1
COVER SHEET SEC Registration Number
A S 0 9 4 - 0 0 2 7 3 3
Company Name
E A S T W E S T B A N K I N G C O R P O R A T I O N
A N D S U B S I D I A R I E S
Principal Office (No./Street/Barangay/City/Town/Province)
T h e B e a u f o r t , 5 t h A v e n u e
c o r n e r 2 3 r d S t r e e t , F o r t
B o n i f a c i o G l o b a l C i t y , T a g u i g
C i t y
Form Type Department requiring the report Secondary License Type, If Applicable
1 7 - Q
COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number/s Mobile Number
575-3888
No. of Stockholders
Annual Meeting
Month/Day
Fiscal Year
Month/Day
CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number
Renato K. De Borja, Jr. 575-3887
Contact Person’s Address
2
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended June 30, 2015
2. Commission identification number AS094-002733
3. BIR Tax Identification No. 003-921-057-000
4. Exact name of issuer as specified in its charter
EAST WEST BANKING CORPORATION
5. Province, country or other jurisdiction of incorporation or organization PHILIPPINES
6. Industry Classification Code: (SEC Use Only)
7. Address of issuer's principal office Postal Code
The Beaufort, 5th Avenue, Corner 23rd St. 1634
Fort Bonifacio Global City, Taguig City
8. Issuer's telephone number, including area code
+632 575 3888 Extension 3390
9. Former name, former address and former fiscal year, if changed since last report
n/a
10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the
RSA
Title of each Class Number of shares of common
stock outstanding and amount of debt outstanding
Common Shares (Php 10 par) Total: 1,499,983,610 shares
Subordinated Debt Php 6,500,000,000
..............................................................................................................................................
3
11. Are any or all of the securities listed on a Stock Exchange?
Yes [X] No [ ]
The company was listed in the Philippine Stock Exchange on May 7, 2012.
If yes, state the name of such Stock Exchange and the classes of securities listed therein:
Name of exchange: Philippine Stock Exchange
Class of securities: Common Shares
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17
thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections
26 and 141 of the Corporation Code of the Philippines, during the preceding twelve
(12) months (or for such shorter period the registrant was required to file such reports)
Yes [X] No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [X] No []
4
PART I – FINANCIAL INFORMATION
Item I:
Management's Discussion & Analysis of Financial Position and Results of Operations
Item II:
Financial Statements (Attachment 1 - Unaudited Interim Financial Statements)
PART II – OTHER INFORMATION
Refer to the following:
Attachment 2 – Aging of Past Due Loans and Other Receivables
Attachment 3 – Consolidated Financial Ratios
Attachment 4 – Use of Proceeds from Stock Rights Offering as of June 30, 2015
There are no material disclosures that have not been reported under SEC Form 17-C during the
period covered by this report.
6
Part I
Management's Discussion & Analysis of
Financial Position and Results of Operations
Financial Performance Highlights
The Bank continues to post healthy growth in its core banking revenues, with Net Interest Income
growing by 22%. The growth in Net Interest Income was driven mainly by higher yielding
consumer loans. Net Income as of June 30, 2015 is Php1.0 billion, 4% lower vs. same period last
year due to lower trading gains and higher credit provisions.
The Bank reached a new milestone in June 2015 with Total Assets ending at Php204.9 billion. This
is 31% and 9% higher than June 30, 2014 and December 31, 2014, respectively. The growth in
assets was driven mainly customer loans, which grew by 24% y/y and 7% for the first half of the
year to end at Php131.1 billion. The growth in loans is in line with the Bank’s strategy of growing
consumer and mid-market corporate loans. Consumer loans grew by 31% y/y and 14% in the first
half of the year, while corporate loans grew 14% y/y but flat in the first half of the year. Consumer
loans now account for 57% of the loan portfolio from 54% in 2014.
The Bank’s Operating Income grew by 11% y/y to Php7.9 billion as the Php1.1 billion increase in
NII was offset by Php549.7 higher provisions and Php212.0 lower trading gains.
The Bank’s Net Interest Income, driven by its above industry net interest margin (NIM) of 8.1%,
grew by 22% y/y to Php5.8 billion from Php4.8 billion in the same period last year.
Fee-based Income, largely coming from transactional and service fees of consumer lending and the
branch stores, declined by 9% y/y to Php1.4 billion. The decline in fees posted was due to
accounting adjustments during the period totaling Php398.8 million: (i) change in revenue
recognition of personal loan related processing fees previously accounted for as an outright revenue
to deferred revenues over the actuarial life of the loan. Php159.0 million in fees were deferred
during the period while Php127.8 million were reclassified as interest income; (ii) reversal of over-
accrued late fees from 4Q last year for Php112.0 million. On a like for like basis, considering the
impact of these one-off adjustments, fee income for the first semester of 2015 grew by 20% vs. last
year driven by branch store transaction and consumer loan-related fees.
The rest of the Operating Income declined by 17% to Php714.2 million due to lower trading income.
Total Operating Expenses including Provision for Credit Losses increased by 16% to Php6.8
billion. The increase in expenses was driven mainly by manpower and infrastructure related
expenses associated with the expansion in business and branch store network. The increase in
provisions for credit losses was driven mainly by credit cards, personal loans, and auto loans.
Provision for Income Taxes was lower at Php138.8 million due to lower taxable income vs. last
year.
Financial Position
Loans
7
Customer loans grew by 23% y/y and 7% compared to end-2014. Consumer loans grew by 31%
y/y and 14% in 1H2015, at the back of consistent double digit growth across all Consumer loan
products of the Bank. Corporate loans grew 14% y/y and flat from end 2014. Consumer loans
now comprise 57% of total Customer loans. Considering the size of the loan portfolio, the 3% jump
y/y is quite significant.
Deposits
Deposit levels as of the first half of 2014 stood at Php158.1 billion, up by 25% from the same period
last year and up 7% from end 2014. The bank expects deposit growth, particularly low cost CASA,
to accelerate in the coming months as the 287 new branch stores it added in the last 3 years mature.
Capital
The Bank’s capital ratios to risk weighted assets remain above regulatory standards as of 1H2015
despite the more stringent rules with the implementation of Basel 3 capital standards. The Tier 1
capital of the Bank is composed entirely of common equity, which makes its Common Equity Tier
1 (CET1) ratio the same as its Tier 1 ratio. The Bank’s CET1/Tier 1 and CAR improved to 14.5%
and 18.3%, respectively, as a result of the recently concluded issuance of approximately Php8.0
billion common shares via stock rights offering.
Credit Quality
The Bank’s NPL as a proportion to total Customer loans decreased y/y mainly due to the growth in
loan portfolio. NPL ratio net of fully provided NPLs, decreased to 3.7%1 in 2Q2015 from 3.8%1
in the same period last year. The Bank’s NPL ratio is higher than industry average given its higher
proportion of exposure to Consumer loans relative to its peers, which is at 57% of its total Customer
loans. The Bank notes that the risk-adjusted return of the Consumer portfolio is still healthy
considering its industry leading net interest margins.
The Bank’s Gross and Net NPL ratio at parent level and as disclosed to the BSP is at 4.38%2 and
2.69%3, respectively. The BSP disclosed NPL ratio takes into account interbank loans used by the
Banks for liquidity management purposes.
1 Total NPLs less: 100% fully provided NPLs divided by Total Customer Loans less: 100% fully provided NPLs 2 Gross NPL ratio disclosed to the BSP, which is at Parent level and inclusive of Interbank loans
3 NPL ratio net of specific provisions disclosed to the BSP, which is at Parent level and inclusive of Interbank loans
8
Results of Operations - For the Second Quarter ended June 30, 2015 and 2014
Revenues
Net Revenues grew by only 2% in 2Q2015 to Php3.8 billion from Php3.7 billion in the same quarter
last year due to lower Trading Income. The decline in Trading Income was compensated by the
stable double-digit growth in Net Interest Income. Net revenues excluding trading income went up
by 8%. Like for like, or normalizing for the one-off adjustments mentioned above, Net revenues
ex-trading would have gone up by 15%.
Net Interest Income
Net Interest Income stood at Php3.1 billion in 2Q2015, 26% or Php647.6 million higher than the
Php2.5 billion posted in the same quarter last year. The higher Net Interest Income was a result of
the double-digit growth in lending. Interest Income and Interest Expense in 2Q2015 increased by
30% and 52%, respectively.
Fee Income
Fee and Other Income, exclusive of Trading Gains, was at Php430.0 million, 47% lower than the
Php811.6 million posted in the same quarter last year. On a like for like basis, considering the
impact of the one-off adjustments posted in 2Q15, fees actually grew 27% vs. last year.
Trading Income
Securities Trading Gains in 2Q2015 was at Php191.2 million or 49% lower than the Php376.3
million gains booked in the same quarter last year. Foreign Exchange Gains was at Php49.9 million
in 2Q2015, which is lower by Php2.5 million compared to the same quarter last year.
Operating Costs
Total Operating Expenses, inclusive of Provision for Credit Losses, increased by 13% in 2Q2015
to Php3.4 billion from Php3.0 billion in the same quarter last year. Provision for loan losses
increased by 40% to Php1.1 billion in 2Q2014 from Php765.5 million in the same quarter last year
on account of the growth in Consumer loans, particularly Credit Cards and Auto Loans.
Compensation and fringe benefits decreased by 9% to Php685.8 million as no accruals for
discretionary bonuses were done during the period. Rent Expense of Php176.9 million was 18%
higher compared to the same quarter last year. Depreciation and Amortization of Php235.4 million
and Miscellaneous Expenses of Php833.1 million were both 10% higher due to the expanded branch
store network.
9
Results of Operations - For the Six Months ended June 30, 2015 and 2014
Revenues
Net Revenues grew by 11% to Php7.9 billion despite lower Trading Income. Trading Income was
at Php426.7 million or 33% lower than the Php640.0 million gains booked in the same period last
year. Service charges, fees and commissions was lower by 9% at Php1.4 billion. The decline in
Securities Trading and Service charges, fees and commissions were offset by strong growth in Net
Interest Income
Net Interest Income
Net Interest Income stood at Php5.8 billion, 22% or Php1.1 billion higher than the Php4.8 billion
posted in the first half of last year. The higher Net Interest Income was a result of the double-digit
growth in lending which allowed the Bank to continue to enjoy its industry leading net interest
margin of 8.1%, which is about two times higher than industry average.
Fee Income
Other Operating Income, exclusive of Trading and Foreign Exchange Gains, was at Php1.5 billion.
Fee-based income (e.g. Service charges, fees and commission) decline by 9% to Php1.4 billion
from Php1.5 billion in the same period last year. The decline in fees posted was due to accounting
adjustments during the period totaling Php398.8 million: (i) change in revenue recognition of
personal loan related processing fees previously accounted for as an outright revenue to deferred
revenues over the actuarial life of the loan. Php159.0 million in fees were deferred during the period
while Php127.8 million were reclassified as interest income; (ii) reversal of over-accrued late fees
from 4Q last year for Php112.0 million. On a like for like basis, considering the impact of these
one-off adjustments, fee income for the first semester of 2015 grew by 20% vs. last year driven by
branch store transaction and consumer loan-related fees.
Trading Income
Securities Trading Gains in 1H2015 was at Php426.7 million, or 33% lower as compared to the
Php640.0 million gains posted in same period last year. On the other hand, Foreign Exchange Gains
increased slightly to Php111.2 million compared to the Php110.0 million booked in the same period
last year.
Operating Costs
Total Operating Expenses, including Provision for loan losses, increased by 16% to Php6.8 billion
in the first half of 2015. Compensation and fringe benefits increased slightly to Php1.6 billion,
while Provision for loan losses grew by 36%% to Php2.1 billion on account of aggressive loan
portfolio growth particularly in consumer loans. Other Expenses related to business expansion has
increased y/y, as follows: (1) Taxes and licenses grew by 5% to Php513.0 million as a result of
growth in revenue base; (2) Depreciation and Amortization grew by 6% to Php44.7 million coming
from expansion in business and infrastructure; (3) Rent grew by 16% to Php348.2 million coming
from branch store expansion; and (4) Miscellaneous Expenses grew by 9% to Php1.8 billion with
the growth largely coming from higher Consumer business and branch store expansion.
10
Summary of Key Financials and Ratios
Balance Sheet
(in Php billions)
June 30, 2015 June 30, 2014 y/y Growth %
Assets 204.9 155.9 31%
Consumer Loans 74.7 56.8 31%
Corporate Loans 56.3 49.3 14%
Total Deposits 158.1 126.1 25%
Capital 30.3 20.4 48%
Profitability
(in Php millions)
June 30, 2015 June 30, 2014 y/y Growth %
Net Interest Income 5,842 4,784 22%
Other Income 2,080 2,362 (12%)
Operating Expenses
(Ex- Provision for Losses)
4,720 4,355 8%
Provision for Losses 2,056 1,506 37%
Net Income After Tax 1,008 1,047 (4%)
Key Financial Ratios June 30, 2015 June 30, 2014 Variance
b/(w)
Return on Equity 8.0% 10.6% (2.6%)
Return on Assets 1.0% 1.4% (0.4%)
Net Interest Margin 8.1% 8.1% -
Cost-to-Income Ratio 59.6% 60.9% (1.3%)
Capital Adequacy Ratio 18.3% 11.7% 6.6%
Business Segment Performance
The Bank’s core revenues continue to post double-digit growth as it builds its recurring income
base. The growth is a result of the combined efforts of Consumer lending, Retail banking, and
Corporate banking business segments, as well as the contribution of the Rural bank subsidiary. The
Bank has maintained an industry leading NIM of 8.1% as of the first half of 2015, which resulted
for the 22% growth in Net Interest Income.
Consumer lending and Corporate banking posted double-digit growth in customer loan portfolio,
at 31% and 14%, respectively. The increase in Corporate loans was brought about by the wider
coverage of the expanded account officer pool mitigated in part the effects of lower margins in this
business segment. The increase in Consumer loans was across all consumer products, which all
grew by double-digit percentages y/y. The growth in all loan business segments was the main
driver of the 27% increase in Interest Income. Interest Expense has gone up by the same 57% y/y,
as the Bank continue to focus on raising funds. The branch expansion continues to bear fruit which
manifested in 25% in total deposits.
Consumer lending was led by the contribution of the Auto Loans business as receivables ended at
Php28.2 billion, which is 57% higher than the same period last year. Credit Cards was the second
highest contributor for the Consumer lending portfolio, which reached a total of Php22.0 billion in
loans, or 12% higher y/y. Mortgage loans continue to gain traction, growing by 17% y/y to Php9.6
11
billion as of June 2015. Other Consumer loans grew by 36%, mostly coming from salary and
personal loans. On the Corporate banking side, loan portfolio ended at Php56.3 billion as of June
2015, posting a 14% growth y/y as contributions from the expanded sales force continue to produce
results. As of the first half of 2015, Consumer loans still account to more than half of the total
Customer loan portfolio at 57%.
Treasury group’s contribution to the Bank’s bottom line for the first half of the year was lower than
last year, as Securities Trading Gains went down to Php426.7 million in the first half of 2015 from
Php640.0 million last year. Foreign Exchange Gains, however, increased slightly to Php111.2
million from Php110.0 million in the same period last year.
On the cost side, the headcount intensive Retail banking and Consumer lending led all business
segments in terms of Operating Expenses. This was largely due to the branch store expansion
program and credit costs booked for Consumer loans.
In summary, Consumer lending contributed most to the Net Income due to the solid growth across
all consumer products. Corporate banking came in second despite thinner spreads, as a result of its
expanded loan portfolio. This was followed by Treasury’s contribution coming from gains in both
Securities and Foreign Exchange trading. Retail banking, on the other hand, continues to carry the
brunt of the expenses brought about by the increase in new branch stores opened from 2012 to 2014.
Other Information:
As of June 30, 2015, EW Bank has a total of 359 branches, with 164 of these branch stores in the
restricted areas and a total of 205 of these branch stores in all of Metro Manila. For the rest of the
country, the Bank has 84 branches in other parts of Luzon, 36 branches in Visayas, and 34 branches
in Mindanao. The total ATM network is at 549, composed of 352 on-site ATMs and 197 off-site
ATMs. Total headcount of EW Bank is 4,932.
The Rural bank subsidiaries have a total of 51 branches and 663 officers/staff, bringing the group
branch store network total to 410 with 549 ATMs and combined manpower of 5,595.
Known trends, demands, commitments, events or uncertainties
There are no known demands, commitments, events or uncertainties that will have a material impact
on the Bank’s liquidity within the next twelve (12) months.
Events that will trigger direct or contingent financial obligation
There are no events that will trigger direct or contingent financial obligation that is material to the
Bank, including any default or acceleration of an obligation.
Material off-balance sheet transactions, arrangements or obligations
There are no material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of the Bank with unsolicited entities or other
persons created during the reporting period other than those disclosed in the financial statements.
Capital Expenditures
The Bank has commitments for capital expenditures mainly for bank’s branch expansion and
implementation of IT projects.
12
Significant Elements of Income or Loss
Significant elements of the consolidated Net Income of the Group for the period ended June 30,
2015 and 2014 came from its continuing operations.
Seasonal Aspects
There are no seasonal aspects that had a material effect on the Bank’s financial condition and results
of operations.
Vertical and Horizontal Analysis of Material Changes for the Period
The term “material” in this section shall refer to changes or items amounting to five percent (5%)
of the relevant accounts or such lower amount, which the Bank deems material on the basis of other
factors.
I. Statements of Financial Position – June 30, 2015 vs. December 31, 2014
- Cash and cash equivalents decreased by 32% to Php4.1 billion due to the leveling-
off of cash in vault from the usual year-end build-up.
- Due from BSP increased by 45% to Php33.4 billion on higher deposit base and liquid
funds placed with BSP.
- Due from other banks increased by 205% to Php7.4 billion due to increased levels
of placements and balances with counterparty banks coming from excess liquidity.
- Interbank loans receivable and Securities Purchased Under Resale Agreements
(SPURA) increased by 150% from higher overnight placements with the BSP.
- Financial Assets at Fair Value through Profit and Loss decreased by 72% due to
movements in the Bank’s proprietary trading portfolio.
- Financial Assets at Fair Value through Other Comprehensive Income decreased by
49% due to the decline in market values of its equity securities investments.
- Investment Securities at Amortized Cost decreased by 51% to Php4.3 billion due to
the maturity and sale of various government securities in line with the Bank’s
balance sheet business model.
- Loans and Receivables increased by 7% to Php130.3 billion driven mainly from
increase in customer loans on both consumer and mid-market segments.
- Investment Properties decreased by 7% to Php846.3 million as the Bank was able to
dispose sizable portion of its repossessed properties.
- Deferred tax asset increased by 23% to Php1.2 billion on account of higher
provisioning set-up, net of write-off, during the period.
- Other assets decreased by 26% on account of the following: (1) Sundry debits
decreased by Php192.2 million or 57%, and (2) Returned Checks & Other Cash
Items decreased by 30%% to Php445.8 million.
- Deposit liabilities increased by 7% to Php158.1 billion, largely coming from CASA
growth which is attributable to the expanded branch store network.
- Bills and acceptance payable decreased by 264% to Php1.5 billion from lower
volume of interbank and other borrowings as funding were obtain from other
sources.
- Cashier’s Checks and Demand Draft Payable increased by 80% to Php1.9 billion
due to higher transaction volumes during the period.
- Income tax payable increased by 8% due to lower tax-exempt income in the Parent
Books.
- Other liabilities jumped by 11% due to the following (1) Derivatives with Negative
Fair Value increased by 94% or Php88.7 million, (2) Managers Check issuance
13
increased by Php106.6 million (3) Accrued Retirement increased by 267% to
Php98.9 million and (4) Sundry Credits increased by Php109.7 million or 33929%.
II. Statement of Income – June 30, 2015 vs. June 30, 2014
- Interest income increased by 27% to Php6.9 billion from Php5.5 billion in the same
period last year primarily due to increase in customer loans.
- Interest expense increased by 57% to Php1.1 billion due to the increase deposit base
and higher level of borrowings.
- Service charges, fees and commissions decreased by 9% to Php1.4 billion from
Php1.5 billion in the same period last year. The decline in fees posted was due to
accounting adjustments during the period totaling Php398.8 million: (i) change in
revenue recognition of personal loan related processing fees previously accounted
for as an outright revenue to deferred revenues over the actuarial life of the loan.
Php159.0 million in fees were deferred during the period while Php127.8 million
were reclassified as interest income; (ii) reversal of over-accrued late fees from 4Q
last year for Php112.0 million. On a like for like basis, considering the impact of
these one-off adjustments, fee income for the first semester of 2015 grew by 20%
vs. last year driven by branch store transaction and consumer loan-related fees.
- Trading and securities gains decreased by 33% as the Bank realized a significant
amount of its trading revenues last year due to favorable market conditions.
- Gain on sale of assets and asset foreclosure increased by 8% in the first half of 2015
as the Bank disposed portion of its repossessed assets at higher premiums compared
to last year.
- Trust income dropped by 15% to Php8.9 million due to the decline in assets under
management account.
- Miscellaneous income also increased by 80% to Php153.5 million as the Bank had
higher recovery of assets written-off compared to the same period last year.
- Provision for loan losses increased by 8% to Php2.1 billion in 1H2015 from Php1.5
billion on account of aggressive loan portfolio growth particularly in consumer
loans.
- Manpower costs increased by 8% to Php1.6 billion on account of higher head count.
- Taxes and licenses, Depreciation and amortization, Rent expense and miscellaneous
expenses increased by 5%, 6%, 16% and 9, respectively, on account of the expanded
branch network and operations.
14
Attachment I
East West Banking Corporation and Subsidiaries
Interim Consolidated Financial Statements
As of June 30, 2015 (Unaudited) and December 31, 2014 (Audited)
And for the Six Months Ended June 30, 2015 and June 30, 2014
15
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM STATEMENTS OF FINANCIAL POSITION
As of June 30, 2015 (With Comparative Figures for December 31, 2014)
(Amounts in Thousands of Philippine Peso)
2015
(Unaudited)
2014
(Audited)
ASSETS
Cash and Other Cash Items P=4,086,310 P=5,993,499
Due from Bangko Sentral ng Pilipinas 33,433,911 23,128,678
Due from Other Banks 10,938,498 3,580,528
Interbank Loans Receivable and Securities Purchased Under
Resale Agreements (IBLR and SPURA) 7,247,478 2,893,384
Financial Assets at Fair Value Through Profit or Loss 2,825,778 10,182,690
Financial Assets at Fair Value Through Other Comprehensive
Income (FVTOCI) 7,365 14,419
Investment Securities at Amortized Cost 4,327,273 8,794,878
Loans and Receivables 130,301,255 121,423,411
Property and Equipment 3,449,721 3,513,104
Investment Properties 846,251 912,687
Deferred Tax Assets 1,203,580 977,426
Goodwill and Other Intangible Assets 4,417,279 4,424,773
Other Assets 1,790,018 2,423,106
TOTAL ASSETS P= 204,874,717 P=188,262,583
LIABILITIES AND EQUITY
LIABILITIES
Deposit Liabilities
Demand P=54,471,589 P=45,356,947
Savings 33,589,523 25,269,000
Time 62,041,701 69,027,909
Long-term negotiable certificates of deposits 8,034,084 8,033,623
158,136,897 147,687,479
Bills and Acceptances Payable 1,509,878 5,317,652
Accrued Taxes, Interest and Other Expenses 1,346,587 1,341,275
Cashier’s Checks and Demand Draft Payable 1,870,404 1,256,982
Subordinated Debt 6,465,104 6,463,731
Income Tax Payable 199,405 184,577
Other Liabilities 5,028,450 4,563,080
TOTAL LIABILITIES P= 174,556,725 P=166,814,776
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF
PARENT COMPANY
Common Stock P=14,999,836 P=11,284,096
Additional Paid-in Capital 5,209,061 978,721
Surplus Reserves 43,906 43,906
Surplus 10,166,713 9,158,976
Net unrealized Gains on FVTOCI (1,331) 5,722
Remeasurement Losses on Retirement Plan (103,406) (31,394)
Cumulative Translation Adjustment 3,213 7,780
TOTAL EQUITY 30,317,992 21,447,807
TOTAL LIABILITIES AND EQUITY P= 204,874,717 P=188,262,583
See accompanying Notes to Unaudited Interim Financial Statements.
16
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM STATEMENTS OF INCOME
For the periods ended June 30, 2015 and 2014
(Amounts in Thousands of Philippine Peso)
June 30
2015 2014 2015 2014
For the quarter
ended
For the
quarter ended For the six
months ended
For the six
months ended
INTEREST INCOME
Loans and receivables P=3,469,476 P=2,668,071 P=6,576,443 P=5,152,349
Trading and investment securities 136,025 139,834 315,985 284,007
Due from other banks and interbank loans
receivable and securities purchased under
resale agreements 31,702 - 41,087 40,736
3,637,203 2,807,905 6,933,515 5,477,092
INTEREST EXPENSE
Deposit liabilities 428,282 308,703 881,660 599,254
Subordinated debt, bills payable and other
borrowings 105,178 43,061 209,654 94,157
533,460 351,764 1,091,314 693,411
NET INTEREST INCOME 3,103,743 2,456,141 5,842,201 4,783,681
Service charges, fees and commissions 325,406 754,494 1,365,583 1,503,120
Trading and securities gain (loss) 191,233 376,304 426,700 639,978
Foreign exchange gain 49,936 52,450 111,200 109,958
Trust income 4,454 5,216 8,936 10,518
Gain on sale of assets and asset foreclosure 20,328 7,421 13,910 12,936
Miscellaneous 79,857 44,424 153,498 85,057
TOTAL OPERATING INCOME 3,774,957 3,696,450 7,922,028 7,145,248
OPERATING EXPENSES
Compensation and fringe benefits 685,749 751,298 1,588,683 1,472,352
Provision for impairment and credit losses 1,070,976 765,531 2,055,795 1,506,083
Taxes and licenses 278,884 272,062 512,995 489,337
Depreciation and amortization 235,386 214,822 441,712 417,836
Rent 176,910 149,436 348,201 299,859
Miscellaneous 919,200 833,097 1,828,091 1,675,521
TOTAL OPERATING EXPENSES 3,367,105 2,986,246 6,775,477 5,860,988
INCOME BEFORE INCOME TAX 407,852 710,204 1,146,551 1,284,260
PROVISION FOR INCOME TAX 273 119,334 138,814 237,705
NET INCOME P=407,579 P=590,870 P=1,007,737 P=1,046,555
ATTRIBUTABLE TO:
Equity holders of the Parent Company P=407,579 P=590,890 P=1,007,737 P=1,046,582
Non-controlling interest – (20) – (27)
NET INCOME P=407,579 P=590,870 P=1,007,737 P=1,046,555
Basic Earnings Per Share Attributable to
Equity Holders of the Parent Company P=0.80
P=0.93
Diluted Earnings Per Share Attributable to Equity
Holders of the Parent Company P=0.80 P=0.93
See accompanying Notes to Unaudited Interim Financial Statements.
17
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended June 30, 2015 and 2014
(Amounts in Thousands of Philippine Peso)
June 30
2015 2014 2015 2014
For the quarter
ended
For the quarter
ended For the six
months ended
For the six
months ended
See accompanying Notes to Unaudited Interim Financial Statements.
NET INCOME FOR THE PERIOD P=407,579 P=590,870 P=1,007,737 P=1,045,555
OTHER COMPREHENSIVE INCOME
Change in remeasurement loss of retirement liability (36,162) 3,227 (72,012) 3,788
Unrealized loss on financial assets at FVTOCI (7,754) - (7,053) -
Cumulative translation adjustment (1,660) (2,787) (4,567) (13,707)
TOTAL OTHER COMPREHENSIVE INCOME
(LOSS) (45,576) 440 (83,632) (9,918)
TOTAL COMPREHENSIVE INCOME
P=362,003
P=591,310
P=924,105
P=1,036,637
ATTRIBUTABLE TO:
Equity holders of the Parent Company
Non-controlling interest
P=362,003 P=591,323 P=924,105 P=1,036,659
- (13) - (22)
TOTAL COMPREHENSIVE INCOME P=362,003 P=591,310 P=924,105 P=1,036,637
18
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM STATEMENTS OF CHANGES IN EQUITY
For the Six Months Ended June 30, 2015 and 2014
(Amounts in Thousands of Philippine Peso)
Consolidated
Six Months Ended June 30, 2015
Equity Attributable to Equity Holders of the Parent Company
Common
Stock
Additional
Paid-in
Capital
Surplus
Reserves Surplus
Net
Unrealized
Gain on
Financial
Assets at
FVTOCI
Remeasure
ment
Gains
(Losses) on
Retirement
Plan
Cumulative
Translation
Adjustment
Total
Non-
Controlling
Interest
Total
Equity
(Amounts in Thousands)
Balances at January 1, 2015 P=11,284,096 P=978,721 P=43,906 P=9,158,976 P=5,722 (P=31,394) P=7,780 P=21,447,807 P=− P=21,447,807
Issuance of common shares 3,715,740 4,230,340
Total comprehensive income (loss) − − − 1,007,737 (7,053) (72,012) (4,567) 924,105 − 924,105
Balances at June 30, 2015 P=14,999,836 P=5,209,061 P=43,906 P=10,166,713 (P=1,331) (P=103,406) P=3,213 P=30,317,992 P=− P=30,317,992
Consolidated
Six Months Ended June 30, 2014
Equity Attributable to Equity Holders of the Parent Company
Common
Stock
Additional
Paid-in
Capital
Surplus
Reserves Surplus
Net
Unrealized
Gain on
Financial
Assets at
FVTOCI
Remeasurem
ent
Gains
(Losses) on
Retirement
Plan
Cumulative
Translation
Adjustment
Total
Non-
Controlling
Interest
Total
Equity
(Amounts in Thousands)
Balances at January 1, 2014 P=11,284,096 P=978,721 P=41,689 P=7,087,635 P=1,925 (P=13,877) P=5,228 P=19,385,597 P=6,622 P=19,392,219
Total comprehensive income (loss) − − − 1,046,555 3,788 (13,707) 1,036,636 (22) 1,036,614
Balances at June 30, 2014 P=11,284,096 P=978,721 P=41,689 P=8,134,190 P=5,713 (P=13,877) (P=8,479) P=20,422,233 P=6,600 P=20,428,833
19
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2015 and 2014
(Amounts in Thousands of Philippine Peso)
Six Months Ended June 30
2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P=1,146,551 P=1,284,160
Adjustments for:
Depreciation and amortization 441,712 417,836
Provision for credit and impairment losses 2,034,127 1,506,083
Loss (Gain) on sale of assets (301,271) (318,933)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets at fair value through profit or loss 7,356,912 365,532
Loans and receivables (10,850,927) (11,344,758)
Other assets 501,598 (979,169)
Increase (decrease) in:
Deposit liabilities 10,449,418 14,963,912
Accounts payable and accrued expenses (65,327) 76,022
Cashier’s checks and demand draft payable 613,422 (96,201)
Other liabilities 465,370 470,075
Net cash provided by operations 11,791,585 6,344,561
Income taxes paid (328,472) (66,284)
Net cash provided by operating activities 11,463,113 6,278,275
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of :
Property and equipment - 8,077
Investment securities at amortized cost 4,754,966 3,912,535
Investment properties and other repossessed assets 49,727 33,524
Proceeds from maturity of investment securities at amortized cost - 22,719
Acquisitions of:
Investment securities at amortized cost − (659,428)
Property and equipment (210,202) (366,878)
Branch licenses (200) (255,000)
Capitalized software (85,602) (275,866)
Net cash provided by investing activities 4,508,689 2,419,683
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bills and acceptances payable (3,807,774) (1,846,777)
Payment of subordinated debt − (1,250,000)
Issuance of common shares 7,946,080 −
Acquisition of non-controlling interest − (22)
Net cash used in financing activities 4,138,306 (3,096,799)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS P=20,110,108 P=5,601,159
(Forward)
20
- 2 -
Six Months Ended June 30
2015 2014
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR
Cash and other cash items P=5,993,499 P=3,884,538
Due from Bangko Sentral ng Pilipinas 23,128,678 18,537,655
Due from other banks 3,580,528 1,751,824
Interbank Loans Receivable and Securities Purchased Under Resale
Agreements (IBLR and SPURA) 2,893,384 3,116,529
P=35,596,089 P=27,290,546
CASH AND CASH EQUIVALENTS AT END OF YEAR
Cash and other cash items P=4,086,310 P=3,550,350
Due from Bangko Sentral ng Pilipinas 33,433,911 18,963,401
Due from other banks 10,938,498 6,170,094
Interbank Loans Receivable and Securities Purchased Under Resale
Agreements (IBLR and SPURA) 7,247,478 4,207,860
P=55,706,197 P=32,891,705
OPERATIONAL CASH FLOWS FROM INTEREST
Interest received P=6,299,894 P=2,558,270
Interest paid 1,189,941 432,748
P=7,489,835 P=2,991,018
See accompanying Notes to Financial Statements.
21
EAST WEST BANKING CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
East West Banking Corporation (the Parent Company) was granted authority by the Bangko
Sentral ng Pilipinas (BSP) to operate as a commercial bank under Monetary Board (MB)
Resolution No. 101 dated July 6, 1994, and commenced operations on July 8, 1994. The
Parent Company was also granted authority by the BSP to operate an expanded foreign
currency deposit unit under MB Resolution No. 832 dated August 31, 1994. On July 31,
2012, the Parent Company received the approval of the BSP to operate as a universal bank.
As of December 31, 2014, the Parent Company is effectively 75.01% owned by Filinvest
Development Corporation (FDC). The Parent Company’s ultimate parent company is A.L.
Gotianun, Inc. The Parent Company’s head office is located at East West Corporate Center,
The Beaufort, 5th Avenue corner 23rd Street, Fort Bonifacio Global City, Taguig City.
The Parent Company is a domestic corporation registered with the Securities and Exchange
Commission (SEC) on March 22, 1994. In 2012, the Parent Company conducted an initial
public offering (IPO) of its 283,113,600 common shares. The Parent Company’s common
shares were listed and commenced trading in the Philippine Stock Exchange (PSE) on
May 7, 2012.
Through its network of 359 branches as of June 30, 2015, the Parent Company provides a
wide range of financial services to consumer and corporate clients. The Parent Company’s
principal banking products and services include deposit-taking, loan and trade finance,
treasury, trust services, credit cards, cash management and custodial services.
On March 19, 2009, the Parent Company effectively obtained control of the following
entities:
a) AIG Philam Savings Bank (AIGPASB)
b) PhilAm Auto Finance and Leasing, Inc. (PAFLI)
c) PFL Holdings, Inc. (PFLHI)
On March 31, 2009, AIGPASB, PAFLI and PFLHI were merged to the Parent Company.
On August 19, 2011, the Parent Company acquired 84.78% of the voting shares of Green
Bank (A Rural Bank), Inc. (GBI) for P=158.55 million. GBI is engaged in the business of
extending credit to small farmers and tenants and to deserving rural industries or enterprises
and to transact all businesses which may be legally done by rural banks. In 2012, the Parent
Company acquired additional shares from the non-controlling shareholder amounting to P=
8.77 million and from GBI’s unissued capital stock amounting to P=19.65 million, thereby
increasing its ownership to 96.53% as of December 31, 2012.
In 2013, the Parent Company’s deposit for future stock subscription to GBI amounting to
P=700.00 million was applied to the 441,000,000 common shares issued by GBI to the Parent
Company. In addition, the Parent Company contributed additional capital amounting to
P=1.28 million and acquired non-controlling interest amounting to P=0.20 million, thereby
increasing its ownership to 99.84% as of December 31, 2013. The Parent Company’s
22
investment in GBI amounted to P=888.45 million as of December 31, 2013. In 2014, the
Parent Company completed its planned merger with GBI. Prior to the merger, the Parent
Company acquired the remaining non-controlling interest of GBI. The Parent Company’s
investment in GBI was closed against the merged assets and liabilities as of the date of
merger.
On July 11, 2012, the Parent Company acquired 83.17% voting shares of FinMan Rural
Bank, Inc. (FRBI) for P=34.10 million. FRBI’s primary purpose is to accumulate deposit and
grant loans to various individuals and small-scale corporate entities as well as government
and private employees. In 2012, the Parent Company acquired additional shares of FRBI
from its unissued capital stock amounting to P=20.00 million, thereby increasing its
ownership to 91.58% as of December 31, 2012. On May 21, 2013, FRBI changed its name
to East West Rural Bank, Inc. (EWRB). In 2013, the Parent Company’s deposit for future
stock subscription to EWRB amounting to P=120.00 million was applied to the 46,000,000
common shares issued by EWRB to the Parent Company. In addition, the Parent Company
contributed additional capital amounting to P=340.00 million and acquired the remaining non-
controlling interest amounting to P=6.90 million, thereby increasing its ownership to 100.00%
as of December 31, 2013. The Parent Company’s investment in EWRB amounted to P=
521.00 million as of June 30, 2015 and December 31, 2014, respectively.
GBI and EWRB (the Subsidiaries) were consolidated with the Parent Company on
August 19, 2011 and July 11, 2012, respectively, the dates on which control was transferred
to the Parent Company.
In May 2013, GBI and EWRB entered into an asset purchase agreement with assumption of
liabilities (the Purchase and Assumption Agreement) for the transfer of certain assets and
liabilities of GBI to EWRB. The transfer of the assets and liabilities took effect on
October 31, 2013 after the receipt of the required approvals from the regulators. The transfer
of the assets and liabilities of GBI to EWRB was part of the Parent Company’s plan to
combine the rural banking business of its two subsidiaries into a single entity. After the
transfer, EWRB will continue the rural banking business of GBI and the remaining assets
and liabilities of GBI will be merged to the Parent Company, with the latter as the surviving
entity. On July 31, 2014, GBI was merged to the Parent Company. The merger of the Parent
Company and GBI will enable the Parent Company to achieve branding leverage and
economy in management and operations.
As of June 30, 2015, EWRB is the only subsidiary of the bank.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the consolidated financial statements of the
Parent Company and its Subsidiaries (collectively referred to herein as the Group) as of June
30, 2015 and December 31, 2014.
The accompanying financial statements have been prepared on a historical cost basis except
for financial assets at fair value through profit or loss (FVTPL), financial assets at fair value
through other comprehensive income (FVTOCI) and derivative financial instruments that
have been measured at fair value. The financial statements are presented in Philippine peso
23
and all values are rounded to the nearest thousand except when otherwise indicated.
Statement of Compliance
The accompanying financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRS).
Presentation of Financial Statements
The Group presents its statement of financial position broadly in order of liquidity.
Basis of Consolidation
The Subsidiaries are fully consolidated from the date of acquisition, being the date on which
the Parent Company obtains control and continue to be consolidated until the date when the
control ceases.
All significant intra-group balances, transactions, income and expenses and profits and
losses resulting from intra-group transactions are eliminated in the consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Parent
Company. Control is achieved where the Parent Company is exposed, or has rights, to
variable return from its involvement with an entity and has the ability to affect those returns
through its power over the entity. The Parent Company has power over the entity when it
has existing rights that give it the current ability to direct relevant activities (i.e., activities
that significantly affect the entity’s returns). Consolidation of subsidiaries ceases when
control is transferred out of the 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, as appropriate.
Non-Controlling Interest
Non-controlling interest represents the portion of profit or loss and net assets not owned,
directly or indirectly, by the Parent Company.
Non-controlling interests are presented separately in the consolidated statement of income,
consolidated statement of comprehensive income, and within equity in the consolidated
statement of financial position, separately from equity attributable to the equity holders of
the Parent Company. Any losses applicable to the non-controlling interests are allocated
against the interests of the non-controlling interest even if this results in the non-controlling
interest having a deficit balance. Acquisitions of non-controlling interests that does not
result in a loss of control are accounted for as equity transaction, whereby the difference
between the consideration and the fair value of the share of net assets acquired is recognized
as an equity transaction and attributed to the owners of the Parent Company.
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year
except for the adoption of the following new and amended standards and interpretations,
which became effective beginning January 1, 2015. Unless otherwise indicated, adoption of
these new and amended standards and interpretations did not have material impact to the
Group.
24
The following new standards and amendments issued by the IASB were already adopted by
the FRSC:
PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)
PAS 19 requires an entity to consider contributions from employees or third parties when
accounting for defined benefit plans. Where the contributions are linked to service, they
should be attributed to periods of service as a negative benefit. These amendments clarify
that, if the amount of the contributions is independent of the number of years of service, an
entity is permitted to recognize such contributions as a reduction in the service cost in the
period in which the service is rendered, instead of allocating the contributions to the periods
of service. This amendment is effective for annual periods beginning on or after January 1,
2015.
Annual Improvements to PFRSs (2010-2012 cycle)
The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods
beginning on or after January 1, 2015 and are not expected to have a material impact on the
Group. They include:
PFRS 2, Share-based Payment - Definition of Vesting Condition
This improvement is applied prospectively and clarifies various issues relating to the
definitions of performance and service conditions which are vesting conditions, including:
A performance condition must contain a service condition
A performance target must be met while the counterparty is rendering service
A performance target may relate to the operations or activities of an entity, or to those of
another entity in the same group
A performance condition may be a market or non-market condition
If the counterparty, regardless of the reason, ceases to provide service during the vesting
period, the service condition is not satisfied.
PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business
Combination
The amendment is applied prospectively for business combinations for which the acquisition
date is on or after July 1, 2014. It clarifies that a contingent consideration that is not
classified as equity is subsequently measured at fair value through profit or loss whether or
not it falls within the scope of PAS 39, Financial Instruments: Recognition and Measurement
(or PFRS 9, Financial Instruments, if early adopted). The Group shall consider this
amendment for future business combinations.
PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of the
Total of the Reportable Segments’ Assets to the Entity’s Assets
The amendments are applied retrospectively and clarify that:
An entity must disclose the judgments made by management in applying the aggregation
criteria in the standard, including a brief description of operating segments that have been
aggregated and the economic characteristics (e.g., sales and gross margins) used to assess
whether the segments are ‘similar’.
The reconciliation of segment assets to total assets is only required to be disclosed if the
reconciliation is reported to the chief operating decision maker, similar to the required
disclosure for segment liabilities.
25
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Revaluation
Method - Proportionate Restatement of Accumulated Depreciation and Amortization
The amendment is applied retrospectively and clarifies in PAS 16 and PAS 38 that the asset
may be revalued by reference to the observable data on either the gross or the net carrying
amount. In addition, the accumulated depreciation or amortization is the difference between
the gross and carrying amounts of the asset.
PAS 24, Related Party Disclosures - Key Management Personnel
The amendment is applied retrospectively and clarifies that a management entity, which is
an entity that provides key management personnel services, is a related party subject to the
related party disclosures. In addition, an entity that uses a management entity is required to
disclose the expenses incurred for management services.
Annual Improvements to PFRSs (2011-2013 cycle)
The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods
beginning on or after January 1, 2015 and are not expected to have a material impact on the
Group. They include:
PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements
The amendment is applied prospectively and clarifies the following regarding the scope
exceptions within PFRS 3:
Joint arrangements, not just joint ventures, are outside the scope of PFRS 3.
This scope exception applies only to the accounting in the financial statements of the joint
arrangement itself.
PFRS 13, Fair Value Measurement - Portfolio Exception
The amendment is applied prospectively and clarifies that the portfolio exception in PFRS
13 can be applied not only to financial assets and financial liabilities, but also to other
contracts.
PAS 40, Investment Property
The amendment is applied prospectively and clarifies that PFRS 3, and not the description of
ancillary services in PAS 40, is used to determine if the transaction is the purchase of an
asset or business combination. The description of ancillary services in PAS 40 only
differentiates between investment property and owner-occupied property (i.e., property,
plant and equipment).
Effective January 1, 2016
PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification of
Acceptable Methods of Depreciation and Amortization (Amendments)
The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern
of economic benefits that are generated from operating a business (of which the asset is part)
rather than the economic benefits that are consumed through use of the asset. As a result, a
revenue-based method cannot be used to depreciate property, plant and equipment and may
only be used in very limited circumstances to amortize intangible assets. The amendments
are effective prospectively for annual periods beginning on or after January 1, 2016, with
early adoption permitted. These amendments are not expected to have any impact to the
Group given that the Group has not used a revenue-based method to depreciate its non-
current assets.
26
PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants
(Amendments)
The amendments change the accounting requirements for biological assets that meet the
definition of bearer plants. Under the amendments, biological assets that meet the definition
of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply.
After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost
(before maturity) and using either the cost model or revaluation model (after maturity). The
amendments also require that produce that grows on bearer plants will remain in the scope of
PAS 41 measured at fair value less costs to sell. For government grants related to bearer
plants, PAS 20, Accounting for Government Grants and Disclosure of Government
Assistance, will apply. The amendments are retrospectively effective for annual periods
beginning on or after January 1, 2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group as the Group does not have any bearer plants.
PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements
(Amendments)
The amendments will allow entities to use the equity method to account for investments in
subsidiaries, joint ventures and associates in their separate financial statements. Entities
already applying PFRS and electing to change to the equity method in its separate financial
statements will have to apply that change retrospectively. For first-time adopters of PFRS
electing to use the equity method in its separate financial statements, they will be required to
apply this method from the date of transition to PFRS. The amendments are effective for
annual periods beginning on or after January 1, 2016, with early adoption permitted. These
amendments will not have any impact on the financial statements of the Group.
PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and
Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture
These amendments address an acknowledged inconsistency between the requirements in
PFRS 10 and those in PAS 28 (2011) in dealing with the sale or contribution of assets
between an investor and its associate or joint venture. The amendments require that a full
gain or loss is recognized when a transaction involves a business (whether it is housed in a
subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that
do not constitute a business, even if these assets are housed in a subsidiary. These
amendments are effective from annual periods beginning on or after 1 January 2016.
PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations
(Amendments)
The amendments to PFRS 11 require that a joint operator accounting for the acquisition of
an interest in a joint operation, in which the activity of the joint operation constitutes a
business must apply the relevant PFRS 3 principles for business combinations accounting.
The amendments also clarify that a previously held interest in a joint operation is not
remeasured on the acquisition of an additional interest in the same joint operation while joint
control is retained. In addition, a scope exclusion has been added to PFRS 11 to specify that
the amendments do not apply when the parties sharing joint control, including the reporting
entity, are under common control of the same ultimate controlling party.
The amendments apply to both the acquisition of the initial interest in a joint operation and
the acquisition of any additional interests in the same joint operation and are prospectively
27
effective for annual periods beginning on or after January 1, 2016, with early adoption
permitted.
PFRS 14, Regulatory Deferral Accounts
PFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-
regulation, to continue applying most of its existing accounting policies for regulatory
deferral account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14
must present the regulatory deferral accounts as separate line items on the statement of
financial position and present movements in these account balances as separate line items in
the statement of profit or loss and other comprehensive income. The standard requires
disclosures on the nature of, and risks associated with, the entity’s rate-regulation and the
effects of that rate-regulation on its financial statements. PFRS 14 is effective for annual
periods beginning on or after January 1, 2016. Since the Group is an existing PFRS preparer,
this standard would not apply.
Annual Improvements to PFRSs (2012-2014 cycle)
The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods
beginning on or after January 1, 2016 and are not expected to have a material impact on the
Group. They include:
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes in
Methods of Disposal
The amendment is applied prospectively and clarifies that changing from a disposal through
sale to a disposal through distribution to owners and vice-versa should not be considered to
be a new plan of disposal, rather it is a continuation of the original plan. There is, therefore,
no interruption of the application of the requirements in PFRS 5. The amendment also
clarifies that changing the disposal method does not change the date of classification.
PFRS 7, Financial Instruments: Disclosures - Servicing Contracts
PFRS 7 requires an entity to provide disclosures for any continuing involvement in a
transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing
contract that includes a fee can constitute continuing involvement in a financial asset. An
entity must assess the nature of the fee and arrangement against the guidance in PFRS 7 in
order to assess whether the disclosures are required. The amendment is to be applied such
that the assessment of which servicing contracts constitute continuing involvement will need
to be done retrospectively. However, comparative disclosures are not required to be provided
for any period beginning before the annual period in which the entity first applies the
amendments.
PFRS 7 - Applicability of the Amendments to PFRS 7 to Condensed Interim Financial
Statements
This amendment is applied retrospectively and clarifies that the disclosures on offsetting of
financial assets and financial liabilities are not required in the condensed interim financial
report unless they provide a significant update to the information reported in the most recent
annual report.
PAS 19, Employee Benefits - regional market issue regarding discount rate
This amendment is applied prospectively and clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the obligation is denominated,
28
rather than the country where the obligation is located. When there is no deep market for
high quality corporate bonds in that currency, government bond rates must be used.
PAS 34, Interim Financial Reporting - disclosure of information ‘elsewhere in the interim
financial report’
The amendment is applied retrospectively and clarifies that the required interim disclosures
must either be in the interim financial statements or incorporated by cross-reference between
the interim financial statements and wherever they are included within the greater interim
financial report (e.g., in the management commentary or risk report).
Effective January 1, 2018
PFRS 9, Financial Instruments - Hedge Accounting and amendments to PFRS 9, PFRS 7
and PAS 39 (2013 version)
PFRS 9 (2013 version) already includes the third phase of the project to replace PAS 39
which pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedge
accounting model of PAS 39 with a more principles-based approach. Changes include
replacing the rules-based hedge effectiveness test with an objectives-based test that focuses
on the economic relationship between the hedged item and the hedging instrument, and the
effect of credit risk on that economic relationship; allowing risk components to be
designated as the hedged item, not only for financial items but also for non-financial items,
provided that the risk component is separately identifiable and reliably measurable; and
allowing the time value of an option, the forward element of a forward contract and any
foreign currency basis spread to be excluded from the designation of a derivative instrument
as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more
extensive disclosures for hedge accounting.
PFRS 9 (2013 version) has no mandatory effective date. The mandatory effective date of
January 1, 2018 was eventually set when the final version of PFRS 9 was adopted by the
FRSC. The adoption of the final version of PFRS 9, however, is still for approval by BOA.
PFRS 9, Financial Instruments (2014 or final version)
In July 2014, the final version of PFRS 9, Financial Instruments, was issued. PFRS 9 reflects
all phases of the financial instruments project and replaces PAS 39, Financial Instruments:
Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces
new requirements for classification and measurement, impairment, and hedge accounting.
PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early
application permitted. Retrospective application is required, but comparative information is
not compulsory. Early application of previous versions of PFRS 9 is permitted if the date of
initial application is before February 1, 2015.
The adoption of PFRS 9 will have an effect on the classification and measurement of the
Group’s financial assets and impairment methodology for financial assets, but will have no
impact on the classification and measurement of the Group’s financial liabilities. The
adoption will also have an effect on the Group’s application of hedge accounting. The Group
is currently assessing the impact of adopting this standard.
29
The following new standards issued by the IASB has not yet been adopted by the FRSC:
IFRS 15, Revenue from Contracts with Customers
IFRS 15 was issued by IASB in May 2014 and establishes a new five-step model that will
apply to revenue arising from contracts with customers. Under IFRS 15 revenue is
recognized at an amount that reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a customer. The principles in IFRS
15 provide a more structured approach to measuring and recognizing revenue. The new
revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modified retrospective application is
required for annual periods beginning on or after 1 January 2017 with early adoption
permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the
new standard on the required effective date once adopted locally.
3. Significant Accounting Judgments and Estimates
The preparation of the financial statements in compliance with PFRS requires the Group to
make judgments and estimates that affect the reported amounts of assets, liabilities, income
and expenses and disclosure of contingent assets and contingent liabilities. Future events
may occur which will cause the judgments and assumptions used in arriving at the estimates
to change. The effects of any change in judgments and estimates are reflected in the
financial statements as these become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
4. Financial Risk Management
The risk exposure of the Parent Company and its subsidiary in credit, market, interest rate, and
liquidity remains contained within its risk limits and adequately covered by its available
capital.
Specifically, notable risk exposures, where most emanate from the Parent Company, as of the
end of first half of 2015 in the following areas are summarized below.
Credit risk: Potential risk is well within regulatory capital as gleaned from the following
indicators.
o Credit quality of portfolio remains at a composite rating of ‘Satisfactory’ for its
corporate portfolio, ‘Standard’ grade for most of its secured consumer portfolio,
‘Substandard grade for most of the unsecured consumer portfolio, and its non –
tradable investment portfolio at ‘BBB’ composite rating.
o Total loan portfolio is secured at around 40%, while the portfolio of products that
normally require collateral remains healthy at over 50% secured.
o No credit concentration in size, borrower, and industry as defined by BSP and
internal risk policies.
30
Market risk: Around P80 million value-at-risk on the Parent Company’s trading book for
potential adverse movements in interest rate, foreign exchange rate, and equity prices.
Interest rate risk: On the Parent Company’s banking book, maximum potential loss impact
(for the rest of 2015) from adverse movement in interest rate is estimated to be around 1%
and 5% of the budgeted net interest income and net income for 2015, respectively.
Liquidity risk: There is no imminent liquidity risk as the Parent Company remains to be
generally liquid with sufficient sources of funding as and when the need arises. Regulatory
and internal risk limits are duly complied with.
Capital level, on the other hand, stands a little over P27 billion. Despite the tighter regulatory
capital standards, this remains enough to comply with the regulatory minimum, in accordance
with the supervisor’s prescriptions, as well as cover for the above approximated risk
exposures.
Thus, the Group’s risk management policies remain generally the same as in 2014. The
Group’s 2014 audited financial statements discuss in detail its risk exposures and its related
policies.
5. Fair Value Measurement
The Group measures certain financial instruments such as financial assets at FVTPL,
financial assets at FVTOCI and derivative financial instruments, at fair value at each
statement of financial position date. Also, fair values of financial instruments carried at
amortized cost and investment properties carried at cost are measured for disclosure
purposes.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the
asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
31
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or
liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis,
the Group determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorization (based on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each reporting period.
External appraisers are involved for valuation of significant non-financial assets, such as
investment properties. Selection criteria include market knowledge, reputation,
independence and whether professional standards are maintained.
For the purpose of fair value disclosures, the Group has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy.
The following table provides the fair value hierarchy of the Group’s assets and liabilities
measured at fair value and those for which fair values are required to be disclosed as of June
30, 2015 and December 31, 2014 as follows:
Consolidated
June 30, 2015
Fair Value
Carrying
Value Total
Quoted Prices
in active
market
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets measured at fair value
Financial assets
Financial assets at FVTPL:
HFT investments:
Government securities P=1,301,593 P=1,301,593 P=1,301,593 P=– P=–
Private bonds 1,398,127 1,398,127 1,398,127 – –
Equity securities 126,058 126,058 126,058 – –
2,825,778 2,825,778 2,825,778 –
Derivative assets 202,551 202,551 – 202,551 –
Financial assets at FVTOCI 7,365 7,365 7,365 – –
Assets for which fair values are disclosed
Financial assets
Investment securities at amortized cost:
Government securities 3,953,607 4,112,574 4,112,574 – –
Private bonds 373,666 373,971 373,971 – –
4,327,273 4,486,545 4,486,545 – –
Loans and receivables
Receivable from customers: 124,017,108 125,238,632 125,238,632
Unquoted debt securities 393,224 393,224 – – 393,224
32
Consolidated
June 30, 2015
Fair Value
Carrying
Value Total
Quoted Prices
in active
market
(Level 1)
Significant
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
124,410,332 125,631,856 – – 125,631,856
Non-financial assets
Investment properties 846,251 846,251 – – 846,251
Total assets P=132,619,551 P=134,000,346 P=7,319,688 P=202,551 P=126,478,107
Liabilities measured at fair value
Financial liabilities
Derivative liabilities P=184,938 P=184,938 P=– P=184,938 P=–
Liabilities for which fair values are disclosed
Financial liabilities
Deposit liabilities
Time 66,419,696 62,554,171 – – 62,554,171
LTNCD 8,033,857 8,819,008 – – 8,819,008
74,453,553 71,373,179 – – 71,373,179
Subordinated debt 6,464,413 7,443,056 – – 7,443,056
Total liabilities P=81,102,904 P=79,001,174 P=– P=184,938 P=78,816,235
Consolidated
June 30, 2014
Fair Value
Carrying
Value Total
Quoted Prices in active market
(Level 1)
Significant
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
Assets measured at fair value
Financial assets Financial assets at FVTPL:
HFT investments:
Government securities P=7,391,724 P=7,391,724 P=7,255,622 P=136,102 P=– Private bonds 2,565,307 2,565,307 2,565,307 – –
Equity securities 225,659 225,659 225,659 – –
10,182,690 10,182,690 10,046,588 136,102 –
Derivative assets 110,668 110,668 – 110,668 –
Financial assets at FVTOCI 14,419 14,419 14,419 – –
Assets for which fair values are disclosed
Financial assets
Investment securities at amortized cost: Government securities 7,536,445 7,660,169 7,433,658 226,511 –
Private bonds 1,258,433 1,258,656 1,258,656 – –
8,794,878 8,918,825 8,692,314 226,511 –
Loans and receivables
Receivable from customers: 119,166,251 113,818,042 113,818,042 Unquoted debt securities 291,836 291,836 – – 291,836
119,458,087 114,109,878 – – 114,109,878
Non-financial assets
Investment properties 912,687 1,285,877 – – 1,285,877
Total assets P=139,473,429 P=134,622,357 P=18,753,321 P=473,281 P=115,395,755
Liabilities measured at fair value
Financial liabilities Derivative liabilities P=101,290 P=101,290 P=– P=101,290 P=–
Liabilities for which fair values are disclosed
Financial liabilities
Deposit liabilities Time 69,027,909 69,029,018 – – 69,029,018
LTNCD 8,033,623 8,825,239 – – 8,825,239
77,061,532 77,854,257 – – 77,854,257
Subordinated debt 6,463,731 7,462,161 – – 7,462,161
Total liabilities P=83,626,553 P=85,417,708 P=– P=101,290 P=85,316,418
33
6. Segment Reporting
The Group’s main operating businesses are organized and managed primarily, according to
the current organizational structure. Each segment represents a strategic business unit that
caters to the bank’s identified markets. The Group’s business segments are:
(a) Retail banking - this segment mainly covers traditional branch banking products and
services such as deposits, back-to-back/emerging market loans and other over-the-
counter (OTC) transactions. It likewise caters to the needs of high net-worth clients for
alternative investment channels. It includes entire transaction processing, service
delivery and infrastructure consisting of the Group’s network of branches, automated
teller machines as well as its internet banking platform;
(b) Corporate banking - this segment handles lending and trade financing for both large
corporations and middle market clients;
(c) Consumer lending - this segment primarily caters to loans for individuals;
(d) Treasury and Trust - this segment consists of Treasury and Trust operations of the
Group. Treasury focuses on providing money market, trading and treasury services, as
well as the management of the Group’s funding operations through debt securities,
placements and acceptances with other banks. Trust includes fund management,
investment management services, custodianship, administration and collateral agency
services, and stock and transfer agency services. In addition, the Parent Company
through Trust, provides retail customers with alternative investment opportunities
through its unit investment fund products.
The ‘Elimination Items’ includes the Group’s executive office and elimination items
related to the Group’s segment reporting framework.
Management monitors the operating results of its business units separately for the
purpose of making decisions about resource allocation and performance assessment.
Segment assets are those operating assets employed by a segment in its operating
activities and are either directly attributable to the segment or can be allocated to the
segment on a reasonable basis. Segment liabilities are those operating liabilities that
result from the operating activities of a segment and are either directly attributable to the
segment or can be allocated to the segment on a reasonable basis. Interest income is
reported net, as management primarily relies on the net interest income as performance
measure, not the gross income and expense. The Group’s revenue-producing assets are
located in the Philippines (i.e., one geographical location); therefore, geographical
segment information is no longer presented. The Group has no significant customers
which contribute 10.00% or more of the consolidated revenue, net of interest expense.
The segment results include internal transfer pricing adjustments across business units as
deemed appropriate by management. Transactions between segments are conducted at
estimated market rates on an arm’s length basis. Interest is charged/credited to the
business units based on a pool rate which approximates the marginal cost of funds.
34
Segment information of the Group as of and for the six months ended June 30, 2015:
Retail
Banking
Corporate
Banking
Consumer
Banking
Treasury
& Trust
Executive
&
Elimination
Items
Total
Bankwide
Statement of Income
Net Interest Income
Third Party
1,234
342
3,820
(174)
620
5,842
Intersegment
66
302
-
-
(368)
-
1,300
644
3,820
(174)
252
5,842
Noninterest Income
423
33
1,292
177
155
2,080
Revenue - Net of Interest
Expense
1,723
677
5,112
3
407
7,922
Noninterest Expense
(2,303)
(355)
(3,570)
(154)
(393)
(6,775)
Income Before Income Tax
(580)
322
1,542
(151)
14
1,147
Provision for Income Tax
151
(97)
(358)
47
118
(139)
Net Income for the Period
(429)
225
1,184
(104)
132
1,008
Statement of Financial Position
Total Assets
36,845
59,847
64,605
31,599
11,979
204,875
Total Liabilities
160,796
34,738
2,834
10,678
(34,490)
174,557
Other Segment Information
Depreciation and Amortization
272
11
116
8
34
442
Provision for Credit and
Impairment Losses
16
96
1,682
3
259
2,056
35
Segment information of the Group as of and for the six months ended June 30, 2014 follow (in
millions):
Retail
Banking
Corporate
Banking
Consumer
Banking
Treasury
& Trust
Executive
&
Elimination
Items
Total
Bankwide
Statement of Income
Net Interest Income
Third Party
1,394
333
2,922
52
83
4,784
Intersegment
23
309
-
-
(332)
-
1,417
642
2,922
52
(249)
4,784
Noninterest Income
383
31
1,309
666
(27)
2,362
Revenue - Net of Interest
Expense
1,800
673
4,231
718
(276)
7,146
Noninterest Expense
(2,000)
(363)
(3,034)
(118)
(346)
(5,861)
Income Before Income Tax
(200)
310
1,197
600
(622)
1,285
Provision for Income Tax
-
-
-
-
(238)
(238)
Net Income for the Period
(200)
310
1,197
600
(860)
1,047
Statement of Financial
Position
Total Assets
28,848
52,775
49,394
12,447
12,434
155,898
Total Liabilities
120,727
36,094
2,116
9,540
(33,008)
135,469
Other Segment
Information
Depreciation and
Amortization
281
13
96
8
19
418
Provision for Credit and
Impairment Losses
5
122
1,253
-
126
1,506
Noninterest income consists of service charges, fees and commissions, gain on sale of assets,
gain on asset foreclosure and dacion transactions, trading and securities gain, gain on sale (loss
on derecognition) of investment securities at amortized cost, foreign exchange gain, trust income
and miscellaneous income. Noninterest expense consists of compensation and fringe benefits,
taxes and licenses, depreciation and amortization, rent, amortization of intangible assets,
provision for impairment and credit losses, and miscellaneous expenses.
36
7. Trading and Investment Securities
As of June 30, 2015, the Group’s investment in foreign currency denominated debt securities
totaled P=6.6 billion.
Of the P=6.6 billion debt securities, P=2.3 billion are classified under FVTPL, while the rest are
investment securities at amortized cost.
Trading gains on trading and investment securities during the periods ended June 30, 2015
and 2014 amounted to P= 428.7 million and P=640 million, respectively.
The Bank has no significant derivative instruments which may impact its financial condition
as of June 30, 2015 and December 31, 2014.
8. Goodwill and Other Intangible Assets
Goodwill
The acquisition of EWRB in 2012 resulted in goodwill amounting P=23.48 million, which has
been allocated to EWRB.
The acquisition of GBI in 2011 resulted in goodwill amounting to P=374.00 million. The
goodwill has been allocated to branch operations of GBI.
As discussed in Note 1, on October 31, 2013, GBI transferred certain assets and liabilities to
EWRB. The assets and liabilities transferred include the branches where the goodwill from
the acquisition of GBI had been allocated. The branches coming from GBI were combined
with the branch operations of EWRB after the transfer. Consequently, the goodwill from the
acquisition of EWRB and GBI amounting to P=23.48 million and P=374.00 million,
respectively are now allocated to the branch operations of EWRB, which is now considered
as a single CGU for purposes of impairment testing.
The business combination between the Parent Company and AIG Philam Savings Bank
(AIGPASB) Group in 2009 resulted in goodwill amounting to P=769.04 million, which has
been allocated to the auto and credit cards lending unit acquired from the AIGPASB Group.
The business combination between the Parent Company and Ecology Savings Bank (ESBI)
in 2003 resulted in goodwill amounting to P=172.80 million, which has been allocated to
various branches acquired from ESBI.
As of June 30, 2015 and December 31, 2014, the carrying amount of goodwill, after
impairment recognized in prior years, amounted to P= 1.32 billion.
Customer Relationship and Core Deposits
The business combination between the Parent Company and AIG Philam Savings Bank
(AIGPASB) Group in 2009 resulted in acquisition of customer relationship and core deposits
amounting to P=154.63 million and P=40.43 million, respectively.
37
Branch Licenses
The Monetary Board (MB) of the BSP, in its MB Resolution No. 1727 dated November 17,
2011, granted the Parent Company 75 branch licenses applied for by the latter in restricted
areas. The grant was made in accordance with Phase I of BSP Circular No. 728, issued by
the BSP on September 23, 2011 which implemented the phased lifting of branching
restriction in the eight restricted areas in Metro Manila. Under Phase I of the liberalization,
private domestically incorporated universal and commercial banks were given a time-bound
window until September 30, 2014 to apply for and establish branches in the said restricted
areas.
The licensing and processing fees were capitalized as branch licenses and classified under
Goodwill and Other Intangible Assets in the Group’s statement of financial position.
Capitalized Software
Capitalized software pertains to computer software licenses and programs acquired by the
Group and Parent Company for its banking operations.
9. Equity
Capital Management
The Parent Company actively manages its capital to comply with regulatory requirements,
enable growth targets, withstand plausible stress events and be at par with the Parent
Company’s peers. The primary objective of the Parent Company’s capital management is to
ensure that it maintains adequate capital to cover risks inherent to its banking activities
without prejudice to optimizing shareholders’ value.
Regulatory Qualifying Capital
Under existing BSP regulations, the determination of the Parent Company’s compliance with
regulatory requirements and ratios is based on the amount of the Parent Company’s
‘unimpaired capital’ (regulatory net worth) reported to the BSP, which is determined on the
basis of regulatory policies. In addition, the risk-based Capital Adequacy Ratio (CAR) of a
bank, expressed as a percentage of qualifying capital to risk-weighted assets, should not be
less than 10.00% for both solo basis (head office and branches) and consolidated basis
(Parent Company and subsidiaries engaged in financial allied undertakings). Qualifying
capital and risk-weighted assets are computed based on BSP regulations.
Effective January 1, 2014, the Group complied with BSP issued Circular No. 781, Basel III
Implementing Guidelines on Minimum Capital Requirements, which provides the
implementing guidelines on the revised risk-based capital adequacy framework particularly
on the minimum capital and disclosure requirements for universal banks and commercial
banks, as well as their subsidiary banks and quasi-banks, in accordance with the Basel III
standards. The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.00%
and Tier 1 capital ratio of 7.50%. It also introduces a capital conservation buffer of 2.50%
comprised of CET1 capital. The BSP’s existing requirement for Total CAR remains
unchanged at 10.00% and these ratios shall be maintained at all times.
38
Capital Stock
Capital stock consist of (amounts in thousands):
June 30 December 31
2015 2014
Common stock - P=10.00 par value
Authorized - 1,500,000,000 shares in 2015 and
2014
Issued and outstanding - 1,499,983,610 in 2015
and 1,128,409,610 shares in 2014
P=14,999,836 P=11,284,096
P=14,999,836 P=11,284,096
With the approvals by the PSE of the Parent Company’s application for listing and by the
SEC for the Registration Statement both on March 14, 2012, a total of 245,316,200 common
shares, with P=10.00 par value per share, representing 21.70% of outstanding capital stock,
were offered and subscribed through an initial public offering at P=18.50 per share on April
20 to 26, 2012. The common shares comprise of (a) 141,056,800 new shares issued by the
Parent Company by way of a primary offer, and (b) 104,259,400 existing shares offered by
FDC, the selling shareholder, pursuant to a secondary offer. Subsequently, on September 5,
2012, 36,715,300 shares under the over-allotment option were exercised at a price of P=18.50
per share that brought the subscriptions to 25.00% of the outstanding capital stock. The
Parent Company’s common shares were listed and commenced trading in the PSE on May 7,
2012. The total proceeds raised by the Parent Company from the sale of primary offer shares
amounted to P=2.61 billion while the net proceeds (after deduction of direct costs related to
equity issuance) amounted to P=2.39 billion.
On January 29, 2015, the BOD approved the common shares rights offering, subsequently,
the BOD approved the application of the bank to list up to 371,574,000 common shares with
par value of P10 per share to cover its stock rights offering. Details of the offer were as
follows:
Entitlement Ratio 32.929 right shares for every
100 shares
Offer price P21.53
Number of shares to be
offered
371,574,000
Ex-rights date April 16, 2015
Record date April 21, 2015
Start of offer period April 24, 2015
End of offer period April 30, 2015
The offer price was computed based on the volume-weighted average price of the Bank’s
common shares traded in the Philippine Stock Exchange for each of the 15 consecutive
trading days immediately prior to (and excluding) the pricing date, subject to a discount rate
of 12.8%.
39
On May 8, 2015, a total of 371,574,000 common shares were listed at the PSE with P10.00
par value per share. The total proceeds raised by the Parent Company from the sale of the
said shares amounted to P=8.0 billion while the net proceeds (after deduction of direct costs
related to equity issuance) amounted to P=7.9 billion.
The net proceeds were used to invest in securities allowed under BSP regulation and to fuel
growth in loans.
10. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making
financial and operating decisions. The Group’s related parties include:
key management personnel, close family members of key management personnel, and
entities which are controlled, significantly influenced by or for which significant voting
power is held by key management personnel or their close family members,
subsidiaries, joint ventures and associates and their respective subsidiaries, and
post-employment benefit plans for the benefit of the Group’s employees.
The Group has several business relationships with related parties. Transactions with such
parties are made in the ordinary course of business and on substantially same terms,
including interest and collateral, as those prevailing at the time for comparable transactions
with other parties. These transactions also did not involve more than the normal risk of
collectability or present other unfavorable conditions.
The amounts and the balances arising from the foregoing significant related party
transactions of the Group are as follows:
2015
Category
Amount/
Volume
Outstanding
Balance Terms and Conditions/Nature
Significant investors: Loans receivable P=− P=5,621,850 Loans granted with a term of seven years, interest of
4.50%, secured, no impairment
Deposit liabilities − 4,127,626 Deposit liabilities with interest ranging from 0.50% to 2.58%
Accrued interest receivable − 60,224 Interest income accrued on outstanding loans
receivable Accrued expenses − 17,311 Payable for management and professional fees paid by
FDC (reimbursement for expenses)
Guarantees and commitments − 3,164,159 Unused credit lines Interest income 114,124 − Interest income on loans receivable
Interest expense 3,545 − Interest expense on deposit liabilities
Key management personnel:
Loans receivable − 13,935 Loans granted with terms ranging from three to twenty years, interest ranging from 5.59% to 10.42%,
secured at 98%
Deposit liabilities − 253,703 Deposit liabilities with interest ranging from 0.875% to 5.88%
Accrued interest receivable − 14 Interest income accrued on outstanding loans
receivable Interest income 536 − Interest income on loans receivable
Interest expense 836 − Interest expense on deposit liabilities
40
2015
Category
Amount/
Volume
Outstanding
Balance Terms and Conditions/Nature
Other related parties:
Loans receivable − P=4,239,087 Loans granted with terms ranging from two months to
thirteen and a half years, interest ranging from 3.75% to 6.40%, 76% secured by real estate and
chattel mortgage, no impairment
Deposit liabilities − 12,020,537 Deposit liabilities with interest ranging from 0.50% to 5.88%
Accrued interest receivable − 6,925 Interest income accrued on outstanding loans
receivable Guarantees and commitments − 5,228,484 Unused credit lines
Accounts receivable − 411,597 Receivable from FAI on the sale of land by the Parent
Company, payable in 5 years, interest of 6.00% Interest income 76,647 − Interest income on loans receivable
Interest expense 167,053 − Interest expense on deposit liabilities
Service fee expense 320 − Service fees paid to FLI for account servicing equivalent to 1.12% of loan amounts collected by
FLI on behalf of the Parent Company
Rent expense 21,589 − Rent expenses paid for lease transactions with other related parties such as Filinvest Asia Corporation,
FAI and FLI
The amounts and the balances arising from the foregoing significant related party transactions of the
Group and of the Parent Company are as follows:
2014
Category Amount/ Volume
Outstanding Balance Terms and Conditions/Nature
Significant investors:
Loans receivable P=− P=5,621,850 Loans granted with a term of seven years, interest of
4.50%, secured, no impairment Deposit liabilities − 2,864,568 Deposit liabilities with interest ranging from 0.50% to
1.00%
Accrued interest receivable − 60,224 Interest income accrued on outstanding loans receivable
Accrued expenses − 13,297 Payable for management and professional fees paid by
FDC (reimbursement for expenses) Guarantees and commitments − 3,500,000 Unused credit lines
Interest income 228,219 − Interest income on loans receivable
Interest expense 2,954 − Interest expense on deposit liabilities
Key management personnel: Loans receivable − 37,777 Loans granted with terms ranging from three to twenty
years, interest ranging from 5.59% to 10.42%,
secured at 98% Deposit liabilities − 259,726 Deposit liabilities with interest ranging from 0.50% to
5.88%
Accrued interest receivable − 90 Interest income accrued on outstanding loans receivable
Interest income 3,440 − Interest income on loans receivable Interest expense 846 − Interest expense on deposit liabilities
Other related parties:
Loans receivable − 2,310,222 Loans granted with terms ranging from two months to
thirteen and a half years, interest ranging from 3.75% to 6.40%, 76% secured by real estate and
chattel mortgage, no impairment
Receivables purchased − 857,158 Receivables purchased by the Parent Company from FLI
Financial assets at FVTPL − 99,680 FLI- issued debt securities held for trading by the
Parent Company, with interest rates ranging from 5.40% to 5.64%, unimpaired
Deposit liabilities − 15,815,423 Deposit liabilities with interest ranging from 0.50% to
5.88% Accrued interest receivable − 17,048 Interest income accrued on outstanding loans
receivable
Guarantees and commitments − 5,267,068 Unused credit lines Accounts receivable − 411,597 Receivable from FAI on the sale of land by the Parent
Company, payable in 5 years, interest of 6.00%
Gain on sale of land 264,132 − Gain recognized on the sale of the Parent Company’s land to FAI
Interest income 21,406 − Interest income on loans receivable
41
2014
Category
Amount/
Volume
Outstanding
Balance Terms and Conditions/Nature Interest expense 220,370 − Interest expense on deposit liabilities
Service fee expense 5,434 − Service fees paid to FLI for account servicing
equivalent to 1.12% of loan amounts collected by FLI on behalf of the Parent Company
Rent expense 37,407 − Rent expenses paid for lease transactions with other
related parties such as Filinvest Asia Corporation, FAI and FLI
The Group’s significant investors pertain to FDC, the immediate Parent Company of the Group, and
FDC Forex Corporation (a company under common control of FDC).
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly. The Group considers the
members of the Management Committee to constitute key management personnel for purposes of
PAS 24. The Group provides banking services to its key management personnel.
Other related parties pertain to the Group’s affiliates (subsidiaries of FDC).
The Group and the Parent Company had no outright purchases and outright sale of debt securities
with significant shareholders and key management personnel in 2015 and 2014. In 2014, the Parent
Company purchased peso-denominated debt securities issued by Filinvest Land, Inc., an affiliate,
with market value amounting to P=99.68 million as of December 31, 2014. These securities were
already sold by the Parent Company as of June 30, 2015.
No provision and allowance for loan losses was recognized by the Group for loans to significant
investors, key management personnel and other related parties in 2015 and 2014.
The Parent Company’s subsidiaries have no transactions with related parties outside of the
Group. The transactions disclosed above are the same for the Group and the Parent Company.
Parent Company Related Party Transactions
Transactions between the Parent Company and its subsidiary (EWRB) meet the definition of related
party transactions. Details of the Parent Company’s subsidiary are disclosed in Note 1.
In addition to the transactions discussed above, the following are the transactions between the Parent
Company and its subsidiary that are recognized in the Parent Company’s statements of financial
position and statements of income and eliminated in the consolidated financial statements:
2015
Category
Amount/
Volume
Outstanding
Balance Terms and Conditions/ Nature
Subsidiaries: Loans receivable P=600,000 P=− Loans granted with a term of one month or 30 days,
interest rate of 4.00%, unsecured, no impairment
Receivables purchased 5,463,417 5,777,281 Receivables purchased by the Parent Company from EWRB
Accrued interest receivable − 8,609 Interest on receivables purchased from EWRB and
loans granted to EWRB at 4.00% per annum Accounts receivable − 95,958 Amount collected by EWRB from borrowers on behalf
of the Parent Company that remained unremitted by
EWRB Deposit liabilities − 199,396 Deposit liabilities with interest rates of 0.05% to 5.87%
Accounts payable − 51,125 Cash reloading transactions between EWRB and the Parent Company
Interest income 3,722 − Interest income on outstanding loans receivable
Interest expense 167 − Interest expense on deposit liabilities Service fee expense 13,563 − Service fees paid to EWRB for account servicing
equivalent to 0.37% of loan amounts collected by
EWRB in behalf of the Parent Company for the receivables purchased
42
2014
Category Amount/ Volume
Outstanding Balance Terms and Conditions/ Nature
Subsidiaries:
Loans receivable P=300,000 P=300,000 Loans granted with a term of one month or 30 days,
interest rate of 4.00%, unsecured, no impairment Receivables purchased 5,740,168 3,890,662 Receivables purchased by the Parent Company from
EWRB
Accrued interest receivable − 7,887 Interest on receivables purchased from EWRB and loans granted to EWRB at 4.00% per annum
Accounts receivable − 564,845 Amount collected by EWRB from borrowers on behalf
of the Parent Company that remained unremitted by EWRB
Deposit liabilities − 166,573 Deposit liabilities with interest rates of 0.05% to 5.87%
Accounts payable − 72,206 Cash reloading transactions between EWRB and the Parent Company
Interest income 2,537 − Interest income on outstanding loans receivable
Interest expense 579 − Interest expense on deposit liabilities Service fee expense 16,482 − Service fees paid to EWRB for account servicing
equivalent to 0.37% of loan amounts collected by
EWRB in behalf of the Parent Company for the receivables purchased
11. Commitments and Contingent Liabilities
In the normal course of the Group’s operations, there are various outstanding commitments
and contingent liabilities which are not reflected in the accompanying financial statements.
The Group does not anticipate material unreserved losses as a result of these transactions.
The Group has several loan related suits and claims that remain unsettled. It is not
practicable to estimate the potential financial impact of these contingencies. However, in the
opinion of management, the suits and claims, if decided adversely, will not involve sums
having a material effect on the Group’s financial statements.
12. Financial Performance
Earnings per share amounts were computed as follows:
June 2015 June 2014
a. Net income attributable to equity holders
of the Parent Company P=1,007,737 P=1,046,582
P=
b. Dividends declared on preferred shares – _
–
c. Net income attributable to common
shareholders of the Parent Company 1,007,737 1,046,582
d. Weighted average number of outstanding
common shares 1,252,268 1,128,410
,410
e. Weighted average number of convertible
preferred shares
– _
f. Basic EPS (c/d) P=0.80 P=0.93 P=
g. Diluted EPS [c/(d+e)] P=0.80 P=0.93 P=
43
ATTACHMENT 2
PAST DUE LOANS AND OTHER RECEIVABLES
JUNE 30, 2015
(Amounts in thousands of Philippine Peso)
Particulars Total 1-90 days 91-180 days
181-360
days >360 days
Past Due Loans &
other receivables P=14,533,549 P=8,261,772 P=2,091,338 P=1,974,315 P=2,206,124
Allowance for credit
losses (4,512,620)
Total P=10,020,929
44
ATTACHMENT 3
CONSOLIDATED FINANCIAL RATIOS
(As Required by SRC Rule 68.1)
June 30, 2015
June 30, 2015 June 30 2014
Current ratio (1) 85.9% 81.7%
Solvency ratio (2) 1.2 1.2
Debt-to-equity (3) 5.8 6.8
Asset-to-equity (4) 6.8 7.8
Interest rate coverage ratio (5) 205.1% 285.2%
Return on Equity (6) 8.0% 10.6%
Return on Assets (7) 1.0% 1.4%
Net Interest Margin (8) 8.1% 8.1%
Cost- to- Income Ratio (9) 59.6% 60.9%
Notes:
(1) Current assets divided by current liabilities
(2) Total assets divided by total liabilities
(3) Total liabilities divided by total equity
(4)Total assets divided by total equity
(5)Income before interest and taxes divided by interest expense
(6)Net income divided by average total equity for the periods indicated.
(7) Net income divided by average total assets for the periods indicated.
(8) Net interest income divided by average interest-earning assets (incl. interbank loans, trading and investment securities and loans).
(9) Other expenses (excl. provision for impairment and credit losses) divided by net interest and other income for the periods indicated.
45
ATTACHMENT 4
USE OF PROCEEDS FROM STOCK RIGHTS OFFERING (“SRO”)
June 30, 2015
The Bank received actual gross proceeds amounting to P=8.0 billion from offering of 371,574,000
shares on May 8, 2015, and incurred P=53.9 million SRO-related expenses, resulting to actual net
proceeds of P=7.9 billion.
The application of the actual net proceeds are broken down as follows:
1. Breakdown of Proceeds (in millions)
Gross Proceeds P=8,000.0
Disbursements related to SRO (53.9)
Net Proceeds P=7,946.1
2. Application of the Proceeds from SRO (in millions)
Net Proceeds P=7,946.1
Application of Proceeds
Investments in securities allowed under BSP
regulation1
1,959.8
Growth in loans2 5,986.3
Total P=7,946.1 1Represents excess liquidity as of June 30, 2015. The Bank was able to maintain high level of excess liquidity attributable
to proceeds from SRO 2Gross customer loans grew from P=118.9 billion as of April 30, 2015 to P=124.9 billion as of June 30, 2015