although borrowers should still be able to withstand normal business cycles. Any prolonged unfavorable economic and/or market period would create an immediate deterioration beyond acceptable levels. In the next assessment period, closer attention is warranted as a downgrade may be possible.

Watchlist – This represents borrowers for which unfavorable industry or company-specific risk factors represent a concern. Operating performance and financial strength may be marginal and it is uncertain whether the borrower can attract alternative sources of financing. The borrower will find it very hard to cope with any significant economic downturn and a default in such a case is more than a possibility. This category includes those borrowers where the credit exposure is not a risk of loss at the moment, but the performance of the borrower has weakened, and unless present trends are reversed, could lead to losses.

Special Mention – In this category, the borrowers are characterized by a reasonable probability of default, manifested by some or all the following: (a) evidence of weakness in the borrower’s financial condition or creditworthiness; (b) the borrower has reached a point where there is a real risk that the borrower’s ability to pay the interest and repay the principal timely could be jeopardized; (c) the borrower is expected to have financial difficulties and exposure may be at risk. Closer account management attention is warranted. Concerted efforts should be made to improve lender’s position (e.g., demanding additional collateral or reduction of account exposure). These potential weaknesses, if left uncorrected or unmitigated, would affect the repayment of the loan and, thus, increase credit risk to the Parent Company.

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Substandard – Under this category, the collection of principal or interest becomes questionable regardless of scheduled payment date, by reason of adverse developments on account of a financial, managerial, economic, or political nature, or by important weaknesses in cover. The probability of default is assessed at up to 50%. Substandard loans are loans or portions thereof that appear to involve a substantial and unreasonable degree of risk to the Parent Company because of unfavorable record or unsatisfactory characteristics. There exists in such loans the possibility of future loss to the Parent Company unless given closer supervision.

Doubtful – This category includes all borrowers with “non-performing loan” status or an account with any portion of interest and/or principal payment that has become in arrears for more than ninety (90) days. The borrower is unable or unwilling to service debt over an extended period of time. Future prospects of orderly debt service are considered doubtful. Existing facts or conditions make collection or liquidation in full highly improbable and, thus, substantial loss is probable.

Loss – This category represents borrowers whose prospect for re-establishment of creditworthiness and debt service is remote. This category also applies where the Parent Company will take or has taken title to the assets of the borrower and is preparing a foreclosure and/or liquidation of the borrower’s business. The loans are considered uncollectible or worthless and of such little value.

The credit quality of the Group’s loans and receivables from customers, which is based on the internal CRRS grade, is grouped as follows:

Credit Quality Rating Criteria High Loans with risk rating of 1 and 2 Standard Loans with risk rating of 3 to 5 Sub-Standard Loans with risk rating of 6 to 8 Past Due or Individually Impaired Loans with risk rating of 9 and 10

The table below shows the credit quality by class of loans and receivables as of December 31, 2011 and 2010, excluding other receivables (gross of allowance for credit losses and unearned discount).

Consolidated 2011 Neither Past Due nor Impaired Past Due or Standard Sub-Standard Individually High Grade Grade Grade Impaired Total Loans and receivables Loans and discounts Corporate lending P=115,948,307,272 P=1,446,787,569 P=1,807,688,041 P=4,249,363,628 P=123,452,146,510 Consumer lending 9,864,099,883 6,576,902,513 – 1,203,152,478 17,644,154,874 Others 115,143,106 – – 58,408,024 173,551,130 Customers’ liabilities under letters of credit or trust receipt 8,894,394,927 34,849,053 57,061,643 1,315,199,392 10,301,505,015 Bills purchased 1,938,974,772 – – – 1,938,974,772 Accrued interest receivable 1,755,984,942 8,094,697 6,522,091 79,407,148 1,850,008,878 Total P=138,516,904,902 P=8,066,633,832 P=1,871,271,775 P=6,905,530,670 P=155,360,341,179

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Consolidated 2010 Neither Past Due nor Impaired Past Due or Standard Sub-Standard Individually High Grade Grade Grade Impaired Total Loans and receivables Loans and discounts Corporate lending P=95,124,441,909 P=1,342,230,655 P=1,630,304,165 P=3,817,269,350 P=101,914,246,079 Consumer lending 4,937,946,812 7,203,426,783 579,183,165 1,066,335,678 13,786,892,438 Others 126,118,604 – – – 126,118,604 Customers’ liabilities under letters of credit or trust receipt 7,928,854,772 – – 706,441,222 8,635,295,994 Bills purchased 1,541,307,052 – – – 1,541,307,052 Accrued interest receivable 1,771,221,885 59,885,743 21,737,273 68,931,172 1,921,776,073 Total P=111,429,891,034 P=8,605,543,181 P=2,231,224,603 P=5,658,977,422 P=127,925,636,240

Parent Company 2011 Neither Past Due nor Impaired Past Due or Standard Sub-Standard Individually High Grade Grade Grade Impaired Total Loans and receivables Loans and discounts Corporate lending P=115,990,217,438 P=968,467,761 P=1,807,688,041 P=4,124,973,326 P=122,891,346,566 Consumer lending 14,691,541,822 442,053,997 1,077,152,638 76,680,513 16,287,428,970 Others 100,990,228 – – 161,589 101,151,817 Customers’ liabilities under letters of credit or trust receipt 8,894,394,927 34,849,053 57,061,643 1,315,199,392 10,301,505,015 Bills purchased 1,938,974,772 – – – 1,938,974,772 Accrued interest receivable 1,724,631,372 8,094,697 6,522,091 78,853,767 1,818,101,927 Total P=143,340,750,559 P=1,453,465,508 P=2,948,424,413 P=5,595,868,587 P=153,338,509,067

Parent Company 2010 Neither Past Due nor Impaired Past Due or Standard Sub-Standard individually High Grade Grade Grade Impaired Total Loans and receivables Loans and discounts Corporate lending P=95,158,943,234 P=1,342,230,655 P=1,608,336,321 P=3,074,456,221 =P101,183,966,431 Consumer lending 5,005,458,012 7,185,123,453 551,794,973 514,963,999 13,257,340,437 Others 120,878,187 – – – 120,878,187 Customers’ liabilities under letters of credit or trust receipt 7,928,854,772 – – 706,441,222 8,635,295,994 Bills purchased 1,541,307,052 – – – 1,541,307,052 Accrued interest receivable 1,765,178,376 57,464,650 14,556,824 68,707,896 1,905,907,746 Total P=111,520,619,633 P=8,584,818,758 P=2,174,688,118 P=4,364,569,338 =P126,644,695,847

Depository accounts with the BSP and counterparty banks, Trading and Investment Securities For these financial assets, outstanding exposure is rated primarily based on external risk rating (i.e. Standard and Poor’s (S&P), otherwise, rating is based on risk grades by a local rating agency or included under “Unrated”, when the counterparty has no available risk grade.

The following is the credit rating scale applicable for foreign banks, and government securities (aligned with S&P ratings):

AAA - Obligor's capacity to meet its financial commitment is extremely strong.

AA - Obligor's capacity to meet its financial commitment is very strong. It differs from the highest-rated obligors at a minimal degree.

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A - Obligor has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors rated in higher-rated categories.

BBB and below:

BBB - Obligation rated has adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB - Obligation is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B - Obligation rated is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC - Obligation is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC - Obligation is currently highly vulnerable to nonpayment.

C - Obligations are currently highly vulnerable to nonpayment, payment arrearages allowed by the terms of the documents, and subject of a bankruptcy petition or similar action which have not experienced a payment default.

D - Obligation is in payment default. Payments on an obligation are not made on the date due even if the applicable grace period has not expired.

The table below shows the credit quality of deposits and investments as of December 31, 2011 and 2010, based on external risk ratings (gross of allowance for credit losses).

Consolidated 2011 AAA to AA- A+ to BBB- BB+ to BB- Unrated Total Due from other banks P=213,378,804 P=2,184,709,049 P=297,574,982 P=49,742,096 P=2,745,404,931 Financial assets at FVPL 93,820,210 – 1,942,843,273 218,024,062 2,254,687,545 AFS financial assets – 3,199,753,149 41,622,554,077 639,802,873 45,462,110,099 HTM financial assets – – 12,960,937,205 – 12,960,937,205 Total P=307,199,014 P=5,384,462,198 P=56,823,909,537 P=907,569,031 P=63,423,139,780

Consolidated 2010 AAA to AA- A+ to BBB- BB+ to BB- Unrated Total Due from other banks P=2,894,763,453 P=2,498,196,359 P=525,947,713 P=– P=5,918,907,525 Financial assets at FVPL – – 5,392,392,884 357,331,029 5,749,723,913 AFS financial assets 3,402,059,145 2,098,226,363 38,546,079,164 6,544,763,425 50,591,128,097 HTM financial assets – – 18,549,752,774 – 18,549,752,774 Total P=6,296,822,598 P=4,596,422,722 P=63,014,172,535 P=6,902,094,454 P=80,809,512,309

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Parent Company 2011 AAA to AA- A+ to BBB- BB+ to BB- Unrated Total Due from other banks P=213,378,804 P=2,184,709,049 P=297,574,982 P=33,811,600 P=2,729,474,435 Financial assets at FVPL 93,820,210 – 1,942,843,273 218,024,062 2,254,687,545 AFS financial assets – 3,199,753,149 34,705,841,431 6,447,650,114 44,353,244,694 HTM financial assets – – 12,877,757,205 – 12,877,757,205 Total P=307,199,014 P=5,384,462,198 P=49,824,016,891 P=6,699,485,776 P=62,215,163,879

Parent Company 2010 AAA to AA- A+ to BBB- BB+ to BB- Unrated Total Due from other banks P=2,894,763,453 P=2,498,196,359 P=522,679,131 P=54,361,600 P=5,970,000,543 Financial assets at FVPL – – 5,316,720,239 433,003,674 5,749,723,913 AFS financial assets 3,402,059,145 2,098,226,363 38,546,079,164 5,956,790,247 50,003,154,919 HTM financial assets – – 18,466,572,774 – 18,466,572,774 Total P=6,296,822,598 P=4,596,422,722 P=62,852,051,308 P=6,444,155,521 P=80,189,452,149

Due from other banks, interbank receivables and government securities The following is the credit rating scale applicable for local banks, government, and corporate investment outlets (aligned with Philippine Ratings System):

PRS Aaa - The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

PRS Aa -The obligor’s capacity to meet its financial commitment on the obligation is very strong.

PRS A - With favorable investment attributes and are considered as upper-medium grade obligations. Although obligations rated ‘PRS A’ are somewhat more susceptible to the adverse effects of changes in economic conditions, the obligor’s capacity to meet its financial commitments on the obligation is still strong.

PRS Baa - An obligation rated ‘PRS Baa’ exhibits adequate protection parameters. However, adverse economic conditions and changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. PRS Baa-rated issues may possess certain speculative characteristics.

PRS Ba - An obligation rated ‘PRS Ba’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties relating to business, financial or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

PRS B - An obligation rated ‘PRS B’ is more vulnerable to nonpayment than obligations rated ‘PRS Ba’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse economic conditions will likely impair the obligor’s capacity to meet its financial commitment on the obligation. The issue is characterized by high credit risk.

PRS Caa - An obligation rated ‘PRS Caa’ is presently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitments on the obligation. In the event of adverse economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. The issue is considered to be of poor standing and is subject to very high credit risk

PRS Ca - Likely already in or very near default with some prospect for partial recovery of principal or interest. *SGVMC116556* - 43 -

PRS C - An obligation is already in default with very little prospect for any recovery of principal or interest.

The table below shows the credit quality of deposits and investments, by class, as of December 31, 2011 and 2010, based on risk grades of a local rating agency (gross of allowance for credit losses).

Consolidated 2011 Aaa to Aa- A+ to Baa- Ba+ to Ba- Unrated Total Due from BSP P=– P=– P=– P=30,122,324,047 P=30,122,324,047 Interbank loans receivable and SPURA – – – 671,000,000 671,000,000 Financial assets at FVPL 125,571,900 5,806,182 – 59,998,591 191,376,673 AFS financial assets 204,634,008 – 89,671,491 30,263,575 324,569,074 Total P=330,205,908 P=5,806,182 P=89,671,491 P=30,883,586,213 P=31,309,269,794

Consolidated 2010 Aaa to Aa- A+ to Baa- Ba+ to Ba- Unrated Total Due from BSP P=– P=– P=– P=37,124,917,961 P=37,124,917,961 Interbank loans receivable and SPURA – – – 542,000,000 542,000,000 Financial assets at FVPL – – 191,169,224 – 191,169,224 AFS financial assets – – – 469,088,000 469,088,000 Total P=– P=– P=191,169,224 P=38,136,005,961 P=38,327,175,185

Parent Company 2011 Aaa to Aa- A+ to Baa- Ba+ to Ba- Unrated Total Due from BSP P=– P=– P=– P=29,571,232,355 P=29,571,232,355 Financial assets at FVPL 125,571,900 5,806,182 – 59,998,591 191,376,673 AFS financial assets 204,634,008 – 89,671,491 30,263,575 324,569,074 Total P=330,205,908 P=5,806,182 P=89,671,491 P=29,661,494,521 P=30,087,178,102

Parent Company 2010 Aaa to Aa- A+ to Baa- Ba+ to Ba- Unrated Total Due from BSP P=– P=– P=– P=37,053,152,975 P=37,053,152,975 Interbank loans receivable and SPURA – – – 50,000,000 50,000,000 Financial assets at FVPL – – 191,169,224 – 191,169,224 AFS financial assets – – – 469,088,000 469,088,000 Total P=– P=– P=191,169,224 P=37,572,240,975 P=37,763,410,199

The table below shows the aging analysis of gross past due but not impaired loans and receivables that the Group and Parent Company held as of December 31, 2011 and December 31, 2010. Under PFRS 7, a financial asset is past due when a counterparty has failed to make a payment when contractually due.

Consolidated Less than More than December 31, 2011 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate lending P=62,145,374 P=19,174,959 P=– P=1,553,820 P=82,874,153 Consumer lending 6,909,260 90,213 – – 6,999,473 Total P=69,054,634 P=19,265,172 P=– P=1,553,820 P=89,873,626

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Consolidated Less than More than December 31, 2010 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate lending P=34,434,762 P=232,000 P=1,940,000 P=19,867,540 P=56,474,302 Consumer lending 6,114,098 4,161,222 – – 10,275,320 Total P=40,548,860 P=4,393,222 P=1,940,000 P=19,867,540 P=66,749,622

Parent Company Less than More than December 31, 2011 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate lending P=13,345,374 P=19,174,959 P=– P=1,553,820 P=34,074,153 Consumer lending 6,909,260 90,213 – – 6,999,473 Total P=20,254,634 P=19,265,172 P=– P=1,553,820 P=41,073,626

Parent Company Less than More than December 31, 2010 30 days 31 to 60 days 61 to 90 days 91 days Total Loans and receivables Corporate lending P=34,434,762 P=232,000 P=1,940,000 P=19,867,540 P=56,474,302 Consumer lending 6,114,098 4,161,222 – – 10,275,320 Total P=40,548,860 P=4,393,222 P=1,940,000 P=19,867,540 P=66,749,622

See discussions under the ‘Collateral and other credit enhancements’ section for the details of types of collateral held.

See Note 14 for more detailed information with respect to the allowance for impairment and credit losses on loans and receivables.

The following table presents the carrying amount of financial assets of the Group and Parent Company as of December 31, 2011 and 2010 that would have been considered past due or impaired if not renegotiated:

Consolidated Parent Company 2011 2010 2011 2010 Loans and advances to customers: Corporate lending P=1,499,839,614 P=1,917,879,269 P=1,499,839,614 P=1,900,269,413 Consumer lending 35,031,180 70,294,654 35,031,180 53,551,349 Total renegotiated financial assets P=1,534,870,794 P=1,988,173,923 P=1,534,870,794 P=1,953,820,762

Impairment assessment The main considerations for the loan impairment assessment include whether any payment of principal or interest is overdue by more than 90 days, or there are known difficulties in the cash flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract. The Group addresses impairment assessment in two areas: individually assessed allowances and collectively assessed allowances.

Individually assessed allowances The Group determines the allowances appropriate for each individually significant loan or advance on an individual basis. Items considered when determining allowance amounts include the sustainability of the counterparty’s business plan, its ability to improve performance once a

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financial difficulty has arisen, projected receipts and the expected dividend payout should bankruptcy ensue, the availability of other financial support and the realizable value of collateral, and the timing of the expected cash flows. The impairment losses are evaluated at each reporting date, unless unforeseen circumstances require more careful attention.

Collectively assessed allowances Allowances are assessed collectively for losses on loans and advances that are not individually significant (including residential mortgages and unsecured consumer lending) and for individually significant loans and advances where there is not yet objective evidence of individual impairment. Allowances are evaluated on each reporting date with each portfolio receiving a separate review.

The collective assessment takes account of impairment that is likely to be present in the portfolio even though there is not yet objective evidence of the impairment in an individual assessment. Impairment losses are estimated by taking into consideration the following information: historical losses on the portfolio, current economic conditions, the approximate delay between the time a loss is likely to have been incurred and the time it will be identified as requiring an individually assessed impairment allowance, and expected receipts and recoveries once impaired. Management is responsible for deciding the length of this period which can extend for as long as one year. The impairment allowance is then reviewed by credit management to ensure alignment with the Group’s overall policy.

Market Risk Market risk is the risk of loss that may result from changes in the price of a financial product. The value of a financial product may change as a result of changes in interest rates, foreign exchange rates, commodity prices, equity prices and other market changes. The Parent Company’s market risk originates from its holdings of foreign exchange instruments and debt securities.

The RMG of the Parent Company is responsible for assisting the RMC with its responsibility for identifying, measuring, managing and controlling market risk. Market risk management is implemented under the Value-at-Risk (VaR) method, a procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations and volatilities. Specifically, the Bank uses the Parametric/ Variance-Covariance VaR measurement. VaR estimates the potential decline in the value of a portfolio, under normal market conditions, for a given “confidence level” over a specified holding period.

Objectives and limitations of the VaR Methodology The Parent Company uses simulation models to assess possible changes in the market value of the trading portfolio based on historical data from the past 260 trading days. The VaR models are designed to measure market risk in a normal market environment. The models assume that changes occurring in the risk factors affecting the normal market environment will follow a normal distribution. The distribution is calculated by using equally weighted historical data. The use of VaR has limitations because it is based on historical correlations and volatilities in market prices and assumes that future price movements will follow a statistical distribution. Due to the fact that VaR relies heavily on historical data to provide information and may not clearly predict the future changes and modifications of the risk factors, the probability of large market moves may be underestimated if changes in risk factors fail to align with the normal distribution assumption. VaR may also be under- or over-estimated due to the assumptions placed on risk factors and the relationship between such factors for specific instruments. Even though positions may change throughout the day, the VaR only represents the risk of the portfolios at the close of each business day, and it does not account for any losses that may occur beyond the 99.00% confidence level.

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In practice, the actual trading results will differ from the VaR calculation and, in particular, the calculation does not provide a meaningful indication of profits and losses in stressed market conditions. To determine the reliability of the VaR models, actual outcomes are monitored regularly to test the validity of the assumptions and the parameters used in the VaR calculation. Market risk positions are also subject to regular stress tests to ensure that the Bank would withstand an extreme market event.

VaR assumptions The VaR that the Parent Company measures is an estimate, using a confidence level of 99%, of the potential loss that is not expected to be exceeded if the current market risk positions were to be held unchanged for one day. The use of a 99.00% confidence level means that, within a one day horizon, losses exceeding the VaR figure should occur, on average, not more than once every hundred days.

In July 2005, the Parent Company commenced the bankwide computation of its VaR in certain trading activities, using a 99.00% confidence level and a 10-day holding period for interest rate risk and a 99.00% confidence level and 1-day holding period for foreign exchange risk and equity risk. This means that, statistically, the Parent Company’s losses on interest rate risks arising from trading operations will exceed the VaR figure on 1 fortnightly period (with no change in the portfolio during the holding period) out of 100 fortnightly periods. The validity of the VaR model is verified through back testing, which examines how frequently actual and hypothetical daily losses exceeds daily VaR. The Parent Company measures and monitors the VaR and profit and loss on a daily basis.

Since VaR is an integral part of the Parent Company’s market risk management, VaR limits have been established for all trading operations and exposures are reviewed daily against the limits by management. Further, stress testing is performed in monitoring extreme events.

A summary of the VaR position of the trading portfolio of the Parent Company is as follows:

Foreign Interest Rate Exchange Equity Total (In Millions) 2011 31 December P=20.04 P=7.43 P=0.00 P=27.47 Average daily 13.81 9.03 2.32 25.16 Highest 57.30 21.48 2.63 81.41 Lowest 9.03 2.19 1.84 13.06 2010 31 December P=41.96 P=2.45 P=2.25 P=46.66 Average daily 30.98 11.33 3.56 45.87 Highest 74.99 25.25 4.99 105.23 Lowest 15.46 1.88 2.25 19.59

In 2011, there were 5 times in the year that daily losses were greater than the VaR (average loss of those instances was =P9.64 million, with an average VaR of P= 6.11 million).

In 2010, there were 2 times in the year that daily losses were greater than the VaR (average loss of those instances was =P13.63 million, with an average VaR of P=11.33 million).

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Interest Rate Risk The Group’s interest rate risk originates from its holdings of interest rate sensitive assets and interest rate sensitive liabilities. The Parent Company follows prudent policies in managing its exposures to interest rate fluctuations, and constantly monitors its assets and liabilities.

As of December 31, 2011 and 2010, 74.01% and 76.00% of the Group’s total loan portfolio, respectively, comprised of floating rate loans which are repriced periodically by reference to the transfer pool rate which reflects the Group’s internal cost of funds. In keeping with banking industry practice, the Group aims to achieve stability and lengthen the term structure of its deposit base, while providing adequate liquidity to cover transactional banking requirements of customers.

Interest is paid on demand accounts, which constituted 25.28% and 22.58% of total deposits of the Parent Company as of December 31, 2011 and 2010, respectively.

Interest is paid on savings accounts and time deposits accounts, which constitute 51.54% and 23.18%, respectively, of total deposits of the Parent Company as of December 31, 2011, and 52.86% and 24.56%, respectively, as of December 31, 2010.

Savings account interest rates are set by reference to prevailing market rates, while interest rates on time deposits and special savings accounts are usually priced by reference to prevailing rates of short-term government bonds and other money market instruments, or, in the case of foreign currency deposits, inter-bank deposit rates and other benchmark deposit rates in international money markets with similar maturities.

The Group is likewise exposed to fair value interest rate risk due to its holdings of fixed rate government bonds as part of its AFS and FVPL portfolios. Market values of these investments are sensitive to fluctuations in interest rates.

The following table provides for the average effective interest rates by period of repricing of the Group and of the Parent Company as of December 31, 2011 and 2010:

Consolidated 2011 2010 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 Peso Assets Due from BSP 2.44% – – 3.00% – – Due from banks 0.48% – – 0.06% – – Investment securities* 2.09% 1.57% 5.39% – 2.85% 4.95% Loans and receivables 5.14% 6.13% 6.47% 5.62% 6.06% 4.89%

Liabilities Deposit liabilities 2.02% 3.95% 7.09% 2.06% 4.00% 8.25% Bills payable 0.00% 0.00% 6.15% 4.79% 5.32% 5.94%

USD Assets Investment securities* – – 4.84% – 4.06% 5.34% Loans and receivables 3.20% 2. 52% 3.94% 4.14% 3.29% 1.44%

Liabilities Deposit liabilities 1.31% 1.43% – 1.43% 1.51% – Bills payable 2.75% 2.82% – – – –

* Consisting of financial assets at FVPL, AFS financial assets and HTM financial assets.

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Parent Company 2011 2010 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 Peso Assets Due from BSP 2.44% – – 3.00% – – Due from banks 0.48% – – 0.06% – – Investment securities* 2.09% 1.57% 5.36% – 2.85% 4.95% Loans and receivables 5.15% 6.08% 6.37% 5.62% 6.06% 4.88%

Liabilities Deposit liabilities 2.03% 4.05% 7.27% 2.06% 4.00% 8.25% Bills payable 0.00% 0.00% 6.15% 4.79% 5.32% 5.94%

USD Assets Investment securities* – – 4.84% – 4.06% 5.34% Loans and receivables 3.20% 2. 52% 3.94% 4.14% 3.29% 1.44%

Liabilities Deposit liabilities 1.31% 1.44% – 1.43% 1.51% – Bills payable 2.75% 2.82% – – – –

* Consisting of financial assets at FVPL, AFS financial assets and HTM financial assets.

The asset-liability gap analysis method is used by the Group to measure the sensitivity of its assets and liabilities to interest rate fluctuations. This analysis measures the Group’s susceptibility to changes in interest rates. The repricing gap is calculated by first distributing the assets and liabilities contained in the Group’s balance sheet into tenor buckets according to the time remaining to the next repricing date (or the time remaining to maturity if there is no repricing), and then obtaining the difference between the total of the repricing (interest rate sensitive) assets and the total of repricing (interest rate sensitive) liabilities.

A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities.

Accordingly, during a period of rising interest rates, a bank with a positive gap would be in a position to invest in higher yielding assets earlier than it would need to refinance its interest rate sensitive liabilities. During a period of falling interest rates, a bank with a positive gap would tend to see its interest rate sensitive assets repricing earlier than its interest rate sensitive liabilities, restraining the growth of its net income or resulting in a decline in net interest income.

The following table sets forth the repricing gap position of the Group and Parent Company as of December 31, 2011 and 2010 (in millions):

Consolidated 2011 Up to 1 >1 to 3 >3 to 6 >6 to 12 >12 Month Months Months Months Months Total Financial Assets Total loans and receivables P=75,377 P=43,608 P=14,375 P=7,664 P=4,215 P=145,239 Total investments 106 3,711 1,252 430 53,247 58,746 Placements with other banks 28,268 4,600 – – – 32,868 (Forward)

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Consolidated 2011 Up to 1 >1 to 3 >3 to 6 >6 to 12 >12 Month Months Months Months Months Total Sales contracts receivable P=16 P=34 P=12 P=23 P=319 P=404 Total financial assets 103,767 51,953 15,639 8,117 57,781 237,257 Financial Liabilities Deposit liabilities 69,525 39,213 5,948 702 100,745 216,133 Bills payable 24 314 19 13 1,272 1,642 Total financial liabilities 69,549 39,527 5,967 715 102,017 217,775 Repricing gap P=34,218 P=12,426 P=9,672 P=7,402 (P=44,236) P=19,482

Consolidated 2010 Up to 1 >1 to 3 >3 to 6 >6 to 12 >12 Month Months Months Months Months Total Financial Assets Total loans and receivables P=65,051 P=28,783 P=7,103 P=13,738 P=9,069 P=123,744 Total investments – 9,649 944 502 64,453 75,548 Placements with other banks 43,586 – – – – 43,586 Sales contracts receivable – 12 1 200 424 637 Total financial assets 108,637 38,444 8,048 14,440 73,946 243,515 Financial Liabilities Deposit liabilities 85,400 35,963 4,160 1,036 86,483 213,042 Bills payable 804 267 - 104 1,883 3,058 Total financial liabilities 86,204 36,230 4,160 1,140 88,366 216,100 Repricing gap P=22,433 P=2,214 P=3,888 P=13,300 (P=14,420) P=27,415

Parent Company 2011 Up to 1 >1 to 3 >3 to 6 >6 to 12 >12 Month Months Months Months Months Total Financial Assets Total loans and receivables P=74,622 P=43,411 P=14,192 P=6,888 P=4,313 P=143,426 Total investments 106 3,711 1,169 430 52,139 57,555 Placements with other banks 27,741 4,560 – – – 32,301 Sales contracts receivable 6 13 8 15 215 257 Total financial assets 102,475 51,695 15,369 7,333 56,667 233,539 Financial Liabilities Deposit liabilities 69,800 38,484 5,824 679 97,186 211,973 Bills payable 24 313 19 13 1,272 1,641 Total financial liabilities 69,824 38,797 5,843 692 98,458 213,614 Repricing gap P=32,651 P=12,898 P=9,526 P=6,641 P=-41,791 P=19,925

Parent Company 2010 Up to 1 >1 to 3 >3 to 6 >6 to 12 >12 Month Months Months Months Months Total Financial Assets Total loans and receivables P=65,853 P=28,783 P=7,103 P=12,763 P=8,322 P=122,824 Total investments – 9,649 944 484 63,801 74,878 Placements with other banks 43,073 – – – – 43,073 Sales contracts receivable – 12 1 151 297 461 Total financial assets 108,926 38,444 8,048 13,398 72,420 241,236 Financial Liabilities Deposit liabilities 85,579 35,963 4,160 1,036 84,249 210,987 Bills payable 804 267 – 104 1,883 3,058 Total financial liabilities 86,383 36,230 4,160 1,140 86,132 214,045 Repricing gap P=22,543 P=2,214 P=3,888 P=12,258 (P=13,712) P=27,191

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The Group also monitors its exposure to fluctuations in interest rates by using scenario analysis to estimate the impact of interest rate movements on its interest income. This is done by modeling the impact to the Group’s interest income and interest expenses to parallel changes in the interest rate curve in a given 12-month period.

The following table sets forth the estimated change in the Group’s and Parent Company’s annualized net interest income due to a parallel change in the interest rate curve as of December 31, 2011 and 2010:

Consolidated 2011 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P=510,428,064 P=255,214,032 (P=255,214,032) (P=510,428,064) As a percentage of the Group’s net interest income for the year ended December 31, 2011 5.97% 2.98% (2.98%) (5.97%)

Consolidated 2010 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P=290,986,522 P=145,493,261 (P=145,493,261) (P=290,986,522) As a percentage of the Group’s net interest income for the year ended December 31, 2010 3.37% 1.69% (1.69%) (3.37%)

Parent Company 2011 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P=496,518,858 P=248,259,429 (P=248,259,429) (P=496,518,858) As a percentage of the Group’s net interest income for the year ended December 31, 2011 5.90% 2. 95% (2.95%) (5.90%)

Parent Company 2010 Change in interest rates (in basis points) 100bp rise 50bp rise 50bp fall 100bp fall Change in annualized net interest income P=289,431,104 P=144,715,552 (P=144,715,552) (P=289,431,104) As a percentage of the Group’s net interest income for the year ended December 31, 2010 3.39% 1.70% (1.70%) (3.39%)

In 2011, the Demand and Savings Account deposits were reflected in the longer term bucket (5 years) instead of the 1-month bucket as these deposits are generally not interest rate sensitive. The 2010 figures were also restated for comparability. There is no other impact on the Group’s and Parent Company’s equity other than those already affecting the profit or loss.

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The following table sets forth the estimated change in the Group’s and Parent Company’s income before tax and equity due to a reasonably possible change in the market prices of quoted bonds classified under financial assets at FVPL and AFS financial assets, brought about by movement in the interest rate curve as of December 31, 2011 and 2010:

Consolidated 2011 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P=29,668,040) (11,995,429) P=12,074,965 P=30,415,212 Change in equity (600,226,722) (241,721,782) 243,876,959 613,697,633

Consolidated 2010 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P=60,432,797) (P=24,304,944) P=24,482,808 P=61,544,512 Change in equity (645,683,439) (277,166,800) 220,818,794 599,365,180

Parent Company 2011 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P=29,668,040) (11,995,429) P=12,074,965 P=30,415,212 Change in equity (585,646,851) (235,852,126) 238,007,303 599,117,762

Parent Company 2010 Change in interest rates (in basis points) 25bp rise 10bp rise 10bp fall 25bp fall Change in income before tax (P=60,432,797) (P=24,304,944) P=24,482,808 P=61,544,512 Change in equity (639,392,369) (274,637,387) 218,271,911 592,964,916

Foreign Currency Risk The Group’s foreign exchange risk originates from its holdings of foreign currency-denominated assets (foreign exchange assets) and foreign currency-denominated liabilities (foreign exchange liabilities).

Foreign exchange liabilities generally consist of foreign currency-denominated deposits in the Group’s FCDU account made in the Philippines or generated from remittances to the Philippines by persons overseas who retain for their own benefit or for the benefit of a third party, foreign currency deposit accounts with the Group.

Foreign currency liabilities are generally used to fund the Group’s foreign exchange assets which generally consist of foreign currency-denominated loans and investments in the FCDU. Banks are required by the BSP to match the foreign currency-denominated assets with liabilities held in the FCDU that are denominated in the same foreign currency. In addition, the BSP requires a 30% liquidity reserve on all foreign currency-denominated liabilities held in the FCDU.

The Group’s policy is to maintain foreign currency exposure within existing regulations, and within acceptable risk limits. The Group believes in ensuring its foreign currency is at all times within limits prescribed for financial institutions who are engaged in the same types of businesses in which the Group and its subsidiaries are engaged.

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The table below summarizes the Group’s and Parent Company’s exposure to foreign exchange risk. Included in the table are the Group’s and Parent Company’s assets and liabilities at carrying amounts (stated in US Dollars), categorized by currency (in thousands):

Consolidated 2011 2010 Other Other USD Currencies Total PHP USD Currencies Total PHP Assets Cash and other cash items $11,033 $2,908 $13,941 P=611,173 $13,411 $987 $14,398 P=631,208 Due from other banks 45,339 13,767 59,106 2,591,207 117,928 7,017 124,945 5,477,589 Interbank loans receivables 520 – 520 22,797 1,240 – 1,240 54,362 Financial assets at FVPL 12,839 1,681 14,520 636,559 25,582 1,978 27,560 1,208,230 AFS financial assets 563,932 1,362 565,294 24,722,773 595,771 – 595,771 26,118,601 HTM financial assets 290,458 3,286 293,744 12,960,937 517,356 – 517,356 22,680,887 Loans and receivables 427,970 870 428,840 18,800,346 279,672 – 279,672 12,260,820 Accrued interest receivable 18,386 – 18,386 806,042 22,261 266 22,527 987,584 Other assets 37738 361 38,099 1,670,260 34,744 24 34,768 1,524,229 $1,408,215 $24,235 $1,432,450 P=62,822,094 $1,607,965 $10,272 $1,618,237 =P70,943,510 Liabilities Deposit liabilities $1,105,125 $13,180 $1,118,305 P=49,026,491 $1,196,327 $12,157 $1,208,484 =P52,979,939 Bills payables 2,288 – 2,288 100,306 10,000 – 10,000 438,400 Accrued interest and other expenses 1,669 16 1,685 73,870 2,379 15 2,394 104,953 Other liabilities 84,906 362 85,268 3,738,149 38,896 20 38,916 1,706,077 $1,193,988 $13,558 $1,207,546 P=52,938,816 $1,247,602 $12,192 $1,259,794 =P55,229,369 Currency spot $19,000 $1 $19,001 P=791,095 $42,500 $– $42,500 P=1,863,200 Currency forwards (266,270) – (266,270) (11,638,633) (393,764) (186) (393,950) (17,270,768) Net Exposure ($33,043) $10,678 ($22,365) (P=964,260) $9,099 ($2,106) $6,993 P=306,573

Parent Company 2011 2010 Other Other USD Currencies Total PHP USD Currencies Total PHP Assets Cash and other cash items $11,033 $2,908 $13,941 P=611,279 $13,300 $987 $14,287 P=626,342 Due from other banks 41,402 13,767 55,169 2,418,609 116,598 7,017 123,615 5,419,282 Interbank loans receivables 520 – 520 22,797 1,240 – 1,240 54,362 Financial assets at FVPL 12,839 1,681 14,520 636,559 25,582 1,978 27,560 1,208,230 AFS financial assets 560,370 1,362 561,732 24,566,633 594,601 – 594,601 26,067,308 HTM financial assets 290,458 3,286 293,744 12,960,937 517,356 – 517,356 22,680,887 Loans and receivables 431,440 870 432,310 18,952,459 279,672 – 279,672 12,260,820 Accrued interest receivable 2,021 – 2,021 88,608 22,221 266 22,487 985,830 Other assets 87,089 361 87,450 3,833,839 34,743 24 34,767 1,524,185 $1,437,172 $24,235 $1,461,407 P=64,091,720 $1,605,313 $10,272 $1,615,585 =P70,827,246 Liabilities Deposit liabilities $1,105,118 $13,180 $1,118,298 P=49,026,183 $1,193,768 $12,157 $1,205,925 =P52,867,752 Bills payables 2,288 – 2,288 100,297 10,000 – 10,000 438,400 Accrued interest and other expenses 1,669 16 1,685 73,982 2,378 15 2,393 104,909 Other liabilities 84,906 362 85,268 3,737,188 38,893 20 38,913 1,705,946 $1,193,981 $13,558 $1,207,539 P=52,937,650 $1,245,039 $12,192 $1,257,231 =P55,117,007 Currency spot $19,000 $1 $19,001 P=791,095 $42,500 $– $42,500 P=1,863,200 Currency forwards (266,270) – (266,270) (11,638,633) (393,764) (186) (393,950) (17,270,768) Net Exposure ($4,079) $10,678 $6,599 P=306,532 $9,010 ($2,106) $6,904 P=302,671

The following table sets forth, for the period indicated, the impact of the range of reasonably possible changes in the US$ exchange rate and other currencies per Philippine peso on the pre-tax income and equity (in millions).

Consolidated Change in foreign Sensitivity of Sensitivity of exchange rate pretax income equity 2011 USD 2% P=11 P=501 Other 1% 1 1 USD (2%) (11) (501) Other (1%) (1) (1) (Forward)

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Consolidated Change in foreign Sensitivity of Sensitivity of exchange rate pretax income equity 2010 USD 2% P=21 P=543 Other 1% 1 1 USD (2%) (21) (543) Other (1%) (1) (1)

Parent Company Change in foreign Sensitivity of Sensitivity of exchange rate pretax income equity 2011 USD 2% P=11 P=498 Other 1% 1 1 USD (2%) (11) (498) Other (1%) (1) (1)

2010 USD 2% P=21 P=542 Other 1% 1 1 USD (2%) (21) (542) Other (1%) (1) (1)

The impact in equity is due to the effect of FCDU’s behaviour to Philippine peso.

Equity Price Risk Equity price risk is the risk that the fair values of equities decrease as a result of changes in both the level of equity indices and the value of individual stocks. The non-trading equity price risk exposure arises from the Group’s investment portfolio.

The effect on the Group and Parent Company’s equity (as a result of a change in the fair value of equity instruments held as available-for-sale due to a reasonably possible change in equity indices, with all other variables held constant, is as follows (in millions):

Consolidated Change in Effect on equity index Equity 2011 +10% P=9.5 -10% (9.5) 2010 +10% P=1.4 -10% (1.4)

Parent Company Change in Effect on equity index Equity 2011 +10% P=9.5 -10% (9.5) 2010 +10% P=1.4 -10% (1.4)

Liquidity Risk and Funding Management Liquidity risk is generally defined as the current and prospective risk to earnings or capital arising from the Parent Company’s inability to meet its obligations when they become due without incurring unacceptable losses or costs. *SGVMC116556* - 54 -

The Parent Company’s liquidity management involves maintaining funding capacity to accommodate fluctuations in asset and liability levels due to changes in the Parent Company’s business operations or unanticipated events created by customer behavior or capital market conditions. The Parent Company seeks to ensure liquidity through a combination of active management of liabilities, a liquid asset portfolio composed substantially of deposits in primary and secondary reserves, the securing of money market lines, and the maintenance of repurchase facilities to address any unexpected liquidity situations.

Liquidity risk is monitored and controlled primarily by a gap analysis of maturities of relevant assets and liabilities reflected in the maximum cumulative outflow (MCO) report, as well as, an analysis of available liquid assets. Furthermore, an internal liquidity ratio has been set to determine sufficiency of liquid assets over deposit liabilities.

Liquidity is managed by the Parent and subsidiaries on a daily basis, while scenario stress tests are conducted periodically. The table below shows the maturity profile of the Parent Company’s assets and liabilities, based on contractual undiscounted cash flows:

December 31, 2011 Less than On demand 1 year 1 to 2 years 2 to 3 years 3 to 5 years Total (In Millions) Financial Assets Cash and other cash items P=5,902 P=– P=– P=– P=– P=5,902 Due from BSP 29,571 – – – – 29,571 Due from other banks 2,729 – – – – 2,729 Interbank loans receivable and securities purchased under resale agreement – – – – – – Financial assets at FVPL – 2,228 218 – – 2,446 AFS financial assets – 1,261 8,417 4,555 35,134 49,367 Loans and receivables – 80,242 9,356 7,089 66,155 162,842 38,202 83,731 17,991 11,644 101,289 252,857 Financial Liabilities Deposit liabilities Demand 54,624 – – – – 54,624 Savings 36,888 75,161 – – – 112,049 Time – 41,095 5,425 – 3,240 49,760 Bills payable BSP rediscounting – 103 – – – 103 Government lending program – 16 347 67 1,212 1,642 Others – – – – – – Manager’s checks – 446 – – – 446 Accrued interest and other expenses – 1,418 – – – 1,418 Derivative liabilities – 147 – – – 147 Other liabilities: Accounts payable – 938 – – – 938 Acceptances payable – 568 – – – 568 Due to PDIC – 204 – – – 204 Due to BSP – – – – – – Margin deposits – 3 – – – 3 Miscellaneous – 1,515 – – – 1,515 Total liabilities 91,512 121,614 5,772 67 4,452 223,417 Net Position (P=53,310) (P=37,883) P=12,219 P=11,577 P=96,837 P=29,440

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December 31, 2010 Less than On demand 1 year 1 to 2 years 2 to 3 years 3 to 5 years Total (In Millions) Financial Assets Cash and other cash items P=6,362 P=– P=– P=– P=– P=6,362 Due from BSP 37,053 – – – – 37,053 Due from other banks 5,970 – – – – 5,970 Interbank loans receivable and securities purchased under resale agreement 50 – – – – 50 Financial assets at FVPL – 5,584 357 – – 5,941 AFS financial assets – 1,130 85 208 44,704 46,127 Loans and receivables – 68,272 6,442 11,929 44,217 130,860 49,435 74,986 6,884 12,137 88,921 232,363 Financial Liabilities Deposit liabilities Demand 47,880 – – – – 47,880 Savings 31,755 82,653 – – – 114,408 Time – 45,684 – 7,413 – 53,097 Bills payable BSP rediscounting – 76 – – – 76 Government lending program – 47 75 476 1,827 2,425 Others – 761 – – – 761 Manager’s checks – 304 – – – 304 Accrued interest and other expenses – 1,947 – – – 1,947 Derivative liabilities – 1,205 – – – 1,205 Other liabilities: Accounts payable – 931 – – – 931 Acceptances payable – 290 – – – 290 Due to PDIC – 201 – – – 201 Due to BSP – – – – – – Margin deposits – 6 – – – 6 Miscellaneous – 754 – – – 754 Total liabilities 79,635 134,859 75 7,889 1,827 224,285 Net Position (P=30,200) (P=59,873) P=6,809 P=4,248 P=87,094 P=8,078

In mid-2011, the Parent Company revised its liquidity risk management policies, methodologies, assumptions, stress scenarios limits structure, monitoring and reporting process to Behavioral MCO to strengthen the management of liquidity risk.

7. Derivatives, Trading and Investment Securities

Financial assets at FVPL This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Held-for-trading: Treasury notes P=1,016,047,753 P=2,473,765,465 P=1,016,047,753 P=2,473,765,465 Government bonds 820,631,783 2,405,612,065 820,631,783 2,405,612,065 Treasury bills 11,364,803 359,705,660 11,364,803 359,705,660 Private bonds and commercial papers 379,995,818 344,478,918 379,995,818 344,478,918 2,228,040,157 5,583,562,108 2,228,040,157 5,583,562,108 Derivative assets (Note 23) 218,024,061 357,331,029 218,024,061 357,331,029 P=2,446,064,218 P=5,940,893,137 P=2,446,064,218 P=5,940,893,137

As of December 31, 2011 and 2010, HFT securities include fair value loss of =P97.99 million and fair value gain of P=138.73 million, respectively.

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Both realized and unrealized gains and losses on HFT and derivative assets are included under Trading and securities gain - net in the statements of income (see Note 19).

AFS financial assets This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Quoted: Government bonds (Note 26) P=39,300,379,188 P=44,585,806,199 P=38,199,866,695 P=43,998,932,521 Private bonds 880,342,597 680,326,166 880,342,597 680,326,166 Equities 114,523,809 150,615,066 114,326,309 150,615,066 40,295,245,594 45,416,747,431 39,194,535,601 44,829,873,753 Unquoted: Credit-linked notes (host) 4,343,028,942 4,416,367,876 4,343,028,942 4,416,367,876 Private bonds and commercial papers - net 1,119,631,842 1,204,439,584 1,119,631,842 1,204,439,584 Equities - net * 26,695,100 19,412,705 19,412,705 19,412,705 5,489,355,884 5,640,220,165 5,482,073,489 5,640,220,165 Total P=45,784,601,478 P=51,056,967,596 P=44,676,609,090 P=50,470,093,918 * Includes fully impaired equity investments with acquisition cost of =P2.08 million for the Group and =P1.20 million for the Parent Company in 2011 and =P3.25 million for the Group and =P2.15 million for the Parent Company in 2010

Credit-linked notes On August 6, 2008, the BOD authorized the Parent Company to invest in credit-linked notes (CLNs). Thereafter, the Parent Company invested US$100,000,000, in five separate agreements of US$20,000,000 each, in CLNs with tenor of five years. The CLNs are linked to the performance of a specific Republic of the Philippines (ROP) bond, the underlying bond collateral, and London Interbank Offer Rate (LIBOR). In the event of a credit event or a default event on the specific ROP bond or the bond collateral, the investment will unwind and the Parent Company will receive the deliverable obligation as defined under the contract. If no credit event or default event occurs, the Parent Company will receive the maturity value of the CLNs, which is the face amount. The CLNs bear floating interest based on 6 month USD LIBOR plus an agreed spread, payable semi-annually, and will mature in 2013.

The embedded credit derivatives on the above CLNs have been bifurcated (see Note 23) and the host contracts were classified under AFS financial assets.

Unquoted equity securities This account comprise of stocks of private corporations that are carried at cost since fair value cannot be reliably estimated due to lack of reliable estimates of future cash flows and discount rates necessary to calculate the fair value. There is currently no market for these investments and the Group intends to hold them for the long term.

Net unrealized gain AFS financial assets include fair value gain of =P1.89 billion and P=1.86 billion for the Group and Parent Company, respectively, as of December 31, 2011 and fair value gain of =P1.86 billion for both the Group and Parent Company as of December 31, 2010. The fair value gains are recognized under OCI. The deferred tax liabilities recognized on net unrealized gains amounted to P=13.66 million and P=15.11 million as of December 31, 2011 and 2010, respectively, for both the Group and Parent Company. No impairment loss was charged to operations on AFS financial assets in 2011, 2010 and 2009.

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The movements in net unrealized gains (losses) on AFS financial assets, net of deferred tax liability, follow:

Consolidated Parent Company 2011 2010 2011 2010 Balance at beginning of year P=1,857,899,586 P=427,495,719 P=1,858,279,002 P=424,156,407 Fair value gain for the year 1,676,856,170 2,832,461,940 1,636,189,520 2,799,775,800 Gains taken to profit or loss (Note 19) (1,649,670,999) (1,402,058,073) (1,634,157,490) (1,365,653,205) 27,185,171 1,430,403,867 2,032,030 1,434,122,595 Balance at end of year P=1,885,084,757 P=1,857,899,586 P=1,860,311,032 P=1,858,279,002

HTM financial assets This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Government bonds P=12,322,800,775 P=17,827,262,136 P=12,322,800,775 P=17,827,262,136 Private bonds 437,626,400 437,626,400 354,446,400 354,446,400 12,760,427,175 18,264,888,536 12,677,247,175 18,181,708,536 Unamortized premium - net 200,510,030 284,864,238 200,510,030 284,864,238 P=12,960,937,205 P=18,549,752,774 P=12,877,757,205 P=18,466,572,774

Reclassification of Financial Assets In 2008, as approved by its BOD, the Parent Company identified assets for which it had a clear change of intent to hold the investments to maturity rather than to exit or trade these investments in the foreseeable future and reclassified those investments from AFS financial assets to HTM financial assets effective October 2, 2008.

As of October 2, 2008, the total carrying value of AFS financial assets reclassified to HTM financial assets amounted to =P9.04 billion, with unrealized losses of =P47.44 million deferred under ‘Net unrealized gains (losses) on AFS financial assets’ under OCI.

In 2011 and 2010, HTM financial assets reclassified from AFS financial assets with total face amount of P=2.17 billion and P=1.41 billion matured, respectively.

As of December 31, 2011 and 2010, HTM financial assets reclassified from AFS financial assets have the following balances:

Unamortized Net Unrealized Original Carrying Fair Loss Deferred Face Value Cost Value Value in Equity Amortization (In Thousands) 2011 Government bonds P=2,502,499 P=2,813,730 P=2,713,557 P=3,191,467 P=13,575 (P=18,350) Private bonds 352,474 352,456 338,278 386,755 (14,184) 6,947 P=2,854,973 P=3,166,186 P=3,051,835 P=3,578,222 (P=609) (P=11,403) 2010 Government bonds P=4,678,891 P=5,199,704 P=4,930,524 P=5,450,703 P=14,067 P=37,441 Private bonds 352,474 352,456 335,951 395,885 (16,509) 4,622 P=5,031,365 P=5,552,160 P=5,266,475 P=5,846,588 (P=2,442) P=42,063

Had these securities not been reclassified to HTM financial assets, additional mark-to-market gain that would have been credited to the statement of comprehensive income amounted to =P526.39 million, =P584.52 million and P=713.04 million in 2011, 2010 and 2009, respectively.

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Effective interest rates on the reclassified securities range from 3.29% to 8.06%. The Parent Company expects to recover 100.00% of the principal and interest due on the reclassified investments totaling =P4.18 billion and P=6.70 billion, as of December 31, 2011 and 2010, respectively. No impairment loss was recognized on these securities in 2011, 2010 and 2009.

Interest Income on Debt Securities Interest income on trading and investment securities consists of:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Financial assets at FVPL P=326,059,117 P=656,100,256 P=670,498,072 P=326,059,117 P=656,100,256 P=670,498,072 AFS financial assets 2,341,486,771 2,288,554,677 1,879,350,655 2,292,266,252 2,241,899,370 1,833,107,770 HTM financial assets 1,245,703,384 1,624,380,353 1,989,628,244 1,238,841,033 1,624,380,353 1,989,628,244 P=3,913,249,272 P=4,569,035,286 =P4,539,476,971 P=3,857,166,402 P=4,522,379,979 =P4,493,234,086

8. Loans and Receivables

This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Loans and discounts Corporate lending P=123,452,146,510 P=101,914,246,079 P=122,891,346,566 P=101,183,966,431 Consumer lending 17,644,154,874 13,786,892,438 16,287,428,970 13,257,340,437 Others 173,551,130 126,118,604 101,151,817 120,878,187 141,269,852,514 115,827,257,121 139,279,927,353 114,562,185,055 Unearned discounts (702,426,426) (1,053,956,330) (690,714,511) (957,159,185) 140,567,426,088 114,773,300,791 138,589,212,842 113,605,025,870 Customers’ liabilities under letters of credit or trust receipts 10,301,505,015 8,635,295,994 10,301,505,015 8,635,295,994 Bills purchased 1,938,974,772 1,541,307,052 1,938,974,772 1,541,307,052 152,807,905,875 124,949,903,837 150,829,692,629 123,781,628,916 Allowance for impairment and credit losses (Note 14) (7,569,243,302) (7,763,993,788) (7,403,118,580) (7,579,766,028) P=145,238,662,573 P=117,185,910,049 P=143,426,574,049 P=116,201,862,888

The Group’s and Parent Company’s loans and discounts under corporate lending include unquoted debt securities with carrying amount of P=2.93 billion and P=2.59 billion as of December 31, 2011, respectively, and P=11.81 billion and =P11.62 billion as of December 31, 2010, respectively.

BSP Reporting Information on the amounts of secured and unsecured loans and receivables (gross of unearned discounts and allowance for impairment and credit losses) of the Group and Parent Company are as follows:

Consolidated Parent Company 2011 2010 2011 2010 Amounts % Amounts % Amounts % Amounts % Loans secured by: Real estate P=28,181,316,815 18.36 P=22,396,398,247 17.78 P=27,564,147,671 18.19 P=21,902,571,620 17.56 Chattel mortgage 5,493,921,994 3.58 3,151,288,151 2.50 4,072,112,952 2.69 2,587,465,253 2.07 Shares of stock of other banks 5,082,283,206 3.31 – – 5,082,283,206 3.36 – – Deposit hold out 4,674,622,655 3.05 1,526,758,521 1.21 4,656,973,054 3.07 1,515,893,141 1.22 Others 31,384,083,526 20.44 23,565,689,499 18.70 31,456,123,558 20.76 23,565,689,499 18.89 74,816,228,196 48.74 50,640,134,418 40.19 72,831,640,441 48.07 49,571,619,513 39.74 Unsecured loans 78,694,104,105 51.26 75,363,725,749 59.81 78,688,766,699 51.93 75,167,168,588 60.26 P=153,510,332,301 100.00 P=126,003,860,167 100.00 P=151,520,407,140 100.00 P=124,738,788,101 100.00

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Loans and receivables of the Group amounting to =P0.10 billion and P=0.07 billion as of December 31, 2011 and 2010, respectively, are pledged to secure certain bills payable to the BSP under the Parent Company’s rediscounting privileges (see Note 16).

Information on the concentration of credit as to industry of the Group and Parent Company follows:

Consolidated 2011 2010 Amounts % Amounts % Real estate, renting and business services P=28,745,306,289 18.73 P=27,292,478,462 21.66 Manufacturing 26,805,984,841 17.46 16,068,273,071 12.75 Wholesale and retail trade 23,163,210,155 15.09 14,306,240,328 11.35 Transportation, storage and communication 11,911,560,748 7.76 19,084,206,524 15.15 Electricity, gas and water 10,281,598,596 6.70 6,562,114,419 5.21 Financial intermediaries 5,327,968,764 3.47 2,858,556,063 2.27 Agriculture 4,542,443,251 2.96 19,744,403,240 15.67 Construction 2,136,633,895 1.39 1,792,546,132 1.42 Mining and quarrying 1,732,875,330 1.13 692,591,458 0.55 Others 38,862,750,432 25.31 17,602,450,470 13.97 P=153,510,332,301 100.00 P=126,003,860,167 100.00

Parent Company 2011 2010 Amounts % Amounts % Real estate, renting and business services P=28,489,295,167 18.80 P=27,036,606,798 21.67 Manufacturing 26,794,555,833 17.68 16,057,308,442 12.87 Wholesale and retail trade 23,118,055,858 15.26 14,278,579,551 11.45 Transportation, storage and communication 11,851,819,404 7.82 19,062,723,319 15.28 Electricity, gas and water 10,281,598,596 6.79 6,562,114,419 5.26 Financial intermediaries 5,327,968,764 3.52 2,706,719,754 2.18 Agriculture 4,433,587,281 2.93 19,636,003,240 15.74 Construction 2,092,233,906 1.38 1,763,798,728 1.41 Mining and quarrying 1,732,875,330 1.14 692,591,458 0.56 Others 37,398,417,001 24.68 16,942,342,392 13.58 P=151,520,407,140 100.00 P=124,738,788,101 100.00

The BSP considers that loan concentration exists when the total loan exposure to a particular industry or economic sector exceeds 30.00% of total loan portfolio. As of December 31, 2011 and 2010, the Group does not have credit concentration in any particular industry.

BSP Circular No. 351 allows banks to exclude from nonperforming classification loans classified as “Loss” in the latest examination of the BSP which are fully covered by allowance for credit losses, provided that interest on said loans shall not be accrued and that such loans shall be deducted from the total loan portfolio for purposes of computing nonperforming loans (NPLs). As of December 31, 2011 and 2010, the NPLs of the Group and Parent Company not fully covered by allowance for impairment and credit losses follow:

Consolidated Parent Company 2011 2010 2011 2010 Total NPLs P=5,617,674,817 P=6,119,322,019 P=5,563,165,375 P=6,085,317,834 Less NPLs fully covered by allowance for impairment and credit losses 1,172,650,883 1,305,938,361 1,169,725,744 1,303,474,594 P=4,445,023,934 P=4,813,383,658 P=4,393,439,631 P=4,781,843,240

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As of December 31, 2011 and 2010, secured and unsecured NPLs of the Group and Parent Company follow:

Consolidated Parent Company 2011 2010 2011 2010 Secured P=3,621,579,174 P=3,737,158,440 P=3,567,657,304 P=3,703,686,663 Unsecured 1,996,095,643 2,382,163,579 1,995,508,071 2,381,631,171 P=5,617,674,817 P=6,119,322,019 P=5,563,165,375 P=6,085,317,834

Interest Income on Impaired Loans Accretion of individually impaired loans and receivables of the Parent Company included as part of interest income amounted to =P63.18 million, P=49.52 million and P=55.01 million in 2011, 2010 and 2009, respectively.

9. Equity Investments

The Parent Company’s investments consist of:

2011 2010 Subsidiaries: CBSI (Notes 12 and 18) P=1,472,241,870 P=1,123,299,690 CBC Forex Corporation 50,000,000 50,000,000 CBC-PCCI 2,439,000 2,439,000 CIBI 1,500,000 1,500,000 1,526,180,870 1,177,238,690 Associate: Manulife China Bank Life Assurance Corporation (MCB Life) 21,245,838 17,495,838 P=1,547,426,708 P=1,194,734,528

The foregoing balances represent the acquisition cost of the Parent Company’s subsidiaries and associate.

CBSI Cost of investment includes the original amount incurred by the Parent Company from its acquisition of CBSI in 2007 amounting to =P1.07 billion (net of goodwill and branch licenses transferred to the Parent Company amounting to =P0.66 million) and additional acquisition of non- controlling interest in 2011 and 2010 of P=1.68 million and P=0.47 million, respectively. The additional acquisition brought up the Parent Company’s interest on CBSI as defined under PFRS 3 to 95.17% and 95.08% as of December 31, 2011 and 2010, respectively.

CBC Forex On May 5, 2009 the BOD approved to dissolve the operations of the Company by shortening its corporate life until December 31, 2009. The Company is still in the process of liquidation and awaiting clearance from regulatory bodies to effect dissolution.

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Investment in associates Investment in associates in the consolidated financial statements pertain to the Parent Company’s investment in MCB Life and CBC-PCCI’s investment in Urban Shelters amounting to P=3.24 million (accounted for by CBC-PCCI in its financial statements as an investment in an associate). The equity in net earnings of these investments is not significant to the Group.

MCB Life On August 2, 2006, the BOD approved the joint project proposal of the Parent Company with Manufacturers Life Insurance Company (Manulife). Under the proposal, the Parent Company will invest in a life insurance company owned by Manulife, and such company will be offering innovative insurance and financial products for health, wealth and education through the Parent Company’s branches nationwide. The life insurance company was incorporated as The Pramerica Life Insurance Company Inc. in 1998 but the name was changed to Manulife China Bank Life Assurance Corporation on March 23, 2007. The Parent Company acquired 5.00% interest of MCB Life on August 8, 2007. This investment is accounted for as an investment in an associate by virtue of the Bancassurance Alliance Agreement which provides the Parent Company to be represented in MCB Life’s BOD and thus exercise significant influence over the latter.

The Parent Company contributed =P3.75 million in 2011 and 2010 to maintain the minimum 5.00% ownership required by the BSP in order for MCB Life to be allowed to continue distributing its insurance products through the Parent Company’s branches.

Commission income earned by the Parent Company from its bancassurance agreement amounting to =P178.27 million, P=82.19 million, and =P18.91 million in 2011, 2010 and 2009, respectively, is included under ‘Miscellaneous income’ in the statements of income.

10. Bank Premises, Furniture, Fixtures and Equipment

The composition of and movements in this account follow:

Consolidated Furniture, Fixtures and Leasehold Construction- 2011 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P=2,454,267,430 P=3,840,177,369 P=1,515,067,709 P=652,745,138 P=972,134 P=8,463,229,780 Additions – 514,324,116 77,676,217 110,510,475 3,239,101 705,749,909 Disposals/Reclassification (3,517,500) (119,442,362) (27,875,908) – (4,211,235) (155,047,005) Balance at end of year 2,450,749,930 4,235,059,123 1,564,868,018 763,255,613 – 9,013,932,684 Accumulated Depreciation and Amortization Balance at beginning of year – 2,908,789,774 405,571,565 311,288,861 – 3,625,650,200 Depreciation and amortization – 435,646,884 39,506,271 80,005,616 – 555,158,771 Disposals – (81,771,819) (22,515,808) – – (104,287,627) Balance at end of year – 3,262,664,839 422,562,028 391,294,477 – 4,076,521,344 Accumulated Impairment (Note 14) Balance at beginning of year – – – – – – Reclassification – – 15,202,948 – – 15,202,948 Balance at end of year – – 15,202,948 – – 15,202,948 Net Book Value at End of Year P=2,450,749,930 P=972,394,284 P=1,127,103,042 P=371,961,136 P=– P=4,922,208,392

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Consolidated Furniture, Fixtures and Leasehold Construction- 2010 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P=2,446,578,338 =3P,495,561,273 =1P,464,453,706 P=535,158,854 P=– =7P,941,752,171 Additions 7,689,092 407,170,122 50,614,003 117,586,284 972,134 584,031,635 Disposals – (62,554,026) – – – (62,554,026) Balance at end of year 2,454,267,430 3,840,177,369 1,515,067,709 652,745,138 972,134 8,463,229,780 Accumulated Depreciation and Amortization Balance at beginning of year – 2,542,000,682 365,931,432 244,850,965 – 3,152,783,079 Depreciation and amortization – 409,546,689 39,640,133 66,437,896 – 515,624,718 Disposals – (42,757,597) – – – (42,757,597) Balance at end of year – 2,908,789,774 405,571,565 311,288,861 – 3,625,650,200 Net Book Value at End of Year P=2,454,267,430 P=931,387,595 =1P,109,496,144 P=341,456,277 P=972,134 =4P,837,579,580

Parent Company Furniture, Fixtures and Leasehold Construction- 2011 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P=2,325,347,536 P=3,669,665,409 P=961,816,503 P=595,997,825 P=972,134 P=7,553,799,407 Additions – 456,848,040 137,608,254 77,581,648 3,239,101 675,277,043 Disposals/Reclassification (3,517,500) (118,549,505 ) (8,915,145) – (4,211,235) (135,193,385) Balance at end of year 2,321,830,036 4,007,963,944 1,090,509,612 673,579,473 – P=8,093,883,065 Accumulated Depreciation and Amortization Balance at beginning of year – 2,811,464,175 327,646,060 307,082,668 – 3,446,192,903 Depreciation and amortization – 406,773,834 32,899,180 70,133,321 – 509,806,335 Disposals – (81,586,296) (7,344,075) – – (88,930,371) Balance at end of year – 3,136,651,713 353,201,165 377,215,989 – 3,867,068,867 Net Book Value at End of Year P=2,321,830,036 P=871,312,231 P=737,308,447 P=296,363,484 P=– P=4,226,814,198

Parent Company Furniture, Fixtures and Leasehold Construction- 2010 Land Equipment Buildings Improvements in-Progress Total Cost Balance at beginning of year P=2,317,658,444 =3P,377,815,363 P=911,202,500 P=516,011,324 P=– =7P,122,687,631 Additions 7,689,092 353,737,342 50,614,003 79,986,501 972,134 492,999,072 Disposals – (61,887,296) – – – (61,887,296) Balance at end of year 2,325,347,536 3,669,665,409 961,816,503 595,997,825 972,134 7,553,799,407 Accumulated Depreciation and Amortization Balance at beginning of year – 2,460,680,862 294,478,319 244,334,595 – 2,999,493,776 Depreciation and amortization – 393,382,389 33,167,741 62,748,073 – 489,298,203 Disposals – (42,599,076) – – – (42,599,076) Balance at end of year – 2,811,464,175 327,646,060 307,082,668 – 3,446,192,903 Net Book Value at End of Year P=2,325,347,536 P=858,201,234 P=634,170,443 P=288,915,157 P=972,134 =4P,107,606,504

The Group adopted the deemed cost model as of January 1, 2004 and considered the carrying value of the land determined under its previous accounting method (revaluation method) as the deemed cost of the asset as of January 1, 2005. Accordingly, revaluation increment amounting to P=1.28 billion was closed to surplus.

In 2009, depreciation and amortization amounting to P=546.62 million and =P530.68 million for the Group and Parent Company, respectively, are included in the statements of income under ‘Depreciation and amortization’ account. As of December 31, 2011 and 2010, the carrying value of fully depreciated property and equipment still in use amounted to P=0.13 million and P=0.25 million, respectively, for the Group and =P0.11 million and =P0.25 million, respectively, for the Parent Company.

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11. Investment Properties

The composition of and movements in this account follow:

Consolidated Buildings and 2011 Land Improvements Total Cost Balance at beginning of year P=3,702,921,904 P=1,481,701,014 P=5,184,622,918 Additions 504,844,401 122,860,638 627,705,039 Disposals (424,277,600) (194,703,571) (618,981,171) Reclassification/Others 18,321,664 7,631,288 25,952,952 Balance at end of year 3,801,810,369 1,417,489,369 5,219,299,738 Accumulated Depreciation and Amortization Balance at beginning of year – 515,091,610 515,091,610 Depreciation and amortization – 160,946,080 160,946,080 Disposals – (64,876,746) (64,876,746) Reclassification/Others – 26,558,219 26,558,219 Balance at end of year – 637,719,163 637,719,163 Accumulated Impairment Loss (Note 14) Balance at beginning of year 1,186,502,729 157,956,491 1,344,459,220 Reversal of impairment loss (92,950) (1,193,900) (1,286,850) Disposals (160,288,014) (9,231,352) (169,519,366) Reclassification – (6,968,651) (6,968,651) Balance at end of year 1,026,121,765 140,562,588 1,166,684,353 Net Book Value at End of Year P=2,775,688,604 P=639,207,618 P=3,414,896,222

Consolidated Buildings and 2010 Land Improvements Total Cost Balance at beginning of year P=4,275,417,023 P=1,220,580,297 P=5,495,997,320 Additions 152,203,603 346,910,884 499,114,487 Disposals (746,237,886) (136,442,044) (882,679,930) Reclassification/Others 21,539,164 50,651,877 72,191,041 Balance at end of year 3,702,921,904 1,481,701,014 5,184,622,918 Accumulated Depreciation and Amortization Balance at beginning of year – 507,717,565 507,717,565 Depreciation and amortization – 131,168,520 131,168,520 Disposals – (90,983,127) (90,983,127) Reclassification/Others – (32,811,348) (32,811,348) Balance at end of year – 515,091,610 515,091,610 Accumulated Impairment Loss (Note 14) Balance at beginning of year 1,068,777,067 67,868,344 1,136,645,411 Provisions 105,600,535 90,088,147 195,688,682 Disposals 12,125,127 – 12,125,127 Balance at end of year 1,186,502,729 157,956,491 1,344,459,220 Net Book Value at End of Year P=2,516,419,175 P=808,652,913 P=3,325,072,088

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Parent Company Buildings and 2011 Land Improvements Total Cost Balance at beginning of year P=3,624,184,582 P=1,385,597,985 P=5,009,782,567 Additions 502,217,117 111,181,012 613,398,129 Disposals (390,612,739) (160,345,707) (550,958,446) Reclassification/Others 5,928,471 (5,928,471) – Balance at end of year 3,741,717,431 1,330,504,819 5,072,222,250 Accumulated Depreciation and Amortization Balance at beginning of year – 507,098,527 507,098,527 Depreciation and amortization – 155,920,841 155,920,841 Disposals – (53,199,214) (53,199,214) Reclassification/Others – 7,329,573 7,329,573 Balance at end of year – 617,149,727 617,149,727 Accumulated Impairment Loss (Note 14) Balance at beginning of year 1,186,502,729 134,103,145 1,320,605,874 Reversal of impairment loss (92,950) (1,193,900) (1,286,850) Disposals (160,288,014) (9,231,352) (169,519,366) Balance at end of year 1,026,121,765 123,677,893 1,149,799,658 Net Book Value at End of Year P=2,715,595,666 P=589,677,199 P=3,305,272,865

Parent Company Buildings and 2010 Land Improvements Total Cost Balance at beginning of year P=4,188,018,643 P=1,133,191,184 P=5,321,209,827 Additions 142,918,917 334,367,986 477,286,903 Disposals (720,277,504) (134,738,486) (855,015,990) Reclassification/Others 13,524,526 52,777,301 66,301,827 Balance at end of year 3,624,184,582 1,385,597,985 5,009,782,567 Accumulated Depreciation and Amortization Balance at beginning of year – 498,036,272 498,036,272 Depreciation and amortization – 124,363,470 124,363,470 Disposals – (90,615,371) (90,615,371) Reclassification/Others – (24,685,844) (24,685,844) Balance at end of year – 507,098,527 507,098,527 Accumulated Impairment Loss (Note 14) Balance at beginning of year 1,068,777,067 56,140,125 1,124,917,192 Provisions 117,725,662 77,963,020 195,688,682 Balance at end of year 1,186,502,729 134,103,145 1,320,605,874 Net Book Value at End of Year P=2,437,681,853 P=744,396,313 P=3,182,078,166

The Group’s investment properties consist entirely of real estate properties acquired in settlement of loans and receivables. The difference between the fair value of the investment property upon foreclosure and the carrying value of the loan is recognized under ‘Gain on asset foreclosure and dacion transactions’ in the statements of income.

The aggregate fair value of investment properties as of December 31, 2011 and 2010 amounted to P=6.08 billion and =P6.02 billion, respectively, for the Group and =P5.95 billion and P=5.72 billion, respectively, for the Parent Company. The fair values of the Group’s and Parent Company’s investment properties have been determined by the appraisal method by independent external and

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in-house appraisers on the basis of recent sales of similar properties in the same areas as the investment properties and taking into account the economic conditions prevailing at the time the valuations were made.

In 2009, depreciation and amortization amounting to P=121.35 million and =P114.75 million for the Group and Parent Company, respectively, are included in the statements of income under ‘Depreciation and amortization’ account.

Details of rent income earned and direct operating expenses incurred on investment properties of the Parent follow:

2011 2010 2009 Rent income on investment properties P=34,305,415 P=29,068,291 P=18,132,880 Direct operating expenses on investment properties generating rent income 9,290,776 2,966,028 2,790,751 Direct operating expenses on investment properties not generating rent income 32,084,887 25,918,581 38,426,761

Rent income earned from leasing out investment properties is included under ‘Miscellaneous income’ in the statements of income.

12. Goodwill and Branch Licenses

Branch licenses and goodwill in the Parent Company’s balance sheet amounting to P=455.00 million and P=222.84 million, respectively, arose from the Parent Company’s acquisition of CBSI in 2007.

On June 21, 2007, the Parent Company and the majority shareholders of CBSI entered into a Memorandum of Agreement (MOA) whereby the former agreed to buy and the latter agreed to sell 87.52% of their equity interest in CBSI for P=1.65 billion.

On September 3, 2007, the Parent Company's officers were appointed as members of CBSI's BOD. As of this date, the Parent Company effectively obtained control of CBSI. Subsequent thereto, a tender offer was made to all remaining shareholders of CBSI at the price of =P214.65 per share. A total of 4.30% of CBSI's common shares were subsequently acquired through a tender offer, which expired on January 15, 2008.

The acquisition resulted in recognition of goodwill determined as follows:

Total cost of acquisition: Cost to acquire 87.52% P=1,650,283,292 Cost to acquire 4.30% 84,689,943 1,734,973,235 Less: Fair value of net assets acquired 1,512,132,034 Goodwill P=222,841,201

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The Parent Company attributed the goodwill to factors such as increase in geographical presence and customer base due to the branches acquired. On November 21, 2007, the BOD approved the transfer of certain assets and liabilities (including certain branches) of CBSI to the Parent Company. As the economic value of goodwill arising from the CBSI acquisition can be attributed to the branches transferred, such goodwill was transferred to the books of the Parent Company.

The branch licenses pertaining to the branches transferred were also transferred to the Parent Company. The transfers resulted in a reduction of the investment account of the Parent Company by =P0.66 billion as of December 31, 2007.

Since goodwill is attributed to the branches transferred, the Parent Company’s Branch Banking Group (BBG) has been identified as the cash generating unit (CGU) for impairment testing of the goodwill. The BBG has also been identified as the CGU for impairment testing of the branch licenses.

The recoverable amount of the CGU has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five-year period and which do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset base of the CGU being tested. The discount rate applied to cash flow projections is 12.19% in 2011 and 14.38% in 2010 and cash flows beyond the five year-period are extrapolated using a steady growth rate of 3.00% in 2011 and in 2010, which does not exceed the long-term average growth rate for the industry.

The calculation of the value-in-use of the CGU is most sensitive to the following assumptions:

• Interest margin • Discount rates • Market share during the budget period • Steady growth rate used to extrapolate cash flows beyond the budget period • Local inflation rates

With regard to the assessment of value-in-use of the CGU, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the goodwill and branch licenses to materially exceed its recoverable amount.

13. Other Assets

This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Financial Assets Accounts receivable P=3,087,567,267 P=1,122,004,884 P=2,846,759,398 P=1,022,329,591 SCR 419,188,478 637,050,866 270,686,216 460,596,948 RCOCI 35,432,943 247,868,553 35,432,943 247,517,014 Due from an affiliate (Note 27) – – 99,607,599 99,600,589 Miscellaneous 722,193,708 717,600,078 613,911,713 654,241,613 Nonfinancial Assets Creditable withholding taxes (CWT) 306,304,489 369,273,717 306,010,482 243,376,816 Net plan assets (Note 22) 246,452,025 246,452,025 246,452,025 246,452,025 4,817,138,910 3,340,250,123 4,418,860,376 2,974,114,596 Allowance for impairment and credit losses (Note 14) (349,712,365) (364,832,065) (337,126,156) (349,893,558) P=4,467,426,545 P=2,975,418,058 P=4,081,734,220 P=2,624,221,038 *SGVMC116556* - 67 -

Accounts Receivable Fifty-three (53) percent of accounts receivable represents final withholding taxes (FWT) imposed on by the Bureau of Internal Revenue (BIR) and withheld by the Bureau of Treasury from the proceeds collected by the Parent Company upon maturity of the Poverty Eradication and Alleviation Certificates (PEACe bonds) on October 18, 2011.

On October 17, 2011, the Parent Company together with seven other banks filed a joint petition against the BIR's decision to impose 20% FWT on PEACe bonds. The high court issued a temporary restraining order in favor of these banks on the same day and ordered these banks to place in escrow an amount equivalent to the disputed withholding tax until final decision is rendered. However, the government withheld the 20% FWT from the proceeds of the PEACe bonds and held it in an escrow account with the Land Bank of the Philippines.

As discussed in more detail in Note 2, the Parent Company considers several factors in determining whether a financial asset is impaired, including the present value of the expected future cash flows discounted at the asset’s original contractual effective rate. As of December 31, 2011, the Parent Company, in consultation with its legal counsel has determined that the said accounts receivable is unimpaired.

Accounts receivable also includes noninterest bearing advances to officers and employees, with terms ranging from 1 to 30 days.

Miscellaneous Assets Miscellaneous assets consist mainly of prepaid expenses, documentary stamps, unissued stationary and supplies, inter-office float items, security deposits and deposits for various services, and downpayment for purchase of real properties.

The following tables present the reconciliation of the movement of the allowance for impairment and credit losses for Other assets:

Consolidated Accounts Receivable SCR Miscellaneous Total At January 1, 2011 P=135,382,596 P=28,222,891 P=201,226,578 P=364,832,065 Reversals of impairment losses (Note 14) (110,451) – – (110,451) Transfers/others (1,242,412) (14,000,000) 233,163 (15,009,249) At December 31, 2011 P=134,029,733 P=14,222,891 P=201,459,741 P=349,712,365 At January 1, 2010 P=135,922,176 P=28,222,891 P=223,403,220 P=387,548,287 Provisions during the year (Note 14) 6,111 – 48,885,189 48,891,300 Transfers/others (545,691) – (71,061,831) (71,607,522) At December 31, 2010 P=135,382,596 P=28,222,891 P=201,226,578 P=364,832,065

Parent Company Accounts Receivable SCR Miscellaneous Total At January 1, 2011 P=135,202,195 P=28,222,891 P=186,468,472 P=349,893,558 Reversals of impairment losses (Note 14) (110,451) – – (110,451) Transfers/others (1,242,412) (14,000,000) 2,585,461 (12,656,951) At December 31, 2011 P=133,849,332 P=14,222,891 P=189,053,933 P=337,126,156 At January 1, 2010 P=135,922,176 P=28,222,891 P=206,216,564 P=370,361,631 Provisions during the year (Note 14) 6,111 – 48,885,189 48,891,300 Transfers/others (726,092) – (68,633,281) (69,359,373) At December 31, 2010 P=135,202,195 P=28,222,891 P=186,468,472 P=349,893,558

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14. Allowance for Impairment and Credit Losses

Changes in the allowance for impairment and credit losses are as follows:

Consolidated Parent Company 2011 2010 2011 2010 Balances at beginning of year: Loans and receivables P=7,763,993,788 P=7,538,442,114 P=7,579,766,028 P=7,369,675,664 Investment properties 1,344,459,220 1,136,645,411 1,320,605,874 1,124,917,192 Accrued interest receivable 69,901,196 68,951,159 68,707,897 68,951,159 AFS financial assets 3,248,501 150,192,685 2,149,001 44,457,141 Other assets 364,832,065 387,548,287 349,893,558 301,410,472 9,546,434,770 9,281,779,656 9,321,122,358 8,909,411,628 Provisions charged to operations (Notes 11 and 13) 155,097,500 495,830,652 155,097,500 495,830,652 Accounts charged off and others (514,328,793) (231,175,538) (501,233,523) (84,119,922) (359,231,293) 264,655,114 (346,136,023) 411,710,730 Balances at end of year: Loans and receivables 7,569,243,302 7,763,993,788 7,403,118,580 7,579,766,028 Investment properties 1,166,684,353 1,344,459,220 1,149,799,658 1,320,605,874 Accrued interest receivable 84,282,814 69,901,196 83,737,263 68,707,897 Bank premises, furniture, fixtures and equipment 15,202,948 – – – AFS financial assets 2,077,695 3,248,501 1,204,678 2,149,001 Other assets 349,712,365 364,832,065 337,126,156 349,893,558 P=9,187,203,477 P=9,546,434,770 P=8,974,986,335 P=9,321,122,358

At the current level of allowance for impairment and credit losses, management believes that the Group has sufficient allowance to cover any losses that may be incurred from the non-collection or non-realization of its loans and receivables and other risk assets.

A reconciliation of the allowance for credit losses on loans and receivables from customers, AFS financial assets and accrued interest receivable follows:

Consolidated 2011 AFS Financial Loans and Receivables Assets Accrued Corporate Consumer Unquoted Interest Lending Lending Others Total Securities Receivable At January 1, 2011 P=7,402,413,364 P=360,371,642 P=1,208,782 P=7,763,993,788 P=3,248,501 P=69,901,196 Provisions during the year 118,674,505 37,827,881 – 156,502,386 – (7,585) Transfers/others (306,925,003) (44,299,461) (28,408) (351,252,872) (1,170,806) 14,389,203 At December 31, 2011 P=7,214,162,866 P=353,900,062 P=1,180,374 P=7,569,243,302 P=2,077,695 P=84,282,814 Individual impairment P=4,759,281,957 P=257,991,737 P=1,180,374 P=5,018,454,068 P=2,077,695 P=84,282,814 Collective impairment 2,454,880,909 95,908,325 – 2,550,789,234 – – P=7,214,162,866 P=353,900,062 P=1,180,374 P=7,569,243,302 P=2,077,695 P=84,282,814

Consolidated 2010 AFS Financial Loans and Receivables Assets Accrued Corporate Consumer Unquoted Interest Lending Lending Others Total Securities Receivable At January 1, 2010 P=6,999,137,051 P=455,096,479 P=84,208,584 =7P,538,442,114 P=150,192,685 P=68,951,159 Provisions during the year 222,603,292 70,955,518 – 293,558,810 (42,308,140) – Transfers/others 180,673,021 (165,680,355) (82,999,802) (68,007,136) (104,636,044) 950,037 At December 31, 2010 7,402,413,364 360,371,642 1,208,782 7,763,993,788 P=3,248,501 P=69,901,196 Individual impairment P=5,109,719,354 P=271,183,208 P=1,208,782 =5P,382,111,344 P=3,248,501 P=69,901,196 Collective impairment 2,292,694,010 89,188,434 – 2,381,882,444 – – P=7,402,413,364 P=360,371,642 P=1,208,782 =7P,763,993,788 P=3,248,501 P=69,901,196

*SGVMC116556* - 69 -

Parent Company 2011 AFS Financial Loans and Receivables Assets Accrued Corporate Consumer Unquoted Interest Lending Lending Others Total Securities Receivable At January 1, 2011 P=7,218,630,207 P=359,927,039 P=1,208,782 P=7,579,766,028 P=2,149,001 P=68,707,897 Provisions during the year 118,674,505 37,827,881 – 156,502,386 – (7,585) Transfers/others (286,834,747) (46,286,679) (28,408) (333,149,834) (944,323) 15,036,951 At December 31, 2011 P=7,050,469,965 P=351,468,241 P=1,180,374 P=7,403,118,580 P=1,204,678 P=83,737,263 Individual impairment P=4,607,207,488 P=255,559,916 P=1,180,374 P=4,863,947,778 P=1,204,678 P=83,737,263 Collective impairment 2,443,262,477 95,908,325 – 2,539,170,802 – – P=7,050,469,965 P=351,468,241 P=1,180,374 P=7,403,118,580 P=1,204,678 P=83,737,263

Parent Company 2010 AFS Financial Loans and Receivables Assets Accrued Corporate Consumer Unquoted Interest Lending Lending Others Total Securities Receivable At January 1, 2010 P=6,831,006,867 P=454,651,876 P=84,016,921 =7P,369,675,664 P=44,457,141 P=68,951,159 Provisions during the year 222,603,292 70,955,518 – 293,558,810 (42,308,140) – Transfers/others 165,020,048 (165,680,355) (82,808,139) (83,468,446) – (243,262) At December 31, 2010 P=7,218,630,207 P=359,927,039 P=1,208,782 =7P,579,766,028 P=2,149,001 P=68,707,897 Individual impairment P=4,957,883,046 P=271,183,207 P=1,208,782 =5P,230,275,035 P=2,149,001 P=68,707,897 Collective impairment 2,260,747,161 88,743,832 – 2,349,490,993 – – P=7,218,630,207 P=359,927,039 P=1,208,782 =7P,579,766,028 P=2,149,001 P=68,707,897

The gross amount of loans and receivables that were individually determined to be impaired as of December 31, 2011 and 2010 amounted to =P5.02 billion and =P5.38 billion, respectively, for the Group and P=4.86 billion and P=5.23 billion, respectively, for the Parent Company.

15. Deposit Liabilities

As of December 31, 2011 and 2010, 55.42% and 59.90% respectively, of the total deposit liabilities of the Group are subject to periodic interest repricing. The remaining deposit liabilities earn annual fixed interest rates ranging from 0.25% to 8.25% in 2011 and 0.38% to 8.25% in 2010.

On April 2, 2008, the Parent Company's BOD authorized the issuance of Long-Term Negotiable Certificates of Deposit (LTNCDs) to expand its asset base. On August 8, 2008, the Parent Company issued 5-year LTNCDs with aggregate principal amount of =P5.0 billion at par and which will mature on August 9, 2013. The LTNCDs are included under the ‘Time deposit liabilities’ account. The LTNCDs bear a coupon rate of 8.25% per annum, payable quarterly at the end of each 3-month period. The statutory reserve for LTNCD is 2.00%. It is not subject to liquidity reserve based on the MORB under the section on Deposit Substitutes.

Under existing BSP regulations, non-FCDU deposit liabilities of the Group are subject to liquidity reserve equivalent to 11% and statutory reserve equivalent to 10.0% and 8.0% as of December 31, 2011 and 2010, respectively. The Group is in compliance with such regulations as of December 31, 2011 and 2010. Available reserves of the Group and Parent Company per latest report submitted to the BSP are as follows:

2011 2010 Cash and other cash items P=5,984,039,540 P=6,534,315,165 Due from BSP 9,772,712,488 6,337,007,013 Loans and receivables 17,035,505,269 16,924,705,824 P=32,792,257,297 P=29,796,028,002 *SGVMC116556* - 70 -

16. Bills Payable

The Group’s and the Parent Company’s bills payable consist of:

2011 2010 Government lending programs P=1,541,176,195 P=2,241,135,483 BSP - rediscounting (Note 8) 100,297,152 73,333,289 Others – 743,774,390 P=1,641,473,347 P=3,058,243,162

Details of the government lending programs follow:

Counterparty Average term Rates 2011 2010 Development Bank of the Philippines 7 years 5.50% to 9.70% P=1,018,474,275 P=1,627,574,940 Land Bank of the Philippines 7 years 5.89% to 6.66% 522,557,369 612,916,667 Social Security Services 15 years 12.00% 144,551 643,876 P=1,541,176,195 P=2,241,135,483

17. Accrued Interest and Other Expenses

This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Accrued payable for employee benefits P=716,436,424 P=661,235,245 P=716,436,424 P=661,235,245 Accrued interest payable 392,844,622 508,765,681 382,184,214 508,765,681 Accrued other expenses payable 337,252,134 803,593,602 318,975,038 776,894,846 P=1,446,533,180 P=1,973,594,528 P=1,417,595,676 P=1,946,895,772

18. Other Liabilities

This account consists of:

Consolidated Parent Company 2011 2010 2011 2010 Financial liabilities Accounts payable (Note 27) P=1,055,934,772 P=1,013,305,589 P=955,810,757 P=931,157,343 Acceptances payable 568,287,750 289,603,819 568,287,750 289,603,819 Due to PDIC* 204,050,184 200,551,936 204,050,184 200,551,936 Margin deposits 3,423,357 5,765,386 3,423,357 5,765,386 Due to BSP – 21,500 – 21,500 Miscellaneous 1,103,709,489 665,602,082 1,419,802,755 651,582,958 Nonfinancial liabilities Withholding taxes payable 81,030,709 105,100,940 77,458,668 102,296,990 Retirement liabilities 21,863,849 13,713,649 – – P=3,038,300,110 P=2,293,664,901 P=3,228,833,471 P=2,180,979,932 *Philippine Deposit Insurance Corporation

Accounts payable includes payables to suppliers and service providers, and loan payments and other charges received from customers in advance.

*SGVMC116556* - 71 -

Miscellaneous liabilities mainly include due to treasurer of the Philippines, and dormant deposit accounts. Miscellaneous liabilities of the Parent Company also include subscription payable to CBSI amounting to P=351.76 million.

19. Other Operating Income

Trading and Securities Gain This account consists of:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Financial assets at FVPL: Held-for-trading (P=94,145,027) P=304,524,740 P=319,030,522 (P=94,145,027) P=304,524,740 P=318,588,974 Designated at FVPL – (1,288,640) 64,842,275 – (1,288,639) 65,283,823 Derivatives assets (Note 23) (86,888,763) 45,997,975 396,293,395 (86,888,763) 45,997,975 396,293,395 AFS financial assets 1,649,670,999 1,402,058,073 408,289,472 1,634,157,490 1,365,653,205 408,289,472 P=1,468,637,209 P=1,751,292,148 =1P,188,455,664 P=1,453,123,700 P=1,714,887,281 =1P,188,455,664

Service Charges, Fees and Commissions Details of this account are as follows:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Service and collection charges Deposits P=620,201,649 P=790,590,953 P=756,216,680 P=610,997,297 P=785,489,108 P=755,180,520 Loans 101,647,865 77,371,988 45,763,187 100,969,628 77,363,912 45,763,187 Others 65,975,502 65,311,131 698,708 478,694 181,978 32,546 Fees and commissions 197,432,292 188,004,877 193,459,784 136,682,214 139,861,246 151,643,403 P=985,257,308 P=1,121,278,949 P=996,138,359 P=849,127,833 P=1,002,896,244 P=952,619,656

20. Maturity Analysis of Assets and Liabilities

The following tables present both the Group’s and Parent Company’s assets and liabilities as of December 31, 2011 and 2010 analyzed according to when they are expected to be recovered or settled within one year and beyond one year from the respective balance sheet date:

Consolidated 2011 2010 Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Financial assets Cash and other cash items P=6,050,366,433 P=– P=6,050,366,433 P=6,436,427,163 P=– P=6,436,427,163 Due from BSP 30,122,324,047 – 30,122,324,047 37,124,917,961 – 37,124,917,961 Due from other banks 2,745,404,931 – 2,745,404,931 5,918,907,525 – 5,918,907,525 Interbank loans receivable and SPURA 671,000,000 – 671,000,000 542,000,000 – 542,000,000 Financial assets at FVPL 2,437,502,704 8,561,514 2,446,064,218 5,583,562,108 357,331,029 5,940,893,137 AFS financial assets - gross 1,140,974,349 44,645,704,824 45,786,679,173 1,081,928,149 49,978,287,948 51,060,216,097 HTM financial assets 423,149,945 12,537,787,260 12,960,937,205 5,593,496,044 12,956,256,730 18,549,752,774 Loans and receivables - gross 80,819,963,000 72,690,369,301 153,510,332,301 55,972,321,103 70,031,539,064 126,003,860,167 Accrued interest receivable - gross 1,850,008,878 – 1,850,008,878 1,921,776,073 – 1,921,776,073 Other assets - gross: Accounts receivable 3,087,567,267 – 3,087,567,267 1,122,004,884 – 1,122,004,884 SCR – 419,188,478 419,188,478 – 637,050,866 637,050,866 RCOCI 35,432,943 – 35,432,943 247,868,553 – 247,868,553 Miscellaneous 722,193,708 – 722,193,708 716,361,492 – 716,361,492 130,105,888,205 130,301,611,377 260,407,499,582 122,261,571,055 133,960,465,637 256,222,036,692

(Forward)

*SGVMC116556* - 72 -

Consolidated 2011 2010 Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Nonfinancial assets Bank premises, furniture, fixtures and equipment - gross P=– P=4,937,411,340 P=4,937,411,340 P=– P=4,837,579,580 P=4,837,579,580 Investment properties - gross – 4,581,580,575 4,581,580,575 – 4,669,531,308 4,669,531,308 Deferred tax assets – 899,146,127 899,146,127 – 912,421,115 912,421,115 Equity investments – 24,480,868 24,480,868 – 20,730,869 20,730,869 Branch license – 477,600,000 477,600,000 – 477,600,000 477,600,000 Goodwill – 222,841,201 222,841,201 – 222,841,201 222,841,201 Other assets - gross Net plan assets – 246,452,025 246,452,025 – 246,452,025 246,452,025 CWT 306,304,489 – 306,304,489 369,273,717 – 369,273,717 306,304,489 11,389,512,136 11,695,816,625 369,273,717 11,387,156,098 11,756,429,815 Less: Allowances for impairment and credit losses (Note 14) – 9,187,203,477 9,187,203,477 – 9,545,196,184 9,545,196,184 Unearned interest and discounts (Note 8) – 702,426,426 702,426,426 – 1,053,956,330 1,053,956,330 – 9,889,629,903 9,889,629,903 – 10,599,152,514 10,599,152,514 P=130,412,192,694 =P131,801,493,610 =P262,213,686,304 P=122,630,844,772 =P134,748,469,221 =P257,379,313,993 Financial liabilities Deposit liabilities P=210,594,617,894 P=5,539,095,407 =P216,133,713,301 P=205,622,196,102 P=7,419,413,351 =P213,041,609,453 Bills payable 2,240,088 1,639,233,259 1,641,473,347 859,361,949 2,198,881,213 3,058,243,162 Manager’s checks 487,057,846 – 487,057,846 340,516,064 – 340,516,064 Accrued interest and other expenses 1,446,533,180 – 1,446,533,180 1,973,594,528 – 1,973,594,528 Derivative liabilities 146,616,341 – 146,616,341 1,204,881,662 – 1,204,881,662 Other liabilities: Accounts payable 1,055,934,772 – 1,055,934,772 1,013,305,589 – 1,013,305,589 Acceptances payable 568,287,750 – 568,287,750 289,603,819 – 289,603,819 Due to PDIC 204,050,184 204,050,184 200,551,936 200,551,936 Margin deposits 3,423,357 – 3,423,357 5,765,386 – 5,765,386 Due to BSP – – – 21,500 – 21,500 Miscellaneous 1,103,709,489 – 1,103,709,489 665,602,082 – 665,602,082 215,612,470,901 7,178,328,666 222,790,799,567 212,175,400,617 9,618,294,564 221,793,695,181 Nonfinancial liabilities Withholding taxes payable 81,030,709 – 81,030,709 105,100,940 – 105,100,940 Accrued income tax payable 30,667,483 – 30,667,483 13,519,636 – 13,519,636 Other liabilities 21,863,849 – 21,863,849 13,713,649 – 13,713,649 P=215,746,032,942 P=7,178,328,666 =P222,924,361,608 P=212,307,734,842 P=9,618,294,564 =P221,926,029,406

Parent Company 2011 2010 Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Financial assets Cash and other cash items P=5,902,040,106 P=– P=5,902,040,106 P=6,362,296,658 P=– P=6,362,296,658 Due from BSP 29,571,232,355 – 29,571,232,355 37,053,152,975 – 37,053,152,975 Due from other banks 2,729,474,436 – 2,729,474,436 5,970,000,543 – 5,970,000,543 Interbank loans receivable and SPURA – – – 50,000,000 – 50,000,000 Financial assets at FVPL 2,437,502,704 8,561,514 2,446,064,218 5,940,893,137 – 5,940,893,137 AFS financial assets - gross 5,679,507,236 38,998,306,532 44,677,813,768 1,081,928,149 49,390,314,770 50,472,242,919 HTM financial assets – 12,877,757,205 12,877,757,205 5,510,316,044 12,956,256,730 18,466,572,774 Loans and receivables - gross 68,668,585,457 82,851,821,683 151,520,407,140 55,738,213,694 69,000,574,407 124,738,788,101 Accrued interest receivable - gross 1,818,101,927 – 1,818,101,927 1,905,920,746 – 1,905,920,746 Other assets - gross: Accounts receivable 2,846,759,398 – 2,846,759,398 1,022,329,591 – 1,022,329,591 SCR – 270,686,216 270,686,216 – 460,596,948 460,596,948 RCOCI 35,432,943 – 35,432,943 247,517,014 – 247,517,014 Miscellaneous 713,519,312 – 713,519,312 753,842,202 – 753,842,202 120,402,155,874 135,007,133,150 255,409,289,024 121,636,410,753 131,807,742,855 253,444,153,608 Nonfinancial assets Bank premises, furniture, fixtures and equipment – 4,226,814,198 4,226,814,198 – 4,107,606,504 4,107,606,504 Investment properties - gross – 4,455,072,523 4,455,072,523 – 4,502,684,040 4,502,684,040 Deferred tax assets – 894,051,431 894,051,431 – 904,402,283 904,402,283 Equity investments – 1,547,426,708 1,547,426,708 – 1,194,734,528 1,194,734,528 Branch licenses – 455,000,000 455,000,000 – 450,501,931 450,501,931 Goodwill – 222,841,201 222,841,201 – 222,841,201 222,841,201

(Forward)

*SGVMC116556* - 73 -

Parent Company 2011 2010 Less than Over Less than Over Twelve Months Twelve Months Total Twelve Months Twelve Months Total Other assets - gross Net plan assets P=– P=246,452,025 P=246,452,025 P=– P=246,452,025 P=246,452,025 CWT 306,010,482 – 306,010,482 243,376,816 – 243,376,816 306,010,482 12,047,658,086 12,353,668,568 243,376,816 11,629,222,512 11,872,599,328 Less: Allowances for impairment and credit losses (Note 14) – 8,974,986,335 8,974,986,335 – 9,321,122,358 9,321,122,358 Unearned interest and discounts (Note 8) – 690,714,511 690,714,511 – 957,159,185 957,159,185 – 9,665,700,846 9,665,700,846 – 10,278,281,543 10,278,281,543 P=120,708,166,356 =P137,389,090,390 P=258,097,256,746 P=121,879,787,569 =P133,158,683,824 =P255,038,471,393 Financial liabilities Deposit liabilities P=208,894,954,331 P=3,077,899,960 P=211,972,854,291 P=204,124,117,730 P=6,862,386,782 =P210,986,504,512 Bills payable 102,537,240 1,538,936,107 1,641,473,347 859,361,949 2,198,881,213 3,058,243,162 Manager’s checks 445,940,641 – 445,940,641 304,438,108 – 304,438,108 Accrued interest and other expenses 1,417,595,676 – 1,417,595,676 1,946,895,772 – 1,946,895,772 Derivative liabilities 146,616,341 – 146,616,341 1,204,881,662 – 1,204,881,662 Other liabilities: Accounts payable 955,810,757 – 955,810,757 931,157,343 – 931,157,343 Acceptances payable 568,287,750 – 568,287,750 289,603,819 – 289,603,819 Due to PDIC 204,050,184 – 204,050,184 200,551,936 – 200,551,936 Margin deposits 3,423,357 – 3,423,357 5,765,386 – 5,765,386 Due to BSP – – – 21,500 – 21,500 Miscellaneous 1,173,350,730 246,452,025 1,419,802,755 405,130,933 246,452,025 651,582,958 213,912,567,007 4,863,288,092 218,775,855,099 210,271,926,138 9,307,720,020 219,579,646,158 Nonfinancial liabilities Withholding taxes payable 77,458,668 – 77,458,668 102,296,990 – 102,296,990 Accrued income tax payable 23,145,879 – 23,145,879 13,519,636 – 13,519,636 P=214,013,171,554 P=4,863,288,092 P=218,876,459,646 P=210,387,742,764 P=9,307,720,020 =P219,695,462,784

21. Equity

The Parent Company’s capital stock consists of:

2011 2010 Shares Amount Shares Amount Common stock - P=100 par value Authorized - shares 200,000,000 200,000,000 Issued and outstanding Balance at beginning of year 107,260,617 P=10,726,061,700 97,508,772 P=9,750,877,200 Stock dividends* 10,727,051 1,072,705,100 9,751,845 975,184,500 117,987,668 P=11,798,766,800 107,260,617 P=10,726,061,700 *The stock dividend declared includes fractional shares equivalent to 989 shares in 2011 and 968 shares in 2010

The Parent Company shares are listed in the Philippine Stock Exchange.

On May 4, 2011, the BOD approved the declaration of 10.00% stock and =P12 per share cash dividends to stockholders of record as of July 1, 2011. The BSP and SEC approved the dividend declaration on June 10, 2011.

On May 5, 2010, the BOD approved the declaration of 10.00% stock and =P12 per share cash dividends to stockholders of record as of July 22, 2010. The BSP and SEC approved the dividend declaration on June 23, 2010.

On May 7, 2009, the BOD approved the declaration of 10.00% stock and =P12 per share cash dividends to stockholders of record as of September 17, 2009. The BSP and SEC approved the dividend declaration on August 27, 2009.

*SGVMC116556* - 74 -

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.

As of December 31, 2011 and 2010, Surplus includes the amount of P=1.28 billion, net of deferred tax liability of =P547.40 million, representing transfer of revaluation increment on land which was carried at deemed cost when the group transitioned to PFRS in 2005. This amount will be available to be declared as dividends upon sale of the underlying land.

In compliance with BSP regulations, 10.00% of the Parent Company’s profit from trust business is appropriated to surplus reserve. This annual appropriation is required until the surplus reserves for trust business equals 20.00% of the Parent Company’s authorized capital stock.

In the consolidated financial statements, a portion of the Group’s surplus corresponding to the net earnings of the subsidiaries and accumulated equity in net earnings of the associates amounting to P=136.54 million and P=95.47 million as of December 31, 2011 and 2010, respectively, is not available for dividend declaration. The accumulated equity in net earnings becomes available for dividends upon receipt of cash dividends from the investees.

Capital Management 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 light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes as of December 31, 2011 and 2010.

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 capital) as reported to the BSP. This is determined on the basis of regulatory accounting policies which differ from PFRS in some respects.

In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be less than 10.00% for both solo basis (head office and branches) and consolidated basis (Parent Company and subsidiaries engaged in financial allied undertakings but excluding insurance companies). Qualifying capital and risk-weighted assets are computed based on BSP regulations. Risk-weighted assets consist of total assets less cash on hand, due from BSP, loans covered by hold-out on or assignment of deposits, loans or acceptances under letters of credit to the extent covered by margin deposits and other non-risk items determined by the Monetary Board of the BSP.

On August 4, 2006, the BSP, under BSP Circular No. 538, issued the prescribed guidelines implementing the revised risk-based capital adequacy framework for the Philippine banking system to conform to Basel II capital adequacy framework. The new BSP guidelines took effect on July 1, 2007. Thereafter, banks were required to compute their Capital Adequacy Ratio (CAR) using these guidelines. As of December 31, 2011 and 2010, the Group’s CAR under BSP Circular No. 538 is 17.80% and 16.56%, respectively.

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The CAR of the Group as of December 31, 2011 and December 31, 2010 are shown in the table below.

Consolidated Parent Company 2011 2010 2011 2010 (Amounts in Million Pesos) Tier 1 capital P=34,726.14 P=29,227.27 P=34,716.90 P=28,648.29 Tier 2 capital 1,840.89 1,648.69 1,788.96 1,619.87 Gross qualifying capital 36,567.03 30,875.96 36,505.86 30,268.16 Less required deductions 171.67 10.37 1,547.43 597.37 Total qualifying capital P=36,395.36 P=30,865.59 P=34,958.43 P=29,670.79 Risk weighted assets P=204,494.83 P=186,402.05 P=198,992.91 P=183,320.85 Tier 1 capital ratio 16.98% 15.68% 17.45% 15.63% Total capital ratio 17.80% 16.56% 17.57% 16.19%

The regulatory qualifying capital of the Parent Company consists of Tier 1 (core) capital, which comprises paid-up common stock, hybrid tier 1 capital securities, surplus including current year profit, surplus reserves and minority interest less required deductions such as unsecured credit accommodations to DOSRI, deferred income tax, and goodwill. Certain adjustments were made to the accounts and reserves of the Parent Company which were determined based on PFRS in order to conform to BSP’s requirements and guidelines in computing capital adequacy. The other component of regulatory capital is Tier 2 (supplementary) capital, which includes unsecured subordinated debt and general loan loss provision.

The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period.

22. Retirement Plan

The Group has separate funded noncontributory defined benefit retirement plans covering substantially all its officers and regular employees. Under these retirement plans, all covered officers and employees are entitled to cash benefits after satisfying certain age and service requirements. The latest actuarial valuation studies of the retirement plans were made as of December 31, 2011.

The Group’s annual contribution to the retirement plan consists of a payment covering the current service cost, amortization of the unfunded actuarial accrued liability and interest on such unfunded actuarial liability.

The principal actuarial assumptions used in 2011 and 2010 in determining the retirement liability for the Group’s and Parent Company’s retirement plans are shown below:

2011 Parent CBSI CBC-PCCI CIBI Discount rate January 1 8.25% 9.18% 10.07% 10.10% December 31 6.35% 6.86% 6.59% 6.59% Expected rate of return on assets 4.00% 3.50% 4.00% 4.00% Future salary increases 6.50% 6.50% 6.50% 6.50%

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2010 Parent CBSI CBC-PCCI CIBI Discount rate January 1 10.00% 10.41% 15.82% 15.60% December 31 8.25% 9.18% 10.07% 10.10% Expected rate of return on assets 6.00% 6.00% 6.00% 6.00% Future salary increases 6.00% 6.50% 6.00% 6.00%

The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date applicable to the period over which the obligation is to be settled.

The movements in the present value of defined benefit obligation follow:

Consolidated Parent Company 2011 2010 2011 2010 Balance at beginning of year P=2,473,330,648 P=1,959,250,148 P=2,421,299,300 P=1,924,029,100 Current service cost 207,582,600 159,515,600 197,475,700 153,748,700 Interest cost 204,346,400 189,613,500 199,757,200 186,053,600 Benefits paid (145,123,000) (124,418,700) (142,353,200) (124,418,700) Actuarial losses (gains) on obligation (192,267,748) 289,370,100 (198,201,400) 281,886,600 Balance at end of year P=2,547,868,900 P=2,473,330,648 P=2,477,977,600 P=2,421,299,300

The movements in the fair value of plan assets follow:

Consolidated Parent Company 2011 2010 2011 2010 Balance at beginning of year P=2,939,965,500 P=2,432,317,900 P=2,903,376,900 P=2,398,435,300 Expected return 176,397,900 145,939,100 174,202,600 143,906,100 Contribution paid by employer 227,830,300 199,696,200 223,030,300 195,896,200 Benefits paid (145,123,000) (124,418,700) (142,353,200) (124,418,700) Actuarial gains (losses) on plan assets (77,964,000) 286,431,000 (77,911,500) 289,558,000 Balance at end of year P=3,121,106,700 P=2,939,965,500 P=3,080,345,100 P=2,903,376,900

The amounts of net plan assets follow:

Consolidated Parent Company 2011 2010 2011 2010 Fair value of plan assets P=3,121,106,700 P=2,939,965,500 P=3,080,345,100 P=2,903,376,900 Present value of defined benefit obligation 2,547,868,900 2,473,330,648 2,477,977,600 2,421,299,300 573,237,800 466,634,852 602,367,500 482,077,600 Unrecognized actuarial gains (352,311,710) (238,081,662) (355,915,475) (235,625,575) Unrecognized amortizations on PSC 3,662,086 4,185,186 – – Net plan assets P=224,588,176 P=232,738,376 P=246,452,025 P=246,452,025

The amounts of net plan assets are presented in the balance sheets as follows:

2011 2010 Parent Company (included in ‘Other assets’) P=246,452,025 P=246,452,025 Subsidiaries (included in ‘Other liabilities’) (21,863,849) (13,713,649) P=224,588,176 P=232,738,376

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The movements in the net plan assets recognized in the balance sheets under ‘Other assets’ follow:

Consolidated Parent Company 2011 2010 2011 2010 Balance at beginning of year P=232,738,376 P=236,167,436 P=246,452,025 P=246,452,025 Retirement expense (235,980,500) (203,125,260) (223,030,300) (195,896,200) Contribution 227,830,300 199,696,200 223,030,300 195,896,200 Balance at end of year P=224,588,176 P=232,738,376 P=246,452,025 P=246,452,025

The amounts of retirement expense included in ‘Compensation and fringe benefits’ in the statements of income follow:

Consolidated Parent Company 2011 2010 2011 2010 Current service cost P=207,582,600 P=159,515,600 P=197,475,700 P=153,748,700 Interest cost 204,346,400 189,613,500 199,757,200 186,053,600 Expected return on plan assets (176,397,900) (145,939,100) (174,202,600) (143,906,100) Amortization of PSC 523,100 523,100 – – Net actuarial gains recognized during the year (73,700) (587,840) – – Net pension expense P=235,980,500 P=203,125,260 P=223,030,300 P=195,896,200

Movements in accumulated unrecognized actuarial gains follow:

Consolidated Parent Company 2011 2010 2011 2010 Balance at beginning of year (P=238,081,662) (P=241,549,262) (P=235,625,575) (P=227,954,175) Actuarial losses (gains) on the present value of the defined benefit obligation (192,267,748) 289,370,100 (198,201,400) 281,886,600 Actuarial losses (gains) on plan assets 77,964,000 (286,431,000) 77,911,500 (289,558,000) Actuarial gains recognized during the year 73,700 528,500 – – Balance at end of year (P=352,311,710) (P=238,081,662) (P=355,915,475) (P=235,625,575)

Actual return on plan assets amounted to =P98.43 million in 2011 and =P432.37 million in 2010 for the Group, and =P96.29 million in 2011 and P=433.46 million in 2010 for the Parent Company.

The Parent Company expects to contribute P=133.67 million to its defined benefit pension plan in 2012.

In 2011 and 2010, the major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

Consolidated Parent Company 2011 2010 2011 2010 Parent Company shares 34.08% 37.12% 34.42% 37.04% Cash and cash equivalents 32.47% 33.17% 32.65% 33.17% Debt instruments 26.31% 21.22% 25.69% 21.36% Equity instruments 0.39% 0.90% 0.40% 0.91% Other assets 6.75% 7.59% 6.84% 7.52% 100.00% 100.00% 100.00% 100.00%

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Information on the Group’s and Parent Company’s retirement plan for the current and previous years follows (in millions):

Consolidated 2011 2010 2009 2008 2007 Present value of defined benefit obligation P=2,547.87 P=2,473.33 P=1,959.25 P=1,440.12 P=1,750.29 Fair value of plan assets 3,121.11 2,939.97 2,432.32 2,347.70 2,612.03 Funded status 573.24 466.64 473.07 907.58 861.74 Experience adjustment arising on plan assets (77.96) 286.43 (73.13) (436.20) 310.30 Experience adjustment arising on plan liabilities 192.27 (283.05) (337.29) 488.28 30.08

Parent Company 2011 2010 2009 2008 2007 Present value of defined benefit obligation P=2,477.98 P=2,421.30 P=1,924.03 P=1,399.34 P=1,723.58 Fair value of plan assets 3,080.35 2,903.38 2,398.44 2,319.13 2,590.71 Funded status 602.37 482.08 474.41 919.79 867.13 Experience adjustment arising on plan assets (77.91) 289.56 (72.73) (436.29) 310.09 Experience adjustment arising on plan liabilities 198.20 (281.89) (348.10) 490.57 35.01

23. Derivative Financial Instruments

Occasionally, the Parent Company enters into forward exchange contracts as an accommodation to its clients. These derivatives are not designated as accounting hedges. The aggregate notional amounts of the outstanding buy US dollar currency forwards as of December 31, 2011 and 2010 amounted to US$202.73 million and US$385.75 million, respectively, while the sell US dollar forward contracts amounted to US$469.00 million and US$779.70 million, respectively. Weighted average buy US dollar forward rates as of December 31, 2011 and 2010 are =P43.51 and =P46.96, respectively, while the weighted average sell US dollar forward rates are =P43.62 and =P43.99, respectively.

As of December 31, 2011 and 2010, the fair values of derivatives follow:

2011 2010 Derivative Derivative Derivative Derivative Asset Liability Asset Liability Currency forwards P=119,328,774 P=146,616,341 P=171,746,979 P=1,204,881,662 Embedded credit derivatives 90,133,773 – 177,022,536 – Warrants 8,561,514 – 8,561,514 – P=218,024,061 P=146,616,341 P=357,331,029 P=1,204,881,662

Fair Value Changes of Derivatives The net movements in fair value changes of derivative instruments are as follows:

2011 2010 Balance at beginning of year (P=847,550,633) P=371,966,335 Fair value changes during the year 906,927,956 (1,175,761,287) Settled transactions 12,030,397 (43,755,681) Balance at end of year P=71,407,720 (=P847,550,633)

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The net changes in fair value of the derivatives are presented in the statements of income under the following accounts:

2011 2010 2009 Foreign exchange gain (loss) P=1,005,847,116 (=P1,265,054,059) (=P40,924,049) Trading and securities gains (loss)* (86,888,763) 45,537,091 396,293,395 P=918,958,353 (=P1,219,516,968) P=355,369,346 * Net changes in fair value related to embedded credit derivatives

24. Lease Contracts

The lease contracts are for periods ranging from 1 to 25 years from the dates of contracts and are renewable under certain terms and conditions. Various lease contracts include escalation clauses, most of which bear an annual rent increase of 10.00%.

Annual rentals on these lease contracts included in ‘Occupancy cost’ in the statements of income in 2011, 2010 and 2009 amounted to P=215.63 million, P=191.86 million and =P191.13 million, respectively, for the Group and P=195.57 million, P=191.86 million and =P170.68 million, respectively, for the Parent Company.

Future minimum rentals payable of the Group and Parent Company under non-cancelable operating leases follow:

Consolidated Parent Company 2011 2010 2011 2010 Within one year P=201,845,742 P=176,334,460 P=173,429,789 P=160,716,989 After one year but not more than five years 604,051,318 567,407,946 471,785,105 493,648,633 After more than five years 181,487,936 122,860,576 123,757,103 92,055,996 P=987,384,996 P=866,602,982 P=768,971,997 P=746,421,618

25. Income and Other Taxes

Income taxes include corporate income tax and FCDU final taxes, as discussed below, and final tax paid at the rate of 20.00% on gross interest income from government securities and other deposit substitutes. These income taxes, as well as the deferred tax benefits and provisions, are presented as ‘Provision for income tax’ in the statements of income.

Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that starting January 1, 2009, the RCIT rate shall be 30.00% while interest expense allowed as a deductible expense is reduced to 33.00% of interest income subject to final tax.

An MCIT of 2.00% on modified gross income is computed and compared with the RCIT. Any excess MCIT over 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 taxable income in the next three years from the year of inception.

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Current tax regulations also provide for the ceiling on the amount of entertainment, amusement and recreation (EAR) expense that can be claimed as a deduction against taxable income. Under the regulations, EAR expense allowed as a deductible expense is limited to the actual EAR paid or incurred but not to exceed 1.00% of the Parent Company’s net revenue.

Effective in May 2004, RA No. 9294 restored the tax exemption of FCDUs and offshore banking units (OBUs). Under such law, the income derived by the FCDU from foreign currency transactions with nonresidents, OBUs, local commercial banks including branches of foreign banks is tax-exempt while interest income on foreign currency loans from residents other than OBUs or other depository banks under the expanded system is subject to 10.00% gross income tax.

FCDU offshore income is tax-exempt while interest income on deposit placements with other FCDU and offshore banking units (OBUs) is taxed at 7.50%. All other income of the FCDU is subject to the 30.00% corporate tax.

The provision for income tax consists of:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Current: Final tax P=449,467,074 P=488,939,226 P=442,694,379 P=448,394,727 P=487,918,347 P=430,596,178 RCIT 65,071,858 571,742 517,269 56,152,927 – – MCIT 20,650,380 59,510,947 54,297,380 2,459,886 59,510,947 54,297,380 535,189,312 549,021,915 497,509,028 507,007,540 547,429,294 484,893,558 Deferred 12,218,902 141,776,611 – 12,218,902 133,259,391 – P=547,408,214 P=690,798,526 P=497,509,028 P=519,226,442 P=680,688,685 P=484,893,558

The details of net deferred tax assets follow:

Consolidated Parent Company 2011 2010 2011 2010 Deferred tax assets (liabilities) on: Allowance for impairment and credit losses P=1,697,926,689 P=1,285,479,095 P=1,682,154,209 P=1,277,227,555 Revaluation increment on land (547,404,615) (547,404,615) (547,404,615) (547,404,615) Fair value adjustment on asset foreclosures and dacion transactions - net of depreciated portion (142,161,590) 11,820,155 (131,875,860) 11,820,155 Net plan assets (71,976,633) (74,168,316) (73,935,608) (73,935,608) Unrealized gain or loss on FVPL and AFS (56,451,146) 213,129,908 (55,722,251) 213,129,908 Accrued rent 18,414,593 18,274,374 18,274,374 18,274,374 Unamortized past service cost 3,449,458 5,290,514 2,561,182 5,290,514 Others (2,650,629) – – – P=899,146,127 P=912,421,115 P=894,051,431 P=904,402,283

The Group did not set up deferred tax assets on the following temporary differences as it believes that it is highly probable that these temporary differences will not be realized in the near foreseeable future:

Consolidated Parent Company 2011 2010 2011 2010 Allowance for impairment and credit losses P=3,527,447,845 P=5,261,504,453 P=3,367,805,640 P=5,063,697,174 Accrued compensated absences 232,978,524 246,051,096 232,978,524 246,051,096 Excess of MCIT over RCIT 116,268,213 150,187,110 116,268,213 150,187,110 Others 47,596,997 53,981,331 – – P=3,924,291,579 P=5,711,723,990 P=3,717,052,377 P=5,459,935,380

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On March 15, 2011, the BIR issued Revenue Regulation (RR) No. 4-2011 which prescribes the attribution and allocation of expenses between FCDUs/EFCDUs or OBU and RBU and within RBU. Pursuant to the regulations, the Parent Company made an allocation of its expenses in calculating income taxes due for RBU and FCDU. This resulted in the Parent Company utilizing all of its prior year’s NOLCO which is summarized as follows:

Inception Year Amount Used Balance Expiry Year 2008 P=180,784,717 P=180,784,717 P=– 2011 2009 313,320,039 313,320,039 – 2012 P=494,104,756 P=494,104,756 P=–

As of December 31, 2011, details of the excess of MCIT over RCIT of the Parent Company follow:

Original Expired Remaining Inception Year Amount Amount Balance Expiry Year 2008 P=36,378,783 P=36,378,783 P=– 2011 2009 54,297,380 – 54,297,380 2012 2010 59,510,947 – 59,510,947 2013 2011 2,459,886 – 2,459,886 2014 P=152,646,996 P=36,378,783 P=116,268,213

The reconciliation of the statutory income tax to the provision for income tax follows:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Statutory income tax P=1,666,888,567 P=1,708,386,046 P=1,380,041,505 P=1,678,349,834 P=1,716,290,853 P=1,351,795,288 Tax effects of: FCDU income (608,508,935) (760,351,702) (589,098,473) (607,661,996) (760,351,702) (589,098,473) Interest income subjected to final tax (197,666,087) (204,005,183) (100,606,777) (189,303,497) (189,910,177) (105,276,793) Non-taxable income (607,236,269) (695,517,254) (817,794,804) (607,045,968) (684,639,271) (816,534,979) Nondeductible expenses 414,593,069 531,336,966 453,991,025 404,894,925 449,216,497 473,331,963 Others (120,662,131) 110,949,653 170,976,552 (160,006,856) 150,082,485 170,676,552 Provision for income tax P=547,408,214 P=690,798,526 P=497,509,028 P=519,226,442 P=680,688,685 P=484,893,558

26. Trust Operations

Securities and other properties (other than deposits) held by the Parent Company in fiduciary or agency capacities for clients and beneficiaries are not included in the accompanying balance sheets since these are not assets of the Parent Company (see Note 28).

In compliance with the requirements of current banking regulations relative to the Parent Company’s trust functions: (a) government securities included under AFS financial assets in the balance sheets with a total face value of P=1,257.00 million and P=904.76 million as of December 31, 2011 and 2010, respectively, are deposited with the BSP as security for the Parent Company’s faithful compliance with its fiduciary obligations; and (b) a certain percentage of the Parent Company’s trust fee income is transferred to surplus reserve. This yearly transfer is required until the surplus reserve for trust function equals 20.00% of the Parent Company’s authorized capital stock.

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27. Related Party Transactions

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

In the ordinary course of business, the Group has loans and other transactions with its directors, officers, stockholders and related interests (DOSRI). Under the Group’s policy, these loans and other transactions are made substantially on the same terms as with other individuals and businesses of comparable risks. The amount of individual loans to DOSRI, of which 70% must be secured, should not exceed the amount of their respective deposits and book value of their respective investments in the Group. In the aggregate, loans to DOSRI generally should not exceed the Group’s total capital funds or 15.00% of the Group’s total loan portfolio, whichever is lower. As of December 31, 2011 and 2010, the Group has complied with all these regulatory requirements.

BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts.

On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. Under the said circular, the total outstanding exposures to each of the bank's subsidiaries and affiliates shall not exceed 10.00% of the bank's net worth, the unsecured portion of which shall not exceed 5.00% of such net worth. Further, the total outstanding exposures to subsidiaries and affiliates shall not exceed 20.00% of the net worth of the lending bank. BSP Circular No. 560 is effective February 15, 2007.

The following table shows information relating to the loans, other credit accommodations and guarantees classified as DOSRI accounts under regulations existing prior to said circular and new DOSRI loans, other credit accommodations granted under said circular:

Consolidated Parent Company 2011 2010 2011 2010 Total outstanding DOSRI loans P=8,113,406,125 P=2,136,543,579 P=8,113,406,125 P=2,136,543,579 Percent of DOSRI accounts granted under regulations existing prior to BSP Circular No. 423 – 1.70% – 1.71% Percent of DOSRI accounts granted under BSP Circular No. 423 – – – – Percent of DOSRI loans to total loans 5.29% 1.70% 5.35% 1.71% Percent of unsecured DOSRI loans to total DOSRI loans 14.35% 6.35% 14.35% 6.35%

As of December 31, 2011 and 2010, the Group and the Parent Company has no past due and non- performing DOSRI loans. In 2011, total non-DOSRI accounts granted under regulation existing prior to BSP Circular No. 423 have been settled.

Total interest income on DOSRI loans amounted to P=123.32 million, =P90.99 million and P=34.30 million in 2011, 2010 and 2009, respectively.

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The following table shows the related party transactions included in the Parent Company’s financial statements:

Elements of Transactions Nature of Balance Sheet Amounts Income Statement Amounts Related Party Relationship Transaction 2011 2010 2011 2010 2009 SM Investments Significant Loans and Corporation investor receivable P=3,000,000,000 P=– P=– P=– P=– Interest income – – 28,125,000 – 99,968,750

SM Land, Inc. Affiliate Loans and receivable 750,000,000 750,000,000 – – – Interest income – – 53,876,399 59,863,042 656,033

SM Development Affiliate Loans and Corporation receivable 400,000,000 400,000,000 – – – Interest income – – 32,549,052 18,986,947 –

Highlands Prime, Affiliate Loans and Inc. receivable 15,541 202,033 – – – Interest income – – 8,750 23,379 38,008

CIBI Subsidiary Accounts payable – 155,807 – – –

CBC-PCCI Subsidiary Accounts payable – 175,268 – – –

CBSI Subsidiary Due from an affiliate 99,607,599 99,600,589 – – – Subscription payable 351,755,900 – – – –

As of December 31, 2011 and 2010, total deposit liabilities of related parties amounted to P=276.54 million and P=0.22 million, respectively. Interest expense incurred in 2011, 2010 and 2009 amounted to =P0.27 million, =P0.53 million and =P0.01 million, respectively.

Other related party transactions include the computer and general banking services provided by CBC-PCCI to the Parent Company to support its reporting requirements. Service fees earned by CBC-PCCI from the arrangement amounted to =P71.03 million and =P72.48 million in 2011 and 2010, respectively.

The above related party transactions of the Parent Company with the subsidiaries were eliminated in the consolidated financial statements.

A portion of the Group’s retirement plan assets is invested in Parent Company’s shares of stock (see Note 22).

The remuneration of directors and key management personnel (included under ‘Compensation and fringe benefits’ in the statement of income) of the Group and Parent Company are as follows:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Short-term benefits P=333,237,452 P=271,079,589 P=199,643,512 P=316,519,047 P=256,557,144 P=188,959,726 Post-employment benefits 1,325,744 2,540,281 3,177,427 235,617 1,265,302 1,982,633 P=334,563,196 P=273,619,870 P=202,820,939 P=316,754,664 P=257,822,446 P=190,942,359

28. Commitments and Contingent Assets and Liabilities

In the normal course of the Group’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these transactions. *SGVMC116556* - 84 -

The following is a summary of contingencies and commitments of the Group and Parent Company with the equivalent peso contractual amounts:

Consolidated Parent Company 2011 2010 2011 2010 Trust department accounts (Note 26) P=140,378,040,276 P=100,598,864,502 P=135,808,860,131 P=97,404,254,972 Unused commercial letters of credit 11,281,076,629 11,340,867,273 11,281,076,629 11,340,867,273 Outstanding guarantees issued 937,504,015 1,451,217,830 937,504,015 1,451,217,830 Late deposits/payments received 414,363,620 312,509,340 413,874,460 312,432,226 Inward bills for collection 348,726,102 193,161,090 348,726,102 193,161,090 Deficiency claims receivable 270,758,946 289,815,905 270,758,946 289,815,905 Outward bills for collection 49,762,006 49,504,645 48,157,690 49,375,641 Others 2,370,422,774 1,538,518,745 2,370,333,925 1,538,509,792

29. Segment Information

The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the markets served, with each segment representing a strategic business unit. The Group’s business segments are as follows:

a. Consumer Banking Group - principally handles housing and auto loans for individual and corporate customers;

b. Institutional Banking Group (formerly Account Management Group) - principally administers all the lending, trade finance and corollary banking products and services offered to corporate and institutional customers;

c. Branch Banking Group - principally handles retail and commercial loans, individual and corporate deposits, overdrafts and funds transfer facilities, trade facilities and all other services for retail customers;

d. Treasury Group - principally provides money market, trading and treasury services, as well as the management of the Bank’s funding operations by the use of government securities, placements and acceptances with other banks; and

e. Others - principally handles other services including but not limited to asset management, insurance brokerage, remittances, operations and financial control , and other support services.

The Group reports its primary segment information on the basis of the above-mentioned segments.

Segment assets are those operating assets that are employed by a segment in its operating activities that are 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.

Interest income is reported net as management primarily relies on the net interest income as performance measure, not the gross income and 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. *SGVMC116556* - 85 -

Other operating income mainly consists of trading and securities gain (loss) - net, service charges, fees and commissions, trust fee income and foreign exchange gain - net. Other operating expense mainly consists of compensation and fringe benefits, provision for impairment and credit losses, taxes and licenses, occupancy, depreciation and amortization, stationery, supplies and postage and insurance. Other operating income and expense are allocated between segments based on equitable sharing arrangements.

The Group has no significant customers which contributes 10% or more of the consolidated revenues.

The Group’s asset producing revenues are located in the Philippines (i.e., one geographical location); therefore, geographical segment information is no longer presented.

The following tables present relevant financial information regarding business segments measured in accordance with PFRS as of and for the years ended December 31, 2011, 2010 and 2009 (in thousands):

Institutional Banking Consumer Banking (formerly Account Management) 2011 2010 2009 2011 2010 2009 Results of Operations Net interest income Third party P=1,044,611 P=1,177,784 P=1,274,029 P=4,558,210 P=4,173,482 P=4,267,424 Intersegment (516,529) (517,990) (667,751) (2,700,568) (2,269,398) (2,343,495) 528,082 659,794 606,278 1,857,642 1,904,084 1,923,929 Other operating income 61,589 58,051 45,138 278,284 215,713 213,363 Total revenue 589,671 717,845 651,416 2,135,926 2,119,797 2,137,292 Other operating expense (189,591) (193,158) (186,204) (546,730) (333,584) (413,398) Income before income tax 400,080 524,687 465,212 1,589,196 1,786,213 1,723,894 Income tax provision – – – – – – Net income P=400,080 P=524,687 P=465,212 P=1,589,196 P=1,786,213 P=1,723,894 Total assets P=15,495,942 P=12,975,342 P=14,404,055 P=98,182,533 P=73,233,077 P=65,459,142 Total liabilities P=104,225 P=533,622 P=600,339 P=2,158,825 P=2,578,108 P=2,598,582 Depreciation and amortization P=6,201 P=5,942 P=5,816 P=4,597 P=4,316 P=3,494 Provision for impairment and credit losses P=22,529 P=10,733 P=7,794 P=263,502 P=84,445 P=152,249 Capital expenditures P=17,735 P=15,225 P=8,688 P=21,579 P=14,776 P=22,866

Branch Banking Treasury 2011 2010 2009 2011 2010 2009 Results of Operations Net interest income Third party (P=1,482,725) (P=2,051,246) (P=2,686,279) P=2,966,299 P=3,832,316 P=3,961,151 Intersegment 5,440,319 5,735,257 6,171,440 (1,313,183) (1,993,840) (2,402,440) 3,957,594 3,684,011 3,485,161 1,653,116 1,838,476 1,558,711 Other operating income 1,113,488 1,359,714 1,246,613 1,609,319 2,236,508 1,698,960 Total revenue 5,071,082 5,043,725 4,731,774 3,262,435 4,074,984 3,257,671 Other operating expense (3,998,324) (3,793,523) (3,578,734) (427,521) (508,283) (453,991) Income before income tax 1,072,758 1,250,202 1,153,040 2,834,914 3,566,701 2,803,680 Income tax provision – – – (446,431) (487,534) (430,675) Net income P=1,072,758 P=1,250,202 P=1,153,040 P=2,388,483 P=3,079,167 P=2,373,005 Total assets P=137,667,024 P=126,829,555 P=113,778,686 P=65,791,965 P=111,505,718 P=99,339,737 Total liabilities P=177,898,412 P=179,445,953 P=168,112,287 P=31,094,602 P=30,488,470 P=20,339,506 Depreciation and amortization P=331,722 P=304,359 P=280,521 P=9,927 P=9,549 P=7,007 Provision for impairment and credit losses P=179,307 P=50,182 P=93,988 P=– P=– P=– Capital expenditures P=147,596 P=114,187 P=152,852 P=18,424 P=4,967 P=48,627

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Others Total 2011 2010 2009 2011 2010 2009 Results of Operations Net interest income Third party P=1,465,344 P=1,500,631 P=1,419,712 P=8,551,739 P=8,632,967 P=8,236,037 Intersegment (910,039) (954,029) (757,754) – – – 555,305 546,602 661,958 8,551,739 8,632,967 8,236,037 Other operating income 1,129,118 816,369 900,411 4,191,798 4,686,355 4,104,485 Total revenue 1,684,423 1,362,971 1,562,369 12,743,537 13,319,322 12,340,522 Other operating expense (2,025,076) (2,796,154) (3,108,057) (7,187,242) (7,624,702) (7,740,384) Income before income tax (340,653) (1,433,183) (1,545,688) 5,556,295 5,694,620 4,600,138 Income tax provision (100,977) (203,264) (66,834) (547,408) (690,798) (497,509) Net income (P=441,630) (P=1,636,447) (P=1,612,522) P=5,008,887 P=5,003,822 P=4,102,629 Total assets (P=54,923,778) (P=67,164,378) (P=59,116,550) P=262,213,686 P=257,379,314 P=233,865,070 Total liabilities P=11,668,298 P=8,879,876 P=12,016,406 P=222,924,362 P=221,926,029 P=203,667,120 Depreciation and amortization P=363,658 P=322,627 P=371,133 P=716,105 P=646,793 P=667,971 Provision for impairment and credit losses (P=310,240) P=350,471 P=538,353 P=155,098 P=495,831 P=792,384 Capital expenditures P=500,416 P=434,877 P=479,102 P=705,750 P=584,032 P=712,135

30. Earnings Per Share (EPS)

Basic EPS amounts are calculated by dividing the net income for the year by the weighted average number of common shares outstanding during the year (adjusted for stock dividends).

The following reflects the income and share data used in the basic earnings per share computations:

2011 2010 2009 a. Net income attributable to equity holders of the parent P=5,009,341,564 P=5,003,386,250 P=4,100,418,318 b. Weighted average number of common shares outstanding* (Note 21) 117,987,668 117,987,668 117,987,668 c. EPS (a/b) P=42.46 P=42.41 P=34.75 * Weighted average number of outstanding common shares in 2010 and 2009 was recomputed after giving retroactive effect to stock dividends declared on May 5, 2010 and May 4, 2011 (see Note 21).

As of December 31, 2011, 2010 and 2009, there were no outstanding dilutive potential common shares.

Before consideration of the 10.00% stock dividends declared in 2011, the EPS for 2010 and 2009 were P=46.65 and P=38.23, respectively.

31. Financial Performance

The following basic ratios measure the financial performance of the Group and the Parent Company:

Consolidated Parent Company 2011 2010 2009 2011 2010 2009 Return on average equity 13.72% 15.37% 14.49% 13.90% 15.51% 14.24% Return on average assets 2.04 2.10 1.90 2.09 2.13 1.88 Net interest margin 3.76 3.97 4.16 3.74 3.94 4.16

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32. Non-cash Investing Activities

The following is a summary of certain non-cash investing activities that relate to the analysis of the statements of cash flows:

Consolidated 2011 2010 2009 Net unrealized gain in AFS investment P=27,185,171 P=1,430,403,867 P=1,635,544,965 Addition to investment properties in settlement of loans 624,772,731 499,114,487 759,127,668 Addition to chattel mortgage in settlement of loans 11,686,526 21,422,035 27,560,707 Cumulative translation adjustment 87,610,861 8,384,856 137,832,937

Parent 2011 2010 2009 Net unrealized gain in AFS investment P=2,032,030 P=1,434,122,595 P=1,625,696,552 Addition to investment properties in settlement of loans 610,465,821 477,286,903 691,567,096 Addition to chattel mortgage in settlement of loans 11,686,526 21,422,035 27,560,707 Cumulative translation adjustment 87,610,861 8,384,856 137,832,937

33. Supplementary Information Under RR No. 15-2010

In compliance with the requirements set forth by RR 15-2010, hereunder are the details of percentage and other taxes paid or accrued by the Parent Company in 2011.

Gross receipts tax P=645,184,545 Local taxes 45,533,874 Fringe benefit tax 3,712,269 Others 20,690,163 Balance at end of year P=715,120,851

Withholding Taxes Details of total remittances of withholding taxes in 2011 and amounts outstanding as of December 31, 2011 are as follows:

Total Amounts Remittances outstanding Final withholding taxes P=642,157,762 P=53,258,344 Withholding taxes on compensation and benefits 307,500,748 19,162,514 Expanded withholding taxes 75,359,363 3,857,713 P=1,025,017,873 P=76,278,571

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34. Supplementary Information Under RR 19-2011

In its 2011 filing for income tax return, the Parent Company disclosed the following information on taxable income and deductions using the revised format as required under RR 19-2011:

Receipts/fees P=7,113,350,249 Cost of services (5,295,774,981) Itemized deductions (2,368,770,406) Non-operating and taxable other income 1,812,618,554 Taxes and licenses (580,142,236) P=681,281,180

Non-operating and taxable other income are as follows:

Commissions & service charges P=841,378,921 Trust fees 515,752,305 Gain on sale of investment properties 303,084,460 Foreign exchange loss (203,985,202) Trading gains 1,718,234 Miscellaneous income 354,669,836 P=1,812,618,554

Itemized Deductions are as follows:

Depreciation P=506,696,514 Supplies 414,635,011 Rent 385,727,856 Security, messengerial & janitorial services 286,694,328 Power, light and water 161,193,339 Travelling 200,273,892 Repairs & maintenance 155,155,695 Representation and entertainment 89,259,688 Insurance 65,190,521 Telephone 54,019,964 Advertising 9,826,987 Management and consultancy fee 8,175,143 Miscellaneous 31,921,468 P=2,368,770,406

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