PROSPECTUS

January 10, 2014

This Prospectus is being displayed in the website to make the Prospectus accessible to more investors. The PSE assumes no responsibility for the correctness of any of the statements made or opinions or reports expressed in the Prospectus. Furthermore, the PSE makes no representation as to the completeness of the Prospectus and disclaims any liability whatsoever for any loss arising from or in reliance in whole or in part on the contents of the Prospectus.

(a universal banking corporation organized under Philippine law)

PHILIPPINE NATIONAL BANK
PNB FINANCIAL CENTER PRES. DIOSDADO MACAPAGAL BLVD. PASAY CITY TELEPHONE NUMBER: (632) 891-6040 to 70 or (632) 526-3131 to 92

Prospectus Relating to the S12 billion Rights Offer Of 162,931,262 Common Shares with a Par Value of S40.00 per Share To be offered at the Offer Price of S71.00 per Rights Share To be listed and traded on The Philippine Stock Exchange, Inc. Ratio of 15:100 Common Shares Held as of Record Date

Joint International Lead Managers and International Underwriters

Sole Domestic Underwriter

THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION. THE OFFER OF THE SECURITIES IS EXEMPT PURSUANT TO SECTION 10.1 OF THE SECURITIES REGULATION CODE OF THE PHILIPPINES (THE “SRC”) AND, ACCORDINGLY THE SECURITIES HAVE NOT BEEN REGISTERED WITH THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION UNDER THE SRC. ANY FUTURE OFFER OR SALE THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER THE SRC UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION.

PHILIPPINE NATIONAL BANK PNB FINANCIAL CENTER PRES. DIOSDADO MACAPAGAL BLVD. PASAY CITY TELEPHONE NUMBER: (632) 891-6040 to 70 or (632) 526-3131 to 92 www.pnb.com.ph This Prospectus relates to the offering for subscription (the “Offer”) of 162,931,262 shares of common stock (the “Rights Shares”), with a par value of P40.00 per share (the “Common Shares”), of Philippine National Bank (the “Bank”), a banking corporation organized under the laws of the Republic of the Philippines, by way of a stock rights offering to existing eligible shareholders of record of the Common Shares (the “Eligible Shareholders”) at the proportion of fifteen (15) Rights Share for every one hundred (100) existing Common Shares held as of January 16, 2014 (the “Record Date”) at an offer price of P71.00 per Rights Share (the “Offer Price”). Any fractional share shall be disregarded in the computation of the Rights Shares that Eligible Shareholders will be entitled to. The Bank intends to source 32,586,252 of the Rights Shares from existing authorized but unissued capital stock, while the remaining Rights Shares will be sourced from an increase in authorized capital stock of the Bank, which the Bank will apply for with the Philippine Securities and Exchange Commission (the “PSEC”) immediately after the conclusion of the Offer. LT Group, Inc. (“LTG”), which currently indirectly owns 59.83% of the Bank’s shareholdings, has agreed to subscribe to 97,477,427 Rights Shares, while PNB Capital and Investment Corporation (“PNB Capital”) has agreed to procure Eligible Shareholders to subscribe to: (i) up to 32,867,583 of the Rights Shares; and (ii) any such portion of the 97,477,427 Rights Shares not subscribed to by LTG, which shall be sourced from the increase in authorized capital stock of the Bank. LTG has consented, and PNB Capital has agreed to procure the consent of the relevant Eligible Shareholders, to the delayed delivery of their subscribed Rights Shares pending the approval of the Bank’s application for an increase in its authorized capital stock. As soon as the Bank’s application for increase in authorized capital stock is approved by the PSEC, the Bank’s Rights Shares to be issued from such increase in authorized capital stock will be listed with The Philippine Stock Exchange, Inc. (the “PSE”). PNB Capital (the “Sole Domestic Underwriter”) with Credit Suisse (Singapore) Limited (“Credit Suisse”) and Deutsche Bank AG, Hong Kong Branch (“Deutsche Bank,” and together with Credit Suisse, the “Joint International Lead Managers and International Underwriters) (together with the Sole Domestic Underwriter, the “Joint Global Coordinators and Bookrunners”) shall purchase or procure subscribers to purchase the unsubscribed portion of the Offer in order to ensure that the Rights Shares covered by the Offer will be fully subscribed. Any such Rights Shares that are unsubscribed in the Offer, after the second round, may be offered by the Sole Domestic Underwriter only to qualified buyers in the Philippines in reliance on Section 10(1) of the SRC, and outside the Philippines and the United States by the Joint International Lead Managers and the International Underwriters in offshore transactions outside of the Philippines and the United States pursuant to Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”). Holders of Common Shares who are eligible to participate in the Offer are: (i) holders located inside the Philippines and (ii) holders located in jurisdictions outside the Philippines and outside the United States where it is legal to participate in the Offer under the securities laws of such jurisdiction. The Joint Global Coordinators and Bookrunners will act as underwriters of the Offer. To the extent that any Rights Shares remain unsubscribed for by the Eligible Shareholders after the Offer, the Joint Global Coordinators and Bookrunners will take up all such remaining Rights Shares. The Sole Domestic Underwriter will place certain unsubscribed Rights Shares to other investors in the Philippines (the “Domestic Offer”) in accordance with the domestic underwriting agreement (the “Domestic Underwriting Agreement”). The Joint International Lead Managers and International Underwriters will take up the unsubscribed Rights Shares in accordance with the international underwriting agreement (the “International Underwriting Agreement”) entered into between the Joint International Lead Managers and International Underwriters and the Bank. Credit Suisse and Deutsche Bank were appointed to act as Joint International Lead Managers and International Underwriters to the Offer and to use their reasonable efforts to assist the Bank in soliciting interest from existing shareholders of the Bank in the purchase of the Rights Shares. The authorized capital stock of the Bank is P50,000,000,040 consisting of 1,250,000,001 Common Shares with a par value of P40.00 per share. As of September 30, 2013, the Bank’s total outstanding and issued shares of capital stock was 1,086,208,416. In meetings held on February 9, 2013 and May 28, 2013, respectively, the Board and shareholders of the Bank each approved an increase in the authorized capital stock of the Bank to i

P70,000,000,040 divided into 1,750,000,001 Common Shares. The Bank will apply for approval of this increase in capital stock immediately after the conclusion of the Offer. See “The Rights Offer”. After the Offer, the Bank will have 1,249,139,678 issued and outstanding Common Shares. All of the Common Shares of the Bank issued and to be issued pursuant to the Offer have, or will have, identical rights and privileges. The Common Shares may be owned by any person or entity regardless of citizenship or nationality, subject to certain restrictions on foreign ownership, including limitations on the amount of capital stock outstanding and entitled to vote that may be held by non-Philippine nationals. See “Summary of the Offer—Restrictions on Ownership,” “Risk Factors—Risks relating to the Rights Shares—The Bank’s shares are subject to Philippine foreign ownership limitation” beginning on page 35 of this Prospectus and “Description of the Securities”. Each holder of Common Shares will be entitled to such dividends as may be declared by the Bank’s board of directors (the “Board” or the “Board of Directors”), provided that the Bangko Sentral ng Pilipinas (the “BSP”) and the PSEC approve such declaration, and that any stock dividends declaration requires the approval of shareholders holding at least two-thirds of the Bank’s total outstanding capital stock. Dividends may be declared only from the Bank’s unrestricted retained earnings. Appraisal increment amounting to P7.7 billion and translation adjustment of P1.3 billion applied to deficit through a quasi-reorganization of the Bank in 2002 and 2000 are not available for dividend declaration. There are no specific requirements relating to the Bank’s dividend policy, except as disclosed in this Prospectus. The Bank has not declared any dividends during the past three years. See “Dividend Policy”. The Bank’s Common Shares are listed on the PSE under the symbol “PNB”. On September 30, 2013, the closing price of the Bank’s Common Shares on the PSE was P87.40 per Common Share. The Bank files annual and interim reports, as well as other information, with the PSE. The information filed by the Bank with the PSE does not form part of this Prospectus, is not incorporated by reference herein and should not be relied on when making an investment decision with respect to the Rights Shares. The Offer is conditioned on the listing of the Rights Shares on the PSE. The approval by the PSE of the Offer is based on the price set forth above. The Bank expects to raise gross proceeds of up to P12 billion. The net proceeds from the Offer, determined by deducting from the gross proceeds the total issue management, underwriting and selling fees, listing fees, taxes and other related fees and expenses, which are estimated to be approximately 2.1% of the proceeds of the Offer, will be used primarily for capital infusion into the Bank’s subsidiary Allied Saving Bank and for strengthening the capital ratio of the Bank as allowed under BSP regulations. See “Use of Proceeds”. No dealer, salesman, or any other person has been authorized to give any information or to make any representation not contained in this Prospectus. If given or made, any such information or representation must not be relied upon as having been authorized by the Bank or any of the Joint Global Coordinators and Bookrunners. The distribution of this Prospectus and the offer and sale of the Rights Shares may, in certain jurisdictions, be restricted by law. The Bank and the Joint Global Coordinators and Bookrunners require persons into whose possession this Prospectus comes to inform themselves of and observe all such restrictions. NOTHING IN THIS PROSPECTUS CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. Unless the context clearly indicates otherwise, any reference to “the Bank” refers to Philippine National Bank on a consolidated basis. The information contained in this Prospectus relating to the Bank, its operations and those of its subsidiaries and associates has been supplied by the Bank, unless otherwise stated herein. To the best of its knowledge and belief, the Bank (which has taken all reasonable care to ensure that such is the case) confirms that, as of the date of this Prospectus, the information contained in this Prospectus relating solely to the Bank, its operations and those of its subsidiaries and associates is true and that there is no material misstatement or omission of fact which would make any statement in this Prospectus misleading in any material respect and that the Bank hereby accepts full and sole responsibility for the accuracy of the information contained in this Prospectus with respect to the same. Unless otherwise indicated, all information in this Prospectus is as of the ii

date of this Prospectus. Neither the delivery of this Prospectus nor any sale made pursuant to this Prospectus shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof or that there has been no change in the affairs of the Bank since such date. The Joint Global Coordinators and Bookrunners assume no liability for information supplied by the Bank in relation to this Prospectus. In making an investment decision, investors must rely on their own examination of the Bank and the terms of the Offer, including the material risks involved. The Offer is being made on the basis of this Prospectus only. Market data and certain industry forecasts used throughout this Prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and neither the Bank nor the Joint Global Coordinators and Bookrunners make any representation as to the accuracy of such information. In this Prospectus, references to “Pesos” or “P” are to the lawful currency of the Philippines. The Bank maintains its accounts in Philippine Pesos. References to “U.S. Dollars”, “US$” or “$” are to the lawful currency of the United States of America. This Prospectus contains translations of certain amounts into U.S. Dollars at specified rates solely for the convenience of the reader. In addition, unless otherwise indicated, U.S. Dollar/ Philippine Peso exchange rates referred to in this Prospectus are Philippine Dealing System weighted average rates for the indicated period or on the applicable date, as relevant. No representation is made that the Peso, U.S. Dollar, or other currency amounts referred to herein could have been or could be converted into Pesos, U.S. Dollars, or any other currency, as the case may be, at this rate, at any particular rate or at all. This Prospectus includes forward-looking statements. The Bank has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. The words “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “expects” and similar words are intended to identify forward-looking statements. In light of these risks and uncertainties associated with forward-looking statements, investors should be aware that the forward- looking events and circumstances discussed in this Prospectus might not occur. The Bank’s actual results could differ substantially from those anticipated in the Bank’s forward-looking statements. An application for listing of the Rights Shares was approved on December 11, 2013 by the board of directors of the PSE, subject to the fulfillment of certain listing conditions. The PSE assumes no responsibility for the correctness of any statements made or opinions expressed in this Prospectus. The PSE makes no representation as to its completeness and expressly disclaims any liability whatsoever for any loss arising from reliance on the entire or any part of this Prospectus. Such approval for listing is permissive only and does not constitute a recommendation or endorsement of the Rights Shares by the PSE. On December 4, 2013, the PSEC approved the Bank’s Application for Confirmation of Exempt Transaction, thereby confirming that the Offer is exempt from the registration requirements of the SRC under Sections 10.1(e) and 10.1(l) of the SRC. In a letter dated November 18, 2013, the BSP took note of and expressed no objection to the proposed Offer of the Bank. THE OFFER OF THE SECURITIES IS EXEMPT PURSUANT TO SECTION 10 OF THE SECURITIES AND REGULATION CODE AND, ACCORDINGLY THE SECURITIES HAVE NOT BEEN REGISTERED WITH THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE AND ANY FUTURE OFFER OR SALE THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS UNDER THE SECURITIES REGULATION CODE UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION. PHILIPPINE NATIONAL BANK By:

OMAR BYRON T. MIER President and Chief Executive Officer iii

TABLE OF CONTENTS
Page Page

GLOSSARY OF CERTAIN TERMS. . . . . . . . . . . . . . SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . THE RIGHTS OFFER . . . . . . . . . . . . . . . . . . . . . . . . SUMMARY OF THE OFFER . . . . . . . . . . . . . . . . . . RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . DETERMINATION OF OFFER PRICE . . . . . . . . . . . DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . SELECTED STATISTICAL DATA . . . . . . . . . . . . . . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . DISCUSSION OF HISTORICAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALLIED BANK . . . . . . . . . . . . . . . . . . . . . . . . BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 4 11 15 16 21 38 39 41 42 43 44 45

57

75 88

DESCRIPTION OF ALLIED BANK PRIOR TO THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THE PHILIPPINE BANKING INDUSTRY. . . . . . . . . BANKING REGULATION AND SUPERVISION . . . . ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . . . . CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . . MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . RELATED PARTY TRANSACTIONS . . . . . . . . . . . . PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . MARKET PRICE OF THE BANK’S STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . THE PHILIPPINE STOCK MARKET . . . . . . . . . . . . PHILIPPINE FOREIGN EXCHANGE AND FOREIGN OWNERSHIP CONTROLS . . . . . . . . . . DESCRIPTION OF THE SECURITIES . . . . . . . . . . . PHILIPPINE TAXATION . . . . . . . . . . . . . . . . . . . . . . LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . INDEX TO FINANCIAL STATEMENTS . . . . . . . . . .

112 140 145 153 165 167 180 182 187 191 192 197 198 200 203 204 F-1

iv

GLOSSARY OF CERTAIN TERMS In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below:

ABC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-Money Laundering Act . . . . . . . . . . .

Allied Banking Corporation Anti-Money Laundering Council the Anti-Money Laundering Act 2001 of the Philippines

ATM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . automated teller machine the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philippine National Bank, and except where the context otherwise requires, all of its consolidated subsidiaries any of the days in a week, other than Saturday, Sunday and holidays, when banks are not required or authorized to close in Pasay City, Makati City and the City of Manila Philippine Bureau of Internal Revenue the board of directors of the Bank Bangko Sentral ng Pilipinas, the Philippine Central Bank the weighted average rate for the purchase of U.S. dollars for Pesos under the PDS appearing as of any given date in the Reference Exchange Rate Bulletin of the BSP Credit Suisse (Singapore) Limited Deutsche Bank AG, Hong Kong Branch a director of the Bank loans granted to directors, officers, stockholders, and related interests existing holders of record of Common Shares as of the Record Date who are: (i) located in the Philippines; and (ii) located in jurisdictions outside the Philippines and the United States where it is legal to participate in the Offer under the securities laws of such jurisdictions foreign currency deposit unit generally accepted accounting principles General Banking Law (Republic Act No. 8791)

Banking Day. . . . . . . . . . . . . . . . . . . . . . . . .

BIR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board or the Board of Directors . . . . . . . . BSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BSP Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Credit Suisse. . . . . . . . . . . . . . . . . . . . . . . . . Deutsche Bank . . . . . . . . . . . . . . . . . . . . . . . Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DOSRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eligible Shareholders . . . . . . . . . . . . . . . . .

FCDU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Banking Law . . . . . . . . . . . . . . . . . Government (or National Government) . . . . . . . . . . . . . . . . . . . . . . IBCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Joint Global Coordinators and Bookrunners. . . . . . . . . . . . . . . . . . . . . . . Joint International Lead Managers and International Underwriters . . . . . . . . . .

the government of the Republic of the Philippines interbank call loan

Credit Suisse, Deutsche Bank and the Sole Domestic Underwriter

Credit Suisse and Deutsche Bank 1

Jumbo Certificate . . . . . . . . . . . . . . . . . . . .

a new stock certificate covering all the shares lodged with the PDTC and issued in the name of the PCD Nominee local government unit LT Group, Inc., the primary holding company for the consumer interests of Dr. Lucio C. Tan, and the largest indirect shareholder of the Bank the metropolitan area comprising the cities of Kalookan, Las Piñas, Makati, Malabon, Mandaluyong, Manila, Marikina, Muntinlupa, Navotas, Parañaque, Pasay, Pasig, Quezon, Valenzuela, Taguig and San Juan, which together comprise the “National Capital Region” and are commonly referred to as “Metro Manila” Monetary Board of the BSP Moody’s Investor Services, Inc. New Central Bank Act (Republic Act No. 7653)

LGU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LTG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Metro Manila . . . . . . . . . . . . . . . . . . . . . . . .

Monetary Board . . . . . . . . . . . . . . . . . . . . . . Moody’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Central Bank Act . . . . . . . . . . . . . . . .

NDFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . non-deliverable forwards NPAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . non-performing assets NPLs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . non-performing loans OFWs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . overseas Filipino workers PAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philippine Accounting Standards PCD Nominee . . . . . . . . . . . . . . . . . . . . . . . PCD Nominee Corporation, a corporation wholly-owned by the PDTC

PDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philippine Deposit Insurance Corporation PDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PDSWAR . . . . . . . . . . . . . . . . . . . . . . . . . . . PDTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the Philippine Dealing System Philippine Dealing System weighted average rate the Philippine Depository and Trust Corporation, the central securities depository of, among others, securities listed and traded on the PSE the lawful currency of the Philippines

Pesos and P . . . . . . . . . . . . . . . . . . . . . . . . .

PFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philippine Financial Reporting Standards Philippine Corporation Code. . . . . . . . . . . Corporation Code of the Philippines, Batas Pambansa Blg. 68 Philippine GAAP. . . . . . . . . . . . . . . . . . . . . generally accepted accounting principles in the Philippines Philippine National . . . . . . . . . . . . . . . . . . . as defined under the Republic Act No. 7042, as amended, means a citizen of the Philippines, or a domestic partnership or association wholly-owned by citizens of the Philippines, or a corporation organized under the laws of the Philippines of which at least 60.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, or a corporation organized abroad and registered to do business in the Philippines under the Philippine Corporation Code, of which 100.0% of the capital stock outstanding and entitled to vote is wholly-owned by Filipinos or a trustee of funds 2

for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and at least 60.0% of the fund will accrue to the benefit of Philippine Nationals Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . PSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PSEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RA 7721 . . . . . . . . . . . . . . . . . . . . . . . . . . . . RA 9337 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Republic of the Philippines The Philippine Stock Exchange, Inc. the Philippine Securities and Exchange Commission Republic Act No. 7721 Republic Act No. 9337, amending certain provisions of the Philippine National Internal Revenue Code of 1997 Philippine National Bank-Trust Banking Group Regulation S under the U.S. Securities Act real and other properties acquired Standard & Poor’s Rating Services Securities Clearing Corporation of the Philippines SyCip, Gorres, Velayo & Co., a member firm of Ernst & Young Global Limited Statements of Financial Accounting Standards shares of common stock of the Bank, each with a par value of P40 small-and-medium-enterprises PNB Capital and Investment Corporation the Special Purpose Vehicle Act of 2002 (Republic Act No. 9182) special purpose vehicle companies Securities Regulation Code of the Philippines (Republic Act No. 8799) and its implementing rules, as amended a group of companies and individual shareholders, representing one of the largest conglomerates in the Philippines with interests in banking and financial services, aviation, beverages, chemicals, distillery, education, food, real estate development and tourism, among others the Bank’s treasury operations unit investment trust funds the lawful currency of the United States of America generally accepted accounting principles in the United States the United States Securities Act of 1933, as amended value-added tax 3

Receiving Agent . . . . . . . . . . . . . . . . . . . . . Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . ROPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SCCP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGV & Co. . . . . . . . . . . . . . . . . . . . . . . . . . .

SFAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sole Domestic Underwriter . . . . . . . . . . . . SPV Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . SPVs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tan Companies . . . . . . . . . . . . . . . . . . . . . .

Treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . UITF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S.$ or U.S. dollar. . . . . . . . . . . . . . . . . . . U.S. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Securities Act . . . . . . . . . . . . . . . . . . . VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY This summary highlights information contained elsewhere in this Prospectus. The following summary is qualified in its entirety by more detailed information and financial statements, including notes thereto, appearing elsewhere in this Prospectus. For a discussion of certain matters investors should consider in evaluating an investment in the Rights Shares, see “Risk Factors”. Investors are recommended to read this entire Prospectus carefully, including the Bank’s consolidated financial statements and related notes. Overview As of September 30, 2013, the Bank, subsequent to its merger with Allied Banking Corporation (“ABC”) effective February 9, 2013, was the fourth largest privately-owned Philippine commercial bank in terms of total assets, with total assets of P606.1 billion. As of September 30, 2013, the Bank had 656 branches and offices and 854 ATMs located throughout the Philippines. The Bank has the largest overseas network among Philippine banks with 81 branches, representative offices, remittance centers and subsidiaries in 16 locations in the United States, Canada, Europe, the Middle East and Asia. As of September 30, 2013, the Bank also maintained correspondent relationships with 1,120 banks and financial institutions worldwide. As a result of this large geographic coverage, the Bank is one of the leading providers of remittance services to Overseas Filipino Workers (“OFWs”). The Bank provides a full range of banking and other financial services to large corporate, middle-market, small to medium-sized enterprises (“SMEs”) and retail customers including OFWs, as well as to the Philippine Government, National Government agencies (“NGAs”), local government units (“LGUs”) and government owned and controlled corporations (“GOCCs”). While the Bank’s principal focus has historically been to serve the banking needs of Government-related entities and GOCCs, the Bank’s focus since 2000 after the privatization has been to further develop its banking services for large corporates, middle-market, SMEs, retail customers and OFWs. The Bank’s principal commercial banking activities include deposit-taking, lending, bills discounting, trade finance, foreign exchange dealings, fund transfers/remittance servicing, a full range of retail banking and trust services, and treasury operations. Through its subsidiaries, the Bank also engages in a number of diversified financial and related businesses such as remittance servicing in the United States, Canada, Hong Kong, Italy, France and the United Kingdom, investment banking, non-life insurance, stock brokerage, leasing and financing and freight forwarding services. As of December 31, 2012, the Bank’s consolidated Tier 1 capital adequacy ratio and total consolidated capital adequacy ratio under the Basel Committee on Banking Supervision’s Revised International Convergence of Capital Management and Capital Standards (“BASEL II”) as reported to the BSP were 11.9% and 18.1%, respectively. As of September 30, 2013, consolidated Tier 1 capital adequacy ratio and total consolidated capital adequacy ratio as reported to the BSP were 17.0% and 20.3%, respectively. The Bank has been listed on The Philippine Stock Exchange (“PSE”) since June 1989. The market capitalization of the Bank on September 30, 2013 (based on the closing price of the shares of the Bank on the PSE on that date of P87.40 per Share) was P94.9 billion. For the nine months ended September 30, 2013, the Bank’s total assets were P606.1 billion and its net income was P6.0 billion, compared to total assets of P331.0 billion and P312.1 billion as of December 31, 2012 and 2011, respectively, and net income of P5.0 billion and P4.8 billion in the years ended December 31, 2012 and 2011, respectively. The Bank’s results as of and for the nine months ended September 30, 2013 include the results of ABC beginning on the merger effectivity date of February 9, 2013.

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The following table sets out the Bank’s selected key financial ratios for the periods indicated.
For the nine months For the year ended December 31, ended September 30, 2010 2011 2012 2013

Selected financial ratios

Net interest margin(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost-income ratio(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average equity(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NPL ratio(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity to total assets(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to deposits(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquidity ratio(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4% 57.7% 1.4% 15.2% 4.5% 9.5% 42.0% 35.3%

3.0% 58.7% 1.6% 15.0% 3.1% 11.2% 48.6% 46.3%

2.6% 60.9% 1.6% 13.5% 2.4% 12.0% 55.3% 44.6%

2.7% 60.2% 1.7% 12.9% 1.1% 13.8% 53.5% 46.6%

Notes: (1) For the years ended December 31, 2010, 2011 and 2012: net interest income divided by average interestearning assets. For the nine months ended September 30, 2013: net interest income divided by 9 multiplied by 12 divided by average interest earning assets. Interest-earning assets which mainly consist of Due from BSP and other banks, Interbank loans and Securities Purchased Under Resale Agreements, Trading and investment securities, and receivable from customers, net of NPLs. (2) Total operating expenses (excluding provision for impairment, credit and other losses) divided by operating income. (3) For the years ended December 31, 2010, 2011 and 2012: Net income divided by average total assets for the period indicated. For the nine months ended September 30, 2013: Net income divided by 9 multiplied 12 then divided by the average assets for the period. (4) For the years ended December 31, 2010, 2011 and 2012: Net income divided by average total equity for the period indicated. For the nine months ended September 30, 2013: Net income divided by 9 multiplied by 12 then divided by the average equity. (5) Total non-performing loans (net) divided by total adjusted loan portfolio. As of December 31, 2010, 2011 and 2012, ratios were computed based on the balances on the audited financial statements. As of September 30, 2013, the ratio was computed based on figures reported to the BSP. (6) Total equity divided by total assets. (7) Receivables from customers divided by total deposits. (8) Total liquid assets divided by total assets. History The Bank was established in 1916 by the Philippine Government. At that time, in addition to engaging in the general commercial banking business, the Bank also served as the de facto central bank of the Philippines. The Bank acted as the sole depository of Philippine Government deposits, the clearing house for the Philippine banking system, the custodian of bank reserves and the issuer of Philippine bank notes and Government bonds, functions which the Bank performed until 1949, when the Central Bank of the Philippines, which has since been renamed the BSP was established. Historically, as a bank which was then solely owned by the Government, the Bank played an important role in implementing the Government’s financial policies. This included being a major provider of banking services to the Government as well as its agencies, LGUs and GOCCs, serving as a depository bank for working balances, providing fund transfers, disbursements, credits and import/export financing, administering trust funds, and acting as a channel for the sale of Government securities. Following Proclamation No. 50, the Government embarked on the privatization of the Bank. In June 1989, the Government offered to the Philippine public 30.0% of the outstanding shares of the Bank for a total consideration of P1.1 billion. In April 1992, the Government disposed of a further 10.0% of the outstanding shares in the Bank to the Philippine public for a total consideration of P2.1 billion. In December 1995, the Government disposed of a further 7.2% of the outstanding shares of the Bank. On May 27, 1996, it was incorporated with the PSEC as a juridical entity. Its Articles of Incorporation and By-Laws were duly filed.

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As a result of the Asian financial crisis, the Bank suffered a liquidity crisis for the five years ended December 31, 2002, which necessitated significant levels of financial assistance from the BSP and the Philippine National Government (through the PDIC). The Bank had to undergo a rehabilitation program pursuant to a MOA signed by the Republic of the Philippines, the PDIC and certain Tan Companies. The MOA, which was signed on May 3, 2002, stipulated the following financial conditions: conversion into equity of P7.8 billion of the P25.0 billion assistance extended by the BSP and the PDIC; settlement of the P10.0 billion obligation by way of dacion en pago through the assignment of government and government related receivables; and the conversion of P6.1 billion into a ten-year loan with interest equivalent to the 91-day T-Bill rate plus 1.0%. In June 2007, the Bank settled its P6.1 billion loan to PDIC, four years ahead of maturity date. In August 2007, the Bank successfully completed a Tier 1 Follow-On Equity Offering where it raised about P5.1 billion, net of issuance cost of P199.5 million, in Tier 1 Capital. Together with the sale of 89 million primary shares, 71.8 million secondary shares owned by the Government through PDIC and the Department of Finance (“DOF”) were sold to the public paving the way for a complete exit of the Government from the Bank. As of September 30, 2013, LTG held indirect ownership over 45.51% of the Bank’s shares through various subsidiaries. Shareholders associated with or who issue proxies/special powers of attorney in favor of Director Lucio C. Tan from time to time held a total of about 31.19% of the Bank’s shares, while the latter held direct ownership over 1.19% of the Bank’s shares. The remaining 22.11% of the Bank’s shares were owned by other stockholders. Notwithstanding its status as a private bank, the Bank remains one of the Authorized Government Depository banks having been granted by the BSP the authority to accept government deposits on a continuing basis since the Bank has successfully met the BSP requirements for this license. Merger with Allied Banking Corporation On February 9, 2013, the Bank concluded its planned merger with ABC as approved and confirmed by the Board of Directors of the Bank and of ABC on January 22 and January 23, 2013, respectively. The respective shareholders of the Bank and ABC, representing at least two-thirds of the outstanding capital stock of both banks, approved the amended terms of the Plan of Merger of the two banks on March 6, 2012. The original Plan of Merger was approved by the affirmative vote of ABC and the Bank’s respective shareholders on June 24, 2008, representing at least two-thirds of the outstanding capital stock of both banks. On March 26, 2012, the Parent Company submitted to the BSP and PDIC applications for consent to the merger. On April 12, 2012, the application for the merger was filed with the PSEC. On July 25, 2012, the Parent Company received notice that the PDIC had given its consent to the merger. Likewise, on August 2, 2012, the Monetary Board of the BSP issued a resolution giving its consent to the merger. Finally, on January 17, 2013, the PSEC granted its approval to the merger. In addition, with respect to ABC’s overseas subsidiaries, the Parent Company has also filed notices in relation to the merger with various relevant foreign regulatory agencies; and as of January 17, 2013 had received all necessary approvals to effectuate the merger. As of September 30, 2013, the merged Bank has a combined distribution network of 656 branches and offices and 854 ATMs nationwide. Based on September 30, 2013 figures, the merged entity was the fourth largest private domestic bank in the Philippines in terms of local branches and the fourth largest in terms of consolidated total assets (P606.1 billion), net loans and receivables (P258.2 billion) and deposits (P454.0 billion). In addition, it has the widest international footprint among Philippine banks spanning Asia, Europe, the Middle East and North America. With a combined 133 years of banking experience, the new Philippine National Bank now operates under the motto “Bigger, Stronger, and Better.” The Bank reaffirms its commitment towards building fruitful and solid partnerships with its clientele to help them achieve their financial goals. Recent Developments Impact of 2013 Typhoons and the Earthquake in Bohol As a result of the typhoons Maring and Santi, the earthquake in Bohol and, in particular typhoon Yolanda—which caused significant damage in Central Visayas and certain parts of Southern Luzon—the Bank

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2012 and September 30.3% and 0. net loans and receivables. the Bank currently estimates that these losses will be between P700 million and P800 million. the Bank is the Philippines’ fourth largest private commercial bank in terms of total assets. As of September 30. 2013. the banking sector’s average net NPL ratios were 0. reach. The Bank’s extensive distribution network allows for a strong deposit gathering capability and the ability to sell and distribute fee-generating product lines such as bancassurance. PNB Gen. The Bank’s large-scale remittance business is supported by the Bank’s extensive overseas network of 81 branches. 2013. While the amount of these losses.1% as of December 31. The Bank’s branches and ATMs are strategically located to maximize market potential and cover areas where competitors are less present. the Middle East and Asia. the Bank also maintained correspondent relationships with 1. 2013. particularly with respect to losses arising as a result of typhoon Yolanda have not been fully assessed at this time.120 banks and financial institutions worldwide. The Bank believes that with the merger. 2013. SMEs and retail customers. 2013. business mix. making it one of the largest in the Philippines. The Philippines has one of the lowest banking penetrations in Asia. Under the new methodology adopted by the BSP. respectively. representative offices and remittance centers across 16 countries in North America.5% on average over the next five years driven by strong domestic consumption and favorable demographics. additional customers contributed by ABC will strengthen the Bank’s ability to withstand periods of volatile economic markets as compared to many of its peers. loan growth is expected to be strong at 13. large corporate. with the Bank having the distinction of being one of only five authorized Government depository banks in the Philippines. According to BSP data. as of September 30. the Bank is still assessing the impact of typhoon Yolanda on the Bank’s owned and invested properties. Government. SMEs and retail segments. Europe. making financial services accessible to untapped customers and investment opportunities. deposits. According to the Bank’s published SEC Form 17-Q Report. Competitive Strengths The Bank considers the following to be its principal competitive strengths relative to the banking sector: Well-positioned franchise in the robust Philippine banking sector The Bank believes that it is well-positioned in the robust Philippine banking sector. fixed-income securities and credit cards. product offerings and brand recognition have made it among the leading financial institutions in the Philippines. Industry-leading OFW remittance business The Bank’s OFW remittance business accounted for approximately 21% market share by remittance volume as of August 31. trust.1% of the total number of Bancnet ATMs of commercial and universal banks. According to the Economist Intelligence Unit. As of September 30. from 15.5% as of December 31. The banking sector has also stabilized over the years. middle-market. leaving significant headroom for growth.0% in 2002 according to data from the BSP. Extensive and strategically located distribution network The Bank believes it has one of the most extensive branch networks among its competitors in the Philippines. the 653 domestic branches and offices of the Bank comprised approximately 14% of the total number of branches of all private commercial and universal banks in the Philippines as of June 30. As of September 30. with the average net NPL ratio generally declining to 3. 2013. The 854 ATMs of the Bank represented about 8. based on data from the BSP. Diversified customer base The Bank provides a full range of banking and other financial services to a diversified customer base including government entities. the Bank’s receivables from customers were well-diversified across the large corporate. The Bank’s scale.expects to incur losses as a result of claims for property damage by clients of the Bank’s non-life insurance company. In addition. the Bank had 656 domestic branches and offices and 854 ATMs. 2013. 2011. 7 .

. . . . . . . . . higher than the BSP minimum required CAR of 10. The Bank’s post-merger credit ratings by Moody’s Investor Service as of September 2013 and Standard & Poor’s as of March 2013 are set forth below: Moody’s September 2013 Standard & Poor’s March 2013 Outlook . . . . . . . . .6% and an NPL coverage ratio of 94. . . . Synergies from its strong shareholder group As a member of the Tan Companies. . . . . . . . .0%. which have resulted in improving asset quality. 2013 as reported to the BSP. . Inc. . . . Meanwhile. . loan portfolio. . . . . . . . . . . . . . . . . . The Bank’s strong capital position gives it the flexibility to expand its business. Long-Term Counterparty Credit. . . . . . a net NPA ratio of 3. . . . . . . . . . . with a consolidated CAR of 21. . improving asset quality and stable financial performance The Bank believes its capital position is strong. . . . . . . . the Bank recorded a net NPL ratio of 1. delivering high profitability supported by a solid balance sheet. . . .1%. . . . . . . . . . . . . . . . . . . providing collection facilities through its nationwide branches for sellers of Philip Morris Fortune Tobacco Corporation. . . . . . . . . . Short-Term Counterparty Credit . . . . . . . . . Subordinate—Domestic Currency . . . deposits and net worth. . . . . . Stable Stable B+ B Ba2 Ba2 E+ b1 b1 B2 A securities rating is not a recommendation to buy. . the Bank will take steps to modify its revenue mix towards a more stable stream of income. . . . . . . . . . . . . . . . . . . .0% and consolidated CAR of 20. . . . . . . . . . The Bank believes that its asset quality would remain at a healthy level subsequent to its recent merger with ABC with the latter similarly maintaining strong asset quality. according to data from the BSP. . . . . . . . As of September 30. . invest in new products and services. . airlines. . . . Moreover. . . . . . . . . . . . . Bank’s Financial Strength Rating (BFSR) . . . . . . . ABC maintained a strong capital position prior to its merger with the Bank. with a consolidated Tier 1 ratio of 17. . . . . . 2012 as reported to the BSP. . . . .3% as of September 30. . . . . . . . . . . . . . .’s products and for other Tan Companies and facilitating guarantees for ticketing agents of Philippine Airlines. A securities rating may be subject to withdrawal or revision at any time. . . . . . . . . . . . . . . . . . . . . Moreover. . . . . Baseline Credit Assessment (BCA) . . . . Local Currency Deposit Rating . . . . . . Improve revenue mix As part of the strategy to improve its profitability and at the same time minimize dependence on any specific revenue source. . . information technology and other infrastructure required for the execution of its growth strategy. . . . the Bank has been committed to prudent credit approval and risk management processes. . . property development. . . . . education and others. The Bank believes that it has been able to achieve significant synergies with the Tan Companies. . . . . . . Stand-alone Credit Profile . . . . . . . . . . . Foreign Currency Deposit Rating . . . . ABC has continuously maintained its position among the 10 largest private Philippine universal banks in terms of total assets. . . . . . Adjusted Baseline Credit Assessment . . . . . . . . . . . . .0% as reported to the BSP. . . . . . . . . . . . . . . . . . . .0% for the year ended December 31. . . . . . . . the Bank believes that it will continue to benefit from being part of one of the largest and most diversified conglomerates in the Philippines. . . . . . . . . . . . . sell or hold securities. . . . . . . . . 8 . . . . . . . . . . . To achieve this corporate goal. . . . . . . Credit ratings upgrade The Bank’s borrowing costs are affected directly by the Bank’s credit ratings. . . . . . the Bank believes it will benefit from ABC’s stable financial performance in recent years. . . . . . . . Each rating should be evaluated separately of any other rating. . tobacco. . . . . .Solid capitalization. . . . . . . . . . . . . . . . . . 2013. . . Business Strategies The Bank aims to fortify its position as one of the leading banks in the Philippines. . . with interests ranging from beverages. . . . . . . such as partnering with ABC (prior to its merger with the Company) and Philippine Airlines to introduce one of the most popular mileage rewards credit cards in the Philippine market. . . . . . . the Bank will undertake the following strategic initiatives as discussed in its Strategic Planning Workshop last March 2013. . .

Strengthen leadership in the global Filipino Market The Bank intends to further increase its share in the global Filipino market by going beyond merely providing them with remittance services to offering them a more diverse menu of financial services. The Bank will continue to enhance its products aimed at delivering optimum services. low funding cost from improved risk profile and greater opportunities for cross-selling bancassurance. The sustained focus on service quality. OFWs. government-owned and controlled corporations. In support of the expansion in total assets. The Bank’s consumer finance business will be transferred to the Bank’s subsidiary. Together. LTG. The merger is expected to create substantial revenue and cost synergies. portfolio sale. the Bank intends to further leverage on its strong franchise and increase fee-based income by intensifying its cross-selling efforts to its existing customers. Allied Savings Bank (to be renamed PNB Savings Bank) which will play a pivotal role in strengthening the bank’s foothold on the retail and consumer segment. Maximize synergies from the merger with ABC The merger brings together a combined complementary client base ranging from large corporations.Along this line. PNB and Allied Bank will have a better platform to offer a wide range of personal and corporate banking services and products. With its bancassurance license from the BSP. particularly by introducing electronic-remittance channels. Accelerate ROPA disposition Through its Special Asset Management Group (“SAMG”). trust. credit card and other products to a larger customer base via a wider distribution network. (iii) strong marketing initiatives. the primary holding company belonging to one of the largest conglomerates in the Philippines. the Bank will aggressively dispose of foreclosed assets as well as maximize recoveries from asset sales and income potential of acquired assets.. This shift in lending strategy by increasing the number of smaller accounts is intended to help the Bank in achieving higher lending margins as smaller accounts are less sensitive to changes in interest rates. (ii) collection of CARP accounts. and (v) more effective and efficient lease management practices. Revenues should be enhanced as a result of new customers. Likewise. The merged bank will also be able to leverage and harness on the wide network of its major shareholder. joint-venture with developers. Rationalize cost of funds The Bank will leverage on the strength of its nationwide branch network to generate low-cost deposits from its existing and growing customer base. increased business from existing customers. In addition to its large global distribution network. the merger will result in cost efficiency improvements through branch re-engineering. 9 .g. In addition. and become a leading player in its chosen markets. Shift loan portfolio mix in favor of SMEs and consumer segments The Bank’s lending strategy will entail a shift in marketing focus from large institutional accounts to SMEs and individuals. (iv) efficient account management of SCR accounts. local government units. SAMG will focus its efforts on the following: (i) pursue implementation of development plans for selected ROPAS e. the Bank will also keep an acceptable level of high-cost deposits to complement the low-cost deposit base. The Bank intends to leverage on its extensive customer base of OFWs to expand its consumer lending business. the Bank will keep on partnering with companies that are considered leaders in their home markets to reinforce its overseas presence. realignment of front offices and optimization of back office processing and support functions. economies of scale. continued product innovation and marketing initiatives are expected to result in increased remittance volume and/or increased foreign currency business. the Bank will continue to determine the proper allocation of the use of funds between loans and investments to ensure a more stable level of accrued interest income and higher yields from loans versus the volatile movements in trading gains/losses from investment securities held for trading. including its OFWs customers. the Chinese-Filipino community to the provincial market. The Bank will also review its fee structure and align bank fees and service charges with market rates to remain competitive. the Bank plans to intensify its efforts in the marketing of bancassurance products. Under the Bank’s three-year business plan. systems integration. sale of small and medium ROPAs.

Pasay City. Investor Relations Office The Investor Relations Office (“IRO”) of the Bank is tasked to (a) promote investors’ awareness and name recognition through participation in domestic and international conferences sponsored by fund managers (b) improve investors’ perception of the Bank by keeping them abreast of the developments in the Bank through constant communications and maintaining cordial relations with them and (c) effectively address concerns/issues that could materially affect the Bank’s good image. The IRO is responsible for responding to queries from investors and shareholders in a consistent and impartial manner. and does not constitute part of this Prospectus. • Risks relating to the Philippines. 10 .com. The information on the Bank’s website is not incorporated by reference into. The Bank’s telephone number is (632) 891-6040 to 70 or (632) 526-3131 to 92 and its corporate website is www. These risks include: • Risks relating to the Bank and its overall business. Please refer to the section entitled “Risk Factors”. timely and uniform access to official announcements. head of the Corporate Planning and Research Division (“Corplan”) also serves as the Bank’s designated investor relations manager. The Company’s Investor Relations Office. which. The IRO also coordinates with the Marketing Services Division in holding press conferences right after the Banks shareholder meetings and preparing the Bank’s annual reports. and • Risks relating to the Common Shares. while not intended to be an exhaustive enumeration of all risks.ph. the IRO oversees the investor briefings and the “Investor Relations” portion of the Company’s website. Bank Information The registered office of the Bank is located at PNB Financial Center Pres. which is part of Corplan.pnb. The IRO is also responsible for ensuring that the Bank’s shareholders have accurate. must be considered in connection with a purchase of Rights Shares. is located at 9/F PNB Financial Center D. operations and viability.Risks of Investing Before making an investment decision. Macapagal Blvd. investors should carefully consider the risks associated with an investment in the Common Shares. Pasay City. • Risks relating to the Projections. Diosdado Macapagal Blvd. • Risks relating to the Philippine banking industry. In addition. Senior Vice President Emeline C. Philippines.. Centeno. disclosures and market-sensitive information relating to the Bank in line with the prescribed standard of disclosure by regulatory agencies.

. . . . . . . . . . as amended. . 2010 2011 2012 2012 2013 (audited) (unaudited) (Q millions) Interest Income . . . . .032 3. . . . . . . .559 2. . . . . . . . . Interim Financial Reporting. . . . . . . 2012 was derived from the unaudited pro forma condensed consolidated financial information of the Bank included elsewhere in this Prospectus and prepared in accordance with Paragraph 8 of the Rule 68 of the PSEC’s Implementing Rules and Regulations of the Securities Regulation Code. . . . . Net Income . . 2011 and 2012 and for the years ended December 31. . . . . . . 2012. 2011 and 2012 and for the years ended December 31. . as the case may be.269) 7.552) 11. . . . . . . . . . . . nor does it purport to project the results of the Bank for any future period or date. .124 7. . .652 376 5. .932 58 5. . . . . .204) (10. . .356 (934) (1. . . . . Net Income . . .020) (10. . . . . . Other Income(1) .293) 4. . . . Non-controlling Interest in a Subsidiary . Interest Expense . . . .326) 13. . . . . . . .150) (924) (879) (925) (670) (1. .817) 9. Provision for Income Tax . . . . .990 5. . . . . . . . . . . . . .756 5. . . . 2010. . . . . . .601 (734) (10. included elsewhere in this Prospectus have not been revised to reflect the changes. . 2011 and December 31. . 2012 and 2013. 2013 and for the nine months ended September 30. . . . .596 7 3. . . . The balances as of December 31.629 (4.876 1.772) 7. . . .990 11 . . . . . Net Interest Income . . . . . . .603 3. . . . . . . . . . . . . .669 87 4.028 3. 2011 and 2012. . . .603 5. . . 12. .472 (5. . . . . Summary Consolidated Statement of Income Data For the year For the nine months ended December 31.756 4. . . . . Consolidated Financial Statements and the amendments to PAS 19. .028 4.716 1. . 2010.385) (3. . . .396 8.137 8. . .051 (1. . . . . . The post-merger interim condensed consolidated financial statements of the Bank have not been audited and may be subject to further adjustments. . . . . . . . .SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION The following tables present summary consolidated financial information of the Bank and should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Prospectus and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Operating Expenses (excluding Provision for Impairment. Employee Benefits on January 1. . . . . . . . . .581) (12. . . These standards require retrospective application. 2010 below are equivalent to the balances as of January 1. . . . Provision for Impairment. . . . .361 8. . . . . . The summary financial information as of September 30. . 2011 as reflected in the audited consolidated financial statements. . . 2012. . . . . 2010. 2011 and 2012. . . . . . . . . . . . . . . . The pro forma consolidated financial information as of and for the year ended December 31. . . . . . . . . The summary unaudited pro forma condensed consolidated financial information does not purport to represent what the results of operations of the Bank would have been had the merger with Allied Bank in fact occurred as at January 1.741 6. . . . . . . . The summary financial information presented below as of and for the years ended December 31. . . . . . . 2013. . . and “Business” in this Prospectus. . . . . . . .976 5. . . . . . . . . . Credit and Other Losses . . The changes as a result of the adoption of the new accounting standards have been reflected in the unaudited interim condensed consolidated financial statements as of September 30.566 466 4. the effective date of these new and amended standards. . . . and 2012 was prepared in accordance with PFRS and was derived from the audited consolidated financial statements of the Bank as of January 1. . . .533 (3. . 2013 and for the nine months ended September 30. . . or December 31. “Selected Statistical Data”. . . . . . . . . . . . . .201) 6. Credit and Other Losses)(2) .693 (2. . . . . . . The summary financial information set out below does not purport to project the results of operations or financial condition of the Bank for any future period or date. . . . . . Net Service Fees and Commission Income . . .400) 12. . . . . . . .331 (4. . . . . . . The Bank adopted PFRS 10. . . . . . . ended September 30. . . . . . . . . . . The annual audited consolidated financial statements as of January 1. . . . . . . . . 2012 and 2013 was derived from the unaudited interim condensed consolidated financial statements of the Bank and was prepared in accordance with Philippine Accounting Standard 34. . . . . . . . .850 8.428 1. . . 2011 and December 31.706) (7. . . . Net Income attributable to: Equity Holders of the Parent Company . . . 2011. . . . .203 2. . Refer to Note 2 of the unaudited interim condensed consolidated financial statements included elsewhere in this Prospectus for the impact of the new accounting standards. . The pro forma adjustments are based upon available information and certain assumptions that the Bank believes are reasonable under the circumstances. “Assets and Liabilities”.032 4. . . . .

.077 Accrued Taxes. . . . . . . . . . . . . . . 6. .575 606. . . . . . . . . . . . . . 6.632 16. . .531 52.067 331. . . . . . . .073 80. . . . .776 1. . . . . . .769 12. . . .995 Total Assets . . .902 2. . .650 6. 27. Foreign exchange gains (losses)—net. . . 24. .043 Interbank Loans Receivable. . . . .973 — 18. . . . .316 126. . . . . . . . . 560 531 905 Equity Attributable to Equity Holders of the Parent Company . . . . . . .249 144. . . . . . .007 8. . . . . . . . . . . . . . .120 312. . .098 11. . . . . . . . . . . . . . . . . . .829 1. — — — Other Assets . . . . .978 7. . . . . . . Net gain on sale or exchange of assets and Miscellaneous. . . . . . . . . . 2. .533 9. . . . . . . . . . .183 15. 5. . . 12. . . . . . . . . . . 17. . . . .481 3. .150 16. 297. . . . . . . . . . . . . . . . . . . . 110.324 66. . . . . . . . . . . . . . . .564 16. . . . . .175 Due from Other Banks .835 129. . . . . .830 3. . . . . . . . . . . . . . . . . . . .499 Securities Held Under Agreements to Resell . . .016 16. . . . . 2013 (unaudited) Cash and Other Cash Items . . . .478 Deferred Tax Assets . . . . . . . . . . .063 Subordinated Debt . . . .599 Due from Bangko Sentral ng Pilipinas. . . . . . . . . . . . . .023 Available-for-Sale Investments . . . . . .913 16. .939 Income Tax Payable . . . . . .120 312. .854 Financial Liabilities at Fair Value Through Profit or Loss. . . . .007 Deposit Liabilities . . . . . . . . . . . . Occupancy and equipment-related costs.142 6. . . . . . . . 16. . . . . . . . . . .981 4. . . . . . . . . . 4. . .847 Non-Controlling Interest in a Subsidiary. . . . . . . 12. . . . . . . . . . . . . 4. . . . . Summary Consolidated Statements of Financial Position As of December 31. . . . . . credit and other losses) consist of Compensation and fringe benefits. . .717 1. . . Depreciation and amortization and Miscellaneous. .459 13. . . . . . . . .897 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .228 — — Property and Equipment(1) . . . . . . . . .424 4. . . . . . . .876 4. . . 5. . . . . . . . . .024 258. . . . . . . . . . . . . . . . . . . . . . .487 6. . . . . . . . . 12 . . . . . . . . . . . . . .568 80. . . . . . . . . . . Interest and Other Expenses . . . . . .692 17. . . . . . . . .364 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . 226. .404 5. . . . .325 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .800 18. . . . . . . 5. . . . .102 453. . . . . . . .102 Note: (1) Property and equipment consists of furniture. . . . . . . . . . . . . . . . . . . . . . . . . . . .842 Total Liabilities and Equity . . . . . . . . . .575 6. . . .100 14. . . . . .997 Loans and Receivables . . . (2) Operating expenses (excluding provision for impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .453 9. . . . . . . .286 38.018 6. . .153 37.004 8. . . . . . . . . . . . . . . 13. . . . 1. — — — Other Liabilities . . .811 34. 2010 2011 2012 (audited) (P millions) As of September 30. . . . . .457 5. . . . . .981 6. . . . . . . . . . . 15. .781 Goodwill . . 34. . . .300 18. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297. . . . . . . . . . . . . . . . . .067 331. . fixtures and equipment and leasehold improvements measured at cost and land and buildings measured at appraised value. . . . . .436 237. . . .Notes: (1) Other income consists of Trading and investment securities—net. . . . . . . . . .090 25. . . . . . . . . . . . .000 11. . .466 5. . . . . . . .200 — 22. . .504 Investment in an Associate. . . . Taxes and licenses. . . . . . . . . . . . . . . . .950 95 30. . . . . . . .922 14. .832 2.813 606. . .905 Investment Properties . . . . . . . . . 38. . . . . . . . . . . . . . . . . .480 Bills and Acceptances Payable . . . .300 Financial Assets at Fair Value Through Profit or Loss . . . . . . . . . . . . . . . . . . . .708 Held-to-Maturity Investments . . . . . . . .443 38. . . . . . . . . . . .534 240. .

. . . . . . . . . .0% 2. .7% 48. . . . 2011 and 2012: Net income divided by average total equity for the period indicated. . . . . . . as reported to the BSP. . . . . . (3) For the years ended December 31. . . . . (2) For the years ended December 31. For the nine months ended September 30. . . . . . . . .7% 11. . . . 2011 and 2012. Total Capital Adequacy Ratio(7) . . . 2013: Net interest income divided by 9 multiplied by 12 divided by average interest earning assets. . . .4% 9. . . . . .0% 3. . . . . . . . .7% 60. Receivable from Customers to Deposit Liabilities(5). the ratio was computed based on figures reported to the BSP.71 67. . . . . . . . . . . . . . . . . . . . For the nine months ended September 30. . . . . . . 2010. . .3% 94. . . . .5% 21. . . . . . . As of December 31. .0% P5. . . . .1% 12. (8) Total equity divided by total assets. . . (4) Total operating expenses (excluding provision for impairment. .4% 4. . . . . As of September 30. . . .5% 5. . . . . . . . . . (11) Total allowance for credit losses divided by total NPLs. . . . . . . . . . . . interbank loans and securities under agreements to re-sell). . . . . . . . . . . . . 2013.5% 17. . Total Capital Funds to Total Assets(8) . . . Basic/Diluted Earnings per share(12) . .6% 13. . . . . . net of NPLs.2% 53. . . . . . . . . .3% 11. . .0% 12. . .9% 55. 2010. . . . . . . NPL Ratio(9) . . . . as referred to below. . . . . . . . are determined as the sum of the beginning and ending balances of the respective statement of financial position accounts as of the end of the year divided by two. . . . . . . . . . . . . . . .7% 1. credit and other losses) divided by total operating income for the period indicated. .2% 3. . . (12) Net income attributable to equity holders of the Parent Company divided by weighted average number of common shares. ratios were computed based on the balance on the audited financial statements. . . . Efficiency Ratio(4) . 2010. . . . . . . . . 2013: Net income divided by 9 multiplied by 12 then divided by the average equity. . . Allowance for Credit Losses (Loans) to Total Receivable from Customers(10) . 13 . . . . (1) For the years ended December 31. . . . . (6) Tier 1 capital divided by total risk-weighted assets. . As of December 31. Return on Average Equity(2) . . . . . . . . . . . (9) NPLs (net of NPLs fully covered by allowance for credit losses) divided by total loans (receivable from customers. . . . . . and Receivable from customers. .7% 42. . . as reported to the BSP. .2% 78.3% 13. . . . . . (10) Total allowance for credit losses divided by total receivable from customers. .0% 58. .6% 15.Summary Financial Ratios and Earning Per Share As of and for the nine As of and for the years ended months ended December 31. . . . . . ratios were computed based on the audited financial statements.4% 1. Trading and investment securities. . .5% 2.9% 2. . .7% 12. . Notes: 1. . . . . . . .6% 60. . . . . . .8% 1. . . Interest-earning assets which mainly consist of Due from BSP and other banks. . 2011 and 2012: Net income divided by average total assets for the period indicated. . September 30. .9% 18.1% 1. . . . . . 2013: Net income divided by 9 multiplied by 12 then divided by the average assets for the period. .0% 20.4% 57. . . . . . .5% 4. . . . . (5) Receivable from customers divided by total deposit liabilities. Net Interest Margin(3) . . the ratio was computed based on figures reported to the BSP. 2010 2011 2012 2013 Return on Average Assets(1) . . . . . . . . . . . . . . . . . .1% 4. . . . . . . . . . . . . . .38 P7. . . . 2010. . . . . . . . . . .02 Average balances. . . . . . . . . . . Allowance for Credit Losses (Loans) to Total Non-Performing Loans(11) . . . . .4% 83. . . . . . . . . . . . . . . . . . .6% 14. . . . . . . . . As of September 30. . . . . . . . . . . . .4% P5. 2010. . . . . .05 P7. . . . . . . . . . . . .1% 2. .8% 19. . (7) Total capital divided by total risk-weighted assets. . . . . . . . . . . . . . . . . . 2013. . . . . . . . Tier 1 Capital Adequacy Ratio(6) . . . . . . . . .2% 3. . . . . . 2011 and 2012. . For the nine months ended September 30. . . . . . . . . . Interbank loans and Securities purchased under resale agreements. . . . .4% 15. . . . . . . . . . . . . . . 2011 and 2012: Net interest income divided by average interestearning assets.

. . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .601 (2. . . . . . . . . . . . . . Net Service Fees and Commission Income . . . . . . . . . . . . . . . Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .018 4. .668 236. . . Net gain on sale or exchange of assets and Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .833 16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .045 Note: (1) Property and equipment consists of furniture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Operating expenses (excluding provision for impairment. . . .438) 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .045 6. . . . . . . . . 8. . . . . . Operating Expenses (excluding Provision for Impairment. . . . . . . .668 80. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Liabilities at Fair Value Through Profit or Loss . . .525 85. . . . . . . . .653 81. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 . . . . . Provision for Income Tax . . . . . . . . . . Due from Bangko Sentral ng Pilipinas . . .435 13. . . . . . . . . . . . 2012 (Q millions) Interest Income . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and equipment-related costs. Deposit Liabilities . . . . . . . . . . . . . . . . . . . . .646 399 7. . . . . . . Goodwill. . . . . . . . . . . . . . . . . . .Pro Forma Condensed Consolidated Statement of Income Data For the year ended December 31. . . . . . . . Pro Forma Condensed Consolidated Statements of Financial Position As of December 31. . . . . . . . . . . . Provision for Impairment. . . . . . . . . . . . . .109 10. . . . . . . . . . . . . . . . . . . . . . . . . . Investment Properties . . . . . . . . . . . . . . . . . . . Other Income(1) . . . Subordinated Debt . . . . Available-for-Sale Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .045 381. Due from Other Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .771 10. . . . . . . . . . . . . . . . . . . . . . . 2012 (Q millions) Cash and Other Cash Items. . .891 539. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . Credit and Other Losses)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank Loans Receivable and Securities Held Under Agreements to Resell . . . . . . . . . . . . . . . . . Bills and Acceptances Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .898 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Attributable to Equity Holders of the Parent Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .734) (1. . . . . . . . Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .876 23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .695) 13. . . . . . . . . . . . . . . . . . . . . . . .743 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Assets at Fair Value Through Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit and Other Losses . . . . . . . . . . . . . . . Non-controlling Interest in a Subsidiary . . . . . . . . Foreign exchange gains (losses)—net. . . . credit and other losses) consist of Compensation and fringe benefits. . . . . . . . . . . . Non-Controlling Interest in a Subsidiary . . . . . . . . . . .657 16. . . . . . . . . . . . . . . . Loans and Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .557 5. . .358 16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . Interest and Other Expenses . . . . . . . . . . . . . . . . Deferred Tax Assets. . . . . .494 1. . . fixtures and equipment and leasehold improvements measured at cost and land and buildings measured at appraised value. . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income attributable to: Equity Holders of the Parent Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and Equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169 3. . . . . . . . .593 (6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .050 19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization and Miscellaneous. . . . . . . . . . . . . . Deferred Tax Liability . . . . . . . . . . . . . . . . . . . . . .425 539. . . .438 916 25. . Accrued Taxes. . . . . Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .271 34. . . . . .717) (18. . . . . . . . . . . . . . .045 Notes: (1) Other income consists of Trading and investment securities—net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes and licenses. . . . . . . . . . . . . . . . .

2014 February 11. . . subject to the approval of the PSE. . . . . . . . . . . Fractions of the Rights Shares will not be allotted to existing shareholders and fractional entitlements will be rounded down to the nearest whole number of Rights Shares. the unsubscribed portion of the Offer. . . . . . . . Such fractions will be aggregated and sold for the benefit of the Bank. . . . . The Joint Global Coordinators and Bookrunners shall purchase. . . . . . . . . . . . . . . . . Record Date . . . . 15 . . . . . . . . . . . . . . . . . . . . . 2014 The dates listed above may be changed at the discretion of the Bank and the Joint Global Coordinators and Bookrunners. .00 per Rights Share. . . January 10. Below are the key dates of the Offer: Price Setting Date .931. . . . . . .262 Rights Shares by way of a stock rights offering to Eligible Shareholders at the proportion of fifteen (15) Rights Share for every one hundred (100) existing Common Shares held as of the Record Date at the Offer Price of P71. . or procure subscribers to purchase. . . . . . . . . Listing Date . . . in order to ensure that the Rights Shares covered by the Offer will be fully subscribed. . Offer Period . . Ex-Date . . . . . 2014 January 13. . The Rights Shares may be subscribed by Eligible Shareholders of record of the Bank as of the Record Date. . . . . . . . 2014 to February 3. . . . . . . . . . . . . . . . . . 2014 January 27. . . . . . . . . . . . See “Plan of Distribution”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 January 16. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .THE RIGHTS OFFER The Bank is offering for subscription 162. . . . after the second round. .

. 162. . . The Bank and the Joint Global Coordinators and Bookrunners reserve the right to extend or terminate the Offer Period with the approval of the PSE. . . . . . . 2014. . . subject to a discount of 17. subject to the right of the Bank to reject an Application or reduce the number of Rights Shares applied for subscription or purchase if the same will cause the Bank to be in breach of the Philippine ownership requirement under relevant Philippine laws. . . . . . . Offer Period . . . . . . . . . Subscription to the Rights Shares in certain jurisdictions may be restricted by law. Rights Entitlement. . .00 per share. . . . . . . . . . Such fractions will be aggregated and sold for the benefit of the Bank. . . . . . . Foreign investors interested in subscribing or The Offer. . . The Bank is offering common shares for subscription to Eligible Shareholders. . . Holders of Common Shares who are eligible to participate in the Offer are: (i) holders located inside the Philippines and (ii) holders located in jurisdictions outside the Philippines and the United States where it is legal to participate in the Offer under the securities laws of such jurisdiction. . . . . . . . . . . . . . . . . . . . The Rights Shares shall rank equally in all respects with the existing Common Shares. . . . . . . . . .9%. . . . . . . . . Each eligible holder of Common Shares is entitled to subscribe to fifteen (15) Rights Share for every one hundred (100) Common Shares held as of the Record Date (the “Entitlement Shares”). . Each Application must be for a minimum of one (1) Rights Share. including listing of the Rights Shares on the PSE. . . . . . . . . . . . Fractions of the Rights Shares will not be allotted to existing shareholders and fractional entitlements will be rounded down to the nearest whole number of the Rights Shares. . . . . . . . . Offer Price . . . . . . . . The Offer Period shall commence at 9:00 am on January 27. . . . Any Rights Shares that remain unsubscribed for by the Eligible Shareholders after the second round of the Offer will be taken up by the Sole Domestic Underwriter to be offered to qualified buyers as defined under the SRC and by the Joint International Lead Managers and International Underwriters. . . . . . Eligible Shareholders . . The Common Shares of the Bank may be held by any person or entity. . . . The Rights Shares are being offered at a price of P71. including the right to receive all dividends or distributions made. The Offer Price is computed based on the 10-day volume-weighted average price (“VWAP”) of the Bank’s Common Shares on the PSE. . 2014 and end at 12:00 pm on February 3. . . . . . Minimum Subscription. . .262 Common Shares of the Bank with a par value of P40. . . . . . . The Rights Shares are being offered to eligible existing holders of record of Common Shares as of the Record Date. . . . . . . . . . . .931. . . . .00 per share.SUMMARY OF THE OFFER Issuer . . . For more information. Rights Shares . . . . . regardless of nationality. . see the section titled “Plan of Distribution” of the Prospectus. . . . . a universal banking corporation organized under the laws of the Republic of the Philippines. . . . . . . . . . 16 . Philippine National Bank. . . . . . . paid or declared after a valid subscription agreement is perfected between the Bank and a buyer as evidenced by the written acceptance by the Bank of the application to subscribe (the “Application to Subscribe” or the “Application”) of the buyer and other conditions. . . .

and as to any relevant tax or foreign exchange control laws and regulations affecting them personally. . For more information. . . If the aggregate number of Additional Rights Shares available for subscription is less than the aggregate number of Additional Rights Shares so subscribed for. 2013. foreign equity shall not exceed 40. There can be no guarantee made as to the number of Additional Rights Shares an applicant may be allocated. .25% of the Shares were held by Philippine nationals. 17 .0% owned by Philippine nationals. duly executed by an authorized signatory of the applicant and the corresponding payment for the Rights Shares covered by the Application and all other required documents. A subscription for Additional Rights Shares is irrevocable on the part of the applicant and may not be cancelled or modified by such applicant. an applicant will be allocated the number of Additional Rights Shares indicated in his Application. Foreign investors. After completion of the Offer. the available Additional Rights Shares will be allocated to applicants who have applied to subscribe for such Additional Rights Shares. . If an applicant fully subscribes to his Entitlement Shares and subject to the availability of unsubscribed Rights Shares arising from the failure of the other eligible stockholders to fully exercise their Rights Shares entitlement. . . the applicant may simultaneously apply for an additional subscription of the unsubscribed Rights Shares (the “Additional Rights Shares”). . . . . . . . . Additional Subscription . provided that no applicant for Additional Rights Shares shall be allocated more Additional Rights Shares than the number for which such applicant has applied. Restrictions on Ownership. As of September 30. see the sections titled “Description of the Securities” and “Risk Factors” of the Prospectus. . . All Applications shall be evidenced by the Application to Subscribe. . . . . . Procedure for Application . . . . The Philippine Constitution and related statutes set forth restrictions on foreign ownership of companies engaged in certain activities. . warrant that their purchase of the Rights Shares will not violate the laws of their jurisdiction and that they are allowed to acquire. . the Bank cannot allow the issuance or the transfer of its Shares which may result in the Bank ceasing to be at least 60. . both corporate and individual. Eligible Shareholders of certificated shares that are located outside the Philippines and the United States may submit an Application to Philippine National Bank-Trust Banking Group (the “Receiving Agent”) by email or fax before the end of the Offer Period. purchase and hold the Rights Shares. .0% of the Bank’s share capital. The duly executed Application and required documents should be submitted during the Offer Period to Philippine National Bank-Trust Banking Group. . Accordingly. . . approximately 70. . The Additional Rights Shares are payable in full upon submission of the Application.0% of the outstanding Shares. If the aggregate number of Additional Rights Shares available for subscription equals or exceeds the aggregate number of Additional Rights Shares so subscribed for. . . . . The Bank is subject to Philippine legislation restricting the aggregate foreign ownership to 40. .purchasing the Rights Shares should inform themselves of the applicable legal requirements under the laws and regulations of the countries of their nationality. Such allocation will be made at the discretion of the Bank primarily based on each applicant’s relative shareholding in the Bank as of the Record Date. residence or domicile.

18 . The check must be dated as of the date of submission of the Application and crossed “Payee’s Account Only”. . . The actual subscription and/or purchase of the Rights Shares shall become effective only upon the actual listing of the Rights Shares on the PSE. including his or her specimen signature. . Certificated shareholders residing outside of the Philippines and outside of the United States may submit their payment by way of remittance in favor of the Receiving Agent.. If the applicant is a corporation. when accepted.m. and certifying to the percentage of the applicant’s capital or capital stock held by Philippine nationals. The Rights Shares must be paid for in full to the designated “PNB Rights Offer” settlement account upon submission of the Application. partnership. The actual number of Rights Shares to which any applicant may be entitled is subject to the confirmation of the Bank. . . the applicant must submit a properly completed Application to Subscribe. . partnership or trust account). Manila Time on the last day of the Offer Period. . . . .If the applicant is an eligible individual shareholder. in the manner and subject to terms and conditions set forth in the Application and those described in this Prospectus. Applications received thereafter or without the required documents will be rejected. . Notwithstanding the acceptance of any Application by the Bank. . Applications must be received by the Receiving Agent or by designated branches of Philippine National Bank-Trust Banking Group not later than 12:00 p. the Application to Subscribe must be accompanied by a duly notarized corporate secretary’s certificate setting forth the resolution of the applicant’s board of directors or equivalent body authorizing the purchase of the Rights Shares indicated in the Application. If the applicant is a non-Filipino (individual shareholder or corporation. . An Application. the actual subscription and/or purchase by an applicant of the Rights Shares will become effective only upon listing of the Rights Shares on the PSE. . . Payment must be made by (a) check drawn against any BSP authorized agent bank or any branch thereof to the order of “PNB Rights Offer” (b) debit to an existing PNB account. . . and shall be subject to the terms and conditions of the Offer as stated in this Prospectus and in the Application. payment received upon submission of an Application does not constitute approval or acceptance by the Bank of the Application. Check payments for regional clearing will not be accepted. shall constitute an agreement between the applicant and the Bank for the subscription to the Rights Shares at the time. If such condition is not fulfilled on or before the periods Acceptance/Rejection of Applications. The Bank has full discretion to accept or reject all or a portion of any Application under the terms and conditions of the Offer. Moreover. . . identifying the designated signatories authorized for the purpose. . . Applications shall be considered irrevocable upon submission to the Receiving Agent. or trust account. the Application to Subscribe must be accompanied by a certification letter (in the form attached to the Application to Subscribe) representing and warranting that (i) the applicant is not a resident in the United States and (ii) the applicant’s purchase of the Rights Shares will not violate the laws of their resident jurisdiction. Applications where checks are dishonored upon first presentment and Applications which do not comply with the terms of the Offer shall be rejected. Payment Terms . . .

provided above. then the Bank shall refund. or enter into a transaction which would have the same effect (or publicly announce the entry into any such transaction). . . . . Rights Shares are required to be lodged with the Philippine Depository & Trust Corp. . Issuance and Transfer Taxes . whether any such aforementioned transaction is to be settled by delivery of the Common Shares or securities convertible or Registration of Foreign Investments . . Lock-up . . all application payments will be returned to the applicants without interest and. directly or indirectly (or publicly announce any such issuance. . a request and submission of completed documents and requirements to PNB (Makati) Trust (Stock Transfer Agent) is made within 90 calendar days from the Listing Date. (the “PDTC”). . . . The Bank has agreed with the Joint International Lead Managers and International Underwriters that. except for expenses to be incurred by PNB (Makati) Trust (Stock Transfer Agent) as the stock transfer agent. charge. via check payable to the relevant applicant. . . charge. . pledge. . . . . . . . . . or if an Application is rejected by the Bank. . Applicants may request their shares in certificated form and receive stock certificates evidencing their investment in the Rights Shares through their respective brokers after full payment and lodgment of the Rights Shares and in accordance with existing procedure. Refund checks that remain unclaimed after 30 days from the date such checks are made available for pickup shall be mailed at the Applicant’s risk to the address indicated in the Application. . . . PNB Building. . . . . . . offer. . . . . . the amount corresponding to the number of Rights Shares not issued to such applicant. All documentary stamp taxes applicable to the original issuance of the Rights Shares shall be for the sole account of the Bank. or enter into any swap. . neither the Bank nor any person acting on its behalf will. in the meantime. Applicants must provide the required information in the Application to effect the lodgment. . Such refund check shall be made available for pickup at the offices of Philippine National Bank-Trust Banking Group at 4th Floor. . sell. . within five (5) banking days from the end of the Offer Period. options or disposal of). . . . for a period of 90 days after the Listing Date. . the said application payments will be held in a separate bank account with the Receiving Agent. . . other than in connection with the issuance of Rights Shares for purposes of the Offer. offer. . Makati City. . sale. without the prior written consent of the Joint International Lead Managers and International Underwriters. issue. . hedge or other arrangement (or publicly announce the entry in any such swap. . . . pledge. . . . . The cost of the issuance of stock certificates shall be for the account of the applicant. . . . 19 . . . . . . . grant options over or otherwise dispose of. . . . . The registration with the BSP of all foreign investments in the Rights Shares shall be the responsibility of the foreign investor. . . without interest. . . . 6754 Ayala Avenue. . . Refunds . . . . any of the economic consequences of ownership of the Common Shares. Registration and Lodgment of Shares with the Philippine Depository & Trust Corp . which shall be borne by the Bank provided. . The BSP requires that investments in shares of stock funded by inward remittance of foreign currency be registered with the BSP if the foreign exchange needed to service capital repatriation or dividend remittance is to be sourced from the domestic banking system. . . In the event that the number of Rights Shares to be received by an applicant is less than the number covered by its Application. . contract to sell. . . . hedge or other arrangement) that transfers in whole or in part. . . . .

. subject to the approval of the PSE. . . . . such portion of the Rights Shares to be issued from the Bank’s increase in capital will be listed 3 trading days from submission to the PSE of evidence of approval by the PSEC of the Bank’s application for increase in capital. . . . . The timetable of the Offer is scheduled as follows: Price Setting Date Ex-Date Record Date Offer Period Listing Date January 10. . . . . Trading is expected to commence on the same date that the relevant Rights Shares are listed on the PSE. . . . . The Sole Domestic Underwriter shall purchase. . . 2014. . . The Bank’s application for the listing of a portion of the Rights Shares was approved by the PSE on December 11. . . after the mandatory second round. The Rights Shares to be issued from the Bank’s authorized but unissued capital are expected to be listed on the PSE on February 11. to ensure that the Rights Shares covered by the Offer are fully subscribed. . . including equity swaps. . . . 2014 The dates listed above are subject to market and other conditions and may be changed at the discretion of the Bank and. . . 2014 February 11. 2014 January 27. . . . 2014 January 13. 2014 to February 3. after the second round of the Offer. 2014 January 16. . . . . . . . . . and the Joint International Lead Managers and International Underwriters shall procure subscribers for or take up the remainder of the unsubscribed Rights Shares. The Bank intends to file its application for increase in capital immediately after the close of the Offer Period. See “Plan of Distribution. . . . . subject to fulfillment of certain conditions. . . the Joint Global Coordinators and Bookrunners. or procure qualified institutional buyers in the Philippines to purchase. .” 20 . . . . . . . . . .exchangeable into or exercisable for Common Shares or warrants or other rights to purchase Common Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the Common Shares. forward sales and options. Timetable . . . 2013. . . Listing and Trading. . . . . . . Underwriter’s Firm Commitment to Purchase . a portion of the unsubscribed Offer. .

Should the previous problems faced by the Bank. and continue to be. Accordingly. Each investor should consult its own counsel. leading to a consistent decline in asset quality. The occurrence of any of the events discussed below and any additional risks and uncertainties not presently known to the Bank or that are currently considered immaterial could have a material adverse effect on the Bank’s business. There is inherent risk that losses may be incurred rather than profit as a result of buying and selling securities. the Bank had a positive surplus. Investors may request publicly available information on the Rights Shares and the Bank from the PSEC and PSE. holding and trading the Rights Shares. Increased exposure to consumer debt could result in increased delinquencies in the Bank’s loan portfolio. Volatile economic conditions may adversely affect the ability of the Bank’s borrowers to finance the obligations under their indebtedness and. Investors should carefully consider all the information contained in this Prospectus. economic developments that have a significant adverse effect on Philippine consumers could result in the deterioration in the credit quality of the bank’s consumer loan portfolios. As of end of 2011. this would have a material adverse effect on the financial position and results of operations of the Bank. the Bank recorded significant deficits (negative surplus) up to 2008. The Bank has been able to improve its capital position through the Tier 1 capital-issuances in the equity market in 2007 as well as through issuances of Tier 2 capital through the debt capital market. or has not understood any aspect of the Offer or the nature of risks involved in purchasing. as defined by BSP Circular No. recur. The Bank has faced significant levels of non-performing loans and provisions for impairment losses that may affect its results of operations. including the risk factors described below. the Bank’s results of operations have been. The Asian financial crisis of 1997 and its aftermath significantly and adversely affected the Bank. financial condition and prospects and on the Rights Shares and the investors may lose all or part of their investment. materially adversely affected by the level of its NPLs. there can be no assurance that the Bank will be able to continue to fund its capital or that it will not incur deficit in the future. Past performance is not a guide to future performance and there may be a large difference between the buying and selling price of these securities. which culminated in a liquidity crisis in the third quarter of 2000 and five consecutive years of losses up to 2002. including liquidity difficulties. 2012 amounted to P3. Although the Bank has successfully been able to raise capital in the past. and may become valueless. tax. high levels of NPLs and declining levels of deposits from the public and other parties. the Bank may experience an increase in NPLs and provisions for impairment losses.RISK FACTORS An investment in the Offer described in this Prospectus involves a number of risks. business. While the Bank has successfully managed to reduce its NPLs. results of operations.8 billion and P4. 2013 as compared to P3. The Bank’s improving profitability position likewise bolstered its capital position. The Bank has expanded and intends to aggressively expand its consumer loan operations. Risks Relating to the Bank and its Business The Bank has incurred significant losses in the past and suffered a liquidity crisis in the third quarter of 2000 due to significant levels of deposit withdrawals. nor can there be any assurance that the Bank will be able to continue to record net income in the future. and any individual security may experience upward or downward movements. This section entitled “Risk Factors” does not purport to disclose all of the risks or other significant aspects of investing in the Rights Shares. in response to this crisis the Government rescued the Bank and provided emergency financial assistance to the Bank. 2012 and 21 . The Bank’s net NPLs reported to the BSP. as a result. accountant and other advisors as to legal. Such expansion increases the Bank’s vulnerability to changes in the general economic conditions affecting Philippine consumers.6 billion as of December 31. An investor should seek professional advice if he or she is uncertain of. before deciding to invest in the Rights Shares. The risk factors discussed in this section are of equal importance and are only separated into categories for easy reference. The price of the securities can and does fluctuate. financial and related aspects of an investment in the Rights Shares. As a result of the consecutive years of losses and the Bank’s increasing level of NPAs.0 billion as of September 30. 772 dated October 16.

2011. the Bank’s provision for credit losses for loans was P0.4% was volatile. and are less interest rate sensitive. the maturity profile of the Bank’s assets and liabilities may from time to time show a negative gap in the short term when the Bank’s liabilities which are composed of short-term funding sources (primarily in the form of deposits) and other liabilities are of shorter average maturity than its loans and investments. future interest payments that may be significantly higher may cause the loan to again become non-performing if the borrower is unable to make such larger payments in the later periods. 75. The Bank’s restructured loans may become non-performing.2% of total deposit liabilities were considered core while 32. As of December 31.0% of total deposit liabilities were considered core while 32. Core deposits are deposits (both Current and Term Deposits) that are expected to remain with the bank for a relatively long period of time usually beyond one year. The Bank can provide no assurance as to the availability or terms of such funding. 67. The relatively low interest payments improve the likelihood that a restructured loan will be categorized as performing during the period of such payments.1%. the Bank’s business could be adversely affected. These deposits usually have a predictable cost of funding. which may expose the Bank to significant losses. the Bank’s net NPL Ratio was 1. 2013. additional capital and having a material adverse effect on the Bank’s financial position.8% were volatile. respectively. 68. Although these deposits have historically been a stable source of funding for the Bank. 2012.8 billion. On the other hand. the Bank’s financial condition and results of operations may be adversely affected. 2012 and the nine months ended September 30. imply a degree of customer loyalty. 2013 and the year ended December 31. 2012. restructured loans remained at P2. the Bank had P3. In the restructuring of a number of loans. However.55 billion. In order to fund its NPLs. Clients under this classification usually shop around for highest rates offered.6% of the Bank’s funding were considered core while 32. to the difficulties and delays involved in enforcing such obligations in the Philippine legal system. 2013. its liquidity position could be adversely affected and the Bank may be unable to fund its loan portfolio and may be required to seek alternative sources of funding. thereby resulting in a funding mismatch and creating a potential risk for liquidity squeeze. The Bank may be unable to recover the value of any collateral or enforce any guarantee due. of restructured loans in its loan portfolio.8% of the Bank’s gross interest income for both periods. respectively. On the other hand. 2011. in part. 2013.3% and 0.6 billion. The Bank may be unable to recover the appraised value of its collateral when its borrowers default on their obligations. thereby requiring additional provisions. The Bank’s net NPL ratio computed as net NPLs divided by total loans (receivable from customers.4 billion and P2. interbank loans and securities under agreements to re-sell) was 2. 2011. no assurance can be given that this will continue to be the case. a larger number of restructured loans may become non-performing. the Bank relies on funding from its deposit base and other sources. volatile deposits are those deposits (usually have a fixed term below one year) which are interest rate sensitive hence they are treated as an unstable source of funding. For the nine months ended September 30. As of September 30. representing 4. Average net NPL ratios for universal and commercial banks in the Philippines were 0. As of September 30.5% as of the years ended December 31. 2013. The Bank’s funding is primarily short-term and if depositors do not roll over deposited funds upon maturity. the Bank has agreed with borrowers to set interest payments at a relatively low level for a certain time-frame followed by much larger payments of interest in later periods. To the extent the Bank is unable to obtain sufficient funding on acceptable terms or at all. savings and demand deposits.8% were volatile. Accordingly. As of September 30.2% of total deposit liabilities were considered as core while 24.0% were volatile. 2010. as of December 31. There can be no assurance that the Bank will be able to continue to reduce its NPL levels to within industry standards. In the event the Bank is unable to attract or retain sufficient deposits or if a substantial number of the Bank’s depositors do not roll over deposited funds upon maturity. primarily in the form of time. In order to foreclose 22 .1 billion.65 billion and P0. respectively. 2011 and 2012. which represented 6. respectively. 2012. If a significant number of the Bank’s customers are unable to pay larger interest payments on their respective restructured loans. As of December 31.4% as of December 31. the Bank’s provision for credit losses was P0. 67. A significant portion of the Bank’s funding needs is satisfied from short-term sources. liquidity and results of operations. As of December 31.2% of the Bank’s gross interest income for the same period. For the year ended December 31. Such deposits are attracted by the convenience and service rather than from interest rates paid.

The Bank is effectively controlled by one shareholder group. In 2001. If the loan becomes non-performing and the value of the property has significantly decreased as compared to its value as of the date when the loan was disbursed. Shareholders associated with or who issue proxies/special powers of attorney in favor of Director Lucio C. A substantial portion of the Bank’s secured loans is secured by real estate. As of September 30. 23 . the Bank did not incur any penalty in this period because the BSP considered the Bank to be under rehabilitation. the value of the collateral may decline over time. or any value. the Bank to legal liability while in possession of the collateral. the Bank’s loan loss provisions may be inadequate and require an increase in such provisions.7% and its Tier 1 capital adequacy ratio was 14. As of September 30. banks in the Philippines are required to follow certain procedures specified by Philippine law. while the latter held direct ownership over 1. These difficulties may significantly reduce the Bank’s ability to realize the value of its collateral and therefore the effectiveness of taking security for the loans it makes. Despite its failure to meet these minimum requirements. it may incur further expenses to maintain such properties. There can be no assurance that the Bank will be able to realize the full value. The value of the Bank’s collateral may decline in the future. accounts for its foreclosed properties in accordance with PFRS. While the Bank aims to maintain a two-percentage point buffer versus prudential requirements. 2012. the Bank undertook a capital restructuring in 2001 and 2002. 2013. the Bank’s total capital adequacy ratio of 8. in particular. Tan from time to time held a total of approximately 31. Tier 1 capital adequacy ratio under the Basel II standards improved to 17. its Tier 1 capital adequacy ratio. there can be no assurance that the Bank will be able to maintain its capital at levels prescribed by BSP in the future. primarily due to the additional capital acquired as a result of the merger with Allied Bank as well as the net income generated in the nine months ended September 30. particularly where the collateral is in the form of inventory or receivables. the capital adequacy ratio under Basel II on a consolidated basis was 19.1% (as reported to the BSP).51% of the Bank’s shares through various subsidiaries. The lower total capital adequacy ratio was due to the reversal of SPV losses against surplus and full provisioning of SPV Notes. Any increase in the Bank’s provisions would adversely affect its capital adequacy ratio. As of December 31.4% and the Tier 1 capital adequacy ratio was 12. The resulting delays may last several years and lead to deterioration in the physical condition and market value of the collateral. and may continue to expose. 2010. 2013. with which it has extensive business connections.11% of the Bank’s shares were owned by other stockholders.8% (as reported to the BSP). While the Bank’s collateral may have sufficient value to support the outstanding loans at the time the loans were disbursed by the Bank. at each statement of financial position date.3% (as reported to the BSP). There can be no assurance that the companies and persons affiliated/associated with the LTG or any of the shareholders of the Bank will not exercise its control and influence the Bank for their benefit. In order to improve its capital position and. The Bank carries the value of the foreclosed properties at the lower of the appraised value and the loan balance plus accrued interest at the time of such foreclosures. 2013.0% while total capital adequacy ratio was 20. such collateral may not be insured. Further failure by the Bank to maintain its capital adequacy ratios may result in administrative actions or sanctions against the Bank which may have a material adverse effect on the Bank’s financial condition and results of operations. These factors have exposed.collateral or enforce a guarantee.2% fell below the minimum BSP requirement of 10. As of December 31. As with other banks in the Philippines. The Bank has suffered from inadequate levels of capital.19% of the Bank’s shares. In realizing cash value for such properties. and results of operations. These procedures are subject to administrative and bankruptcy law requirements. the Bank’s total capital adequacy ratio under Basel II on a consolidated basis was 21.9% and total capital adequacy ratio on a consolidated basis at 18. The remaining 22. its financial condition. In addition.0%. Both these ratios have decreased as of December 31. with Tier 1 capital adequacy ratio at 11. LTG held indirect ownership over 45. While the Bank. 2011. the Bank is subject to capital adequacy guidelines which require it to maintain a minimum ratio of capital to risk-adjusted assets of 10.19% of the Bank’s shares.5% (as reported to the BSP). of any collateral on its loans. the Bank may incur further expenses such as legal fees and taxes associated with such realization.0% on both consolidated and non-consolidated basis.

In addition. comprise one of the country’s largest conglomerates with interests in banking and other financial services.2 billion. only 1. revenues and profits depends principally on its ability to achieve growth in profitable lending given that interest income from loans and receivables have contributed an average of 32. The Bank conducts all transactions with its related parties on an arm’s length basis and believes that these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks. Furthermore. the Bank may incur further expenses such as legal fees and taxes associated with such realization. There can be no assurance that the Bank will be able to realize the full value. education. The Bank’s ROPA is subject to the risks associated with the cyclical Philippine real estate market. the Bank was able to expand its loans and receivables. The Bank has experienced slow growth in its loan portfolio because of the Bank’s focus on managing its NPLs in the past. experienced an increase in net carrying value.7 billion. The Bank may be unable to engage in profitable lending and may.7 billion to P258. there can be no assurance that the Bank will be able to recover the full estimated value of ROPA stated in its financial statements.5 billion and P18.6% of total recurring income during the three years ended December 31. chemicals. as of December 31. However. as a result. there can be no assurance that deterioration in the financial condition of the Tan Companies or negative publicity regarding the Tan Companies will not adversely affect the Bank’s financial condition and business opportunities. food. real estate development and tourism. The significant growth in loans and receivables as of September 30. it may take several years before the Bank is able to realize a significant part of the value of its ROPA. the Bank’s ROPA amounted to P14. net of allowance for credit losses.0 billion in receivable from customers was extended to Tan Companies. margins or profits. experience limited or negative future growth. In realizing cash value for such properties. 2013.3% of the Bank’s P243. there can be no assurance that the Bank will be able to achieve its intended return on such investments. constituting 43. The Bank has a substantial portfolio of ROPA. However. or even partial value. depreciated over such property’s useful life. Delays in realizing the value of its ROPA may result in further provisions as the ROPA loses value over time. A slowdown in the economy’s growth or intensified competition can curtail the growth of the Bank’s loan portfolio and eventually its revenues. it may incur further expenses to maintain such properties. there can be no assurance that the interests of the Tan Companies will necessarily coincide with the interests of the Holders. 24 .The Tan Companies. 2012 and September 30. respectively. As of September 30. and provisions with respect to. among others. There can be no assurance that the Bank will be able to compete effectively against such competing banks. 2012. While the amount of ROPA appearing on the Bank’s statement of financial position is shown net of allowance for impairment losses and depreciation in value. given the Bank’s significant amount of ROPA. While the Bank. distillery. 2013. 2013 as compared to previous periods was due primarily to the merger of PNB with Allied Banking Corporation (“Allied Bank” or “ABC”). 2012 and September 30. of its ROPA. beverages. The Bank’s ability to increase its margins. provides for impairment losses on its foreclosed properties in accordance with PFRS. at each statement of financial position date. A substantial portfolio of real and other properties acquired (“ROPA”) exposes the Bank to risks related to realizing the value of its ROPA and risks related to the valuation of. 2013. from P144. in the case of depreciable property. the Bank intends to be a significant player across all product groups and services. Under Philippine Accounting Standards 40 Investment Property. It is likely to encounter significant competition from other banks which have bigger balance sheet and capitalization as well as from those protecting their market shares in the same products and services being introduced. of which LTG is a part. Due to the continued low interest rate environment and stable economic growth in 2012. respectively. This could inhibit the Bank’s future growth and adversely affect its financial condition and results of operations.6% of total assets. net of allowance for credit losses. PNB carries the value of the foreclosed properties at the fair value at the time of foreclosure and. The Bank may not successfully introduce new products and services. Even if the Bank was able to promote existing products or introduce new products and services successfully.7% and 42. its ROPA. the Bank’s loans and receivables. aviation. and as of December 31. As part of its strategy.

and reforms have been implemented which are intended to provide tighter control and more transparency in the Philippine banking sector. the Bank has to comply with the increasingly stringent anti-money laundering rules and regulations in the United States.2% of the Bank’s total operating income for the year ended December 31.S. an increase in interest rates or downgrade of the credit ratings of some of the fixed income securities invested may have a substantial impact on the value of the Bank’s investments in fixed income securities. noted a “high-level political commitment” from local authorities to address noted deficiencies in its anti-money laundering regime. However. must establish a compliance program that includes policies and procedures to detect and report suspicious transactions to the government as well as ensure compliance with the new laws. financial services firms. an amendment to the Anti-Money Laundering Act became effective on March 23. Inc. 2011. The regulatory and legal framework governing the Bank may continue to change as the Philippine economy and commercial and financial markets evolve. 2006 and which was updated to take account of Basel III principles is BSP Circular 709. the Philippines is on the “grey list. The Bank is under the direct supervision principally by. Financial services firms are required to verify the identity of the clients with whom they do business. 4. existing rules and regulations have been modified. PDIC. During the height of the 2008 U. while the Philippines enacted the Anti-Money Laundering Act of 2001 (the “Anti-Money Laundering Act”) to introduce more stringent anti-money laundering regulations. s. 2012. the Bank carried substantial mark-to-market losses on its bond portfolio due to the sell-off in the global fixed income markets. determine the source of funds in a client’s account and obtain information about a client’s wealth. Furthermore. Fortunately.” as the FATF. 10168 enacted on June 18.S. Currently. and the Bureau of Internal Revenue (the “BIR”) as well as foreign regulators and international bodies including the Financial Action Task Force (the “FATF”). Republic Act No. The Bank adopted the Basel principles in managing risk which is implemented in the banking industry under BSP Circular No. AMLC. these regulations did not initially comply with the standards set by the FATF. Trading and investment securities gains accounted for 25. subprime crisis. the BSP. as well as stock market fluctuations. The BSP issued regulations on the capital assessments of banks in the Philippines versus the bank’s risk profile along with capital planning strategies. s. regulations also impose requirements regarding client information and verification of that information. For the nine months ended September 30. the market recovered by the end of the year. 2003. There are requirements to implement specialized employee training programs. In recent years. There can be no assurance that the Bank will be able to continue posting trading gains. The Bank’s income from trading activities is subject to substantial volatility based on. new rules and regulations have been enacted. 2013 and 29. This web-based anti-money laundering solution was developed and marketed by Gifts Software. which would negatively affect the Bank’s results of operations. and where Philippine financial assets were not spared from a consequence of the financial crisis. PSE. foreign currency exchange rates and debt prices.9% of the Bank’s gross income was derived from its remittance services.9% of the Bank’s total operating income for the nine month period ended September 30. including the Bank. The Bank implemented an electronic anti-money laundering solution called the GIFTSWEB Enhanced Due Diligence (“EDD”) in 2005 which has undergone two major systems enhancements in 2007 and recently in 2010. As a substantial portion of the Bank’s remittance business is from the United States. For example. designate a special compliance officer and conduct independent audits of the effectiveness of the compliance program. 2012 expanded the AMLA to include the crime of financing terrorism. corporate. On February 11. 538. The Bank may have to comply with stricter regulations and guidelines issued by regulatory authorities in the Philippines including the BSP. changes in interest rates. PSEC. the Philippines was taken off the FATF’s list of “non-cooperative countries and territories”.The Bank may incur significant losses from its trading and investment activities due to market fluctuations and volatility. The Bank is also subject to the banking. taxation and other laws in effect in the Philippines. Almost all. 2013. in news reports. Philippine banks suffered from the same fate. These rules include new guidelines on the monitoring and reporting of suspected money laundering activities as well as regulations governing the capital adequacy of banks in the Philippines. following pressure from the FATF. The U. if not all. and has reporting obligations to. 2005. Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”) and other regulations. Gains generated by the Bank’s treasury operations through the trading of securities and bonds issued by the Republic of the Philippines constitute an important portion of the Bank’s income. based in 25 . among other things.

Because the Bank is unable to generate sufficient exposure to the agrarian reform based sector that meet its credit and risk management standards. There can be no assurance that the Government will not increase its penalties for non-compliance or force banks to lend in accordance with the policy in the future. The Bank and its subsidiaries and overseas branches. It is currently used in PNB New York Branch. the Bank’s banking and other business licenses. PNB Hong Kong Branch. malfunction. PNB Singapore and PNB Europe PLC. In addition. or other limits on. including vulnerability to damage or interruption by human error. The failure by employees of the Bank to comply with required internal policies and controls contributed to this and other incidents of fraud. PNB Tokyo Branch. The Government has imposed an agrarian reform and agriculture lending policy requiring Philippine banks to extend certain loan amounts to agrarian beneficiaries and the agricultural sectors of the country. The system facilitates the preparation of Currency Transactions Reports and Suspicious Activity Reports. financial condition and results of operations could be adversely affected. the potential for fraud and security problems arising from the exploitation of technological weaknesses will also increase. PNB Los Angeles Branch. There is no assurance that the anti-money laundering solution implemented by the Bank will always perform at 100. Failure on the part of any member of the Bank and its subsidiaries to prevent future fraudulent actions may result in administrative or other regulatory sanctions by the BSP or other Government agencies and may also result in the suspension of. delay or other difficulties experienced by any of these information and technology systems could result in delays. 26 . the Bank has in place contingency programs to address events that may cause disruptions and has developed home grown systems to generate critical reports to ensure regulatory compliance. As of September 30. The Bank and its subsidiaries and overseas branches.0% accuracy and efficiency. AMLA. Any disruption. 2013. If the Government substantially increases the penalty for non-compliance or the Bank is forced to extend loans to the agrarian reform and agricultural sectors that are inconsistent with the Bank’s credit and risk management policies.0 billion. outage. disruptions. its business. Know Your Customer-EDD. natural disasters. Furthermore. the Bank has paid fines in the past and may continue to do so in the future. Increased enforcement by the Government related to priority lending for the agrarian reform and agricultural sectors could adversely affect the Bank’s business. However. By its nature. computer viruses or the interruption or loss of support services from third parties. The Bank’s Manila Head Office implemented the system in early August 2006. The software solution provides the analytical tools needed to proactively detect and monitor possible suspicious transaction activity. rules.New York. losses or errors that may affect the performance of the anti-money laundering solution put in place by the Bank. USA and fulfills the strict and complex regulatory requirements for the detection. representative offices and remittance centers have experienced incidents of fraud. and US Patriot Act laws. the Bank created the Global Compliance Unit primarily to provide AML transaction monitoring services for PNB New York and eventually to the other foreign branches and offices of the Bank by 2011. the Bank has invested in upgrading the GIFTSWEB servers in line with the strategic direction of centralizing the administration of the GIFTSWEB systems in Manila towards a standardized approach in the implementation of the Bank’s AML policy guidelines. Office of Foreign Assets Control. Although the Bank and its subsidiaries are closely monitoring strict adherence to their internal control procedures. representative offices and remittance centers have experienced incidents of employees engaging in fraudulent activities such as misappropriation of cash and fraudulently transferring or withdrawing customer funds. power loss. PNB RCI headquarters in Angeles. the requirement applicable to the Bank was P27. The Bank’s and its subsidiaries’ internal control systems rely heavily on the implementation of and compliance with the same by the employees. it is subject to same risks relating to other information and technology systems and processes. financial condition and results of operations. sabotage. and regulations. this may also result in a loss of confidence of current and potential deposit customers. misconduct. respond to regulatory subpoenas and create a database for case management reports. Furthermore. monitoring and reporting of suspected money laundering activities by financial institutions. Failure to meet the specified level of loans may result in fines being assessed against a non-compliant bank. GIFTSWEB EDD has been found to adequately address Bank Secrecy Account. as the Bank continues to further automate and computerize its various internal processes and expand its internet banking operations. there can be no assurance that these efforts will prevent future fraudulent actions. In 2010.

on April 26. 2013. delay or other difficulties experienced by any of these information and technology systems could result in delays. the Bank filed certain applications with the BIR for rulings confirming the tax treatment of their merger as “tax-free merger” under the Philippine tax law and regulations. damage and failures. the PSEC approved the merger and the corresponding amendments to the Bank’s Articles of Incorporation reclassifying PNB’s authorized preferred shares into common shares and increasing the number of directors from eleven to fifteen. outage. the Bank submitted to the BSP and Philippine Deposit Insurance Corporation (“PDIC”) an application for PDIC’s consent to the merger. There can be no assurance that the merger will have the desired effect.The Bank’s failure to manage risks associated with its information and technology systems could adversely affect its business. 2012. 2013. 2013 were transferred to the Bank as the surviving entity. and on August 2. On July 25. sabotage. designed to minimize the risk of security breaches and maintains operational procedures to prevent break-ins. Pursuant to the merger of the Bank and Allied Bank. and the merger was then completed on that date. effective February 9. On April 12. Computer break-ins and security breaches could affect the security of information stored in and transmitted through these computer systems and network infrastructure. 2013 as the effective date of the merger. financial condition and results of operations. which could have an adverse effect on the Bank’s financial position and results of operations. malfunction. the Bank received notice that the PDIC had given its consent to the merger. The hardware and software used by the Bank in its information technology is vulnerable to damage or interruption by human error. On January 22. 2012. These may. representing at least two-thirds of the outstanding capital stock of both banks. disruptions. the Board of Directors had a special meeting to approve February 9. Failure in security measures could have a material adverse effect on the Bank’s business. financial condition and results of operations. 2012. 2013. On January 17. The Bank also seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by the Bank’s increased use of the internet. all the assets and liabilities of Allied Bank as of February 8. the application for the merger was filed with the PSEC. all of the issued and outstanding common stock of Allied Bank were converted into fully paid and nonassessable common stock of the Bank according to the ratio provided under the plan of merger. the ruling request is still pending with the BIR. 2008. natural disasters. On March 26. In relation to these transactions. Any disruption. The Bank employs security systems. 2012. As of September 30. The Bank may be subject to tax liabilities in relation to its merger with Allied Bank. 2013. there can be no assurance that such contemplated synergies and efficiencies will be fully realized and that the integration will be implemented with minimal disruption of operations. The Bank is subject to risks relating to its information and technology systems and processes. the Monetary Board of the BSP issued a resolution also giving its consent to the merger. 2012. adversely affect the Bank’s business. power loss. approved the amended terms of the Plan of Merger of the two banks. The recent merger between the Bank and Allied Bank may not result in the expected synergies. misconduct. The original Plan of Merger was approved by the affirmative vote of the Bank’s and Allied Bank’s respective shareholders on June 24. While the Bank expects the merger to result in significant synergies and efficiencies through the integration of operations and economies of scale in the coming years. In exchange. losses or errors that may result in loss of income and decreased consumer confidence in the Bank. The potential for fraud and security problems is likely to persist and there can be no assurance that these security measures will be adequate or successful. computer viruses or the interruption or loss of support services from third parties such as internet service providers. The costs of maintaining such security measures may also increase substantially. ATM operators and telephone companies. representing at least two-thirds of the outstanding capital stock of both banks. the respective shareholders of the Bank and Allied Bank. On March 6. in turn. including firewalls and password encryption. 2013. 27 . Approvals of the relevant foreign regulatory agencies of the overseas branches of the Bank and Allied Bank were secured prior to PSEC approval.

in recent years. implicated in lawsuits on an ongoing basis. • domestic banks entering into strategic alliances with foreign banks with significant financial and management resources. The Bank is and may in the future be. The Philippine banking sector may face another downturn. there can be no assurance that the requested tax rulings will be issued by the BIR in the near future. in some instances. and could have an adverse effect on the Bank’s business reputation. competitors that have greater financial and other capital resources. results of operations and financial position. Although the Bank believes that it is adequately prepared to pay any potential tax assessments. due to. Thus. including liberalization of foreign ownership regulations. There were a total of 36 domestic and foreign universal and commercial banks operating in the Philippines as of September 30. or outside the coverage. of such insurance. reputation or standing in the market place or that the Bank will be able to recover any losses incurred from third parties. However. there can be no assurance that the BIR will not issue tax assessments on the Bank in connection with the merger. or that any such losses would not have a material adverse effect on the results of the Bank’s business. including. The banking industry in the Philippines is a mature market that has. This new policy has resulted in the delayed issuance of BIR rulings. greater financial resources and stronger balance sheets than the Bank. 2013 according to the BSP. the transfer of assets of Allied Bank (comprising. real property and shares of stock) to the Bank as a result of the merger could be subject to the payment of applicable taxes. which could materially and adversely affect the Bank’s business.61% in 28 . which could have an effect on its growth plans. There can be no assurance that the Bank will be able to compete effectively in the face of such increased competition. The Bank is subject to significant levels of competition from many other Philippine banks and branches of international banks. The Philippine banking sector has recovered from the global economic crisis as evidenced by the steady decrease in average net NPL ratios (including interbank loans) in the Philippine banking system from 3. there can be no assurance that (i) losses relating to litigation will not be incurred beyond the limits. which could result in financial losses or harm its business. The Bank is involved in litigation. • foreign banks. the Bank may face increased competition from financial institutions offering a wider range of commercial banking services and products than the Bank and having larger lending limits. ability to pass on increased costs of funding. In the event that no such tax ruling is issued. There can be no assurance that the results of such legal proceedings will not materially harm the Bank’s business. margins. any tax assessments in the aggregate could amount to substantial amounts. or (ii) provisions made for litigation related losses will be sufficient to cover the Bank’s ultimate loss or expenditure. greater market share and greater brand name recognition than the Bank. financial condition and results of operations. driven in part by the gradual removal of foreign ownership restrictions. In the future. the Bank and/or subject the Bank to significant liabilities to third parties. While the Bank and its counsel believe that the merger with Allied Bank is fully compliant with the requirements for tax-free status under the law and existing regulations. been subject to consolidation and liberalization. which could materially and adversely affect the Bank. Increased competition may make it difficult for the Bank to increase the size of its loan portfolio and deposit bases and may cause increased pricing competition. regardless of whether the Bank is at fault. and a diversion of effort by. relaxed standards permitting large foreign banks to expand their branch network through acquiring domestic banks. among other things. Increased competition may arise from: • other large Philippine banking and financial institutions with significant presence in Metro Manila and large country-wide branch networks. Litigation could result in substantial costs to. the BIR allowed the delegation of the authority to rule on this type of application to BIR’s Assistant Commissioner. Risks Relating to the Philippine Banking Industry The Bank’s principal businesses are in the highly competitive Philippine banking industry and increases in competition may result in declining margins in the Bank’s principal businesses. financial condition or results of operation. or at all. and • continued consolidation in the banking sector involving domestic and foreign banks.Previously. But the new BIR administration that took over in 2010 has adopted a policy that this type of application must be signed off by the BIR Commissioner. among others.

781 as the Basel III Implementing Guidelines on Minimum Capital Requirements. among other things. in January 2013. officers. The Bank may have to comply with strict regulations and guidelines issued by banking regulatory authorities in the Philippines. allowing the BSP to adopt regulatory deductions in Basel III. the Philippine banking industry may face significant financial and operating challenges. The Bank is also subject to the banking. all records of transactions are required to be maintained and stored for a minimum of ten years from the date of a transaction.000 per violation. In 2011. taxation and other regulations and laws in effect in the Philippines. In recent years. Further. corporate. including substantial increases in NPLs. including the BSP. These rules include new guidelines on the monitoring and reporting of suspected money laundering activities as well as regulations governing the capital adequacy of banks in the Philippines. In addition. significant compression in bank margins. which aligns with the Basel Committee on Banking Supervision on the eligibility criteria on Additional Group Concern Capital and Tier 2 Capital to determine eligibility of capital instruments to be issued by Philippine banks/quasi-banks as Hybrid Tier 1 Capital and Lower Tier 2 Capital. warning or reprimand upon any covered person. (ii) covers more precise assessments and quantification of certain risks (i. • adopting eligibility criteria for each capital category that is not yet included in Circular 709. its directors. The monetary penalties are in amounts as may be determined by the AMLC. taking into consideration all relevant circumstances. The Bank may experience difficulties due to the implementation of Basel III in the Philippines. highlights of which include: • adopting a new categorization of the capital base. 538. or for failure to comply with AMLC orders. and the Bank in particular. • keeping minimum CAR at 10%. The Bank’s banking interests are regulated and supervised principally by. administered by agencies such as the Bureau of Internal Revenue of the Philippines (the “BIR”) and the Anti-Money Laundering Council (“AMLC”). the AMLC may impose sanctions. malicious reporting and breach of confidentiality. or general economic conditions in the Philippines.2010 to 0. among other offences. including increased liquidity levels in the Philippine market. 639 covering the Internal Capital Adequacy Assessment Process (“ICAAP”) which supplements the BSP’s risk-based capital adequacy framework under BSP Circular No. 2009. credit concentration risk).e. the BSP issued BSP Circular 709. the BIR and international bodies. See “Banking Regulation and Supervision. and 29 . but not exceeding P500. lower levels of interest rates as well as lower levels of NPLs. 2013. and have reporting obligations to. a sharp increase in the level of NPLs. liquidity risk. These challenges may include. the BSP issued Circular No.5%. On January 15. and (iii) evaluates the quality of capital. As part of the administrative sanctions.” Institutions that are subject to the AMLA are required to establish and record the identities of their clients based on official documents. and prescribing: • a minimum Common Equity Tier 1 (CET 1) ratio of 6. resolutions or issuances. variations of asset and credit quality. The BSP requires banks to have in place an ICAAP that (i) takes into account not just the credit. Fresh disruptions in the Philippine financial sector. failure to keep records. existing rules and regulations have been modified. There are penalties for. the BSP. • a minimum Tier 1 ratio of 7. market and operational risks but also all other material risks to which a bank is exposed (such as interest rate risk in the banking book. strategic/ business risk and reputation risk). its implementing rules and regulations. which shall take effect on January 2014. to experience similar problems to those faced in the past.42% as of August 31. new rules and regulations have been enacted and reforms have been implemented which are intended to provide tighter control and added transparency in the Philippine banking sector.0%. liquidity problems and other challenges. including the FATF. • as applicable. as well as international bodies such as the Financial Action Task Force (“FATF”). may cause the Philippine banking sector in general. monetary penalties. Records of closed accounts must also be kept for five years after their closure. The Bank’s failure to comply with current or future regulations and guidelines issued by regulatory authorities in the Philippines could have a material adverse effect on the Bank’s business. problems meeting capital adequacy requirements. financial condition and results of operations. compliance risk. employees and other persons for violation of the AMLA. The Bank has realized some benefits from this recovery. However. low loan growth and potential or actual under-capitalization of the banking system. the BSP issued Circular No.

2014.5%. and therefore any downturn in general economic conditions in the Philippines could have a material adverse impact on the Bank.7% on a non-consolidated basis. higher than those of borrowers in more developed countries due to the greater uncertainty associated with the Philippine regulatory. financial condition or results of operations could be adversely affected. 2013. the Bank’s CAR as reported to the BSP was 20. the large foreign debt of the Government and corporate sectors relative to the gross domestic product of the Philippines. As of March 31. In addition. In addition. any incremental increase in the capital requirement due to the implementation of ICAAP and Basel III. 2016. The Bank’s ability to assess. There can also be no assurance that the Bank will be able to raise adequate additional capital in the future at all or on terms favorable to it. 2013. If the Bank is forced to sell all or a portion of certain subsidiaries or associates. The local banking industry faces higher credit risks and greater market volatility than that of other developed markets. is limited by the quality and timeliness of available data in the Philippines in relation to factors such as the credit history of proposed borrowers and the loan exposure borrowers have with other financial institutions. the universal and commercial banking industry’s CAR was 18. to more potential losses and higher risks than banks in more developed countries. liquidity. and the greater volatility of interest rates and Peso/U. may impact the Bank’s ability to grow its business and may even require the Bank to withdraw from or to curtail some of its current business operations. The effectiveness of the Bank’s risk management. in many instances. 2010 that do not meet eligibility criteria for capital instruments under the revised capital framework. political. market risk. Philippine banks may not be able to enforce the security interest they may have. 30 . These may result in an increase in the capital adequacy requirement applicable to the Bank. higher credit risk generally increases the cost of capital for Philippine banks compared to their international counterparts. dollar exchange rates. according to the BSP. that upon such failure to pay. financial condition and results of operations. Philippine banks are subject to the credit risk that borrowers may not make timely payments of principal and interest on loans and. financial condition and results of operations. its business.5% as of December 31. In addition. foreign exchange risk and operational risk. and • by January 1. monitor and manage risks inherent in its business is limited by the quality and timeliness of available data. rendering ineligible existing capital instruments as of December 31. As of September 30. There can be no assurance that the Bank will be able to meet the requirements of Basel III as implemented by the BSP. Higher credit risk has a material adverse effect on the quality of loan portfolios and exposes Philippine banks.3%. the limitations or restrictions imposed by the BSP’s implementation of Basel III could materially and adversely affect the Bank’s business. Risks Relating to the Philippines Substantially all of the Bank’s operations and assets are concentrated in the Philippines. the implementation of Basel III may require the Bank to divest itself of certain nonallied undertakings. According to data published by the BSP. which could materially and adversely affect the Bank’s business. Limitations in the Bank’s risk management systems may result in the Bank granting loans or taking positions that expose the Bank to significant credit risks or otherwise result in the Bank being over exposed to interest rate.9% on a consolidated basis and 17. in particular its credit risk management. Unless the Bank is able to access the necessary amount of additional capital. in particular.S. rendering ineligible regulatory capital instruments issued under Circulars No. including the Bank. including credit risk. The Bank is exposed to a variety of risks.3% and 0. 2013. 709 and 716 before the revised capital framework became effective. average net NPL ratios (including interbank loans) in the Philippine banking system were 0. Such losses and higher capital costs arising from this higher credit risk could materially and adversely affect the Bank’s business. • by January 1. financial condition and results of operations. 2012 and September 30. respectively. legal and economic environment. foreign exchange rate and other risks. The credit risk of Philippine borrowers is.• a capital conservation buffer of 2.

31 . Voters shall elect political parties. 2013. a Transition Commission and a Bangsamoro Transition Authority will be created to draft the Bangsamoro Basic Law and to recommend amendments to the Philippine Constitution. including members of the Mangudadatu family (the Ampatuans’ political rivals in the province). Bangsamoro. President Gloria Macapagal-Arroyo. the Government and the MILF signed a wealth-sharing agreement that provides guidance for drafting relevant provisions of a law expanding Muslim autonomy in the new Bangsamoro region. President Arroyo was re-elected and persistent accusations of corruption and electoral fraud were made against Arroyo during her second term. respectively. due to allegations of corruption. On August 24. 2011. in Malacanang Palace in Manila. signed a preliminary peace agreement. Senator Antonio Trillanes IV. Notwithstanding this. designed to implement structural reform while upholding national sovereignty through the creation of an autonomous political entity. This was the bloodiest incident of political violence and of violence directed at journalists in the Philippines’ recent history and President Arroyo sent hundreds of troops to and declared martial law over Maguindanao after the incident. one of the claimants to the throne of the Sultanate of Sulu. 2003. the Office of the Philippine President has issued statements to the media that the relationship between the Philippines and Malaysia remains unchanged and should remain unaffected by the conflict. led an armed occupation by military officers and soldiers of a luxury hotel in the Makati financial district and publicly called for President Arroyo’s ouster. President Aquino appointed the Philippines’ first female Chief Justice in the person of Associate Justice Maria Lourdes Sereño. an archipelago in the southern region of the Philippines. and to bridge the period between the plebiscite and the elections planned for the new Bangsamoro region in 2016. and the winning parties shall. and motorists whose vehicles were behind the Mangudadatus’ vehicles. On February 24. The Transition Authority is tasked to prepare for the transformation of the region into the Bangsamoro. in turn. it also claimed that election-related violence had declined compared to previous years. With a ministerial form of government. 2006. allegations of corruption against former President Joseph Estrada resulted in protracted televised impeachment proceedings against him. if necessary. The Philippines has from time to time experienced severe political and social instability. Malaysian security forces surrounded the village where the group are gathered.Political instability in the Philippines could destabilize the country and may have a negative effect on the Bank. On November 29. Chief Justice of the Supreme Court of the Philippines. 2013. On May 29. The impeachment complaint accused Corona of improperly issuing decisions that favored former President Arroyo. a verdict was given by the Senate of the Philippines acting as an impeachment court. The militants were reportedly sent by Jamalul Kiram III. over 270 military officers and soldiers conducted an unsuccessful coup d’état against Estrada’s successor. a leader of the 2003 coup d’état who was elected to the Senate while in jail. 2013. journalists and aides accompanying them. Sabah from Simunul Island. 2012. These proceedings were followed by widespread street demonstrations and a public withdrawal of support for Estrada by the military that eventually forced Estrada to resign. the Philippine House of Representatives initiated impeachment proceedings against Renato Corona. the Government and the Moro Islamic Liberation Front (“MILF”). Philippines. On November 23. In 2001. declared the group a terrorist group and commenced military operations. TawiTawi. in the southern island of Mindanao’s Maguindanao province. Kiram forces in Lahad Datu. elect the head of the Bangsamoro region. some 235 militants arrived by boat in Lahad Datu. killed eight members of the Malaysian forces in an ambush on August 11. On December 12. 2012. On July 27. finding the former Chief Justice guilty of impeachable acts. In October 2012. including deaths. 2012. In response. in violation of rules applicable to all public employees and officials. According to reports from the National Disaster Risk Reduction Management Council. On July 14. which was criticized as a virtual declaration of martial law and portions of it were later declared unconstitutional by the Supreme Court of the Philippines. reportedly 1. In February 2013. National and local elections as well as elections for the regional officials of the Autonomous Region of Muslim Mindanao were held on May 13.600 strong. the Framework Agreement on the Bangsamoro. approximately 100 armed men allegedly affiliated with the Ampatuan political family murdered 58 persons. lawyers. 2007. Under the agreement.000 Filipinos have fled Sabah since the start of this conflict. some 5. After the May 2004 elections. the MILF and other political forces will be able to participate in elections through political parties. including acts of political violence. 2009. as well as failure to disclose certain properties. The trial of Chief Justice Corona was conducted from January 2012 until May 28. another attempted coup d’état led President Arroyo to issue Proclamation 1017. Senator Trillanes and his troops later surrendered. At least 36 Filipinos are on trial or have been sentenced to life imprisonment for acts related to the conflict. While the Government acknowledged 90 violent incidents related to the elections. in order to settle and assert the unresolved territorial claim of the Philippines to eastern Sabah.

in turn. • levels of employment. In recent years. which has ties to the al. and adversely affect the country’s economy. and in turn could materially and adversely affect the Bank’s business. An increase in the frequency. financial condition or results of operations. • natural disasters. the Southeast Asian region or globally.There is no guarantee that future events will not cause political instability in the Philippines. Although no one has claimed responsibility for these attacks. Most of the Bank’s business activities and assets are based in the Philippines. political instability. severity or geographic reach of these terrorist acts could destabilize the Philippines. On October 19. Demand for banking services is directly related to the strength of the Philippine economy (including its overall growth and income levels). including the Bank’s ability to grow its asset portfolio. 32 . typhoons. Metro Manila. floods and similar events. 2011. and • other regulatory. the quality of the Bank’s assets and its ability to implement the Bank’s business strategy. killing five persons. fires. Any future deterioration in economic conditions in the Philippines due to these or other factors could materially and adversely affect the Bank’s borrowers and contractual counterparties. • Government budget deficits. Moreover. earthquakes. manufacturing or financial activities in the Philippines. Acts of terrorism could destabilize the country and could have a material adverse effect on the Bank’s business. Such instability may disrupt the country and its economy. Historically. • inflation or increase in interest rates. financial condition and results of operations. • foreign exchange controls. a bomb was detonated on a bus in the northern city of Makati. the Bank has derived a substantial portion of its operating income and operating profits from the Philippines and. 2011. social. 2011. consumer confidence and income. Factors that may adversely affect the Philippine economy include: • decreases in business. The Government of the Philippines and the Armed Forces of the Philippines (“AFP”) have clashed with members of several separatist groups seeking greater autonomy. including the performance of the Philippine economy. the Philippine army has also been in conflict with the Abu Sayyaf organization. the overall levels of business activity in the Philippines as well as the amount of remittances received from Overseas Filipino Workers (“OFWs”) and overseas Filipinos. which exposes the Bank to risks associated with the country. avian influenza (commonly known as bird flu). resulting in lower demand for products and services provided by companies in the Philippines. • scarcity of credit or other financing. it is highly dependent on the state of the Philippine economy. Therefore. terrorism or military conflict in the Philippines. On December 16. • changes in the Government’s fiscal policies. isolated bombings have taken place in the Philippines in recent years. including the MILF and the New People’s Army. • foreign exchange rate fluctuations. it is believed that the attacks are the work of various separatist groups. On January 25. or H1N1. other countries in the region or globally. This. possibly including the Abu Sayyaf organization. could materially and adversely affect the Bank’s financial position and results of operations. industrial. financial position and results of operations. political or economic developments in or affecting the Philippines. as such. changes in the conditions of the Philippine economy could materially and adversely affect the Bank’s business. and has been identified as being responsible for certain kidnapping incidents and other terrorist activities particularly in the southern part of the Philippines. The Philippines has been subject to a number of terrorist attacks since 2000. five AFP soldiers were killed in a clash with New People’s Army members. or the emergence of another similar disease in the Philippines or in other countries in Southeast Asia. • a re-emergence of SARS. 19 AFP troops were killed in a fire fight with MILF members in the southern Philippines. the Southeast Asian region or globally. including but not limited to tsunamis. mainly in cities in that part of the country.Qaeda terrorist network.

respectively. Nevertheless. and leading to. fraud. it may be difficult for investors to effect service of process upon such persons. and the performance of. of Philippine companies. Investors may face difficulties enforcing judgments against the Bank. could cause interruption to parts of the Bank’s businesses and materially and adversely affect the Bank’s financial conditions. which resulted in the deaths of eight tourists. As a result. though it is not party to any international treaty relating to the recognition or enforcement of foreign judgments. or to enforce against them judgments obtained in courts or arbitral tribunals outside the Philippines predicated upon the laws of jurisdictions other than the Philippines. or (iv) the rendering of the judgment entailed collusion. the ability of the Government and Philippine companies. including the Bank. in turn. which could destabilize parts of the country and adversely affect the country’s economy. results of operations and prospects. The sovereign credit ratings of the Philippines may adversely affect the Bank’s business. manageable inflation. including the Bank. The most recent round of peace negotiations took place in November 2012. The Philippines is party to the United Nations Convention on the Enforcement and Recognition of Arbitral Awards. at least 12 people were killed in a Government clash with the Bangsamoro Islamic Freedom Fighters. (iii) the party against whom enforcement is sought did not receive notice. (ii) the judgment is contrary to the laws. but no final settlement has been reached.In July 2013. customs or public order of the Philippines.with a stable outlook. substantially all of the directors and officers of the Bank are residents of the Philippines. public policy. In particular. stable inflation and improved fiscal discipline. Under BSP regulations. Historically. Restrictions exist on the sale and purchase of foreign exchange within the Philippine banking system. therefore. Any terrorist attack or violent acts arising from. in March 2013 and May 2013. The Bank’s current insurance policies do not cover terrorist attacks. The sovereign ratings of the Government may directly affect companies resident in the Philippines. These continued conflicts between the Government and separatist groups could lead to further injuries or deaths by civilians and members of the military. unless there is evidence that: (i) the foreign court rendering judgment did not have jurisdiction. There have also been a number of violent crimes in the Philippines. No assurance can be given that international credit rating agencies will not downgrade the credit ratings of the Government in the future and. It may be difficult for investors to enforce judgments against the Bank which are obtained outside of the Philippines. Terrorist attacks have. and all or a substantial portion of the assets of such persons are located in the Philippines. through the institution of an independent action. These conflicts in the Philippines have been the subject of numerous peace talks and negotiations. a foreign investment must be registered with the BSP if foreign exchange needed to service the 33 . the Philippine economy and. In addition. downgrades may occur in the future. instability and unrest. the Philippine Rules of Civil Procedure provide that a judgment or final order of a foreign court is. had a material adverse effect on investment and confidence in. the Philippines’ sovereign debt has been rated relatively low by international credit rating agencies. resilient remittances. economic growth. or a clear mistake of law or fact. including the August 2010 incident involving the hijacking of a tour bus carrying 25 Hong Kong tourists in Manila. in the past. based on factors such as a healthy foreign exchange buffer. Although the Philippines’ long-term foreign currency-denominated debt was recently upgraded by Fitch and Standard & Poor’s to the investment-grade rating of BBB. to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. Philippine residents may freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and purchased outside the Philippine banking system. as a general rule. There can be no assurance that the Philippines will not be subject to further acts of terrorism and violence in the future. Overseas shareholders may be subject to restrictions on repatriation of Pesos received with respect to the Common Shares. as international credit rating agencies issue credit ratings by reference to that of the sovereign. and Moody’s upgraded its credit rating of the Philippines to the investment-grade rating of Baa3 in October 2013. the Bank’s business. Any of such downgrades could have an adverse impact on the liquidity in the Philippine financial markets. enforceable in the Philippines as a general matter.

” which requires entities to reclassify HTM securities to AFS securities in the event that any instrument booked under the HTM category is sold. Currently. to require licensing of foreign exchange transactions or to require delivery of foreign exchange to BSP or its designee. The Government has from time to time made public pronouncements of a policy not to impose restrictions on foreign exchange. In July 2013. the BSP approved the guidelines on the early adoption by banks and other BSP-supervised financial institutions of PFRS 9 Financial Instruments under Circular No. Corporate governance and disclosure standards in the Philippines may differ from those in other countries. The Bank is not aware of any pending proposals by the Government relating to such restrictions. While a principal objective of Philippine securities laws and the PSE rules is to promote full and fair disclosure of material corporate information. respectively. the newly approved guidelines also provide for certain prudential requirements. Any future changes in PFRS may affect the financial reporting of the Bank’s business. Phases 2 and 3 of the project deal with accounting for the impairment of financial assets and hedge accounting. PFRS continues to evolve as standards and interpretations promulgated subsequent to December 31. Any restrictions imposed in the future pursuant to such statutory authority could adversely affect the ability of the Bank to source foreign currency to comply with its foreign currencydenominated obligations and adversely affect the ability of investors to repatriate foreign currency upon sale of the Common Shares or dividends or distributions relating to them. Phase 2 will deal with measurements of financial assets classified as amortized cost. Previously. which deals with the classification and measurement of financial assets and financial liabilities. For example. three of the Bank’s directors are independent directors. The Bank does not currently apply hedge accounting. The Monetary Board of the BSP. There can be no assurance as to the implementation of new accounting standards in the Philippines and the significance of the impact it may have on the future financial statements of the Bank’s businesses. 2015 and entities have been permitted to adopt early regulations since May 6. Phase 1 of IFRS 9. PFRS 9 is the local adoption of International Financial Reporting Standards (“IFRS”) 9 Financial Instruments. PFRS 9 eliminates the “Held-to-Maturity” (“HTM”) category. Many other jurisdictions require significantly more independent directors. together with the “tainting rule. In 2011. 708 s. there may be less publicly available information about Philippine public companies than is regularly made available by public companies in certain other countries. was adopted in the Philippines by the Financial Reporting Standards Council as PFRS 9. pending the finalization of the impairment and classification and measurement requirements. PSEC and PSE requirements with respect to corporate governance standards may differ from those applicable in certain other jurisdictions. It also requires enhanced disclosures to help the users of financial statements better understand the risks and the likely cash flows from the financial assets. See “Philippine Foreign Exchange and Foreign Ownership Controls”. which is the first phase of the three-phase improvement project by the International Accounting Standards Board (“IASB”) to ultimately replace International Accounting Standards (“IAS”) 39 Financial Instruments: Recognition and Measurement. In addition to the required compliance with the provisions of PFRS 9 by banks and other BSP-supervised entities. the SRC requires publicly listed companies to have at least two independent directors or such number of independent directors as is equal to 20% of its board of directors. such as approval by the entities’ board of directors or equivalent governing body of the early adoption and submission by early adopters of the prescribed additional reportorial requirements.repatriation of capital and the remittance of dividends. 34 . whichever is lower. 2010. Among others. Phase 3 will propose significant hedge accounting requirements in IAS 39. and left it open. It requires entities to classify and subsequently measure financial assets at either amortized cost or fair value on the basis of both (a) the entities’ business model for managing the financial assets and (b) the contractual cash flow characteristics of the financial assets. This may require recognition of credit loss expectations which may be significantly different from current accounting requirements under IAS 39. PFRS 9 aims to improve and simplify the classification and measurement of financial instruments. 2011. 2012 come into effect. has statutory authority during a foreign exchange crisis or in times of national emergency to suspend temporarily or restrict sales of foreign exchange. profits and earnings which accrue thereon is sourced from the Philippine banking system. instituted restrictions on the conversion of Pesos into foreign currency and the use of foreign exchange received by Philippine residents to pay foreign currency-denominated obligations. The Government has. with the approval of the President of the Philippines. PFRS 9 also eliminates the requirement to bifurcate embedded derivatives from financial assets host contracts. it would have become mandatory beginning January 1. On the other hand. in the past. the IASB tentatively decided to defer the mandatory effective date of IFRS 9.

volcanic eruptions and earthquakes.Natural or other catastrophes. where the trustee is a Philippine national and at least 60. there are losses for which the Bank cannot obtain insurance at a reasonable cost or at all.0% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits. which are not within the Bank’s control. These factors. The Bank has prepared the Projections solely for the purpose of complying with requirements of the PSE. Risks Relating to the Rights Shares The Bank’s shares are subject to Philippine foreign ownership limitations. make public projections as to future financial or operational results due to the inherent unreliability of such projections. Sendong in 2011. The Philippines has experienced a number of major natural catastrophes over the years. Any material uninsured loss could materially and adversely affect the Bank’s business. In addition. Habagat and Pablo in 2012 and Yolanda in 2013. 2013. The forecasts contained in the Projections are subject to significant business. 7042. During typhoons Ondoy and Pepeng in 2009. 256. None of the Bank’s auditors. the Bank could lose all or a portion of the capital invested in such business. and none of them will examine. the Bank has prepared projected financial statements (the “Projections”).0% of the fund will accrue to the benefit of Philippine Nationals. as a matter of course. including typhoons. The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals. droughts. all of which are difficult or impossible to predict and many of which are beyond the Bank’s control. should an uninsured loss or a loss in excess of insured limits occur. as amended. as clarified by BSP Circular No. the Projections. In accordance with PSE requirements for companies conducting rights issues. means a citizen of the Philippines. financing and other business decisions in ways which could cause the Bank’s actual financial results to materially vary from those set out in the Projections. Risks Relating to the Projections Investors should not rely on the Bank’s projected financial statements. may materially disrupt the Bank’s operations and result in losses not covered by its insurance. The term “Philippine National” as defined under Republic Act (R. However. the aggregate voting stock in a domestic bank held by foreign individuals and non-bank 35 . financial condition and results of operations to vary significantly from the Projections and therefore the Bank cannot provide any assurance that the Projections will accurately reflect its future results. There can be no assurance that since the date of the Projections. could potentially have significant effects on the Bank’s branches and operations. macroeconomic and other business conditions. None of the Bank or any of its advisers accepts any responsibility for the information contained in the Projections.) No. financial position and results of operations. and accordingly they have not provided any form of opinion or assurance with respect thereto. any change. There can be no assurance that the occurrence of such natural catastrophes will not materially disrupt the Bank’s operations.A. macroeconomic and competitive uncertainties and contingencies. No. the Bank owns private land in the Philippines. of types. several of the Bank’s branches were temporarily closed as the surrounding areas were flooded. contingencies and other factors that could cause its future performance. As of the date of this Prospectus. in amounts and with deductibles that the Bank believes are in line with general industry practices in the Philippines. Depending upon operating. investors should not rely on the Projections when making a decision to invest in the Rights Shares. event or circumstance that has arisen which may cause the actual financial and operational results of the Bank to differ significantly from the Projections. as well as the anticipated future turnover. and will not be. All information and assumptions used in the preparation of the Projections are as of September 30. There can be no assurance that the Projections and the assumptions used in preparing them are reasonable or that they can or will be achieved. including severe weather conditions. independent experts or any other outside party have examined. the Bank carries business interruption insurance. The Bank does not. there has not been. while remaining liable for any costs or other financial obligations related to the business. the Bank may adapt or vary its operating.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. As a result. The Bank’s business involves a significant number of risks. development. or a corporation organized abroad and registered to do business in the Philippines under the Philippine Corporation Code of which 100. uncertainties. Under the General Banking Law (R.A. While the Bank carries insurance for certain catastrophic events. The Bank has no obligation to update the Projections even in the event of material changes to the Bank’s operational and financial outlook or to the assumptions used in the Projections. 8791) (the “General Banking Law”). a domestic partnership or association wholly owned by citizens of the Philippines or a corporation organized under the laws of the Philippines of which at least 60. Monsoon rains may have similar effects.

• changes in general conditions in the Philippines and international economy. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to the operating performance of these companies. acquisitions. • the Bank’s dividend policy.S. financings. The percentage of foreign-owned voting stock in a bank shall be determined by the citizenship of the individual stockholders in that bank. or that the Offer Price will correspond to the price at which the Common Shares will trade in the Philippine public market subsequent to the Offer. any active trading market for the Common Shares will develop or be sustained after the Offer. • the public’s reaction to the Bank’s press releases.0% of the outstanding voting stock of such bank. • asset impairments or other charges. The Common Shares are listed on the PSE. • changes in financial estimates or recommendations by research analysts. • developments related to significant claims or proceedings against the Bank.0% of the voting stock. dispositions. Although the aggregate ceiling on the equity ownership in a domestic bank does not apply to Filipinos and domestic non-bank corporations. • significant contracts.0% of its issued and outstanding capital stock.S. Since the aggregate foreign ownership in the Bank is limited to a maximum of 40. • additions or departures of key personnel. The Philippine securities markets are substantially smaller. their individual ownership is limited to only up to 40. The relative volatility and illiquidity of the Philippine securities market may substantially limit investors’ ability to sell the Rights Shares at a suitable price or at a time they desire. irrespective of the place of incorporation. joint marketing relationships. Factors that could affect the price of the Bank’s Common Shares include the following: • fluctuations in the Bank’s results of operations and cash flows or those of other companies in the Bank’s industry. less liquid. and are not as highly regulated or supervised as some of these other markets are. including changes in regulatory requirements and changes in political conditions in the Philippines. The Offer Price could differ significantly from the price at which the Common Shares will trade subsequent to completion of the Offer. 36 . Dollar value of the proceeds that a holder receives upon a sale of such shares or in respect of any cash dividends paid on such shares. There can be no assurance that even after the Rights Shares have been approved for listing on the PSE. There is no assurance that investors may sell the Rights Shares at prices or at times deemed appropriate. joint ventures or capital commitments by the Bank or its competitors.corporations must not exceed 40. and more volatile relative to major securities markets in the United States and other jurisdictions. If there are any cash dividends on such Common Shares.S. Fluctuations in the exchange rate between the Peso and the U. In recent years. including the PSE. and • future sales of the Bank’s equity or equity-linked securities. these dividends will be paid in Pesos. Fluctuations in the exchange rate between the Peso and the U. where securities are quoted and traded in Pesos. financial markets or the industries in which the Bank operates. among other things. This restriction may adversely affect the liquidity and market price of the Common Shares to the extent international investors are not permitted to purchase Common Shares in normal secondary transactions. the Bank cannot allow the issuance or the transfer of its Common Shares to persons other than Philippine Nationals and cannot record transfers in its books if such issuance or transfer would result in the Bank ceasing to be a Philippine National for purposes of complying with the restrictions under the General Banking Law. have experienced extreme price and volume fluctuations. • changes in the amount of indebtedness the Bank has outstanding. These broad market fluctuations may adversely affect the market prices of the Bank’s Common Shares. Dollar may have an adverse effect on the value of the Common Shares. announcements and filings with the PSEC and PSE. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation. the U. stock markets. Dollar may affect.

including the Philippines. the recent economic crisis in the United States and Europe triggered market volatility in other countries’ securities markets. as well as investors’ responses to those conditions. The Bank’s management will have broad discretion over the use and investment of the net proceeds of this offering. to varying degrees. influenced by economic and market conditions in other countries. The Bank plans to use the net proceeds of this offering as described under “Use of Proceeds”. Although economic conditions are different in each country. investors’ reactions to adverse developments in one country may affect the market price of securities of companies in other countries. including the Philippines. and may use them in ways that may not enhance the Bank’s operating results or the price of the Bank’s Common Shares. Accordingly. The Bank’s management has broad discretion to determine how to use the proceeds received from this Offer. For example. 37 . In the past. therefore. and market price of. and accordingly investors in this offering will need to rely upon the judgment of the Bank’s management with respect to the use of proceeds with only limited information concerning management’s specific intentions. the Rights Shares. adverse developments in the global economy could lead to a reduction in the demand for.Developments in other markets and countries may adversely affect the Philippine economy and. the market price of the Common Shares. especially other countries in Southeast Asia. the Philippine economy and the securities of Philippine companies have been.

. . as the case may be. . . . . . . .833. . .286. . . . . . . .917.486. . 2015 in accordance with BSP Circular No. . . .800. . . . . . . . . . .568. . . . . . .813 P 1. . . . . . taking into consideration the prevailing business climate and the interests of the Bank and the shareholders taken as a whole. . and to support the Bank’s asset growth in 2014 and in subsequent years. . . . . . . . . . . . . .811. . . . . . . . Estimated Net Proceeds . . . . . . . . .602 P 240. . .327. . . . . . . . . . . . commissions and expenses related to the Offer of approximately P241 million. Estimated Offer Expenses . . . . . . a fully owned subsidiary of the Bank. . . . . . . . . . . . . . . . . . . . . . . . Breakdown of Proceeds to the Bank: Amount Gross Proceeds . . the Bank will secure the approval of its Board of Directors for such deviation. . . In the event that there is any change in the Bank’s use of proceeds. . . . . . .119. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . does not have any loan obligations with the Joint International Lead Managers and International Underwriters and the Sole Domestic Underwriter. . . . .119. . . . . . . . . . . . . . . . . . . . . . . . adjustment or reallocation in the planned use of proceeds. . . . . . . . . . Estimated Costs of Printing and Publication . . 38 . . . . . . .000 P240. . . . . . . . The balance will be applied to further strengthen the capital ratios of the Bank under the Basel III standards which are to become effective January 1. . . . . . . . . . . . . . . . . . . . . . . . . PSE Listing and Processing Fees. . . . . the actual net proceeds to the Bank from the Offer may be higher or lower than the expected net proceeds set forth above. . . . underwriting fees. . . . . . The Bank. . . net proceeds to the Bank from the Offer are expected to be approximately P11. The foregoing discussion represents a best estimate of the use of the net proceeds of the Offer based on the Bank’s current plans and anticipated expenditures. . 781. . to mitigate the reduction in the CAR of the Bank once certain of the Bank’s Tier 2 capital instruments become ineligible as capital by December 31. . . .327. . . . . . . . . . . . . the Bank may temporarily reallocate the proceeds for other interim purposes. . . . . . . . . . . . . . The proceeds of the Offer will be used primarily (approximately P10 billion) to build and refocus the Bank’s consumer lending business through capital infusions into Allied Savings Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Breakdown of Offer Expenses of the Bank: P11. . . . . . . . . . . Estimated Legal and Other Professional Fees. . . . . . . . . . . . . . . . . . . .400. . . . . . . . . . . . . . . .568. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . with the first tranche of infusion to take place in around the first quarter of 2014 and the second tranche to take place at around the third or fourth quarter of 2014. . Any increase or decrease in the net proceeds to the Bank shall be addressed by making a corresponding increase or decrease. . . . Estimated Offer Expenses . . . .029 P11. . . . . . . . . . .602 assuming an Offer Price of P71. . . . . . . .573. . . . . . . . . . . .833. . . . Underwriting and Selling Fees. . . . In the event of any deviation. .USE OF PROCEEDS The Bank expects to raise gross proceeds from the Offer of approximately P11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .029 In the event that the actual expenses relating to the Offer are different from the above estimates. Actual use of the net proceeds may vary from the foregoing discussion and management may find it necessary or advisable to use portions of the net proceeds of the Offer for other purposes. . . . . . . . . . . .573 Amount PSEC Filing and Listing Fees . . . . . . . . . . . . . . . . . . . . . through the Online Disclosure System (“PSE Edge”). . . . .418. . . . to the Bank’s provision for working capital requirements.017 P 16. . . .000 P 52. . . . P 75. 2014. . . . . . . as of the date of this Prospectus. any disbursements from the proceeds generated from the Offer. . . . . .00 per Offer Share. . . . . . . . . . .200 P 89. . . . . . After deducting estimated applicable taxes. . . . . . . . Estimated Stock Transfer and Receiving Agent Fees . . . . . . . . . . . The Bank shall regularly disclose to the PSE. .286. .000 P 4. . . . . . . . . . . . . . adjustment or reallocation and promptly make the appropriate disclosures to the PSEC and the PSE.

867. All of the Domestic Rights Shares are or shall be lodged with the PDTC and shall be issued in scripless form. and PNB Capital has agreed to procure the consent of the relevant Eligible Shareholders. which shall be sourced from the increase in authorized capital stock of the Bank. the Domestic Underwriting Agreement is conditional.583 of the Rights Shares. LTG has consented. business or properties of the Bank taken as a whole whether or not arising in the ordinary course of business.477.427 of the Rights Shares.477. on the Rights Shares being listed on or before February 11. which. Existing shareholdings in certificated and scripless form will be treated as separate shareholdings for the purpose of calculating entitlements under the Offer. shall set the Record Date which shall not be less than 15 trading days from approval of the PSE Board of Directors.010 of any Rights Shares that remain unsubscribed in the Offer (“Domestic Offer Shares”). or such later date as the Sole Domestic Underwriter may agree. The termination of the Domestic Underwriting Agreement at any stage of the Offer shall render the PSE’s approval as null and void and may lead to PSE’s declaration of failure of the Offer. occur on or before the Rights Shares are listed on the PSE such as the occurrence of any development or event. shall purchase the unsubscribed Rights Shares as set out below. through the Sole Domestic Underwriter. Under the PSE’s Revised Listing Rules. Credit Suisse and Deutsche Bank have agreed to assist the Bank in soliciting interest from existing shareholders of the Bank (excluding existing shareholders in the United States) in the purchase of the Rights Shares.345. LTG. by way of a domestic offer to qualified buyers in the Philippines (the “Domestic Offer”). will be taken up by the Sole Domestic Underwriter and the Joint International Lead Managers and International Underwriters who shall procure purchasers. to the delayed delivery of their subscribed Rights Shares pending the approval by the PSEC of the Bank’s application for an increase in its authorized capital stock. including force majeure. 39 .83% of the Bank’s shareholdings. 2014. such Rights Shares. which currently indirectly owns 59. after the second round. Fractions of Rights Shares will not be allotted to existing shareholders and fractional entitlements will be rounded down to the nearest whole number of Rights Shares. PNB Capital and Investment Corporation. results of operations. As soon as its application for increase in authorized capital stock has been approved. The Offer shall be in the proportion of fifteen (15) Rights Share for every one hundred (100) Common Shares held as of the Record Date at an Offer Price of P71. is reasonably expected to result in a material adverse condition (financial or otherwise). individually or in the aggregate. while PNB Capital has agreed to procure Eligible Shareholders to subscribe to: (i) up to 32.00 per Rights Share. 2014 (the “Domestic Underwriting Agreement”) is subject certain conditions and may be subject to termination by the Sole Domestic Underwriter if certain circumstances. subject to the approval of the PSE.427 Rights Shares not subscribed by LTG. the Bank’s Rights Shares to be issued from such increase in authorized capital stock will be listed with the PSE. Investors may maintain the Domestic Rights Shares in scripless form or opt to have the stock certificates issued to them by requesting an upliftment of the relevant Domestic Rights Shares from the PDTC’s electronic system after the Domestic Rights Shares are listed on the PSE. The Bank has agreed to indemnify the Sole Domestic Underwriter against certain liabilities. The Bank intends to source up to 32.586.PLAN OF DISTRIBUTION The Rights Offer The Rights Shares shall be offered on a pro-rata basis to existing holders of Common Shares of the Bank as of the Record Date of January 16. 2014. has agreed to subscribe to 97. To the extent that any Rights Shares remain unsubscribed in the Offer. subject to certain conditions. and (ii) any such portion of the 97. Likewise. The unexercised Rights Shares shall be offered to those shareholders who had previously exercised their rights and had signified their intention to subscribe to any unsubscribed Rights Shares via payment of the total Offer Price of the Rights Shares they wish to subscribe in excess of their entitlements. the Bank. inter alia. or failing which. after the second round.252 shares of the Rights Shares from its existing authorized but unissued capital stock. while the remaining Rights Shares will be sourced from an increase in authorized capital stock of the Bank. The Additional Rights Shares to which an applicant is entitled to subscribe shall be in the proportion to the number of Common Shares held by such applicant as of the Record Date to the total number of Common Shares held by all applicants to Additional Rights Shares as of the Record Date. The underwriting agreement entered into between the Bank and the Sole Domestic Underwriter dated January 10. as provided in the Domestic Underwriting Agreement. will offer up to 130. The Domestic Offer The Bank. which the Bank will apply for immediately after the conclusion of the Offer.

Lock-up The Bank has agreed with the Joint International Lead Managers and International Underwriters that. the Joint International Lead Managers and International Underwriters are committed to purchase or procure purchasers for all of the International Offer Shares to be offered in the International Offer. charge. grant options over or otherwise dispose of. However. offer.The International Offer The Joint International Lead Managers and International Underwriters will offer up to 32.1(k) (offer or sale to fewer than 20 non-qualified persons during any 12-month period) of the SRC and (b) in compliance with applicable filing. hedge or other arrangement) that transfers in whole or in part. sell. contract to sell. Investors who acquire beneficial ownership over at least 5% of the outstanding capital stock of the Bank must disclose such acquisition to the PSEC and the PSE (through the Bank) on SEC Form 18-A within 5 business days from such acquisition. or enter into any swap. occur on or before the Rights Shares are listed on the PSE. or enter into a transaction which would have the same effect (or publicly announce the entry into any such transaction). including force majeure. sale. offer. for a period of 90 days after the Listing Date. and their subsidiaries and affiliates in the past and may do so from time to time in the future and may be paid fees in connection with such services from time to time.1(l) (offer or sale to “qualified buyers”) or Section 10. hedge or other arrangement (or publicly announce the entry in any such swap. including in connection with the Offer. The termination of the International Underwriting Agreement at any stage of the Offer shall render the PSE’s approval as null and void and may lead to the PSE’s declaration of failure of the Offer. outside of the Philippines and outside of the United States in reliance on Regulation S under the United States Securities Act of 1933. Under the terms and conditions of the International Underwriting Agreement. The underwriting agreement entered into between the Bank and the Joint International Lead Managers and International Underwriters (the “International Underwriting Agreement”) is subject to certain conditions and may be subject to termination by the Joint International Lead Managers and International Underwriters if certain circumstances. directly or indirectly (or publicly announce any such issuance. Investors may maintain the International Offer Shares in scripless form or opt to have the stock certificates issued to them by requesting an upliftment of the relevant International Offer Shares from the PDTC’s electronic system after the International Offer Shares are listed on the PSE.586. as amended (the “International Offer”).252 Rights Shares that remain unsubscribed in the Offer (“International Offer Shares”). options or disposal of). issue. without the prior written consent of the Joint International Lead Managers and International Underwriters. neither the Bank nor any person acting on its behalf will. Selling Restrictions No Rights Shares shall be offered or sold to any person within the Philippines. 40 . including equity swaps. charge. The Joint International Lead Managers and International Underwriters and their affiliates have engaged in transactions with and performed various investment banking. other than in connection with the issuance of Rights Shares for purposes of the Offer. all services provided by the Joint International Lead Managers and International Underwriters. by way of an international offer. forward sales and options. commercial banking and other services for the Bank. whether any such aforementioned transaction is to be settled by delivery of the Common Shares or securities convertible or exchangeable into or exercisable for Common Shares or warrants or other rights to purchase Common Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the Common Shares. All of the International Offer Shares are or shall be lodged with the PDTC and shall be issued in scripless form. any of the economic consequences of ownership of the Common Shares. Investors who acquire beneficial ownership over at least 10% of the outstanding capital stock of the Bank must disclose such acquisition to the PSEC and the PSE (through the Bank) on SEC Form 23-A within 10 days from such acquisition. have been provided as an independent contractor and not as a fiduciary to the Bank. after the second round. disclosure and other requirements under the SRC and the rules and regulations issued by the PSEC to implement the SRC. except (a) under an exemption from the registration requirements of the SRC either under Section 10. pledge. pledge.

DIVIDEND POLICY Dividends are declared and paid out of the earned surplus or net profits of the Bank as often and at such intervals as the Board of Directors may determine and in accordance with the provisions of law and the regulations of the BSP. There are no specific requirements relating to the Bank’s dividend policy. Dividends to be paid in cash by the Bank are subject to approval by a majority of the Board of Directors and no further approval from the Bank’s shareholders is required. Dividends to be paid in the form of stock requires both the approval of a majority of the Board of Directors and the approval of shareholders representing not less than two-thirds of the Bank’s outstanding capital stock. Save as disclosed in this Prospectus, there are no known restrictions to the Bank’s ability to pay dividends on the Shares. The Bank’s dividend policy is an integral component of its capital management policy and process rather than a stand-alone process. Its fundamental and overriding policy is sustainability. These are referenced against the Bank’s capital management adequacy process. Pursuant to existing PSEC rules, cash dividends declared by the Bank must have a record date that is neither less than 10 nor more than 30 days from the date the cash dividends are declared. In case no record date is specified, the same is deemed to be fixed at 15 days from such declaration. However, companies that are obliged to pay dividends may have a single declaration for several cash dividends within a year, subject to the condition that their record and payment dates are also explicitly provided. With respect to stock dividends, the record date is to be neither less than 10 nor more than 30 days from the date of shareholders’ approval, provided, however, that the set record date is not to be less than 10 trading days from receipt by the PSE of the notice of declaration of stock dividend. In relation to banks, however, the record date can only be fixed after receipt of the BSP’s approval for the dividend declaration. In the event that a stock dividend is declared in connection with an increase in authorized capital stock, the corresponding record date is to be fixed by the PSEC. The payment of dividends in the future will depend on the Bank’s earnings, cash flow, financial condition and other factors. Dividends may be declared only from unrestricted retained earnings and subject to approval from the BSP, and to the extent that the same comprises stock dividends, the PSEC. Appraisal increment amounting to P7.7 billion and translation adjustment of P1.3 billion applied to deficit through a quasireorganization in 2002 and 2000 are not available for dividend declaration. Circumstances which could restrict the payment of cash dividends include, but are not limited to, when the Bank undertakes major projects and developments requiring substantial cash expenditures. The Board of Directors may, at any time, modify the Bank’s dividend payout ratio depending on the results of operations and future projects and plans of the Bank. As of September 30, 2013, the Bank had retained earnings of P14.1 billion, a significant amount of which is available for the payment of dividends subject to restrictions as mentioned above. The table below sets out the earnings per Share of the Bank for the periods indicated:
Earnings per Share

For the year ended December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the year ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the year ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the nine months ended September 30, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P5.38 7.05 7.02 5.71

The Bank has not declared any cash or stock dividends on its common equity for the years ended December 31, 2010, 2011 and 2012 and for the nine months ended September 30, 2013. In relation to foreign shareholders, dividends payable may not be remitted using foreign exchange sourced from the Philippine banking system unless the investment was first registered with the BSP. See “Philippine Taxation”.

41

DETERMINATION OF OFFER PRICE The Rights Shares are being offered at a price of P71.00 per share. The Offer Price was determined based on the 10-day VWAP of the Bank’s Common Shares on the PSE, subject to a discount of 17.9%.

42

DILUTION After the completion of the Offer, the Eligible Shareholders will not, as a consequence of their exercise of their rights to purchase their proportionate Rights Shares, suffer any dilution in their respective shareholdings in the Bank. The net book value of the Bank as of September 30, 2013 was P74.29 per share. Net book value represents the amount of the Bank’s total assets less its (i) total liabilities, (ii) cumulative translation adjustments, and (iii) non-controlling interest on a consolidated basis. Upon receipt of the estimated P11,327,286,573 net proceeds of the Offer and the issuance of a total of 162,931,262 new Common Shares pursuant to the Offer, the Bank’s pro-forma net book value would be P73.67 per share. This represents an immediate decrease of P0.62 per share for existing holders of Common Shares. The calculation of the net book value per share before and after the Offer is presented below. Net book value in P as of September 30, 2013 (a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued and outstanding Common Shares as of September 30, 2013 (b) . . . . . . . . . . . . . . . . . . . . . Net book value per share as of September 30, 2013 (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro-Forma net book value in P after the Offer (d)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued and outstanding Common Shares after the Offer (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro-Forma net book value per share after the Offer (f)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease per share to Existing Shareholders attributable to the Offer(4) . . . . . . . . . . . . . . . . . . . . P80,697,935,639 1,086,208,416 P 74.29 P92,025,222,212 1,249,139,678 P 73.67 P 0.62

Notes: (1) Computed by dividing (a) by (b). (2) Based on the Bank’s net book value as computed in (a) and adding the net proceeds from the Offer. (3) Computed by dividing (d) by (e). (4) Computed by subtracting (f) from (c).

43

CAPITALIZATION The following table sets out the unaudited consolidated long-term debt and capitalization of the Bank as of September 30, 2013, and as adjusted to give effect to the issuance of the Rights Shares, after payment of underwriting discounts and selling concessions and estimated offering expenses. This table should be read in conjunction with the Bank’s unaudited interim condensed consolidated financial statements as of September 30, 2013 and for the nine months ended September 30, 2013 included in this Prospectus. The translation of Peso amounts in US Dollar amounts at the specified rate is provided solely for convenience using the PDS weighted average rate of P43.54 = U.S.$1 as of September 30, 2013.
As of nine months ended September 30, 2013 Actual As adjusted (U.S.$ in (U.S.$ in (Q millions) millions) (Q millions) millions)

Liabilities Deposit liabilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial liabilities at fair value through profit or loss. . . . . . . . . . . Bills and acceptances payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital paid in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surplus reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to holders of the Parent Company . . . . . . . . . . . Non-controlling interest in a subsidiary . . . . . . . . . . . . . . . . . . . . . . . Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

453,978 7,364 14,466 9,950 36,458 522,216 43,448 26,500 524 13,244 (2,903) 80,813 3,073 83,886 606,102

10,426.7 169.1 332.3 228.5 837.4 11,994.0 997.9 608.6 12.0 304.2 (66.7) 1,856.0 70.6 1,926.6 13,920.6

453,978 7,364 14,466 9,950 36,458 522,216 49,965 31,327 524 13,227 (2,903) 92,140 3,073 95,213 617,429

10,426.7 169.1 332.3 228.5 837.4 11,994.0 1,147.5 720.5 12.0 303.8 (66.7) 2,116.2 70.6 2,186.8 14,180.7

Notes: (1) Demand, savings and time deposits. (2) Others include: Revaluation Increment on Land and Buildings, Remeasurement Losses on Retirement Plan, Accumulated Translation Adjustment, Net Unrealized Gain on Available-for-Sale Investments, Equity in Net Unrealized Gain on Available-for-Sale Investment of an Associate and Parent Company Shares Held by a Subsidiary.

44

SELECTED STATISTICAL DATA The following unaudited information should be read together with the Bank’s consolidated financial statements included in this Prospectus as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Assets and Liabilities” and “Risk Management”. AVERAGE STATEMENTS OF FINANCIAL POSITION AND RELATED INTEREST The following table shows the Bank’s average balances, interest earned/incurred and average interest rates for the three years ended December 31, 2010, 2011, and 2012 and the nine months ended September 30, 2013. Average balances are generally based on a daily rate.
For the nine months For the year ended December 31, ended September 30, 2010 2011 2012 2013 Average Interest Average Average Interest Average Average Interest Average Average Interest Average Daily Income/ Yield/ Daily Income/ Yield/ Daily Income/ Yield/ Daily Income/ Yield/ Balance Expense Cost (%) Balance Expense Cost (%) Balance Expense Cost (%) Balance Expense Cost (%) (Q millions, except for percentages)

Interest Earning Assets Due from BSP and other banks . . . . . . . . Interbank loans receivables. . . . Trading and investment securities . . . . . Loans and receivables. . . .

39,265 15,508

887 31

2.3 0.2

42,309 7,781

659 31

1.6 0.4

52,518 2,551

659 14

1.3 0.5

137,176 7,617

1,070 16

1.0 0.3

86,344 97,462

4,440 6,973

5.1 7.2 5.2

87,346 120,812

4,261 7,521

4.9 6.2 4.8

77,228 128,905

3,236 7,452

4.2 5.8 4.3

106,280 235,248

2,818 9,629

3.6 5.5 3.7

Total . . . . . . . . . . . 238,579 12,331 Interest Bearing Liabilities Deposit liabilities . . . . . 223,411 Bills Payable . . . . 8,002 Subordinated debt and other borrowings . . . 11,827 Total . . . . . . . . . . . 243,240

258,248 12,472

261,202 11,361

486,321 13,533

3,442 235

1.5 2.9

238,982 11,072

4,012 149

1.7 1.3

232,309 7,129

3,100 188

1.3 2.6

417,721 10,406

2,898 116

0.9 1.5

1,095 4,772

9.3 2.0

13,316 263,370

1,108 5,269

8.3 2.0

15,028 254,466

1,097 4,385

7.3 1.7

14,832 442,959

803 3,817

7.2 1.2

45

Analysis of Changes in Interest Income and Interest Expense—Volume and Rate Analysis The following table provides an analysis of changes in interest income, interest expense, and net interest income between changes in volume (average daily balances) and changes in rates for the year ended December 31, 2010 compared with the year ended December 31, 2011, the year ended December 31, 2011 compared with the year ended December 31, 2012, and the year ended December 31, 2012 compared with the nine months ended September 30, 2013. Volume and rate variances have been calculated on the movement in average daily balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities in proportion to absolute volume and rate change. The variance caused by the change in both volume and rate has been allocated in proportion to absolute volume and rate change.
For the year ended December 31, 2010 compared with the year ended December 31, 2011 Increase (Decrease) Due to Change in Change in Average Average Change in Net Change Volume Rate Term (Q millions)

Interest income on: Trading and investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from BSP and other banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense on: Deposit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(179) 548 — (228) 570 (73) (356)

42 1,504 (31) 51 274 220 1,072

(221) (956) 31 (279) 296 (293) (1,428)

— — — — — — —

For the year ended December 31, 2011 compared with the year ended December 31, 2012 Increase (Decrease) Due to Change in Change in Average Average Change in Net Change Volume Rate Term (Q millions)

Interest income on: Trading and investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit with banks and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense on: Deposit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,025) (69) (17) — (912) 28 (227)

(403) 479 (29) 126 (102) (109) 384

(622) (548) 12 (126) (810) 137 (611)

— — — — — — —

For the year ended December 31, 2012 compared with the nine months ended September 30, 2013 Increase (Decrease) Due to Change in Change in Change in Average Average Term Volume Rate (Q millions)

Net Change

Interest income on: Trading and investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit with banks and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense on: Deposit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(418) 2,178 1 411 (202) (366) 2,740

786 4,455 11 674 1,324 158 4,446

(303) (413) (6) (74) (696) (104) 2

— — — — — — —

46

Yields, Spreads and Margins The following table sets out, for the periods indicated, the yields, spreads and interest margins on the Bank’s interest-earning assets for the years ended December 31, 2010, 2011, and 2012 and the nine months ended September 30, 2013.
For the nine months ended September 30,

For the year ended December 31, 2010 2011 2012 2013 (Q in millions, except percentages)

Interest income on interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . Interest expense on interest-bearing liabilities . . . . . . . . . . . . . . . . . . . Average interest-earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average interest-earning assets as a percentage of average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average interest-bearing liabilities as a percentage of average total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average interest-earning assets as a percentage of average interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yield(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of funds(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spread(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest margin(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,331 12,472 11,361 4,772 5,269 4,385 223,377 244,568 264,968 235,757 248,186 258,157 287,645 304,593 321,537 77.7% 82.0% 94.7% 5.5% 2.0% 3.5% 3.4% 80.3% 81.5% 98.5% 5.1% 2.1% 3.0% 3.0% 82.4% 80.3% 102.6% 4.3% 1.7% 2.6% 2.6%

13,533 3,817 484,459 371,132 468,554 103.4% 79.2% 130.5% 2.8% 1.0% 1.8% 2.7%

Notes: (1) Yield is interest income divided by total yearly average interest-earning assets. Averages are based on the total ending balance of the past two years divided by two. (2) Cost of funds is interest expense divided by total yearly average interest-bearing liabilities. Yearly averages are based on the total ending balance of the past two years divided by two. (3) Spread is the difference between yield and cost of funds. (4) Net interest margin is the difference between interest earned and interest expended divided by the total yearly average interest-earning assets. Net interest margin is calculated as the difference between interest earned and interest expended divided by the total yearly average interest-earning assets. Yearly averages are based on total ending balance of the past two years divided by two. Financial Data and Ratios The following table sets out certain key financial indicators of the Bank as of and for the years ended December 31, 2010, 2011 and 2012 and the nine months ended September 30, 2013.
As of and for the nine months ended September 30, 2013

As of and for the year ended December 31, 2010 2011 2012

Return on average equity(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on average assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend payout ratio(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost to income ratio(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier I capital adequacy ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . Tier II capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net NPL ratio(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance as percentage of gross non-performing assets(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average equity to total average assets(7) . . . . . . . . . . . . . . . . . Loan to deposit ratio(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15.2% 1.4% — 57.7% 12.8% 6.7% 19.4% 4.5% 30.9% 9.2% 42.0%

15.0% 1.6% — 58.7% 14.5% 7.2% 21.7% 3.1% 31.8% 10.4% 48.6%

13.5% 1.6% — 60.9% 11.9% 6.3% 18.1% 2.4% 33.4% 11.6% 55.3%

12.9% 1.7% — 60.2% 17.0% 3.4% 20.3% 1.1% 26.8% 13.2% 53.5%

47

Notes: (1) For the years ended December 31, 2010, 2011 and 2012: net income divided by average total equity for the period indicated. For the nine months ended September 30, 2013: net income divided by 9 multiplied by 12 then divided by the average equity. (2) For the years ended December 31, 2010, 2011 and 2012: net income divided by average total assets for the period indicated. For the nine months ended September 30, 2013: net income divided by 9 multiplied by 12 then divided by the average assets for the period. (3) Dividend payout ratio is the ratio of dividend to net income after tax (excluding non-controlling interest). (4) Total operating expenses (excluding provision for impairment, credit and other losses) divided by total operating income for the period indicated. (5) Total non-performing loans (net) divided by total adjusted loan portfolio. As of December 31, 2010, 2011 and 2012, ratios were computed based on the balances on the audited financial statements. As of September 30, 2013, ratio was computed based on figures reported to the BSP. (6) Allowance as a percentage of gross non-performing assets is the ratio of NPA provisions made to the gross NPAs, on a consolidated basis. As of December 31, 2010, 2011 and 2012, ratios were computed based on the balances on the audited financial statements. As of September 30, 2013, ratio was computed based on figures reported to the BSP. (7) Average equity to total average assets is the ratio of average equity divided by the yearly average total assets. (8) Total loans divided by total deposits. Return on Equity and Assets The following table presents selected financial ratios for the periods indicated.
As of and for the nine months ended As of and for the year ended December 31, September 30, 2010 2011 2012 2013 (Q in millions, except percentages)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income as a percentage of average total assets . . . . . . . . . . . . Net income as a percentage of average shareholders’ equity(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average shareholders’ equity as a percentage of average total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,032 287,645 26,460 1.4% 15.2% 9.2%

4,756 5,028 5,990 304,593 321,537 468,554 31,673 37,361 61,817 1.6% 1.6% 1.3% 15.0% 10.4% 13.5% 11.6% 9.7% 13.2%

Note: (1) For the years ended December 31, 2010, 2011 and 2012: net income divided by average total equity for the period indicated. For the nine months ended September 30, 2013: net income divided by 9 multiplied by 12 then divided by the average equity. Investment Portfolio As of September 30, 2013, the Bank’s investments comprised 19.2% of its total assets. The Bank carries out its investment activities according to various investment and trading policies. These policies set forth delegation of powers, types of instruments, maximum limits on investments in different types of securities, position limits, stop loss limits, duration limits, and minimum acceptable credit spreads.

48

Total Investment Portfolio The following table sets forth, as of the dates indicated, information relating to the Bank’s total investment portfolio.
As of December 31, 2010 2011 2012 As of September 30, 2013

Net Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss (Q millions)

Debt Securities Government securities. . . 69,906.4 72,669.9 Private securities. . . 17,194.3 17,444.5 Total debt securities . . . . . . . 87,100.7 90,114.4 Equity securities . . . 728.9 728.9 Derivative assets. . . 910.5 910.5 Total . . . . . . . . . . . . . 88,740.1 91,753.8

(502.9) 44,793.2 44,793.2 (125.5) 13,459.1 13,459.1 (628.4) 58,252.3 58,252.3 30.9 493.1 493.1 251.3 454.1 454.1 (346.2) 59,199.5 59,199.5

515.8

57,529.3 57,529.3

183.3 284.3 467.6 339.4 0.5 807.5

69,260.8 65,031.8 (4,323.0) 17,839.2 17,279.6 (571.0)

(34.6) 12,267.4 12,267.4 481.2 69,796.7 69,796.7 81.6 769.4 769.4 (456.5) 454.5 454.5 106.3 71,020.6 71,020.6

87,100.0 82,311.4 (4,894.0) 1,654.2 2,082.5 337.6 418.7 454.5 (14.3) 89,172.9 84,848.4 (4,570.7)

Held-to-Maturity Investments The following tables set forth, as of the dates indicated, information related to the Bank’s investments held to maturity.
As of December 31, 2010 Carrying Value 2011 2012 As of September 30, 2013

Net Net Net Net Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss (Q millions)

Debt Securities Government securities . . . . . . . 32,739.6 35,503.1 Private securities . . 5,488.6 5,738.8 Total debt securities . . . . 38,228.2 41,241.9 Equity securities . . . . . . . — — Total . . . . . . . . . . . . . . . . . 38,228.2 41,241.9

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

— — — — —

Available-for-Sale Investments The following table sets forth, as of the dates indicated, information related to the Bank’s investments under AFS.
As of December 31, 2010 2011 2012 As of September 30, 2013

Net Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss (P millions)

Debt Securities Government securities. . . 27,568.1 27,568.1 Private securities. . . 6,434.7 6,434.7 Total debt securities . . . . . . . 34,002.8 34,002.8 Equity securities . . . 528.5 528.5 Total . . . . . . . . . . . . . 34,531.3 34,531.3

(418.1) 42,614.5 42,614.5 (245.3) 9,391.5 9,391.5

484.1

55,558.5 55,558.5

158.3 242.9 401.2 343.3 744.5

65,740.1 61,511.1 (4,106.3) 17,619.6 17,060.0 (550.0)

(30.3) 10,920.2 10,920.2 453.8 86.4 540.2 66,478.7 66,478.7 518.8 518.8 66,997.5 66,997.5

(663.4) 52,006.0 52,006.0 24.4 317.8 317.8 (639.0) 52,323.8 52,323.8

83,359.7 78,571.1 (4,656.3) 1,461.3 1,8889.9 348.9 84,821.0 80,461.0 (4,307.4)

49

Held-for-Trading Investments The following table sets forth, as of the dates indicated, information related to the Bank’s investments held for trading.
As of December 31, 2010 2011 2012 As of September 30, 2013

Net Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss (P millions)

Debt Securities Government securities . . . . . . Private securities . . . . . .

9,598.7 9,598.7 5,271.0 5,271.0

(84.8) 119.8 35.0 6.5 251.3 292.8

2,178.7 2,178.7 4,067.6 4,067.6 6,246.3 6,246.3 175.3 175.3 454.1 454.1 6,875.7 6,875.7

31.7 (4.3) 27.4 (4.8) (456.5) (433.9)

1,970.8 1,970.8 1,347.2 1,347.2 3,318.0 3,318.0 250.6 250.6 454.5 454.5 4,023.1 4,023.1

25.0 41.4 66.4 (3.9) 0.5 63.0

3,520.7 3,520.7 219.6 219.6

(216.7) (21.0) (237.7) (11.3) (14.3) (263.3)

Total debt securities . . . 14,869.7 14,869.7 Equity securities. . . . . . . 200.4 200.4 Derivative assets . . . . . . 910.5 910.5 Total . . . . . . . . . . . . . . . . 15,980.6 15,980.6

3,740.3 3,740.3 192.9 192.6 418.7 454.5 4,351.9 4,387.4

Cash Flow Mismatch Analysis The following table sets forth the Bank’s structural liquidity gap position as of September 30, 2013:
Up to 1 Month 1 to 3 Months As of September 30, 2013(1)(2)(3) 3 to 6 to Beyond 6 Months 12 Months 1 Year (P in millions, except percentages)

Total

Cash and Due from BSP. . . . . . . . . . . . . 138,018.0 Due from Other Banks . . . . . . . . . . . . . . 15,769.4 Interbank Loans and Securities Held under Agreements to Resell . . . . . . . . . . . . . . . . . . . . . . 37,090.2 AFS and Financial Assets at FVPL . . . 12,147.6 Loans and Receivables . . . . . . . . . . . . . . 46,144.3 Property and Equipment . . . . . . . . . . . . . — Deferred Tax Assets . . . . . . . . . . . . . . . . — Other Assets (including Investment Properties and Investment in an Associate) . . . 5,440.0 Total Inflows . . . . . . . . . . . . . . . . . . . . . . 254,609.3 Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills Payable . . . . . . . . . . . . . . . . . . . . . . . Deposits from Other Accounts . . . . . . . Subordinated Debt . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . Total Outflows . . . . . . . . . . . . . . . . . . . . — 10,573.9 12,827.9 — 25,853.9 49,255.7

— —

— —

— —

— —

138,018.0 15,769.4

— 410.7 24,729.3 — —

— 724.5 3,555.8 — —

— 2,501.9 7,188.6 —

— 37,090.2 75,807.6 91,592.2 161,402.3 243,020.2 22,973.7 22,973.7 1,149.9 1,149.9

1,406.8 26,546.7 — 1,391.9 19,031.7 — 1,805.6 22,229.2

14,031.7 18,312.0 — 810.0 20,591.7 — 84.9 21,486.7

384.7 10,075.1 — 1,228.5 60,036.4 — 332.6 61,597.5

35,225.6 296,559.1

56,488.8 606,102.2

83,886.1 83,886.1 462.3 14,466.6 341,489.9 453,977.6 9,949.8 9,949.8 15,745.1 43,822.1 451,533.2 606,102.2 —

Liquidity Gap . . . . . . . . . . . . . . . . . . . . . . 205,353.7 4,317.6 (3,174.7) (51,522.4) (154,974.1) Cumulative Gap . . . . . . . . . . . . . . . . . . . . 205,353.7 209,671.2 206,496.5 154,974.1 — Liquidity gap as % of Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 34% 1% -1% -9% -26% Notes: (1) Classification methodologies are based on PFRS. (2) Assets and liabilities are classified into categories as per residual maturity. (3) Assets and liabilities that do not mature or have ambiguous maturities are classified as per historical behavioral analysis or management judgment.

50

Interest Rate Sensitivity Analysis The following table sets forth the interest rate sensitivity analysis of the Bank’s assets and liabilities as of September 30, 2013:
Up to 1 Month 1 to 3 Months As of September 30, 2013 3 to 6 6 to 12 Months Months (P in millions) Beyond 1 Year

Total

Cash and Due from BSP. . . . . . . . . . . . . . . . Due from Other Banks . . . . . . . . . . . . . . . . . Interbank Loans and Securities Held under Agreements to Resell . . . . . . . . . . AFS and Financial Assets at FVPL . . . . . . Loans and Receivables . . . . . . . . . . . . . . . . . Other Assets (including Property and Equipment, DTA, Investment Properties and Investments in an Associate) . . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . Capital and Reserves. . . . . . . . . . . . . . . . . . . Bills Payable. . . . . . . . . . . . . . . . . . . . . . . . . . Deposits from Other Accounts . . . . . . . . . . Subordinated Debt . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities and Equity . . . . . . . . . . .

64,778.0 15,769.4 39,657.8 625.0 75,883.5

— — 132.4 410.5 47,663.5

— — — 819.4 8,128.9

— — — 2,519.5 15,822.4

73,2340.0 — — 87,217.8 95,522.0

138,018.0 15,769.4 37,090.2 91,592.2 243,020.2

302.2 194,315.8 — 10,573.9 112,943.7 — — 123,517.6

97.8 48,304.1 — 1,391.9 38,942.7 — — 40,334.6

2,745.7 11,693.9 — 810.0 13,546.0 — — 14,356.0

20.8 18,362.6 — 1,228.5 10,494.1 — — 11,722.5

77,446.0 333,425.8 83,886.1 462.3 278,051.3 9,949.8 43,822.1 416,171.6

80,612.4 606,102.2 83,886.1 14,466.6 453,977.6 9,949.8 43,822.1 606,102.2

ALLIED BANK The merger between the Bank and ABC became effective on February 9, 2013. The tables below display selected historical statistical data for ABC prior to its merger with the Bank. AVERAGE STATEMENTS OF FINANCIAL POSITION AND RELATED INTEREST Analysis of Changes in Interest Income and Interest Expense—Volume and Rate Analysis The following table shows Allied Bank’s average balances, interest earned/incurred and average interest rates for the three years ended December 31, 2010, 2011 and 2012. Average balances are generally based on a daily rate.
2010 Average Daily Balance For the years ended December 31, 2011 2012 Interest Average Average Interest Average Average Income/ Yield/ Daily Income/ Yield/ Daily Expense Cost (%) Balance Expense Cost (%) Balance (Q millions, except for percentages)

Interest Average Income/ Yield/ Expense Cost (%)

Interest-earning assets Deposits with banks and interbank loans receivable . . . . . . . . . . . . Trading and investment securities . . . . . . . . . . . . . Loans and receivables . . . .

41,675.4 1,094.9 42,961.4 3,032.1 85,824.5 5,505.4 170,461.3 9,632.4

2.6% 7.1% 6.4%

40,241.8

639.9

1.6%

43,747.6

491.5

1.1% 5.8% 6.3% 5.0%

42,990.3 2,728.5 92,954.3 6,061.9

6.3% 39,053.6 2,258.8 6.5% 103,196.8 6,481.9 5.4% 185,998.0 9,232.2

5.7% 176,186.4 9,430.3

Interesting-bearing liabilities Deposit liabilities . . . . . . . . 144,536.7 2,466.1 Bills payable and other borrowings . . . . . . . . . . . 7,329.1 375.0 151,865.8 2,841.1

1.7% 144,301.9 2,414.9 5.1% 7,419.5 414.7

1.7% 147,090.9 1,944.4 5.6% 9,160.4 505.5

1.3% 5.5% 1.6%

1.9% 151,721.4 2,829.6 51

1.9% 156,251.3 2,449.9

. (3) Spread is equal to interest income on interest-earning assets less interest expense on interest-bearing liabilities. . . . . . . . . . . the yields. . . .449. . . . . .4) (91. . . .4) (5. Average interest-bearing liabilities.186. . . .0% 5. . . . .4% 78. . . . . . . .829. . . (51. . . .9) Bills payable and other borrowings . . . . . 52 . . . . . . Average interest-earning assets as a percentage of average total assets .417. . . . Net interest margin(4) .9% 92. . . and net interest income between changes in volume (average daily balances) and changes in rates for the year ended December 31. Average interest-bearing liabilities as a percentage of average total assets . . . . . . . . .4% 1.7 Yields.9 90. . . 2012 Increase (Decrease) Due to Increase (Decrease) Due to Change in Change in Change in Change in Net Average Average Change in Net Average Average Change in Change Volume Rate Term Change Volume Rate Term (Q millions) Interest income on: Trading and investment securities. . . . . . . . . . . . . . Average interest-earning assets. . . . .2% 5.5) — — — — — — (470. . . . . . . . . . .5) (432. .2) (47.461. .232. . . . . . . Average interest-earning assets as a percentage of average Interest-bearing liabilities. . . . . 2011 compared with the year ended December 31. . . . . . .3) (22. . . . . . . . . .9 170. . 2011 compared with the year ended December 31.3 (148. . . . . . . . . . .4 156. . .9% 80. . . . . . .1 181.6 (54. . . . .6 90. . .6) 204. . . . . .865. . . . . . . . .251. . . . . . . . . . .4 (242. . . . . . . interest expense. .4 9. . . . . . . . .1 Net Interest Income .Analysis of Changes in Interest Income and Interest Expense—Volume and Rate Analysis The following table provides an analysis of changes in interest income. . . . . . . . . . . . . . . . (2) Cost of funds is interest expense divided by total yearly average interest-bearing liabilities. . . . . . . . . . . . The variance caused by the change in both volume and rate has been allocated in proportion to absolute volume and rate change. 2010. . . . . . . . .8) Interest Expense on: Deposit liabilities . For the year ended December 31.8) (507. Spreads and Margins (305. . .991. . (303. . . .0 643. . . . . . . . . . Yearly averages are based on the total ending balance of the past two years divided by two. . 556. spreads and interest margins on Allied Bank’s interest-earning assets and interest-bearing liabilities for the years ended December 31.1 2. . .6 179. . 2011 and 2012. . . . . . . 2010 compared with the year ended December 31. Average total assets. . . . . . . .9% 3. . . for the periods indicated. . Year ended December 31. . . . . . . . .9% 3. . . . . . .8% 4. . . . . . . . . . . . . .7) (227. . . . . .3) 34. . . .7) 420. . . . . . (4) Net interest margin is the difference between interest income and interest expense divided by the total yearly average interest-earning assets. . .6% 3. . . 9. .3 9. .6% 77.4% 3.2 2.2) (3. . . . . . . . .8 Loans and receivables . . . . .0% 116. . Yield(1) .6 2. . 2010 compared with the year ended December 31. . . . .8 96. . . . . . . . .1% 112. .2 188. . . . .998. . . . . . . . Interest-bearing liabilities include deposit liabilities. . . . . . .7% 1. .5% 89. . 39. . . . . . .0) (223. . . . . .4 200.0 Deposits with banks and interbank loans receivable . . . . .1% 5.721. . . . . . . . . . . . . . . . . . Volume and rate variances have been calculated on the movement in average daily balances and the change in the interest rates on average interest earning assets and average interest bearing liabilities in proportion to absolute volume and rate change. . . . . . . . . . . . . (455. . . . . . . . (190.4) 39.5% 3. . 2010 2011 2012 (Q in millions. . .7% 119. .6) 1. . . . . . .3 176. . . . . . bills payable and subordinated debt. .4 The following table sets out. . . . . . .5) 36. except percentages) Interest income on interest-earning assets.8 151. . .4) — — — — — — (469. . . Spread(3) . . . 2011 and the year ended December 31. . . . .6% Notes: (1) Yield is interest income divided by total yearly average interest-earning assets. . . . . Interest expense on interest-bearing liabilities . . . . . . . . Net interest margin is calculated as the difference between interest income and interest expense divided by the total yearly average interest-earning assets. . . . . 2011 For the year ended December 31. .7 5.1 195. . . . . . . . . . . . . . . 2012.0% 1. . . . . . . . . . . . . . . . . . . . .430.154. . .4 185. . . . . .841. . . . . . . . . . .3) (187. . . . . . .0) (22. . . . .632. . . . Cost of funds(2) . .5 465. . .0 151. . . . .

. . . . . .6% 12. .318. . 2011 and 2012. . . . . Allowance as percentage of gross non-performing assets(6) . . .6% 1. . . . . . As of and for the year ended December 31. . . . . . . (2) Return on average assets is the ratio of the net income attributable to equity holders of Allied Bank to the yearly average assets. .6% 10. Net non-performing assets ratio(5) . . . .765. 53 . . . . . . . . . . . .7 25. . . . . . 2010 2011 2012 Return on average equity(1) . . . . . . . (5) Net non-performing assets ratio is the ratio of net non-performing assets divided by total assets. . . Tier II capital adequacy ratio . . . . . . . .1% 17. . Allied Bank carries out its investment activities according to various investment and trading policies. . . . . . . . . .1% 38. . Average equity to average total assets(7) . . (4) Cost to average assets is the ratio of the operating expenses (excluding depreciation and amortization) plus interest expense to the yearly average assets. .4% 4. . . .1% 3. . . . Total capital adequacy ratio.7% 1. . . . . . .5 1. . . .0% 5. stop loss limits. . . . . . . . . . . . . . . . . . . . . . . . . . .7% of its total assets. . . . . . . . . . . 2010. . . . . . 6.4% 15. . . Allied Bank’s trading and investment securities comprised 18. . .7% — 5. . . . .0% 4. . . .8% 19. Average total assets. . . . . . . . position limits. . . . . . . These policies set forth delegation of powers. . . .6% 6. . . (3) Dividend payout ratio is the ratio of dividend declared to net income attributable to equity holders of Allied Bank. . . . . . . . . . . . . . . . . .991. . . . . . . . . . . .4 200. .1% 11. . . . . . . . . . . . . . . . . .5 1.0% Notes: (1) Return on average equity is the ratio of the net income attributable to equity holders of Allied Bank to the yearly average equity attributable to equity holders of Allied Bank. . . . . . . . . . . 2012. . . . . Dividend payout ratio(3) . . . . .5% As of December 31. except percentages) Net income(1). . . .6% 57. . . . As of and for the year ended December 31. . . . . . . .8% 15. .1% 5. .6 188. . . . . . . . . . . . . . .901.8% 3. . . . . . . . . . . . . . . . . . . . . . .5% 3. . . .1 195. . . . . . . . . . .417. . . . . . . . . . . . . . . . (7) Average equity to total average assets is the ratio of average equity attributable to equity holders of Allied Bank divided by the yearly average total assets. . . . . .8% 7. .6% 4. .0% 50. . . . .6 19. . . . . .3% 7. . . . .9% 21. . .8% 10.177. . . . . .Financial Ratios The following table sets out certain key financial indicators of Allied Bank as of and for the years ended December 31. . . . . . . . Net income as a percentage of average total assets . . . . . . . . . . . . . . 2010 2011 2012 (Q in millions. . . Note: (1) Attributable to the equity holders of Allied Bank. . . . . . . . . . . . . Cost to average assets(4) . . . . .8% 12. . Average shareholders’ equity(1) . . . . .6% 0. . Return on average assets(2). . . . . . . . . . . . . . .0% 6. . . .0% 1. . . . . . . . . (6) Allowance as a percentage of gross non-performing assets is the ratio of allowance for credit and impairment losses on loans and ROPA to the gross NPAs.052. . . . . . . . . . . and minimum acceptable credit spreads. . . . . . . . . . . . . . . . . . . (8) Liquid assets divided by liquid liabilities. . . . . Average shareholders’ equity as a percentage of average total assets . . . . . . . . . . . Net income as a percentage of average shareholders’ equity . . . . maximum limits on investments in different types of securities. . . Investment Portfolio 1.0% 0. . . . . . . . . . . .8% 0. . . . . . . . . . .9% 19. . . . . . . . . . . . . . . . . . duration limits. . . .6 22. . Liquidity Ratio(8) . . . . .696. . . . . . . . . . . . . types of instruments. . . . . . . . .5% 11. . . .5% 57. .4% 35. . . . . . . . . . . . . . . . . Tier I capital adequacy ratio . . . Return on Equity and Assets The following table presents selected financial ratios for the periods indicated. . . . . . . . .1 0. . . . . . . . . . . . .5% 47. . . . . . . . . . . . . . . . . . . . . . .6% — 5.154. . . . . . . . . . . . . . . . . .

3 178.Total Investment Portfolio The following table sets forth. . .3 32.0 — — — — — — — — — — — — Available for Sale Investments The following table sets forth.7 4. . . . .6 37.8 3. .051. .759.2 9.4 277. . . . .779.795.154. . .9 2. Private securities . .029.9 Equity securities .2 955. .6 7.0 259.016. . . .4 9.6 3.9 6. .0 627. . .6 41.500. . . .5 95. 2011 As of December 31. . . . . . . .704.1 2.6 28.702.7 292.704.7 6.7 Total . .3 6.0 906. . .7 Total debt securities. . 2012 Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Gain/Loss Gain/Loss Gain/Loss Value Value Value Value Value Value (Q in millions) Debt securities: Government securities.9 46. 20.2 198.479.103.3 22. .0 39. 259.2 Private securities .4 952. . . .0 277.1 2.340.0 198.0 40.115.950. . 15.8 3. 2010 Carrying Market Value Value As of December 31.412.0 178.9 677.9 482. . As of December 31. . .3 946. .0 685. .796.455. .0 2. as of the dates indicated.9 41. 2011 Carrying Market Value Value (Q in millions) As of December 31. . . .2 (50. .2 Derivative assets. . . .2 20. 292.4 13. information related to Allied Bank’s investments available for sale.547.8 20. .2 15. . .500. 2012 Carrying Market Value Value Debt securities: Government securities .248.6 2.3 28.2 365. .096.029. .9 8.814.5 35. . . .7 — 955. Total .7 35.8 9. as of the dates indicated.9 30.2 29. .192. .943. .589.4 627. .166. .047.976.195. .0 30. .1 Total. 44. . . . as of the dates indicated. 2010 As of December 31. .2 7.2 40. .1 22.6 54 . .061. .1 29.976.9) 148. . .6 30. . information relating to Allied Bank’s total investment portfolio. .589.2 1. . 2012 Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Value Value Gain/Loss Value Value Gain/Loss Value Value Gain/Loss (Q in millions) Debt securities: Government securities . .608.2 436. .6 906.412.1 7.8 40.154. .455. .207. . .3 14. . 2011 As of December 31.3 952.3 677.048. .162.5 260.2 22.814.796. .5 266. .541.4 Equity securities . . .115. .9 20.812. . .6 1. .1 37.179. . . . . 31.443. 12.1 28. .340.077.532. . .077. . . . As of December 31. .331. 4.1 40.2 292. information related to Allied Bank’s investments held to maturity. 13. . .728. . .7 30.331.684.7 148. .4 9. . 44.1 Private securities .402.7 45. 365.287. . 20.8 288. . .702.326.6 689.6 20.1 3. . .4 Held to Maturity Investments The following tables set forth. .1 28. As of December 31.5 2. .795. . . 2010 As of December 31.608. .545.3 1.162.8 39.207.545. . .3 Total debt securities.

. 33. . . .7 148.9% 3.5 Cash Flow Mismatch Analysis The following table sets forth Allied Bank’s structural liquidity gap position as of December 31.072. . .782. . . 2. . . . . . .7 41. . . . . as of the dates indicated.8 430. .4 0.6% 17. . . .0 36. . .0 — 3. . . . .826. . . . . .0 7. . . .175. . .7) 82. . . . Derivative assets . .4 7.2 697. .9 18. . . .4 7. . . .6% Notes: (1) Classification methodologies are based on residual maturity. . . .837. . . .116. . Liquidity Gap . (3) Assets and liabilities that do not mature or have ambiguous maturities are classified as per historical behavioral analysis or management judgment. .632. .7 104.3 198. . . .375. . .9) (5. Liquidity gap as % of Total Liabilities . . . . . . .782.1 (0. . . . .782. . 2012(1)(2)(3) Over Over 3 Months to 1 Year to Over 1 Year 5 Years 5 Years (Q in millions. .380. . .180.9 134.476.8) 29. . . .659. . Bills Payable and Other Borrowings . . .2 697. . . .359. . Total Outflows . .1 821. 2011 As of December 31.507. .0 — — 25. .0 4. . .793. . . . . . .4 46. Equity securities . . Total Inflows . .4 29. . . . .359. . . .0 7.0 37. . .8) (9.584. . .3 6. .320. . .9 18. . . .0 1. .180.5 259.128. . .3 35.5 72. .0 156.4 6.7 67. .7) 20. . . . . . . .0 106.359. . Private securities . . . .0 3. . . .7 147.7) (30.484. . .9) (16.9 4.5 72.1 6. 55 .8 4. . .517. . .2 430. . .0 349.955. . . . Deposit Liabilities .5 5. . .1 (49. . . . . .6 (29. . . .531. . . .1) 6. except percentages) Up to 3 Months Total Due from BSP and other Banks .9 59.4 148.1) 13.556. .4 46. . . . . . . Total debt securities . .9 7.5 424. . .5)% 7.040.555. . . .1) (36.113. .761.380. 2012 Net Net Net Carrying Market Unrealized Carrying Market Unrealized Carrying Market Unrealized Gain/Loss Gain/Loss Gain/Loss Value Value Value Value Value Value (Q in millions) Debt securities: Government securities . . .011. . . .507. .1 88. .4 9.0 3.5 5. . (2) Assets and liabilities are classified into categories as per residual maturity. . .5 349. . .5 8. . . Cumulative Gap .6 185.4 3. .3 50. .269.1 — — 1. . . .3 198.359.0 2. . . .3 50. .375. . . . . . .319.4 449. .9 95.6 29. . . . .5 (3. . . . . . .Financial Assets at FVPL The following table sets forth. . . .1 139.3 128. . Trading and Investment Securities . . . . .7 46. .125.417. . . . . . . Total . .251. . . . . .1 9. Interbank Loans and SPURA.8 3.414. . . . .2 19. . 2010 As of December 31.6 4. .560. . .4 449. . .313. . As of December 31. .991. . .826. .359.0 259. . information related to Allied Bank’s investments held for trading. .3 89. . . . .7 7. . . . . . .3) (50. .9 3.854.4 7. .5 3. . .6 (49.473.5 7.3 821.6 558.056. .973. Loans and Receivables .224. . . . . . . .175. . . . .1 (45.8 30. 2012: As of December 31. .756. . .8 7. . .6% 35. . . . . . . . . . . . . .

. . .9 7. .222. . . . . . . . .8 6. . . .3 28.6 4. . . . . . . .041. .018. .302. Bills Payable and Other Borrowings. . . .5 136. . .519.6 36. . . . . .328. . . .3 35. .9 50. . .1 4. .952.384. . . . . . . . . . . . . .887. .012.9 9. . . . . .7 84. .9 1. . . .519. .5 41. 2012: Up to 3 Months 3 Months to 1 Year As of December 31. . Loans and Receivable .3 5.8 154.6 4.518. . . . . .260.9 8. . . .9 3.795. .7 145. . .508. .742. . . . Deposit Liabilities . . . . Total Liabilities . . .338. . . . . .303. . 2012 1 Year to Over Non5 Years 5 Years Sensitive (Q in millions) Total Due From BSP and Other Banks . .4 75. .401. .044.8 69. .213. . . . . . . . Trading and Investment Securities . .518. . .1 54. . .8 85. . . . . .884. . . . .Interest Rate Sensitivity Analysis The following table sets forth the interest rate sensitivity analysis of Allied Bank’s assets and liabilities as of December 31.370. . . . . . .8 79. . .9 10. .405. . .424. . . . . . . Total Assets .0 — — — — 1. . . .8 — — — — — — — — — — — — — — — — 29. . . . .6 56 . . 29. Interbank Loans and SPURA . . . . .502. . . . .094. . . . .

. . This discussion contains forward-looking statements and reflects the Bank’s current views with respect to future events and financial performance. . . . as well as to the Government.8 billion and P4. . . . LGUs and Government-owned and -controlled corporations in the Philippines. . . . . .6% Notes: (1) Net interest income divided by average interest-earning assets. . . . . . .MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Bank’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Prospectus and the sections entitled “Summary of Consolidated Financial Information”. . . . As of September 30. . “Selected Statistical Data”. . . 2010 2011 2012 Net interest margin(1) . . . . . . . . . . . . (3) Net income divided by average total assets for the period indicated. . . . . . .6% 15. . . .1 billion and P297. . . . . . . . .1% 13.0% 55. . . . Averages are based on the total of the ending balances of the past two years divided by two. 2013. . . 2010 are equivalent to the balances as of January 1. . . . SME and retail customers. . . 2011 and January 1. . . 2013 and for the nine months ended September 30. . . . 2011 and 2012.7% 1. For the nine months ended September 30. . . . . . 2013. . . . . . . . . . . . . . (8) Total liquid assets divided by total assets. . . (7) Receivable from customers divided by total deposits. . . . . . Total equity to total assets(6) . . . .8% 53. Return on average assets(3) . . . . . . Cost-income ratio(2) . . . .9% 1.7% 1. . . . . . Interim Financial Reporting. 2011 and December 31. ratios were computed based on the balances on the audited financial statements.0% 3. . . The balances as of December 31. . “Assets and Liabilities”. . . .5% 9. the ratio was computed based on figures reported to the BSP. . . compared to total assets of P312.1 billion as of December 31. . . . . . . . . . . . . . . (5) Total non-performing loans (net) divided by total adjusted loan portfolio. . . . . . .2% 48. (4) Net income divided by average equity for the period indicated. . . .3% 44. . .6% 2. respectively. . . . As of December 31. . .2% 1. . . . NPL ratio(5) . . .4% 57.3% 2. . . . . . . . . . . . . . . . (2) Total operating expenses (excluding provisions) divided by operating income. 2011 and 2010. . . . and net income of P4. . . 2011. . . . OVERVIEW The Bank provides a full range of banking and other financial services to large corporate. . . including OFWs. PNB had a network of 656 branches and offices and 854 automated teller machines (“ATMs”) in the Philippines.5% 46. 3. . . . . . .4% 12. . . . . middle market. As of September 30.5% 2. 2013 Selected financial ratios For the year ended December 31. . . . . The Bank’s audited consolidated financial statements as of January 1. . . “Risk Management” and “Business” in this Prospectus. . . The following table sets out selected key financial ratios for the Bank for the periods indicated. .7% 12. . and for the years ended December 31. . . . 2011 as reflected in the audited consolidated financial statements. .6% 13. . . .1% 11.4% 15. . . . . . The unaudited interim condensed consolidated financial statements as of September 30. . . . . . For the nine months ended September 30. the Bank’s total assets were P606. . .6% 60. . . . . . 2011 and 2012 have been prepared in accordance with PFRS. . . . . . 2010. . . . . . . . 2012. the Bank’s total assets were P331. . . . . . . . . . 2012 and 2013 have been prepared in accordance with PAS 34. . . 57 . .0% 58. 2013. . . . . . . . . . . . . . . . . .3% 3. . . . . . . . . . . . . . . Liquidity Ratio(8) . . .7% 60. . Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set out under “Risk Factors” and elsewhere in this Prospectus. . . .0 billion. . .0% 35. . . . . . . . . . .5% 42. . . . Loans to deposits(7).0 billion and its net income was P5. . respectively. . For the year ended December 31.1 billion and its net income was P6. . . (6) Total equity divided by total assets. . . . Return on average equity(4) . Government agencies. . . .0 billion in the years ended December 31. . .2% 4. . . . . .0 billion. . .6% 46.9% 1. 2011 and 2012. 2010. . .

2006 for a total consideration of P11. average volume of assets. the sale of the second pool of NPAs amounting to P7.4% in 2011. which is primarily affected by yields on earning assets. efficiencies and ultimately the profitability of the leading Philippine commercial banks. PNB did not recognize the required additional allowance for credit losses on these NPAs amounting to P1.A. Under the related asset sale and purchase agreement. which was received in full and acknowledged by the Bank on February 14.1 billion.5 billion. P0.6 billion.0 billion worth of net NPLs and P18.9 billion. The Bank availed itself of the incentives provided under R. the Bank sold a pool of NPLs with an outstanding principal balance of P4. Since PNB again availed of the incentives mentioned above. However.5 billion was effective in 2007. These arrangements could have an effect on the Bank’s financial condition.6 billion with allowance for credit losses of P5.7 billion worth of net ROPA as reported to the BSP. liabilities and non-controlling interest in equity of consolidated entities would have increased by P0.9 billion was deferred and is being amortized over ten years as allowed under R. shall be paid over a period of five years based on a cash flow waterfall arrangement and interest rate of three-month MART reference rate prevailing as of the end of the quarter prior to the payment date. 2007. 9182 which permits the deferment of loss under BSP regulatory reporting rules. The sale of the NPAs to the SPV in 2006 and 2007 is considered as a true sale under R.4 billion in 2010 and P0. primarily NPLs. The more significant terms of the sale are as follows: • certain NPAs of the Bank were sold to the SPV and divided into two pools.0 billion. respectively. through issuance of notes through SPVs. The BSP confirmed in its letter date February 28. The sale of Pool 1 of the NPAs was made on December 29. Interest rates in the Philippines have ranged from an average of 3. as of December 31. In 2005. 2006. Competition has also significantly impacted the results of operations of PNB and will continue to shape the products. the financial condition of the industries to which it has extended credit. In 2006.03 billion and P0. 2010. and • the balance of P10. the Bank has entered into transactions whereby it has transferred NPAs.A. The operating results of PNB are also significantly driven by its net interest income. 2007 that these NPAs qualify as a true sale under R. according to the Philippine Bureau of Treasury based on volume-weighted 91-day Treasury bill averages. Net income and non-controlling interest in net income would have increased by P0. costs of interest-bearing liabilities and average volume of liabilities. 9182 and recorded as a charge against the bank’s equity. As of December 31.8 billion in 2009.4% in the first nine months of 2013. Net income and non-controlling interest in net income would have increased by P0.6% in 2012 and 0. 58 . liabilities and non-controlling interest in equity of consolidated entities would have been increased by P1. total assets. The loss on the sale amounting to P1. 9182 which permit the deferment of loss from the sale amounting to P1. No.7 billion to an SPV. 1. 2011.5 billion.08 billion in 2011. PNB’s yields and costs are both a function of its lending and deposit rates. the Bank had P3. The agreed purchase price of the first pool of NPAs were paid as follows: • an initial amount of P1. P0. Had the accounts of the SPV been consolidated into PNB’s accounts.7% in 2010.6 billion. The operating results and financial condition of the Bank have been and will continue to be affected by its nonperforming assets and provisioning.7 billion. total assets.A. in particular. respectively. 9182 as of December 31.1 billion and P1.FACTORS AFFECTING RESULTS OF OPERATIONS The performance of the Bank is dependent on the general economic and political developments in the Philippines and. which are significantly affected by market prevailing interest rates. PFRS requires that the accounts of the SPV that acquired the NPAs of PNB in 2006 and 2007 should be consolidated into PNB’s accounts.1 billion. results of operations and liquidity. to SPVs in accordance with the provisions of the SPV Act and subsequently not recognized such loans on its statement of financial position.3 billion. The sale of Pool 2 was completed in March 2007 for a total consideration of P7. the Bank entered into another asset sale and purchase agreement with another SPV for the sale of certain NPLs and foreclosed properties booked under investment properties. As at September 30. Transfer of NPAs As part of its asset management and efforts to reduce NPAs.A. 1. 2013.

Fluctuations in domestic market interest rates can have a significant impact on the Bank by affecting its interest income. . 2013. . For example. The interbank call loan rate. . the Bank aims to protect its profitability by adjusting its lending rates upward. mortgage contract receivables and restructured loans.6% 0.6% to 8. .5% 6.2% in 2010 to 4.4% as of September 30. . . . . the overall levels of business activity in the Philippines and the amount of remittances received from OFWs. The following tables set out certain domestic interest rates for the periods indicated: 2010 2011 2012 2013(2) (weighted averages per period) 91-day Treasury bill rates . . has decreased from an average rate of 4. the first day of the earliest period presented. As the cost of funding increases. . . . PNB presented its statement of financial position as of January 1. Philippine commercial bank average lending rates(3)(4) . . . 5. . Interest Rates Beginning in 2004. . Finally. .4% 4. The Bank’s results of operations are expected to vary from period to period in accordance with fluctuations in the Philippine economy which is in turn influenced by a variety of factors. . .6% to 7. based on data from the BSP.7-7. . (3) Range of monthly rates reflect the annual percentage equivalent of all commercial banks’ actual monthly interest income on Peso-denominated loans to the total outstanding level of the Peso-denominated demand/ time loans. . . . 2013. . which have recently been supported by the relatively low interest rate environment in the Philippines. are all directly related to the strength of the Philippine economy. . bills discounted. Commercial lending rates have generally followed the trends in Government borrowing rates. PNB restated its 2011 and 2010 financial statements to recognize the losses from the sale of NPAs to special purpose vehicles in the years the NPAs were sold as required by PFRS and consolidated the accounts of the SPV that acquired the NPAs in 2007 and 2008. which could in turn lead to increases in the Bank’s NPL portfolio and its ROPA. .6% 4. Consequently. . . . . . .6% in 2011. . . . . . . . . The 91-day Treasury bill rates have decreased from an average rate of 7. cost of funding and general performance of its existing loan portfolio and other assets. Any deterioration in the Philippine economy may adversely affect consumer sentiment and lead to a reduction in the Bank’s consumer banking business. . increased interests rates on its customers’ floating rate loans can also negatively affect the Bank’s business by increasing default rates among its borrowers.7% 1. The Bank actively manages its assets and liabilities to maximize interest income 59 . 2013.7% 5. .6-7. . primarily for the purpose of covering reserve deficiencies.5% as of September 30. . . . General Economic Conditions in the Philippines The Bank derives the large majority of its revenues and operating profits from sales in the Philippines and its business is highly dependent on the Philippine economy. . . . . . 2010 column of financial tables in this Prospectus. . 2011. . Depending on the extent of these adjustments. Demand for. 3. . . . .8% in 2012 and 4. . (4) Based on Philippine commercial bank average lending rates as of September 30. . . .In 2012. . . . . continued increases in market interest rates could adversely affect the liquidity levels of the Bank and the Philippine banking industry in general.7% in 2010. . . the Philippine Government reduced its borrowings and its budget deficit. 2011 may be presented under the December 31.6-7. in a period of rising domestic interest rates.0% as of September 30.0% Source: BSP Notes: (1) Rate on loans among Philippine banks for periods less than 24 hours. 4. the Bank’s profitability can be positively or negatively impacted. the Bank’s cost of funding rises correspondingly. . .7% in 2011.4% 1. Certain balance sheet information as of January 1. .1% in 2013 and 2. . . when interest rates payable on deposits increase. . 5. . . . . . . achieved in part through Government improvements in cash and revenue management as well as various privatization programs. . .7% to 7. .3% in 2004 to an average rate of 0. consumer goods and land.8% 4. .6-8. 2013. . However. and prevailing prices of.1% 2. the Bank competes aggressively to attract deposits by offering higher rates to depositors in order to increase its loanable funds. . . including political developments among others. . .2% 4. .6% to 7. 2013. (2) As of September 30. . . .7% 5. which is the rate on loans among Philippine banks for periods less than 24 hours. moving from an average range of 6. Interbank call loan rate(1) . There can be no assurance that current or future Governments will adopt economic policies conducive to sustaining economic growth or improving the stability of the Philippine banking sector. . However.

. . . . office and commercial buildings. . .1%. . . . . . . . 120.1% 2. . as well as positive trends in the economic growth rates in the Philippines. . in 2008.8 (5. . .8% 4. . . . Dollar Rate 2011 2012 2013(1) Average Q/U. dollar by 5. .3% and the producer price index increased by 4. . . The Philippines has experienced significant increases in inflation rates in the past. . Based on the 2006 CPI basket. . The producer price declined in 2009 and 2010 as costs of imported inputs for the manufacturing sector declined. .1 152. . . Recent increases in cash inflows from foreign investors. . Exchange Rate The Peso has been on an appreciating trend against the U. . . . . . . . . The appreciation of the Peso slowed somewhat to 1. .229 2. . . . % Appreciation . . Increase over previous year . . . and relatively lower interest rates. .0 42. . . . For example. . . . . . . . .S. 60 . . . . . the producer price index for manufacturing (which is based on the 2000 PPI benchmark). . . could contribute to increasing inflation rates in the Philippines in the near future. . . . . inflation was 3. . . . 2013.2 The Philippines’ real estate sector has shown sustained gains in the last few years largely due to increased remittances from OFWs. high rates of inflation in the Philippine economy could also impact the Bank’s ability to sustain profitable net interest margins because it could lower loan demand. . . . . . . . . . . . . . . . boom in the business process outsourcing and call center businesses. . . .and minimize the cost of funding. . . .S. . . .3% 164. .3% in 2010 and by 4.0% in 2011 due to influx of foreign funds seeking higher returns amidst positive sentiments on the Philippine economy.S. Growth and developments are most pronounced in the residential houses and condominiums.1 133. . .0)% 1. as well as the annual percentage change in each index. . .2% in the first nine months of 2013. .5 42. . . . . . . . Source: National Statistics Office Note: (1) As of September 30. . . .8% in the first nine months of 2013. . . . .8% 3. discourage diversification of the Bank’s loan portfolio or require the Bank to increase the cost of funding for its deposits. . . . . . . . . . . . . . . . . .313 4. .060 1. . which measures the average price of a standard “basket” of goods and services used by a typical customer. Inflation The Philippines reports inflation as the annual percentage change in the consumer price index. . . . . as well as to ensure that exposure to fluctuations in interest rates is kept within acceptable limits.110 5.2 165. 2010 2011 2012 2013(1) Consumer Price Index (average). . . . . . . . . . . and shopping malls/centers subsectors. . . 2013.0% (0. Philippine inflation has also been historically vulnerable to fluctuations in the global energy and commodity prices. . . .1% in 2012 on a year-on-year basis. . the consumer price index increased by 8. In recent times. . The Peso strengthened against the U. . . . . However. . .1 130. . Source: BSP Note: (1) For the nine months ended September 30. . . . . . . . .$ Rate . In addition. . but registered a slight increase from 2010 to 2012. Continued increases in inflation rates in the Philippines could materially adversely affect the Philippine economy and thereby impact the Bank’s financial position and results of operations.3 43. Increase (decrease) over previous year . . Philippine Property Market 45.4 126. . .8 165. . dollar since 2009. The following table sets out the consumer price index (based on the 2006 CPI basket). . . . . such trends may not continue in the future. . . . . . . . . . . . . . . . .5)% (8. . decreases in interest rates in the Philippines have resulted in increases in the Bank’s fixed-rate maturity securities portfolio and resulted in increased levels of trading and investment securities gains. . . . . . . . . . . . . Producer Price Index for manufacturing (average) . . . . .3 3. . . . . . . . . . .3)% The consumer price index has been on an increasing trend for the past three years. . . . 2010 Peso—U. . . . . . . The rise in consumer prices has slowed to an average of 2. .S. . .

S. on January 15. Dollar as of September 30. A capital conservation buffer of 2. The liberalization of foreign participation in the Philippine banking industry has resulted in increased competition. comprised of CET1 capital. For the last three years. foreign banks have expanded from their traditional focus on Metro Manila and large-scale corporations to building their own networks to increase market share. 2010 which do not meet the eligibility criteria for capital instruments under the revised capital framework shall no longer be recognized as capital. the Peso opened at P41.The Bank has benefited from the resurgence of the property market. as well as the subsequent crisis in worldwide financial markets has had an adverse effect on the Philippine economy. expressed as a percentage of qualifying capital to risk weighted assets. fixed-income distribution and cash management services. the Philippines experienced economic turmoil characterized by currency depreciation. which began in 2007. 2012 shall be recognized as qualifying capital until December 31.31 against the U. 709 and 716 and before effectivity of Circular No. Existing capital instruments as of December 31. interest rate volatility. management. shall not be less than 10% for both solo basis (head office plus branches) and consolidated basis (parent bank plus subsidiary financial allied undertakings.5%. An increase in competition from foreign banks could adversely affect the Bank’s results of operations and financial condition. in 2013. Foreign banks tend to benefit from the support of their parent companies or established regional operations but they are limited by local regulations to a maximum of six Philippines branches in order to protect the growth and participation of local banks. 2013. Competition The Philippine banking industry is very competitive and the bank competes against domestic and foreign banks which offer similar products and services as the bank. interest rates in the Philippines have recently declined. More recently.4% to a close of P43. 781 setting out the Basel III implementing guidelines on minimum capital requirements. which affected the Bank’s financial results in December 31. 2008. 2015. Capital instruments issued under Circulars Nos. particularly on the minimum capital and disclosure requirements for the Philippine banking system in accordance with the Basel III standards. 61 . Banking Regulation The Philippine banking industry is highly regulated by the BSP and operates within a framework that includes guidelines on capital adequacy. respectively.S. On December 14. anti-money laundering and provisioning for NPLs. although their size and maturity may cause them to be less able to adapt to major economic or regulatory changes. due to greater liquidity and stable inflation. These banks benefit from economies of scale and a wider distribution network.S. but excluding insurance companies). Other minimum capital ratios include CET1 ratio and Tier 1 capital ratios of 6. However. Additionally.5%. corporate governance. The Philippine Peso has appreciated against the U. a significant decline in share prices on the PSE and a reduction of foreign currency reserves. the BSP issued Circular No.08 and depreciated 5.to middle-income individuals/families and real estate investors. economy. 2096 approved the implementing guidelines on the revised risk-based adequacy framework. the Monetary Board in its Resolution No. consumer loans. the Bank has profitably sold foreclosed residential houses to low. with any reduction in global liquidity likely to have an adverse effect on the Bank’s financial results. dollar in the recent past. Accordingly. 2012. Since liberalization. Competition with other banks has and will continue to affect the cost of the Bank’s funding and the Bank’s ability to increase its market share of loans and deposits. Some of the Bank’s competitors are larger domestic banks with more established operations and banking presence across the country. Lower interest rates on the Bank’s asset products would reduce its margins and thus its net income. Most of these properties are located in the key cities and urban centers in the provinces where there are higher growth potentials. After the onset of the Asian economic crisis in 1997. the slowdown in the U. Under the implementing guidelines the risk-based capital ratio of a bank. 768 dated September 21. Effects of Financial Crises As a bank with substantially all of its operations in the Philippines. Appreciation of the Peso may have a negative impact on the Philippine economy by making Philippine exports more expensive and thereby negatively impacting economic growth and the exporters’ ability to meet their financial obligations to PNB and other financial institutions. the Bank’s financial position and results of operations have been and will continue to be significantly affected by economic and political conditions in the Philippines. primarily through acquisitions of small domestic savings banks. will also be implemented. The Eurozone debt crisis and resulting economic instability poses a continuing threat to the global financial system. 2013. The Bank also faces increasing competition in its target growth areas such as small and medium enterprises.0% and 7.

bills payable and other borrowings. but not future credit losses. there can be no assurance that such contemplated synergies and efficiencies will be fully realized by the Bank. Operating expenses Operating expenses includes compensation and fringe benefits. often as a result of the need to make estimates about the effect of matters that are inherently uncertain. subjective or complex judgments. and the sensitivity of those judgments to different circumstances. 2008. Thus there can be no assurance that the merger will have the desired effect on the Bank’s financial position and results of operations. 62 . Provision for income tax Income taxes include corporate and other deferred income tax and final taxes paid which represents final withholding tax on gross interest income from government securities and other deposit substitutes and income from the Foreign Currency Deposit Unit (FCDU) transactions. including the variables and assumptions underlying its estimates. to the net carry amount of the financial asset or financial liability (the Effective Interest Rate or EIR). net gains on sale or exchange of assets. occupancy and equipment-related costs. prepayment options). Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss. For a complete discussion of PNB’s critical accounting policies and management’s use of judgment. The calculation takes into account all contractual terms of the financial instrument (for example. credit and other losses. and that the integration will be implemented with minimal disruption of operations. Interest expenses Interest expenses includes interest payable on deposit liabilities. includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that are both (i) relevant to the presentation of the Bank’s financial position and results of operations and (ii) require management’s most difficult. The respective shareholders of the Bank and Allied Bank. provision for impairment. depreciation and amortization and miscellaneous. the Bank has identified certain critical accounting policies. Interest expenses are recognized as accrued. Other income Other incomes includes net gains on trading and investment securities. representing at least two-thirds of the outstanding capital stock of both banks.Results following merger with Allied Bank On February 9. and other miscellaneous items. In order to provide an understanding of how the Banks management forms its judgments about future events. 2012. interest income continues to be recognized using the original EIR applied to the new carrying amount. the Bank completed its merger with Allied Bank. where appropriate. While the Bank expects the merger to result in significant synergies and efficiencies through the integration of operations and economies of scale in the coming years. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increase. those judgments become even more subjective and complex. representing at least two-thirds of the outstanding capital stock of both banks. The original Plan of Merger was approved by the affirmative vote of the Bank and Allied Bank’s respective shareholders on June 24. Description of Statements of Income Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments classified as held-for-trading and available for-sale investments. net gains on foreign exchange. see Note 2 and Note 3 to the Bank’s financial statements included in this Prospectus. approved the amended terms of the Plan of Merger of the two banks on March 6. 2013. interest income is recorded at the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period. The change in carrying amount is recorded as interest income. as the resulting entity. taxes and licenses. The adjusted carrying amount is calculated based on the original EIR. accounting estimates and assumptions.

Financial Assets at fair value through profit or loss (FVPL) include Government securities.Description of Balance Sheet Items Assets Cash and Other Cash Items include cash in transits. accrued interest receivable. letters of credit and trust receipts. employee benefits. Deferred Tax Assets refer to income taxes recoverable in future periods in respect of deductible temporary differences. Loans and Receivables include loans and discounts. buildings. furniture. Securities Held under Agreement to Resell include Government securities purchased under reverse repurchase arrangements with BSP. Buildings are stated at appraised value less accumulated depreciation and impairment. accounts receivable. credit card receivables. and balances of Due from Local Banks representing deposit with other local banks. incomes taxes. Land is stated at appraised value less any impairment in value. deferred reinsurance premiums. real estate under joint venture agreements. time and demands deposits. Interbank Loans Receivable include interbank call loans receivable and interbank term loans receivable. as well as long-term negotiable certificates of time deposits (LTNCDs). Due from Other Banks includes balances of Due from Foreign Banks representing debit balances maintained with foreign banks. sales contract receivable and miscellaneous. Interest and Other Expenses include interest. Depreciable properties such as leaseholds. PDIC fees and other licensing and tax fees. software costs. fixtures and equipment are stated at cost less accumulated depreciation and amortization. Land Bank of the Philippines and the Social Security System. derivatives assets. Accrued Taxes. AFS Investments include Government securities. HTM Investments include government securities and other debt securities classified as held-to-maturity. cash on hand from ATM and extension offices and checks and other clearing items from other banks. Investments in Subsidiaries and an Associate include investments in various PNB subsidiaries and SPVs. and miscellaneous. furniture. other debt securities and equity securities (net of allowance for impairment loss) classified as available-for-sale. leaseholds. foreign banks and others. lease contracts receivable. Financial Liabilities at FVPL include subordinated debt issued in 2008 and derivative liabilities. and private debt securities. Other Assets include deferred charges. Receivables from Special Purpose Vehicle include the present value of notes received by PNB from the sale of the first and second pool of non-performing assets to an SPV. customer liabilities on acceptances. Bills and Acceptances Payable include bills payable to BSP and local banks. fixtures and equipment. 63 . Liabilities Deposit Liabilities include savings. carry forward of unused tax losses and carry forward of unused tax credits. sundry debits. Due from BSP includes balance of deposit accounts with BSP including Special Deposit Accounts. Property and Equipment include the value of lands. bills purchased. Investment Properties or Real and Other Properties Acquired (ROPA) include real properties foreclosed or acquired in settlement of loans. vault/teller cash. equity securities. including the Development Bank of the Philippines. prepaid expenses.

5 billion. the Bank’s income before income tax would have been P8. including the related notes.9 billion in the nine months ended September 30. If the acquisition of ABC had been completed as at January 1. PNB’s net income was P6. the Bank’s operating expenses would have been P14. 2013.1 billion.2 billion. the Bank’s provision for income tax would have been P1. withholding tax payable.4 billion.9 billion. are not comparable with the results of operations for the nine months ended September 30. the Bank’s net income would have been P7. margin deposits and cash letters of credit. PNB recorded interest income of P13.3 billion. 2013. 2013. If the acquisition of ABC had been completed as at January 1.5 billion and miscellaneous expenses of P4.5 billion unsecured subordinated notes issued by the Bank in 2012 and 2011 respectively.6 million loss to the Bank’s income before income tax. retirement liabilities. deferred reinsurance premiums.6 billion in the nine months ended September 30. primarily comprising income from trading and investment securities gains of P5. 2013.5 billion to the Bank’s revenue and P29. payment order payable. If the acquisition of ABC had been completed as at January 1. 2013.3 billion in the nine months ended September 30.0 billion for the nine months ended September 30. primarily comprising interest income on loans and receivables of P9. 2013 The following is a discussion of the Bank’s results of operations for the nine months ended September 30. Provision for income taxes PNB recorded provision for income tax of P1. 2013 and should be read in conjunction with the Bank’s consolidated interim financial statements for the nine months ended September 30. Operating income The Bank’s total operating income was P20. manager’s checks and demand drafts outstanding. 2012 and 2013.6 billion.1 billion. 2013.5 billion in the nine months ended September 30. 2012.Subordinated Debt includes the aggregate principal amounts of P3.8 billion in the nine months ended September 30. the Bank’s total operating income would have been P22. 2013 are not necessarily indicative of the Bank’s operating results for the full year 2013 and are not indicative of operating results for any future period. due to other banks and miscellaneous.6 billion and interest income on trading and investment securities of P2. PNB recorded interest expenses of P3. PNB recorded other income of P8. If the acquisition of ABC had been completed as at January 1. primarily comprising interest expense on deposit liabilities of P2.3 billion in the nine months ended September 30. bills purchased. ABC and its subsidiaries have contributed P4. Income before income tax The Bank recorded income before income tax of P7. 2013.8 billion. 2012 are not discussed below because the Bank’s results of operations for that period do not include the results of operations of Allied Bank as the merger had not yet been completed by September 30. RESULTS OF OPERATIONS Nine months ended September 30. The Bank’s results of operations for the nine months ended September 30. If the acquisition of ABC had been completed as at January 1. interoffice float items. 2013. 2013. Net income As a result of the foregoing. 64 . amounts due to the Treasurer of the Philippines.5 billion aggregate principal amount of unsecured subordinated notes issued in 2006. due to BSP. other dormant credits. 2013. From the date of acquisition. Operating expenses PNB recorded operating expenses of P12. 2013. 2013. deposits on lease contracts. in addition to the P5. which include the results of Allied Bank since the merger was completed on February 9. 2013.5 billion and P6. mainly composed of compensation and fringe benefits of P4. and as a result. contained in this Prospectus. insurance contract liabilities.2 billion for the nine months ended September 30. Other Liabilities include accounts payable. 2013. The Bank’s results of operations for the nine months ended September 30. 2013. deferred credits.

Net gain on sale or exchange of assets . . .7 billion in 2012. . . a decrease of 16. . Occupancy and equipment-related costs . . . .740. . . . . . . Miscellaneous . .3) 15. . . compensation and fringe benefits decreased by 2.9 1. . .1 1. . . . Other income The following table sets forth the components of PNB’s other income for the years indicated: For the year ended December 31. . . . .552. . .0) (1. . . . . . . . . . . . .6) 8. . . . . . . . .4 1. . . . . . . . . . .2 (2. . . . . total liabilities of ABC were recorded at P164.09 billion primarily due to lower manpower costs of some of PNB’s overseas subsidiaries as a result of the closure of branches of one of PNB’s 65 . . .5 (3. Foreign exchange gains—net . . . . . . .1 1. . . .2 11. . . . . . . . . .7 21. . . 2012 compared to year ended December 31. . . . . . . . . . . . . . . . . . a decrease of 1. . . As of the completion of the acquisition on February 9. . . .5) (14.3 billion.7 (1. . Provision for impairment. . .7 3. . . . . . .004. . . Operating expenses The following table sets out the components of PNB’s operating expenses for the years indicated: For the year ended December 31.3 1. . . . . . .8 11. .216. .8 billion in 2011. . .0 billion. . In particular. . .6 PNB recorded other income of P8. . . .842. .4 billion in 2012.5 billion in 2011. . . Year ended December 31. . . . . . . . . 2013. . . . . . . . . . . . .2 billion and loans and receivables of P258. .134. . . . . .2 1. . . . . . . . . . . . including amounts due from BSP of P129. 2013. .3 933. . . . . . . Miscellaneous . .640. .1) (39. . . . . Interest expenses PNB recorded interest expenses of P4.6% from P8. . . . .910. . . . . . . . an increase of 8.3 1. . . . . . . . primarily comprising deposit liabilities of P454. . . . . . primarily due to lower yields on investments and lower average daily balances of loans and receivables as well as yield. . . . . . . .133. . . . . . . . primarily due to higher net trading gains from investments.7 5. . . . . . . .8% from P5.4 3. . . .2 8. . credit and other losses . . . As of completion of the acquisition on February 9.4 1. .1 billion as of September 30. . . . a decrease of 8. . . . . . . . . . .2 billion.3 billion in 2011. . . . .9 1. . . . . . . . . . . . . 2013. . . . . .2 4. . . . .405. . . . . .0% from P11. . . . . . 2011 2012 (Q millions) Percentage change (%) Compensation and fringe benefits . .050. . . . . . . . . . . . . .5 359. . . . . .319. . . . . . . . . .7 713. Liabilities PNB had total liabilities of P522. . . . . 3. . . .573.6 billion in 2012.397.0) PNB recorded operating expenses of P11. total assets of ABC were recorded at P195. . . . Taxes and licenses . . .Financial position Assets PNB had total assets of P606. . . . .4 billion in 2012. . . . .350. . . . . .9 8. . . . . . . . . . .0 billion. Total . . . .133. . . . . . 2013. . . . . . . . . . . Total.755. . . .4 656.815. . . . . . . . . . . . .5% or P0. . . . . . . . . . . .015. . .9) 8.7 (73. . . . . . . . . 2011 Interest income PNB recorded interest income of P11. . . . . . . .7 43. . 3. mainly due to lower interest paid on deposit liabilities. . .2 billion as of September 30. . . . .1 billion in 2011. . . . . . 2011 2012 (Q millions) Percentage change (%) Trading and investment gains—net.1 1. . . . Depreciation and amortization.720. . . . . . . . . . .9% from P12. . . . .

. Interbank Loans Receivable . . . . . . . . . 2012.323.1 52. . Interbank Loans Receivable decreased by P5. . . . . .01 billion due to lower rental of overseas offices after closure of the PNB Guam and RCI branches. .905. .1 3. . . . . . . . . . . . .1 38. Available-for-Sale Investments . . . .7 billion due to additional accrual of expenses. . . . . . Changes in PNB’s cash and other cash items. . . Deferred Tax Assets. . . . . . . Net income As a result of the foregoing. . . .7 3. . . .7% from P4.3 billion in 2011 and 2012. . . . .6 (2. . . . .1%. . . . . . . .0 18. . .6 2. . . .4 2. . . . .8 18.7 4.0 billion in 2012. .7 million in 2012. . . . . . . . .8 billion in 2011. . . . . . . . . . . .707. . . . . . . . . . . .1) (0. .152. . . . . . . .2% from P879. . . . . . . . . . . . . . Securities Held under Agreements to Resell . . . . .780. . . . . . . . .1% from total assets of P312. . .6 (0. Taxes and licenses decreased by P0. . . . Cash and Other Cash Items increased by P0. or 41.0 144. . . . . . . PNB’s net income increased to P5. . . 312. . . . . primarily due to lower Interbank call loans of BSP. . . . . . . or 3. . . . . . . . . . . . . . . . . . . . Due from BSP decreased by P1. . . .066. . . . . . . . . Cash and Other Cash Items.097. . . . . . . . . . . . . . . . . . . Securities Held under Agreement to Resell stood at P18. . . .0 6. . . . .0 14. Provision for income taxes PNB recorded provision for income tax of P924. . . . . . . . . . . . . . . . . . . . .875. . . . . . . . . . . Other Assets. Miscellaneous expense increased by P0. . . . . due from BSP. . . . . . .6%. .4 billion. .5 126. . . . . . . . . .503. . Financial Assets at FVPL decreased by P2. . . . . . . . . . . . . . .2) PNB had total assets of P331. . . . . . . 2011 2012 (Q millions) Percentage change (%) Total Assets . .1 billion as of December 31. . . . . mainly due to higher revenues. . . .0 4. .1) (32. . . or 39. . . .6) (37.6 11. . . . . .5 16. . . . .404. . . .023. . .8 17.4 million in 2011.424. .7%.6 billion. . . . . . . primarily due to sales of various trading investment securities. .6 billion. . . Financial Assets at Fair Value Through Profit or Loss . . . Property and Equipment . . . an increase of 5. . . . . .9%. . . . . . . . Due from Other Banks decreased by P2.300.775. . . .5 5. . . . Occupancy and equipment-related costs decreased by P0. .8 2. . . or 37.2 billion due to lower gross receipts tax (GRT) and documentary stamp taxes (DST) paid in 2012. . . . . . . . . . . . . .9 billion. . Due from Other Banks. . . . . . . or 2. .overseas subsidiaries. . . . . . . . .249. . . .8 37. . . . Loans and Receivables . . . . . . Due from the BSP.1 (10.478. .3) (23. . . . . . . . .8 1. . Investments in Subsidiaries and an Associate . . . .5%. . . . . . . . . . .1 5. . . . .5 16. . . . . . . .042.994. . . .5) 28. . . . .0 billion as of December 31. . . . . . . . .1 14.4 6. . . . . . .300. . . .997.6 331. . . . . . . .6%. . . or 32. . . . an increase of 6. . . . . . .498. . 66 . . . . .4) 0. .006. . . .7) — (41. . . . . . . .8 66. . . . . .3 16. . . . . . . . . . . . . . Financial position Assets The following table sets out selected components of PNB’s assets as of the years indicated: As of December 31.599. . . . . . 2011. . .897. . . primarily as the bank reduced its working balances on deposits with foreign as well as local banks. . . . . . . The increase in total assets was primarily attributable to the factors discussed below. . . . . primarily due to reversal of provision of various accounts. Investment Properties. . . . . . . . . . . . . .175. .3 1. . . . .100. . an increase of 5. . . mainly due to lower Special Deposit Account balances. . . . . . . . . .2 billion. . . . . . due from other banks and interbank loans receivable and Securities Purchased under Resale Agreement (SPURA) are based on the liquidity requirements and investment mix for the periods covered.564. . . . . . . . . primarily due to higher cash on hand. . . . . . . . . . . .0 billion. . . . . . Provision for impairment and other losses decreased by P0. . . . . . . .4 6. . .901. . . . . . .

. . This growth was offset by the P1.9 4. . . or 2. . . . .1% of PNB’s total liabilities as of December 31. . . . . . . . . The increase of P4. . Other Liabilities increased by P2. . Accrued Taxes. . . . . . . . . . . .5 billion in 2011. . . . .1 billion. . . . . .1 54. . . . . .6%. . .8% of PNB’s total assets as of December 31. and P3. . . or 54. .3 billion. . . or 20.5 billion. . .1 billion. . . Interest and Other Expenses . 2010 Interest income PNB recorded interest income of P12. . . . increased by P14. . or 14. . . or 28. . .5% and 3. .5 billion unsecured subordinated debt.6 billion. . 67 .2 8. . or 1. . or 4. . .2 237. . . . . Liabilities The following table sets out the selected components of PNB’s liabilities as of the dates indicated: As of December 31.0 20. . .5 billion.1 billion.3 billion in 2010. . .846. . . . .076. . . . .1 1. . . . . . . . . . primarily due to increase in interest income on loans and receivables resulting from growth in PNB’s loan portfolio. primarily as a result of fair market valuation of financial liabilities. . . . . . .6 2. . . . . .7 billion. was primarily a result of higher availment from the rediscounting facility of BSP and from additional borrowings from foreign banks. . 2011 compared to year ended December 31. .092. .8 16. . respectively. . .4%. respectively. an increase of 1. . . . Investment Properties decreased by P1. . respectively. . .4 6. Accrued Taxes. respectively. . . . primarily due to additional accrual for litigation expenses. . .3%. . . . . .6% from P12. . . . . 2012 and December 31. . .2 billion.452. . primarily due to the growth in PNB’s savings deposits by P8. . .0%. . . . Subordinated Debt increased by P3. 2011. . . . . .479. . .1 billion. . .5% of PNB’s total assets as of December 31. primarily due to purchase of additional investments in Retail Treasury Bonds. . . . . . . . . . . . . . Financial Liabilities at Fair Value Through Profit or Loss . . primarily due to higher loan bookings for corporate accounts.8 13. .2% and 16. . . . . .6%. . . . .2 PNB had total liabilities of P291.4%. . . . . . bills and acceptances payable and subordinated debt. Bills and Acceptances Payable. . . . . .2%. . 2012 and December 31. . .7% and 40. . .981.6) 54. . . . primarily due to higher sale of ROPA or foreclosed assets. . 2012 and 2011. . 2011. Year ended December 31. . Loans and Receivables representing 43. or 10. . . primarily due to issuance of additional P3. Deposit Liabilities . . . .6 240. .854. . . . . . .016. fixed rate treasury notes and Government bonds. . . .7 billion. . Subordinated Debt . . or 0.4 (2. . . 2011.5 14. Property and Equipment decreased by P0. . . . .259.1%. . . . Interest and Other Expenses increased by P0. . . . Deposit Liabilities increased by P3.1%. .AFS Investments representing 20. . . .8 billion. .650.3 billion as of December 31. . . . .458. . . increased by P18. . . . . Financial Liabilities at FVPL decreased by P0. . . .1 billion as of December 31.0%. . .533. 2012. . . . .4 5.6 billion. . . . or 54. . .6%. . . . .063. .8%. . . Bills and Acceptances Payable represented 4. Other Liabilities . . . . . . . 277. or 13. primarily due to depreciation. . . an increase of 5. . .2 6. . or 2. . or 5. .9 6.4%. . . . . .1% from P277. . 2011 2012 (Q millions) Percentage change (%) Total Liabilities . . The increase was primarily attributable to growth in deposit. . . decreases in PNB’s demand and time deposits for the year.0 291. . . .3 9. . primarily as a result of additional provisions for losses arising from litigation cases. . .938.4 3. . .

. . . . . generally unchanged from provision for income tax of P0. . .5 906. . . . . . . while provision for impairment. .350. .1 10. . . .7 12. . credit and other losses decreased by P0.595.9 1. .7 16. .4 3.8 billion in 2011. . . . . 3. . . .216. .8 4. . . . Total . . . . . . . . . .6 3. Other income The following table sets forth the components of PNB’s other income for the years indicated: For the year ended December 31. .420. . .8 2. . . . . . . . . . . . . . .0) 34. . . . . . .7 12. . . an increase of 10. . . . . . . . . . . In particular. . . . .5 7. . . .399. net income increased to P4. . primarily due to increased net income on trading and investments. .706. . . . . . . Taxes and licenses . . . .4 656. .384. . .9 billion in 2010. . . . . . 3. .8 billion in 2010.4) PNB recorded operating expenses of P11. . . . . . . . . . . compensation and fringe benefits increased by P0. .1 1. . . . .6) (8. . . .2 1. .015. . . . . . . . Net gain on sale or exchange of assets. . . . . .8 billion due to lower provisions made on investment properties. . . . .7 billion in 2010. . . . . . . an increase of 4. . . . . . . 2010 (Q millions) 2011 Percentage change (%) Trading and investment gains—net . . . . . . . . increased foreign exchange gains and miscellaneous income. . .815. . . . . . . . . . . . . .3 billion in 2011. Foreign exchange gains—net .9 billion in 2011. . . . .4 billion in 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . .Interest expenses PNB recorded interest expenses of P5. . . . . . . . . . . . .0 1. . . Miscellaneous. . . . . . . . . . . . . . . . Miscellaneous. . . . . . . Provision for impairment. . . . . which offset lower interest expense on bills payable and other borrowings. . . . . . Provision for income taxes Provision for income tax was P0.080. The increase in miscellaneous income was primarily due to higher income of some subsidiaries. . . . .3 3.9 2. . . . . . . . . a decrease of 5. . . . . . .0 billion in 2010. . . .2 11. . .176. . . . . . . . . . .692. Net income As a result of the foregoing. . . . .3) (5. . . . . . . . . mainly due to increase in interest expense on deposit liabilities resulting from higher deposits. which offset lower gain on sales or exchange of assets. .1 billion in 2011. . . . . . . . . . .109. . .0 (36. 68 . . . . . . . . . . . . . . . .3) (21. .319. . . . . . .1 1.050. . . . Occupancy and equipment-related costs . . . . . . credit and other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization .4 1. . . . .7% from P7. . . . . .573.397.552. . .9 8. . . . . . .3 1. . . . . . .4 billion due to higher retirement expenses paid in 2011. . . . . .4 1. . . .4% from P12. . . . an increase of 17.910.4% from P4. . .8 billion in 2011.8 3.755. . . . Operating expenses The following table sets out the components of PNB’s operating expenses for the years indicated: For the year ended December 31. . . . . . . . . . . . .7 12. . . . . . . . . . . . .4 915.8 837.1 19. .7 PNB recorded other income of P8. . . . . .9 (35.9% from P4. . . . . . . . . . . . . . . . . 2010 2011 (Q millions) Percentage change (%) Compensation and fringe benefits . .

. . . . . . . . . . . . . . . . .0 17.0 (1. . . . . . . . . .1 billion as of December 31. . .249. . Securities Held under Agreement to Resell increased by P11. . . . . . government. . .564. . .0 12. . . . .901. . . . . . .7 169. . . . . . . . . .6 5. . respectively.5 (10. . . . .Financial position Assets The following table sets out selected components of PNB’s assets as of the years indicated: As of December 31. Investments in Subsidiaries and an Associate .152. . . . .9 billion. . . or 57. . 2011 and December 31. due from BSP. or 2. 2010 2011 (Q millions) Percentage change (%) Total Assets . . . .4 (100. . . . . primarily due to the sale of foreclosed properties during the tax year. . . . .775.1 24. . . . . primarily due to the sale of Government and other investment securities. . Due from Other Banks. . . .424. .286. . . . . . . . . . . . . . . .1 3. .5 2. .8 5. . mainly due to the increase in PNB’s reserve deposit account as well as increased placements with BSP.0 18. . . . . . . . .8 billion. . . .9%. . . . .6 6. . . . . . . . . . . .1) (2. . . . . . primarily due to lower deferred charges and stationeries and supplies. . . . .404.3 52. . . . .829. . . . primarily due to increased lending transactions with the BSP during the year. .0 15. . . 297.097.1%. . . . . . . . . . . . .0%.5%. . . . . . . . . . . . . . .0) 57. .7%.1%. or 169. . .3 billion. . . . . . . . .5 14. .6 6. . . . . . . . . . . . . or 13. . . .1 billion. . . . or 57. . . . . . . . . . . . . . Available-for-Sale Investments . . . . Held-to-Maturity Investments . . . . . . 2010. .0 38. . .228. . . . . . . . . Cash and Other Cash Items. .2 16. . Other Assets decreased by P0. .531. .1 1. . . . . or 14. . . . . . . .4 5. . .692. . . . . . .1 (57. Interbank Loans Receivable increased by P4. . . .4%. . . . . . . . . . .315. . . . . . . . 2011 and December 31. . an increase of 5. . . . . . . Other Assets. . . . Investment in Subsidiaries and an Associate increased by P0. . . . . . . . telecommunications. . . . . . . . . . . . . . . . . . . . . . primarily due to reduction of deposits and placements with other banks. . .9 billion. . . . Investment Properties. . .913. . . . . . . . . . . .2 — 16. . . . 69 . . . . .1 24.5% and 37. . . . . Financial Assets at FVPL decreased by P9. . . . . . .897. .980. . . . .6 billion. .0% from total assets of P297. .0 38. 2011. . . . . . . Property and Equipment .1 billion as of December 31.8% and 11. Due from the BSP. . . . increased by P15.481. . . Securities Held under Agreements to Resell . . . . . . .1%. Interbank Loans Receivable . . . . . . . respectively. . . . . . .631. . . . . . . . . . or 34. . .4 1. . .120. . . . .875. . . .0) PNB had total assets of P312. . increased by P17. . . . . . . . . . primarily due to increased loans made during the year across industries including the power. . . . . .8 110. Investment Properties decreased by P1. . . . . . . . . . . . . .5 126. . . . . . . . . . . . . . . . . .8 billion. primarily due to income from operations of Allied Commercial Bank. .8 4. . . . .0%. . . . . . AFS Investments representing 16. . . . . . . . . . . . . or 10. . . . Loans and Receivables . . . . . . Deferred Tax Assets. . or 24. . . .1 billion. . . . . . . . . . . . . . . . . . . or 51.9) (13. . . . Loans and Receivables representing 40. which offset higher reinsurance premiums and prepaid expenses. . .0) 51. . . . . . . . .7 34.4 billion. Financial Assets at Fair Value Through Profit or Loss . .832. . . . . . . . . . primarily due to additional investments in Government securities and reclassification of HTM investments in compliance with the provisions of PAS 39. .5 billion. .0 312. . . . . .5 6. . . 2010. . . . Due from BSP increased by P13.066. .100. . . . . . . . . . . . . . . . . . . . . . . . .8 17. . . . .141. . .4) 2. Due from Other Banks increased by P1. . . . . . . .9 34. The increase in total assets was primarily attributable to proceeds from higher deposits and the issuance of P6. .1% of PNB’s total assets as of December 31. . . . . .5%. . . . . . . . . . . . . . .457. . manufacturing and transportation industries. . . Changes in PNB’s cash and other cash items. . . . . . . . . . . . . . . . . .6% of PNB’s total assets as of December 31. .300. 2010. . . due from other banks and interbank loans receivable and SPURA are based on the liquidity requirements and investment mix for the periods covered. . . . . .0) (0.5 billion unsecured subordinated Tier 2 Capital Notes in June 2011. primarily due to the increase in PNB’s lending to the BSP in 2011. .9 16. .323.1 2. . . .800.2 5.

. Bills and Acceptances Payable.963. . . . .5 billion. Subordinated Debt . 2013 For the year ended December 31. . net cash inflow of P3. .Liabilities The following table sets out the selected components of PNB’s liabilities as of the dates indicated: As of December 31. . Deposit Liabilities increased by P11. or 7. . . . . In 2010. . .4 226. .2 8.178. . . . . . .1 (29. .5 76. Cash and cash equivalents at end of year . . .0 51. 70 . .1 4. . . . . or 29. . . .0 (17. .8) 12.9%. .5% of PNB’s total liabilities as of 1 December 2011 and 2010. . . .7 3. .9 billion. Net increase (decrease) in cash and cash equivalents . . . . .456. In 2011. .1 277. . .1 billion. . . . . . . . . . Interest and Other Expenses . decrease in time deposits. . . . . . . . . . . . . . .4) 20. . . . . . .325.7 8.6%.2 billion. . . . was primarily a result of PNB’s payment of certain borrowings with other banks during the year.9) 17. . .9 billion in 2010. . . . . . .6 billion and net cash inflow of P51. . . . . .748. . . . which offset the P4.435. . . Subordinated Debt increased by P1. . Net cash provided by (used in) financing activities . . 2010 2011 2012 (Q millions) Net cash provided by (used in) operating activities .1 billion. . . . . .601. . . .1% from P268. . . . . . . . . .711. . . .6 0.0 3. Bills and Acceptances Payable represented 3. .016. . . or 4. . . . . . . . . .576. .2 billion. . . . . . or 17. . respectively. . . . . . . . . . . . .9) 62. . . . . 2010 2011 (Q millions) Percentage change (%) Total Liabilities .092. . . . . . . . .486. . . .7 (2. PNB’s net cash outflow was primarily due to increase in loans. . PNB’s outflow of cash in operating activities was primarily due to higher loans made during the year. . .004. . . . respectively.7 billion as of December 31. . . . . . . . . .452. .458. .616.5 19.2) (21. . . .9%.616. . . . . . . .8%.1 4. . primarily as a result of fair market valuation of financial liabilities. . .1 billion as of December 31. . . . . . . and P13. . .877.9 6. PNB’s main inflows and outflows of cash aside from the income from continuing operations included cash from increased deposits. . . Net cash provided by (used in) investing activities . . Accrued Taxes. . LIQUIDITY AND CAPITAL RESOURCES The following table sets out PNB’s statement of cash flows: For the nine months ended September 30. . . . . . . . 2013. .650. .698. . .626. .2 237. . . . Financial Liabilities at Fair Value Through Profit or Loss . .2 6.9 billion. .5 65. . . . . . 2010. . . . . or 7.288. .3 billion. . .4 3. Deposit Liabilities . . . primarily due to lower interest and other taxes and licenses. . .6 44. . respectively. .0 190. The decrease of P3. .5%. . . . . . . . . primarily due to the issuance of the Tier 2 Capital Notes in June 2011 to refinance certain redeemed notes issuances. .0 5.7 65. . Financial Liabilities at FVPL increased by P0. . .092. . .5%. . . . .888. 2011. . . Cash flows from operating activities (214. . . . . . . .7 PNB had total liabilities of P277. .1 (6. . . . . Accrued Taxes.5 (9. . . . . an increase of 3.5) (7. In 2012.4) 114.7 13. . . .971. . 268.858. . . . or 6. . . .1% and 4.0 billion. . . 2011 2012 and the nine months ended September 30. . . .981. . .261. . . . .437. . . . . . . or 1. .533. . . .574. . . . . .6 12.9 6.4 billion. . . . .922. .1%. .9 1. which also offset the drop in bills payable. 2013. . . . .7) 4. . . . . . .6 11. Other Liabilities . . . .5 14.713. . .5 PNB’s operating activities generated a net cash outflow of P0. . . The increase was primarily attributable to increase in deposits.590. . . . . . . . . .5 76. .178.8 68. . Interest and Other Expenses decreased by P0.576. . .9%. . . . . . In the nine months ended September 30.8 44. . . . Cash and cash equivalents at beginning of year . . . or 15. . the net cash inflow was primarily due to an increase in deposit liabilities. . net cash outflow of P9. primarily due to the growth in demand and savings deposits by P1. .201. .

.7 81. . 71 . . . . . and net cash inflow of P69.2 77. . . . . . . . . Contingent financial obligations and off-balance sheet transactions In the normal course of business.335. .5 140.5 10. Other contingent accounts .5 billion and P13. . . . . . . . .0 billion for the years ended December 31.6 938. . PNB recorded a net cash outflow from financing activities of P6. .764. . .174. . PNB’s cash inflow from investing activities was primarily due to proceeds from the sales of AFS investments and BSP placements. 2013 Trust department accounts . .3 14. .976. . . 2010 2011 2012 (Q millions) As of September 30. . . For the nine months ended September 30. . . .4 11. . . .9 1. . Outward bills for collection . . . . . . . . . . . and purchase of trust and treasury system upgrades. . . the net cash inflow was primarily due to an increase in cash and cash equivalents resulting from the merger. . 2013.365. . . . .6 billion in the nine months ended September 30. . .3 628. respectively. . . PNB’s net cash outflow from investing activities was primarily due to acquisitions of additional AFS investments and placements with the BSP. which was primarily attributable to proceeds from new bills and acceptances payable being greater than outflows for settlement of bills and acceptances payable. . 2010.0 6.427. . . . . . . . . . .3 0. .1 0.7 billion for the year ended December 31. .8 444. . . . . . . . . . which was mainly attributable to settlement of unsecured subordinated debt. . . . . . . . Funding for capital expenditures is expected to be sourced primarily from revenues. .3 98. 2011 and 2012. . 2013 were P0. .0 billion in the nine months ended September 30.309.5 7. . . .4 76. .7 billion in 2011. .3 41.212.516. . . . . . . . . purchase of Flexcube licenses and upgrades. 2012 and the nine months ended September 30. . . Inward bills for collection. . . . . . .4 85. . net cash inflows of P19. . PNB’s capital expenditures in 2010. . In 2011 and 2012. . . . . The following is a summary of PNB’s commitments and contingent liabilities at their equivalent Peso contractual amounts: As of December 31. . PNB recorded a net cash outflow from financing activities of P2. . . . . . . . . . . . . . .4 728. PNB’s primary capital expenditures during those years were mainly invested in information technology. . .8 1. . . . . . . . .9 123. . . . . . . . P0. . . . . . . P0. Cash flows from financing activities PNB recorded a net cash inflow from financing activities of P4. .2 55. . . respectively. . . . Confirmed export letters of credit .3 — — — 2. .1 PNB’s planned capital expenditures include purchase of hardware and software needed for the implementation of new ATM upgrades. . PNB does not anticipate any material losses as a result of these commitments and contingent liabilities. .0 11. . . . . . . . . . Unused commercial letters of credit . Material commitments for capital expenditures 30.3 0.621. . . 2013. . . .6 5. . . . . . . . . . . . . .8 billion. Credit card lines .2 105. . . . . .565. . . . . . .5 55. . . . . . .4 billion and P0. PNB recorded a net cash inflow from financing activities of P8. . . . . .9 452. .3 78. . . .9 485. . . .3 36. In 2010. . . . . . . . . Deficiency claims receivable . . .3 billion. 2011.1 billion in 2012. . . . . .2 billion in 2010. . Items held as collateral . .4 billion. . . . . . . . . which was primarily due to the redemption of PNB’s subordinated notes issued in 2006.7 6. . . . . . . . PNB has various commitments and contingent liabilities that are not presented in the accompanying financial statements. . . Outstanding guarantees issued. . . . . . . . . . . . .3 41. . . . . . as well as payment of bills and acceptances payable.Cash flows from investing activities PNB recorded a net cash outflow from investing activities of P21. . . . . . . . . . . . . . .542. . . . . . . . . . . . . . . . which was mainly attributable to proceeds from bills and acceptances payable.1 41. .7 0. . . . . 2013. . . . . . . . . . . . . .

2013 as reported to the BSP. sell or hold securities. PNB’s post-merger credit ratings by Moody’s Investor Service as of September 2013 are set forth below: Outlook: Stable Local Currency Deposit Rating: Ba2 Foreign Currency Deposit Rating: Ba2 Bank’s Financial Strength Rating (BFSR): E+ Baseline Credit Assessment (BCA): b1 Adjusted Baseline Credit Assessment: b1 Subordinate—Domestic Currency: Ba2 PNB’s credit ratings by Standard and Poor’s as of March 2013 are set forth below: Outlook: Stable Long-Term Counterparty Credit: B+ Short-term Counterparty Credit: B A securities rating is not a recommendation to buy.0%.Credit ratings PNB’s borrowing costs are affected directly by PNB’s credit ratings. on a consolidated basis as reported to the BSP. PNB’s consolidated Tier 1 ratio was 17. PNB’s risk-weighted capital adequacy ratio (the ratio of total qualifying capital to risk-weighted assets). was 20. 2013. 72 . As of September 30. Capital adequacy The Philippines adopted capital adequacy requirements based on the Basel II Capital Accord through the issuance of BSP Circular 538 effective on 1 July 2007. The BSP’s minimum risk weighted capital adequacy ratio is 10.0% as of September 30. A securities rating may be subject to withdrawal or revision at any time.3%. Each rating should be evaluated separately of any other rating.

8 3. . . . . Under PNB’s policy. . . . 50% . . . .875. .085. . . . . . . . . . . . . . .0 15. .752. . . . .4% 14. . . .468. .355. Surplus . . . Market risk weighted assets . . . .3) (340. . . . . . . . . . . .337. . . . .9 6. . . . . . . . . . . . . Risk-weighted assets covered by Mitigants Total credit risk-weighted assets . Gross qualifying capital . . . . . . . . . . . as of the dates indicated. .145. . . . . .489. these loans and other transactions are made substantially on the same terms as those with other individuals and 73 . . . . . . . . . . . . . . . . . . . . . . . . . . .566. . . . . . . . . . Hybrid Tier 1 Capital Securities . . . .037. .1 3. . . . . . .0 — 3. . . . . . . . . . . . . . . . . .8 366. . . . . . .5 3. . . .8 26. . . . . . . .764. .645. . . . . . . . . . . . . . . . . . . . . . and with certain Directors. . . .279.2 38. . . . . . . .856. . . Total capital ratio . . . . Capital ratios: Tier 1 capital ratio . .122. . . . Deferred income tax . . . . . . . . . . . . . . . .037. . . . . . . . . . . .0 32. . . . . . . . . . . . . . . . . .7 — 8. . . . . . . . . . . . . . . . . . . . . . . . . . . .2 4. . . . . . . . . . . . . . . . . . . .851. . . . . . . . . . . . . . . . . .4 45. . . .3 43. .0 — — — 27. . as reported to the BSP: As of December 31.256. . . . . . . . . . . . . .0 45. . . . . .468. . .7 129. . . . . . RELATED PARTY TRANSACTIONS 3. .4 — 184. . . . .992. . 2010 2011 2012 (Q millions) As of September 30. . . . . . . . .9 14. . . . . . . . . . . . . . . . . . . . . . .1% 43. .796. . . . . . . . . .5 — 8. . .8 15. 150% . . . . . . . . Total qualifying capital . Officers. . . .1 12. . . . . . . . . . . . . Total risk weighted assets . . . . . . . . . . . . .8% 19. . . Unsecured DOSRI . . . .385. . . . . . . . .201. . .5% 21. . . . . 75% . . . . . . . . . . . . . . . . . . . . .9 4. . . Risk-weighted securitization exposures . . . . .586. . . . . . . . . . . . . .2 — 9. . . . . . . . . . . . . . . . . . .656. . . . .9 12. . . . . . . .870. . . . . .499. . . . . . . . . . . 150% . . . . . . . . . . . . .255.947.8 2.234. . . . . . . . . . . .6 36. . . . . Deductions from gross qualifying capital . Goodwill . . . . .0 — — — — — — — — — 633.1 — 1. . . . . . . . . . . . . . . . . . . . . Net unrealized loss on equity securities . .306. . . . .1 137. . . . . . . . . . . . . .6 717.607. .5 3. . .7 140. .431.509. . . . . . . . . . . . .3 26.5 4. .874. . . . .8 9. . . . . . . . . . . . . . . . . . . . . .352. . . . . . . . .938. . . . . .317. . . Stockholders and Related Interests (DOSRI). . . . .8 8. . . . . Net Tier 1 capital . .1) — — — 153. . . . . . . . . . . . . .158. . .059. .9% 18. . . . .6 2.2 2. . . . . . . Non-controlling interest . 75% . . .6 — 1. . .7 3. . . . . . .403. . . . . . . . . . .504. . . . . .3 2. . . . .5 — 183. . . . . . . .691. . .The following table sets out details of capital resources and capital adequacy ratios of PNB.672. . . . . . .5 238. . . . . . . . .6 (381. . . . . . . .972. . .598. . . . . . . . . . . . . .6 — 2. . . . . . . Cumulative Foreign Currency translation . . . . . . . . . . . . .278. . . . . . . .3 2. . . . . . . . . . . . . . .5 62. . . . . 100% . . .239. . . . . . . . . . . . . . . . . . . . . . . 2013 Consolidated Tier 1 (core) Capital: Common stock . .407. . .2 3. . .3 2. .8 5. . . . . . . . . . . . . . .8 (427. . . . Operational risk weighted assets . . . . . . .2 — 606. . . . . . . . .9 9. .4 28. . . . . . . . . . . . . .0 669. . .558. . . .7 — 2. . . . . . 2011 2012 (Q millions) As of September 30. . . . . . . . . . . . . . . . . . . . .8 0. . . . . . . . . . . .638.2 498. .7 — 316. . . . . . . .448. . . . . . . . . .7 41. . . . . . . . . . . Risk-weighted interest rate and exchange rate-related . . .093. . . . . . . . .6 46. . .313. .1 12. . . . . . . .2 20. . . 50% . . . . . Capital paid in excess par value. . . . . . .986.7 17. . .310. . . .3 14. . . . . . . . . . . . . . . . .7 41. . Undivided profit . .3 74. . . . . . . . .327. . . . .1 30. . . . . . . . . . . . . . . .7% 11. . . .6 75. . . . . .8 41. . . . . . .869. . .3 37.0 40. . . . . . . . . . .850. . . . . . . . .260. . . . . . . . .892.1 13. . . . . .341. . . . . . . .5 — — — 55. . . PNB has loans and other transactions with its subsidiaries and affiliates. . .2 3. . . . . .3 2.0% 20. . . . . . . .489. . .5 — 2. . . . .215.6) (909. .8 26. . . . . . . . . . .2 210. . .329.9 87. . . .7 In the ordinary course of business. . 2013 Consolidated 2010 Risk-weighted on-balance sheet assets: 20% . . . Deduction from Tier 1: Common stock treasury shares . . . . . . .884. . . .8 21. . . . . . . . .560. . . . . . . . . . . . .242.185. . . . . . . . . . . . . . . . . . .350. Risk-weighted off-balance sheet: 20% . . . . 26. . . . .3 209.489. .391. . .421. . . .5 2.999. . 100% . . . .6 213. . . . . . . .4 3. . . . . . .0 3.2) 5. .3 23.037. . .263. . . . .641. . . .1 24. . . . .3 — 184. . . . . . . . .540. .4 2. . . . . . . . .9 54. .3% The following table sets out PNB’s consolidated assets according to risk weight as of the dates indicated: As of December 31. . . . . . . . . . .4 159. . . . . . . . . .9 2. . . . . . . . . . . .225.383. . . .346. . . . . . Net Tier 2 capital . . . . . . . . . . .9 3. . .

the amount of direct credit accommodations to each of PNB’s DOSRI. Under BSP Circular 423. 74 . DOSRI loans generally should not exceed PNB’s net worth or 15% of PNB’s loan portfolio. 2011 and 2012 and as of January 1. included in this Prospectus. For further details on PNB’s related party transactions. 2011 and December 31. should not exceed the amount of each DOSRI’s respective deposits and book value of each DOSRI’s respective investments in PNB. As of December 31. PNB was in compliance with the BSP regulations. whichever is lower. 2013. 2013. In the aggregate.businesses of comparable risk. 70% of which must be secured. 2010. 2011 and 2012. see Note 31 to PNB’s audited consolidated financial statements for the years ended December 31. and Note 20 to the interim consolidated financial statements as of and for the nine months ended September 30. 2010. 2011 and 2012 and September 30.

. (2) Total operating expenses less provision for credit and impairment losses divided by total operating income. . . . . .2% 4. . . . . 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9% 14. . . . . . . . . . . As the number of variables and assumptions affecting the possible future resolution of the uncertainties increase. . . In order to provide an understanding of how Allied Bank’s management forms its judgments about future events. . . those judgments become even more subjective and complex.8 billion and its net income was P1.5 billion and P1. . .1% 57. . . . . . . . . OVERVIEW Prior to its merger with PNB. . . . . . Allied Bank’s total assets were P197. . . . . . . . CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that are both (i) relevant to the presentation of Allied Bank’s financial condition and results of operations and (ii) require management’s most difficult. . and net income of P1. . . . . . . 2011 and 2010. Liquid liabilities include deposit liabilities and bills payable. . . . . . . . 2010 2011 2012 Net interest margin(1).7% 5. financial assets at fair value through profit or loss.3% 3. . . . . . . . . . . . . . . . . . Selected financial ratios For the year ended December 31. 2012.4% 3. . subjective or complex judgments. Allied Bank engaged in regular financial derivatives as a means of reducing and managing Allied Bank’s and its customers’ foreign exchange exposure. . . . . . . . . . . .7% 52. . . . compared to total assets of P202. . and prepared by Allied Bank’s management in compliance with PFRS. . . . . . . due from other banks. . . . . . . . insurance. . . . Receivables from customers to deposits(7) . . .9% 0. . . .9% 5. . . . . . . . . . . . . . . . . 2011 and 2012 were audited by SGV & Co. . . . . . . . . The following discussion of Allied Bank’s historical financial results prior to the merger is included for reference only and does not purport to reflect the financial condition or results of operations of the post-merger entity during any past or future period. . . .8% 5. . held-to-maturity investments and loans and receivable-gross. NPL ratio(5) . . . . . . . . . . . . . .7% 77. . . . . . . .9% 57. commercial. . . .4% 64. . . .3% 0. . . . . . . . international banking. .8 billion. . . . 2011 and December 31. . . . Liquidity ratio(8) . . The following table sets out selected key financial ratios for Allied Bank for the periods indicated. . . . .0% 69. . . . . . . . . . . . . . . .DISCUSSION OF HISTORICAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ALLIED BANK The merger between PNB and Allied Bank was completed on February 9. . . . Cost-income ratio(2) . . . . (5) Total non-performing loans (net) divided by adjusted loan portfolio. . . . . . . . . The discussion should be read in conjunction with the auditors’ reports and Allied Bank’s consolidated financial statements and notes thereto contained in this Prospectus and “Selected Statistical Data. . . . . . . . . Return on average equity(4) . . . Allied 75 . . . .0% Notes: (1) Net interest income divided by average interest-earning assets. . . . . . . . . . . . . often as a result of the need to make estimates about the effect of matters that are inherently uncertain. . . . . 2011 and 2012 and for the years ended December 31. . . 4. . . . .” Allied Bank’s audited consolidated financial statements as of January 1. . . For the year ended December 31. . . . . . . . . . . . . . . . . . . . . . .5 billion. . . .1% 3. . . . . . . . . . corporate and institutional clients. . . (7) Receivables from customers divided by total deposits. . . . . . (4) Net income divided by average equity for the period indicated. . . . financing and leasing services to personal. Allied Bank was a universal bank which provided a full range of banking. . . . . . .8% 47. . . . . 2010. . . . . and the sensitivity of those judgments to different circumstances. . . (8) Liquid assets divided by liquid liabilities. . . . . . Return on average assets(3) . (6) Total equity divided by total assets. .6% 66. . . including the variables and assumptions underlying its estimates. . . . . foreign exchange and trust services. . . . . . . . . . . .5 billion and P189. . . . . . available-for-sale investments. . interbank loans receivable and securities purchased under resale agreements.8% 3. . As of December 31. In addition. . Allied Bank had a network of 317 branches and 342 ATMs in the Philippines. . 2012. . . . lending and related services. . . . . . . . . . . . . . .3% 0.9% 62. (3) Net income divided by average total assets for the period indicated. .4% 13. . . . . Interest-earning assets include due from BSP. Allied Bank’s banking products and services included deposit taking. . respectively. .3 billion in the years ended December 31. . . . . treasury. . . . . . . . . . . . . . . Total equity to total assets(6) . .8% 15.

Inc. Net income from disposal group In preparation for its merger with PNB. net income from disposal group consists of income attributable to the results of operations of OBHI and loss on completed sale of the disposal group. including any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. RESULTS OF OPERATIONS Description of Statements of Comprehensive Income Interest income For all financial instruments measured at amortized cost and interest-bearing financial instruments classified as FVPL investments. Operating expenses Expenses are recognized when it is probable that decrease in future economic benefits related to the decrease in asset or an increase in liability has occurred and that the decrease in economic benefits can be measured reliably. provision for credit and impairment losses and miscellaneous. to the net carrying amount of the financial asset. vault/teller cash. depreciation and amortization. cash on hand from ATM and extension offices and checks and other cash items from other banks. bills payable and other borrowings. The change in carrying amount is recorded as interest income. Description of Balance Sheet Items Assets Cash and Other Cash Items include cash in transit. Other operating income Other operating income includes commission and handling charges. Expenses that may arise in the course of ordinary activities of Allied Bank are reflected as operating expenses on the statements of income. except to the extent that the taxes relate to items of other comprehensive income. Operating expenses includes compensation and fringe benefits. including deposit liabilities. interest income is recorded at the effective interest rate. accounting estimates and assumptions. This item also includes discounted amounts of provisioned income. The calculation takes into account all contractual terms of the financial instrument. interest income continues to be recognized using the original EIR applied to the new carrying amount. 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. PFRS requires that the results of operations of the OBHI disposal group be classified separately from continuing operations on Allied Bank’s statements of income.Bank has identified certain critical accounting policies. Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss. but not future credit losses. trading and investment securities gains-net. AFS investments and HTM investments. taxes and licenses. For a complete discussion of Allied Bank’s critical accounting policies and management’s use of judgment. 76 . (“OBHI”) into a trust to be sold to third parties. Accordingly. Provision for income tax Income tax on profit or loss for the year is recognized in the statement of income. occupancy and other equipment-related costs. where appropriate. in which case they are recognized directly on the statement of other comprehensive income. see Note 2 and Note 3 to Allied Bank’s financial statements included in this Prospectus. Allied Bank placed its interest in Oceanic Bank Holdings. gain on acquisition of investment properties. foreign exchange gains (losses)-net and miscellaneous. The adjusted carrying amount of a financial instrument is calculated based on the original EIR. as well as financing charges on Allied Bank’s leases. Interest expenses Interest expense is calculated using the effective interest method to determine the costs that Allied Bank incurs in relation to borrowing of funds.

sales contract receivables and finance lease receivables. other taxes and license fees. outstanding acceptances payable.Due from BSP refers to the balance of the deposit account maintained with the BSP including Special Deposit Accounts. Other Assets include creditable withholding tax. and long-term negotiable certificates of time deposit. Loans and Receivables include corporate. Financial Assets at FVPL include derivative assets and debt and equity securities held for trading. fixtures and equipment. Bills Payable includes short. Property and Equipment include land. Due from Other Banks includes the balances of due from foreign banks representing debit balances maintained with foreign banks. retirement asset. buildings. savings and time deposits. 77 . and balances of due from local banks representing deposits with other local banks. goodwill. and other items. accrued interest received. interest payable. Subordinated Debt includes the amortized amount of ten year subordinated notes issued by Allied Bank in March 2008. Other Liabilities include accounts payable. cash letters of credit. deferred charges and other items. prepaid expenses.and long-term borrowings from the BSP. call options and interest rate derivatives embedded in structured debt instrument. Interest and Other Expenses include accrued expenses for leave absences. HTM Investments include government and private debt securities classified as held-to-maturity. directors’ dues and fringe benefits. small business and consumer loans. as well as unquoted debt securities. Insurance Provisions include policy and contract claims payable. security deposits. Derivative Liabilities include credit default swaps. as well as overnight placements with the BSP where the underlying securities cannot be sold or repledged. Manager’s Checks and Demand Draft Outstanding include the total amount of checks drawn by the bank upon itself to the payees named in the check. AFS Investments include government and private debt securities and quoted and unquoted equity securities classified as available for sale. Deferred Tax Liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Deferred Tax Assets refer to income taxes recoverable in future periods in respect of deductible temporary differences carry forward of unused tax losses and carry forward of unused tax credits. domestic bills purchased. Interbank Loans Receivable and SPURA consist of interbank loans receivable and securities purchased under agreements to resell with the BSP. Investment Properties represent real estate properties foreclosed or acquired in settlement of loans and receivables. leasehold improvements and furniture. Accrued Taxes. accounts receivable. Liabilities Deposit Liabilities include demand. Income Tax Payable includes accrual of corporate income tax. Investment in Subsidiaries includes Allied Bank’s investments in its subsidiaries. foreign banks and other banks.

. . . Total . . Gain on acquisition of investment properties . . . . .827. . . . .0 760. . . . . 2. The increase in operating expenses in 2012 is also driven by higher provision for credit and impairment losses and miscellaneous expenses. . . . . . . . . . . . . . . . . . . . .151. .2 billion in 2012. . . . .1 (237. . . . . . . . . . . . . . . . 2012 compared to year ended December 31. . . Miscellaneous. .473. . .4 billion in 2012.6 187.9 Allied Bank recorded other operating income of P6.4 362. . . . . . .2 billion in 2012.8 860. . . . . . .783. . .4% from P2. . .7) 2. . . . . . . . . . .852. . . . . . . . . . . . . .5 2. . . . . . . . . . . . . . . .9% from P3. . . . . . . .6 430. . .5 billion in 2011. . .3 25.0) (226. . . .6 392. Operating expenses The following table sets out the components of Allied Bank’s operating expenses for the years indicated: For the year ended December 31. . . . . . . . . . . . . . .629. . . . Net income from continuing operations Allied Bank recorded net income from continuing operations of P2. . Depreciation and amortization .9) 29. . . . . . . .8 million due to renewal and additional rent recorded for branches during the year. . . . . . . an increase of 71. . . . . . In particular. .5 (7. . . . . . . . . . .1 772. . . . . . . . . . Occupancy and other equipment-related costs increased by P39. . . . . . . . . . . . Interest expenses Allied Bank recorded interest expenses of P2. . . Taxes and licenses. . . . . . . . . . . .6 36. a decrease of 13. compensation and fringe benefits decreased by P0. . . . . .0 71. . . . . . . . . . .3 432. . .241.4 billion in 2011. .6 (26. . . . . . . .2) 27. . .971. . . . . . . . . . . . . . . . . . . . . . 2011 2012 (Q millions) Percentage change (%) Compensation and fringe benefits . . . . . . . .7 537. an increase of 25. . . . . . . Provision for impairment. . . . .896. . . . . . . .5 billion in 2011. primarily due to lower yields on trading and investment securities. . . . . . . . . . . . . . . . an increase of 37. . . . . . .9 5. . Miscellaneous . . . .1% from P9. . . . . . . . .6% from P8. . .6 billion. . . . . .2 billion due to the alignment of Allied Bank’s retirement plan with actuarial valuation. . . . . . .8 2. . . . . . . . . . . . . . . .2 billion in 2011. . .7 5. . . . . .1 8. . 2011 Interest income Allied Bank recorded interest income of P9. . . .9 billion and growth in miscellaneous income of P0. . . . . . . . . . . . . . . .8 845. . . . . . . . . . . Taxes and licenses increased by P0.0) 9. . . . . . . . . primarily as a result of higher trading and investment securities gains—net of P2. . . . Total . . Occupancy and equipment-related costs . primarily due to the decrease in interest expenses and increase in other operating income. .685. .Year ended December 31. . . . . Foreign exchange gains (losses)—net . . 719. . . . . . . . . . . . . .2 1. . .8 3. . . . . . . . . . . . . . . . . . . . . . . . .0 billion in 2012. . . . . . . . . . . . .3 27. . . . .3 900. . . .8 billion in 2011.2 (8.0% from P1. credit and other losses . . .3 1. . . . . . . mainly due to lower interest paid on deposit liabilities. . . . . . . . a decrease of 2. . . . . . Other operating income The following table sets forth the components of the Allied Bank’s other operating income for the years indicated: For the year ended December 31 2011 2012 (Q millions) Percentage change (%) Commission and handling charges .3 3. . . . . . . . .569. . .1 2. . . . . Trading and investment securities gains—net . .6 Allied Bank recorded operating expenses of P10. . . . . . . . . . . .0 billion in 2012. . . .4 10. . . . . . . . . . . . . . . . . . .991. . . . . . . 78 . .5 397. . . . .4 4.1 billion due to higher gross receipts tax recorded in 2012. .

. . . . . or 8. . . . . . . . . . . . . . . . . . . .3) (3.8 (36. . . . . . . . . . .7 4. . . . . Due from Bangko Sentral ng Pilipinas . . .0%. . .504. .0) 191.6 18. . .023. . . . . . . . . . . . .1 billion. . . . . .982. . . Deferred Tax Assets. . . .8 billion. . . . . . . . . . . . . .7 97. . . . . . Financial Assets at FVPL increased by P6. . . .6 11.4 98. . . . . . . . . . .5 billion in 2011. . .9 33. . . . . . .578. .8 billion in 2012. . . due from BSP. . . . . . . .955. or 957. . .2 4. decreased by P10. . . . . . . . . . an increase of 11. . . . a decrease of 2. . . Due from BSP increased by P7. . . . . net income increased to P1. . .4%.532. . . . . . . . .5 29. . . . . . . .331. . . . . . . . .6%.0 (26. . . . . . . . . . . Other Assets. . . . . . . . . . Interbank Loans Receivable and SPURA decreased by P4. . . . due to lower cash on hand. . . . .8%. . 202. .422. . . 2011. . . . . . . . .317. . Assets of Disposal Group Classified as Held-for-Sale. .0% and 19. . . . . . . . . . .976. . . . . . . . . . . . Due from Other Banks. . . . .7 billion. . . Property and Equipment . . .8%. . . . . . . . . . . . . . .0) (2. . . . .136.702. respectively. . . . . . . . .8 7.4) 42. or 3. . . Assets of Disposal Group Classified as Held-for-Sale was nil in 2012 due to the sale of Oceanic Bank Holding. . .771.8 40. . . . . . . . . Loans and Receivables . Inc. .0 1. . The decrease in total assets was primarily attributable to the factors discussed below. . 79 . . .538. .4%. . . . an increase of 16. . . Investment Properties. . . . . . . .1% from P0. .2% from P1. . .885. . . AFS Investments representing 15. .1 4.1 12. . . . . .3 10. due to higher interest income that is subject to final tax.816. . . . . Cash and Other Cash Items.6 billion. . . . .0 billion. . . . . . .375. . . . . 2012. . . . . . . . . . . . . . . . . . . . . . . . . Changes in Allied Bank’s cash and other cash items. . . . . . Interbank Loans Receivable and Securities Purchased Under Resale Agreements . . . . .777. . . .3 697. . . . . . . . . . .1 (8. . . . .0 7. . . or 42. . . .2 3. . . . . . . . .1 197. . Net income As a result of the foregoing. .6 8. . . . . . . . . . . . . . . . . . primarily due to the maturity of loan repurchase agreements which was partially offset by a higher balance of interbank loans receivable. . or 26. . . . . . . . . . .Provision for income taxes Allied Bank recorded provision for income tax of P0.6 26. . . . due to higher balance of Allied Bank’s special deposit account with the BSP. . .4) (100. . . . . . . . . primarily due to the sale of government and private debt securities.1 (2. . . . . . . . . . . . . .6 1.9% of Allied Bank’s total assets as of December 31. . . .7) 6. . Financial Assets at Fair Value Through Profit or Loss . . . . . . . . .082. . . . . . . . . . . primarily due to the higher balance of due from foreign banks.8) 957. . . . . . . .2 3. .6 billion. . .8 7. . . . . . . . . due from other banks and interbank loans receivable and SPURA are based on the liquidity requirements and investment mix for the periods covered. . . . . . .3% from total assets of P202. .1 — 100. 2011. . . . . . .8 billion as of December 31. . . . . . . . . . . . Due from Other Banks increased by P1.971. . Financial position Assets The following table sets out selected components of Allied Bank’s assets as of the years indicated: As of December 31 2011 2012 (Q millions) Percentage change (%) Total Assets . .3 Allied Bank had total assets of P197. Available-for-Sale Investments .821.5 billion in 2012. . . . . . .286. . or 36. . . . . .5 billion as of December 31. .5 billion in 2011.9 4. .7 0. Cash and Other Cash Items decreased by P0. . . . . . . . . . . . . . . . . . . . . . . . . . . mainly due to various acquisitions of held for trading securities. . . . . . . . . . . 2012 and December 31. . . . .

. . . . . . . .7 4. or 8. . . .4 4. . . Income Tax Payable. . Deposit Liabilities .3%. Liabilities The following table sets out the selected components of Allied Bank’s liabilities as of the dates indicated: As of December 31. . . . . . .0%. . . . . . . . . . Derivative Liabilities . . 2011. . . . . . . . Manager’s Checks and Demand Drafts Outstanding decreased by P0. . . . . .3 23.6 billion.2 167. . . . . . or 0. . . . . . 2012. . . . .3%. . . . . . . . . . Marginal Deposits . . . . . . . . .5 billion. 2012 and 2011. . . or 2. . or 11. . . . .3%. . 2012 and December 31. . . . respectively. . Investment Properties decreased by P0.7%. . . . . Derivative Liabilities. .0) 82.8 928. . primarily due to the growth in corporate. . . 80 . . . . . . .7) (100. . . Other Assets increased by P6. . . . . . . . . . . .4 4. . . . . . .4 438. . .4 million or 191. . . .8 147. . . . .8 billion. .HTM investments remained nil in 2011 and 2012. . . . . . . . offset by the growth in demands deposits by P6. . . . .3 4. . . . . . . . . . . . . . . .3 149. .0% and 2. .089. . . . . . . . . mainly due to the accrual of expenses incurred in 2012 which will be settled in 2013. . . .3 billion as of December 31. . .6 90. . . . . Liabilities of Disposal Group Classified as Held-for-Sale . . . .0) 0. .0 1. . .5 510. . . . . . . . . . . .3%. .1 15.168. . . . . . . . . .017. . . or 13. . Deferred Tax Liability . . . . . .6 million. . . . . .8 (52. . . . . . . . . . . . .497. . . . Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . Accrued Taxes. .8 3. . . primarily as a result of the lower availment of these instruments by customers. .593. . . . .5 billion.1%. . . . .7 million. .1 106. respectively. .109. . . . . . .0) Allied Bank had total liabilities of P167.406. . . .4 1. . . .6% and 48.3 0. . or 17. . . .3%. .5 million. . . . . a decrease of 3. . . . . . . .5 — 39. . . . .347. . . . . . . . . . . .8%. . . . . . . . . The decrease was primarily attributable to the factors described below. . . . . . . .073.2 billion. .286. . Loans and Receivables representing 50. or 0. . The growth of P0. . This increase was primarily the result of fair market valuation of derivative liabilities. . . . . . . . . . . . . or 4. . . . .8 billion. . . Other Liabilities . or 18. Deposit Liabilities. Interest and Other Expenses . . Accrued Interest and Other Expenses increased by P0. . . . .3%. . decreased by P37. .8 147. . .3 billion.4 billion as of December 31.072. . . . . . . . . . .482.1 21. .7 417. . . . . . . . . . . . . . . . . . . . . . .9 22. . . .9 13. . . .062. . . . . . . or 82. . . . . .7%. . . Deferred Tax Asset increased by P64. . . . . Manager’s Checks and Demand Draft Outstanding . . . . . 172. or 15. . .1 (3. .0 6. . . . . . resulted primarily from a higher rediscounting facility with BSP availed of and from additional borrowings from foreign banks. . .4 4. . 2011. Property and Equipment increased by P0. . . . . . . . . . . . . Subordinated Debt increased by P14. . . primarily due to an increase in the appraised value of Allied Bank’s land portfolio. . . . . . . . . . .3 billion. . . . Insurance Provision .270. . . . . . . . .1 5. . Bills Payable represented 3. and in savings deposits by P2. . . . . . . . . . .1% of Allied Bank’s total assets as of December 31. . . . primarily due to higher miscellaneous assets and interoffice float items. . . 2011 2012 (Q millions) Percentage change (%) Total Liabilities . . interest rate derivatives and call options embedded in structured debt instrument increased by P15. . . . . . . .0% from P172. . . . . .277. . .5% of Allied Bank’s total liabilities as of December 31.3 billion. . . . . . Income Tax Payable increased by P17. Bills Payable . . . . . . . . .0 million. . . . . . . . . . . . . . .5 4. which include credit default swaps. . . . . . . . . .5 million. or 6. . . .0 17. . .7%. . . . . . . . primarily due to higher sales and disposals of ROPA in 2012. . . . .7 34. or 52. increased by P2. . due to a reduction in time deposits by P3. . . . . . . . . . .3 (11. . . . .0%. . . . . small business and consumer loans in 2012.3 18.1%. . . . .

. . . . . . . . Other Liabilities decreased by P0. . . .1 2.5 (3. . . . . . . . a decrease of 4. . . . mainly due to lower provisions for income taxes during the year. cash letters of credit and payment orders payable. . . . . .0 (9. Miscellaneous. . . . . . . . .2) (5. . Net income from continuing operations Allied Bank recorded net income from continuing operations of P1. Other operating income The following table sets forth the components of the Allied Bank’s other operating income for the years indicated: For the year ended December 31. a decrease of 2. .1) 21. . . . . . . . . . . . . . . . . . . . . . . . . . .6 187. . . . . . . . . . . .8) Allied Bank recorded other operating income of P3. . . .1 0. . . .1 (4. . . . . . . . . . . . . . . . . Year ended December 31. . . . . . . . . . . . . .1 7.3 1. . . . . .7) (40. . . . . . . . . . . . . . . . 796. . . .4 798. . . Deferred Tax Liability increased by P0. . . . . . . . . . . . .5 30. .991. . . .6 billion in 2010. . . . . . . . . . . . . an increase of 15. . . . .1 772. .8 3. . . . . . . . . . . . . . . . 2010 2011 (Q millions) Percentage change (%) Compensation and fringe benefits . . . . . . .9) (71. . . Gain on acquisition of investment properties . . .4) 19. . . . . . . . . . . . . . . . 2011 compared to year ended December 31.9 billion which offset higher miscellaneous expenses. . . . . . . . . .3 billion in 2010. . . .0 432. .9%. .6 36. . .4 30. . primarily as a result of curtailment of provision for credit and impairment losses by P0.608. . . .8 billion or 23. . .4) Allied Bank recorded operating expenses of P8. . Foreign exchange gains (losses)—net . . . . . . . . .768. . . . . . . . . . . . . . . . . . . . . . .7 719. . . . . . . . . . . . . . . . . . . . . . . Total .3 3. . . . . .3 2. . . . . . . . . . . . .7 362. . . . . .8 1. . .3%. . . . . . . . . . . . . . . . .6 902.2 billion in 2011. . . . . . . . . . . . 81 . . . . . . . . . . . . . . . . . . . .1 8. .0%. . . . .151. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 billion in 2010. . . . . . . . 2010 Interest income Allied Bank recorded interest income of P9. . Provision for credit and impairment loss. . .527. . . .8% from P3. . . . . . . . . . . . . . . . . due to lower gains on trading and investment securities. .6 billion in 2010. . . . . . .8 (3. . . . . 2010 2011 (Q millions) Percentage change (%) Commission and handling charges . . . . . .5 billion in 2011. . . .9 506. . Trading and investment gains—net . . .391. . . . . . . .1% from P9. . . . . . . . . . . .9 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . Occupancy and other equipment-related costs . . . .9 2. . . . . . . . Taxes and licenses .0% from P1. . . . . . .5 billion. mainly due to lower balances of due to other banks. . . . . . .896. .4 billion in 2011. . Miscellaneous. . . . . . . . . . .Insurance Provisions increased by P0. . . . . . . . .5 billion in 2011. . . . . .473. . . or 11. . . . . . . Operating expenses The following table sets out the components of Allied Bank’s operating expenses for the years indicated: For the year ended December 31. . . . a decrease of 3. .8 460.7 537. . . . . . . . . .3 8. . . . . Interest expenses Allied Bank recorded interest expenses of P2. . .5 860.827. .8 billion in 2010 and 2011. . . . . . . . .1 billion or 22. .848. deposits with banks and interbank loans receivable. . . . . . which offset higher foreign exchange gains and miscellaneous income.4% from P8. . .5 2. . . . . due to lower yields on trading and investment securities. . . . .252. Total . . . . . . .1 856. . . . . . . . . . . 2. . . . . . . Depreciation and amortization . . .

. . . .9% from total assets of P189. . . . . . or 11. . . .507.1%. . . .9 (13. . . .4 billion. . . . . . . . . . . . .5 billion in 2011. . . .297. or 12. . . . . . a decrease of 23. . .1 12. . . . .6 8. . . .821. . . .9 7. . . .275. . . . . . . . . . or 9.3 10. . . .442. . . .3 81.Provision for income taxes Allied Bank recorded provision for income tax of P0. Financial Assets at Fair Value Through Profit or Loss . . . Deferred Tax Assets. .1 2. . . . . . . . . . . . .1 (2.4 41. . Investments in Subsidiaries Property and Equipment . . . . . and checks and other cash items which fell by P0. . . . . . . . . Available-for-Sale Investments . . . . . .9% and 10. . . .5 billion as of December 31. . . .2%.0 20. .2) (13. . . . .2) Allied Bank had total assets of P202.8 4. . Changes in Allied Bank’s cash and other cash items. Due from Other Banks increased by P3. . . . . . . . .0 3. .6 billion. or 13. . . . . . . . . . .7%. . . an increase of 6. . . . . . . . . . . . net income increased to P1. . . or 163. . . . due to lower interest income that is subject to final tax. . .538.7 202. . .8% of Allied Bank’s total assets as of December 31. . . . increased by P19. primarily due to lower government debt held for trading. . . . 2011. . . . . . 2010 2011 (Q millions) Percentage Change (%) Total Assets .532. . . . . . . . . . . mainly due to the reclassification of certain HTM investments to AFS made in 2011. . . 2010. . .5 billion as of December 31. . . . .8 40. . . . . or 32. . . .5 billion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0% from P0. . . . .636. Net income As a result of the foregoing. . primarily due to lower SPURA during the year. . . . .3 billion in 2010. .500. .6 billion in 2010. .023. . . . . . . . . . . . . which offset the increase in interbank loans receivable. .331. . . or 80. . . . . .6) (4. . . . . . . .2) 12. . . .7 (11. . . . . . . due from other banks and interbank loans receivable and SPURA are based on the liquidity requirements and investment mix for the periods covered. . The increase in total assets was primarily attributable to the factors discussed below. or 96. . . . . . . . . . . . . . . . .2 4. . . . . . . . Financial position Assets The following table sets out selected components of Allied Bank’s assets as of the years indicated: As of December 31. .3% from P1. . . . . . . . . .8) (18. .4 (16. Cash and Other Cash Items decreased by P0. . . . . . . . due from BSP. . mainly due to the robust growth in due from foreign banks by P2. . .8 7. . . . . primarily due to the decrement in cash on hand by P0. . . . . . . .2 45. or 16. . . . . . .9%. . . . . Assets of Disposal Group Classified as Held-for-Sale. .8 16. .286. . . . . . . . . . .058. . .216. . .2 4. . . . . . . . . . . . . . . .5) (80. . . . . . Cash and Other Cash Items. . . . . . . . .422. .6 1. . . . . . Other Assets.317. .9 33. . . . . . . . .943. 2011 and 2010. . . . . .450.7 4. . . Due from Other Banks. . . .6 4.7 — 97. . Due from Bangko Sentral ng Pilipinas . . . . . or 45. . .578. . . and due from local banks by P0. . . . . . . . Held-to-Maturity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4%. . . .1 billion. . . . . . . . . . . . . . .1 6. . . . . . . . . . . . . . . . . . . .5%. . . .336. . . 189. . . . . . . . . . .1%. . . . Financial Assets at FVPL decreased by P2. .8 billion. . . . . . . . . .536.6 18. . .0) (100. . . . . . . . . . . respectively. . . . . . . . . . . . . . .2%. .3 697.5 billion. . . . . . Interbank Loans Receivable and Securities Purchased Under Resale Agreements . . . .504. . .0 billion. . . . . . . . . Interbank Loans Receivable and SPURA decreased by P2. . . . Investment Properties. Due from BSP increased by P2. . . .5 billion. AFS Investments representing 19.976. .2 15. . . . .9 billion. . .659. . . an increase of 16. .5%. 82 . . . . .0) 20. .1 4. .5 billion in 2011. . . . . .1) 96. . . . .5%.0 20. . Loans and Receivables .8 billion. . . .

. Subordinated Debt increased by P13. . . . . . . .0%. . . . .593. . . primarily due to higher corporate. .0 38. Subordinated Debt . . . or 18. . . . or 0. . 2010.5 billion as of December 31. . . .0 6. .277. . . . . This decrease was primarily the result of the lower fair values of Allied Bank’s U. . . . . . . . . . .9%. . . . . . . .109.2 138. . 2011 and 2010. . . . . . . . .3 172. . or 165. . .4 16. . . . .3%. . . . . . . .0% from P20. . . . . . . . . . . . . . . . . . . . . . . . . .7 million. . . .9 (64. . . . . . . . 2010 2011 (Q millions) Percentage change (%) Total Liabilities . . . . . . . . . .4 million. . .9 billion in 2010. . . .7%. Property and Equipment registered at P4. . . .5 million. . . .0 million. . . . . .2 6. . .9% of Allied Bank’s total assets as of December 31. Other Assets decreased by P0. . .1 21. . . . . . or 28. .0%. . . . . . . . . . . . . . Deferred Tax Liability .7 4.Assets of Disposal Group Classified as Held-for-Sale decreased by P0. . or 121. . . . . . . . . . . . . . . . . .482. . . . . . .0 billion. . . . . . . Manager’s Checks and Demand Drafts Outstanding increased by P0. . . .8 928. . . . . . . . . . . . Accrued Taxes. . . . . . . . .7) 165. Income Tax Payable. which offset lower borrowing from foreign banks. increased by P16. Marginal Deposits . Insurance Provisions . . . . . . . .9 5. . . . .2 billion.9 13. primarily due to the sale and reclassification of the said securities upon tainting of the investment securities portfolio in 2011. . . . . .532. . .4% from P163. . . . Accrued Taxes.4 4. . or 8. .6 billion.286. . .9 billion. . . . dollar forward contracts and other derivatives. .965. .2%. Derivative Liabilities decreased by P48. primarily due to higher levels of borrowings from the BSP during the year.469. . or 34. HTM Investments decreased by 100. . . . . . . . . . . . . 2011 and 2010. .7 Allied Bank had total liabilities of P172. . . . . . . primarily due to higher accrued interest payable and other taxes and licenses. . . .1%. . . .7 billion. . . . . .3 30. . . . . Other Liabilities . Liabilities of Disposal Group Classified as Held-for-Sale .2 5. .8 million. or 11. .5% and 1.7 417. . . . . . . . . . .0% of Allied Bank’s total liabilities as of December 31. . . .2%. . . . . . . .609. . . .1% and 42. or 4. . . . . . . . . . . .0%. . . .6 1. . . . . . . . . small business and consumer loans made in 2011. . . . . . . . . . . . . . . .8 3. . . . Deposit Liabilities increased by P5. .5 billion. .017. . . . Deferred Tax Assets decreased by P7. . . or 13. . . or 5. . . . an increase of 5. . . . . . . . . .0) 121. Manager’s Checks and Demand Draft Outstanding . . . . . . . . .S. . . . . . . . . .347. . . minimally changed from P4.5 4.6 5. . respectively. . .4 2. Liabilities The following table sets out the selected components of Allied Bank’s liabilities as of the dates indicated: As of December 31. . . .9 4. .8 147. . . .4 4. or 20. . . . .4 billion as of December 31.6 90. .9 (13.4 1. . . . .4 1. . . . . . .3 billion. . . Income Tax Payable increased by P4. . . . . . . .8 1. or 4.9%. . respectively. . respectively. . . . . The increase was primarily attributable to the growth in demand deposits as well as bills payable. . . .0 0. . . . mainly due to the lower HTM investments held at Oceanic Bank during the year.7%. . . . . 83 . . . . . . . . . . . . . . . . . .9%. . . . Deposit Liabilities . . . . . . . . .5 billion in 2011. . . .6 billion. . . . . Bills Payable . . . Bills payable increased by P2. . . . . . .168. .3 418. . . . . Derivative Liabilities . .6) 28. .512. . Interest and Other Expenses . . due to the growth in demand and savings deposits by P3. . . . . . . . . 2011. . . . . . due to amortization of discount. . . . . . . . 163. . . . . . . . . .1 410. . . . . . . . . . . .0 (34.494. . . . .7 billion in 2010. . . . . . . Investment Properties decreased by P0. Loans and Receivables representing 48. .8%. . and P2. . . . mainly due to lower miscellaneous assets and interoffice float items. . . .4 4. . . . . . . .112. .3 billion. or 2. . . . . . .5 141. . . Bills Payable represented 2. . . . . . Interest and Other Expenses increased by P55. .9%. . . .406. . . . . . . .

Net increase (decrease) in cash and cash equivalents . . . .2 44.6 billion for the year ended December 31. net cash outflow of P5. . which was primarily due to availments of bills payable. . . .S. . Allied Bank’s net cash inflow from investing activities was primarily due to proceeds from the sale of AFS investments as well as proceeds from maturities of various HTM investments.1) (5. mainly due to higher accounts payable and amounts due to other banks. . .3 34. . .149. . . . .8 billion.S. . 1. .3 6. .5 (1.106. .S.1 (4. In 2011.0) 49. .$1. . .533. .598. Allied Bank’s net cash outflow from investing activities was primarily due to lower than normal proceeds from the sale of AFS investments. .2 billion. .6 million.00.0 billion and net cash outflow of P9. . .065. .598. Other Liabilities increased by P0.9 (571.4) 2. . 2012 of P41. .4 billion in 2010. .7) (9.416. . Allied Bank’s net cash inflow from operating activities was primarily the result of collections on loans and receivables. Cash flows from financing activities Allied Bank recorded a net cash outflow from financing activities of P1.337.1 44. .397. . Cash flows from operating activities Allied Bank’s operating activities generated a net cash inflow of P1. . In 2010. . Cash and cash equivalents at beginning of year .9 million in 2012 which was primarily attributable to availments of bills payable. . In 2011. or 5. . Allied Bank does not anticipate any material losses as a result of these commitments and contingent liabilities. . . .1 billion in 2010 which was mainly attributable to payments of bills payable. . . . . 2011 and 2012.9) 154.181.$ millions) Net cash provided by (used in) operating activities . . .050 = U. Allied Bank recorded a net cash inflow from financing activities of P2.5) (86. . Allied Bank’s net cash outflow from operating activities was mainly due to payments of loans and receivables. . .1 billion and P6. . Contingent financial obligations and off-balance sheet transactions In the normal course of business. . .7%.666. Cumulated translation adjustment . .049. . . . .4) 86.1 Note: (1) The translations from Pesos to U. . . . .Insurance Provisions increased by P0. .994. dollars have been made on the basis of the PDS Rate on December 31. . 84 . .8%. .1 billion. or 30. . . 2011 and 2012. . Net cash provided by (used in) financing activities . . . . .3) 5.2 43. .2 (228. 2010 and net cash inflows of P5.062. primarily due to higher aggregate reserves held for Allied Bank’s outstanding insurance policies.983. .8) 1. Deferred Tax Liability increased by P6. . . .2 1. .249. . .7 46. . respectively. . .7 46. . . . In 2012. . Allied Bank has various commitments and contingent liabilities that are not presented in the accompanying financial statements.590. Cash and cash equivalents at end of year . . . .0 billion in 2011. In 2012. . Cash flows from investing activities Allied Bank recorded a net cash outflow from investing activities of P4. In 2010. . See “—Exchange Rate”. .3) (4. Allied Bank recorded a net cash inflow from financing activities of P34.5 (3.135.3 billion for the years ended December 31. . or 1.416. respectively. . . Net cash provided by (used in) investing activities . .4 0.6%. Allied Bank’s net cash inflow from investing activities was mainly a result of higher proceeds from AFS investments. .9 (12. Allied Bank’s net cash outflow from operating activities was primarily due to acquisitions of financial assets at FVPL and loan drawdowns.6 (508.1) 1. . LIQUIDITY AND CAPITAL RESOURCES The following table sets out Allied Bank’s statement of cash flows: 2010 For the year ended December 31 2011 2012 2012(1) (Q millions) (U. .

. . . 2011 and 2012 were P0. . Allied Bank’s credit ratings by Capital Intelligence and Moody’s as of August 31. . . . . . 2012. . . 2012.1 2. . . . . . . . .026. . . . . respectively. . . . . . . .4 billion. . . . . . . . . . . . .6 5. . . . . . . .2 17. . . . . . . . . . . . . Funding for capital expenditures is expected to be sourced primarily from sale of foreclosed assets.2 5. . . As of December 31. Allied Bank’s capital expenditures in 2010. . . .0 353. . . . . relocation and renovation of branch premises. . . . . . .536.2 315. . . . . .3 billion. Each rating should be evaluated separately of any other rating.2 167. . . . . . . . . .1 1. . . . Capital adequacy The Philippines adopted capital adequacy requirements based on the Basel II Capital Accord through the issuance of BSP Circular 538 effective on July 1. . . . . . . . . . . .807. . Allied Bank’s consolidated core Tier 1 as reported to the BSP was 17.8 264. . Material commitments for capital expenditures 24. . . . . . . . . . . . . . . . . . . . . Credit ratings Allied Bank’s borrowing costs are affected directly by Allied Bank’s credit ratings. . . . . . . . . . . . . . . . . .4 961. . .514. . . . . . . . . . . . .6 314.9 338. . . . Late deposits/payment received. . . . . . . .3 371. . . . . . . . . . 2007. . . . . . .3 billion and P0. . . . . . . . . . . . . . . Allied Bank’s primary capital expenditures during those years were mainly invested in acquisition of property and equipment. . . . . . . . .3 557. P0. . . . . . . . . . . . . . .320. . . . . was 21. . . excess cash inflows and income streams. .576. . . . . . Unused commercial letters of credit .9 41. . . . . . . .5 21. . . .2 278. . . . . Outward bills for collection . . .0 323. . . . . . . . . . . . Others . . . . . .2 609. . . . . . . . .0%. . . . . . . .2 489. . . . . . . . . . . . .755. . . . . . . . . . and acquisition and major repairs of furniture. . . . .5 543. . including for investments in IT-related projects. . . . .062. . . . . . . . 85 . Inward bills for collection. . . . . . . . . respectively. . . . Confirmed export letters of credit .7 5.The following is a summary of Allied Bank’s commitments and contingent liabilities at their equivalent Peso contractual amounts: 2010 As of December 31 2011 2012 (Q millions) Trust department accounts . . and for the renovation and relocation of branches. . .8 35. . . . . . . . . . . . . . . .4 Allied Bank has commitments for capital expenditures. .9 5. . . . Deficiency claims receivable . . are set forth below: Capital Intelligence Moody’s Foreign Currency Long Term P: Short Term P: Financial Strength: Support: Outlook: BB B BB 3 Stable Ba3/Positive E+ Positive A securities rating is not a recommendation to buy. . . . .838. . . . . . . . . . . . . . . . . . . on a consolidated basis.520.5 314. . sell or hold securities. . . . . .1% as of December 31. . . . . . . . . . . . . . . . .0%.013. . . . . . . fixtures and equipment needed to maintain Allied Bank’s competitiveness.7 5. Allied Bank’s risk-weighted capital adequacy ratio (the ratio of total qualifying capital to risk-weighted assets) as reported to the BSP. . .0 5. . . . . . . . Unused credit card lines . . . . . A securities rating may be subject to withdrawal or revision at any time. . . . . . . . . . . . . . . . . . . . . . . . 2012 and December 31. . . . . . . . Outstanding guarantees issued . . . . . 2012. .2 309. . .2 10.759. . The BSP’s minimum risk weighted capital adequacy ratio is 10. . . . . . . . .

. . . . . . . .0 410. . . . . . . . . . . . . . . . . . . . . . .0 28. . . . . . . . . . . . . . . . . . 100% . . . . . . .896. . .638. . . . . . . . . . . . . Market risk weighted assets . . . . .294. . .0 1. .5% 19. . . . .0 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 1. . . . . . . . . . . . . . . . . Total capital ratio . . 2011 2012 (Q millions) Consolidated 2010 Tier 1 (core) Capital: Common stock . . . . . . . . . . . . . . . .175. . . . . .4% 15. . . .0 12. . . . .155. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 2. .0 2. . .0 5. . . . . . . . . . . . . . . . . . .0 324. . . . . 50% . . . . . . . Risk-weighted securitization exposures. . . . . . . . . . . . . . . .0 — — — 11. . . . . . . .0 94. . . .0 366. . . . . . . . 75% . . . . . . . . . . Deductions from gross qualifying capital . . . . . . . . . . .0 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-weighted off-balance sheet: 20% . . . . . . . . . . . .176. . . . . . . . . . . . . . . . .030. . . . . . . . . Hybrid Tier 1 Capital Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0% The following table sets out Allied Bank’s consolidated assets according to risk weight as of the dates indicated. .252. . 75% . . . . . . . . . . . .0 390. . . . . . . . . . . . .0 657. . . . .0 — 547. . . . . . . . . .718. . . . . . . . .0 14. . . . . . . . . . . . . . .0 12. . . . . . . . . . . . . these loans and other transactions are made substantially on the same terms as those with other individuals and businesses of comparable risk. . .677. . . .0 15. .274. . . . . . . . . . .0 — — 424.0 — 5. . . . as reported to the BSP: As of December 31. . . . . . . .677. . . . . .228. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .551. . .595. . . .448. . . . . . . .329. . . . . . . . . . . . . Goodwill . . . . . . .0 659. .080. . . . . . Gross qualifying capital . . . . .0 28. . . . . . . . . . . . . . . .0 112. . .382. . . . . .0 412. .0 2. . . . . . . . . . . . . .0 86. . . . . . . . . . . . .0 9. . . . . . . . . .0 6. . . . . . . . . . . . . . . . . .0 26. . . .372. . . .843. . . . . as reported to the BSP: As of December 31. . . . . . . . . . . . . . . . . . . . . .0 3. . . .077. .0 1. . . . . . .0 81. . . . . . .003. . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 5. . . . . . . 3.412. . . .369. . . . . . . . . . . . . . . . 150% . . . . . . . . . . . . . . . . . . . . . .252. . . . . . . . . . . . . . . . . . . . . .0 3. . . . . .653.0 3. . . . . . . .0 2. . . .0 — 279. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 22. . . . . . . . . . . . . . . . . . . Under BSP 86 . . . . Risk-weighted assets covered by Mitigants . . . . . .0 11. . . . . . . .568. . . . . . Total credit risk-weighted assets .665.738. . .624. . Deferred income tax. . . . . . . . . . . . . . . . .657. . . . . Cumulative Foreign Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .166. . . . .0 29. . . . . . . . . . . . . . . . . . . .138. . . . . . . . 150% .0 3. . . . . . . . . . . . . . . . . . . . .0 In the ordinary course of business. . . . . . . . . . . .135. . . . . .0 14. . . . . . . . . . . . . . . .0 26. . . . . . .0 392. . . . . . . 50% . .0 — 8. Gross Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .655. . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 109. . Total qualifying capital . . . . . . . . . . . . . . . . . .470. . . . . . . . . . . . . . .1% 21.0 29. . . . . . . . . . . . . .991.941. . . . . Surplus . . . . . . . . . . . . . . . . . . . . . . . . Allied Bank has loans and other transactions with its subsidiaries and affiliates. . . . . . . . .0 140.0 2. . . . . . . . . . . .0 16. . . . . . . . . . . . . .0 7. . . . . . . . . . . .534. . . . . . .029. . . . . . . . . .0 123. . . . . . . . . . . Deduction from Tier 1: Common stock treasury shares . . .0 4. . .516. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 (Q millions) Consolidated 2010 2012 Risk-weighted on-balance sheet assets: 20% . . . . . . .215. . . . . . . . . . . .043. . . . . . . Non-controlling interest . . . . . . . . .477. . . . . .0 — — 406. . .0 24. . . . . . .485. . . . . . .0 — 490. . . . .0 5. . . . . . . . . . . . . . . . . . . . . . . .0 — — — — — — — — — 87. . . . . . Undivided profit . . . . . . . . . . . . . . . . . . . . . . . . . Gross Tier 2 capital . . . . . . . . . . . . . . . . . . . . .8% 19. . . . . . . . . . . . . . . . . . . . . . . .687. . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 11. . . . . . RELATED PARTY TRANSACTIONS 3. .0 5. . . . . .742. . . . Risk-weighted interest rate and exchange rate-related . . . . Unsecured DOSRI . . . .0 5. . .0 — 6. .0 — — — 21. . . . . . . . . .0 — — 409. .097. .015. . . . Capital ratios: Tier 1 capital ratio . . . . . . .0 3. . Capital paid in excess of par value . . . .The following table sets out details of capital resources and capital adequacy ratios of Allied Bank as of the dates indicated. Net unrealized loss on equity securities . .436. . . .6% 17. . . . . . . . . .252. . .222. . .183. . . . . .0 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . Under Allied Bank’s policies. . .0 144. . . . . . . . . . and with certain DOSRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .0 9. . . . . . . . . . . . . . . . . .0 319. . . . . . .0 3. . . . . . . . . . . . . . . . . .383. . . . . . . . . . . .0 135. . . . . Total risk weighted assets . . . . . . . . . . .949. .0 13. . . . . . . . . . . . .689. . . Operational risk weighted assets . . . . .

DOSRI loans generally should not exceed Allied Bank’s net worth or 15% of Allied Bank’s loan portfolio.Circular 423. 70% of which must be secured. For further details on Allied Bank’s related party transactions. 87 . In the aggregate. 2010. As of December 31. 2011 and 2012. should not exceed the amount of each DOSRI’s respective deposits and book value of each DOSRI’s respective investments in Allied Bank. Allied Bank was in compliance with the BSP regulations. the amount of direct credit accommodations to each of Allied Bank’s DOSRI. whichever is lower. please see Note 30 to Allied Bank’s financial statements included in this Prospectus.

lending.2% 4. Liquidity ratio(8) . . . . Interbank loans and Securities Purchased Under Resale Agreements. . .3%. . a full range of retail banking and trust services. . . . . . . . . Italy. . .7% 60. NGAs. . . . . 2010. . .0 billion and P312. . . As a result of this large geographic coverage. Canada. . . . 2013 Selected financial ratios Net interest margin(1) . . As of September 30. .9% 1. . . . . . . respectively. . . . . the Bank’s consolidated Tier 1 capital adequacy ratio and total consolidated capital adequacy ratio under the Basel Committee on Banking Supervision’s Revised International Convergence of Capital Management and Capital Standards (“BASEL II”) as reported to the BSP were 11. . . . . .5% 9. . . . . 2013: net interest income divided by 9 multiplied by 12 divided by average interest earning assets. . . 2013. . . .2% 48.6% 46. .BUSINESS Description of the Bank As of September 30. . Hong Kong. . . The market capitalization of the Bank on September 30. . . . . . 2010 2011 2012 For the nine months ended September 30. 2013. .120 banks and financial institutions worldwide. .8% 53.3% 2. For the year ended December 31. . . . the Bank’s focus since 2000 after the privatization has been to further develop its banking services for large corporates. The Bank provides a full range of banking and other financial services to large corporate.6% 2. . . Loans to deposits(7) . Return on average assets(3) .7% 12. 2013. . . respectively. . . . .6% Notes: (1) For the years ended December 31.1 billion as of December 31. the Bank also engages in a number of diversified financial and related businesses such as remittance servicing in the United States. . For the nine months ended September 30. .6% 13. . For the nine months ended September 30. . . .0% 3. . As of December 31. .0% 58. . . . 2012 and 2011. . trade finance. . . . net of NPLs. LGUs and GOCCs. . . . . respectively.0 billion.9% 1. . .9% and 18. . Europe. . . . middle-market. . . . . .0% 35. .5% 2. . . . The following table sets out the Bank’s selected key financial ratios for the periods indicated. . Through its subsidiaries. the Bank is one of the leading providers of remittance services to Overseas Filipino Workers (“OFWs”). 3. . As of September 30. 2013. .4% 15. bills discounting. . . . . . . 2013 (based on the closing price of the shares of the Bank on the PSE on that date of P87. . . . . . . the Bank also maintained correspondent relationships with 1. . . . . . . the Middle East and Asia. .7% 1. SMEs. NPL ratio(5) . . . .4% 57. .3% 44. . . . . with total assets of P606. . . . .5% 42. . . The Bank’s results as of and for the nine months ended September 30. . . . consolidated Tier 1 capital adequacy ratio and total consolidated capital adequacy ratio as reported to the BSP were 17. . and receivable from customers.9 billion. .2% 1.4% 12. remittance centers and subsidiaries in 16 locations in the United States. . . . . as well as to the Philippine Government. Total equity to total assets(6) . . . . . While the Bank’s principal focus has historically been to serve the banking needs of Government-related entities and GOCCs. . . . 88 . . . . . 2012 and 2011.0 billion and P4. . . . and net income of P5. . .40 per Share) was P94. . . . and treasury operations. . . . . .7% 1. . . .1%. was the fourth largest privately-owned Philippine commercial bank in terms of total assets. . . . . . the Bank’s total assets were P606. . . . . . . fund transfers/remittance servicing. . . . . . . investment banking. foreign exchange dealings. . the Bank had 656 branches and offices and 854 ATMs located throughout the Philippines. . .0% 55. 2013 include the results of ABC beginning on the merger effectivity date of February 9.1% 13. representative offices. . . . 2012. . Trading and investment securities. respectively. Interest-earning assets which mainly consist of Due from BSP and other banks. . . . . . . . .1 billion and its net income was P6. . . . . . Return on average equity(4) . . . . 2011 and 2012: net interest income divided by average interestearning assets. . . middle-market.5% 46. .6% 60. . 2013. . . . SMEs and retail customers including OFWs. . .3% 3. subsequent to its merger with ABC effective February 9. France and the United Kingdom. Cost-income ratio(2) . . 2013. . non-life insurance. . .1 billion. the Bank. . . . . .6% 15.8 billion in the years ended December 31. . . . . The Bank has the largest overseas network among Philippine banks with 81 branches. . . . . . . . . . . Canada. compared to total assets of P331.0% and 20. 2013. . . . .1% 11. . . The Bank has been listed on The Philippine Stock Exchange (“PSE”) since June 1989. leasing and financing and freight forwarding services. . retail customers and OFWs. . . The Bank’s principal commercial banking activities include deposit-taking. As of September 30. stock brokerage. . . . . . . . . . .

in Tier 1 Capital. 89 . when the Central Bank of the Philippines.1 billion. In June 1989. Together with the sale of 89 million primary shares. The remaining 22. (3) For the years ended December 31. the Government embarked on the privatization of the Bank. administering trust funds. the Bank settled its P6. In August 2007. (6) Total equity divided by total assets. The MOA. four years ahead of maturity date. functions which the Bank performed until 1949. ratios were computed based on the balances on the audited financial statements.(2) Total operating expenses (excluding provision for impairment.8 million secondary shares owned by the Government through PDIC and the Department of Finance (“DOF”) were sold to the public paving the way for a complete exit of the Government from the Bank. disbursements. which has since been renamed the BSP was established. stipulated the following financial conditions: conversion into equity of P7. Tan from time to time held a total of about 31. the ratio was computed based on figures reported to the BSP.51% of the Bank’s shares through various subsidiaries. and the conversion of P6. and acting as a channel for the sale of Government securities. the custodian of bank reserves and the issuer of Philippine bank notes and Government bonds. it was incorporated with the PSEC as a juridical entity. while the latter held direct ownership over 1. As of September 30. For the nine months ended September 30.11% of the Bank’s shares were owned by other stockholders. In April 1992. (7) Receivables from customers divided by total deposits. 2013. The Bank had to undergo a rehabilitation program pursuant to a MOA signed by the Republic of the Philippines. In June 2007.1 billion. History The Bank was established in 1916 by the Philippine Government.0 billion obligation by way of dacion en pago through the assignment of government and government related receivables. credit and other losses) divided by operating income. credits and import/export financing. The Bank acted as the sole depository of Philippine Government deposits. As of December 31. 71. 2002.2% of the outstanding shares of the Bank. serving as a depository bank for working balances. In December 1995. (5) Total non-performing loans (net) divided by total adjusted loan portfolio. providing fund transfers. 2010. 2002. As a result of the Asian financial crisis.8 billion of the P25. Following Proclamation No.0 billion assistance extended by the BSP and the PDIC. (8) Total liquid assets divided by total assets. LTG held indirect ownership over 45. the Bank played an important role in implementing the Government’s financial policies. net of issuance cost of P199. As of September 30. which was signed on May 3. 2010. This included being a major provider of banking services to the Government as well as its agencies.0% of the outstanding shares in the Bank to the Philippine public for a total consideration of P2. the clearing house for the Philippine banking system.19% of the Bank’s shares. 2011 and 2012: Net income divided by average total equity for the period indicated. 2011 and 2012: Net income divided by average total assets for the period indicated.0% of the outstanding shares of the Bank for a total consideration of P1. Historically. 50. 2010. the Government disposed of a further 10.1 billion into a ten-year loan with interest equivalent to the 91-day T-Bill rate plus 1. 2013. the PDIC and certain Tan Companies. Its Articles of Incorporation and By-Laws were duly filed. 2013: Net income divided by 9 multiplied 12 then divided by the average assets for the period. settlement of the P10. which necessitated significant levels of financial assistance from the BSP and the Philippine National Government (through the PDIC). as a bank which was then solely owned by the Government. LGUs and GOCCs.1 billion. At that time.1 billion loan to PDIC. the Government disposed of a further 7.5 million. the Government offered to the Philippine public 30. 1996.19% of the Bank’s shares. 2011 and 2012.0%. On May 27. in addition to engaging in the general commercial banking business. the Bank suffered a liquidity crisis for the five years ended December 31. (4) For the years ended December 31. the Bank successfully completed a Tier 1 Follow-On Equity Offering where it raised about P5. the Bank also served as the de facto central bank of the Philippines. For the nine months ended September 30. Shareholders associated with or who issue proxies/special powers of attorney in favor of Director Lucio C. 2013: Net income divided by 9 multiplied by 12 then divided by the average equity.

the Middle East and North America.” The Bank reaffirms its commitment towards building fruitful and solid partnerships with its clientele to help them achieve their financial goals.5% on average over the next five years driven by strong domestic consumption and favorable demographics. on August 2.0% in 2002 according to data from the BSP.3% and 0. representing at least two-thirds of the outstanding capital stock of both banks. On July 25. 90 . 2012.1 billion).Notwithstanding its status as a private bank. it has the widest international footprint among Philippine banks spanning Asia. the Bank concluded its planned merger with ABC as approved and confirmed by the Board of Directors of the Bank and of ABC on January 22 and January 23. the merged entity was the fourth largest private domestic bank in the Philippines in terms of local branches and the fourth largest in terms of consolidated total assets (P606. Europe. 2011. 2012.0 billion). Recent Developments Impact of 2013 Typhoons and the Earthquake in Bohol As a result of the typhoons Maring and Santi. 2012. PNB Gen. On April 12.2 billion) and deposits (P454. With a combined 133 years of banking experience. product offerings and brand recognition have made it among the leading financial institutions in the Philippines. and Better. the application for the merger was filed with the PSEC. The banking sector has also stabilized over the years. Likewise. with respect to ABC’s overseas subsidiaries. 2012. deposits. the Parent Company has also filed notices in relation to the merger with various relevant foreign regulatory agencies. the PSEC granted its approval to the merger. the Bank is the Philippines’ fourth largest private commercial bank in terms of total assets. 2013 figures. approved the amended terms of the Plan of Merger of the two banks on March 6. The Philippines has one of the lowest banking penetrations in Asia. The Bank’s scale. with the average net NPL ratio generally declining to 3. on January 17. 2012 and September 30. 2008. and as of January 17. 2013. Based on September 30. In addition. leaving significant headroom for growth. business mix. net loans and receivables (P258. the Parent Company submitted to the BSP and PDIC applications for consent to the merger. On March 26. In addition. In addition. Stronger. 2013. As of September 30. 2013. Under the new methodology adopted by the BSP. According to the Bank’s published SEC Form 17-Q Report. the Parent Company received notice that the PDIC had given its consent to the merger. reach. the banking sector’s average net NPL ratios were 0. 2013. According to the Economist Intelligence Unit. particularly with respect to losses arising as a result of typhoon Yolanda have not been fully assessed at this time. Finally. While the amount of these losses. in particular typhoon Yolanda— which caused significant damage in Central Visayas and certain parts of Southern Luzon—the Bank expects to incur losses as a result of claims for property damage by clients of the Bank’s non-life insurance company. 2013 had received all necessary approvals to effectuate the merger. the new Philippine National Bank now operates under the motto “Bigger. the Bank remains one of the Authorized Government Depository banks having been granted by the BSP the authority to accept government deposits on a continuing basis since the Bank has successfully met the BSP requirements for this license. the Monetary Board of the BSP issued a resolution giving its consent to the merger.1% as of December 31. net loans and receivables. the earthquake in Bohol and. Merger with Allied Banking Corporation On February 9. loan growth is expected to be strong at 13. representing at least two-thirds of the outstanding capital stock of both banks. the merged Bank has a combined distribution network of 656 branches and offices and 854 ATMs nationwide. The original Plan of Merger was approved by the affirmative vote of ABC and the Bank’s respective shareholders on June 24. from 15. the Bank currently estimates that these losses will be between P700 million and P800 million. 2012. respectively. 2013. 2013. the Bank is still assessing the impact of typhoon Yolanda on the Bank’s owned and invested properties. respectively. The respective shareholders of the Bank and ABC. as of September 30.5% as of December 31. Competitive Strengths The Bank considers the following to be its principal competitive strengths relative to the banking sector: Well-positioned franchise in the robust Philippine banking sector The Bank believes that it is well-positioned in the robust Philippine banking sector.

the Bank believes that it will continue to benefit from being part of one of the largest and most diversified conglomerates in the Philippines. representative offices and remittance centers across 16 countries in North America. deposits and net worth. property development. large corporate. middle-market. trust. ABC maintained a strong capital position prior to its merger with the Bank. 2013. Meanwhile. the Bank had 656 domestic branches and offices and 854 ATMs. information technology and other infrastructure required for the execution of its growth strategy. the Bank believes it will benefit from ABC’s stable financial performance in recent years. 2012 as reported to the BSP. airlines. 2013. ABC has continuously maintained its position among the 10 largest private Philippine universal banks in terms of total assets. The Bank’s strong capital position gives it the flexibility to expand its business. loan portfolio.0% and consolidated CAR of 20. SMEs and retail segments. making it one of the largest in the Philippines. a net NPA ratio of 3. Inc.1%. which have resulted in improving asset quality. the Bank’s receivables from customers were well-diversified across the large corporate.0%. Moreover. making financial services accessible to untapped customers and investment opportunities. invest in new products and services. 2013.Extensive and strategically located distribution network The Bank believes it has one of the most extensive branch networks among its competitors in the Philippines. based on data from the BSP.1% of the total number of Bancnet ATMs of commercial and universal banks. 91 . higher than the BSP minimum required CAR of 10. According to BSP data. the 653 domestic branches and offices of the Bank comprised approximately 14% of the total number of branches of all private commercial and universal banks in the Philippines as of June 30. 2013 as reported to the BSP.120 banks and financial institutions worldwide. The 854 ATMs of the Bank represented about 8. Synergies from its strong shareholder group As a member of the Tan Companies. according to data from the BSP. Europe. The Bank’s large-scale remittance business is supported by the Bank’s extensive overseas network of 81 branches. Diversified customer base The Bank provides a full range of banking and other financial services to a diversified customer base including government entities. As of September 30. As of September 30. such as partnering with ABC (prior to its merger with the Company) and Philippine Airlines to introduce one of the most popular mileage rewards credit cards in the Philippine market. the Bank also maintained correspondent relationships with 1. fixed-income securities and credit cards. Moreover. The Bank’s extensive distribution network allows for a strong deposit gathering capability and the ability to sell and distribute fee-generating product lines such as bancassurance. As of September 30.3% as of September 30.0% for the year ended December 31.6% and an NPL coverage ratio of 94. The Bank believes that its asset quality would remain at a healthy level subsequent to its recent merger with ABC with the latter similarly maintaining strong asset quality. improving asset quality and stable financial performance The Bank believes its capital position is strong. The Bank’s branches and ATMs are strategically located to maximize market potential and cover areas where competitors are less present. the Bank recorded a net NPL ratio of 1. the Bank has been committed to prudent credit approval and risk management processes. As of September 30. with a consolidated Tier 1 ratio of 17. SMEs and retail customers. additional customers contributed by ABC will strengthen the Bank’s ability to withstand periods of volatile economic markets as compared to many of its peers.’s products and for other Tan Companies and facilitating guarantees for ticketing agents of Philippine Airlines. The Bank believes that it has been able to achieve significant synergies with the Tan Companies. with the Bank having the distinction of being one of only five authorized Government depository banks in the Philippines. 2013.0% as reported to the BSP. The Bank believes that with the merger. Government. the Middle East and Asia. providing collection facilities through its nationwide branches for sellers of Philip Morris Fortune Tobacco Corporation. 2013. Solid capitalization. with interests ranging from beverages. 2013. Industry-leading OFW remittance business The Bank’s OFW remittance business accounted for approximately 21% market share by remittance volume as of August 31. with a consolidated CAR of 21. education and others. tobacco.

. . Along this line. . . Allied Savings Bank (to be renamed PNB Savings Bank) which will play a pivotal role in strengthening the bank’s foothold on the retail and consumer segment. . . . . . . . delivering high profitability supported by a solid balance sheet. . Bank’s Financial Strength Rating (BFSR) . Long-Term Counterparty Credit . . . . the Bank will continue to determine the proper allocation of the use of funds between loans and investments to ensure a more stable level of accrued interest income and higher yields from loans versus the volatile movements in trading gains/losses from investment securities held for trading. . . continued product innovation and marketing initiatives are expected to result in increased remittance volume and/or increased foreign currency business. . . . . . . . . . .Credit ratings upgrade The Bank’s borrowing costs are affected directly by the Bank’s credit ratings. . . . Foreign Currency Deposit Rating . . . . . . . The Bank will also review its fee structure and align bank fees and service charges with market rates to remain competitive. . . . . . . . . . . particularly by introducing electronic-remittance channels. the Bank will keep on partnering with companies that are considered leaders in their home markets to reinforce its overseas presence. . . . . . . To achieve this corporate goal. Stand-alone Credit Profile. . . A securities rating may be subject to withdrawal or revision at any time. . . the Bank intends to further leverage on its strong franchise and increase fee-based income by intensifying its cross-selling efforts to its existing customers. the Bank will take steps to modify its revenue mix towards a more stable stream of income. . Shift loan portfolio mix in favor of SMEs and consumer segments The Bank’s lending strategy will entail a shift in marketing focus from large institutional accounts to SMEs and individuals. . . . . . . . . . . . Business Strategies The Bank aims to fortify its position as one of the leading banks in the Philippines. including its OFWs customers. . In addition to its large global distribution network. . . Likewise. . . . . . sell or hold securities. . . . . the Bank plans to intensify its efforts in the marketing of bancassurance products. . Baseline Credit Assessment (BCA). . . . the Bank will undertake the following strategic initiatives as discussed in its Strategic Planning Workshop last March 2013. . . . . . . . . . Short-Term Counterparty Credit . The Bank’s post-merger credit ratings by Moody’s Investor Service as of September 2013 and Standard & Poor’s as of March 2013 are set forth below: Moody’s September 2013 Standard & Poor’s March 2013 Outlook . The Bank intends to leverage on its extensive customer base of OFWs to expand its consumer lending business. . Strengthen leadership in the global Filipino Market The Bank intends to further increase its share in the global Filipino market by going beyond merely providing them with remittance services to offering them a more diverse menu of financial services. . . . . . . . . . . . . Subordinate—Domestic Currency. . . . . . Adjusted Baseline Credit Assessment. . . . . . . . . The sustained focus on service quality. This shift in lending strategy by increasing the number of smaller accounts is intended to help the Bank in achieving higher lending margins as smaller accounts are less sensitive to changes in interest rates. . . . . Local Currency Deposit Rating . . . . . The Bank’s consumer finance business will be transferred to the Bank’s subsidiary. . . . . . . . 92 . . The Bank will continue to enhance its products aimed at delivering optimum services. Improve revenue mix As part of the strategy to improve its profitability and at the same time minimize dependence on any specific revenue source. With its bancassurance license from the BSP. . . . Stable Stable B+ B Ba2 Ba2 E+ b1 b1 B2 A securities rating is not a recommendation to buy. Each rating should be evaluated separately of any other rating. . . . . .

. . Treasury. . . . . . . . . .930 13. . Banking Activities The Bank’s banking activities are undertaken through different groups within the Bank. . portfolio sale. . . .347 24. . . . . . . . . . . Revenues should be enhanced as a result of new customers. . . . .. .544 92. . . . . . . . the Chinese-Filipino community to the provincial market. . . . . . . LTG. . . low funding cost from improved risk profile and greater opportunities for cross-selling bancassurance. . . . . . . . . . . . . . . . . . . Metro Manila . .339 59. .468 31. . . . . . the Government Banking Division (“GBD”).298 3. Retail Banking. . In support of the expansion in total assets. increased business from existing customers. . . . (iv) efficient account management of SCR accounts. . the Corporate Banking Division (“CBD”). . . . . . . the merger will result in cost efficiency improvements through branch re-engineering. . . . . The merged bank will also be able to leverage and harness on the wide network of its major shareholder. the Financial Institutions Division (“FID”) and the Transaction Banking Division (“TBD”). . . . . . PNB and Allied Bank will have a better platform to offer a wide range of personal and corporate banking services and products. . . . SAMG will focus its efforts on the following: (i) pursue implementation of development plans for selected ROPAS e. . . . . . . . . . . . . . . . Accelerate ROPA disposition Through its Special Asset Management Group (“SAMG”). . . . . . . . . . . . . . . OFWs. . . . . . . . 2010 2011 2012 (in Q millions) As of September 30. . . government-owned and controlled corporations. . . . . . . As of December 31. . . . . realignment of front offices and optimization of back office processing and support functions. . . . .707 3. 93 40. . . . . . . . . the primary holding company belonging to one of the largest conglomerates in the Philippines. . . . .419 30. . . economies of scale. . . .625 40. . . . .481 — 1. Set out below is a summary of the IBG loans by type for the periods indicated. . . . .143 12. joint-venture with developers. . .g. . .614 98. . local government units. Together. . . Institutional Banking Group The Bank’s Institutional Banking Group (“IBG”) is responsible for credit relationships with large corporate. . . . . . Consumer Finance. systems integration. . . . . the Commercial Banking Division (“ComBD”).278 — 194. . . .315 74. . . . . . . . . . . . . including the Institutional Banking. . . . middle-market and SME customers as well as with Government and Government Owned & Controlled Corporation (GOCC) and financial institutions. . . . . . . . . . . . . (ii) collection of CARP accounts. . The IBG is subdivided into five distinct business divisions. . .223 9.817 9. .286 19. . . . . .105 47. . . . . . . . . . . Under the Bank’s three-year business plan.583 21. . . . . Total . Government. Provincial . . .127 . . credit card and other products to a larger customer base via a wider distribution network. .151 28. . . . . . The merger is expected to create substantial revenue and cost synergies. . . . . . . the Bank will also keep an acceptable level of high-cost deposits to complement the low-cost deposit base. .Rationalize cost of funds The Bank will leverage on the strength of its nationwide branch network to generate low-cost deposits from its existing and growing customer base. . .221 12. . . . . . . . . . (iii) strong marketing initiatives. . 2013 Corporate . . . . . . . . and become a leading player in its chosen markets. . . . . . . the Bank will aggressively dispose of foreclosed assets as well as maximize recoveries from asset sales and income potential of acquired assets. . . trust. . . . . . . . . . and (v) more effective and efficient lease management practices. Global Filipino Banking and Trust Banking Group.177 6. . . . . Financial Institution. . . . . . . namely. . . . . . . . .956 — 106. . Maximize synergies from the merger with ABC The merger brings together a combined complementary client base ranging from large corporations. . sale of small and medium ROPAs. . . In addition. . . . . . . . . . . . . . Commercial. . . . . . . . . . . . .034 64. . . .

located outside Metro Manila being the focus. pre-need companies. Developmental Bank of the Philippines. collection and liquidity management facilities are also offered. Government Banking Division The GBD is responsible for providing loans. water districts and electric cooperatives and GOCCs. These centers also provide a strong presence for the Bank in the palay/corn industry and are positioned to compete for a larger share in other agricultural and farming markets in the future due to the strategic location of provincial branches. allowing the customer to draw on such credit lines in the form of short-term loans or to secure trade financing or other forms of credit. In addition. commercial and export bills discounting. With trade finance loans. namely: • handling the relationship with banks and non-bank financial institutions. credit and other banking services to the National Government. Loans to large corporate customers (comprising the Philippines’ top 100 corporations by revenue according to Business World online magazine (the “Top 100 Corporations”) managed by CBD. CBD played major roles in structuring complex transactions such as aircraft financing and project finance deals for power and infrastructure industries. Over the past four years. • marketing and cross-selling of various products and services of the Bank. Land Bank of the Philippines and other specialized lending institutions. The products and services offered by the PCBD are similar to the MMCBD. This specialized group caters to the banking needs of the Government and Government-related entities. The Bank also provides omnibus credit lines to top corporate customers. LGUs (comprising of cities. export advances. municipalities and provinces). and other credit products and services mainly to small entrepreneurs and mid-sized businesses primarily based in Metro Manila. and • mobilizing the utilization of the rediscounting or specialized lending facilities of the BSP. Provincial Commercial Banking Division The Provincial Commercial Banking Division (“PCBD”) provides a wide range of loan products and services to its large corporate customers. investment houses and asset management companies. Cash management solutions such as disbursement. the centers are the main platform for promoting and developing the Bank’s agricultural loan portfolio. documentary credits. middle-market customers and small entrepreneurs that are located outside of Metro Manila. 94 . trade. Commercial Banking Division Metro Manila Commercial Banking Division The Metro Manila Commercial Banking Division (“MMCBD”) offers a wide array of loan. with the former’s customers. There are five general functions and responsibilities of the FID. which continue to be a significant source of profitability and growth prospects for PNB. government financial institutions. foreign currency loans and trade finance. negotiating bills under documentary credits and bills collection. with the main difference being in their geographical target markets. NGAs. including term loans. The CBD also offers a wide variety of trade finance-related products and services. Government loans include loans to finance infrastructure projects as well as bridge-financing of certain operating expenditures. • setting-up of credit facilities for financial institutions. Special loan packages such as the “Sugar Crop Production Line” and “Sugar Quedan Financing Line” facilities are actively marketed by the Bank in specific areas. revolving credit lines. in particular SMEs. including letters of credit. • establishing remittance tie-up with local and foreign banks. Financial Institutions Division The Financial Institutions Division (“FID”) is responsible for the relationships with correspondent banks and non-bank financial institutions such as insurance companies. the Bank is able to provide customers with working capital for trade finance with short-term maturities.Corporate Banking Division The CBD provides a range of traditional corporate banking products and services to large corporates.

2013.S. a wholly-owned subsidiary. Australia. which also tend to be the places where many beneficiaries of OFWs reside. Inc. development and management of cash and trade products that will help the Bank’s corporate customers to effectively manage their day-to-day operations resulting to cost and time savings while optimizing resources.7% and 92. private businesses.e. the Bank’s total deposit liabilities amounted to P240. Inc. namely Asia. current accounts. To generate more deposits. tax payments. The Bank’s product offerings have expanded its traditional over-the-counter channels to include electronic banking capabilities for payroll. Canada and Latin America. Approximately 39.0 million deposit accounts as of September 30. 2012 and as of September 30. giving the Bank direct access to OFWs and their beneficiaries. The TBD also provides marketing support to the corporate relationship managers and to the branch manager of the Retail Banking Group in cross-selling the Bank’s cash and trade services to their clients. of which 79. Such a distribution system allows the Bank to cover places which are not covered by its competitors. principally in U. new products and promotions were introduced. including current accounts (both interest-earning and noninterest bearing demand deposits). Deposits The Bank offers a full range of deposit products. fixed income products. the USA. and GOCCs as of December 31..8%. U. In terms of customer base. respectively. check issuance and funds transfer. respectively. LGUs. the Bank had approximately 4.0 billion. Likewise. 2013. the Bank had 1. liquidity and disbursement processes. such as a time deposit-backed credit card to keep customer deposits with the Bank for longer periods of time. 2013. with the remainder denominated in foreign currencies.120 correspondent banks located in various regions.3%. Branch Banking As of September 30. 95 . and PNB Life Insurance. The ratio of CASA to high cost deposit as of December 31. credit cards and bancassurance products to existing customers and referred customers by transforming its domestic branch distribution channels into a sales-focused organization. Retail Banking Group The Retail Banking Group (“RBG”) principally focuses on retail deposit products (i. the private sector accounted for 93. As of September 30. which provides it with additional fee income.As of September 30. Europe. By sector. NGAs. were denominated in Pesos.7% of the Bank’s total deposits were generated from the private sector. (“PNB Gen”). the Bank continues to implement measures that will enhance existing products and services and optimize the use of latest technology to deliver more responsive banking services to its clients. among others. While the focal point is the generation of lower cost of funding for the Bank’s operations. the Middle East.S. savings accounts and time deposits in Pesos. Transactional Banking Division The Transactional Banking Division (“TBD”) is responsible for the conceptualization. dollars and other foreign currencies. The Bank offers its non-life insurance and life-insurance products through its partners PNB General Insurers Co. the Bank is targeting in particular the OFW and OFW beneficiaries deposit segment. LGUs and GOCCs. respectively.8% of the Bank’s branches and offices are located in Metro Manila while the rest are strategically located in other key cities or areas in the provincial areas. These are being provided to its customers which include individuals. trust products. the RBG also concentrates on the cross-selling of consumer finance products. dollars. 2013. the Bank’s domestic branch network consisted of 656 branches and offices. savings accounts and time deposit and other accounts) and services. The TBD promotes the use of business solutions aimed at enhancing the customer’s management of its collection. approximately 81. the Bank is able to service customers in these regions more effectively. 2013 was approximately at 168.1% of total deposits and the balance by the government sector. 2013.. as well as handle OFW remittances for PNB.3% were accounted for by NGAs. With these correspondent banks in place. Africa.7% and 175. 2012. 2012 and September 30. reduce costs and improve productivity. The Bank’s bancassurance product. These correspondent banks generally receive and process trade and payments for PNB in foreign jurisdictions. is a BSPapproved service allowing banks such as the Bank to sell life and non-life insurance products to the bank’s client base and through their branch network. while the remaining 18.9 billion and P454. As of December 31. Of the former group..

. remittance and e-banking services offered by the Bank. . . . . As of December 31. . . . . . The Bank regularly monitors the progress of each of its branches. . such expansion is subject to prior approval of the Monetary Board. . . . . These security services are provided by independent contractors to the Bank. . . Although the Bank annually plans to expand its branch network to locations not currently served by the Bank. . . . . . . . . . the largest consortium of ATMs in the Philippines. 2013. . . . Rest of Luzon . . 2013.178 ATMs through the Bancnet system. . .5 billion. 2012. the Bank was able to open 10 new branches. . . Security is an important consideration in the Philippine banking industry. . In addition.4 billion and P26. . Consumer Finance Group The Bank’s consumer financing business is seen to be a major contributor to its revenue stream in the medium term. . . . . . . . . . . . . . the Bank generally employs two security guards at each of its branches. . . Strategic initiatives have been undertaken to put in place the proper infrastructure to support the Consumer Finance Group’s (“CFG”) business growth. . ATMs . . . In 2012. . . 96 . . . . .9% of the Bank’s receivables from customers. . . .510 The Bank’s branch managers are responsible for the performance and profitability of their branches. . . . . The Bank has also been rationalizing its branch network and adjusting the size of certain branches in order to maximize operating efficiency. . . . . the Bank’s ATM cardholders have access to an additional 4. . . . . . . . respectively. . The Bank installed 44 new ATMs in 2012. . . . . the CFG continued to leverage on the strength of the Bank’s branch distribution network and depositor base to generate volume. . which handles all inbound inquiries for deposit accounts. The following table sets out the Bank’s branches and ATM information in the Philippines: As of December 31. . . with an estimated 100 branches expected to be renovated in the next two years. . Tagaytay and Calamba. . . . . All of the Bank’s branches employ time delay security devices and closed circuit televisions to prevent robberies. . . . . the Bank had 656 branches and offices and 854 ATMs. As of December 31. . . . . . . . . . . . . . Total . . . . 2012. . . . . . . . As of December 31. . . 109 113 52 51 409 734 113 117 53 52 459 794 114 118 54 53 480 819 261 202 99 94 854 1. . .823 ATMs resulting from Bancnet’s inter-consortium agreement with Megalink and Expressnet. . . . . . . . . . . . . . . . . . . . . as well as ATM. . . . . . . . 2012 and September 30. . . . . . . In 2012. . . . . The Bank plans to open 5-10 new branches every year in periphery cities such as Taguig. the Bank’s customers had access to approximately 8. . . . . . Bancnet comprises 105 banks whose ATMs have been pooled for the common use of their respective customers. . . As a member bank of Bancnet. . . . . . . . . . . . . . . . . . . . . . . . . . 2013 Number of Branches Metro Manila . . . . the Bank is also currently renovating existing branches to align with its re-branding efforts. . . . . . . . . . . . . . . . . . the Bank was able to open four new branches. . . the Bank operated a network of 480 ATMs at its branch premises and off-site locations. . . Muntinlupa. Visayas. . . . . . Along with these branch openings. . . . . and keeps the relevant branch manager informed of such progress via a monthly dashboard. . . . . . consumer loan levels were at P12. . . . . . . . . 2010 2011 2012 As of September 30. . . . . . . . . . . . . . . accounting for 9. . . . . . . . . . . . . . . . . . .In 2011. . . . . . . . . Caloocan. . . . . . . . . . . . . . Las Piñas. . As of September 30. . . . . . Mindanao. . . . . . The Bank has also established a 24-hour customer care center. .3% and 10. . . . . . . . . The Bank is a member of Bancnet. . . . . . . . . . . .

.820 8.548 6. The Bank even offers an Own a Philippine Home Loan program for immigrants or non-Filipino Citizens who wish to buy a property in the country. Efforts to diversify methods for the disposal of investment properties have been actively pursued by the Bank and include public auctions. depending on the maturity of the loan. .068 5. . . . .098 3. .792 5. As of September 30. . . . Home Mortgage Loans Home Mortgage Loan is extended to both property buyers and owners in the Philippines who intend to have their acquisition or construction of residential homes financed by the bank or mortgage their property to generate funds for personal investment. . . . . it can either agree to a voluntary disposal of the property to the Bank or the Bank may commence foreclosure proceedings. harnessing business opportunities from its corporate relationships. as well as going into joint venture projects with property developers. . the Bank generally requires residential mortgage borrowers to have an equity interest of at least 20% of the value of the property. . . . . . . worth (by net book value) of investment properties. . . . . . .934 8. . . .406 1. Interest rates on the Bank’s home mortgage loans range from 5. . . . . . . In addition to lending to individuals for home purchases. . Following the expiry of this initial period. . . . P3. Notes: (1) Based on RFP submitted to BSP (2) Excludes contract-to-sell accounts 3. . . . the Bank offers competitively priced one-year. . . When a borrower falls into arrears with its mortgage payments. During this period. . . . . . . . . . . . The Bank also has the right to cancel the contract and acquire ownership of the property.Set out below is a summary of the Bank’s consumer loans by type for the periods indicated. if the buyer defaults on the payment of the monthly installments due. .741 486 333 1. . . . . . . . Motor Vehicle Loan . . . 2011 and 2012 and the nine months ended September 30. . . . As of As of December 31. . . . the interest rate is reset at a fixed rate applicable for succeeding periods. . . . . . . . . . . . . . . . . . CTS involves a buyer obtaining in-house financing from a developer for a purchase whereby the developer will retain title to the property until full payment of the loan. . . Foreclosure of the property commences when the account becomes 180 days past due.4% of the Bank’s real estate loans.2 billion and P0. . . . . . . .0%. Sale of the foreclosed collateral is generally sold through public auctions. . . . . .0 billion. . . 2013. The Bank buys CTS on both with recourse and non-recourse basis. . . . . . . . . . . . respectively. . . .25% to 11. . . .8 billion. . . pays for the installment or total outstanding amount due. . . . the Bank classifies such collateral as ROPA. . . . . . introduction of new product variants and continuous improvements in process and policies to improve turnaround time and manage inherent portfolio risks. . 2013. . . . . if under a recourse arrangement. .967 26. . . . All of the Bank’s home mortgage loans are secured by a first legal charge on the property. . Interest rates are set at fixed rates for the loan term chosen. Multi-Purpose Personal . . . . . . . . . . For the years ended December 31. . . . .0 billion. . . . . . . . turnaround time for the processing and approval of housing loans was approximately two weeks and eight hours for auto loans. . . . . . . . September 30. . . . . . . . . . . . . the Bank has sold P3. . .416 11. . Total . . sales conducted through brokers and pursuant to employee referrals. . . . . . . . . 97 . . . . . . In addition. . For the nine months ended September 30. . interest rates on the Bank’s home mortgage loan portfolio are set at a fixed rate applicable for an initial period of between one and 15 years. . At present. five-year and ten-year rate-fixing for home mortgages. . Credit Card. . . . . . 2010.545 The Bank’s strategic initiatives for the CFG in 2012 focused on heavy cross-selling at branch level. . . . . . CTS constituted 11. . . . Set out below are the various types of loans for the Bank’s consumer loan portfolio. . . . .932 4. . . . . . . . . . . P1. . . . . . . the developer. . 2013. . . . . .062 12. . . . 2010 2011 2012 2013 (in Q millions) Consumer Finance Loans by Type(1) Housing Loan(2) . .661 287 2. . . . . . the Bank also purchases contracts to sell (“CTS”) from established developers. Once the mortgaged collateral is foreclosed.678 334 1.322 1. the mortgagor continues to have the right to redeem such collateral within a year from the date of foreclosure in return for payment of principal and interest owed plus the Bank’s out-of-pocket expenses. . However. In accordance with industry practice in the Philippines. .

1 billion and accounted for 15. 2013. the Bank re-launched the core Essentials and Platinum MasterCard to represent a bigger and better merged bank. Allied Bank-UERM-CMAA (UERM-College of Medicine Alumni Association) and Allied Bank-DLSZAA (De La Salle Zobel Alumni Association).000 within the first year of launch of these cards.8% of the Bank’s total consumer loans portfolio. Under this card. sport utility vehicles. accounting for 65. 98 .4% of the total consumer loan portfolio.1% and 69. The Bank also tied up with four prestigious school organizations in 2011 for the issuance of the Allied Bank-AAXS (Alumni Association for Xavier Schools). This was primarily due to the merger with Allied Bank.The home mortgage loan portfolio stood at P5. respectively. motor vehicle loan portfolio stood at P3. 2013. In 2011. 20% discount on all regularpriced The Travel Club house brands on the cardholder’s birthday month. the Bank introduced its Mabuhay Miles Platinum MasterCard and Mabuhay Miles World MasterCard. These cards offer a point-to-mile rate of P33 per mile.0% and 22. the Bank introduced its new PNB Visa Credit Card line. total credit card portfolio reached P4. The card offers 5% discount in all The Travel Club stores. Depending on the vehicle financed.0% of the total consumer loan portfolio.5%. The Bank also tied up with Super 8 Grocery Warehouse to tap the affordable consumer market. catering to the high-end market. The Travel Club Platinum MasterCard was launched in June 2012. As of September 30. 2011 and 2012.7 billion as of December 31. loyalty gifts from Jewelmer Joaillerie. These co-brand cards cater to each organization’s unique needs and passion. New and second hand sedans.0% of the purchase price of brand new vehicles. In 2013. rewards points may be exchanged for airline miles.3 billion. Sure Wheels Auto Loan finances as much as 80.9 billion and accounted for 45. 2011 also produced the Jaguar and Land Rover MasterCards. respectively. Allied Bank-Super 8 cardholders are given a 2. 2011 and 2012. the Bank launched its PNB Essentials MasterCard and PNB Platinum MasterCard credit cards under a co-brand arrangement with ABC. Allied Bank-ICAAA (Immaculate Conception Academy Alumni Association). rebates from various outlets and Jewelmer Joaillerie gift vouchers. Among the exclusive features of the card are a 20% discount on Jewelmer Joaillerie stores on the cardholder’s birthday month. The Bank’s cardholder base for its Mabuhay Miles Platinum MasterCard and Mabuhay Miles World MasterCard exceeded 20. Motor Vehicle Loans The Bank offers Sure Wheels Auto Loans which provide consumers with an easy way to acquire the vehicles of their choice.0% rebate for transactions made at Super 8 stores. accounting for 24. home mortgage loan portfolio was P11. Its competitive rates and flexible payment terms translate to affordable monthly amortizations for the borrowers. installment payment. rewards points which can be used as cash rebate or converted to Mabuhay Miles and a waived annual fee for life. 1% rebate on The Travel Club installment transactions. As of September 30. and others. 2013. In 2010. replacing a previous PNB Visa line it had offered in partnership with Equitable Card Network. payment terms can be from 12 to 60 months. the frequent flyer program of Philippine Airlines. As of September 30. and is a co-brand tie-up with the Primer Group of Companies. Credit Cards In 2009. of the Bank’s total consumer loans portfolio. A partnership with Jewelmer Joaillerie launched the Jewelmer Joaillerie Platinum MasterCard. respectively.6 billion and P2. a previous arrangement with Equitable Card Network. and the Bank’s planned use of ABC’s credit card system after completion of the merger.7 billion and P8. the first jewelry co-brand credit card in the country. which are part of a credit card program developed in coordination with Mabuhay Miles. This arrangement was initiated in preparation for the winding down of PNB’s PNB Visa credit card. the auto loan portfolio has reached P1. The arrangement with ABC was also established for merger of the Bank and ABC. As of December 31. action utility vehicles or light commercial vehicles are eligible for financing.4% of the consumer loans of the bank.5 billion representing 13. a high rate of acceptance worldwide and dual currency flexibility options. The new PNB Visa Credit Card line includes classic and gold variants and is catered to meet the credit needs of a broad market of customers. offering bigger and better rewards to its cardholders. They also offer the same exciting and rewarding features as the core Allied Bank Credit Card like conversion of points to miles or cash rebates.

and other related activities. These trading departments also oversee the management of the fixed income securities and foreign exchange risk positions of the local and overseas branches of the Bank. TMD mainly distributes: 1) P and USD denominated fixed income securities issued by the Republic of the Philippines and Philippine registered fixed income securities. 2011 and 2012. Its remittance business continued its growth with 21% market share as of September 30.1 billion. and. CFED also enters into P Interest Rate Swaps (IRS) and USD/P Cross Currency Swaps (“CCS”) with. local financial institutions and Corporates. The Bank also maintains correspondent relationships with 1. The Branches are being developed as a strong marketing arm for the distribution of treasury related products.2% of the total consumer loan portfolio.9% denominated in US Dollar. It ensures that the requirements of all units of the Bank are efficiently served in terms of deposit withdrawals. through the branches of the Bank located nationwide. look into yield enhancement products for the investment portfolio of the Bank. The accreditation process defines the repayment of loan to be made via salary deduction. The Bank is one of the leading providers of OFW remittance services in the market. the Middle East and Asia. Further. As of December 31. loan drawdowns. and product development. The Bank derives income from OFW remittances principally through fees and foreign exchange margin.Multi-Purpose Personal Loans Personal and salary loans are made available to permanent officers and employees of private companies and government agencies. 2013. The Bank’s Treasury Group is divided into five divisions: • The Liquidity Management Division (“LMD”) is responsible for managing the overall liquidity of the Bank’s Regular Banking Unit (“RBU”) and Foreign Currency Deposit Unit (FCDU) books. • Corporate Foreign Exchange Division (“CFED”) specifically caters to the needs of the medium to large corporate accounts of the Bank. it reached P7. 2) Domestic Markets trading department which manages the local currency fixed income securities trading and investment assets. commercial and high networth individuals.120 banks and financial institutions worldwide. remittances. 2013. and. The PED will be involved in securing the derivatives license of the Bank from the BSP. remittance centers and subsidiaries in the United States. Global Filipino Banking Group As of September 30. And the main driver in the distribution of the. • The Treasury Marketing Division (“TMD”) distributes and makes markets on treasury products of the Bank to its client investor base. These are mainly Spot and Forward foreign exchange contracts. and 3) Long-term debt papers issued by the Bank. The Bank’s overall asset/liability mix is also managed by this group. the Bank’s total personal loan portfolio stood at P1.0 billion and accounted for 26. 2013. TMD is responsible in generating relatively high-cost deposits or bought-money for the Bank’s temporary liquidity requirements of the Bank. • Product Engineering Division (“PED”) is in its infancy stage. the Bank has the largest overseas network among Philippine banks with 81 branches. substantially in the USD/P spot market. representative offices. • The Trading Division is composed of the following: 1) International Markets trading department which is responsible for the management of the foreign currency denominated trading and investment assets of the bank which are 99. qualified corporate accounts for hedge requirements of their targeted market. As of September 30. The Bank sees the growth of this portfolio to come from salary-deduction type arrangements from existing and new corporate relationships as well as expanding the distribution to cover OFWs and other Filipinos overseas. 2) indirectly. This includes an oversight on risk positions of its foreign branches and subsidiaries. 99 . 2) Spot and Forward foreign currency contracts. 4) the Foreign Exchange trading department which manages the proprietary trading in foreign currencies. 3) Equities Trading department which manages the equities trading books. TMD distributes: 1) directly to institutional. This includes management and strict compliance to the required regulatory reserves on deposits by the BSP. This is availed of either over-the-counter where the client applies on his own or coursed through the company where they are employed provided that the company is accredited under the program. Europe. Treasury Group The Treasury Group primarily manages the liquidity and regulatory reserves of the Bank and risk positions on interest rates and foreign exchange borne out from the daily inherent operations in deposit taking and lending and from proprietary trading. Canada. within the BSP rules on sale of derivative products to clients.

. the Bank had a total of 238 overseas agents and tie-up partners. . retail stores.The Bank already offers several modes of remittance. . . . . . various real estate companies. . . . .3 1. • “Own-a-Philippine-Home Loan” is a loan extended to OFWs for the acquisition of real estate properties in the Philippines and is offered at the Bank’s overseas branches. . . . .7 2. They will know the status.3 516. . . schools. . . . . . . . . . . . .0 3. respectively. . . Other financial institutions. . . . . . . . .707. . . • Overseas Bills Payment—a service that allows payment of overseas remitters to various institutions in the Philippines for the settlement of financial obligations in the form of membership contribution. . . . .2 1. . Western Union and Al Raji Bank in 2008. 2010 and 2011. 2013. Its newest range of services catering to OFWs and Filipinos abroad includes: • Phone Remit—a service allowing the Bank remitters to send money to their beneficiaries in the Philippines with the use of a phone. . and insurance premium. . . . . . . . . . As of September 30. .1 3.$ millions) Foreign offices . . insurance companies. .148.0 1. . . . . . . 100 . • Web Remit—a service allowing customers to send remittances via the PNB Web Remit site. loan amortization. This service is currently available in Europe and the United States. As of September 30. . . . . .6 In addition to providing remittance services. . . . . . .1 1. . . . Pag-ibig. . namely Seven Eleven convenience stores. .544. and plans to continue expanding the range of its OFW services. . . . . . . the Bank also offers a number of lending facilities geared specifically for overseas Filipinos and OFWs: • “PNB Pangarap Loan” is an all-purpose credit facility available to OFWs in Hong Kong. . . .762. . . . . . . . . .6 3.5 818.2 361. . . .218. .937. Remitters simply call the assigned Phone Remit number and give the remittance instructions debit their overseas accounts or debit/credit cards issued overseas as a source of the funds for the remittance. . . . . his/her beneficiary is sent a text alert on the details of the transaction and how/where the money can be claimed. . Singapore. . The Bank has long been a partner of Arab National Bank. . The following table sets out the total volume and value of remittances made by the Bank’s overseas operations in the periods indicated: As of December 31. . namely. on-line credit to accounts.008. . and the beneficiary’s PNB account will be credited within 24 to 48 hours. .6 589. .8 4. . .025. • Food Remittance—a service which allows overseas remitters to order food packages for delivery to or pick-up by their beneficiaries in the Philippines. .141. . Door-to-Door Delivery.0 1. . . . . . . . . . among others. . . . . . . . . delivered or picked up by beneficiaries. . . Participating billers include SSS. . . . .S. 2010 2011 2012 2013 (in U. . . This service is available in Europe and will soon be offered in the United States. Correspondent banks. . . . . .109. Recent initiatives undertaken by the Bank and its overseas branches include: • Introduction of a 24x7 Remittance Helpdesk which can immediately respond to customer inquiries via phone or email at all hours and all days of the week. • Other Services • Text Alert—for every remittance sent by the remitter. Remitters/cardholders simply present their card in any of the said outlets and tenders the money to be remitted to the cashier. .726. . the Bank has a number of remittance arrangements and tie-ups with banks and money transfer companies in regions with high concentrations of OFWs. . . . .0 659. Canada and Singapore. . . to name a few. Total . . . Credit to other Banks and Cash Pick-up. 2. The Bank also partnered with Xoom. . • Super Remit Card—is a remittance card that allows PNB Hong Kong customers to send money to beneficiaries in the Philippines through the Bank’s partner merchant outlets. The Bank likewise intends to expand its international presence through the passporting license of PNB Europe Plc in the EU states and by establishing tie-ups in the Middle East and North America. Aside from its own offices and correspondent bank associations. • Remittance Tracker—remitters can track remittances online. . if the money has been credited. .

Its Trust Banking Group also intends to build its corporate trust market base through the customizable PNB Employee Enrichment Solutions program that features a built-in corporate social responsibility module. Trust agency services include acting as bond registrar. administration of employee benefits. and trust indenture services for local corporations. The Bank has also put in place pro-active monitoring systems to ensure compliance with statutory and internal limits. beginning from fund management. which are centrally managed but marketed through the Bank’s branches. tax planning. (ii) to be responsive to market changes. pension and retirement plans. the Bank identifies the needs of the prospective borrower. and (iv) to attain profitability commensurate to risks taken. invest in a diversified portfolio. loan facility agent. and investment management. analyzes the appropriateness of the exposure and evaluates any inherent risks. its Trust Banking Group shall continue to offer broad-range and highly diversified investment outlets. estate planning. Escalations of any deviations to credit policies are immediately undertaken for appropriate action. Personal trust products and services for customers include living trust accounts. securitization. These policies are directed towards the following institutional objectives: (i) to maintain a sound and prudent lending portfolio. 2013. These policies reflect the Bank’s credit risk tolerance which are communicated constantly to all lending units and support offices.4 billion of funds. investment portfolio management. collecting and paying agent. In accordance with regulations governing the conduct of trust business by banks. retirement planning. The Trust Committee is. These UITFs. dollardenominated funds). The account officer identifies the borrowing requirements of the client and obtains the loan application form from client together with the required 101 . Revenue from the trust business is generated through trust fees from the management of UITFs and corporate and personal trust products and services. Corporate trust services and products include trusteeship. Credit approvals Credit policies One of the basic credit risk management infrastructures of the Bank is the adoption of effective credit policies to govern its various lending operations. The aggregate amount of the credit facility. All investment decisions of the Trust Banking Group must be approved and authorized by the Trust Committee. share transfer agent. As of September 30. the Trust Banking Group reports directly to the Bank’s Trust Committee which is composed of five directors. generally. and receiving bank. in turn. insurance trust.S. (iii) to maintain the liquidity of its risk asset portfolio. Limits are imposed to manage credit concentration risks and provide more control of the Bank’s lending operations. responsible to the Bank’s Board of Directors. The Bank’s Trust Banking Group intends to enhance its high net worth client base with an end-to-end wealth management suite of services. Credit approval process Loan recommendations are submitted to the different levels of credit committees or to designated approving officers within the Bank. The Bank assigns an account officer to every prospective borrower to start the credit approval process. guardianship.Trust Banking Group The Bank provides a wide range of personal and corporate trust and fiduciary banking services and products. The Trust Banking Group manages thirteen Unit Investment Trust Funds (“UITFs”) (including U. as well as from other agency services. educational trust. to comprehensive estate planning services. Before the Bank approves any extension of credit. composed primarily of fixed-income securities for money market and bond funds. Likewise. Four out of thirteen funds are invested in stocks listed in the PSEi. All credit policies adopted by the Bank are approved by the Bank’s Board of Directors and any amendments or revisions require prior approval of the Board unless expressly delegated to the President and other committees. loan recommendations requiring Executive Committee and Board approval needs the endorsement of the Senior Management Credit Committee (“SMCC”). However. escrow agent. will determine the approving body which will approve the transaction. the Trust Banking Group managed P77. including the President and the head of the Trust Banking Group.

Requests for secured credit accommodations up to P10. to the agricultural/agrarian sector and to the real estate industry.0 million for unsecured loans. regardless of the total credit facilities. Credit monitoring and review process Pursuant to the BSP’s Manual of Regulations for Banks (the “Manual”).e.0 million and trade transactions up to P50. implementation of credit approvals is subject to review at least once a year by the Internal Audit Group. This audit is designed to determine the efficiency of the internal control system in place as well as the quality of lending operations. Approval of the SMCC is required for unsecured credit accommodations up to P10. This can be increased by 10. specifically in the area of lending to small and medium scale industries.0 million are for approval of the SMCC. In cases where a property appraisal is warranted. loans secured by hold-outs/margin deposits maintained in the Bank and other loans and credit accommodation classified as non-risk by the Monetary Board.0 million.0 million sublimit for unsecured loans and over P50. The ICRRS grades new and existing corporate loan borrowers with total assets of more than P15. In the case of unsecured credits. exposure to specific sectors of the economy is subject to internally approved limits or ceilings which are regularly monitored. The Bank also follows guidelines of the BSP in the grant of loans to its directors. certain relatives. the Bank includes exposure to related accounts (i. loans and other credit accommodations guaranteed by the BSP or the Philippine Government and Government corporations. the Bank has an Internal Credit Risk Rating System (“ICRRS”) for corporate accounts and credit scoring for consumer and small loans to standardize the assessment of its credit portfolio in terms of risk profile. provided the conditions for lower committee approvals are met. Existing or prospective loan borrowers with asset size of P15.e. stockholders and other related interests (i. Specific transactions which are beyond the authority of the Excom shall require Board approval. For control purposes. Additionally. officers. the Bank generally cannot grant to a single borrower a loan equivalent to more than 25. subsidiaries and parent companies thereof).0 million for trade transactions must be submitted by the Bank’s Executive Committee (“Excom”) for approval.0 million. shipping documents or other documents transferring title to readily marketable non-perishable goods covered by insurance. amongst others. the Bank is required to establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating 102 . Risk Management Group also does this via the Credit Dashboard reported to the Risk Oversight Committee. The internal credit policies are continuously reviewed and updated by the Credit Policies Division. respectively. the account officer will validate the borrower’s financial position from different information sources. the lending centers credit committees and the Institutional Banking Group Credit Committee have authority to approve up to P2.0% of the Bank’s net worth. Except as may be otherwise approved by the BSP (as required under the General Banking Law of the Philippines). Grants of these facilities require the approval of the Bank’s Board of Directors and compliance with individual and aggregate ceilings as well as the BSP reporting requirements. Additionally.0% provided these are secured by trust receipts. In determining whether the Bank meets the single borrower’s limit of the BSP. For borrowers from the middle-market segments. In compliance with BSP requirements. exposure to subsidiaries and parent companies of the borrower including guarantees by the borrower or its related companies or its principal officers) but excludes.0 million. The account officer conducts credit evaluation on the prospective borrower with the assistance of the credit support units. this is undertaken by the Bank’s appraisal unit or by an external appraiser.0 million and below are rated using the respective credit scoring system for small and medium enterprises as well as consumer loan borrowers. For transactional lending. affiliates. Lending centers credit committees have authority to approve secured credits of not more than P5. over P10.0 million. the account officer may focus more on the size and quality of cash flows from the transaction.0 million are approved by the Institutional Banking Group Credit Committee while those up to P50. The decision on whether or not to extend the credit is determined by a combination of internal policies and guidelines and the regulatory policies of the BSP. but also continues to consider the financial position of the borrower itself.documents. The account officer further determines if exposure can be covered by collateral. the Board Audit and Compliance Committee monitors the past due level and status of past due accounts. There are however certain sectors which are already subject to specific predetermined lending requirements as imposed by law on all banks. Any request for approval of an extension of credit in excess of P50.0 million and P5.

500. or 1. securities issued by private corporations and the government of the Philippines. was incorporated on July 30.0% must be secured. As of December 31. up to 100. the Bank has established credit support units under its credit risk management group to review and monitor individual accounts within a particular portfolio to identify existing and potential areas of deterioration and assess the risks involved. private placements. 2013.0% of the voting stock of thrift banks and rural banks. Treasury Group The Treasury Group is principally responsible for managing the Bank’s funding and liquidity requirements as well as its investment and trading portfolio. and investment houses. The Bank is required to report the level of DOSRI loans to the BSP on a weekly basis.0 million or 3. Publicly listed universal banks may acquire up to 100. DOSRI The Bank and its subsidiaries will. 2012. 2013 DOSRI loans accounted for P4. Prior Monetary Board approval is required for investments in financial allied undertakings and investments of more than 40.3 billion. may not exceed the aggregate amount of their unencumbered deposits with the Bank and the book value of their paid-in capital investments in the Bank.0 million. The classification indicates the degree or gravity of the perceived problems of the account reviewed.8 103 . Financial allied undertakings include leasing companies.7 billion. foreign exchange spot and swap dealing.0% of the Bank’s total loan portfolio. it had an authorized and paid-up capital of P350. The amount of any loan to a DOSRI of the Bank. banks. The Group engages in interbank borrowing and lending activities. nonquasi-banking license. namely: debt underwriting (bonds. of which 70.0% of other financial allied undertakings and up to 100. may invest in the equity of banking-related companies or “allied undertakings”. from time to time and in the ordinary course of business. 1997.0% of non-financial undertakings. the credit support units evaluate the degree to which a particular lending unit is complying with existing credit management policies. 2012. Its principal business is providing investment banking services. whichever is lower. The General Banking Law and BSP regulations require that the aggregate amount of such DOSRI loans should generally not exceed 100. In addition. PNB Capital is authorized to buy and sell for its own account. or 2.8% of the Bank’s receivables from customers. equity underwriting. As of December 31. The reviewed loan accounts are classified in accordance with the standard classifications set forth in the Manual. 1997 and commenced operations on October 8. As of September 30.000 shares at P100. The Bank is required to submit to BSP a copy of the approval within 20 days from the date of approval. arm’s-length terms. such as the Bank. In compliance with this requirement.0% in non-financial undertakings. commercial papers). up to 100.0% of the Bank’s net worth or 15. an investment house with a non-bank.0 million or joint approval of the Group Head and the Chief Credit Officer for loans over P10. shareholders and/or related interests (“DOSRI”). overseeing the Bank’s long-term funding requirements and enters into derivative transactions for hedging purposes. credit card operations and financial institutions catering to small and medium-scale businesses. It is a wholly-owned subsidiary of the Bank. The Bank’s subsidiaries include the following: Domestic subsidiaries • PNB Capital and Investment Corporation (“PNB Cap”). loan syndications and financial advisory services. financing companies. The review and recommended classification of a loan account are initiated by the assigned account officer and approved by the Group Head or the Chief Credit Officer for loans of P10. officers.credit policies with regard to prevailing circumstances and emerging portfolio trends. All such loans are on commercial.0% of the voting stock of one other commercial or universal bank. fixed income securities trading.0% of the Bank’s total receivables from customers as of December 31. enter into loans with directors. DOSRI loans accounted for P2. The evaluation of the individual loan accounts culminates in the classification of the account.0 par value. total assets of PNB Capital were P584. Subsidiaries Universal banks in the Philippines. 2012 and September 30.

000 shares at P100 par value per share. 2013.0%). the Bank increased its equity interest in JPNB Leasing from 60. IBJ Leasing Co. (“PNB Gen”).8 million (determined on a parent only basis) for the nine months ended September 30. (“PFI”). 1970.. total assets and total capital of PNB Gen was at P5. As of December 31. increased its stake to 35% as it acquired the 15. 2013.5 million. 2013. J-PNB Leasing had an authorized capital of P150. Allied Banking Corporation took minority interest in NYLIP opening bancassurance to the bank’s branches nationwide. As of September 30. LLC divested its interest in NYLIP in favor of Allied Bank and its principals making the company a majority-owned subsidiary of Allied Bank. respectively. The corporate name was changed to Japan-PNB Leasing and Finance Corporation and the joint venture company commenced operations as such in February 1998. aviation.2 million.5 million. casualty. 2013. 2012. As of December 31. Ltd. (IBJL) and Mizuho Corporate Bank which divested their 25.5 million.8 million and P88.. As of September 30. a wholly-owned subsidiary of PNB Holdings Corporation was established in 1991.0% equity interest. In 2001. surety. now called Mizuho Corporate Bank (5.0 million. In 2007. and net income was P1. Effective January 31. Its major activities are financial leasing. respectively.7 million and P91.million and P533.8 million. total paid-up capital of PHC was P255. while total capital was P436.0%). 2012 and the nine months ended September 30. net income was P2.5 billion. respectively.000.6 million and P228. while total assets and total capital were P337. total paid-up capital was at P100. Inc.0 million and P520. All the leasing and lending activities of the company are in the domestic market. 1920 as Philippine Exchange Co.0%) and Mitsubishi Trust Banking Corporation (15. respectively.1 million while additional paid-in capital was P3. It is a non-life insurance company that offers fire and allied perils.. 2013.0 million.500. 1991 with an authorized capital of P200. respectively.0% and 5.000 shares with a par value of P100 per share..0% to 90. (“PNB Life”). Net income for the nine months ended September 30. PF Leasing was largely inactive until it was used as the vehicle for the joint venture between the Bank (60. • PNB Holdings Corporation (“PHC”). PHC had an authorized capital of P500. net income was P35. 2013. Its net income for the nine months ended September 30.000 shares at P100 par value per share. a majority owned (80%) domestic subsidiary of the Philippine National Bank. New York Life International. The Bank and Mizuho Corporate Bank. • Japan-PNB Leasing and Finance Corporation (“JPNB Leasing”) was formerly PF Leasing and Finance Corporation (“PF Leasing”) and was incorporated in April 24. (“PNBSI”). marine.0%. respectively. IBJ Leasing Co. J-PNB’s total assets and total equity stood at P3.0 million or 5. its net income stood at P147. Inc.8 million. Inc. maintained their shares at 60% and 5%. it was converted into a holding company and was used as a vehicle for the Bank to go into the insurance business. Inc.0 million or 2. Inc. The company temporarily ceased operations on 1 January 2006.8 million. 2012.6 billion and P1. IBJL remains an active joint venture partner with a 10. The PSEC approved the extension of the corporate life of PNB Holdings for another fifty (50) years effective May 20. chattel mortgage loans and installment note discounting. motor car. The Bank’s additional holdings were acquired from minority partners. As of September 30. was incorporated on January 18. As of September 30. respectively. 2013 was P23.0 million. LLC and commenced operation in August 2001. a wholly-owned subsidiary of the Bank. a wholly-owned subsidiary of the Bank.. 2013 was P73. accident insurance and other specialized lines. respectively. 2012.7 billion and P562.0% share of Mitsubishi Trust Banking Corporation.0%). Ltd.1 million. respectively. a wholly-owned subsidiary of the Bank which was incorporated on October 13. In 1991. IBJ Leasing Co.2 million. • PNB Life Insurance. Inc. was established on May 20. Tokyo (20.000. 2011.0% equity interest. PNB Life traces its roots from New York Life Insurance Philippines. • PNB Forex. For the nine months ended September 30.1 million. PNBSI is engaged in the stockbrokerage business that deals in the trading of shares of stocks listed at the stock exchange.9 million and P335. total assets and total capital were P260. Industrial Bank of Japan. As of September 30. • PNB Securities. For the year ended December 31. 1996 under the auspices of the Provident Fund of the Bank. respectively. total assets and total capital of PFI were P91. 2013. which are fully subscribed and paid up. Ltd. engineering. (“NYLIP”) as a Philippine subsidiary of US-based New York Life International. In 2003. 2013. As of December 31. As of the same period. 104 . represented by 1.6 million. • PNB General Insurers Co. engaged in the buying and selling of foreign currencies in the spot market for its own account and on behalf of others. 1994 as a trading company.

and alternative distribution channels. non-bank holding company incorporated in California on December 21. Ranked among the top life insurance companies in the country in terms of premium income and a leading provider of variable life products.6 million and P1.7 billion. 1996. Ltd. In 2011. Ayala Avenue. respectively. 1990. PNB RCI has 20 branches in 7 states of the United States of America. PNBRCN is engaged in the business of transmitting money to the Philippines.21% out of the subscribed and paid-up capital. 2013. In 2012. signifying the company’s deeper appreciation of the Philippine market and the dynamism of the Filipino consumer. respectively. while total capital was P978. is a thrift bank registered as a domestic corporation with the PSEC and a wholly-owned subsidiary of the Bank. As of September 30. its net income was P3. the Bank had more than 81 business presences in 16 jurisdictions. As of September 30. As of December 31. Inc.2 billion and P10. Makati City. Today. Foreign branches and subsidiaries To expand its international footprint and gain access to more Filipino customers worldwide. the Bank has established a number of branches. financing and direct loans. 2012 and September 30. is the holding company for PNB Remittance Company Canada (PNB RCC). 2000.9 million and P20. Northern Tagalog and Bicol regions. 1999 and PNB Remittance Company. As a 100% Filipino owned and managed company. formerly First Malayan Development Bank. its first capital guaranteed unit-linked product which resulted in historic premiums and hit the billion mark. It caters financing and leasing needs on various types of equipment. which was incorporated in California on August 18. 2013.0 billion. Allied Savings Bank is authorized by the BSP to engage in thrift banking business by offering deposit products. the Philippine National Bank has acquired a minority stake in PNB Life paving the way for the expansion of its bancassurance market. 8556. reflecting the change in ownership and in expectation of the impending merger of ABC and the Bank. It also launched Asian Summit. the company changed its corporate name to PNB Life Insurance. 1979.S. In addition to its head office at the Allied Bank Center in Makati City. respectively. As of December 31. it had an authorized and paid-up capital of P500. loans and trade finance. total assets of Allied Savings Bank were P4. The Bank owned 57.6 million. Allied Savings Bank had 27 branches in Metro Manila and in the Southern Tagalog. PNB RCI owns PNB RCI Holding Company. the company strengthens its presence in Luzon with the opening of two regional business centers in Pampanga and La Union to serve as business hubs for Central and North Luzon. is a U. • Allied Savings Bank. otherwise known as the Financing Company Act of 1998. PNB Life remains steadfast in Providing New Beginnings in your Life and aims to be the Dominant Provider of Financial Security to Filipinos Worldwide. It changed its name to PNB International Investment Corporation on December 1. PNB RCC is also a money transfer company incorporated in Canada on April 26. It was renamed First Allied Development Bank but after obtaining the license to operate as a savings bank in 1996. 2009. remittance offices and other business presences in various foreign jurisdictions.5 million has been subscribed and fully paid-up. PNB IIC owns PNB Remittance Center. Ltd. As of September 30. PNB Life offers innovative financial solutions through a variety of platforms through its bancassurance with Allied Bank and Philippine National Bank. it was renamed to First Allied Savings Bank and again to Allied Savings Bank in 1998. 2013. machineries and vehicles. PNB RCI Holding Company. receivables. Nevada (“PNBRCN”) which was incorporated in Nevada on June 12. 2012. Allied Bank Center. formerly Century Bank Holding Corporation. it opened the Zamboanga Regional Business Center to serve as business hub in the Zamboanga Peninsula region. 2012. is a corporation registered with the PSEC in 1978 and operates as a leasing and financing entity under Republic Act No. 2013. PNB Life is now even more dedicated to strengthen and broaden its role in the financial services market. PNB RCI is a company engaged in the business of transmitting money to the Philippines. For the periods ended December 31. a wholly-owned subsidiary of the Bank. (“PNB RCI”) which was incorporated in California on October 19. as well as in Western Visayas and Northern Mindanao. • Allied Leasing and Finance Corporation (“ALFC”). 2012 and September 30. On January 6. 105 .In May 2008. 1999. 2013. It operates a single unit with office address at the 5th Floor. PNB RCC has 8 branches in Canada as of September 30. Allied Savings Bank was granted a foreign currency deposit license by the Monetary Board of the BSP. 2013.0 million. ALFC had an authorized capital stock of P500. Its foreign subsidiaries include the following: • PNB International Investment Corporation (“PNB IIC”). In October 2009.0 million of which P152. respectively. Inc. as of December 31.

A Branch in Chongqing was established in 2003. PNB Global took over the remittance business of PNB Remittance Center Limited with the former as the surviving entity. • Allied Commercial Bank. RIA. foreign-funded companies in China. b. Its main office is located in Rome while its branches are situated in Milan and Florence. PNB RCI. It is registered as a limited liability company in Vienna to engage in remittance business. it was converted into PNB Europe Plc. ABS CBN. NYBR. I Remit. PISPA’s license was converted into a Payment Institution. • PNB (Europe) PLC (“PNBE”) was originally set up as a PNB London Branch in 1976. BDO. 106 . was established in Xiamen in September 1993 as a foreign owned bank. PNBRCN and PNB RCC have numerous competitors from local U. representative offices of foreign companies including those of Hong Kong. In 1997. Bank of the Philippine Islands (“BPI”).PNB RCI is regulated by the U. It has 11 individual agents and 2 remittance partners. On July 17. PNB IIC does not actively compete for business. BDO. I-Remit. Macau and Taiwan. the Bank maintained a representative office in Madrid since 1972. Its principal competitors are Metrobank.. • PNB Global Remittance & Financial Company (HK) Limited (“PNB Global”). RIA. BDO. incorporated in the United Kingdom with a full banking license. The major competitors of PNB Europe Plc are Metro Remittance UK Ltd. foreign nationals including compatriots from Hong Kong. PNB Global’s major competitors are the remittance subsidiaries of Metrobank. the Bank affiliates doing business in North America. PNB Austria is regulated by the Austrian Financial Market Authority. LBC. PISPA’s major competitors include Metrobank. CBN. banks. Telegiro. Vango and Vanguard stores throughout Hong Kong with combined outlets of approximately 600. Western Union.S. being a holding company only. CBN/BDO. is registered with the Registrar of Companies in Hong Kong. • PNB Global Filipino Remittance Spain. Money Gram. a wholly-owned subsidiary of the Bank. • PNB Austria Financial Services GmbH is a wholly-owned subsidiary of PNB which started operations on June 6. 2012. BPI and DBP and non-bank competitors such as Frankie Money Exchange.41% owned subsidiary of the Bank and formerly known as Xiamen Commercial Bank. I Transfer. I-Remit. Competitors in Paris consist of CBN. Short. RCBC. The subsidiary possesses a license from Banco de España to provide remittance services. BPI. In 2007. CBN (Banco de Oro) and Coinstar. Gem and Sunrise. tied up during the same period with EPS Company (“EPSCO”) enabling the company to receive remittances via Circle K. was established as a wholly-owned subsidiary of the Bank on November 15. PNBE opened its branch in Paris. it maintains 7 branches in Hong Kong inclusive of its main branch in Wan Chai District. S. a 90. PNB Global is regulated by Customs and Excise Department. 2006. It is authorized to do money transfer services. Effective August 2012. PNB Europe Plc is regulated by the Prudential Regulation Authority and Financial Conduct Authority of the Bank of England while its Paris branch is governed by the Banque de France.. Internal Revenue Service and the Department of Financial Institutions of the State of California and other state regulators of financial institutions while PNBRCN is regulated by the Nevada Department of Business and Industry—Division of Financial Institutions. Medium and long term loans. On July 1. I-Remit. As approved by the Chinese regulators. 2010. • PNB Italy. Prior to this. as well as other money transfer companies like Western Union. Czarina. Its major competitors are Metrobank. Deposits. These are as follows: a. Money Gram. PNB Global operates as a money lender and a remittance company. SpA (“PISPA”). Kabayan. As of September 30. Bank of the Philippine Islands (Europe) Plc. PNB RCC is regulated by the Office of the Superintendent of Financial Institutions of Canada and Financial Transactions and Reports Analysis Centre of Canada. ABS CBN and RIA. PNB Global has launched its tie-up arrangement with Western Union strengthening its cash pick up services throughout the Philippines. Philrem. 2013. Lucky Money and LBC. PISPA is regulated by Banca d’Italia (Bank of Italy). Macau and Taiwan. Europhil and other local banks. 2006. Land Bank.A. ACB may offer the following foreign currency denominated banking products to foreign companies. a wholly-owned subsidiary of the Bank was incorporated in 1994 as a Financial Intermediary (“FI”). It has likewise. a wholly-owned subsidiary of the Bank. RCBC.S. France which is engaged in remittance services. It is also authorized to provide cross-border services to 18 member states of the European Economic Area (“EEA”).

Inter-bank call loans.c. Remittances. Allied Commercial Bank may offer the following foreign currency denominated banking products to non-foreign funded companies in China: a. c. d. money exchange. e. Remittances. participation in loans syndications and other risks. f. a private limited company incorporated in Hong Kong in 1978. Deposits from proceeds of loans. Discounting and acceptance of notes and bills. Letter of credit services and guarantees. It also holds and operates one branch office in Tsimshatsui. b. k. Foreign currency conversion. • Allied Bank Philippines (UK) Plc (“ABUK”).000). documentary credits. a private limited company incorporated in Hong Kong. ABCHKL has a wholly owned subsidiary. 107 . Foreign exchange trading and brokering. Foreign Exchange. ABCHKL acts and is licensed as an insurance agent. and Remittances. Safety deposit boxes. d. • Allied Banking Corporation (Hong Kong) Limited (“ABCKHL”). the Bank now owns 51% of this foreign subsidiary. f. and promote foreign investments to the Philippines. ABCHKL was the Allied Bank’s first majority-owned overseas subsidiary. c. and Secretarial and Nominee Services. l. b. Import financing. ACR Nominees Limited. b. formally commenced operations in 1992 after functioning as ABC’s representative office in the 1970s and as a branch in the mid-1980s. ABUK’s main businesses are the following: a. ABCKHL’s main businesses are the following: a. ABUK was the first Philippine private commercial bank in London to be granted the status of licensed deposit taker by the Bank of England under the Financial Services and Markets Act 2000. Property Mortgage Loans. a wholly-owned subsidiary of the Bank. and m. credit information services. Due to the merger. In addition to its normal banking services. h. Trade Finance. Export settlements. Deposits (not less than HK$500. Deposit taking (GBP and USD Savings Accounts). Kowloon. which include lending and trade financing. ABUK mainly operates to facilitate trade between the Philippines and the United Kingdom. Credit cards. e. treasury bills and non-stock securities. Domestic and international settlements. service the banking requirements of the growing Filipino population in the United Kingdom and other European countries. and is licensed as a restricted license bank under the Hong Kong Banking Ordinance. j. i. investment and corporate services. Trading of government bonds. money market and foreign exchange operations. g. It provides a full range of commercial banking services predominantly in Hong Kong. deposit taking. d. ABCHKL’s core revenue primarily comprises interest income from its lending activities complemented with fees and commissions from other fee-based services. which provides management and corporate services to its customers. Other banking business approved by the China Banking Regulatory Commission. And.

the Bank has utilized the ATM channel in cross-selling ATMSafe—a non-life product that replaces or pays up lost money withdrawn from the ATM due to qualified incidents of theft. the Bank had a network of 854 ATMs nationwide strategically located onsite in branches as well as offsite in malls. and pay bills among others. Passporting. bills payment. These are the opening of Unit investment Trust Funds (UITFs) and/or multiple deposit accounts online. funds transfer. thus making its own ATMs an income generating channel by way of increased acquirer fees. schools. products and services. Clients may do the following: account balance inquiry. partner tie-up companies. The Bank is also dedicated to ensuring 108 . Information Technology The Bank’s strategy is to increase the use of information technology in its business. Advises and confirms letters of credit (LC) opened by Allied Banking Corporation in favor of beneficiaries located in the UK. checkbook orders. ABUK acts as paying and reimbursing bank for LCs opened by ABC. and all other locations which have predominantly high pedestrian traffic. Positioned as alternative banking channels. internet/online banking. The mobile banking system is an electronic service offered to Globe (telco) subscribers who have accounts with PNB. PNB’s internet facility provides an added security feature by requiring challenge questions as part of the authentication and validation process prior to clients being allowed access. funds transfer across personal PNB accounts or third-party accounts. these electronic banking facilities enable clients to meet their banking needs beyond over-the-counter take-up. The move to employ ATMs to offer “products on sachet-basis” is an innovative way of making certain products and services more affordable and easily accessed by customers. Phone and Mobile Banking PNB Phone banking is a 24/7 service that facilitates automated customer interface for various accountrelated inquiries.c. The Bank continuously innovates its internet facility by further enabling other types of transactions not widely offered by other peer banks. Automated Teller Machines As of September 30. clients can do a number of routine banking transactions conveniently and securely through the internet: account balance inquiry. d. and reporting of lost/stolen passbook or ATM cards. checkbook orders. Internet Banking Service Through this online banking facility. Recently. transfer funds. one-time or scheduled bills payments. in order to enhance its business capabilities. Electronic Banking The Bank’s electronic banking services encompass a full range of facilities: automated teller machines. and transactions. The Bank is focused on using technology to achieve greater productivity and greater operational efficiencies among its business divisions as well as to ensure competitiveness in the market. phone & mobile banking. 2013. Clients can use their mobile phones to inquire balance. and When nominated. and transaction monitoring with email or text notifications. hospitals. The strategy has always been the use of available technologies to complement the distribution capabilities of the Bank through its domestic branches and overseas branches and/ or offices. force withdrawal or machine tampering. requests. Bancnet is the leading ATM consortium in the country. including its frontoffice and back-office operations. e. Well-placed ATMs allow the capture of other Banks’ ATM cardholders by way of its Bancnet. The facility is also a venue to access information on the products and services of the Bank. statement request. Megalink and Expressnet interconnection. There are a number of PNB ATMs that have the cardless deposit/payment facility where customers can initiate deposits or bills payment of various merchants without the need of the ATM card in initiating the transaction.

9 401. PNB Los Angeles Branch. 2012 as well as for the nine months ended September 30. GIFTSWEB EDD has been found to adequately address Bank Secrecy Account. . The Bank does not have business interruption insurance covering loss of revenues in the event that its operations are affected by unexpected events. . . respond to regulatory subpoenas and create a database for case management reports. .6 The Bank has budgeted P1. In order to cater to the expected growth of volume and greater need for stability brought about by the merger. 2010 2011 2012 (Q millions) For the nine months ended September 30. 2013: For the year ended December 31. . . . Anti-money laundering systems To improve its systems for money laundering monitoring. to be used mainly for the upgrading of the Bank’s IT systems and infrastructure. . 109 . a project that is expected that is expected to be completed in 2015. the Bank is focusing its attention on integrating the two banks’ technology platforms. . . . more robust platform. The software solution provides the analytical tools needed to proactively detect and monitor possible suspicious transaction activity. availability.5 billion for capital expenditures in 2013. which is the core banking system of ABC. . AMLA. and USA Patriot Act laws. the Bank continued its focus to ensure stability. and responsiveness of the core banking systems by upgrading its hardware. PNB Tokyo Branch.3 761. The Bank believes that its insurance coverage is appropriate for its business and operations and its peers in the industry. 2013 Capital Expenditure . PNB Hong Kong Branch. The migration is expected to be completed in 2015. monitoring and reporting of suspected money laundering activities by financial institutions. . The Bank also maintains insurance for operational risks such as the loss of cash or securities through loss or theft by obtaining insurance from third party providers. .’s Manila Head Office implemented the system in early August 2006. software. The system facilitates the preparation of Currency Transactions Reports and Suspicious Activity Reports. based in New York. Insurance The Bank’s has insured its material properties against fire and other usual risks. Furthermore. Office of Foreign Assets Control. . the Bank replaced its ATM switch to a newer. . In addition to this integration. . . . . . 316. PNB Singapore and PNB (Europe) Plc. Inc. major activities planned for 2013 include improvements to the Bank’s remittance system and its deployment to the Bank’s overseas locations. . Know Your Customer-EDD. the Bank has successfully replaced its mainframe-based core banking system with a cost-effective open-platform core-banking system from Oracle Financial Services called FLEXCUBE. As mentioned above. In 2010. PNB created the Global Compliance Unit primarily to provide AML transaction monitoring services for PNB New York and eventually to the other foreign branches and offices of the Bank by 2011. Core-banking system In 2009. . In 2010. Capital Expenditure The Bank’s capital expenditures or acquisitions of property and equipment for the three years ended December 31. and network capacities. . . This is the biggest but by no means the final step in the technology. . United States and fulfills the strict and complex regulatory requirements for the detection. the Bank implemented an electronic anti-money laundering solution called the GIFTSWEB Enhanced Due Diligence (“EDD”) in 2005 which has undergone two major systems enhancements in 2007 and recently in 2010. .FLEXCUBE standardizes and services both the Bank’s domestic and international branches from its global data center located in the Philippines. The Bank maintains a global off-site backup data center to store vital records of the Bank and participates in annual disaster recovery exercises. This web-based anti-money laundering solution was developed and marketed by Gifts Software. the Bank has invested in upgrading the GIFTSWEB servers in line with the strategic direction of centralizing the administration of the GIFTSWEB systems in Manila towards a standardized approach in the implementation of the Bank’s AML policy guidelines. . the Bank is in the process of migrating its core banking platform to a mainframe based platform using Systematics. . rules and regulations. It is currently used in PNB New York Branch. PNB RCI headquarters in Angeles. .5 353. . . . In 2013. .security and regulatory compliance in its information technology systems across local and foreign monetary bodies.

. . . . . Mindanao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . investing in technology. . . . . . Metropolitan Bank and Trust Company and Rizal Commercial Banking Corporation. . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings The Bank is a party in legal proceedings which arise in the ordinary course of its business activities. The following table provides a geographic breakdown of the Philippine branch network owned by the Bank as of September 30. . . . . 215 123 56 49 443 Intellectual Property The Bank has applied for. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 79 43 45 213 The Bank holds clean titles to these properties except for one branch. . . . . Generally. . . . . . . . . . . . . . as well as finance companies. . . . . . . The Bank’s lease contracts for its branches are for periods ranging from three to five years and are renewable under certain terms and conditions. . . . . . . . . . . . . . . . Pres. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Visayas . . . Competition The Bank faces competition in all its principal areas of business. . . . . . . . . . . Specifically. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . BPI. . . . . . . The Bank has not been the subject of any disputes relating to its intellectual property rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 2013: Location Number of Owned Branches Rest of Metro Manila. . . . . . . . . . . . . . . The average age of the Bank officers and staff is 38 years and the average tenure with the Bank is 12 years. . . . intellectual property protection for its brand names “Philippine National Bank” and “PNB” with the IPO in Makati City and with appropriate agencies in Canada and the European Community. . . . and received. . . . . . . . . . . . . . . . . . . have allowed it maintain its market position in the industry. . . . . . . . . . . . . . . . . . most of which bear an annual rent increase of 5% to 10%. . . . . . 2013 is 8. . . . . . . . investment banking and various remittance services. . . . . . . . . . . . . . . . . . . The Bank leases premises for remaining branches. . . . . Various lease contracts include escalation clauses. . . . . . . . . . . . . . . . . . . . Pasay City. . . . . . . . . . . None of such legal proceedings arising in the ordinary course. from both Philippine and foreign banks. . . . . . . . . . . . . . . . . . . . . . . . these cover its corporate logo. . . . . . . . . . . . are expected to have a material adverse effect on the Bank or its consolidated financial condition. .622 were classified as Bank officers and 5. . . . . . . . . . . . . . . . . . . . . . financial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The following table provides a geographic breakdown of the Bank’s Philippine branches that occupy leased premises: Location Number of Leased Branches Rest of Metro Manila . . . . . . . Diosdado Macapagal Boulevard. . . . .. . . . . Visayas . . . Luzon . . . . . . . Employees and Labor Relations The total employees of the Bank as of September 30. . . . . . . . . . . . . Mindanao . . . . . . leveraging synergies within the Tan Companies and with its Government customers. . . . . . . . . . The Bank believes that offering diverse products and services. . . . . . . either individually or in the aggregate. . . . Inc. . . . . . . . . . . .Properties The Bank’s head office is located at Philippine National Bank Financial Center. . . . . . . . . . . . . . . Luzon . . . .662 wherein 3. . . . . . . . The Bank owns the premises occupied by its head office. . . . . . . . . . . . . . . . . mutual funds and investment banks. . . . . . . . . . . . . . . . . The Bank believes its principal competitors are BDO Unibank. . . . . . . . . . . . . . . . . . . . . . . . 110 . . . .040 as rank and file employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . as well as building on relationships with the Bank’s other key customers. . . . . . including most of its branches. . . .

2012 to June 30. 111 . 2014 The Bank has not suffered any strikes.3%. 2013 2. 2013 October 1. 2011 to September 30. or 82. 2014 July 1.465.The Bank’s regular rank & file employees are represented by two existing unions under the merged Bank as follows: Name Membership Total Membership Effectivity Allied Bank Employee Union (ABEU) Original Allied Bank employees (absorbed under the merged Bank) Philnabank Employees Association (PEMA) Original PNB employees and new hires under the merged bank (February 9.736. 2013 and onwards) 1. or 84. of the non-officer population are members of the union as of September 30.7% of the non-officer population are members of the union as of September 30. and the Management of the Bank believes that its relations with its employees and the Union as harmonious and mutually beneficial.

. Because this process of integration is ongoing as of the date of this Prospectus. the following description of Allied Bank’s historical operations has been included for the reader’s convenience. . . .DESCRIPTION OF ALLIED BANK PRIOR TO THE MERGER Following the merger between PNB and Allied Bank. Return on average equity(4) . . treasury. . . . .8% 5. . . (2) Total operating expenses less provision for credit and impairment losses divided by total operating income. . . . . . Allied Bank engaged in regular financial derivatives as a means of reducing and managing Allied Bank’s and its customers’ foreign exchange exposure. . . . . . .8% 3. . . . Allied Bank had a network of 317 branches and 342 ATMs in the Philippines. . . . . . . . lending and related services. . . Allied Bank’s banking products and services included deposit taking. . . . . . . corporate and consumer banking. . . due from other banks. . . The following table sets out selected key financial ratios for Allied Bank for the periods indicated. .2% 4. . . 2011 and 2010. . . . . . . . . . . . . . Return on average assets(3) . . . . . . As of December 31. . . . . . insurance and others. . special assets and cash management. . . . . .7% 77. . . . . . . Thrift Banking—operated primarily through Allied Savings Bank (“ASB”). .9% 59. financing and leasing services to personal. . . . . as well as fund and clearing services. . . . international banking. compared to total assets of P202. Receivables from customers to deposits(7) . . . . .9% 57. . . insurance. . . . . . . .8 billion. Allied Bank’s total assets were P197. . . . . (8) Liquid assets divided by liquid liabilities. . . . . . . . . . . . . held-to-maturity investments and loans and receivable-gross.” Allied Bank has ceased to exist and its operations. 2012. . financial assets at fair value through profit or loss. . . . . . In addition. 4. . . foreign exchange and trust services. . . . . . . . . . Some or all of Allied Banking Corporation’s historical operations described below may be only partially integrated within PNB. . . . . respectively. 2012. Cost-income ratio(2) . . .8% 15.9% 5. . . . .7% 5. . . Interest-earning assets include due from BSP.8 billion and its net income was P1. . NPL ratio(5) . . . payment and remittances.3 billion in the years ended December 31. . . including the Allied Bank brand. . . . . . . . . . . . . . corporate and institutional clients. For the year ended December 31. . or these may not be integrated at all and eliminated entirely. . . . . .3% 0. (5) Total non-performing loans (net) divided by adjusted loan portfolio. are currently being integrated with those of PNB.0% Notes: (1) Net interest income divided by average interest-earning assets. . . . . . . . . to be conducted solely under the PNB brand. . . . . . Liquidity ratio(8) . . . . credit cards. .6% 66. . . . . . . .3% 3. . . . . . . . . . . . Selected financial ratios For the year ended December 31. . . . . .3% 0. . . . . . . . . UNIVERSAL BANKING ACTIVITIES Allied Bank’s commercial activities are undertaken through three main segments: banking. . . Total equity to total assets(6) . caters to the needs of individual consumers and small and middle-market businesses which include key products such as deposit taking. 2010 2011 2012 Net interest margin(1) . . . . . . . . . . . . . . . . operating as “Philippine National Bank. . . (4) Net income divided by average equity for the period indicated. . . . . . . . (7) Receivables from customers divided by total deposits. . . . . . . . . and net income of P1. . . .9% 0. . . treasury operations.5 billion and P189. (3) Net income divided by average total assets for the period indicated. . . . . . . . . Liquid liabilities comprise deposit liabilities and bills payable. . deposit-taking. . . . . . . . . . . . . . . . . . . . . .4% 61. . . . . . . . . . . all operations previously conducted by Allied Bank are now conducted by the newly merged entity. . . . . . . . .7% 50. . . . investments. Allied Bank was a universal bank which provided a full range of banking. interbank loans receivable and securities purchased under resale agreements. .6% 47. . and 112 . . . . . .4% 3. . . . .5 billion. .4% 13. commercial. .5 billion and P1. . . . . . . . . ALLIED BANK Prior to its merger with PNB. . . . . . Banking Allied Bank’s banking segment comprises the following business groups: Commercial Banking—handles lending.9% 14. . . . (6) Total equity divided by total assets. available-for-sale investments. . . . . . .1% 3. . . . . . . . . . . .0% 69. .8% 57. . . .

.1 1. . .756. . . . . . . . . . . .6 195. Allied Bank also offers general and business insurance products such as fire insurance. . . . . . . . . . . . . . . . . .0 (14. . . aviation insurance. .9 1. . . . . . . . . . The following table sets out Allied Bank’s total operating income for the periods indicated as derived from each main business sector/segment. . . . . . . . . . . . Allied Bank conducts its banking business through its branch and ATM network across the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 73. . . Eliminations . . . . . . . .073. . . . . . . . . . . . . . . . . . . . The following table sets out branch and ATM information in the Philippines for Allied Bank: As of December 31. Inc. . . . . . . . . . . . . . . . . . . sales and leaseback arrangements. . . . . . . . . . . education funding plans. . . . . . . . . . . air accident insurance and credit life coverage to individuals and groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112. . . . . . . . Commercial Banking—China and Hong Kong . . . . . . payroll and robbery insurance. . . .1 1. . . . . . .2 578. .400. . . . . . motor vehicle insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 10. . . . . . .0 Allied Bank’s banking activities are the most significant contributor to its revenue stream. . . . . . . . . . . . . . . . . . . PNB Life also provides protection and wealth preservation. . . 2012. . . . . . . . which provides protection to ATM cardholders of Allied Bank in the event of theft.7 12. . . . . . . . . . . . . . . . . . . . .5) 10. . 2010 2011 2012 (Q in millions) Banking Commercial Banking—Philippines . . Insurance Allied Bank provides insurance services such as life insurance policies and other insurance products. . . . . . . . . . . . . . . . . . . . . . . . . . . .450. . . . . . .634. . . . . . . . . . . . . . . . . . . . . . . . . . . marine cargo policies. . . . Others Allied Bank manages revenues principally generated from holding and leasing services of Allied Leasing and Finance Corporation. . Thrift Banking . .4 230. . . . . . . . Allied Bank’s branch network in the Philippines comprised 317 branches and operated a network of 342 ATMs at its branch premises and off-site locations. . . . . . . . . . . . .7 544. . Total Branches. . . . . . . . . . .7) (26. . . . . . . .Other Banking—engages in the business of dealing and brokering in all currencies and handles foreign exchanges remittances. . . . . . Mindanao .5 279. . . . . PNB Life Insurance Allied Bank clients gain access to a wide range of life insurance solutions through its subsidiary PNB Life Insurance. . . . . .8 83. . . . . . . . . . . . . . . . . . fidelity guarantee. . . . . . . . . . . . Branch Banking As of December 31. .754. For the years ended December 31. . . . . comprehensive general liability insurance. . . . . . . . . . . . . . surety and other miscellaneous casualty lines such as money. . . . . . . . . securities. . . . . . . . .2) 10. . . . . PNB Life’s trained and licensed financial advisors meet with depositors and borrowers right in their home branch and recommend traditional or variable life insurance products that are suitable for their needs. . . . . . .3 450. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . personal accident insurance products and ATMSAFE insurance. . . . 2010 2011 2012 Number of Branches Metro Manila . . . . . . . . . . . Rest of Luzon. . . . . . . . . . . . retirement funding vehicles. . . . . . . . . . . .061.0 80. . . . . . 8. . (“PNB Life”). . . . . . . . . . . . . . . . . . . . 142 86 43 41 312 314 626 145 86 43 41 315 327 642 147 86 43 41 317 342 659 113 . . . . . Visayas . . . . . . . . . . . . . . . .9 (24. . . . . . . . . Total ATMs . . . . . travel accident. . . . . . . . . . . . . . . . . . . . . . Insurance . . . . . . . . . . . . engineering. . . . . . . . . .762. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . a leasing entity that offers direct leasing. . . . . . Alliedbankers Insurance Through Alliedbankers Insurance. . . . . . . . . . .0 7. . . . . . . . . . . . . . . . . . . . . . . .

. . . respectively. . . . . accounting for 16. . . there was a substantial increase in Allied Bank’s consumer loan portfolio. .7 billion and P2. respectively. at an easy monthly payment scheme. . .9 11. ranging from effective rates of 7. . . refinancing.4 billion and P66.7% and 12. . . . . . .0 million and P61. . 2010 As of December 31. . . . . Enrolled cardholders enjoy a 24/7 coverage in Philippine and international locations where Allied Bank automated teller cards or cash cards are accepted. . . . . . . . . . . . . . . . . . .0% of the Allied Bank’s total consumer loans portfolio. . . . . . . . .5 2. . . . . . . . . . . . . . . . . . . .5 987. . . .8 million as of December 31. Allied Bank’s housing loan portfolio stood at P1. . . . . . . .461. . . Set out below is a summary of Allied Bank’s consumer loans by type for the periods indicated. . . . 2011 2012 (in Q millions) Consumer Finance Loans by Type Housing Loans . . . .0% per annum over terms from 12 to 60 months. . . . . . Others(1) . respectively. . Allied Bank typically deducts monthly loan payments from the employee’s salary. . . . with employees of such accredited companies allowed to avail of loan amounts for up to three times their gross monthly salary. . respectively. . . .7 1. . . . . .2 0. . . . .4% and 18. . . . . . . . . . .1 0. . . . . .358. . . Note: (1) Others comprises travel and miscellaneous loans.324. . Salary Loans . . . . . . . .3 billion and P11. . . . . . . . . . . and 32. . . 2011 and 2012. .0% to 11. . . . . . .0% to 11. . Allied Bank’s salary loan portfolio stood at P58. . . . . . . . . Consumer Loan Products Housing Loans 1. . . . . . . .0% per annum over loan fixing periods of one to 15 years. . accounting for 11. . . . . . .788. . . Loan Products As of December 31.710. . . . . . . . . . . . .7 billion. .8% and 33. .7 65. . . . . . . 2011 and 2012. . . . . . . .277. . house or lot construction. . . . . . accounting for 11. As of December 31. . . . . . . . . . . . which strategy was adopted in view of a projected glut in the property market. . . . . .4 billion as of December 31. . . . . .6 4. . .2 billion and P1. . Medical Loans. . . . . . . .3 billion. . . . . . . Demand for housing and auto loans rose substantially while still maintaining a past due rate below industry level. . . . . . . .313. . . . 2011 and 2012. . . .5 1. . . . . . . . . .273. . . . .5% of the Allied Bank’s total consumer loans portfolio. . Salary Loans Allied Bank’s salary loans are designed to augment the financial needs of employees of accredited companies. 2011 and 2012. . .7% and 69.5 1. . . . . . . . . respectively. Allied Bank believes its offered rates are competitive with its peers in the market. . . .6 10. . . . . . . . .833. . . . . . . . . . . . . . . . 114 . .6 1. . vans. .7% of Allied Bank’s total assets. . . . . .8 Allied Bank’s housing loans are offered at competitive interest rates generally ranging from 6.2 1. . . . . . . . . . .0 2. . .1 89. . . . . . . . . . . .1 80. sport utility vehicles or action utility vehicles. . . . . 2011 and 2012. . . . . Total . . .8 3. . . . . . . . representing 72. and can be used for home purchases. . while granting and booking of developmental loans was intentionally concentrated on existing developers as well as new pocket developers.9% of Allied Bank’s receivables from customers. . . . . . . . .4 3. . . . . . . .935. . Allied Bank’s corporate loans were P66. . Credit Card. . .8% of Allied Bank’s total receivables from customers. home renovations or home expansions. . . . . Educational Loans . . . . . . . . . .1 billion as of December 31. . such as cars. . . . . . .906. . Auto Loans. . . . . . . . . . .2 4. . . . . .4 75. . Auto Loans Allied Bank’s Top Speed Auto Loans cover loans for purchases of brand-new vehicles across all types. . . . . . . . . . . losses incurred due to ATM mechanical problems or machine tampering incidents and other ATM-related problems. . In 2011 and 2012.Allied Bank’s ALLY ATMSAFE program provides protection to existing and new automated teller or cash card cardholders in the event of theft. consumer loans were at P10. . . . .197. . . .8% of the Allied Bank’s total consumer loans portfolio.6% and 0. . . . . . . .680.122. . .2% and 11. . . . . . . . accounting for 0. . . . . . . . . . . . . . . . Allied Bank offers loans for up to 80% of the vehicle price. .3 8.5 58.4 61. . . Allied Bank’s auto loan portfolio stood at P1. . . . . . . . . . .

an additional 10 kg free luggage allowance. As an issuer of CUP. Under this card. 2012. These two cards universally help address corporate clients’ payment needs via these useful features: customization of spending limit by frequency. Packaged as the card that pays back. as well as earning points convertible into cash credits or Mabuhay Miles. and Jaguar MasterCard and the Land Rover MasterCard—catering to the high-end market.0 spent entitles the cardholder to points. The arrangement with PNB was also established to prepare for the planned merger between PNB and Allied Bank. Allied Bank had 248. options for single or dual currency. Select cardholders may also be eligible for the Mabuhay Miles Elite Membership Card. Other co-branded credit cards—Allied Bank tied up with four prestigious school organizations in 2011 for the issuance of the Allied Bank-AAXS (Alumni Association for Xavier Schools). and others. a first in the market when launched. These co-brand cards cater to each organization’s unique needs and passion. They also offer the same exciting and rewarding features as the core Allied Bank Credit Card like conversion of points to miles or cash rebates. The cards give discounts for dealer products and services (including annual oil changes). priority check-in and boarding and other benefits. and is available in two variants: (1) Allied Bank Platinum China UnionPay Card. and PNB’s planned use of Allied Bank’s credit card system upon completion of the merger. installment payment. The unique feature of the PNB Visa Card is that it offers a 1. Allied Bank. which can then be converted into cash credits or Mabuhay Miles. The new product targets and answers the needs of corporations that want to simplify the management of their business expenses.ICAAA (Immaculate Conception Academy Alumni Association). PNB Visa Credit Cards—launched in 2011. electronic statement billing and monthly reports.issued CUP Credit Card. China Union Pay (“CUP”) Credit Card—introduced in 2010. Mabuhay Miles World and Platinum MasterCard—launched in 2008.0 spent. Filipinos enjoy the full advantage of having the most widely-used and accepted credit card in China. this card was the first-ever. and (2) Allied Bank Diamond China UnionPay Card.Credit cards As of December 31.Super 8 cardholders are given a 2. This arrangement was initiated in preparation for the winding down of PNB’s PNB Visa credit card. the PNB Visa Classic and Gold card variants cater to the payment requirements of the broad mass market. its major credit card launches are set out below: Allied Bank Essentials and Premium MasterCard—launched in 2007. Allied Bank corporate credit cards are available in two variants: (1) Allied Bank Multi corporate cards for purchasing and other corporate payment needs and (2) Allied Bank T & E corporate cards for travel & entertainment related expenses.0% rebate on the revolving interest. locally.College of Medicine Alumni Association) and Allied Bank-DLSZAA (De La Salle Zobel Alumni Association) credit cards. both cards are exclusively for owners of the car brands. Allied Bank has also tied up with Super 8 Retail Systems. Allied Bank captures an untapped market with great potential and also serves as a way for Allied Bank to entrench itself within the FilipinoChinese client segment. Corporate Cards Allied Bank’s introduction of corporate credit cards in the last quarter of 2009 set a new milestone for Allied Bank’s credit card department. allowing cardholders to earn free flights fast. the cards featured a rewards program wherein every P50. 115 .0% rebate for transactions made at Super 8 stores. Allied Bank. With this card. PNB Essentials and Platinum MasterCard—launched in 2009 under a co-brand arrangement with PNB. Inc. The Mabuhay Miles World MasterCard comes with a free travel and concierge assistance with World Assist powered by International SOS. to tap the affordable consumer market. this product is ideal for cardholders who are practical and who want a no-frills credit card as it offers automatic savings while providing payment flexibility. amount or by preferred merchants.866 credit card holders in the aggregate. where frequent travellers and loyal cardholders get exclusive access to privilege such as access to the Mabuhay Lounge. a previous arrangement with Equitable Card Network. Allied Bank-UERM-CMAA (UERM. free travel insurance and domestic concierge assistance. considered Allied Bank’s flagship credit card product. These cards offer a low point-to-mile conversion of one mile for every P33.

safekeeping.2%. Allied Bank’s Trust and Investment Division managed. principally in U. Deposits Allied Bank offers a full range of deposit products. as well as from other services.2% of Allied Bank’s total loans.S. 2011 and 2012. property administratorship.7 billion and P17. besting top banks in the Asia-Pacific Region and winning more awards than any other local bank. Three months later. For Other Fiduciary Services. Trust Banking Allied Bank offers a range of trust and agency banking services and products. institutional trust accounts and individual trust accounts. accounting for 16. Allied Bank Credit Cards received recognition from MasterCard’s Hall of Fame Awards for the fourth year in a row. dollar-denominated fund and equities fund). “Where in the World is my Mabuhay Miles MasterCard?” program won the award for being the Most Innovative Card Marketing Program at the MasterCard Hall of Fame Awards 2010.1 billion. respectively.5 billion as of December 31. life insurance trust. financial advisory services. in aggregate. Aside from this. Services include syndication of debt and equity underwriting. Investment/Merchant Banking Services Allied Bank performs its investment banking function through its Merchant Banking Division. the LuXeclusive Program was also a Finalist for Most Innovative Card Marketing Program and Best Creative Execution. portfolio management and other specialized financing programs. 2011 and 2012. U. Many of these entities are owned and operated by members of the Filipino-Chinese community to which Allied Bank developed extensive ties.4 billion or 17. including current accounts (both interest-earning and non-interest bearing demand deposits).2%.1 billion and P147. Allied Bank’s trust banking activities also include Advisory / Consultancy and Special Purpose Trust. respectively. 2012 was approximately 163. Credit Card Awards On March 1. Allied Bank’s Agency Services under Wealth / Asset / Fund Management include institutional agency accounts and individual accounts. 2011 and 2012. among others. As of December 31.0% and 81. its total loans amounted to P16. court trusts. Allied Bank’s small business loans stood at P14. savings accounts and time deposits in Pesos. with the remainder denominated in foreign currencies.8 billion of funds. Allied Bank’s total deposit liabilities amounted to P147. P35. 116 . all under Wealth / Asset Fund Management. respectively.Point-of-Sale Terminals After investing in the necessary systems and technology. a total of 938 point-of-sale (“POS”) terminals had been installed in branches of Allied Bank’s top merchants. Allied Bank received recognition from MasterCard’s Hall of Fame Awards by winning the Best Activation Campaign and being Best in Class Finalist for its Mabuhay Miles MasterCard Elite Program. Small and Medium Enterprises (SME) Loans Allied Bank was among the market leaders in the Philippine middle-market/SME banking segment including a wide range of entities with total assets of P15.S. As of December 31. Allied Bank offers UITFs-other fiduciary services.0 million prior to its merger with PNB. 2012. private businesses and various Government-related entities. such as UITFs (including U. were denominated in Pesos.S. These are being provided to its customers that include individuals. As of December 31. corporate fiduciary accounts.0 million up to P100.3% of the Allied Bank’s total loans. Allied Bank’s ratio of low cost to high cost deposit as of December 31. Previous years also saw the Mabuhay Miles MasterCard awarded as the Best Premium Program in the MasterCard’s Asia Pacific. Middle East and Africa Product Conference and Technology Fair 2008. legislated and quasi-judicial trust. dollars. the Credit Card Department officially entered the business in September 2011. of which 79. escrow. Revenue from the trust business is generated through trust fees from the management of Trust and Agency services. dollars and other foreign currencies. The “Take off with P35/Mile Promo” was named as the Most Effective Card Marketing Program in the MasterCard Hall of Fame Awards 2009. respectively. 2012.1 billion and P41.1% and 18.

. .8% 1. .4 Total . .405. . . .4 Capital stock . . . . . . .5 4. . . respectively.0% as of December 31. . . . .8 147.3 3.9% 1.609. . . .1% 9.5 Total . . .9 4. . .875.5 159. . . .401. effectively providing Allied Bank with a source of longer term funding.0 28. .494.302. .000 outstanding preferred shares with a par value of P1. . .2% 0. . .6 3. respectively. .0 Unsecured Subordinated Debt . . .2 By currency Philippine Peso . .5 31. . .6% 1. . .8 0.4% 2. . . .482.1 Total deposits . . .6 Foreign currency . . . . . . . . . Allied Bank’s depositors typically roll over their deposits at maturity.3% 1. . . . . .6 0. . . 111. . . . .184.2 27. . . . . . . . . .164.469. . cost(1) Amount Ave. Allied Bank’s total equity was P30.3 billion and P5. . . . . . . . . . . . .1% 0. . . .072. respectively. . . . . . . .1 0. . . . .062. .9% 1. .848. . . . . .1 2. .4% 2.495 outstanding common shares with a par value of P1. As of December 31. . . . 2012. . . .277. . . . . . . .109. . . . . . .1 118. . . . . . . . .131. . . . . . . . . . .6% 8. . .634. .4% 45. . Although the majority of Allied Bank’s customer deposits are short-term. . . . . . . . 4.7 5. . .3%.5% Note: (1) Average cost of funding represents total interest expense for the year. . . . subordinated debt and capital stock. 31. As of December 31. . . 41.7% 2. .9% 2. Allied Bank had total equity (including non-controlling interest) of P25. Allied Bank’s average cost of funding for deposits was 1. .422.310.3% 1. . . 1. the average cost of funds was 1. .6 Time .1% 1. . 30.2% 8. . .494. . 2011 and 2012 amounted to P147. . .4% 0. was 92. . . . . . . . . . . .302. .5% 2.000. . . . . . . . . .7% 2. .3% 1. . . . . . . . . . . . . . 1. . .0 2. . .8 3. 2010 and 2011. . 2012. Allied Bank traditionally derives the majority of its deposit liabilities in the form of deposits under short-term savings accounts. . The majority of the deposits consisted of savings accounts. . Allied Bank’s total amount of customer deposit liabilities. . . . . . savings and time deposits.425. .4% 51. .252.759. . . . . . . . . . . . . . .000. as well as 50.945. . . . . . . . . .109. . . . . . . . .3 147. 150. .9 billion and P30. . 2011 and 2012.667. . bills payable.8% 7.1 billion. . . . . . . . . . .3% 4.934. .5 159. . expressed as a percentage. . .1 Total deposits . . .1 147. 2012.661. . .519. . . . . .072.3% 1. 2010 2011 2012 Amount Ave. . . . . . As of December 31. . . 3. The following table sets forth an analysis of Allied Bank’s main sources of funding and the average cost of each funding source: As of December 31. . . . . . . . . . . . .0 each. . . .1 Foreign currency . which is in percentage terms) Deposits By type Demand . .5 70.3 30. 2011 and 2012. Allied Bank had 3.7%.678. 117 .302. . . . . . . .9% 1.497. .220.1 billion. . 141.2 Bills Payables Philippine Peso . . . . . . . . . As of December 31. . . . . Allied Bank’s deposit liabilities consist of demand.1 67. .6 116. . .196.5 Savings. . .1% 0.4% and 92. cost(1) (in Q millions. . . . . . .0 each. . . . . . . as a percentage of total funding sources. . . . 141. 477.7% 3. divided by the average daily liability for the respective period. . except Average Cost.172.7% 2. . .1 billion. . . . Allied Bank had total bills payable amounting to P4. . . 2010 and 2011. . . . . reflecting the relative strength of Allied Bank in the retail segment of the banking market. As of December 31. .6 147.6% 7.FUNDING Sources of funding Allied Bank’s main sources of funding are deposit liabilities.6% 7. . Allied Bank’s total deposit liabilities for both December 31. . . . . 68. . . . For both years ended December 31.7 4. cost(1) Amount Ave.3% 3. . . . .5 billion.4 758. .490.

. .252. .0 141. . .7 3. .2 45. . . . . . . . . . . . . . . . .5 62. .1 billion for both December 31. . . . . . . . . . . . . . . . . .1 4. . . . .7%. . . . . . . respectively. . . . . . . . . . . . . .2% of Allied Bank’s outstanding deposits as of December 31. . 30-90 days. . . .5 billion as of December 31. . . .634. . . 79. . . 2011 and 2012. . . . . . . . . . but they will forfeit the interest payable on such deposits. . . . . . . . . . . 2010. 2010. . . . . . .000 preferred shares with par value of P1. . . . 2010. .000. . . . . . . . . . . P4. . . . . . 118 . . . . . . . . . on the other hand. . . . .3 12. . . . . . . Allied Bank’s total deposits amounted to P141. . . Total . . . . . . . . . . . .3% and 52.7 Capital stock As of December 31. . . . . .5 68. . .275. . . . . . 2011 and 2012. 181 days and longer. According to type of deposits. . comprised of demand and savings deposits.215. . . . 2010 and P147. . . . . . .6 27. . 2011 and 2012. reflecting the general profile of its customer base. . . . 1. . . . . . . . 92. respectively. . . . . .9%. .5%. . . . . As of December 31. .7%. .5 70.7 1. .6 51. . .422.8%. .6 3. .1 27. . . . .072. . . . . . . . . by the customer after the expiry of the time deposit period.8% and 81. . .678. . . of Allied Bank’s deposits were denominated in Pesos. . . . . . . . . . . . . . . . . . .0 each. . . . . .8 19. . . . . . . . . .0 each and 50. . . . . 41. . . .609. . . . 82. . .0 4. . . . . . .1 67. . . . typically between six months and three years. . . . Customers may demand the withdrawal of their time deposits prior to maturity upon the giving of a short notice. . . . .000. . .6 20. . . . . can be withdrawn. . .596. . .6% respectively. . . . . . . they represent funding of the shortest term available to Allied Bank. . . . .220. . . as of the specified dates: As of December 31. . . . .2 27. . . . . . . . . . . . . . . . . . . . . . . 2011 and 2012. . . . . . . . 2012. . . . . . . . . . . . . .4% and 92. .239. . . . . .9 5.109. .6 31. . Total Bills Payable . . . .277. . . . . . . . .447.802. . .1 147.062. . Time . .425. .1 billion. together with interest earned on said deposits. . .0% and 80. Allied Bank’s deposits are primarily denominated in Pesos. . . 2010 and 2011 and 2012. . . . . . .0% as of December 31. . . . . . bills payable amounted to P1. . . . . . . .196. . . .494. . Savings . . . 2011 (in Q millions) 2012 Deposit by Type Demand . . . Time deposits. . As a proportion of Allied Bank’s total main sources of funding. . . . . . . 2011 and 2012. . . .4 4. . . . . .490. Due beyond one year .5 31. . . . .1 Bills payable As of December 31. on the other hand. 78. . . .759. . . . . . .677. . . . . . . . .848. . . . . . . of Allied Bank’s bills payable were denominated in Pesos. . . . . . . respectively. . . . . . . . .Deposits Deposits continue to be Allied Bank’s main funding source. deposits accounted for 93. . . . . .495 common shares with par value of P1. . . . . . Allied Bank’s capital stock amounted to P3. As such. . . . Demand and savings deposits can be withdrawn on request and without any prior notice from the customer. . . 91-180 days. . . . The following table sets forth an analysis of the maturities of the bills payable by contractual maturity dates of Allied Bank.6 billion. . .0 3. . . . . . 78. 77. . . . .1 143. . . . . . . As of December 31. . . respectively. . . . . . In terms of currency. The following table presents a more detailed maturity analysis of the deposit base of Allied Bank as of the dates indicated: 2010 As of December 31. . . . . . . .5 139. . . . . . . . . . 2010. . . . . . 29. .042. . . . . . . .817. .4 147. . 2010 2011 2012 (in Q millions) Bills Payable Due within one year . . . .1 5. . . . . . . . . . . . . . . .3 billion and consisted of 3. . . . . . . . . .554. . . . . . . . . .3 billion and P5. . . . . . .

can also be used as collateral for the BSP Interbank Liquidity Facility. a review of the structure of each bank’s operation and sources of funding. Allied Bank’s liquid assets amounted to P67. Allied Bank’s deposits are generally short-term in nature. rediscounting with BSP. together with the bank loans and other marketable assets. Allied Bank identified these stable deposits as core deposits that have been the single source of large and low-cost deposit over the years. Allied Bank’s unified reserves on the Peso book stood at 18. the BSP instituted several measures aimed at enhancing and strengthening the liquidity management of the financial system by providing guidelines and rules that Philippines banks must follow/practice regularly. As an offshoot of several financial crises. Allied Bank always maintains an adequate level of secondary liquidity (in the form of availablefor-sale securities) that can be immediately liquidated in times of unexpected need for funds. This includes. Allied Bank established policies and guidelines in addition to the prudential limits required by regulations to serve as the Treasury department’s guide in managing Allied Bank’s liquidity position. nature and structure of these deposits are being reviewed regularly by ALCO to identify changes that may affect future liquidity movements. the majority of which are held by retail and middle-market accounts. In order to achieve this objective. P86. 2012.0% unified reserve requirement. interbank loans receivables. These securities holdings.4 billion.8% and 43.2% of total FCDU liabilities. Interbank borrowings. particularly in times of market stress. However. For the year ended December 31. interbank call loans and other investments.0% statutory. Under relevant Philippines laws. Allied Bank invests in highly liquid assets that can be sold to BSP or other banks with the agreement to buy it back. trade financing. As of December 31. peso deposits and deposit substitute liabilities are subject to a unified. In addition. regular and special deposit with the BSP.5% of total Peso liabilities while Allied Bank’s liquid asset cover stood at 103. In addition. Allied Bank’s ALCO meets regularly to monitor and review Allied Bank’s liquidity position and ensure that sufficient liquid assets are available to cover expected and potential funding requirements. in addition to primary liquid assets such as cash. 2010. 18. these deposits. 2011 and 2012. inclusive of the 18.9% of Allied Bank’s total assets as of such dates. As a rule. Allied Bank has complied with the legal and liquidity reserves set by the BSP for both its Peso and Foreign currency books. financial assets at fair value through profit or loss and available-for-sale investments. securities held under agreements to resell. amounts due from other banks. deposits with other banks. which is the same as the nature of deposits of the other Philippine banks.7 billion and P86. are the additional sources of funds for Allied Bank. respectively. remain with Allied Bank and are historically rolled over on maturity. legal and liquidity reserve requirement. the regular conduct of stress tests and establishment procedures for management of liquidity and other types of risks. ALCO regularly reviews interbank credit facilities that can be availed of immediately.6%. 42. customer deposit maturities/withdrawals. investments and other commitments under all kinds of market conditions. representing 35. It also reviews and assesses market conditions to make sure that credit facilities are always available in times of funding needs and that Allied Bank is not being over-reliant on a few sources of funding or the more volatile sources of funds. Allied Bank’s liquid assets include cash and other cash items.0% liquidity floor requirement. especially during periods of intense market stress. Peso government deposits are subject to 50. The volume.Liquidity Allied Bank’s policy objective is to efficiently manage its liquidity by ensuring that funds are always available so that it can meet the credit demands of customers.8 billion respectively. the preparation of a Contingency Funding Plan which must be reviewed regularly to adjust to changes in market conditions. as well as issuance of bonds. Allied Bank has committed borrowing facilities in the form of commercial paper facilities and other standby facilities that it can access to meet funding needs. or may be used as collateral for borrowing from BSP or other banks. amounts due from the BSP. On the liabilities side. among others. 119 .

. .1 50.0% 100. . . . . . . . . . . . .6 95. . .3% and 52. . . . . . . . . . . . . . .738.9% 67. . except percentages) Liquidity position Liquid Assets .1 86. . .772. . . . . .2 147. rice/corn trading and food processing. .2% 16. . . .256. . renting and business services . . storage and communication . . . . . . .2% 20. .2% 20. .375. . . . . . . credit applications exceeding certain limits must be approved by the Executive Committee or the Board of Directors. . . . . . . .0% 67. . Net Loans-to-Total Deposits. . . . . . . . . . Others(1) . . . . . . . . . . . Manufacturing (various industries) . .0 697. . . . . . . .9 15. . .494. . . . . . . . . . . . . . . Due from Other Banks . .6 Note: (1) “Others” includes financial intermediaries.6 3. . . .392. . .8 795. . . . . . . . . . . respectively. . . . .821.8% 43. . .2 As of December 31. . . . . Available-for-sale investments . .109. . .820. . . . . . . . . . . . . . . .5 4. . . .9 23. Cash and Other Cash Items . . .6 141.6% 1. . .4 20. . . . . .442. Allied Bank has also adopted a strategy of selective lending by focusing on industries such as power and other infrastructure. . . . .500. . . . representing 51. Liquid Assets-to-Total Deposit Liabilities . . . . . . . . .8 14. . 2010 2011 2012 (P millions. . . . mining and quarrying services and miscellaneous business. . . . . . . .The following table sets forth information with respect to Allied Bank’s liquidity position as of the dates indicated: As of December 31. . . . . . . . .8 17.023. . . . . .6 189. . . respectively. .0% 59. . . . . . . . . .9 86. . .513. .0 74.1 35. .331. . . . . . . . . . . . .5% 18. Total Assets . . . .442. . . . . LOAN PORTFOLIO Overview 67. . . . .9 4. . . . . . . . . . .1 6. .7% 59. . .6 147. . . At the same time. . .777. . . . . . . . . .3 9. . . .893. . . . . . . . . . . . . . . . % 2011 % 2012 (in P millions. . . .0 12. .507. . . . . . . . . . . . . .988.8% 16.772. . . . . . . . . . .442. . . . . . . . . . . . . . . . . . . . . . . .772. . . . . . . . . . . . . . . . . . .911.3% of total assets as of those dates. . . . . . . .7 21.2 1. . .8% 17. .297. .468. . .771.9% 10. .781.8 100. .3 7. .046. . . . . .3 11. . . . . .0% 100. .084. . . . . . . . . . .636. . .8 202.775. . . . . . . . .9 87. . .738. . . .5% 0. . Gross Loans to Deposits . . . . . . . . . .0% 9.2 86. . . . . . . . . . . Other community.9 86. . .369. .8 62. .885. . . . Liquid Assets . . . . .072. . . . Industry concentration The following table sets forth an analysis of Allied Bank’s receivables from customers by economic activity. . . .8 15.7% 19. . Transportation. . . . . . .9 billion and P103. . . unearned interest discount and capitalized interest) . . . . . . . except percentages) % Wholesale and retail trade. . Total . . . 2011 and 2012.286. Net Loans (receivables from customers net of allowance for credit losses. . . . . . . . . . . . Allied Bank’s gross loan portfolio (comprising receivables from customers. . . . . . . . . . .7% 9. . . . . . . .8 29. . . . . .9% 71. . . . . . . . . .7 52.7% 12. . . . .5% 14.1 197.4 7. . . . .369.578. . . . . Allied Bank has established different lending limits for its credit committees to provide greater control in Allied Bank’s lending operations. .8 74. . . . . . . 120 . Financial Ratios Liquid Assets-to-Total Assets . . .0% 91. . .1 19. . . . .162.8% 16. .0 3. Total Deposit Liabilities . . .6% 22. . .525. . . . . . . . . . . . . . . . .469.6% 59. . . . . .6 11. . . . . . . . . . . . .1% 18. . . . . . . . . . . . . . . .981.732. . . . .955. . . . Due from BSP . . . . . . . .082. . . . . . . . . . . . . . . .532. .6 64. . . . . .450. interbank loans and securities purchased under resale agreements) amounted to P103. in which Allied Bank believes growth prospects remain stable and in which the ratio of NPLs is relatively low. . . . . . . . . . Allied Bank is reducing its exposure to industries with high NPL ratios. . . .8% 61.6% 42.034. . . . . .8% 19. . . . .6 13. . . . . . . . . . . . . .5 86. . . . . .3% 19. . . . . . 15. . .885. .775. .6 40. . . as defined and categorized by the BSP: 2010 As of December 31. . . . . . . . .9 6. . . . Real estate. Liquid Assets . .5 91. . .8 7. .5 86. . . . .0% 8. . . .6 18.442. .469. . . . . . .1 10. . . . . . . . . . . .403. .9% 8. . . .900. . . . . . .0 17.058. . . . . . . .1% 10. .242. . . .5 20.3 10.541. . . .6 91. . . . . Interbank Loans Receivables and Securities Purchased under Resale Agreements . . . . .9 7. . .738. . . . . . . . . Depending on the credit size. . social and personal activities .071. . . . . . . . . . .0% 95. . Agriculture. Financial Assets Designated at Fair Value through Profit or Loss . . . . . . . . . . . . . . . . . . . Gross Loans .9 15.664. . . . . . . . . . .4 billion. . . . . . . .8 9.2 47. . . . .702. . . . . . .2 7. . . . . . . . . .9% 26. . . . . . . . . . . .

0% of the total loan portfolio. .1% 4. . . .0% of Allied Bank’s receivables from customers was denominated in Pesos with 11.0% 95. in principle avoiding exposure of more than 30. . . . . . . . . .7 89.8% 100.7 55. . . . .077.7 4. . . .622.118. .114. . 23. . . loan concentration exists when the total loan exposure to a particular industry exceeds 30. Loans with a maturity of over one year consist primarily of term loans to corporations and businesses. . . . .denominated loans can only be granted to importers who have authorization from the BSP to purchase foreign currency to service their foreign currency-denominated obligations. In addition.962. . . . . . The distribution of Allied Bank’s loan portfolio by industry is also subject to seasonal fluctuations. 89. . . . . .388. . . . 2011 2012 % Amount % Amount (in Q millions. real estate. .9% 84.0% to mediumsized.2 8. . . .5 28. . .0% to a particular industrial sub-sector of the economy. . . 63. .6 7.4% 10. .817. of Allied Bank’s receivables from customers. and 10. . . these sectors represented 18. . Total . . . . .5% 5. which are partially affected by the monetary policies of the BSP. . . . . Under guidelines established by the BSP. . . . wholesale and retail trade. .0% 100. . . . Other Foreign Currency . .2%. .2% 44. . . . . The PDST-F reflects the secondary trading levels of the benchmark government securities. .0% of their loan portfolios to small-sized.369.6% 100. . . Allied Bank adopted a policy with respect to foreign currency lending pursuant to which foreign currency.6 Loans due within one year primarily consist of loans to corporations for working capital and loans to consumers for general use.0% being denominated in foreign currency. . . . . .The manufacturing. . .0% of their “loanable funds” to the agricultural sector in general.7% 38. 20. . . . .469. 121 . renting.7 61. . . .1 6. .1% 78. business activities and transport industries represent the largest components of Allied Bank’s loan portfolio. .0% 95. . . .0% 91. . dollars. . . .433. .4% 4.9 86. . . .0% 100. . . . .8 4. . . and to allocate 8.7 3.8 100. most of which consisted of U.9 42. . . . . . Allied Bank monitors its exposure to specific sectors of the economy to ensure compliance with specific pre-determined lending requirements imposed by law on all Philippine banks. .860. . and 2. . .8 55. except percentages) % Due within one year . . . . .2 74. . .0% 9. .8 100. . .775. . . due to the lack of available qualified securities in the market.6 As of December 31. . . .0% of such funds being made available exclusively to agrarian reform beneficiaries. Mandatory credit allocation laws require all Philippine banks to make available 25. . Allied Bank must comply with legal requirements to make loans available to the agricultural sector and to SMEs. .627. As of December 31. . . . .369. Due beyond one year .7 84. . . . except percentages) % Peso. enterprises. 2012. . . . . . .1% respectively.837. . Total . . . .148.9% 44. with 10.0% 91. . . . . . . .313. 2011 2012 % Amount % Amount (in Q millions. . .0 40. 46.1% 52. Interest rates Interest rates on loans are generally set on the basis of Allied Bank’s average or marginal cost of funds which in turn is largely determined by the interest rate on the PDST-F plus a spread.5%. except for the agrarian reform sector. . . . . . . . . . . . As of December 31. . . .4 74. . .651. Maturity The following table sets forth an analysis of Allied Bank’s receivables from customers by maturity: 2010 Amount As of December 31.9%. Foreign USD . . . Allied Bank was in compliance with these requirements. 2012. .255.S. . . . . .469. . . . . . . . 2011 and 2012. .3% 51.775. Currency The following table shows an analysis of Allied Bank’s receivables from customers by currency: 2010 Amount As of December 31. Allied Bank maintains a flexible policy toward its exposure to various sectors of the economy.0% 6.

. .5 billion. . . . . . .069.000. . . . . . . . . . . .6 36. . . . . . . . . .543. . . . . . . . . . .469. . . . . . . . . .000 . . . . . .8%.000 to 10. . . . . . . . . .0 100. . . . . . . . . . . . . . . . . . . . . .0% 91. .2% of total loans were backed by real estate mortgages. .3 13. .471. . . . . . . . P82. . As of December 31. . .3% and 48. .000. . . . . .4% 1. it will seek to minimize credit risk in support of a loan by requiring borrowers to pledge or mortgage collateral to secure the payment of loans. .9 3.4 100. . . . . . . . . .0% 95. . . . . . . . . .1% 2. . . . . . . . . . . . Allied Bank’s general policy in the acceptance of support or security arrangements for loans provides for the guidelines on acceptable and unacceptable forms of collateral.1 62.7% 287. .000. Deposit hold-out . . . . . . . . Secured and unsecured loans The following table sets forth Allied Bank’s secured and unsecured loans according to type of collateral: 2010 As of December 31.7% 49. . . . . .5% 6. . . . . . .6 2. . .146. . . . . . . . . . . . . .7% of Allied Bank’s outstanding receivables from customers. .4% and 36. . . . . . . . .575. . . . . .886. . . .0% of its appraised value. .4% 34. . . . . . . .3% 8. . . . or 4. . .000 to 5.1 3. . . .9% 48. . . . .1 2. . . . . . (ii) to be responsive to market changes. . . . . . . . .5 1. . . . .000 . . . Unsecured . . . (iii) to maintain the liquidity of its risk asset portfolio. . . .2% 2. .000 . . . . . . . . Greater than 100. . . . . . . . . . .0% 1. . . .000 . 5. . . . . .000. . . . . . . . . . . . . . . . . .8% 2. . . . . . . . . . . . . . . . . . . . . 2012. . . . . . . . .4% 100. . . . . . .000. . . . . . . . . . . . These policies are directed towards the following institutional objectives: (i) to maintain a sound and prudent lending portfolio.500. . . . .6% respectively. . . . . . .9 billion. . . 27.5 billion was subject to re-pricing. . . . . . . .8 13. . . . 47. . . . . . . .000 . . . . . . . . . . . . . . . . .0% of Allied Bank’s receivables from customers of P95. . . . . .000 to 2. 2012. . . .000. . . . . . .7 36. . . . . of Allied Bank’s outstanding receivables from customers. . . .1 100. . .000 . . . . . . . Others . . . . As of December 31. . . . . . . . . . . . . .000 to 50. . . . . . . . . . 0. . . . . .1 billion or 86. . . . .051. . . .2 3. .0% of Allied Bank’s net worth. . 122 . . . . . . . . . . .369. . . . . . . Total . . . . . .2 27. . .1% 0. . As of December 31. . 2012. . . . . . . . . . CREDIT APPROVALS Credit policies One of the basic credit risk management infrastructures of Allied Bank is the adoption of effective credit policies to govern its various lending operations. . . .023. .3 3. . . . . . .0% Allied Bank principally focuses on cash flows in assessing the creditworthiness of borrowers. . .723. . . . . . .408. 2. . . . . . . .1 3. . . . . . . . . . . .000 . . .559. . . . . . . . . . . . . . . . . . . . . . .000. . . . . . . . . . . . . . . . . . . . . . . . . . .762. . A majority of Allied Bank’s rate-sensitive assets and liabilities re-price every 30 to 90 days which limits Allied Bank’s exposure to fluctuations in domestic interest rates. . . . . However. .As of December 31. . . . . Allied Bank has complied with the single borrower’s limit for all of its loans. . . . 10. . . . . 2012: Principal Amount (Q) (%) Less than 1. . . . . . . . Allied Bank’s single largest corporate borrower accounted for P4. . . . 2011 and 2012. . . . . Securities . . . . . . . . . . . .2% 1. . . .8 17.3 1. .0 36. . . . . . . Total . Size and concentration of loans The following table sets forth a breakdown of Allied Bank’s receivables from customers by principal amount as of December 31. . . .1 3. . . . . . . . . . . .793. . . .396. . . .576. . . .8 52. . . . . . . . . . . .000. . . . .738. . . .775. .7% 30. . .000 to 100. .5 2. . . . 2012. . .000. . 33. .2 2. . . . Allied Bank’s 10 largest borrowers in the aggregate accounted for P19. . . . .1 7. . . . . . . . . . .1% 7. . . . . . . . . As of December 31. . . . . . and (iv) to attain profitability commensurate to risks taken. . . . 2011 (in Q millions. . . . . . . except percentages) 2012 Secured by: Real estate . . . . . or 20. 1. . . . . . . Chattel . Allied Bank’s maximum loan value for real estate collateral is 60. . . . . . . . . . . . . . . . . . . . . . . . . .8 33. .0 The BSP currently imposes a limit on the size of Allied Bank’s financial exposure to any single person or entity or group of connected persons or entities to 25. .603. . .3% 1.2% 51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50. . . . As of the same dates.000. .1 74. of total loans were extended on a secured basis. . . . . .500. . . .5 14. . . . .

subsidiaries and parent companies thereof).market segments. amongst others.e. to the agricultural/agrarian sector and to the real estate industry. Allied Bank’s Audit and Compliance Committee monitors the past due level and status of past due accounts. In compliance with BSP requirements.0 million or those with loan of at least P5. For control purposes. exposure to subsidiaries and parent companies of the borrower including guarantees by the borrower or its related companies or its principal officers) but excludes. 123 . Grants of these facilities require the approval of Allied Bank’s Board of Directors and compliance with individual and aggregate ceilings as well as the BSP reporting requirements. specifically in the area of lending to small and medium scale industries. analyzes the appropriateness of the exposure and evaluates any inherent risks. Additionally. Limits are imposed to manage credit concentration risks and provide more control of Allied Bank’s lending operations. Allied Bank includes exposure to related accounts (i. generally. Allied Bank also follows guidelines of the BSP in the grant of loans to its directors. The internal credit policies are continuously reviewed and updated by the Credit Policies Division. In addition. Allied Bank identifies the needs of the prospective borrower. loan recommendations requiring Executive Committee and Board approval needs the endorsement of the Loan Committee. The account officer further determines if exposure can be covered by collateral.All credit policies adopted by Allied Bank are approved by Allied Bank’s Board of Directors and any amendments or revisions require prior approval of the Board unless expressly delegated to the President and other board credit committees. The aggregate amount of the credit facility. implementation of credit approvals is subject to review at least once a year by Allied Bank’s internal audit group. Except as may be otherwise approved by the BSP (as required under the General Banking Law of the Philippines). These policies reflect Allied Bank’s credit risk tolerance which are communicated constantly to all lending units and support offices. certain relatives. In cases where a property appraisal is warranted. Allied Bank assigns an account officer to every prospective borrower to start the credit approval process. The ICRRS grades new and existing corporate loan borrowers with total assets of more than P15. This audit is designed to determine the efficiency of the internal control system in place as well as the quality of lending operations. For borrowers from the middle. affiliates. Credit approval process Loan recommendations are submitted to the different levels of credit committees or to designated approving officers within Allied Bank. will determine the approving body which will approve the transaction. but also continues to consider the financial position of the borrower itself. exposure to specific sectors of the economy is subject to internally approved limits or ceilings which are regularly monitored. certain sectors which are already subject to specific pre-determined lending requirements as imposed by law on all banks. Before Allied Bank approves any extension of credit. Escalations of any deviations to credit policies are immediately undertaken to regularize the breaches. Allied Bank generally cannot grant to a single borrower a loan equivalent to more than 25. Allied Bank has also put in place pro-active monitoring systems to ensure compliance with statutory and internal limits. Allied Bank has an ICRRS for corporate accounts and credit scoring for consumer and small loans to standardize the assessment of its credit portfolio in terms of risk profile. The account officer conducts credit evaluation on the prospective borrower with the assistance of the credit support units. the account officer may focus more on the size and quality of cash flows from the transaction. stockholders and other related interests (i. In determining whether Allied Bank meets the single borrower’s limit of the BSP. officers. the account officer will pay attention to validating the borrower’s financial position from different information sources.0 million.0% of Allied Bank’s net worth. The account officer identifies the borrowing requirements of the client and obtains the loan application form from client together with the required documents. For transactional lending.e. shipping documents or other documents transferring title to readily marketable nonperishable goods covered by insurance. this is undertaken by Allied Bank’s appraiser or by an external appraiser. There are however. loans secured by holdouts/margin deposits maintained in Allied Bank and other loans and credit accommodation classified as non-risk by the Monetary Board. This can be increased by 10. However.0% provided these are secured by trust receipts. loans and other credit accommodations guaranteed by the BSP or the Philippine Government and Government corporations. The decision on whether to extend the credit is determined by a combination of internal policies and guidelines and the regulatory policies of the BSP.

2011. The classification indicates the degree or gravity of the perceived problems of the account reviewed. 2011 and 2012. The reviewed loan accounts are classified in accordance with the standard classifications set forth in the Manual. The General Banking Law and BSP regulations require that the aggregate amount of such DOSRI loans should generally not exceed 100. 248 dated June 26. 2000 and Sec. In the year ended December 31. Allied Bank is required to report the level of DOSRI loans to the BSP on a weekly basis. Allied Bank has established credit support units under its credit risk management group to review and monitor individual accounts within a particular portfolio to identify existing and potential areas of deterioration and assess the risks involved. 1. and may in the future result.8% of Allied Bank’s gross interest income for the same period.0% of the bank’s total loan portfolio. amounted to P3.” This classification depends on management’s evaluation of the collectability of the loan. from time to time and in the ordinary course of business. Allied Bank is required to establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies with regard to prevailing circumstances and emerging portfolio trends.1% of Allied Bank’s total loans as of December 31. All such loans are on commercial. In addition.5% as of December 31. The amount of any loan to a DOSRI of a bank. X309. enter into loans with DOSRI.8% of Allied Bank’s total loans. DOSRI Allied Bank will. respectively. of which 70. as a result.9 billion as of December 31. in Allied Bank recognizing higher provisions for loan loss as a result of lower future discounted cash flows to be received in respect of NPLs. requires Allied Bank to evaluate allowances for loan loss based principally on the discounted cash flows to be derived from loans and other receivables.3 billion. Volatile economic conditions may adversely affect the ability of Allied Bank’s borrowers to repay their indebtedness and. Allied Bank’s provision for credit losses on loans and receivables was P1. 2012 as compared to P4. 2011. The average net NPL ratio for local banks in the Philippine banking system was 0. which represented 18. 2012.5% of Allied Bank’s gross interest income for the same period.8% as of December 31.9 billion as of December 31.3% and 0. 2012. In compliance with this requirement. As of December 31.0% must be secured.6 billion.1% and 90. collection and credit experience with the specific account. financial capabilities of any guarantors and the present value of future cash collections. The evaluation of the individual loan accounts culminates in the classification of the account. For the purpose of preparing its financial statements in accordance with PFRS. This has resulted. as defined by BSP Circular No.” “substandard. which applies to Allied Bank from January 1. which represented 3. Allied Bank’s NPL ratios were 3. Total outstanding non-risk DOSRI loans was P0. may not exceed the aggregate amount of their unencumbered deposits with the bank and the book value of their paid-in capital investments in the bank. Based on these considerations. 2012 and September 30. respectively. 2012. 2012 DOSRI loans accounted for P2. 2011 and 3. Allied Bank may experience an increase in NPLs and provisions for probable losses. loans are classified and mandated levels of provisions are taken based on such classifications. fair market value of collateral. 2011 and P0. DOSRI loans accounted for P3. the introduction of new accounting standards in the Philippines has required Allied Bank to introduce new methodologies for calculating loan loss provisions and asset impairment which has resulted in it recognizing higher levels of impairment losses in respect of its loans and other receivables. current BSP regulations require that Philippine banks classify NPLs based on four different categories corresponding to levels of risk: “loans especially mentioned. or 3. after consideration of prevailing and anticipated economic conditions. LOAN LOSS MANAGEMENT AND PROVISIONING Overview Allied Bank’s NPLs.0% of a bank’s net worth or 15.4 billion as of December 31. 2013.1 of the Manual. NPL coverage ratio stood at 69. 2005.Credit monitoring and review process Pursuant to the Manual.” “doubtful” and “loss. whichever is lower. 124 . and is required to submit to BSP a copy of the approval within 20 days from the date of approval. PAS 39.3% as of December 31.0 billion as of December 31.9% as of December 31. the credit support units evaluate the degree to which a particular lending unit is complying with existing credit management policies. arm’s-length terms. 2011. Loan loss classification For the purpose of regulatory reporting in the Philippines. Allied Bank’s provision for credit losses on loans and receivables was P0.7 billion.1 billion. For the year ended December 31.

. .8 3. .050.” “doubtful” or “loss” assets. . . . . . .990. . . . . .6 4. . . . are unclassified. . . . . . . . Unless otherwise stated. . . .2% 1. . . . . . . . . . . . . .4 2. . . . . .6% 0. . .4 2. . . .449. . All risk assets. . .974. . . . Substandard (secured). .0% 95. . . .3% 2. .5% 0. . . . . . . . . .890. which is not solely dependent on the number of days the relevant loan is overdue. . . . . . . . . . . . Those loans which do not have a greater than normal risk.1% 100. . .0 10.8% 1. . . .4 88. . .2 100. . . . .4 100. . . . . All other loan accounts. . . . . . . . . . . . . . . . . . . . . . .469. Loss . .1 1. . . . . . . . . . . . . . .9% 91. . . . . . . “Especially mentioned” and “substandard” classifications may apply to current loans in accordance with BSP regulations. is highly improbable and that substantial loss is probable. .0 916. . . . . . .4 66. . . . . . . . . . . . . . . .2 4. . . . Allied Bank’s guidelines classify “especially mentioned” assets as those assets which have demonstrated minor deficiencies in credit quality but in respect of which repayments on the asset are up to date. . . . . .007. . . . . . . . . . . . .974. .7 89.2% 1. . . except percentages) % Risk Classification Especially mentioned . . In categorizing its loan portfolio. . . . . . . the presentation of Allied Bank’s classification of its loan portfolio and related ratios in this section. . . . 5. . . . . . . and for which no loss on ultimate collection is anticipated. . . . . Unsecured . . . . . . . . . . . . . . . . . . . . . . comprising those loan accounts which have a greater than normal risk. .9 Loans classified as “loss” assets are generally written off by Allied Bank. . . . . . . . . . . .3% 8. . . Substandard (unsecured) . .7 9. . .775. .” “substandard. . . . . . . . . . Allied Bank follows the BSP’s categorization of risk assets according to their risk profile. . . . . . . . . .7 5.0 50. . . . .4 2. .1 89. Doubtful . .2 8. . . . . . . .479. . .7 89. . Doubtful. . . .7 3. . .1 1. . . . . 2011 2012 % Amount % Amount (in Q millions. . . . . . . The guidelines allow banks. . . . for the purpose of reporting to the BSP. Total.0 25. . . . . . Assets which are considered impossible to collect or worthless are characterized as “loss” assets.449. . . . . . . . . . . . . . . to write 125 . . . . . . . . . . . . . Allied Bank’s guidelines classify “substandard” assets as those which Allied Bank believes represent a substantial and unreasonable degree of risk to Allied Bank. . . . . . . . . . .2% 3. . . .479.050.0 916. .7% 86. . .1% 2. . .0 916. . . . . . . . . . are either classified or unclassified. . . . . .0% 8. . . . . . . “Doubtful” assets are those in respect of which Allied Bank believes that collection in full. . . . . . . .1% 1. . . . . The self-assessment process involves classifying borrowers based on their financial condition and then categorizing claims against borrowers in order of collection risk. . . . . 2011 and 2012 are on the basis of BSP guidelines and reflects the new accounting standards referred to above. . . . .1 1. . The write-offs are done in accordance with BSP guidelines.203. . . . . . . . . . . . . . . . . . . Once a loan is classified in a particular category. . . . . . Allied Bank classifies its borrowers and assesses its asset quality based on its self-assessment procedures developed in accordance with current guidelines published by the BSP. . . . . . . . . . . .3 74. . . . . . . Allied Bank performs self-assessment at least quarterly. .0 Allied Bank adopts a qualitative analysis of its loan portfolio for the purposes of this risk classification. . .7% 82. . . . . . . . . . . Sub-standard Secured . . . . . The following is a summary of the risk classification of the receivables from customers (as a percentage of total outstanding loans) and allowance for credit losses of Allied Bank as of the dates indicated below: 2010 Amount As of December 31. .0% 11. . . . . . . . . . . including impairment losses and allowance for probable losses. . . . . . . .0 100. 2010.0% 3. . . . . . . . . . . . . . . Total classified . . . . .BSP classification At the date of this Prospectus.249. . . and the appropriate loan loss allowance (in accordance with BSP guidelines) is made as follows: BSP Risk Classification Loan loss allowance % of principal amount of loan Especially mentioned . Loss . . . . . . . . . . . .974. . . . . . . Allied Bank establishes allowances and discloses its problem loans using criteria required under BSP regulations and these allowances are subject to BSP review and confirmation. . . .369. . . either according to their terms or through liquidation. . . Allied Bank’s review of its risk assets is conducted quarterly in accordance with Allied Bank’s prescribed policy guidelines based on BSP categorization. . .9% 0. . . . . . . 3. . . . upon approval by their board of directors. . . . . . . in particular Allied Bank’s loan portfolio. . . . . . Allied Bank records a loan loss allowance against such loan. . . . Unclassified . . Based on these classifications.4 90. are classified as “especially mentioned. . .2 4. . . . . .050.4% 2. . . for the years ended December 31.1% 1. . . . . . . . . . .1% 1. . . . . . . . . . . .0% 91. . . . . . . . . . . . . . .3% 8. . . . . . .479. .296. Allowance for credit losses . . . .449. . .

. . . . . . . . . as of December 31. . . . . . . . . . . . . . . . . . .3 287. . . . . . .3 310. . . . .7 4. . . . . . . Restructured loans as percentage of total loans (%) . . . . . . . . . . . . . . . . . . . . Loans—written off . . . . . . .0 4. . . . . . . . . . . . .7% 35. . . . . . . . . . . .2 9. . .2 4. . . . . . . .4% 4. . . . . such allowance for credit losses was 90. Non-performing loans (net) to adjusted loan portfolio (%) .3% 50.7 393. .2 billion. . . .2% 4. . . . .289. . . .571. . . . . . . . . . . . . . . . . . . As a percentage of Allied Bank’s NPL portfolio. . . . . . . . . . . . . . . . .8 55. . . . . . . . . . . . . . loans are classified as non-accruing (or past due) if (i) any repayment of principal at maturity or any scheduled payment of principal or interest due quarterly (or longer) is not made when due and (ii) in the case of any principal or interest due monthly. . . . . . . . Total restructured loans . . .706.9% 3. . . . . . . . . . . . . . . . . . .7 74. . . advances and other assets are of no value. . . . . . . . regardless of amount. compared to P3. . . . . .4% 3. . . . . . .8 95. . . . . against allowance for impairment losses (valuation reserves) or current operations as soon as they are satisfied that such loans. .0 180. . . . .5 3. . . . . . . . . . . . . . . . . . Loans whose collaterals have been foreclosed or have been transferred to Allied Bank’s ROPA account are not classified as NPLs but rather as NPAs.887. Receivables from customers . . . .4 69. . . . . .4 3. . . . . . . . . . . . . . .4 8. . . . . . . . . . . . . 2011.6 37. .9 3. . . . . . . . . . . . .293. . . . .5% 64.5 — 0.8% 202. . . .920. . . However. .450. . . . . . . . . . . . . . . . .3 21. . . . . . . . . . . . . . including impairment losses and allowance for probable losses are on the basis of BSP guidelines. . . . .2 5. . . . . . . .536. .4% 47. . . . .0% 3. . . . . .6 5. . . . . . restructured loans and write-offs for loan losses as of the three years ended December 31. . . . .532. . . . . . . which are in percentages) Non-performing loans(1) (gross) . . . . . . other credit accommodations. . . . . . . . . . . . . . .4 0. . .9 321. . .997. .1% 325. . . . . . . Non-performing loans Unless otherwise stated. . . . . . . . . . . . . .1% as of December 31. . . . . . . . . .424. . . . . . Allowance for credit losses on loans as a percentage of total nonperforming loans (%)(6) . . . . . . . . .7 8. . . . .4 4. . . . . . .777. . . . . other credit accommodations. . . In the case of (ii).1% 4. . . . . . . . . . .203. . . . . . . . . .9 90. . . . . . . .401. . . . . . .7 4. . . . . . . . . . . .3 . . . . . . . . . . . . . . . . . . . . . .308. . . . . . . . . Non-performing assets (net) as percentage of total assets(5) . . . . . . . . . .3 89. . . . 2012. . . advances and other assets. . . . . . such loans are treated as non-performing if the payment is not made within a further 30 days. . . . . . . . . . . .249. . . . . .147. . . . . . Under BSP guidelines. . non-accruing loans (comprise past due. . . . . In the case of (i). .6 65.007. . . . Total assets .off loans. . . . . . . 2012. . . . . . . .317. . . . . . .5 4. . The table below sets forth details of the NPLs.2 4. .7 334. . .8% 4. . .775. . . . . .891. . .638. . . . . . . Items in litigation.7 91. prior approval of the Monetary Board is required to write off loans and advances to DOSRI. . . .4 3. . . . . . . . . . . . . . . . . . . . . . . . . . . items in litigation and restructured loans). . . . . . . . . . . 2011. . Adjusted loan portfolio(2) . . . . .2 103. . . . . . . . except ratios. .574. . . . . ROPA—gross. . . .369. . . . . 126 4. .504. . . 2010. .1 4. . . . . . . . . . the presentation of Allied Bank’s classification of its loan portfolio and related ratios in this section. . . . .3 4. . . . 2011 and 2012: As of December 31. . . . . . . . . . . . . . . As of December 31. . . . . . . Non-performing assets(4) (net) . . . . . . . .469. . .004. . . . . . . . . . . . . . . . . . . .424. . . . . . . . . . .1% 38. .1 197. ROPA. . . . Non-accruing loans . . . . . . .9 3. if the amount due is not paid and has remained outstanding for three months. . . . . . . .8 202. . . . . . . . . . . . . . . . . . . . .9% 4. . . . .930. . Allowance for credit losses on loans and impairment losses on ROPA as a percentage of non-performing assets (%)(7) . . . . .971. . . . . . Allied Bank’s allowances for impairment losses also included general allowances and the substantial majority of classified loans are also recognized as NPLs by Allied Bank. Allowance for impairment losses on ROPA . . . . . . . . . . . . . .999. . . . . . . . . . . . .3 0. . Non-accruing loans to gross loans (%) . . . . . . ROPA—net. . . . . . Non-performing assets(3) (gross) . .7 — 0. .8% 366. . Past due . . . . . .652. . Non-performing loans(1) (net) . . . . . . . In addition to making specific allowances for impairment losses based on the risk classification of its loan portfolio.4 4. . . . .4 189. . . . . . . . .8 3. . . . . . . . . . . . . . Allied Bank’s allowance for credit losses on loans on a consolidated basis was P4.3 8. .2% 104. compared to 69.2 7. . . . . . . . 2010 2011 2012 (in P millions. . . . .637.3% as of December 31.538. . . . . Allowance for impairment and credit losses. such loans are treated as non-performing upon the occurrence of the default in payment. . . . . . . . . . . . . . NPAs (as described below). . . . . . . . . . Current. .4 9. . . . . . . . . . . .0 4.3 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 billion. . . .338. . . . . Allowance for credit losses on loans . . . .7% 5. . . . . .315. .3 102. .

0% 4. .4 1.2% 13.2 billion of restructured loans which were treated as performing. . Allied Bank has established the Special Asset Management Group to actively manage and. .753 billion in the aggregate. . . .3 billion and P0. . . . . . respectively. Allied Bank’s practice is to restructure those classified loans which it considers suitable for restructuring. . . .2% 2. . Sectoral analysis of non-performing loans The following table sets forth. 2011 and the 2012. . .9% 471. where appropriate.0% 1.1 0. and amounted to P2. . .5 8. .4% 0. . .8 5. . . .6 2.0% 4. . . . . As of December 31.2 billion to P50. sell its ROPA.0 million. . . .5 31. . . .5% of its gross NPLs to customers. . .3% 10. . . six consecutive payments are required for the loan to be considered performing. Allied Bank’s NPAs principally comprise ROPA and NPLs. . . .076.454. .0% 0. . . . . . . In accordance with BSP guidelines. . (6) Refers to NPL coverage ratio. . . . . . Allied Bank established the Special Asset Management Group to actively manage and. . sell its ROPA. . . . . . except percentages) % Wholesale and retail trade . . . . . Other community. . Agriculture .5 4. . . . . . . . . . . Allied Bank has sold P0. . . mining and quarrying services and miscellaneous business.3% 686. . Allied Bank restructures loans on a case-by-case basis. . .5 billion of ROPA for the years ended December 31. .9% of Allied Bank’s total gross loans and 64. . . .0% 100. Allied Bank had a stand-alone unconsolidated portfolio of approximately P0. as of the dates indicated. .5% 19. (7) Refers to NPA coverage ratio. . 2011 and 2012.8% 370. . . . . . Allied Bank’s exposure to its 10 largest NPLs ranged from P1. . . . .3% 2. . . Top 10 non-performing loans As of December 31. .1 billion of ROPA for the years ended December 31. Transportation. . Allied Bank sold P0. . . These ROPAs were disposed of through direct sales and joint ventures.2 43. . . . For restructured loans with capitalized interest and which are not fully secured. . . .3% 187.2% 10. .1% 135. ROPA MANAGEMENT Allied Bank’s NPAs are principally comprised of ROPA and NPLs.6 100. NPLs which are successfully restructured are considered current and no longer non-performing following three consecutive payments of the required amortization of principal and/or interest. . . . . storage and communication. . (2) Adjusted loan portfolio is the total of loans and receivables interbank loans and securities purchased under resale agreements. .027. .576. .9% 23. .3 0. . (4) Non-performing assets (net) comprise ROPA (net) and non-performing loans (net). where appropriate. . . . .8 4.574.4% 4. . Others(1) . Restructuring methods used by Allied Bank have included extending the maturity of loans beyond their original maturity date and providing for rescheduled payments of principal consistent with the expected cash flows of the borrower in question.7 13. 2012. in general. . . . .Notes: (1) Loans refer to receivables from customers. . In order to manage its loan portfolio and reduce its exposure to NPLs.7 187.0 608.8% 1.9% 33.706. These ROPAs were disposed through direct sales and joint ventures. . . . . . less loans with 100% valuation reserves as agreed with the BSP.3 billion and P0. . .4 44. . . . . . . 2. . . % 2011 % 2012 (in Q millions. Total . . These 10 largest NPLs accounted for 2. . . (5) Refers to NPA ratio. . . .7 0. .0 0.0% Note: (1) “Others” includes financial intermediaries. . .001. . 127 . . . . Allied Bank has also agreed to debt-for-equity swaps but it rarely uses this as a restructuring solution. . 2012. (3) Non-performing assets (gross) comprise ROPA (gross) and non-performing loans (gross).1 42. . renting and business services . .637. . . .5 34. Real estate.570.1% 7. . .4 44.4 4. . social and personal activities . . . . . . .7 100. Manufacturing (various). . . . . . Allied Bank’s gross NPLs by the respective borrowers’ industry or economic activity and as a percentage of Allied Bank’s gross NPLs: 2010 As of December 31. . respectively. . .4% 200. . . . . .9 245.2 14. .

0% agricultural and 8. (vii) risk control mechanisms.8 billion. SAG will be maintaining its aggressive marketing efforts and strategies in achieving its 2012 targets.6 billion for the last three years.7% are residential.0% premium to book value. market risk. 47. the risks that may adversely affect Allied Bank’s ability to achieve its goals.3% are classified as commercial. In the year ended December 31. legal and regulatory. 11. Given its risk philosophy which defines its conservative risk management culture.5% residential. while the ICAAP Management Committee. information technology & information security. comprising major risk categories such as credit risk. and credit concentration risks. formulation of fresh concepts to effectively market unclean properties and tapping the services of wellknown marketing companies to sell unclean properties.3 billion are commercial and 28. Allied Bank has established a risk management framework and governance structure that are intended to provide comprehensive controls and ongoing management of the major risks inherent in Allied Bank’s activities. regular sales promotional schemes and marketing events. Of this total ROPA. These include quarterly auctions. Allied Bank monitors the most significant risks facing Allied Bank. strategic and business. (v) risk reporting & monitoring systems. These are dealt with and monitored in an enterprise-wide and integrated manner. 9. After the monthly RMC meetings.9% of the P4. to an acceptable level. (iii) risk measurement tools. RISK MANAGEMENT The ability to manage risks effectively is vital for Allied Bank to sustain its growth and continued value creation for its shareholders. including credit risk. interest rate risk and operational risk. Leasing is another option being considered to generate additional income. current status of risk and action items. human resource. Allied Bank continually monitors the most significant risks it faces. In terms of the total value. Allied Bank’s governance structure enables the implementation of the balance between maximizing returns and minimizing risks. (iv) model back-testing and validation procedures.2% others. and how much current and future capital are necessary to address these risks after considering other mitigating factors. Credit risk may last for the entire tenor of a 128 . 2012. (vi) risk mitigation tools and techniques.The main objective of the SAG is to manage and dispose of 453 ROPAs of Allied Bank as of December 31. market risk. determines and sets Allied Bank’s risk appetite. subjecting Allied Bank to a financial loss. customer franchise. which was recently updated as of January 31. 2012. liquidity risk. the RMC reports to the Board on the Bank’s overall risk exposure. interest rate risk and operational risk. juxtaposed with a revenue strategy. which have yielded a weighted average of 36. amounting to P4. how Allied Bank intends to mitigate those risks. Allied Bank’s Board. (ii) a risk identification process. Allied Bank has documented its entire risk governance structure and risk management framework in the Internal Capital Adequacy and Assessment Program (“ICAAP”) document. reputational. Allied Bank has in place an enterprise risk management (“ERM”) framework that is documented and is comprised of the following elements: (i) risk management policies and strategies. liquidity risk. (viii) capital adequacy assessment process. Allied Bank adopts a “top down/bottom up” approach with respect to its risk appetite framework.8% billion in appraised value. 71. ROPA sales amounted to P0. aggressive pricing and discounting schemes by Bank’s competitors. ensures that internal capital targets are met in accordance with established risk appetite policies. Thus. The RMC monitors the risk environment and provides direction for policies to mitigate. In addition. The document embodies the various methodologies that are to be utilized for assessing Allied Bank’s risk exposures and setting its capital requirements. Allied Bank has generated average annual ROPA sales of P0. which is chaired by the President and comprised of the heads of Allied Bank’s profit and cost centers. (ix) capital allocation methods and (x) Allied Bank’s risk management organization structure. determined and challenged to achieve and even surpass its 2011 targets even though there is a general weakness on demand for real estate properties. Credit risk management Credit risk is the risk to earnings or capital arising from a counterparty’s failure to perform and meet the terms of its contract with. Allied Bank remains focused. through its Risk Management Committee (“RMC”). and also apprises the Board of Directors and all of Allied Bank’s stakeholders of the ongoing assessment of Allied Bank’s risks. Allied Bank’s monitoring policies also include other material risks such as compliance. 2012.

the primary tool for assessing market risk. namely: (1) ICRRS. ensure compliance with standard credit risk policies and procedures. Compliance to limits are regularly monitored and reported to the Board through the RMC. investments and other activities. control. Allied Bank measures how such stressful events could affect the credit quality of its portfolio and ultimately its capital adequacy. foreign exchange rates. Market risk management Market risk is the risk to earnings or capital arising from adverse movements in factors that affect the market value of instruments. Allied Bank undertakes credit risk management at the strategic. under normal market conditions. the Board sets revenue goals and defines a credit risk philosophy to create a credit risk culture. such as mark-tomarket valuation. The RMD maintains its independence and undertakes an unbiased. bond duration. determining opportunities and making the decision on whether or not to take on risk. These officers align their risk-taking activities with the Allied Bank’s revenue goals. and also maintain its exposure within set limits. and commodities market. dealing and position taking in interest rate. trading. Market risk assessment is performed through the use of various Board-approved tools. Credit risk is inherent in Allied Bank’s lending. and free standing derivatives. equity prices and other market changes. and (2) the BSP System of Loan Classification. RMD employs the following internal measurement approaches to estimate the probability of default rate: (1) ICRRS migration analysis for corporate accounts.day time horizon at 99% confidence level. Board-approved limits and management action triggers. These limits are reviewed at least once a year to ensure that risk exposures comply with the Board’s risk appetite and reflect changes in strategies and market environment. Allied Bank applied stress testing techniques in the management of credit risk during times of financial crisis. imposed on both the transactional and portfolio levels. stressful credit events that were not observed during ordinary business conditions could possibly occur. In recognition of Allied Bank’s ERM process. The Bank’s Board-approved market risk management manual documents set out the protocol with regard to these risks. is a technique that estimates the potential losses that could occur on risk positions as a result of movements in market rates and prices over a 10. VaR. The end view of Allied Bank’s stress testing exercise is to provide guidance on how to refocus risk-taking strategies and revise existing risk management strategies to make its credit portfolio more resilient to credit event shocks that may occur during crisis situations. monitoring and reporting.counterparty’s obligation and may approximate to the full amount of a transaction and in some cases may exceed the original principal exposure. At the transaction level. transaction and portfolio levels. equity. Allied Bank manages credit risk in accordance with a credit risk management framework that spans from risk identification. Assessment of individual credit exposures are made according to the following two classification systems.or offbalance sheet basis. foreign exchange. and DV01 (sensitivity of derivative transactions). The value of these financial instruments may change as a result of changes in interest rates. the role of risk identification is incumbent upon the specific personnel evaluating the risk-taking transaction (transactional level) together with the RMD (portfolio level) and the oversight of the Board through the RMC (strategic). These revenue goals are detailed in Allied Bank’s overall business plan to include the amount of potential risks inherent in the revenue generation activities and corresponding measures that would address them. Allied Bank’s Account Officers and Credit Officers directly handle credit risk management. comprehensive review and oversight of credit risk-taking and management activities through periodic credit risk reporting. in-depth. interest rates from fixed income security holdings. Allied Bank employs both qualitative and quantitative techniques to measure and monitor credit quality and risk. investment securities. (2) delinquency migration analysis for consumer accounts. Allied Bank employs both scenario and sensitivity-based approaches in stress testing to determine the resilience of the Bank’s trading book to various extreme but plausible market risk factor (such as foreign exchange risk from foreign exchange holdings. and equity 129 . Allied Bank recognizes that market risk is inherent in its activities with its inventory of foreign currencies. products and transactions in an institution’s overall portfolio. measurement. At the strategic level. A bank’s market risk originates from marketmaking. both on an on. as in such times. Moreover. An approval matrix is implemented in cases of limit breach. value-at-risk (“VaR”) analysis. and (3) flow rate for credit card accounts. Credit risk management at the portfolio level falls within the purview of the Risk Management Division (“RMD”). are integral in the management of market risk.

Stress testing is conducted to estimate the potential impact of shocks in the market risk factors on the market value of the Allied Bank’s assets and ultimately measure its impact on the Allied Bank’s CAR.9%.term basis. i. 2012. 55. The primary source of liquidity is deposits of retail clients. borrowings through Allied Bank’s FCDU to fund its foreign currency. of Allied Bank’s total financial assets as of December 31. which accounted for 18. To provide flexibility in meeting these liquidity needs. Other assets of Allied Bank include funds due from BSP and other banks and interbank loans receivables and securities purchased under resale agreements.e. Allied Bank’s Liquidity Management Plan involves maintaining sufficient and diverse funding capacity to accommodate fluctuations in asset and liability levels due to changes in business operations or unanticipated events created by customer behavior or capital market conditions. 2012. Allied Bank seeks to ensure sufficient liquidity through a combination of active management of liabilities. denominated in both Pesos and U.2% was represented by loans with remaining maturities of less than one year. P9. Due to the profile of the deposit account base and its structure for the past years. 2012. Allied Bank’s policy is to manage its operations with the objective of ensuring that funds available are adequate to meet credit demands of its customers and to enable deposits to be repaid on maturity.4%. As of December 31. a liquid asset portfolio substantially comprising deposits in primary and secondary reserves. of outstanding deposits of Allied Bank had a maturity period of one month or less. Allied Bank’s other sources of funds include short-term borrowings in the interbank market in the Philippines and abroad.price from equity security holdings) movements.0% of which was available on demand or within one month as of December 31.8% and 4.denominated assets. future stressed environment. 2012. 2012. Allied Bank maintains diversified liquidity sources. The deposit base of Allied Bank is short-term in nature which is comparable to the nature of the business in the Philippines banking industry.1 billion portfolio of gross trading and investment securities as of December 31.0% of Allied Bank’s total lending to banks as of December 31. In addition to maintaining a significant portion of its asset portfolio in loans. generated by Allied Bank’s network of domestic branches. of Allied Bank’s gross receivables from customers. 2012. or 24. Deposits with banks are made on a short. Allied Bank’s policy is to maintain what it believes to be an adequate portion of its asset portfolio in short-term assets. Loans to banks with remaining maturities of a month or less accounted for 100. Floating Rate Treasury Notes and Fixed Rate Treasury Notes). Allied Bank’s trading and investment account includes securities issued by sovereign issuers (mostly Government Treasury Bills. As of December 31. its sensitivity to changes in interest rates and its inability to unwind positions due to temporary or permanent factors. only 91.3% of the Allied Bank’s total gross financial assets.4 billion. and receivables from customers represented 46.4% of Allied Bank’s total financial assets as of December 31. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Allied Bank has confidently classified majority of its deposits as core deposits. 2012. Liquidity risk emanates from the imbalances between the maturity dates of Allied Bank’s assets and the maturity dates of its liabilities. Liquidity risk can also be a consequence of certain organizational issues such as lack of internal controls and oversight. Liquidity risk management Liquidity risk is the current and prospective risk to earnings or capital arising from a financial institution’s inability to meet its obligations when they come due without incurring unacceptable losses or costs. and also refers to the inability to find additional funds or replace maturing liabilities under potential.0%. a type of funds that remains and is said to remain with Allied Bank for the longterm. It includes the inability to manage unplanned decreases or changes in funding sources. The trading and investment securities account amounted to 18.3 billion. respectively. 33. was invested in securities with remaining maturities of one year or less. Dollars. or an effect from other risk exposures such as reputational and legal risk concerns. or approximately P143. the securing of money market lines and the maintenance of repurchase facilities to pre-empt any unexpected liquidity situations. 130 .S. and funds from maturing assets and profits from operations. Of Allied Bank’s P37.

This volatility is due largely to the fact that Government debt security issues are used extensively by the BSP. sources of liquidity. is used to control cumulative net outflows resulting from maturity mismatches.Although Allied Bank adopts what it believes to be a prudent policy on managing liquidity risks. However. In its lending activities. the BSP policy rates still influence the interest rates commercial banks charge for peso-denominated borrowings and lendings. This is attributable to Allied Bank’s policy of taking advantage of higher yields of long-term assets which is financed by the lower yields of shortterm liabilities. which complements the MCO tool.0% is subject to re-pricing. and an approval matrix is implemented in cases of breach. In anticipation of the Basel III implementation in the Philippines. A Board-approved MCO gap limit. 55. and it monitors liquidity risk indicators which assist it in analyzing if liquidity risk is imminent. Allied Bank measures the sensitivity of its assets and liabilities to interest rate fluctuations by way of a “re-pricing gap” analysis using the re-pricing characteristics of 131 . particularly in recent years. 2012.5 billion as of December 31. and 44.2% of Allied Bank’s receivables from customers is for a term of less than one year. Allied Bank’s policy on managing its assets and liabilities is to ensure that exposure to fluctuations in interest rates are kept within acceptable limits. the detailed roles and responsibilities of all personnel in the event of contingencies. Allied Bank seeks to match the terms and interest rate of its loans and investments with those of its fund sources as much as possible.8% is due beyond one year. It arises from differences between the timing of rate changes and the timing of cash flows (repricing risk). banks are currently quoting deposit rates at between 50 and 200 basis points above long-term treasury bill rates using the BSP policy rate as the benchmark. Allied Bank conducts analysis and assessment of liquidity risks in a manner suited to the scale of its business and risk profile. This enumerates the events that may trigger contingency funding. A large portion of Allied Bank’s funds is in the form of short-term deposit instruments on which it pays rates prevailing in the market. Compliance to the MCO limit is regularly monitored and reported to the Board through the RMC. It is a major requirement to ensure resilience under stressed conditions. asset-liability management strategies. in the current economic environment where there are strong foreign funds inflows that distort the treasury bill rates. These funds are predominantly short-term in view of the relatively high volatility of domestic interest rates. Allied Bank ensures that an approved MCO limit can be supported by available liquid assets and fund raising capacity. criteria for selection of funding sources. 44. of which 86. The amount at risk is a function of the magnitude and direction of interest rate changes and the size and maturity structure of the mismatch position.to 90-day interest rate resetting. historical and hypothetical stress testing to determine the resilience of its portfolio to various extreme adverse conditions and to generate the potential risk measures under plausible events in abnormal markets. 2012. Interest rates on loans are usually set on the basis of Allied Bank’s average or marginal costs of funds which in turn. the results of treasury bills auctioned every other week by the Philippine Bureau of Treasury serve as benchmarks for domestic interest rates. and from interest related options embedded in financial institution products (options risk). from changing rate relationships across the spectrum of maturities (yield curve risk). Since the deregulation. Interest rate risk is intertwined with other risks inherent in banking such as credit and liquidity risks. the procedures in carrying out the plan. as instruments of monetary policy. A majority of the interest rates in the floating rate loan portfolio is reset at 90-day intervals. Such strategy generally leads to the average maturity of its financial assets exceeding that of its liabilities. a maturity gap exists between Allied Bank’s long-term assets and short-term liabilities. Allied Bank employs scenario-based. Interest rate risk management Interest rate risk is the current and prospective risk to earnings or capital arising from movements in interest rates. While domestic interest rates have been deregulated since the early 1980s. Of Allied Bank’s total receivables from customers of P95. and particularly what Allied Bank’s capital should be to comply under Basel III. This liquidity risk arising from the mismatch is monitored and controlled by a gap analysis of maturities of relevant assets and liabilities reflected in the MCO report and EAR report. and the mechanism for monitoring potential liquidity crunch. from changing rate relationships among different yield curves affecting financial institution activities (basis risk). As of December 31. Further.8% is expected to mature in more than one year. The Board-approved Contingency Funding Plan (“CFP”) is formulated to ensure that an organized structure for meeting various scenarios of liquidity crisis are in place. are largely determined by the movements in Treasury bill rates plus a spread. A majority of Allied Bank’s rate sensitive assets and liabilities is on a 30. the Bank conducted its own Quantitative Impact Study to determine the impact of the new liquidity rules. quantification of potential funding needs.

. . . . . .122. . . . . . .0 — 498. . . . even within its nominal limit. . . . . . . .1 76. . . . . . .3 (71. . . . .759. .0 40. . . . . .4 — 34. . . .2) 2. the re-pricing gap covering the one. . .500.285. . . . Any excess over the limit means that the open gap position. with a quarterly stress test. .456. . .6) 20. .year period is multiplied by an assumed change in interest rates to yield an approximation of the change in net interest income that would result from such an interest rate movement. . . . .6 4. . . . . . . . . . . . . . . . . . . AFS Investments. . . Interbank loan receivables . . . . . . .its statement of financial position and approved assumptions. . .955. . .416. For risk management purposes.494.178. . . Finally. . . . . .368. .8 — — — 14. . . . . . Allied Bank implements an EAR limit system.7 — 26. . .764. . . . .359. . . . . . . . . .3 46. . .885. . . . . . . . . and uses back testing to verify the results of the daily VaR calculation. . . . . . . . Derivative assets . . . . . . . . . . . . . . . . . . . . . Re-pricing Gap .2 1. . . . . . . . . . .9 4.7 151. .2 — — — — — 90. . . .082. . . . . . . . . . . Subordinated Debt . EAR is constructed by classifying all rate sensitive assets and liabilities according to their re-pricing dates or maturity. . . . . . . .0 — 6. . . . .9 51. . . . . . . . .439. . 2012: As of December 31. . . designed to automatically decrease the size of open risk positions when increases in market volatility occur. Due from BSP and other banks . . . . . . . . . . Total Financial Liabilities . . . .303.1 — — — — 8. . . . . . .0 76. . . . . . . . Total financial assets .8 29. . Designated at FVPL: Private debt securities . . . . .345. . . . . . . Accrued interest and Other Financial Liabilities . . . . . 3. . . . .1 — — — — — — — — — 14. . . . . .1 1. .7 315. . . . . .688. . .4) (58.001.8 821. . . . . .3 (90. . . . . . . . . . . . .7 Allied Bank monitors its exposure to fluctuations in interest rates by measuring the impact of interest rate movements on its interest income.438. . . . .6) (56. . . . . . has potential to cause more loss than management can accept. . . . . . .511. . . . . Securities held under agreements to resell . . . . . . . . . Allied Bank has an approval matrix in place for implementation. . . . . . . . . . . . . .3 6.0 55. . . . . . . . . . The following table sets forth Allied Bank’s re-pricing gap position as of December 31. . . . . . . Allied Bank’s Board sets a limit on the level of EAR exposure acceptable to Allied Bank. Financial liabilities at FVPL.0 191.8 — 49. . . . . . . . . . . . .7 — — 1. . . . . . . . . . . . . . . .409. . . . . . . . .010. . . This is done by modeling the impact of various changes in interest rates to the Bank’s interest-related income and expenses. . . . .854. . . . . including the potential adverse effects of changes in interest rates on reported earnings over the next 12 months.500. . . . whichever is earlier. .0 — — 6. . . . . Unquoted debt securities—gross .5 — 2. . . . . . . . . . . . . . . . 132 . . . . . . In case of breach. . Savings . . . . . . .6 26. . . . . . . .6 — 47. . . . Cumulative Gap .355. . . . .1 148. . . . . . . . . . . . . . . . . Time . . . . . . . . .5 — 90. . . . . . . Equity securities . . .2 — — 3. . . . Allied Bank performs stress tests on its trading portfolios to determine the effects of extreme market developments on the value of market risk sensitive exposures. . . .269. The EAR computation is accomplished monthly. . . . . . . . . . . . . Held-for trading: Government securities . . . . Bills and acceptances payables . . . . .039. . .7) 13. . . . . . .7) (58. .635. . . . . . . . . . . . . . . . . . Miscellaneous OCI. . . .3 24. . . . Private debt securities . . . .774. . 2012 Over Over 1 Month to 3 Months to 6 to 3 Months 6 Months 12 Months (Q in millions) Up to 1 Month Beyond 1 Year Cash and other cash items. . . and must be reduced. . . . . Allied Bank also measures interest rate risk through EAR at preset confidence levels. . . . . . . .774. . . . . . . . . . Allied Bank monitors its exposure to interest rate changes in its trading book by measuring its VaR with respect to interest rate fluctuations. . . . .455. . . . . Financial Liabilities Deposit liabilities: Demand .1 67. . . . . . . . .8 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 6. . . . . . . . . . . . . Loans receivables—gross . . . . . . . . . . .7 — — 79. . . . . . . . .355. . . . .6 7. .6 (71. . . Compliance with the EAR limit is monitored monthly by the Risk Management Division. .8 — 3. . . EAR calculated from re-pricing rate gap positions is to be compared against Board-approved EAR limits. . . . .6 32. . .

These risks and measures are regularly reported to the RMC and Allied Bank senior management. (vii) risk appetite. Operational risk can occur in any business area of the business process.Operational risk management Operational risk arises from possible failures of the business operation process and the control system of a bank. TRADING AND INVESTMENT SECURITIES Allied Bank engages in fixed income securities trading. and (v) various stress tests and scenario analyses. Allied Bank uses KRIs to identify critical areas where operational risk can materialize and activities and risk factors that have the potential to inflict losses on the Bank. (iii) risk mapping. Risk mapping is another method employed by Allied Bank to identify areas of weaknesses for prioritization of remedial action. posters and publication. Allied Bank has also taken various measures to monitor and control information technology (“IT”) security risks. containing the following eight elements such as (i) definition of the material risk. Allied Bank recognizes operational risk management as a significant element of the corporate governance process. Allied Bank has an appropriate organizational structure within its ERM structure for the effective management of operational risk and observes the principle of segregation of conflicting duties in allocating responsibilities. Risk maps for significant risks are updated regularly. and direct Allied Bank to take immediate corrective measures. Allied Bank’s trading and investment securities (which consist of financial assets at FVPL and available-for-sale investments) 133 . and business disruption due to hardware/software failures. and uses extreme loss events data for scenario analysis. Business Continuity Program). 2012. Software application is used to automate the data aggregation process and consolidation of the RCSA. As of December 31. (iv) loss event reporting (“LER”). Finally. Allied Bank follows a risk-based internal audit policy where its operational risk management functions are subject to regular comprehensive internal audit for independent evaluation and assessment of total risks. Software Development Life Cycle. (iv) relevant manuals (IT Division. and (viii) stress testing. (vi) methodology in assessing the risk. its business profile. These tools are also employed for measuring and assessment of other risks that are considered significant and material. Identified operational risk loss data from the RCSA process are grouped by risk categories and mapped according to their causes and associated business units. (ii) business continuity testing to measure the readiness of units and the appropriateness of the plan to address contingency and ensure availability of systems and processes in case of disaster. (iii) summary of relevant policies. KRIs provide early warning signals on critical areas where there may be operational constraints and deficiencies in control. Allied Bank has adopted tools for measuring and monitoring operational risks such as the (i) Risk Control Self-Assessment (“RCSA”) process. (ii) sources of this type of risk. among others) implemented to promote awareness on information security of employees who are considered the weakest link on the information security chain. (iii) an Information Security Awareness Program (comprising classroom orientation. damage to physical assets. keeping in view its entire range of activities. and the availability of data. These loss events include internal and external frauds. (iv) owners of risk. email blasts. (v) issuance of operations memoranda to support the policies and strengthen the handling of information and processes. The RCSA aids in the relevant officers conducting comprehensive and reasoned risk assessments that encompasses all material activities and significant exposures of the Bank. A risk map is prepared and updated annually for each of Allied Bank’s thirteen (13) material risks. Allied Bank has strengthened its database of internal loss events indicating frequency and severity of occurrence. and (vi) implementation of a Data Leakage Protection program to control the spread or compromise of sensitive or confidential information. The RCSA is Allied Bank’s in-house process to evaluate the strengths and weaknesses of the operational risk environment within the Bank. Allied Bank has developed the following operational risk assessment techniques. Information Security. (ii) key risk indicators (“KRIs”). These include: (i) monitoring of Service Level Agreement and IT Service Delivery to ensure that downtime due to telecommunication problems are immediately resolved. (v) materiality definition of the risk.

. In addition to its head office at the Allied Bank Center in Makati City. the shareholders and AFC’s board of directors approved the suspension of AFC’s operations effective March 1. These derivatives transactions are covered by Bank policies on trading limits wherein the exposure can be monitored at any point in time. Inc. to take advantage of short-term market movements in equities and bonds and in currency and interest rate or for hedging open risk positions. it had an authorized and paid-up capital of P500. as an end-user. the Bureau of Internal Revenue issued a certification that states that AFC has no outstanding internal revenue tax liability. while total capital was P1. 2012. 1997. As of December 31. financial assets at FVPL amounted to P7. On November 18. On February 24. As of December 31. to enter into “Generally Authorized Derivatives Activities” which covers FX forwards.” Financial allied undertakings include leasing companies. credit card operations and financial institutions catering to small and medium-scale businesses.0% of other financial allied undertakings and up to 100. 2012. such as Allied Bank. 2011 are presented at estimated realizable values and at estimated settlement amounts. The PSEC approved the dissolution of AFC on December 27. due to AFC’s inability to generate adequate returns from its operations and condition. FX swaps.0% of non-financial undertakings. LLC. 2012. As of December 31. AFC’s administrative and accounting functions are undertaken by its parent company at no cost to AFC. the carrying values of the remaining assets and all liabilities as of December 31.8% of total assets.0% of the voting stock of one other commercial or universal bank. Publicly listed universal banks may acquire up to 100. SUBSIDIARIES Universal banks in the Philippines. 2011 and 2012. On January 6. Under BSP Circular 594. Derivatives Allied Bank trades in financial instruments where it either takes positions in traded and over-the-counter instruments.1 billion or 18. Inc.0 billion.9 million. Allied Bank’s subsidiaries included the following: Domestic subsidiaries Allied Savings Bank. it renamed to First Allied Savings Bank and again to Allied Savings Bank in 1998.8 million and P3.0% in non-financial undertakings. 134 . Allied Savings Bank was granted a foreign currency deposit license by the Monetary Board of the BSP. registered with the PSEC on February 8.7% of Allied Bank’s total assets. up to 100. 77. (“PNB Life”) PNB Life Insurance.7% of Allied Bank’s trading and investment portfolio are in Government securities while the balance is in privately issued securities. AFC was organized primarily to engage in the buying and selling of foreign currencies of both domestic and international exchange traders.0 billion and P4. Prior Monetary Board approval is required for investments in financial allied undertakings and investments of more than 40. 2011. a Philippine subsidiary of US-based New York Life International. loans and trade finance. Allied Bank is authorized.0 billion and P1. 2009. 2003. a wholly-owned subsidiary of Allied Bank. 1996.amounted to P37. IRAs. may invest in the equity of banking-related companies or “allied undertakings. As of the same period. Northern Tagalog and Bicol regions. 2011 and 2012. and de-recognition of AFC was subsequently implemented on December 28. SPs and CLNs. is a thrift bank registered as a domestic corporation with the PSEC and a wholly-owned subsidiary of Allied Bank.2 billion. Allied Forex Corporation (“AFC”). formerly First Malayan Development Bank. banks and investment houses. respectively. On January 28. (“NYLIP”).0 million. financing companies. 2003. 2012. up to 100. Inc. traces its roots to New York Life Insurance Philippines. 2012. 2012. respectively. respectively. including derivatives. 1996 and began operations on June 26.0% of the voting stock of thrift banks and rural banks. total assets of Allied Savings Bank were P4.4 billion or 3. as well as in Western Visayas and Northern Mindanao. its net income was P0. As of December 31. Allied Bank engages in derivatives for hedging and proprietary trades. Currency Swaps. Allied Savings Bank is authorized by the BSP to engage in thrift banking business by offering deposit products. as of December 31. PNB Life Insurance. Accordingly. AFC’s board approved the cessation of the operations and changed its basis of accounting for subsequent periods from the going concern-basis to the liquidation basis. For the years ended December 31. It was renamed First Allied Development Bank but after obtaining the license to operate as a savings bank in 1996. Allied Savings Bank has 27 branches in Metro Manila and in the Southern Tagalog. Allied Bank places trading limits on the exposure that can be taken at any point in time.

2012) owned subsidiary of Allied Bank and formerly known as Xiamen Commercial Bank. in 2011. ALFC has an authorized capital stock of P500. Overseas subsidiaries Allied Bank Philippines (UK) Plc (“ABUK”). Makati City.0 million of which P152. money exchange. It operates a single unit with office address at the Allied Bank Center. ABUK was the first Philippine private commercial bank in London to be granted the status of licensed deposit taker by the Bank of England under the Financial Services and Markets Act 2000. In addition to its normal banking services. financing and direct loans. documentary credits.2% was owned by Allied Bank as of December 31. In May 2008. ACB offers the following services: acceptance of public savings. deposit taking. 2012. Allied Banking Corporation (Hong Kong) Limited (“ABCHKL”). a wholly-owned subsidiary of Allied Bank. China-based foreign institutions. ABCHKL has a wholly owned subsidiary. participation in loans syndications and other risks. Allied Leasing and Finance Corporation (“ALFC”). engaging in a bank card business. 135 . inter-bank funding. the granting of short-. and is licensed as a restricted license bank under the Hong Kong Banking Ordinance. reflecting the change in ownership and in expectation of the impending merger of Allied Bank and PNB. Aside from the existing business service centers in Cebu. ACB provides foreign exchange transaction services to foreign-funded enterprises. safety deposit box services. providing letter of credit services and guarantees. machineries and vehicles. ABCHKL acts and is licensed as an insurance agent. It also holds and operates one branch office in Tsimshatsui.0% in PNB Life paving the way for the expansion of its bancassurance market. As approved by Chinese regulators. In 2012. 57. is a private limited company incorporated in Hong Kong in 1978. a private limited company incorporated in Hong Kong. respectively. In 2003. medium. Davao and Manila. Out of ALFC’s subscribed and paid-up capital. which provides management and nominee services to its customers. In 2007. buying and selling foreign currencies for itself and on a commissioned basis. ACR Nominees Limited. PNB acquired a minority stake of 5. Allied Commercial Bank (“ACB”). investment and corporate services. In October 2009. a 51. foreigners and compatriots from Hong Kong as well as to non-foreign-funded enterprises. and promote foreign investments to the Philippines. PNB Life opened its Zamboanga Regional Business Center to serve as business hub in the Zamboanga region.0% majority-owned subsidiary of Allied Bank. buying and selling government and financial bonds and non-stock negotiable instruments denominated in foreign currency.which commenced operation in August 2001. exchange of foreign currencies. its first capital guaranteed unit-linked product which resulted in PNB life’s premium reaching the P1 billion level for the year. PNB Life strengthened its presence in Luzon with the opening of two regional business centers in Pampanga and La Union to serve as business hubs for the Central and North Luzon regions. PNB Life also launched Asian Summit. ABCHKL’s core revenue primarily comprises interest income from its lending activities complemented with fees and commissions from other fee-based services. ABUK mainly operates to facilitate trade between the Philippines and the United Kingdom. service the banking requirements of the growing Filipino population in the United Kingdom and other European countries.and long-term loans. handling domestic and overseas settlements. Fujian Province and started operating as an Allied Bank subsidiary in 1993 with a branch in Chongqing. ABCHKL was the Allied Bank’s first majority-owned overseas subsidiary. money market and foreign exchange operations. It provides a full range of commercial banking services predominantly in Hong Kong. It offers financing and leasing of various types of equipment. credit-standing investigation and consultation services. otherwise known as the Financing Company Act of 1998. handling the acceptance and discount of negotiable instruments. 2012.0% (as of December 31. and engaging in foreign exchange transactions geared to non-foreign investment enterprises. LLC divested its interest in NYLIP in favor of Allied Bank and its principals making NYLIP a 75. allowing it to provide bancassurance services. Allied Bank took a minority interest of 25.5 million has been subscribed and fully paid-up as of December 31. which include lending and trade financing.0% in NYLIP. 8556. Kowloon. is a corporation that was registered with the PSEC in 1978 and operates as a leasing and financing entity under Republic Act No. started as a representative office of Allied Bank in 1992 in Xiamen. receivables. Inc. Macao and Taiwan. China-based representative offices established by investors from Hong Kong. New York Life International. formally commenced operations in 1992 after functioning as Allied Bank’s representative office in the 1970s and as a branch in the mid 1980s. NYLIP changed its corporate name to PNB Life Insurance.

along with borrowings from other sources. .78% interest in OHBVI. As of December 31. . storage systems and network devices. . . 408. . On September 24. . . .6 298. . In terms of managing the rapidly evolving IT landscape. The merger of Oceanic Bank and FNB Bancorp. . Inc. Inc. .1 330. . (“OHBVI”). British Virgin Islands. . Allied Bank has also continued to invest in its IT manpower by providing training programs such as those relating to information security and systems administration. . OHBVI’s revenue consists primarily of interest income from its loans and securities portfolio. improving operations management and enhancing operating efficiency is dependent upon its core banking and related IT systems. . monitoring and decision making to address the Allied Bank’s growing banking transactions. . to originate real estate. which currently uses this system. 2012. . California. . . . . a U. . United States and fulfills the regulatory requirements for the detection. 2010. in view of Allied Bank’s impending merger with PNB. Related IT systems supporting Allied Bank’s non-core banking business needs were implemented using in-house developed applications and third-party solutions such as the Treasury Department’s OPICS+ and the Trade Finance Department’s Trade Innovations. INFORMATION TECHNOLOGY Allied Bank’s strategy for providing better customer services. In March 2012. .. . Inc.. . . . . . and one branch in Guam. Allied Bank will continue to invest in network management solutions such as network monitoring application systems and link load balancer devices to provide clearer network visibility. CTR forms This web-based anti-money laundering solution was developed and marketed by Gifts Software. . . . based in New York. . and network infrastructure run on enterprise-class servers. Allied Bank has a 27. . 2012. . was also completed on the same day. . . and its principal business is to attract deposits from the general public and use such funds. commercial. the board of directors of OHBVI approved the sale of 100 per cent. which was provided by Fidelity Information Systems. Allied Bank’s Compliance Division. all former branch offices of Oceanic Bank began operations under the name of First National Bank of Northern California. Oceanic Bank.9 136 . respond to regulatory subpoenas and create a database for case management reports. . . Anti-money laundering system In compliance with the BSP Circular 495 dated September 20. The software solution provides the analytical tools needed to proactively detect and monitor possible suspicious transaction activity.Oceanic Holding (BVI) Ltd. which in turn wholly. Allied Bank will continue to focus its IT initiatives on solutions such as VoIP PBX. . believes GIFTSWEB EDD adequately addresses relevant anti-money laundering rules and regulations applicable to Allied Bank. On September 21. of the outstanding capital stock of Oceanic Bank Holding. Another enhancement has been advised for 2013 which will align this system process to the FINCEN e-filing format with new SAR.S. the First National Bank of Northern California (“FNB Bancorp”) completed its acquisition of Oceanic Bank Holding. . Allied Bank’s third-party IT systems’ hardware. Oceanic Bank is chartered by the State of California and operates two branches in San Francisco. . Allied Bank implemented an electronic anti-money laundering solution called the GIFTSWEB EDD in 2006 which has undergone two major system enhancements in 2007 and in 2010. 2005 and to improve its systems for money laundering monitoring. consumer and other loans. is a bank holding company based in Road Town. . . monitoring and reporting of suspected money laundering activities by financial institutions.owns Oceanic Bank Holding. . software. . . . to a bank in Northern California. CAPITAL EXPENDITURE Set out below are the Allied Bank’s capital expenditures or acquisitions of property and equipment for the years ended December 31. . . The system facilitates the preparation of currency transactions reports and suspicious activity reports. 2012. . The core banking system Allied Bank has utilized since 1998 is Systematics. Inc. The system was migrated from the IBM 9672 mainframe to the newer IBM z-10 mainframe in 2010. both from Misys. bank holding company which conducts its primary business through its wholly-owned subsidiary. . Oceanic Bank offers full range of commercial banking services. 2010 2011 2012 (in P millions) Capital Expenditure . . the sole shareholder of Oceanic Bank. 2011 and 2012: For the year ended December 31. as well as call center and customer relationship management systems that can generate better banking experiences among its clients and employees through service level improvements. .

. . . . Total . . . . . . . Allied Bank also has a policy of requiring appropriate insurance coverage for any collateral provided by its customers. . . The following table provides a geographic breakdown of the Allied Bank’s Philippine branches that occupy leased premises: Location Number of leased branches Metro Manila. . . . . . . . . . . . . . . . renewable upon mutual agreement of the parties. . . . most of which bear an annual rent increase of 5% to 10%. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . for appropriate disposition. . . . . . . . Allied Bank has not been the subject of any disputes relating to its intellectual property rights. . Various lease contracts include escalation clauses. . . . . .R. . . . . . . . . . . . . . . . . . . . . . . . . . . In response. . . . . . . the Philippine anti-graft court. . . . . . . . . . . . . . . . . including most of its branches. . . Allied Bank owns the premises occupied by its head office. . . . . . . . . . . . . . . . . . . . . . . . . . . . Rest of Luzon . . . . . . . are expected to have a material adverse effect on Allied Bank or its consolidated financial condition. . . . On June 19. . . . both through a program of self-insurance and by obtaining insurance from third party providers. . . . . . . . . . . . Makati City. the Sandiganbayan nullified the writs of sequestration over. . Allied Bank does not have business interruption insurance covering loss of revenues in the event that its operations are affected by unexpected events. . . . . . . . . . . . . The following table provides a geographic breakdown of the Philippine branch network owned by Allied Bank as of December 31. . . . . . . . . . . . . . . . . . . . . 2012: Location Number of owned branches Metro Manila . . . . . . . . . . . . . including those exclusions which relate to war and terrorism-related events. . . . . . . . . . . Allied Bank believes that none of such legal proceedings arising in the ordinary course. . . . . . . . . . . . . . . . . . . . 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . .INSURANCE Allied Bank’s policy is to adequately insure all of its properties against fire and other usual risks. . . . . . . . . . . . . Rest of Luzon . . . . . . . . . . . . . . . . LEGAL PROCEEDINGS Allied Bank is a party in legal proceedings which arise in the ordinary course of its business activities. . . . . . . . . . together with related parties. . . . . . . . . . . . . . . . . . Allied Bank’s insurance policies are subject to exclusions which are customary for insurance policies of the type held by Allied Bank. . . . . . . . . . the Supreme Court referred the action. . . . . . 117 68 28 22 235 INTELLECTUAL PROPERTY Allied Bank applied for and received intellectual property protection for its brand names with the Intellectual Property Philippines Office in Makati City. . . . . . . . . . On February 15. . . . . . 137 . . . . Allied Bank’s deposits are insured with the PDIC. . . . . . . . . . . . . for periods ranging from two to 10 years. . . . . . . . . . . . . . . . . . . Allied Bank and concerned stockholders instituted a special civil action (G. . . Total . . . . . Mindanao. . . . . the PCGG sequestered shares of stock in Allied Bank. . . In its Joint Decision of March 2. No. . Allied Bank also maintains insurance for operational risks such as the loss of cash or securities through loss or theft. . . . . . . . . . . . . . . . . . . . . . . Mindanao . . . . . . . . . . . . . . . . . . . . . . . . . . . . Visayas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75643) before the Supreme Court praying for the nullification of the above writs of sequestration. . to the Sandiganbayan. . . . . . . . . . . . . . . . . . . . . Allied Bank believes that its insurance policies are appropriate for its business and operations and its peers in the industry. . . . . . . . either individually or in the aggregate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 18 15 19 82 Allied Bank holds clean title and deeds of absolute sale for the above mentioned properties. . . . . . . . . . . . . . . . . . . . Visayas. . . . . . . . . . . . . Allied Bank leases premises occupied by its remaining 217 branches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1990. . . . . . . . . . . including those of its subsidiaries. . . . . . . . . . . PROPERTIES Allied Bank’s head office is located at Allied Bank Center 6754 Ayala Avenue corner Legaspi Street. . . 1986. . . . . . . . . . . . . . .

through the office of the Solicitor General. wherein the Allied Bank shares were exchanged for PNB shares. 0005. the PCGG again filed before the PSEC its opposition to the merger. investing in technology. Upon completion of the merger between Allied Bank and PNB. Tan were also tagged. the PCGG appealed to the Supreme Court through a petition for review.8% growth attributable to healthy bank profits posted for the year. which could result in financial losses or harm its business”. from both Philippine and foreign banks. issued its order on September 6. the primary basis of which was the pending resolution of the “ill-gotten wealth” case filed against Dr. Lucio C. On June 11. however. as well as building on relationships with Allied Bank’s other key customers. mutual funds and investment banks. asserting that Allied Bank shares were substantially diluted as part of its merger with PNB and demanding an explanation for this dilution. and requesting the substitution of PNB in lieu of Allied Bank when appropriate. 2012. The Supreme Court has not yet taken action with respect to this motion and the petition remains pending. the Sandiganbayan finally issued its resolution dismissing the “ill-gotten wealth” case against Dr. experiencing an increase in total resources from the previous year. 2009 issued by the Sandiganbayan denying the motion for reconsideration of the Office of the Solicitor General. Tan’s shares of Allied Bank be tagged pending further appeals. 77 of the Corporation Code. in its Resolution of March 19. al. Since there has been no determination or resolution on Civil Case No.. The Sandiganbayan. Lucio Tan.among others. identified as Civil Case No. 203592 before the Supreme Court to overturn the Sandiganbayan’s resolution dismissing the case against Dr. the Supreme Court ruled with finality on the lifting of the writs of sequestration. 2012. as the low interest rate environment increased demand for loans to finance economic activities. and (iii) there was no prior approval from the Sandiganbayan. Allied Bank believes that offering diverse products and services. 2009. 0005. Allied Bank received the Resolution of December 18. Lucio C. filed before the Sandiganbayan Civil Case No. Deposits grew by almost 7. there was an increase in bank lending during 2012. 0005. seeking to enjoin the merger of Allied Bank and PNB. Lucio C. The PCGG alleged the following: (i) there was no compliance with Sec. with banks’ aggregate loan portfolio expanding by 10% as compared to 2011. denied said application. 2012. On October 30. COMPETITION Allied Bank faces competition in all its principal areas of business. 2008. On January 29.5%. With its motion for reconsideration of the decision having been denied. Total net worth registered a 15. 0005. On January 2010. By denying the issuance of the Temporary Restraining Order the PSEC noted that the Sandiganbayan impliedly gave its approval for the merger. as well as finance companies. On February 20. Tan. 2013. The financial system continued to enjoy growth in liquid assets. Tan. and PCGG’s motion for reconsideration was thereafter denied. the Republic of the Philippines. tagging a total of 354. On December 19. the PNB shares thus received by Dr. the Republic of the Philippines filed a motion before the Supreme Court requesting that Allied Bank and all of its assets be placed in court custody. Lucio C. 2012 denying the opposition of the PCGG to the merger of Allied Bank and PNB. shares of stock of Allied Bank. et. it was alleged that the Republic of the Philippines will be disadvantaged by the proposed merger. the PCGG filed a petition G. Moreover. an Application for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction. The PCGG requested that Dr. See “Risk Factors—Risks Relating to the Bank and its business—The Bank is involved in litigation. 2007. On March 18. leveraging synergies within the Tan Companies and with their Government customers. 138 . The PSEC on the other hand. 2008. (ii) there was a violation of Sec. entitled Republic v. 2 Series of 1986. Universal and commercial banks in the Philippines strengthened their overall positions in 2012.419 common shares in Allied Bank. The Supreme Court affirmed the decision of the Sandiganbayan on December 7. No.R. have allowed it maintain its market position in the industry. Allied Bank complied with the request. 2 of EO No. Lucio C. Tan and finally disposing of Civil Case No.

. . . . . . . . . . . . . . . . . . All of Allied Bank’s regular rank-and-file employees are represented by the Allied Bank Employee’s Union (“ABEU”). . . . EMPLOYEES AND LABOR RELATIONS As of December 31. other than those expressly excluded under the collective bargaining agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allied Bank believes it has always maintained peaceful and harmonious employer-employee relations by sufficiently addressing employee concerns in a timely manner and complying with all applicable labor rules and regulations. . . . . BPI. . . . . . Allied Bank rank . RCBC . 2012. . . .1 billion and UCPB remained the ninth largest with P218. . . . . . . . . .3 trillion. . . . . . Metrobank . . . .0 259. . . .7 9th 155. . . .5 trillion and P1.4 803. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .250. . . . Metrobank and Bank of the Philippine Islands remained as the three largest banks with total assets of P1. Allied Bank . . .2 739. . . . . . . . . . . . . . consisting of 2. . . . . . . . . . . .0 44. . . . . . . . . . . . . . .0 trillion. . . . . . . . . BDO Unibank. . . . .9 322. 2012 In Billion Pesos Total Assets Loans Deposits Equity BDO Unibank . . . . . . . . . . . . . . .8 146. . . . . .7 558. . . .5 172. .2 31. . . 2011 to September 30. . . . . . . . . Source: Published Consolidated Statements of Condition 1. . . . . . . . .0 billion making it the tenth largest private domestic bank.0 79. . . .1 143. Allied Bank’s collective bargaining agreement with ABEU covers rank-and-file employees for a three. . . . . . . .6 249. . ahead of UCPB which was the tenth largest.6 39.2 240. . . . . . . . . . . . . . . .9 130. .037. . As one of its primary objectives. UCPB . . . . . . 139 . . . . . . . 2012. . . . . . respectively. . . . . . . . . .649 rank-and-file employees and 1. . . . . . . . . . As of December 31. . . . . . . . . . . . . . . . .1 9th 930. . . .year period from October 1. .153 employees for its Philippine branches and operations. . . . . . . .7 20. . PNB . . . . . .3 186. . . . Allied Bank is one of the representatives of the banking industry before the Banking Tripartite Committee of the Philippine Department of Labor and Employment. . . .6 36. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 975. . . . . . Allied Bank’s total assets reached P189. . . . . . . . . . . . Security Bank. .6 121. . .7 369. . .5 116. Allied Bank was the ninth largest commercial bank. . . . . . . . . . . . . . . Chinabank. . . . . . . . . . .1 218. . . . . . . . . . . . . . . . UnionBank . . . . . .9 272. . . . . . . . while in terms of loans and capitalization. . . . . . 2012. . . . . . . 2014. . . .0 326. In terms of deposits. . . . . . . . .250. . . . . . .0 142. . . . . . .The table below summarizes the total resources of the ten largest Philippine commercial banks as of December 31. . . . . . . . . . . . . . . . .5 91. Allied Bank surpassed Security Bank by P4. . .0 275. . while Security Bank was the eight largest with P259.504 officers. . . . . . . . . . . . . . . . . . . . . . . . . . . ALLIED BANK COMPARED TO TOP 10 PRIVATE PHILIPPINE BANKS Selected Accounts As of December 31.3 1. . . . .02 billion. . . . . . . . . . . . . . . . . . . . . . . . . deposit base and capitalization. . . . . . . . . . . . . . Allied Bank had a total of 4. . consisting of 484 employees belonging to supervisory/specialist positions and other excluded departments. . . .5 9th In terms of assets.037. . . . . . . . . . . . . . . . . . . . . . . . . . Allied Bank closest competitors in terms of size were Security Bank and United Coconut Planters Bank (“UCPB”). . . . . . . . . .1 178. . . . . . . . . . . .0 42.2 190. . . . .3 26.0 10th 737. . . . . . . . . . .2 billion. .5 92. . . . .7 508. . . . P1. . . .0 189. BDO Unibank maintained its position as the country’s largest bank by assets and possessed the industry’s largest loan portfolio.

and long-term needs of agricultural and industrial enterprises. drafts. to exercise the powers of investment houses. any foreign bank. particularly in rural areas and preferably for mid-market corporates. in commercial papers and accounts receivables. A publicly listed universal or commercial bank may own up to 100% of the voting stock of only one other universal or commercial bank. as of June 30. services. there were 18 foreign banks with branches and two foreign banks with subsidiaries in the Philippines. or to establish branches with full banking authority. with 2. enabling foreign banks to invest in up to 60% of the voting stock of an existing bank or a new banking subsidiary. Land Bank of the Philippines (“LBP”). stock savings and loan associations. AAIIB was organized to promote and accelerate the socio-economic development of the Autonomous Region in Muslim Mindanao through banking.Amanah Islamic Investment Bank of the Philippines (“AAIIB”). may further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof. 2013. three were government banks. receive other types of deposits and deposit substitutes. The existing specialized banks are the Development Bank of the Philippines (“DBP”). private development banks. Specialized government banks are organized to serve a particular purpose. drafts. LBP primarily provides financial support in all phases of the Philippines’ agrarian reform program. six were private domestic banks. Loans and advances extended by rural banks are primarily for the purpose of meeting the normal credit needs of farmers and fishermen. and extend credit on a secured or unsecured basis. and mergers and consolidation. bills of exchange and other evidences of indebtedness. savings and mortgage banks. Rural banks are organized primarily to make credit available and readily accessible in the rural areas on reasonable terms. As of March 31. 2013. In addition to their special functions. 2013. in addition to commercial banking powers. together with their capital. of which 20 were universal banks and 16 were commercial banks. according to the BSP. accept or create demand deposits. financing and investment operations and to establish and participate in agricultural. Thrift banks primarily accumulate the savings of depositors and invest them. 11 were private domestic banks. and eight were branches of foreign banks. Commercial banks have all the general powers incident to corporations and all powers that may be necessary to carry on the business of commercial banking. there were 70 thrift banks. to discount and negotiate promissory notes. commercial banks. a rural bank. 2013. As of March 31. bonds and other forms of security or in loans for personal and household finance. and housing as well as other financial and allied services for its chosen market and constituencies.449 branches located in Metro Manila. The General Banking Law enacted in 2000 further liberalized the industry by providing that the Monetary Board may authorize foreign banks to acquire up to 100% of the voting stock of one domestic bank. chattel mortgage. and Al. the 36 universal and commercial banks had a total of 5. acceptances or notes arising out of commercial transactions. as well as the normal credit needs of cooperatives and merchants. secured or unsecured. and to own up to 100% of the equity in a thrift bank. As of June 30.term financing for businesses engaged in agriculture. This led to the establishment of ten new foreign bank branches in 1995. DBP and LBP are allowed to operate as universal banks. especially for mid-market corporates and individuals. bills of exchange. According to statistics published on the official website of the BSP. buy and sell foreign exchange and gold and silver bullion. the Philippine banking industry has been marked by two major trends—the liberalization of the industry. Thrift banks also provide short-term working capital and medium-and long. to invest in the equity of businesses not related to banking. in readily marketable debt securities. two were subsidiaries of foreign banks. according to the BSP. rural banks cooperative banks and Islamic banks. DBP was organized primarily to provide banking services catering to the medium. the commercial sector consisted of 36 universal and commercial banks. or in financing for home building and home development. such as the power to accept drafts and to issue letters of credit. Under the General Banking Law. 2013. and six were branches of foreign banks. Of the 16 commercial banks. Of the 20 universal banks. Foreign bank entry was liberalized in 1994. During the past fifteen years.THE PHILIPPINE BANKING INDUSTRY OVERVIEW The banking industry in the Philippines is composed of universal banks. Universal banks are banks that have authority. commercial and industrial ventures based on Islamic banking principles and rulings.234 branches. mortgages in real estate and insured improvements thereon. savings banks. 140 . in loans secured by bonds. or a financial allied or non-allied enterprise. according to the BSP. which prior to the effectiveness of the said law availed itself of the privilege to acquire up to 60% of the voting stock of a domestic bank. there were 581 rural and cooperative banks. As of March 31. industry.

. . . . . . . . only universal/commercial and thrift banks may establish branches on a nationwide basis. . 4. . . Rural Banks: Within Metro Manila . . . . Pasay. . . . . . . . . .4 83. . . . . . . . . . . . . . . . . . . . .9 454. 771 was issued in order to grant incentives for investors who merely purchase a controlling stake in a bank. . . 2013.0 Notes: (1) Data is provided on a consolidated basis. . . . Inc. seeing this as a means to create stronger and more globally competitive banking institutions. . . . . . . . .000 500 250 100 50 25 10 5 Generally. . . . . . with prior Monetary Board approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . to use any or all of its branches as outlets for the presentation and/or sale of financial products of its allied undertakings or investment house units. . the coverage of relief incentives for mergers and consolidations now includes the purchase and acquisition of a majority of or all of the outstanding shares of stock of a bank. 268. . .9 888. . . . . 728 (2011).8 94. . . . . . 2013. . . . . . . . . . . . . . . except in the cities of Makati. . 141 . . . . . . . . . . .4 1. . as follows: Minimum Capital (in Q Millions) Expanded Commercial Bank . . . . . . . . . . . . . . . . . . . . The following table sets out a comparison of the leading Philippine banks as of the dates indicated in the footnotes to the table: Market Capitalization(2) Total Total Capital(3)(4) Assets(4) (Q in billions) Total Loans(4) Total Deposits(4) Banco De Oro Unibank. . . . . . . . . . . . . . . . acquisitions. as amended by BSP Circular No. . . . . . . . . . .508. Thrift Bank: With Head Office within Metro Manila . . . . . 5th to 6th class municipalities . . . . . . . and consolidations of banks. . . . . . .3 227. . . . . . . . . . . .1 1. . . . . . The same provision allows banks. Mandaluyong. there have been an increasing number of mergers. . Based on BSP data. . . . . . . . . . . . . .2 1. . .6 548. . 505 (2005). . . since the new package of incentives took effect in September 1998. . . . . . . . Cities of Cebu and Davao. . . . . . . . . . . . . . . . . . . . . under BSP Circular No. . . . . 505 (2005). . . . . . . . . .7 258. . . . . . . . . . . . . . . . . . . the BSP offered various incentives to merging or consolidating banks. . banks are allowed to establish branches in the Philippines. . . . . . . . . . . . Metropolitan Bank & Trust Company(1).1 848. . . . . . . . . . . . . . . .950 2. . . . . . . . . . . . . . . . . . . .083. . . . . upon the presentation of justification therefore). . . . . . . . . . . .252. . . To encourage this trend. . . . . . . . . . . . . . . . . . . (2) Source: PSE monthly report as of September 30. . . . . . . . . . . . . . . . . . . . All other cities . . On October 11. . . . . Restrictions on Branch Opening Section 20 of the General Banking Law provides that universal and commercial banks may open branches within or outside the Philippines upon prior approval of the BSP. Quezon and San Juan. . prescribes the minimum capitalization for banks in order to be given authority to establish branches. . . . . . . . . . . . a branch may be opened within six months from the date of approval (extendable for another six-month period. . . . . . . . . . . (3) Includes interests in subsidiaries and allied undertakings. However. . . . 696 (2010). while recent mergers increased market concentrations. . . . . . . Pasig. . . . . Philippine National Bank(1). . . . .2 574. . . . . . . . . . . . . BSP studies showed that they were not enough to pose a threat to the overall competition levels since market share remained relatively well dispersed among the remaining players. . . . . . . . . . . .202. . (4) Source: PSEC. .9 1. the moratorium on the establishment of banks in these cities would be fully lifted by 2014 as a result of the BSP’s two-phased liberalization approach. . . .8 107. . . . . . . . . . . . . . . . . . . . . . .400 1. Once approved. . . . . . . . . Non-expanded Commercial Banks . . . . . With Head Office outside Metro Manila. .(1) . . . . . . . . BSP Circular No. . based on quarterly reports for the period ended September 30. . Cebu or Davao . .6 606. . . . . . . . . . . . . .The BSP has also been encouraging mergers and consolidations in the banking industry. . . . . . . . . . Accordingly. . . . . . . . . . Parañaque. . . With Head office in Cebu or Davao . . . . . . . . . .7 896. . . . However. . . . . . . . . . . Pursuant to BSP Circular No. .9 162. . . . . . . . . BSP Circular No. .8 342. . . Bank of the Philippines Islands(1) . . . . . . . . . . . . . . .6 145. . . . . . . . . . 1st to 4th class municipalities. . . . . . . . . . . . . . . . . . 2012. . . . . . .

0 345. . . . . 2014 wherein branching in the restricted areas will be opened up to all banks except rural and cooperative banks that are not allowed to establish branches in Metro Manila. . . . . . . . . . . . . . . . .2 1. . . . a number of foreign banks. Branches of microfinance-oriented banks. . . . . . .3 257. . . . . . .4 44. . . .252. . . BPI . . . . . . . .6 258. . . . . . . . . . . . . 2014. . . . . . The second phase of the current liberalization approach would start on July 1. . . . . . 2013 In Billion Pesos Total Assets Loans Deposits Equity BDO Unibank. . . . . . .0 359. . . . . Chinabank . . . .9 206. . . . . . . . . . . .5 20. . . . . . . . . . . . . .9 276. . .2 184. . . . . . . . . . . . Act No. Metrobank . . . . . . . . . . . . . . .2 120. . . . .3 303. . . . . 142 . . . . Since September 1998. . . . . . . . . . . . . . . .202. . . . . .0 92. . PNB . . . . . . . . . .1 1. . . . . . . . . . . . have been granted licenses to operate in the Philippines. . . . RCBC.9 548. . . . . . . . . . . . . . . . . . . .9 258. . . . . . . Mergers and consolidation result in greater competition. . Circular No. . . . . . . . . . . . . . . . . PNB rank. . . . . . . . . . . . . . . . 594 was issued by the BSP in January 8. as a result.9 46. . second-tier universal and commercial banks with capital accounts of at least P10 billion and thrift banks with capital of at least P3 billion that have less than 200 branches in restricted areas as of December 2010 would be allowed to apply and establish branches in these restricted areas until June 30. . UnionBank . . . . . . . .8 107. . . . . . . . . . . .7 574. . . . . . microfinance-oriented branches of regular banks and branches that will cater primarily to the credit needs of Barangay Micro Business Enterprises duly registered under Rep. . . . . . . . . .6 896. the BSP has been encouraging consolidation among banks in order to strengthen the Philippine banking system. . . . UCPB. .5 145. . . . . . . . . . . anti-money laundering and provisioning for NPLs. . .7 4th 848. . . . . . . . . . Since 1994. . . . . . . . . . . . . . Security Bank . . In line with the policy of the BSP to support the development of the Philippine financial market by providing banks and their clients with expanded opportunities for financial risk management and investment diversification through the prudent use of derivatives. . . . .7 888. . . . . . . . . . . . . as a result of the liberalization of the banking industry by the Government. Such foreign banks have generally focused their operations on the larger corporations and selected consumer lending products. . . . . Philippine National Bank compared to top 10 private Philippine banks Selected Accounts As of September 30. . . The BSP can alter any of these and can introduce new regulations to control any particular line of business. .4 212. . . . . which may have greater financial resources than the Bank. . . . . . . . . . . . . . . . . . . . . . . such as credit cards. . . . . . . .5 4th 4th 162. . . . 9178 may still be established anywhere upon the fulfillment of certain conditions. . . . . . . . . . . . . . . . . . . . . . . . . Competition The Bank faces competition from both domestic and foreign banks. . . . . . . . . . . .1 391. . . . . The Bank expects increased competition in the swaps and other derivative transactions allowed under the new regulations. . . . . . . . . . . . . The foreign banks have not only increased competition in the corporate market. . . . . . . . . . . . . . . . . . . . . . . . . . . . but have. . . . Certain policies that the Bank believes could affect its results of operations include the following: • Regulations Governing the Derivatives Activities of Banks. . as a smaller group of “top tier” banks compete for business.9 258. . . . . . . . . . . . . . . . . . . . . . . .508. . . .3 44. . . . in part. . . . .0 214. . corporate governance. . . . . . . . . . . . . . . . . . . . . . . caused more domestic banks to focus on the commercial mid-market. . . .Under the first phase.2 454. .4 1. .4 83. . . . . . . . . . . . . . . . . . placing pressure on margins in both markets. . . . . . . . .083. . . .8 4th Recent Government policies and regulations in relation to the Philippine banking system The Philippine banking industry is highly regulated by the BSP and operates within a framework that includes guidelines on capital adequacy. . . 2008 amending the existing regulations governing the derivatives activities of banks and trust entities. . . . . . . . . . . . . . . . . . . . . management. . . . . . . . . . Source: SEC 17-Q 1. . .9 41. . . . . . . . . .6 606.6 145. . . .

nonperishable goods which must be fully covered by insurance.0% as already mentioned) on the amount of loans. i. In December 2009. 712 (2011) adopting the amendments of the Monetary Board increasing the ceiling on loans by an additional 10-25% of the net worth of the bank provided that certain types and levels of securities are provided or in case the funds will be used for undertaking infrastructure and/or development projects under the Public-Private Partnership Program of the Government duly certified by the Secretary of Socio-Economic Planning. • Reclassification of Financial Assets between Categories. credit accommodations and guarantees that a bank may issue out to a borrower. the BSP issued Circular No. including Peso unit investment trust funds. the BSP issued Circular No. amending Circular No. Eligible assets of UITFs include bank deposits. and was intended to completely phase out common trust funds or convert them into UITFs within two years from the date of the circular. 2004. 2008. 2009) which provided guidelines for the launching and offering of new products to be known as unit investment trust funds (“UITFs”). UITFs are open-ended pooled trust funds denominated in Pesos or any acceptable currency that are to be operated and administered by trust entities and made available by participation. and (c) an additional 15. The stated objective of the BSP is to align the operation of pooled funds with international best practices and enhance the credibility of pooled funds to investors. securities issued by or guaranteed by the Government or the BSP. credit accommodations and guarantees are used to finance the infrastructure and/or development projects under the Philippine Government’s Public-Private Partnership Program. In May 2008. On February 9.0% of the net worth of the bank as long as the additional liabilities are secured by shipping documents. 2008. 2010. rebates or shares in the income earned on the reinvestment of the cash collateral. the BSP issued Circular No. Subsequently. (ii) these additional liabilities should not exceed 25. These assets are subject to mark-to-market valuation on a daily basis. 628 dated October 31.5% of the said net worth. • Exemption of Paired ROP Warrants from Capital Charge for Market Risk. 605 in March 5. trust or warehouse receipts or other similar documents which cover marketable. 626 dated October 23. marketable instruments that are traded in an organized exchange. engaged in energy and power generation. credit accommodations and guarantees are used to finance oil importation of oil companies which are not subsidiaries or affiliates of the lending bank which is also engaged in energy and power generation. 600 removing interbank loans from the total loan base to be used in computing the aggregate limit on real estate loans. the BSP issued an amendment to the Regulations on Single Borrower’s Limit. This allowed a bank’s subsidiaries and affiliates. to require banks to conduct a client suitability assessment to profile the risk-return orientation and suitability of the client to the specific type of UITF that he wants to participate in. • Amendment to Regulations on Single Borrower’s Limit. • Ceiling on Loans to Subsidiaries and Affiliates.e. the BSP Monetary Board authorized to issue BSP Registration documents to cover the PSE-listed shares of stock borrowed by foreign entities from local investors and lenders. • Limit on Real Estate Loans of Universal Banks. 2011. • Guidelines on Securities Borrowing and Lending Transactions. The amendment allowed for increases (on top of the 20. other fiduciary and investment management accounts. loans traded in an organized market and such other tradable instruments as the BSP may allow.0% of the net worth of the bank provided that: (i) the additional loans.0% of total qualifying capital.0% of the net worth of the bank provided that the additional loans. Guidelines by the PSE involving foreign entities of PSE-listed shares from local investors and lenders. The BSP issued Circular No. tradable securities issued by the government of a foreign country. 675 dated December 22. The following are the increases given certain conditions: (a) an additional 10.0% of the net worth of the bank. and amending the inclusions and exclusions to be observed in the computation. (b) an additional 25. 2008 exempting warrants paired with ROP Global Bonds from capital charge for market risk to the extent of a bank’s holdings of bonds paired with warrants equivalent to not more than 50. exchange listed securities.0% of the bank’s net worth while the unsecured amount to not exceed 12. In September 3. the BSP issued Circular No. the BSP issued Circular No. This will allow foreign borrowers to purchase foreign exchange from the banking system for remittance abroad using the Peso sales proceeds of the borrowed shares including the related income from securities borrowing and lending transactions. In January 2008. to a separate individual limit of 25. interest and dividends earned on the Peso-denominated government securities and PSE-listed shares used as collateral. In February 4.• Amendments to UITFs Regulations. In connection with the Government’s Paired Warrants Program. and (iii) the additional 25% shall only be allowed for a period of three years from December 6. 2008 and Resolution of the Monetary 143 . 593 to improve risk disclosure on investing in UITFs. A circular issued by the BSP in May 2009 amended the ceiling on loans to subsidiaries and affiliates. 447 (as amended by BSP Circular No. the BSP issued Circular No. and to update client’s profile at least every three years. 676 allowing cross-currency investment for Peso trust.

the Government increased the gross receipts tax. Any changes in the regulatory or tax environment as pertaining to the Philippine banking industry could have a material impact on the Bank’s results of operations and financial condition. Financial Institutions shall be allowed to reclassify all or a portion of their financial assets from “held for trading” or “available for sale” categories to the “held to maturity” or “unquoted debt securities classified as loans” categories effective July 1. In November 2005. the Monetary Board approved the BSP’s implementation plans for the adoption of Basel III standards. each institution is rated based on the following factors: (a) efficient Board of Directors and senior management oversight.0%. (v) loss absorbency of regulatory capital at the point of non-viability.interest income. Philippine banks were invited to comment on the discussion paper until June 2012. which approved the guidelines governing the reclassification of financial assets between categories. (b) sound AML policies and procedures embodied in a money laundering and terrorist financing prevention program duly approved by the Board of Directors. that the instrument would be written off or converted into common equity upon the occurrence of a trigger event determined by the BSP. BSP Memorandum No. On January 5. on September 21.0% to 7.Board No. • Supervisory System for AMLA. Under the ARRS. 144 . (iii) regulatory adjustments to be deducted from CET1 in a full deduction approach. The revised risk-based capital adequacy framework (which will also cover risk measurement enhancement and provisions concerning the use of third party credit assessment agencies) is set to be adopted in full starting January 1. 1423 dated October 30. 2014. among others. 2012. • Basel III Regulations. from 5. after which the BSP finalized the guidelines for Basel III in the country. 2014. (c) robust internal controls and audit. (iv) higher minimum capital requirements. 2011. the Bank is subject to certain tax rules specific to financial institutions. Further to the above. a supervisory system that aims to ensure that mechanisms to prevent money laundering and terrorist funding are in place and effectively implemented in banking institutions. 2008 but only until December 31. Notable provisions include: (i) new categorization of the capital base with Tier 1 being composed of Common Equity Tier 1 (“CET1”) capital and Additional Tier 1 (“AT1”) capital and elimination of the subcategories of Tier 2 capital. 2008. 2012. and (d) effective implementation. which is applied to the Bank’s non. In addition. M2012-017 (April 2012) requires all covered banking institutions to comply with the Anti-Money Laundering Risk Rating System (“ARRS”). that Hybrid Tier 1 and Lower Tier 2 capital must have loss absorption features. the BSP also circulated a discussion paper providing draft guidelines for Basel III implementation in the Philippines starting January 1. BSP Circular No. (vi) introduction of a framework to promote the conservation of capital and the build-up of adequate buffers above the minimum that can be drawn down in times of periods of stress. In March 2012. (ii) revised eligibility criteria for the different categories of regulatory capital. which provides. M2012-002 outlines the central bank’s proposed new minimum ratios and conservation buffers. • Taxes. namely. BSP Memorandum No. and (vii) additional disclosure requirements. 768 was issued.

The power of supervision of the BSP under the General Banking Law includes the issuance of rules of conduct or standards of operation for uniform application. 114). non-bank financial intermediaries. In addition to the general laws such as the General Banking Law and Republic Act No. to the extent of 50% or less is owned by a bank or quasi. owner. to oversee compliance with such rules and regulations and inquire into the solvency and liquidity of the covered entities. 9160. A subsidiary is defined as a corporation with more than 50% of its voting stock is owned by a bank or quasi-bank.bank financial intermediaries performing trust and other fiduciary activities under the General Banking Law. Section 7 of the General Banking Law provides that the BSP in examining a bank shall have the authority to examine an enterprise which is owned or majority-owned or controlled by a bank. as amended (the “Anti-Money Laundering Act of 2001” or the “AMLA”). As a general rule. The BSP Manual contains regulations that include those relating to the organization. Republic Act No.4 billion. non. except when authorized by the Monetary Board. investments and special financing program. A bank can only issue par value stocks and it must comply with the minimum capital requirements prescribed by the Monetary Board. The supervisory power of the BSP under the New Central Bank Act extends to the subsidiaries and affiliates of banks and quasi-banking institutions engaged in allied activities.8 billion.BANKING REGULATION AND SUPERVISION Banking Regulation and Supervision The General Banking Law provides that the operations and activities of banks are subject to the supervision of the BSP. The PSEC will not register the incorporation documents of any bank or any amendments thereto without a Certificate of Authority issued by the Monetary Board. and trust and other fiduciary functions of the relevant bank. memoranda. The Supervision and Examination Sector is responsible for ensuring the observance of applicable laws and rules and regulations by banking institutions operating in the Philippines (including Government credit institutions. banks must likewise comply with letters. management and administration. and subsidiaries and affiliates of non-bank financial intermediaries performing quasi-banking functions. and pawnshops under Presidential Decree No. circulars and memoranda issued by the BSP some of which are contained in the BSP Manual of Regulations for Banks (the “BSP Manual”). universal banks are required to have capital accounts of at least P5. A bank cannot purchase or acquire its own capital stock or accept the same as security for a loan.bank or which is related or linked or such other factors as determined by the Monetary Board. non-stock and savings loans associations under Republic Act No. 7653 (the “New Central Bank Act”) which creates the BSP provides that the BSP shall have supervision over the operations of banks and exercise such regulatory powers over the operations of finance companies and non-bank financial institutions performing quasi-banking functions. among others. Commercial banks are required to have capital accounts of at least P2. 3779. The refusal of any officer. Thrift banks with a head office 145 . An affiliate is defined as a corporation whose voting stock. The BSP exercises its powers through the Monetary Board. conduct examination to determine compliance with laws and regulations. All treasury shares must be sold within six months from the time of purchase or acquisition thereof. Regulation relating to Capital Structure Pursuant to the General Banking Law. letters and other directives issued by the Monetary Board. manager or officer-in-charge of an institution subject to the supervision or examination of the BSP to make a report or a permit examination is criminally liable under Section 34 of the New Central Bank Act. The BSP Manual is the principal source of rules and regulations to be complied with and observed by banks in the Philippines. Likewise. Under the BSP Manual. their subsidiaries and affiliates. no entity may operate as a bank without the permit of the BSP through the Monetary Board. All regulations pertaining to banks are then implemented by the Supervision and Examination Sector of the BSP. Supplementing the BSP Manual are rules and regulations promulgated in various circulars. deposit and borrowing operations. no restraining order or injunction may be issued by a court to enjoin the BSP from exercising its powers to examine any institution subject to its supervision. loans. agent.

in Metro Manila are required to have capital accounts of at least P400.0 million. These minimum levels of capitalization may be changed by the Monetary Board from time to time. Currently, the BSP requires only minimum capital accounts of P4.95 billion for universal banks, P2.4 billion for commercial banks, and P1.0 billion for thrift banks with a head office in Metro Manila. For purposes of these requirements, the BSP Manual states that the term capital shall be synonymous to unimpaired capital and surplus, combined capital accounts and net worth and shall refer to the total of the unimpaired paid-in capital, surplus and undivided profits, less: (a) Unbooked valuation reserves and other capital adjustments as may be required by the BSP; (b) Total outstanding unsecured credit accommodations, both direct and indirect, to DOSRI granted by the bank; (c) Unsecured loans, other credit accommodations and guarantees granted to subsidiaries and affiliates; (d) Deferred income tax; (e) Appraisal increment reserve (revaluation reserve) as a result of appreciation or an increase in the book value of bank assets; (f) Equity investment of a bank in another bank or enterprise, whether foreign or domestic, if the other bank or enterprise has a reciprocal equity investment in the investing bank, in which case, the investment of the bank or the reciprocal investment of the other bank or enterprises, whichever is lower; and

(g) In the case of rural banks, the government counterpart equity, except those arising from conversion of arrearages under the BSP rehabilitation program. Foreign individuals and non-bank corporations may own or control up to 40% of the voting stock of a domestic bank. The percentage of foreign-owned voting stock in a bank shall be determined by the citizenship of the individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of incorporation. However, under the Foreign Bank Liberalization Act, a foreign bank may with prior approval of the Monetary Board operate in the Philippines through any one of the following modes: (a) By acquiring, purchasing or owning up to 60% of the voting stock of an existing domestic bank (including banks under receivership or liquidation, provided no final court liquidation order has been issued); (b) By investing in up to 60% of the voting stock of a new banking subsidiary incorporated under the laws of the Philippines; or (c) By establishing branches with full banking authority. Section 73 of the General Banking Law provides that within seven years from the effective date of such law and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank to acquire up to 100% of the voting stock of only one bank organized under the laws of the Republic of the Philippines. Within the same period, the Monetary Board may authorize any foreign bank, which prior to the effective date of such law availed itself of the privilege to acquire up to 60% of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act, to further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof. In the exercise of this authority, the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of 70% of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos. The stockholders of individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law, shall be considered family groups or related interests and must be fully disclosed in all transactions by such an individual with the bank. Moreover, two or more corporations owned or controlled by the same family group or same group of persons shall be considered related interests, which must be fully disclosed in all transactions with the bank. A bank cannot declare dividends greater than its accumulated net profits then on hand deducting therefrom its losses and bad debts. A bank cannot also declare dividends if at the time of declaration: (a) its clearing account with the BSP is overdrawn; (b) it is deficient in the required liquidity floor for government deposits for five or more consecutive days; 146

(c) it does not comply with the minimum capitalization requirement and risk-based capital ratio; (d) it does not comply with the liquidity standards/ratio prescribed by the BSP for purposes of determining funds available for dividend declaration; (e) it has past due loans or accommodations with the BSP or other institutions; (f) it has net loss from operations in any one of the two fiscal years immediately preceding the date of any dividend declaration; or

(g) it has committed a major violation as determined by the BSP. Regulations with respect to Management of Banks The board of directors of a bank must have at least five and a maximum of 15 members, two of whom shall be independent directors. In case of merged or consolidated banks, the number of directors shall not exceed 21. An independent director is a person who is not an officer or employee of a bank, its subsidiaries or affiliate or related interests. Foreigners are allowed to have board seats to the extent of the foreign equity in the bank. The Monetary Board shall issue shall regulations that provides for the qualifications and disqualifications to become a director or officers of a bank. After due notice to the board of directors of a bank, the Monetary Board may disqualify, suspend or remove any bank director or officer who commits or omits act which renders him unfit for the position. The Monetary Board may regulate the payment by the bank of compensation, allowances, bonus, fees, stock options and fringe benefits to the bank officers and directors only in exceptional cases such as when a bank is under conservatorship, or is found by the Monetary Board to be conducting business in an unsafe or unsound manner or when the Monetary Board deems it to be in unsatisfactory condition. Except in cases allowed under the Rural Bank Act, no appointive or elective public official, whether full time or part time, may serve as officer of any private bank, except if the service is incidental to financial assistance provided by government or government owned and controlled corporation or when allowed by law. Regulations with respect to Bank Operations A universal bank, such as the Bank, may open branches or offices within or outside the Philippine subject to the prior approval by the BSP. A bank and its branches and offices shall be treated as one unit. A bank, with prior approval of the BSP, may likewise use any of its branches and as outlets for presentation and/ sale of financial products of its allied undertakings or investment house units. The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts. In connection thereto, the Monetary Board may require that the ratio be determined on the basis of the net worth and risk assets of a bank, its subsidiaries, financial or otherwise and prescribe the composition and the manner of determining the net worth and total risk assets of bank and their subsidiaries. To ensure compliance with the set minimum ratio, the Monetary Board may limit or prohibit the distribution of net profits by such bank and require that such net profit be used to increase the capital accounts of the bank until the minimum requirement has been met. It may also restrict or prohibit acquisition of major assets and the making of new investments by the bank. A universal bank has the authority to exercise and perform (i) activities allowed for commercial banks, (ii) powers of an investment house, and (iii) investment in non-allied enterprises. Capital Adequacy Requirements and Reserve Requirements The Philippines adopted capital requirements based on the Basel Capital Accord in July 2001 and adopted capital adequacy requirements based on the Basel II Capital Accord in July 2007, through the issuance of BSP Circular 538. Circular No. 538 is the implementing guidelines of the revised International Convergence of Capital Measurement and Capital Standards known as Basel II, the international capital standards set by the Basel 147

Committee on Banking Supervision. It aimed to replace Basel I, which was issued in 1988 and amended in 1996, to make the risk-based capital framework more risk-sensitive. On January 6, 2012, the BSP announced that universal and commercial banks will be required to adopt the capital adequacy standards under Basel III starting January 1, 2014. On January 15, 2013, the BSP issued Circular No. 781, which prescribes the new capital adequacy standards in accordance with Basel III. This circular will take effect on January 1, 2014. Under the New Central Bank Act, the BSP requires banks to maintain cash reserves and liquid assets in proportion to deposits in prescribed ratios. If a bank fails to meet this reserve during a particular week on an average basis, it must pay a penalty to the BSP on the amount of any deficiency. On March 29, 2012, the BSP issued Circular No. 753 mandating the unification of the statutory/legal and liquidity reserves requirements on Peso deposits and Peso deposit substitutes. As such, effective the week of April 6, 2012, non-foreign currency deposit unit deposit liabilities, including Peso demand, savings and time deposits, negotiable orders of withdrawal of accounts and deposit substitutes, are subject to required reserves equivalent of 18%. Likewise, a universal bank is required to set up reserves of 18% against peso-denominated common trust funds and such other managed funds and reserves of 15% against Peso-denominated “Trust and Other Fiduciary Accounts (TOFA)—Others.” Limitations on Operations The Single Borrower’s Limit Except as prescribed by Monetary Board for reasons of national interest, the total amount of loan, credit accommodations and guarantees (determined on the total credit commitment) that may be extended by a bank to any person or entity shall at no time exceed 20% of the net worth of the bank (or 30.0% of the net worth of the bank in the event that certain types and levels of security are provided). This ceiling may be adjusted by the Monetary Board from time to time. As of December 31, 2011, the ceiling applicable to the Bank was 25.0%. The limitations shall not apply to secured obligations of the BSP or the Republic of the Philippines, those covered by assignment of deposits maintained in the lending bank and held in the Philippines, those under letters of credit to the extent covered by margin deposits and those which the Monetary Bank may from time to time prescribe as non-risk items. Limitation on DOSRI Transactions No director or officer of any bank shall directly or indirectly, for himself or as the representative or agent of others, borrow from such bank nor shall he become a guarantor, endorser or surety for loans from such bank to others, or in the manner be an obligor or incur any contractual liability to the bank except with the written approval of the majority of all the directors of the bank, excluding the director concerned. After due notice to the board of directors of the bank, the office of any officer or director who violates the DOSRI limitation may be declared vacant and such erring officer or director shall be subject to the penal provisions of the New Central Bank Act. The DOSRI account shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank. The limitation excludes loans, credit accommodations and guarantees secured by assets which the Monetary Board considers as non-risk. As a general rule, loan and other credit accommodation against real estate shall not exceed 60% of the appraised value of the real estate security plus appraised value of the insured improvements, except for (i) residential loans not exceeding P3.5 million to finance the acquisition or improvement of residential units; and (ii) housing loans extended by or guaranteed under the Government’s “National Shelter Program,” such as the Expanded Housing Loans Program of the Home Development Mutual Fund and the mortgage and guaranty and credit insurance program of the Home Insurance and Guaranty Corporation. Prior to lending on an unsecured basis, a bank must investigate the borrower’s financial position and ability to service the debt and must obtain certain documentation from the borrower, such as financial statements and tax returns. Any unsecured lending should be only for a time period essential for completion of the operations to be financed. Likewise, loans against chattels and intangible properties shall not exceed 75% of the appraised value of the security and such loan may be made to the title- holder of the chattels and intangible properties or his assignee. Limitation on Investments The total investment of a universal bank in equities of allied and non-allied enterprises shall not exceed 50% of the net worth of the said universal bank. Moreover, the equity investment in any one enterprise whether allied 148

or non-allied, shall not exceed 25% of the net worth of the universal bank. Net worth for this purpose is defined as the total unimpaired paid-in capital including paid-in surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may be required by the BSP. The Monetary Board must approve such acquisition of equities. A universal bank can own up to 100% of the equity in a thrift bank, a rural bank or a financial or nonfinancial allied enterprise. A publicly listed universal bank, such as the Bank, may own up to 100% of the voting stock of only one other universal or commercial bank. However, with respect to non-allied enterprise, the equity investment in such enterprise by a universal bank shall not exceed 35% of the total equity in the enterprise nor shall it exceed 35% of the voting stock in that enterprise. A bank’s total investment in real estate and improvement including bank equipment shall not exceed 50% of the combined capital accounts. Further, the bank’s investment in another corporation engaged primarily in real estate shall be considered as part of the bank’s total investment in real estate, unless otherwise provided by the Monetary Board. The limitation stated above shall not apply with respect to real estate acquired by way of satisfaction of claims. However, all these properties must be disposed of the bank within a period of five years or as may be prescribed by the Monetary Board. Prohibition to act as Insurer A bank is prohibited from directly engaging in insurance business as the insurer. Permitted Services In addition to the operations incidental to its banking functions, a bank may perform the following services: (a) receive in custody funds, documents and valuable objects; (b) act as financial agent and buy and sell, by order of and for the account of their customers, shares evidences of indebtedness and all types of securities; (c) upon prior approval of the Monetary Board, act as the managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; and (d) rent out safety deposit boxes. Anti-Money Laundering Act 2001 The AMLA requires covered institutions such as banks including its subsidiaries and affiliates, to provide for customer identification, record keeping and reporting of covered and suspicious transactions. While the Philippines enacted the AMLA to introduce more stringent anti-money laundering regulations, these regulations did not initially comply with the standards set by the FATF. However, following pressure from the FATF, an amendment to the Anti-Money Laundering Act became effective on March 23, 2003. In January 2005, the Philippines was removed from the list of Non-Cooperative Countries and Territories (“NCCTs”) and the anti-money laundering systems (including strict customer identification, suspicious transaction reporting, bank examinations, and legal capacities to investigate and prosecute money laundering) were all identified to be of a satisfactory nature. Currently, the Philippines is on the “grey list,” as the FATF, in news reports, noted a “high-level political commitment” from local authorities to address noted deficiencies in its anti-money laundering regime. Republic Act No. 10168 enacted on June 18, 2012 expanded the AMLA to include the crime of financing terrorism. The FATF has welcomed the Philippines’ significant progress in improving its anti-money laundering and combating the financing of terrorism (“AML/CFT”) regime and noted that the Philippines has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in October 2010. The Philippines is therefore no longer subject to FATF’s monitoring process under its on-going global AML/CFT compliance process. The Philippines will work with the Asia Pacific Group on Money Laundering as it continues to address the full range of AML/CFT issues identified in its Mutual Evaluation Report, in particular, regulating the casino sector in the Philippines for AML/CFT purposes and making it subject to AML/CFT requirements. A more recent amendment to the anti-money laundering regime, Republic Act No. 10365, was approved on February 15, 2013. This amendment expanded the coverage of the AMLA, which now talks about “covered 149

persons, natural or juridical.” Additions to the enumeration of covered persons include jewellery dealers for transactions in excess of P1,000,000.00; company service providers, or those who form companies for third parties, hold positions as directors or corporate secretaries for third parties, provide business addresses or engage in correspondence or act as nominee shareholder for others. Likewise, the following persons were added to the list: persons (a) who manage their client’s money, security or other assets, or (b) who manage bank or securities accounts, or (c) who organize funds for the creation, operation or management of companies, or (d) who create, operate or manage entities or relationships, or (e) buy and sell business entities. Under the AMLA, banks, as covered persons, are required to report to the AMLC all covered transactions and suspicious transactions within a period of five working days from occurrence thereof, unless the AMLC prescribes a different period not exceeding 15 working days. The Court of Appeals, upon verified ex-parte application by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in the AMLA, has the authority to issue a freeze order which shall be effective immediately, and which shall not exceed six months depending upon the circumstances of the case. BSP Circular No. 495 (2005), as amended by BSP Circular 527 (2006), required all universal and commercial banks to adopt an electronic money laundering transaction monitoring system by October 14, 2007. The said system should, at the minimum, be able to detect and raise to the bank’s attention, transactions and/or accounts that qualify either as “covered transactions” or “suspicious transactions” as defined under the AMLA. BSP Memorandum No. M2012-017 (April 2012) likewise requires all covered banking institutions to comply with the Anti-Money Laundering Risk Rating System (“ARRS”), a supervisory system that aims to ensure that mechanisms to prevent money laundering and terrorist funding are in place and effectively implemented in banking institutions. Under the ARRS, each institution is rated based on the following factors: (a) efficient board of directors and senior management oversight; (b) sound anti-money laundering policies and procedures embodied in a money laundering and terrorist financing prevention program duly approved by the board of directors; (c) robust internal controls and audit; and (d) effective implementation. Institutions that are subject to the AMLA are also required to establish and record the identities of their clients based on official documents. In addition, all records of transactions are required to be maintained and stored for a minimum of ten years from the date of a transaction. Records of closed accounts must also be kept for five years after their closure. Covered transactions are single transactions in cash or other equivalent monetary instrument involving a total amount in excess of P500,000.00 within one Banking Day. Suspicious transactions are transactions with covered institutions such as a bank, regardless of the amount involved, where any of the following circumstances exists: (a) there is no underlying legal or trade obligation, purpose or economic justification; (b) the customer or client is not properly identified; (c) the amount involved is not commensurate with the business or financial capacity of the client; (d) the transaction is structured to avoid being the subject of reporting requirements under the AMLA; (e) there is a deviation from the client’s profile or past transaction; (f) the transaction is related to an unlawful activity or offense under the AMLA;

(g) similar or analogous transactions to the above. Failure by any responsible official or employee of a bank to maintain and safely store all records of all transactions of the bank, including closed accounts, for five years from date of transaction/closure of account shall be subject to a penalty of six months to one year imprisonment and/or fine of P500,000.00 Malicious reporting of a completely unwarranted or false information relative to money laundering transaction against any person is punishable by six months to four years imprisonment and a fine of not less than P100,000.00 and not more than P500,000.00. In compliance with the law, banks, their officers and employees are prohibited from communicating directly or indirectly to any person or entity the fact that a report was made to the Anti-Money Laundering Council and any information relating to such report. A violation of this rule is deemed a criminal act. 150

Money laundering is committed by any person who, knowing that any monetary instrument or property represents, involves or relates to the proceeds of any unlawful activity defined under the law: (a) transacts said monetary instrument or property; (b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or property; (c) conceals or disguises the true nature, source, location, disposition, movement or ownership or of rights with respect to said monetary instrument or property; (d) attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b), or (c); (e) aids, abets, assists in or counsels the commission of the money laundering offenses referred to in paragraphs (a), (b) or (c); (f) performs or fails to perform any act as a result of which he facilitates the offense of money laundering referred to in (a), (b) or (c); and

(g) knowingly fails to disclose and file with AMLC any monetary instrument or property required to be disclosed and filed. TAXATION FOR BANKS Banks are subject to regular corporate income tax, based on their taxable income at a tax rate of 30%. Taxable net income refers to items of income specified under Section 32 (A) of Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, as amended (the “Tax Code”) less the items of allowable deductions under Section 34 of the Tax Code or those allowed under special laws. A minimum corporate income tax (“MCIT”) of 2% of the gross income of a bank is payable beginning on the fourth year of operations of the bank only if the MCIT is greater than the regular income tax of 30% computed on net taxable income. Any excess MCIT paid over the computed regular tax can be carried forward as tax credit for the three immediately succeeding years. For purposes of MCIT, gross income means: (a) gross receipts less sales returns, allowances, discounts and cost of services, including interest expense; and (b) income derived from other businesses except income exempt from income tax and income subject to final withholding tax. An Improperly Accumulated Earning Tax (“IAET”) equivalent to 10% of improperly accumulated taxable income of a corporation is not applicable to banks. Since banks are in the regular business of lending, interest income derived by banks which is generally considered passive income by non-banks, is considered an ordinary income of banks subject to 30% corporate income tax. Banks may also claim interest expense as tax deduction if such expense complies with the requirements as laid down in Revenue Regulation No. 13-00. However, the amount of interest expense which banks may claim as tax deduction shall be reduced by an amount equal to 33% of the interest income that is subject to final tax. The Tax Code does not allow the deduction of interest expense arising from transactions with related parties wherein: (a) the borrower is an individual directly or indirectly owing more than 50% in value of the outstanding capital stock of the bank; (b) more than 50% in value of the outstanding stock of both the borrower and the bank is owned directly or indirectly, by or for the same individual, if the borrower is a personal holding company or a foreign personal holding company. Similarly, section 36 (B) of the Tax Code disallows the deduction of bad debts in the case of related party transactions as mentioned in the case of interest expense. Pursuant to Revenue Regulation 05-99, as amended by Revenue Regulation 25-02, in order for a bank to be able to claim bad debts as an allowable deduction, it must secure a certification from the BSP that the accounts are worthless and can be written off subject to the final determination by the BIR that bad debts being claimed by the banks are worthless and uncollectible. However, its passive income such an interest income earned on its bank deposits is subject to final withholding tax. 151

Banks are subject to Gross Receipts Tax, which is a tax levied on the gross receipts of financial institutions. An exception to the rule that those not habitually engaged in real estate business shall be subject to final tax on the sale of capital asset, is a sale of real property of banks which is considered as an ordinary asset, the income from the sale of which is subject to regular corporate income tax of 30%. Thus, the gain in the sale of land and/or building is subject to creditable withholding tax of 6% based on the zonal value or selling price, which shall be withheld by the buyer and can be used as a credit against the bank’s taxable income in the year that the gain is realized. The Tax Code provides for a final tax at fixed rates for the amount of interest, yield or benefit derived from deposit substitutes which shall be withheld and remitted by the payor of the said interest, yield or benefit. This rule does not apply to gains derived from trading, retirement or redemption of the debt instrument which is subject to regular income tax rates, except those instruments with maturity of more than five years. To be considered as a deposit substitute, the debt instrument must have been issued or endorsed to 20 or more individuals at any one time at the time of the original issuance in the primary market or at the issuance of each tranche in the case of instruments sold or issued in tranche. Interbank call loans with a maturity period of not more than five days and used to cover deficiency in reserves against deposit liabilities are not considered deposit substitutes. The interbank call loans are not subject to documentary stamp tax except if they have a maturity of more than seven days.

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ASSETS AND LIABILITIES The tables below and accompanying discussions provide selected financial highlights regarding the Bank’s assets and liabilities. The following information should be read together with the Bank’s financial statements included in this Prospectus as well as “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Management” and “Business”. Funding Sources of funding Deposit liabilities, bills and acceptances payable, subordinated debt and capital funds, which consist of capital stock and capital paid in excess of par value are the main sources of funding for the Bank. The Bank’s deposit liabilities consist of demand, savings and time deposits. Majority of the deposits consisted of savings accounts. As of September 30, 2013, customer deposit accounted for 82.8% of total funding sources. The Bank traditionally has most of its deposit liabilities in the form of deposits under short-term savings accounts, reflecting the relative strength of the Bank in the retail segment of the banking market. Although the majority of the Bank’s customer deposits are short-term, the Bank’s depositors typically roll over their deposits at maturity, effectively providing the Bank with a source of longer term funding. As of December 31, 2012 and September 30, 2013, the Bank had total deposit liabilities amounting to P240.9 billion, and P454.0 billion, respectively. As of December 31, 2012 and September 30, 2013, the Bank had total bills and acceptances payables amounting to P13.1 billion and P14.5 billion, respectively. As of December 31, 2012, the Bank had 662,245,916 outstanding common shares with a par value of P40 each. As of December 31, 2012, the Bank also had 195,175,444 convertible preferred shares. The conversion of these preferred shares into common shares was approved by the PSEC on January 17, 2013. As of September 30, 2013, the bank had 1,086,208,416 outstanding common shares with a par value of P40 each. The preferred shares were converted into common shares upon the merger with ABC on February 9, 2013. As of December 31, 2012 and September 30, 2013, the Bank had total equity (including non-controlling interest) of P39.7 billion and P83.9 billion, respectively. For the years ended December 31, 2011 and 2012, the Bank’s average cost of funding for deposits was 1.7% and 1.4%, respectively. For the nine months ended September 30, 2013, average cost of funding was 1.3%.

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The following table sets forth an analysis of the Bank’s main sources of funding and the average cost of each funding source:
2010 Average Cost of Actual Funding(1) As of December 31, As of September 30, 2011 2012 2013 Average Average Average Cost of Cost of Cost of Actual Funding(1) Actual Funding(1) Actual Funding(1) (Q millions, except percentages)

Deposits by type: Demand. . . . . . . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . . . . Time . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . .

27,964 171,283 27,189 226,436

0.6% 29,896 1.6% 184,676 2.2% 22,962 1.6% 237,534 187,472 50,062 237,534 121,389 47,697 68,447 237,534 927 7,531 8,458 6,452 26,490 2,037 28,527 280,971

0.5% 28,152 1.8% 192,793 2.3% 19,909 1.7% 240,854 191,715 49,139 240,854 117,786 29,705 93,363 240,854 3,879 9,198 13,077 9,939 26,490 2,037 28,527 292,397

0.3% 119,622 1.4% 285,221 2.3% 49,135 1.4% 453,978 418,977 35,001 453,978 289,381 75,343 89,254 453,978 438 14,029 14,467 9,950 43,448 26,500 69,948 548,343

0.2% 1.3% 2.6% 1.3%

Deposits by currency: Peso . . . . . . . . . . . . . . . . . . . . . . . . . 171,710 Foreign . . . . . . . . . . . . . . . . . . . . . . 54,726 Total . . . . . . . . . . . . . . . . . . . . . . . . 226,436 Deposits by classification: Low Cost . . . . . . . . . . . . . . . . . . . . . . . . . High Cost . . . . . . . . . . . . . . . . . . . . . . . . Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . 114,471 42,096 69,870 226,436

Bills and Acceptances Payable Peso . . . . . . . . . . . . . . . . . . . . . . . . . 595 Foreign . . . . . . . . . . . . . . . . . . . . . . 11,409 Total . . . . . . . . . . . . . . . . . . . . . . . . 12,004 Unsecured Subordinated Debt(2) . . . Capital Funds Capital stock . . . . . . . . . . . . . . . . . Capital paid in excess of par value . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . 5,487 26,490 2,037 28,527

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . 272,454

Notes: (1) Average cost of funding represents total interest expense for the year, divided by the average daily liability for the respective period, expressed as a percentage. (2) Unsecured subordinated debt includes subordinated debt designated by the Bank as Financial Liabilities at Fair Value through Profit or Loss Deposits Deposits continue to be the Bank’s main funding source. Demand and savings deposits can be withdrawn on request and without any prior notice from the customer. As such, they represent funding of the shortest term available to the Bank. Time deposits, on the other hand, can be withdrawn, together with interest earned on said deposits, by the customer after the expiry of the time deposit period, typically between six months and three years. Customers may demand the withdrawal of their time deposits prior to maturity upon the giving of a short notice, but they will forfeit the interest payable on such deposits. As of December 31, 2011 and 2012 and September 30, 2013, the Bank had total deposits amounting to P237.5 billion, P240.9 billion and P454.0 billion, respectively. As a proportion of the Bank’s total main sources of funding, deposits accounted for 84.5%, 82.4% and 82.8% as of December 31, 2011 and 2012 and September 30, 2013, respectively. In terms of currency, the Bank’s deposits are primarily denominated in Pesos, reflecting the general profile of its customer base. As of December 31, 2011 and 2012 and September 30, 2013, 78.9% and 79.6% and 92.3%, respectively, of the Bank’s deposits were denominated in Pesos. 154

According to type of deposits, on the other hand, approximately 90.3% and 91.7% and 89.2% of the Bank’s outstanding deposits as of December 31, 2011 and 2012 and September 30, 2013, respectively, comprised of demand and savings deposits. The following table presents a more detailed maturity analysis of the deposit base of the Bank as of the dates indicated:
2010 As of December 31, As of September 30, 2011 2012 2013 (in Q millions)

Deposit by Type Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91-180 days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 days and longer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bills and acceptances payable

27,964 171,283 27,189 21,363 1,352 4,474 226,436

29,896 184,676 22,962 13,908 1,505 7,549 237,534

28,152 192,793 19,909 10,595 1,221 8,093 240,854

119,622 285,221 49,135 23,642 3,653 21,840 453,978

As of December 31, 2011 and 2012 and September 30, 2013, bills and acceptances payables amounted to P8.5 billion, P13.1 billion and P14.5 billion, respectively. As of December 31, 2011 and 2012 and September 30, 2013, approximately 11.0%, 29.7% and 3.0%, respectively, of the Bank’s bills and acceptances payables were denominated in Pesos. The following table sets forth an analysis of the maturities of the bills and acceptances payable by contractual maturity dates of the Bank, as of the specified dates:
2010 As of December 31, As of September 30, 2011 2012 2013 (in Q millions)

Bills Payables Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due beyond one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Bills Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acceptances Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital funds

10,335 1,652 11,987 17 12,004

6,995 1,329 8,324 134 8,458

12,734 309 13,043 34 13,077

11,046 2,598 13,644 822 14,466

As of December 31, 2012, the Bank’s capital stock of P26.5 billion, consisted of 662.2 million common shares with par value of P40.00 each. As of September 30, 2013, capital stock stood at P43.4 billion which consisted of 1,086.2 million common shares with par value of P40.00 each. Liquidity The Bank’s liquidity management initiatives seek to ensure that the Bank has available funds to meet its present and future financial obligations and to capitalize on business opportunities as they arise. Financial obligations arise from withdrawals of deposits, extensions of loans or other forms of credit, repayments on maturity of borrowed funds and operational needs. The Bank seeks to ensure sufficient 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 ample money market lines and the maintenance of repurchase facilities to pre-empt any unexpected liquidity situations. The Bank regularly monitors the maturity mismatch between assets and funding sources to ensure that it is kept at manageable levels. Under relevant Philippines laws, Peso deposits and deposit substitute liabilities are subject to a unified, 18.0% statutory, legal and liquidity reserve requirement. Peso government deposits are subject to 50.0% liquidity floor requirement, inclusive of the 18.0% unified reserve requirement. The Bank has complied with the legal and liquidity reserves set by the BSP for both the Peso and foreign currency books. As of December 31, 2011 and 2012, the Bank’s liquid assets amounted to P144.6 billion and 155

P147.6 billion respectively, representing 46.3% and 44.6% of the Bank’s total assets as of those dates. For the nine months ended September 30, 2013, the Bank’s unified reserves on the Peso book stood at 18.0% of total Peso liabilities while the Bank’s liquid asset cover stood at 62.2% of total FCDU liabilities. Liquid assets include cash and other cash items, amounts due from the BSP, amounts due from other banks, interbank loans receivables, securities held under agreements to resell, financial assets at fair value through profit or loss and available-for-sale investments. The following table sets forth information with respect to the Bank’s liquidity position as of the dates indicated:
2010 As of December 31, As of September 30, 2011 2012 2013 (Q millions, except percentages)

Liquid Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and Other Cash Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from BSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due from Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interbank Loans Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities Held Under Agreements to Resell. . . . . . . . . . . . . . Financial Assets Designated at Fair Value Through P/L (FAFVPL) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available-for-Sale Investments . . . . . . . . . . . . . . . . . . . . . . . . . Financial Ratios: Liquid Assets to Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquid Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liquid Assets to Total Deposit Liabilities . . . . . . . . . . . . . . . . Liquid Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Deposit Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Loans to Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan Portfolio Overview

104,889 5,457 24,286 5,142 12,692 6,800 15,981 34,531 35.3% 104,889 297,120 46.3% 104,889 226,436 42.0% 95,067 226,436

144,579 5,404 38,153 6,424 17,098 18,300 6,876 52,324 46.3% 144,579 312,067 60.9% 144,579 237,534 48.6% 115,550 237,534

147,637 5,599 37,175 4,043 11,499 18,300 4,023 66,998 44.6% 147,637 331,007 61.3% 147,637 240,854 55.3% 133,109 240,854

282,469 8,835 129,183 15,769 12,090 25,000 11,568 80,024 46.6% 282,469 606,102 62.2% 282,469 453,978 53.5% 243,020 453,978

As of December 31, 2011 and 2012 and September 30, 2013, the Bank’s gross loan portfolio (receivable from customers, unquoted debt securities, other receivables, interbank loans and securities under agreements to re-sell) amounted to P176.1 billion, P189.7 billion and P310.5 billion, respectively, representing 56.4%, 57.3% and 51.2% of total assets as of those dates. The Bank has implemented different lending limits to be complied with by its credit committees to provide greater control in the Bank’s lending operations. Depending on the credit size, credit applications exceeding certain limits must be approved by the Executive Committee and/or the Board of Directors of the Bank for credit approvals. The Bank has also adopted a strategy of selective lending by focusing on industries such as power and other infrastructure, rice/corn trading, and food processing, in which the Bank believes growth prospects remain stable and in which the ratio of NPLs is relatively low. At the same time, the Bank is reducing its exposure to industries with high NPL ratios.

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.0 9. .155 23. .4 11.973 74.0 8. .3 1. . . . . . .878 100.0% to medium-sized. . . renting business activities . . . . .067 43. .4 0. . . .6 10. . . fishing and forestry . . .7 7.617 14. 2011 2012 Amount % Amount % (Q millions. manufacturing and real estate/ business represent the largest sectors of the Bank’s loan portfolio. . . .109 7. . .979 243. . . . 2013 Amount % 2010 Amount % Financial intermediaries.766 18. . .819 7.6 14. . enterprises. . Loans with a maturity of between one and five years consist primarily of term loans to corporations and businesses.349 13. . . as defined and categorized by the BSP: As of December 31. .0 10. 2013.1 8.370 21. Electricity.550 13.6 100. .913 3. and to allocate 6. . with 10. . 2013 Amount % Due within one year. .317 11. the Bank monitors its exposure to specific sectors of the economy to ensure compliance with specific pre-determined lending requirements imposed by law on all Philippine banks. .434 21. .697 5. .051 2. except percentages) As of September 30.5 2. .020 35. . . . . Total . .180 17. .0 40. . . .0 5. .0 The wholesale and retail trade. .Industry concentration The following table sets forth an analysis of the Bank’s receivable from customers by economic activity. . Due over one year . Construction. . .0% of the total loan portfolio.194 786 13. . .020 8. . Transport.496 22. . .7% respectively. . 157 . 2011 2012 Amount % Amount % (Q millions.6 16.111 24.8 10. . . .3%.0% to a particular industrial sub-sector of the economy.534 53.0 45.991 11. . . . . . .5 6. . . .3 12. The Bank maintains a flexible policy toward its exposure to the Philippine economy. . .7 56. . Loans with a maturity of over five years consist primarily of mortgage loan for property purchases. . . . As of September 30.207 13.986 10. . . .951 12.397 3. .0 3. . . . . . Public administration and defense .0% of such funds being made available exclusively to agrarian reform beneficiaries.1 17. .1 100.1 100. . . . . . 12. .0% of their loan portfolios to small-sized.0 Loans due within one year primarily consist of loans to corporations for working capital and loans to consumers for general use. . . .142 66. . electricity.0 20. . . in principle avoiding exposure of more than 10. of the Bank’s receivable from customers.637 115.696 2.995 42. . and 2.215 8.5 18. .550 4. . .5 2.725 36. 15. . .0 156. . . . .315 87. . .0 8.4 13. . .410 133. . . . . .688 1. . . . .014 21. . the BSP considers that loan concentration exists when the total loan exposure to a particular industry exceeds 30. gas and water.762 26. . .014 30.7 12. . .3 100.736 20. . .1%. . Total . .794 133.146 7. .2 100. .7 12.8%.8 12. . these sectors represented 17. .159 10. . .3 10. . and 12. . . . . . 41. . Wholesale and retail trade . . . . . Others . . . . . . . . .550 35. . Maturity The following table sets forth an analysis of the Bank’s receivable from customers by maturity: 2010 Amount % As of December 31. . . .0% of their “loanable funds” to the agricultural sector in general. . . . . .577 115. . .0 243. . . . . . .8 11.8 2. .5 25. The distribution of the Bank’s loan portfolio by industry is also subject to seasonal fluctuations. . Mandatory credit allocation laws require all Philippine banks to make available 25. . . . . . .0 86.5 100. . . .2 15. . . . . . In addition. . . . . . . . . .533 95. . . .4 64. . .6 1.2 1. .3 100.2 10. . Real estate. .9 18. . storage and communication .1 13. . . The Bank must comply with legal requirements to make loans available to the agricultural sector and to SMEs. .642 95.604 16.7 17.088 31. . . 3. . . . .5 64. . . . . .109 34. Manufacturing (various) . . gas and water. . except percentages) As of September 30. Agriculture. . . Under guidelines established by the BSP.7 12. . . . . . . . .067 4.899 2.8 14.

. .000 to 100. . . .000. . . . . . . Size and concentration of loans The following table sets forth a breakdown of Bank’s receivable from customers by principal amount as September 30. . . . 87. . . As of September 30.000 to 5. .3% 3. 5. . . . . . . . . .154 12. . . . . Total . . . . . . . . .5 billion. . . . . 2012.3% of the Bank’s outstanding receivable from customers. . 2012. . . . . .000 . . . . . . . . . . . . . . .020 94.954 95. . . . . .8% 10. . . . . . . . . . . . . . . . . . . . . . . . . . . .561 100. . . . . . . .8% 100. . . . . . . .0% of the Bank’s net worth. . . . . Interest rates Interest rates on loans are generally set on the basis of the Bank’s average or marginal cost of funds which in turn is largely determined by the interest rate on PDST-F (Philippine Dealing System Treasury—Fixing) plus a spread. . . . . . . . . . . . . . .000. . .4 5. A majority of the Bank’s rate-sensitive assets and liabilities re-price every 30 to 90 days which limits the Bank’s exposure to fluctuations in domestic interest rates.4 100. . . . . 2013. . most of which consisted of U. . . . . . . 2013 Amount % % (Q millions. . . . . . 50. More than 100. . . . . .0% The BSP currently imposes a limit on the size of the Bank’s financial exposure to any single person or entity or group of connected persons or entities to 25. . . . . . . . . . . . 2013: Principal Amount Percentage Less than 1. . . . or 34. . . . . . . . . . . . . .000 . . . . . . .Currency The following table shows an analysis of the Bank’s receivable from customers by currency: 2010 Amount % As of 31 December 2011 Amount % 2012 Amount As of September 30. . . . . .000. . . . .000. . . . . . . . . . . . . . . . . . . . . . . . .500. . . . .550 89. . . . . . . . . . . . . . . . except percentages) Philippine Peso . . . . . . .000 . . . . . . . . . the Bank’s single largest corporate borrower was a GOCC accounting for P14. . . Note: Parent Bank only. . 2. . . . . . . . . . . . . 10. . .4%.6 100. . . . . . . . . . . . . .3% 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . or 6. . . . .S. .1 billion was subject to re-pricing.000 to 2.3 229. . . . . .7 billion. . . . . . . . . . . .0 103.0 As of September 30. . . . . . . . . . . . . . of the Bank’s outstanding receivable from customers. .3 10. . . . . . . . . . . . . . . . . . . . . . . . . . .2% 4. .9% of the Bank’s receivable from customers of P133. . . . . .6 8. 1. . As of December 31. . . . . . . . . . . dollars. . . .955 133. . .7 100. .000 to 50. . . . . . . . . .000 . . . . .6% being denominated in foreign currency. the Bank has complied with the single borrower’s limit for all of its loans. .459 9. . . . . . . . .067 91. . . . As of December 31. .0 billion or 90. . . .0 243. .000. .3% 2. . . 94.4% of the Bank’s receivable from customers was denominated in Pesos with 5. . . . . . . The PDST-F reflects the secondary trading levels of the benchmark government securities. . . . . . . . . . . . . . . . . . .000 .000. . . . . . . . . . . . . . . . . . . . .365 115. . . . . 3. .109 90. . .3% 69. .113 7. . . . . . . . . . .000. . . .000 . which are partially affected by the monetary policies of the BSP. . Total . . . . . . . . . .000 to 10. . . . . .000 . . .7 13. . 2013. . . The Bank adopted a policy with respect to foreign currency lending pursuant to which foreign currencydenominated loans can only be granted to companies with at least 50. . . . . . . . . . .000.000. P121. . . the Bank’s 10 largest borrowers in the aggregate accounted for P80. . . . . . . . . . . . . . . .000. . . . . . . . . As of September 30.0% of revenues in foreign currency and to importers who have authorization from the BSP to purchase foreign currency to service their foreign currencydenominated obligations. 2013. . . . . . . . . . . . . . 158 .0 120. . . . . . . . . . . .185 12. .500. Foreign currency . . . . . . . . .

.8% of the Bank’s gross interest income for the same period. . .661 83.337 21. Loan loss coverage for NPLs stood as 78.4 9. . . 2011 2012 Amount % Amount % (Q millions. . .0% of its appraised value.109 16.6 billion.9 100. . . . . . .550 17. . .457 1. Bank deposit hold-out . . it will seek to minimize credit risk in support of a loan by requiring borrowers to pledge or mortgage collateral to secure the payment of loans.446 32.3 3. .6 billion as of December 31.3 58. .386 — 8. . . 2012 and September 30.1 1. . . .0 57. .0% in 2002 to 4. . the Bank’s provision for credit losses for loans and receivables was P0. . . 13. . headed by the President also oversees the Bank’s NPL portfolio and the strategies formulated to resolve the NPL portfolio as a whole. as a result.111 77. .7% are backed by real estate mortgages. .725 3. . .2% of the Bank’s gross interest income for the same period.2 16. . of which 43.3% and 0.146 67.0 The Bank principally focuses on cash flows in assessing the creditworthiness of borrowers. . .4% as of December 31. . amounted to P3. 2013. For the year ended December 31. . . . .0 20. . .020 23. . . according to the data from the BSP. . . However.1% of receivable from customers were extended on a secured basis. The Bank’s general policy in the acceptance of support or security arrangements for loans provides for the guidelines on acceptable and unacceptable forms of collateral. . . . . 2012. .223 9. .7 2.4% as of December 31.4 100. except for housing loans which have a maximum loan value of up to 80. . 2012. 772 dated October 16. 2013 as reported to the BSP. .0% as of September 30. which represented 4. . . . . as defined by BSP Circular No. . . . .3 2. the Bank may experience an increase in NPLs and provisions for probable losses. .067 14. except percentages) As of September 30. Volatile economic conditions may adversely affect the ability of the Bank’s borrowers to repay their indebtedness and. .Secured and unsecured loans The following table sets forth the Bank’s secured and unsecured loans according to type of collateral: 2010 Amount % As of December 31. .4 — 3. .4% were backed by real estate mortgages. . .8 billion. . 2013 Amount % Secured Real estate mortgage.930 115. For the nine months ended September 30.9% of total loans were extended on a secured basis. . . . . . . . . .5% as of December 31.7 9. . which represented 4. Loan Loss Management and Provisioning Overview The Bank has successfully managed to reduce its NPL ratio from 50.5 0. . . Shares of Stock . Average net NPL ratios for local banks in the Philippine banking system were 0. . . . the Bank’s provision for credit losses was P0. . As of September 30. .6 70. . . . For the year ended December 31. . Others . This classification depends on management’s evaluation of 159 . . 37. .615 358 4. 2011.3 62.4% and 83. .8 billion as of December 31. 2013. .244 243. . The Non-Performing Assets Committee (NPAC). . . . . “substandard”. 2011 and 2012. Total.5% in 2010 and further to 2.1 100.3 0. .681 133. .584 2. of which 56.219 141. . . respectively. .7 1. . . . . . . 2012.239 95. Unsecured . . . respectively. . .381 494 2. current BSP regulations require that Philippine banks classify NPLs based on four different categories corresponding to levels of risk: “loans especially mentioned”.0 21.147 11. Loan loss classification For the purpose of regulatory reporting in the Philippines. The Bank’s maximum loan value for real estate collateral is 60.7 100. The Bank’s NPLs.5 13. the Bank’s provision for credit losses was P0. 2012 as compared to P4. . as reflected in the audited financial statements and 94. 2013. . . 2012.0% of a home’s appraised value. . .2 0.6 billion.3% of the Bank’s gross interest income for the same period. . . . “doubtful” and “loss”. Remedial Management Group The Remedial Management Group is focused on reducing the level of the Bank’s NPLs. representing 6.6 67.363 2. Chattels . . As of December 31. . 41. . . . . . . .640 359 3.3 2. .5 2. . 2011.

. . . . . . . Based on these classifications. . . The Bank’s review of its risk assets is conducted quarterly in accordance with the Bank’s prescribed policy guidelines based on BSP categorization. . . . . . . . . 5 10 25 50 100 The Bank adopts a qualitative analysis of its loan portfolio for the purposes of this risk classification. . and may in the future result. . . the presentation of the Bank’s classification of its loan portfolio and related ratios in this section. . . . . . BSP classification At the date of this Prospectus. the Bank classifies its borrowers and assesses its asset quality based on its self-assessment procedures developed in accordance with current guidelines published by the BSP. . . which applies to the Bank from January 1. . . . . . . . . . “substandard”. and for which no loss on ultimate collection is anticipated. . . . . . . . . . . . . in the Bank recognizing higher provisions for loan loss as a result of lower future discounted cash flows to be received in respect of NPLs. . . . . . This has resulted. . loans are classified and mandated levels of provisions are taken based on such classifications. . . Loss (unsecured) . . . . . . . . . for the purpose of reporting to the BSP. . . . . . . . . . . . . collection and credit experience with the specific account. . . . . . . . . . . . . . . . . . . . . . . . 2005. . . . . . . . . Assets which are considered impossible to collect or worthless are characterized as “loss” assets. . . the Bank records a loan loss allowance against such loan. . . . Those loans which do not have a greater than normal risk. . . . . . . . . . All other loan accounts. . . . . . . The Bank’s guidelines classify “substandard” assets as those which the Bank believes represent a substantial and unreasonable degree of risk to the Bank. . . requires the Bank to evaluate allowances for loan loss based principally on the discounted cash flows to be derived from loans and other receivables. . . . . . . . . . . . . . . . . . . . . . . the introduction of new accounting standards in the Philippines has required the Bank to introduce new methodologies for calculating loan loss provisions and asset impairment which has resulted in it recognizing higher levels of impairment losses in respect of its loans and other receivables. . . . . . . . . . . are either classified or unclassified. . . . . . . . Based on these considerations. . . . . 160 . . . Once a loan is classified in a particular category. is highly improbable and that substantial loss is probable. . . . . . . . . . . . for the years ended December 31. . . . . in particular the Bank’s loan portfolio. . . In categorizing its loan portfolio. . . . . . The Bank’s guidelines classify “especially mentioned” assets as those assets which have demonstrated minor deficiencies in credit quality but in respect of which repayments on the asset are up to date. . . .the collectability of the loan. . and the appropriate loan loss allowance (in accordance with BSP guidelines) is made as follows: BSP Risk Classification Loan loss allowance % of principal amount of loan Especially mentioned . The Bank performs self-assessment at least annually. . after consideration of prevailing and anticipated economic conditions. . . . . are classified as “especially mentioned”. . . . . . . . including impairment losses and allowance for probable losses. . . . For the purpose of preparing its financial statements in accordance with PFRS. . . . . . All risk assets. . . . . . the Bank follows the BSP’s categorization of risk assets according to their risk profile. . “doubtful” or “loss” assets. either according to their terms or through liquidation. . . 2011 and 2012 are on the basis of BSP guidelines and do not reflect the new accounting standards referred to above. . . comprising those loan accounts which have a greater than normal risk. the Bank establishes allowances and discloses its problem loans using criteria required under BSP regulations and these allowances are subject to BSP review and confirmation. . . . . . The self-assessment process involves classifying borrowers based on their financial condition and then categorizing claims against borrowers in order of collection risk. . “Especially mentioned” and “substandard” classifications may apply to current loans in accordance with BSP regulations. PAS 39. . . . . . . . . . which is not solely dependent on the number of days the relevant loan is overdue. . . . . . . “Doubtful” assets are those in respect of which the Bank believes that collection in full. Unless otherwise stated. Substandard (secured) . . . . . . . . . . are unclassified. . . Substandard (unsecured). 2010. . . . . fair market value of collateral. . . . . . Doubtful (unsecured). financial capabilities of any guarantors and the present value of future cash collections. . . . . . . .

. Total Classified . . . the Bank’s allowances for impairment losses also included general allowances and the substantial majority of classified loans are also recognized as NPLs by the Bank.09 1. . .372 3. .617 539 1. 161 . . . . . .893 100. . The guidelines allow banks. . . . such loans are treated as non-performing if the payment is not made within a further 30 days. against allowance for impairment losses (valuation reserves) or current operations as soon as they are satisfied that such loans. . . . . . . .8 2. . . upon approval by their board of directors. . . . . . . .760 0.973 95. . the Bank’s allowance for credit losses on loans on a consolidated basis was P5. . . . .1 3. . In the case of (i). . . other credit accommodations.8 1.708 100. other credit accommodations. . . .598 Loans classified as “loss” assets are generally written off by the Bank. .735 0. to write off loans.3 124.707 11. . . .0 243. .888 11.678 2. . except percentages) As of September 30.0 115. . . . .2 5. .149 2. . . .7 226. .067 5. .0 2. . .4 394 0. In the case of (ii).0 3. . .239 0. . 2012 as reflected in the audited financial statements and 94. 2011 2012 Amount % Amount % (P millions. . . . .1 2.130 2. .2 0. . 2013 Amount % Risk Classifications Especially Mentioned . including impairment losses and allowance for probable losses are on the basis of BSP guidelines. . . Loans which have been foreclosed or have been transferred to the Bank’s ROPA account are not classified as non-performing loans. . . The write-offs are done in accordance with BSP guidelines. advances and other assets are of no value. . . prior approval of the Monetary Board is required to write off loans and advances to DOSRI. . loans are classified as non-accruing (or past due) if (i) any repayment of principal at maturity or any scheduled payment of principal or interest due quarterly (or longer) is not made when due and (ii) in the case of any principal or interest due monthly. . . . . . . .094 83. .3 1. . . .0 133.9 6. Loss .150 6.5 0. . . .3 107. . Substandard Secured . .831 100. Under BSP guidelines. . regardless of amount. 2. . . Unclassified . . 2013. . .2 1. . Doubtful. . Non-performing loans Unless otherwise stated. . . . . . . . . . the presentation of the Bank’s classification of its loan portfolio and related ratios in this section. . if the amount due is not paid and has remained outstanding for three months. . such allowance for credit losses was 83.408 2.8 1. . . .420 2. . . .4 100. . .9 8. . . . . . . . . . Total. . .471 3. . . . .The following is a summary of the risk classification of the receivable from customers (as a percentage of total outstanding loans) and allowance for credit losses of the Bank as of the dates indicated below: 2010 Amount % As of December 31. .676 3. . . .3 16. . . . . . . . . 2013 as reported to the BSP.763 6.6 2. . . . . such loans are treated as non-performing upon the occurrence of the default in payment. . . .7 7. Allowance for credit losses . . Unsecured.4% as of December 31.172 2.6 93. . .6 272 1. . .128 93.0% as of September 30.7 8. . . . . respectively. .719 88. . As of December 31.020 5. . . . advances and other assets.4 billion and P5. . . .401 93. . . . . . However. .109 5. As a percentage of the Bank’s NPL portfolio. .6 billion. . . . . In addition to making specific allowances for impairment losses based on the risk classification of its loan portfolio. . .6 1. 2012 and September 30.982 0.3 2. . . .5 0.550 5.5 287 0. . . .

. . . . . . . . . . . For restructured loans with capitalized interest and which are not fully secured. . .926 3.818 18. . . . . . . The Bank’s NPAs principally comprise ROPA and NPLs. . . . . . . .5% 8.9 billion of restructured loans which were treated as current.0%. . . . . . . These ROPAs were resolved through direct sales and joint ventures. . . . the NPL gross is based on GAAP under the Purchase Method. . . . . . . . . . . . . . . . . . .1% 10 6. . . respectively. . . .007 26. . .044 14. . gross(1) . .627 243. . . In accordance with BSP guidelines. . . . . . . . .1% 20. . . .420 4. . . .911 115.100 312. . . . . . . . . . . . . .322 5. .120 33. Adjusted loan portfolio(3) . . .335 67. . . For the figures as of September 30. . . . . . . . . . ROPA. . . . . .109 5. . . . . . . . . .980 3.8% 26. . 2013. . . . . in general. . . . . . . . . . . . . . . . . . 2013 is 94. . . . .The table below sets forth details of the NPLs. The Bank has also agreed to debt-for-equity swaps but it rarely uses this as a restructuring solution. . . .5% 18.0% 22. . . Non-performing assets (NPAs) . . 7. .1% 8. . . . . . . . .453 83. . . . . . . . . gross(5) . . . . . .5% 20. . . . . . In accordance with BSP guidelines. . net of NPLs fully covered by allowance for credit losses and transferred account. . . . The Bank will also consider. . . receiving partial repayments of principal in respect of restructured loans.661 6. . . . September 30. . in certain circumstances. NPLs which are successfully restructured are considered current and no longer non-performing following three consecutive payments of the required amortization of principal and/or interest. Total non-performing loans to adjusted loan portfolio(4) . . . NPAs (as described below). . . .4% 2. . . . . . . . . 2011 and 2012. . . . . .531 5. . .666 4. . . . . . Allowance for impairment losses (ROPA) . . . . . . . . .940 4. . . . . . . 2010 2011 2012 2013 (Q millions. 2011 and 2012 and the nine months ended September 30. . . . . . . . Total assets . . . . 2010. .598 2. . . . . . . . Restructured loans to receivable from customers. .307 17. . 2013. . . . . . . Receivable from customers . . the Bank’s practice is to restructure those classified loans which it considers suitable for restructuring. . . . . . . . Non-accruing loans to receivable from customers . . . . As of September 30. .067 29. . . .656 268. . . . . . . . . .615 5. . . . .5% 23. .4% 6. . . . . Allowance for credit losses (loans) . . 2013. . .4% 31. . 2013. . . . . . . . . . . . . .985 67. .671 2. loans and other assets in litigation are classified as NPAs. . . .769 157. . . 2013: As of As of December 31.5% 26. . . . . . . . . . . . .8% 3. . . . . . . . . (3) Including Interbank Loans Receivable and Securities Held Under Agreements to Resell. . restructured loans and write-offs for loan losses as of the three years ended December 31. . . . . .102 32. (4) Based on BSP computation (5) If based on BSP computation. . . .081 0. . . .020 3. Total restructured loans. . . . Loans—written off. ROPA. the ratios were computed based on figures reported to the BSP. . . . . NPAs to total assets . Non-performing loans (NPLs).912 4. . . . . . . .149 5. . . . . . . . . .478 331. . . .9% 110 6. . . . . . . . . . . . .909 109. . . .571 145. .8 billion of ROPA for the years ended December 31. . .7% 20. . . six consecutive payments are required for the loan to be considered performing. . . .003 78. . . The Bank has established the Special Asset Management Group to actively manage and. the Bank had approximately P0. .073 3. .913 297. . . . . . . except percentages) Non-performing loans (NPLs). As of September 30. . . . . . . . The Bank restructures loans on a case-by-case basis. . .1% 6. . . . . . . . . . . ROPA. . . . . . . . . . . .973 7. .316 2. . ratios were computed based on the balances on the audited financial statements. . . . . . . . .6% 20. . . . . . . . . . .636 1. .487 3. . . . . . . .9% 2. . . . . . . . . where appropriate. . . . .717 606. .2% 30. . . In order to manage its loan portfolio and reduce its exposure to NPLs. . sell its ROPA.4% 33. .033 95. .732 5. 2010. . . .5 billion and P1. . The Bank has sold approximately P3. . . . . . . . . . . . . . . . . . Gross. the NPL is based on GAAP under the Purchase Method. .550 6. . . .749 16. . . . . . . . net(2) . . . . . .067 8. . . . . the Bank’s loan loss coverage as of September 30. . . . . Allowance for credit losses (loans) to total non-performing loans.408 3. . . Allowance for impairment and credit losses (total) to total nonperforming assets . . . . . non-accruing loans. . . . . Allowance for impairment and credit losses (total) . (2) Net of NPLs fully covered by allowance for credit losses. . . . 2011 and 2012. . . . . . . . . . . . . . . Non-accruing loans . .9% 604 Notes: (1) For the figures as of September 30. . . Restructuring methods used by the Bank have included extending the maturity of loans beyond their original maturity date and providing for rescheduled payments of principal consistent with the expected cash flows on the borrower in question.8% 2. . . .617 5.804 133. . . . . . . . . . .9% 4 8. . . . . . . . . 162 . . . . . . .550 1. . . . . . . . . .255 2. . . . . . . . . . Net. . As of December 31. . . . . . . . .

. . . . Total .5 0. respectively. . . . . . . . . . . . . . .4 billion in aggregate.912 30. . . As of December 31. . .8 21. . . . .999 6. . . . . . . . . . . . . . . . . .4%. . . . Public administration and defense . . . . . . . . . . .2 0. . . . . . . Under the SPV Act. . . . . . . . . and forestry . . . . . . . . . . .0 0. . fishing. . . Year 5 . . .2 0. . . . . . . . .0 0. . . . .2 0. . .6 20. . . . . . . . in 2002. . . .9 0. . . . . . . . . . . . . . . . . . . . . .6 11.Sectoral analysis of non-performing loans The following table sets forth.8 0. . . . . . . . . . . the Bank’s exposure from its 10 largest NPLs range from P130. . . . . . the Bank sold NPLs with an outstanding balance of P5.9 0. . . . 9182. . . . Utilities . . . . . . . social and personal activities . . . . . . . . . . . . . . . . . . . The Bank availed of the regulatory relief provided by the SPV Act and as such did not recognize the losses on the NPAs sold to SPVs. . . . . . . . . .6 billion. .9 100. . . . . Year 8 . .7% of the Bank’s total gross loans and 61. . . . . . . . . . 163 . . . . . . . . . . . However. . . . . . . . . . .7 42. . . . . . .257 7. . . . . . . . . . Year 4 . . . . . . .286 17 157 28 0 0 28 198 46 6. . . . . . . . .2 4. .4 100. . . . . . . . . . 2013 Amount % 2010 Amount % Manufacturing (various) . . . . . . . 2013. . . . . . .9 8. 2005. Community. .0 million. . . . . . . . . .5 24. . . . . . . . . . P4. . . . . . . . . . . . . . . . . .7 billion and P7. . . .734 1. . . . . . . . . . . . . . . .041 903 1. . .4 3.6 4. The Bank intends to reduce the ratio of NPLs to total gross loans and be within industry average. . . . . . . . Wholesale and retail trade . . . . . . . . . . . . . . . Transport. . . . . . . . .0 1. . . . .9 3. . . . . . . . . .1 0. . . . . . and amounted to approximately P6. . . . . . .0 0. . . . . . . . . . . . . . . . were not compliant in certain respects with the prescribed treatment of PFRS for these sales. . . . . . . . . . . . . . . . . . . . . . .4 0. . . . . . . . No. . . . . . . . . . . known as the Special Purpose Vehicle (SPV) Act of 2002 (the “SPV Act”) for various distressed Philippine companies to transfer assets to special purpose entities with tax benefits. . . . . .2 0. . . . . . . . . . . . . . . . . 2011 and 2012. . Financial Intermediaries . .0 0. . . . . In 2004. . . . . . the Bank’s gross NPLs by the respective borrowers’ industry or economic activity and as a percentage of the Bank’s gross NPLs: As of December 31. except percentages) As of September 30. . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 billion. . . . .993 2. . . as of the dates indicated. . P11. . . . .1% and 2. Year 3 . . . . . . . . . . . . . . Construction. . . . .8 3. . . . . . . . . . .683 3. . storage and communication . . Real estate. . . . . . . . . . . . . . . . . . . . . .1 12. . . . . . .830. losses on the sale of NPLs to special purpose vehicle companies may be amortized over a 10-year period in accordance with the regulatory accounting policies prescribed by the BSP on the following schedule: End of period from date of transaction Cumulative write-down of deferred charges Year 1 .009 2.255 20. . . . . . . . . . . .666 26. . . . . . . .0 0. . . . . . . . . . . . . . . . . . . . . . . .057 294 349 37 0 12 76 73 665 8. . . . 2.3 2. . . . .0 Top 10 non-performing loans As of September 30. Year 10 . . . . . . . . . . . . . . . . . . . . . .1 19. . Sale of non-performing loans As a result of the Asian financial crisis in the late 1990s to the early 2000s. . the ratio of NPLs to adjusted gross loan portfolio was 3. . Year 6 . . . . . . . although in compliance with the accounting policies of the BSP on the matter. . . .9 100. . . . . 5% 10% 15% 25% 35% 45% 55% 70% 85% 100% The above-mentioned sales are part of the Bank’s strategy of reducing its exposure to NPLs. . . .1 100. Agriculture. . . . Year 9 .3 4. . . . . . . . .0 2. . .2 0. . . . . . .4 36. .0 0. . . . . . . . . . .7 billion. . .1 29. . . . . . . . .4 0.0 million to P1. . These 10 largest NPLs accounted for 2. . .2 2. . . . . . . . . the Bank’s amortization of these sales to its SPVs. the Government enacted Republic Act. . . respectively. . . . . . . . . . . . . . . 2011 2012 Amount % Amount % (Q millions. . . . .0 1. . . . . Year 2 . . . . . . . . . . . . . . . . . . .083 869 1. . .0 0. . .5 2. . . 2006 and 2007. . . . . . . . . . . . . . . . . . . . .5% of its gross NPLs to customers. . . .487 30. . . renting and business activities . . . .624 61 268 166 2 9 25 310 2. . . . .2 28.4 0. Year 7 . . .394 17 203 32 1 11 12 291 1. . . . . . . . .

covering properties that need special handling. 4. private and public sealed bidding and cross selling. and Asset Pool 6. Asset Pool 2 for amnesty programs. 69. 3.8 billion in appraised value. namely: Asset Pool 1 for traditional channels such as negotiated sales.5% premiums to book value. and in re-orienting the ROPA sales organization towards a selling focus. Focus on “mid-value” market segment. In terms of the total value. In addition. For the three years.0% residential.In 2012. Asset Pool 3 for joint ventures. 2013.0% others. which will go beyond mere information dissemination. Special Assets Management Group The Special Assets Management Group (“SAMG”) is responsible for the overall supervision of the Bank’s ROPA. auction. which have yielded a weighted average of 21. ROPA sales amounted to P0. 164 . SAMG aligns its directions with the Bank’s overall plans and strategies in the utilization of financial and operational resources.7 billion each year on ROPA. 46.8 billion. Asset Pool 5.8 billion are commercial and 33. amounting to approximately P29. Reorganize Special Assets Management Group to focus solely on its selling/disposal functions. 2. In the nine months ended September 30. 2013. The main objective of the SAMG is to manage and dispose of approximately 9. In order to align resources and improve focus on the disposal of the Bank’s ROPA. 17. The Bank’s ROPA selling strategy for 2013 and onwards shall continue to rely on portfolio selling approach but focusing on mid-market segments that will provide for better growth opportunities. The key selling strategies are: 1.0% are residential.0% are classified as commercial.800 ROPAs of the Bank as of September 30. and Evaluate and execute other forms of “wholesale” disposal approaches. 11. Of this total number of ROPA. Reduce to operating level the accounts payable items.0% agricultural and 3. and Asset Pool 4 for special purpose vehicles and compromise settlements. the Bank restated its 2011 and 2010 financial statements to recognize the losses from the sale of NPAs to SPVs in the years the NPAs were sold as required by PFRs. the Bank’s ROPA has been classified into 6 asset pools. the Bank generated average annual of P2. for agriculture (covering properties that are eligible for inclusion in the Comprehensive Agrarian Reform Program). Create marketing initiatives that will be more pro-active and aggressive.0% of the P29. 5.

. . . . . . . . . . . . . . . . . . . see Note 17 to the Bank’s audited consolidated financial statements included in this Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . controllership. . . .417 5. . . . . . . . . . . . . . . . . . . Tied to this is a competency-based performance management system that calls for the alignment of individual key results. . . . . . . . . . . . . . . President and CEO . . . . . . .662 employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .com. . . . . . . . . . . . . . . . competencies. . . . . . . . . . . . . . . . . . . . Assistant Managers . . . . . . . . . . . . Corporate Social Responsibility The Bank manifests and demonstrates its responsibility to society in various ways. . . . . . . . . . . . . .ph. . . It also provides the Bank’s management critical information on relevant developments in the financial markets that may be utilized by the Bank in formulating its long-and short-term plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .040 8. . . . . In aspiring to be a worldclass company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Bank currently has 8. . . . . . . . . . . . . . . . . . . . . . . General Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . legal. . . . . . as of September 30. . . . . . . . . . . . 355 1 3 42 86 223 3. . . . . . . . . . . . . . . .CORPORATE STRUCTURE Operational and Management Support The Bank provides operational support to all of its subsidiaries. . . 165 . . . . . . . . . . . . . . . . Managers: . . . . . . . . . . . . . . . operations and human resource services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ph and iru@pnb. Total Headcount . . . The Investor Relations Office of the Bank may be reached at (632) 526-3131 local 2084 and 2120 or centenoec@pnb. . . . . . . . . . . . . . . . . . . . . . Assistant Vice President to Senior Assistant Vice President. . . . . . . . . . . . However. .com. . . . . . . . . . divided by function. . . . . . . . . . . The following table provides total employee headcount. . . . . investors. . . . . . . . . . . . Employees and Labor Relations Management believes that the Bank’s current relationship with their employees is generally good. . . and stockholders. Senior Vice President to First Senior Vice President . . . . . . . . . . . . . . . . . . . . . . . . Salaries and benefits are reviewed periodically and adjusted to retain current employees and attract new talent. . . . . . The support provided includes information technology. . Executive Vice President . . . . . . . . with over 3. . . . . . . . . . . . . . . . . Consistent with the Bank’s goal of being one of the Philippines’ preferred employers. . . . . Normal retirement benefit consists of a lump sum benefit equivalent to 116% of the basic monthly salary of the employee at the time of his retirement for each year of service. . . . . Vice President to First Vice President. the Bank has adopted a compensation policy that it believes is competitive with industry standards in the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . impact to society and the environment is an important element in the way the Bank conducts its business. . . . . . . . . . . . . . . . . . . Investor Relations The Bank’s Investor Relations Office strives to ensure that the market prices of the Bank’s securities accurately reflect the values of the assets and expectations of future earnings. . . . . . . . . .622 employees as part of its management. . . . . Senior Managers . . . . The Bank has two unions. . . . . . . . . . . . . . For more information on the Bank’s retirement plan. . . . . . . . . . . . . . . . . . . . . . Performance is reviewed annually and employees are rewarded based on the attainment of pre-defined objectives. . . .662 The Bank’s retirement plan has a normal retirement age of 60 years. . . . . . . . . . and development plans with the Bank’s overall business targets and strategy. . . . the Bank has not been involved in any material disputes or employee related lawsuits that may adversely affect the Bank and its operations. . . . . . . . . . . . .267 202 648 2. . . . 2013: Employees of the Bank and its subsidiaries Executives: . . . . . Managers . . . It also oversees all corporate communication with analysts. . . . .

its subsidiaries. To ensure the Bank’s compliance with the principles of good corporate governance. The Board of Directors is primarily responsible for approving and overseeing the implementation of the bank’s strategic objectives. Employee Insurance The Bank provides its employees with group accident insurance. the Board Overseas Oversight Committee. This is achieved primarily through the formulation of policies and procedures. term life insurance and medical hospitalization insurance coverage in line with good business practice and in accordance with Philippine standards. The Bank actively promotes the safety and soundness of its operations through a compliance system that fully adheres to banking laws. To further strengthen good corporate governance. the Board has elected the independent directors to act as Chairman of the Board. In addition. These are the Board Audit and Compliance Committee and the Corporate Governance/ Nominations Committee. Insurance premium payments for these policies are paid entirely by the Bank. the Board ICAAP Steering Committee. Board Audit and Compliance Committee and the Trust Committee. Vistan currently serve as the Bank’s three independent directors. an organizational structure and an effective compliance program that will support the bank’s compliance system. the Executive Committee. the board members have been selected as members of the standing committees constituted pursuant to the corporation’s Code on Corporate Governance. The Bank has also obtained insurance policies for all of its employees. the three independent directors play an active role in the formulation of the business strategies and priorities of the Bank as stipulated in the Board approved Five Year Strategic Business Plan of the Bank. whichever is the lower number. corporate governance and corporate values. The independent directors are also members of the Risk Oversight Committee wherein the Chairman is a non-executive director and the former president of a government bank with universal banking license. The Board and the Committees continue to review and strengthen the corporate governance policies to adopt consistency in the corporate governance framework in the Bank. risk management strategy. and install a process of selection to ensure a mix of competent directors and officers. every employee of the entire organization is expected to embrace the same degree of commitment to the desired level of corporate standards. the Board of Directors appointed the Chief Compliance Officer as the Corporate Governance Executive tasked to assist the Board and the Corporate Governance Committee in the discharge of their corporate governance oversight functions. the Philippine Securities Regulation Code requires the Bank to have at least two independent directors or such number of independent directors as is equal to 20% of the Board. integrity. ensure compliance with all relevant laws. and strategies to carry out its objectives. the Corporate Governance/Nomination Committee. Alfiler and Deogracias N. Tarriela. 166 . regulations and codes of best business practices. and probity. The Corporate Governance/Nominations Committee ensures the board’s effectiveness and adherence to corporate governance principles and guidelines and the selection of members of the Board and senior executives of the bank as well as in the appointment in the respective Board committees. subsidiaries and its affiliates. The Bank’s Board of Directors is composed of individuals of proven competence. rules and regulations and to maintain an environment that is governed by high standards and best practices of good corporate governance. internal controls and compliance with legal and regulatory requirements.Corporate Governance The Bank believes that compliance with the principles of good corporate governance begins with the Board of Directors. In the same manner. and affiliates. In these Board Committees. These individuals determine the Bank’s purposes. Florencia G. The Board Audit and Compliance Audit Committee has oversight responsibility relating to the integrity of the Bank’s financial statements. vision and mission. Felix Enrico R. Recognizing the importance of the role of independent directors. Compliance with the highest standards in corporate governance principally starts with the Board of Directors which has the responsibility to foster the long-term success of the Bank and secure its sustained competitiveness and profitability in accordance with its fiduciary responsibility. adopt a system of internal checks and balances.

. Jr. . .. . Philippine Branch. but in no case less than two. . . . II. Under the Bank’s Amended By-Laws. . . 2013 August 1. . . . . and IV (“Against All Odds”). 2013 December 8. . . . . manage and supervise. . The Board of Directors is empowered to direct. She also serves as an Independent Director of PNB Capital and Investment Corporation. . . Tarriela was also former Undersecretary of Finance. . Nelson . . Ltd. Ms. . . . . . . . 2005. . . Director Reynaldo A. Director Washington Z. . . Tarriela. . 2012 May 25.MANAGEMENT Board of Directors The overall management and supervision of the Bank is undertaken by its Board of Directors. Alfiler completed his undergraduate and graduate studies in Statistics at the University of the Philippines in 1973 and 1976. Director Lucio K. Ms. Tarriela . . . . Vistan. 2000 February 9. . He undertook various continuing education programs. 2009 March 21. . .. .“Coincidence or Miracle? Books I. . . and the Summer Institute of Linguistics (SIL). Vice Chairman/Independent Director Omar Byron T. . Mier . . Maclang . . She was formerly Deputy Country Head. Director Harry C. Alfiler. and PNB (Europe) Plc. . She is an environmentalist and practices natural ways of gardening. . . Independent Director Board appointees: William T. have direct charge of the business activities of the Bank. She was formerly an Independent Director of the Philippine Depository and Trust Corporation. where she topped the Masters Comprehensive Examination. Coronel . There should be at least two Independent Directors or such number of directors that constitutes twenty per cent of the members of the Board. . at the 167 . . . . . . 2011 January 25. . . . .“Oops—Don’t Throw Those Weeds Away!” and “The Secret is in the Soil”. A. . Lim. 2007 February 9. . the Board of Directors consists of fifteen members. . 2013 February 9. 2012 and as the Vice Chairman of the Board of Directors effective on May 28. . . . . . 2001. . . . . Tan. . . . Mr. Managing Partner and the first Filipino lady Vice President of Citibank N. The Executive Officers. . . 2013 January 1. . . . 2013 January 20. . Director of PNB Life Insurance. Los Angeles. She is a Life Sustaining Member of the Bankers Institute of the Philippines (BAIPHIL). . . . the affairs of the Bank. . . . Board Advisor Doris S. . Te . . . was elected as Independent Director of the Bank effective January 1. first elected as a Director on May 29. Director Lucio C. . . Director Estelito P. . . . . . . a Trustee of FINEX Foundation. . . . . . . . . . . . . Director Deogracias N. Ms. from the University of California. . . . . . . and gardening books. . . from the University of the Philippines and her Masters in Economics degree. . . . . . respectively. . Felix Enrico R. . Filipino. . . 2013: Name Position Date Elected to the Board Citizenship Age Florencia G. . whichever is higher.. and as an Independent Director since May 30. . . . . Tan . . Inc. . and LTG. . 2013. has been serving as Chairman of the Board of the Bank since May 24. Corporate Secretary May 29. . . . the Philippine Dealing and Exchange Corporation and the Philippine Dealing System Holding Corporation. Tarriela is a co-author of several inspirational books. . Director Michael G. Director/President & CEO Florido P. . 2012 Filipino Filipino Filipino Filipino Filipino Filipino Filipino British American Filipino Filipino Filipino Filipino Filipino Filipino Filipino 66 63 67 72 67 75 83 54 92 67 79 47 47 69 72 32 The following is a brief description of the business experience of each of the Directors: Florencia G. . . . 2013 May 20. . . 2006 May 28. . . Casuela . . . . . . 1999 September 28. She obtained her Bachelor of Science in Business Administration degree. . Tarriela is currently a columnist for “Business Options” of the Manila Bulletin. They are responsible for the implementation of the policies set by the Board in their respective business units. subject to control and supervision of the Board. . . . 66. . . Major in Economics. Alfiler . . . 2006. . . . 2005 May 30. . TSPI Development Corporation. . . Director Christopher J. . . . Tan . . The table below sets out the members of the Board of Directors as of September 30. She is a Director of PNB overseas subsidiaries—PNB RCI Holdings Co. including financial analysis and policy. . . . . Mendoza. 63. under its collective responsibility. . . . . 2001 January 1. and an alternate Member of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). Land Bank of the Philippines (LBP) and the Philippine Deposit Insurance Corporation (PDIC). III (“Blessings in Disguise”). . . Director Leonilo G. Tan. Chairman/Independent Director Felix Enrico R. SyCip . Filipino.

Prior to his election as a member of the Board of the Bank. In the private sector.. Casuela. Inc. and Governor for Fair Trade Alliance. Pacific Rim Land Realty Corporation and Hillcrest. Assistant to the Governor of the Central Bank of the Philippines. Associate Director at the Central Bank and Head of the Technical Group of the CB Open Market Committee. Bulawan Mining Corporation. Casuela was also formerly the Chairman of the National Livelihood Support Fund. Ltd.. and Republic Planters Bank Venture Capital. Land Bank of the Philippines from July 1998 to August 2000. He also worked with Citibank N. Major in Accounting. Leonilo G. Inc. He was Vice Chairman of the Land Bank of the Philippines. 67. Inc. Inc. PNB Italy SpA. LBP Countryside Development Foundation. Omar Byron T.. Alfiler was an Advisor at Lazaro Tiu and Associates. he obtained his degree in Bachelor of Science in Business Administration. He has been serving as Director of the Bank since May 25. EBECOM Holdings. He is a Trustee of the LBP Countryside Development Foundation. Mr. where he is also the President. Manila Electric Company. HK. 2002 to April 10. PNB (Europe) Plc and PNB RCI Holdings Co. Filipino.IMF Institute of Washington. LBP Leasing Corporation. Pacific Cement Corporation. Mier.. He has published articles relating to... Florido P.. Management Development Corporation. Inc. He was formerly a BSP Consultant/Senior Adviser for the Philippine National Bank. D. he served as Executive Vice President and Chief Credit Officer from August 16. Inc.. Inc. He is also a Director of Surigao Micro Credit Corporation and a Senior Adviser of the Rural Bank of Makati. Mier. PNB Remittance Centers. Ltd. Inc. in 1981 and on the restructured electricity industry of the UK in London in 1996. PNB Holdings Corporation. Director of the Bangko Sentral ng Pilipinas. PNB Securities. Among the various positions he held were: Philippine Representative to the World Bank Group Executive Board in Washington. Petrochemical Corporation of Asia Pacific. He was formerly the Chairman of Victorias Milling Company. an 168 . (Singapore).. Alfiler was also the Monetary Policy Expert in the Economics Sub-Committee of the 1985-1986 Philippine Debt Negotiating Team which negotiated with over 400 private international creditors for the rescheduling of the Philippines’ medium. 2010. Ltd. policy responses to surges in capital inflows and the Philippine debt crisis of 1985. Mr. All Asia Capital and Trust Corporation. Coronel. Casuela was one of the ten (10) awardees of the 2001 Distinguished Alumni Award of the UP College of Business Administration. as well as its subsidiaries namely: Tampakan Mineral Resources Corporation. LBP Financial Services SPA.. Special Assistant to the Philippine Secretary of Finance for International Operations and Privatization. Japan-PNB Leasing and Finance Corporation. 67. A Certified Public Accountant.. Inc.. PNB Securities. LBP Realty Development Corporation. Mr. and his Masters in Business Administration from the University of the Philippines. Inc. He took the Advanced Management Program for Overseas Bankers conducted by the Philadelphia National Bank in conjunction with the Wharton School of the University of Pennsylvania. obtained his degrees in Bachelor of Science in Business Administration. Casuela was also a Member of the Board of Directors of the Cotton Development Authority. the globalization of the Philippine financial market. He is also a Director of PNB Forex. 2013 after serving as Acting President since July 17. Mr. Inc. People’s Credit Finance Corporation and Westmont Forex. President of Pilgrims (Asia Pacific) Advisors. Filipino. (Manila and Malaysia) for 24 years where he held the positions of Country Risk Manager/Senior Credit Officer and Head of the Risk Management Group and World Corporation Group. He is a Director of Sagittarius Mines. He is currently Chair of PNB Capital and Investment Corporation. Vice President of the Philippine Product Safety and Quality Foundation. Major in Economics degree from the Ateneo de Manila University in 1967 and finished the Advance Management Program of the University of Hawaii in 1977. Inc. He became a Fellow of the Australian Institute of Company Directors in 2002. a Certified Public Accountant. President of the Cement Manufacturers Association of the Philippines (CeMAP). 2005 and was formerly President and CEO of the Bank until May 24. Inc. 72. 2006.. Inc. LBP Insurance Brokerage. Advisor to the Executive Director at the International Monetary Fund. he served as Deputy General Manager & Corporate Banking Department Head of Deutsche Bank.. Inc..A. National Food Authority. Masaganang Sakahan. 2012. Mr.. and Westmont Securities. Inc. 2005 then was appointed as Acting President on 11 April 2005. Filipino. and a Director of Citra Metro Manila Tollways Corporation and Credit Information Corporation.and long-term foreign debts. Presently. Major in Accounting. and Surigao Micro Credit Corporation from June 2001 to November 2004. Manila from 1995 to 2001. and PNB Global Remittance and Financial Co. and PNB RCI Holdings Co. obtained his Bachelor of Arts. Inc. has been serving as Director of the Bank since May 30. He is currently a Director of PNB Holdings Corporation. Before joining the Bank in 2002.. was appointed as the Bank’s President and Chief Executive Officer (CEO) on February 9. and Bachelor of Arts in Economics from the University of the Philippines. among others. Asean Finance Corporation.C. PNB General Insurers Co.C. Inc. from February 1992 to July 1993. Board Member of the Federation of Philippine Industries (FPI). Japan-PNB Equipment Rentals Corporation. He was formerly the President of Maybank Philippines. D. Ltd. Inc. he is the Managing Director of the Bankers Association of the Philippines (BAP)—Credit Bureau. Mr. Philippine Crop Insurance Corporation.

Inc. Inc. 92.. He is also one of the founders and Chairman Emeritus of the Asian Institute of Management. Inc. among others. First Philippine Holdings Corp. He holds a Bachelor of Arts degree in History and Masters of Arts degree in History both from the Emmanuel College. American. 2009. Reynaldo A. He is a member of the Board of Directors of a number of other major corporations in the Philippines and other parts of the world. Kuwait. conferred by Philippine President Benigno S. Philippine Hotelier. Manila for twenty (20) years. a member of the Executive Committee of the Philippine Business for Social Progress and the President of Cebu Bankers Association. A practicing lawyer for more than sixty years. Nelson is also involved in various business and non-profit organizations that work for the social and economic upliftment of communities. Lufthansa Technik Philippines. was elected as a Director of the Bank effective January 1. He is also Vice President of the American Chamber of Commerce Foundation and the Tan Yan Kee Foundation. the PHINMA Group. and became President of Allied Banking Corporation in 2001 up to 2009. “Chambers of Asia” and “Which Lawyer?” yearbooks. Stateland. He also worked with Citibank. Estelito P. was elected as an Independent Director of the Bank on March 21.S. He is the President of Philip Morris Fortune Tobacco Corporation. Arthur Young/U. Christopher J. Inc. and State Properties Corporation. Mendoza. Realty Investment. Pacific Dunlop and United Technologies Corporation. Meralco. He obtained his Bachelor of Laws degree from the University of the Philippines and Master of Laws degree from the Harvard Law School. the Philippine Dealing System and the Philippine Depository & Trust Corporation. Maclang. Mr. Aquino.. He is a Director of the American Chamber of Commerce. Member of the Batasang Pambansa and Provincial Governor of Pampanga. 31st Session of the UN General Assembly and the Special Committee on the Charter of the United Nations and the Strengthening of the Role of the Organization.. He also previously served as the Treasurer of PDS Holdings. III on 30 June 2011. Rank of Grand Cross. a Director of Software Ventures Int’l. 83. He also served on the International Boards of the American International Group. (PMFTC. He holds a Bachelor of Laws degree from the Ateneo de Manila University. He has also been a Professional Lecturer of law at the University of the Philippines. France. has been serving as a Director of the Bank since May 30. 75. He is the Chair of Cityland Development Corporation.. Inc. Inc.. Vice Chairman of the Board of Trustees of The Conference Board from 2000 to 2004). Philippine Equity Management. He is presently an Independent Director of Belle Corporation. STEAG State Power. Among his awards are the Order of Lakandula. Inc. Coronel was a Consultant of BAP. he has been consistently listed for several years as a “Leading Individual in Dispute Resolution” among lawyers in the Philippines in the following directories/journals: “The Asia Legal 500”. AID and Economic Development Foundation. He currently serves as a member of the Board of Directors of Philippine Airlines.) up to April 30. 54. 2013. AT&T. and Chairman of the Asia Pacific Advisory Committee of the New York Stock Exchange from 1997 to 2004). Filipino. Filipino. Yemen. was elected as a Director of the Bank on February 9. and Horn of Africa. Inc. the Philippine Band of Mercy and the Federation of Philippine Industries. Inc. Washington Z. 25 years of which were with Philip Morris International holding various positions including Philip Morris Area Director for Saudi Arabia. Inc. and served as Solicitor General. Chase Manhattan Bank. and Century Properties. Prior to his present positions.. He is also a Director of Allied Leasing and Finance Corporation and Allied Savings Bank. Gulf Cooperation Council. He was the Chairman of the Sixth (Legal) Committee. 2000. He has an extensive 31 years of experience in the tobacco business. Owens-Illinois. and an Executive Director of Rafael Buenaventura Micro Finance Foundation. a Director of the Philippine Clearing House Corporation.. Mr.Independent Director of Megawide Construction Corporation and DBP-Aiwa Securities SMBC Phils. He was a member of the Board of Trustees of Ramon Magsaysay Award Foundation (2005-2008) and Eisenhower Exchange Fellowship from 1999 to 2010). He was a Director of Allied Bank since August 15. Lopez Holdings. British. and Honorary Life Trustee of The Asia Society. Nelson. subject to regulatory approval. Inc.. member of the International Advisory Board of the Council on Foreign Relations from 1995 to 2010. 169 . Cambridge University. Land Bank of the Philippines. the Philippines’ largest professional services firm.. Previous to that. Australia & New Zealand Bank. SyCip served as President of the International Federation of Accountants from 1982 to 1985. MacroAsia Corporation. he had been connected with other commercial banks and practiced law. Mr. Caterpillar.. member of the Board of Overseers of the Graduate School of Business at Columbia University. He is the founder of SGV Group. 2013 and concurrently serves as the Managing Director of Philip Morris Philippines Manufacturing. San Miguel Corporation. Highlands Prime. 2013. a Trustee/Treasurer and member of the Capital Market Development Council Institute. Inc. Philamlife. He was formerly the President of Allied Savings Bank from 1986 to 2001. Inc. occupying various positions. Honorary Chairman of the Euro-Asia Centre of INSEAD in Fontainebleau. Inc. Minister of Justice. Commonwealth Foods. and Petron Corporation. He has been with the Bank since 1977. 2001. Sycip.

. 67. Doctor of Institutional Development and Management. Tan received the following honorary degrees: Doctor of Humane Letters.. Cagayan). Dr. PMFTC Inc.. has been serving as a Director of Allied Banking Corporation since November 1999. Dominium Realty and Construction Corp. the City of San Francisco. Tan. Major in Commerce. adopted to the Ancient Order of the Chamorri and designated Ambassador-at-Large of the U. Filipino. Inc. Central Philippine University (Iloilo City). Lucio C. Award for Exemplary Civilian Service of the Philippine Medical Association. declared May 11 of each year as Dr. He is presently the Chairman and CEO of Philippine Airlines. Inc.. Harry C. and Tanduay Distillers. Isabela). He was named Entrepreneurial Son of Zamboanga. Jose P. Belton Communities. Inc. LT Group. Tan was named Outstanding Manilan for the year 2000 by the City Government of Manila and conferred the UST Medal of Excellence in 1999.... and conferred the 2008 achievement award for service to the chemistry profession during the 10th Eurasia Conference on Chemical Sciences. Nueva Ecija). and the Officer First Class of the Royal Order of the Polar Star awarded by H. He is the Adviser/Benefactor of the medical scholarship program of Asia Brewery. the Management Man of the Year given by the Management Association of the Philippines in 1967. He is also the Vice Chair of Lucky Travel Corp. Iloilo). from UST. Basic Holdings Corporation. Inc.. The island-territory of Guam also celebrates Lucio Tan Day on November 2 of each year. and Doctor of Humanities.S. Inc. the highest award given by the Pontifical and Royal University of Santo Tomas. Inc.Lifetime Achievement Award given by Columbia Business School in 2010 and Asia Society in 2012. Western Visayas College of Science and Technology (La Paz. Central Luzon State University (Muñoz. In recognition of his achievements. Tan became the Chairman of Allied Banking Corporation from 1977 to 1999. business acumen. Filipino. he continues to share his time and resources with the community. Corp.. and is a member of the Board of Directors of various private firms which include Asia Brewery. Honorary Mayor and Adopted Son of Bacolod City and Adopted Son of Cauayan City. He is also the founder and Vice Chairman of the Foundation for Upgrading the Standard of Education. Rizal Awards for Excellence. Star of the Order of Merit Conferred by the Republic of Australia in 1976. In 2003. one of the highest honors conferred by the Vietnamese Government on foreign nationals. He was chosen as a Lifetime Achievement Awardee by the Dr.. Doctor of Humanities. Basic Holdings Corporation. REM Development Corporation. From humble origins. Dr. PAL Holdings. Inc. Asian Alcohol Corp. Tan was also conferred the following awards: “2003 Most Outstanding Member Award” by the Philippine Chamber of Commerce and Industry (PCCI) in recognition of his altruism and philanthropy.. Himmel Industries. Eton Properties Philippines. 79. Doctor of Business Management. Tanduay Brands International Inc. Landcom Realty Corporation and Oceanic Holdings BVI Ltd. For his outstanding achievements and leadership. San Beda College (Manila). Tan. has been serving as a Director of the Bank since December 8. and Oceanic Bank. Doctor of Applied Agriculture. Tan is the President of Century Park Hotel. he founded the Tan Yan Kee Foundation. Eton City Inc. of which he is Chairman and President. Despite Dr. awarded as distinguished fellow during the 25th Conference of the ASEAN Federation of Engineering Association. Ramon Magsaysay Award for International Understanding in 1992. St. Island-territory of Guam. Doctor of Technology Management. Doctor of Humanities in Business and Entrepreneurship.. Pangasinan). He is the Managing Director/Vice Chair of Charter House Inc. (FUSE). He is also a Director/Chair for Tobacco Board of Fortune Tobacco Corporation. Progressive Farms.. LT Group. Eton Properties Philippines. Fortune Tobacco Int’l. U. Doctor of Science in International Business and Entrepreneurship. Lyceum-Northwestern University (Dagupan City. 170 . Inc. Inc. Pan Asia Securities Inc. He studied at Far Eastern University and later obtained his Chemical Engineering degree from the University of Santo Tomas (UST). Tan’s various business pursuits. Aside from being named Most Distinguished Bicolano Business Icon in 2005. the King of Sweden in 1987. Western Mindanao State University (Zamboanga). Inc. Inc. Cavite State University (Cavite)..A. Tanduay Distillers. Award of Distinction by the Cebu Chamber of Commerce and Industry. hard work and perseverance in his numerous business ventures. Inc. (FFCCCII). Doctor of Business and Industrial Management Engineering. Himmel Industries.S. and First Homes.M. Manufacturing Services and Trade Corporation.. Inc.. Inc.. Doctor of Humanities. Shareholdings Inc. Inc. and Benefactor/Honorary Adviser of other professional and socio-civic groups. and conferred the Diploma of Merit by the Socialist Republic of Vietnam.. Fortune Tobacco Corporation and PMFTC Inc. University of Guam (Guam. Inc. USA). Dr. Inc.. 1999. Mr. Lucky Travel Corporation. In 1986. Lucio Tan’s Day in the Bay area. Isabela State University (Cauayan.. Inc. Inc. Foremost Farms. Dr. University of Mindanao (Davao City). He is likewise Chairman Emeritus of the Federation of Filipino-Chinese Chambers of Commerce and Industry. Inc. Tobacco Recyclers Corporation. Inc. Inc. Inc.. Dr. Isabela. Grandspan Development Corp. PAL Holdings. Absolut Distillers... the Officer’s Cross of the Order of Merit given by the Federal Republic of Germany in 2006. Tan is the President of Grandspan Development Corporation and a Director of PNB Life Insurance. Allied Bankers Insurance Corporation. He is also the Chairman of Asia Brewery. he earned the degree of Doctor of Philosophy.. Paul University Philippines (Tuguegarao. He holds a Bachelor of Science degree in Chemical Engineering from Mapua Institute of Technology.

Prior to her appointment. Lorenzo Shipping Corporation and U-bix Corporation. 2013. He holds a Bachelor of Applied Science in Civil Engineering degree from the University of British Columbia. She joined the Bank in 2009.Lucio K. Deogracias N. He also serves as Board Advisor of PNB Remittance Centers.. PAL Holdings. Vice Chair of Metropolitan Bank and Trust Company from 2000 to 2001. He completed the academic requirements for his MBA at the J. he was a Director of Corporate Apparel. Inc. was appointed as Corporate Secretary of the Bank on January 20.. Concept Clothing. Presently. He holds a Bachelor of Science in Chemical Engineering degree from the Adamson University. has been serving as a Director of the Bank since September 28. Inc.. and Freeman Management and Development Corporation. Inc. Tan. Inc. He is currently a member of the Board of PNB Capital and Investment Corporation. he served as Consultant of Allied Banking Corporation since 1995. Inc. Inc. she also serves as a Director and Corporate Secretary of Valuehub. He also served as President of FNCB Finance from 1979 to 1980. He obtained his degree in Bachelor of Science in Civil Engineering (Minors in classical Chinese Mandarin and Mathematics) from the University of California Davis in 1991. she was Assistant Corporate Secretary and later Acting Corporate Secretary of the Bank. Allied Bankers Insurance Corporation and Eton Properties Phils.. 32.L. Michael G. Inc. Canada. was elected as a Director of the Bank on February 9. Inc. and an importer/distributor of Chinese. PNB (Europe) Plc. a family-owned distribution company. Shareholdings. Inc. Doris S. He is a member of the Board of Directors of Phillip Morris Fortune Tobacco Corporation (PMFTC). was appointed as an Independent Director of the Bank on August 1. MacroAsia Corporation. He works with MacroAsia Corporation. Tan is currently the President of Tanduay Distillers. was appointed as Advisor of the Bank on January 25... Inc.. He obtained his AB and BSBA degrees from the De La Salle University and earned his MBA from Wharton Graduate School. He also worked with Equitable Banking Corporation. Previous to that. 2011. and a member of the Board of Directors of the following companies: Abacus Distribution Systems Phils. She began her law career as a Junior Associate in Zambrano & Gruba Law Offices and in Quiason Makalintal Barot Torres Ibarra & Sison Law Offices. From 1985 to 1994. 47. and Executive Vice President (EVP) of Fortune Tobacco Corporation. LT Group. 171 . Inc. Jr. Tan. Inc. 2012. Mr. Eton Properties Philippines. Solidbank Corporation from 1992 to 2000 and Land Bank of the Philippines from 1986 to 1992. Vistan likewise held various management positions in Citibank Manila. Te. Inc.. the holding firm of the Tan Companies. 69. Kellogg School of Management of Northwestern University and the School of Business and Management of the Hong Kong University of Science and Technology in 2006. and President of Equitable-PCI Bank from 2001 to 2002. Inc.. Philippine Airlines. President of Jas Lordan. Inc. Inc. PAL Holdings. He is a former Presidential Consultant on Housing from 2002 to 2003 and President of the Bankers Association of the Philippines from 1997 to 1999. Filipino. where he held the rank of President and Chief Executive Officer for 7 years. PNB Italy SpA. Allied Bankers Insurance Corp. Filipino. Mr.. PDS Holdings Corporation. PNB Italy SpA.. Australian and New Zealand apples. He is President/ Director of LT Group. Lim. rising from the ranks to becoming a Vice President of the Foreign Department.. Absolut Distillers. 47.. and Victorias Milling Company. Cebu and New York from 1968 to 1986). Inc. Eton City. She obtained her degree in Bachelor of Science in Business Management in 2001 and earned her Juris Doctor in 2005 at the Ateneo de Manila University. Allied Commercial Bank. He also served as a Director of Allied Banking Corporation since January 30. Bulawan Mining Corporation. 72. Lucky Travel Corporation. 2007. Air Philippines Corporation. 2013.. PAL Foundation. Filipino. Mr. Vistan’s extensive banking experience includes being Chair of United Coconut Planters Bank from 2003 to 2004. PNB Capital and Investment Corporation.. Inc. 2008 until the ABC’s merger with PNB on 9 February 2013. He is also the Director/Chief Operating Officer of Asia Brewery. PMFTC Inc. Philippine Airlines. Air Philippines Corporation. Inc. Inc.. Filipino. He is also Executive Director of Dynamic Holdings Limited. Filipino... and as Chairman of Creamline Dairy Corporation.. He also attended courses in Basic and Intermediate Japanese Language.. Vistan. The Board appointees are: William T. Inc.

. . . . . . . . . Omar Byron T. . . . . Chief Financial Officer & Head. . . . Gonzalez Ramon L. . Lim 54 62 Filipino Filipino Edgardo T. . . . . . . . . . . . . . . . . . . . . Corporate Planning and Research Division. . . . . . . . . . . . . Branch Banking Group . . . . . . . Senior Vice President & Head. . . . . . Lim John Howard D. . . . . . Senior Vice President & Head. . . . . . . . . . . . . . Emeline C. . . . . . . . . . . Executive Vice President. . . . . . . . . . . Dobles Jovencio D. Audencial. Senior Vice President & Head. . . . . . . . . First Senior Vice President & Head. . . Treasury Group. . Senior Vice President & Treasurer. . . First Senior Vice President (seconded as President & CEO of Japan-PNB Leasing and Finance Corporation) . . . . . . Centeno Alice Z. . . . . . . . . . . Senior Vice President. . . . . . . . . Nallas Benjamin J. . . . Executive Vice President & Head. . . . Financial Management and Controllership Group . Senior Vice President & Head. . . . . . . . . . . . . . . . . . . Chief Credit Officer & Head. . . . . . . . . . . . . . . . . First Senior Vice President & Head. . . Global Filipino Banking Group . . . Senior Vice President. . . . Executive Vice President & Head. . . 64 Filipino Miguel Angel G. . . . . . Chief Security Officer & Head. . . . . Oliva Emmanuel German V. . . . . . . . . . 55 Filipino Zacarias E. . . . . . . . . Inc. . . Tuazon 172 53 57 54 56 61 52 44 64 57 49 Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino . Senior Vice President. . . . . . . . . . . . . . First Senior Vice President & Head. . . . . . . . . . . Mier Horacio E. . . . Gallardo. Special Assets Management Group . . . Chief Risk Officer & Head. . . First Senior Vice President. . . . . . . . . . . Pama Emmanuel A. . . . First Senior Vice President & OIC. . . . Jr. . . . . Padilla Carmela A. . . . . . . . . . . . 2013: Position Name Age Citizenship President & Chief Executive Officer . . . . . Corporate Security Group . . . Jr. Risk Management Group . . . . . . Hernandez Yolanda M. . . . Chief Marketing Officer & Head. First Senior Vice President & Head. Cordero Socorro D. . . . . . . . . . Sarte Rafael Z. . . . . Chief Compliance Officer & Head. First Senior Vice President. . . . . . . Human Resource Group. Consumer Finance Group and Consumer Credit and Collection Division. . . . . . . . . . .) . . . . . . . . . . Medina Aida M. . Remedial and Credit Management Group . . . Corporate Banking Group & Government Banking Group. . Commercial Banking Group . First Senior Vice President & Head. . . .The following is a list of the Bank’s Executive Officers as of September 30. . First Senior Vice President (seconded as President & CEO of PNB Securities. . . Sison. . . . . . Cebrero III Christopher J. . . . . . . . . . . . . . . . Albano 67 51 69 60 62 Filipino Filipino Filipino Filipino Filipino Cenon C. . . . . . . . . . . . . . . . . . . . . . Remedial Management Division . . Retail Banking Sector . . . . . . Global Compliance Group. . . . . . . . . Jr. . . . . Corpus Maria Paz D. . . Global Operations Group . . . . . . . . . . . . . . . . . . . . . . . Marketing Group. Plan II 56 60 61 Filipino Filipino Filipino Elfren Antonio S. . .

He was also a Director of SB Forex and Security—Phil Am. Filipino. . the Business Continuity Committee and the Labor Management Relations Committee. . Executive Vice President. . is Head of the Corporate Banking Group and the Government Banking Group. Portfolio Management and other Treasury-related activities. He was also appointed as the Internal Affairs Officer of the Anti-Fraud Committee. . . . He holds a Bachelor of Arts degree from the University of Sto. 55. is Head of the Bank’s Corporate Security Group and concurrently the Bank Security Officer of Allied Savings Bank. . Foreign Exchange and Fixed Income Trading. . . Audencial. . . . . . Filipino. 60. Trust Banking Group. starting off as an Account Officer at the Business Development Division and moving on as Head of the Credit and Research Department. He is also a commissioned officer with the rank of Major in the Philippine Constabulary Reserve Force. . . . . from the De La Salle College. She joined Allied Bank in 1977. . . . . She is a past President of the Bank Marketing Association of the Philippines (BMAP) and the Credit Management Association of the Philippines (CMAP). . . Lim Manuel C. . . Fixed Income Sales. . . . He was a Treasurer.. . Tomas and took up units in Masters in Business from the Ateneo Graduate School. Ms. . Branch Banking. . is Head of the Treasury Group. . Jovencio B. . . Vice President Head of the Foreign Exchange Desk of Citibank Manila and Vice President/Chief Dealer of the Treasury Group of Asian Bank Corporation. she is a member of the Financial Executives Institute of the Philippines (FINEX) and the Makati Business Club. . . . Trust Banking. Executive Vice President. 62. At present. comprising the Account Management Division and the Merchant Banking Division. . First Vice President & OIC. Major in Marketing. and Group Product Manager of CFC Corporation and Unilever in 1982 and 1980. Yap 58 52 52 50 Filipino Filipino Filipino Filipino The following is a brief description of the business experience of each of the Executive Officers: Horacio E. is Head of the Retail Banking Group. Jr. Jr. . prior to which he was a Senior Relationship Manager of Corporate Banking and Unit Head of Global Relationship Banking for Citibank N. . . . . he has held key positions with the Allied Banking Corporation including Head of the Corporate Affairs. . . Cenon C. Hernandez. A Certified Public Accountant. . Information Technology Group. Executive Vice President. . and was a Relationship Manager in Citytrust 173 . . Before joining PNB. . . Cebrero III. Director and Executive Committee Member of Bancnet in 2004. He was a member of the Allied Bank’s Senior Management Committee and the Personnel Committee. . Dioscoro Teodorico L. . Before joining the Bank in 2009. 69. Prior to becoming the Bank Security Officer. . he obtained his Bachelor of Science in Commerce degree. He also held the post of Senior Vice President and Deputy Treasurer of Rizal Commercial Banking Corporation. . . First Vice President & OIC. . . . . Filipino. . . respectively. . Bahena. Commercial Director of Colgate Palmolive in 1996. . 51. . . Filipino. Jolejole Constantino T. . He previously served as Vice President and Unit Head of Standard Chartered Bank’s Relationship Management Group. . . Albano completed her AB-Economics degree in three years with a Dean’s Award for Academic Excellence from the University of the Philippines. Senior Country Operations Officer of Citibank in 1995. He was also a former President of the Bank Security Management Association (BSMA) and was consistently elected as a member of the Association’s Board of Directors up to present. . Prior to joining PNB. .Position Name Age Citizenship Senior Vice President & Chief Audit Executive . . Head of the Account Management Division. . . he was a Senior Vice President and the Head of the Consumer Banking Group of Security Bank and was also the Senior Vice President for Retail Banking of Union Bank of the Philippines in 2004. He served as the Chairman of the Investigation Committee. is Head of the Bank’s Commercial Banking Group. . Legal Group. . . . . . . Josephine E. . First Senior Vice President (FSVP). . . concurrent Head of the Corporate Affairs Department. . He was formerly the President of Security Finance in 2004 and First Union Plans in 2003. . . . She was previously the FSVP and Head of Allied Bank’s Institutional Banking Group. Atty. He obtained his Bachelor of Science in Commerce degree. he was an Executive Vice President and the Treasurer of EastWest Banking Corporation. . he was with Allied Bank since 1977. . Major in Accounting. he headed the Institutional and Corporate Bank of ANZ. . . . First Senior Vice President. . He brings with him 29 years of experience in the banking industry starting from Loans and Credit. . Christopher C. Yolanda M. from the De La Salle University. . . Filipino. Vice President & Head. . . . Dobles. He was formerly the Head of Allied Bank’s Credit Investigation and Appraisal Department. .A. . and Head of the Institutional Banking Division. . . . Prior to joining PNB. Albano. . .

Lim. is First Senior Vice President of the Human Resource Group. First Senior Vice President. Since September 2011. He has earned units for his Masters in Business Administration degree at De La Salle College. Cards and Citiphone Banking). Credit Cards Business. First Senior Vice President. He entered the bank in March 2010 as Senior Vice President for Commercial Banking Group. Oliva. NA in 1988. as its President. First Senior Vice President. First Senior Vice President. 64. Inc. Mr. Filipino. is Head of the Global Filipino Banking Group (GFBG) which manages PNB’s overseas network of branches and remittance subsidiaries in Asia. 54. Audencial obtained his Bachelor of Arts in Economics degree from the Ateneo de Manila University. 56. He became a Director for various divisions such as Country Sales. and North America. where he exhibited his expertise in sales and headed different sales divisions (Corporate Banking. He obtained his degree in AB Economics (Accelerated) from the De La Salle University in 1977 and has earned units in Masters in Business Administration (MBA) from said school. BA Savings Bank (1997) and Philippine Bank of Communications (1998-2005). he moved to PCI Bank and handled the Corporate Banking. He obtained his Bachelor of Science in Industrial Engineering degree from the University of the Philippines and Masters in Business Management degree from Asian Institute of Management. He then moved to become the Managing Director of Solid Pacific Finance Ltd. He joined the Bank in November 2002 as Deputy Head of the Treasury Group. Bacolod City. Major in Accounting (Cum Laude) from the De La Salle University. Oliva joined PNB on September 10. He started his banking career with Citibank NA in 1984. Filipino. Inc. He moved to Jardine Manila Finance in 1978 as Vice President of the Metro Manila Auto Finance. is the Chief Credit Officer and Head of the Remedial and Credit Management Group. he has been a designate Consultant for Consumer Banking of United Coconut Planters Bank. He had served the Central Bank of the Philippines for 24 years where he was extensively exposed to all phases of banking. the Middle East. Inc. next. a wholly-owned subsidiary of the Bank. He was re-assigned back to the Treasury Group as its Head in January 2007 until July 2010. On January 2006. a Certified Public Accountant. He was Treasurer. he became the Country Manager for Genpact Services LLC. is the President and CEO of PNB Securities. He obtained his Bachelor of Science in Commerce degree. 2012. at its Taipei Branch as Vice President and Deputy Treasurer. Benjamin J. and finally. Business Development and Personal Loans from November 1999 to January 2006. Gallardo. Edgardo T. HK from 1996 to 1997. at its Hong Kong Regional Office as Senior Trader and Currency Fund Manager. Mr. 174 . he was hired by Citibank Savings. Prior to PNB. He completed his Masters in Business Management at the Asian Institute of Management (AIM) in 1980 as a full scholar under the Post-Graduate Scholarship Program of Citibank Manila where he worked from 1975 to 1993. He was designated the Chief of Staff of the PNB President from May 2010 until July 2011. From June 2009 to July 2011. Gallardo. Europe. Inc. Before his 20-year stint as a Relationship Manager. In 1981. He then headed the Branch Banking Group of Land Bank of the Philippines in 1989 then joined Union Bank of the Philippines in 1994 where he was Senior Vice President and head of Credit and Market Risk Group. then Business Manager and Trust Officer of Union Bank of the Philippines from 1997 to 2002. He also headed the Allied Bank’s ICAAP Core Team and Business Continuity unit.. Nallas. In 2007. Filipino. In 1980. Filipino. he held concurrent positions as Commercial Banking Director of Citibank NA and Board Member of Citibank Savings. He started his career with FNCB Finance. Filipino. Gonzalez. 60. at that time.Banking Corporation. and Investment Manager of MHK Properties and Investment Ltd. Major in Accounting (Magna Cum Laude). Mr. He worked with consultancy firms and published a reference book on Regulations on Trust and Fiduciary Business and Investment Management Activities.. 2012. He started his career in Human Resource in 1977 with PhilBanking Corporation. obtained his degree of Bachelor of Science in Commerce (Summa Cum Laude) from the Far Eastern University in 1969. Inc. He joined Allied Bank in 1996 and served as the bank’s Controller from 2001 until he joined PNB in 2012. Jr. Hong Kong from 1993 to 1995. Loans. from the University of San Carlos in April 1971 and is a Certified Public Accountant. He joined Citibank. Ramon L. Oliva started his career as a banker at the State Investment Bank where he was Head of Corporate Sales Lending Division. He was designated as Head of International and Branch Offices Sector in 2005 and 2006. He has been a Fellow of the Institute of Corporate Directors since May 2011. Zacarias E. where he held various junior managerial positions from 1973-1978. was appointed as Chief Financial Officer and Head of the Financial Management and Controllership Group of the Bank on October 1. he was a Credit Analyst for Saudi French Bank and AEA Development Corporation.. He began his overseas postings at Citibank’s Head Office in New York in 1984. Miguel Angel G. he held various HR positions at SolidBank Corporation (1992-1995). 62. Oliva obtained his Bachelor of Science in Commerce degree. Mr. Mr. in concurrent capacity as President and CEO of PNB Securities.

A graduate of the Assumption College with a Bachelor of Arts degree. Her professional affiliations include the following: founding member and a Board Member of the Organization Development Professional Network (ODPN). was appointed Chief Compliance Officer of the Bank on June 16. He started his career in the Bank of the Philippine Islands in 1978 and went up the corporate ladder in various banks with stints at Citytrust Banking Corporation (1987-1994). She is concurrently the Corporate Governance Executive of the Bank. to name a few. from the Ateneo de Davao University. She obtained her degree of Bachelor of Science in Business Economics from the University of the Philippines—Diliman. Filipino. Filipino. Far East Bank and Trust Company (1986-1988) and Citibank N. 61. holds a Bachelor of Science in Business Administration degree. Risk Management and Compliance. He concurrently held the position of Senior Vice President of State Investment Trust and State Properties Corporation. is Head of the Human Resource Group. Prior to joining the Bank. 54. Centeno. Cordero. 2007-2010). She has earned units in Masters in Business Administration at the Ateneo Graduate School of Business. Jr. United Overseas Bank (2000). rose from the ranks and held various positions at the Department of Economics and Research. Her 31 years of banking experience include working for Allied Banking Corporation (1979-1983. Plan is also into social. affiliates and foreign branches. After a short stint. Business Development. from 1983 to 1995. Inc. Senior Vice President.A.Emmanuel German V. LSQC Scholarship Foundation. she was the Chief Compliance Officer of Allied Banking Corporation (2007-2010). and the regular Bank representative to the Banking Industry Tripartite Council. Major in Management. Chinatrust Commercial Bank Corporation (2002-2006). is Head of the Consumer Finance Group and Consumer Credit and Collection Division. She started her career with China Banking Corporation in 1973 as an HR specialist prior to joining the Allied Banking Corporation in 1977 as an Assistant Manager. Monitoring and Implementation Division and the Corporate Planning Division before assuming her present position as Head of the merged Corporate Planning and Research Division. 61. Centeno was awarded as one of the Ten Outstanding Employees of the Bank in 1987. Filipino. Major in Psychology as well as an Associate in Commercial Science degree. He was appointed as the First Senior Vice President and Head of the Branch Banking Group on February 9. He has exposure in investment banking. UST-EHSGAA and Magis Deo. Financial Control. including Compliance and Control Director (2000-2005) and concurrent Regional Compliance and Control Director for Philippines and Guam (2004). he served as Head of Allied Banking Corporation’s Retail Banking Group since February 2010. Sarte. Rizal Commercial Banking Corporation (2000-2002). is Head of the Corporate Planning and Research Division. Corporate Regulatory Reporting. Emeline C. Mr. from the University of Santo Tomas and took up Masteral Studies at the Letran College. He holds a Bachelor of Science Degree in Commerce. Prior to joining the Bank. 53. First National Bank of Chicago—Manila Branch (1983-1986). Previous to that. Credit & Research Management. is Head of the Special Assets Management Group. he was the Senior Vice President of the Special Assets Group of Allied Banking Corporation. he accepted the offer to join Planters Development Bank as their Branch Banking Group Head with the rank of Senior Vice President. Minor in Mechanical Engineering. Sison. he returned to Allied Bank. from the De La Salle University.C. Senior Vice President. Asset Strategy. She obtained her Bachelor of Science in Statistics degree (Dean’s Lister) and completed the coursework in Master of Arts in Economics (on scholarship) from the University of the Philippines. Filipino. She worked with Citibank N. he was the Business Unit Manager of Credit Information Bureau. He also acted as Managing Director of Bear Stearns State Asia and Northeast Land Development Corporation. she has been an HR practitioner for almost 40 years. 175 . past President and member of the Bankers’ Council for People Management. Filipino. He has been involved in acquired assets management and in real estate development since 1997. She joined PNB in 1983. member of the Personnel Management Association of the Philippines. Senior Vice President. 2013. First Senior Vice President. Product Development. Plan II. Rafael Z. In May 2011. Prior to his appointment. Socorro D. and Philippine National Bank (2006-2010). holding department head positions in Credit Policy. account management.A—Manila Branch (1988-2007) for nineteen (19) years and held various senior positions in the Consumer Banking Group. Alice Z. he was connected with the Union bank of the Philippines. 57. Elfren Antonio S. Solid Bank (1994-2000). Inc. First Senior Vice President.. 56. He was also a Rating Analyst with the Credit Rating Division of CIBI. He has an extensive experience in both Branch Banking sales and operations. Major in Accounting. He obtained his Bachelor of Science in Industrial Management Engineering degree. Corpus. holding various positions the latest of which was First Vice President and Head of Retail Risk Management Division responsible for the management and approval of consumer loan products. He was also concurrent Head of Retail Collections (2008-2009). Foundation. From 1995 to 2010. Q.—Manila Branch (1988-2007).. credit and collection. religious and charitable undertakings through his active involvement in different educational and religious foundations like Sambayan Educ. (CIBI). 2010 with oversight on the Parent Bank including all subsidiaries. Ms. Filipino.

Major in Accounting. Senior Vice President. He joined PNB in 2003 and was appointed as Head of Documentation and Research Division of the Legal Group in 176 . 1981. is Head of the Global Operations Group. Lim. Filipino. She left Citibank with the rank of Vice President and moved to Banco Santander to open its operations in the Philippines. from St. Major in Accounting. He started his career in 1976 with SGV as a Staff Auditor. Bahena. (Phils. and Robinsons Bank. He also served as Compliance Officer of Allied Savings Bank (seconded officer) from August 2001 to August 2006. He rose from the ranks to become an Audit Officer in 1986. Lim.A. Prior to joining PNB. Major in Mathematics. is Chief Audit Executive (CAE) of the Bank. Prior to heading the Global Operations Group. process and technology retooling of the Bank culminating in the replacement of its core banking systems in the Philippines. (Phils. Japan. Jardine Pacific Finance. and Operations and Quality Development. Filipino. Major in Finance and Marketing. Dioscoro Teodorico L. He also attended the Handelshojskolen I Arhus (The Aarhus School of Business). She moved back to Citibank. Mr. Senior Vice President. The ICAAP is the enterprise-wide program to ensure the group continually reviews its level of risk and ensures the adequacy of capital commensurate to its risk taking abilities. he was Vice President for Marketing of Security Bank. Mr. She is chief strategist as regards problem and distressed accounts. Singapore and Hong Kong. 49. Theresa’s College. from the University of San Carlos—Cebu. She joined PNB on June 23. a private consultancy firm based in Delaware that specialized in designing and reengineering processes for financial institutions and electronic commerce firms. New York University. ABN AMRO Savings Bank. 52. N. 58. Carmela A. He is a member of the Institute of Internal Auditors (IIA) Philippines. Medina. Bank of the Philippine Islands. Tuazon. Aside from his banking career in the Philippines. Medina was a process consultant to US banks. Pacific Asian Management Institute and the European Summer School for Advanced Management for additional graduate studies. she obtained her Bachelor of Science in Business Administration and Accountancy degree from the University of the Philippines and Masters in Business Administration degree from the Stern School of Business. 64. 44. was designated as Head of the Internal Audit Division of Allied Banking Corporation until his appointment as CAE of PNB on February 9. Emmanuel A. Senior Vice President. Association of Certified Fraud Examiners (ACFE)—Philippines and Philippine Institute of Certified Public Accountants. She obtained her Bachelor of Science in Business Administration degree. UK. is the Bank’s Chief Marketing Officer and Head of the Marketing Group. Filipino. rose from the ranks and occupied various officer positions at the Department of Economics & Research. He was an East-West Center Degree Fellow and the recipient of a full scholarship while at the University of Hawai’i. he holds a Bachelor of Science in Commerce degree. He founded LibSal. Padilla.) in 1996 to head various operation units. and in 2000. Filipino. Filipino..A. Manuel C.) where she held various positions in the areas of Treasury Trading and Marketing. Pama. Senior Vice President. PBCOM. Medina later worked with Union Bank of the Philippines where he conceptualized and implemented electronic banking products and services. is Head of the Remedial Management Division. Aida M. is the Corporate Treasurer. Solid Bank.Maria Paz D. Jr. A Certified Public Accountant. she rose from the branch banking ranks at the Philippine Banking Corporation to become Vice President for Marketing at the Corporate Banking Group. Senior Vice President. branch banking and consumer banking at Citibank. Senior Vice President. A seasoned professional. he was Head of the Business Systems Support Group at PNB where he facilitated the policy. Filipino. she was a Consulting Services Practice Manager at Oracle Corporation (Phils. she also coordinates the ICAAP implementation of the PNB Group. Her more than 6 years with PNB has continually improved her proficiency in all facets of banking operations. and after a year was Field in Charge until 1978 before joining Allied Banking Corporation in 1979 as a Junior Auditor. She obtained her Bachelor of Science in Commerce degree. from the University of the Philippines and Master in Business Administration from the Ateneo de Manila University. 52. He is also a Director of the Rosehills Management Development Corporation. John Howard D. 2013. Filipino. 57. 2006. He started his banking career as a management consultant to Citibank-Asia Pacific for several years. is the Bank’s Chief Risk Officer.) from 1999 to 2005. He started his banking career in 1984 and held various positions in marketing. He has a Bachelor of Science in Industrial Engineering degree from the University of the Philippines and an MBA from the Shidler College of Business at the University of Hawai’i at Manoa. A Certified Public Accountant. Prior to joining PNB on October 9. She started her banking career with Citibank N. He obtained his Bachelor of Science degree. First Vice President. Budget Office and Corporate Disbursing Office prior to her present position. is the Officer-in-Charge of the Legal Group. Further to her role as CRO. US. from the University of the Philippines. She has been involved in the merger/integration team since its inception and is member of the Integration Management Office.

6 Executive Compensation Bonuses Total 2013 . . . . . . he was the Corporate Secretary and Vice President of the Legal Department of Multinational Investment Bancorporation.. . . . She is a member of the Board of Trustees of the Trust Institute Foundation of the Philippines. . . . Travel and Tours). . . . . . . New York. . . . . . 50. . . Before joining PNB. . . . USA in 1984 and earned his Master of Science in Electrical Engineering at Purdue University. . . . . Inc. . . . . . Compensation of Directors and Executive Officers Information as to the aggregate compensation during the last two fiscal years and to be paid in the ensuing fiscal year 2013 to the Bank’s Chief Executive Officer and four other most highly compensated executive officers and all other officers and directors as a group are as follows: Chief Executive Officer and four other most highly compensated executive officers (in million Pesos): Executive Compensation Bonuses Total 2013 . . . . . . . . . . . . . . . . . . . . . . Indiana. . . . . . . While in the US. . . . . . . . . . Filipino. . 177 . . . Inc. . . . . He also formerly served as Corporate Secretary and Legal Counsel of various corporations. . . .9 33. . . . . Head of the Information Technology Group. . USA in 1986. . Atty. 2007 as Assistant Vice President for the Special Projects Section of the IT Division. Josephine E. Aside from the said amounts.. . . . . . . . . . . . . She was subsequently appointed as Head of Fiduciary Services Division of the Trust Banking Group in 2011. .9 24. . . . .2009. . . . . they have no other compensation plan or arrangement with the Bank. that provides promotions and marketing services running on IVRS (interactive voice response systems) from 1988 to 1994. . . . He also worked as an IT Consultant for various call centers and B2B firms from August 2002 up to May 2004. . . . 2012 . and American Network Exchange Inc. . . . . . . Orioxy Investment Corporation. . . . 52. . . . She obtained her Bachelor of Science in Business Economics from the University of the Philippines and her Bachelor of Laws also from University of the Philippines’ College of Law. . . . . . . . he was a computer telephony programmer and systems analyst for Phoneworks. . . . . . . . . . . . . . . . . 2011 . . . . . . . . she was the Trust Officer of the Union Bank of the Philippines. . . All officers and directors as a group unnamed: 28. . . . . . .3(*) 271. Brooklyn. . . . . . . . . . . . Aside from the said amounts. . . . . . . . Filipino. . Constantino T. . . . .9 9. . .6(*) 1. . . . . . Inc. Jolejole. . among which are: the Corporate Partnership for Management in Business. . .7 The directors receive fees. . . . . . . . Prior to that. . . . He was hired by Allied Banking Corporation on October 1. . .065. . .7 37. . . . The executive officers receive salaries. . . . . . . . . . . . From 1994 to 1996. . . She joined PNB in 2007 as Head of Trust Legal Unit. . . he was the Dean of the College of Engineering and College of Computer Studies and Systems at the University of the East from May 2005 up to May 2007.2 750. . . . He obtained a degree of Bachelor of Engineering in Electrical from Pratt Institute. . . . . . . . . . Inc. . . . . he helped managed their family’s construction business. .8(*) 32. . . . bonuses and allowances that are already included in the amounts stated above. . . . . . West Lafayette. . and Central Bancorporation General Merchants.0 8. . . . . .6 248. Vice President. . Before joining PNB. . . . . . . . . .2 1. . Cencorp (Trade. . . . . . . .2(*) 8. . . . . . (*) estimated amount 913. . . . . . . .5 312. . . .6(*) 24. .8 998. . . .225. . . . . . . . . . . . . . . . He obtained his Bachelor of Science in Business Administration degree from Lyceum of the Philippines in 1981 and his Bachelor of Laws degree from Arellano University in 1987. . . . . . Inc. . . . and as Assistant Dean of the College of Computer Studies at Lyceum of the Philippines from May 2004 to May 2005. . . . He was employed by the Manila Jockey Club and Philippine Racing Club for their computerization upgrade and migration project of the horse racing operations from 1996 to 2000. . . . . . they have no other compensation plan or arrangement with the Bank. . . . . . . . Philippine Islands Corporation for Tourism and Development. . First Vice President is the Officer-in Charge of the Trust Banking Group. . . . . 2012 . . . . . . . . . . . . . . 2011 . . . Yap. . . . . . . . . . . . . . . bonuses and other usual bank benefits that are included in the amounts stated above.3(*) 794. . .

securities. Neither the Directors nor any of the Executive Officers have. or vacated. fiduciary accounts. for a period covering the past five years. domestic or foreign. the Board Audit and Compliance Committee. Board Overseas Oversight Committee The Board Overseas Oversight Committee was created in June 2012 to provide oversight on the international operations and to preserve the long-term viability consistent with the bank’s strategic goals. and the judgment has not been reversed. suspending or limiting their involvement in any type of business. suspended. barring. the Commission or comparable foreign body. internal controls and compliance with legal and regulatory requirements. the Board Oversees Oversight Committee. A brief description of the functions and responsibilities of the key committees are set out below: Executive Committee The Executive Committee was created to perform the functions and duties as the Board may confer upon it in accordance with law and the By-Laws of PNB. domestic or foreign. risk assessment policies and procedures and provide active oversight on the consistent adoption of the Bank’s ICAAP Program.Involvement of the Bank. the Risk Oversight Committee. Board Committees Specific responsibilities of the Board are delegated to its sub-committees: the Executive Committee. judgment. are expected to have a material adverse effect on the Bank and its subsidiaries or their financial condition. the Corporate Governance/Nomination Committee. commodities or banking activities. (ii) any criminal conviction by final judgment or being subject to a pending criminal proceeding. other than cases which arose in the ordinary course of business in which they may have been impleaded in their official capacity. or a domestic or foreign Exchange or other organized trading market or self regulatory organization. Risk Oversight Committee The Risk Oversight Committee has the primary task to assist the Board in the management of the risks the bank is exposed to and development of risk management strategies to prevent losses and minimize financial impact of losses. Board Audit and Compliance Committee The Board Audit and Compliance Committee has oversight responsibility relating to the integrity of the Bank’s financial statements. the Board/ICAAP Steering Committee and the Trust Committee. Trust Committee The Trust Committee provides direction for the trust business and management of trust assets. investments and trust services. either individually or in the aggregate. or decree. None of such legal proceedings. Corporate Governance/Nomination Committee The Corporate Governance/Nomination Committee ensures the board’s effectiveness and adherence to corporate governance principles and guidelines and the selection of members of the Board and senior executives of the bank as well as in the appointment in the respective Board committees. the Directors and Executive Officers in Certain Legal Proceedings The Bank and some of its subsidiaries are parties to various legal proceedings which arose in the ordinary course of their operations. Board/ICAAP Steering Committee The Board ICAAP Steering Committee was created to perform periodic evaluation and approval of the Bank’s capital planning. permanently or temporarily enjoining. reported: (i) any petition for bankruptcy filed by or against a business to which they are related as a general partner or executive officer. 178 . to have violated a securities or commodities law or regulation. (iii) being subject to any order. of a competent court. and (iv) being found by a domestic or foreign court of competent jurisdiction (in a civil action).

the Board of Directors appointed the Chief Compliance Officer as the Corporate Governance Executive tasked to assist the Board and the Corporate Governance Committee in the discharge of their corporate governance oversight functions. subsidiaries and affiliates are required to be fully aware of. the corporate governance guidelines and the AML Risk Rating System issued by Bangko Sentral ng Pilipinas and foreign regulators on AML/CFT laws and regulations. The bank has policies and procedures embracing the compliance framework. there has been no material deviation noted by the Chief Compliance Officer. With a proactive Board and executive level oversight. effective compliance organizational structure. robust MIS and compliance reporting. Moreover. regulations. which reports directly to the Board Audit and Compliance Committee. Business Vehicle Compliance Division. a Corporate Governance Monitoring Unit was established to provide support to the Chairman of the Board. subsidiaries and affiliates. periodic monitoring and assessment. With a comprehensive compliance system effectively implemented enterprisewide. branches and business vehicles. rules and implementing guidelines issued by both local and foreign regulators. as the Parent Bank. This is to complement the other three major divisions namely: Global AML Compliance Division. To further strengthen good corporate governance. standardized policies and procedures across all businesses. This is achieved primarily through the formulation of policies and procedures. Regulatory Compliance Division. The Global Compliance Group. The Bank’s AML/CFT Policy Guidelines and Money Laundering and Terrorist Financing Prevention Manual are two major manuals approved by the Board in November 2012. comprehensive compliance and AML awareness training and independent compliance testing reviews. corporate policies and procedures and international best practices. 179 . The bank is fully committed to adhere to existing and new AML laws. rules and regulations and to maintain an environment that is governed by high standards and best practices of good corporate governance. The Global Compliance Group continue to evolve to reinforce the bank’s Compliance System with the creation of the Global Compliance Testing Review Division to institutionalize compliance testing reviews among the bank units.Compliance with Corporate Governance Practices The Bank actively promotes the safety and soundness of its operations through a compliance system that fully adheres to banking laws. The Chief Compliance Officer has direct responsibility for the effective implementation and management of the enterprise compliance system covering the Bank domestic and foreign branches. The Bank’s existing Compliance Program defines the seven key elements of an effective compliance framework. laws and regulations and enhancements to corporate standards of which Philippine National Bank. The Compliance Program also incorporates the new policies. its local and foreign branches. is primarily responsible for promoting compliance with the laws and regulations of the different jurisdictions. offices. branches and business vehicle entities. thru the Chief Compliance Officer as the designated Corporate Governance Executive. The Compliance Program has been implemented consistently in the various bank units. an organizational structure and an effective compliance program that will support the bank’s compliance system.

. . . . . . . and with certain Directors. . . . . . . 423 to total loans . . . . . .3% 2. . Under the said circular. . . .0% 3. . . . . . . . . . 2007 and the Bank is in compliance with such regulations. 2010 2011 2012 2013 (Q billions. Percent of unsecured DOSRI accounts to total DOSRI loans . .4% 4. . 70% of which must be secured. . . . BSP Circular No. . and with certain DOSRI. . . . . . . . . . . whichever is lower. . . . Under the Bank’s policies. . . . the Bank has loans and other transactions with its subsidiaries and affiliates. On January 31. . . . . Percent of nonperforming DOSRI accounts to total DOSRI loans. Further.0% 14. BSP Circular No. Percent of past due DOSRI accounts to total DOSRI loans. .0% of the net worth of the lending bank. .3% P 4. . . . . . Percentage of unsecured DOSRI loans to total DOSRI loans . .0% 2. . . .0% .7 2. . . . . . . . . . DOSRI loans generally should not exceed the Bank’s net worth or 15% of the Bank’s total loan portfolio. . . . . The said Circular became effective February 15. .3% 2. . . the amount of direct credit accommodations to each of the Bank’s DOSRI. .3 1. . . . . . . . . . . . . . . . . . . . . . . . . .7 2. should not exceed the amount of their respective deposits and book value of their respective investments in the Bank. . imposing lower ceilings on loans. stockholders and related interests (DOSRI) is shown under Note 31 of the audited financial statements of the Bank included in this Prospectus. . . . . . . . . . . except percentages) Total outstanding DOSRI loans:. . . . . . . . . . 423 to total loans. As of September 30. . . . . . . . . . . . . . . . .3% P2. . . . . . . . .0% 0. . Stockholders and Related Interests (“DOSRI”). . 180 P 2. . . 464 dated January 4. .6% 0. . .0% 0. . . officers. . . . . . Percentage of DOSRI loans to total loans. . . Percent of DOSRI accounts granted after effectivity of BSP Circular No. and the unsecured portion shall not exceed 5. . In the aggregate.7% On January 31. . . .4% P 4. . .RELATED PARTY TRANSACTIONS In the ordinary course of business. . other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasibanks. See “—Certain Relationships and Related Transactions” Certain Relationships and Related Transactions In the ordinary course of business.0% of such net worth.2 P 4. Under the Bank’s policy. . the Bank was in compliance with such BSP regulations. . . . . . . . . the total outstanding exposures shall not exceed 20. 2013 and December 31. .3% 0. . . . . . . . .0% 24. . . . . . . .0% 14. . . . . . . . . . . . . . . . . . . . . . . .0% 2. .4% 4. . . the Bank has loan transactions with a subsidiary. Percent of DOSRI accounts to total loans . . . . . . The following table shows information relating to DOSRI accounts of the Bank: 2010 2011 2012 Total outstanding DOSRI accounts (in billions) . 2005 clarifying the definition of stockholders. . . . . . . . . . . . 560. . . these loans and other transactions are made substantially on the same terms as other individuals and businesses of comparable risk. . P 2. . 2007. . . . . . . . the total outstanding loans. .3% 24. . . . . Under BSP Circular 423. . Further. . . . . . . . . . 423. . . other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. . . . . . the BSP issued Circular No. . . DOSRI Loans and Deposits The following table sets out certain information relating to the Bank’s DOSRI loans as of the dates indicated: As of As of December 31. . . . . . . . . these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks.6% 3. . . . . . . Percent of DOSRI accounts granted prior to effectivity of BSP Circular No. . . . .0% 0. .0% 0. . . . . . . . 2012. . . . Officers. .4% 4. credit accommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10. . . dated March 15. . . . . . . . . . Information related to transactions with related parties and with certain directors. . . . . . BSP issued Circular No. . . .2 2. .8% 10. 560 was issued providing the rules and regulations that shall govern loans. . . 2007. September 30. . . . . . . .0% 2. . .9 4. . . . . . 2004 amended the definition of DOSRI accounts. . . .0% of bank’s net worth.9 P2.

. . . . . . . . . . . . . . . . . . . . . . . . . . . .4 552. .6 12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 P671. . . . . . . . . . . . . . . .The year-end balances as of December 31. . . . . . . . . . . . . . . . . . The Bank is not a subsidiary of any corporation and had no transactions with promoters. . . . . . . . . . . . . . . . . . . . . . .9 P28. . . . . . . . . . . . . . . . . . . . P629. . . . . . . . . . . . . . . . . . . . . . . . . . . .3 The income and expenses for the years ended December 31. . . . . . . . .3 18. . . 2011 and 2012 in respect of subsidiaries included in the Bank’s financial statements are as follows (amounts in millions): 2011 2012 Interest income . . . . . . . . . . . . . . . . .5 946. . . . . . Deposit liabilities . . . . . P17. . . Interest expense . . . . . . . . . . 181 . . . . . . . . . 2011 and 2012 in respect of subsidiaries included in the Bank’s financial statements are as follows (amounts in millions): 2011 2012 Loans and receivables . . . . . The significant inter-company transactions and outstanding balances of the Bank with its subsidiaries were eliminated in consolidation. . .8 The effects of the foregoing transactions are shown under the appropriate accounts in the Bank’s financial statements. . . . . . . . . . . . .

. . . . . . . .760 58.61% of the Bank’s voting securities. . . . . . . . . . . . . . . . . . . Ltd. . Security Ownership of Certain Beneficial Owners and Management Security Ownership of Record and Beneficial Owners As of September 30. . . . . . . . . . . . . . . .395 9. . Kentron Holdings & Equities Corporation . . .760 5. . .076 17. . . . . . . . .880 43. . . . . . . . . . . . . . . .60 1. . . . . . . . . . . Name of Shareholder Number of Shares Percentage of Holdings 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 PCD Nominee Corporation (Filipino) . . . . . . . . . Donfar Management Ltd. . . . . . . . . . . . . . —Makati City—Shareholder Dunmore Development Corp. . . . . . . . . . Uttermost Success. . . . . . As of September 30. . .495. . . . . . . . . . . . . . . . . . . . .890. . .157. . .94 1. . . . . . . Total . . . . . . . . . . .70 4. .389. 2013. . . . . . . . . . . . . . . . . the Bank had approximately 30. . . . . . .03 2. . . . . . . . . . . . . Multiple Star Holdings Corporation. . . . . . . . .715 21. Majority owned and Controlled by LT Group. . . . . . . . . . . . . Key Landmark Investments. . . . . . . . . . . Prima Equities & Investments Corporation . . .02 2. . .36% Common Filipino 58. . . . . . . Inc. . . . . . . . . .055. . . . . . . . . . . . . . . . . . . Solar Holdings Corporation. .49 73. Filipino 21. . . . . . . . . . . . . . . Majority owned and Controlled by LT Group. .961 18. .38 4. . . Inc.890. .343. . . . Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02 1. .000 2. . .040 46. . . . . Mavelstone Int’l Ltd. . . . . . . . . . . . . .208. . Caravan Holdings Corporation . . . . . . . . .792. . . . . . . .389. .760 51. . . . . . . .270 16. . . Pioneer Holdings Equities. . . . . . . . . .779. Inc.51% of which is owned by LTG. .374. . . .98 1.99% 182 . . . . .25 2.504 58. . . . . .077 21.036 shares. .60 1. . . . . . Inc. . . . . . . . . . . . . . .238 17. . . . .295 21. . . . . . . . . .628. . . . .524 shareholders of record and 1. . Shareholder information in this section is presented as of September 30. .02% 0. . . . Filipino 14. . . . . . . . . Leadway Holdings. . (X-496) —Makati City—Shareholder Majority owned and Controlled by LT Group. . . . LTG held indirect ownership over 45. .256 1. . . . Infinity Equities. . . . . . .. . . . Fragile Touch Investment. . . . . . . . . . . . . . . . . . .840. . . .38 5. . . .38% Common Common Owned and Controlled by British LT Group.386. . . . . . . . . . . .93% As of September 30. . . . . . . .925. . . . . . .523. .119. .65 1. . . .853 21. . . . . . . . .389. . . . Ltd. . . . . . . . . 2013.10 8. . . . . . . . the shareholders below collectively held 527. . . . . . Inc.615. . Inc. . . .077 10. .960 17. .74 7. . . . . . . . . . . . .522. . . .760 58. . . Inc. . . . .71 1. . . . As of September 30. . . . True Success Profits Ltd. . .28 4. . . . . . . . . 2013. . . . . . . . . . . . .091. . . . . . . . .945..186 18. . . . . . . . . . . . . . . .PRINCIPAL SHAREHOLDERS The following table sets out the 20 largest shareholders of the Bank as of September 30. . .883. . . . . . .51% of the Bank’s shares through various subsidiaries. . . . . . . . . . . . . . . . . . . . . . . Title of Class Name/Address of Record Owner and Relationship with Issuer Name of Beneficial Owner and Relationship with Record Owner Number of Shares Held Citizenship Percentage Common Allmark Holdings Corporation —Quezon City—Shareholder Caravan Holdings Corporation —Marikina City—Shareholder Donfar Management Ltd.086.38 5. . . . . . . . . . . . . . . .416 Common shares outstanding. Fil-Care Holdings. . . . . . . . . . 45. . or 48. . . . Purple Crystal Holdings. . . . . . . . Ltd. . . . PCD Nominee Corporation (Non-Filipino) . . . 2013 (actual) No. . . . . . . .098. . . . . . . . . . . . . . . . . 98. . . . . .754. . . . . . . . . . . . . . . . . . .389. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .360 76. . . . . . . . . . . . . . . .01 5. . . Inc. . . . . . . . . . . . . . . . . . 2013. . Fairlink Holdings Corporation . . . . . . . . . . . . . . . . . . . .859 802. . . . . . . .320 24. . . . . . . . . . . . . .521 94. . .67 1. . 2013. . . Kenrock Holdings Corporation . . . . . . . . . . . .

The Bank has not been advised otherwise.715 1.389. Inc. Owned and Controlled by LT Group.522. —Makati City—Shareholder Owned and Controlled by LT Group. Inc. Ltd.72% 0. Owned and Controlled by LT Group. Majority owned and Controlled by LT Group. —Makati City—Shareholder Merit Holdings and Equities Corporation —Quezon City—Shareholder Multiple Star Holdings Corporation —Quezon City—Shareholder Pioneer Holdings Equities. —Makati City—Shareholder Ivory Holdings.38% Common British 21. 2013.386. Majority owned and Controlled by LT Group. —Makati City—Shareholder Fragile Touch Investment Ltd. Inc.28% Common British 21.926. Inc. Owned and Controlled by LT Group.389. —British Virgin Islands— Shareholder Uttermost Success. Majority owned and Controlled by LT Group.—Pasig City—Shareholder Filipino Filipino Filipino 7.051 0. Inc.Title of Class Name/Address of Record Owner and Relationship with Issuer Name of Beneficial Owner and Relationship with Record Owner Citizenship Number of Shares Held Percentage Common Fast Return Enterprises.794 8.66% 0.377.495. Owned and Controlled by LT Group.883. Inc.765.98% The following shareholders collectively held 338. —Quezon City—Shareholder Mavelstone International Ltd.760 5.38% Common British 58. Inc.25% Common Filipino 58. Ltd.— British Virgin Islands— Shareholder Leadway Holdings.02% Common Filipino 24.71% Common British 94.49% Common Filipino 14.19% of the Bank’s voting securities as of September 30. Inc.36% Common Filipino 18.780.375 shares. Title of Class Name/Address of Record Owner/Beneficial Owner and Relationship with Issuer Citizenship Number of Shares Held Percentage Common Common Common All Seasons Realty Corporation—Makati City—Shareholder Dreyfuss Mutual Investments.14% Common Filipino 21.123. Inc. Inc.880 4.387 7.94% Common Filipino 12.859 1. Inc. —Makati City—Shareholder Kenrock Holdings Corporation —Quezon City—Shareholder Key Landmark Investments. Majority owned and Controlled by LT Group. —Pasig City—Shareholder Solar Holdings Corporation —Pasig City—Shareholder True Success Profits.523. Inc.925.119 1. The records in the possession of the Bank show that the beneficial ownership of the following companies or individuals belongs to the shareholders of record of said companies or to the individual himself.055.74% Common Filipino 46. as the case may be. Inc. Inc. Majority owned and Controlled by LT Group.75% 183 . Inc.186 1.760 5. British 12.961 1.19% Common British 16.853 2.481 1. Inc.107. Owned and Controlled by LT Group.295 2. Inc. Majority owned and Controlled by LT Group.157.833. Ltd. Owned and Controlled by LT Group. Inc. Ltd.714 1. or 31.360 8.—Pasay City—Shareholder Dynaworld Holdings.

Inc. Inc.432.—Marikina City—Shareholder Prima Equities and Investments Corp.68% 0.587.—Pasay City—Shareholder Kentron Holdings and Equities Corp.60% 0.320 10.773 51.60% 1. Inc. Inc.—Quezon City—Shareholder Integrion Investments.00% 0.190 1.271.72% 1.119.54% 0. Inc.05% 1.—Makati City—Shareholder Kings Investment & Development Corp.833.35% 1.270 12.—Marikina City—Shareholder Virgo Holdings & Development Corp.79% 1.898 13.826 12. Inc.—Pasay City—Shareholder Zebra Holdings.13% 0.396 3.238 8. Inc.285 6.010.13% 1. The beneficial owners of such shares are PCD’s participants. now known as Philippine Depository & Trust Corporation (“PDTC”) is the registered owner of the shares in the books of the Bank’s transfer agent.670. Inc.70% 4.792.409.—Pasig City— Shareholder Kentwood Development Corporation—Pasig City—Shareholder La Vida Development Corporation—Quezon City— Shareholder La Vida Development Corporation A/C#2423—Quezon City—Shareholder Local Trade and Development Corporation—Makati City—Shareholder Luys Securities Co.20% 1.186 7.987.371.885 3. Inc.836.040 43.92% 0.940.268 12. 184 . The participants have the power to decide how the PCD shares are to be voted.374.—Mandaluyong City—Shareholder Purple Crystal Holdings.—Quezon City—Shareholder Jewel Holdings.650 7.300 10.343.945.95% 0.399 11.—Quezon City—Shareholder Society Holdings Corporation—Quezon City—Shareholder Total Holdings Corporation—Pasig City—Shareholder Witter Webber & Schwab Investment.105.—Makati City—Shareholder Iris Holdings & Development Corp.—Quezon City—Shareholder Power Realty Development Corporation—Quezon City—Shareholder Profound Holdings.65% 1..315.091.65% PCD Nominee Corporation.387.833.043 17.153 17.574 5.61% 0.33% 0.38% 0.—Quezon City—Shareholder Infinity Equities. Inc.795 6.313 589.844.Title of Class Name/Address of Record Owner/Beneficial Owner and Relationship with Issuer Citizenship Number of Shares Held Percentage Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Common Fairlink Holdings Corporation—Makati City—Shareholder Fil-Care Holdings.05% 0.281 4. Inc. Stock Transfer Service.—Makati City—Shareholder Mandarin Securities Corporation—Makati City—Shareholder Opulent Land-Owners. Inc.59% 4.577.67% 0.72% 0.—Mandaluyong City—Shareholder Safeway Holdings & Equities.—Manila —Shareholder Others Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino 17. who hold the shares on their behalf or on behalf of their clients.00% 0.960 18.03% 0.230 17.076 7.794 17.

0000001841 Common Filipino 0.1882673537 Common Lucio K.0031310750 Common Filipino 0.000.00 (R) 2.010 shares P1.400.000. Vistan Independent Director Sub-total 0. 185 .215.808. Tan.388 P523. Mier President and Chief Executive Officer Florido P.00 (R) 100 shares P4.000 shares P40.000.080.000.200 shares P4.0000920634 Common British 0.0000124286 Common Filipino 0.2042245123 (1) Ownership is either record (“R”) or beneficial (“B”).0014131726 Common Filipino 0.000. Maclang Director Estelito P.00 (R) 100 shares P4.0000092063 Common Filipino 0.00 (R) 13.00 (R) Filipino 1. Mendoza Director Christopher J.00 (R) 230 shares P9.00 (R) 15.200.520. Director Michael G.0000092063 Common American 0.000 shares P80.400.060 Filipino shares P516.00 (R) 1 share P40. Tarriela Chairman Independent Director Felix Enrico R.00 (R) Filipino 0. Nelson Independent Director Washington Z.000.0110660163 Common Filipino 0.907. SyCip Director Harry C.00 (R) 100 shares P4. Tan Director Lucio C. Alfiler Independent Director Omar Byron T. of Shares Held and Nature of Beneficial Ownership(1) Title of Class of Securities Name of Holder Citizenship % of Ownership Common Florencia G.00 (R) 135 shares P5.0000211746 Common 12.0001841267 Common Filipino 0.000.00 (R) 100 shares P4.Security Ownership of Management The following table sets out the shareholding interests of the Bank’s directors as of September 30. Jr.282.00 (R) 34.00 (R) 120. Tan Director 2 shares P80.0000092063 1.0000000921 Common Filipino 0.350 shares P614. Coronel Director Reynaldo A.000.00 (R) 1. 2013: No.360. Casuela Director Leonilo G.0000092063 Common Filipino 0.400. Tan Director Deogracias N.

21% of the Bank’s outstanding capital stock. the Bank is not aware of shareholders holding any Voting Trust Agreement of 5. 2013 is 13.672 shares or approximately 1. Voting Trust Holders of 5% or More Except as disclosed in this Prospectus.The aggregate number of shares owned of record by all or key officers and directors as a group as of September 30. Change in Control of the Registrant since beginning of last Fiscal Year There has been no change in the control of the Bank since the beginning of its last fiscal year.0% or more or any such similar agreement.136. 186 .

where appropriate.1% and 2.e. Further. • The Risk Oversight Committee. 100% of which is available on demand or within one month as of September 30. recommends amendments to existing policies) on asset and liability management. borrowings through the Bank’s FCDU to fund its foreign currency-denominated assets. 42.8 billion. internal controls and compliance with legal and regulatory requirements.2%. Deposits with banks are made on a short-term basis. to formulate strategies on resource allocation and to study the pricing of the Bank’s products and services. Other sources of funds include short-term borrowings in the interbank market in the Philippines and abroad. 2013. In addition to maintaining a significant portion of its asset portfolio in loans. The bank differentiates itself by having a strong deposit base in terms of the number of depositor base which reflects that the majority of the deposits are widely held by retail and middle market accounts which are not sensitive to interest rate movements. funds from maturing assets and profits from operations. Assets of the Bank include funds due from BSP and other banks and interbank loans receivables. as follows: • The Board Audit and Compliance Committee.RISK MANAGEMENT Risk Organization The Board directs the Bank’s over-all risk management strategy and performs an oversight function on the implementation of its risk policies through the various committees that it has created.8 billion. of the loans and receivables from customers of the Bank. the bank has confidently classified majority of the deposit as core deposits. 2013. 2013. the Bank maintains diversified liquidity sources. type of funds that remains and is said to remain in the bank for the long-term. i. Floating Rate Treasury Notes and Fixed Rate Treasury Notes). 2.9% of the total financial assets. The deposit base of the Bank is short-term in nature which is comparable to the nature of the business in the Philippines banking industry. of the Bank’s total financial assets as of September 30. generated by the Bank’s network of domestic branches. which has oversight responsibility relating to the integrity of the Bank’s financial statements. The Bank’s policy is to maintain what it believes is an adequate portion of its asset portfolio in short-term assets. of outstanding deposits of the Parent Company had a maturity period of one month or less. which (on a net basis) accounted for 26. As of September 30. As of September 30. Maturity (liquidity) risk management The Bank’s policy is to manage its operations with the objective of ensuring that funds available are adequate to meet credit demands of its customers and to enable deposits to be repaid on maturity. The primary source of liquidity is deposits of retail clients. To provide flexibility in meeting these liquidity needs.8%. denominated in both Pesos and U. Loans to banks with remaining maturities of a month or less accounted for 100% of the Bank’s total lending to banks as of September 30. 2013.6 billion portfolio of gross trading and investment securities as of September 30. Dollars.. The Bank seeks to ensure 187 . respectively. The Bank’s Liquidity Management Plan involves maintaining sufficient and diverse funding capacity to accommodate fluctuations in asset and liability levels due to changes in the Bank’s business operations or unanticipated events created by customer behavior or capital market conditions. and • The Asset and Liability Committee (“ALCO”). which has the primary task to assist the Board in the management of the risks the bank is exposed to and development of risk management strategies to prevent losses and minimize financial impact of losses.2%. or approximately P12. the Bank’s trading and investment account includes securities issued by sovereign issuers (mostly Government Treasury Bills. ALCO’s mandate is to formulate a risk management policy directed towards managing exposure to foreign exchange and interest rate and maturity (or liquidity) risks on its assets and liabilities within limits determined by the Bank to be acceptable.S. or 17. due to the profile of the deposit account base and its structure for the past years.5% of the Bank’s total financial assets at that time. P15. Of the Bank’s P91. The gross trading and investment securities account amounted to 16. 2013.2% was represented by loans with remaining maturities of less than one year and the receivables from customers represented 55. was invested in securities with remaining maturities of one year or less. chaired by the President of the Bank. which meets every week to review existing policies (and. 2013.

This is attributable to the Bank’s policy of taking advantage of higher yields of long term assets which is being financed by the lower yields of short term liabilities. a maturity gap exists between the Bank’s Long term assets and short term liabilities. A majority of the interest rates in the floating rate loan portfolio is reset at 90-day intervals. The Bank measures the sensitivity of its assets and liabilities to interest rate fluctuations by way of a “repricing gap” analysis using the re-pricing characteristics of its statement of financial position and approved assumptions. which may restrain the growth of its net income or result in a decline in net interest income. the securing of money market lines and the maintenance of repurchase facilities to pre-empt any unexpected liquidity situations. During a period of falling interest rates. The interest rate risk arising from the volatilities of the maturing / amortizing interest rate gaps are reflected in the Earnings at Risk (“EAR”) report. the Bank. a company with a positive gap would tend to see its assets re-pricing at a faster rate than one with a negative gap. the re-pricing gap covering the one-year period is multiplied by an assumed change in interest rates to yield an approximation of the change in net interest income that would result from 188 . interest rate sensitive liabilities in each time band are subtracted from the corresponding interest rate assets to produce a “repricing gap” for that time band. Compliance with the EAR limit is monitored monthly by the Risk Management Group. This volatility is due largely to the fact that Government debt security issues are used extensively by the BSP. Although the Bank adopts what it believes to be a prudent policy on managing liquidity risks. This liquidity risk arising from the mismatch is monitored and controlled by a gap analysis of maturities of relevant assets and liabilities reflected in the maximum cumulative outflow report (“MCO”) which is reported monthly to the Risk Oversight Committee (ROC). Accordingly. Peso time deposits offered by commercial banks are usually priced at par or up to two percentage points below the Treasury Bills of the same term.6% of the Bank’s receivable from customers was for a term of less than one year.4% was for its medium. Further. during a period of rising interest rates. Interest rates on loans are usually set on the basis of the Bank’s average or marginal costs of funds which in turn. As of September 30. A large portion of the Bank’s funds is in the form of short-term deposit instruments on which it pays rates prevailing in the market. A majority of the Bank’s rate sensitive assets and liabilities is on a 30 to 90-day interest rate resetting which minimizes exposure to fluctuations in domestic interest rates. 33. Such strategy generally leads to the average maturity of its financial assets exceeding that of its liabilities.sufficient liquidity through a combination of active management of liabilities. are largely determined by the movement in the rates of Treasury Bills plus a spread. the re-pricing gap covering the one-year period is multiplied by an assumed change in interest rates to yield an approximation of the change in net interest income that would result from such an interest rate movement. tries to match the terms and interest rate of its loans and investments with those of its fund sources. results of which are subsequently reported to the ROC to determine the impact of scenarios on the Bank’s liquidity profile. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. These funds are predominantly short-term in view of the relatively high volatility of domestic interest rates. 2013. and 66. To evaluate earnings exposure. which is likewise discussed in both ALCO and the ROC. a liquid asset portfolio substantially comprising deposits in primary and secondary reserves. a company with a positive gap would be better positioned than one with a negative gap to invest in higher yielding assets more quickly than it would need to refinance its interest-bearing liabilities. For risk management purposes. as much as possible. While domestic interest rates have been deregulated since the early 1980s. The difference in the amount of assets and liabilities maturing or being re-priced over a one year period would then give the Bank an indication of the extent to which it is exposed to the risk of potential changes in net interest income. as instruments of monetary policy. In its lending activities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. The Bank’s Board of Directors sets a limit on the level of EAR exposure acceptable to the Bank. Interest rate risk management The Bank’s policy on managing its assets and liabilities is to ensure that exposure to fluctuations in interest rates are kept within acceptable limits. regular stress tests exercises and simulation of the Liquidity Contingency Plan are conducted. the BSP policy still influences the interest rate commercial banks charges for Peso-denominated borrowings. Peso Treasury Bills auctioned every other week by the Bureau of Treasury set the trend in domestic interest rates. For risk management purposes. particularly in recent years.and long-term portfolio.

. Due from BSP and other banks . . . . . . . . . . . . . . .16 48. . . . .70 810. . .834.18 80.970 87. . . .57 — 7. .55 26. .054) 48. .664.085. Unquoted debt securities—gross .702. .28 114. Subordinated debt . . .235.74 144. .517. .422.090.649 Total financial liabilities. ‘Deposit on lease contracts’. .98 11. . .52 819.35 — — — — — — — — — 8. . . .09 0. . . .56 5. . . .573. .67 2.94 75. . . . . . . . . . . .91 8. . Miscellaneous COCI . Private debt securities . . — 89.355. . . . .91 55. .83 — (2. ‘Payment order payable’. . .39 625. . . . . . . .640 91. .95 192. . ‘Due to BSP’ and other financial liabilities. . .01 Notes: Non-interest bearing financial assets and liabilities are lumped in greater than 1 year bucket. . Repricing gap . . . . . .667. .77 0. .58 8. .598. . . Time .949. . . . . . . . . .680.57 — — 9.35 508. . . . . . .57 14. Financial Liabilities Deposit liabilities: Demand.249. . . . . . .26 14. .95 192. . . . . . .80 25.25 7. .69 469.741.273.such an interest rate movement. . ‘Due to Treasurer of the Philippines’. . . . . . AFS investments . . .309. .09 Total financial assets. . . . . . . . . . . . ‘Accounts payable’. . ‘Margin deposits and cash letters of credit’. . . . . Interbank loans receivable . .135. . Financial assets at FVPL: Held-for-trading: Government securities. .466. . . .00 — — 132. . . . .57 — 7. . .15 — 25. . . .61 12. . . . . . . .703 22.520. . . . . .693. . . . . . . 123. . ‘Insurance contract liabilities’. . . . . . . . .30 48. ‘Manager’s checks and demand drafts outstanding’. . . . . Derivative assets .842.447.00 556. . . . . . . . . . . . .00 — — — — — — — — — — — — — — — — — — — — — — — — 3. . . . . . . . . .48 76. . . . . . . . . . . Bills and acceptances payable . . . ‘Due to other Banks’. . .520. . . Receivable from customers and other receivables—gross(1) . The following table sets forth the Bank’s repricing gap position as of September 30.54 318. Equity securities . . .952. .72 — — 10. . . .164.504. . .15 — — 7. . . . . . . .94 3.063 — 6. . . . . . . . . . .22 5. . . . . . .957.82 49.00 410. . . . . . . .463. Accrued interest payable and other liabilities(2) . . . . .000. . . . . . . . . .132. . ‘Bills purchased—contra’.30 (43. . .621. . . . .834. .456. . . .90 1. .952. . . .70 7.61 47. . Compliance with the EAR limit is monitored monthly by the Risk Management Group.304. . .53 5. . . . . .36 2. .01 1.221. 2013 (in P millions): As of September 30.519. .195. . . . . . .60 275. . .12 11.78 953.57 40. . .391.21 197. .74 119. . Savings . .228. . . . . .578. .90 219. . .55 — — — — 0.526.000. .164. .363. .90 18.69 11. . . . (1) Receivable from customers excludes residual value of leased assets.722. . . (2) Accrued interest and other financial liabilities include ‘Accrued interest payable’. . . .92 — — — 79. . . . Securities held under agreements to resell . . .50 156. . .756 79. . . .228. . . .90 219. .06 96. . 203. Financial liabilities at FVPL . .43 — 12.422.363. . . . .98 262. .649 22. 189 . . .83 8.722.258. . .362. . . The Bank’s Board of Directors sets a limit on the level of earnings at risk (“EAR”) exposure acceptable to the Bank. . . .988. . . .06 11. . . .51 — 92. . . . . . .83 9. .219.662) 85. . . . .756 — 7. . .345. . . .69 469. . . . .43 5.70 285. . .77 15. .334. . . . . . . . . . . . .180. . Cumulative gap . . Designated at FVPL: Segregated fund assets .947.93 19. .47 462. . . . . . . . .949. Private debt securities . . . 2013 Up to 1 month 1 to 3 months 3 to 6 months 6 to 12 months Beyond 1 year Total Financial Assets COCI . . .725 — — 118. . . .

. . foreign currency deposit accounts with the Bank) and foreign currency-denominated borrowings of the Bank. . The Bank places trading limits on the exposure that can be taken at any point in time. . . The Bank performs stress tests on its trading portfolios to determine the effects of extreme market developments on the value of market risk sensitive exposures. as of and for the period indicated. . the Bank is authorized. . . . . The EAR computation is accomplished monthly. . . . . As of the same period. . . . . . IRS & FRAs. . . 2013. . . These derivatives transactions are covered by Bank policies on trading limits on the exposure that can be taken in relation to at any point in time. 234 (234) 468 (468) 234 (234) 468 (468) 104 (104) 209 (209) 104 (104) 209 (209) 409 (409) 818 (818) 409 (409) 818 (818) Given the re-pricing position of the assets and liabilities of the Bank as of September 30. 2011 2012 Statement of Income Equity Statement of Income Equity (Q millions) As of September 30. . . . The Bank is currently a net holder of foreign currency. . . the Bank monitors its exposure to interest rate changes in its trading book by measuring its Valueat-Risk with respect to interest rate fluctuations. . . . . . . . . Foreign currency-denominated liabilities are generally used to fund the Bank’s foreign currency-denominated loan portfolio.9% of the Bank’s total assets. . . . the annualized non-consolidated net interest income would decrease by P818 million. 2013. If interest rates decreased by 100 basis points. . Derivatives The Bank trades in financial instruments where it either takes positions in traded and over-the-counter instruments. FX swaps. . The Bank uses back testing to verify the results of the daily Value-at-Risk calculation. . . . financial assets at FVPL amounted to P11. to enter into “Generally Authorized Derivatives Activities” which covers FX forwards. . . . . . . . . . Trading and investment securities The Bank engages in fixed income securities trading. . . . . . 190 . 2013 Statement of Income Equity +50bps. . Finally. . . . . . . . . The following table sets forth. . . . . . . . . . . . . . . . . . . .6 billion or 1. . . . . . . . . . . . . . . . . . The Bank engages in derivatives for hedging and proprietary trades. . As of September 30. . Foreign currency risk management Foreign currency liabilities generally consist of foreign currency-denominated deposits made in the Philippines (or which are generated from remittances to the Philippines by expatriates and contract workers who retain for their own benefit. . . . . with a quarterly stress test. . . . . . including derivatives. the impact of changes in interest rates on the Bank’s non-consolidated net interest income: As of December 31. FX Options. .Another measure of the Bank’s non-consolidated exposure to fluctuations in interest rates examines the impact of interest rate movements of various magnitudes on its net income. . . . . as an end-user. . Under BSP Circular 594. . . . if interest rates increased by 100 basis points. . 68. -50bps . .8% of trading and investment portfolio are in Government securities while the balance is in privately issued securities. The Bank’s policy is to maintain foreign currency exposure within exposure limits approved by the Bank’s BOD and within existing regulatory guidelines. . . -100bps . As of September 30. . . . . . . . or for the benefit of a third party. . . . . to take advantage of short-term market movements in equities and bonds and in currency and interest rate or for hedging open risk positions. . . 2013. Structured Products (SPs) and CLNs. . . . . . +100bps. . . Currency Swaps. as foreign currency-denominated assets exceed foreign currency-denominated liabilities. . . . . . . . the Bank would expect annualized non-consolidated net interest income to increase by P818 million.6 billion or 16. .5% of total financial assets. . the Bank’s gross trading and investment securities (which consist of financial assets at fair value through profit or loss and available-forsale investments) amounted to P91. . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 On September 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 1st quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th quarter. . . . . . . . . . . .40 69. . . . . . . . . .40 per Common Share. . . . . . . . . . . . . . . . .00 77. . . . . . . . . . . . . . . . . . . . . . . . .50 71. . . . . . . . . . . . . 2nd quarter . . . . . . . . . . . . 4th quarter. . . . . . . . . . .80 67. . . . . . . . . . . . . . .50 57. . . . . . . . . . . . . . . . . .MARKET PRICE OF THE BANK’S STOCK AND RELATED STOCKHOLDER MATTERS Market Information The Bank’s Common Shares are traded on the PSE under the symbol “PNB”. . . . . . . . . . . . . . . . . . 2011 1st quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00 75. . . . . . . .00 70. . . . . . . . . . . . . . . . . . . . . . .05 77. . . . . .55 107. 3rd quarter. . . . . . . . . . . . . . . .50 88. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85 43. . . 191 . . . . 3rd quarter. . . . . . . . . . . . . . . . . . . . . . . . .70 57. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the closing price of the Bank’s Common Shares on the PSE was P87. . . . . . On December 11. . . . . . . . . . . .00 93. . . . . . . . . . . . . . . . . . . . . . .30 89. 2nd quarter . . . . . . . . . . . . . . . . . . . . . . . .50 33. . . . . . . . . . . . . . . . . . . . . . 4th quarter. . . . . . . . . . . .50 63. . . . .00 96. . . . . . . . . . . . . . . . . . . 3rd quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 63. . . . . . . . . . . . 24. . . . . . . . . . . . . . . . . . . . . . .90 67. . . . . . . . . . . 2012 1st quarter . . . . . . . . .35 23. . . . . . . . . . . . . 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 41. . . . . . . . . . . .00 21. . 3rd quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 67. . . . . . . . . . . . . . . . . . 4th quarter. . . . . . . . . . . . . . . . . . . . . . . . . . .00 77. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . for the periods indicated. . the high and low sales price for the Bank’s Common Shares as reported on the PSE: High Low 2010 1st quarter . . . . . . 2nd quarter . . . . . . . . . .00 73. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00 55. . . . . . . . . . . . .40 76. . . . . . . . . . . . . . . . . . . . . . . . . . 2013 the PSE approved the listing of the Rights Shares on the PSE subject to the fulfillment of certain conditions. 2nd quarter . . . .00 44. . . . . . . . . . . . .60 56. . . . . . . . . . . . . The following table sets out. . . . . . . . . . . . . .00 116. . . . . .00 29. . . . . . . . . . . . . . . . .

the licenses of the two exchanges were revoked. The PSE has an index. The PSEi is composed of stocks of 30 selected stocks listed on the PSE.00 per share. PSE allowed listing on the First Board. allowing it to impose rules as well as implement penalties on erring trading participants and listed companies. BRIEF HISTORY The Philippines initially had two stock exchanges. among which changes are the removal of the Second Board listing and the requirement that lock-up rules be embodied in the articles of incorporation of the issuer. On August 8. CN-No. the Selling Shareholder. 2010. 2013. Second Board or the Small and Medium Enterprises Board. In March 1994. and mining and oil sectors. It is composed of 10 main guidelines embodying principles of good business practice and based on internationally recognized corporate governance codes and best practices. the composition of the board of directors of the PSE was changed. the PSE has adopted an online daily disclosure system to improve the transparency of listed companies and to protect the investing public. which was organized in 1927. the PSE completed its demutualization. PSE Trade. As a result of the demutualization. property. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges. While the PSE maintains two trading floors. Each index represents the numerical average of the prices of component stocks. With the increasing calls for good corporate governance. a trading right evidenced by a “Trading Participant Certificate” was immediately conferred on each member broker allowing the use of the PSE’s trading facilities. 2006 simultaneous with the migration to the free float index and the renaming of the PHISIX to PSEi. Several steps initiated by the Philippine government have resulted in the unification of the two bourses into the PSE. referred to as the PHISIX. affiliates or advisors in connection with sale of the Rights Shares. and the Makati Stock Exchange. Classified into financial. which as at the date thereof reflects the price movements of selected stocks listed on the PSE. With the issuance by the PSE of Memorandum No. holding firms. the PSEC granted the Self-Regulatory Organization status to the PSE. the PSE launched its current trading system. Each of the 184 member-brokers was granted 50. requiring the inclusion of seven brokers and eight non-brokers. one in Makati City and the other in Pasig City. governed by its respective board of governors elected annually by its members. In addition. industrial. The PSE also launched its Corporate Governance Guidebook in November 2010 as another initiative of the PSE to promote good governance among listed companies. The PSE shifted from full market capitalization to free float market capitalization effective April 3. revisions to the PSE Listing Rules were made. 2013-0023 dated June 6. these floors are linked by an automated trading system. services. 2003. which began operations in 1963. the Joint Lead Managers or any of their respective subsidiaries. the Manila Stock Exchange.058 million shares are subscribed and fully paid-up. which integrates all bid and ask quotations from the bourses. In June 1998. On July 26. converting from a non-stock member-governed institution into a stock corporation in compliance with the requirements of the SRC.000 common shares of the new PSE at a par value of P1. The PSE has an authorized capital stock of 97. On December 15. of which 61. the PSE listed its shares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine securities industry. one of whom is the President. Previously.THE PHILIPPINE STOCK MARKET The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by the Company.8 million shares. companies are listed either on the PSE’s Main Board or the Small and Medium Enterprises Board. 2001. based on traded prices of stocks from the various sectors. 192 . Each exchange was self-regulating.

. . . . . . . Source: PSE TRADING 2. . . . . . . the following procedures shall apply: (i) In case the static threshold is breached. . . . . . . . . . . . . . . . . .697. . . . . and pauses for a one-and-a-half hour lunch break at 12:00 p. . .191.8 586. . . or the last adjusted closing price). . . . . . . . .7 781. . . . . .142. . . . . .0 2. . . . . . .141.7 4. the PSE will accept the order. .7 1. . . . only the portion of the order that will result in a breach of the trading threshold will be frozen. . . . . . . .9 The PSE is a double auction market.948. . . . .2 6. . . . . . . . . . . .968. .6 1. . . . .9 3. . . . . . . . . .096. . . . . . . 2003 . . . . . . provided that they are executed at the last traded price and are only for the purpose of completing unfinished orders. .621. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2. . . . . 193 . 2013 . . . . .0% static threshold will be rejected by the PSE.5 2. . . . . . . . . .069. . . with a 10-minute extension during which transactions may be conducted. 2006 . .0 668. . . . . . . . . . .052. .0 357. . . . . . . . . As of September 30. . . . . . . . . . . . . .m. .7 159. . . . 2010 . .977. . . . 2009 . . . . .6 159. . . . . . .173. . . . . . . . .1 4. . . . . . such order will be rejected. . . . . . . . . . . . . 2007 . .8 205 216 221 222 225 229 231 234 236 235 237 239 244 246 248 253 245 254 253 1. . . .576. . . . . . .4 2. . . . . . . . Buyers and sellers are each represented by stockbrokers. . . . . .771.. . . . . . . . . . . . . . . . 1997 . . . . . . . . Buy and sell orders received by one broker at the same price are crossed at the PSE at the indicated price. . . To trade. . . .1 1. . . . . . . . . . . .952. .6 1. . Payment of purchases of listed securities must be made by the buyer on or before the third Trading Day (the settlement date) after the trade. 1998 . . . . . . . .1 8. . . . . . . . . . .168. . . . . . . . .. . . . . . . . . . . In the afternoon. . . . . . . .3 763.766. . . . . . . . . . . . . . . . . .018. .251. . .3 5. . . . . . . . . . . . . . .5 2. . . . . . . . . .7 2. . .866. . . . . . .083. .373.121.1 8. . . . . . . . . . .594. . . . 2011 . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . .m. .2 2. . . . . . . . . .7 1. . . . . Trading Days are Monday to Friday. . . . . . 2005 .0% of the previous day’s reference or closing price. . . . . . .3 1.6 4.4 1. . . . To maintain stability in the stock market. . . and ends at 3:30 p. . . . . . . . . the PSE will adjust the static threshold to 60. . .4 1. . . . . . . . . . . and value of shares traded for the same period: Composite Index at Closing Number of Listed Companies Aggregate Market Capitalization (in Q billions) Combined Value of Turnover (in Q billions) Year 1995 . . . . . . . . . . . . . . . .m.0 10. 2012 . . . .2 1. . . . . . . . . . . . . . . . . . . .5 572. whenever an order will result in a breach of the trading threshold of a security within a Trading Day. .632. . . .5 3. . . . . . . trading resumes at 1:30 p. . .e. . . . . the trading of that security will be frozen. . . . . . . .6 383. .The table below sets out movements in the composite index as of the last business day of each calendar year from 1995 to 2012 and shows the number of listed companies. . . . .1 1. .0%. . . . bid or ask prices are posted on the PSE’s electronic trading system. . In cases where the order is accepted. . . . . . . . . . . . . . . . . .812. . . . . . . . .6 1. . .338. . . . .822. .0 5. . . . . .6 1. . . . . Odd-sized lots are traded by brokers on a board specifically designed for odd-lot trading. . . . . . . Minimum trading lots range from 5 to 1. . . .2 3. . . . . A buy (or sell) order that matches the lowest asked (or highest bid) price is automatically executed. . . .982.000 shares depending on the price range and nature of the security traded.170. .872.442. . . . .8 4. . . . .7 11. . . . . . .5 1. . . . . . . .422. . . . All orders breaching the 60. . . except legal holidays and days when the BSP clearing house is closed. . . . . otherwise. . . Where the order results in a breach of the trading threshold. . 2000 .4 7. . . . . . . . . . . . . . . . . . modified or cancelled for a security that is frozen. Orders cannot be posted. . . . . . 2008 . . . . . . . .9 379. . . .372. . . . .9 1.201. . .029. . .m. . . . . . daily price swings are monitored and regulated. Under current PSE regulations. . . .2 7. . . . . . . . . . . .4 1.4 206. . . . . . .2 1. . . . . . .494. .7 6. . . . . . . . The minimum trading lot for the Company’s shares is 100 shares.869. . . . . . . 1999 . . . . . 50. .545. . . . . . .2 408. . . . . . . . . . . .991. . .000. . . .973. . provided the price is within the allowable percentage price difference under the implementing guidelines of the revised trading rules (i. 2002 . .8 2. . . In cases where an order has been partially matched. . . . .936. . . . . . . . . . . . . . .207. . market capitalization. 2001 . 2004 . . . . . . . Trading on the PSE commences at 9:30 a.9 994. .7 145.

Novation of the original PSE trade contracts occurs. was organized to establish a central depository in the Philippines and introduce scripless or book-entry trading in the Philippines. Transfers among/between broker and/or custodian accounts. and Rizal Commercial Banking Corporation. otherwise. Inc. 1996. thereby removing from the broker its current “de facto” custodianship role. SCCP received its permanent license to operate on January 17. which are Banco de Oro Unibank.0% for Security Cluster A and newly-listed securities.). the PSE will accept the order if the price is within the allowable percentage price difference under the existing regulations (i. Settlement is presently on a broker level. and was organized primarily as a clearance and settlement agency for SCCP-eligible trades executed through the facilities of the PSE. NON-RESIDENT TRANSACTIONS When the purchase or sale of Philippine shares of stock involves a non-resident.(ii) In case the dynamic threshold is breached. CCCS employs multilateral netting. Each trading participant maintains a cash settlement account with one of the two existing settlement banks of SCCP. a corporation wholly-owned by the PDTC. and maintains and administers a trade guarantee fund called the Clearing and Trade Guaranty Fund. which means that settlement of trades takes place three Trading Days after transaction date (“T+3”). will only be made within the book-entry system of PDTC. All cash debits and credits are also netted into a single net cash position for each Clearing Member. Under BSP rules. SCCP implemented its Central Clearing and Central Settlement (the “CCCS”) system on May 29. and 10.. within three business days from the transaction date. 2002. net of taxes and charges.e. recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients). Securities sold should be in scripless form and lodged under the book-entry system of the PDTC. such order will be rejected by the PSE. 194 . all registered foreign investments in Philippine securities including profits and dividends.0% for Security Cluster B. and SCCP stands between the original trading parties and becomes the central counterparty to each PSE-eligible trade cleared through it. may be repatriated. SCCP settles PSE trades on a three-day rolling settlement environment. After compliance with other required undertakings. However. In the depository set-up. SCCP assumes the role of guarantor for transactions by trading participants of the PSE. 1997. the PDTC (formerly the Philippine Central Depository. whether the transaction is effected in the domestic or foreign market. as far as the issuing corporation is concerned. 20. wherein customers’ certificates are cancelled and a new jumbo certificate is issued in the name of PCD Nominee Corporation (“PCD Nominee”). cleared funds and should be final and irrevocable. the PDTC was granted a provisional license by the PSEC to act as a central securities depository and live operations commenced on January 10. On December 16. The SCCP is responsible for (a) delivery-versus-payment trade settlement. whose sole purpose is to act as nominee and legal title holder of all shares of stock lodged in the PDTC. as the case may be. The local securities dealer or broker shall file with the BSP. 2006. the current securities infrastructure in the Philippines is composed of a depositary and a registry system wherein listed shares are traded and settled as book-entry shares. an application in the prescribed registration form. The deadline for settlement of trades is 12:00 noon of T+3. (b) management and administration of the Clearing and Trade Guaranty Fund and (c) risk monitoring and management. Inc. SETTLEMENT The Securities Clearing Corporation of the Philippines (the “SCCP”) is a wholly-owned subsidiary of the PSE. In the registry set-up. whereby the system automatically offsets “buy” and “sell” transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each clearing member. Payment for securities bought should be in good. settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company’s transfer agents’ books or system. the BSP shall issue a certificate of registration. the underlying certificates are in the nominee’s name. it will be the responsibility of the securities dealer or broker to register the transaction with the BSP. Under this system. The difference between the depositary and the registry would be on the recording of ownership of the shares in the issuing corporation’s books. 15.0% for Security Cluster C). shares are simply immobilized. Likewise. SCRIPLESS TRADING In 1995.

shares are simply immobilized. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for the upliftment of the shares lodged under the name of the PCD Nominee. through his participant. and with respect to each beneficial owner’s holdings. as far as the issuing 195 . Once it is determined on the settlement date (T+3) that there are adequate securities in the securities settlement account of the participant-seller and adequate cleared funds in the settlement bank account of the participant. The expenses for upliftment of the shares into certificated securities will be charged to the person applying for upliftment. while the cash element will be settled through the current settlement banks.All listed securities at the PSE have been converted into book-entry settlement in the PDTC. Once settled.g. in the PDTC system. pledge of securities. In the depository set-up. transfers of beneficial title of the securities are accomplished via book-entry settlement. Once lodged. trades and uplifts on these shares will have to be coursed through a participant. Upon the issuance of stock certificates for the shares in the name of the person applying for upliftment. the beneficial ownership of the securities is transferred from the participant-seller to the participant-buyer without the physical transfer of stock certificates covering the traded securities. dividend declarations and rights offerings. Rizal Commercial Banking Corporation and Banco de Oro Unibank. The depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities. No consideration is paid for the transfer of legal title to the PCD Nominee. only participants (e. and trading on such shares will follow the normal process for settlement of certificated securities. The PDTC also provides depository and settlement services for non-PSE trades of listed equity securities. the beneficial interest in the shares covered by the application for upliftment is frozen and no trading and book-entry settlement will be permitted until the relevant stock certificates in the name of the person applying for upliftment shall have been issued by the relevant company’s transfer agent. For transactions on the PSE. Ownership and transfers of beneficial interests in the shares will be reflected. If a shareholder wishes to withdraw his stockholdings from the PDTC system. securities must be immobilized into the PDTC system through a process called lodgment. Inc. the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the shareholder the legal title to the shares lodged. Beneficial owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares. such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system. will only be made within the book-entry system of the PDTC. “Immobilization” is the process by which the warrant or share certificates of lodging holders are canceled by the transfer agent and the corresponding transfer of beneficial ownership of the immobilized shares in the account of the PCD Nominee through the PDTC participant will be recorded in the issuing corporation’s registry. as the case may be. Lodgment is the process by which shareholders transfer legal title (but not beneficial title) over their shares of stock in favor of the PCD Nominee. The expenses for upliftment are for the account of the uplifting shareholder. In order to benefit from the book-entry system. wherein customers’ certificates are canceled and a confirmation advice is issued in the name of PCD Nominee to confirm new balances of the shares lodged with the PDTC. any beneficial owner of the shares may apply with PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and return to the conventional paper-based settlement. All matched transactions in the PSE trading system will be fed through the SCCP. All lodgments. the PSE trades are automatically settled in the SCCP CCCS system. in the records of the participants. brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged equity securities. Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through a participant. On or after the listing of the shares with the PSE. securities lending and borrowing and corporate actions including shareholders’ meetings. Transfers among/between broker and/or custodian accounts. Thus. Pending completion of the upliftment process. The participant can execute PSE trades and non-PSE trades of lodged equity securities through the PDTC system. However. each beneficial owner of shares. the security element of the trade will be settled through the book-entry system. will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee. with respect to the participant’s aggregate holdings. The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under the PCD Nominee. This trust arrangement between the participants and PDTC through the PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved by the PSEC. Under the current PDTC system. and into the PDTC system. in accordance with the SCCP and PDTC Rules and Operating Procedures. The difference between the depository and the registry would be on the recording of ownership of the shares in the issuing corporations’ books.buyer. they must rely on their participant-brokers and/or participant-custodians.

recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients). • The shares/securities that are lodged with the PDTC. Further. • On the other hand. The transfer agent shall issue a Registry Confirmation Advice to PDTC evidencing the total number of shares registered in the name of PCD Nominee in the listed company’s registry as of confirmation date. without any jumbo or mother certificate in compliance with the requirements of Section 43 of the SRC. 2009. which shall be the basis for the PDTC to credit the holdings of the depository participants on listing date. actual listing and trading of securities on the scheduled listing date shall take effect only after submission by the applicant company of the documentary requirements stated in Article III Part A of the PSE Revised Listing Rules. the amended rule on lodgment of securities is applicable to: • The offer shares/securities of the applicant company in the case of an initial public offering. as a condition for the listing and trading of the securities of an applicant company. for an existing listed company. Likewise. AMENDED RULE ON LODGMENT OF SECURITIES On June 24.corporation is concerned. 2009. the PSE apprised all listed companies and market participants through Memorandum No. 196 . 2009. Pursuant to the said amendment. the PSE apprised all listed companies and market participants on May 21. In compliance with the foregoing requirement. the applicant company shall electronically lodge its registered securities with the PDTC or any other entity duly authorized by the PSEC. • New securities to be offered and applied for listing by an existing listed company. In the registry set-up. the PDTC issued an implementing procedure in support thereof to wit: • For a new company to be listed at the PSE as of July 1. the usual procedure will be observed but the transfer agent of the company shall no longer issue a certificate to PCD Nominee but shall issue a Registry Confirmation Advice. thereby removing from the broker its current “de facto” custodianship role. 2010-0246 that the Amended Rule on Lodgement of Securities under Section 16 of Article III. Part A of the Revised Listing Rules of the PSE shall apply to all securities that are lodged with the PDTC or any other entity duly authorized by the PSEC. 2009-0320 that commencing on July 1. or any other entity duly authorized by the PSEC in the case of a listing by way of introduction. For listing applications. settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company’s transfer agents’ books or system. 2010 through Memorandum No. the underlying certificates are in the PCD Nominee’s name. the PDTC shall wait for the advice of the transfer agent that it is ready to accept surrender of PCD Nominee jumbo certificates and upon such advice the PDTC shall surrender all PCD Nominee jumbo certificates to the transfer agent for cancellation. and • Additional listing of securities of an existing listed company.

as the case may be. otherwise known as the Foreign Investments Act of 1991 and the Negative List issued pursuant thereto. among them the ownership of private land. 9160 (the Anti-Money Laundering Act of 2001. BSP Circular No. in relation to Article XII. If the foreign exchange required to service capital repatriation or dividend remittance will be sourced outside the Philippine banking system.0% of the capital stock outstanding and entitled to vote is wholly-owned by Filipinos. the Foreign Investments Act of 1991 states that where a corporation (and its non-Filipino shareholders) owns stock in a PSEC-registered enterprise. 141. an investment in Philippine securities (such as the Shares) must be registered with the BSP if the foreign exchange needed to service the repatriation of capital and/or the remittance of dividends. with the approval of the President of the Philippines. FOREIGN OWNERSHIP CONTROLS The Philippine Constitution and related statutes set forth restrictions on foreign ownership of companies engaged in certain activities. as amended. 471 (series of 2005) subjects foreign exchange dealers and money changers to RA No.000 for purposes of capital repatriation and remittance of dividends. hold shares for the investor. or in times of national emergency. registration is not required. • a domestic partnership or association wholly-owned by citizens of the Philippines. and represent the investor in all necessary actions in connection with his investments in the Philippines. Further. as amended) and requires these non-bank sources of foreign exchange to require foreign exchange buyers to submit. at least 60. Section 2 of the Philippine Constitution and Chapter 4 of Commonwealth Act No.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. Section 7 of the Philippine Constitution. The registration with the BSP of all foreign investments in the Rights Shares shall be the responsibility of the foreign investor. to restrict the availability of foreign exchange during an exchange crisis. In connection with the ownership of private land.PHILIPPINE FOREIGN EXCHANGE AND FOREIGN OWNERSHIP CONTROLS REGISTRATION OF FOREIGN INVESTMENTS AND EXCHANGE CONTROLS Under current BSP regulations. 197 . subscription agreement and proof of listing on the PSE (either or both). when an exchange crisis is imminent. RA 7042. reserves to Philippine Nationals all areas of investment in which foreign ownership is limited by mandate of the Constitution and specific laws. However. The foregoing is subject to the power of BSP through the Monetary Board. at least 60. A custodian bank may be a universal or commercial bank or an offshore banking unit registered with the BSP to act as such and appointed by the investor to register the investment. and • a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which 100. among others.0% of the members of the board of directors of both the investing corporation and the investee corporation must be Philippine citizens in order for the investee corporation to be considered a Philippine National. Section 3(a) of RA 7042 defines a “Philippine National” as: • a citizen of the Philippines. the original BSP registration document in connection with their application to purchase foreign exchange exceeding U. profits and earnings derived from such shares is to be sourced from the Philippine banking system.0% of the capital stock outstanding and entitled to vote of both the investing corporation and the investee corporation must be owned and held by citizens of the Philippines. Registration of Philippine securities listed in the PSE may be done directly with the BSP or through a custodian bank duly designated by the foreign investor. • a trustee of funds for pension or other employee retirement or separation benefits where the trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of the Philippine Nationals. states that no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens. Article XII. (ii) credit advice or bank certificate showing the amount of foreign currency inwardly remitted and (iii) transfer instructions from the stockbroker or dealer. Applications for registration must be accompanied by: (i) purchase invoice. • a corporation organized under the laws of the Philippines of which at least 60.S.$5.

Such recommendation will take into consideration factors such as debt service requirements. In accordance with Section 24 of the Corporation Code. every stockholder entitled to vote on a particular question or matter involved shall be entitled to one vote for each share of stock standing in his name in the books of the Bank at the time of the closing of the transfer books for such meeting.000.00 per share. Voting Rights of Common Shares Each Common Share entitles the holder to one vote. Other Features and Characteristics of Common Shares The Common Shares are neither convertible nor subject to redemption. respectively. Dividend Rights of Common Shares The Bank is allowed to declare dividends out of its unrestricted retained earnings at such times and in such percentages based on the recommendation of the Board of Directors. except treasury shares”. in person or by proxy.208.139. Upon the completion of the Offer. The Bank’s Board of Directors is authorized to declare dividends. Restrictions on Transfer of Shares The Bank may not allow the issuance or the transfer of Shares to persons other than Philippine Nationals and cannot record transfers in its books if such issuance or transfer would result in the Bank ceasing to be a Philippine National for purposes of complying with the restrictions under the General Banking Law. among other things.086. Such shareholders’ approval may be given at a general or special meeting duly called for such purpose. The Bank will apply for approval of this increase in capital stock immediately after the conclusion of the Offer. At each meeting of the shareholders. Share Capital As of the date of this Prospectus. In meetings held on February 9.750. the Bank has an authorized capital stock of P50. The Bank has no Common Shares held in treasury. every stockholder entitled to vote at such election shall have the right to vote. A stock dividend declaration requires the further approval of shareholders holding or representing not less than two-thirds of the Bank’s outstanding capital stock. appropriate reserves and working capital. 198 . the number of shares owned by him as of the relevant record date for as many persons as there are directors to be elected and for whose election he has a right to vote. budgets.0 billion divided into 1. or to cumulate his votes by giving one candidate the number of votes equal to the number of directors to be elected multiplied by the number his shares shall equal or by distributing such votes on the same principle among any number of candidates as the stockholder shall see fit. of which 1. All of the Bank’s issued Common Shares are fully paid and non-assessable and are free and clear of all liens. The Corporation Code defines the term “outstanding capital stock” to mean the “total shares of stock issued to subscribers or stockholders.249. whether or not fully or partially paid (as long as there is a binding subscription agreement).000.678 outstanding shares. the Board and shareholders of the Bank each approved an increase in the authorized capital stock of the Bank to P70. 2013.0 billion divided into 1. the Bank will have 1. claims and encumbrances.416 Common Shares are outstanding. the implementation of business plans.001 Common Shares with a par value of P40. See discussions on “Risk Factors” and “Description of the Securities—Restriction on Foreign Ownership”. funding for new investments. liquidation and winding up.001 shares. All documentary stamp taxes due on the issuance of all issued Common Shares have been fully paid. at each election of directors. 2013 and May 28.250.DESCRIPTION OF THE SECURITIES The following is general information relating to the Bank’s capital stock but does not purport to be complete or to give full effect to the provisions of law and is in all respects qualified by reference to the applicable provisions of the Bank’s amended articles of incorporation and amended by-laws. A cash dividend declaration does not require any further approval from the shareholders. Rights of Common Shares to Assets of the Bank Each holder of a Common Share is entitled to a pro rata share in the assets of the Bank available for distribution to the shareholders in the event of dissolution. See “Dividend Policy”. operating expenses.

lease. irrespective of the place of incorporation. 2007. subject to certain exceptions. Due to an inadvertent omission. exchange.Pre-emptive Rights The Corporation Code confers pre-emptive rights on shareholders of a Philippine corporation. 6754 Ayala Avenue cor. transfer. the Bank cannot allow the issuance or the transfer of Shares to persons other than Philippine Nationals and cannot record transfers in its books if such issuance or transfer would result in the Bank ceasing to be a Philippine National for purposes of complying with the restrictions under the General Banking Law.0% of its issued and outstanding capital stock. however. Although the aggregate ceiling on the equity ownership in a domestic bank does not apply to Filipinos and domestic non-bank corporations. the PSEC approved the amendment of the Bank’s articles of incorporation to provide for the denial of pre-emptive rights of shareholders. A Philippine corporation may provide for the exclusion of these pre-emptive rights in its articles of incorporation. The citizenship of the corporation which is a stockholder in a bank shall follow the citizenship of the controlling stockholders of the corporation. Restriction on Foreign Ownership Under the General Banking Law (R. • in case the corporation decides to invest its funds in another corporation or business or for any purpose other than the primary purpose. Since the aggregate foreign ownership in the Bank is limited to a maximum of 40. their individual ownership is limited to only up to 40% of the voting stock.. The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual stockholders in that bank. Philippine National Bank—Trust Banking Group. Legaspi St. and • in case of extension or shortening of the term of corporate existence. 8791) (the “General Banking Law”). • in case of any sale.A. mortgage or other disposition of all or substantially all of the corporate property or assets. Treasury Shares As of the date of this Prospectus. which entitle them to subscribe to all issues or other disposition of shares of any class by the corporation in proportion to their respective shareholdings. as clarified by BSP Circular No. the aggregate voting stock in a domestic bank held by foreign individuals and non-bank corporations must not exceed 40% of the outstanding voting stock of such bank. Change in Control There are no existing provisions in the amended articles of incorporation or the amended by-laws of the Bank which will delay. 199 . Allied Bank Center. • in case of merger or consolidation. the Bank has no treasury Common Shares. defer or in any manner prevent a change in control of the Bank. or of authorizing preferences in any respect superior to those of outstanding shares of any class. On October 17. the amended articles of incorporation of the Bank do not currently reflect the said denial of pre-emptive rights of shareholders. Makati City. shareholders dissenting from the following corporate actions may demand payment of the fair value of their shares in certain circumstances: • in case any amendment to the corporation’s articles of incorporation has the effect of changing and restricting the rights of any stockholder or class of shares. This restriction may adversely affect the liquidity and market price of the Shares to the extent that international investors are not permitted to purchase Shares in normal secondary transactions. The Bank intends to rectify the omission and reinstate the provision on denial of pre-emptive rights of shareholders concurrent with the amendment of its articles of incorporation to increase its authorized share capital. Appraisal Rights Under Philippine law. 256. Purchasers of the Rights Shares should be advised that ownership of the Right Shares will not entitle holders to any pre-emptive rights. Stock Transfer Agent The Bank’s share register is maintained at the principal office of the Bank’s share transfer agent. No.

A non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a non-resident alien engaged in trade or business in the Philippines. or because of force majeure. rulings. holding or disposing of the shares under applicable tax laws of other applicable jurisdictions and the specific Philippine tax consequence in light of particular situations of acquiring. subject to certain conditions. Tax on Dividends Cash and property dividends received from a domestic corporation by individual shareholders who are either citizens or residents of the Philippines are subject to a final withholding tax at the rate of 10%. some of which (such as dealers in securities) may be subject to special rates.5% of such income. The following discussion is based upon laws.PHILIPPINE TAXATION The following is a general description of certain Philippine tax aspects of the investment in the Bank. the term “resident alien” refers to an individual whose residence is within the Philippines and who is not a citizen thereof. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE ACQUISITION. the minimum corporate income tax may be suspended with respect to a corporation. otherwise. or because of legitimate business reverses. OWNERSHIP AND DISPOSITION OF THE SHARES. among other things. A “domestic corporation” is created or organized under the laws of the Philippines. administrative practices and judicial decisions in effect at the date of this Prospectus and is subject to any changes occurring after such date. and (b) interest income from a depository bank under the expanded foreign currency deposit system which is subject to a final tax at the rate of 7. Subsequent legislative. Furthermore. The tax treatment of a prospective investor may vary depending on such investor’s particular situation and certain investors may be subject to special rules not discussed below. owning. This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to invest in the shares and does not purport to deal with the tax consequences applicable to all categories of investors. holding and disposing of the shares in such other jurisdictions. Corporate Income Tax A domestic corporation is subject to a tax of 30% of its taxable income (gross income less allowable deductions) from all sources within and outside the Philippines except. INCLUDING THE APPLICABILITY AND EFFECT OF LOCAL AND NATIONAL TAX LAWS As used herein. This discussion does not provide information regarding the tax aspects of acquiring. when the minimum corporate income tax is greater than the ordinary corporate income tax. trust funds and similar arrangements as well as royalties from sources within the Philippines which are generally taxed at the lower final withholding tax rate of 20% of the gross amount of such income. (a) gross interest income from Philippine currency bank deposits and yield from deposit substitutes. income tax treaties. and a “non-resident foreign corporation” is a non-Philippine corporation not engaged in trade or business in the Philippines. which suffers losses on account of a prolonged labour dispute. while cash and property dividends received by 200 . Cash and property dividends received by non-resident alien individuals engaged in trade or business in the Philippines are subject to a final withholding tax at 20% of the gross amount. a “resident foreign corporation” is a non-Philippine corporation engaged in trade or business in the Philippines. judicial or administrative changes or interpretations may be retroactive and could affect the tax consequences to the prospective investor. A minimum corporate income tax of 2% of the gross income as of the end of the taxable year is imposed on a domestic corporation beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. owning. such non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a non-resident alien not engaged in trade or business in the Philippines. A “non-resident alien” is an individual whose residence is not within the Philippines and who is not a citizen thereof. any excess of the minimum corporate income tax over the ordinary corporate income tax shall be carried forward and credited against the latter for the three immediately succeeding taxable years. Nevertheless. regulations.

The Bank shall withhold taxes at a reduced rate on dividends to be paid to a nonresident holder. exchange or other disposition of shares of stock listed at and effected through the facilities of the PSE by a resident or a non-resident holder.non-resident alien individuals not engaged in trade or business in the Philippines are subject to a final withholding tax at 25% of the gross amount. Taxes on Transfer of Shares Listed and Traded at the local stock exchange A sale. ruling or opinion issued by the Philippine BIR confirming the tax treaty relief or preferential rate. through an administrative issuance. a country without a tax treaty may be reduced to 15% if (i) the country in which the non-resident foreign corporation is domiciled imposes no tax on foreign-sourced dividends or (ii) if the country of domicile of the non-resident foreign corporation allows a credit equivalent to 15% for taxes deemed to have been paid in the Philippines. If the regular tax rate is withheld by the Bank instead of the reduced rates applicable under a treaty. however. are subject to tax as follows: 5% on gains not exceeding P100. other than a dealer in securities. However. to the applicable preferential tax rates under tax treaties executed between the Philippines and the country of residence or domicile of such non-resident foreign individuals.5% of the gross selling price or gross value in cash of the shares of stock sold. consulate. However.000. 201 . is subject to a stock transaction tax at the rate of 0. The transfer of shares shall not be recorded in the books of the Bank unless the BIR certifies that the capital gains and documentary stamp taxes relating to the sale or transfer have been paid or. because the refund process in the Philippines requires the filing of an administrative claim and the submission of supporting information. Cash and property dividends received from a domestic corporation by another domestic corporation or by resident foreign corporations are not subject to tax while those received by non-resident foreign corporations are subject to withholding tax at the rate of 30%. where applicable. Exchange or Disposition of Shares Capital Gains Tax Net capital gains realized by a resident or non-resident other than a dealer in securities during each taxable year from the sale. dividends received are taxable as ordinary income in the year paid or accrued. exchange or disposition of shares received as stock dividends by the holder is subject to either the capital gains or stock transaction tax. and such other supporting documents as may be required by the Bank. tax treaty relief has been confirmed by the International Tax Affairs Division of the BIR in respect of the capital gains tax or other conditions have been met. An application for tax treaty relief must be filed (and approved) by the Philippine tax authorities in order to obtain such exemption under a tax treaty. barter. Gains from the sale or disposition of shares in a Philippine corporation may be exempt from capital gains tax or subject to a preferential rate under a tax treaty. On the other hand. generally 25% depending on the provisions of the corresponding tax treaties. bartered. subject. Proof of legal domicile or residence for an individual consists of certification from his embassy. or other equivalent certifications issued by the proper government authority. Philippine tax authorities have prescribed certain procedures. Stock dividends distributed pro rata to any holder of shares of stock are not subject to Philippine income tax. and may also involve the filing of a judicial appeal. The sale. or any other official document proving residence. A country with a tax treaty may have a reduced preferential tax rate. A prospective investor should consult its own tax advisor with respect to the applicable rates under the relevant tax treaty. exchange or disposition of shares of stock in a Philippine corporation listed at and effected outside of the facilities of the local stock exchange. if such non-resident holder provides the Bank with the tax exemption certificate. for availment of tax treaty relief. if the proportionate interests of the stockholders are changed. The 30% final withholding tax rate for inter-corporate cash and/or property dividends paid by a domestic corporation to a non-resident foreign corporation may be reduced depending on the country of domicile of the non-resident foreign corporation if it has an existing tax treaty with the Philippines. consularized proof of the non-resident holder’s legal domicile or residence in the relevant treaty state.000 and 10% on gains over P100. the non-resident holder of the shares may file a claim for refund from the BIR. it may be impractical to pursue such a refund. individual or corporate status (if applicable). Sale.

ancestor. 2009.000). such as shares of stock: (a) if the deceased at the time of his death or the donor at the time of his donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character. spouse. hence such gain is subject to Philippine income tax and capital gains tax and the transfer of such shares by gift (donation) or succession is subject to the donors’ or estate taxes. or (b) if the laws of the foreign country of which the deceased or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. Estate and donors’ taxes. who transfer shares of stock by way of gift or donation are liable to pay Philippine donors’ tax on such a transfer of shares ranging from 2% to 15% of the total net gifts during the calendar year exceeding P100. The stock transaction tax is classified as a percentage tax and is paid in lieu of capital gains tax.00. which permanently exempts the sale. This Prospectus does not discuss the tax consideration on non-resident holders of shares of stock under laws other than those of the Philippine.75 for each P200. The transfer of shares is subject to a documentary stamp tax of P0. 2009. Estate and Gift Taxes The transfer of shares of stock upon the death of an individual holder to his heirs by way of succession. in respect of intangible personal property of citizens of the Philippines not residing in that foreign country. The rate of tax with respect to net gifts made to a stranger (i. each as described above. Corporate holders are liable for donor’s tax at the rate of 30% of the net gifts made by such corporate holders. In addition. Documentary Stamp Tax The original issue of shares is subject to documentary stamp tax of P1.exchanged or otherwise disposed. 2004. However. shall not be collected in respect of intangible personal property. whether or not citizens or residents of the Philippines. barter. Individual. sister. Please note that the said exemption expired on March 20. 202 . or a fractional part thereof. on June 30. The tax treatment of a non-resident holder of shares of stock in jurisdictions outside the Philippines may vary depending on the tax laws applicable to such holder by reason of domicile or business activities and such holder’s particular situation. Taxation outside the Philippines Shares of stock in a domestic corporation are considered under Philippine law as situated in the Philippines and the gain derived from their sale is entirely from Philippine sources. 2009. barter or exchange of shares of stock listed and traded through the local stock exchange from the documentary stamp tax and was made retroactive to March 20. the sale. unless an applicable treaty exempts such sale from the said tax.. is subject to Philippine taxes at progressive rates ranging from 5% to 20% (if the net estate is over P200.e. of the par value of the shares issued. however. whether such holder was a citizen of the Philippines or an alien and regardless of residence. a value added tax of 12% is imposed on the commission earned by the PSE-registered broker who facilitated the sale. former President Gloria Macapagal-Arroyo signed Republic Act 9648.00 for each P200. one who is not a brother.000. and is generally passed on to the client. barter or exchange of shares of stock listed and traded through the local stock exchange shall not be subject to documentary stamp tax for a period of five (5) years from the effectiveness of Republic Act No. or a fractional part thereof of the par value of the shares transferred.00. exchange or disposition through the PSE. lineal descendant or relative by consanguinity within the fourth degree of relationship) is a fixed rate of 30%. However. 9243 dated February 17.

or any right. Hadley & McCloy. Certain legal matters as to United States federal and New York law will be passed upon for the Bank by Milbank. and for the Joint International Lead Managers and International Underwriters by Sidley Austin. Tweed. underwriter. 203 . to nominate persons or to subscribe to the securities of the Bank. whether legally enforceable or not. voting trustee. United States legal counsel to the Bank. The aforesaid legal counsels have not acted and will not act as promoter. officer or employee of the Bank.LEGAL MATTERS Certain Philippine legal matters relating to the Offer will be passed upon for the Bank by Roxas De Los Reyes Laurel Rosario & Leagogo. in accordance with the standards or independence required in the Code of Professional Responsibility and as prescribed by the Supreme Court of the Philippines. The aforesaid counsels have no shareholdings in the Bank. legal counsel to the Bank. United States legal counsel to the Joint International Lead Managers and International Underwriters. and for the Joint Global Coordinators and Bookrunners by Picazo Buyco Tan Fider & Santos.

2013 and for the nine-month periods ended September 30. A review is substantially less in scope than an audit conducted in accordance with Philippine Standards on Auditing. 204 . The pro forma consolidated financial information as of and for the year ended December 31. 2010. it does not enable SGV to obtain assurance that they would become aware of all significant matters that might be identified in an audit. Consequently. Accordingly. 2011 and 2012 were audited by SyCip. as stated in their report appearing herein. The unaudited interim condensed consolidated financial statements of the Bank as of September 30. (“SGV”). SGV do not express an audit opinion on the unaudited interim condensed consolidated financial statements. independent auditors. independent auditors.INDEPENDENT AUDITORS The consolidated financial statements of the Bank and of Allied Banking Corporation as of January 1. 2012 was derived from the unaudited pro forma condensed consolidated financial information of the Bank prepared in accordance with Paragraph 8 of the Rule 68 of the PSEC’s Implementing Rules and Regulations of the Securities Regulation Code. Velayo & Co. as stated in their report appearing herein. 2012 and 2013 have been reviewed by SGV. as amended. 2011 and December 31. 2011 and 2012 and for the years ended December 31. Gorres.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro Forma Consolidated Statement of Cash Flows. . . . . . . . . Notes to Financial Statements. Notes to Interim Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro Forma Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 AND FOR THE YEARS ENDED DECEMBER 31. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF THE BANK AS OF AND FOR THE YEAR ENDED DECEMBER 31. . . . . Statements of Cash Flows . . . . . . . . . . . . . . . 2012. . . . . . . . Pro Forma Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . Interim Consolidated Statements of Cash Flows. . . . . . . . . . . . . . Statements of Changes in Equity . . . . 2012 AND 2011 AND JANUARY 1. . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Income . . . . . . . . . . . . 2012 AND 2011 AND JANUARY 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE BANK AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30. . . . . . . . . . . . . 2012 Report on Review of Pro Forma Condensed Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interim Consolidated Statements of Income . . . . . . . . . . . . . . . .INDEX TO FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS OF THE BANK AS OF DECEMBER 31. . . . . . . . . . . . Interim Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . F-210 F-212 F-214 F-215 F-216 F-218 F-220 F-195 F-197 F-198 F-199 F-200 F-201 F-203 F-145 F-146 F-147 F-148 F-149 F-150 F-152 F-2 F-4 F-6 F-7 F-8 F-12 F-14 F-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL STATEMENTS OF ALLIED BANK AS OF DECEMBER 31. . . . . . . . . . Pro Forma Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statements of Income . . . . . . . . . . . . . . . . . Notes to Pro Forma Condensed Consolidated Financial Information . . . . . . . . . Statements of Changes in Equity . . . . . . . . . . . . . . . 2013 AND 2012 Report on Review of Interim Condensed Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 AND 2010 Independent Auditors’ Report. . . . . . . . . . . . . . . . . . . . . Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pro Forma Consolidated Statement of Income . . . 2011 AND 2010 Independent Auditors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interim Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . 2011 AND FOR THE YEARS ENDED DECEMBER 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interim Consolidated Statements of Changes in Equity. .

The procedures selected depend on the auditor’s judgment. 2012 and 2011 and January 1. 2012 in accordance with Philippine Financial Reporting Standards. 2012 and 2011 and January 1. whether due to fraud or error. as well as evaluating the overall presentation of the financial statements. 2015 INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors Philippine National Bank PNB Financial Center President Diosdado Macapagal Boulevard Pasay City Report on the Financial Statements We have audited the accompanying consolidated financial statements of Philippine National Bank and Subsidiaries (the Group) and the parent company financial statements of Philippine National Bank (the Parent Company). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. in all material respects. 2012. the financial position of the Group and of the Parent Company as at December 31. statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31. which comprise the statements of financial position as at December 31. 2011 and their financial performance and their cash flows for each of the three years in the period ended December 31. 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits.sgv. Opinion In our opinion. 0012-FR-3 (Group A). the financial statements present fairly. 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. 6760 Ayala Avenue 1226 Makati City Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 www. 2015 SEC Accreditation No. No. and the statements of income. but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. whether due to fraud or error. and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement. 2012. F-2 . In making those risk assessments. valid until December 31. 2012 and a summary of significant accounting policies and other explanatory information. November 15.SyCip Gorres Velayo & Co. including the assessment of the risks of material misstatement of the financial statements. 0001. valid until November 16. 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.ph BOA/PRC Reg. We conducted our audits in accordance with Philippine Standards on Auditing. 2011. December 28.com. statements of comprehensive income. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

08-001998-69-2012. 2013 F-3 . The deferred losses were charged against operations in the years the NPAs were sold and the accounts of the SPV company that acquired the NPAs in 2007 and 2006 were consolidated into the Group’s accounts in accordance with Philippine Financial Reporting Standards. 2012.Other Matter In our auditors’ report dated March 6. Valid until May 31. our opinion on the 2011 and 2010 financial statements prepared in accordance with accounting principles generally accepted in the Philippines for banks (Philippine GAAP for banks) was qualified because: (1) losses on non-performing assets (NPAs) sold to special purpose vehicles (SPVs) were recognized as deferred charges and amortized over a ten-year period instead of being charged in full against operations in the year the NPAs were sold as required by Philippine GAAP for banks and (2) the NPAs sold to an SPV in 2007 and 2006 were derecognized instead of consolidating the accounts of the SPV company that acquired the NPAs of the Parent Company in 2007 and 2006 into the Group’s accounts in accordance with Philippine GAAP for banks. is no longer qualified. January 2. 2013 Tax Identification No. 2012. valid until April 10. A-560-A (Group A). As explained in Note 2 to the financial statements. our opinion on the 2011 and 2010 financial statements. as presented herein. the 2011 and 2010 financial statements previously prepared in accordance with Philippine GAAP for banks have been prepared in accordance with Philippine Financial Reporting Standards. Accordingly. 900-322-673 BIR Accreditation No. The supplementary information required under Revenue Regulations 19-2011 and 15-2010 in Note 37 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Makati City February 22. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Janeth T. 111092 SEC Accreditation No. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. 3670006. the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. April 11. 2013. SYCIP GORRES VELAYO & CO. In our opinion. Such information is the responsibility of the management of Philippine National Bank. Nuñez Partner CPA Certificate No. 2015 PTR No.

.647 34. 192. . . .443 5. . .452 P 30.341 106.514 P 5. .300.058 20. Bills and Acceptances Payable (Note 18) . . . . .208 50. .994.901 4.526. .647 P297. Subordinated Debt (Note 20) .673.388 TOTAL ASSETS . . .300. .348 16.758 (Forward) F-4 .435. . . .063.076.981. .256 P 28. . .691. .964.652.718. . .473 11. .897.599. 37. . . . . .696. . . .808 Loans and Receivables (Note 8). . . . .675 6. .030.479.583 2.782 11.626 7.483 226.865 15.682 1. . .893 27. . . . .738. .097. .120 Savings .938. 1.417. . .137. Demand.648 237. . . . . Accrued Taxes. .951 — — 676.965.471. . . . .733 6. .548.042. . . . . . . . .300. . . .245. . .707.318.078 P293. . . . . . . . .305. . .249. .965 277. . . . . .896. . . .748. .650 5. .533. .452. .452. . . . . .692. . . .887. .028 Q325. . . . . . .498. . . .256 110.198 1.566. . 6. . . . .202 Parent Company December 31 January 1 2011 2011 (As Restated— (As Restated— 2012 Note 2) Note 2) P 5. . . . . . .961.846. .411.323.735 624. . .430 4. .681 9. . . .203 1. .183 8.066. . .358 3.486.088 P 5. . .776.420 23.596 12. . .425 3. . Q 5.905.336 287. . .775. .934 6. . . . .325 P 36. . 18.859. . 2.126 268. . . .901.789 Other Assets (Notes 2 and 14).726. . .112 37. . .282. TOTAL LIABILITIES . . . . .803 266.393 291.872 14.PHILIPPINE NATIONAL BANK AND SUBSIDIARIES STATEMENTS OF FINANCIAL POSITION (In Thousands) Consolidated December 31 January 1 2011 2011 (As Restated— (As Restated— 2012 Note 2) Note 2) ASSETS Cash and Other Cash Items (Note 16) . .399 38. .735 10.981 Interbank Loans Receivable . . . .296 P 29.769 6. . . . . .963 5. Q331. . . .650 15.824. 4.509 126. . .175.832.425 3. . . . . . .698 2. . . . . . . . .939. . . . .938.428. .189. .497 15.644 16.315.000 Financial Assets at Fair Value Through Profit or Loss (Notes 2 and 7).800.461. . . .285.457. . . . . . . . .423.841. . . . 937. . . .191 815. .082. . .479 52. . . . .092. .698 240.442 241.140. .549 12. . .377 Financial Liabilities at Fair Value . . .136.983 7.650.110 Due from Bangko Sentral ng Pilipinas (Notes 16 and 33) . .661 4. . .000 6. .303.324. . . . .648 18. . . 14.425 171. .152. 19. .183 7.478. .375. .906. . .492. . . .997. . . . . . .164.372 Q 28.650.821 22.443 2. . .687 6. .816. . . .004.218 6. .759 226. . . . .531. .294 2. .915. .325. . . — — Held-to-Maturity Investments (Notes 2 and 10) .531.260 184.073 17. .141.479. . .966. . . .596 12. . .854. . .967 6.676. .962. . . . .594 4. . .230 5.446 17.454 192. . . . .440.100. . .273.735 13. .811 3.473 14.278 P 27.821 12. .718 1. 2. . .228.186 Q 24. .514 Investments in Subsidiaries and an Associate (Note 12) . Q 28.309. . 4. . . . . . . .574. . . . — — Property and Equipment (Note 11) .340 9. . . .259 6.127 6.405 15. .986 3.440.163.977.047 3. . . . . 11. .120 Time. .097. . . .868. . . . . .980. . . . .873. . . .098 64. . . . .621 274.000 3. .000 15.259. .829. . .035 Receivable from Special Purpose Vehicle (Note 9) . . . . . . .698. . .042. .780 Investment Properties (Notes 13 and 32) . . . . . .821 13. . . .404. . .698. . 144. . . . . . . . . . At cost .856. . . .632 12. .683 P307.803 184. .000 15. Other Liabilities (Notes 2 and 21) .478 — 38. .113 Deferred Tax Assets (Note 28) . . .364 15. . . .698 17. . .898 32.083. . . . . . .138 4. . .406.816 12. . . .550. .764.232 1. . . . 66. . . Through Profit or Loss (Note 17) .782. . . . .300.041 140.908. .458. . .793. .800. .611 24.065 6.539 P312. . .884 6. . . . .152. .779 27. . .938 6. . .023.566.108.140 238. . .665 Available-for-Sale Investments (Notes 10 and 16) . . .293.081 171. .977 122. . .875.648 Securities Held Under Agreements to Resell . .013 At appraised value .795 Due from Other Banks .481. . . .541. .075 866. . . 15. .000 18. . . .088 658. . . . . . . .986 5.756 17. . Interest and Other Expenses (Note 19) .486.848 — — 757. . .816 16. . . . . . . .450 38.498. . . . . . .006. . . .173. .913. .199 1.015. . .816.922. . .120. . . . .945. .639 LIABILITIES AND EQUITY LIABILITIES Deposit Liabilities (Notes 16 and 31).756 18. .780. .574.

.740) — — 38. (4.816. 904. .888. .272 2.489. . . . . . . (992. . . . . .752) 334. .037. .740) (4. .037. . . . . . . . . . .586 37. . . .252) 904. .962 2. . . . .489. 1.962 2. .440. . . .043 — — Parent Company Shares Held by a Subsidiary (Note 24).647 TOTAL LIABILITIES AND EQUITY .443. .816.190 531. . .816.816. .837 Q 26.889 — 26. .708) (471.300. . . . . . .889 P293.543 33. . . . .344) 2. .683 P307. .120. . .348 2. . 2.816. . .303. . . . .837 2.247 34. .975) (61. . . .842. . .083.414.362 28. . .686 658. . . . . .256 Equity in Net Unrealized Gain on Available-for-Sale Investment of an Associate (Note 12) . . . . . . .708. . . 569. . .037.272 551. . . . .746. . .676 (1. . . . F-5 . .962 300. .028 Q325. . . .641. . . . . . Q 26.947 (4. . . . . . . . .641.837 P 26. . . . . . . . .224 560.246. .489.543 — 37.837 P 26. Q331. .837 P 26. . .037. . . . .974. . . .887 560.437 27.461) — — 26. . . .278 See accompanying Notes to Financial Statements. . . . .489. . . . . . . . — 6.651 406. .037.887 560.006. .Consolidated December 31 January 1 2011 2011 (As Restated— (As Restated— 2012 Note 2) Note 2) Parent Company December 31 January 1 2011 2011 (As Restated— (As Restated— 2012 Note 2) Note 2) EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY Capital Stock (Note 24) .216 551. . .005 Net Unrealized Gain (Loss) on Available-for-Sale Investments (Note 10) . .951. .303.216 Surplus (Deficit) (Notes 2 and 24) . . . . . . .708.371.254.620) (451. . . .022 P 26. . . . .199. .198 NON-CONTROLLING INTERESTS (Note 2). . . . . .272 2. . . .022 — 33. .037. . . . . .066. .539 P312. .947 569. . . . . . . . . .962 2. 2.740) (4. . TOTAL EQUITY .272 2.213 (2. .962 Accumulated Translation Adjustment (Note 12) . . . .639 P297.082. .795 6.252 742. .037. . .474 Revaluation Increment on Land and Buildings (Note 11) .272 Surplus Reserves (Note 30) . . .489. .962 2. .272 2. . .816. 6.693 39.343 (1. .811. . . .891 34. . .870) 4.489.837 Capital Paid in Excess of Par Value (Notes 12 and 24) . . .

209. . . . . . . .542 1.348.218 NET INCOME . .782 1. . .388 P4.818 726.210 30. .644 610.971 781.112 30. . . . . . Except Earnings Per Share) Parent Company Years Ended December 31 2011 2010 2011 2010 (As Restated— (As Restated— (As Restated— (As Restated— Note 2) Note 2) 2012 Note 2) Note 2) P7.224. . .461 205.684 12.217 5. .027. 375.227. . .902 6.592.586 980. . Q5.128 5.595.648. . . . . . . Foreign exchange gains—net. 659.803. . .38 See accompanying Notes to Financial Statements.032. . . . . . . . .133. . . . . . . . Bills payable and other borrowings (Notes 18 and 20). . . .754. . . . .376.206 6. . . . .340 P4. . .285.174. .401 2.848 3.249 5. . . . .420.899 1. . .960 15. . .280.916 906. . . .940 2. . . . . . . .402. . . . .910. .295 Interbank loans receivable .435 910.682.013 12. . .331. . .135 1.743 4. . . . .664 254.272 933. .264 10.229.134. .027. . .614 P6.970 323. Taxes and licenses (Note 28) . . .950 146. . . .915 405. . .841 1. . .654 3. . . . . .505 924.319. OTHER INCOME Trading and investment securities gains—net (Notes 2. . . . . . . .596. . .287 3.771. . .491 3. . .102.106 801. . . . . . . . . . . .659. . .836 359.087 2. .120 4. .692 P3. .235 4. . .207 11. . . . . .576 7. . .961 9. . INCOME BEFORE INCOME TAX .651. Net gain on sale or exchange of assets (Note 25) . . . OPERATING EXPENSES Compensation and fringe benefits (Notes 26 and 31). . .351. . .280. . . . .880 1.701 1. . . . .451. . . . . . .475 808. . . .811. .218 P4. . . .455 1.565 4.983. 11. .436 924. . Provision for impairment.140. . . .973. .109. . .468 2. 17.931. .800 4. . . . . .390. . . .704 7.408.185 3.935 1. . . 3. 3. .896 Q5. NET INTEREST INCOME .635. . Q P4. . . .702 Basic/Diluted Earnings Per Share Attributable to Equity Holders of the Parent Company (Note 29) . . . .697 5. . . .554. .527 1. .015. . Q7.609 P7. .377 15.461 2. . . . .685 12.352 P4. .207 11.109. . . . .188 1. .004. .690 4. .321 713.715.882 1. .225. PROVISION FOR INCOME TAX (Note 28) .399. .754 Deposits with banks and others (Note 31) . . . .235 3. . . . . .846 2. . . .326 Consolidated 2012 INTEREST INCOME ON Loans and receivables (Notes 8 and 31). .719 1.552.260 4.749. . .604 3. .329. . . . . . .502 Q7. .592 692. . . . . . . . . . .833 1. .448 17. . . . .523. .328 1.010. . .802 127.978 9. .351 Trading and investment securities (Notes 7 and 10). .169 3.098. . . . .769 3. .755.270 P3.754 795. Miscellaneous (Notes 2.705 2.588 4. . .447. . . . . . . . . . 14. .736 659.282. . . . .543.661 7. . .969 7. . . . . . . . . . .710 14. .652 12. .815. . . credit and other losses (Note 15) . . . . . .405. . . . . . . . .114 1.420 593.124. .927. . . . .011. .275 5. .442. .003 1.439 31. 7 and 10) . .241. .176. . .702 ATTRIBUTABLE TO: Equity Holders of the Parent Company (Note 29) . .301 4. . . . . . .02 P 7. . . .044 879.403 791. .536 587. . 25 and 27) .135.217 1. . . Occupancy and equipment-related costs (Note 27) . Miscellaneous (Notes 2 and 25). . . . .133. . .508 1. . NET SERVICE FEES AND COMMISSION INCOME . .340. . . .032. . .719 466. . . .013 12. . . . .219 11.780 3. .226 4. . .990 207.080. . . . . . . . . . .573. . .235. .203. .152 870.755.384.452 769.568 P4. .453.385 633.211. . . .441.341 1. . . .734. . . . . . . . . Depreciation and amortization (Note 11).216. . . . . . .245.260. . .477 2. . . . .397. .619 1. . . . .041. . . . .772 915.456 2. .400 1.720. . .215. .952.640. . . . . . . .692 3.565.287 7. . .177.755. .933 17.750 2. . . .387 2. . . .842.403 1. .450. . . .439.731 5.404 3. . . . .992 637.130. . . .350. .734 3.352 86.106 642.445 15. . . .340 31. . . . .876. . .384.429 656. Service fees and commission income (Note 25).053 3. .322 TOTAL OPERATING EXPENSES .852 TOTAL OPERATING INCOME . F-6 . .105 359. . . . . . .956. .099.915 1. .933 3. Q4. . . . .736 5.529 4. . . . .313. .426. .807 5. . . . .PHILIPPINE NATIONAL BANK AND SUBSIDIARIES STATEMENTS OF INCOME (In Thousands. .549. . . . .669. . .160 4.05 P 5.706. . . . . . .268. . .975.553 3. .343.521. . .447 1.762. .603 P6. Service fees and commission expense (Note 31) . . . .136. . .057 1. . .555. .607 INTEREST EXPENSE ON Deposit liabilities (Notes 16 and 31). . .472. .072 871. . .559.170 1.921 2. . .806 Non-controlling Interests .781 4. .350.128. .360.399 887. .019. .112.171.794 837. .257.516 1.029 1. . . . . .795 1.224 Q4.

. . . .046 (28. .267 12. . .774. .340 P6. .038) Q4.568 P3. . . . .284 Q4. . .962.904 P6. . .848 Parent Company 2011 (As Restated— Note 2) P4. .329 210.631.823. .027. . . .322 466.774.087 2010 (As Restated— Note 2) P3. .595 752 — (315.815 246. .890 Q4. . . . . . .909 (6. . Share in equity adjustments of an associate (Note 12). . . NET OF TAX . ATTRIBUTABLE TO: Equity holders of the Parent Company . .966 86.904 P6. .614 (208. F-7 .718. . . . . . .306 P3. . . .133 P3. . . . . .191 294. . .715. . .912. .306 P3.554. .430 — — 1. . .327) 1. .043 87. . . . . .PHILIPPINE NATIONAL BANK AND SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) Consolidated 2011 (As Restated— Note 2) P4. .912) 20. . . . .718.896 Q4. . . OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR.397) (149. .357. Revaluation increment on land and buildings (Note 11) .815 (252.795) — 1. . .755. . .692 Years Ended December 31 2010 (As Restated— Note 2) 2012 P4.032. . . . . . . . . . .399. .661. Non-controlling Interests . . . .287 Q4.941. . .823. . . . .757) 33. . . . . . . . . .659.099) 6. Net unrealized gain (loss) on available-for-sale investments (Note 10) . .322 2012 NET INCOME .521 P6. . . . .798) 1. . . .702 (540.844 (395. .044) — 87.717 — — (326.405.946.008 375. OTHER COMPREHENSIVE INCOME (LOSS) Accumulated translation adjustment. TOTAL COMPREHENSIVE INCOME FOR THE YEAR . .631.890 See accompanying Notes to Financial Statements. . Q5. . . .

2012. . F-8 . . . . . . . .352 (8.489. . .797 — — — — 5. . .975. . . . . . . . .729.150) 87.962 (Q992. . .272 P551.620) Balance at January 1. . . . . . . . . . .729. . . . . . . . .837 Q2. . .272 Q560. Declaration of dividends . 2012 .424) — — Balance at January 1. .837 P2. .844 — Balance at December 31.816. . . .887 Q6.870) 2.489.037. Total comprehensive income (loss) for the year . . . . . . . . . .489. . . Total comprehensive income (loss) for the year .037.962 4.272 P560.975) See accompanying Notes to Financial Statements. .819) 12. . .269) — — — — (471. . . .489.669. . . .489. . . .269 — (2. .962 (Q451. .213 4. . .806 — (9. . . .816. 2012. . . . . as restated . .213 P2. . 26. . . . .837 P2.272 551. .554 P2. .816. . — — — (5.837 Q2. . .246. . . .037. .489. . 26.489. . . .701. .888. .348 Q2. .272 560. . . . . . . .037. .272 546.037. . — — — (6. . . .819) Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2). .962 (P471.816. . . .037.272 Q569. . Acquisition of non-controlling interest (Note 12) . . .671 2. . . . . .400. . . . .671) 2. . . . . . . . . . . . . . Q26. . . Transfer to surplus reserves (Note 30) . 2011. .947 — — — — — — — 8. . .365 P2.975) 20.037.147 3. . . . . . .150 (5. .037. . . . . . .414. . . . .651.719 (5. 26. .962 (P471. .565.246. . . as restated .267 — — Balance at December 31. as previously reported . . . . . . . .837 2. . . as previously reported . .489.837 P2. . . Transfer to surplus reserves (Note 30) .091.870) P2. .216 — — — — — — — — 9. .708) (540. . . . . . . .804) — — Balance at January 1. Q26.272 P546.708) Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2).837 2. . . P26.816. . .837 P2. . . . . .506. . . . . P26. . . . . . . . . . . . . . . . — — — (4. . . . . . . . . . Total comprehensive income for the year . .912) — — Balance at December 31. . . . . .947 P3. . . . . .815 — (484. 2011. . . . . . .962 — — — (451.216 P2. . 2010 . . . . 2010. .272 P551. . . . . . . . .816. . . . . .439) 2. . . . as previously reported . . P26. . .384 Q2. . . as restated.216 Q6.037. .947. . .975) Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2). . . . . . . . . 2011 .414.797 P 425. . .962 (P451. .708) Balance at January 1. . . P26. .171) — — Balance at January 1. .816. .147 (P484. . . . .837 2. . .489. .947 (P2. . . Transfer to surplus reserves (Note 30) . . . 2010.PHILIPPINE NATIONAL BANK AND SUBSIDIARIES STATEMENTS OF CHANGES IN EQUITY (In Thousands) Consolidated Attributable to Equity Holders of the Parent Company Revaluation Capital Paid Surplus Increment Accumulated in Excess of Surplus (Deficit) on Land and Translation Capital Stock Par Value Reserves (As Restated— Buildings Adjustment (Note 24) (Note 12) (Note 30) Notes 2 and 24) (Note 11) (Note 12) Balance at January 1.

586 6. .037. . 2010. . . . .631. . . Q1.974. . .731.740) P33. . .650) 484. .190 — — — 4. . 2011. . . . . . . . . . .536 Balance at January 1. . . . . . . .099. .247 375. . . . .888 P33.474 560. . .479) — Balance at January 1. . . . .941. . . . . .043 752 — — P6. . . . . .440.795 — (5.822 Q6. . (1. .740) P30.795) — — Q — (Q4. . .795 Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . .252 (Q4. . . 2010. . .317.740) 34. 2012. .696 3.988. .595 — — 6. .252) P6. . .306 — (115.362 86.471. .289) 34. . . . . . . .902 — — 3. . . . . . . .199.705) 93. .174. . . . . .247 P34. .198 Q904. . . Transfer to surplus reserves (Note 30) . . . .205 Balance at January 1. — — Balance at January 1. . . as restated . . . .842. . .746. .509) 24. .252) 1. . . . Q 772. . . . . . . . . . . . P 742. Declaration of dividends . . .437 (P4. .904 (2. . . .437 4. 2012. . . . . . . . Transfer to surplus reserves (Note 30) .043 (P4. . .586 See accompanying Notes to Financial Statements. . . . . . . . . . . .774. — — Balance at January 1. . as previously reported. .693 Q39. 742. . .811. .499 P30. . . . 2011 . . .400. . as restated .890 — (4. . . . .Consolidated Attributable to Equity Holders of the Parent Company Net Unrealized Gain (Loss) on Parent AvailableShare in Company for-Sale Equity Shares Investments Adjustment of Held by a (As Restated an Associate Subsidiary Notes 2 and 10) (Note 12) (Note 24) Total Noncontrolling Interest (As Restated — Note 2) Total Equity Balance at January 1. . . . .455) (5. . (P1. . as restated . . .099) — — 6. .153) P — Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . . . .443. (P1. .891 (P4. . . .740) 24. .706 P133. .506. .811. . . .450) — (4.399. . . F-9 . .343 294. Total comprehensive income for the year . . .795 (6. .648 P153. . . . .740) P34.854. 2012 . . . .199. .547. . . .568 — (6. . . .740) Q38. .424) 406. . . . . Acquisition of non-controlling interest (Note 12) .247.804) (39. . . .794 466. . . .043 Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . .896 (2. as previously reported. . . .190 P531. . .371.361 531. (P 884. . . .221. . . . . . Total comprehensive income (loss) for the year. .950) 28.343 (P4. . . . .740) Q39. . . . .362 P28. .443. . . .726 — (4. 2011. . . . .718. . . .966 — — Balance at December 31.886 Q39. .371. .740) 27. .453.340 — (115.909 — — 6. .740) P27. . .153) (315. . 2010 . .224 — — — 6. . . . . . . .322 — Balance at December 31.224 P560. . . . . .357. . . . . . . . . . . .199.974. . (884. (30.043 — — (6. .455) (4. .823. .450) — (4. . . .840 Q 46.252) P6. as previously reported . . Total comprehensive income (loss) for the year. . .008 — — Balance at December 31. Transfer to surplus reserves (Note 30) .

. . . . as restated . . . .489. . . . . . . . .489. .837 — — 2. . 26. .107.080 Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . . . . . . . . 2012. . . .272 P551. Total comprehensive income (loss) for the year .516) 3. . . . . . .037. . . . . .171) Balance at January 1. . . . P26.272 — — 560.848 (9. . . . . .489.272 P560. . . . . . . . . .837 Q2. .837 Q2.272 P551. .037. . . . . . .037. . . . . . . . . . as previously reported. . . . as previously reported. . .554. . .087 (8. .701. . .489.272 Q560. . . . . . . .715.797 — 5. . . . . .037. — — — (6. P26. . — — — (5. as restated . . . . . . . . . Transfer to surplus reserves (Note 30). . . . . . .150) Balance at December 31. . . . . .553. . . . .344) 4. .954.037. . . Transfer to surplus reserves (Note 30). . — — — (4. . . . . . . .947 P1. . . . . .651 Balance at January 1. . . . . . .150 (7. . 26. 2011 . . . . . . . . .671) Balance at December 31. . . . . . . .300. . 2011.489. . .947 — 8. Total comprehensive income for the year . . . . . .837 P2. P26.400. Total comprehensive income (loss) for the year . . . . . . .037. .489. . . . as restated . . . . F-10 . .300. . . . . . . . 26. . as previously reported . . . . . . .272 Q569. . . . . .216 Q5. . . . . . .272 — — 546. 2010. . . . . .037. Q26. . . . .489. . .506. . .Parent Company Capital Paid in Excess of Surplus Capital Par Value Reserves Stock (Note 24) (Note 12) (Note 30) Surplus (Deficit) (As Restated — Notes 2 and 24) Balance at January 1.712) Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . .951. . 2011.344) See accompanying Notes to Financial Statements. .797 (P1. . . . . . . . . .645 Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . . . .837 P2. .474 4. . Q26.037. . . . . . . .037.269 (4. . . . . .489. . . .947 (P4. . . . . . . . .216 Balance at January 1. 2012. . . . . . . .837 — — 2. . . . . .887 Q4.659. .272 P546. . .322 (5. . 2010 . . . . .837 P2. . .671 406.272 — — 551.424) Balance at January 1. . . . .206.804) Balance at January 1. . . P26. . .216 — 9. . 2012 . . Transfer to surplus reserves (Note 30).837 — — 2. . 2010. . . . .489. . . .474 Balance at December 31. .837 P2.269) P406.

. . . . . . . . . . . .889 See accompanying Notes to Financial Statements. .708. . . . . . . . . 2012. . 2. . . . . .044) 3. . as previously reported . . . . . . .034.485 (P Adoption of Philippine Financial Reporting Standards and — prior period adjustments (Note 2) . . . 2012 . Transfer to surplus reserves (Note 30) . . .005 (395. . . . . F-11 .010. Total comprehensive income (loss) for the year . as restated . . . . . . . . . . .912.962 P334. . .804) Balance at December 31. . . .005 Q Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . Total comprehensive income (loss) for the year . . . .757) — 688. . . . . . . .254. Q2. . . . . . . . . .816. . — — Balance at January 1. . as restated .661. . . P2. . 2011. .417) P29.729.506.962 P300. . . P2.962 — — 334. . .256 246. . .676 (P 1. . .479) 658. . . . . .962 (Q 61. P2. . .303. . . . . . . .962 Q334. . . . . .400. . . 2010. .022 4. .731.735 Q38. . .672 (30. . . . 2010. . . . . .147 87.816. . . . . . . . . . . Transfer to surplus reserves (Note 30) . .641. . . . .889 1.409 — (6. as previously reported . . 2010 . . .148. .005 P Balance at January 1. .417) 23. . . . . . .686 Q37. Total comprehensive income for the year.631. . . . . . . . . .521 — Balance at December 31. . . . . . .816. . . . . .303. . .752) Q 904.254. . .485 210. 2. . . . .133 — — 658. . . . . . . . . . . . . . . .022 928. .461) P26. . . . . . . . . . . . .815 — 90.729. — — — (5.543 Balance at January 1. . . .254.430 — (4. . . . . .641.650) 33. . . . . . .962 — — 300. .605 (326. . . . . . . .816.Parent Company Net Unrealized Revaluation Gain (Loss) Increment Accumulated on AFS on Land and Translation Investments Buildings Adjustment (As Restated — (Note 11) (Note 12) Notes 2 and 10) Total Equity Balance at January 1. .962 P300. . . . .284 — — Balance at December 31. . . . . as restated . . . Q2.816. .816. . . . 2012. . Transfer to surplus reserves (Note 30) . . . .191 — (928. . .676 33. .461) P32. . . .405.329 — (1. .676 (P1. . .411.717 6. . 2011. . .147 P 90. P2. . . .313 Adoption of Philippine Financial Reporting Standards and prior period adjustments (Note 2) . . — Balance at January 1.256 P33. .424) Balance at January 1. . . . . . . . . . 2. as previously reported . .461) 26. . . .816. . 2011 .

909. . 21. .419 Depreciation and amortization (Note 11) . . .235 656. . . . . .553) 2. . . . . .109.760) 475. . . . . . .865. . . . .713. . .287. . .240) (10. . . credit and other losses (Note 15) .575) Amortization of software costs (Note 14) . . .426) 795.099) 151. .535) Other assets . . . . . .505. . . . . . . . . . . . . .603 2.733 32. . . . . . . . . . . . . . .310. .603 2. . .644.991 (750.351. . . . . .745) (11.302 (172. . . .658 804. .000 88. .807 Loans and receivables . . . . . . . .106 (714. . . . .475. 20. .168) (900. .107 (334. — Proceeds from redemption of placements with the Bangko Sentral ng Pilipinas (BSP) (Note 33). . .389 — — 575.088. .130. . . . . . .678 3.626.934) (3. . . .550 162. .680) Realized trading gain on sale of held-tomaturity (HTM) investments (Note 10) . . . . . . . . . . . . . .559) 11. .915) (3. . .745 1.940 (1. .399. .780) 1. . . . . . . . . . . .044 Adjustments for: Realized trading gain on available-forsale (AFS) investments (Note 10) .794 2. . (2. .636. .109. . . . . . . . .680 3. . . . . .724 (856.355 6. . . . . .727) (302. . . . . . .095) Increase in amounts of: Deposit liabilities . . . .061) (974.507. .004) 2. .818 164. . . .575) 158. . .774 (1. . . . . . . 765. . . .055. .157. . .708 (1. . . 3. . .000 185. . . . . . . . .505 Q5.934) 24. (283.555 (45. . . . . . . . . . . .798 (882.462. .934) 24. . . . . . . .672.699) 47. .107 Proceeds from maturity of held-to-maturity (HTM) investments. .586. .589) 980. . . . . . .297) Other liabilities .072 P 5. 153.824 (2.286) (208. . . . .523) (17. . 2. .357 9. . . (81.408.185. .586. .935) 25. .418 (9. . .733 — (25. . . .772 164.070 (10. . . . . . . . (4. . . .127.498 3. . . .115. . . .528 34.664) (402.323 593. . — Collection of receivables from SPV . . . . . .110.099) (37. .000 185. . . . . . .082. . .475 P 4. . .916) 1.959 2.418) (1. . .403) Loss (gain) on mark-to-market of financial liability designated at fair value through profit or loss (FVPL) (Note 10) . . .274) Changes in operating assets and liabilities: Decrease (increase) in amounts of: Financial assets at FVPL . . . .384) 2. . . . . . . . . . . . . .926) (627. .443 (743.102.000 2. .454) (214. . . .931. . .452 59. . . . .576) 206. .552. . . .542) (4. . . . . . . . .800. .092 2.655. .895 (734. . . .585 781. . .921 153. . .126 (81. . . . . . . . . . .118. .344 Investment properties. (19. . . . . . . . . . .477 Accrued taxes. .205. . . . . .404 Net gain on sale or exchange of assets (Note 25) .309) (68. . .987. . . . Q5. . .958 Q3. .611.515) (283. . .089) Provision for impairment. . .167 Loss (gain) on mark-to-market of derivatives (Note 10) . .935. .576 5. .523.505. . .915) (1. . (359.113 — 9. . . . .720. (10.065) (2. . .403) (1. . . . . . . . .929. . .858) (1. 3. . .921 156. Income taxes paid . .561 Share in net income of an associate (Note 12) .491 (2. . . .895 — — — 239.360. . — (141. . .157.046.976 Q121. . . . . . .030) (17. . . . . .101 Q60. . .553 (359.510) 21. .219) (37. . .863) (18.426. . .PHILIPPINE NATIONAL BANK AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (In Thousands) Consolidated Years Ended December 31 2011 2010 (As Restated — (As Restated — Note 2) Note 2) 2011 2010 (As Restated — (As Restated — Note 2) Note 2) Parent Company 2012 2012 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax . . . . . .542 2. . . . . . . . . .503 Q285.635.486 159. . . . . . .527. . . . .956.300 656. . . . .337 32. . . .644) 206. . .400 Amortization of premium (discount). . . . .009 Net cash generated from (used in) operations . .744 (4. . . . . 933. .960 Q95.460) 642. Q300. . . . . .275) 231. .604 (2.559. . . .200. . interest and other expenses. . .436 P 5. .793 3. .255. . . .955) Dividend income.847 9. 713.018) 12.822) 4.200. . . .000 91.179) 2. . . . .634. 2. .600.566. .113. . . . .937 11.930) (1.352) 216. . .874 3.482) 3. . . . .044) 665. . . . . .348. . .339 Amortization of transaction costs (Notes 16 and 20) . . . . Dividends received . .113 — 9. . . . .701 1.522.669. . . . . . .800.824) — — (141. .183. . . . (717. . . . .515 2.000 20.727.350.456 (9. . . (8. . Net cash provided by (used in) operating activities .611.510) 34. . . . .377 (901. . . . . . . .884) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of: AFS investments. .083. .596.219 11.274) — (4. .561 — (231. 244.758. . . . — Proceeds from sale of HTM investments .267.017. . .952. . .858.102. (147. . .488 P 4. . . . .555 — (216.604 Property and equipment. .592 (1. . .783 — — — (Forward) F-12 . .586 837.350.

000) — (4. .292. . . .941) (125.245.691. . CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bills and acceptances payable . . .616.325 3. .952. . . .131 2. .416. . .245. .000) Q (108. . . . .498.600. .754 (43.207) Property and equipment (Note 11) . . .300. .112 (43. .795 6.559 6.800. .938.186 14. . . . (704.576. .945. . . .437. . . .276. . .500.846 (17. . . . . .548.455) (2. . .000 P65. .111.978.551. .588 40. .698 17.423. . . . .303.941) 12.698 17.911.178. . .000) P(9. .047 3. . .900. .259 6.456. . . . . . .300. . .000) (115.686 231.309. .000 42. .862) (5.941) — — 8. . .914 20. . . . . . .952. . . . 12. Q — P(20. .373. .927.569 6. . .000 Q 76. . . . Interbank loans receivable . .023.906. .036) (124.950. .576) (66. .652) (636.534 5. . .141. .081 5.177 (115.186 14. . . . . . .271. . . .418 P 5. Acquisition of non-controlling interest . . . .774.632 12.000 60. . . . . . .563) — — (21.651) (413. .287) Consolidated Placements with the BSP (Note 33) . . . . . . . . .000 5. . .906 12. .777.000 44. . .603 23. . .680 P 4.754. .688 6.485.756 18. . . . Interbank loans receivable . .511 — (28.858 20.006. Due from other banks . . . . .455) 64. .622. . .404. . . . . . . .800. . . .408 1. .531.009. . . .986 3. .048) Software cost (Note 14) .175. . . . CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items . . . . . .281. . . .712. . . . . CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items . . . . . .800.112 17. . Securities held under agreements to resell. . .447. .795 6.404.981 17.000 P 42. .927. .042.097.052 5. .000 62.772 (248. . . . .731 5. .549 12. . . . .648 18.097. .648 18.769 11. . .133 4.233.381. Q 4. . . .288. . . . .190. .332.200.774.611 14.200. . .648 18. .772. .447. .200. . .737. . . .971.713. .590. . .300.013) — — 5.300. . .599. .324) (164.594 4.736. . . .000) Acquisition of: AFS investments . .498 11. . . . .995. .451) (119.986 5. .565 36.110 17. .041) (461. . .425 Interest received . .962) (129. .632 12. .210. . . . . . . .873.900. . .648 18. .474 20.845 24.125. .717.249.141. .416) — 32.500. .592. . . .967 6. .171. . .698.696) — P(20. . .506 — (31. . . .054. .800.012 5. . . . .981 17. . . . . . .000 P62. .399 4.938. . . . . . . .986 3. . . .303. .000 62. . Settlement of bills and acceptances payable . . . .178. . . 12. .369 48. . . . .097. .187) (312. . .967 6. Net cash provided by (used in) financing activities .534 Dividends received .906.092. . . .000) (105. . .781 12. . .423. . . . . . .061. Proceeds from issuance of subordinated debt.327) (512.474. . Due from other banks . .534 5. . .817.485. . . . . .474. .292. . . . . . .488 5. . . Securities held under agreements to resell. . . . . . .303. .945.629 5. . .383 11. . .824 See accompanying Notes to Financial Statements.691. .255 12. Due from BSP (Note 33) . .576.756 18. Due from BSP. .2012 Parent Company Years Ended December 31 2011 2010 2011 2010 (As Restated — (As Restated — (As Restated — (As Restated — Note 2) Note 2) 2012 Note 2) Note 2) P(9.232.688 Q 75. . .110 17. . .631.300. . . . . . . .576 P 4.309.749) — (21. . . . — — Net cash provided by (used in) investing activities . . .403. .112 (41. .133 5.995 47. . . . .600. (120. . .511) — — 4. . .122) Additional investments in subsidiaries/ associate (Note 12) . . . .169 216.695. . . . . . . Redemption of subordinated debt (Note 20) . . . F-13 .417 3.112 17.515 25. .801) (164.243) 5.414) 35. . . .293. . .177 5.282) (5. NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . .564 (17. .874. 2. . . .447 19. . .088 37. . . .711. .325 36.986 5. — — Closure of subsidiaries .478 20. . . . . . .473. .910 OPERATIONAL CASH FLOWS FROM INTEREST AND DIVIDENDS Interest paid. . . . . . . . . . .613 Q 4. . . . . . .457. .000 5. .215) (69. . . . . . .299. . . .473. .256. . . . . . .052 5. . . . . . . .549 12. . . .259 6. .754 (42. .097.457.782 11. . . . .000 65. . (254.549) 34. . .488 P44.300.712 19. .800. . . .800.442. .042 13. . . . . .219 P 5.872) — — 8.601. .185 12. . . . . . .498.611 14. . . . .594 4.

lending. 1996. the Parent Company will be the surviving entity. non-life insurance. The functional currency of RBU and FCDU is Philippine pesos (Php) and United States Dollar (USD). Corporate Information Philippine National Bank (the Parent Company) was established in the Philippines in 1916 and started commercial operations that same year. the Philippine Securities and Exchange Commission (SEC) approved the Parent Company’s application to extend its corporate term for another 50 years. FCDU accounts and foreign currency. foreign exchange dealing. 2011 in key cities of the United States of America (USA). Canada.share exchange. 2013. It will issue to ABC shareholders 130 Parent Company shares for every ABC common share and 22. while an associate is engaged in the banking business. The Parent Company’s principal commercial banking activities include deposit-taking. 2012 and 331 domestic and 13 overseas branches and offices as of December 31. 2012.15% is held by the public. Middle East and Asia.20% and the remaining 32. 2011. In May 2007.PHILIPPINE NATIONAL BANK AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Amounts in Thousand Pesos Except When Otherwise Indicated) 1. Western Europe. As of December 31. leasing.80% is held by the public. The original plan of the merger was approved in 2008 and will be effected via a share-for. On May 27. merchant banking. respectively. The financial statements of the Parent Company reflect the accounts maintained in the Regular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). Merger with Allied Banking Corporation On March 6. the Parent Company concluded its 5-year Rehabilitation Plan as approved by the Bangko Sentral ng Pilipinas (BSP). the Parent Company concluded its planned merger with ABC as approved and confirmed by the Board of Directors of the Parent Company and of ABC on January 22 and 23. Refer to Note 35 (Events after reporting date) for the details. respectively. 2012. the Parent Company held a Special Stockholders’ Meeting approving the amended terms of the Plan of Merger of the Parent Company with Allied Banking Corporation (ABC). stock brokerage. the companies and persons affiliated/associated with the Lucio Tan Group (LTG) remain the majority shareholder of the Parent Company at 67.denominated accounts in the RBU are translated into their equivalents in Philippine pesos (see accounting policy on Foreign Currency Translation). The Parent Company previously operated under a rehabilitation program pursuant to the memorandum of agreement signed by the Republic of the Philippines. the companies and persons affiliated/associated with the Lucio Tan Group (LTG) remain the majority shareholder of the Parent Company at 68. middlemarket and retail customers. Summary of Significant Accounting Policies Basis of Preparation The accompanying financial statements have been prepared on a historical cost basis except for financial assets and liabilities at fair value through profit or loss (FVPL) and available-for-sale (AFS) investments that are measured at fair value. fund transfers/remittance servicing and a full range of retail banking and trust services through its 339 domestic and 13 overseas branches and offices as of December 31. the National Government (NG). Its principal place of business is at PNB Financial Center. On February 9. The financial statements individually prepared for these units are combined and inter-unit accounts and transactions are eliminated. Pasay City. the Philippine Deposit Insurance Corporation and the LTG on May 3. 2012 and 70 offices as of December 31. The Parent Company provides a full range of banking and other financial services to corporate. As of December 31. 2. For financial reporting purposes.763 Parent Company shares for every ABC preferred share. investment banking. 2013. bills discounting. respectively. and land and building that are measured at appraised value. 2002. President Diosdado Macapagal Boulevard. F-14 . foreign exchange trading and/or related services.85% and the remaining 31. Under the approved amended terms. 2011. local government units (LGUs) and governmentowned and controlled corporations (GOCCs) and various government agencies. The Parent Company’s international subsidiaries have a network of 65 offices as of December 31. The subsidiaries are engaged in a number of diversified financial and related businesses such as remittance.

as described in the summary of significant accounting policies. of certain investments in Republic of the Philippines (ROP) credit-linked notes that were permitted to be reclassified out of Financial Assets at FVPL or AFS investments to Loans and Receivable or HTM investments without bifurcating the embedded derivatives from the host instrument.linked notes where the related embedded derivatives have not been bifurcated. decrease in HTM investments and increase in Surplus amounting to P12. In 2011. net unrealized gain on AFS investments in 2011 should have been reduced by P30. 2012 are the first the Group has prepared in accordance with PFRS. The transition from Philippine GAAP for banks to PFRS has not had a material impact on the statements of cash flows. For periods up to and including the year ended December 31. the Parent Company bifurcated the credit derivatives when it reclassified the HTM investments to AFS investments. The Group applied PFRS 1. The effect of this adjustment resulted in the recognition of a derivative asset (included in Financial Assets at FVPL) amounting to P64. Prior to the adoption of PFRS.5 million and P35. 2012. 2010 are consistent with those made for the same dates in accordance with Philippine GAAP for banks. First-Time Adoption of PFRS These financial statements. P16. 2011. 2010. respectively. The respective functional currencies of the subsidiaries are presented under ‘Basis of Consolidation’. the Group’s date of transition to PFRS. Had the Parent Company bifurcated the embedded derivatives prior to the reclassification date of the HTM investments to AFS investments. the Group bifurcated the credit derivatives embedded in ROP credit-linked notes classified as HTM Investments as required by Philippine Accounting Standards (PAS) 39. Financial Instruments: Recognition and Measurement. In preparing these financial statements. together with the comparative periods as of and for the years ended December 31. Exemptions from other IFRSs Under PFRS 1. 2010. an entity may elect to use one or more exemptions contained in PFRS 1 which are meant to ease the burden of first-time adoption that might otherwise occur when applying all PFRSs fully retrospectively. past service costs are not covered by this exemption.0 million and derivative liability (included in Financial Liability at FVPL) amounting to. the Group’s opening statement of financial position was prepared as of January 1. This election is available regardless of which policy the entity chooses for recognition of actuarial gains and losses after first-time adoption (use of a ‘corridor’ approach). Philippine GAAP for banks mainly differs from PFRS on the reclassification as permitted by the BSP for prudential regulation and the SEC for financial reporting purposes in October 2008. the Group prepared its financial statements in accordance with accounting principles generally accepted in the Philippines for banks (Philippine GAAP for banks). as of January 1. First-Time Adoption of PFRS.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. Accordingly. in preparing the accompanying financial statements.2 million. Amounts are presented to the nearest thousand pesos (P000) unless otherwise stated. HTM investments of the Group includes investments in ROP credit. However. The following exemptions were applicable to the Group: Employee benefits PFRS 1 permits entities to recognise all actuarial gains and losses at the date of transition to PFRS in opening statement of financial position retained earnings. 2011 and 2010. Estimates under PFRS at transition date The estimates as at January 1.5 million. Statement of Compliance The financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). Upon the adoption of PFRS. for the year ended December 31. the Group has prepared financial statements which comply with PFRS applicable for periods ending on or after December 31. F-15 .4 million.

Inc. 2011 and 2010. P157. As of January 1. Consolidation of Special Purpose Entity (SPE). the deferred losses from the sale of NPAs to SPV companies amounted to P2. 2012. (OPII) and certain NPAs.0 million and P77.9 million in 2011 and P942. P109. P95. the losses from the sale of the NPAs to the SPV companies were deferred and are being amortized over a ten-year period. P1. the cumulative translation differences for all foreign operations are deemed to be zero at the transition date. 2011.7 billion.8 billion. under a transaction that qualified and was approved by the BSP. F-16 . Q2. 9182. under a transaction that qualified and was approved by the BSP. 12. the deferred losses from the sale of the NPAs to OPII amounted to Q2. respectively.5 billion and Q2.6 million and P484. In 2012.6 billion. as a legal true sale. the Group has not applied this exemption.5 million as of January 1. and P1.6 million and P446. such as when an entity retains majority of the residual risks related to the SPE on its assets in order to obtain benefits from its activities.5 million.1 billion and P3.3 billion.1 billion. the Parent Company sold OPII and certain NPAs. In 2012. If elected. and at the same time improve its chances of recovering from its non-performing assets (NPAs).2 million in 2010. P29.7 million) as of January 1. provision for income tax and income attributable to non-controlling interests increased by P762. the Group has not applied this exemption.3 million. Prior Period Adjustments Sale of NPAs to SPV companies To take advantage of incentives under Republic Act (RA) No. Under Standing Interpretations Committee (SIC) No.3 billion and (P39. At transition date. The losses from the sale of the NPAs were again deferred by the Parent Company. the Parent Company sold certain NPAs to special purpose vehicle (SPV) companies. the accounts of OPII should have been consolidated into the Group’s accounts. respectively. The consolidation of the accounts of OPII into the Group accounts resulted in an increase in other assets. In accordance with regulatory accounting policies (RAP) prescribed by the BSP for banks and financial institutions availing of the provisions of RA No. respectively. 2012.At transition date. The Special Purpose Vehicle Act of 2002. the Group restated its 2011 and 2010 financial statements to consolidate the accounts of OPII. OPII holds the NPAs sold by the Parent Company. Other income. control over a SPE may exist even in cases where an entity owns little or none of the SPE’s equity. Consolidation of OPII As discussed above. the Parent Company sold Opal Portfolio Investments (SPV-AMC). P86. 2011 and 2010. the Parent Company restated its 2011 and 2010 financial statements to recognize the losses from the sale of NPAs to SPVs in the years the NPAs were sold as required by PFRS. 2012. Prior to 2012. P33. P493. other liabilities and non-controlling interests by P514.4 million as of January 1. the accounts of OPII were not consolidated. As of January 1.2 million. In 2006 and 2007. other expense. In accordance with SIC 12. as a legal true sale. Cumulative translation difference There is an exemption from calculating the cumulative translation differences on the translation of the net assets of foreign subsidiaries at the date of transition. P3.1 million.0 million.8 million. respectively.6 million and P406. 2010. 9182.

. .755. . . . .516) Net Income 2011 2010 Parent Company 2011 2010 As previously reported .589. . . . . .179 P 4. To write-off deferred losses on NPAs sold to other SPV companies .691. .476 6. . . . . . . As restated . . . .353 85. .663) (3. . . . . . . .872. . .909. . . . .268 2. . . . . . . . . . . . . . . . .621 35. . . .663) (2. . . . .659. .466. . . P6.246.728) 406.300. . . . . . . . To write-off deferred losses on NPAs sold to OPII .121 — 1. . .125. To recognize fair value changes of credit derivatives embedded in credit linked notes .692 P 2. . . . . . . . .287 P 3.353 Unrealized gain on AFS 30. .718 (2.518. .860 — 3. .175 (2.414.138.494) (P7. . . . . . To write-off deferred losses on NPAs sold to other SPV companies . .887 P4. . . . . . . . . . . . . . . . . . . . .815. . .476 5.661. .728) P2.407 860. . . . As restated but before prior period adjustments.359) Other Assets—Deferred Charges Other Assets—Deferred Charges P Consolidated (2. . . . . . . . . To recognize fair value changes of credit derivatives embedded in credit linked notes . . . . . .291. .466.741. . . . To write-off deferred losses on NPAs sold to OPII .494) Other Assets— Deferred Charges Other Assets— Deferred Charges (2. . .474 (3. . . . .611) — 460. . . . . .210 844. . .107.091. .712) 35. . . . . . . . . . . .213 (P2. .344) (3. . . . . . .996 844. To recognize fair value changes of credit derivatives embedded in credit linked notes . . .611) (P4.141. . .977.145) 3. .177. . . . . . .774. . . .032. As restated but before prior period adjustments . .854. .434) (2. .954. . . . . . . .834 P 2.817. . .080 (P1. .870) (P5.645 Financial Assets at FVPL Unrealized gain on AFS — P 1. . . . . . . .384 P3. . .715. .947. . . .398 — 4. . . .701 — (1. . . . . . .The following summarizes the specific impact of PFRS adoption and the prior period adjustments. . . . . .206. To recognize net income of SPV companies. . .112 — 3. . P 5. . . . . . . . . . .112 446.589. .087 P 50. . . . . . . . .145) 3. . .125.552 (55. . . . .975. .919) (2. . . .439) January 1 2011 Surplus (Deficit)—Parent Company Other Financial Statement Item Affected 2012 2010 As previously reported . .689 860. .141. . .268 2. . . . . . .774. .434) (3. . . . To reverse gain from reclassification of credit linked notes from HTM investments to AFS investments . . . . . .942 (55.398 77.365 Financial Assets at FVPL — 85. . . . . . . . . .322 F-17 . . . .919) (2. . . . . . As restated but before prior period adjustments.554 P 425. . . . . . To reverse gain from reclassification of credit linked notes from HTM investments to AFS investments . .553. . . . P3. Other Financial Statement Item Affected January 1 2011 Surplus (Deficit)—Consolidated 2012 2010 As previously reported. To reverse amortization of deferred losses . . . . . . . . .621 30. .661. .728 50. .764.

.00 — Php Php Php Php Php USD USD USD USD CAD Great Britain Pounds (GBP) Hong Kong Dollar (HKD) Euro Php Php Php Remittance Remittance Others —do— —do— Hong Kong Italy Philippines —do— —do— 100. . . (HK) Ltd. PNB Remittance Co. . .(b) . . PNB Europe PLC . .00 — — — — — Leasing/Financing Rental —do— —do— 90. . . . . . . . .00 100. Tanzanite Investments (SPV—AMC). (PNB Securities) . . . Owned through Japan—PNB Leasing In 2011. as appropriate. . . income and expenses and profits and losses resulting from intra-group transactions are eliminated in full in the consolidation. . . . . Inc. Inc.00 100. . . . . . . . . . PNB Holdings Corporation (PNB Holdings) . . . PNB Global Remittance & Financial Co. . PNB Corporation—Guam . Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. . (a) (b) (c) (d) * Investment FX trading Investment Insurance Securities Brokerage Remittance Investment Remittance Holding Company of PNB RCC Remittance Banking Philippines —do— —do— —do— —do— USA —do— —do— —do— Canada United Kingdom 100. . . . PNB General Insurers. . . . . . PNB Italy SpA.00 Php Php Owned through PNB Holdings Owned through PNB IIC Owned through PNB RCI Holding Co. .00 100. . . The Group’s ownership interest in Japan—PNB Leasing in 2010 is 60%. F-18 . .Basis of Consolidation The consolidated financial statements include the financial statements of the Parent Company and the following wholly owned and majority-owned subsidiaries: Effective Percentage of Ownership Subsidiaries Nature of Business Country of Incorporation Direct Indirect Functional Currency PNB Capital and Investment Corporation (PNB Capital) . PNB Securities. . . . . . The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company using consistent accounting policies. . . . . Inc. . . . . . . Omicron Asset Portfolio (SPV—AMC). . . .. Ltd. . .. . Consolidation of subsidiaries ceases when control is transferred out of the Group or Parent Company. The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of income from the date of acquisition or up to the date of disposal.00 100. Inc..00 100. . . . .00 100. . . .00 100. . (PNB Gen)(a) . . . . . . . the Group acquired additional 30% interest in Japan—PNB Leasing (see Note 12). . . . Tau Portfolio Investments (SPV—AMC). .00 — — — 100. . Inc.(b) . . . . . . All significant intra-group balances. . .00 100. . . . .00 — — — 100. . . . . . . . . . .00 — 90. . . . . . . . Ltd. . . Japan—PNB Equipment Rentals Corporation(d) . . . . . . . . PNB International Investments Corporation (PNB IIC) . . . Subsidiaries are fully consolidated from the date on which control is transferred to the Group. . . .00 — 100. PNB RCI Holding Co. . . . . . . . . . . . . . Inc. . . . . . . .00 100. . Japan—PNB Leasing and Finance Corporation (Japan—PNB Leasing)* . . . . . . PNB Remittance Centers. . (PNB GRF) . . . Inc. . PNB Forex. . . . . . . .00 — — — 100. . . . . . . (Canada)(c) . transactions. . . . . . .00 100. . . . . . .

Other Liabilities and Non-controlling Interests. the initial measurement of financial instruments includes transaction costs. while those of the FCDU are maintained in USD. foreign currency-denominated monetary assets and liabilities in the RBU are translated in Philippine peso based on the Philippine Dealing System (PDS) closing rate prevailing at end of the year and for foreign currency-denominated income and expenses. AFS investments. Inc. separately from equity attributable to the Parent Company. 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 settlement date. the deferred cumulative amount recognized in OCI relating to the particular foreign operation is recognized in the statement of income. such as when an entity retains majority of the residual risks related to the SPE on its assets in order to obtain benefits from its activities. Initial recognition of financial instruments All financial instruments are initially recognized at fair value. expenses and net income of the SPV were recognized under miscellaneous income. (OPII) and certain NPAs. the consolidated financial statements should include the accounts of OPII. the Parent Company sold Opal Portfolio Investments (SPV-AMC). Except for financial instruments at FVPL. liabilities and equity of the SPV were recognized under Other Assets. Foreign exchange differences arising from restatements of foreign currency-denominated assets and liabilities of the RBU are credited to or charged against operations in the year in which the rates change. miscellaneous expenses and non-controlling interest. As at reporting date. as a legal true sale (see Note 9). 12.e. Under Standing Interpretations Committee (SIC) No. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Deposits. under a transaction that qualified and was approved by the BSP. The Group classifies its financial assets in the following categories: financial assets at FVPL. OPII holds the NPAs sold by the Parent Company. Non-controlling Interests Non-controlling interests represent the portion of profit or loss and the net assets not held by the Group and are presented separately in the consolidated statement of income.. The assets. On disposal of a foreign entity or upon actual remittance of FCDU profits to RBU. control over a SPE may exist even in cases where an entity owns little or none of the SPE’s equity. whereby the difference between the consideration paid and the share in the net assets acquired is recognized in equity. FCDU and Overseas subsidiaries As at the reporting date. respectively. in the statement of income. the assets and liabilities of the FCDU and overseas subsidiaries are translated into the Parent Company’s presentation currency (the Philippine peso) at the closing rate prevailing at the reporting date.In 2006. at the exchange rates prevailing at transaction dates. Income. and their income and expenses are translated at the average exchange rate for the year. Exchange differences arising on translation are taken directly to other comprehensive income (OCI) under ‘Accumulated translation adjustment’. and loans and F-19 . Derivatives are recognized on trade date basis (i. in the consolidated statement of financial position. In accordance with SIC 12. consolidated statement of comprehensive income and within equity in the consolidated statement of financial position. Significant Accounting Policies Foreign Currency Translation Transactions and balances The books of accounts of the RBU are maintained in Philippine pesos. Acquisitions of non-controlling interests are accounted for as equity transactions. the date that the Group commits to purchase or sell). Consolidation of Special Purpose Entity (SPE). amounts due to banks and customers and loans are recognized when cash is received by the Group or advanced to the borrowers. respectively. HTM investments.

Valuation methodologies include net present value techniques. For all other financial instruments not listed in an active market. the Group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the HFT or AFS investments categories if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification. These embedded derivatives include credit default swaps (which are linked either to a single reference F-20 . Embedded derivatives The Group has certain derivatives that are embedded in host financial (such as structured notes. Such derivative financial instruments are initially recorded at fair value on the date at which the derivative contract is entered into and are subsequently remeasured at fair value. debt investments. currency swaps. In cases where data is not observable. The Group may also reclassify certain AFS investments to HTM investments when there is a change of intention and the Group has the ability to hold the financial instruments to maturity. where allowed and appropriate. such as currency forwards. When current bid and ask prices are not available. without any deduction for transaction costs. Reclassification of financial assets The Group may choose to reclassify a non-derivative trading financial asset out of the held-for-trading (HFT) category if the financial asset is no longer held for purposes of selling it in the near term and only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. as well as for trading purposes. These derivatives are entered into as a service to customers and as a means of reducing or managing their respective foreign exchange and interest rate exposures. the Group recognizes the difference between the transaction price and fair value (a ‘Day 1’ difference) in the statement of income in ‘Trading and investment securities gains—net’ unless it qualifies for recognition as some other type of asset. Management determines the classification of its investments at initial recognition and. Reclassifications are made at fair value as of the reclassification date. comparison to similar instruments for which market observable prices exist. and other relevant valuation models. the fair value is determined by using appropriate valuation methodologies. ‘Day 1’ difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market. Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions). Effective interest rates (EIR) for financial assets reclassified to loans and receivables and HTM categories are determined at the reclassification date. and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities at amortized cost. interest rate swaps and warrants. option pricing models. Derivatives recorded at FVPL The Parent Company and some of its subsidiaries are counterparties to derivative contracts. the price of the most recent transaction 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. the Group determines the appropriate method of recognizing the ‘Day 1’ difference amount. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Fair value becomes the new cost or amortized cost as applicable. For each transaction. and loans receivables) and non-financial (such as purchase orders and service agreements) contracts. Further increases in estimates of cash flows adjust the EIR prospectively. Any gains or losses arising from changes in fair values of derivatives are taken directly to the statement of income and are included in ‘Trading and investment securities gains—net’. re-evaluates such designation at every reporting date.receivables. In addition. 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. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market.

After initial measurement. Designated financial assets or financial liabilities at FVPL Financial assets or financial liabilities classified in this category are designated 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. that it would not be separately recorded. Interest earned or incurred is recorded in ‘Interest income’ or ‘Interest expense’. Where the Group sells other than an insignificant amount of HTM investments. the entire category would be tainted and would have to be reclassified as AFS investments. 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. Designated financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value. Loans and receivables Significant accounts falling under this category are loans and receivables. amounts due from BSP and other banks. HTM investments HTM investments 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. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. Embedded derivatives are bifurcated from their host contracts and carried at fair value with fair value changes being reported through profit or loss. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL or designated as AFS investments. respectively. or • The financial instrument contains an embedded derivative. respectively. unless the embedded derivative does not significantly modify the cash flows or it is clear. credit and other losses’. financial liabilities or both which are managed and their performance evaluated on a fair value basis. Changes in fair value are recorded in ‘Trading and investment securities gains—net’. with little or no analysis. Included in this classification are debt and equity securities which have been acquired principally for the purpose of selling or repurchasing in the near term. call options in certain long-term debt.entity or a basket of reference entities). conversion options in loans receivables. in accordance with a documented risk management or investment strategy. The amortization is included in ‘Interest income’ in the statement of income. interbank loans receivable. or • The assets and liabilities are part of a group of financial assets. The losses arising from impairment of such investments are recognized in the statement of income under ‘Provision for impairment. these HTM investments are subsequently measured at amortized cost using the effective interest method. securities held under agreements to resell and receivable from SPV. purchase orders and service agreements. when their economic risks and characteristics are not closely related to those of their respective host contracts. less impairment in value. Changes in fair value relating to the held-for-trading positions are recognized in ‘Trading and investment securities gains—net’. when the entire hybrid contracts (composed of both the host contract and the embedded derivative) are not accounted for as financial assets at FVPL. Interest earned or incurred is recorded in ‘Interest income’ or ‘Interest expense’. or when the right of payment has been established. and foreign-currency derivatives in debt instruments. while dividend income is recorded in ‘Miscellaneous income’ when the right to receive payment has been established. These are financial assets with fixed or determinable payments and fixed maturities and are not quoted in an active market. Other financial assets or financial liabilities held-for-trading Other financial assets or financial liabilities held for trading (classified as ‘Financial assets at FVPL’ or ‘Financial liabilities at FVPL’) are recorded in the statement of financial position at fair value. and when a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. Reassessment of embedded derivatives is only done when there are changes in the contract that significantly modifies the contractual cash flows. while dividend income is recorded in ‘Miscellaneous income’ according to the terms of the contract. F-21 .

Other financial liabilities Issued financial instruments or their components. ‘Due from other banks’. 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. F-22 . ‘Loans and receivables’ include the aggregate rental on finance lease transactions and notes receivables financed by Japan—PNB Leasing. The effective yield component of AFS debt securities. or (b) has neither transferred nor retained the risk and rewards of the asset but has transferred control over the asset. The components of issued financial instruments that contain both liability and equity elements are accounted for separately. ‘HTM investments’ or ‘Loans and receivables’. After initial measurement. The amortization is included in ‘Interest income’ in the statement of income. They include debt and equity instruments. from reported income and are reported as ‘Net unrealized gain (loss) on AFS investments’ in the statement of other comprehensive income. ‘Due from BSP’. and may be sold in response to liquidity requirements or changes in market conditions. 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. subordinated debt and other appropriate financial liability accounts. are classified as deposit liabilities. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded. net of tax. Furthermore. the cumulative gain or loss previously recognized in OCI is recognized as ‘Trading and investment securities gains—net’ in the statement of income. • the Group retains the right to receive cash flows from the asset. Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or. or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The losses arising from impairment of such investments are recognized as ‘Provision for impairment and credit losses’ in the statement of income. less allowance for credit losses. Interest earned on holding AFS debt investments are reported as ‘Interest income’ using the EIR. After initial measurement. bills and acceptances payable. Dividends earned on holding AFS equity investments are recognized in the statement of income as ‘Miscellaneous income’ when the right of the payment has been established. The losses arising from impairment are recognized in ‘Provision for impairment and credit losses’ in the statement of income. ‘Interbank loans receivable’.Loans and receivables also include receivables arising from transactions on credit cards issued directly by the Parent Company. 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. AFS investments are subsequently measured at fair value. the ‘Loans and receivables’. They are purchased and held indefinitely. When the security is disposed of. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. which are not designated at FVPL. 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. After initial measurement. other financial liabilities not qualified as and not designated at FVPL are subsequently measured at amortized cost using the effective interest method. is reported in the statement of income. 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. as well as the impact of restatement on foreign currency-denominated AFS debt securities. ‘Securities held under agreements to resell’ and ‘Receivable from SPV’ are subsequently measured at amortized cost using the effective interest method. but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement. Unearned income on finance lease transactions is shown as a deduction from ‘Loans and receivables’ (included in ‘Unearned and other deferred income’). AFS investments AFS investments are those which are designated as such or do not qualify to be classified as ‘Financial assets at FVPL’.

including accrued interest. is recognized in the statement of financial position as a loan to the Group. the asset is recognized to the extent of the Group’s continuing involvement in the asset. and is considered a loan to the counterparty. or the terms of an existing liability are substantially modified. The corresponding cash paid. such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expired or when the contract is transferred to another party. Reinsurance liabilities represent balances due to ceding companies. The Group also assumes reinsurance risk in the normal course of business for insurance contracts. Reinsurance assets represent balances due from reinsurance companies. securities purchased under agreements to resell at a specified future date (‘reverse repos’) are not recognized in the statement of financial position. and the difference in the respective carrying amounts is recognized in the statement of income. An impairment review is performed at each end of the reporting period or more frequently when an indication of impairment arises during the reporting year. All other acquisition costs are recognized as an expense when incurred. Reinsurance The Group cedes insurance risk in the normal course of business. Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase at a specified future date (‘repos’) are not derecognized from the statement of financial position. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. but which relates to subsequent financial periods. Amounts payable are estimated in a manner consistent with the associated reinsurance contract. The Group is not permitted to sell or repledge the securities in the absence of default by the owner of the collateral. and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset. The impairment loss is charged against the statement of income. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. Financial liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. taking into account the product classification of the reinsured business. Deferred Acquisition Cost (DAC) Commission and other acquisition costs incurred during the financial period that vary with and are related to securing new insurance contracts and/or renewing existing insurance contracts. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. is recognized on the statement of financial position as ‘Securities held under agreements to resell’. including accrued interest. Recoverable amounts are estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contract. The corresponding cash received. reflecting the economic substance of such transaction.Where the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement. Premiums and claims on assumed reinsurance are recognized as income and expenses in the same manner as they would be if the reinsurance were considered direct business. Conversely. are deferred to the extent that they are recoverable out of future revenue margins. Where an existing financial liability is replaced by another from the same lender on substantially different terms. 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. F-23 .

The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. Assets that are individually assessed for impairment and for which an impairment loss is. past-due status and term. and where observable data indicate that there is measurable decrease in the estimated future cash flows. whether or not foreclosure is probable. the discount rate for measuring any impairment loss is the current EIR. 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. The DAC is also considered in the liability adequacy test for each reporting period. The carrying value is written down to the recoverable amount and the impairment loss is charged to the statement of income. Estimates of changes in future cash flows reflect. payment status. interbank loans receivable. such as changes in arrears or economic conditions that correlate with defaults. The unamortized acquisition costs are shown as “Deferred acquisition costs” in the assets section of the statement of financial position. collateral type. 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. If the Group determines that no objective evidence of impairment exists for individually assessed financial asset. If there is objective evidence that an impairment loss has been incurred. adjusted for the original credit risk premium. the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. these costs are amortized using the 24th method except for marine cargo where the DAC pertains to the commissions for the last two months of the year. 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. default or delinquency in interest or principal payments. HTM investments. financial assets are grouped on the basis of such credit risk characteristics as industry. For the purpose of a collective evaluation of impairment. 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. Impairment of Financial Assets The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. recognized are not included in a collective assessment for impairment. or collectively for financial assets that are not individually significant. the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). A financial asset or a group of financial assets is deemed to be impaired if.Subsequent to initial recognition. or continues to be. An impairment review is performed at each end of the reporting period or more frequently when an indication of impairment arises. or other factors that are indicative of incurred losses in the Group and their magnitude). Amortization is charged to the statement of income. F-24 . If a loan has a variable interest rate. whether significant or not. 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. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty. the probability that they will enter bankruptcy or other financial reorganization. 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. securities held under agreements to resell and receivable from SPV. and only if. it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. and are directionally consistent with changes in related observable data from period to period (such changes in property prices. Financial assets at amortized cost For financial assets carried at amortized costs such as loans and receivables. due from BSP and other banks.

Restructured loans Where possible. Residual Value of Leased Assets and Deposits on Finance Leases The residual value of leased assets. together with the associated allowance accounts. the impairment loss is reversed through the statement of income. the loan is no longer considered past due. Once the terms have been renegotiated. Interest income continues to be recognized based on the original EIR of the asset. Subsequent to initial recognition. the cumulative loss—measured as the difference between the acquisition cost and the current fair value. If subsequently. the Group’s liabilities under such guarantees are each measured at the higher of the initial fair value less. discounted at the original EIR. cumulative amortization calculated to recognize the fee in the statement of income in ‘Service fees and commission income’.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. and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantee. are written off when there is no realistic prospect of future recovery and all collateral has been realized. and the related assets and liabilities are presented gross in the statement of financial position. Financial Guarantees In the ordinary course of business. Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur. If a future write-off is later recovered. At the end of the lease term. Where there is evidence of impairment. and only if. the previously recognized impairment loss is reduced by adjusting the allowance account. which approximates the amount of guaranty deposit paid by the lessee at the inception of the lease. is the estimated proceeds from the sale of the leased asset at the end of the lease term. or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements. Loans and receivables. Financial guarantees are initially recognized in the financial statements at fair value under ‘Other liabilities’. Offsetting Financial Instruments Financial instruments are offset and the net amount reported in the statement of financial position if. In case of equity investments classified as AFS investments. the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized. 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. Such accrual is recorded as part of ‘Interest income’ in the statement of income. and acceptances. Increases in fair value after impairment are recognized directly in OCI. 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. AFS investments For AFS investments. In the case of debt instruments classified as AFS investments. any amounts formerly charged are credited to the ‘Provision for impairment and credit losses’ account. If subsequently. calculated using the loan’s original EIR. impairment is assessed based on the same criteria as financial assets carried at amortized cost. the residual value of the leased asset is generally applied against the guaranty deposit of the lessee when the lessee decides to buy the leased asset. is recognized in ‘Provision for impairment. over the term of the guarantee. The loans continue to be subject to an individual or collective impairment assessment. this would include a significant or prolonged decline in the fair value of the investments below its cost. the Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis. the Group seeks to restructure loans rather than to take possession of collateral. The difference between the recorded value of the original loan and the present value of the restructured cash flows. when appropriate. letters of guarantees. credit and other losses’ in the statement of income. Impairment losses on equity investments are not reversed through the statement of income. F-25 . less any impairment loss on that financial asset previously recognized in the statement of income—is removed from equity and recognized in the statement of income. This may involve extending the payment arrangements and the agreement of new loan conditions. the Group gives financial guarantees consisting of letters of credit.

but not future credit losses.Any increase in the liability relating to financial guarantees is taken to the statement of income in ‘Provision for impairment. brokerage fees. The adjusted carrying amount is calculated based on the original EIR. fiduciary fees. and advisory fees. interest income is recorded at the EIR. portfolio and other management fees. 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. These commissions are computed based on certain agreed rates and are deducted from amounts remittable to member establishments. credit-related fees. where appropriate. deposit-related and other credit-related fees. remittance fees. The calculation takes into account all contractual terms of the financial instrument (for example. The excess over cost is credited to ‘Unearned and other deferred income’ account and is shown as a deduction from ‘Loans and receivables’ in the statement of financial position. credit and other losses’. trust fees. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. custodian fees. interest income continues to be recognized using the original EIR applied to the new carrying amount. Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. The unearned and other deferred income is taken up to income over the installment terms and is computed using the effective interest method. prepayment options). These fees include investment fund fees. to the net carrying amount of the financial asset or financial liability. when the guarantee is discharged. Loan syndication fees are recognized in the statement of income when the syndication has been completed and the Group retains no part of the loans for itself or retains part at the same EIR as for the other participants. 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 HFT and AFS investments. Purchases by the credit cardholders.such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses are recognized on completion of the underlying transaction. Service fees and commission income The Group earns fee and commission income from diverse range of services it provides to its customers. F-26 . Any financial guarantee liability remaining is recognized in the statement of income in ‘Service fees and commission income’. commission income. However. Commissions earned on credit cards Commissions earned are taken up as income upon receipt from member establishments of charges arising from credit availments by credit cardholders. loan commitment fees for loans that are likely to be drawn down are deferred (together with any incremental costs) and recognized as an adjustment to the EIR of the loan. These fees include underwriting fees. includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. collectible on installment basis. The Group has concluded that it is acting as a principal in all of its revenue arrangements except for their brokerage transactions. b) Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party . cancelled or has expired. Fee income can be divided into the following two categories: a) Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. Fees or components of fees that are linked to a certain performance are recognized after fulfilling the corresponding criteria. The change in carrying amount is recorded as interest income. corporate finance fees. Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss. are recorded at the cost of the items purchased plus certain percentage of cost.

The portion of the commissions that relates to the unexpired periods of the policies at the end of the reporting period is accounted for as ‘Other liabilities’ in the statement of financial position. with original maturities of three months or less from dates of placements and that are subject to an insignificant risk of changes in fair value. The portion of the premiums written that relate to the unexpired periods of the policies at end of reporting period are accounted for as provision for unearned premiums and presented as part of ‘Other liabilities’ in the statement of financial position. cash and cash equivalents include cash and other cash items (COCI). 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’. Dividend income Dividend income is recognized when the Group’s right to receive payment is established. Cash and Cash Equivalents For purposes of reporting cash flows. Unearned discounts included under “Unearned and other deferred income” which are amortized over the term of the note or lease using the effective interest method consist of: • Transaction and finance fees on finance leases and loans and receivables financed with long-term maturities. Other income Income from sale of services is recognized upon rendition of the service. amounts due from BSP and other banks.Commission earned on reinsurance Reinsurance commissions are recognized as revenue over the period of the contracts. The net changes in these accounts between end of the reporting periods are credited to or charged against the statement of income for the year. and • Excess of the aggregate lease rentals plus the estimated residual value of the leased equipment over its cost. Income on direct financing leases and receivables financed Income of the Group on loans and receivables financed is recognized using the effective interest method. Expenses Expenses encompass losses as well as those expenses that arise in the course of the ordinary activities of the Group. Trading and investment securities gains—net Trading and investment securities gains—net includes results arising from trading activities and all gains and losses from changes in fair value of financial assets and financial liabilities at FVPL and gains and losses from disposal of AFS investments. The related reinsurance premiums ceded that pertain to the unexpired periods at the end of the reporting periods are accounted for as deferred reinsurance premiums shown as part of ‘Other assets’ in the statement of financial position. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior periods. interbank loans receivable and securities held under agreements to resell that are convertible to known amounts of cash. Premiums from shortduration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where the provision for unearned premiums pertains to the premiums for the last two months of the year. Income from sale of properties is recognized upon completion of the earning process and the collectibility of the sales price is reasonably assured. Premiums Revenue Gross insurance written premiums comprise the total premiums receivable for the whole period cover provided by contracts entered into during the accounting period. F-27 . Expenses are recognized when incurred.

. . upon disposal of the asset. . . . investments in subsidiaries and an associate are carried at cost. . . Leasehold improvements are amortized over the shorter of the terms of the covering leases and the estimated useful lives of the improvements. . . including any other unsecured receivables. . . . . . . . . . . . . generally accompanying a shareholding of between 20. . . . . . . . . .00% of the voting rights. . . . independent appraisers. . . . Leasehold improvements . . . . . . . . . . . . . . . Land is stated at appraised values less any impairment in value while buildings are stated at appraised value less accumulated depreciation and any impairment in value. . . . such as repairs and maintenance are normally charged against operations in the period in which the costs are incurred. and its share of post-acquisition movements in the associates’ equity reserves or other adjustments is recognized directly in equity. . . the expenditures are capitalized as an additional cost of property and equipment. fixture and equipment are stated at cost less accumulated depreciation and amortization and any impairment in value. . . . Furniture. . . . Investment in an associate Associate pertains to an entity over which the Group has significant influence but not control. and furniture. When the Group’s share of losses in an associate equals or exceeds its interest in the associate. . . The estimated useful lives follow: Years Buildings. . the Group does not recognize further losses. . . . . . . . . . . . . . generally accompanying a shareholding of more than one half of the voting rights. . . . . if any. . . . . . . . . . . . The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity (see Basis of Consolidation). . . . . . . . . . . . F-28 . . . . . . . . The Group’s share of its associates’ post-acquisition profits or losses is recognized in the consolidated statement of income. . . . . The Group has elected to transfer the revaluation increment to Surplus. . . . . . The revaluation increment resulting from revaluation is credited to the ‘Revaluation increment on land and buildings’ in the statement of comprehensive income. . . Property and Equipment Depreciable properties such as leasehold improvements. . . . . . in full. . . fixtures and equipment . . . . . . Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. . . . Expenditures incurred after items of property and equipment have been put into operation. . . . 25 . . . . . . . . . . . investment in an associate is accounted for under the equity method of accounting. . . investment in an associate is carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of the net assets of the associate. . . . . . . . The appraised values were determined by professionally qualified. . . . . . . . . In the consolidated financial statements. . . . . The initial cost of property and equipment consists of its purchase price. . taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. . . less any impairment in value. . including import duties. . .Investments in Subsidiaries and an Associate Investments in subsidiaries Subsidiaries pertain to entities over which the Group has the power to govern the financial and operating policies. . Under the equity method. . . . . . . .10 The useful life and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. unless it has incurred obligations or made payments on behalf of the associate. . . . . . . . . In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance. .00% and 50. . . . . . . . . . .50 5 3 . . less impairment in value. . net of applicable deferred income tax. . . . . . In the Parent Company’s separate financial statements. . . .

Transfers are made from investment properties when. commencement of an operating lease to another party or ending of construction or development. c.An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. The carrying values of other properties acquired are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Investment properties are derecognized when they have either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. F-29 . Any gain or loss on exchange is recognized in the statement of income under ‘Net gain on sale or exchange of assets’. An investment property acquired through an exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured in which case the investment property acquired is measured at the carrying amount of asset given up. the assets are written down to their recoverable amounts (see accounting policy on Impairment of Nonfinancial Assets). In respect of the Group’s interest in the jointly controlled operations. Depreciation is computed on a straight-line basis over the estimated useful life of five years. there is a change in use evidenced by commencement of owner occupation or commencement of development with a view to sale. which is the fair value at recognition date. Foreclosed properties are classified under ‘Investment properties’ upon: a. The Group applies the cost model in accounting for other properties acquired. less accumulated depreciation and any impairment in value. investment properties are carried at cost less accumulated depreciation (for depreciable investment properties) and impairment in value. including transaction costs. Transfers are made to investment properties when. Investment Properties Investment properties are measured initially at cost. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of income under ‘Net gain on sale or exchange of assets’ in the period of retirement or disposal. and only when. or notarization of the Deed of Dacion in case of payment in kind (dacion en pago). Depreciation is calculated on a straight-line basis using the remaining useful lives from the time of acquisition of the depreciable investment properties ranging from 25 to 50 years. The estimated useful life and the depreciation method are reviewed periodically to ensure that the period and the method of depreciation are consistent with the expected pattern of economic benefits from items of other properties acquired. The assets contributed to the JV are measured at the lower of cost or net realizable value. the Group recognizes the following: (a) the assets that it controls and the liabilities that it incurs. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized. If any such indication exists and where the carrying values exceed the estimated recoverable amount. execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure. Real Estate Under Joint Venture (JV) Agreement The Group is a party to jointly controlled operations whereby it contributed parcels of land for development into residential and commercial units. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs necessary to make the sale. Subsequent to initial recognition. and only when. Expenditures incurred after the investment properties have been put into operations. b. and (b) the expenses that it incurs and its share of the income that it earns from the sale of goods and services by the JV. entry of judgment in case of judicial foreclosure. there is a change in use evidenced by ending of owner occupation. These are carried at cost. such as repairs and maintenance costs. Other Properties Acquired Other properties acquired include chattel mortgage properties acquired in settlement of loan receivables. are normally charged against income in the period in which the costs are incurred.

unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Costs associated with maintaining the computer software programs are recognized as expense when incurred. are capitalized on the basis of the cost incurred to acquire and bring to use the specific software. That increased amount cannot exceed the carrying amount that would have been determined. Exchange trading right which has an indefinite useful life is tested for impairment annually irrespective of any impairment indicators at year end either individually or at the cash generating unit level. less any residual value. included in ‘Other assets’. Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use and is determined for an individual asset. in exchange for the exchange membership seat under the conversion program of the PSE. the Group assesses whether there is any indication that its property and equipment. on a systematic basis over its remaining life. other properties acquired. The Group does not intend to sell the exchange trading right in the near future. Impairment of Nonfinancial Assets Property and equipment. An impairment loss is charged against operations in the period in which it arises. unless the asset is carried at a revalued amount.Intangible Assets Exchange trading right The exchange trading right. together with Philippine Stock Exchange (PSE) shares. other properties acquired and software costs with finite useful lives may be impaired. included in ‘Other assets’. These costs are amortized over five years on a straight-line basis. When an indicator of impairment exists or when an annual impairment testing for an asset is required. in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. If such indication exists. investment properties. the depreciation and amortization expense is adjusted in future period to allocate the asset’s revised carrying amount. Such reversal is recognized in the statement of income unless the asset is carried at a revalued amount. The exchange trading right is carried at the amount allocated from the original cost of the exchange membership seat (after a corresponding allocation for the value of the PSE shares) less allowance for impairment losses. had no impairment loss been recognized for the asset in prior years. The exchange trading right is deemed to have an indefinite useful life as there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. net of depreciation and amortization. in which case the reversal is treated as a revaluation increase. the recoverable amount is estimated. If that is the case. the Group makes a formal estimate of recoverable amount. the asset is considered impaired and is written down to its recoverable amount. After such a reversal. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. It is tested annually for any impairment in realizable value. the carrying amount of the asset is increased to its recoverable amount. The estimated useful life and the amortization method are reviewed periodically to ensure that the period and the method of amortization are consistent with the expected pattern of economic benefits from the software. investment properties. was acquired. as appropriate. 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. Software costs Software costs. Any impairment loss is charged directly against the statement of income (see accounting policy on Nonfinancial Assets). In assessing value in use. if any. exchange trading right and software costs At each reporting date. Where the carrying amount of an asset exceeds its recoverable amount. F-30 . the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. in which case the impairment loss is charged to the revaluation increment of the said asset.

Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Lease payments received are recognized as an income in the statement of income on a straight line basis over the lease term. Where a reassessment is made. Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms. attributable to subsequent periods or to risks that have not yet expired is deferred as provision for unearned premiums. are capitalized at the inception of the lease at the fair value of the leased property or. gross of commissions payable to intermediaries. 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. Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a). at the present value of the minimum lease payments and included in ‘Property and equipment’ account with the corresponding liability to the lessor included in ‘Other liabilities’ account. Insurance Contract Liabilities Provision for Unearned Premiums The proportion of written premiums. unless that term of the renewal or extension was initially included in the lease term. other than a renewal or extension of the arrangement. if lower. If any indication exists. Group as lessee Finance leases. F-31 . 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. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. or (d) There is a substantial change to the asset. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s (CGU) fair value less costs to sell and its value in use. (c) or (d) above. and at the date of renewal or extension period for scenario (b). Where the carrying amount of an asset or CGU exceeds its recoverable amount. A reassessment is made after inception of the lease only if one of the following applies: (a) There is a change in contractual terms. Operating lease payments are recognized as an expense in the statement of income on a straight-line basis over the lease term. (b) A renewal option is exercised or extension granted. Leases The determination of whether an arrangement is. are included in the statement of financial position under ‘Loans and receivables’ account. A lease receivable is recognized at an amount equivalent to the net investment (asset cost) in the lease. (c) There is a change in the determination of whether fulfillment is dependent on a specified asset. Contingent rents are recognized as revenue in the period in which they are earned. the Parent Company estimates the asset’s recoverable amount. if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Finance charges are charged directly to ‘Interest expense’. where the Group transfers substantially all the risks and benefits incidental to ownership of the leased item to the lessee. which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item. All income resulting from the receivable is included in ‘Interest income’ in the statement of income. the asset is considered impaired and is written down to its recoverable amount.Investment in subsidiaries and associates The Parent Company assesses at each reporting date whether there is any indication that its investments in subsidiaries and associates may be impaired. Group as lessor Finance leases.

the past-service costs are amortized on a straight-line basis over the vesting period. Further provisions are made to cover claims under unexpired insurance contracts which may exceed the unearned premiums and the premiums due in respect of these contracts. These excess gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. Delays can be experienced in the notification and settlement of certain types of claims. claims handling and policy administration expenses. Past-service costs. net of related (DAC) assets. therefore the ultimate cost of which cannot be known with certainty at the end of the reporting period. as well as investment income from assets backing such liabilities. Claims Provision and Incurred But Not Reported (IBNR) Losses Outstanding claims provisions are based on the estimated ultimate cost to all claims incurred but not settled at the end of the reporting period. 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 performing the test. The liability is not discounted for the time value of money and includes provision for IBNR. The liability recognized in the statement of financial position in respect of defined benefit retirement plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period. Liability Adequacy Test At each end of the reporting period. but which have not been settled. are used. The portion of the premiums written that relate to the unexpired periods of the policies at the end of reporting period are accounted for as provision for unearned premiums and presented as part of ‘Insurance contract liabilities’ in the liabilities section of the statement of financial position. liability adequacy tests are performed. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited to or charged against income when the net cumulative unrecognized actuarial gains and losses at the end of the previous period exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. are reflected by adjusting the liability for claims and future benefits. whether reported or not. 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. In this case. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. Changes in expected claims that have occurred. together with adjustments for unrecognized actuarial gains or losses and past service costs. 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. Under this method. are recognized immediately in the statement of income. Retirement Benefits The Group has a noncontributory defined benefit retirement plan. Any inadequacy is immediately charged to the statement of income by establishing an unexpired risk provision for losses arising from the liability adequacy tests. No provision for equalization or catastrophic reserves is recognized. The liability is derecognized when the contract has expired. The change in the provision for unearned premiums is taken to the statement of income in the order that revenue is recognized over the period of risk. is discharged or cancelled. to ensure the adequacy of insurance contract liabilities. The economic benefit available as a refund is measured as the amount of the surplus at the reporting date F-32 . if any. The provision for unearned premiums is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed future premiums plus the current provision for unearned premiums. together with related claims handling costs and reduction for the expected value of salvage and other recoveries. The retirement cost of the Parent Company and certain subsidiaries is determined using the projected unit credit method.Premiums from short-duration insurance contracts are recognized as revenue over the period of the contracts using the 24th method except for the marine cargo where the provision for unearned premiums pertains to the premiums for the last two months of the year. The measurement of a defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan plus unrecognized gains and losses. current best estimates of future cash flows.

Contingent assets are not recognized but are disclosed in the financial statements when an inflow of economic benefits is probable. for each year over the shorter of the expected life of the plan and the expected life of the entity. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Income tax is determined in accordance with tax laws. the increase in the provision due to the passage of time is recognized as an interest expense. 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..e. 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. affects neither the accounting income nor taxable income. to the extent that it is probable that sufficient taxable income will be available against which the deductible temporary differences and carryforward of unused tax credits from MCIT and unused NOLCO can be utilized. Income Taxes Income tax on profit and loss for the year comprises current and deferred tax. excluding any part of the future cost that will be borne by employees. including asset revaluations. the economic benefit available as a reduction in future contributions is measured as the lower of: a) b) the surplus in the plan. Deferred tax Deferred tax is provided. Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries and an associate. on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax. Under the terms of the Parent Company’s and certain subsidiaries’ retirement plans. the risks specific to the liability. less any associated costs. and the present value of the future service cost. carryforward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT). i.that the Parent Company and certain subsidiaries have a right to receive as a refund. under an insurance contract. Deferred tax assets are recognized for all deductible temporary differences. Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of assets embodying economic benefits is remote. Income tax is recognized in the statement of income. deferred tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. With respect to investments in foreign subsidiaries and associates. If there is no minimum funding requirement. The expense relating to any provision is presented in the statement of income. however. Deferred tax liabilities are recognized for all taxable temporary differences. there are no minimum funding requirements. and unused net operating loss carryover (NOLCO). at the time of the transaction. except to the extent that it relates to items directly recognized in the statement of comprehensive income. When the Group expects some or all of a provision to be reimbursed. where appropriate. using the liability method. Provisions 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 assets embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. for example. When discounting is used. Current tax Current tax assets and liabilities for the current periods are measured at the amount expected to be recovered from or paid to the taxation authorities. net of any reimbursement. the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. F-33 . If the effect of the time value of money is material.

based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Parent Company Shares Held by a Subsidiary Own equity instruments which are acquired by subsidiaries (treasury shares) are deducted from equity and accounted for at weighted average cost. Borrowing costs consists of interest expense calculated using the effective interest method calculated in accordance with PAS 39 that the Group incurs in connection with borrowing of funds. Events after the Reporting date Any post-year-end event that provides additional information about the Group’s position at the reporting date (adjusting event) is reflected in the financial statements. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. In the consolidated financial statements. Unamortized debt issuance costs are included in the measurement of the related carrying value of the debt instruments in the statement of financial position. Current tax and deferred tax relating to items recognized directly in OCI are also recognized in OCI and not in the statement of income. Dividends for the period that are approved after the reporting date are dealt with as an event after the reporting date. underwriting and other related expenses incurred in connection with the issuance of debt instruments (other than debt instruments designated at FVPL) are deferred and amortized over the terms of the instruments using the effective interest method. if any. Debt Issue Costs Issuance. No gain or loss is recognized in the statement of income on the purchase. are disclosed when material to the financial statements. Earnings Per Share Basic earnings per share (EPS) is computed by dividing net income for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period after giving retroactive effect to stock dividends declared and stock rights exercised during the period. F-34 . deferred tax assets and 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. if any. Diluted EPS is calculated by dividing the aggregate of net income attributable to common shareholders and convertible preferred shareholders by the weighted average number of common shares outstanding during the period adjusted for the effects of any dilutive convertible preferred shares. sale. Borrowing Costs Borrowing costs are recognized as expense in the year in which these costs are incurred. 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.The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable income will be available to allow all or part of the deferred income tax asset to be utilized. Dividends on Common Shares Dividends on common shares are recognized as a liability and deducted from equity when approved by the respective BOD of the Parent Company and subsidiaries. issue or cancellation of the Parent Company’s own equity instruments. Post-year-end events that are not adjusting events.

Equity Capital stock is measured at par value for all shares issued and outstanding. ‘Accumulated translation adjustment’ which is used to record exchange differences arising from the translation of the FCDU accounts and foreign operations to peso. Future Changes in Accounting Policies The Group will adopt the standards and interpretations enumerated below when these become effective. including: i. in a tabular format unless another format is more appropriate. If the ‘Capital paid-in excess of par value’ is not sufficient. The amendments require entities to disclose. the following minimum quantitative information. accounting and legal fees. irrespective of whether they are setoff in accordance with PAS 32. trustee or agent. The net amounts presented in the statement of financial position. and F-35 . printing costs and taxes are chargeable to ‘Capital paid-in excess of par value’ account. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) b) c) d) The gross amounts of those recognized financial assets and recognized financial liabilities. Equity Reserves The reserves recorded in equity in the statement of financial position include: ‘Net unrealized gain (loss) on available-for-sale investments’ reserve which comprises changes in fair value of AFS investments. Direct costs incurred related to equity issuance. Amounts related to recognized financial instruments that do not meet some or all of the offsetting criteria in PAS 32. the excess is charged against the ‘Surplus’. Refer to Note 6 for detailed disclosure on segment information. the Group does not expect the adoption of these new and amended PFRS. such as underwriting. ‘Revaluation increment on land and building’ which comprises changes in fair value of land and building. 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. The amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in (b) above. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’. The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. 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. ‘Surplus (Deficit)’ represents accumulated earnings (losses) of the Group less dividends declared. Financial instruments: Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments) These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). Except as otherwise indicated. New Standards and Interpretations PFRS 7. PAS and Philippine Interpretations to have significant impact on its financial statements. When the shares are sold at a premium. with each segment representing a strategic business unit that offers different products and serves different markets. the difference between the proceeds and the par value is credited to ‘Capital paid-in excess of par value’ account.Segment Reporting The Group’s operating businesses are organized and managed separately according to the nature of the products and services provided.

Consolidated and Separate Financial Statements. that addresses the accounting for consolidated financial statements. compared with the requirements that were in PAS 27. jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method. This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. F-36 . PFRS 13 does not change when an entity is required to use fair value. PFRS 13. 2013. Presentation of Financial Statements—Presentation of Items of Other Comprehensive Income or OCI (Amendments) The amendments to PAS 1 change the grouping of items presented in OCI. Interests in Joint Ventures. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. Items that can be reclassified (or “recycled”) to profit or loss at a future point in time (for example.ii. and The net amount after deducting the amounts in (d) from the amounts in (c) above. The amendment becomes effective for annual periods beginning on or after July 1. 2013. The Group is currently assessing the impact of adopting this standard. Disclosure of Interests in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27. A number of new disclosures are also required. are required to be consolidated by a parent. Joint Arrangements PFRS 11 replaces PAS 31. PFRS 10. The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1. PFRS 12. The amendments affect presentation only and have no impact on the Group’s financial position or performance. 2013. Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. upon derecognition or settlement) will be presented separately from items that will never be recycled. Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27. It also includes the issues raised in SIC 12. associates and structured entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled. The amendments affect disclosures only and have no impact on the Group’s financial position or performance. joint arrangements. PFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. 2012. 2013. Instead. The standard becomes effective for annual periods beginning on or after January 1. as well as all the disclosures that were previously included in PAS 31 and PAS 28. These disclosures relate to an entity’s interests in subsidiaries. but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. Consolidation— Special Purpose Entities. and therefore. and SIC 13. The standard becomes effective for annual periods beginning on or after January 1. Investments in Associates. The standard becomes effective for annual periods beginning on or after January 1. The amendments will be applied retrospectively and will result to the modification of the presentation of items of OCI. PFRS 11. 2013. Jointly Controlled Entities—NonMonetary Contributions by Venturers. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. e) Amounts related to financial collateral (including cash collateral). PAS 1. The adoption of PFRS 12 will affect disclosures only and have no impact on the Group’s financial position or performance. The standard becomes effective for annual periods beginning on or after January 1.

. . . . . The Parent Company obtained the services of an external actuary to compute the impact to the financial statements upon adoption of the standard. . . . . or as an enhancement of. . . The Parent Company reviewed its existing employee benefits and determined that the amended standard has significant impact on its accounting for retirement benefits. . . PAS 28 has been renamed PAS 28. what remains of PAS 27 is limited to accounting for subsidiaries. . . . F-37 . . . . . . . . . The amendments become effective for annual periods beginning on or after January 1. . . . Joint Arrangements. . . . Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal costs (“stripping costs”) that are incurred in surface mining activity during the production phase of the mine (“production stripping costs”). . . . . . . . . . . . . .970 (52. . . Philippine Interpretation IFRIC 20. . . . . . . . . . . Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10. . PAS 27. jointly controlled entities. . . . duration of the defined benefit obligation. . Disclosure of Interests in Other Entities. . .706)