S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its...

264

Transcript of S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its...

Page 1: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 2: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

6 0 3 0 SEC Registration Number

S E C U R I T Y B A N K C O R P O R A T I O N

(Company’s Full Name)

S e c u r i t y B A n k C e n t r e , 6 7 7 6 A y a l a A v e n u e , M a K a t i C i t y

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

Joselito E. Mape 888-7291 (Contact Person) (Company Telephone Number)

1 2 3 1 1 7 - A 0 4 3 0

Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Corporate Finance Dept. Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

2,167 Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

Page 3: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141

OF THE CORPORATION CODE OF THE PHILIPPINES 1. For the fiscal year ended December 31, 2019 2. SEC Identification Number 6030 3. BIR Tax Identification No. 000-498-020-000 4. Exact name of issuer as specified in its charter – SECURITY BANK CORPORATION 5. Philippines 6. (SEC Use Only) Province, Country or other jurisdiction of

incorporation or organization Industry Classification Code:

7. Security Bank Centre, 6776 Ayala Avenue, Makati City 0719 Address of principal office Postal Code 8. (632) 8867-6788 Issuer's telephone number, including area code 9. Not applicable Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 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) 753,538,887 Preferred shares (Unregistered) 1,000,000,000

11. Are any or all of these securities listed on a Stock Exchange. Yes [ ✓ ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common Shares 12. Check whether the issuer:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder or Section 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 that the registrant was required to file such reports);

Yes [ ✓ ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [ ✓ ] No [ ] 13. The aggregate market value of the voting stock held by non-affiliates of the registrant is P17.03 billion. The

price used for this computation is the closing price as of February 28, 2020 which is P154.4 for common shares and P0.10 par value for voting preferred shares.

Page 4: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

TABLE OF CONTENTS

Part I – BUSINESS AND GENERAL INFORMATION Item 1 Business 1 Item 2 Properties 12 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders 12 Part II – OPERATIONAL AND FINANCIAL INFORMATION Item 5 Market for Issuer’s Common Equity and Related Stockholder Matters 13 Item 6 Management’s Discussion and Analysis or Plan of Operation 15 Item 7 Financial Statements 25 Item 8 Information on Independent Accountant and Other Related Matters 26 Part III – CONTROL AND COMPENSATION INFORMATION Item 9 Directors and Executive Officers of the Issuer 27 Item 10 Executive Compensation 40 Item 11 Security Ownership of Certain Beneficial Owners and Management 40 Item 12 Certain Relationships and Related Transactions 43 Part IV – EXHIBITS AND SCHEDULES Item 13 Exhibits and Reports on SEC Form 17-C 44 SIGNATURES 45 INDEX TO EXHIBITS 46 INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES 62

Page 5: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

1

PART I – BUSINESS AND GENERAL INFORMATION Item 1. Business A. Description of Business 1) Business Development

Security Bank Corporation (PSE: SECB) is a publicly listed Philippine universal bank which serves wholesale and retail clients. Established in 1951, Security Bank has, for over 69 years, remained steadfast in its focus and commitment to serve its clients and stakeholders with distinction. Its headquarters are located at the Security Bank Centre, 6776 Ayala Avenue, Makati City, Metro Manila, Philippines. Security Bank ranked as the 6th largest in total assets and 5th in capital funds (P=795 billion and P=118 billion respectively) and 4th largest in market capitalization among listed private domestic universal banks in the Philippines. In terms of financial results, Security Bank ranks 9th in return on shareholders’ equity and 3rd in asset quality (having the second lowest NPL ratio. The Bank’s strategy, execution and results are guided by its strong focus on shareholder value. Security Bank’s major businesses include wholesale banking, financial markets and retail banking. It is among the leading local players in government fixed income securities distribution, capital markets services, foreign exchange and derivatives products distribution, equities brokerage, and cash management. Security Bank continues to grow its consumer finance business. The Security Bank group has a total of 308 branches all over the country as of year-end 2019. Security Bank ended the year 2019 with a net income of P=10.1 billion and a return on equity of 8.9%. Total loans grew by 32.3% to P448.6 billion while deposits increased by 2.2% to P499.6 billion as of year-end 2019. This translated to a 28.9% increase in net interest income. The net interest margin in 2019 was 3.93%, slightly higher than the 3.27% in 2018. The non-interest income line item increased to P7.1 billion mainly due to increase in trading and securities gains and service charges, fees and commissions. The cost-to-income ratio was 51.1%. The Bank ended the year with total assets of P793 billion for a 3.4% growth rate. Return on assets was 1.30%. Security Bank was a recipient of various awards in 2019 among which the Bank was named as The Best Retail Bank in the Philippines for 2019 by The Asian Banker and Deposit Product of the Year – “All Access Account” by The Asian Banker; Automobile Lending Product of the Year by The Asian Banker (Philippines Awards 2019) and Deposit Product of the Year by The Asian Banker (Philippines Awards 2019); Best Bank in the Philippines in 2019 by Alpha Southeast Asia; Best SME Bank in the Philippines in 2019 by Alpha Southeast Asia; and Best Bank for SMEs in the Philippines in 2019 by Asiamoney. In 2018, Security Bank earned a net income of P8.6 billion which translated to a return on equity of 8.1%. Security Bank was a recipient of various awards in 2018 among which the Bank was named as Bank of the Year- Philippines 2018 by The Banker; The Best Retail Bank in the Philippines for 2018 by The Asian Banker; Best Retail Bank in the Philippines 2018 by Alpha Southeast Asia; Best Bank in the Philippines 2018 by Global Finance; Asia’s Best CEO (Investor Relations, Philippines) for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations, Philippines) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia; and People Program of the Year Award for Security Bank’s Total Wellness Program by People Management Association of the Philippines (PMAP) In 2017, Security Bank earned a net income of P10.3 billion which translated to a return on equity of 10.1%. Security Bank was a recipient of various awards in 2017 among which the Bank was named as Best Bank in the Philippines by Alpha Southeast Asia of Singapore, and Best Digital Bank Philippines 2017 by Capital Finance International of London. Security Bank was also recipient of the following awards in 2017: Best Bank for SMEs–Philippines by Asiamoney; Deposit Product of the Year, AllAccess Account by The Asian Banker’s Philippine Country Awards 2017; Top Bank for Government Bonds, Top Bank for Corporate Bonds, and Top Investment House by The Asset Benchmark Research Awards 2017; Best Regional Specialist (Public Sector), Philippines, and Best in Treasury and Working Capital (Public Sector), Philippines by The Asset; Special Citation on Industrial Peace and Harmony from KAPATID 2017 Awards of the Employers Confederation of the Philippines; Asia’s Best CEO (Investor Relations)

Page 6: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

2

for Mr. Alfonso L. Salcedo, Jr., Asia’s Best CFO (Investor Relations) for Mr. Joselito E. Mape, and Best Investor Relations Company Philippines from Corporate Governance Asia of Hong Kong; and Advertising Campaign of the Year-Philippines, Credit Card Initiative of the Year-Philippines, and Mortgage and Home Loan Product of the Year-Philippines from Asian Banking and Finance. 2) Business of Issuer

(a) Description of Registrant

(i) Principal Products or Services and their Markets

The Group’s operating businesses are recognized and managed separately according to the nature of services provided and the different markets served with each segment representing a strategic business unit. The Bank’s principal business activities are organized as follows: Financial Markets Segment, Wholesale Banking Segment, Retail Banking Segment, and All Other Segments.

Financial Markets Segment - this segment focuses on providing money market, foreign exchange, financial derivatives, securities distribution, asset management, trust and fiduciary services, as well as the management of the funding operations for the Group. The Financial Markets segment represents 9.9% of the Group’s 2019 total revenue.

Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and public sector markets, small-and-medium enterprise and middle markets. Services include relationship management, lending and other credit facilities, trade, cash management, deposit-taking and leasing services provided by the Group. It also provides structured financing and advisory services relating to debt and equity capital raising, project financing, and mergers and acquisitions. The Group’s equity brokerage operations are also part of this segment.

The Wholesale Banking segment constitutes 32.8% of total revenues in 2019.

Retail Banking Segment - this segment addresses the individual, retail and small businesses. It covers deposit-taking and servicing, commercial and consumer loans, credit card facilities and bancassurance. The Group includes SBFCI as part of this segment

The Retail Banking Segment makes up 45.2% of the Group’s total revenue in 2019.

All Other Segments - this segment includes but not limited to branch banking support and other support services. Other operations of the Group comprise the operations and financial control groups.

All Other Segments make up 12.6% of the Group’s total revenue in 2019.

Subsidiaries and Joint Venture

Page 7: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

3

SB Finance Company, Inc. (SBFCI) (formerly Security Bank Savings Corporation), formerly a private development bank incorporated in 1960 as Premiere Development Bank, renamed Security Bank Savings (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the BSP approved the approved the integration (i.e., acquisition of all assets and assumption of all liabilities) of SBS into SBC, which was completed by March 2015. On January 26, 2016, the BOD of SBS approved the extension of the existing thrift bank license under a dormant status for another year pending the firm up of its business model. On May 26, 2016, the BSP approved the request of SBS to extend the license and retain the vehicle on a dormant status for another year or until 25 January 2017. On November 24, 2016 and December 15, 2016, the BOD and stockholders of SBS, respectively, approved the conversion of SBS from a savings bank to a finance company. On April 11, 2017, the Monetary Board of the BSP, in its resolution No. 616, approved the voluntary surrender of SBS of its thrift bank, trust and FCDU licenses, subject to submission of certain regulatory requirements. On August 4, 2017, the SEC approved the conversion of SBS from a savings bank to a finance company. On the same date, SEC also approved the Amended Articles of Incorporation and By-Laws of SBS to operate as a financing company in accordance with the Financing Act of 1998 (Republic Act. No. 8556) under the name of SB Finance Company, Inc. In September 2017, the BOD of SBFCI approved the organizational structure of the Company. On August 8, 2019, the BOD of the Parent Company through its Finance Committee approved the terms and conditions of the joint venture agreement and other transaction documents necessary to establish a consumer finance joint venture with The Bank of Ayudhya Public Company Ltd. (BAY), commonly known as Krungsri, including the sale of 50% of the outstanding shares shares of SBFCI to BAY. The completion of this transaction will be subject to regulatory approvals. The sale of shares of SBFCI by the Parent Company is expected to be completed by 2020. SB Capital Investment Corporation (SB Capital), Security Bank’s wholly-owned investment banking arm, is currently one of the most stable and active investment houses in the Philippines. It provides a wide range of investment banking and financial services aimed at satisfying the diverse financial needs of institutions and individuals. Since its commercial operations in 1996, SB Capital has participated in a myriad of big-ticket and significant investment banking transactions involving top-tier business conglomerates, middle-market clients and the public sector. In 2019, SB Capital jointly arranged and underwrote several multi-billion corporate bond issues of leading and reputable publicly-listed corporations such SMC Global Power Holdings Corp. (P=30 billion); Ayala Land, Inc. (P=8 billion); Aboitiz Power Corp. (P=7 billion); and Vista Land & Lifescapes, Inc. (P=10 billion). Proceeds from the said bond issues were utilized by the foregoing companies to fund expansions, refinance certain debt obligations and for other general corporate purposes. SB Capital likewise acted as one of the issue managers for Bureau of the Treasury’s P=293 billion retail treasury bond (RTB) issue in March 2019. The issue was the largest retail bond offering of the Philippine Treasury bureau at that time. SB Capital also arranged a series of privately-placed corporate notes and syndicated loan facilities in 2019 for (i) a leading global consumer finance company and (ii) a fast-growing residential property developer owned by one of the biggest conglomerates in the Philippines, amounting to P=11 billion and P1 billion, respectively. As part of its revenue diversification strategy, SB Capital also rendered advisory services to both top and middle-market clients involving corporate restructuring as well as sale of assets/business. Also during the year, SB Capital earned recognitions from regional financial magazine publisher, The Asset, during the latter’s Triple A Infrastructure Country Deal Awards 2019 (Philippines) held last June 24, 2019 in Singapore for two landmark project finance transactions, namely: (i) PPP Deal of the Year for MP CALA Holdings’ P=24.2 billion Omnibus Loan and Security Facility where SB Capital was a Mandated Lead Arranger; and (ii) Transport Deal of the Year for Cebu Cordova Link Expressway Corp.’s P=19 billion Term Financing Facility where SB Capital was a Participating Arranger.

Page 8: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

4

SB Rental Corporation (SBRC) is a wholly owned subsidiary of SB Capital, with the primary purpose of engaging in the business of renting, leasing (excluding financial leases) and hiring a wide range of machineries and equipment, automotive equipment, automobiles, a wide range of motor vehicles and all kinds of land, air or water transportation system. SB Equities, Inc., a subsidiary of SB Capital, was incorporated on August 1, 1987 and continues to be a top performer ranking 11th overall among domestic brokerages in the country in terms of volume turnover according to the PSE. SB Cards Corporation (SB Cards) was incorporated on 09 October 1980 as Security Diners International Corporation and formerly also known as Security International Card Corporation, SB Cards acquired the exclusive franchise ownership of Diners Club international credit card in the Philippines. In September 2016, SB Cards sold the Diners Card portfolio to BDO. SBM Leasing, Inc. (SBMLI, formerly Security Finance, Inc. incorporated on August 1, 1994) is a joint venture leasing company of Security Bank Corporation (60%) and Marubeni (40%). SBMLI specializes in heavy equipment (construction and mining) and services the clientele of Maxima (a Marubeni joint venture and exclusive distributor of Komatsu in the Philippines) and of Security Bank. SB Forex, Incorporated (SBFI) was incorporated on September 27, 1994 to handle the foreign exchange brokerage business of the Bank but has been inactive due to changes in the regulatory environment. The Bank has absorbed the foreign exchange business previously coursed through SBFI. The operations for this subsidiary were suspended in 2008.

Security Finance and Leasing Inc. (formerly Landlink Property Investments (SPV-AMC), Inc.), was incorporated in the Philippines primarily to engage third parties to manage, operate, collect and dispose of nonperforming assets acquired from a financial institution. The Company was incorporated on September 17, 2004. On March 26, 2019, the BOD approved the amendment of the Articles of Incorporation and change of name to Security Finance and Leasing Inc. On July 31, 2019 the Securities and Exchange Commission (SEC) approved the change of corporate name and issued the Certificate of Authority to operate as a financing company. The Company has not started commercial operations as of December 31, 2019.

(ii) Percentage of Sales or Revenues and Net Income Contributed by Foreign Sales This is not relevant to the operations of the Group. (iii) Distribution Network The Bank's principal office is located along Ayala Avenue, Makati City. As of December 31, 2019, Security Bank had a network of 308 on-line branches, 176 branches of which are strategically located in Metro Manila and 132 situated outside Metro Manila. The Bank also has 841 ATMs which are part of the Bancnet consortium as of December 31, 2019. Of this, 329 are on-site while 512 are off-site. (iv) Status of Publicly-Announced New Product or Service All publicly-announced new products or services of the Bank are in commercial distribution. (v) Competition The Philippine banking industry is characterized by a high level of regulation and highly competitive price and service offerings. All banks have generic products and compete via differentiation in

Page 9: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

5

servicing and targeting specific niches. In 2019, the industry experienced intensified competition alongside increased customer service standards. There are a total of 21 universal banks in the Philippine banking system, of which 12 are domestic private universal banks, three are government banks and six are branches/subsidiaries of foreign banks, as of February 2019. In addition, there are 25 commercial banks in the country. Six domestic universal banks have branches and/or remittance offices abroad while Security Bank and the rest of the players in the industry compete mainly in the domestic market, serving their respective mix of corporate, middle market and retail clients. Based on disclosures (published Balance Sheets) as of 31 December 2019, Security Bank was 9th among private domestic universal banks in return on equity. Among the private domestic universal banks, it is ranked 6th in terms of assets, 6th in terms of loans and deposits and 5th in capital. There are three big banks which dominate the industry with resources of at least P2.19 trillion and capital funds of at least P267 billion. The other eight banks are clustered in the category where asset size is between P161 billion to P1.13 trillion, and capital funds are between P19 billion to P144 billion. Security Bank has distinguished itself against competition in its 69 years of banking service with its record of financial strength and stability over this period and its service quality to its loyal clientele base. Solid earnings performance coupled with emphasis on asset quality places Security Bank among the top performing banks. In January 2016, Security Bank forged a strategic partnership with The Bank of Tokyo-Mitsubishi UFJ Ltd. Now known as MUFG Bank, Ltd. (MUFG). MUFG invested P36.9 billion and took a 20% stake in Security bank. This gave Security Bank the unique advantage of being a local independent bank with the global network of MUFG. (vi) Sources and Availability of Raw Materials and Names of Principal Suppliers This is not relevant to the operations of the Bank. (vii) Customer Concentration The Bank has a diversified customer base with its loan portfolio and deposit mix skewed towards a robust client list of our Corporate and Commercial segments. That said, Bank is not dependent upon a single customer, the loss of any or more of which would have a material adverse effect on the Bank and its subsidiaries taken as a whole.

(viii) Transactions with and/or Dependence on Related Parties In the ordinary course of business, the Bank has loan transactions with some subsidiaries and with certain directors, officers, stockholders and related interests. Under the Bank’s policies, these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks.

(ix) Patents, Trademarks, Copyrights, Licenses, Franchises, Concessions and Royalty

Agreements Held For the MasterCard product, the Bank signed a perpetual license agreement with MasterCard International on October 6, 1997.

The Bank has the following active registered trademarks with respective expiration dates:

TRADEMARK REGISTRATION DATE EXPIRATION DATE INTEGRITY 2/24/2020 2/24/2030 EXECUTION EXCELLENCE 2/24/2020 2/24/2030 EMPOWERMENT 12/29/2019 12/29/2029 SECURE GOALS + 7/18/2019 7/18/2029 SECURE GOALS 3/3/2019 3/3/2029 SECURE GOALS PLUS 2/3/2019 2/3/2029

Page 10: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

6

TRADEMARK REGISTRATION DATE EXPIRATION DATE SECURE GOALS 2/3/2019 2/3/2029 SECURE GOALS PLUS 2/3/2019 2/3/2029 SECURE GOALS PLUS 2/3/2019 2/3/2029 BALE NG BAYAN 4/26/2018 4/26/2028 AUTO SINGIL 4/26/2018 4/26/2028 DIGIBANKER 3/15/2018 3/15/2028 DIGIBANK 3/15/2018 3/15/2028 SECURITY BANK LOGO 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 BETTERBANKING 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 YOU DESERVE BETTER. 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK 7/29/2017 7/29/2027 SECURITY BANK BETTER WHEELS BETTER DEALS 3/24/2016 3/24/2026

The Bank has the following registered patents with respective registration dates:

PATENT REGISTRATION

DATE Cash Remittance System Using Virtual or Electronic Gift Card (eGiftCard) 2-Jul-14 A System For Improving Availability Of Communication Services In A Network-Based Automated Electronic Loan Processing

16-Mar-15

(x) Need for Government Approval of Principal Products or Services

The Group’s principal products and services are offered to customers only upon receipt of the necessary regulatory approvals or clearances. The Group strictly complies with the related regulatory requirements such as reserves, liquidity position, loan exposure limits, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements. (xi) Effect of Existing or Probable Governmental Regulations on the Business The Group strictly complied with the Bangko Sentral ng Pilipinas (BSP) requirements in terms of capitalization reserves, liquidity position, limits on loan exposure, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements as well as other regulatory agencies such as the Securities and Exchange Commission, Philippine Stock Exchange, Philippine Deposit Insurance Corporation and the Bureau of Internal Revenues, among others as applicable.

(xii) Amount Spent on Research and Development Activities

2019 2018 2017 Cost ( in ’000) P=558,666 P=544,091 P=248,123 Ratio to Revenues 1.65% 2.13% 0.99%

The Bank’s research and development activities are mainly driven by investments in new information technology (IT) software. The efficient use of technology is expected to boost productivity, reduce transaction processing costs, improve management information preparation and delivery, and result to alternative customer channels, efficient business communications, and more timely risk management. It would also assist in streamlining processes at the branch level, thereby allowing branch personnel to focus more on customer service.

(xiii) Costs and Effects of Compliance with Environmental Laws

The Bank is compliant with all Environmental Laws pertaining to their industry standards. There are no added costs and effect implications of the compliance on the operations of the Bank.

Page 11: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

7

(xiv) Manpower Complement

In support of the Group’s strategic growth initiatives, complement increased from 5,903 in 2018 to 6,625 in 2019. The budgeted manpower complement by the end of 2020 is 8,228.

2019 2018 2017 Officers 4,014 3,660 3,480 Rank and File 2,611 2,243 1,958 6,625 5,903 5,438

As of December 31, 2019, 39.41% of the Bank’s employees were rank and file employees who are subject to collective bargaining agreements (CBA). The current CBA will expire on August 31, 2021. The employees receive salaries, bonuses and other usual bank benefits. Aside from these, they have no other compensation plan or arrangement with the Bank. There are no warrants or options held by directors, officers and staff. (xv) Risk Management

The Bank’s risk management organization and culture is a fundamental component of its corporate governance. Policy Statement The Board of Directors and Management of Security Bank Corporation and its subsidiaries commit to the principles and best practices that promote good corporate governance such as the “Principles for Enhancing Corporate Governance” issued by the Basel Committee on Banking Supervision as embodied in the regulations of the regulatory authorities of the Philippines such as the Bangko Sentral ng Pilipinas and the Securities and Exchange Commission. Security Bank’s shareholders, Board of Directors and Senior Management believe that corporate governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness and ensure compliance with corporate governance policies and practices within the organization. Under the Bank’s Governance System, the Board of Directors has ultimate responsibility for the Bank's business and risk strategy, organization, financial soundness and governance. Accordingly, the Board should approve and monitor the overall business strategy of the Bank. The Board confirms the applicability and adequacy of the mission and vision statement of the Bank during the January Board meeting. The Board reviews and approves the strategic plans in relation to the operational plans of the Bank, taking into account the Bank's long-term financial interests, its exposure to risk and its ability to manage risk effectively.

Risk Management Organization The Bank’s risk management organization works under such framework to address and manage the risks it faces across its banking operations. Risks arising from Credit, Market and Operating factors are managed through an organizational structure supervised by the Board of Directors. Primary oversight begins with the delegation of responsibilities to the Risk Oversight Committee to ensure the effective implementation of the risk management framework. Reporting to the Risk Oversight Committee, the Risk Management Group, headed by the Parent Bank’s Chief Risk Officer, develops and refines the policies that comprise the framework used to manage risk in general.

Page 12: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

8

General Principles Security Bank develops and utilizes policies as the framework to manage the Bank’s business activities and growth across the different risk environments. Supporting the framework is a series of limit structures that define the Bank’s Risk appetite. Feedback is established through a reporting mechanism which enables the Bank’s Risk Management Group to evaluate and identify potential sources of risk to the general health of the Institution. Consequently, through this feedback mechanism, the Bank would then be able to refine its policy framework or develop measures to neutralize the potential risks it has identified. The general cycle of risk management (identification and assessment, monitoring, and mitigation) is a continuous process utilized by the Group as it pursues its strategic goals.

Credit Risk Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform or complete in a timely manner its obligations during the life of a transaction. This includes the risk of non-payment by borrowers or issuers, failed settlement of transactions, and default on contracts. Credit risk arises from both the lending and investment activities of the Group. As one of the primary risks inherent to the banking business, the Group manages credit risk through a systemized approach which includes: • Policy Development and Implementation – The Credit Risk Management Unit maintains and

develops credit policies and procedures to guide Business and support units involved in the credit process to make appropriate actions and decisions pertaining to credit transactions. Policy formulation also supports the Bank’s “One Credit Engine” concept which provides for a uniform understanding and consistent application of credit policies and procedures across the entire institution.

• Risk Assessment and Measurement – Credit risk officers identify and evaluate existing and potential exposures, assess the probability of each risk materializing and estimate possible effect and cost of risk factors. The team uses different credit risk measurement and valuation methods such as Probability of Default (PD), Expected Credit Loss (ECL), Credit Classification, credit concentrations, residual risks on collateral, and credit stress testing.

• Risk Control and Mitigation – Credit facilities are granted primarily based on the borrower’s credit quality and repayment capacity. Where possible, Security Bank takes credit risk mitigants as a secondary recourse to the borrower to mitigate credit risk. The Bank accepts collateral such as cash, real estate, marketable securities, trade receivables, and standby letters of credit. In addition, the Bank limits vulnerabilities and manages risks to an acceptable level through the following: (i) lending limits that encompass industry, single name, group and large exposures; (ii) proactive impairment process involving the Lending Units as well as the Remedial Management Division; and (iii) timely ECL provisioning.

• Risk Monitoring and Reporting – Continuous monitoring and periodic reporting of credit risk positions are integral parts of the Bank’s credit risk management activities. Regular reporting to the Risk Oversight Committee (ROC) and Senior Management covers credit risk exposures, concentration risks, credit mitigation and residual risks across the Group.

• Business Risk Review – Another function within Credit Risk Management is Business Risk Review (BRR). The BRR provides an independent evaluation of the quality of the Bank’s credit portfolios, as well as the adequacy of the supporting policies, procedures and reporting systems to manage the risks associated with credit exposure. The BRR’s emphasis is on identifying weaknesses, trends, risks and so forth, and determining the adequacy of present safeguards (such as collateral, covenants and alternative repayment sources).

Page 13: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

9

Market Risk Market risk is the risk that movements in market factors will have an adverse impact on the Bank’s portfolio values, income and/or capital. Market factors include foreign exchange rates, interest rates, equity prices and their volatilities. The risk applies to both the Group’s trading and banking book positions, largely in two forms: 1) Price Risk, the risk that the Bank’s capital and gains will decline due to the impact of changes in

the level or volatility of market factors to positions taken or held in the trading books. 2) Interest Rate Risk in the Banking Book (IRRBB), the risk that the Bank’s capital and earnings will

deteriorate due to effects of interest rate movements on the Bank’s balance sheet, mainly on the accrual books.

Given the sensitivity to and the pace of change of market factors, the Bank manages market risk through a variety of structures involving the following: 1) Use of Value at Risk (VaR) methodologies, Earnings at Risk (EaR) techniques, loss triggers and

stress testing; 2) Adoption of limits aside from those related to VaR, EaR, and P&L, such as exposure and position

limits, and performance of stress testing to augment the primary measures; 3) Periodic reporting of limit status, re-pricing gaps (for IRRBB) and P&L to the ROC, Senior

Management and other concerned parties; 4) Development and review of risk models that are used for monitoring market risk, as well as

validating the models developed internally or by third party vendors. Risk appetite is defined in terms of limits assigned by the ROC to cover all market risk-taking activities of the Bank and its subsidiaries. The Market Risk Management Team establishes these limits annually based on the targets set in the planning process. The Bank likewise manages concentration and market liquidity risks by setting exposure/position limits to specific investment types and products as needed. The CRO, Market Risk Officer, Market Risk/Liquidity Risk Analysts and Model Development Officers ensure the continuous enhancement of market risk management across the Bank, monitoring and reporting regularly to Senior Management, the Assets and Liabilities Committee (ALCO) and the ROC. Integral to the effectiveness of the Bank’s market risk management infrastructure is the dynamic relationship between the independent risk management unit and the business unit it supports and looks after. Risk Management goes beyond the traditional control function and seeks to add greater value to the institution by being an independent risk partner with its own voice and assessments of proposals and exposures. By being in step with the developments in the business side, Risk Management not only readily identifies potential risk areas, but also helps the business manage risks from the onset. Operational Risk Management Aligned with the Basel III Framework, operational risk is defined as the risk of loss due to inadequate or failed internal processes, people and systems, or from external events. Operational risk addresses processing errors, fraudulent activities, inappropriate behavior of staff, systems failure, inability to deliver products and services to customers, and natural disasters. Operational risk management has the following major roles and functions: • Policy and Process – The Operational Risk Management Division develops and implements the

measures used by the Bank to manage operational risk. It closely monitors and coordinates with the different business units to track, and to resolve any existing and potential operational issues, and to improve existing procedures and policies to better minimize losses from operational issues.

• Information Security – Information security management deals with all aspects of information assets, whether spoken, written, printed or electronic, or relegated to any other medium regardless of whether it is being created, viewed, transported, stored or destroyed. The focus is to protect those information assets and ensure Confidentiality, Integrity and Availability.

Page 14: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

10

• IT Risk Management – Under the direction of the BOD and the ROC, IT Risk Management is designed to govern the overall technology risks of the Bank and its subsidiaries aligning with corporate plans, strategies and objectives of the Group. Closely working with ITG and all other relevant functions of the Group, IT Risk Management monitors the key risk levels, assists in process and control improvements and reports to the Board/ROC as appropriately.

• Business Continuity – The Business Continuity Unit focuses on maintaining and developing the Bank’s capabilities to recover from system failures, natural disasters and other emergencies, and ensure that the Bank’s operations and core business functions are up and running through disruptive events.

Operational Risk Management Tools In calculating the capital adequacy for operational risk exposures, the Bank adopts the Basic Indicator Approach. Also, various tools, programs and methods are being used by the Bank in the operational risk management process including, but not limited to, the following. The Risk and Control Self-Assessment Program is used to identify, assess and monitor current and emerging risks, as well as evaluate the sufficiency and effectiveness of the declared controls. Issues and incidents are elevated through the Issue Escalation and Incident Reporting Process. Information is collected and analyzed through a series of Key Risk Indicators and assessed through a Risk Mapping Process to further minimize the incidence of operational risks. The performance of the Bank’s efforts to manage operational risk is presented on a periodic basis to Senior Management, as well as to the ROC. Capital The primary objectives of the Group’s capital management are to ensure that the Group maintains strong credit ratings and healthy capital ratios in support of its business, and to remain compliant with externally imposed capital requirements, all while maximizing shareholder value. Currently, the Bank remains well in compliance with the capital requirements of the Basel III Framework. This is largely driven by the Bank’s careful approach to risk and capital management. Minimum capital levels and adequacy ratios as required by regulatory standards are used by the Bank merely as a starting point. Annually, the Bank assesses its current and planned business and risk-taking activities, and their comparison to the BOD’s risk appetite taken in the context of macroeconomic and industry developments. This assessment is summarized in the Bank’s Internal Capital Adequacy Assessment Process (ICAAP) document and is submitted to the BSP. The document highlights the Bank’s medium-term plans, the minimum capital it expects to maintain, capital triggers and contingency plans. The Finance Committee is primarily responsible for driving the Group’s ICAAP, working alongside the other members of Senior Management in implementing the strategic goals as approved by the BOD. In essence, this Committee assesses the Group’s capital adequacy relative to its risk profile, understanding capital requirements as scenarios vary or become stressed. Risk exposures and corresponding capital requirements vis-à-vis current levels are periodically reviewed, ensuring risk and capital are aligned with the Bank’s appetite and activities, as well as with regulatory standards.

Non-Financial Risks The Bank’s commitment to sound risk management practices, judicious corporate governance system, the active role maintained by the Board of Directors, and the corporate values developed by the Bank’s management provides an effective means to manage reputational risks and regulatory issues.

The Bank has an effective customer service and corporate communications department to manage customer complaints and the impressions of the general public.

Page 15: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

11

(b) Additional Requirements as to Certain Issues or Issuers

(i) Debt Issues Long-term Negotiable Certificates of Deposits On February 17, 2012, the Bank issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of P=5.0 billion matured on February 17, 2019. On August 15, 2012, the Bank issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured LTNCD at par value of P=5.0 billion matured on August 16, 2019. On November 8, 2017, the Bank issued 3.875% fixed coupon rate (EIR of 4.01%) unsecured LTNCD at par value of P=8.6 billion maturing on May 8, 2023. On May 2, 2018, the Bank issued 4.50% fixed coupon rate (EIR of 4.69%) unsecured LTNCD at par value of P=5.78 billion maturing on November 2, 2023. On September 23, 2019, the Parent Company issued 4.00% fixed coupon rate (EIR of 4.18%) unsecured LTNCD at par value of P=6.06 billion maturing on March 23, 2025. On December 17, 2019, the Parent Company issued 4.00% fixed coupon rate (EIR of 4.16%) unsecured LTNCD at par value of P=2.31 billion maturing on March 23, 2025. Notes and Bonds Payable In February 2015, the Bank issued US$300 million senior unsecured notes (“Senior Notes”) and paid on its due date on February 3, 2020. The Bank was in compliance with the terms and conditions of the notes. In September 2018, the Bank issued $300.0 million senior unsecured notes (“Senior Notes”) due on September 25, 2023. The Bank remains in compliance with the terms and conditions of the notes. In June 28, 2019, the Parent Company issued P=18.0 billion fixed rate bonds due on June 28, 2021. The Bank remains in compliance with the terms and conditions of the notes. Subordinated Note In July 2014, the Bank issued P=10.0 billion Unsecured Subordinated Notes (2024 Sub Notes) due on July 11, 2024, callable after five years. The Bank remains in compliance with the terms and conditions of the Notes. On March 26, 2019, the Parent Company’s BOD approved the exercise of the option to call of its P=10.0 billion 5.375% Unsecured Subordinated Notes issued on July 11, 2014.

(ii) Equity Issues

In the third quarter of 2009, the Security Bank board, PSE and SEC approved the offer of Stock Rights to Eligible Shareholders to raise gross proceeds of approximately Php 2.5 billion. Pursuant to the Rights Issue, 89,285,714 new ordinary shares were offered at Php 28.00 on the basis of approximately one Rights Share for every 3.7 existing shares held on record as of 9:00am of November 5, 2009. The offer period was from November 5-12, 2009. The offer was fully subscribed and total number of shares outstanding after the offer was 418,631,411. On September 1, 2011, 83,727,102 shares were distributed in relation to 20% stock dividend approved by the Bank’s BOD and shareholders on March 29, and May 30, 2011, respectively. Outstanding shares as a result of stock dividend payment was 502,358,513.

Page 16: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

12

On January 2, 2014, 100,472,596 shares were distributed in relation to 20% stock dividend approved by the Bank’s BOD and shareholders on March 19 and May 28, 2013, respectively. Outstanding shares as a result of stock dividend distribution were 602,831,109. In the second quarter of 2014, the BSP and SEC approved the Preferred Shares Rights Offer to Eligible Shareholders to raise gross proceeds of approximately Php 60.3 million. Pursuant to the Rights Issue, 602,831,109 new non-convertible, non-cumulative, non-participating, voting preferred shares were offered at Php 0.10 on the basis of one Preferred Share for every one existing Common Share held on record as of 16 June 2014. The offer period was from June 23 to July 4, 2014. The offer was fully subscribed and total number of preferred shares outstanding after the offer was 602,831,109.

On April 1, 2016, Security Bank issued 150,707,778 new common shares and 200,000,000 new preferred shares to The Bank of Tokyo-Mitsubishi UFJ Ltd. (BTMU), representing 20% of total outstanding shares. An additional 197,168,891 preferred shares were also issued to existing Filipino stockholders. Total number of outstanding common shares after the BTMU transaction was 753,538,887 while total number of outstanding preferred shares was 1,000,000,000.

Item 2. Properties

The Bank has its corporate headquarters at 6776 Ayala Avenue, Makati City. The Bank has ownership of approximately 78.9% of the 6776 Ayala Avenue property which is not limited by any mortgage or lien. Of the Bank's network of 308 domestic branches, the Bank has ownership of the premises where 45 branches are located. The Bank leases the premises occupied by the rest of its branches. Most of the lease contracts include renewal options which give the Bank the right to extend the lease for varying periods at terms agreed upon with the lessors. The Bank intends to lease branch premises for the new branches targeted in 2020

There are no plans for the acquisition of bank property to be used for branches over the next twelve (12) months.

Item 3. Legal Proceedings

The Bank is a party in legal proceedings which arose from normal business activities. However, management believes that these cases are without merit or that the ultimate liability, if any, resulting therefrom, has no material effect to the Bank’s financial position.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted during the fourth quarter of 2019 to a vote of security holders, through the solicitation of proxies or otherwise.

Page 17: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

13

PART II – OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer's Common Equity and Related Stockholder Matters (1) Market Information

The Bank's shares were officially listed and first traded at the Philippine Stock Exchange on 08 June 1995.

The price performance of the shares for each quarter within the last two years has been as follows:

(Philippine Peso) High Low Quarter ended March 2018 260.00 225.00 Quarter ended June 2018 240.00 186.80 Quarter ended September 2018 213.00 152.50 Quarter ended December 2018 167.80 132.10 End of day March 20, 2019 173.00 165.00 Quarter ended June 2019 187.50 161.60 Quarter ended September 2019 206.40 168.50 Quarter ended December 2019 206.20 179.70 End of day March 10, 2020 143.00 140.00

(2) Holders

The Bank had approximately 1,760 common shareholders and 397 preferred shareholders of 29 February 2020. Common shares outstanding as of said date stood at 753,538,887 and outstanding Preferred shares stood at 1,000,000,000.

The top 20 Shareholders as of 29 February 2020 are:

Common Shares

Stockholders Name No. of Shares

% to Total Voting Shares 1 PCD NOMINEE CORPORATION 228,677,989 13.04%

2 PCD NOMINEE CORPORATION (NON-FILIPINO) 183,788,773 10.48% 3 THE BANK OF TOKYO MITSUBISHI UFJ, LTD.

(now known as MUFG BANK LTD.)

150,707,778 8.54%

4 FREDERICK Y. DY 86,865,273 4.95% 5 SOCIAL SECURITY SYSTEM 37,165,428 2.12% 6 ASIASEC EQUITIES, INC. 30,396,801 1.73% 7 ANASTASIA S. DY 14,523,968 0.83% 8 ASIASEC EQUITIES, INC. A/C# 1058 6,681,676 0.38% 9 GOODWOOD RESOURCES DEVELOPMENT INC 6,283,322 0.36%

10 JAMES JK HUNG 4,553,588 0.26% 11 SB EQUITIES, INC. 3,088,571 0.18% 12 ASI SECURITIES, INC. 1,495,579 0.09% 13 MEPCO EMPLOYEES RETIREMENT PLAN 331,709 0.02% 14 RAFAEL F. SIMPAO, JR. 217,296 0.01% 15 SAMANTHA MAE TAN SZE 216,000 0.01% 16 SB EQUITIES, INC. FAO L0015 175,902 0.01% 17 CENTRAL COLLEGES OF THE PHILS. 159,214 0.01% 18 BEE BEE S. CHUA 138,212 0.01% 19 JAMES G. DY 126,405 0.01% 20 ELECTRONIC TELEPHONE SYSTEMS IND. INC. 117,936 0.01%

Page 18: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

14

Preferred Shares

Stockholders Name No. of Shares % to Total

Voting Shares 1 FREDERICK Y. DY 248,000,000 14.14% 2 DANIEL DY 221,236,644 12.62% 3 THE BANK OF TOKYO-MITSUBISHI UFJ LTD.

(now known as MUFG BANK, LTD.) 200,000,000 11.41%

4 ASIASEC EQUITIES INC. 89,982,039 5.13% 5 RAFAEL F. SIMPAO, JR. 41,099,696 2.34% 6 ALBERTO S. VILLAROSA 41,000,000 2.34% 7 SOCIAL SECURITY SYSTEM 37,644,495 2.15% 8 ANASTASIA Y. DY 33,000,000 1.88% 9 GOODWOOD RESOURCES DEVELOPMENT INC 21,014,591 1.20%

10 GERALDINE DY 17,024,165 0.97% 11 SB EQUITIES INC. 12,252,527 0.70% 12 DEUTSCHE BANK MANILA-CLIENTS OBO A/C

DEUB1000000 6,367,204 0.36%

13 SB EQUTIES INC. 3,200,000 0.18% 14 HSBC OBO A/C 000-595686-550 2,188,129 0.12% 15 SB EQUITIES INC. 2,184,329 0.12% 16 BPI SECURITIES CORPORATION 2,150,799 0.12% 17 HSBC OBO A/C 026-100297-557 1,846,813 0.11% 18 ABACUS SECURITIES CORPORATION 1,771,202 0.10% 19 ASIASEC EQUITIES INC. 1,524,917 0.09% 20 SCB OBO RBC INVESTOR SERVICES TRUST CLIENT

ACCOUNT 1,260,000 0.07%

(3) Dividends

Dividends are declared and paid out of the earned surplus or net profits of the Bank as often and at such times as the Board of Directors may determine and in accordance with the provisions of law and the regulations of the BSP. Cash dividends declared for the two most recent fiscal years are as follows:

Common Shares

Dividend Total Dividend Record Payment Per Share Amount Date Date

P1.50 P1.130 billion April 13, 2018 April 26, 2018 P1.50 P1.130 billion November 19, 2018 November 29, 2018 P1.50 P1.130 billion April 10, 2019 April 25, 2019 P1.50 P1.130 billion November 13, 2019 November 28, 2019

Preferred Shares

Dividend Total Dividend Record Payment Per Share Amount Date Date P0.004805 P1.91 million March 14, 2018 April 2, 2018 P0.0039 P2.35 million June 26, 2018 July 10, 2018

P0.004805 P1.91 million March 18, 2019 April 1, 2019 P0.0039 P2.35 million June 26, 2019 July 10, 2019

Security Bank has adopted a Conservative Dividend Policy that will enable the Bank to weather the uncertainties and volatilities in the market; comply with the tighter requirements of Basel III and the BSP; maintain strong credit ratings; minimize the need for capital calls in the medium-term; and provide a capital base for business expansion that will create value over the long-term for all stakeholders. In declaring dividend pay-outs, Security Bank uses a combination of regular and special dividends such that the total dividend pay-out shall range from 15% to 30% of prior year’s NIAT.

Page 19: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

15

Capital structure is managed in the light of changes in economic conditions, risk characteristics of activities and assessment of prospective business directions. Capital management begins with an assessment of regulatory capital and capital adequacy, followed by the determination of the optimal capital structure based on a risk-based capital planning approach, taking into consideration risk appetite, risk exposures, provision of a capital buffer, capital mix, leverage, target ROE, opportunities in the capital markets and sustainability.

(4) Recent Sales of Unregistered Securities

There were no sales of unregistered securities within the past three (3) years. Item 6. Management's Discussion and Analysis or Plan of Operation The following tables present information from the Bank's Consolidated Financial Statements as of December 31, 2019, 2018 and 2017, and for the three years ended December 31, 2019, 2018 and 2017 as audited by SyCip Gorres Velayo & Co. (SGV), independent public accountants. (in million pesos) Key Statement of Financial Position Data:

As of December 31 2019 2018 2017 Total Assets 793,006.51 766,860.94 694,026.64 Total Deposit Liabilities 499,605.86 488,890.18 413,103.88 Loans and Receivables (net) 448,598.75 416,317.69 370,189.76 Total Liquid Assets 314,874.42 336,159.26 311,446.13 Total Earning Assets 688,834.42 664,853.60 618,005.37 Total Equity 118,286.23 109,482.14 105,078.43 (in million pesos)

Key Statements of Income Data: For the Years Ended December 31

2019 2018 2017 Interest Income 44,203.55 33,961.58 28,794.82 Interest Expense 17,359.90 13,141.57 9,408.94 Net Interest Income 26,843.65 20,820.01 19,385.88 Other Income 7,105,04 4,778.84 5,699.22 Operating Expenses 17,350.11 13,791.16 12,482.71 Provision for Credit and Impairment

Losses 4,183.09 721.80 651.14 Provision for Income Tax 2,313.38 2,476.11 1,686.15 Net Income 10,102.11 8,609.77 10,265.09 Attributable to Minority Interest 0.38 1.08 0.30 Attributable to Equity Holders of the Parent Company 10,101.73 8,608.69 10,264.80 Earnings per Share (weighted/adjusted) P=13.4 P=11.42 P=13.62

Page 20: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

16

Key Performance Indicators The Bank monitors its performance and benchmarks itself with the other players in the banking industry in terms of the following indicators: December 31 Key Performance Indicators: 2019 2018 2017 Capital Adequacy

Capital to Risk Assets Ratio 17.88% 18.70% 17.72% Asset Quality Non-performing Loan (NPL) Ratio 0.56% 0.41% 0.02% Non-performing Loan (NPL) Cover 129.2% 110.90% 239.37% Profitability Return on Average Equity 8.87% 8.07% 10.12% Net Interest Margin 3.93% 3.27% 3.20% Cost to Income 51.11% 53.87% 49.76% Liquidity Liquid Assets to Total Assets 39.71% 43.84% 44.88%

The manner by which the Bank calculates the above indicators is as follows: Key Performance Indicator Formula Capital to Risk Assets Ratio BSP prescribed formula:

Total Qualifying Capital Market, Credit and Operational Risk Weighted Exposures

Non-performing Loan (NPL) Ratio (Based on Circulars 941 and 1011 in 2019 and 2018)(Based on Circular 772 in 2017)

Non-performing Loans (net of specific allowance) Gross Loans

Non-performing Loan (NPL) Cover (Based on Circulars 941 and 1011 in 2019 and 2018)(Based on Circular 772 in 2017)

Allowance for Probable Losses Loans Non-performing Loans (gross of specific allowance)

Liquid Assets to Total Assets Total Liquid Assets Total Assets

Return on Average Equity

2019: Net Income (or Loss) after Income Tax x 100

Average Total Capital Accounts

Where: Average Total Capital Accounts = Current calendar/fiscal year-end Total capital accounts balance + previous calendar /fiscal year-end Total capital accounts balance

2 2018 and 2017:

Net Income (or Loss) after Income Tax x 100 Average Total Capital Accounts

Where: Average Total Capital Accounts = Sum of end-month Total capital accounts

12

Page 21: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

17

Net Interest Margin

2019: Net Interest Income x 100

Average Interest Earning Assets

Where: Net Interest Income =

Total Interest Income – Total Interest Expense

Average Interest Earning Assets = Current calendar/fiscal year-end Total interest earning assets balance + previous calendar /fiscal year-end Total interest earning assets balance

2 2018 and 2017:

Net Interest Income x 100 Average Interest Earning Assets

Where:

Net Interest Income = Total Interest Income – Total Interest Expense

Average Interest Earning Assets =

Monthly Average Daily Balance of Interest Earning Assets 12

2019 versus 2018 Results of Operations Financial Position Total Assets increased by 3.4% to P=793.0 billion on account of increases in Due from Other Banks, Interbank Loans Receivable and Securities Purchased Under Resale Agreements (SPURA) with the BSP, Loans and Receivables, Investment in a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets, Assets of Disposal Group Classifies as Held for Sale and Other Assets tempered by decreases in Cash and Other Cash Items, Due from BSP, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income and Investment Securities at Amortized Cost. Decrease in Cash and Other Cash Items by P=2.0 billion or 17.1% can be attributed to the Bank’s daily operations and decrease in Due from BSP by P=7.5 billion or 11.8% is due to asset-liability management. Due from Other Banks increased by 2.9% or P=0.3 billion due to increased level of working balances with counterparty banks. Interbank Loans Receivable and SPURA with the BSP increased by P=0.8 billion or 404.7% due to increased level of placements. Financial Assets at Fair Value Through Profit or Loss decreased by P=83.1million or 1.7% to P=4.9 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income decreased by P=9.6 billion to P=24.7 billion or 27.9% due to disposals and maturities during the year. Investment Securities at Amortized Cost decreased to P=208.9 billion by P=3.2 billion or 1.5% mainly due to foreign exchange translation adjustments and maturities during the year. Loans and Receivables increased by 7.8% to P=448.6 billion from P=416.3 billion in 2018 primarily attributable to the growth of consumer loans. Property, Equipment and Right-of-use Assets increased by 43.4% to P=5.9 billion due to acquisitions and Philippine Financial Reporting Standards (PFRS) 16 implementation, while Investment Properties increased by 30.5% to P=1.1 billion due to real and other properties foreclosed during the period. Deferred Tax Assets increased by 21.7% from P=1.9 billion as of year-end 2018. Intangible Assets grew by 12.7% to P=2.6 billion with the additional software costs during the period.

Page 22: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

18

Disposal Group Classified as Held for Sale arises as a result of the strategic partnership of the Bank with The Bank of Ayudhya Public Company Ltd. (BAY), commonly known as Krungsri. The agreement involves the sale of 50% of the outstanding shares or 7,075,000 shares of SB Finance Company, Inc. (SBFCI) to Krungsri. As a result, the Group reclassified all the assets and liabilities of SBFCI to ‘Assets of disposal group classified as held for sale’ and ‘Liabilities of disposal group classified as held for sale’, respectively, in the consolidated statement of financial position. Other Assets increased by 125.8% to P=9.2 billion due to increase in cash collaterals related to Bank’s trading activities. Total Liabilities increased by 2.6% or P=17.3 billion to P=674.7 billion on account of increases in Deposit Liabilities, Derivative Liabilities Designated as Hedges, Manager’s and Certified Checks Outstanding, Income Tax Payable, Notes and Bonds Payable, Liabilities of Disposal Group Classified as Held for Sale and Other Liabilities tempered by decreases in Financial Liabilities at Fair Value through Profit or Loss, Bills Payable and Securities Sold Under Repurchase Agreements (SSURA), Acceptances Payable, Margin Deposits and Cash Letters of Credit, Subordinated Note, and Accrued Interest, Taxes and Other Expenses. Deposit Liabilities went up by 2.2% from P=488.9 billion as of year-end 2018 to P=499.6 billion contributed by increases in Demand and Time Deposits offset by decreases in Savings Deposit and Long-term Negotiable Certificates of Deposit. Financial Liabilities at Fair Value through Profit or Loss decreased by 37.7% to P=1.1 billion attributable to lower valuation of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedges increased to P=4.9 billion from P=1.5 billion in 2018. Bills Payable and SSURA decreased by 9.3% to P=93.6 billion due to decrease in the Bank’s repo transactions and maturities of short-term borrowings from BSP. Acceptances Payable decreased by 20.5% to P=0.5 billion. Margin Deposits and Cash Letters of Credit decreased by 1.9% to P=920.7 million. Manager’s and Certified Checks Outstanding at P=4.1 billion grew by P=0.8 billion or 25.8%. Income Tax Payable increased to P=358.4 million from year-end 2018’s P=30.3 million due to higher income tax liability for the 4th quarter of 2019 versus the last quarter of 2018. Notes and Bonds Payable increased by P=16.8 billion or 53.3%, due to issuance of fixed rate bonds, foreign currency translation adjustment and amortization of debt issue costs. Subordinated Note is nil as of December 31, 2019 as a result of exercising the call option of the P=10 billion 5.375% Unsecured Subordinated Notes in July 2019. Accrued Interest, Taxes and Other Expenses decreased by 15.6% to P=4.6 billion. Other Liabilities went up by 26.8% to P=13.1 billion due to recognition of lease liabilities as a result of adopting PFRS 16. Total Equity grew by 8.0% to P=118.3 billion on account of net income during the period. Surplus was up by 11.8% due to the net income during the period. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent increased by 308.0% due to increase in market valuation of outstanding debt securities while that of the Subsidiaries increased by 1.6% due to increase in market valuation of outstanding equity securities. Cumulative Foreign Currency Translation decreased by P=36.0 million. The Capital Adequacy Ratio (CAR) is 17.88% in December 2019. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets. Results of Operations Net income attributable to the Bank’s equity holders amounted to P=10.1 billion for the period ended December 31, 2019 from a year ago level of P=8.6 billion or an increase of 17.3%. This translates to earnings per share of P=13.40 from P=11.42 for the period ended December 31, 2018. Interest Income Interest Income ended higher than prior period by 30.2% or P=10.2 billion mainly on account of increase in loan-related activities during the period. Interest Income on Loans and Receivables grew by 40.5% or P=9.7 billion due to expansion in Loans & Receivables on a period-on-period basis. Interest income on Financial

Page 23: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

19

assets at fair value through other comprehensive income and investment securities at amortized cost and Interest income on Financial assets at fair value through profit or loss grew by P=327.7 million or 3.7% and P=110.3 million or 12.7% , respectively, on account of higher ADBs of securities portfolio. Increase in Interest Income on Interbank Loans Receivables and SPURA with the BSP by 108.9% or P=146.1 million was due to the increase in volume of placements during the period. Interest Income on Deposits with Banks and Others dropped by 32.3% to P=67.8 million due to decrease in volume of transactions. Interest Expense Interest Expense went up by 32.1% or P=4.2 billion from prior period. Interest Expense on Deposits increased by 28.0% or P=2.3 billion due to increase in volume of high yielding deposits on a period-on-period basis. Interest Expense on Derivative Instruments went up by 1.3%. Interest Expense on Subordinated Note, Notes and Bonds Payable, Bills Payable and SPURA and Other Borrowings grew by 42.6% or P=1.8 billion due to increase in volume of transactions. Interest Expense on Lease Liabilities amounting to P=128.9 million resulted from adopting PFRS 16 in 2019. Net Interest Income increased to P=26.8 billion, 28.9% or P=6.0 billion growth compared to 2018 on a period-on-period basis. Other Income Other Income grew to P=7.1 billion or 48.7% due to Service Charges, Fees and Commissions growth by P=1.2 billion or 39.5% due to higher transaction volumes, Securities Trading Gain amounted to P=1.5 billion, up by P=1.2 billion or 320.2%, Foreign Exchange Gains increased by P=48.0 million, and Rent Income increased by 26.3% due to rental of Bank properties. Profit from Assets Sold/Exchanged decreased by P=130.2 million during the period on account of lower gains on acquisition and sale of foreclosed properties. Miscellaneous Income decreased by P=28.3 million. Share in Net Income of a Joint Venture of P=23.8 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period. Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher by 25.8% or P=3.6 billion. Taxes and Licenses increased by 79.0% due to higher documentary stamp tax paid on account of higher volume of deposits while Occupancy Costs decreased by 66.4% significantly due to implementation of PFRS 16. Compensation and Fringe Benefits increased by 13.0% while Provision for Credit Losses increased by P=3.5 billion. Depreciation and Amortization increased by 64.0% significantly due to implementation of PFRS 16. Amortization of Software Costs and Miscellaneous Expenses increased by 35.9% and 30.8%, respectively. Recovery of impairment losses increased by P=1.5 million. Provision for Income Tax Provision for Income Tax amounted to P=2.3 billion for the period ended December 31, 2019 or 6.6% lower than in 2018 on a period-on-period basis. Comprehensive Income Total Comprehensive Income for the period ended December 31, 2019 amounted to P=11.1 billion increased by 52.0% compared to P=7.3 billion in 2018 on a period-on-period basis on account of higher net income and net unrealized gain on financial assets at fair value through other comprehensive income. 2018 versus 2017 Results of Operations Financial Position Total Assets grew by 10.5% to P766.9 billion on account of increases in Cash and Other Cash Items, Due from Bangko Sentral ng Pilipinas, Due from Other Banks, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income, Loans and Receivables, Investment in Subsidiaries and a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets, Other Assets. Increase in Cash and Other Cash Items by P4.0 billion or 49.9% can be attributed to the Bank’s daily operations. Due from BSP increased by P7.0 billion or 12.4% due to decrease in Demand Deposit Account while Due from Other Banks grew by 32.2% or P2.2 billion due to increased level of placements and working

Page 24: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

20

balances with counterparty banks. Interbank Loans Receivable decreased by 96.3% or P5.5 billion due to decreased level of placements. Financial Assets at Fair Value Through Profit or Loss expanded by P0.4 billion or 7.8% to P4.9 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income increased to P34.3 billion due to reclassification from HTC to FVTOCI category due to updated business model in managing financial assets and acquisitions for the year. Investment Securities at Amortized Cost decreased by 7.6% to P212.1 billion due to reclassification from HTC to FVTOCI category due to updated business model in managing financial assets of the Parent Company. Loans and Receivables grew by 12.5% to P416.3 billion due to increased lending activities. Property and Equipment increased by 0.4% to P4.1 billion while Investment Properties went up by 2.7% to P812.8 million in 2018. Deferred Tax Assets expanded to P1.9 billion versus P1.8 billion as of year-end 2018. Intangible Assets grew to P2.3 billion from P2.0 billion due to the acquisition of software during the year. Other Assets grew by 57.3% to P4.1 billion due to increase in cash collaterals related to Bank’s trading activities. Total Liabilities went up by 11.6% or P68.4 billion to P657.4 billion mainly due to increases in Deposit Liabilities, Derivative Liabilities Designated as Hedges, Margin Deposits and Cash Letters of Credit, Notes Payable, Subordinated Note, Accrued Interest, Taxes and Other Expenses and Other Liabilities, offset by the decline in Financial Liabilities at Fair Value through Profit or Loss, Bills Payable and Securities Sold Under Repurchase Agreements, Acceptances Payable, Manager’s and Certified Checks Outstanding and Income Tax Payable. Deposit Liabilities rose to P488.9 billion from 2017’s P413.1 billion translating to 18.3% growth contributed by increase in Demand and Time Deposit. Financial Liabilities at Fair Value through Profit or Loss declined by 11.9% to P1.8 billion from P2.0 billion of prior year attributable to lower volume of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedge is P1.5 billion in 2018 and nil in 2017. Bills Payable and Securities Sold Under Repurchase Agreements decreased by 21.3% to P103.2 billion due to decrease in the Bank’s repo transactions. Acceptances Payable decreased by 9.6% to P618.8 million while Margin Deposits and Cash Letters of Credit increased by 44.3% to P938.7 million. Manager’s and Certified Checks Outstanding at P3.3 billion declined by 9.2% from year-end 2017’s P3.6 billion level. Income Tax Payable decreased to P30.3 million from previous year’s P681.1 million due to lower income tax liability for the last quarter of 2018 versus the last quarter of 2017. Notes Payable increased by 110.1% to P31.4 billion due to additional issuance amounting to P16.1 billion (USD 297.7 million), amortization and foreign currency translation adjustment. Subordinated Note increased by P6.4 million due to amortization of debt issue costs. Accrued Interest, Taxes and Other Expenses grew by 34.1% to P5.4 billion. Other Liabilities increased by 27.9% to P10.4 billion due to higher OCPAC and higher cash collateral received from counterparties related to trading activities. Total Equity grew by 4.2% to P109.5 billion on account of net income during the year. Capital Stock and Additional Paid-in Capital didn’t move from the 2017 balances. Surplus Reserves was up 89.3% mainly due to increase in reserves for trust business and sinking fund for self-insurance. Surplus was up 6.4% due to the net income during the year, net of dividend payments. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent decreased 572.1% while that of the Subsidiaries also decreased by 31.2% due to decrease in market valuation of outstanding debt securities purchased and transferred from HTC to financial assets at FVTOCI. Cumulative Foreign Currency Translation grew by P35.0 million.

Page 25: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

21

The Capital Adequacy Ratio (CAR) increased to 18.70% due to decrease in risk-weighted assets in 2018. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets. Results of Operations Net income attributable to the Bank’s equity holders amounted to P8.6 billion in 2018 from 2017 level of P10.3 billion. This translates to earnings per share of P11.42 from P13.62 in 2017. The total operating income grew by 2.0% or P0.5 billion partly offset by increase in total operating expenses (including provision for credit and impairment losses) by 10.5% or P1.4 billion and provision for income tax by 46.8% or P790.0 million. Interest Income Interest Income ended higher than prior year by 17.9% or P5.2 billion on account of increase in loan-related activities during the year. Interest Income on Loans and Receivables grew by 37.9% or P6.6 billion due to continued expansion of consumer and wholesale loans during the year. Interest Income on Financial Investments decreased by P1.2 billion or 11.1% on account of lower level of securities portfolio. Increase in Interest Income on Interbank Loans Receivables by P14.5 million was on the account of increase in volume of placements during the period. Interest Income on Deposits with Banks and Others declined by 68.3% to P100.2 million. Interest Expense Interest Expenses went up by 39.7% or P3.7 billion during the year. Interest Expense on Deposits increased by 57.3% or P3.0 billion due to increase in deposit volume. Interest Expense on Derivative Instruments went up by 34.2% while Interest Expenses on Derivatives Designated as Hedges went down by P4.2 million. Interest Expense on Subordinated Note, Bills Payable and Securities Sold under Repurchase Agreements and Other Borrowings grew by 15.0% or P537.5 million due to increase in repo transactions cost and new unsecured notes, USD 300.0 million. Net Interest Income increased to P20.8 billion, a 7.4% or P1.4 billion growth from prior year. Other Income Other Income decreased to P4.8 billion due to nil Gain on Disposal of Investment Securities at Amortized Cost. Rent Income increased by P129.7 million due to increase in rental income from SB Rental. Trading and Securities Gains increased to P366.1 million. Foreign Exchange Gains reflected a growth of P250.0 million. Service Charges, Fees and Commissions grew by P606.5 million or 26.1% driven by credit card, bancassurance, loan fees and deposit charges. Profit from Assets Sold/Exchanged grew by P6.1 million during the year on account of higher gains on acquisition and sale of foreclosed properties. Miscellaneous Income grew by P96.5 million. Share in Net Income of a Joint Venture of P26.5 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period. Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher at P13.8 billion, up by 10.5%. Compensation and Fringe Benefits increased by 16.0%, Taxes and Licenses by 13.9%, Occupancy Costs by 20.1%, Depreciation and Amortization by 20.6%, Amortization of Software Costs by 51.6%, and Miscellaneous Expenses decreased by 0.6%. Provision for Credit Losses was pegged at P714.5 million in 2018 as compared to previous year’s P656.5 million. Provision for Impairment Loss was at P7.3 million in 2018. Provision for Income Tax Provision for Income Tax amounted to P2.5 billion in 2018 or 46.8% higher than P1.7 billion reported in the previous year due to higher deferred taxes in 2018. Comprehensive Income Total Comprehensive Income for the year amounted to P7.3 billion from P10.2 billion in the previous year on account of lower net income and net unrealized loss on financial assets at fair value through other comprehensive income (net of tax).

Page 26: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

22

2017 versus 2016 Results of Operations Financial Position Total Assets grew by 8.1% to P694.0 billion on account of increases in Cash and Other Cash Items, Interbank Loans & Receivables, Financial Assets at Fair Value through Profit or Loss, Financial Assets at Fair Value through Other Comprehensive Income, Loans and Receivables, Investment in Subsidiaries and a Joint Venture, Property and Equipment, Investment Properties, Deferred Tax Assets, Intangible Assets. Increase in Cash and Other Cash Items by P263.6 million or 3.4% can be attributed to the Bank’s daily operations while the decline in Due from BSP by P15.1 billion or 21.0% is due to decrease in Demand Deposit Account. Due from Other Banks declined by 38.3% or P4.2 billion while Interbank Loans & Receivables grew to P5.7 billion due to increased level of placements and working balances with counterparty banks. Financial Assets at Fair Value Through Profit or Loss expanded by P1.2 billion or 35.5% to P4.6 billion due to trading related activities of the Bank. Financial Assets at Fair Value through Other Comprehensive Income increased by 12.4% to P200.3 million due to increase in market valuation of securities held. Investment Securities at Amortized Cost decreased by 6.7% to P229.6 billion due to the sales of securities for the held-to-collect portfolio during the year. Loans and Receivables grew by 27.8% to P370.2 billion due to increased lending activities. Property and Equipment increased by 18.7% to P4.1 billion from P3.5 billion while Investment Properties went up by 20.1% to P791.3 million in 2017. Deferred Tax Assets expanded to P1.8 billion versus P1.1 billion as of year-end 2017. Intangible Assets grew to P2.0 billion from P1.9 billion due to the acquisition of additional branch license and software during the year. Other Assets declined by 27.7% to P2.6 billion due to decrease in cash collaterals related to Bank’s trading activities. Total Liabilities went up by 8.1% or P44.0 billion to P588.9 billion mainly due to increases in Deposit Liabilities, Financial Liabilities at Fair Value through Profit or Loss, Margin Deposits and Cash Letters of Credit, Manager’s and Certified Checks Outstanding, Income Tax Payable, Notes Payable, Subordinated Note, Accrued Interest, Taxes and Other Expenses and Other Liabilities, offset by the decline in Derivative Liabilities Designated as Hedges, Bills Payable and Securities Sold Under Repurchase Agreements and Acceptances Payable. Deposit Liabilities rose to P413.1 billion from 2016’s P346.6 billion translating to a 19.2% growth contributed by increase in Demand and Time Deposit. Financial Liabilities at Fair Value through Profit or Loss grew by 206.8% to P2.0 billion from P656.3 million of prior year attributable to higher volume of the Bank’s derivative liabilities. Derivative Liabilities Designated as Hedge is nil in 2017 from previous year’s P3.8 million. Bills Payable and Securities Sold Under Repurchase Agreements decreased by 17.0% to P131.2 billion due to decrease in the Bank’s repo transactions. Acceptances Payable decreased by 8.7% to P684.7 million while Margin Deposits and Cash Letters of Credit increased by 69.1% to P650.3 million. Manager’s and Certified Checks Outstanding at P3.6 billion went up by 18.0% from year-end 2016’s P3.1 billion level. Income Tax Payable increased to P681.1 million from previous year’s P54.7 million due to higher income tax liability for the last quarter of 2017 versus the last quarter of 2016. Notes Payable increased by 0.5% to P14.9 billion due to amortization of debt issue costs and foreign currency translation and Subordinated Note increased by P6.1 million due to amortization of debt issue costs. Accrued Interest, Taxes and Other

Page 27: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

23

Expenses grew by 23.1% to P4.0 billion. Other Liabilities increased by 9.6% to P8.1 billion due to higher accounts payable. Total Equity grew by 8.2% to P105.1 billion on account of net income during the year. Capital Stock and Additional Paid-in Capital didn’t move from the 2016 balances. Surplus Reserves was up 85.7% mainly due to increase in reserves for trust business and sinking fund for self-insurance. Surplus was up 15.3% due to the net income during the year, net of dividend payments. Net Unrealized Gain on Financial Assets at Fair Value through Other Comprehensive Income of the Parent increased by 26.3% due to increase in market valuation of securities held and that of the Subsidiaries also increased by 16.3%. Cumulative Foreign Currency Translation declined by P297.3 million. The Capital Adequacy Ratio (CAR) decreased to 17.72% due to increase in risk-weighted assets in 2017. This is well above BSP minimum requirement of 10% and international standard of 8%, indicative of the sufficiency of the Bank’s capital to support the current level of its risk assets. Results of Operations Net income attributable to the Bank’s equity holders amounted to P10.3 billion in 2017 from 2016 level of P8.6 billion. This translates to earnings per share of P13.62 from P11.95 in 2016. The increase is mainly due to growth in total operating income by 20.4% or P4.3 billion partly offset by increase in total operating expenses (including provision for credit and impairment losses) by 15.2% or P1.7 billion and provision for income tax by 92.2% or P808.9 million. Interest Income Interest Income ended higher than prior year by 26.2% or P6.0 billion on account of increase in loan-related and financial investment-related activities during the year. Interest Income on Loans and Receivables grew by 30.4% or P4.0 billion due to expansion in Loans & Receivables during the year. Interest Income on Financial Investments increased by P1.9 billion or 21.0% due to the growth in accrual income brought about by the build-up of held-to-collect securities during first semester of 2017. Decrease in Interest Income on Interbank Loans Receivables by P61.1 million was on the account of decrease in volume of placements during the period. Interest Income on Deposits with Banks and Others grew by 34.3% to P316.5 million due to increase in transactions. Interest Expense Interest Expenses went up by 35.7% or P2.5 billion during the year. Interest Expense on Deposits increased by 49.4% or P1.7 billion due to increase in deposit volume. Interest Expense on Derivative Instruments went down by 26.1% while Interest Expenses on Derivatives Designated as Hedges went down by 74.6%. Interest Expense on Subordinated Note, Bills Payable and Securities Sold under Repurchase Agreements and Other Borrowings grew by 37.0% or P968.6 million due to increase in repo transactions. Net Interest Income increased to P19.4 billion, a 22.0% or P3.5 billion growth from prior year. Other Income Other Income increased to P5.7 billion due to higher Gain on Disposal of Investment Securities at Amortized Cost by P739.8 million and growth in Rent Income by P111.5 million due to increase in rental income from SB Rental. Trading and Securities Gains declined to P27.0 million. Foreign Exchange Gains reflected a decline of P28.1 million. Service Charges, Fees and Commissions grew by P147.6 million due to higher transaction volumes. Profit from Assets Sold/Exchanged grew by P36.8 million during the year on account of higher gains on acquisition and sale of foreclosed properties. Miscellaneous Income declined by P135.2 million. Share in Net Income (Loss) of a Joint Venture of P25.5 million is attributable to the Bank’s share in the net income of SBM Leasing, Inc. during the period. Operating Expenses Operating expenses (excluding provisions for credit and impairment losses) were higher at P12.5 billion, up by 19.4%. Compensation and Fringe Benefits increased by 13.9%, Taxes and Licenses by 27.3%, Occupancy Costs by 18.4%, Depreciation and Amortization by 47.5%, Amortization of Software Costs by 80.8%, and Miscellaneous Expenses by 16.7%. Provision for Credit Losses was pegged at P656.5 million in 2017 as compared to previous year’s P937.5 million. Recovery of Impairment Loss was at P5.3 million.

Page 28: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

24

Provision for Income Tax Provision for Income Tax amounted to P1.7 billion in 2017 or 92.2% higher than P877.2 million reported in the previous year due to higher deferred and current taxes in 2017. Comprehensive Income Total Comprehensive Income for the year amounted to P10.2 billion from P8.6 billion in the previous year on account of higher net income and net unrealized gain on financial assets at fair value through other comprehensive income (net of tax) offset by lower cumulative translation adjustments. Liquidity The Bank’s liquidity is adequate with a liquid-assets-to-total-assets ratio of 39.71% in 2019, 43.84% in 2018 and 44.88% in 2017. Liquid assets consist of cash and other cash items, due from BSP, due from other banks, interbank loans receivable, financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and investment securities at amortized cost. Liquidity risk is defined as the risk that the Bank will not be able to meet its obligations when they become due. It may be classified into two sub-types: 1. Funding Liquidity Risk, the risk that a firm cannot obtain the necessary funds to meet its obligations as

they fall due. It stems from the mismatch of asset, liability, exchange contract and contingent commitment maturities.

2. Trading Liquidity Risk, the risk that an entity will be unable to unwind a position in a particular instrument at or near its market value because of lack of depth or disruption in the market for that instrument.

With liquidity being the lifeline of banks, the risk is mainly monitored through tools such as liquidity gap reports including the Maximum Cumulative Outflow (MCO) status, liquidity ratios and assessment of deposit concentration. This is further augmented by periodic liquidity stress testing. Regular reports are then provided to Senior Management, the ALCO and the ROC regarding these tools. Moreover, the Bank has established Contingency Funding Plans to deal with potential liquidity crisis situations. RMG assists the ALCO by providing the relevant information with respect to the management of all risks related to the Group’s assets and liabilities, and the trading and accrual books. The impact of the Group’s activities on capital is also monitored by the ALCO with the RMG providing the necessary data to the Committee for assessment. Results of their analysis are reported on a periodic basis to the ROC. Through the ALCO, RMG provides an independent assessment of the depth and magnitude of funding liquidity risk that the Bank takes, and suggests ways that can be explored to enhance the Bank’s liquidity risk profile, or keep exposure within risk appetite. RMG also provides its views on proposals or strategies concerning balance sheet structure, funding mix or concentration, and bond or note issuance. Events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation There were no events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation. Off-Balance Sheet Transactions, Arrangements, Contingent Obligations and Other relationships of the company with unconsolidated entities or other persons The Bank has outstanding commitments, contingent liabilities, bank guarantees and tax assessments that arose from the normal course of operations. The Bank does not anticipate losses that will materially affect its financial position and results of operations as a result of these transactions.

Page 29: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

25

The following is a summary of the Group’s commitments and contingent liabilities at their equivalent peso contractual amounts: Group’s commitments and contingent liabilities (in million pesos) 2019 2018 2017 Trust department accounts P=58,173 P=49,015 P=50,194 Unutilized credit limit of credit card holders 48,489 22,995 13,215 Committed loan line 28,049 49,556 83,860 Unused commercial letters of credit 24,057 27,056 24,837 Late Deposit/Payment Received 660 511 6 Outstanding guarantees 453 2,734 1,221 Inward bills for collection 339 787 500 Outward bills for collection 251 488 295 Financial guarantees with commitment 69 99 86 Material Commitments for Capital Expenditures The Bank’s commitments for capital expenditures will be funded out of cash flows from operations. This covers investments in electronic systems to comply with regulatory requirements (e.g. electronic money laundering monitoring system), investments in other systems (e.g. credit evaluation system), upgrades of existing systems (e.g. telecommunications system), expansion of the Bank’s electronic banking channels, ATM installations, renovation or relocation or branch premises, and investments for new branches. Material Impact on Income from Continuing Operations In the normal course of operations, the Bank’s activities are affected by changes in interest rates, foreign currency exchange rates and other market changes. The Bank follows a prudent policy on managing its assets and liabilities so as to ensure that exposure to fluctuations in interest rates and foreign currency exchange rates are kept within acceptable limits and within regulatory guidelines. Significant Elements of Income or Loss that did not arise from Continuing Operations There are no significant elements of income or loss that did not arise from continuing operations of the Bank. Seasonal aspects that have a material effect on the financial position or results of operations. The Bank’s financial position or results of operations are not affected by seasonal aspects. Future Prospects The Philippine economy in 2019 sustained decent growth 5.9%, starting with challenges in the first half from a delayed budget to a rebound in the second half on the back of catch up spending, normalizing inflation, and strong private consumption - retaining its label as one of the fastest growing in the Asian region. With 2020 off to a rocky start, we expect solid macroeconomic fundamentals to partially insulate the country from a looming global slowdown due to the virus outbreak, and showcase its resilience despite hits from external headwinds. We anticipate growth for 2020 to be at or above 6.1%. Item 7. Financial Statements The consolidated financial statements of the Bank are filed as part of this Form 17-A (please refer to Financial Statements and Supplementary Schedules on page 62).

Page 30: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

26

Item 8. Information on Independent Accountant and Other Related Matters (1) External Audit Fees and Services The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Group’s external auditors are summarized as follows:

Nature of Services Rendered Aggregate Fees (in millions)

2019 2018 Regular audit of the Group's financial statements P=9.55 P=5.96 Peso bond offering with limited review 4.62 – Issuance of comfort letter for LTNCD offering 1.05 2.13 EMTN Program with limited review – 6.00 Consultancy service – 0.44 Total Fees P=15.22 P=14.53

The fees billed for the audit of the Group’s annual financial statements are P9.55 million for 2019 and P5.96 million for 2018. In 2019, the Bank engaged the services of SGV for the review of interim condensed consolidated financial statements of the Group as of March 31, 2019 and issuance of a comfort letter related to the offering of fixed rate peso bond. The related engagement fee amounted to P4.62 million. In 2019 and 2018, the Bank engaged SGV for the issuance of comfort letter related to the offering of long term negotiable certificates of time deposit (LTNCD) with engagement fees amounting to P1.05 million and P2.13 million, respectively. In 2018, relative to the implementation of the final version PFRS 9, the Bank engaged SGV for certain consultancy services with engagement fees amounting to P0.44 million. The Bank did not engage SGV for tax accounting services in the last two years. Audit Committee’s Approval Policies and Procedures for the Above Services The Bank’s Audit Committee is responsible for the annual selection of the external auditor based on established criteria and endorses the same to the Board of Directors for approval. Before the start of each year’s audit, the external auditor presents to the Audit Committee for approval the audit fee as well as the proposed audit plan which includes the scope, areas of focus and timing of the audit. Results of the audit are being reviewed and approved by the Audit Committee for endorsement to the Board of Directors for approval. For non-audit services, the Audit Committee also reviews the scope, approach, and related fees before the start of the engagement. (2) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in and disagreements with SyCip Gorres Velayo & Co. (SGV), the Bank’s external auditor, on accounting and financial disclosure.

Page 31: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

27

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer (a) Directors THE BOARD OF DIRECTORS/NOMINEES FOR THE TERM 2020-2021

Name Position Date Elected to the Board Citizenship Age

Frederick Y. Dy Chairman Emeritus April 4, 1989 Filipino 65 Alberto S. Villarosa Chairman October 30, 2002 Filipino 69 Anastasia Y. Dy Vice Chairman April 30, 1996 Filipino 62 Diana P. Aguilar Director April 26, 2017 Filipino 56 Cirilo P. Noel Director April 24, 2018 Filipino 63 Alfonso L. Salcedo, Jr. Director April 28, 2015 Filipino 64 Sanjiv Vohra Director/President July 1, 2019 Indian 58 Philip T. Ang Independent Director February 21, 1980 Filipino 78 Gerard H. Brimo Independent Director April 30, 2019 Filipino 68 Enrico S. Cruz Independent Director August 1, 2019 Filipino 62 James JK Hung Independent Director April 24, 1990 Taiwanese 73 Jikyeong Kang Independent Director April 26, 2017 Korean 58 Napoleon L. Nazareno Lead Independent Director April 26, 2017 Filipino 70 Takashi Takeuchi Director New Nominee for Election Japanese 48 Hiroshi Masaki Director New Nominee for Election Japanese 50

FREDERICK Y. DY, 65, Filipino, was elected Chairman Emeritus on April 28, 2015. He was elected Vice Chairman of the Board on April 4, 1989 before assuming the Chairman’s position from April 1991 to April 2015. He is the Chairman of St. Luke’s Medical Center (since August 2011), Chairman of City Industrial Corporation (since June 1994), Independent Director of PLC-Nickel Asia Corporation (since September 2010) and a Director of Ponderosa Leather Goods Co., Inc. (since May 1980). ALBERTO S. VILLAROSA, 69, Filipino, was elected Chairman of the Board on April 28, 2015. He was elected to the Board in October 2002 before assuming the position of President and Chief Executive Officer of the Bank on January 5, 2004. Prior to this, he was Senior Executive Vice President and Chief Operating Officer. He is currently a member of the Executive, Nominations and Remuneration, Restructuring, Finance and Transformation Committees. He is a Member of the Society of Fellows of the Institute of Corporate Directors (since July 2006). He is a Director of Catholic Travel, Inc. (since March 2009). He was the President of the Bankers Association of the Philippines (from April 2012 to March 2013) and Director (from March 2014 to October 2015). He was the Chairman and Director of SB Capital Investment Corporation (from April 2004 to August 2016), Security Bank Savings Corporation (from February 2012 to May 2015) and SB Rental Corporation (from May 2014 to May 2015). He was the Chairman of SBM Leasing, Inc. (from July 2011 to May 2014) and a Director of SB Cards Corporation (from December 2012 to June 2013). Mr. Villarosa has extensive banking experience in the areas of Treasury, Investment Banking and Consumer Banking. Prior to joining the Bank, he was the Executive Vice President and Treasurer of Bank of the Philippine Islands (BPI) (from October 1996 to October 2002). During that time, he was a Director in several BPI subsidiaries, including BPI Family Bank, BPI Forex Corporation and BPI Investment Management, Inc. Prior to joining BPI, he was Director/President of Citytrust Securities Corp. (from 1998 to 2003) and with Citytrust Banking Corporation (from 1987 to 1996) where the last position he held was Executive Vice President/Treasurer and President of Citytrust Investment Philippines. Prior to this, he was a Vice President of Citibank N.A. (from 1984 to 1987).

Page 32: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

28

He graduated with a Bachelor of Science degree in Commerce from the University of San Carlos, Cebu City and earned his Master’s degree in Business Management from the Asian Institute of Management. ANASTASIA Y. DY, 62, Filipino, was elected to the Board in April 1996 and appointed Vice Chairman in April 2018. She was the Bank’s Corporate Treasurer (from 1994 to September 2004) and Executive Director (from September 2004 to April 2018). She is the Vice Chairperson of the Transformation Committee. She is a member of the Corporate Governance, Nominations and Remuneration, and Finance Committees, and an alternate member of the Executive Committee. She is a Director of Woodchild Holdings (since 1991), Woodson Holdings (since 1991) and Ponderosa Leather Goods, Co., Inc. (since 1995). She is a Trustee of Tany Foundation, Inc., Security Bank Foundation, Inc., Precept Ministries International of the Phil. Islands, CCF Life Academy Foundation Inc., Uplift Cares Global Movement Foundation Inc. and Center for Community Transformation Inc. She graduated from the University of the Philippines with a degree in Business Administration and earned units for a Master’s degree in Business Administration from De La Salle University. DIANA P. AGUILAR, 56, Filipino, was elected to the Board on April 25, 2017. Prior to this, she was a Director of Security Bank Corporation (from November 2010 to April 2016) and was appointed Senior Advisor to the Board on (from July 2016 to April 2017). She is the Chairperson of the Trust Committee and a member of the Related Party Transactions, Risk Oversight and Technology Execution Excellence Committees. She also serves as Chairperson of SB Capital Investment Corporation (since August 2016). She is a Commissioner of the Social Security System (since August 2010). She is an Independent Director of Makati Doctors, Inc. (Makati Medical Center) (since July 2018). She is a Member of the Board of Governors of the Employers Confederation of the Philippines (since January 2017), Member of the Board of Directors of Ionics Inc. (since December 2016), Consultant and Senior Advisor to the Board of PLC-Phil. Seven Corporation (since January 2015), Board Member of the Capital Markets Development Board (since 2013), Director of Wenphil Corporation (since 2012), Director of Electronic Commerce Payment Networks, Inc. (since 2004) and Treasurer of De La Salle Santiago Zobel School (since 2004). She was a Member of the Board of Directors of the PLC- Philex Petroleum Corporation (from 2014 to 2017), Director of Phoenix Petroleum Philippines, Inc. (from 2010 to 2013) and CLSA Exchange Capital Corp. (from 2001 to 2002). She was a member of the Board of Trustees of De La Salle Santiago Zobel School (from 2004 to 2010), Director of PLC-Phil. Seven Corporation (from 1999 to 2015) and Vice President for Corporate Finance of Jardine Fleming Exchange Capital Corporation Group, Inc. (from 1988 to 2001). She holds a Master's degree in Business Administration major in International Business and Finance from Pepperdine University in California and a Bachelor of Science degree in Computer Studies from De La Salle University in Manila. CIRILO P. NOEL, 63, Filipino, was elected to the Board on April 24, 2018. He is the Chairman of the Finance Committee and Vice Chairman of the Executive Committee. He is also a member of the Audit and Transformation Committees. He is the Chairman of Palm Concepcion Power Corporation (since June 2018). He is a member of the Board of Directors of Transnational Diversified Group Holdings (since August 2019), Amber Kinetics Holdings Co., PTE Ltd. (since March 2018), PLC-Globe Telecom, Inc. (since April 2018), LH Paragon Group, Golden ABC (since January 2018), PLC-JG Summit Holdings (since May 2018), Cal Comp Technology (Philippines) Inc. (since June 2018), and PLC-San Miguel Foods and Beverage, Inc. (since September 2018). He is also a

Page 33: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

29

member of the Board of Trustees of St. Luke’s Medical Center (since April 2018) and St. Luke’s Medical Center College of Medicine (since April 2018). He is also currently affiliated with the Makati Business Club, Harvard Law School, Harvard Club and SGV Foundation. He was a member of the Board of Directors of Philippine Airlines (from 2018 to 2019) and PLC PAL Holdings, Inc. (from 2018 to 2019). Prior to joining the Bank, he held various positions in SGV & Co. including Chairman (from 2010 to 2017), Managing Director (from 2009 to 2010), Vice Chairman & Deputy Managing Director (from 2004 to 2009), Head of Tax Division (from 2001 to 2008) and Partner, Tax Services (from 1993 to 2017). He graduated from the University of the East with a Bachelor of Science degree in Business Administration. He earned his degree in Bachelor of Laws from the Ateneo Law School and took Master of Laws at Harvard Law School. ALFONSO L. SALCEDO, JR., 64, Filipino, was elected Director on April 18, 2015. He was the President and Chief Executive Officer of the Bank (from April 28, 2015 to June 30, 2019). He is the Chairman of the Executive Committee. He is also a member of the Trust, Restructuring and Risk Oversight Committees. He is the Chairman of SB Finance Company, Inc. (since May 2015). He is a Director and Vice Chairman of SB Capital Investment Corporation (since May 2015). He is also a Director of SB Cards Corporation (since May 2015), SB Rental Corporation (since May 2015) and SB Equities, Inc. (since August 2016). He is a Trustee of Security Bank Foundation (since April 2015). Prior to joining the Bank, he was a former executive of the Bank of the Philippine Islands (from 2000 to March 2015), with his last position as Executive Vice President in charge of the Corporate Clients Segment. He served as President of BPI Family Savings Bank (from 2004 to 2010), BPI Insurance Group (from 2000 to 2004) and Allstate Life Insurance (Philippines) in 1999. He served in the retail banking operations of Citibank Philippines as Country Marketing Director and Retail Bank Business Manager for 10 years before joining BPI. He served as Marketing Director for Nippon Vicks KK (Japan) based in Osaka for 5 years (from 1983-1987). He was a member of the Boards of BPI’s subsidiaries and affiliates, specifically: BPI Capital Corporation, BPI Direct Savings Bank, BPI-Philam Life Assurance Corporation, BPI Rental Corporation, BPI Leasing Corporation and Ayala Automotive Holdings Corporation. He received his AB Economics Honors degree (with honors) from Ateneo de Manila University in 1977 and completed the Advanced Management Program at Harvard Business School in 2006. SANJIV VOHRA, 58, Indian, was elected as Director and appointed as President and Chief Executive Officer effective July 1, 2019. He is the Chairman of the Technology Execution Excellence Committee and a member of the Bank’s Executive, Trust, Restructuring, Finance and Transformation Committees. He is a Director of the Bankers Association of the Philippines (since 2019). He has over 30 years of experience in banking, having held a number of senior leadership positions in Asia, in Citibank India as Corporate Bank Head (from 1988 to 1999), Corporate Bank Head at ABN AMRO Bank, India (from 1999 to 2000), Consumer Industry Head at ABN AMRO Bank Singapore (from 2001 to 2002), Managing Director, Head of Corporate Banking (India, Sri Lanka, Bangladesh) at Citigroup India (from 2002 to 2005), Country Executive at Royal Bank of Scotland in India (2013), Head of Corporate Banking (Asia Pacific) at Deutsche Bank (from 2014 to 2017) and Managing Director, Head of Corporate Banking for Asia & Oceania and Co-Head of Investment Banking for Asia & Oceania at MUFG Bank, Ltd. (from 2017 to 2019), as well as experience in the domestic market as Country Head of Citibank Philippines (from 2006 to 2013). He graduated with a degree of Bachelor in Technology from the Indian Institute of Technology and a Master’s degree in Business Administration from the University of Delhi in India.

Page 34: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

30

Independent Directors PHILIP T. ANG, 78, Filipino, was elected to the Board on February 21, 1980. He is the Chairman of the Nominations and Remuneration Committee. He is also a non-voting member of the Bank's Executive Committee. He is the Vice Chairman (since August 2018) and Director (since September 2008) of Hinatuan Mining Corporation and Cagdianao Mining Corporation; Vice Chairman and Director of PLC-Nickel Asia Corporation (since July 2008) and Taganito Mining Corporation (since May 2005). He is a Director of Rio Tuba Nickel Mining Corporation (since 2013). He was an Independent Director of SBM Leasing Inc. (from May 2010 to February 2017) and SB Capital Investment Corporation (from February 2010 to April 2017), and Chairman and President of Solid Mills, Inc. until his retirement in 2002. He graduated from Oregon University with a degree in Business Administration and a Master’s degree in Business Administration from the University of Denver. GERARD H. BRIMO, 68, Filipino, was elected to the Board on April 30, 2019. He is the Chairman of the Bank’s Audit Committee and a member of the Corporate Governance Committee. He is the Chairman and Chief Executive Officer of PLC-Nickel Asia Corporation (since August 2018). He is also the Chairman of Rio Tuba Nickel Mining Corporation (since August 2018), Taganito Mining Corporation (since August 2018), Cagdianao Mining Corporation (since August 2018), Hinatuan Mining Corporation (since August 2018) and Cordillera Exploration Co., Inc. (since August 2018). He is the President of Newminco Nickel Mining Corporation (since 2007). Prior to his career in mining, he worked for Citibank for a period of eight years, resigning as Vice President of the Capital Markets Group in Hong Kong, before joining Philex Mining Corporation as Vice President-Finance. He served as Chairman and CEO of Philex Mining Corporation from 1994 until his retirement in December 2003. He served as President of the Chamber of Mines of the Philippines from 1993 to 1995, and as Chairman from 1995 to 2003. He was again elected Chairman in 2017, a position he currently holds. He received his Bachelor of Science degree in Business Administration from Manhattan College, USA, and his Master in Business Management degree from the Asian Institute of Management. ENRICO S. CRUZ, 62, Filipino, was elected to the Board effective August 1, 2019. He is the Chairman of the Bank’s Risk Oversight Committee, Vice Chairman of the Audit Committee and a member of the Nominations and Remuneration Committee. He is also an Independent Director of Maxicare. Prior to joining the Bank, he held various positions in Deutsche Bank AG Manila (from 1995 to 2019) including his most recent assignment as Managing Director/Chief Country Officer, Director and Head of Global Markets. He served as Senior Vice President and Treasurer (from 1989 to 1995) of Citytrust Banking Corporation (CTBC), an affiliate of Citibank NA. He joined CTBC in 1979 as an Executive Development Program Trainee and worked in various operations departments until he became Head of the Centralized Operations Department. He graduated from the University of the Philippines with a Bachelor of Science degree in Business Economics and a Master’s degree in Business Administration. JAMES J. K. HUNG, 73, Taiwanese, was elected to the Board on April 24, 1990. He is the Vice Chairman of the Bank’s Nominations and Remuneration Committee and the Related Party Transactions Committees. He is also a member of the Risk Oversight Committee. He is the Chairman of Asia Securities Global Group (Hong Kong, since 1993) and Xingya Real Estate Development Co. (China, since 1993). He is a Director of Franklin Templeton Investment Fund (Luxembourg, since 2001). He was a Director in Templeton Emerging Markets Trust Placements (from 1989 to 1999),

Page 35: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

31

Taiwan Index Fund Limited (from 1991 to 2003) and Franklin Sealand Fund Management Co. Ltd (from 2012 to January 2018). He graduated from Babson College with a Master’s degree in Business Administration, major in Finance. DR. JIKYEONG KANG, 58, Korean, was elected to the Board on April 25, 2017. She is the Chairperson of the Related Party Transactions and Transformation Committees. She is also a member of the Risk Oversight and Trust Committees. Dr. Kang is the President and Dean of the Asian Institute of Management (AIM) and holds the MVP Chair in Marketing. Prior to assuming her post at AIM, Dr. Kang was Director of the DBA Program at Manchester Business School (MBS) from 2010 to 2014. At MBS, she also served as Director of the Postgraduate Centre in charge of their MBA Programs from 2001 to 2007, where she was instrumental in propelling the full-time MBA Program’s Financial Times ranking from 47th in the world in 2002 to 22nd in 2007, the highest ranking it has ever achieved. While she was in charge of the MBA Programs, MBS became one of the first schools in the world to earn triple accreditation from AACSB, EQUIS and AMBA. Dr. Kang currently serves on the International Board of AACSB, the world’s largest business education alliance, and on the Board of EFMD, an international 900-member organization of business schools and corporations. She is also an Independent Director of Kesoram Industries, which is part of the B K Birla Group of Companies in India. Dr. Kang earned her PhD from the University of Minnesota, her Master’s degree from Colorado State University, and her Bachelor’s degree from Hanyang University, Seoul, Korea. NAPOLEON L. NAZARENO, 70, Filipino, was elected to the Board on 25 April 2017. He is the Chairman of the Bank’s Corporate Governance Committee, Vice Chairman of the Risk Oversight and member of the Technology Execution Excellence Committees. He was a Member of the Supervisory Board of Rocket Internet (from 2014 to 2017), Trustee of Philippine Disaster Recovery Foundation, Inc. (from 2013 to 2015) and Ideaspace (from 2012 to 2015), President and Trustee of First Pacific Leadership Academy (from 2012 to 2015) and Chairman of the Board of Trustees and Board of Governors of the Asian Institute of Management (from 2011 to 2017). He was the Chairman of several subsidiaries of PLDT and Smart including PLDT Communications and Energy Ventures, Inc. (“PCEV”), ePLDT, Inc. (from 2013 to 2015), Digital Telecommunications Phils., Inc. (Digitel) (from 2012 to 2015), Digitel Mobile Philippines Inc. (Digitel Mobile) (from 2012 to 2015), Smart Broadband Inc. (from 2005 to 2015) and i-Contacts Corporation (from 2001 to 2015). He was the President and Chief Executive Officer of PLC-Philippine Long Distance Telephone Company (PLDT) (from February 2004 to 2015), PLC-Smart Communications, Inc. (from January 2000 to 2015), Connectivity Unlimited Resources Enterprise, Inc. (from 2008 to 2015), Aces Philippines Cellular Satellite Corporation (from 2000 to 2015) and PLDT Communications and Energy Ventures (2004 to 2011). He likewise served as Director of PLC-Manila Electric Company, PLDT Global Corporation, Mabuhay Satellite Corporation, Rufino Pacific Tower Condominium and Operation Smile. He was a non-executive director of First Pacific, a Hong Kong Stock Exchange-listed company, and a Supervisory Board Member of Rocket Internet AG, a company which provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China. Mr. Nazareno’s business experience spans several countries in over 40 years and his exposure cuts across a broad range of industries, namely, packaging, bottling, petrochemicals, real estate and, in the last 16 years, telecommunications and information technology. Mr. Nazareno received his Master’s degree in Business Management from the Asian Institute of Management, completed the INSEAD Executive Program of the European Institute of Business Administration in Fountainbleu, France, and was conferred a Doctor of Technology degree (Honoris Causa) by the University of San Carlos in Cebu City.

Page 36: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

32

New Nominees for Election TAKASHI TAKEUCHI, 48, Japanese, is a nominee of MUFG Bank, Ltd. for election to the Board on April 28, 2020 during the Annual Stockholders’ Meeting. He is currently the Deputy Head and Managing Director of Internal Audit Division and Managing Director of Internal Audit for the Americas of MUFG Union Bank (since September 2018). Prior to this, he was Deputy Head and Managing Director of Internal Audit Division of MUFG Bank in Tokyo, Japan (from June 2018 to September 2018); Head of Corporate Banking Department No. 2 and Managing Director Asian Corporate Banking (West) of MUFG Union Bank in Los Angeles, USA (from 2014 to 2017); Senior Vice President for Liaison Affairs of MUFG Union Bank in San Francisco, USA (from 2011 to 2014); Senior Manager of Public Relations Division of The Bank of Tokyo-Mitsubishi UFJ in Tokyo, Japan (from 2007 to 2011); Manager for Corporate Banking Department No. 2 of Nagoya Corporate Banking Division No.2 of The Bank of Tokyo-Mitsubishi UFJ in Nagoya, Japan (from 2003 to 2007); Manager of Corporate Banking Department No.1 of Corporate Banking Division No.6 of The Bank of Tokyo-Mitsubishi in Tokyo, Japan (from 2000-2003); Banking Officer of Spot Desk in European Treasury Office of The Bank of Tokyo-Mitsubishi in London, UK (from 1998 to 2000); and Banking Officer of Corporate Banking Team No. 2 in Shinjuku-Chuo Branch of The Bank of Tokyo, Ltd. in Tokyo, Japan (from 1994 to 1998). He graduated with a Bachelor’s Degree in Liberal Arts from the University of Tokyo, Japan. HIROSHI MASAKI, 50, Japanese, is a nominee of MUFG Bank, Ltd. for election to the Board on April 28, 2020 during the Annual Stockholders’ Meeting. He is currently an Executive Officer and Managing Director, Head of Planning Office for Asia (POA) of MUFG Bank, Ltd. since 2018. Prior to this, he was Senior Vice President and Deputy Head of the Alliance Segment of Security Bank (from 2016 to 2018). Prior to his secondment to Security Bank, he was General Manager of the Krungsri Strategy Office, Global Planning Division of BTMU (from 2015 to 2016), Chief Manager of the Krungsri Project Management Office, Global Planning of BTMU (from 2013 to 2015), Senior Manager of Global Planning Division of BTMU (from 2012 to 2013), and a Senior Manager of the NY Branch of The Bank of Tokyo Mitsubishi UFJ, Ltd. (BTMU) (from 2009 to 2011), having moved to New York in 2004. He joined The Mitsubishi Bank, Ltd. in 1993. He graduated with a degree of BA in Business Administration from Yokohama National University in Yokohama, Japan. (b) The Key Officers as of February 29, 2020

Position

Name

Age

Citizenship

President and Chief Executive Officer Sanjiv Vohra* 58 Indian

Executive Vice Presidents Leslie Y. Cham 54 Filipino

Joselito E. Mape 57 Filipino Takahiro Onishi* 53 Japanese Eduardo M. Olbes 50 Filipino Raul Martin A. Pedro 52 Filipino Charles M. Rodriguez 55 Filipino Ma. Cristina A. Tingson 59 Filipino Daniel U. Yu 59 Filipino Senior Vice Presidents Jason T. Ang 50 Filipino Belen W. Au 69 Filipino Ronald I. Austria 48 Filipino Marlette P. Brodett 48 Filipino Abigail Marie D. Casanova 45 Filipino Jonathan C. Diokno 47 Filipino

Gina S. Go 60 Filipino Orencio Andrei P. Ibarra III 46 Filipino Jeanette Keh 67 Filipino

Page 37: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

33

Position

Name

Age

Citizenship

Anton Khlon 38 Ukrainian Luis Gregorio M. Maloles 51 Filipino Yvonne Joanna P. Marcelo 49 Filipino Yutaka Nakabayashi 45 Japanese Jorge Lindley S. Ong 47 Filipino Ma. Patricia N. Tan 45 Filipino

Carol P. Warner 51 Filipino Price Edward C. Yap 47 Filipino Corporate Secretary Joel Raymond R. Ayson 56 Filipino

*Member of the Board of Directors LESLIE Y. CHAM, 54, Filipino, is Executive Vice President and Head of the Branch Banking Group since October 1, 2008. He is a member of the Bank’s Assets & Liabilities Committee. He is also a Director of SB Finance Company, Inc., formerly known as Security Bank Savings Corporation (since February 2012). He has over 25 years of work experience and has extensive exposure in the field of sales, distribution, wealth management, international banking, trust and investment services and Bancassurance. Before joining the Bank, he served as Senior Vice President and Head of Sales and Distribution of Chinatrust Phils. Commercial Bank Corp. until September 2008. He served in various positions in other institutions, including: First Vice President of Standard Chartered Bank (from 1999 to 2003) and Vice President of Philippine Commercial International Bank (from 1997 to 1999), and Vickers Ballas Asset Management LTD PTE (from 1995 to 1997). He was an Assistant Vice President of Citytrust Banking Corporation (from 1987 to 1995). He received a Bachelor of Science degree in Commerce, Major in Marketing Management from De La Salle University and completed with Distinction the one year course of the Trust Institute Foundation of the Philippines. . JOSELITO E. MAPE, 57, Filipino, was Executive Vice President and the Chief Financial Officer until January 31, 2020. He assumed the position as Chief Administrative Officer effective February 1, 2020. He is also the Vice Chairman of the Finance Committee. He is the Chairman of the Bank’s Outsourcing, Acquired Assets and Integrity Committees, and a member of the People Empowerment Committee. He is a Director of SB Finance Company, Inc. (since May 2018), SB Equities, Inc. (since May 2015) and SB Forex, Inc. (since July 2003), and Director/Treasurer of SB Rental Corporation (since May 2014). He is the Treasurer of SBM Leasing, Inc. (since 2011) and Security Finance and Leasing, Inc., and Trustee/Treasurer of Security Bank Foundation, Inc. (since April 2009). He is the Treasurer of Tany Foundation (since October 2018) and an Independent Director of Cityland for Social Progress Foundation, Inc. (since January 2018). He was a Director of Security Land Corporation (from 2010 to 2015). Prior to joining the Bank in July 1996, he was a Senior Manager of Cityland Development Corporation’s Financial Management Services Division. He is a Certified Public Accountant and graduated from the University of Santo Tomas (Cum Laude) with a Bachelor of Science degree in Commerce, Major in Accounting. EDUARDO M. OLBES, 50, Filipino, was Executive Vice President for the Wholesale Banking Segment until February 1, 2020. He is designated as Chief Financial Officer as of February 1, 2020. He is the Chairman of the Bank’s Credit Committee. He is also a member of the Bank’s Assets & Liabilities and People Empowerment Committees. He is also the Chairman of SB Rental Corporation (since May 2015), SBM Leasing, Inc. (since May 2014) and SB Equities, Inc. (since 2010). He is a Director of SB Capital Investment Corporation (since 2010). He is a member of Financial Executives of the Philippines (since November 2010), the Management Association of

Page 38: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

34

the Philippines (since December 2010) and Shareholders of the Philippines (since November 2014). He is also a Trustee of the SBC Retirement Plan (since 2011). Prior to joining the Bank in June 2010, he held various positions in Citibank NA (Philippines) Global Banking Unit (from 2006 to 2010) including his last position as Director responsible for the local corporate unit under Citi’s Global Corporate & Investment Bank. Between 2003 and 2006, he was a restructuring advisor to various Philippine-based corporates. Previously, he worked in the Investment Banking Division of Morgan Stanley & Co. in New York (from 2000 to 2003) and prior to that, in the Investment Banking Division of Bear, Stearns & Co. Inc. in New York (from 1997 to 2000). In his prior positions, he worked in several areas within Investment Banking across various geographies and industries including the Global Communications and Media (New York and San Francisco/Menlo Park) and Global Retail and Consumer (New York) groups. He holds a Master’s degree in Finance and Management from Leonard N. Stern School of Management, New York University and a BA degree, major in Economics from the University of California, Berkeley. RAUL MARTIN A. PEDRO, 52, Filipino, is Executive Vice President and Treasurer of the Bank. He is the Chairman of the Bank’s Assets & Liabilities Committee and a member of the People Empowerment, Finance and Credit Committees. He is the Chairman of SB Forex, Inc. since May 2016. He is the Bank’s representative to the Bankers Association of the Philippines’ Open Market Committee. Prior to joining the Bank in November 2005, he was a First Vice President of Equitable PCI Treasury Department, Head of Foreign Fixed Income Trading and Derivatives. He also worked as a Forward FX Trader for Deutsche Bank AG, Manila. He holds a Masters’ degree in Business Administration from Rutgers, the State University of New Jersey, USA and a Bachelor of Science degree in Business Administration from the University of the Philippines in Diliman. CHARLES M. RODRIGUEZ, JR., 55, Filipino, is Executive Vice President and Wholesale Banking Segment Head of the Bank. He is a member of the Bank’s Assets & Liabilities Committee and the Credit Committee. He is also a Director of SB Capital Investment Corporation (since May 2019) and SBM Leasing, Inc. (since May 2019). Prior to joining the Bank in October 2018, he was the Acting CEO and Head of Corporate and Institutional Coverage of ANZ Banking Group Limited (from January 2010 to August 2018). He held various positions in Far East Bank and Trust Company, FEB Investments, Inc., ABN AMRO Bank NV, and Banco De Oro Universal Bank. He has extensive experience in Corporate and Investment Banking. He graduated with a Master’s Degree in Business Administration major in Finance from the University of Cincinnati, USA and Bachelor of Science degree in Management Engineering from the Ateneo de Manila University, Philippines. MA. CRISTINA A. TINGSON, 59, Filipino, is Executive Vice President and Head of the Retail Banking Segment. She is a member of the Bank’s Assets and Liabilities, People Empowerment and Credit Committees. She is President (since May 2017) and Director (since February 2012) of SB Finance Company, Inc. and SB Rental Corporation (since May 2014). She was the President of SB Cards Corporation (from 2015 to 2017). Previously, she was Senior Vice President and Head of Corporate Banking until 2012. She joined the Bank as an Account Assistant in 1982 and assumed various positions including Relationship Manager and Head of Enterprise Risk Management of the Corporate Banking Division before assuming her position as Corporate Banking Head in 2008. She holds a Bachelor of Arts degree in Business Administration from Maryknoll College.

Page 39: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

35

DANIEL U. YU, 59, Filipino, is Executive Vice President and Head of the Transaction Banking Group. He is a member of the Bank’s Assets and Liabilities Committee. He joined the Bank in 1992 as Head of the Information Technology Group and eventually moved to the business side as Head of TBG handling the Bank’s Cash Management and eChannel Divisions. He is a member of the Bank’s Anti-Money Laundering, and Assets & Liabilities Committees. He is a member of the Operations Committee of Bancnet Incorporated. He is also a Director and Chair of the Technology Committee of Bancnet and currently Operations Committee Head of InstaPay, National Retail Payment System’s online real-time rail. Prior to joining the Bank, he had five years’ experience as IT Head of Operations for United Saudi Commercial Bank in Saudi Arabia. Prior to his Middle East stint, he was an IT Consultant at SGV-Arthur Andersen Consulting for two years. He graduated from the University of Santo Tomas with a degree in Industrial Engineering and earned units for a Master’s degree in Computer Science from the Ateneo de Manila University. JASON T. ANG, 50, Filipino, is Senior Vice President and Region Head for the Visayas and Mindanao Area. He joined the Bank in 2007 as First Vice President and Area Head for Visayas and Mindanao. Prior to this, he was Vice President and Region Head of International Exchange Bank (from 1996 to 2007). Previously, he was with Citytrust Banking Corporation where he held various positions (from 1991 to 1996). He graduated from the Ateneo de Davao University with a Bachelor of Science and Commerce degree, Major in Accounting. BELEN W. AU, 69, Filipino, is Senior Vice President and the Chief Compliance Officer of the Bank. She was the Head of the Head Office Operations Group handling International Banking Services, Loan Operations and Support, Credit division, Treasury Operations, Banking Center Operations, SB Equities Operations and Cables Department. She was the President and Director of SB Forex, Inc. (from 2007 to 2019) and Managing Director of SB Equities, Inc. (from 2008 to 2019). She is a member of the Operations Committee of the Bankers Association of the Philippines (BAP) and the Bank’s Voting Representative to the Bankers Institute of the Philippines (BAIPHIL). She is a Certified Public Accountant, graduated from the University of the East with a Bachelor’s degree in Business Administration (major in Accounting) and has earned units for a Master’s degree in Business Administration from the University of the East. RONALD I. AUSTRIA, 48, Filipino, is Senior Vice President and Region 2 Head under Branch Banking Group. He joined the Bank in November 2009 as First Vice President and Area Head. Prior to this, he served various positions in Standard Chartered Bank (from 1999 to 2008), PCI Bank (from 1996 to 1999), Far East Bank and Trust Company (from 1995 to 1996) and Citytrust Banking Group (from 1992 to 1995). He holds a Bachelor of Arts degree in Economics from the Ateneo de Manila University.. MARLETTE P. BRODETT, 48, Filipino, is Senior Vice President and Region Head. She joined the Bank in 2004 as Senior Assistant Vice President and Area Business Manager. Prior to joining the Bank, she was Vice President and Region Head in Maybank Philippines, Inc. (from 2003 to 2004), First Assistant Vice President in Asiatrust Development Bank (from 2000 to 2003) and Branch Head in Bank of the Philippine Islands (from 1992 to 2000). She graduated with a Bachelor of Science degree in Communication Arts from Miriam College. ABIGAIL MARIE D. CASANOVA, 45, Filipino, is Senior Vice President and Consumer Business and Operations Group Head under the Retail Banking Segment. She joined the Bank in 2015 as First Vice President and Retail Credit Operations Group Head. She has extensive exposure in the field of credit cycle and consumer loans. She served as Vice President and Home

Page 40: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

36

Loans Channel Head of Banco de Oro. She likewise held various position from GE Money Bank (from 2007 to 2009) and Citibank NA (from 1995 to 2007). She earned a masters level Post Graduate Diploma in Global Business at the University of Oxford and graduated with a Bachelor of Science degree in Business Economics (cum laude) from the University of the Philippines. She is also a certified Six Sigma Black Belt. JONATHAN C. DIOKNO, 47, Filipino, is Senior Vice President and Cash Management Head under the Transaction Banking Group of the Bank. He has extensive exposure in the field of cash management services, remittance origination and retail banking. Prior to joining the Bank in February 2019, he was First Senior Vice President and Global Filipino Banking Head of Rizal Commercial Banking Corporation (from 2017 to 2019). He served in various position in Banco de Oro (from 2001 to 2016), Citibank NA (from 1999 to 2001), Standard Chartered Bank (from 1997 to 1999), and the Bank of the Philippine islands/Citytrust Banking Corporation (from 1994 to 1997). He graduated with a Bachelor of Science degree in Business Administration from the University of the Philippines. GINA S. GO, 60, Filipino, is Senior Vice President and the Chief Risk Officer of the Bank. She is a member of the Bank’s Integrity and Outsourcing Committees. She was the President of SB Finance Company, Inc., formerly known as Security Bank Savings Corporation, (from February 2012 to 2016). Previous to these positions, she was Chief Risk Officer of the Bank (2006 to 2011) and Head of Remedial Management Division (2000- 2005). Prior to joining the Bank in September 2000, she was connected with Equitable PCIBank where she accumulated 20 years of solid credit experience having assumed various responsibilities in their Corporate Banking, Middle Market Lending and Specialized Financial Services Divisions. She graduated from the University of the Philippines with a Bachelor’s Degree in Business Economics and a Master’s Degree in Business Administration. ORENCIO ANDRE P. IBARRA III, 46, Filipino, is Senior Vice President and Deputy Treasurer. Prior to this, he was First Vice President and Head of the ALM and Trading Division. He joined the Bank as Manager in 2000 and assumed various positions in the Treasury Group before he assumed the position of Chief Dealer in 2013. He is a Director of Asia Spice 101 Inc. (since January 2012), and Treasurer of Done Deals Asia, Inc. (since May 2004) and 7107 Spices Inc. (since December 2009). He holds a Bachelor of Arts degree in Management Economics from the Ateneo de Manila University and a Master’s Degree in Business Management from the Asian Institute of Management. JEANETTE S. KEH, 67, Filipino, is Senior Vice President and Advisor to the President. Prior to this, she was the Head of the Banking Centers Group and Team Head of Kalookan Banking Center. She is also a member of the Credit Committee and an Advisor to the President in the Executive Committee. She is a Director of SB Forex, Inc. (since July 1999). Prior to joining the Bank in 1996, she was First Vice President of BSA Finance and Leasing Corp. and had been with State Investment Trust, Inc. She graduated from the College of Holy Spirit with Bachelor of Science degree in Commerce, Major in Accountancy and she earned her Master’s degree in Business Administration from De La Salle University.

Page 41: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

37

ANTON KHLON, 38, Ukrainian, is the Senior Vice President and the Chief Information Officer of the Bank. Mr.Khlon brings to the Bank significant and unique 16 years expertise in the areas of IT Operations Management, Change Management and Transformation, Program and Projects Governance and Strategic Technical Consulting. He held various senior positions in Vietnam and Ukraine in such companies as FE Credit, Home Credit Ukraine and Vietnam, Techcombank Vietnam, DTEK Ukraine, Commerzbank Ukraine and Bureau Veritas Ukraine. Mr.Khlon received Master’s degree in Electronics from one of the most recognized technical universities in Europe, National Technical University of Ukraine, “Kyiv Polytechnic Institute” and Bachelor’s degree in Finance from the Kyiv University of Economy and Law “KROK” (graduated with honors). LUIS GREGORIO M. MALOLES, 51, Filipino, is Senior Vice President and Senior Relationship Manager and Team Head under the Corporate Banking Group of the Bank. He joined the Bank in 2016. He has extensive exposure in the field of portfolio management and account origination. He was the Executive Director and Segment Head for Local ASEAN International Corporations and Commodities, Trading and Agricultural clients of Standard Chartered Bank (from 2013 to 2015). He held various positions in Citibank NA Hong Kong (from 2011 to 2013), Citibank Philippines (from 2004 to 2009), Asia United Bank (from 2001 to 2004), Banco de Oro Santander (from 1999 to 2000), Philippine Commercial International Bank (from 1996 to 1999), Far East Bank and Trust Company (from 1995 to 1996) and Rizal Commercial Banking Corporation (from 1992 to 1995). He graduated with a Bachelor of Arts degree in Development Studies from the University of the Philippines. YVONNE JOANNA P. MARCELO, 49, Filipino, is Senior Vice President and Senior Relationship Manager and Team Head under the Corporate Banking Group of the Bank. She joined the Bank in 2001. She has extensive experience in corporate and project finance in infrastructure, real estate, power and energy, utilities, mining, and other industries. She was a Relationship Manager in Far East Bank and Trust Company (from 1996 to 2000), Assistant Manager in Union Bank of the Philippines (from 1995 to 1996), and Management Trainee and Pro-Manager in Bank of Commerce (from 1991 to 1994). She graduated with a Bachelor of Science degree in Business Economics from the University of the Philippines and earned units for a Master’s degree in Business Administration from the Ateneo de Manila University. YUTAKA NAKABAYASHI, 45, Japanese, is Senior Vice President and Head of the Japan Desk. He is a secondee of MUFG to Security Bank. He first joined Security Bank as the Deputy Head of the Alliance Segment. He served as Chief Manager in charge of Krungsri, East Asia and Asia Oceania Head Quarters at the Global Planning Division in Tokyo. He held various positions in MUFG/BTMU including Senior Manager for Regional Strategy Planning, in charge of Americas Business at the Global Planning Division in Tokyo, Senior Manager for the intelligence and Research Office in charge of liaison with Japanese Financial Services Agency with regard to Global Business at the Global Planning Division in Tokyo, Manager/Senior Manager for Strategic Planning /Legal at the Planning Division for the Americas/Legal Division for the Americas in New York, Manager for Business Promotions: Japanese and Hong Kong Corporates at the Hong Kong Branch/Kowloon Branch in Hong Kong, seconded to Chiyoda Corporation, Project Finance Division (Japanese Gas/Oil Plan Engineering Company), Associate for Corporate Banking at the Corporate Banking Division No. 4 in Tokyo and Associate for Commercial Banking at the Ueno Branch in Tokyo.

He graduated from Keio University, Tokyo, Japan with a Bachelor of Arts in Law degree and from the University of Pennsylvania law School with a Master of Laws degree. JORGE LINDLEY S. ONG, 47, Filipino, is Senior Vice President and Head of the Banking Centers Group. He is a member of the Bank’s Credit Committee. He joined the Bank in 2007. He was the Head of Kalookan and North Metro Banking Center. Prior to joining the Bank, he was a Senior Relationship Manager in BDO

Page 42: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

38

Unibank (from 1995 to 2007). He graduated from the University of Santo Tomas with a Bachelor of Science degree in Commerce. MA. PATRICIA N. TAN, 45, Filipino, is Senior Vice President and Head of Retail Marketing. Prior to joining the Bank in 2013, she served as OFW Segment Head of Philippine National Bank (from 2006 to 2013), Marketing Head of Globe Telecom (from 2004 to 2006) and Cards Marketing Head of Union Bank of the Philippines (from 1997 to 2004). She graduated with a Bachelor’s degree in Management of Financial Institutions from De la Salle University. CAROL P. WARNER, 51, Filipino, is Senior Vice President and the Chief Audit Executive of the Bank. She joined the Bank in September 2006 as Head of IS Audit Department before her appointment as Chief Audit Executive-OIC in January 2012 and Chief Audit Executive in June 2012. Prior to joining the Bank, she was a Risk Manager of JP Morgan Chase Bank NA – PCCC, Chase Card Services (from March to August 2006), IS Audit Department Head of Security Bank Corporation (from 2003 to 2006), IT Auditor and Systems Risk Analyst of Rizal Commercial Banking Corporation (from 1992 to 2001, and 2001 to 2003, respectively), and Auditor of Sycip, Gorres, Velayo & Co. (from 1989 to 1991). She is a Certified Public Accountant (CPA), Certified Internal Auditor (CIA), and Certified IS Auditor (CISA). She graduated with a Bachelor of Arts degree, Major in Mathematics and a Bachelor’s degree in Commerce, Major in Accounting from De La Salle University. PRICE EDWARD C. YAP, 47, Filipino, is Senior Vice President and Sales Division Head under Treasury Group. Prior to joining the Bank in 2016, he accumulated 22 years of work experience from Mitsubishi UFJ Securities (Singapore), Ltd. (from 2011 to 2015), held various positions in Citigroup, Inc. (from 2000 to 2011) and as Manager of Solid Bank Corporation (from 1997 to 2000). He graduated with a Bachelor of Science degree in Management, major in Legal Management from Ateneo de Manila University. He earned his Master’s degree in Business Administration from the Ateneo Graduate School of Business. ATTY. JOEL RAYMOND R. AYSON, 56, Filipino, was elected Corporate Secretary on July 29, 2004. He is a Partner in Quasha, Ancheta, Peña & Nolasco Law Offices (since May 1998 to the present). He is a member of Integrated Bar of the Philippines, Philippine Bar Association, Immigration Lawyers Association of the Philippines and University of the Philippines Law Alumni Association. He is a founding member of Students Law for Integrity and Democracy – UP College of Law and the UP Association of Political Science Majors. He is the Chairman of Unigrowth Resources & Development Corporation and President and Director of Dubor Backtrenmittel Und Apparatebau AG (Philippines), Inc., President of Bristol Technology System and ATRM Property Holdings, Inc. and Vice President and Director of Amtel Trading Corporation. He is a Director of ATRM 2 property Holdings, Inc., Quo Vadis Palawan Resort, Inc., Back Office Superior Services, Inc., Asiamed Inc. and Parex Realty Corporation. He is also a Corporate Secretary and Director of IXSFORALL, Inc., List International, Blue Sky Searesort Corp., Bohol Agro Marine Development Corp., Artbank Holdings, Inc., Tembuli Development Corp., Metropolitan Philippines Resort Corporation and Corporate Secretary of Lapu-Lapu Resort Development, Inc., Bohol Resort Dev., Inc., Lapu-Lapu Resort. He is a Resident Agent of Ceragon Network (HK) Ltd., Medical Services of America Inc., Tanis Food Tec BV, Wagenborg Shipping Holdings BV, Dubor RHQ and OTV France Philippines. He was the Treasurer and Vice President/Director of the Integrated Bar of the Philippines, Makati City Chapter (from 2001-2009) before he assumed his position as President (from 2009 to 2011). His practice areas are Civil Litigation, Administrative Law, Immigration Law, Insurance Law, Regulatory, General Practice and Special Projects. He graduated Cum Laude with a degree in Political Science and took post graduate studies of Bachelor of Laws at the University of the Philippines

Page 43: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

39

The Executive Officers are appointed/elected by the Board of Directors during the organizational meeting following the stockholders’ meeting, each to hold office for a period of one (1) year. (c) Significant Employees The Bank values its human resources and considers the entire manpower force as significant employees. For the Complete Table of Organization, please refer to Exhibit 4 on page 61. (d) Family Relationships Ms. Anastasia Y. Dy is the sister of the Bank’s Chairman Emeritus, Mr. Frederick Y. Dy. (e) Involvement in Certain Legal Proceedings To the knowledge and information of the Bank, none of the above-named directors and executive officers have been involved in any material legal proceedings or subject to the following legal proceedings during the past five (5) years:

i. Bankruptcy petition against any business of which such director was a general partner or executive officer whether at the time of the bankruptcy or within two (2) years prior the that time

ii. Conviction by final judgment, in a criminal proceeding, domestic or foreign or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses

iii. To any order, judgment or decree, not subsequently reversed, suspended or vacated of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking services

iv. Being found by a domestic or foreign court of competent jurisdiction (in a civil action), the

Commission or comparable foreign body, or a domestic or Foreign Exchange or other organized trading market or self regulatory organization, to have violated a securities or commodities law or regulation, and the judgment has not been reversed, suspended, or vacated.

(f) Certain Relationships and Related Transactions During the last fiscal year, no director or executive officers of the Bank received any benefit by reason of a contract made with the company, a related corporation, a firm of which the director is a member or a company in which a director has a substantial financial interest.

In the ordinary course of business, the Bank has loan transactions with certain directors, officers, stockholders and related interest (DOSRI). Under Bank policies, these loans are made substantially on the same terms as loans to other individuals and borrowers of comparable risk. Full disclosures for these transactions were made to the Bangko Sentral ng Pilipinas (BSP). The Bank is in full compliance with the BSP regulations on DOSRI loans and transactions. Details on related party transactions are further explained in Note 33 of the Audited Financial Statements. The Bank is not a subsidiary of any corporation. (g) Resignation of Directors No director has informed the registrant in writing that he intends to oppose any action to be taken by the registrant at the Annual Stockholders’ Meeting.

Page 44: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

40

Item 10. Executive Compensation Information as to the aggregate compensation during the last two fiscal years and to be paid in ensuing fiscal year 2020 to the Bank's Chief Executive Officer and four other most highly compensated executive officers and all other officers and directors as a group are as follows: Chief Executive Officer and four other most highly compensated executive officers*:

Executive Compensation Bonuses Total 2020 - Php65,000,000*** Php52,000,000*** Php117,000,000*** 2019 - 52,349,650** 48,587,533** 100,937,183** 2018 - 43,059,000* 52,000,000* 95,059,000*

*Refers to Messrs. Alfonso L. Salcedo, Jr., Eduardo M. Olbes, Raul Martin A. Pedro, Tina M. Stockdale and Ma. Cristina A. Tingson ** Refers to Alfonso L. Salcedo Jr. (President and CEO up to June 30, 2019), Sanjiv Vohra (appointed as President and CEO effective July 1, 2019),

Eduardo M. Olbes, Raul Martin A. Pedro, Ma. Cristina A. Tingson and Charles M. Rodriguez ***Estimated amount

All officers and directors as a group unnamed:

Executive Compensation Bonuses Total 2020 - Php3,300,000,000* Php1,200,000,000 Php4,500,000,000* 2019 - 2,701,833,027 1,057,950,522 3,759,783,549 2018 - 2,838,904,786 891,671,171 3,730,575,957

*Estimated amount The directors receive fees, bonuses and allowances that are already included in the amounts stated above, with per diem of P16 million estimated for 2020, P13.9 million per diem paid in 2019 and P10.5 million per diem paid in 2018. Aside from the said amounts, they have no other compensation plan or arrangement with the Bank. The executive officers receive salaries, bonuses, and other usual bank benefits that are also already included in the amounts stated above. Aside from the said amounts, they have no other compensation plan or arrangement with the Bank. There are no warrants or options held by the registrant's officers and directors. Item 11. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Record and Beneficial Owners

Owners of record of more than 5% of the Bank’s voting securities as of February 29, 2020 were as follows:

Title of Class

Name, Address or Record Owner / Beneficial Owner and Relationship with Issuer

Name of Beneficial Owners

Citizenship No. of shares Held

% to Total

Voting Shares

Common THE BANK OF TOKYO MITSUBISHI UFJ, LTD. (BTMU) (now known as MUFG BANK, LTD.) Marunouchi, Chiyoda-ku, Tokyo, Japan

BTMU (MUFG) Japanese 150,707,778 8.59% Preferred 200,000,000 11.41%

Common FREDERICK Y. DY Frederick Y. Dy Filipino 86,865,273* 4.95% Preferred 23F Security Bank Centre 253,207,671 14.44% 6776 Ayala Ave., Makati City Common + \ Comm

PCD NOMINEE CORPORATION Various Filipino 228,904,121** 13.62% Common

GF Makati Stock Exchange Stockholders Ayala Avenue, Makati City Client

Common DANIEL S. DY Daniel S. Dy Filipino 6,014,165 0.34%

Page 45: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

41

Title of Class

Name, Address or Record Owner / Beneficial Owner and Relationship with Issuer

Name of Beneficial Owners

Citizenship No. of shares Held

% to Total

Voting Shares

Preferred 116 Valero St., Makati City 221,236,044 12.62%

Common

PCD NOMINEE CORPORATION Various Stockholders Client

Non-Filipino 183,788,733*** 10.48% GF Makati Stock Exchange Ayala Avenue, Makati City

*Inclusive of 28,264,524 shares of Frederick Y. Dy lodged with PCD Nominee Corp. **Net of 28,264,524 shares of Frederick Y. Dy and 6,014,165 shares of Daniel S. Dy ***Net of 150,707,778 shares of The Bank of Tokyo-Mitsubishi UFJ, Ltd. lodged in PCD Nominee Corp. (Non-Filipino)

PCD Nominee Corporation, now known as Philippine Depository & Trust Corporation (PDTC) is the registered owner of the shares in the books of the Bank’s transfer agent, Stock Transfer Service, Inc. The beneficial owners of such shares are PCD’s participants, who hold the shares on their behalf or on behalf of their clients. The shares beneficially owned by participants are in individual quantities representing less than 5% of the Bank’s voting securities. The participants have the power to decide how the PCD shares are to be voted.

The Member of the Board of Directors, Senior Managing Executive Officer - Global Commercial Banking Business Unit and Chief Operating Officer – International has the power to decide on how The Bank of Tokyo Mitsubishi UFJ, LTD (now known as MUFG Bank, Ltd.) shares in Security Bank are to be voted.

(b) Security Ownership of Management

I. The following are the number of shares of the Bank’s capital stock (all of which are voting shares)

owned of record by the directors, key officers of the Bank, and nominees for election as director, as of February 29, 2020:

A. Title of Class: Common Stock

Name of Beneficial Owner Position Citizenship No. of

Shares Held

Nature of Beneficial

Ownership

% to Total Voting Shares

Frederick Y. Dy Chairman Emeritus Filipino 86,865,273 Direct 4.95% Anastasia Y. Dy Vice Chairman Filipino 14,523,968 Direct 0.83% Alberto S. Villarosa Chairman Filipino 3,720,533 Direct 0.21% Philip T. Ang Director Filipino 124 Direct 0.00% Diana P. Aguilar Director Filipino 10 Direct 0.00% Gerard H. Brimo Director Filipino 10 Direct 0.00% Enrico S. Cruz Director Filipino 10 Direct 0.00% Jikyeong Kang Director Korean 10 Direct 0.00% James JK Hung Director Taiwanese 4,553,588 Direct 0.26% Masaaki Suzuki Director Japanese 3 Direct 0.00% Napoleon L. Nazareno Director Filipino 10 Direct 0.00% Cirilo P. Noel Director Filipino 10 Direct 0.00% Takahiro Onishi Director Japanese 5 Direct 0.00% Alfonso L. Salcedo, Jr. Director Filipino 327,010 Direct 0.02% Sanjiv Vohra Director/President Indian 10 Direct 0.00% Takashi Takeuchi Nominee Japanese 1* Direct 0.00% Hiroshi Masaki Nominee Japanese 1* Direct 0.00% Joselito E. Mape Executive VP Filipino 11,619 Direct 0.00% Eduardo M. Olbes Executive VP Filipino 1,000 Direct 0.00% Daniel U. Yu Executive VP Filipino 4,722 Direct 0.00% Jason T. Ang Senior VP Filipino 5,202 Direct 0.00% Belen W. Au Senior VP Filipino 200 Direct 0.00% Abigail Marie D. Casanova Senior VP Filipino 2,340** Indirect 0.00% Gina S. Go Senior VP Filipino 32,458 Direct 0.00%

Page 46: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

42

Name of Beneficial Owner Position Citizenship No. of Shares

Held

Nature of Beneficial

Ownership

% to Total Voting Shares

Yvonne Joanna P. Marcelo Senior VP Filipino 3,700 Direct 0.00% Patricia N. Tan Senior VP Filipino 15,000 Direct 0.00%

* as of March 23, 2020 ** Shares held by spouse

B. Title of Class: Preferred Stock

Name of Beneficial Owner

Position Citizenship No. of Shares Held

Nature of Beneficial

Ownership

% to Total Voting Shares

Frederick Y. Dy Chairman Emeritus Filipino 253,207,671 Direct 14.44% Alberto S. Villarosa Chairman Filipino 41,000,000 Direct 2.34% Anastasia Y. Dy Vice Chairman Filipino 33,000,000 Direct 1.88% Philip T. Ang Director Filipino 99 Direct 0.00% Eduardo M. Olbes Executive VP Filipino 4,000 Direct 0.00% Daniel U. Yu Executive VP Filipino 722 Direct 0.00%

The aggregate number of shares owned of record by all or key officers and directors as a group as of February 29, 2020 is 437,279,309 shares or approximately 24.94% of the Bank’s outstanding capital stock.

II. The following are the trading records of the directors, key officers of the Bank, and nominees for election as

director as of February 29, 2020: A. Title of Class: Common Stock

Board of Directors and Nominees

Name of Beneficial Owner

Position Beginning Balance

No. of Shares (as of YE 2018)

Movement No. of Shares (from 1/1/2019

to 2/29/20)

Acquired (A) Or Disposed

(D)

Ending Balance -

No. of Shares (as of 2/29/20)

Frederick Y. Dy Chairman Emeritus 86,865,273 − − 86,865,273 Anastasia Y. Dy Vice Chairman 14,523,968 − − 14,523,968 Alberto S. Villarosa Chairman 3,720,533 − − 3,720,533 Philip T. Ang Director 124 − − 124 Diana P. Aguilar Director 10 − − 10 Gerard H. Brimo Director − 10 A 10 Enrico S. Cruz Director − 10 A 10 Jikyeong Kang Director 10 − − 10 James JK Hung Director 4,553,588

− − 4,553,588

Napoleon L. Nazareno Director 10 − − 10 Cirilo P. Noel Director 10 − − 10 Takahiro Onishi Director 5 − − 5 Alfonso L. Salcedo, Jr. Director 327,010 − − 327,010 Masaaki Suzuki Director − 3 A 3 Sanjiv Vohra Director/President − 10 A 10 Takashi Takeuchi* Nominee − 2 A − − 1 D 1 Hiroshi Masaki* Nominee − 1 A 1

*as of March 23, 2020

Page 47: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

43

Executive Officers

Name of Beneficial Owner

Position Beginning Balance

No. of Shares (as of YE 2018)

Movement No. of Shares (from 1/1/2019

to 2/29/20)

Acquired (A) or

Disposed (D)

Ending Balance -

No. of Shares (as of 2/29/20)

Joselito E. Mape Executive VP 11,619 − − 11,619 Eduardo M. Olbes Executive VP 1,000 − − 1,000 Daniel U. Yu Executive VP 4,722 − − 4,722 Jason T. Ang Senior VP 5,202 − − 5,202 Belen W. Au Senior VP 200 − − 200 Melissa R. Aquino Senior VP 147,392 − − 147,392 Abigail Marie D. Casanova Senior VP 2,340* − − 2,340 Gina S. Go Senior VP 32,458 − − 32,458 Yvonne Joanna P. Marcelo Senior VP 3,700 − − 3,700 Patricia N. Tan Senior VP 15,000 − − 15,000

*Shares held by spouse

B. Title of Class: Preferred Stock

Name of Beneficial Owner Position Beginning Balance

No. of Shares (as of YE 2018)

Movement

No. of Shares (from 1/1/2019

to 2/29/20)

Acquired (A) or

Disposed (D)

Ending Balance -

No. of Shares (as of

2/29/2020) Frederick Y. Dy Chairman Emeritus 253,207,671 − − 253,207,671 Alberto S. Villarosa Chairman 41,000,000 − − 41,000,000 Philip T. Ang Director 99 − − 99 Anastasia Y. Dy Executive Director 33,000,000 − − 33,000,000 Eduardo M. Olbes Executive VP 4,000 − − 4,000 Daniel U. Yu Executive VP 722 − − 722

(c) Voting Trust Holders of 5% or more

The company is not aware of shareholders holding any Voting Trust Agreement of 5% or more or any such similar agreement.

(d) Changes in Control

There has been no change in the control of the Bank since the beginning of its last fiscal year.

Item 12. Certain Relationships and Related Transactions In the ordinary course of business, the Bank has loan transactions with subsidiaries, and with certain directors, officers, stockholders and related interests (DOSRI). Under the Bank’s policies, these loans are made substantially on the same terms as loans to other individuals and businesses of comparable risks. On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that shall govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of banks and quasi-banks. Under the said circular, the total outstanding loans, credit accommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10% of bank’s net worth, and the unsecured portion shall not exceed 5% of such net worth. Further, the total outstanding exposures shall not exceed 20% of the net worth of the lending bank. The said Circular is effective February 15, 2007 and the Bank is in compliance with such regulations.

BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further, BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts.

Page 48: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

44

A detailed discussion on related party transactions can be found in Note 33 of the 2019 Audited Financial Statements.

PART IV - EXHIBITS AND SCHEDULES Item 13. Exhibits and Reports on SEC Form 17-C (a) Exhibits - Please refer to the Index to Exhibits on page 46.

The other exhibits as indicated in the Exhibit Table of Revised Securities Act Forms are either not applicable to the Bank or require no answer.

(b) Reports on SEC Form 17-C The following reports on SEC Form 17-C were filed in the last six months of 2019 and in the first quarter of 2020:

Date of Report Items Reported

7/30/2019 Board approval on the revised Committee assignments effective August 1, 2019.

7/30/2019

Board approval on the resignation of (1) Independent Director effective July 30, 2019 and his appointment as member of the Board of Advisers effective August 1, 2019. Board approval for the election of Independent Director effective August 1, 2019.

8/08/2019 Approval of the Strategic Partnership between Security Bank Corporation (SBC) and Bank of Ayudhya Public Company Limited (BAY), commonly known as Krungsri.

9/26/2019 Cessation of engagement of Executive Vice President

10/29/2019 Board approval on the Cash Dividend Declaration for Common Shares. Record date is set on November 13, 2019 and payment date on November 28, 2019.

10/29/2019 Change in Board Committee assignments

1/28/2020 Board approval of the hiring of Senior Vice President and Head of Human Capital Management

1/28/2020 Approval of the Board of the changes in designations 1/28/2020 Change in Board Committee Assignment

2/21/2020 Board approval on the nomination of Directors for the annual Stockholders' Meeting on April 28, 2020.

2/21/2020 Change in Board Committee assignment 2/21/2020 Board approval on the annual cash dividend declaration of preferred shares for 2020

3/31/2020 Board approval on the Cash Dividend Declaration for Common Shares. Record date is set on April 16, 2020 and payment date on April 30, 2020.

3/31/2020 Approval by the Board of Directors on Php50 billion Long Term Negotiable Certificates of Deposits (LTNCD).

3/31/2020 Board approval on withdrawal and replacement of nominees for election to the Board of Directors.

Page 49: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

45

Page 50: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

46

Index to Exhibits

Form 17-A Item 14

Exhibit Number Page (1) Subsidiaries of the Registrant 47 Additional Exhibits (2) List of Bank-owned Branches 48 (3) List of Leased Branches 49 (4) Table of Organization 61

Page 51: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

47

Exhibit (1): Subsidiaries of the Registrant Security Bank Corporation's subsidiaries include:

Percentage Ownership

SB Finance Company, Inc. (formerly Security Bank Savings Corporation) 99.54%

SB Capital Investment Corporation and Subsidiaries 100% SB Rental Corporation 100% SB Equities, Inc. 100% SB International Services, Inc. (pre-operating stage) 100% SB Cards Corporation 100% SBM Leasing, Inc. (joint venture) 60%

SB Forex, Incorporated*

100%

Security Finance and Leasing Inc. (formerly Landlink Property Investments (SPV-AMC)

100% *This entity has suspended operations in 2002 and until to date.

Page 52: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

48

Exhibit (2): List of Bank-owned Branches

BANK OWNED BRANCHES ADDRESS

1 Alabang 235 Montillano St., Rotonda Alabang-Muntinlupa MM 2 Angeles SBC Building, Mc. Arthur Highway, Balibago, Angeles City

3 Bacolod-North Drive SBC Bldg., BS Aquino Drive corner Hilado Extension, Bacolod City

4 Baguio SBC Bldg., corner Chugum and Abanao Sts., Baguio City

5 Batangas Rizal Avenue near cor. P. Zamora St., Batangas City

6 BF Homes - Parañaque SBC Bldg., President's Avenue. BF Homes, Paranaque City

7 Binan National Highway, Barrio San Vicente, Binan, Laguna

8 CDO - Osmena Sergio Osmena St., Cagayan De Oro City

9 CDO - Velez A. Velez corner Montalban St., Cagayan De Oro City

10 Commonwealth SBC Bldg., Lot 10, Block 9, Commonwealth Avenue, Quezon City

11 Concepcion 612 JP Rizal St., Concepcion, Marikina City

12 Dagupan SBC Bldg., MH Del Pilar St., Dagupan City

13 Dasmarinas Gen. Emilio Aguinaldo Highway, Dasmarinas, Cavite

14 Davao - Main No. 358 R. Magsaysay Avenue, Davao City

15 Davao - Monteverde Monteverde corner Bruno Gempesaw Sts., Davao City

16 Davao - Panabo Quezon Blvd., Panabo City, Davao Del Norte

17 Del Monte G/F SBC Bldg., Lot 19, Blk. 344 Del Monte Ave., Quezon City

18 Edsa Magallanes EDSA cor. Magallanes Ave., Brgy. Magallanes, Makati

19 General Santos Lot 1341 Ireneo Santiago Blvd., Gen. Santos City

20 Guadalupe No. 2185 Magsaysay St., Guadalupe, Makati City

21 Head Office (CCAD) 6776 Ayala Avenue, Makati City

22 Iligan Quezon Avenue corner Miguel Obach St., Poblacion, Iligan City

23 Kalookan No. 266 Rizal Avenue Extension, between 5th and 6th Ave., Grace Park, Kalookan City

24 Lipa CM Recto Avenue, Lipa City, Batangas

25 Malabon No. 2 Manapat St corner Rizal Avenue extension., Malabon City, MM.

26 Medical Plaza Makati G-103 Medical Plaza Bldg., Dela Rosa corner Amorsolo Sts., Makati City

27 Montalban J.P. Rizal Ave., Manggahan, Montalban, Rizal

28 Novaliches - Bayan 897 Quirino Hi-way, Brgy.Gulod, Novaliches, Q.C.

29 Pandacan No. 2339 Palumpong St., Pandacan, Manila

30 Pasay Libertad Libertad corner Colayco Sts., Pasay City

31 Paseo de Roxas Corporate Business Center, No. 151 Paseo De Roxas cor. Arnaiz Ave., M.C

32 Roman Square Roman Square Bldg., No. 979-981 Soler corner Roman St., Binondo, Manila

33 Rosario G/F SBC Bldg., Gen. Trias Drive, Rosario, Cavite

34 Salcedo LPL Plaza Bldg., No. 124 L. P Leviste St., Salcedo Village, Makati City

35 Sampaloc 1700 G. Tuazon St. cor M. Dela Fuente St., Sampaloc, Manila

36 San Pedro Mabini Street, Poblacion, San Pedro, Laguna

37 Sta. Rosa Brgy. Pulong , Sta. Cruz, Sta. Rosa, Laguna

38 Sta. Rosa - Balibago National Hi-way, Brgy. Balibago, Sta. Rosa, Laguna

39 Sucat SBC Bldg., Dr. A. Santos Ave. cor. St. Peter St., Sucat, Paranaque City

40 Tagaytay SBC Bldg., Aguinaldo Highway, Mendez Crossing, Tagaytay City

41 Taytay - Ortigas Extension SBC Bldg., Km. 23, Ortigas Avenue Extension, Taytay, Rizal

42 Tektite G/F East Tektite Towers, Exchange Road., Ortigas Center, Pasig City

Page 53: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

49

BANK OWNED BRANCHES ADDRESS 43 Tuguegarao A. Bonifacio corner Washington Sts., Tuguegarao, Cagayan

44 Zamboanga Veterans Avenue, Zamboanga City.

45 Ylaya - Tondo No. 938, Ylaya Street, Tondo, Manila City Exhibit (3): List of Leased Branches

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

1 ASEANA CITY - Shop 1

Aseana One Building, Bradco Avenue, Aseana City, Parañaque City

2,343,781.46 7/1/12 9 1/14/21

2 ACROPOLIS E. Rodriguez Jr. Ave. (C-5), Libis, Quezon City

3,033,913.50 4/1/14 10 3/31/24

3 ADB AVENUE G/F, AIC Empire Tower, ADB Avenue corner Sapphire Road, Ortigas Center, Pasig City

2,573,486.85 5/1/14 8 4/30/22

4 ADRIATICO-P. FAURA

1326 M. Adriatico St., manila 1,924,339.30 9/1/13 11 10/31/24

5 ALABANG-INSULAR

Insurlar Life Corporate Centre, Insular Life Drive, Filinvest Corporate City, Alabang, Muntinlupa

3,479,152.50 4/1/13 8 3/31/21

6 ALABANG ACACIA

G/F Kingston Tower, Acacia Ave., Madrigal Business Park, Alabang, Muntinlupa City

3,602,184.12 10/15/11 10 10/14/21

7 ALICIA National Highway (Maharlika Highway), Poblacion, Alicia, Isabela

709,045.31 8/1/11 10 7/31/21

8 ALABANG-NORTHGATE

Indo-China Drive, Northgate Cyberzone, Filinvest, Alabang, Muntinlupa City

1,919,231.16 1/1/16 5 12/31/20

9 ALIMALL Level 2 Alimall Phase II, Brgy Socorro, Cubao, Quezon City

2,093,445.00 10/1/18 3 9/30/21

10 CALOOCAN-A. MABINI

GF, One Aster Place, A. Mabini Street, Caloocan City

1,629,432.00 9/4/16 5 9/3/21

11 ANGELES-MCARTHUR HIGHWAY

McArthur Highway cor. San Pablo Street, Angeles City Pampanga

1,512,000.00 5/1/18 3 9/30/21

12 ANTIPOLO CMDL Bldg., Circumferencial Road, Brgy. San Roque, Antipolo Rizal

1,259,779.65 1/1/14 8 12/31/21

13 ARNAIZ AVENUE 920-922 Pasay Road, Makati City 2,052,779.99 11/15/14 10 11/14/24 14 ASEANA

SQUARE Units 3 & 4, Aseana Square Building, Macapagal Blvd., Aseana City, Parañaque City

2,066,896.00 6/15/17 5 6/14/22

15 ANGELES-STO. ROSARIO

293 Sto Rosario Street, Angeles City 1,896,189.72 8/16/18 2 8/15/20

16 AYALA ALABANG

El Molito Bldg., Madrigal Business Park, Madrigal Avenue, Ayala Alabang, Muntinlupa City

8,676,688.76 6/1/16 6 5/31/22

17 BACOLOD-LACSON

Ground Floor, Insular Life Building, Lacson corner Galo Street, Bacolod City

1,177,494.33 7/1/15 5 6/30/20

18 BALUT No. 49 Honorio Lopez Blvd., corner Rosario Nicasio St., Balut, Tondo, Manila

1,201,663.76 9/1/17 5 8/31/22

19 BAMBANG Oroquieta St. corner Bambang, Sta. Cruz, Manila

1,033,593.75 8/1/17 3 7/31/20

20 CEBU-A.S. FORTUNA

TPR Building, A.S. Fortuna St., Banilad, Cebu City

972,405.00 4/25/14 10 4/24/24

Page 54: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

50

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

21 BATINO-CALAMBA

G/F City Gold Bldg., Calamba Premier Industrial Park Complex - Batino, Calamba, Laguna

894,577.76 4/3/16 7 4/2/23

22 BONI AVENUE Unit No. 3 Bonifacio Residences Condo, 612 Boni Ave. corner Sikap Street., Mandaluyong City

1,385,750.00 12/1/18 3 11/30/21

23 BINONDO Nos. 463-469 Ewan Bldg., Quintin Paredes St., Binondo, Manila

11,749,357.79 5/1/16 5 4/30/21

24 BACOLOD-MANDALAGAN

Ground Floor, O Residences, Lacson Street, Mandalagan, Bacolod City

895,803.30 9/1/15 5 12/31/20

25 ORTIGAS SBC Building, No. 228 Ortigas Ave., Greenhills, San Juan, MM.

15,613,291.64 2/1/14 10 1/31/24

26 BUENDIA-DIAN Omron Building, No. 40 Buendia Avenue, Brgy. San Isidro, Makati City

2,186,117.19 8/22/17 5 8/21/22

27 BEL-AIR No. 40, Jupiter St., Bel-air, Makati City

1,378,384.12 9/8/17 4 9/7/21

28 BENAVIDEZ 1264-66 Benavidez St., Sta Cruz, Manila

1,166,886.00 9/1/18 5 8/31/23

29 BICUTAN #39 Doña Soledad Ave., Better Living, Parañaque City

878,811.02 12/16/13 10 12/15/23

30 BANAWE-KITANLAD

Nos. 34-36 Banawe corner Kitanlad Sts., Quezon City

2,958,130.56 6/1/15 5 5/31/20

31 BOCAUE McArthur Highway, Wakas Bocaue, Bulacan

1,035,375.00 2/16/17 10 3/15/27

32 BLUMENTRITT Chinese Gen. Hospital, Blumentritt cor. Aurora Blvd., Sta. Cruz, Manila

4,075,626.54 9/16/17 5 9/15/22

33 BALIWAG 317 B.S. Aquino Ave., Baliwag, Bulacan

1,237,435.36 6/16/10 10 6/15/20

34 BANAWE-MALAYA

G/F GLC Building, Banawe Ave. cor Malaya Street, Quezon City

1,837,687.50 10/15/17 5 10/14/22

35 BANGOY-CHINATOWN

2nd Floor, Yahu Plaza, Bangoy Street, Davao City

1,568,700.00 4/16/16 5 4/15/21

36 BANAWE-QUEZON AVENUE

No. 247-249 Banaue Street, Barangay Lourdes, Sta. Mesa Heights, Quezon City

1,576,113.31 11/16/17 5 11/15/22

37 BAGUIO BGH ROTONDA

CYA Centrum Building, Military Cut-Off Road, Baguio City

1,302,000.00 5/1/16 5 4/30/21

38 BALANGA BATAAN

Capitol Drive near corner Sampaguita St., San Jose Balanga City, Bataan 2100

695,706.00 4/1/17 10 3/31/27

39 BUTUAN J.C. Aquino Ave., Butuan City, Agusan del Norte

1,015,078.30 11/2/11 10 11/1/21

40 BUKIDNON VALENCIA

Sayre Highway, Poblacion, Valencia City, Bukidnon

1,446,000.00 11/22/16 10 11/21/26

41 CABANATUAN Dr. D Building, Del Pilar Street, Cabanatuan City, Nueva Ecija

1,084,506.53 4/1/15 10 3/31/25

42 CDO-GEORGETOWN CYBERMALL

Georgetown Cybermall, Rodolfo Pelaez Blvd., Kauswagan, Cagayan De Oro

1,724,800.00 8/1/18 5 7/31/23

43 CALAMBA-CROSSING

National Highway, Crossing, Calamba, Laguna

2,139,789.47 11/1/15 5 10/31/20

44 CAPITOL HILLS Fairway Residences Condo - Capitol Hills Drive corner Alpha Road, Capitol Hills, Quezon City

1,844,772.03 10/1/17 5 9/30/22

45 CARMONA Ground Floor 88 Building, Governor’s Drive, Maduya, Carmona, Cavite

637,980.00 7/30/16 5 7/29/21

Page 55: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

51

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

46 CAUAYAN #076 Maharlika Highway, Cauayan City, Isabela

913,280.16 7/1/16 10 6/30/26

47 CEBU-BUSINESS PARK

G/F Philam Life Center, Cardinal Rosales Avenue, Cebu Business Park

4,545,646.09 8/15/17 5 8/14/22

48 CONNECTICUT-GREENHILLS

Northeast Square Bldg., #47 Connecticut Street, Northeast Greenhills, San Juan City

2,312,942.96 9/1/12 10 8/31/22

49 CEBU-DANAO Princetown Danao, Juan Luna Street, Danao City, Cebu

562,500.00 3/1/17 5 2/28/22

50 CDO-LIMKETKAI 2nd Level, East Concourse Annex Bldg., Limketkai Mall, Cagayan de Oro City

2,253,097.34 8/22/18 3 7/31/21

51 CLARK-ANGELES

Unit 03, Ground Floor, Clark Center 10, Berthaphil III, Jose Abad Santos Avenue, Clark Freeport, Philippines, Clark Freeport Zone, Philippines

1,320,000.00 2/1/19 10 4/30/29

52 CALAMBA LISP MDC Building, National Highway, Malihan Manoto Subdivision, Brgy. Real, Calamba City

787,500.00 3/1/16 10 2/28/26

53 CLARK-MEDICAL CITY

100 Gatwick Gateway, Sabah Al-Ahmad, Global Gateway Logistics City, Industrial Estate 5, Clark Freeport Zone, Pampanga

2,152,431.68 6/16/15 5 6/15/20

54 CALOOCAN-10TH AVENUE

Unit 488-490, Rizal Avenue Ext. cor, 10th Avenue, Caloocan City

1,345,794.36 5/1/17 8 4/30/25

55 CALAPAN G/F H&M Center Bldg. J. P Rizal St., Brgy. Camilmil, Calapan City, Oriental Mindoro

945,393.75 7/25/17 5 7/24/22

56 CABANATUAN-MAHARLIKA

Km 112 Maharlika Hiway, Cabanatuan City

1,226,255.71 6/1/18 5 5/31/23

57 CATARMAN G.H. Del Pilar corner Marcos Sts., Catarman, Northern Samar

441,346.40 9/1/10 12 8/31/22

58 CONGRESSIONAL

Congressional Avenue corner EDSA, Quezon City

1,545,719.22 12/8/15 5 12/7/20

59 CEBU-UPTOWN OSMEÑA

154 Osmeña Boulevard corner V. Urgello Street, Cebu City

1,805,895.00 1/16/14 8 1/15/22

60 CAPITOL COMMONS BRANCH LITE

Ground level GL-21a, Unimart Capitol Commons, Meralco Avenue corner Shaw Boulevard, Brgy. Oranbo, Pasig City

248,112.00 11/5/19 2 9/3/21

61 C. PALANCA-QUIAPO

302 - 304 C. Palanca (Echague) corner P. Gomez Street, Quiapo, Manila

1,543,750.00 6/1/17 5 5/31/22

62 CARMELRAY 1 The Junction Strip Mall Wisdom Avenue corner Knowledge Avenue, Carmel Town, Canlubang, Calamba, Laguna

1,562,400.00 5/1/16 5 4/30/21

63 CARMELRAY 2 Unit 4, Admin. Building, Carmelray Industrial Park II, Calamba, Laguna

1,317,708.00 4/1/16 5 3/31/21

64 COTABATO CITY Ground Floor, RO-MA Building #020 Sinsuat Avenue, Poblacion 6, Cotabato City

1,017,857.16 9/27/18 4 8/31/22

65 CONGRESSIONAL TOWER

Congressional Town Center, No. 23 Congressional Avenue, Brgy. Bahay Toro, Quezon City

1,638,030.24 10/17/17 3 10/16/20

66 CUBAO Quezon Theater Bldg., Gen. Roxas St., Araneta Center, Cubao, Quezon City

2,636,062.62 11/1/16 5 10/31/21

Page 56: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

52

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

67 DON ANTONIO HEIGHTS

Unit 2 L24, B6 Don Antonio Heights, Holy Spirit Drive, Brgy Holy Spirit, Quezon City

2,443,848.25 8/5/18 3 8/4/21

68 DAVAO-BAJADA BI Zone - Phase 2, J. Laurel Ave., Bajada, Davao City

1,953,774.00 10/1/18 4 3/31/22

69 DASMARIÑAS-FCIE

Governor’s Drive, Dasmariñas, Cavite

1,607,445.00 10/1/16 5 9/30/21

70 DIGOS Poblacion, Digos City 960,498.00 6/1/18 5 5/31/23 71 DIPOLOG Quezon Avenue, Dipolog City 444,875.29 8/20/13 10 8/19/23 72 DIVISORIA 1 Pasilio A. Ledesma Bldg., No. 853

Tabora St., Binondo, Manila 1,168,032.60 7/1/17 5 6/30/22

73 DIVISORIA-STO. CRISTO

Sto. Cristo Street, Manila 1,312,746.75 5/1/14 10 5/1/24

74 DELA ROSA G/F King's Court II Bldg., 2129 Pasong Tamo cor. Dela Rosa Sts., Makati City

3,547,583.85 4/1/18 5 3/31/23

75 DAGUPAN-LUCAO

Dagupan-Binmaley Road, Lucao District, Dagupan City, Pangasinan

886,401.60 5/1/16 10 4/30/26

76 DAVAO RIZAL GF, Philam Life Building, JP Rizal Street, Poblacion Davao City

1,087,017.59 4/1/17 5 3/31/22

77 DUMAGUETE Portal West Bldg., Silliman Ave. cor. Hibbard Avenue, Dumaguete City

1,464,589.31 2/1/16 5 1/31/21

78 EDSA-KALOOKAN

512 EDSA near corner Urbano Plata St., Caloocan City

651,557.86 9/16/09 10 9/15/19

79 MANDALUYONG-GREENFIELD

Units 7 & 8, Level 1,SOHO Central, Shaw Boulevard., Greenfield District, Mandaluyong City

2,286,721.74 5/1/16 8 5/1/24

80 EMERALD G/F, The Taipan Place, Emerald Ave., Ortigas center, Pasig City

2,961,559.83 9/1/09 15 8/31/24

81 E. RODRIGUEZ-NEW YORK AVE.

1791 E. Rodriguez Sr. Ave,. Near corner New York Street., Quezon City

1,074,102.42 12/1/17 5 11/30/22

82 ERMITA UN Ave. corner Bocobo & Churucca Sts., Ermita, Manila

1,912,904.08 7/1/16 5 6/30/21

83 E. RODRIGUEZ Unit No. 6, GF Athens Tower, The Capital Towers, E. Rodriguez Sr. Avenue, Quezon City

1,218,060.00 4/1/19 5 3/31/24

84 E. RODRIGUEZ-SLMC

Units 104 to 107 MAB, St. Lukes Medical Center E. Rodriguez Sr. Avenue, Quezon City

3,111,434.13 6/1/12 10 5/31/22

85 ESPAÑA BLVD. 1880 España Boulevard Sampaloc, Manila

1,844,262.00 7/16/16 5 7/15/21

86 EVANGELISTA-QUIAPO

450 Evangelista cor. Paterno St., Sta. Cruz, Manila

1,500,000.00 2/15/12 15 2/14/27

87 FAIRVIEW-COMMONWEALTH

B2 L21 Commonwealth Ave., Fairview, Quezon city

1,750,329.00 10/15/18 3 10/14/21

88 FORT BONIFACIO-INFINITY

G/F, The Infinity Tower, 26th St., Fort Bonifacio Global City, Taguig City, MM.

3,252,133.37 7/15/15 5 7/14/20

89 FORT BONIFACIO-NET CUBE

G/F, Net Cube, 3rd Ave. cor. 30th St., E' Square Zone, Fort Bonifacio, Global City, Taguig

4,729,594.00 9/15/15 5 9/14/20

90 FORT BONIFACIO-SLMC

G/F Medical Arts bldg., SLMC-Global City, Fort Bonifacio Global City, Taguig

3,218,598.64 1/1/09 16 7/31/24

91 FORT-FAIRWAYS TOWER

G/F, Fairways Tower, McKinley corner 5th Avenue, Bonifacio Global City, Taguig City

1,642,092.12 5/1/14 10 4/30/24

Page 57: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

53

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

92 FORT-GRAND HAMPTONS II

Ground Floor, Grand Hamptons Tower 2, 1st Avenue corner 31st Street, Fort Bonifacio Global City, Taguig City

1,782,270.00 7/1/16 5 6/30/21

93 FORT-NAC TOWER

NAC Tower, 32nd Street, Bonifacio Global City, Taguig

4,387,075.00 3/15/18 5 3/14/23

94 FORT-TRIANGLE DRIVE

Ground Floor, Philplans Corporate Center, 1012 Triangle Drive, North Bonifacio, Bonifacio Global City, Taguig City

1,843,519.86 3/1/17 3 2/28/20

95 FORT-W CITY CENTER

GF-Unit B, W City Center, 7th Avenue cor. 30th Street, Bonifacio Global City, Taguig City

7,530,145.15 10/16/16 5 10/15/21

96 G. ARANETA No. 128 G. Araneta Avenue. Brgy. Doña Imelda, Quezon City

1,580,904.06 12/1/17 5 11/30/22

97 GAMBOA Luz Building, 116 Gamboa Street, Legazpi Village, Makati City

2,607,000.00 11/1/18 4 11/30/22

98 GUADALUPE COMMERCIAL COMPLEX

Guadalupe Commercial Complex, EDSA Guadalupe, Makati City

1,959,571.00 12/1/18 3 11/30/21

99 ANNAPOLIS-GREENHILLS

G/F Greenhills Mansions, Annapolis St., Greenhills, San Juan, MM.

2,915,642.99 2/1/09 15 1/31/24

100 GREENHILLS WEST

Quadstar Bldg., No. 80 Ortigas Ave. Greenhills, San Juan

2,327,415.73 10/1/17 5 9/30/22

101 GENERAL TRIAS G/F Divine Grace Medical Hospital Bypass Road, Brgy. Tejero, Gen. Trias, Cavite

1,093,749.95 8/15/17 5 8/14/22

102 GIL PUYAT Unit 101 A, G/F, Oppen Building, 349 Sen. Gil J. Puyat Avenue, Makati City

3,129,146.59 2/1/14 10 1/31/24

103 GRAMERCY G/F Gramercy Residences, Kalayaan Ave., Makati City

1,798,171.33 2/1/14 7 1/31/21

104 GENERAL SANTOS NATIONAL HIGHWAY

Lot 1341 Ireneo Santiago Blvd., Gen. Santos City

720,000.00 9/15/17 10 9/14/27

105 HERRERA G/F Exchange Bldg.,No. 107 V.A Rufino Herrera Bolanos & Esteban Sts. Legaspi Village, Makati City

3,280,218.87 2/19/18 5 2/18/23

106 TARLAC G/F Intellect Building, along MacArthur Highway, Brgy. San Sebastian, Tarlac City

1,622,486.48 5/1/11 10 4/30/21

107 ILOILO BUSINESS PARK

BPO Building A, Festival Walk, Iloilo Business Park, Iloilo City

2,250,415.44 7/1/16 5 6/30/21

108 ILOILO-GENERAL LUNA

Insular Life Building, General Luna St., Brgy. San Felix, Molo, Iloilo City

787,908.52 11/1/15 5 10/31/20

109 ILOILO-LEDESMA

Charly Resources Bldg., corner Ledesma and Quezon Sts., Iloilo City

2,127,700.42 3/1/16 5 2/28/21

110 IMUS G/F LGC Commercial Building, Palico 2, Aguinaldo Highway, Imus, Cavite

610,896.00 9/1/19 5 9/1/24

111 DAVAO-MATINA IT PARK

GF, Plaza Luisa II, Matina IT Park, McArthur Highway, Matina, Davao City

1,302,000.00 9/27/18 4 3/31/22

112 JUAN LUNA 514 Juan Luna St., Binondo, Manila 3,240,000.00 7/1/14 10 7/1/24 113 CEBU-JUAN

LUNA Plaridel Street corner Osmena Boulevard, Cebu City

1,061,600.40 3/17/15 6 3/16/21

114 KATIPUNAN G/F The Xanland Condominium Building., Katipunan Avenue, Loyola Heights, Q.C.

2,419,974.30 4/15/15 5 4/14/20

Page 58: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

54

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

115 KABANKALAN Milza Arcade 3, J.Y. Perez Highway, Brgy. Talubangi, Kabankalan City, Negros Occidental

672,000.00 4/1/17 5 3/31/22

116 KORONADAL Hotel Eighty-Eight, Ground Floor, General Santos Drive, Koronadal City, South Cotabato

1,071,428.52 6/16/17 10 6/15/27

117 KALIBO No. 263 Roxas Avenue, Kalibo, Aklan 697,047.90 7/1/15 5 6/30/20 118 KALENTONG New Panaderos Ext., Mandaluyong

City 1,458,607.56 1/1/18 5 12/31/22

119 KEYLAND-VALERO

114 Valero St., Salcedo Village, Makati City

55,533,943.71 7/1/17 5 6/30/22

120 KAMIAS 1419 Kamias Rd. corner Anonas Extension, Sikatuna Village, Q.C.

1,203,351.24 1/6/18 5 1/5/23

121 KARUHATAN G/F, PRDC Building 257 Mc Arthur Highway, Karuhatan, Valenzuela City

1,415,137.88 1/1/18 5 12/31/22

122 LAGRO Bonanza Plaza Bldg., Quirino Highway, Lagro Quezon City

1,739,986.65 6/15/17 5 6/14/22

123 DAVAO-LANANG J.P. Laurel Ave., Insular Village, Phase 2, Lanang, Davao City

1,151,892.90 7/1/17 5 3/31/22

124 LAOAG G/F, LC Square, J.P. Rizal Street cor. Balintawak, Laoag City

1,137,276.90 6/1/15 5 5/31/20

125 BF RESORT - LAS PIÑAS

#21 & 23 One Princeway Bldg., BF Resort Drive, BF Resort Village, Las Piñas City

1,216,822.42 5/16/17 5 5/15/22

126 EASTWOOD Unit LG-3-5 to Unit LG 3-6, Ground Floor, Le Grand 3, E-Commerce Avenue, Eastwood, Quezon City

2,428,220.85 5/1/15 5 4/30/20

127 LEGAZPI Landco Business Park, Legazpi City 1,509,522.02 4/1/13 10 3/31/23 128 LEMERY GF, Sola Grande Center, Ilustre

Avenue, Palanas, Lemery, Batangas 803,370.49 3/22/16 5 3/21/21

129 LIMA The outlet at Lipa, Lima Technology Center , Brgy.Bugtong na Pulo, Lipa City, Batangas

1,166,400.00 10/1/18 2 3/21/21

130 A. LINAO-PACO Units 1644 and 1646 along Angel Linao St., Paco, Manila

972,567.75 10/26/16 5 10/25/21

131 LIPA MEDIX HOSPITAL

GF, Old MAB, Lipa Medix Hospital, National Highway, Lipa City, Batangas

1,429,596.00 5/1/16 5 4/30/21

132 ILOILO-IZNART G/F, John A. Tan Bldg., Iznart St., Iloilo City

1,125,680.40 12/1/18 5 11/30/23

133 STARMALL LAS PIÑAS

Starmall, C.V. Starr Ave., Philamlife Village, Pamplona II, Las Piñas City

847,723.08 4/1/16 5 3/31/21

134 LAPU LAPU M. L Quezon National Highway corner Patalinhug Avenue, Pajo, Brgy. Sangi, Lapu Lapu City, Cebu

840,000.00 1/1/18 7 12/31/24

135 LA TRINIDAD JC - 084 Brgy. Pico, Km. 5 National Highway, La Trinidad, Benguet

1,269,607.01 9/1/08 15 8/31/23

136 LUCENA Doña Cristina Bldg., corner Tagaro & Merchan Sts., Lucena City

1,556,245.44 1/1/17 6 12/31/22

137 LA UNION G/F Kenny Plaza, Quezon Avenue, San Fernando City, La Union

900,000.00 6/6/11 10 6/5/21

138 MAGDALENA Nos. 1025-1027 HLC Bldg., Masangkay cor. Soler Sts., binondo, Manila

1,340,790.84 10/18/17 5 10/17/22

139 MALINTA-PASO DE BLAS

No. 271 Paso de Blas, Valenzuela City

522,049.62 10/1/08 15 9/30/23

Page 59: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

55

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

140 MALOLOS G/F Feliza Jazz Bldg., Mc. Arthur Highway, Sumapang Matanda, Malolos City, Bulacan

1,299,760.18 5/5/18 5 5/4/23

141 MANDALUYONG No. 360 Shaw Center Mall, Shaw Blvd. corner Nueve de Febrero, Addition Hills, Mandaluyong City

2,530,326.32 10/16/14 5 10/15/19

142 MAKATI AVENUE-CONSTELLATION

Makati avenue corner Constellation Street., Brgy. Bel - air, Makati City

1,847,025.68 11/1/17 5 10/31/22

143 MAYPAJO APN Bldg., No. 172 A. Mabini St., Maypajo, Kalookan City

974,177.35 8/5/18 5 8/4/23

144 MALABON-POTRERO

Units 8 &9 G/F Mary Grace Bldg., 142 Mc Arthur Highway, Potrero, Malabon City

702,210.12 2/1/16 5 1/31/21

145 SAN MIGUEL AVENUE

No. 101 Medico Bldg., San Miguel corner Louredes St., Pasig City

1,987,630.55 4/15/16 5 4/14/21

146 MCKINLEY HILL G/F Commerce & Industry Plaza Bldg., McKinley Hill, Fort Bonifacio, Taguig City

4,282,929.72 2/1/14 10 1/31/24

147 CEBU-MACTAN Island Central Mactan IT Complex, Mactan Economic Zone, M.L. Quezon National Highway, Pusok, Lapu-lapu City, Cebu

1,627,799.36 1/7/17 5 1/6/22

148 MANDAUE Tipolo Square, Mandaue Highway, Tipolo, Mandaue City, Cebu

965,000.00 12/15/17 5 12/14/22

149 MENDIOLA La Consolacion College Manila, No. 8 Mendiola Street, San Miguel, Manila City

1,573,205.53 10/19/15 5 10/18/20

150 MERALCO AVENUE

G/F suntree Tower, No. 13 Meralco Avenue, Ortigas Center, Pasig City

3,059,921.57 11/1/17 5 10/31/22

151 MEYCAUAYAN Meycauayan College Bldg., Mc. Arthur Highway, Calvario, Meycauayan, Bulacan

722,609.42 7/22/16 5 7/21/21

152 MARIKINA-GIL FERNANDO AVENUE

B6 L10 Almon St., cor Gil Fernando Ave, Brgy San Roque, Marikina

1,588,970.55 4/15/18 5 4/14/23

153 MINDANAO AVENUE

G/F Metro North Medical Center & Hospital, Mindanao Ave., Bahay Toro, Quezon City

1,085,743.64 5/1/18 6 5/1/24

154 MALATE M. Adriatico corner San Andres St., Malate, Manila

964,868.94 9/1/16 5 8/31/21

155 MALABON-TUGATOG

137 M.H. del Pilar St., Brgy. Tugatog, Malabon City

849,264.57 8/17/15 5 8/31/20

156 MALAYAN PLAZA

Unit G2, GF, Malayan Plaza Building, ADB Avenue corner Opal Road, Ortigas Center, Pasig City

3,095,785.00 2/1/19 3 8/31/21

157 MANDALUYONG-EDSA

No. 167 EDSA, Mandaluyong 2,614,500.00 4/1/18 5 3/31/23

158 AYALA-RUFINO 6797 Ayala Avenue., Makati City 43,417,116.36 10/1/17 5 9/30/22 159 MOLINO G/F EVY Bldg., Molino Blvd., Molino,

Bacoor, Cavite 1,714,100.00 3/16/11 15 3/15/26

160 MANDALUYONG-PIONEER

G/F Madison Square Plaza, Pioneer corner Sheridan Street, Mandaluyong City

930,409.32 10/15/17 3 10/14/20

161 MANDALUYONG-LIBERTAD

DM Guevarra St. cor. Calbayog St., Mandaluyong

1,300,934.52 8/16/18 2 8/15/20

162 MARIKINA Bayan-bayanan Avenue, Concepcion, Marikina City

2,435,896.38 8/3/13 8 8/2/21

Page 60: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

56

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

163 MARKET! MARKET!

157-A, G/F, Market Market Mall, Bonifacio Global City, Taguig, MM.

4,412,418.75 10/1/16 4 12/31/20

164 MORGAN SUITES-MCKINLEY

Ground Floor, Morgan Suites Executive Residences, Florence Way, McKinley Hill, Fort Bonifacio, Taguig

1,982,218.13 4/11/16 5 1/31/21

165 DILIMAN-MATALINO

No. 24 Matalino St., Brgy Central, Dist IV, Quezon city

2,161,121.44 7/2/18 5 7/1/23

166 NAGA LAM Building, Peñafrancia Avenue, Zone 4, San Francisco, Naga City

1,429,995.85 9/27/14 8 9/26/22

167 NAIA 2/F Arrival Lobby, NAIA Complex, Pasay City

1,556,755.20 1/1/18 3 12/31/20

168 NINOY AQUINO AVENUE

G/F PAIR - PAGS Centre,NAIA Complex., Ninoy Aquino Ave., Paranaque City

1,818,802.32 10/1/16 5 9/30/21

169 TAFT-NAKPIL SM Lazo Medical Clinic, 1755 Taft Avenue cor. Nakpil Street, Malate, Manila

1,419,490.85 7/1/16 6 6/30/22

170 NAIA TERMINAL 3

Stall No. 15, Arrival Lobby of Terminal 3, Ninoy Aquino International Airport, Pasay City

237,888.00 8/20/17 3 8/19/20

171 NAVOTAS 318 Northbay Blvd. South, Navotas City

1,101,964.29 4/1/14 10 3/31/24

172 NUVO CITY ASPIRE

Unit D G/F, Aspire Tower at Nuvo City, 150 E.Rodriguez Jr. Ave., corner Calle Industria, Bagumbayan, Quezon City

1,633,640.40 3/28/14 10 3/27/24

173 NAGA DIVERSION ROAD

M. roxas Avenue, Naga City, Camarines Sur

648,559.47 4/1/18 5 3/31/23

174 NIEVA G1 & G2, Asian Mansion 2, dela rosa cor. Nieva Sts, Legaspi Village., Makati City

2,175,758.06 12/1/15 5 11/30/20

175 MANDAUE-NORTH ROAD

National Highway, Tabok, Mandaue City

1,481,608.80 5/1/17 5 4/30/22

176 OLONGAPO Unit. No. 2 G/F, RM Centrepoint Building, Rizal Ave. cor. Magsaysay Drive, East Tapinac, Olongapo City

1,624,236.12 8/5/18 2 8/5/20

177 ONE MALL-VALENZUELA

6008 Gen. T. De Leon St., Brgy. Gen T. De Leon, Valenzuela City

2,185,103.20 5/6/17 5 5/5/22

178 ONGPIN Strata Gold Tower Cond., Ongpin St., Binondo, manila

6,201,712.94 6/15/18 5 6/14/23

179 ORMOC Niko's Ark Bldg., Real St., Ormoc City, Leyte

1,360,250.68 9/1/11 10 8/31/21

180 CEBU-OSMEÑA Osmena Boulevard, Cebu City 1,890,533.57 8/1/12 10 7/31/22 181 OZAMIZ Capistrano Street, Ozamiz City, 7200

Misamis Occidental 931,635.00 10/29/16 5 10/28/21

182 BF PARAÑAQUE-AGUIRRE

No. 178 Aguirre Avenue, BF Homes, Parañaque City

1,762,897.50 7/1/16 5 6/30/21

183 PASIG-MERCEDES AVENUE

Mercedes Avenue corner M. Suarez Avenue (Market Avenue), Brgy. San Miguel, Pasig City

1,118,040.00 9/1/14 10 8/31/24

184 PASIG BOULEVARD

Elements Bldg., Shaw Boulevard cor Rosemarie Lane, Brgy. Kapitolyo, Pasig ity

679,157.81 4/1/17 5 3/31/22

185 PAGADIAN Poblacion, Pagadian City 583,392.86 1/1/15 5 12/31/19 186 P. GUEVARRA-

WILSON Unit GF03 Metro Pointe Center, P. Guevarra cor. N. Averilla St., San Juan

1,312,746.75 6/28/18 5 6/30/23

Page 61: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

57

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

187 PLARIDEL G/F Plaza Plaridel Building, No. 263 Padilla Road, Banga 1st, Plaridel Bulacan

637,981.58 4/1/14 8 3/31/22

188 FORT-PANORAMA

Panorama Tower 34th St corner Lane A Bonifacio Global City, Taguig City

3,301,525.50 6/1/16 10 5/30/26

189 ELCANO PSA Bldg. Elcano corner San Nicolas St., Binondo, Manila

2,036,055.66 3/1/16 5 2/28/21

190 PUERTO PRINCESA

Rizal Avenue, Puerto Princesa City, Palawan

1,316,517.82 3/9/12 10 3/8/22

191 STA. ELENA 3/F, 168 Shopping Mall, Sta. Elena St., Binondo Manila

1,399,125.48 1/1/08 14 12/31/21

192 PROMENADE-GREENHILLS

Unit No. 107 GF, Greenhills Promenade 3, Greenhills Shopping Center, San Juan City

3,014,160.00 2/21/19 3 3/31/22

193 HV DELA COSTA G/F Alpha Salcedo Bldg., HV Dela Costa St., Salcedo Village, Brgy. Bel - air, Makati City

3,280,579.84 8/25/16 8 8/24/24

194 PASIG SANTOLAN

G/F Unit 101 - A AD Center Square, A. Rodriguez corner Evangelista, Santolan, Pasig City

1,032,887.40 4/1/18 5 3/31/23

195 PASIG C. RAYMUNDO

Lot 1 & 2-A Good harvest Complex, C. Raymundo Ave., Brgy. Caniogan, Pasig City

1,300,000.00 3/16/17 5 3/15/22

196 PASIG MABINI Mabini cor Del Pilar St., Kapasigan, Pasig City

1,210,644.23 4/15/17 5 4/14/22

197 PASIG-SHAW BOULEVARD

G/F Freemont Arcade, Shaw Boulevard, pasig City

990,173.27 5/15/13 7 5/14/20

198 PASAY TAFT No. 1924 Taft Avenue corner Bernabe Street., Pasay City

917,996.69 9/1/17 5 8/31/22

199 CHINO ROCES AVENUE-DON BOSCO

2225 Chino Roces Avenue cor Don Bosco St., Makati

2,071,609.22 5/1/18 5 4/30/23

200 PASONG TAMO G/F Narra Bldg., Pasong Tamo Extension, Makati City

1,861,743.76 9/1/14 10 8/31/24

201 PORT ROYAL-RADA BRANCH LITE

GF, Port Royal Place, 118 Rada Street, Legaspi Village, Makati City

292,051.50 10/1/19 3 3/31/22

202 QUEZON AVENUE-SOUTH TRIANGLE

JR Building, 1520 Quezon Avenue, South Triangle, Quezon City

1,086,000.00 11/16/18 5 11/15/23

203 QUEZON AVE.-CAPITOL MEDICAL

G/F, Capitol Medical Center Bldg. III, Quezon Ave. corner Scout. Magbanua, Quezon City

2,457,756.75 11/16/10 14 11/15/24

204 QUIRINO HIGHWAY

No. 360 Quirino Highway, Sangandaan, Novaliches, Quezon City

1,890,000.00 1/16/13 10 1/15/23

205 ROXAS BOULEVARD

Unit 4103, VIP Building, Roxas Boulevard cor Nuestra Senora de Guia Street, Ermita, Manila

2,218,781.25 8/1/17 5 7/31/22

206 REPOSO-J.P. RIZAL

1748 N. Garcia St., Barangay Poblacion, Makati

1,378,384.06 1/15/18 5 1/14/23

207 REGALADO FAIRVIEW

Angelus Bldg., #22 Regalado Ave., West Fairview, Q.C.

1,083,016.08 4/2/18 5 4/1/23

208 REINA REGENTE No. 1040 Reina Regente St., Binondo, Manila

913,158.90 5/1/17 5 4/30/22

209 RETIRO Retiro Street corner Mayon Street, La Loma, Quezon City

2,444,345.16 9/1/17 5 8/31/22

210 ROOSEVELT Roosevelt Avenue, SFDM, Quezon City

963,349.43 2/1/12 10 1/31/22

Page 62: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

58

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

211 ROXAS CITY Lawaan Highway corner Sacred Heart of Jesus Street, Pueblo de Panay, Lawaan Roxas City

441,228.78 7/1/12 10 6/30/22

212 SANTIAGO G/F Flora Sy Bldg., Maharlika Highway, Victory Norte, Santiago City, Isabela

660,000.00 3/1/15 5 2/28/20

213 SAN JUAN-F. BLUMENTRITT

One Roxas Square Building, F. Roxas cor. F. Blumentritt, San Juan City

1,863,343.91 7/1/16 10 6/30/26

214 SUCAT-AMAIA STEPS

R106 & 107, Upper Ground Floor, Blanca Building, Amaia Steps Sucat, Dr. A. Santos Avenue, Brgy. San Antonio, Sucat, Parañaque

977,096.93 1/27/17 6 9/30/22

215 SAN FERNANDO-SINDALAN

MC Square Plaza, McArthur Highway, Sindalan, San Fernando City, Pampanga

1,171,800.00 1/1/17 5 12/31/21

216 SAN FERNANDO-DOLORES

AMHSCO Building, Mac Arthur Highway, Dolores, San Fernando City, Pampanga

1,255,338.00 10/1/16 7 9/30/23

217 SAN FERNANDO G/F Doña Sevilla Bldg., Mc. Arthur Highway, Brgy. Dolores ,San Fernando City, Pampanga

1,153,343.50 12/1/08 12 11/30/20

218 SAN FRANCISCO - AGUSAN DEL SUR

Quezon St., Brgy. Dos, San Francisco, Agusan del Sur

706,542.10 4/23/17 5 4/22/22

219 SAN JOSE-NUEVA ECIJA

SBC Building, Maharlika Highway, Brgy. F.E. Marcos, San Jose City, Nueva Ecija

898,518.08 6/16/17 10 6/15/27

220 SOLANO Benigno Aquino Avenue, Poblacion South, Solano Nueva Vizcaya

1,052,631.56 3/6/17 5 3/5/22

221 SILVER CITY G/F Silver City, Tiendesitas Complex, Frontera Verde, Brgy. Ugong, Pasig City

3,219,125.39 3/1/16 5 2/28/21

222 SAN LORENZO PLACE BRANCH LITE

2F B31-B32 San Lorenzo Place Mall, Makati City

432,081.00 10/1/19 7 6/30/26

223 SOLER G/F, Le Mar Ben Bldg., along San Bernardo St., Sta. Cruz, Manila

1,727,048.25 3/16/17 5 3/15/22

224 SAN PABLO Rizal Avenue corner P. Zamora Sts., San Pablo, Laguna

1,216,728.99 7/1/16 5 6/30/21

225 SAN PEDRO-PACITA COMPLEX

Allen Building, National Highway, Pacita Complex, San Pedro, Laguna

1,220,988.43 10/1/16 5 9/30/21

226 SHANGRI-LA PLAZA EAST WING

Unit 1001B, Lower Ground Level, East Wing, EDSA, Shaw Blvd. and St. Francis St. Mandaluyong City

1,254,432.00 8/16/18 2 2/28/20

227 STA. ROSA-GREENFIELD

Laguna Central - Greenfield City, don Jose, Sta Rosa City

1,993,161.60 10/1/16 5 9/30/21

228 ST. IGNATIUS-KATIPUNAN

No. 119 Katipunan Avenue, Quezon City

1,424,992.36 3/9/12 10 3/8/22

229 STA. MARIA-BULACAN

Gov. F. Halili Ave., Brgy. Bagabaguin, Sta. Maria, Bulacan

970,703.29 7/1/11 10 6/30/21

230 SUBIC Formosa Tower, Subic Commercial & Light Industrial Park, Manila Avenue, Subic Bay Freeport Zone

48,622.48 4/1/17 3 3/31/20

231 SUMULONG G/F Silicon Bldg., No. 167, Sumulong Highway, Mayamot, Antipolo City

1,773,870.12 11/1/16 5 10/31/21

Page 63: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

59

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

232 SURIGAO San Nicolas corner Diez Sts., Surigao City

1,378,384.08 2/1/14 8 1/31/22

233 TACLOBAN RIZAL

G/F, Roqson Bldg., Rizal Avenue corner Burgos St and Rizal Avenue., Tacloban City

2,039,449.99 10/12/16 6 9/30/22

234 TAGBILARAN No. 27 CPG Avenue, Tagbilaran City, Bohol

924,000.00 11/1/16 4 10/31/20

235 TIMOG AVENUE Toyoma Group Center Bldg.,22 Timog Ave., Brgy. Laging Handa, Quezon City

1,743,383.25 2/1/14 10 1/31/24

236 TUGUEGARAO BUNTUN-HIGHWAY

Pulsar Commercial Complex Plaza, Buntun Highway, Tuguegarao City

1,134,656.25 6/15/16 5 6/14/21

237 TACURONG Benigno Aquino Avenue, Poblacion South, Solano Nueva Vizcaya

1,178,028.80 6/1/17 5 5/31/22

238 TACLOBAN-VETERANOS

GF, Insular Life Building, Avenida Veteranos, Tacloban City

746,757.27 7/1/16 5 6/30/21

239 TANDANG SORA 400 Tandang Sora Ave., Barangay Culiat, Q.C.

1,121,213.39 1/21/17 3 1/21/20

240 TAGUM G/F Uy Ching Siong Commercial Building, Pioneer Ave. cor. Quezon St., Poblacion, Tagum City

2,842,151.91 10/15/09 11 10/14/20

241 TAFT-VITO CRUZ Unit 3 G/F 2 Torre Lorenzon Condominium, Taft Ave cor Vito Cruz, Malate, Manila

1,637,511.88 11/12/16 5 11/11/21

242 TOMAS MORATO G/F Maine Bldg., Tomas Morato Avenue, South Triangle, Quezon City

4,372,921.17 10/30/09 15 10/29/24

243 FPIP-STO. TOMAS

Unit 007, G/F Oasis Commercial Center, FPIP – Special Economic Zone, R.S. Diaz Avenue, Brgy. Sta. Anastacia, Sto. Tomas, Batangas

1,261,149.75 7/14/16 5 7/13/21

244 MEDICAL CITY G/F Medical Arts Tower, The Medical City Hospital., Ortigas Avenue, Pasig City

2,283,996.00 12/5/14 10 12/4/24

245 MEDICAL CITY BRANCH LITE

Unit 1716 17F Medical Arts Tower Don Eugenio Lopez Sr., Medical Complex, Ortigas Avenue, Brgy. Ugong, Pasig City

807,240.00 4/18/17 8 12/4/24

246 DAVAO-TORIL Mars Building, Saavedra Street, Toril, Davao City

797,625.04 5/15/18 5 5/14/23

247 TAYTAY 137 Rizal Ave., Taytay, Rizal 962,352.04 9/17/15 5 9/16/20 248 TAYTAY-MANILA

EAST Ground Floor, Verde Oro East Plaza, Manila East Road, Taytay, Rizal

1,543,500.00 8/1/16 5 7/31/21

249 TARLAC-TAÑEDO

Tañedo corner Zapiro Street, San Nicolas, Tarlac City

863,044.88 7/1/16 10 6/30/26

250 J. ABAD SANTOS 1839 J.Abad Santos St., Tondo, Manila

1,183,239.45 9/1/16 5 8/30/21

251 UN AVENUE Units 1110 & 1112 Dolmar Bldg., U.N. Avenue, Paco, Manila

889,114.80 8/1/14 10 7/31/24

252 URDANETA G/F CSI Bldg., Mc. Arthur Highway, Brgy. Nancayasan, Urdaneta City

1,691,353.41 6/2/16 7 6/1/23

253 UST G/F Quadricentennial Pavillion, UST Cpd., Espana, Manila

3,574,421.00 3/18/17 6 3/17/23

254 VALENZUELA Km. 14, Mc. Arthur Highway, Malinta, Valenzuela City

1,580,114.60 1/16/15 5 1/15/20

255 VISAYAS AVENUE-PROJECT 6

53 Visayas Avenue, Brgy Vasra, Project 6, QC.

1,356,505.04 11/1/16 7 10/31/23

Page 64: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

60

Leased SBC Branches Address Rent for the year ended

December 2019 Start of Contract

Lease Term

(years) End of Contract

256 VICTORIAS VICMICO PMC Bldg., Osmeña Highway, Victorias City, Negros Occidental

530,526.36 2/25/16 5 2/24/21

257 VIGAN Luisita Trading 1,584,000.00 4/1/14 8 3/31/22 258 VALLE VERDE E. Rodriguez Jr. Avenue, Bagong

Ilog, Pasig City, Metro Manila 2,455,000.00 1/31/17 6 12/31/22

259 WEST AVENUE No. 4 Bulletin St. corner West Avenue, Quezon City

1,582,589.14 5/15/13 10 5/14/23

260 WACK WACK G/F Lee Gardens, Shaw Blvd corner Lee St., Wack Wack, Mandaluyong City

2,374,803.10 7/1/16 6 6/30/22

261 ZAMBOANGA-CANELAR

Mayor Jaldon St., Brgy. Canelar, Zamboanga City

1,173,673.67 1/9/12 10 1/18/22

262 MAKATI AVENUE - ZUELLIG

Unit 2, Ground Floor, Zuellig Building, Makati Avenue corner Paseo de Roxas, Makati City

5,842,245.88 3/1/17 6 10/17/22

263 TORDESILLAS BRANCH LITE

Ruterna Holdings, Inc. 690,300.00 11/1/19 10 10/31/29

Page 65: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

61

Exhibit (4): Table of Organization

BOARD OF DIRECTORS

CHAIRMAN EMERITUS

CHAIRMAN

VICE CHAIRMAN

INVESTOR RELATIONS

OFFICE OF THE CORPORATE SEC.

AUDIT COMMITTEE

AUDIT

CORPORATE GOVERNANCE COMMITTEE

NOMINATIONS AND REMUNERATION

COMMITTEEEXECUTIVE COMMITTEE

RISK OVERSIGHTCOMMITTEE

RELATED PARTY TRANSACTIONS

COMMITTEE

RESTRUCTURING COMMITTEE

TRUSTCOMMITTEE

FINANCECOMMITTEE

TECHNOLOGYEXECUTION EXCELLENCE

COMMITTEE

TRANSFORMATION COMMITTEE

COMPLIANCE

AMLACOMMITTEE

INTEGRITYCOMMITTEE

PEOPLE EMPOWERMENT

COMMITTEECREDIT COMMITTEE RISK MANAGEMENT

OUTSOURCING COMMITTEE

TRUST AND ASSET MANAGEMENT

ASSETS ANDLIABILITIES

COMMITTEE

ACQUIREDASSETS

COMMITTEE

PRESIDENT / CEO

CHIEF OF STAFF

CORPORATE COMMUNICATIONS

SENIOR ADVISOR

SECURITY

CHIEF INFORMATION SECURITY OFFICER

OCCUPATIONAL SAFETY AND HEALTH

COMMITTEE

RETAIL BANKING SEGMENT

WHOLESALE BANKING SEGMENT

ALLIANCE SEGMENT

FINANCIAL CONTROL

CHIEF FINANCIAL OFFICERCHIEF ADMINISTRATIVE

OFFICER

OPERATIONS GROUP

Officer-in-Charge (Concurrent)

HUMAN CAPITAL MANAGEMENT

Officer-in-Charge

INFORMATION TECHNOLOGY

CONSUMER FINANCERETAIL CASA AND FEE

INCOMECHANNELS SUPPORT

RELATIONSHIP MANAGEMENT

GROUP STRATEGY

Officer-in-Charge (Concurrent)

FINANCIAL PLANNING

GENERAL SERVICES

PROPERTY MANAGEMENT

LEGAL SERVICES

BRANCH BANKING OPERATIONS

HEAD OFFICE SERVICE DELIVERY

CORPORATE HUMAN RESOURCES

SECURITY BANK ACADEMY

IT ENTERPRISE ARCHITECTURE

IT PLANNING AND GOVERNANCE

IT SECURITY AND CONTROL

IT TECHNOLOGY SERVICES

IT SOLUTIONS DELIVERY/ CHIEF

TECHNOLOGY OFFICER

CORPORATE BANKING

BANKING CENTERS

RBS PLANNING AND MIS

SERVICE QUALITY

BRANCH BANKING

CUSTOMER CONTACT

DIGITAL STRATEGY AND EXECUTION

RETAIL MARKETINGCONSUMER BUSINESS

AND OPERATIONS

MORTGAGE BANKING

CARDS BUSINESS DEV’T. & OPS

STRATEGIC INITIATIVES

INNOVATION

EXECUTION EXCELLENCE

FINANCIAL MARKET SEGMENT/ TREASURY

BALANCE SHEET MGTCHANNEL NETWORK

(Concurrent)

TRANSACTION BANKING

Page 66: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

62

Index to Financial Statements and Supplementary Schedules

Form 17-A Item 7

Page Statement of Management's Responsibility for Financial Statements 63 Independent Auditors’ Report Exhibit 5 Consolidated Statements of Financial Positions

as of December 31, 2019 and 2018 -do-

Consolidated Statements of Income

for the years ended December 31, 2019, 2018 and 2017 -do-

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

-do-

Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017

-do-

Consolidated Statements of Cash Flows

for the years ended December 31, 2019, 2018 and 2017 -do-

Notes to Consolidated Financial Statements -do- Sustainability Report for the Year 2019 -do-

Page 67: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

63

Page 68: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

64

Page 69: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 70: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

- 2 -

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theConsolidated and Parent Company Financial Statements section of our report, including in relation tothese matters. Accordingly, our audit included the performance of procedures designed to respond to ourassessment of the risks of material misstatement of the consolidated and parent company financialstatements. The results of our audit procedures, including the procedures performed to address thematters below, provide the basis for our audit opinion on the accompanying consolidated and parentcompany financial statements.

Applicable to the Audit of the Consolidated and Parent Company Financial Statements

Allowance for Credit Losses on Loans and ReceivablesThe Group’s and the Parent Company’s application of the Expected Credit Loss (ECL) model incalculating the allowance for credit losses on loans and receivables is significant to our audit as itinvolves the exercise of significant management judgment. Key areas of judgment include: segmentingthe Group’s and the Parent Company’s credit risk exposures; determining the method to estimate ECL;defining default; identifying exposures with significant deterioration in credit quality; determiningassumptions to be used in the ECL model such as the counterparty credit risk rating, the expected life ofthe financial asset and expected recoveries from defaulted accounts; and incorporating forward-lookinginformation (called overlays) in calculating ECL.

Allowance for credit losses on loans and receivables as of December 31, 2019 for the Group and theParent Company amounted to P=5.93 billion and P=5.92 billion, respectively. Provision for credit losses onloans and receivables of the Group and the Parent Company in 2019 amounted to P=4.31 billion andP=3.51 billion, respectively.

The disclosures related to the allowance for credit losses on loans and receivables are included in Note 14of the financial statements.

Audit ResponseWe obtained an understanding of the methodologies and models used for the Group’s and the ParentCompany’s different credit exposures and assessed whether these considered the requirements of PFRS 9to reflect an unbiased and probability-weighted outcome, and to consider time value of money and thebest available forward-looking information.

We (a) assessed the Group’s and the Parent Company’s segmentation of its credit risk exposures based onhomogeneity of credit risk characteristics; (b) tested the definition of default and significant increase incredit risk criteria against historical analysis of accounts and credit risk management policies andpractices in place, (c) tested the Group’s and the Parent Company’s application of internal credit riskrating system by reviewing the ratings of sample credit exposures; (d) assessed whether expected life isdifferent from the contractual life by testing the maturity dates reflected in the Group’s and the ParentCompany’s records and considering management’s assumptions regarding future collections, advances,extensions, renewals and modifications; (e) tested loss given default by inspecting historical recoveriesand related costs, write-offs and collateral valuations; (f) tested exposure at default consideringoutstanding commitments and repayment scheme; (g) checked the reasonableness of forward-lookinginformation used for overlay through statistical test and corroboration using publicly availableinformation and our understanding of the Group’s and the Parent Company’s lending portfolios andbroader industry knowledge; and (h) tested the effective interest rate used in discounting the expectedloss.

A member firm of Ernst & Young Global Limited

Page 71: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

- 3 -

Further, we checked the data used in the ECL models by reconciling data from source system reports tothe data warehouse and from the data warehouse to the loss allowance analysis/models and financialreporting systems. To the extent that the loss allowance analysis is based on credit exposures that havebeen disaggregated into subsets of debt financial assets with similar risk characteristics, we traced or re-performed the disaggregation from source systems to the loss allowance analysis. We also assessed theassumptions used where there are missing or insufficient data.

We recalculated impairment provisions on a sample basis. We reviewed the completeness of the disclosuresmade in the financial statements.

We involved our internal specialists in the performance of the above procedures.

Adoption of PFRS 16, LeasesEffective January 1, 2019, the Group and the Parent Company adopted PFRS 16, Leases, under themodified retrospective approach which resulted in significant changes in the Group’s and the ParentCompany’s accounting policy for leases. The Group’s and the Parent Company’s adoption of PFRS 16 issignificant to our audit because the Group and the Parent Company has high volume of lease agreements;the recorded amounts are material to the consolidated and parent company financial statements; andadoption involves application of significant judgment and estimation in determining the lease term,including evaluating whether the Group and the Parent Company are reasonably certain to exerciseoptions to extend or terminate the lease, and in determining the incremental borrowing rate. This resultedin the recognition of right of use assets amounting to P=1.58 billion and P=1.57 billion for the Group and theParent Company, respectively, and lease liability amounting to P=1.74 billion and P=1.73 billion, for theGroup and the Parent Company, respectively, as of January 1, 2019, and the recognition of depreciationexpense of P=0.63 billion for both the Group and the Parent Company, and interest expense ofP=0.13 billion for both the Group and the Parent Company, for the year ended December 31, 2019.

The disclosures related to the adoption of PFRS 16 are included in Notes 2 and 16 to the consolidatedfinancial statements.

Audit responseWe obtained an understanding of the Group’s and the Parent Company’s process in implementing the newstandard on leases, including the determination of the population of the lease contracts covered byPFRS 16, the application of the short-term and low value assets exemption, the selection of the transitionapproach and any election of available practical expedients.

We tested the completeness of the population of lease agreements by comparing the number of leases peroperational report against the database. On a test basis, we inspected lease agreements (i.e., leaseagreements existing prior to the adoption of PFRS 16 and new lease agreements), identified theircontractual terms and conditions, and traced these contractual terms and conditions to the lease calculationprepared by management, which covers the calculation of financial impact of PFRS 16, including thetransition adjustments.

For selected lease contracts with renewal and/or termination option, we reviewed the management’sassessment of whether it is reasonably certain that the Group and the Parent Company will exercise theoption to renew or not exercise the option to terminate.

A member firm of Ernst & Young Global Limited

Page 72: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

- 4 -

We tested the parameters used in the determination of the incremental borrowing rate by reference tomarket data. We test computed the lease calculation prepared by management on a sample basis,including the transition adjustments.

We reviewed the disclosures related to the transition adjustments based on the requirements of PFRS 16and PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A, and Annual Reportfor the year ended December 31, 2019, but does not include the consolidated and parent companyfinancial statements and our auditor’s report thereon. The SEC Form 20-IS (Definitive InformationStatement), SEC Form 17-A, and Annual Report for the year ended December 31, 2019 are expected to bemade available to us after the date of this auditor’s report.

Our opinion on the consolidated and parent company financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated and parent company financial statements, ourresponsibility is to read the other information identified above when it becomes available and, in doing so,consider whether the other information is materially inconsistent with the consolidated and parentcompany financial statements or our knowledge obtained in the audit, or otherwise appears to bematerially misstated.

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

Management is responsible for the preparation and fair presentation of the consolidated and parentcompany financial statements in accordance with PFRSs, and for such internal control as managementdetermines is necessary to enable the preparation of consolidated and parent company financial statementsthat are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and parent company financial statements, management is responsible forassessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, asapplicable, matters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Group and the Parent Company or to cease operations, or hasno realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s and the Parent Company’sfinancial reporting process.

A member firm of Ernst & Young Global Limited

Page 73: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

- 5 -

Auditor’s Responsibilities for the Audit of the Consolidated and Parent Company FinancialStatements

Our objectives are to obtain reasonable assurance about whether the consolidated and parent companyfinancial statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, butis not a guarantee that an audit conducted in accordance with PSAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if,individually or in the aggregate, they could reasonably be expected to influence the economic decisions ofusers taken on the basis of these consolidated and parent company financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated and parent companyfinancial statements, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for ouropinion. The risk of not detecting a material misstatement resulting from fraud is higher than for oneresulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Group’s and the Parent Company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s and the Parent Company’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are required todraw attention in our auditor’s report to the related disclosures in the consolidated and parentcompany financial statements or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,future events or conditions may cause the Group and the Parent Company to cease to continue as agoing concern.

· Evaluate the overall presentation, structure and content of the consolidated and parent companyfinancial statements, including the disclosures, and whether the consolidated and parent companyfinancial statements represent the underlying transactions and events in a manner that achieves fairpresentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.We are responsible for the direction, supervision and performance of the audit. We remain solelyresponsible for our audit opinion.

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

A member firm of Ernst & Young Global Limited

Page 74: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

- 6 -

We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

From the matters communicated with those charged with governance, we determine those matters thatwere of most significance in the audit of the consolidated and parent company financial statements of thecurrent period and are therefore the key audit matters. We describe these matters in our auditor’s reportunless law or regulation precludes public disclosure about the matter or when, in extremely rarecircumstances, we determine that a matter should not be communicated in our report because the adverseconsequences of doing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.

Reports on the Supplementary Information Required Under Bangko Sentral ng Pilipinas (BSP)Circular No. 1074 and Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The supplementary information required under BSP Circular No. 1074 in Note 43 andRevenue Regulations 15-2010 in Note 42 to the financial statements is presented for purposes of filingwith the BSP and Bureau of Internal Revenue, respectively, and is not a required part of the basicfinancial statements. Such information is the responsibility of the management of Security BankCorporation. The information has been subjected to the auditing procedures applied in our audit of thebasic financial statements. In our opinion, the information is fairly stated, in all material respects, inrelation to the basic financial statements taken as a whole.

The engagement partner on the audit resulting in this independent auditor’s report is Vicky Lee Salas.

SYCIP GORRES VELAYO & CO.

Vicky Lee SalasPartnerCPA Certificate No. 86838SEC Accreditation No. 0015-AR-4 (Group A), April 16, 2019 valid until April 15, 2022Tax Identification No. 129-434-735BIR Accreditation No. 08-001998-53-2018, February 14, 2018 valid until February 13, 2021PTR No. 8125248, January 7, 2020, Makati City

February 28, 2020

A member firm of Ernst & Young Global Limited

Page 75: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 76: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 77: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 78: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 79: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 80: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 81: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 82: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 83: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the
Page 84: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 2 -

*SGVFS038997*

The Parent Company is the Ultimate Parent Company of the Group.

On August 8, 2019, the BOD of the Parent Company through its Finance Committee approved theterms and conditions of the joint venture agreement and other transaction documents necessary toestablish a consumer finance joint venture with The Bank of Ayudhya Public Company Ltd. (BAY),commonly known as Krungsri, including the sale of 50% of the outstanding shares shares of SBFCIto BAY (see Note 38).

In 2017, the SEC approved the conversion of SBS from a savings bank to a finance company underthe name of SBFCI (see Note 15).

In 2016, the MUFG Bank, Ltd. (MUFG) acquired a 20.0% voting interest in the Parent Company

In 2016, SBCC sold a substantial portion of its existing Diners Club International credit card portfolioand its cardholder base (see Note 15).

In 2014, the Parent Company entered into a distribution agreement with FWD Life InsuranceCorporation (FWD) for the marketing of the FWD’s life insurance products through the ParentCompany’s marketing and distribution network. The distribution agreement was approved by theBSP on December 22, 2014 under Monetary Board Resolution No. 2073, through its letter to theParent Company dated January 7, 2015, and the Insurance Commission on January 12, 2015. Asrequired under BSP Circular 844, Cross-selling of Collective Investment Schemes and OtherAmendments to Circular No. 801 on Revised Cross-selling Framework which amended Section X172of the Manual of Regulations for Banks (MORB Cross-Selling Framework, cross-selling of financialproducts within the bank premises should be done by a regulated financial entity belonging to thesame financial conglomerate. Accordingly, a voting trust agreement executed by FWD took effectupon BSP approval of the distribution agreement where the Parent Company can exercise 10% votingrights at any of FWD’s shareholders’ meeting.

2. Summary of Significant Accounting Policies

Basis of PreparationThe accompanying consolidated financial statements include the financial statements of the ParentCompany and its subsidiaries.

The accompanying financial statements have been prepared on a historical cost basis except forfinancial assets and financial liabilities at Fair Value through Profit or Loss (FVTPL), financial assetsat Fair Value through Other Comprehensive Income (FVTOCI) and derivative assets and liabilitiesdesignated as hedges that have been measured at fair value. The carrying values of recognized loansand receivables and investment securities at amortized cost that are hedged items in fair value hedges,and otherwise carried at amortized cost, are adjusted to record changes in fair value attributable to therisks that are being hedged. The financial statements are presented in Philippine Peso and all valuesare rounded to the nearest thousand peso (P=000) except when otherwise indicated.

The financial statements of the Parent Company include the accounts maintained in the RegularBanking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The functional currency of theRBU and the FCDU is the Philippine peso and United States dollar (USD), respectively. Forfinancial reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBUare translated into their equivalents in Philippine peso, which is the Parent Company’s presentationcurrency. The financial statements individually prepared for these units are combined aftereliminating inter-unit accounts.

Page 85: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 3 -

*SGVFS038997*

The consolidated financial statements provide comparative information in respect of the previousperiod.

Each entity in the Group determines its own functional currency and the items included in thefinancial statements of each entity are measured using that functional currency. The functionalcurrency of each of the Parent Company’s subsidiaries is the Philippine Peso.

Statement of ComplianceThe accompanying financial statements have been prepared in compliance with Philippine FinancialReporting Standards (PFRS).

Basis of ConsolidationThe consolidated financial statements of the Group are prepared for the same reporting period as thesubsidiaries, using consistent accounting policies.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvementwith the investee and has the ability to affect those returns through its power over the investee.Specifically, the Group controls an investee if and only if the Group has:

· Power over the investee (i.e., existing rights that give it the current ability to direct the relevantactivities of the investee);

· Exposure, or rights, to variable returns from its involvement with the investee; and· The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Groupconsiders all relevant facts and circumstances in assessing whether it has power over an investee,including:

· The contractual arrangement with the other vote holders of the investee;· Rights arising from other contractual arrangements; and· The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate thatthere are changes to one or more of the three elements of control. Consolidation of a subsidiarybegins when the Group obtains control over the subsidiary and ceases when the Group loses controlof the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed ofduring the year are included in the statement of comprehensive income from the date the Group gainscontrol until the date the Group ceases to control the subsidiary.

Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equityholders of the Parent Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financialstatements of subsidiaries to bring their accounting policies used in line with those used by the Group.All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactionsbetween members of the Group are eliminated in full on consolidation.

Page 86: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 4 -

*SGVFS038997*

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If the Group loses control over a subsidiary, it:

· derecognizes the assets (including goodwill) and liabilities of the subsidiary;· derecognizes the carrying amount of any non-controlling interests;· derecognizes the cumulative translation differences recorded in equity;· recognizes the fair value of the consideration received;· recognizes the fair value of any investment retained;· recognizes any surplus or deficit in profit or loss; and· reclassifies the Parent Company’s share of components’ gains (losses) previously recognized in

OCI to profit or loss or surplus, as appropriate, as would be required if the Group had directlydisposed of the related assets or liabilities.

Non-controlling InterestNon-controlling interest represents the portion of profit or loss and net assets not owned, directly orindirectly, 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 statementof financial position, separately from equity attributable to the Parent Company. Any lossesapplicable to the non-controlling interests are allocated against the interests of the non-controllinginterest even if this results in the non-controlling interest having a deficit balance. Acquisitions ofnon-controlling interests that do not result in a loss of control are accounted for as equity transactions,whereby the difference between the consideration and the fair value of the share of the net assetsacquired is recognized as an equity transaction and attributed to the owners of the Parent Company.

Changes in Accounting PoliciesExcept for the following standards and amended PFRS which were adopted as of January 1, 2019, theaccounting policies and methods of computation adopted in the preparation of the financialstatements are consistent with those followed in the previous financial year. These new and revisedaccounting standards have no impact to the Group, except for PFRS 16.

Amendments to Standards· Amendments to PAS 19, Plan Amendment, Curtailment or Settlement· Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures· Amendments to PFRS 9, Prepayment Features with Negative Compensation· Annual Improvements 2015-2017 Cycle (issued in December 2017)Ø Amendments to PFRS 3 and PFRS 11 - Previously Held Interest in a Joint OperationØ Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as EquityØ Amendments to PAS 23, Borrowing Costs Eligible for Capitalization

PFRS 16, LeasesPFRS 16 supersedes PAS 17, Leases. The standard sets out the principles for the recognition,measurement, presentation and disclosure of leases and requires lessees to account for most leasesunder a single on-balance sheet model. Lessor accounting under PFRS 16 is substantially unchangedfrom PAS 17. Lessors will continue to classify leases as either operating or finance leases usingsimilar principles as in PAS 17. Therefore, PFRS 16 has no material impact for leases where theGroup is the lessor, except for additional required disclosures for lessors under PFRS 16.

Page 87: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 5 -

*SGVFS038997*

The Group adopted PFRS 16 using the modified retrospective approach with the date of initialapplication at January 1, 2019. Under this method, the standard is applied retrospectively with thecumulative effect of initially applying the standard recognized at the date of initial application. TheGroup elected to use the recognition exemptions for lease contracts that, at the commencement date,have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), andlease contracts for which the underlying asset is of low value (‘low-value assets’).

The effect of adopting PFRS 16 on the statement of financial position (increase/(decrease)) as atJanuary 1, 2019 follow:

Consolidated ParentRight-of-use assets - net (Note 16) P=1,583,221 P=1,575,892Lease liability (Note 25) 1,735,106 1,726,152Deferred tax asset 18,118 17,676Accrued rent 91,492 91,339Investment in subsidiaries − (947)Retained earnings (42,275) (42,192)

The lease liability as at January 1, 2019 can be reconciled to the operating lease commitments as ofDecember 31, 2018, as follows:

Consolidated ParentOperating lease commitments as at December 31, 2018 P=1,591,464 P=1,580,396Add: Lease payments relating to renewal periods not

included in operating lease commitments as atDecember 31, 2018 283,661 285,162

Less: Commitments relating to short-term leases (21,170) (21,170)Total gross lease payments as of January 1, 2019 1,853,955 1,844,388Weighted average incremental borrowing rate as at

January 1, 2019 6.85% 6.85%Lease liability as at January 1, 2019 P=1,735,106 P=1,726,152

Philippine Interpretation IFRIC 23, Uncertainty over Income Tax TreatmentsThe Interpretation addresses the accounting for income taxes when tax treatments involve uncertaintythat affects the application of PAS 12, Income Taxes. It does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments. The Interpretation specifically addresses the following:

· Whether an entity considers uncertain tax treatments separately· The assumptions an entity makes about the examination of tax treatments by taxation authorities· How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits

and tax rates· How an entity considers changes in facts and circumstances

The Group determines whether to consider each uncertain tax treatment separately or together withone or more other uncertain tax treatments and uses the approach that better predicts the resolution ofthe uncertainty.

The Group applies significant judgement in identifying uncertainties over income tax treatments. ThePhilippine tax authority has sole jurisdiction over the operations of Group. Likewise, entities withinthe Group are not covered by multiple tax regimes. Generally, income tax reconciling items (e.g.,

Page 88: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 6 -

*SGVFS038997*

temporary and permanent differences) are similar across the Group. These are supported by specificprovisions under the Tax Code, as amended, Revenue Regulations (RR) issued by the BIR, and otherrelevant Laws enacted by the Philippine Legislature, among others. Upon adoption of theInterpretation, the Group considered whether it has any uncertain tax positions, particularly thoserelating to cost and expenses allocation methodology as prescribed under RR No. 4-2011, Rules onthe allocation of cost and expenses between the Regular Banking Unit or Foreign CurrencyUnit/Expanded Foreign Currency Deposit Unit or Offshore Banking Unit. The Group determined,based on Regional Trial Court’s Decision nullifying the subject RR and opinion from the externalcounsel handling the case that it has a very strong case and that its position is also based on legalgrounds under the National Internal Revenue Code (NIRC), that it is probable that its tax treatmentswill be accepted by the Philippine taxation authority. The Interpretation did not have an impact on theconsolidated financial statements of the Group.

Fair Value MeasurementFor measurement and disclosure purposes, the Group determines the fair value of an asset or liabilityat initial measurement or at each statement of financial position date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date (i.e., an exit price). The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer the liabilitytakes place either:

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

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

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

If the asset or liability measured at fair value has a bid and ask price, the price within the bid-askspread that is most representative of fair value in the circumstances shall be used to measure fairvalue, regardless of where the input is categorized within the fair value hierarchy.

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

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

All assets and liabilities for which fair value is measured or disclosed in the financial statements arecategorized within the fair value hierarchy, described as follows, based on the lowest level input thatis 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

Page 89: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 7 -

*SGVFS038997*

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Groupdetermines whether transfers have occurred between Levels in the hierarchy by re-assessingcategorization (based on the lowest level input that is significant to the fair value measurement as awhole) at the end of each reporting period.

External appraisers are involved for valuation of significant non-financial assets, such as investmentproperties. Selection criteria include market knowledge, reputation, independence and whetherprofessional standards are maintained.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities onthe basis of the nature, characteristics and risks of the asset or liability and the level of the fair valuehierarchy (see Note 6).

Financial Instruments - Initial Recognition and Subsequent MeasurementDate of recognitionRegular way purchases and sales of financial assets that require delivery of assets within the timeframe generally established by regulation or convention in the market, except for derivatives, arerecognized on the settlement date. Settlement date is the date on which the transaction is settled bydelivery of the assets that are the subject of the agreement. Settlement date accounting refers to (a)the recognition of an asset on the day it is received by the Group, and (b) the derecognition of an assetand recognition of any gain or loss on disposal on the day that it is delivered by the Group. Deposits,amounts due to banks and customers, loans and receivables and spot transactions are recognized whencash is received by the Group or advanced to the borrowers.

Derivatives are recognized on trade date - the date that the Group becomes a party to the contractualprovisions of the instrument. Trade date accounting refers to (a) the recognition of an asset to bereceived and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold,recognition of any gain or loss on disposal and the recognition of a receivable from the buyer forpayment on the trade date.

Initial recognition of financial instrumentsAll financial assets and financial liabilities are recognized initially at fair value plus any directlyattributable cost of acquisition or issue, except in the case of financial assets and financial liabilities atFVTPL.

‘Day 1’ differenceWhere the transaction price is different from the fair value based on other observable current markettransactions in the same instrument or based on a valuation technique whose variables include onlydata from observable market, the Group immediately recognizes the difference between thetransaction price and the fair value of the instrument (a ‘Day 1’ difference) in the statement of incomeunless it qualifies for recognition as some other type of asset or liability. In cases where data used isnot observable, the difference between the transaction price and model value is only recognized in thestatement of income when the inputs become observable or when the instrument is derecognized. Foreach transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ differenceamount.

Classification and Measurement of Financial AssetsFor purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is a non-derivative and meets the definition of ‘equity’ from the point of view of the issuer (under PAS 32,Financial Instruments: Presentation), except for certain non-derivative puttable instrumentspresented as equity by the issuer. All other non-derivative financial instruments are ‘debtinstruments’.

Page 90: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 8 -

*SGVFS038997*

Business model assessmentThe Group determines its business model at the level that best reflects how it manages groups offinancial assets to achieve its business objective. The Group's business model is not assessed on aninstrument-by-instrument basis, but at a higher level of aggregated portfolios and is based onobservable factors such as:

· How the performance of the business model and the financial assets held within that businessmodel are evaluated and reported to the entity's key management personnel

· The risks that affect the performance of the business model (and the financial assets held withinthat business model) and, in particular, the way those risks are managed

· The expected frequency, value and timing of sales are also important aspects of the Group’sassessment

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’or ‘stress case’ scenarios into account. If cash flows after initial recognition are realized in a way thatis different from the Group's original expectations, the Group does not change the classification of theremaining financial assets held in that business model, but incorporates such information whenassessing newly originated or newly purchased financial assets going forward.

The solely payments of principal and interest (SPPI) testAs a second step of its classification process the Group assesses the contractual terms of financialassets to identify whether they meet the SPPI test.

‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initialrecognition and may change over the life of the financial asset (for example, if there are repaymentsof principal or amortization of the premium/discount).

The most significant elements of interest within a lending arrangement are typically the considerationfor the time value of money and credit risk. To make the SPPI assessment, the Group appliesjudgement and considers relevant factors such as the currency in which the financial asset isdenominated, and the period for which the interest rate is set.

In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility inthe contractual cash flows that are unrelated to a basic lending arrangement do not give rise tocontractual cash flows that are solely payments of principal and interest on the amount outstanding.In such cases, the financial asset is required to be measured at FVTPL.

Financial assets at amortized costDebt financial assets are measured at amortized cost if both of the following conditions are met:

· the asset is held within the Group’s business model whose objective is to hold assets in order tocollect contractual cash flows; and

· the contractual terms of the instrument give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal amount outstanding.

Debt financial assets meeting these criteria are measured initially at fair value plus transaction costs.They are subsequently measured at amortized cost using the effective interest method less anyimpairment in value, with the interest calculated recognized as ‘Interest income’ in the statement ofincome. The Group classified ‘Cash and other cash items (COCI)’, ‘Due from BSP’, ‘Due from otherbanks’, ‘Interbank loans receivable and Securities purchased under resale agreements (SPURA) withthe BSP’, ‘Investment securities at amortized cost’, ‘Loans and receivables’, and cash collateral

Page 91: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 9 -

*SGVFS038997*

deposits and security deposits (included under ‘Other assets’) as financial assets at amortized cost.

The Group may irrevocably elect at initial recognition to classify a debt financial asset that meets theamortized cost criteria above as at FVTPL if that designation eliminates or significantly reduces anaccounting mismatch had the debt financial asset been measured at amortized cost.

Financial assets at FVTPLDebt financial assets that do not meet the amortized cost criteria, or that meet the criteria but theGroup has chosen to designate as at FVTPL at initial recognition, are measured at fair value throughprofit or loss.

Equity investments are classified as at FVTPL, unless the Group designates an investment that is notheld for trading as at FVTOCI at initial recognition.

A financial asset is held for trading if:

· it has been acquired principally for the purpose of selling it in the near term; or· on initial recognition it is part of a portfolio of identified financial instruments that the Group

manages together and has evidence of a recent actual pattern of short-term profit-taking; or· it is a derivative that is not designated and effective as a hedging instrument or a financial

guarantee.

The Group’s financial assets at FVTPL include government securities, private bonds and equitysecurities held for trading purposes, debt and hybrid instruments that do not meet the amortized costcriteria, and equity investments not designated as at FVTOCI.

As of December 31, 2019 and 2018, the Group has not designated any debt instrument that meets theamortized cost criteria as at FVTPL.

Financial assets at FVTPL are carried at fair value and gains and losses on these instruments arerecognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned on theseinvestments is reported in the statement of income under ‘Interest income’ while dividend income isreported in the statement of income under ‘Miscellaneous income’ when the right of payment hasbeen established. Quoted market prices, when available, are used to determine the fair value of thesefinancial instruments. If a financial asset at FVTPL has a bid and ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fairvalue. If quoted market prices are not available, their fair values are estimated based on marketobservable inputs. For all other financial instruments not listed in an active market, the fair value isdetermined by using appropriate valuation techniques.

The fair value of financial assets denominated in a foreign currency is determined in that foreigncurrency and translated at the Bankers Association of the Philippines (BAP) closing rate at thestatement of financial position date. The foreign exchange component forms part of its fair valuegain or loss. For financial assets classified as at FVTPL, the foreign exchange component isrecognized in the statement of income. For foreign currency-denominated debt instruments classifiedas at amortized cost, the foreign exchange gains and losses are determined based on the amortizedcost of the asset and are recognized in the statement of income.

Page 92: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 10 -

*SGVFS038997*

Equity instruments at FVTOCIAt initial recognition, the Group can make an irrevocable election (on an instrument-by-instrumentbasis) to designate equity investments as at FVTOCI. Designation as at FVTOCI is not permitted ifthe equity investment is held for trading.

Equity investments as at FVTOCI are initially measured at fair value plus transaction costs.Subsequently, they are measured at fair value, with no deduction for sale or disposal costs. Gains andlosses arising from changes in fair value are recognized in other comprehensive income andaccumulated in ‘Net unrealized gain on financial assets at FVTOCI’ in the statement of financialposition. Where the asset is disposed of, the cumulative gain or loss previously recognized in ‘Netunrealized gain on financial assets at FVTOCI’ is not reclassified to profit or loss, but is reclassifiedto ‘Surplus’. Equity instruments at FVTOCI are not subject to an impairment assessment.

As of December 31, 2019 and 2018, the Group has designated certain equity instruments that are notheld for trading as at FVTOCI on initial application of PFRS 9 (see Note 12).

Dividends earned on holding these equity instruments are recognized in the statement of incomewhen the Group’s right to receive the dividends is established in accordance with PFRS 9, unless thedividends clearly represent recovery of a part of the cost of the investment. Dividends earned arerecognized under ‘Miscellaneous income’ in the statement of income.

Debt instruments at FVTOCI (Policy applicable from January 1, 2018)The Group applies the new category under PFRS 9 of debt instruments measured at FVTOCI whenboth ofthe following conditions are met:

· The instrument is held within a business model, the objective of which is achieved by bothcollecting contractual cash flows and selling financial assets

· The contractual terms of the financial asset meet the SPPI test

Debt instruments at FVTOCI are subsequently measured at fair value with gains and losses arisingdue to changes in fair value recognized in OCI. Interest income and foreign exchange gains andlosses are recognized in profit or loss in the same manner as for financial assets measured atamortized cost. On derecognition, cumulative gains or losses previously recognized in OCI arereclassified from OCI to profit or loss.

Derivative instrumentsThe Parent Company uses derivative instruments such as cross-currency swaps, interest rate swaps,foreign currency forward contracts, options on foreign currencies and bonds and interest rate futures.These derivatives are entered into as a service to customers and as a means for reducing or managingthe Parent Company’s respective foreign exchange and interest rate exposures, as well as for tradingpurposes. Such derivative instruments are initially recorded at fair value and carried as financialassets at FVTPL when their fair value is positive and as financial liabilities at FVTPL when their fairvalue is negative.

Any gains or losses arising from changes in fair value of derivative instruments (except for foreigncurrency forwards) are recognized as ‘Trading and securities gain - net’. For foreign currencyforwards, changes in fair value are recognized in ‘Foreign exchange gain - net’ in the statement ofincome.

Interest income is recognized in the statement of income if the “receive leg” is higher than the “payleg” of interest-earning derivatives. Interest expense is recognized in the statement of income if the“pay leg” is higher than the “receive leg” of interest-bearing derivatives.

Page 93: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 11 -

*SGVFS038997*

Derivatives embedded in non-derivative host contracts that are not financial assets within the scope ofPFRS 9 (e.g., financial liabilities and non-financial host contracts) are treated as separate derivativeswhen their risks and characteristics are not closely related to those of the host contracts and the hostcontracts are not measured at FVTPL.

The Group assesses the existence of an embedded derivative on the date it first becomes a party to thecontract, and performs re-assessment only where there is a change to the contract that significantlymodifies the contractual cash flows.

As of December 31, 2019 and 2018, the Parent Company’s hybrid financial instruments are classifiedas at FVTPL (see Note 10).

Reclassification of financial assetsThe Group can reclassify financial assets if the objective of its business model for managing thosefinancial assets changes. The Group is required to reclassify the following financial assets:

· from amortized cost to FVTPL if the objective of the business model changes so that theamortized cost criteria are no longer met; and

· from FVTPL to amortized cost if the objective of the business model changes so that theamortized cost criteria start to be met and the instrument’s contractual cash flows meet theamortized cost criteria; and

· from FVTOCI to amortized cost if the objective of the business model changes so that the fairvalue criteria are no longer met but the amortized cost criteria are still met and the instrument’scontractual cash flows meet the amortized cost criteria.

Reclassification of financial assets designated as at FVTPL or equity financial assets at FVTOCI atinitial recognition is not permitted.

A change in the objective of the Group's business model must be effected before the reclassificationdate. The reclassification date is the beginning of the next reporting period following the change inthe business model.

Impairment of Financial Assets on or after January 1, 2018The Group and the Parent Company record the allowance for expected credit losses for all loans andreceivables and other debt financial assets not held at FVTPL, together with loan commitments andfinancial guarantee contracts, all referred to as ‘financial instruments’. Equity instruments are notsubject to impairment under PFRS 9.

ECL represents credit losses that reflect an unbiased and probability-weighted amount which isdetermined by evaluating a range of possible outcomes, the time value of money and reasonable andsupportable information about past events, current conditions and forecasts of future economicconditions. ECL allowances are measured at amounts equal to either (i) 12-month ECL or (ii)lifetime ECL for those financial instruments which have experienced a significant increase in creditrisk (SICR) since initial recognition (General Approach). The 12-month ECL is the portion oflifetime ECL that results from default events on a financial instrument that are possible within the 12months after the reporting date. Lifetime ECL are credit losses that results from all possible defaultevents over the expected life of a financial instrument.

Staging assessmentA three-stage approach for impairment of financial assets is used, based on whether there has been asignificant deterioration in the credit risk of a financial asset. These three stages then determine theamount of impairment to be recognized.

Page 94: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 12 -

*SGVFS038997*

For non-credit-impaired financial instruments:· Stage 1 is comprised of all financial instruments which have not experienced a SICR since initial

recognition or is considered of low credit risk as of the reporting date. The criteria fordetermining whether an account should be assessed under Stage 1 are as follows: (i) current orpast due up to 30 days; (ii) unclassified; or (iii) no significant increase in the probability ofdefault (PD). For the wholesale loans, stage 1 criteria (i), (ii), and (iii) are considered; while forthe retail loans, stage 1 criteria (i), and (ii) are used. The Group recognizes a 12-month ECL forStage 1 financial instruments.

· Stage 2 is comprised of all financial instruments which have experienced a SICR as of reportingdate compared to initial recognition. A SICR is generally deemed present in accounts with: (i)more than 30 days up to 90 days past due; (ii) loan especially mentioned or substandard; or (iii)with significant increase in PD. For the wholesale loans, stage 2 criteria (i), (ii), and (iii) areconsidered; while for the retail loans, only stage 2 criteria (i) is used. The Group recognizes alifetime ECL for Stage 2 financial instruments.

For credit-impaired financial instruments:· Stage 3 is comprised of all financial assets that have objective evidence of impairment as a result

of one or more loss events that have occurred after initial recognition with a negative impact onthe estimated future cash flows of a loan or a portfolio of loans. The Group’s criteria for Stage 3accounts are generally aligned with the definition of “default” which is explained in the nextparagraph. The Group recognizes a lifetime ECL for Stage 3 financial instruments.

Definition of “default” and “restored”The Group classifies loans, investments, receivables, or any financial asset as in default when it iscredit impaired, becomes past due on its contractual payments for more than 90 days, considered non-performing, under litigation or is classified as doubtful or loss. As part of a qualitative assessment ofwhether a customer is in default, the Group considers a variety of instances that may indicateunlikeliness to pay. When such events occur, the Group carefully considers whether the event shouldresult in treating the customer as defaulted. An instrument is considered to be no longer in default(i.e., restored) if there is sufficient evidence to support that full collection is probable and paymentsare received for at least six months.

Credit risk at initial recognitionThe Group uses internal credit assessment and approvals at various levels to determine the credit riskof exposures at initial recognition. Assessment can be quantitative or qualitative and depends on themateriality of the facility or the complexity of the portfolio to be assessed.

For accounts originated before the transition date, an approximation of the initial PD at originationwas utilized. Average PD per portfolio was used as approximated initial PD at origination. Averageof the Point-in-Time PDs was used since most of the accounts were booked in the same year.

Significant increase in credit riskThe assessment of whether there has been a significant increase in credit risk is based on an increasein the probability of a default occurring since initial recognition. The SICR criteria vary by portfolioand include quantitative changes in probabilities of default and qualitative factors, including abackstop based on delinquency. The credit risk of a particular exposure is deemed to have increasedsignificantly since initial recognition if, based on the Group’s internal credit assessment, the borroweror counterparty is determined to require close monitoring or with well-defined credit weaknesses.For exposures without internal credit grades, if contractual payments are more than 30 days past due,the credit risk is deemed to have increased significantly since initial recognition. Days past due aredetermined by counting the number of days since the earliest elapsed due date in respect of which full

Page 95: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 13 -

*SGVFS038997*

payment has not been received. Due dates are determined without considering any grace period thatmight be available to the borrower. In subsequent reporting periods, if the credit risk of the financialinstrument improves such that there is no longer a SICR since initial recognition, the Group shallrevert to recognizing a 12-month ECL

ECL parameters and methodologiesECL is a function of the probability of default (PD), loss given default (LGD) and exposure at default(EAD), with the timing of the loss also considered, and is estimated by incorporating forward-lookingeconomic information and through the use of experienced credit judgment.

The PD is an estimate of the likelihood of default over a 12-month horizon for Stage 1 or lifetimehorizon for Stages 2 and 3. The PD for each individual instrument is modelled based on historic dataand is estimated based on current market conditions and reasonable and supportable informationabout future economic conditions. The Group segments its credit exposures based on homogenousrisk characteristics and developed a corresponding PD methodology for each portfolio. The PDmethodology for each relevant portfolio is determined based on the underlying nature orcharacteristic of the portfolio, behavior of the accounts and materiality of the segment as compared tothe total portfolio.

LGD is an estimate of the loss arising on default. It is based on the difference between the contractualcash flows due and those that the lender would expect to receive, including from any collateral. Itmakes use of defaulted accounts that have either been identified as cured, restructured, or liquidated.The Group segmented its LGD based on homogenous risk characteristics and calculated thecorresponding averages based on security.

EAD is an estimate of the exposure at a future default date, taking into account expected changes inthe exposure after the reporting date, including repayments of principal and interest, and expecteddrawdowns on committed facilities.

Forward-looking informationThe Group incorporates forward-looking information into both its assessment of whether the creditrisk of an instrument has increased significantly since its initial recognition and its measurement ofECL. A broad range of forward-looking information are considered as economic inputs, such as GDPgrowth, exchange rate, interest rate, inflation rate and other economic indicators. The inputs andmodels used for calculating ECL may not always capture all characteristics of the market at the dateof the financial statements. To reflect this, qualitative adjustments or overlays are occasionally madeas temporary adjustments when such differences are significantly material.

The key forward-looking economic variables used in each of the economic scenarios for the ECLcalculations are GDP growth, household expenditure, PSE all shares index, and interest ratebenchmark for 3 months.

Debt instruments measured at FVTOCIThe ECLs for debt instruments measured at FVTOCI do not reduce the carrying amount of thesefinancial assets in the statement of financial position, which remains at fair value. Instead, an amountequal to the allowance that would arise if the assets are measured at amortized cost is recognized inOCI as an accumulated impairment amount, with a corresponding charge to profit or loss. Theaccumulated loss recognized in OCI is recycled to the profit and loss upon derecognition of theassets.

Page 96: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 14 -

*SGVFS038997*

Consumer loans and credit card receivablesThe Group does not limit its exposure to credit losses to the contractual notice period, but, insteadcalculates ECL over a period that reflects the Group’s expectations of the customer behaviour, itslikelihood of default and the Group’s future risk mitigation procedures, which could include reducingor cancelling the facilities. Based on past experience and the Group’s expectations, the period overwhich the Group calculates ECLs for these products is based on the remaining term.

Restructured loansWhere possible, the Group seeks to restructure loans rather than to take possession of collateral. Thismay involve extending the payment arrangements and the agreement of new loan conditions. Oncethe terms have been renegotiated, the loan is no longer considered as past due. Managementcontinuously reviews restructured loans to ensure that all criteria are met and that future payments arelikely to occur.

Write-offsThe Group’s accounting policy for write-offs remains the same as it was under previous version ofPFRS 9.

Impairment of Financial Assets before January 1, 2018The Group assesses at each statement of financial position date whether there is any objectiveevidence that a financial asset or a group of financial assets is impaired. A financial asset or a groupof financial assets is deemed to be impaired, if and only if, there is objective evidence as a result ofone or more events that had occurred after the initial recognition of the asset and that loss event hasan impact on the estimated future cash flows of the financial asset or the group of financial assets thatcan be reliably estimated. Evidence of impairment may include indications that the borrower or agroup of borrowers is experiencing significant financial difficulty, default or delinquency in interestor principal payments, the probability that they will enter bankruptcy or other financial reorganizationand where observable data indicate that there is measurable decrease in the estimated future cashflows, such as changes in arrears or economic conditions that correlate with defaults.

a. Financial assets carried at amortized cost (other than credit card receivables and consumerloans)The Group first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, or collectively for financial assets that are notindividually significant. For individually assessed financial assets, the amount of the loss ismeasured as the difference between the assets’ carrying amount and the present value ofestimated future cash flows (excluding future credit losses that have not been incurred). Thepresent value of the estimated future cash flows is discounted at the financial asset’s originaleffective interest rate (EIR). If a loan has a variable interest rate, the discount rate for measuringany impairment loss is the current EIR. The calculation of the present value of the estimatedfuture cash flows of a collateralized financial asset reflects the cash flow that may result fromforeclosure less costs for obtaining and selling the collateral, whether or not foreclosure isprobable. The carrying amount of the asset is reduced through the use of an allowance accountand the amount of loss is recognized in ‘Provision for credit losses’ in the statement of income.Interest income continues to be recognized based on the original EIR of the asset. Loans andreceivables, together with the associated allowance accounts, are written off when there is norealistic prospect of future recovery and all collateral has been realized. If, in a subsequent year,the amount of the impairment loss increases or decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is increased or reduced byadjusting the allowance account. If a future write off is later recovered, the recovery is creditedto ‘Recovery on charged-off assets’ in the statement of income.

Page 97: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 15 -

*SGVFS038997*

If the Group determines that no objective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, the asset is included in a group of financialassets with similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment. Assets that are individually assessed for impairment and for which animpairment loss is or continues to be recognized are not included in a collective assessment ofimpairment.

For the purpose of a collective assessment of impairment, financial assets are grouped on thebasis of the industry of the borrower. Future cash flows on a group of financial assets that arecollectively assessed for impairment are estimated on the basis of historical loss experience forthe assets with credit risk characteristics similar to those in the group. Historical loss experienceis adjusted on the basis of current observable data to reflect the effects of current conditions onwhich the historical loss experience is based and to remove the effects of conditions in thehistorical period that do not exist currently. Estimates of changes in future cash flows reflect, andare directionally consistent with, changes in related observable data from year to year. Themethodology and assumptions used for estimating future cash flows are reviewed regularly toreduce any differences between loss estimates and actual loss experience.

b. Consumer loans and credit card receivablesThe Group’s consumer loans and receivables from credit cardholders are assessed for impairmentcollectively because these receivables are not individually significant. The allowance for creditlosses is determined based on the results of the net flow to write-off methodology. Net flowtables are derived from account-level monitoring of monthly peso movements between differentage buckets, from 1 day past due to 180 days past due. The net flow to write-off methodologyrelies on the historical data of net flow tables to establish a percentage (‘net flow rate’) ofreceivables that are current or in any state of delinquency (i.e., 30, 60, 90, 120, 150 and 180 dayspast due) as of reporting date that will eventually result in write-off. The gross provision is thencomputed based on the outstanding balances of these receivables from credit cardholders andconsumer loans as of the statements of financial position date and the net flow rates determinedfor the current and each delinquency bucket. The carrying amounts of receivables from consumerloans and credit cardholders are reduced for impairment through the use of an allowance account.

c. Restructured loansWhere possible, the Group seeks to restructure loans rather than to take possession of collateral.This may involve extending the payment arrangements and the agreement of new loan conditions.Once the terms have been renegotiated, the loan is no longer considered as past due.Management continuously reviews restructured loans to ensure that all criteria are met and thatfuture payments are likely to occur. The loan continues to be subject to an individual impairmentcalculated using the original EIR or collective impairment.

Financial LiabilitiesFinancial liabilities at FVTPLFinancial liabilities are classified as at FVTPL when the financial liability is either held for trading orit is designated as at FVTPL.

Financial liabilities held for trading include:

· derivative liabilities that are not accounted for as hedging instruments;· obligations to deliver financial assets borrowed by a short seller (i.e., an entity that sells financial

assets it has borrowed and does not yet own);

Page 98: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 16 -

*SGVFS038997*

· financial liabilities that are incurred with an intention to repurchase them in the near term (e.g., aquoted debt instrument that the issuer may buy back in the near term depending on changes in itsfair value ); and

· financial liabilities that are part of a portfolio of identified financial instruments that are managedtogether and for which there is evidence of a recent pattern of short-term profit-taking.

Management may designate a financial liability as at FVTPL upon initial recognition when thefollowing criteria are met, and designation is determined on an instrument-by-instrument basis:

· The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the liabilities or recognizing gains or losses on them on adifferent basis; or

· The liabilities are part of a group of financial liabilities which are managed and their performanceevaluated on a fair value basis, in accordance with a documented risk management or investmentstrategy; or

· The financial instrument contains an embedded derivative, unless the embedded derivative doesnot significantly modify the cash flows or it is clear, with little or no analysis, that it would not beseparately recorded.

Financial liabilities at FVTPL are recorded in the statements of financial position at fair value.Changes in fair value of financial instruments are recorded in ‘Trading and securities gain - net’ in thestatement of income. Interests incurred are recorded in ‘Interest expense’ in the statement of income.

Bills payable and other borrowed fundsBills payable and other borrowed funds are issued financial instruments or their components, whichare not financial liabilities at FVTPL. They are classified as such when the substance of thecontractual arrangement results in the Group having an obligation either to deliver cash or anotherfinancial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amountof cash or another financial asset for a fixed number of own equity shares.

After initial measurement, bills payable and similar financial liabilities not qualified as and notrecognized as financial liabilities at FVTPL, are subsequently measured at amortized cost using theeffective interest method. Amortized cost is calculated by taking into account any discount orpremium on the issue and fees that are an integral part of the EIR.

Derecognition of Financial Assets and Liabilities

Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of financial assets)is derecognized when:· the rights to receive cash flows from the asset have expired; or· the Group retains the right to receive cash flows from the asset, but has assumed an obligation to

pay them in full without material delay to a third party under a pass-through arrangement; or· the Group has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained the risks and rewards of the asset, but has transferred control over the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, and has neither transferred nor retained substantially all the risks andrewards of the asset nor transferred control over the asset, the asset is recognized to the extent of theGroup’s continuing involvement in the asset. Continuing involvement that takes the form of a

Page 99: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 17 -

*SGVFS038997*

guarantee over the transferred asset is measured at the lower of original carrying amount of the assetand the maximum amount of consideration that the Group could be required to repay.

Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged, cancelled orhas expired. When an existing financial liability is replaced by another from the same lender onsubstantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and the recognition of anew liability, and the difference in the respective carrying amounts is recognized in the statement ofincome.

Financial Guarantees (Policy applicable from January 1, 2018)In the ordinary course of business, the Parent Company provides financial guarantees. Financialguarantees are initially recognized in the financial statements at fair value, and the initial fair value isamortized over the life of the financial guarantee in accordance with PFRS 15. The financialguarantee is subsequently carried at the higher of the amount of loss allowance determined inaccordance with the expected credit loss model and the amount initially recognized, less whenappropriate, the cumulative amount of income recognized in accordance with PFRS 15.

Financial Guarantees (Policy applicable before January 1, 2018)Financial guarantees are initially recognized in the financial statements at fair value, and the initialfair value is amortized over the life of the financial guarantee. The guarantee liability is subsequentlycarried at the higher of the amortized amount and the present value of any expected payment (when apayment under the guaranty has become probable).

Hedge Accounting beginning January 1, 2018Part of the Parent Company’s risk management strategies is to always manage the interest rate risk ofits hold to collect (HTC) portfolio. Consistent with its Market and Liquidity Risk Managementframework, the Parent Company recognizes interest rate risk as a material risk which it shouldmanage. The Parent Company identifies that interest rate risk, especially in the banking book, is therisk that its earnings will decline, immediately or over time, due to adverse movements in interestrates. It is cognizant that interest rate risk arises through some specific products with fixed rates or,more generally because the overall structure of the firm’s balance sheet creates an interest rate riskexposure. Thus, the Parent Company deploys risk control and mitigation approaches, such as risklimits and proactive, ongoing asset liability management, including the use of financial products, e.g.swaps, futures and/ or other approved instruments.

The Parent Company makes use of derivative instruments to manage exposures to interest rate risks,and applies hedge accounting for transactions which meet specified criteria. The risk being hedgedpertains to changes in the fair value of certain layers of the hedged items arising from adversemovements in interest rates during the identified hedge period. The Parent Company hedges an itemin its entirety. Only prospective assessment shall be made on a cumulative basis and whencircumstances affecting hedge effectiveness requirements change significantly.

Possible sources of ineffectiveness are the following:· Difference in measuring floating interest rates which are quarterly versus semi-annual for the

hedging instruments and the hedged items, respectively· Origination date of the hedged item and the hedging instrument

An economic relationship exists when the hedging instrument and the hedged item have values thatgenerally move in opposite directions in response to movements in the same risk (hedged risk).Given that the terms of the hedging instrument is closely aligned with the terms of the hedged item,

Page 100: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 18 -

*SGVFS038997*

the economic relationship is easily observable, and the offsetting nature readily apparent. The mainobjective for hedging is to address risk of changes in the fair value attributable to interest rates. It isexpected that changes in credit risk will not dominate the value changes from the economicrelationship as the interest rate swap shall be governed by the International Swaps and DerivativesAssociation (ISDA) Master Agreement of the Parent Company with the counterparty. Particularly,the Credit Support Annex (CSA) of the said agreement contains the provisions that minimize and/ ormitigate the impact of credit risk (e.g. counterparty default risk on both sides).

The hedge ratio, i.e. the quantity or volume of the hedging instrument per quantity or volume of thehedged item is 1:1. Specifically,· The defined notional amount of the hedged item or bond is also the notional amount on the

hedging instrument or interest rate swap.· The interest rate used to determine the fixed coupon cash flows for the bond is also the rate on the

fixed leg of the interest rate swap.

These result in 100% matching of the fixed interest rate exposure for the bond/ hedged item, which issusceptible to fair value changes due to interest rate movements.

Fair value hedgesFor designated and qualifying fair value hedges, the change in the fair value of a hedging derivative isrecognized under ‘Trading and securities gain - net’ in the statement of income. Meanwhile, thechange in the fair value of the hedged item attributable to the hedged risk is recorded as part of thecarrying value of the hedged item and is also recognized in ‘Trading and securities gain - net’ in thestatements of income.

As of December 31, 2019 and 2018, the Parent Company has outstanding interest rate swapsdesignated as effective hedging instruments in a fair value hedge (see Note 11).

Hedge Accounting before January 1, 2018The Parent Company makes use of derivative instruments to manage exposures to interest rate risks,and applies hedge accounting for transactions which meet specified criteria.

At inception of the hedge relationship, the Parent Company formally designates and documents therelationship between the hedged item and the hedging instrument, including the nature of the riskbeing hedged, the objective and strategy for undertaking the hedge, and the method that will be usedto assess the effectiveness of the hedging relationship. Also, a formal assessment is undertaken toensure that the hedging instrument is expected to be highly effective in offsetting the designated riskin the hedged item. Hedges are formally assessed each quarter. A hedge is expected to be highlyeffective if the cumulative change in the fair value of the hedging instrument during the period isexpected to offset the cumulative change in the fair value attributable to the hedged risk of the hedgeditem by 80.0% to 125.0%.

Fair value hedgesFor designated and qualifying fair value hedges, the change in the fair value of a hedging derivative isrecognized under ‘Trading and securities gain - net’ in the statement of income. Meanwhile, thechange in the fair value of the hedged item attributable to the hedged risk is recorded as part of thecarrying value of the hedged item and is also recognized in ‘Trading and securities gain - net’ in thestatement of income.

If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longermeets the criteria for hedge accounting, the hedge relationship is terminated. For hedged itemsrecorded at amortized cost, the difference between the carrying value of the hedged item on

Page 101: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 19 -

*SGVFS038997*

termination and the face value is amortized over the remaining term of the hedged item using theeffective interest method. If the hedged item is derecognized, the unamortized fair value adjustmentis recognized immediately in the statement of income.

As of January 1, 2018, the Parent Company has no outstanding interest rate swaps designated aseffective hedging instruments in a fair value hedge.

Offsetting of Financial InstrumentsFinancial assets and liabilities are offset and the net amount is reported in the statements of financialposition, if and only if, there is a currently enforceable legal right to offset the recognized amountsand there is an intention to either settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. This is not generally the case with master netting agreements, therefore, the relatedassets and liabilities are presented gross in the statement of financial position.

Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents consist of ‘COCI’, ‘Due from BSP’,‘Due from other banks’, and ‘Interbank loans receivable and SPURA with the BSP’ that areconvertible to known amounts of cash, with original maturities of three months or less from dates ofplacements and that are subject to insignificant risk of changes in value. ‘Due from BSP’ includes thestatutory reserves required by the BSP which the Parent Company considers as cash equivalentswherein drawings can be made to meet cash requirements.

Repurchase and Reverse Repurchase AgreementsSecurities sold under agreements to repurchase at a specified future date (‘repos’) are notderecognized from the statement of financial position. The corresponding cash received, includingaccrued interest, is recognized in the statements of financial position as ‘Securities sold underrepurchase agreements (SSURA)’, reflecting the economic substance of such transaction.

Conversely, securities purchased under agreements to resell at a specified future date (‘reverse repos’)are not recognized in the statements of financial position. The corresponding cash paid, includingaccrued interest, is recognized in the statements of financial position as SPURA, and is considered aloan to the counterparty. The difference between the purchase price and resale price is treated asinterest income and is accrued over the life of the agreement using the effective interest method.

Foreign Currency TranslationTransactions and balancesFor financial reporting purposes, the foreign currency-denominated assets and liabilities in the RBUare translated into their equivalents in Philippine pesos based on the BAP closing rate for 2019 and2018, and the Philippine Dealing System (PDS) closing rate for 2017, prevailing at the statement offinancial position date and foreign currency-denominated income and expenses, at the prevailingexchange rate at the date of transaction. Foreign exchange differences arising from revaluation andtranslation of foreign-currency denominated assets and liabilities are credited to or charged againstoperations in the year in which the rates change.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translatedusing the exchange rates as at the dates of the initial transactions. Non-monetary items measured atfair value in a foreign currency are translated using the exchange rates at the date when the fair valueis determined.

FCDUAs at the reporting date, the assets and liabilities of the FCDU of the Parent Company are translatedinto the Parent Company’s presentation currency (the Philippine Peso) at BAP closing rate prevailing

Page 102: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 20 -

*SGVFS038997*

at the statements of financial position date, and its income and expenses are translated at BAPweighted average rate (BAPWAR) for the year. Exchange differences arising on translation to thepresentation currency are taken to the statement of comprehensive income under ‘Cumulativetranslation adjustment’. Upon disposal of the FCDU or upon actual remittance of FCDU profits toRBU, the deferred cumulative amount recognized in the statement of comprehensive income isrecognized in the statement of income.

Investments in Subsidiaries and a Joint VentureInvestment in subsidiariesSubsidiaries pertain to all entities over which the Group has control.

Interest in a joint ventureA joint venture is a type of joint arrangement where the parties that have joint control of thearrangement have rights to the net assets of the joint venture. Joint control is the contractually agreedsharing of control of an arrangement, which exists only when decisions about the relevant activitiesrequire unanimous consent of the parties sharing control. The Group’s investment in a joint venturerepresents its 60.0% interest in SBML.

The considerations made in determining joint control are similar to those necessary to determinecontrol over subsidiaries.

The Group and the Parent Company’s investment in its subsidiaries and joint venture are accountedfor using the equity method. Under the equity method, the investment in a subsidiary and/or jointventure is initially recognized at cost. The carrying amount of the investment is adjusted to recognizechanges in the Group and the Parent Company’s share of net assets of the subsidiary and/or jointventure since the acquisition date. Goodwill relating to the subsidiary and/or joint venture is includedin the carrying amount of the investment and is neither amortized nor individually tested forimpairment.

The statement of income reflects the Group and the Parent Company’s share of the results ofoperations of the subsidiary and/or joint venture. Any change in OCI of the investee is presented aspart of the Group and the Parent Company’s OCI. In addition, when there has been a changerecognized directly in the equity of the subsidiary and/or joint venture, the Group and the ParentCompany recognizes its share of any changes, when applicable, in the statements of changes inequity. Unrealized gains and losses resulting from transactions between the Group and the jointventure are eliminated to the extent of the interest in the joint venture.

The aggregate of the Group’s share of profit or loss of a subsidiary and joint venture is shown on theface of the statement of income under ‘Share in net income of subsidiaries and a joint venture’ andrepresents profit or loss after tax and non-controlling interests in the subsidiaries and the jointventure.

The financial statements of the subsidiaries and joint venture are prepared for the same reportingperiod as the Group. When necessary, adjustments are made to bring the accounting policies in linewith those of the Group.

After application of the equity method, the Group and the Parent Company determine whether it isnecessary to recognize an impairment loss on its investment in subsidiaries and joint venture. At eachstatement of financial position date, the Group and the Parent Company determines whether there isobjective evidence that the investment in subsidiaries and joint venture is impaired. If there is suchevidence, the Group and the Parent Company calculate the amount of impairment as the difference

Page 103: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 21 -

*SGVFS038997*

between the recoverable amount of the subsidiaries and joint venture and their carrying value, thenrecognizes the loss in the statement of income.

Upon loss of joint control over the subsidiary and/or joint venture, the Group and the Parent Companymeasures and recognizes any retained investment at its fair value. Any difference between thecarrying amount of the joint venture upon loss of joint control and the fair value of the retainedinvestment and proceeds from disposal is recognized in the statement of income.

Transfer of business from subsidiary to the ParentThe Parent Company accounts for the transfer as if it has effectively received a distribution that itaccounts for at the fair value of the business received. Any excess in the fair value of the net assetsreceived over the consideration is recognized in the statement of income. This reflects the assetsacquired and liabilities assumed at their fair value, including goodwill, which will be measured as atthe date of the transfer. These transfers have no effect on the consolidated financial statements.

Property and EquipmentLand is stated at cost less any impairment in value. Depreciable properties including building andimprovements, furniture, fixtures and equipment, transportation equipment and leaseholdimprovements are stated at cost less accumulated depreciation and amortization, and any impairmentin value.

The initial cost of property and equipment consists of its purchase price, including import duties,taxes and any directly attributable costs of bringing the asset to its working condition and location forits intended use. Expenditures incurred after the property and equipment have been put intooperation, such as repairs and maintenance are charged against operations in the year in which thecosts are incurred. In situations where it can be clearly demonstrated that the expenditures haveresulted in an increase in the future economic benefits expected to be obtained from the use of an itemof property and equipment beyond its originally assessed standard of performance, the expendituresare capitalized as an additional cost of property and equipment. When assets are retired or otherwisedisposed of, the cost and the related accumulated depreciation and amortization and any impairmentin value are removed from the accounts, and any resulting gain or loss is reflected as income or lossin the statement of income.

Depreciation is computed using the straight-line method based on the estimated useful life (EUL) ofthe depreciable assets. The range of EUL of property and equipment follows:

YearsBuilding 20Furniture, fixtures and equipment 3-5Transportation equipment 5Leasehold improvements 5-15

Leasehold improvements are amortized over the applicable EUL of the improvements or the terms ofthe related leases, whichever is shorter.

The EUL and the depreciation and amortization method are reviewed periodically to ensure that theperiod and the method of depreciation and amortization are consistent with the expected pattern ofeconomic benefits from items of property and equipment.

The carrying values of property and equipment are reviewed for impairment when events or changesin circumstances indicate the carrying value may not be recoverable. If any such indication exists andwhere the carrying values exceed the estimated recoverable amount, the assets are written down to

Page 104: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 22 -

*SGVFS038997*

their recoverable amounts (see accounting policy on Impairment of Non-financial Assets).

Right-of-use AssetsThe Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date theunderlying asset is available for use). Right-of-use assets are measured at cost, less any accumulateddepreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The costof right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred,and lease payments made at or before the commencement date less any lease incentives received.Right-of-use assets are depreciated on a straight-line basis over the lease term, as follows:

YearsBuildings and improvements 2 to 15Transportation equipment 2 to 3

Investment PropertiesInvestment properties are measured initially at cost including transaction costs. An investmentproperty acquired through an exchange transaction is measured at fair value of the asset acquiredunless the fair value of such an asset cannot be measured in which case the investment propertyacquired is measured at the carrying amount of asset given up. Any gain or loss on exchange isrecognized in the statement of income. Foreclosed properties are classified under ‘Investmentproperties’ upon:

· entry of judgment in case of judicial foreclosure;· execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or· notarization of the Deed of Dacion in case of payment in kind (dacion en pago).

Real properties acquiredDepreciable real properties acquired are carried at cost, which is the fair value at acquisition date, lessaccumulated depreciation and any impairment in value. Land is carried at cost less any impairment invalue. Transaction costs, which include non-refundable capital gains tax and documentary stamp tax,incurred in connection with foreclosure are capitalized as part of the cost of the real propertiesacquired.

The Group applies the cost model in accounting for investment properties. Depreciation is computedon a straight-line basis over the EUL of 10 years. The EUL and the depreciation method arereviewed periodically to ensure that the period and the method of depreciation are consistent with theexpected pattern of economic benefits from items of real properties acquired.

The carrying values of the real properties acquired are reviewed for impairment when events orchanges in circumstances indicate that the carrying value may not be recoverable. If any suchindication exists and where the carrying value exceeds the estimated recoverable amount, the assetsare written down to their recoverable amounts (see accounting policy on Impairment of Non-financialAssets).

Investments in real estateInvestments in real estate consist of investments in land and building. Investments in land are carriedat cost less impairment in value. Building is carried at cost less accumulated depreciation andimpairment in value. All costs that are directly attributable to the acquisition and development ofproperty are capitalized, including borrowing costs incurred to finance the property development.Depreciation is computed on a straight-line basis over 10-15 years.

Page 105: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 23 -

*SGVFS038997*

Investment properties are derecognized when they have either been disposed of or when they arepermanently withdrawn from use and no future economic benefit is expected from its disposal. Anygains or losses on retirement or disposal of investment properties are recognized in the statement ofincome in the year of retirement or disposal as ‘Profit from assets sold/exchanged’.

Other Properties AcquiredOther properties acquired include chattel mortgage properties acquired in settlement of loanreceivables. The Group applies the cost model in accounting for other properties acquired. Under thecost model, these assets are carried at cost, which is the fair value at acquisition date, lessaccumulated depreciation and any impairment in value.

Depreciation is computed on a straight-line basis over the EUL of 3 years. The EUL and thedepreciation method are reviewed periodically to ensure that the period and the method ofdepreciation are consistent with the expected pattern of economic benefits from items of otherproperties acquired.

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

An item of other properties acquired is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset(calculated as the difference between the net disposal proceeds and the carrying amount of the asset)is included in the statement of income as ‘Profit from assets sold/exchanged’ in the year the asset isderecognized.

Intangible AssetsIntangible assets consist of software costs, exchange trading right and branch licenses. An intangibleasset is recognized only when its cost can be measured reliably and it is probable that the expectedfuture economic benefits that are attributable to it will flow to the Group.

Software costsCosts related to software purchased by the Group for use in operations are amortized on a straight-line basis over 3 to 5 years. The amortization period and the amortization method for software costare reviewed periodically to be consistent with the changes in the expected useful life or the expectedpattern of consumption of future economic benefits embodied in the asset. The amortization expenseon software costs is recognized in the statement of income.

Exchange trading rightThe exchange trading right of SBEI is an intangible asset regarded as having an indefinite useful lifeas there is no foreseeable limit to the period over which this asset is expected to generate cashinflows. It is carried at the amount allocated from the original cost of the exchange membership seat(after a corresponding allocation was made to the value of the Philippine Stock Exchange shares) lessimpairment in value. SBEI does not intend to sell the exchange trading right in the near future.

Branch licensesBranch licenses have been acquired and granted by the BSP, and capitalized on the basis of the costincurred to acquire and bring to use in operation. Branch licenses are determined to have indefiniteuseful lives and are tested for impairment annually.

Page 106: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 24 -

*SGVFS038997*

The carrying values of intangible assets with definite useful lives are reviewed for impairment whenevents or changes in circumstances indicate that the carrying value may not be recoverable. If anysuch indication exists and where the carrying values exceed the estimated recoverable amount, theassets are written down to their recoverable amounts (see accounting policy on Impairment of Non-financial Assets).

Business CombinationsBusiness combinations are accounted for using the acquisition method. The cost of an acquisition ismeasured as the aggregate of the consideration transferred, measured at acquisition date fair value andthe amount of any non-controlling interest in the acquiree. For each business combination, theacquirer measures the non-controlling interest in the acquiree either at fair value or at theproportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensedand included in ‘Miscellaneous expense’ in the statement of income.

When the Group acquires a business, it assesses the financial assets and liabilities assumed forappropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition datethrough profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at theacquisition date. Contingent consideration classified as an asset or liability that is a financialinstrument and is within the scope of PFRS 9 is measured at fair value with changes in fair valueeither in profit or loss or as a change to OCI. If the contingent consideration is not within the scopeof PFRS 9, it is measured in accordance with the appropriate PFRS. Contingent consideration that isclassified as equity is not remeasured and subsequent settlement is accounted for within equity.

GoodwillGoodwill is initially measured at cost, being the excess of the aggregate of fair value of theconsideration transferred and the amount recognized for non-controlling interest over the netidentifiable assets acquired and liabilities assumed. If this consideration is lower than the fair valueof the net assets of the subsidiary acquired, the Group assesses whether it has correctly identified allof the assets acquired and all of the liabilities assumed and reviews the procedures used to measurethe amounts to be recognized at the acquisition date. If the reassessment still results in an excess ofthe fair value of assets acquired over the aggregate consideration transferred, then the gain isrecognized in statement of income.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.Goodwill is reviewed for impairment annually, or more frequently, if events or changes incircumstances indicate that the carrying value may be impaired. For the purpose of impairmenttesting, goodwill acquired in a business combination is, from the acquisition date, allocated to each ofthe Group’s CGUs or a group of CGUs, which are expected to benefit from the synergies of thecombination, irrespective of whether other assets or liabilities of the acquiree are assigned to thoseunits. Each unit to which the goodwill is allocated represents the lowest level within the Group atwhich the goodwill is monitored for internal management purposes, and is not larger than anoperating segment in accordance with PFRS 8.

Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation withinthat unit is disposed of, the goodwill associated with the disposed operation is included in the carrying

Page 107: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 25 -

*SGVFS038997*

amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in thesecircumstance is measured based on the relative values of the disposed operation and the portion of theCGU retained.

When an entity reorganizes its reporting structure in a way that changes the composition of one ormore cash-generating units to which goodwill has been allocated, the goodwill shall be reallocated tothe units affected. This reallocation shall be performed using a relative value approach similar to thatused when an entity disposes of an operation within a cash-generating unit, unless the entity candemonstrate that some other method better reflects the goodwill associated with the reorganized units.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulativetranslation differences and goodwill is recognized in the statement of income.

Non-current Assets and Disposal Group Classified as Held for SaleThe Group classifies non-current assets and disposal group as held for sale if their carrying amountswill be recovered principally through a sale transaction. Such non-current assets and disposal groupsare measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell arethe incremental costs directly attributable to the sale, excluding the finance costs and income taxexpense.

The criteria for held for sale classification is regarded as met only when the sale is highly probableand the asset or disposal group is available for immediate sale in its present condition. Actionsrequired to complete the sale should indicate that it is unlikely that significant changes to the sale willbe made or that the decision to sell will be withdrawn. Management must be committed to the saleexpected within one year from the date of the classification.

Assets and liabilities of disposal group classified as held for sale are presented separately in theconsolidated statements of financial position.

The Parent Company accounts for any investment to be retained over the disposal group at cost andpresents it as part of ‘Investment in subsidiaries’ in the Parent Company’s statement of financialposition.

Impairment of Non-financial AssetsNon-financial assets include property and equipment, investment properties, investment insubsidiaries and a joint venture, software costs, goodwill, exchange trading right, branch licenses andother properties acquired.

Property and equipment, investments in subsidiaries and a joint venture, investment properties, andother properties acquiredThe Group assesses at each statements of financial position date whether there is any indication thatan asset may be impaired. If any indication exists, or when annual impairment testing for an asset isrequired, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is thehigher of an asset’s or CGU’s fair value less cost to sell and its value in use (VIU). Where thecarrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impairedand is written down to its recoverable amount. In assessing VIU, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflects current market assessmentsof the time value of money and the risks specific to the asset. In determining fair value less costs tosell, an appropriate valuation model is used. These calculations are corroborated by valuationmultiples or other available fair value indicators. Any impairment loss is charged to operations in theyear in which it arises.

Page 108: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 26 -

*SGVFS038997*

An assessment is made at each statement of financial position date as to whether there is anyindication that previously recognized impairment losses may no longer exist or may have decreased.If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previouslyrecognized impairment loss is reversed only if there has been a change in the assumptions used todetermine the asset’s recoverable amount since the last impairment loss was recognized. The reversalis limited so that the carrying amount of the asset does not exceed its recoverable amount, norexceeds the carrying amount that would have been determined, net of depreciation, had noimpairment loss been recognized for the asset in prior years. Such reversal is recognized in thestatement of income. After such a reversal, the depreciation expense is adjusted in future years toallocate the asset’s revised carrying amount, less any residual value, on a systematic basis over itsremaining life.

Intangible assets - branch licenses, exchange trading right and software costsIntangible assets with indefinite useful lives are tested for impairment annually at each statement offinancial position date either individually or at the cash generating unit level, as appropriate or whencircumstances indicate that the intangible asset may be impaired. Intangible assets with finite livesare assessed for impairment whenever there is an indication that the intangible asset may be impaired.

GoodwillGoodwill is reviewed for impairment annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group ofCGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs)is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has beenallocated, an impairment loss is recognized immediately in the statement of income. Impairmentlosses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount infuture periods.

Income TaxesCurrent income taxCurrent income tax assets and liabilities for the current periods are measured at the amount expectedto be recovered from or paid to the taxation authorities. The tax rates and tax laws used to computethe amount are those that are enacted or substantively enacted at the statements of financial positiondate.

Deferred taxDeferred tax is provided on all temporary differences at the statements of financial position datebetween the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

· Where the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting income nor taxable income; and

· In respect of taxable temporary differences associated with investments in subsidiaries, where thetiming of the reversal of the temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unusedtax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax

Page 109: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 27 -

*SGVFS038997*

(RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that futuretaxable income will be available against which the deductible temporary differences and carryforwardof unused MCIT and unused NOLCO can be utilized except:

· Where the deferred tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at thetime of the transaction, affects neither the accounting income nor taxable income; and

· In respect of deductible temporary differences associated with investments in subsidiaries,deferred tax assets are recognized only to the extent that it is probable that the temporarydifferences will reverse in the foreseeable future and taxable income will be available againstwhich the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each statement of financial position dateand reduced to the extent that it is no longer probable that sufficient future taxable income will beavailable to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assetsare reassessed at each statement of financial position date and are recognized to the extent that it hasbecome probable that future taxable income will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period whenthe asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enactedor substantively enacted at the statement of financial position date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directlyin equity.

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

Revenue RecognitionRevenue is recognized to the extent that it is probable that economic benefits will flow to the Groupand the revenue can be reliably measured. Revenue is measured at the fair value of the considerationreceived. The Group assesses its revenue arrangements against specific criteria in order to determineif it is acting as principal or agent. The Group has concluded that it is acting as principal in all of itsrevenue arrangements.

PFRS 15 supersedes PAS 11, Construction Contracts, PAS 18, Revenue and related Interpretationsand it applies, with limited exceptions, to all revenue arising from contracts with its customers.PFRS 15 establishes a five-step model to account for revenue arising from contracts with customers.The five-step model is as follows:a. Identify the contract(s) with a customerb. Identify the performance obligations in the contractc. Determine the transaction priced. Allocate the transaction price to the performance obligation in the contracte. Recognize revenue when (or as) the entity satisfies a performance obligation

Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entityexpects to be entitled in exchange for transferring goods or services to a customer.

The standard requires the Group to exercise judgement, taking into consideration all of the relevantfacts and circumstances when applying each step of the model to contracts with their customers. The

Page 110: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 28 -

*SGVFS038997*

standard also specifies the accounting for the incremental costs of obtaining a contract and the costsdirectly related to fulfilling a contract.

Except for the recognition of revenues from the Parent Company’s credit card business, the specificrecognition criteria that must be met before revenue is recognized across the Group’s revenue streamsdid not materially change from PAS 18.

The following specific recognition criteria must also be met before revenue is recognized:

Revenues within the scope of PFRS 15:

Service charges and penaltiesService charges and penalties are recognized only upon collection or accrued when there isreasonable degree of certainty as to its collectibility.

Fees and commissionsa. Fee income earned from services that are provided over time

Fees earned for the provision of services over a period of time are accrued over that period. Loancommitment fees are recognized as earned over the term of the credit lines granted to eachborrower. However, loan commitment fees for loans that are likely to be drawn are deferred(together with any incremental costs) and recognized as an adjustment to the EIR on the loan.

Fees received in connection with the issuance of credit cards are deferred and amortized on astraight-line basis over the period the cardholder is entitled to use the card.

b. Bancassurance feesNon-refundable access fees are recognized on a straight-line basis over the term of the period ofthe provision of the access.

Refundable access fees and milestone fees are recognized in reference to the stage of achievementof the milestones.

c. Fee income from providing transaction servicesFees arising from negotiating or participating in the negotiation of a transaction for a third party,such as underwriting fees, corporate finance fees, and brokerage fees for the arrangement of theacquisition of shares or other securities or the purchase or sale of businesses, are recognized oncompletion of the underlying transaction. Fees or components of fees that are linked to a certainperformance are recognized after fulfilling the corresponding criteria. Loan syndication fees arerecognized in the statement of income when the syndication has been completed and the Groupretains no part of the loans for itself or retains part at the same EIR as for the other participants.

Discounts earned and awards revenue on credit cardsDiscounts received are taken up as income upon receipt from member establishments of chargesarising from credit availments by the Group’s cardholders and other credit card companies’cardholders when the Group is acting as an acquirer. These discounts are computed based on certainagreed rates and are deducted from the amounts remitted to the member establishments.

Award credits under customer loyalty programmes are accounted for as a separately identifiablecomponent of the transaction in which they are granted. The fair value of the consideration receivedin respect of the initial sale is allocated based on the estimated stand-alone selling prices. The amountallocated to the loyalty programmes is deferred and recognized as revenue when the award credits areredeemed. Income generated from customer loyalty programmes is recognized in ‘Service charges,

Page 111: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 29 -

*SGVFS038997*

fees and commissions’ in the statement of income.

Other incomeIncome from the sale of services is recognized upon completion of service. Income from sale ofproperties is recognized upon completion of earnings process and the collectibility of the sales priceis reasonably assured under ‘Profit from assets sold/exchanged’ in the statement of income.

Revenues outside the scope of PFRS 15:

Interest incomeInterest on interest-bearing financial assets at FVTPL and Held-for-Trading (HFT) investments arerecognized based on the contractual rate. Interest on financial instruments measured at amortizedcost and FVTOCI are recognized based on the effective interest method of accounting.

The effective interest method is a method of calculating the amortized cost of a financial asset or afinancial liability and allocating the interest income or interest expense over the relevant period.

The EIR is the rate that exactly discounts estimated future cash payments or receipts throughout theexpected life of the financial instrument or, when appropriate, a shorter period to the net carryingamount of the financial asset or financial liability. When calculating the EIR, the Group estimatescash flows from the financial instrument (e.g., prepayment options) but does not consider futurecredit losses. The calculation includes all fees and points paid or received between parties to thecontract that are an integral part of the EIR, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of animpairment loss, interest income is recognized thereafter using the rate of interest used to discount thefuture cash flows for the purpose of measuring the impairment loss.

Trading and securities gain - netResults arising from trading activities include all gains and losses from changes in fair value offinancial assets and financial liabilities at FVTPL, gains and losses from disposal of investmentsecurities at amortized cost and any ineffectiveness recognized on accounting hedges. Costs ofinvestment securities sold are determined using the weighted average cost method.

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

Rental incomeRental income arising on leased premises is accounted for on a straight-line basis over the lease termson ongoing leases.

Expense RecognitionExpenses are recognized when decrease in future economic benefits related to a decrease in an assetor an increase of a liability has arisen that can be measured reliably. Expenses are recognized whenincurred.

Operating expensesOperating expenses constitute costs which arise in the normal business operation and are recognizedwhen incurred.

Page 112: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 30 -

*SGVFS038997*

Taxes and licensesThis includes all other taxes, local and national, including gross receipts taxes (GRT), documentarystamp taxes, real estate taxes, licenses and permit fees and are recognized when incurred.

Pension CostThe Parent Company and certain subsidiaries have a non-contributory defined benefit plan thatdefines the amount of pension benefit that an employee will receive on retirement, usually dependenton one or more factors such as age, years of service and compensation. The Group’s retirement costis determined using the projected unit credit method. The retirement cost is generally funded throughpayments to a trustee-administered fund, determined by periodic actuarial calculations.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjustedfor any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is thepresent value of any economic benefits available in the form of refunds from the plan or reductions infuture contributions to the plan.

Defined benefit costs comprise the following:

· Service cost· Net interest on the net defined benefit liability or asset· Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in the statement of income. Past service costs arerecognized when plan amendment or curtailment occurs. These amounts are calculated periodicallyby independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined by applyingthe discount rate based on government bonds to the net defined benefit liability or asset. Net intereston the net defined benefit liability or asset is recognized as interest income or expense in thestatement of income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in OCI in the period in which they arise and are closed to surplus at the end of the year.Remeasurements are not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are notavailable to the creditors of the Group, nor can they be paid directly to the Group. Fair value of planassets is based on market price information. When no market price is available, the fair value of planassets is estimated by discounting expected future cash flows using a discount rate that reflects boththe risk associated with the plan assets and the maturity or expected disposal date of those assets (or,if they have no maturity, the expected period until the settlement of the related obligations).

Leases on or after January 1, 2019The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if thecontract conveys the right to control the use of an identified asset for a period of time in exchange forconsideration.

Page 113: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 31 -

*SGVFS038997*

Lease liabilitiesAt the commencement date of the lease, the Group recognizes lease liabilities measured at the presentvalue of lease payments to be made over the lease term. In calculating the present value of leasepayments, the Group uses its incremental borrowing rate at the lease commencement date because theinterest rate implicit in the lease is not readily determinable. After the commencement date, theamount of lease liabilities is increased to reflect the accretion of interest (included in ‘Interest expenseon lease liabilities) and reduced for the lease payments made. In addition, the carrying amount oflease liabilities is remeasured if there is a modification, a change in the lease term or a change in thelease payments.

Group as a lesseeThe Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make leasepayments and right-of-use assets representing the right to use the underlying assets.

Group as a lessorLeases in which the Group does not transfer substantially all the risks and rewards incidental toownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating andarranging an operating lease are added to the carrying amount of the leased asset and recognized overthe lease term on the same basis as rental income. Contingent rents are recognized as revenue in theperiod in which they are earned.

Leases before January 1, 2019The determination of whether an arrangement is, or contains a lease is based on the substance of thearrangement and requires an assessment of whether the fulfillment of the arrangement is dependenton the use of a specific asset or assets and the arrangement conveys a right to use the asset. Areassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or extension granted, unless that term of the renewal or extension

was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at thedate of renewal or extension period for scenario (b).

Group as lesseeLeases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense in thestatement of income on a straight-line basis over the lease term. Contingent rents are recognized asan expense in the period in which they are incurred.

Group as lessorFinance leases where the Group transfers substantially all the risks and benefits incidental to theownership of the leased item to the lessee are included in the statements of financial position under‘Loans and receivables’. A lease receivable is recognized at an amount equivalent to the netinvestment (asset cost) in the lease. All income resulting from the receivable is included in ‘Interestincome’ in the statement of income.

Page 114: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 32 -

*SGVFS038997*

Leases where the Group does not transfer substantially all the risks and benefits of ownership of theassets are classified as operating leases. Initial direct costs incurred in negotiating operating leasesare added to the carrying amount of the leased asset and recognized over the lease term on the samebasis as the rental income. Contingent rents are recognized as revenue in the period in which they areearned.

Provisions and ContingenciesProvisions are recognized when the Group has a present obligation (legal or constructive) as a resultof a past event and it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation and a reliable estimate can be made of the amount of the obligation.Where the Group expects some or all of a provision to be reimbursed, for example, under aninsurance contract, the reimbursement is recognized as a separate asset but only when thereimbursement is virtually certain. The expense relating to any provision is presented in thestatement of income, net of any reimbursement. If the effect of the time value of money is material,provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate, the risks specific tothe liability. Where discounting is used, the increase in the provision due to the passage of time isrecognized as ‘Interest expense’ in the statement of income.

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

Debt Issue CostsIssuance, underwriting and other related costs incurred in connection with the issuance of debtinstruments are deferred and amortized over the terms of the instruments using the effective interestmethod. Unamortized debt issuance costs are included in the carrying amount of the debt instrumentin the statements of financial position.

Earnings Per ShareBasic earnings per share (EPS) is computed by dividing the net income for the year attributable toequity holders of the Parent Company after deducting dividends declared to preferred shareholders bythe weighted average number of common shares outstanding during the year after giving retroactiveeffect to stock dividends declared and stock rights exercised during the year, if any.

Diluted EPS is calculated by dividing the net income attributable to common shareholders by theweighted average number of common shares outstanding during the year adjusted for the effects ofany dilutive potential common shares.

Equity‘Capital stock’ is measured at par value for all shares issued and outstanding. When the shares aresold at a premium, the difference between the proceeds and the par value is credited to ‘Additionalpaid-in capital’. Direct costs incurred related to equity issuance, such as underwriting, accountingand legal fees, printing costs and taxes are chargeable to ‘Additional paid-in capital’. If the additionalpaid-in capital is not sufficient, the excess is charged against ‘Surplus’.

When the Group issues more than one class of stock, a separate account is maintained for each classof stock and the number of shares issued.

‘Surplus’ represents accumulated earnings of the Group less dividends declared.

Page 115: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 33 -

*SGVFS038997*

Dividends on Common Shares and Preferred SharesCash dividends on common shares and preferred shares are recognized as a liability and deductedfrom equity when approved by the BOD of the Parent Company, while stock dividends are deductedfrom equity when approved by the BOD and shareholders of the Parent Company.

Segment ReportingThe Group’s operating businesses are organized and managed separately according to the nature ofthe products and services provided, with each segment representing a strategic business unit thatoffers different products and serves different markets. If the Group changes the structure of itsinternal organization in a manner that causes the composition of its reportable segments to change,the corresponding information for earlier periods, including interim periods, shall be restated unlessthe information is not available and the cost to develop it would be excessive. Financial informationon business segments is presented in Note 36.

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

Events after the Reporting PeriodAny post-year-end event that provides additional information about the Group’s position at thestatement of financial position date (adjusting event) is reflected in the financial statements. Anypost-year-end events that are not adjusting events are disclosed when material to the financialstatements.

Standards Issued but Not Yet EffectiveStandards issued but not yet effective up to the date of issuance of the Group’s consolidated financialstatements are listed below. The listing consists of standards and interpretations issued, which theGroup reasonably expects to be applicable at a future date. The Group intends to adopt thesestandards when they become effective. Except as otherwise indicated, the Group does not expect theadoption of these new and amended PAS, PFRS and Philippine Interpretations to have significantimpact on the consolidated financial statements.

Effective beginning on or after January 1, 2020Amendments to PFRS 3, Definition of a BusinessThe amendments to PFRS 3 were issued to help entities determine whether an acquired set ofactivities and assets is a business or not. The amendments clarify the minimum requirements to be abusiness, remove the assessment of a market participant’s ability to replace missing elements, andnarrow the definition of outputs. The amendments add guidance to assess whether an acquiredprocess is substantive and add illustrative examples. The amendments introduce an optionalconcentration test to permit a simplified assessment. The amendments are effective for annualreporting periods beginning on or after January 1, 2020 and apply prospectively. Earlier application ispermitted.

Amendments to PAS 1 and PAS 8, Definition of MaterialThe amendedments were issued to clarify and align the definition of material. The amendments areintended to improve the understanding of the existing requirements rather than to significantly impactan entity’s materiality judgements. The amendments must be applied prospectively for annualperiods beginning on or after January 1, 2020, with earlier application permitted.

Page 116: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 34 -

*SGVFS038997*

Effective beginning on or after January 1, 2021PFRS 17, Insurance ContractsPFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognitionand measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4Insurance Contracts (PFRS 4) that was issued in 2005. PFRS 17 applies to all types of insurancecontracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities thatissue them, as well as to certain guarantees and financial instruments with discretionary participationfeatures. A few scope exceptions will apply. The overall objective of PFRS 17 is to provide anaccounting model for insurance contracts that is more useful and consistent for insurers. In contrastto the requirements in PFRS 4, which are largely based on grandfathering previous local accountingpolicies, PFRS 17 provides a comprehensive model for insurance contracts, covering all relevantaccounting aspects. The core of PFRS 17 is the general model, supplemented by:

· A specific adaptation for contracts with direct participation features (the variable fee approach)· A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparativefigures required. Early application is permitted, provided the entity also applies PFRS 9 and PFRS 15on or before the date it first applies IFRS 17.

Deferred effectivityAmendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associatesand Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or JointVenture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. The amendmentsclarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves abusiness as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale orcontribution of assets that does not constitute a business, however, is recognized only to the extent ofunrelated investors’ interests in the associate or joint venture. On January 13, 2016, the FRSCpostponed the original effective date of January 1, 2016 of the said amendments until the IASB hascompleted its broader review of the research project on equity accounting that may result in thesimplification of accounting for such transactions and of other aspects of accounting for associatesand joint ventures.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in compliance with PFRS requires the Group to makejudgments, estimates and assumptions that affect the reported amounts of assets, liabilities, incomeand expenses and disclosures of contingent assets and contingent liabilities. Future events may occurwhich will cause the assumptions used in arriving at the estimates to change. The effects of anychange in estimates are reflected in the financial statements as they become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience and otherfactors, including expectations of future events that are believed to be reasonable under thecircumstances.

Page 117: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 35 -

*SGVFS038997*

Judgmentsa. Leases

Effective on or after January 1, 2019

Determination of the lease term for lease contracts with renewal and termination options (Bankas a lessee)The Group determines the lease term as the non-cancellable term of the lease, together with anyperiods covered by an option to extend the lease if it is reasonably certain to be exercised, or anyperiods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.The Group has several lease contracts that include extension and termination options. The Groupapplies judgement in evaluating whether it is reasonably certain whether or not to exercise theoption to renew or terminate the lease. That is, it considers all relevant factors that create aneconomic incentive for it to exercise either the renewal or termination. After the commencementdate, the Group reassesses the lease term if there is a significant event or change in circumstancesthat is within its control that affects its ability to exercise or not to exercise the option to renew orto terminate (e.g., construction of significant leasehold improvements or significant customisationof the leased asset).

Estimating the incremental borrowing rateThe Group cannot readily determine the interest rate implicit in the lease, therefore, it uses itsincremental borrowing rate (‘IBR’) to measure lease liabilities. The IBR is the rate of interest thatthe Group would have to pay to borrow over a similar term, and with a similar security, the fundsnecessary to obtain an asset of a similar value to the right-of-use asset in a similar economicenvironment. The IBR therefore reflects what the Group ‘would have to pay’, which requiresestimation when no observable rates are available (such as for subsidiaries that do not enter intofinancing transactions) or when they need to be adjusted to reflect the terms and conditions of thelease (for example, when leases are not in the subsidiary’s functional currency).The Groupestimates the IBR using observable inputs (such as market interest rates) when available and isrequired to make certain entity-specific adjustments (such as the subsidiary’s stand-alone creditrating, or to reflect the terms and conditions of the lease).

Effective before January 1, 2019Operating leaseGroup as lessorThe Group has entered into commercial property leases on its investment property portfolio.The Group has determined based on the evaluation of the terms and conditions of thearrangements (i.e., the lease does not transfer the ownership of the asset to the lessee by the endof the lease term, the lessee has no option to purchase the asset at a price that is expected to besufficiently lower than the fair value at the date the option is exercisable and the lease term is notfor the major part of the asset’s economic life), that it retains all the significant risks and rewardsof ownership of these properties which are leased and so accounts for the contracts as operatingleases.

Group as lesseeThe Group has entered into leases on premises it uses for its operations. The Group hasdetermined, based on the evaluation of the terms and conditions of the lease agreements (i.e. thelease does not transfer ownership of the asset to the lessee by the end of the lease term and thelease term is not for the major part of the asset’s economic life), that the lessor retains allsignificant risks and rewards of the ownership of these properties and so accounts for thesecontracts as operating leases.

Page 118: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 36 -

*SGVFS038997*

Finance leaseGroup as lessorThe Group has determined based on an evaluation of terms and conditions of the leasearrangements (i.e., present value of minimum lease payments amounts to at least substantially allof the fair value of leased asset, lease term is for the major part of the economic useful life of theasset, and lessor’s losses associated with the cancellation are borne by the lessee) that it hastransferred all significant risks and rewards of ownership of the properties it leases out on financeleases.

b. Fair value of financial instrumentsWhere the fair values of financial assets and financial liabilities recognized or disclosed in thestatements of financial position cannot be derived from active markets, these are determinedusing internal valuation techniques using generally accepted market valuation models.

The inputs to these models are taken from observable markets where possible, but where this isnot feasible, a degree of judgment is required in establishing fair values. These judgments mayinclude considerations of liquidity and model inputs such as correlation and volatility for longerdated derivatives.

c. Business model testThe Group manages its financial assets based on business models that maintain adequate level offinancial assets to match expected cash outflows and maintain adequate level of high qualityliquid assets while maintaining a strategic portfolio of financial assets for trading activities.

The Group’s business model can be to hold financial assets to collect contractual cash flows evenwhen sales of certain financial assets occur. PFRS 9, however, emphasizes that if more than aninfrequent number of sales are made out of a portfolio of financial assets carried at amortized costand those sales are more than insignificant in value (either individually or in aggregate), the entityshould assess whether and how such sales are consistent with the objective of collectingcontractual cash flows.

In making this judgment, the Group considers the circumstances surrounding the disposal as wellas the requirements of BSP Circular No. 1011, Guidelines on the adoption of PFRS 9.

d. Cash flow characteristics testIn determining the classification of financial assets under PFRS 9, the Group assesses whether thecontractual terms of these financial assets give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal outstanding, with interest representing timevalue of money and credit risk associated with the principal amount outstanding. The assessmentas to whether the cash flows meet the test is made in the currency in which the financial asset isdenominated. Any other contractual term that changes the timing or amount of cash flows(unless it is a variable interest rate that represents time value of money and credit risk) does notmeet the amortized cost criteria.

e. ContingenciesThe Group is currently involved in various legal proceedings, claims and assessments. Theestimate of the probable costs for the resolution of these claims and assessments has beendeveloped in consultation with outside counsel handling the Group’s defense in these matters andis based on an analysis of potential results. The Group currently does not believe that theseproceedings will have a material adverse effect on the financial statements. It is possible,however, that future results of operations could be materially affected by changes in the estimatesor in the effectiveness of the strategies relating to these proceedings (see Note 35).

Page 119: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 37 -

*SGVFS038997*

f. Functional currencyPAS 21, The Effects of Changes in Foreign Exchange Rates, requires management to use itsjudgment to determine the entity’s functional currency such that it most faithfully represents theeconomic effects of the underlying transactions, events and conditions that are relevant to theentity. In making this judgment, the Group considers the following:

· the currency that mainly influences sales prices for financial instruments and services (thiswill often be the currency in which sales prices for its financial instruments and services aredenominated and settled);

· the currency in which funds from financing activities are generated; and· the currency in which receipts from operating activities are usually retained.

g. Consolidation and joint arrangementsThe Group has determined that it controls and consolidates the subsidiaries in which it ownsmajority of the shares.

The Group has a Joint Venture Agreement (JVA) with Marubeni Corporation (Marubeni) whereit owns 60.0% of SBML. Under the JVA, the parties agreed to use SBML as a joint ventureentity and requires the unanimous consent of both the Parent Company and Marubeni for anysignificant decisions made in the ordinary course of business of SBML. The Group has (afterconsidering the structure and form of the arrangement, the terms agreed by the parties in thecontractual arrangement and the Group's rights and obligations arising from the arrangement)classified its interest in SBML under PFRS 11. Based on the foregoing, it continues to accountsfor its investment in SBML using the equity method.

h. Discontinued operationsThe Group has determined that planned sale of Parent Company's 50% ownership interest ofSBFCI to BAY will not be reported as discontinued operations in the Group financial statementssince SBFCI does not represent a separate major line of business (see Note 38).

Estimatesa. Fair value of financial instruments

The fair values of financial instruments that are not quoted in active markets are determined usingvaluation techniques such as discounted cash flow analysis and standard option pricing modelsfor some derivative instruments. Where valuation techniques are used to determine fair values,they are reviewed by qualified personnel independent of the area that created them. All financialmodels are reviewed before they are used and to the extent practicable, financial models use onlyobservable data, however, areas such as credit risk (both own and counterparty) volatilities andcorrelations require management to make estimates. Changes in assumptions about these factorscould affect reported fair value of financial instruments. Refer to Note 6 for the fair valuemeasurements of financial instruments.

b. Impairment of financial assetsEffective on or after January 1, 2018The measurement of impairment losses under PFRS 9 across all categories of financial assetsrequires judgement, in particular, the estimation of the amount and timing of future cash flowsand collateral values when determining impairment losses and the assessment of a significantincrease in credit risk. These estimates are driven by a number of factors, changes in which canresult in different levels of allowances.

Page 120: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 38 -

*SGVFS038997*

The Group’s ECL calculations are outputs of complex models with a number of underlyingassumptions regarding the choice of variable inputs and their interdependencies. Elements of theECL models that are considered accounting judgements and estimates include:· Internal credit grading model, which assigns PDs to the individual grades· Criteria for assessing if there has been a significant increase in credit risk and so allowances

for financial assets should be measured on a life time CL basis and the qualitative assessment· The segmentation of financial assets when their ECL is assessed on a collective basis· Development of ECL models, including the various formulas and the choice of inputs· Determination of associations between macroeconomic scenarios and, economic inputs, such

as household expenditure, real GDP, BVAL interest rate 3 months, PSE All Shares Index· Selection of forward-looking macroeconomic scenarios and their probability weightings, to

derive the economic inputs into the ECL models· Segmentation of the portfolio, where the appropriate model or ECL approach is used

The ECL models and all ECL-related policies are approved by the Risk Oversight Committee andthe Board of Directors.

Model calibration or the process of improving the accuracy of ECL model to reflect the as-builtstatus and actual operating conditions shall be performed at least annually. Any changes in themodel estimates as a result of calibration shall be approved by the ECL Steering Committeeconsisting of the Business Segment Heads, Chief Financial Officer and Chief Risk Officer,provided, there are no changes in the estimation methodology. In 2019, changes in the modelestimates as a result of calibration were approved by the ECL Steering Committee.

The Credit Risk Management Unit calculates the ECL for all credit risk exposures. The total ECLthat will be booked by the Financial Controllership Division is approved by both the ChiefFinancial Officer and the Chief Risk Officer.

The gross carrying amounts of financial assets and the related allowance for credit losses aredisclosed in Notes 7, 12, 13, 14, and 18.

Effective before January 1, 2018Loans and receivablesThe Group reviews its individually significant loans and receivables at each statement of financialposition date to assess whether an impairment loss should be recorded in the statement of income.In particular, judgment by management is required in the estimation of the amount and timing offuture cash flows when determining the impairment loss. In estimating these cash flows, theGroup makes judgments about the counterparty’s financial situation and the net realizable valueof collateral. These estimates are based on assumptions about a number of factors including thefinancial condition of the counterparty, estimated future cash flows, probability of collections,observable market condition, prices and net realizable value of the collateral. The actual resultsmay differ, resulting in future changes to the recognized impairment loss.

Loans and receivables that have been assessed individually and found not to be impaired and allindividually insignificant loans and receivables are then assessed collectively, in groups of assetswith similar characteristics, to determine whether provision should be made due to incurred lossevents for which there is objective evidence but whose effects are not yet evident. The collectiveassessment takes account of data from the loan portfolio, concentrations of risks and economicdata.

Page 121: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 39 -

*SGVFS038997*

c. Recognition of deferred tax assetsThe Group reviews the carrying amounts of deferred tax assets at each statements of financialposition date and reduces it to the extent that it is no longer probable that sufficient future taxableincome will be available to allow all or part of the deferred tax assets to be utilized. Significantjudgment is required to determine the amount of deferred tax assets that can be recognized, basedupon the likely timing and level of future taxable income together with future tax planningstrategies. The recognized net deferred tax assets and unrecognized deferred tax assets of theGroup and the Parent Company are disclosed in Note 29.

d. Impairment of non-financial assetsInvestments in subsidiaries and a joint venture and other non-financial assetsThe Parent Company and SBCIC assess impairment on its investments in subsidiaries and a jointventure whenever events or changes in circumstances indicate that the carrying amount of anasset may not be recoverable.

Among others, the factors that the Parent Company and SBCIC consider important which couldtrigger an impairment review on its investments include the following:

· deteriorating or poor financial condition;· recurring net losses; and· significant changes with an adverse effect on the subsidiary or associate have taken place

during the period, or will take place in the near future, the technological, market, economic,or legal environment in which the subsidiary operates.

The Group assesses impairment on other non-financial assets (i.e., ‘Property and equipment’,‘Investment properties’, ‘Software costs’, and ‘Other properties acquired’) whenever events orchanges in circumstances indicate that the carrying amount of an asset may not be recoverable.The factors that the Group considers important which could trigger an impairment review includethe following:

· significant underperformance relative to expected historical or projected future operatingresults;

· significant changes in the manner of use of the acquired nonfinancial assets or the strategy foroverall business; and

· significant negative industry or economic trends.

The Group recognizes an impairment loss whenever the carrying amount of the asset exceeds itsrecoverable amount. The recoverable amount is computed based on the higher of the asset’s fairvalue less cost to sell or VIU. Recoverable amounts are estimated for individual nonfinancialassets or, if it is not possible, for the CGU to which the nonfinancial asset belongs.

The Group is required to make estimates and assumptions that can materially affect the carryingamount of the asset being assessed.

As of December 31, 2019 and 2018, the carrying values of the Parent Company’s investments insubsidiaries and a joint venture are disclosed in Note 15.

Page 122: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 40 -

*SGVFS038997*

The carrying values of the Group’s and the Parent Company’s non-financial assets (other than‘Goodwill’) follow:

Consolidated Parent Company2019 2018 2019 2018

Property, equipment and right-of-useassets (Note 16) P=5,907,296 P=4,119,187 P=4,627,373 P=2,876,304

Investment properties (Note 17) 1,061,025 812,794 1,064,541 815,002Branch licenses (Note 18) 1,460,000 1,460,000 1,445,000 1,445,000Software costs (Note 18) 1,173,227 874,535 1,171,690 872,317Other properties acquired (Note 18) 226,385 97,556 226,385 97,057Exchange trading right (Note 18) 8,500 8,500 – –

The provision for (recovery of) impairment losses on non-financial assets of the Group and theParent Company are disclosed in Note 17.

Intangible assets with indefinite useful lifeIntangible assets with indefinite useful lives such as exchange trading right and branch licensesare tested for impairment annually at statement of financial position date either individually or atthe cash generating unit level, as appropriate.

GoodwillGoodwill is reviewed for impairment annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which thegoodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than thecarrying amount of the CGU (or group of CGUs) to which goodwill has been allocated, animpairment loss is recognized immediately in the statement of income. The carrying value ofgoodwill is disclosed in Note 4.

e. Estimated useful lives of property and equipment, investment properties, software costs and otherproperties acquiredThe Group reviews on an annual basis the estimated useful lives of property and equipment,depreciable investment properties, software costs and other properties acquired based on expectedasset utilization as anchored on business plans and strategies that also consider expected futuretechnological developments and market behavior. It is possible that future results of operationscould be materially affected by changes in these estimates brought about by changes in the factorsmentioned. A reduction in the estimated useful lives of property and equipment, depreciableinvestment properties, software costs and other properties acquired would decrease theirrespective balances and increase the recorded depreciation and amortization expense.

The carrying values of depreciable property and equipment, investment properties, software costsand other properties acquired follow:

Consolidated Parent Company2019 2018 2019 2018

Property, equipment and right-of-useassets (Note 16)* P=5,549,456 P=3,761,347 P=4,229,133 P=2,478,064

Investment properties (Note 17)* 359,929 235,777 436,531 312,094Software costs (Note 18) 1,173,227 874,535 1,171,690 872,317Other properties acquired (Note 18) 226,385 97,556 226,385 97,057*Excludes land

Page 123: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 41 -

*SGVFS038997*

f. Pension benefitsThe cost of defined benefit pension plans and other post employment medical benefits as well asthe present value of the pension obligation are determined using actuarial valuations. Theactuarial valuation involves making various assumptions. These include the determination of thediscount rates, future salary increases, mortality rates and future pension increases. Due to thecomplexity of the valuation, the underlying assumptions and its long-term nature, defined benefitobligations are highly sensitive to changes in these assumptions. All assumptions are reviewed ateach reporting date.

The present value of the defined benefit obligation of the Group and the Parent Company aredisclosed in Note 30.

In determining the appropriate discount rate, management considers the interest rates ofgovernment bonds that are denominated in the currency in which the benefits will be paid, withextrapolated maturities corresponding to the expected duration of the defined benefit obligation.The mortality rate is based on publicly available mortality tables for the specific country and ismodified accordingly with estimates of mortality improvements. Future salary increases andpension increases are based on expected future inflation rates.

Further details about the assumptions used are provided in Note 30.

Employee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly before twelvemonths after the end of the annual reporting period is recognized for services rendered byemployees up to the end of the reporting period. As of December 31, 2019 and 2018, accrual forother employee benefit obligations and expenses included under ‘Accrued other expensespayable’ (included under ‘Accrued interest, taxes and other expenses’ in the statements offinancial position) amounted to P=0.8 billion and P=1.0 billion , respectively for the Group and theParent Company (see Note 24).

4. Goodwill

Impairment Testing of GoodwillIn 2012, goodwill acquired through business combination has been allocated to SBS as the CGU. In2015, the entire goodwill was reallocated to the branch banking group as a result of the integration ofSBS to the Parent Company (see Note 15). As of December 31, 2019 and 2018, the carrying amountof goodwill amounted to P=841.6 million and there was no impairment loss recognized in 2019 and2018.

The recoverable amount of the CGU has been determined based on a VIU calculation using cash flowprojections from financial budgets approved by senior management covering a three-year period.Key assumptions in VIU calculation of CGUs are most sensitive to discount rates and growth ratesused to project cash flows. Future cash flows and growth rates were based on experiences andstrategies developed and prospects. The discount rate used for the computation of the net presentvalue is the cost of equity and was determined by reference to a comparable entity. In 2019 and2018, the post-tax discount rate applied to cash flow projections is 13.10% and 14.31% , respectively,while the growth rate used to extrapolate cash flows beyond the three-year period is 6.0% and 3.0%,respectively.

Management believes that no reasonably possible change in any of the above key assumptions wouldcause the carrying value of the goodwill to materially exceed its recoverable amount

Page 124: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 42 -

*SGVFS038997*

5. Financial Risk Management Objectives and Policies

IntroductionIntegral to the Parent Company’s value creation process is risk management. It therefore operates anintegrated risk management system to address the risks it faces in its banking activities, includingcredit, market, liquidity and operational risks. Exposures across these risk areas are regularlyidentified, measured, controlled, monitored and reported to Senior Management, Risk OversightCommittee (ROC) and the BOD.

Risk Management Structure

Board of DirectorsThe BOD directs the Parent Company’s over-all risk management strategy. The risk managementprocesses of the subsidiaries are the separate responsibilities of their respective BOD. The BODperforms an oversight function on the Parent Company’s implementation of its risk policies throughvarious committees that it has created as follows:

Risk Oversight CommitteeThe ROC reviews, approves, and ensures effective implementation of the risk managementframework. It approves risk-related policies, oversees limits to discretionary authority that the BODdelegates to management, and evaluates the magnitude, distribution and direction of risks in theParent Company.

Corporate Governance CommitteeThe Corporate Governance Committee oversees the compliance function and assists the BOD infulfilling its corporate governance responsibilities. It is responsible for ensuring the BOD’seffectiveness and, due observance of corporate governance principles and guidelines.

Audit CommitteeThe Audit Committee through the Internal Audit Division provides the independent assessment of theoverall effectiveness of, and compliance with the Parent Company’s risk management policies andprocesses.

Executive CommitteeThe Executive Committee approves credit risk limit for large exposures except for directors, officers,stockholders and related interests (DOSRI) loans, which are approved by the BOD regardless ofamount.

Loan Restructuring CommitteeThe Loan Restructuring Committee focuses on substandard or non-performing loans (NPLs) andapproves the remedial strategy and action plan for these exposures.

Related Party Transaction CommitteeThe Related Party Transaction Committee ensures that transactions with related parties are handled ina sound and prudent manner, with integrity, and in compliance with applicable laws and regulationsto protect the interest of depositors, creditors and other stakeholders.

Nominations and Remunerations CommitteeThe Nominations and Remunerations Committee has oversight over Board nominees and otherappointments requiring Board approval, as well as their remuneration commensurate with corporateand individual performance.

Page 125: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 43 -

*SGVFS038997*

Finance CommitteeThe Finance Committee has oversight of the financial management of the group, including capitaland liquidity management, reviewing financial performance ensuring that it is compliance withregulatory requirements.

Trust CommitteeThe Trust Committee ensures that funds and properties held in trust or in any fiduciary capacity shallbe administered with the skill, care, prudence and diligence necessary under the circumstances thenprevailing that a prudent man, acting in like capacity and familiar matters, would exercise in theconduct of an enterprise of like character and with similar aims.

Technology Steering CommitteeThe Technology Steering Committee oversees the development, implementation and performance ofinformation technology systems in the Group.

The Parent Company’s organizational structure includes the Risk Management Group (RMG), whichis responsible for driving the following risk management processes of the Group:

· Independent assessment, measurement, monitoring and reporting of the Group’s risk-takingactivities; and

· Formulation, review and recommendation of risk-related policies and control structures.

Nevertheless, the Group’s risk management framework adopts the basic tenet that risks are owned bythe respective business and process owners. Everyone in the organization is therefore expected toproactively manage the risks inherent to their respective area by complying with the Group’s riskmanagement framework, policies and standards.

The Parent Company and its subsidiaries manage their respective financial risks separately. Thesubsidiaries have their own risk management procedures but are structured similar to that of theParent Company. To a certain extent, the respective risk management programs and objectives arethe same across the Group.

Risk Measurement and ReportingThe Parent Company’s risks are measured using various methods compliant with Basel III standards.The Parent Company also runs worst case scenarios that would arise in the event that extreme eventswhich are unlikely to occur do, in fact, occur.

Expected credit loss models are developed and maintained by Risk Management Group. Thesemodels are used as a tool for the Parent Company’s risk management process and managementreporting systems. The applicable results of the calculations are used as the basis for the assessmentof expected credit losses.

Monitoring and controlling risks are primarily performed based on limits established by the ParentCompany. These limits reflect the business strategy and market environment of the Parent Companyas well as the level of risk that the Parent Company is willing to take. In addition, the ParentCompany monitors and measures the overall risk-bearing capacity in relation to the aggregate riskexposure across all risk types and activities.

For all levels throughout the Parent Company, specifically tailored risk reports are prepared anddistributed in order to ensure that all business divisions have access to extensive, necessary andup-to-date information. These reports include aggregate credit exposure, credit metric forecasts, limitexceptions, Value-at-Risk (VaR), liquidity ratios and risk profile changes.

Page 126: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 44 -

*SGVFS038997*

Credit Risk Management prepares detailed reporting of risks per industry, customer risk rating andclassification. Senior management assesses the appropriateness of allowance for credit losses on ayearly basis or as the need arises. The ROC and the heads of the concerned business units receive acomprehensive credit risk report monthly which is designed to provide all the necessary informationto assess and conclude on the credit risks of the Parent Company.

In the case of market risk, a monthly report is presented to the ROC on the utilization of market limitsand liquidity, plus any other risk developments.

Information compiled from all the businesses is examined and processed in order to analyze, controland identify risks early. This information is presented and explained to the BOD, the ROC, and thehead of each business unit.

Risk MitigationAs part of its market risk management, the Parent Company uses derivatives and other instruments tomanage exposures resulting from changes in interest rates and foreign currencies. For interest rate riskfrom HTC securities (fair value hedge), the Parent Company entered into Interest Rate Swaps. Therisk management objective is to protect the fair value of the HTC securities against adversemovements in interest rates, specifically due to an aggressive rate hike cycle in the identified hedgeperiod. This objective also allows the Parent Company to safeguard its net interest margin and keepits pool of high-quality liquid assets.

In accordance with the Parent Company’s policy, the risk profile of the Parent Company is assessedbefore entering into hedge transactions, which are authorized by the appropriate committees. Theeffectiveness of hedges is assessed by the RMG. The effectiveness of all the hedge relationships ismonitored by the RMG monthly. In situations of ineffectiveness, the Parent Company will enter intoa new hedge relationship to mitigate risk on a continuous basis.

The Parent Company actively uses collateral to reduce its credit risks.

Excessive Risk ConcentrationConcentrations arise when a number of counterparties are engaged in similar business activities oractivities in the same geographic region, or have similar economic features that would cause theirability to meet contractual obligations to be similarly affected by changes in economic, political orother conditions. Concentrations indicate the relative sensitivity of the Parent Company’sperformance to developments affecting a particular industry or geographic location.

The Parent Company manages concentration risks by setting exposure limits to borrowing groups,industries, and where appropriate, on products and facilities. These limits are reviewed as the needarises but at least annually.

In order to avoid excessive concentrations of risk, the Parent Company’s policies and proceduresinclude specific guidelines to focus on maintaining a diversified portfolio. Identified concentrationsof risks are controlled and managed accordingly.

Credit RiskCredit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform itsobligations during the life of the transaction. This includes risk of non-payment by borrowers orissuers, failed settlement of transactions and default on contracts.

The Parent Company drives credit risk management fundamentally via its Credit Policy Manual(CPM), the provisions of which are regularly reviewed and updated to reflect changing risk

Page 127: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 45 -

*SGVFS038997*

conditions. The CPM defines the principles and parameters governing credit activities, ensuring thateach account’s creditworthiness is thoroughly understood and regularly reviewed. RelationshipManagers assume overall responsibility for the management of credit exposures while middle andback office functions are clearly defined to provide independent checks and balance to credit risk-taking activities. A system of approving and signing limits ensures adequate senior managementinvolvement for bigger and more complex transactions. Large exposures of the Group are kept underrigorous review as these are subjected to stress testing and scenario analysis to assess the impact ofchanges in market conditions or key risk factors (examples are economic cycles, interest rate,liquidity conditions or other market movements) on its profile and earnings.

The risk management structure of policies, accountabilities and responsibilities, controls and seniormanagement involvement is similarly in place for non-performing assets.

Derivative financial instrumentsCredit risk in respect of derivative financial instruments is limited to those with positive fair values,which are included under ‘Financial assets at FVTPL’. As a result, the maximum credit risk, withouttaking into account the fair value of any collateral and netting agreements, is limited to the amounts inthe statements of financial position.

Credit-related commitmentsThe Parent Company makes available to its customers, guarantees which may require the ParentCompany to make payments on their behalf and enter into commitments to extend credit lines tosecure their liquidity needs. Letters of credit and guarantees (including standby letters of credit)commit the Parent Company to make payments on behalf of customers in the event of a specific act,generally related to the import or export of goods. Such commitments expose the Parent Company tosimilar risks to loans and these are mitigated by the same control processes and policies. This alsoincludes the unutilized credit limit of the Group’s credit card customers.

Maximum exposure to credit risk of on-balance sheet credit risk exposures with collaterals held orother credit enhancementsThe tables below show the maximum exposure to on-balance sheet credit risk exposures of the Groupand the Parent Company after taking into account any collaterals held or other credit enhancements(amounts in millions):

Consolidated

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect of

Collateral

AssociatedECL

December 31, 2019Credit risk exposure relating to on-balance sheet assetsReceivable from customers - net

(exclusive of SBEI): Corporate lending P=317,238 P=89,416 P=245,813 P=71,425 P=2,451

Consumer lending 53,378 22,162 35,520 17,858 2,195Small business lending 1,020 657 552 468 15Residential mortgages 54,338 49,295 26,486 27,852 398

Receivable from customers - net(SBEI):Corporate 180 3,763 113 67 –Individual 399 3,809 117 282 1

Other receivables 7,700 69 7,591 110 241Credit card receivables - individual 14,345 – 14,345 – 629

P=448,598 P=169,171 P=330,537 P=118,062 P=5,930

Page 128: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 46 -

*SGVFS038997*

Consolidated

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect ofCollateral

AssociatedECL

December 31, 2018Credit risk exposure relating to on-

balance sheet assetsReceivable from customers - net

(exclusive of SBEI): Corporate lending P=323,661 P=95,505 P=246,442 P=77,219 P=4,027

Consumer lending 33,265 29,050 18,533 14,732 477Small business lending 1,368 625 888 480 27Residential mortgages 43,900 34,769 22,294 21,606 279

Receivable from customers - net(SBEI):Corporate 610 3,873 248 362 –Individual 139 3,454 27 112 1

Other receivables 7,315 88 7,201 114 62Credit card receivables - individual 6,060 – 6,060 – 136

P=416,318 P=167,364 P=301,693 P=114,625 P=5,009

Parent Company

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect of

CollateralAssociated

ECLDecember 31, 2019Credit risk exposure relating to on-balance sheet assetsReceivable from customers - net

(exclusive of SBEI):Corporate lending P=320,164 P=89,416 P=248,739 P=71,425 P=2,451

Consumer lending 53,378 22,163 35,520 17,858 2,195Small business lending 1,020 657 552 468 15Residential mortgages 54,203 49,295 26,351 27,852 398

Other receivables 7,351 69 7,282 69 236Credit card receivables - individual 14,345 – 14,345 – 629

P=450,461 P=161,600 P=332,789 P=117,672 P=5,924

Parent Company

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect ofCollateral

AssociatedECL

December 31, 2018Credit risk exposure relating to

on-balance sheet assetsReceivable from customers - net

(exclusive of SBEI):Corporate lending P=325,913 P=95,505 P=248,693 P=77,220 P=4,422Consumer lending 30,411 29,050 15,681 14,730 214Small business lending 1,368 625 888 480 27Residential mortgages 43,704 34,769 22,098 21,606 279

Other receivables 6,957 88 6,869 88 64Credit card receivables - individual 6,060 – 6,060 – 136

P=414,413 P=160,037 P=300,289 P=114,124 P=5,142

The maximum exposure to credit risks for the other financial assets is limited to the carrying value asof December 31, 2019 and 2018.

Credit card receivables and receivables of SBEI are presented separately for the purpose ofidentifying receivables that are subjected to different credit risk rating systems.

Page 129: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 47 -

*SGVFS038997*

Other receivables include accrued interest receivable, accounts receivable, sales contracts receivableand dividend receivable.

Risk concentrations of the maximum exposure to credit riskThe Group considers concentration risk to be present in its loans and receivables when the totalexposure to a particular industry exceeds 15.0% of the total loan portfolio (internal definition for mostindustry segments), which is more conservative than the BSP requirement of 30.0%.

The distribution of financial assets and off-balance sheet items by industry sector of the Group andthe Parent Company, before taking into account collateral held or other credit enhancements(maximum exposure) follows (amounts in millions):

Consolidated

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalDecember 31, 2019Financial intermediaries P=31,938 P=195,888 P=73,189 P=1,738 P=302,753Real estate 94,469 5,465 – 492 100,426Electricity, gas, stream and air conditioning

supply 76,541 202 18,127 94,870Wholesale and retail trade 71,106 6,444 – 1,928 79,478Activities of private households as

employees and undifferentiated goods andservices and producing activities ofhouseholds**** 57,870 – – 6 57,876

Manufacturing 38,347 4 – 5,696 44,047Transportation and storage 14,194 7,038 – 4,342 25,574Construction 16,246 – – 8,093 24,339Information and communication 13,523 – – 10,003 23,526Agriculture, hunting and fishing 9,294 – – 52 9,346Water Supply, sewerage, waste management

and remediation Activities 3,715 – – 3,025 6,740Professional scientific and technical services 5,813 – – 4 5,817Others 15,543 23,497 – 50,088 89,128

P=448,599 P=238,538 P=73,189 P=103,594 P=863,920December 31, 2018Financial intermediaries P=35,015 P=219,844 P=75,203 P=715 P=330,777Real estate 87,664 3,872 – 2,259 93,795Electricity, gas, stream and air conditioning

supply 72,629 – – 29,689 102,318Wholesale and retail trade 67,581 7,180 – 13,834 88,595Activities of private households as

employees and undifferentiated goods andservices and producing activities ofhouseholds**** 28,146 – – 118 28,264

Manufacturing 46,754 – – 4,842 51,596Transportation and storage 12,081 2,269 – 8,143 22,493Construction 14,924 – – 4,113 19,037Information and communication 13,984 – – 10,067 24,051Agriculture, hunting and fishing 8,738 – – 40 8,778Water Supply, sewerage, waste management

and remediation Activities 4,767 – – 2,929 7,696Professional scientific and technical services 5,852 – – 743 6,595Others 18,183 18,235 – 27,115 63,533

P=416,318 P=251,400 P=75,203 P=104,607 P=847,528* Consists of Financial assets at FVTPL and FVTOCI, and Investment securities at amortized cost** Consists of Other cash items, Due from BSP, Due from other banks, Interbank loans receivables and SPURA and Cash collateral deposits (included in ‘Other assets’)*** Consists of Contingent liabilities relating to inward and outward bills for collections, outstanding guarantees, letters of credit, unutilized credit limit of credit card holders,

committed loan lines, security deposits and financial guarantees with commitment**** Excludes loans and receivables on real estate or dwelling units which are considered production activities and classified under “Real estate”

Page 130: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 48 -

*SGVFS038997*

Parent Company

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalDecember 31, 2019Financial intermediaries P=35,007 P=195,888 P=73,025 P=1,738 P=305,658Real estate 94,333 3,873 – 492 98,698Electricity, gas, stream and air conditioning

supply 76,517 202 – 18,127 94,846Wholesale and retail trade 71,103 6,444 – 1,928 79,475Activities of private households as

employees and undifferentiated goods andservices and producing activities ofhouseholds**** 57,870 – – 6 57,876

Manufacturing 38,347 4 – 5,696 44,047Transportation and storage 14,192 7,038 – 4,342 25,572Construction 16,246 – – 8,093 24,339Information and communication 13,523 – – 10,003 23,526Agriculture, hunting and fishing 9,294 – – 52 9,346Water Supply, sewerage, waste management

and remediation Activities 3,714 – – 3,025 6,739Professional scientific and technical services 5,813 – – 4 5,817Others 14,502 23,456 – 50,088 88,046

P=450,461 P=236,905 P=73,025 P=103,594 P=863,985December 31, 2018Financial intermediaries P=37,334 P=219,844 P=75,067 P=715 P=332,960Real estate 87,468 3,872 – 2,259 93,599Electricity, gas, stream and air conditioning

supply 72,629 – – 29,689 102,318Wholesale and retail trade 66,829 7,180 – 13,834 87,843Activities of private households as

employees and undifferentiated goods andservices and producing activities ofhouseholds**** 28,146 – – 118 28,264

Manufacturing 46,744 0 – 4,842 51,586Transportation and storage 12,079 2,269 – 8,143 22,491Construction 14,924 – – 4,113 19,037Information and communication 13,984 – 10,067 24,051Agriculture, hunting and fishing 8,738 – – 40 8,778Water Supply, sewerage, waste management

and remediation Activities 4,767 – – 2,929 7,696Professional scientific and technical services 5,852 – – 743 6,595Others 14,919 18,196 – 27,115 60,230

P=414,413 P=251,361 P=75,067 P=104,607 P=845,448* Consists of Financial assets at FVTPL and FVTOCI, and Investment securities at amortized cost** Consists of Other cash items, Due from BSP, Due from other banks, Interbank loans receivables and SPURA and Cash collateral deposits (included in ‘Other assets’)*** Consists of Contingent liabilities relating to inward and outward bills for collections, outstanding guarantees, letters of credit, unutilized credit limit of credit card holders,

committed loan lines, security deposits and financial guarantees with commitment**** Excludes loans and receivables on real estate or dwelling units which are considered production activities and classified under “Real estate”

For details of the composition of the loans and receivables portfolio, refer to Note 14.

Offsetting of financial assets and financial liabilitiesThe Parent Company has various derivative financial instruments with various counterpartiestransacted under the International Swaps and Derivatives Association (ISDA) which are subject toenforceable master netting agreements. Under the agreements, the Parent Company has the right tosettle its derivative financial instruments either: (1) upon election of the parties; or (2) in the case ofdefault and insolvency or bankruptcy. The Parent Company, however, has no intention to net settleor to gross settle the accounts simultaneously. Also, the enforceability of netting upon default iscontingent on a future event, and so the offsetting criteria under PAS 32 are not met. Consequently,

Page 131: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 49 -

*SGVFS038997*

the gross amount of the derivative asset and the gross amount of the derivative liability are presentedseparately in the Parent Company’s statements of financial position.

Cash collaterals have also been received from and pledged to the counterparties for the net amount ofexposures from the derivative financial instruments. These cash collaterals do not meet the offsettingcriteria in under PAS 32 since it can only be set off against the net amount of the derivative asset andderivative liability in the case of default and insolvency or bankruptcy, in accordance with anassociated collateral arrangement.

The Parent Company has entered into sale and repurchase agreements with various counterparties thatare accounted for as collateralized borrowing. The Parent Company has also entered into a reversesale and repurchase agreements with various counterparties that are accounted for as a collateralizedlending. These transactions are subject to a global master repurchase agreement with a right of set-off only against the collateral securities upon default and insolvency or bankruptcy and therefore donot meet the offsetting criteria under PAS 32. Consequently, the related SSURA is presentedseparately from the collateral securities in the Parent Company’s statements of financial position.

The table below presents the recognized financial instruments of the Group and the Parent Companythat are offset, or subject to enforceable master netting agreements or other similar arrangements butnot offset, as at December 31, 2019 and 2018, taking into account the effects of over-collateralization.

Gross amounts ofrecognized

financialinstruments

Gross amountsset-off in

accordance withthe PAS 32

offsettingcriteria

Net amountpresented in

statements offinancialposition

Effect of remaining rights ofset-off that do not meet PAS 32

offsetting criteria

Net exposureFinancial

instrumentsFinancialcollateral

[a] [b] [c]=[a]-[b] [d] [e]=[c]-[d]2019Financial AssetsDerivative assets (Notes 6 and 10) P=1,148,008 P=− P=1,148,008 P=186,108 P=− P=961,900Financial LiabilitiesDerivative liabilities including

designated as hedges(Notes 6, 11 and 20) P=6,043,838 P=− P=6,043,838 P=186,108 P=5,093,601 P=764,129

SSURA (Note 21) 49,298,175 − 49,298,175 − 49,305,175 −P=55,342,013 P=− P=55,342,013 P=186,108 P=54,398,776 P=764,129

2018Financial AssetsDerivative assets (Notes 6 and 10) P=2,457,877 P=− P=2,457,877 P=1,097,520 P=14,800 P=1,345,557Financial LiabilitiesDerivative liabilities including

designated as hedges(Notes 6, 11 and 20) P=3,310,407 P=− P=3,310,407 P=1,097,520 P=1,231,730 P=981,157

SSURA (Note 21) 59,274,353 − 59,274,353 − 59,274,353 −P=62,584,760 P=− P=62,584,760 P=1,097,520 P=60,506,083 P=981,157

Collateral and other credit enhancementsThe amount and type of collateral required depends on the assessment of the credit risk of theborrower or counterparty. The Group follows guidelines on the acceptability of types of collateraland valuation parameters.

The main types of collateral obtained are as follows:· For corporate accounts - cash, guarantees, securities and physical collaterals (e.g., real estate,

chattels, inventory, etc.); as a general rule, commercial, industrial and residential lots arepreferred.

· For retail lending - mortgages on residential properties and financed vehicles.

Page 132: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 50 -

*SGVFS038997*

Management monitors the market value of real property collateral on an annual basis and as neededfor marketable securities to preserve collateral cover. The existing market value of collateral isconsidered during the review of the credit facilities and adequacy of the allowance for credit losses.

It is the Parent Company’s policy to dispose assets acquired in an orderly fashion. The proceeds fromthe sale of the foreclosed assets (classified as ‘Investment properties’ in the statements of financialposition) are used to reduce or repay the outstanding claim. In general, the Parent Company does notuse repossessed properties for business.

Credit quality per class of financial assetsIn compliance with BSP Circular No. 855, the Parent Company has developed and continuallyreviews and calibrates its internal risk rating system for credit exposures aimed at uniformly assessingits credit portfolio in terms of risk profile. Where appropriate, it obtains security, enters into masternetting agreements, and limits the duration of exposures to maintain and even further enhance thequality of the Parent Company’s credit exposures.

The credit quality of financial assets is monitored and managed using internal ratings and whereavailable, external ratings.

The credit quality of trading and financial investment securities is generally monitored through theexternal ratings of eligible external credit rating institutions. Presented below is the mapping of thecredit risk rating from external rating agencies to the Parent Company’s internal risk rating forinvestment securities:

Agency High GradeS&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-Moody's Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3Fitch AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-PhilRatings AAA Aa+ Aa Aa- A+ A A- Baa+ Baa Baa-

Agency Medium Grade Low GradeS&P BB+ BB BB- B+ B B- Below B-Moody's Ba1 Ba2 Ba3 B1 B2 B3 Below B3Fitch BB+ BB BB- B+ B B- Below B-PhilRatings Ba+ Ba Ba- B+ B B- Below B-

For loan exposures, the credit quality is generally monitored using its internal credit risk ratingssystem. It is the Parent Company’s policy to maintain accurate and consistent risk ratings across thecredit portfolio. This facilitates management to focus on major potential risk and the comparison ofcredit exposures across all lines of business, demographics and products. The rating system issupported by a variety of financial analytics, combined with an assessment qualitative factors such asof management and market information to provide the main inputs for the measurement of credit orcounterparty risk. Other variables that may impact the borrower’s creditworthiness but are not yetfactored into the baseline rating are considered in the model overlay to arrive at the final PD rating .All PD ratings are tailored with various categories and are derived in accordance with the Group’srating policy. The attributable risk ratings are assessed and updated regularly.

The Group uses PD Ratings to classify the credit quality of its receivables portfolio. This is currentlyundergoing upgrade to enhance credit evaluation parameters across different market segments andachieve a more sound and robust credit risk assessment. The description of the loan grades used bythe Group for receivable from customers, except credit card receivables and receivables of SBEI, areas follows:

Page 133: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 51 -

*SGVFS038997*

Effective after January 1, 2018Wholesale Banking Segment ScorecardsThe Parent Company has two (2) Wholesale Banking Segment scorecards, differentiated according tothe asset size of the borrower: Big Accounts scorecard for borrowers with more than P=300.0 millionasset size, and Small Accounts scorecard for borrowers with up to P=300.0 million asset size. Bothscorecards produce a 14-grade scale with each grade having a corresponding probability of default(PD).

High Grade (PD Rating of 1 to 8)Accounts in this category have a low probability of defaulting on their obligations over the next 12months. A comfortable degree of stability and diversity can be found in these borrowers.

Medium Grade (PD Rating of 9 to 12)The probability of default (PD) of accounts in this category is slightly higher than high gradeborrowers. Accounts whose financial ratios exhibit an amount of buffer though somewhat limited.These accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate ina significant way and therefore, default risk is present under such adverse conditions. Repaymentability is more or less assured if economic and industry conditions remain stable.

Low Grade (PD Rating of 13 to 14)Accounts for which default risk are very much present and those that have defaulted already areincluded in this category.

The Group is currently building a separate credit rating system for its consumer loans portfolio toenhance credit evaluation parameters across different market segments and achieve a more sound androbust credit risk assessment. All neither past due nor impaired accounts are presented as unrated.

For credit card receivables, the Parent Company classifies accounts that are neither past due norimpaired as follows:

High Grade – Accounts with tenure of 24 months or more which are under the current classificationand have never reached 30 days past due for the last 12 months from year-end.

Medium Grade – Accounts with tenure of 12 months or more which are under the currentclassification and have never reached 30 days past due for the last 12 months from year-end.

Low Grade – Accounts with tenure of less than 12 months which are under the current classificationand have never reached 30 days past due for the last 12 months from year-end.

Unrated – Current but non-active accounts and accounts that have reached 30 days past due for thelast 12 months from year-end.

For SBEI’s receivable portfolio, the Group classifies accounts that are neither past due nor impairedas follows:

High Grade – receivables from counterparties with no history of default and with apparent ability tosettle the obligation. In case of receivables from customers, the outstanding amount must be morethan 200.0% secured by collateral.

Medium Grade – receivable from counterparties with no history of default, with apparent ability tosettle the obligation and the outstanding amount must be 100.0% – 200.0% secured by collateral.

Page 134: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 52 -

*SGVFS038997*

Low Grade – receivable from counterparties with history of default and partially secured or unsecuredaccounts.

Unrated – Receivables from employees and refundable deposits.

Effective before January 1, 2018

A. Large Corporate Scorecard

High Grade (ICRR 1 to ICRR 5)Accounts belonging to this category have a low probability of defaulting on their obligationswithin the coming year. A comfortable degree of stability and diversity can be found in theseborrowers. Borrowers with this rating have access to the capital markets and have a history ofsuccessful financial performance.

Standard Grade (ICRR 6 to ICRR 10)Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. Theseaccounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in asignificant way and therefore, default risk is present under such adverse conditions. Repaymentability is more or less assured if economic and industry conditions remain stable.

Substandard Grade (ICRR 11 to ICRR 14)Accounts for which default risk are very much present are included in this category. Thefinancial ratios of the accounts are virtually at the inflection point separating the current loans andpotential problem loans. Any deterioration on the economic or industry front will push theaccounts into NPL category in the future.

UnratedThis category includes accounts not required to be rated under BSP regulation, equity securities,accounts receivables and sales contract receivables. The Group is currently building a separatecredit rating system for its consumer loans portfolio to enhance credit evaluation parametersacross different market segments and achieve a more sound and robust credit risk assessment.

B. Middle Market Scorecard

Standard Grade (ICRR 4 to ICRR 5)Accounts belonging to this category have a low probability of defaulting on their obligationswithin the coming year. A comfortable degree of stability and diversity can be found in theseborrowers. Borrowers with this rating have access to the capital markets and have a history ofsuccessful financial performance.

ICCR 4 is the maximum/highest rating class that a Middle Market account can attain. The ratingclasses for the middle market are comparable to those for the large corporate group. In other words,a “4” in the middle market is comparable to a “4” in the large corporate.

Standard Grade (ICRR 6 to ICRR 10)Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. Theseaccounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in asignificant way and therefore, default risk is present under such adverse conditions. Repaymentability is more or less assured if economic and industry conditions remain stable.

Page 135: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 53 -

*SGVFS038997*

Substandard Grade (ICRR 11 to ICRR 14)Accounts for which default risk are very much present are included in this category. Thefinancial ratios of the accounts are virtually at the inflection point separating the current loans andpotential problem loans. Any deterioration on the economic or industry front will push theaccounts into NPL category in the future.

For credit card receivables, the Parent Company classifies accounts that are neither past due norimpaired as follows:

· High Grade - Accounts with tenure of 24 months or more which are under the currentclassification and have never reached 30 days past due for the last 12 months from year-end.

· Standard Grade - Accounts with tenure of 12 months or more which are under the currentclassification and have never reached 30 days past due for the last 12 months from year-end.

· Substandard Grade - Accounts with tenure of less than 12 months which are under the currentclassification and have never reached 30 days past due for the last 12 months from year-end.

· Unrated - Current but non-active accounts and accounts that have reached 30 days past due forthe last 12 months from year-end.

For SBEI's receivable portfolio, the Group classifies accounts that are neither past due nor impairedas follows:

· High Grade - receivables from counterparties with no history of default and with apparent abilityto settle the obligation. In case of receivables from customers, the outstanding amount must bemore than 200.0% secured by collateral.

· Standard Grade - receivable from counterparties with no history of default, with apparent abilityto settle the obligation and the outstanding amount must be 100.0% - 200.0% secured bycollateral.

· Substandard Grade - receivable from counterparties with history of default and partially securedor unsecured accounts.

· Unrated - Receivables from employees and refundable deposits.

Financial assets of the Group and the Parent Company for which no available external ratings areavailable are classified as unrated.

The tables below show the credit quality by class of financial assets (gross of allowance for creditlosses and net of unearned discounts and deferred credits) of the Group and the Parent Company.

As of December 31, 2019 and 2018, all investment securities are classified as Stage 1.

ConsolidatedNeither Past Due nor Individually Impaired

TotalHigh GradeMedium

Grade Low Grade UnratedDecember 31, 2019Financial assets at FVTPL:

HFT investments:Government securities P=1,990,132 P=– P=– P=– P=1,990,132Private bonds 1,716,769 2,565 – 8,225 1,727,559

Total HFT investments 3,706,901 2,565 – 8,225 3,717,691

(Forward)

Page 136: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 54 -

*SGVFS038997*

ConsolidatedNeither Past Due nor Individually Impaired

TotalHigh GradeMedium

Grade Low Grade UnratedDerivative assets:

Currency forwards P=330,145 P=– P=3,657 P=67,403 P=401,205Cross-currency swaps 250,863 – – 101,715 352,578Interest rate swaps 155,201 – – 239,021 394,222Bonds forward – – – 3 3

Total derivative assets 736,209 – 3,657 408,142 1,148,008Total financial assets at FVTPL P=4,443,110 P=2,565 P=3,657 P=416,367 P=4,865,699Financial assets at FVTOCI: Treasury notes and bills* P=1,619,784 P=– P=– P=– P=1,619,784

Treasury bonds* 19,136,196 – – – 19,136,196Private bonds* 3,675,966 – – – 3,675,966

P=24,431,946 P=– P=– P=– P=24,431,946Financial assets at amortized cost (excluding

loans and receivables)*Due from BSP P=56,118,831 P=– P=– P=– P=56,118,831Due from other banks 9,278,655 – – – 9,278,655Interbank loans receivable and SPURA 1,059,900 – – – 1,059,900Investment securities at amortized cost –

Treasury bonds 166,203,221 – – – 166,203,221Private bonds 25,025,209 – – – 25,025,209

Treasury notes and bills 17,821,201 – – – 17,821,201209,049,631 – – – 209,049,631

P=275,507,017 P=– P=– P=– P=275,507,017

December 31, 2018Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P=– P=– P=– P=2,445,910 Private bonds 18,651 2,741 – 8,105 29,497 Equity securities – – – 4 4 Total HFT investments 2,464,561 2,741 – 8,109 2,475,411 Derivative assets: Interest rate swaps 1,029,830 – – – 1,029,830 Currency forwards 505,635 – – 397,835 903,470 Cross-currency swaps 276,904 – – 247,673 524,577 Total derivative assets 1,812,369 – – 645,508 2,457,877 Others 370 – – 15,117 15,487Total financial assets at FVTPL P=4,277,300 P=2,741 P=– P=668,734 P=4,948,775Financial assets at FVTOCI: Treasury notes and bills* P=17,637,261 P=– P=– P=– P=17,637,261 Treasury bonds* 11,615,697 – – – 11,615,697 Private bonds* 3,584,582 – – 1,196,476 4,781,058

P=32,837,540 P=– P=– P=1,196,476 P=34,034,016Financial assets at amortized cost (excludingloans and receivables)*Due from BSP P=63,605,386 P=– P=– P=– P=63,605,386Due from other banks 9,020,979 – – – 9,020,979Interbank loans receivable and SPURA 210,320 – – – 210,320Investment securities at amortized cost Treasury bonds 169,437,000 – – – 169,437,000 Private bonds 25,079,711 – – – 25,079,711 Treasury notes and bills 17,766,283 – – – 17,766,283

212,282,994 – – – 212,282,994P=285,119,679 P=– P=– P=– P=285,119,679

Page 137: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 55 -

*SGVFS038997*

Parent CompanyNeither Past Due nor Individually Impaired

TotalHigh GradeMedium

Grade Low Grade UnratedDecember 31, 2019Financial assets at FVTPL: HFT investments: Government securities P=1,990,132 P=– P=– P=– P=1,990,132 Private bonds 124,108 2,565 – 8,225 134,898 Total HFT investments 2,114,240 2,565 – 8,225 2,125,030 Derivative assets: Currency forwards 330,145 – 3,657 67,403 401,205 Cross-currency swaps 250,863 – – 101,715 352,578 Interest rate swaps 155,201 – – 239,021 394,222

Bonds forward – – – 3 3 Total derivative assets 736,209 3,657 408,142 1,148,008Total financial assets at FVTPL P=2,850,449 P=2,565 P=3,657 P=416,367 P=3,273,038Financial assets at FVTOCI Treasury notes and bills* P=1,619,784 P=– P=– P=– P=1,619,784 Treasury bonds* 19,136,196 – – – 19,136,196 Private bonds* 3,675,966 – – – 3,675,966

P=24,431,946 P=– P=– P=– P=24,431,946Financial assets at amortized cost (excluding

loans and receivables)*Due from BSP P=56,118,831 P=– P=– P=– P=56,118,831Due from other banks 9,113,587 – – – 9,113,587Interbank loans receivable and SPURA 1,059,900 – – – 1,059,900Investment securities at amortized cost Treasury bonds P=166,203,221 P=– P=– P= P=166,203,221 Private bonds 25,025,209 – – – 25,025,209 Treasury notes and bills 17,821,201 – – – 17,821,201

209,049,631 – – – 209,049,631P=275,341,949 P=– P=– P=– P=275,341,949

December 31, 2018Financial assets at FVTPL: HFT investments: Government securities P=2,445,910 P=– P=– P=– P=2,445,910 Private bonds 18,651 2,741 – 8,105 29,497 Total HFT investments 2,464,561 2,741 – 8,105 2,475,407 Derivative assets: Interest rate swaps 1,029,830 – – – 1,029,830 Currency forwards 505,635 – – 397,835 903,470 Cross-currency swaps 276,904 – – 247,673 524,577 Interest rate future – – – – – Total derivative assets 1,812,369 – – 645,508 2,457,877 Others 370 – – 15,094 15,464Total financial assets at FVTPL P=4,277,300 P=2,741 P=– P=668,707 P=4,948,748Financial assets at FVTOCI Treasury notes and bills* P=17,637,261 P=– P=– P=– P=17,637,261 Treasury bonds* 11,615,697 – – – 11,615,697 Private bonds* 3,584,582 – – 1,196,476 4,781,058

P=32,837,540 P=– P=– P=1,196,476 P=34,034,016Financial assets at amortized cost (excluding

loans and receivables)*Due from BSP P=63,605,386 P=– P=– P=– P=63,605,386Due from other banks 8,886,542 – – – 8,886,542Interbank loans receivable and SPURA 210,320 – – – 210,320Investment securities at amortized cost Treasury bonds 169,437,000 – – – 169,437,000 Private bonds 25,079,711 – – – 25,079,711 Treasury notes and bills 17,766,283 – – – 17,766,283

212,282,994 – – – 212,282,994P=284,985,242 P=– P=– P=– P=284,985,242

Page 138: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 56 -

*SGVFS038997*

ConsolidatedDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalReceivable from customers:Corporate lending Neither past due nor impaired High grade P=259,378,335 P=16,189,261 P=– P=275,567,596 Medium grade 35,665,714 2,555,477 – 38,221,191 Low grade – 2,550,630 – 2,550,630 Past due but not impaired – 355,743 – 355,743 Past due and impaired – – 2,994,675 2,994,675

295,044,049 21,651,111 2,994,675 319,689,835Consumer lending Neither past due nor impaired Unrated 52,072,669 – – 52,072,669 Past due but not impaired – 1,852,389 – 1,852,389 Past due and impaired – – 1,649,472 1,649,472

52,072,669 1,852,389 1,649,472 55,574,530Small business lending Neither past due nor impaired High grade 860,061 18,057 – 878,118 Medium grade 88,846 7,925 – 96,771 Low Grade – 18,880 – P=18,880 Unrated 17,103 – – 17,103 Past due but not impaired – 90 – 90 Past due and impaired – – 24,362 24,362

966,010 44,952 24,362 1,035,324Residential mortgages Neither past due nor impaired High grade 2,205,423 – – 2,205,423 Medium grade – 435,217 – 435,217 Low Grade – – – – Unrated 50,742,949 978 – 50,743,927 Past due but not impaired – 719,141 – 719,141 Past due and impaired – – 632,638 632,638

52,948,372 1,155,336 632,638 54,736,346Credit card receivables – individual Neither past due nor impaired High grade 3,153,758 – – 3,153,758 Medium grade 2,555,863 – – 2,555,863 Low Grade 5,412,170 – – 5,412,170 Unrated 2,877,644 – – 2,877,644 Past due but not impaired – 462,369 – 462,369 Past due and impaired – – 511,923 511,923

13,999,435 462,369 511,923 14,973,727Receivable from customers (SBEI) Neither past due nor impaired High grade 260,583 – – 260,583 Medium grade 105,553 – – 105,553 Low grade 213,261 – – 213,261

579,397 – – 579,397Total receivable from customers 415,609,932 25,166,157 5,813,070 446,589,159Other receivables Neither past due nor impaired High grade 5,590,210 358,940 – 5,949,150 Medium grade 362,783 11,485 – 374,268 Low grade 9,261 – 9,261 Unrated 1,176,874 45,774 – 1,222,648 Past due but not impaired – 68,805 – 68,805 Past due and impaired – – 315,496 315,496

7,129,867 494,265 315,496 7,939,628

(Forward)

Page 139: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 57 -

*SGVFS038997*

ConsolidatedDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalOther assets Neither past due nor impaired High grade P=6,736,184 P=– P=– P=6,736,184 Unrated 375,693 – – 375,693

7,111,877 – – 7,111,877P=429,851,676 P=25,660,422 P=6,128,566 P=461,640,664

ConsolidatedDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalReceivable from customers:Corporate lending Neither past due nor impaired High grade P=289,272,484 P=2,612,009 P=– P=291,884,493 Medium grade 23,647,692 7,545,506 – 31,193,198 Low grade – 2,934,440 – 2,934,440 Unrated – – – – Past due but not impaired – 345,967 – 345,967 Past due and impaired – – 1,329,413 1,329,413

312,920,176 13,437,922 1,329,413 327,687,511Consumer lending Neither past due nor impaired High grade – – – – Low grade – – – – Unrated 32,547,241 117,516 – 32,664,757 Past due but not impaired – 304,700 – 304,700 Past due and impaired – – 772,425 772,425

32,547,241 422,216 772,425 33,741,882Small business lending Neither past due nor impaired High grade 1,255,828 – – 1,255,828 Medium grade 66,940 – – 66,940 Low grade – – – – Unrated – – – – Past due but not impaired – 38,669 – 38,669 Past due and impaired – – 32,859 32,859

1,322,768 38,669 32,859 1,394,296Residential mortgages Neither past due nor impaired High grade 2,010,827 – – 2,010,827 Medium grade – – – – Low grade – – – – Unrated 40,768,418 193,667 – 40,962,085 Past due but not impaired – 703,729 – 703,729 Past due and impaired – – 502,287 502,287

42,779,245 897,396 502,287 44,178,928Credit card receivables - individual Neither past due nor impaired High grade 1,955,341 – – 1,955,341 Medium grade 811,635 – – 811,635 Low grade 2,361,821 – – 2,361,821 Unrated 574,592 – – 574,592 Past due but not impaired – 492,457 – 492,457

5,703,389 492,457 – 6,195,846

(Forward)

Page 140: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 58 -

*SGVFS038997*

ConsolidatedDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalReceivable from customers (SBEI) Neither past due nor impaired High grade P=144,140 P=– P=– P=144,140 Medium grade 568,729 – – 568,729 Low grade 481 – – 481 Past due but not impaired – 36,414 – 36,414

713,350 36,414 – 749,764Total receivable from customers 395,986,169 15,325,074 2,636,984 413,948,227Other receivables Neither past due nor impaired High grade 5,617,728 18,506 – 5,636,234 Medium grade 544,072 25,354 – 569,426 Low grade 10,472 11,391 – 21,863 Unrated 472,756 570,266 – 1,043,022 Past due but not impaired – 43,708 – 43,708 Past due and impaired – – 64,348 64,348

6,645,028 669,225 64,348 7,378,601Other assets Neither past due nor impaired High grade 2,371,164 – – 2,371,164 Unrated 381,969 – – 381,969

2,753,133 – – 2,753,133P=405,384,330 P=15,994,299 P=2,701,332 P=424,079,961

Parent CompanyDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalReceivable from customers:Corporate lending Neither past due nor impaired High grade P=262,304,308 P=16,189,261 P=– P=278,493,569 Medium grade 35,665,714 2,555,477 – 38,221,191 Low grade – 2,550,630 – 2,550,630 Past due but not impaired – 355,743 – 355,743 Past due and impaired – – 2,994,675 2,994,675

297,970,022 21,651,111 2,994,675 322,615,808Consumer lending Neither past due nor impaired Unrated 52,071,482 – – 52,071,482 Past due but not impaired – 1,852,389 – 1,852,389 Past due and impaired – – 1,649,472 1,649,472

52,071,482 1,852,389 1,649,472 55,573,343Small business lending Neither past due nor impaired High grade 860,062 18,057 – 878,119 Medium grade 88,846 7,925 – 96,771 Low grade – 18,880 – 18,880 Unrated 17,103 – – 17,103 Past due but not impaired – 90 – 90 Past due and impaired – 24,362 24,362

966,011 44,952 24,362 1,035,325Residential mortgages Neither past due nor impaired High grade 2,205,423 – – 2,205,423 Medium grade – 435,217 – 435,217 Unrated 50,607,318 978 – 50,608,296 Past due but not impaired – 719,141 – 719,141 Past due and impaired – – 632,638 632,638

52,812,741 1,155,336 632,638 54,600,715

(Forward)

Page 141: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 59 -

*SGVFS038997*

Parent CompanyDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalCredit card receivables - individual Neither past due nor impaired High grade P=3,153,758 P=– P=– P=3,153,758 Medium grade 2,555,863 – – 2,555,863 Low Grade 5,412,170 – – 5,412,170 Unrated 2,877,644 – – 2,877,644 Past due but not impaired – 462,369 – 462,369 Past due and impaired – – 511,923 511,923

13,999,435 462,369 511,923 14,973,727Total receivable from customers 417,819,691 25,166,157 5,813,070 448,798,918Other receivables Neither past due nor impaired High grade 5,283,427 358,940 – 5,642,367 Medium grade 362,783 11,485 – 374,268 Low Grade – 9,261 – 9,261 Unrated 1,176,873 199 – 1,177,072 Past due but not impaired – 68,805 – 68,805 Past due and impaired – – 315,496 315,496

6,823,083 448,690 315,496 7,587,269Other assets* Neither past due nor impaired High grade 6,736,184 – – 6,736,184 Unrated 375,500 – – 375,500

7,111,684 – – 7,111,684P=431,754,458 P=25,614,847 P=6,128,566 P=463,497,871

*Consists of cash collateral and security deposits

Parent CompanyDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalReceivable from customers:Corporate lending Neither past due nor impaired High grade P=291,920,623 P=2,612,009 P=– P=294,532,632 Medium grade 23,647,692 7,545,506 – 31,193,198 Low Grade – 2,934,440 – 2,934,440 Unrated – – – – Past due but not impaired – 345,966 – 345,966 Past due and impaired – – 1,329,413 1,329,413

315,568,315 13,437,921 1,329,413 330,335,649Consumer lending Neither past due nor impaired Unrated 29,756,735 116,477 – 29,873,212 Past due but not impaired – 226,877 – 226,877 Past due and impaired – – 523,965 523,965

29,756,735 343,354 523,965 30,624,054Small business lending Neither past due nor impaired High grade 1,255,828 – – 1,255,828 Medium grade 66,905 – – 66,905 Low Grade – – – – Unrated – – – – Past due but not impaired – 38,669 – 38,669 Past due and impaired – – 32,859 32,859

1,322,733 38,669 32,859 1,394,261

(Forward)

Page 142: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 60 -

*SGVFS038997*

Parent CompanyDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalResidential mortgages Neither past due nor impaired High grade P=2,010,827 P=– P=– P=2,010,827 Medium grade – – – – Low Grade – – – – Unrated 40,573,186 193,667 – 40,766,853 Past due but not impaired – 703,730 – 703,730 Past due and impaired – – 502,287 502,287

42,584,013 897,397 502,287 43,983,697Credit card receivables - individual Neither past due nor impaired High grade 1,955,341 – – 1,955,341 Medium grade 811,635 – – 811,635 Low Grade 2,361,821 – – 2,361,821 Unrated 574,592 – – 574,592 Past due and impaired – 492,457 – 492,457

5,703,389 492,457 – 6,195,846Total receivable from customers 394,935,185 15,209,798 2,388,524 412,533,507Other receivables Neither past due nor impaired High grade 5,741,825 18,506 – 5,760,331 Medium grade 200,935 25,354 – 226,289 Low Grade – 11,391 – 11,391 Unrated 399,016 570,267 – 969,283 Past due but not impaired – 31,724 – 31,724 Past due and impaired – – 22,387 22,387

6,341,776 657,242 22,387 7,021,405Other assets* Neither past due nor impaired High grade 2,371,164 – – 2,371,164 Unrated 381,742 – – 381,742

2,752,906 – – 2,752,906P=404,029,867 P=15,867,040 P=2,410,911 P=422,307,818

*Consists of cash collateral and security deposits

As of December 31, 2019 and 2018, allowance on individually impaired receivables amounted toP=3.1 billion and P=1.2 billion, respectively for the Group, and P=3.1 billion and P=1.0 billion,respectively for the Parent Company (see Note 14).

The following table provides the analysis of the Group and the Parent Company’s restructuredreceivables by class (included in the preceding table for the credit quality by class of financial assets)as of December 31, 2019 and 2018:

Consolidated and Parent CompanyDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalCorporate lending

Neither past due nor impaired P=– P=2,382 P=– P=2,382Past due but not impaired – 49,377 – 49,377Past due and impaired – – 223,530 223,530

– 51,759 223,530 275,289Consumer lending

Neither past due nor impaired 14,287 3,997 – 18,284 Past due but not impaired – 7 – 7

Past due and impaired – – 40,250 40,25014,287 4,004 40,250 58,541

Small business lendingPast due and impaired – – 8,715 8,715

(Forward)

Page 143: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 61 -

*SGVFS038997*

Consolidated and Parent CompanyDecember 31, 2019

Stage 1 Stage 2 Stage 3 TotalResidential mortgages

Neither past due nor impaired P=8,235 P=– P=– P=8,235P=22,522 P=55,763 P=272,495 P=350,780

ConsolidatedDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalCorporate lending

Neither past due nor impaired P=285,857 P=100,317 P=– P=386,174Past due but not impaired – – – –

Past due and impaired – – 107,962 107,962285,857 100,317 107,962 494,136

Consumer lendingNeither past due nor impaired 12,722 – – 12,722Past due but not impaired – 1,587 – 1,587Past due and impaired – – 9,872 9,872

12,722 1,587 9,872 24,181Small business lending

Neither past due nor impaired – – 1,165 1,165Residential mortgages

Neither past due nor impaired 4,650 – 4,009 8,6594,650 – 5,174 9,824

P=303,229 P=101,904 P=123,008 P=528,141

Parent CompanyDecember 31, 2018

Stage 1 Stage 2 Stage 3 TotalCorporate lending

Neither past due nor impaired P=285,857 P=100,317 P=– P=386,174Past due and impaired – – 107,962 107,962

285,857 100,317 107,962 494,136Consumer lending

Neither past due nor impaired 6,828 – – 6,828Past due and impaired – – 9,872 9,872

6,828 – 9,872 16,700Small business lending

Past due and impaired – – 1,165 1,165Residential mortgages

Neither past due nor impaired 4,650 – – 4,650 Past due and impaired – – 4,009 4,009

4,650 – 5,174 9,824P=297,335 P=100,317 P=123,008 P=520,660

Impairment assessmentEffective January 1, 2018, the Group calculates ECLs either on a collective or an individual basis.

Asset classes where the Group calculates ECL on an individual basis include:· The corporate lending portfolio· The large and unique exposures of the small business lending portfolio· The treasury, trading and interbank relationships (such as investment securities not held for

trading, due from other banks, interbank loans and cash collateral deposits)

Page 144: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 62 -

*SGVFS038997*

Asset classes where the Group calculates ECL on a collective basis include:· The smaller and more generic balances of the Parent Company’s small business lending· Residential mortgages and consumer lending

The Group groups these exposures into smaller homogeneous portfolios, based on a combination ofinternal and external characteristics of the loans. It includes but not limited to product type, propertytype, geographic location, internal grade, exposure value, utilization and collateral type, as applicable.

The Group performs assessment of significant increase in credit risk (see Note 2).

As of December 31, 2017, the Group and the Parent Company recognize impairment losses based onthe results of its individual and collective assessment of its credit exposures. Impairment has takenplace when there is a presence of known difficulties in the servicing of cash flows by counterparties, asignificant credit rating downgrade, infringement of the original terms of the contract has happened,or when there is inability to pay principal or interest overdue beyond a certain threshold. These andother factors, either singly or together with other factors, constitute observable events and/or data thatmeet the definition of an objective evidence of impairment.

Liquidity RiskLiquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligationsassociated with financial liabilities that are settled by delivering cash or another financial asset.

Liquidity risk arises because of the possibility that the Group might be unable to meet its paymentobligations when they fall due under both normal and stress circumstances. Liquidity risk ismonitored and managed using Maximum Cumulative Outflows (MCO) limits. A ContingencyFunding Plan is likewise in place to ensure readiness for identified liquidity crisis situation.

The Parent Company’s Asset and Liability Committee (ALCO) is directly responsible for market andliquidity risk exposures. ALCO regularly monitors the Parent Company’s positions and sets theappropriate transfer pricing rate to effectively manage movements of funds across business activities.

Analysis of financial instruments by remaining contractual maturitiesThe table below shows the maturity profile of the Group’s and the Parent Company’s financialinstruments, based on the Group’s and the Parent Company’s internal methodology that managesliquidity based on remaining contractual undiscounted cash flows.

Financial assetsMaturity profile of financial assets held for liquidity purposes is shown below. Analysis of equityand debt securities at FVTPL into maturity groupings is based on the expected date on which theseassets will be realized. For other assets, the analysis into maturity grouping is based on the remainingperiod from the end of the reporting period to the contractual maturity date or if earlier, the expecteddate the assets will be realized.

Financial liabilitiesThe maturity grouping is based on the remaining period from the end of the reporting period to thecontractual maturity date, except for savings deposits which are based on expected withdrawals.When a counterparty has a choice of when the amount is paid, the liability is allocated to the earliestperiod in which the Group can be required to pay.

Page 145: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 63 -

*SGVFS038997*

Consolidated

On Demand Within 30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalDecember 31, 2019Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=– P=1,990,132 P=– P=– P=– P=– P=1,990,132Private bonds – 1,727,559 – – – – 1,727,559Equity securities – – – – – – –

Total HFT investments – 3,717,691 – – – – 3,717,691Others – – – – – – –

Total financial assets at FVTPL – 3,717,691 – – – – 3,717,691Financial assets at amortized cost:

COCI and due from BSP 66,002,367 – – – – – 66,002,367Due from other banks 9,278,655 – – – – – 9,278,655Interbank loans receivable and SPURA

with BSP – 11,674 – 13,827 78,068 1,075,617 1,179,186Investment securities at amortized cost – 3,803,293 500,000 – 1,061,643 206,472,878 211,837,814

Receivable from customers andother receivables 6,097,657 46,401,811 44,482,805 56,694,957 20,816,432 432,583,192 607,076,854

Total financial assets at amortized cost 81,378,679 50,216,778 44,982,805 56,708,784 21,956,143 640,131,687 895,374,876Financial assets at FVTOCI – 627,844 – – – 24,431,946 25,059,790Total financial assets P=81,378,679 P=54,562,313 P=44,982,805 P=56,708,784 P=21,956,143 P=664,563,633 P=924,152,357

Financial LiabilitiesDeposit liabilities:

Demand P=150,083,571 P=– P=– P=– P=– P=– P=150,083,571Savings – 6,344,204 – – – 75,825,867 82,170,071Time – 133,793,365 31,126,875 36,358,735 – 44,643,016 245,921,991LTNCD – 99,281 – – – 22,605,231 22,704,512

Total deposit liabilities 150,083,571 140,236,850 31,126,875 36,358,735 – 143,074,114 500,880,145Bills payable and SSURA – 53,558,523 5,939,486 4,810,325 10,091,394 19,560,778 93,960,506Notes payable – 702,150 15,190,500 – – 33,190,500 49,083,150Acceptances payable – – – – – 491,917 491,917Margin deposits and cash letters of credit – – – – – 920,733 920,733Manager’s and certified checks

outstanding – 4,120,763 – – – 4,120,763Accrued interest, expense and other

liabilities – 7,657,416 – – – 2,128,185 9,785,601Total financial liabilities P=150,083,571 P=206,275,702 P=52,256,861 P=41,169,060 P=10,091,394 P=199,366,227 P=659,242,815

Consolidated

On Demand Within 30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalDecember 31, 2018Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=– P=2,445,910 P=– P=– P=– P=– P=2,445,910Private bonds – 29,497 – – – – 29,497Equity securities – 4 – – – – 4

Total HFT investments – 2,475,411 – – – – 2,475,411Others – – – – – 15,487 15,487

Total financial assets at FVTPL – 2,475,411 – – – 15,487 2,490,898Financial assets at amortized cost:

COCI and due from BSP 75,531,758 – – – – – 75,531,758Due from other banks 9,020,979 – – – – – 9,020,979Interbank loans receivable and SPURA

with BSP – 210,320 – – – – 210,320Investment securities at amortized cost – 58,080 – – 465,600 211,759,314 212,282,994

Receivable from customers andother receivables 27,354 78,275,385 41,821,969 42,455,375 32,491,082 226,728,522 421,799,687

Total financial assets at amortized cost 84,580,091 78,543,785 41,821,969 42,455,375 32,956,682 438,487,836 718,845,738Financial assets at FVTOCI – – 3,245,636 5,568,455 9,736,909 15,483,016 34,034,016Total financial assets P=84,580,091 P=81,019,196 P=45,067,605 P=48,023,829 P=42,693,591 P=453,986,339 P=755,370,652

(Forward)

Page 146: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 64 -

*SGVFS038997*

Consolidated

On Demand Within 30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalFinancial LiabilitiesDeposit liabilities:

Demand P=124,920,436 P=– P=– P=– P=– P=– P=124,920,436Savings – 10,017,384 2,510,027 3,765,041 7,530,082 90,913,828 114,736,362Time – 64,435,014 46,872,814 18,419,290 13,056,892 82,168,239 224,952,249LTNCD – – 5,000,000 – 5,000,000 14,281,130 24,281,130

Total deposit liabilities 124,920,436 74,452,399 54,382,841 22,184,331 25,586,974 187,363,196 488,890,177Bills payable and SSURA P=– P=66,539,500 P=7,532,660 P=5,003,180 P=– P=24,104,689 P=103,180,029Subordinated note – – – – – 10,000,000 10,000,000Notes payable – – – – – 31,548,000 31,548,000Acceptances payable – – – – – 618,831 618,831Margin deposits and cash letters of credit – – – – – 938,659 938,659Manager’s and certified checks

outstanding – 3,275,753 – – – – 3,275,753Accrued interest, expense and other

liabilities – 10,450,352 – – – 384,051 10,834,403Total financial liabilities P=124,920,436 P=154,718,004 P=61,915,501 P=27,187,511 P=25,586,974 P=254,957,426 P=649,285,852

Parent Company

On DemandWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days* Total

December 31, 2019Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=– P=1,990,132 P=– P=– P=– P=– P=1,990,132Private bonds – 134,898 – – – – 134,898

Total HFT investments – 2,125,030 – – – – 2,125,030Others – – – – – – –

Total financial assets at FVTPL – 2,125,030 – – – – 2,125,030Financial assets at amortized cost:

COCI and due from BSP 66,002,342 – – – – – 66,002,342Due from other banks 9,113,587 – – – – – 9,113,587Interbank loans receivable and SPURAwith BSP – 11,674 – 13,827 78,068 1,075,616 1,179,185

Investment securities atamortized cost – 3,803,293 500,000 – 1,061,643 206,472,878 211,837,814

Receivable from customers andother receivables 6,097,657 45,739,016 44,466,586 56,658,950 20,816,428 432,583,192 606,361,829

Total financial assets at amortized cost 81,213,586 49,553,983 44,966,586 56,672,777 21,956,139 640,131,686 894,494,757Financial assets at FVTOCI – 627,844 – – – 24,431,946 25,059,790Total financial assets P=81,213,586 P=52,306,857 P=44,966,586 P=56,672,777 P=21,956,139 P=664,563,632 P=921,679,577

Financial LiabilitiesDeposit liabilities:

Demand P=150,366,321 P=– P=– P=– P=– P=– P=150,366,321Savings – 6,485,318 – – – 75,825,867 82,311,185Time – 134,336,384 31,126,875 36,358,735 – 44,643,016 246,465,010LTNCD – 99,281 – – – 22,605,231 22,704,512

Total deposit liabilities 150,366,321 140,920,983 31,126,875 36,358,735 – 143,074,114 501,847,028Bills payable and SSURA – 52,313,120 5,939,486 4,810,325 10,091,394 19,560,778 92,715,103Acceptances payable – – – – – 491,917 491,917Margin deposits and cash letters of credit – – – – – 920,733 920,733Manager’s and certified checks outstanding – 4,120,763 – – – – 4,120,763Notes payable – 702,150 15,190,500 – – 33,190,500 49,083,150Accrued interest, expense and other

liabilities – 6,686,558 – – – 2,222,034 8,908,592Total financial liabilities P=150,366,321 P=204,743,574 P=52,256,861 P=41,169,060 P=10,091,394 P=199,460,076 P=658,087,286

Parent Company

On DemandWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days* Total

December 31, 2018Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=– P=2,445,910 P=– P=– P=– P=– P=2,445,910Private bonds – 29,497 – – – – 29,497

Total HFT investments – 2,475,407 – – – – 2,475,407Others – – – – – 15,464 15,464

Total financial assets at FVTPL – 2,475,407 – – – 15,464 2,490,871

(Forward)

Page 147: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 65 -

*SGVFS038997*

Parent Company

On DemandWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days* Total

Financial assets at amortized cost:COCI and due from BSP P=75,531,733 P=– P=– P=– P=– P=– P=75,531,733Due from other banks 8,886,542 – – – – – 8,886,542Interbank loans receivable and SPURAwith BSP – 210,320 – – – – 210,320

Investment securities atamortized cost – 58,080 – – 465,600 211,759,314 212,282,994

Receivable from customers andother receivables – 77,963,009 41,823,251 42,692,964 32,661,739 224,885,095 420,026,058

Total financial assets at amortized cost 84,418,275 78,231,409 41,823,251 42,692,964 33,127,339 436,644,409 716,937,647Financial assets at FVTOCI – – 3,245,636 5,568,455 9,736,909 15,483,016 34,034,016Total financial assets P=84,418,275 P=80,706,816 P=45,068,888 P=48,261,418 P=42,864,248 P=452,142,889 P=753,462,534

Financial LiabilitiesDeposit liabilities:

Demand P=125,091,230 P=– P=– P=– P=– P=– P=125,091,230Savings – 10,104,163 2,510,027 3,765,041 7,530,082 90,913,828 114,823,140Time – 65,636,604 46,872,814 18,691,380 13,056,892 82,168,239 226,425,929LTNCD – – 5,000,000 – 5,000,000 14,281,130 24,281,130

Total deposit liabilities 125,091,230 75,740,767 54,382,841 22,456,421 25,586,974 187,363,196 490,621,429Bills payable and SSURA P=– P=66,298,500 P=7,448,660 P=5,003,180 P=– P=24,104,689 P=102,855,029Acceptances payable – – – – – 618,831 618,831Margin deposits and cash letters of credit – – – – – 938,659 938,659Manager’s and certified checks outstanding – 3,275,753 – – – – 3,275,753Notes payable – – – – – 31,548,000 31,548,000Subordinated note – – – – – 10,000,000 10,000,000Accrued interest, expense and other

liabilities – 10,177,896 – – – 477,801 10,655,697Total financial liabilities P=125,091,230 P=155,492,916 P=61,831,501 P=27,459,601 P=25,586,974 P=255,051,176 P=650,513,398

The table below shows the contractual expiry by maturity of the Group’s and the Parent Company’scontingent liabilities and commitments (gross of allowance for credit losses).

On DemandWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

December 31, 2019Committed loan line P=920,886 P=14,170,031 P=491,664 P=3,450,000 P=5,244,398 P=3,772,084 P=28,049,063Unused commercial letters of credit 824,707 3,696,149 3,155,998 7,188,861 8,244,933 1,797,190 24,907,838Unutilized credit limit of credit card

holders 48,489,206 – – – – – 48,489,206Outstanding guarantees 453,121 – – – – – 453,121Inward bills for collection 166,195 117,700 47,209 8,061 – – 339,165Outward bills for collection – – 250,785 – – – 250,785Financial guarantees with

commitment – – 7,464 30,735 30,940 – 69,139P=50,854,115 P=17,983,880 P=3,953,120 P=10,677,657 P=13,520,271 P=5,569,274 P=102,558,317

December 31, 2018Committed loan line P=– P=– P=32,258 P=9,724,359 P=18,081,891 P=21,717,881 P=49,556,389Unused commercial letters of credit 1,443,555 3,336,463 4,880,278 7,729,870 8,329,760 1,336,108 27,056,034Unutilized credit limit of credit card

holders 22,994,800 – – – – – 22,994,800Outstanding guarantees 2,734,035 – – – – – 2,734,035Inward bills for collection 670,613 107,918 4,021 – 4,267 – 786,819Outward bills for collection – – 488,192 – – – 488,192Financial guarantees with

commitment – 94,761 330 3,199 323 – 98,613P=27,843,003 P=3,539,142 P=5,405,079 P=17,457,428 P=26,416,241 P=23,053,989 P=103,714,882

Market RiskMarket risk is the risk that the fair value or future cash flows of financial instruments will fluctuatedue to changes in market variables such as interest rates, foreign exchange rates and equity prices.The Group classifies exposures to market risk into either trading or non-trading portfolios andmanages those portfolios separately.

Page 148: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 66 -

*SGVFS038997*

The Group manages its market risk exposures through various established structures, processes andmeasurement tools.· Treasury Group, the unit in charge of managing customer flows, liquidity and interest rate risk in

the banking book, and that which handles most of the proprietary trading of the Group, isassigned with risk limits by the ROC. Similarly, limits are assigned to the equities trading arm ofthe Group, Equities Investment Unit.

· The Risk Management Group performs daily monitoring of compliance with policies, proceduresand risk limits and accordingly makes recommendations, where appropriate.

· The ALCO is the senior decision making body for the management of all market risks related toasset and liability management, and the trading and accrual books.

· VaR is the statistical model used by the Group to measure the market risk of its trading portfolio,with the confidence level set at 99.0%..

The market risk measurement models are subjected to periodic back testing to ensure validity ofmarket assumptions used.

Other risk management tools utilized by the Parent Company are as follows:· Loss limits· Position and duration limits, where appropriate· Mark-to-market valuation· VaR limits

Additional risk monitoring tools were likewise adopted to better cope with the fluid marketenvironment. This came mainly in the form of sensitivity analyses to pinpoint vulnerabilities in termsof profit or loss and capital erosion.

Interest rate riskInterest rate risk arises from the possibility that changes in interest rates will affect future cash flowsor the fair value of financial instruments. The Bank defines Interest Rate Risk in the Banking Bookas the risk of deterioration in the net interest income of bank arising from the timing and ratemismatch of its assets and liabilities combined with unfavorable movements in interest rates.

The Parent Company follows a prudent policy on managing its assets and liabilities so as to ensurethat exposure to fluctuations in interest rates are kept within acceptable limits. Management ofIRRBB entails identifications of risks in the banking book, modelling of balance sheet accountbehavior, measurement of interest rate gap, estimation of Earnings-at-Risk, interest rate stress-testing,reporting to ALCO, Risk Oversight Committee and the Board of Directors, model validation andmaintenance, and regular audit.

Interest rate risk exposures are reported via the weekly repricing gap schedule. The repricing gapreport highlights mismatches in the repricing tenors of assets and liabilities. Repricing gaps arecalculated by distributing the statements of financial position accounts into time buckets based on thenext repricing dates of individual items. For non-maturing deposits, distinction is made between thecore (i.e. stable) and non-core portions, where the former is spread in time buckets aligned withBasel’s IRRBB Document while the latter is bucketed in short-term tenors. The resulting differencebetween the amount of the assets and the amount of the liabilities that will reprice within a particulartime bucket constitutes a repricing gap.

The Group employs gap analysis to measure the sensitivity of its assets and liabilities to fluctuationsin market interest rates for any given period. A positive gap occurs when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities and is favorable to the Group

Page 149: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 67 -

*SGVFS038997*

during a period of rising interest rates since it is in a better position to invest in higher yielding assetsmore quickly than it would need to refinance its interest bearing liabilities. Conversely, during aperiod of falling interest rates, a positively gapped position could result in a restrained growth or evena declining net interest income.

The following tables set forth the asset-liability gap position of the Group and of the Parent Companyas of December 31, 2019 and 2018 (amounts in millions):

ConsolidatedWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

December 31, 2019Rate-sensitive Financial AssetsFinancial assets at FVTPL: HFT investments:

Government securities P=1,990 P=– P=– P=– P=– P=1,990Private bonds 1,728 – – – – 1,728

Total HFT investments 3,718 – – – – 3,718Total financial assets at FVTPL 3,718 – – – – 3,718Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP P=65,405 P=– P=14 P=78 P=1,076 P=66,573

Investment securities at amortized cost 1,015 500 – 1,062 206,473 209,050 Receivable from customers and other

receivables - gross 158,091 16 20,254 – 268,558 446,919Total financial assets at amortized cost 224,511 516 20,268 1,140 476,107 722,542Financial assets at FVTOCI 14 50 74 508 35,683 36,329Total rate-sensitive assets 228,243 566 20,342 1,648 511,790 762,589Rate-sensitive Financial LiabilitiesDeposit liabilities 11,592 37,121 45,527 – 287,214 381,454Bills payable and SSURA 51,955 5,939 4,810 11,323 19,562 93,589Notes payable – 15,189 – – 33,192 48,381Total rate-sensitive liabilities 63,547 58,249 50,337 11,323 339,968 523,424Asset-Liability Gap P=164,696 (P=57,683) (P=29,995) (P=9,675) P=171,822 P=239,165

December 31, 2018Rate-sensitive Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=2,446 P=– P=– P=– P=– P=2,446

Private bonds 29 – – – – 29Total HFT investments 2,475 – – – – 2,475

Total financial assets at FVTPL 2,475 – – – – 2,475Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 72,838 – – – – 72,838

Investment securities at amortized cost 58 – 12 3,348 208,865 212,283 Receivable from customers and other

receivables - gross 179,841 10,628 23,482 21,584 178,886 414,421Total financial assets at amortized cost 252,737 10,628 23,494 24,932 387,751 699,542Financial assets at FVTOCI 2,634 8,778 5,389 700 16,533 34,034Total rate-sensitive assets 257,846 19,406 28,883 25,632 404,284 736,051Rate-sensitive Financial LiabilitiesDeposit liabilities 94,214 36,761 29,567 18,455 185,073 364,070Bills payable and SSURA 65,474 4,966 7,486 – 25,254 103,180Notes payable – – – – 31,548 31,548Subordinated note – – – – 10,000 10,000Total rate-sensitive liabilities 159,688 41,727 37,053 18,455 251,875 508,798Asset-Liability Gap P=98,158 (P=22,321) (P=8,170) P=7,177 P=152,409 P=227,253

Page 150: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 68 -

*SGVFS038997*

Parent CompanyWithin30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

December 31, 2019Rate-sensitive Financial AssetsFinancial assets at FVTPL: HFT investments:

Government securities P=1,990 P=– P=– P=– P=– P=1,990Private bonds 135 – – – – 135

Total HFT investments 2,125 – – – – 2,125Total financial assets at FVTPL 2,125 – – – – 2,125Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 65,241 – 14 78 1,076 66,409

Investment securities at amortized cost 1,015 500 – 1,062 206,473 209,050 Receivable from customers and other

receivables - gross 158,383 – 20,218 – 270,924 449,525Total financial assets at amortized cost 224,639 500 20,232 1,140 478,473 724,984Financial assets at FVTOCI 14 50 74 508 35,644 36,290Total rate-sensitive assets 226,778 550 20,306 1,648 514,117 763,399Rate-sensitive Financial LiabilitiesDeposit liabilities 12,276 37,121 45,527 – 287,214 382,138Bills payable and SSURA 51,955 5,939 4,810 10,091 19,562 92,357Notes payable – 15,189 – – 33,192 48,381Total rate-sensitive liabilities 64,231 58,249 50,337 10,091 339,968 522,876Asset-Liability Gap P=162,547 (P=57,699) (P=30,031) (P=8,443) P=174,149 P=240,523

December 31, 2018Rate-sensitive Financial AssetsFinancial assets at FVTPL:

HFT investments:Government securities P=2,446 P=– P=– P=– P=– P=2,446

Private bonds 29 – – – – 29Total HFT investments 2,475 – – – – 2,475

Total financial assets at FVTPL 2,475 – – – – 2,475Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 72,702 – – – – 72,702

Investment securities at amortized cost 58 – 12 3,348 208,865 212,283 Receivable from customers and other

receivables - gross 175,996 10,579 23,625 21,981 180,824 413,005Total financial assets at amortized cost 248,756 10,579 23,637 25,329 389,689 697,990Financial assets at FVTOCI 2,634 8,778 5,389 700 16,533 34,034Total rate-sensitive assets 253,865 19,357 29,026 26,029 406,222 734,499Rate-sensitive Financial LiabilitiesDeposit liabilities 95,502 36,761 29,839 18,455 185,073 365,630Bills payable and SSURA 65,474 4,966 7,486 – 24,929 102,855Notes payable – – – – 31,548 31,548Subordinated note – – – – 10,000 10,000Total rate-sensitive liabilities 160,976 41,727 37,325 18,455 251,550 510,033Asset-Liability Gap P=92,889 (P=22,370) (P=8,299) P=7,574 P=154,672 P=224,466

Page 151: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 69 -

*SGVFS038997*

The following table provides for the average effective interest rates by period of repricing (or byperiod of maturity if there is no repricing) of the Group and of the Parent Company as ofDecember 31, 2019 and 2018:

Consolidated Parent CompanyLess than3 months

3 monthsto 1 year

Greaterthan 1 year

Less than 3months

3 monthsto 1 year

Greaterthan 1 year

December 31, 2019PesoFinancial AssetsDue from BSP – – – – – –Due from banks 0.94% – – 0.94% – –Interbank loans 4.50% – – 7.50% 5.83% 5.04%Investment securities* 4.43% 4.94% 5.70% 4.43% 4.94% 5.70%Loans and receivables 6.14% 7.79% 8.37% 6.14% 7.79% 8.37%

Financial LiabilitiesDeposit liabilities other than LTNCD 2.91% 3.73% 3.10% 2.91% 3.73% 3.10%LTNCD – – 4.25% – 4.25%Bills payable and SSURA – 4.50% 8.00% –Notes payable – 6.35% 4.68% – 6.35% 4.68%

USDFinancial AssetsDue from banks – – – – – –Interbank loans receivable and SPURA – – – – – –Investment securities* 2.92% 3.59% – 2.92% 3.59% –Loans and receivables 1.58% 3.65% 5.27% 1.58% 3.65% 5.27%

Financial LiabilitiesDeposit liabilities 1.91% 2.43% 2.27% 1.91% 2.43% 2.27%Bills payable 2.43% 2.78% – 2.43% 2.78% –Notes payable – – 4.05% – – 4.05%

December 31, 2018PesoFinancial AssetsDue from BSP 2.78% – – 2.78% – –Due from banks 1.35% – – 1.35% – –Interbank loans 5.23% – – 5.23% – –Investment securities* 5.25% 6.05% 6.93% 5.25% 6.05% 6.93%Loans and receivables 4.37% 4.85% 4.70% 4.37% 4.85% 4.70%

Financial LiabilitiesDeposit liabilities other than LTNCD 5.62% 3.85% 4.51% 5.62% 3.85% 4.51%LTNCD – 5.50% 4.28% – 5.50% 4.28%Bills payable and SSURA 10.12% 5.35% 8.00% – 5.35% 8.00%Subordinated note – – 5.46% – 5.46%Notes payable – – 4.68% – – 4.68%

USDFinancial AssetsDue from banks 0.01% – – 0.01% – –Interbank loans receivable and SPURA 2.55% – – 2.55% – –Investment securities* 2.36% 2.18% 4.20% 2.36% 2.18% 4.20%Loans and receivables 4.96% 3.16% 4.76% 4.96% 3.16% 4.76%

Financial LiabilitiesDeposit liabilities 2.69% 2.96% 2.26% 1.85% 2.06% 2.26%Bills payable 3.58% 1.87% 2.00% 3.58% 1.87% 2.00%Notes payable – – 4.05% – – 4.05%* Consists of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost

Market Risk in the Trading BookThe Parent Company needs to measure VaR in order to have an idea on how the market value of anasset or of a portfolio of assets is likely to decrease over a certain time period as market factorsrandomly change.

Page 152: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 70 -

*SGVFS038997*

VaR computation is a two-step process which involves calculation of the changes in the relevant riskfactors then computing for the corresponding impact on the exposure’s value. A risk factor is defined asa variable that causes a change in the value of a financial instruments or a portfolio of financialinstruments.

VaR MethodologyThe Parent Company uses two different approaches - Variance-Covariance and Historical Model.

Variance-Covariance approach is based on the assumption that the market factors have a multivariateNormal distribution. Using this assumption, portfolio profits and losses follow a conditional normaldistribution, i.e., the standardized return – the return divided by the forecasted deviation - follow thecharacteristic of the Normal curve whilst the returns themselves do not necessarily follow a Normaldistribution. Due to this assumption, it is possible to have an explicit formula for the quantile, since arelationship exists between standard deviation and confidence level, which will be used for the VaRcomputation.

Historical model assumes that asset returns in the future will have the same distribution that they had inthe past. It estimates VaR by reliving history, which involves using historical changes in market factorsto construct a distribution of potential profits and losses, and then reading off the loss that is exceeded ata specified confidence level and period. The Parent Company employs Historical model in two forms:one is a full revaluation while the other is a Taylor expansion composed of sensitivities (“Greeks”)characterizing market behavior.

The Group uses the Historical model in calculating the VaR of fixed income securities foreign exchangeoutrights, forwards and swaps, and other derivative instruments. For equities, the Variance-Covarianceapproach is used.

VaR ParametersThe Group uses a 99.0% confidence level which translates to 2.326 standard deviations. To give abetter picture, a 99.0% VaR can be taken as the 10th lowest of 1,000 profit and loss observations.VaR is computed based on 1-day holding period.

The VaR figures are backtested against actual and hypothetical profit and loss to validate therobustness of the VaR model. Likewise, to complement the VaR measure, the Parent Companyperforms stress tests wherein the trading portfolios are valued under extreme market scenarios notcovered by the confidence interval of the VaR model.

Since VaR is an integral part of the Parent Company’s market risk management, VaR limits are setannually for all financial trading activities based on its risk appetite level. Exposures are thenmonitored daily against the established VaR limits.

The following table provides the VaR summary of the Parent Company for the year endedDecember 31, 2019 and 2018 (amounts in millions):

FX and FXSwaps Fixed Income

Interest RateSwap

Agreements*Other

Derivatives31-Dec-192019-Average Daily P=4.138 P=34.904 P=6.509 P=39.6552019-Highest 19.261 234.815 32.748 169.1412019-Lowest (4.943) (2.275) (4.385) 6.812As of Dec. 31, 2019 (0.062) 15.733 1.988 17.660

(Forward)

Page 153: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 71 -

*SGVFS038997*

FX and FXSwaps Fixed Income

Interest RateSwap

Agreements*Other

Derivatives31-Dec-182018-Average Daily P=9.253 P=32.214 P=21.507 P=7.7732018-Highest 22.247 229.841 40.005 13.3412018-Lowest 1.544 1.463 10.379 4.242As of Dec. 31, 2018 9.997 42.875 12.937 7.515

*Includes interest rate swap transactions of same currency, e.g., PHP fix/float, and cross currency swaps,e.g., USD/PHP fix/fix

The Parent Company’s trading in fixed income securities together with the interest rate swaps areexposed to movements in interest rates. Foreign exchange swaps and other derivatives such asoptions and gold forwards are exposed to multiple risk factors including foreign exchange rates,interest rates, and sometimes even the volatility of these factors, e.g., for options, the volatility of theFX rates are also being traded.

The high and low of the total portfolio may not equal to the sum of the individual components as thehigh and low of individual portfolios may have occurred on different trading days.

Equity price riskEquity price risk is the risk that the fair values of equities will decrease as a result of changes in thelevels of equity indices and the value of individual stocks.

The following tables set forth the impact of changes in the PSE Index (PSEi) on the Group’s and theParent Company’s unrealized gain (loss) (in absolute amounts):

Financial Assets at FVTPLConsolidated

2019 2018Changes in PSEi 3.64% -3.64% 4.28% -4.28%Change on trading income of equity

portfolio under:Financial intermediaries P=8 (P=8) P=75 (P=75)Holding firms 21 (21) – –Industrial companies 2 (2) 11 (11)

Property 3 (3) 4 (4)Services 16 (16) 3 (3)

P=50 (P=50) P=93 (P=93)As a percentage of the Group’s net unrealized gain

(loss) for the year 0.00% 0.00% 0.00% 0.00%

There is no impact in the change of the PSEi to the Parent Company.

Financial Assets at FVTOCIConsolidated

2019 2018Changes in PSEi 3.64% -3.64% 4.28% -4.28%Change in net unrealized loss of SBEI’s

PSE shares P=610,462 (P=610,462) P=793,070 (P=793,070)As a percentage of SBEI’s net unrealized gain (loss)

for the year 100.07% (100.07%) 10.62% (10.62%)

Page 154: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 72 -

*SGVFS038997*

The Group, except for SBEI, has no equity securities classified under Financial assets at FVTOCI asof December 31, 2019 and 2018 which are affected by changes in the PSEi as these securities aremainly golf and club shares.

Market Risk in the Non-Trading BookThe accrual book pertains to the assets and liabilities that make up the Parent Company’s balancesheet. Such accrual positions are sensitive to changes in interest rates. The Parent Companymonitors the exposure of non-trading assets and liabilities to fluctuations in interest rates bymeasuring the impact of interest rate movements on its interest income.

The following tables set forth, for the period indicated, the sensitivity of the Parent Company’s netinterest income and equity to reasonably possible changes in interest rates with all other variablesheld constant:

Currency2019 2018

PHP USD PHP USDChanges in interest rates (in basis points) +100 -100 +100 -100 +100 -100 +100 -100Change in annualized net interest income* P=1,584 (P=1,584) (P=157) P=157 P=816 (P=816) (P=803) P=803*Amounts in millions

Earnings-at-Risk is the bank’s key measure of IRRBB. Earnings-at-Risk (EAR) or the sensitivity ofthe statement of income is the effect of the assumed changes in interest rates on the net interestincome for one year, based on the floating rate non-trading financial assets and financial liabilitiesheld at each statements of financial position date. This approach focuses on the impact in profit orloss of holding on to the gaps over a 1-year time frame. The Bank calculates Earnings-at-Risk onmonthly basis.

The take-off point for the EAR calculation is the bank’s repricing gap model which takes into accountbehavior. To control the interest rate repricing risk in the banking books, the Parent Company sets alimit on the EAR measure.

The Parent Company recognizes, however, that this metric assumes a “business-as-usual” scenarioand, therefore, do not show potential losses under a “stress” scenario. To address this limitation, theParent Company performs regular stress testing to test its ability to cope with adverse changes ininterest rates under different stress scenarios. This process involves applying one-time interest rateshocks of different magnitudes to the current repricing gap positions in the balance sheet. Stress-testing involves yield curve shifts of up to 300 basis points for USD and 500 basis points for PHP.The bank uses hedging products such as interest rate swaps to hedge its banking book.

Currency riskCurrency risk is the risk that the value of a financial instrument will fluctuate due to changes inforeign exchange rates.

Foreign currency-denominated deposits are generally used to fund the Parent Company’s foreigncurrency-denominated loan and investment portfolio in the FCDU. Banks are required by the BSP tomatch the foreign currency-denominated liabilities with the foreign currency-denominated assets heldunder the FCDU books. As of December 31, 2017, BSP requires a 30.00% liquidity reserve on allforeign currency liabilities held under the FCDU.

The Group’s policy is to maintain foreign currency exposure within acceptable limits and withinexisting regulatory guidelines.

Page 155: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 73 -

*SGVFS038997*

The following tables summarize the Group’s and the Parent Company’s exposure to currency risk asof December 31, 2019 and 2018. Included in the tables are the Group’s and the Parent Company’sassets and liabilities at carrying amounts, categorized by currency (amounts in Philippine Pesoequivalent).

Consolidated2019 2018

USD Others* Total USD Others* TotalFinancial AssetsCash and cash equivalents P=109 P=166,910 P=167,019 P=– P=477,891 P=477,891Due from other banks 1,777,506 2,782,301 4,559,807 3,247,625 889,441 4,137,066Financial assets at FVTPL 28,562 – 28,562 154,917 – 154,917Investment securities at amortized cost – – – – – –Loans and receivables 4,691,898 27,897 4,719,795 5,864,059 17,730 5,881,789Other assets 5,998,907 59 5,998,966 1,215,006 – 1,215,006Total financial assets 12,496,982 2,977,167 15,474,149 10,481,607 1,385,062 11,866,669Financial LiabilitiesDeposit liabilities – 2,766,238 2,766,238 – 1,185,537 1,185,537Derivative liabilities 3,119 – 3,119 – – –Bills payable and SSURA 26,664,230 813 26,665,043 12,234,847 974 12,235,821Acceptances payable 459,687 27,897 487,584 569,913 17,730 587,643Margin deposits and cash letters of

credit 850,634 – 850,634 882,188 – 882,188Accrued interest, taxes and other

expenses – 223,639 223,639 – 77,526 77,526Other liabilities 33,704 3,924 37,628 25,729 1,484 27,213Total financial liabilities 28,011,374 3,022,511 31,033,885 13,712,677 1,283,251 14,995,928Currency Swaps and Forwards 11,164,529 67,532 11,232,061 1,550,925 39,956 1,590,881Net Exposure (P=4,349,863) P=22,188 (P=4,327,675) (P=1,680,145) P=141,767 (P=1,538,378)

Parent Company2019 2018

USD Others* Total USD Others* TotalFinancial AssetsCash and cash equivalents P=109 P=166,910 P=167,019 P=– P=477,891 P=477,891Due from other banks 1,777,506 2,782,301 4,559,807 3,247,625 889,441 4,137,066Financial assets at FVTPL 28,562 – 28,562 154,917 – 154,917Investment securities at amortized cost – – – – – –Loans and receivables 4,691,898 27,897 4,719,795 5,864,059 17,730 5,881,789Other assets 5,998,907 59 5,998,966 1,215,006 – 1,215,006Total financial assets 12,496,982 2,977,167 15,474,149 10,481,607 1,385,062 11,866,669Financial LiabilitiesDeposit liabilities – 2,766,238 2,766,238 – 1,185,537 1,185,537Derivative liabilities 3,119 – 3,119 – – –Bills payable and SSURA 26,664,230 813 26,665,043 12,234,847 974 12,235,821Acceptances payable 459,687 27,897 487,584 569,913 17,730 587,643Margin deposits and cash letters

of credit 850,634 – 850,634 882,188 – 882,188

Accrued interest, taxes and otherexpenses – 223,639 223,639 – 77,526 77,526

Other liabilities 33,704 3,924 37,628 25,729 1,484 27,213Total financial liabilities 28,011,374 3,022,511 31,033,885 13,712,677 1,283,251 14,995,928Currency Swaps and Forwards 11,164,529 67,532 11,232,061 1,550,925 39,956 1,590,881Net Exposure (P=4,349,863) P=22,188 (P=4,327,675) (P=1,680,145) P=141,767 (P=1,538,378)* Consists of Euro, British pound, Australian dollar, Canadian dollar, Hong Kong dollar, Singapore dollar, New Zealand dollar,

Swiss franc, Japanese yen, Danish kroner, Thai baht, Chinese yuan, and South Korean won

Information relating to the Parent Company’s currency derivatives are disclosed in Note 6. TheParent Company has outstanding cross-currency swaps with notional amount of USD352.6 millionand USD108.8 million as of December 31, 2019 and 2018, respectively, and foreign currency forward

Page 156: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 74 -

*SGVFS038997*

transactions with notional amount of USD0.8 billion (bought) and USD0.6 billion (sold) as ofDecember 31, 2019, and USD1.2 billion (bought) and USD1.2 billion (sold) as of December 31,2018. The impact of the range of reasonably possible changes in the US Dollar-Philippine Pesoexchange rate (except those in the FCDU books) on the Parent Company’s non-consolidated pre-taxincome in 2019 and 2018 has been included in the VaR summary per product line.

Operational RiskOperational risk is the probability of loss arising from fraud, unauthorized activities, errors,omissions, system failures or from external events. This is the broadest risk type encompassingproduct development and delivery, operational processing, systems development, computing systems,complexity of products and services, and the internal control environment.

Operational Risk Management is considered a critical element in the Bank’s commitment to soundmanagement and corporate governance. Under the Bank’s operational risk management frameworkand operational risk manual, a risk-based approach is used in mapping operational risks alongcritical/key business processes, addressing any deficiencies/weaknesses through the proactive processof identifying, assessing and limiting impact of risk in every business/operational area.

Group policies on internal control, information security, and other operational risk aspects have beenestablished. Key Risk Indicators and Risk Assessment Guidelines have been implemented anddisseminated to different sectors of the Group to provide alerts for operational risk vulnerabilities.The Bank has instituted a Risk and Control Assessment process, as well as an Issue Escalationprocedure to ensure that issues or incidents where lapses in controls occur are captured, evaluated andelevated for correction. There is a continuous effort to expand the Operational Loss Databasecovering loss event categories as defined by Basel II. In addition, the Bank has an established aBusiness Continuity Plan to ensure continued bank operations in the face of potential disruptions tooperations as well as Fraud Management Framework for the prevention, detection, investigation andrecovery strategies to manage fraud, both internal and external.

6. Fair Value Measurement and Derivative Transactions

The following table provides the fair value hierarchy of the Group’s and the Parent Company’s assetsand liabilities measured at fair value and those for which fair values should be disclosed:

ConsolidatedFair Value

CarryingValue Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

December 31, 2019Assets Measured at Fair ValueFinancial assets at FVTPL:

HFT investments:Government securities P=1,990,132 P=1,990,132 P=1,990,132 P=– P=–

Private bonds 1,727,559 1,727,559 1,727,559 – –Total HFT investments 3,717,691 3,717,691 3,717,691 – –

Derivative assets:Currency forwards 401,205 401,205 – 401,205 –Interest rate swaps 394,222 394,222 – 394,222 –

Cross-currency swaps 352,578 352,578 – 352,578 –Bonds Forward 3 3 – 3 –

Total derivative assets 1,148,008 1,148,008 – 1,148,008 – Others – – – – –Total financial assets at FVTPL 4,865,699 4,865,699 3,717,691 1,148,008 –

(Forward)

Page 157: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 75 -

*SGVFS038997*

ConsolidatedFair Value

CarryingValue Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Financial assets at FVTOCI:Treasury bonds P=19,136,196 P=19,136,196 P=19,136,196 P=– P=–Private bonds 3,675,966 3,675,966 3,675,966 – –

Treasury notes and bills 1,619,784 1,619,784 1,619,784 – –Equity securities 296,888 296,888 – 296,888 –

24,728,834 24,728,834 24,431,946 296,888 –P=29,594,533 P=29,594,533 P=28,149,637 P=1,444,896 P=–

Assets for which Fair Values are DisclosedFinancial AssetsFinancial assets at amortized cost Investment securities at amortized cost:

Treasury bonds P=166,203,221 P=182,125,025 P=182,125,025 P=– P=–Private bonds 24,918,101 25,126,027 25,126,027 – –

Treasury notes and bills 17,821,201 17,909,592 17,909,592 – –Total investment securities at amortized cost 208,942,523 225,160,644 225,160,644 – –Receivable from customers:

Corporate lending 317,418,362 319,733,176 – – 319,733,176Consumer lending 68,121,512 68,005,925 – – 68,005,925Small business lending 1,020,322 1,021,092 – – 1,021,092

Residential mortgages 54,338,261 54,254,058 – – 54,254,058Total receivable from customers 440,898,457 443,014,251 – – 443,014,251

Other receivables 7,700,292 7,700,292 – – 7,700,292Other assets 375,693 339,266 – – 339,266

Total financial assets at amortized cost 657,916,965 676,214,453 225,160,644 – 451,053,809Non-financial AssetsInvestment properties 1,061,025 1,861,295 – 1,861,295

P=658,977,990 P=678,075,748 P=225,160,644 P=– P=452,915,104Liabilities Measured at Fair ValueFinancial liabilities at FVTPL:

Derivative liabilities:Currency forwards P=694,507 P=694,507 P=– P=694,507 P=–

Interest rate swaps 407,515 407,515 – 407,515 –Currency Options 2,213 2,213 – 2,213 –

Total financial liabilities at FVTPL 1,104,235 1,104,235 – 1,104,235 –Derivative Liabilities Designated as Hedges 4,939,603 4,939,603 – 4,939,603 –

P=6,043,838 P=6,043,838 P=– P=6,043,838 P=–Liabilities for which Fair Values are Disclosed

Deposit liabilities excluding LTNCD P=477,000,628 P=477,184,772 P=– P=– P=477,184,772 Bills payable and SSURA 93,589,005 92,779,717 – – 92,779,717

Notes payable 48,163,022 49,790,378 49,790,378 – –LTNCD 22,605,231 22,857,688 – – 22,857,688

P=641,357,886 P=642,612,555 P=49,790,378 P=– P=592,822,177

ConsolidatedFair Value

CarryingValue Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

December 31, 2018Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments:

Government securities P=2,445,910 P=2,445,910 P=2,445,910 P=– P=–Private bonds 29,497 29,497 29,497 – –

Equity securities 4 4 4 – –Total HFT investments 2,475,411 2,475,411 2,475,411 – –

(Forward)

Page 158: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 76 -

*SGVFS038997*

ConsolidatedFair Value

CarryingValue Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

Derivative assets:Interest rate swaps P=1,029,830 P=1,029,830 P=– P=1,029,830 P=–Currency forwards 903,470 903,470 – 903,470 –

Cross-currency swaps 524,577 524,577 – 524,577 –Total derivative assets 2,457,877 2,457,877 – 2,457,877 –

Others 15,487 15,487 23 – 15,464Total financial assets at FVTPL 4,948,775 4,948,775 2,475,434 2,457,877 15,464Financial assets at FVTOCI: Treasury notes and bills 17,637,261 17,637,261 17,637,261 – –

Treasury bonds 11,615,697 11,615,697 11,615,697 – –Private bonds 4,781,058 4,781,058 4,781,058 – –

Equity securities 269,553 269,553 – 269,553 –34,303,569 34,303,569 34,034,016 269,553 –

P=39,252,344 P=39,252,344 P=36,509,450 P=2,727,430 P=15,464Assets for which Fair Values are DisclosedFinancial AssetsFinancial assets at amortized cost

Investment securities at amortized cost: Treasury bonds P=169,437,000 P=158,491,355 P=158,491,355 P=– P=–

Private bonds 24,944,832 22,953,353 22,953,353 – –Treasury notes and bills 17,766,283 14,762,225 14,762,225 – –

Total investment securities at amortized cost 212,148,115 196,206,933 196,206,933 – –Receivable from customers:

Corporate lending 324,271,000 327,844,512 – – 327,844,512Consumer lending 39,463,424 42,323,711 – – 42,323,711Small business lending 1,367,541 1,364,830 – – 1,364,830

Residential mortgages 43,899,586 44,214,115 – – 44,214,115Total receivable from customers 409,001,551 415,747,168 – – 415,747,168Other receivables 7,316,139 7,316,139 – – 7,316,139

Other assets 381,969 321,574 – – 321,574Total financial assets at amortized cost 628,847,774 619,591,814 196,206,933 – 423,384,881Non-financial AssetsInvestment properties 812,794 1,130,608 – – 1,130,608

P=629,660,568 P=620,722,422 P=196,206,933 P=– P=424,515,489Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities:

Interest rate swaps P=1,073,342 P=1,073,342 P=– P=1,073,342 P=–Currency forwards 578,457 578,457 – 578,457 –Cross-currency swaps 121,792 121,792 – 121,792 –

Total financial liabilities at FVTPL 1,773,591 1,773,591 – 1,773,591 –Derivative Liabilities Designated as Hedges 1,536,816 1,536,816 – 1,536,816 –

P=3,310,407 P=3,310,407 P=– P=3,310,407 P=–Liabilities for which Fair Values are Disclosed

Deposit liabilities excluding LTNCD P=464,609,047 P=464,681,748 P=– P=– P=464,681,748LTNCD 24,281,130 23,304,459 – – 23,304,459

Subordinated note 9,957,248 9,992,314 – – 9,992,314Notes payable 31,408,760 31,738,550 31,738,550 – –Bills payable and SSURA 103,180,029 103,347,844 – – 103,347,844

P=633,436,214 P=633,064,915 P=31,738,550 P=– P=601,326,365

Page 159: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 77 -

*SGVFS038997*

Parent CompanyFair Value

CarryingValue Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

December 31, 2019Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments:

Government securities P=1,990,132 P=1,990,132 P=1,990,132 P=– P=–Private bonds 134,898 134,898 134,898 – –

Total HFT investments 2,125,030 2,125,030 2,125,030 – –Derivative assets:

Currency forwards 401,205 401,205 – 401,205 –Interest rate swaps 394,222 394,222 – 394,222 –Cross-currency swaps 352,578 352,578 – 352,578 –

Bonds forward 3 3 – 3 –Total derivative assets 1,148,008 1,148,008 – 1,148,008 –

Total financial assets at FVTPL 3,273,038 3,273,038 2,125,030 1,148,008 –Financial assets at FVTOCI:

Treasury bonds P=19,136,196 P=19,136,196 P=19,136,196 P=– P=– Private bonds 3,675,966 3,675,966 3,675,966 – –

Treasury notes and bills 1,619,784 1,619,784 1,619,784 – –Equity securities 257,833 257,833 – 257,833 –

24,689,779 24,689,779 24,431,946 257,833 –P=27,962,817 P=27,962,817 P=26,556,976 P=1,405,841 P=–

Assets for which Fair Values are DisclosedFinancial AssetsFinancial assets at amortized cost:

Investment securities at amortized cost:Treasury bonds P=166,203,221 P=182,125,025 P=182,125,025 P=– P=–

Private bonds 24,918,101 25,126,027 25,126,027 – –Treasury notes and bills 17,821,201 17,909,592 17,909,592 – –

Total investment securities at amortized cost 208,942,523 225,160,644 225,160,644 – – Receivable from customers:

Corporate lending 320,164,487 322,479,302 – – 322,479,302Consumer lending 67,722,584 67,606,997 – – 67,606,997

Small business lending 1,020,322 1,021,092 – – 1,021,092Residential mortgages 54,202,630 54,118,427 – – 54,118,427

Total receivable from customers 443,110,023 445,225,818 – – 445,225,818Other receivables 7,351,358 7,351,358 – – 7,351,358Other assets 375,500 339,092 – – 339,092

Total financial assets at amortized cost 659,779,404 678,076,912 225,160,644 – 452,916,268Non-financial AssetsInvestment properties 1,064,541 1,860,844 – – 1,860,844

P=660,843,945 P=679,937,756 P=225,160,644 P=– P=454,777,112Liabilities Measured at Fair ValueFinancial liabilities at FVTPL:

Derivative liabilities: Currency forwards P=694,507 P=694,507 P=– P=694,507 P=–

Interest rate swaps 407,515 407,515 – 407,515 –Currency Options 2,213 2,213 – 2,213 –

Total financial liabilities at FVTPL 1,104,235 1,104,235 – 1,104,235 –Derivative Liabilities Designated as Hedges 4,939,603 4,939,603 – 4,939,603 –

P=6,043,838 P=6,043,838 P=– P=6,043,838 P=–Liabilities for which Fair Values are DisclosedFinancial liabilities at amortized cost:

Deposit liabilities excluding LTNCD P=477,967,518 P=478,151,661 P=– P=– P=478,151,661Bills payable and SSURA 92,357,005 91,547,717 – – 91,547,717

Notes payable 48,163,022 49,790,378 49,790,378 – –LTNCD 22,605,231 22,857,688 – – 22,857,688

P=641,092,776 P=642,347,444 P=49,790,378 P=– P=592,557,066

Page 160: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 78 -

*SGVFS038997*

Parent CompanyFair Value

CarryingValue Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

December 31, 2018Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments:

Government securities P=2,445,910 P=2,445,910 P=2,445,910 P=– P=–Private bonds 29,497 29,497 29,497 – –

Total HFT investments 2,475,407 2,475,407 2,475,407 – –Derivative assets:

Interest rate swaps 1,029,830 1,029,830 – 1,029,830 –Currency forwards 903,470 903,470 – 903,470 –Cross-currency swaps 524,577 524,577 – 524,577 –

Total derivative assets 2,457,877 2,457,877 – 2,457,877 –Others 15,464 15,464 – – 15,464

Total financial assets at FVTPL 4,948,748 4,948,748 2,475,407 2,457,877 15,464Financial assets at FVTOCI: Treasury notes and bills 17,637,261 17,637,261 17,637,261 – –

Treasury bonds 11,615,697 11,615,697 11,615,697 – –Private bonds 4,781,058 4,781,058 4,781,058 – –

Equity securities 230,500 230,500 – 230,500 –34,264,516 34,264,516 34,034,016 230,500 –

P=39,213,264 P=39,213,264 P=36,509,423 P=2,688,377 P=15,464Assets for which Fair Values are DisclosedFinancial AssetsFinancial assets at amortized cost:

Investment securities at amortized cost: Treasury bonds P=169,437,000 P=158,491,355 P=158,491,355 P=– P=–

Private bonds 24,944,832 22,953,353 22,953,353 – –Treasury notes and bills 17,766,283 14,762,225 14,762,225 – –

Total investment securities at amortized cost 212,148,115 196,206,933 196,206,933 – –Receivable from customers:

Corporate lending 325,913,165 329,486,677 – – 329,486,677 Consumer lending 36,470,635 39,332,102 – – 39,332,102

Small business lending 1,367,507 1,364,795 – – 1,364,795Residential mortgages 43,704,354 44,018,883 – – 44,018,883

Total receivable from customers 407,455,661 414,202,457 – – 414,202,457Other receivables 6,957,042 6,957,042 – – 6,957,042

Other assets 381,742 321,383 – – 321,383Total financial assets at amortized cost 626,942,560 617,687,815 196,206,933 – 421,480,882Non-financial AssetsInvestment properties 815,002 1,129,426 – – 1,129,426

P=627,757,562 P=618,817,241 P=196,206,933 P=– P=422,610,308Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities:

Interest rate swaps P=1,073,342 P=1,073,342 P=– 1,073,342 P=–Currency forwards 578,457 578,458 – P=578,458 –

Interest rate futures 121,792 121,792 – 121,792 –Total financial liabilities at FVTPL 1,773,591 1,773,592 – 1,773,592 –Derivative Liabilities Designated as Hedges 1,536,816 1,536,816 – 1,536,816 –

P=3,310,407 P=3,310,408 P=– P=3,310,408 P=–Liabilities for which Fair Values are DisclosedFinancial liabilities at amortized cost:

Deposit liabilities excluding LTNCD P=466,340,299 P=466,416,741 P=– P=– P=466,416,741 LTNCD 24,281,130 23,304,459 – – 23,304,459

Subordinated note 9,957,248 9,992,314 – – 9,992,314Notes payable 31,408,760 31,738,550 31,738,550 – – Bills payable and SSURA 102,855,029 103,022,844 – – 103,022,844

P=634,842,466 P=634,474,908 P=31,738,550 P=– P=602,736,358

Page 161: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 79 -

*SGVFS038997*

When fair values of listed equity and debt securities, as well as publicly traded derivatives at thereporting date are based on quoted market prices or binding dealer price quotations, without anyadjustments for transaction costs, the instruments are included within Level 1 of the hierarchy.

For all other financial instruments, fair value is determined using valuation techniques. Valuationtechniques include net present value techniques, comparison to similar instruments for which marketobservable prices exist and other revaluation models. Instruments included in Level 3 include thosefor which there is currently no active market.

During the years ended December 31, 2019 and 2018, there were no transfers between Level 1 andLevel 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

The methods and assumptions used by the Group in estimating the fair value of its financialinstruments are:

COCI, due from BSP and other banks and interbank loans receivable and SPURA with the BSPThe carrying amounts approximate fair values considering that these accounts consist mostly ofovernight deposits and floating rate placements.

Debt securitiesFair values are generally based upon quoted market prices, if available. If the market prices are notreadily available, fair values are estimated using either values obtained from independent partiesoffering pricing services or adjusted quoted market prices of comparable investments or using thediscounted cash flow methodology.

Equity securitiesFair values of quoted equity securities are based on quoted market prices. Fair values of unquotedequity securities are derived based on the adjusted net asset value method.

Receivable from customers and sales contracts receivable (included under ‘Other receivables’)Fair values of loans and receivables are estimated using the discounted cash flow methodology, usingthe Group’s current incremental lending rates for similar types of loans and receivables.

Other receivables - Accounts receivable and accrued interest receivableCarrying amounts approximate fair values given their short-term nature.

Investment propertiesFair value of investment properties are determined by independent or in-house appraisers using themarket data approach. Valuations were derived on the basis of recent sales of similar properties inthe same area as the investment properties and taking into account the economic conditions prevailingat the time the valuations were made and comparability of similar properties sold with the propertybeing valued. Significant unobservable inputs in determining fair values include the following:

Location Location of comparative properties whether on a main road, or secondary road.Road width could also be a consideration if data is available. As a rule, propertieslocated along a main road are superior to properties located along a secondary road.

Size Size of lot in terms of area. Evaluate if the lot size of property or comparableconforms to the average cut of the lots in the area and estimate the impact of the lotsize differences on land value.

Page 162: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 80 -

*SGVFS038997*

Time element An adjustment for market conditions is made if general property values haveappreciated or depreciated since the transaction dates due to inflation or deflation ora change in investor’s perceptions of the market over time, in which case, thecurrent data is superior to historic data.

Discount Generally, asking prices in advertisements posted for sale are negotiable. Discountis the amount the seller or developer is willing to deduct from the posted sellingprice if the transaction will be in cash or equivalent.

Other financial assetsThe carrying amounts approximate fair values due to their short-term nature.Derivative instrumentsDerivative products are valued using valuation techniques using market observable inputs includingforeign exchange rates and interest rate curves prevailing at the statements of financial position date.For interest rate swaps, cross-currency swaps and foreign exchange contracts, discounted cash flowmodel is applied. This valuation model discounts each cash flow of the derivatives at a rate that isdependent on the tenor of the cash flow.

Deposit liabilities (demand and savings deposits excluding long-term savings deposits)The carrying amounts approximate fair values considering that these are due and demandable.

Long-term negotiable certificates of deposit (LTNCD) and subordinated noteFair values of LTNCD and subordinated note are estimated using adjusted quoted market prices ofcomparable investments. The adjustments on market quoted prices are unobservable inputs.

Other financial liabilitiesFor accrued interest and other expenses and other financial liabilities, the carrying amountsapproximate fair values due to their short-term nature.

Derivative Financial InstrumentsThe following tables set out the information about the Group’s and the Parent Company’s derivativefinancial instruments and the related fair values:

2019 2018

NotionalAmounts

DerivativeAsset

(Note 10)

DerivativeLiability(Note 20)

NotionalAmounts

DerivativeAsset

(Note 10)

DerivativeLiability(Note 20)

Forward exchange bought USD820,072 P=26,736 P=694,225 USD1,173,203 P=320,569 P=573,810Forward exchange sold USD596,539 374,470 282 USD1,156,992 582,901 4,647Interest rate swaps P=62,557,016 394,222 407,515 P=163,817,301 1,029,830 1,073,342Warrants USD250,258 – – USD250,258 – –Bond forward USD8,000 3 – USD– – –FX options USD5,500 – 2,213 USD– – –Cross-currency swaps USD106,610 352,577 – USD108,810 524,577 121,792

P=1,148,008 P=1,104,235 P=2,457,877 P=1,773,591

The movements in the Group’s and the Parent Company’s derivative financial instruments follow:

2019 2018Derivative Assets (Note 10)Balance at beginning of year P=2,457,877 P=1,465,486Fair value changes during the year (159,251) 520,857Settled transactions (1,150,618) 471,534Balance at end of year P=1,148,008 P=2,457,877

Page 163: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 81 -

*SGVFS038997*

2019 2018Derivative Liabilities (Note 20)Balance at beginning of year P=1,773,591 P=2,013,182Fair value changes during the year 452,190 (432,688)Settled transactions (1,121,546) 193,097Balance at end of year P=1,104,235 P=1,773,591

Fair value changes of derivatives other than forward contracts amounting to P=6.9 million gain andP=182.8 million loss in 2019 and 2018, respectively, are recognized as ‘Trading and securities gain -net’ in the statements of income (see Note 9), while fair value changes on forward contractsamounting to P=0.6 billion loss in 2019 and P=1.1 billion gain in 2018 are recognized as ‘Foreignexchange gain - net’ in the statements of income.

As of December 31, 2019 and 2018, the Parent Company has positions in the following types ofderivatives:

ForwardsForward contracts are contractual agreements to buy or sell a specified instrument at a specific priceand date in the future. Forwards are customized contracts transacted in the over-the-counter market.

SwapsSwaps are contractual agreements between two parties to exchange streams of payments over timebased on specified notional amounts, in relation to movements in a specified underlying index such asinterest rate, foreign currency rate or equity index.

Interest rate swaps relate to contracts taken out by the Parent Company with other financialinstitutions in which the Parent Company either receives or pays a floating rate in return for paying orreceiving, respectively, a fixed rate of interest. The payment flows are usually netted against eachother, with the difference being paid by one party to the other.

In a currency swap, the Parent Company pays a specified amount in one currency and receives aspecified amount in another currency. Currency swaps are mostly gross-settled.

Interest rate futuresFutures contract is a contractual agreement made on a futures exchange to buy or sell particular assetsat a predetermined price in the future. Futures contracts standardize the quality and quantity of theunderlying asset.

Derivative financial instruments held or issued for trading purposesThe Parent Company’s derivative trading activities relate to deals with customers which are normallylaid off with counterparties. The Parent Company may also take positions with the expectation ofgenerating profit from favorable movements in prices and rates on indices. Also included under thisheading are any derivatives which do not meet hedge accounting requirements.

Derivative financial instruments held or issued for hedging purposesAs part of its asset and liability management, the Parent Company used derivatives for hedgingpurposes in order to reduce its exposure to market risks that is achieved by hedging portfolios of fixedrate financial instruments.

Page 164: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 82 -

*SGVFS038997*

The accounting treatment explained in Note 2 to the financial statements, Hedge Accounting, variesaccording to the nature of the item hedged and compliance with the hedge criteria. Hedges enteredinto by the Parent Company which provide economic hedges but do not meet the hedge accountingcriteria are treated as Derivatives Held or Issued for Trading Purposes.

Fair value hedgesFair value hedges are used by the Parent Company to protect its portfolio against changes in fairvalue of financial assets due to movements in interest rates. The financial instruments hedged forinterest rate risk represents receivables from customers. The Parent Company uses interest rate swapsto hedge against identified interest rate risks (see Note 11).

7. Due from Other Banks

This account consists of:Consolidated Parent Company

2019 2018 2019 2018Foreign banks P=8,447,440 P=8,346,538 P=8,447,439 P=8,346,538Local banks 831,215 674,441 666,147 540,004

9,278,655 9,020,979 9,113,586 8,886,542Allowance for credit lossesBalance at beginning of year 3,937 7,342 5,742 7,206Effect of disposal group classified as

held for sale (998) – – –Provision for (recovery of) credit losses

(Note 14) 623 (3,405) (3,018) (1,464)3,562 3,937 2,724 5,742

P=9,275,093 P=9,017,042 P=9,110,862 P=8,880,800

In 2019 and 2018, due from other banks were carried at stage 1 and there were no transfers into andout of stage 1.

For the years ended December 31, 2019, 2018 and 2017, peso-denominated due from other banksbear nominal annual interest rates ranging from 0.001% to 0.50%, while foreign currency-denominated due from other banks bear nominal annual interest rates ranging from 0.025% to 1.85%.

Total interest income on ‘Due from other banks’ earned by the Group amounted to P=62.9 million,P=76.2 million and P=53.0 million for the years ended December 31, 2019, 2018 and 2017, respectively,while total interest income on ‘Due from other banks’ earned by the Parent Company amounted toP=59.6 million, P=76.0 million and P=52.8 million for the years ended December 31, 2019, 2018 and2017, respectively, included in ‘Interest income on deposits with banks and others’ in the statementsof income.

Page 165: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 83 -

*SGVFS038997*

8. Interest Income on Financial Investments

This account consists of interest income on:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Investment securities at amortizedcost (Note 13) P=7,956,191 P=8,070,804 P=10,399,086 P=7,956,191 P=8,070,804 P=10,399,086

Financial assets at FVTOCI (Note 12) 1,287,781 845,485 – 1,287,781 845,485 –9,243,972 8,916,289 10,399,086 9,243,972 8,916,289 10,399,086

Financial assets at FVTPL (Note 10): Derivatives 825,781 811,429 516,029 825,781 811,429 516,029

Held-for-trading 152,320 56,339 86,592 152,320 56,339 84,371978,101 867,768 602,621 978,101 867,768 600,400

P=10,222,073 P=9,784,057 P=11,001,707 P=10,222,073 P=9,784,057 P=10,999,486

Peso-denominated HFT investments earn annual interest rates ranging from 3.00% to 9.75%, from2.13% to 8.75%, and from 2.13% to 14.38% in 2019, 2018 and 2017, respectively, while foreigncurrency-denominated HFT investments earn annual interest rates ranging from 1.63% to 11.63%,from 2.25% to 10.63%, and from 2.75% to 11.63% in 2019, 2018 and 2017, respectively.

Peso-denominated investment securities at amortized cost earn annual interest rates ranging from4.28% to 5.98% in 2019 and from 3.50% to 8.13% in 2018 and 2017, while USD-denominatedinvestment securities at amortized cost earn annual interest rates ranging from 3.70% to 9.50%, from3.68% to 9.50%, and from 3.70% to 10.63% in 2019, 2018 and 2017, respectively.

Peso-denominated debt financial assets at FVTOCI earn annual interest rates ranging from 3.96% to6.84% in 2019 and from 5.50% to 6.60% in 2018, while USD-denominated debt financial assets atFVTOCI earn annual interest rates ranging from 3.00% to 9.50% in 2019 and from 3.00% to 10.63%in 2018.

9. Trading and Securities Gain

Net gains (losses) from trading/disposal of investment securities and derivatives follow:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Financial assets at FVTOCI (Note 12) P=1,138,116 P=508,634 P=− P=1,138,116 P=508,634 P=−Financial assets at FVTPL:

Held-for-trading investments (Note 10) 395,853 (50,336) 18,879 394,658 (50,339) 19,945Derivatives (Note 6) 4,181 (92,237) 8,086 4,181 (92,237) 8,087

400,034 (142,573) 26,965 398,839 (142,576) 28,032P=1,538,150 P=366,061 P=26,965 P=1,536,955 P=366,058 P=28,032

Investment securities at amortized cost(Note 13) P=− P=− P=2,349,270 P=− P=− P=2,349,270

Page 166: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 84 -

*SGVFS038997*

10. Financial Assets at Fair Value Through Profit or Loss

This account consists of:

Consolidated Parent Company2019 2018 2019 2018

Held-for-trading:Government securities P=1,990,132 P=2,445,910 P=1,990,132 P=2,445,910Private bonds 1,727,559 29,497 134,898 29,497Equity securities – 4 – –

3,717,691 2,475,411 2,125,030 2,475,407Derivative assets (Note 6):

Currency forwards 401,205 903,470 401,205 903,470Interest rate swaps 394,222 1,029,830 394,222 1,029,830Cross-currency swaps 352,578 524,577 352,578 524,577Bonds Forward 3 – 3 –

1,148,008 2,457,877 1,148,008 2,457,877Others – 15,487 – 15,464

P=4,865,699 P=4,948,775 P=3,273,038 P=4,948,748

As of December 31, 2018, equity instruments under ‘Others’ pertain to the Parent Company’s andSBCIC’s equity investments with aggregate carrying amount of P=15.5 million, which are notdesignated as at FVTOCI. These financial assets are not held for trading purposes.

As of December 31, 2019 and 2018, ‘Financial assets at FVTPL’ include net unrealized gain ofP=1.1 billion and P=2.4 billion, respectively, for the Group and the Parent Company.

Fair value gains or losses on financial assets at FVTPL (other than currency forwards) are included in‘Trading and securities gain - net’ (see Note 9) in the statements of income. Fair value gains or losseson currency forwards are included in ‘Foreign exchange gain - net’ in the statements of income(see Note 6).

11. Derivatives Designated as Hedges

The following table sets out the information about the Group’s derivative financial instrumentsdesignated as hedges and the related fair values:

December 31, 2019 December 31, 2018NotionalAmount

DerivativeLiability

NotionalAmount

DerivativeLiability

Interest rate swaps USD2,781,571 P=4,939,603 USD2,781,571 P=1,536,816

For the years ended December 31, 2019, 2018 and 2017, net interest expense on derivative liabilitiesdesignated as hedges amounted P=21.8 million, nil, and P=4.2 million , respectively. The change in fairvalue of the hedging instruments amounted to P=3.6 billion loss and P=1.5 billion loss for the yearended December 31, 2019 and 2018, respectively.

Page 167: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 85 -

*SGVFS038997*

The following table sets out the information about the Group’s hedged assets presented under‘Investment securities at amortized cost’ in the statement of financial position:

December 31, 2019 December 31, 2018

Carrying amountof hedged items

Accumulatedamount of fair

value adjustmentson the hedged

itemsCarrying amount of

hedged items

Accumulatedamount of fair

value adjustmentson the hedged

itemsFixed-rate government

securities P=149,898,844 P=5,024,423 P=156,103,547 P=1,627,600

For the year ended December 31, 2019 and 2018, respectively, the hedge ineffectiveness amountingto a loss of P=2.7 million and a gain of P=90.8 million is presented under ‘Trading and securities gain -net’ in the statements of income.

12. Financial Assets at Fair Value through Other Comprehensive Income

This account consists of:

Consolidated Parent Company2019 2018 2019 2018

Debt instrumentsTreasury notes and bills P=1,619,784 P=17,637,261 P=1,619,784 P=17,637,261Treasury bonds (Note 21) 19,136,196 11,615,697 19,136,196 11,615,697Private bonds 3,675,966 4,781,058 3,675,966 4,781,058

24,431,946 34,034,016 24,431,946 34,034,016Equity instruments

Golf shares 265,686 237,460 257,833 230,500PSE shares 31,202 32,093 – –

296,888 269,553 257,833 230,500P=24,728,834 P=34,303,569 P=24,689,779 P=34,264,516

An analysis of changes in the fair value of debt instruments and the corresponding ECL allowancesfollow:

2019 2018Fair value at beginning of year P=34,034,016 P=28,353,304New assets originated or purchased 176,088,368 62,157,125Assets derecognized or repaid (187,657,273) (56,650,960)Change in fair value 1,112,962 (1,418,840)Foreign exchange adjustments 853,873 1,593,387

24,431,946 P=34,034,016ECL allowance at beginning of year P=34,676 P=113,779Recovery of credit losses (Note 14) (19,327) (79,103)

P=15,349 P=34,676

In 2019 and 2018, debt instruments at FVTOCI were carried at stage 1 and there were no transfersinto and out of stage 1.

Page 168: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 86 -

*SGVFS038997*

On January 19, 2018, the Parent Company participated in the Republic of the Philippines’ cash tenderprogram and submitted its holdings of eligible ROP bonds classified as FVTOCI securities with facevalue of USD128.6 million (P=6.6 billion), resulting in gain amounting to USD4.3 million(P=220.0 million) recorded under ‘Trading and securities gain - net’ (see Note 9).

As discussed in Note 13, the Parent Company reclassified certain HTC securities to financial assets atFVTOCI due to change in its business model in managing its financial assets in accordance with thefinal version of PFRS 9.

As of December 31, 2019 and 2018, Peso -denominated debt financial assets at FVTOCI amounted toP=2.6 billion and P=3.6 billion, respectively.

As of December 31, 2019 and 2018, USD-denominated debt financial assets at FVTOCI amounted toP=21.8 billion and P=30.4 billion, respectively.

As of December 31, 2019 and 2018, certain treasury bond securities were pledged with foreign banksas collateral for SSURA (see Note 21).

PSE shares were obtained by SBEI in 2001 as a result of the demutualization of its membershipshares in the stock exchange. These investments were for long-term strategic purpose. SBEIdesignated these equity securities as financial assets at FVTOCI as management believes that thisprovides a more meaningful presentation for medium or long-term strategic investments, rather thanreflecting changes in fair value immediately in the statements of income. The Group also adopted thesame classification for its investments in golf shares.

The movements in ‘Net unrealized gain (losses) on financial assets at FVTOCI’ follow:

Consolidated Parent Company2019 2018 2019 2018

Balance at beginning of year (P=414,686) P=925,023 (P=426,114) P=913,596Unrealized gains (losses) for the year 1,241,807 (747,874) 1,241,807 (747,874)Amount realized in profit or loss 81,055 (591,835) 81,054 (591,836)Balance at end of year P=908,176 (P=414,686) P=896,747 (P=426,114)

13. Investment Securities at Amortized Cost

This account consists of investments by the Parent Company in:

2019 2018Treasury bonds (Note 21) P=166,203,221 P=169,437,000Private bonds 25,025,209 25,079,711Treasury notes and bills (Note 28) 17,821,201 17,766,283

209,049,631 212,282,994Allowance for credit losses 107,108 134,879

P=208,942,523 P=212,148,115

Page 169: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 87 -

*SGVFS038997*

An analysis of changes in the gross carrying amount and the corresponding ECLs is, as follows:

2019 2018Gross carrying amount at beginning of year P=212,282,994 P=229,593,315New assets originated or purchased 691,384 1,986,718Assets derecognized or repaid (excluding write-offs) (623,680) (28,540,672)Accumulated amount of fair value adjustments on the

hedged items 3,577,205 1,627,600Foreign exchange adjustments (6,878,272) 7,616,033

P=209,049,631 P=212,282,994ECL allowance at beginning of year P=134,879 P=151,518Recovery of credit losses (Note 14) (27,771) (16,639)

P=107,108 P=134,879

In 2019 and 2018, investment securities at amortized cost were carried at stage 1 and there were notransfers into and out of stage 1.

During the fourth quarter of 2017, the Parent Company disposed certain USD-denominatedgovernment securities classified as HTC securities with a carrying amount of USD1.0 billion(P=52.2 billion). The disposals resulted in a gain of USD24.2 million (P=1.2 billion) recorded in thestatements of income under ‘Gain on disposal of investment securities at amortized cost’.

Management obtained the approval of its ROC and the BOD for the disposal of these securities,which proceeds would be used to fund the growth in its lending business.

As part of the approval, management expressed the need to change its business model for managingits HTC securities considering the reassessment of its funding strategy vis-à-vis the businessrequirements and funding sources. The change in business model was considered in relation to theadoption of the final version of PFRS 9.

Accordingly, in December 2017, the ROC and the BOD of the Parent Company approved theproposed business models in managing its financial assets in accordance with the final version ofPFRS 9. The new business models included categories of financial assets as to amortized cost,FVTPL and FVTOCI.

On January 1, 2018, as a result of the change in business model, certain USD-denominated and Peso-denominated HTC securities with a carrying amount of USD517.6 million (P=25.8 billion) andP=1.7 billion, respectively, have been reclassified to the ‘Financial assets at FVTOCI’ category. Thereclassification resulted in a valuation gain of P=812.6 million recorded under ‘Net unrealized gain(loss) on financial assets at fair value through other comprehensive income’ (see Note 12).

In November 2017, the Parent Company participated in the cash tender offer of a private entity of itsUSD-denominated 2019 bonds classified as HTC with a carrying amount of USD10.0 million(P=501.5 million). The issuer subsequently redeemed the bonds not tendered in the offer inDecember 2017 in accordance with the terms and conditions of the bonds. The participation in thecash tender offer resulted in a gain of USD0.7 million (P=37.6 million) recorded in the statements ofincome under ‘Gain on disposal of investment securities at amortized cost’.

In April 2017, the Parent Company participated in the cash tender offer by another private entity of itsUSD-denominated 2021 bonds classified as HTC with a carrying amount of USD57.8 million(P=2.9 billion). The disposal resulted in a gain of USD5.5 million (P=275.3 million) recorded in thestatements of income under ‘Gain on disposal of investment securities at amortized cost’.

Page 170: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 88 -

*SGVFS038997*

The Parent Company concluded that the participation in tender offers in April and November 2017resulting in disposals of HTC securities was not inconsistent with the Parent Company’s HTCbusiness model as supported by the following:

· The main motivation of the Parent Company in participating was to protect itself from potentialadverse effects of reduced liquidity of the bonds following the tender offers. In addition, for thesecurities tendered in November, the issuer also had a program to redeem all securities nottendered. Hence, the Parent Company decided to participate in the tender offer that provided thehigher price.

· The securities submitted were purchased by the Parent Company based on their yield and creditprior to the issuers’ decision to make a tender offer.

In January 2017, as part of the general cash management program and broader program to manage itsexternal liabilities, the Republic of the Philippines executed a cash tender offer. Under the cashtender offer, the government offered selected USD-denominated securities for buyback. The ParentCompany submitted its holdings of eligible bonds that resulted in the derecognition of certain HTCsecurities. USD-denominated investment securities at amortized cost with carrying amount ofUSD455.6 million (P=22.7 billion) were tendered which resulted in a gain of USD16.1 million(P=803.7 million) recorded in the statements of income under ‘Gain on disposal of investmentsecurities at amortized cost’. The Parent Company concluded that the participation in the tender offerwas not inconsistent with the Parent Company’s HTC business model as supported by the following:

· The Parent Company participated in the tender offer to protect itself from the possible adverseimpact on the liquidity of the eligible securities. There is a high likelihood that the securities willbecome illiquid after the offerings as it substantially reduces the outstanding issue size of theeligible securities.

· The government has no program explicitly set that requires it to undertake a debt swap activityregularly. There is no guarantee that it will announce such an undertaking at any point in timeuntil the government makes the announcement on the actual offer date.

· The securities submitted for the offerings were purchased by the Parent Company prior to theannouncement of the government of the securities eligible for the offerings.

BSP Circular No. 708 also provides that derecognition of financial assets attributable to changes inthe payment structure as initiated by the creditor like bond swap or exchange is not consideredinconsistent with an HTC business model.

As of December 31, 2019 and 2018, government securities included under ‘Investment securities atamortized cost’ with a total face value of P=595.0 million and P=508.1 million, respectively, weredeposited with the BSP in compliance with the requirements of the General Banking Law relative tothe Parent Company’s trust functions (see Note 28).

Page 171: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 89 -

*SGVFS038997*

14. Loans and Receivables

This account consists of:

Consolidated Parent Company2019 2018 2019 2018

Receivable from customers:Corporate lending P=320,155,868 P=328,581,056 P=322,901,946 P=330,619,184Consumer lending 71,384,398 40,253,855 70,983,710 36,994,561Residential mortgages 54,738,341 44,190,825 54,602,710 43,995,593Small business lending 1,036,142 1,395,350 1,036,142 1,395,315

447,314,749 414,421,086 449,524,508 413,004,653Less unearned discounts and deferred

credits 725,590 472,859 725,590 471,146446,589,159 413,948,227 448,798,918 412,533,507

Accrued interest receivable (Note 33) 6,884,452 6,499,863 6,893,267 6,453,886Accounts receivable (Notes 33) 984,722 789,336 623,548 478,117Sales contracts receivable 70,454 89,402 70,454 89,402

454,528,787 421,326,828 456,386,187 419,554,912Less allowance for credit losses 5,930,038 5,009,138 5,924,806 5,142,209

P=448,598,749 P=416,317,690 P=450,461,381 P=414,412,703

An analysis of changes in the gross carrying amount and the corresponding ECL allowances inrelation to corporate lending follow:

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=313,853,672 P=13,397,972 P=1,329,412 P=328,581,056

New assets originated or purchased 873,110,886 – – 873,110,886Assets derecognized or repaid

(excluding write offs) (870,555,807) (10,218,834) (131,803) (880,906,444)Transfers to Stage 1 517,759 (493,175) (24,584) –Transfers to Stage 2 (19,660,966) 19,710,343 (49,377) –Transfers to Stage 3 (1,781,853) (718,804) 2,500,657 –Amounts written off – – (629,630) (629,630)

P=295,483,691 P=21,677,502 P=2,994,675 P=320,155,868ECL allowance as at January 1, 2019 under

PFRS 9 P=1,907,335 P=1,134,254 P=984,932 P=4,026,521Provisions for (recovery of) credit losses (414,200) (831,854) 300,531 (945,523)Transfers to Stage 1 1,881 (1,881) – –Transfers to Stage 2 (288,241) 288,241 – –Transfers to Stage 3 (563,096) (185,241) 748,337 –Amounts written off – – (629,630) (629,630)

P=643,679 P=403,519 P=1,404,170 P=2,451,368

Page 172: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 90 -

*SGVFS038997*

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=278,875,149 P=22,356,834 P=6,424,464 P=307,656,447

New assets originated or purchased 685,883,926 – – 685,883,926Assets derecognized or repaid

(excluding write offs) (652,031,935) (9,384,966) (3,473,694) (664,890,595)Transfers to Stage 1 15,644,519 (12,931,423) (2,713,096) –Transfers to Stage 2 (13,377,139) 13,377,139 – –Transfers to Stage 3 (1,140,848) (19,612) 1,160,460 –Amounts written off – – (68,722) (68,722)

P=313,853,672 P=13,397,972 P=1,329,412 P=328,581,056ECL allowance as at January 1, 2018 under

PFRS 9 P=3,948,942 P=340,187 P=115,251 P=4,404,380Provisions for (recovery of) credit losses (255,330) 144,446 154,223 43,339Assets derecognized or repaid (excluding

write offs) (395,963) – – (395,963)Transfers to Stage 1 126,479 (117,528) (8,951) –Transfers to Stage 2 (771,002) 771,002 – –Transfers to Stage 3 (762,975) (12,315) 775,290 –Amounts written off – – (58,229) (58,229)Foreign exchange adjustments 17,184 8,462 7,348 32,994

P=1,907,335 P=1,134,254 P=984,932 P=4,026,521

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=315,891,800 P=13,397,972 P=1,329,412 P=330,619,184

New assets originated or purchased 774,744,955 – – 774,744,955Assets derecognized or repaid (excluding

write offs) (771,481,926) (10,218,834) (131,803) (781,832,563)Transfers to Stage 1 517,759 (493,175) (24,584) –Transfers to Stage 2 (19,660,966) 19,710,343 (49,377) –Transfers to Stage 3 (1,781,853) (718,804) 2,500,657 –Amounts written off – – (629,630) (629,630)

P=298,229,769 P=21,677,502 P=2,994,675 P=322,901,946ECL allowance as at January 1, 2019 P=2,303,298 P=1,134,254 P=984,932 P=4,422,484Provisions for (recovery of) credit losses (810,211) (831,854) 300,531 (1,341,534)Transfers to Stage 1 1,881 (1,881) – –Transfers to Stage 2 (288,241) 288,241 – –Transfers to Stage 3 (563,096) (185,241) 748,337 –Amounts written off – – (629,630) (629,630)

P=643,631 P=403,519 P=1,404,170 P=2,451,320

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=279,041,700 P=22,356,834 P=6,424,464 P=307,822,998

New assets originated or purchased 645,948,274 – – 645,948,274Assets derecognized or repaid (excluding

write offs) (610,224,706) (9,384,966) (3,473,694) (623,083,366)Transfers to Stage 1 15,644,519 (12,931,423) (2,713,096) –Transfers to Stage 2 (13,377,139) 13,377,139 – –Transfers to Stage 3 (1,140,848) (19,612) 1,160,460 –Amounts written off – – (68,722) (68,722)

P=315,891,800 P=13,397,972 P=1,329,412 P=330,619,184

(Forward)

Page 173: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 91 -

*SGVFS038997*

Parent CompanyStage 1 Stage 2 Stage 3 Total

ECL allowance as at January 1, 2018under PFRS 9 P=3,948,942 P=340,187 P=115,251 P=4,404,380

Provisions for (recovery of) credit losses (255,330) 144,446 154,223 43,339Transfers to Stage 1 126,479 (117,528) (8,951) –Transfers to Stage 2 (771,002) 771,002 – –Transfers to Stage 3 (762,975) (12,315) 775,290 –Amounts written off – – (58,229) (58,229)Foreign exchange adjustments 17,184 8,462 7,348 32,994

P=2,303,298 P=1,134,254 P=984,932 P=4,422,484

An analysis of changes in the gross carrying amount and the corresponding ECL allowances inrelation to consumer lending follow:

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=38,801,280 P=558,324 P=894,251 P=40,253,855

New assets originated or purchased 198,485,974 – – 198,485,974Assets derecognized or repaid (excluding

write offs) (157,569,222) (146,391) (122,013) (157,837,626)Transfers to Stage 1 122,603 (108,873) (13,730) –Transfers to Stage 2 (2,477,319) 2,477,850 (531) –Transfers to Stage 3 (3,843,986) (220,006) 4,063,992 –Amounts written off – – (2,456,656) (2,456,656)Effect of disposal group classified as held

for sale (6,633,370) (234,984) (192,795) (7,061,149)P=66,885,960 P=2,325,920 P=2,172,518 P=71,384,398

ECL allowance as at January 1, 2019 P=361,734 P=7,706 P=244,618 P=614,058Provisions for credit losses 2,280,678 36,826 2,509,839 4,827,343Transfers to Stage 1 1,910 (1,053) (857) –Transfers to Stage 2 (101,066) 101,128 (62) –Transfers to Stage 3 (1,042,236) (37,907) 1,080,143 –Amounts written off – – (2,456,656) (2,456,656)Effect of disposal group classified as held

for sale 14,252 (14,300) (159,605) (159,653)P=1,515,272 P=92,400 P=1,217,420 P=2,825,092

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=18,281,495 P=350,420 P=700,012 P=19,331,927

New assets originated or purchased 64,883,627 – – 64,883,627Assets derecognized or repaid (excluding

write offs) (42,366,819) (190,258) (166,395) (42,723,472)Transfers to Stage 1 154,485 (84,931) (69,554) –Transfers to Stage 2 (511,564) 517,712 (6,148) –Transfers to Stage 3 (1,639,944) (34,619) 1,674,563 –Amounts written off – – (1,238,227) (1,238,227)

P=38,801,280 P=558,324 P=894,251 P=40,253,855ECL allowance as at January 1, 2018 under

PFRS 9 208,948 19,451 560,715 789,114Provisions for (recovery of) credit losses 265,397 (14,048) 524,832 776,181Transfers to Stage 1 740 (594) (146) –Transfers to Stage 2 (8,312) 8,326 (14) –Transfers to Stage 3 (105,039) (5,429) 110,468 –Amounts written off – – (951,237) (951,237)

361,734 7,706 244,618 614,058

Page 174: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 92 -

*SGVFS038997*

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=35,872,963 P=481,637 P=639,961 P=36,994,561

New assets originated or purchased 159,434,799 – – 159,434,799Assets derecognized or repaid (excluding

write offs) (123,136,196) (193,701) (163,244) (123,493,141)Transfers to Stage 1 60,934 (48,244) (12,690) –Transfers to Stage 2 (2,305,278) 2,305,809 (531) –Transfers to Stage 3 (3,441,950) (219,581) 3,661,531 –Amounts written off – – (1,952,509) (1,952,509)

P=66,485,272 P=2,325,920 P=2,172,518 P=70,983,710ECL allowance as at January 1, 2019 P=250,998 P=8,832 P=89,434 P=349,264Provisions for credit losses 2,156,412 37,356 2,233,964 4,427,732Transfers to Stage 1 2,010 (1,053) (957) –Transfers to Stage 2 (82,043) 82,105 (62) –Transfers to Stage 3 (812,710) (34,841) 847,551 –Amounts written off – – (1,952,509) (1,952,509)

P=1,514,667 P=92,399 P=1,217,421 P=2,824,487

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=16,895,619 P=338,646 P=220,941 P=17,455,206

New assets originated or purchased 49,137,372 – – 49,137,372Assets derecognized or repaid (excluding

write offs) (28,463,150) (152,871) (81,068) (28,697,089)Transfers to Stage 1 154,485 (84,666) (69,819) –Transfers to Stage 2 (409,000) 415,148 (6,148) –Transfers to Stage 3 (1,442,363) (34,620) 1,476,983 –Amounts written off – – (900,928) (900,928)

P=35,872,963 P=481,637 P=639,961 P=36,994,561ECL allowance as at January 1, 2018 P=177,119 P=7,400 P=100,566 P=285,085Provisions for (recovery of) credit losses 155,236 694 522,188 678,118Transfers to Stage 1 740 (594) (146) –Transfers to Stage 2 (6,747) 6,761 (14) –Transfers to Stage 3 (75,350) (5,429) 80,779 –Amounts written off – – (613,939) (613,939)

P=250,998 P=8,832 P=89,434 P=349,264

An analysis of changes in the gross carrying amount and the corresponding ECL allowances inrelation to residential mortgages lending follow:

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=43,131,057 P=557,321 P=502,447 P=44,190,825

New assets originated or purchased 89,317,355 – – 89,317,355Assets derecognized or repaid (excluding

write offs) (78,243,437) (104,419) (378,461) (78,726,317)Transfers to Stage 1 194,053 (175,038) (19,015) –Transfers to Stage 2 (1,073,529) 1,073,529 – –Transfers to Stage 3 (375,255) (196,022) 571,277 –Amounts written off – – (43,522) (43,522)

P=52,950,244 P=1,155,371 P=632,726 P=54,738,341ECL allowance as at January 1, 2019 P=88,048 P=86,882 P=104,413 P=279,343Provisions for (recovery of) credit losses 93,182 (48,057) 117,137 162,262Transfers to Stage 1 701 (383) (318) –Transfers to Stage 2 (11,720) 11,747 (27) –Transfers to Stage 3 (67,753) (37,369) 105,122 –Amounts written off – – (43,522) (43,522)

P=102,458 P=12,820 P=282,805 P=398,083

Page 175: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 93 -

*SGVFS038997*

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=35,094,444 P=498,398 P=282,194 P=35,875,036

New assets originated or purchased 15,454,381 – – 15,454,381Assets derecognized or repaid (excluding

write offs) (6,951,179) (12,820) (9,123) (6,973,122)Transfers to Stage 1 580,829 (553,291) (27,538) –Transfers to Stage 2 (689,722) 706,824 (17,102) –Transfers to Stage 3 (357,696) (81,790) 439,486 –Amounts written off – – (165,470) (165,470)

P=43,131,057 P=557,321 P=502,447 P=44,190,825ECL allowance as at January 1, 2018

under PFRS 9 P=106,631 P=42,223 172,107 P=320,961Provisions for (recovery of) credit losses 27,502 49,834 (72,577) 4,759Transfers to Stage 1 1,329 (1,020) (309) –Transfers to Stage 2 (10,560) 10,660 (100) –Transfers to Stage 3 (36,854) (14,815) 51,669 –Amounts written off – – (46,377) (46,377)

P=88,048 86,882 104,413 P=279,343

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=42,935,826 P=557,320 P=502,447 P=43,995,593

New assets originated or purchased 89,317,355 – – 89,317,355Assets derecognized or repaid (excluding

write offs) (78,183,837) (104,418) (378,461) (78,666,716)Transfers to Stage 1 194,053 (175,038) (19,015) –Transfers to Stage 2 (1,073,529) 1,073,529 – –Transfers to Stage 3 (375,255) (196,022) 571,277 –Amounts written off – – (43,522) (43,522)

P=52,814,613 P=1,155,371 P=632,726 P=54,602,710ECL allowance as at January 1, 2019 P=88,048 P=86,882 P=104,413 P=279,343Provisions for (recovery of) credit losses 93,182 (48,057) 117,137 162,262Transfers to Stage 1 701 (383) (318) –Transfers to Stage 2 (11,720) 11,747 (27) –Transfers to Stage 3 (67,753) (37,369) 105,122 –Amounts written off – – (43,522) (43,522)

P=102,458 P=12,820 P=282,805 P=398,083

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=34,868,404 P=498,398 P= 282,194 P=35,648,996

New assets originated or purchased 15,454,381 – – 15,454,381Assets derecognized or repaid (excluding

write offs) (6,920,370) (12,820) (9,123) (6,942,313)Transfers to Stage 1 580,829 (553,291) (27,538) –Transfers to Stage 2 (689,722) 706,824 (17,102) –Transfers to Stage 3 (357,696) (81,791) 439,487 –Amounts written off – – (165,471) (165,471)

P=42,935,826 P=557,320 P=502,447 P=43,995,593ECL allowance as at January 1, 2018 P=106,631 P=42,223 P=172,107 P=320,961Provisions for (recovery of) credit losses 27,502 49,834 (72,577) 4,759Transfers to Stage 1 1,329 (1,020) (309) –Transfers to Stage 2 (10,560) 10,660 (100) –Transfers to Stage 3 (36,854) (14,815) 51,669 –Amounts written off – – (46,377) (46,377)

P=88,048 P=86,882 P=104,413 P=279,343

Page 176: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 94 -

*SGVFS038997*

An analysis of changes in the gross carrying amount and the corresponding ECL allowances inrelation to small business lending follow:

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=1,323,725 P=38,669 P=32,956 P=1,395,350

New assets originated or purchased 5,664,243 – – 5,664,243Assets derecognized or repaid (excluding

write offs) (5,980,016) (24,014) (2,152) (6,006,182)Transfers to Stage 1 1,690 (1,690) – –Transfers to Stage 2 (31,987) 31,987 – –Transfers to Stage 3 (10,906) – 10,906 –Amounts written off – – (17,269) (17,269)

P=966,749 P=44,952 P=24,441 P=1,036,142ECL allowance as at January 1, 2019 P=7,976 P=1,731 P=17,047 P=26,754Provisions for (recovery of) credit losses (6,410) (1,190) 13,118 5,518Transfers to Stage 2 (57) 57 – –Transfers to Stage 3 (695) – 695 –Amounts written off – – (17,269) (17,269)

P=814 P=598 P=13,591 P=15,003

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=4,685,004 P=40,400 P=52,199 P=4,777,603

New assets originated or purchased 20,451,581 – – 20,451,581Assets derecognized or repaid (excluding

write offs) (23,751,946) (38,494) (18,645) (23,809,085)Transfers to Stage 1 2,408 (753) (1,655) –Transfers to Stage 2 (38,669) 38,669 – –Transfers to Stage 3 (24,653) (1,153) 25,806 –Amounts written off – – (24,749) (24,749)

P=1,323,725 P=38,669 P=32,956 P=1,395,350ECL allowance as at January 1, 2018 P=38,959 P=1,804 P=4,884 P=45,647Provisions for (recovery of) credit losses (15,739) (548) 22,144 5,857Transfers to Stage 1 19 (5) (14) –Transfers to Stage 2 (1,017) 1,017 – –Transfers to Stage 3 (14,246) (537) 14,783 –Amounts written off – – (24,750) (24,750)

P=7,976 P=1,731 P=17,047 P=26,754

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=1,323,691 P=38,669 P=32,955 P=1,395,315

New assets originated or purchased 5,664,243 5,664,243Assets derecognized or repaid (excluding

write offs) (5,979,982) (24,014) (2,151) (6,006,147)Transfers to Stage 1 1,690 (1,690) – –Transfers to Stage 2 (31,987) 31,987 – –Transfers to Stage 3 (10,906) – 10,906 –Amounts written off – – (17,269) (17,269)

P=966,749 P=44,952 P=24,441 P=1,036,142ECL allowance as at January 1, 2019 P=7,976 P=1,731 P=17,048 P=26,755Provisions for (recovery of) credit losses (6,410) (1,190) 13,118 5,518Transfers to Stage 2 (57) 57 – –Transfers to Stage 3 (695) – 695 –Amounts written off – – (17,269) (17,269)

P=814 P=598 P=13,592 P=15,004

Page 177: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 95 -

*SGVFS038997*

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=4,684,958 P=40,400 P=52,199 P=4,777,557

New assets originated or purchased 20,451,581 – – 20,451,581Assets derecognized or repaid (excluding

write offs) (23,751,935) (38,494) (18,645) (23,809,074)Transfers to Stage 1 2,408 (753) (1,655) –Transfers to Stage 2 (38,669) 38,669 – –Transfers to Stage 3 (24,652) (1,153) 25,805 –Amounts written off – – (24,749) (24,749)

P=1,323,691 P=38,669 P=32,955 P=1,395,315ECL allowance as at January 1, 2018 P=38,959 P=1,804 P=4,884 P=45,647Provisions for (recovery of) credit losses (15,739) (548) 22,144 5,857Transfers to Stage 1 19 (5) (14) –Transfers to Stage 2 (1,017) 1,017 – –Transfers to Stage 3 (14,246) (537) 14,783 –Amounts written off – – (24,749) (24,749)

P=7,976 P=1,731 P=17,048 P=26,755

An analysis of changes in the gross carrying amount and the corresponding ECL allowances inrelation to other receivables follow:

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=7,106,510 P=130,124 P=141,967 P=7,378,601

New assets originated or purchased 133,665,574 – – 133,665,574Assets derecognized or repaid (excluding

write offs) (132,712,869) (75,316) (66,862) (132,855,047)Transfers to Stage 1 8,702 (7,009) (1,693) –Transfers to Stage 2 (442,414) 443,368 (954) –Transfers to Stage 3 (395,049) (23,680) 418,729 –Amounts written off – – (142,490) (142,490)Effect of disposal group classified as held

for sale (84,481) (11,010) (11,519) (107,010)P=7,145,973 P=456,477 P=337,178 P=7,939,628

ECL allowance as at January 1, 2019 P=20,841 P=10,189 P=31,432 P=62,462Provisions for credit losses 24,867 7,389 227,110 259,366Transfers to Stage 1 1,491 (108) (1,383) –Transfers to Stage 2 (2,893) 3,268 (375) –Transfers to Stage 3 (23,210) (7,847) 31,057 –Amounts written off – – (142,490) (142,490)Effect of disposal group classified as held

for sale (724) (8,714) 70,592 61,154P=20,372 P=4,177 P=215,943 P=240,492

ConsolidatedStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=6,744,573 P=200,176 P=141,256 P=7,086,005

New assets originated or purchased 97,814,038 – – 97,814,038Assets derecognized or repaid (excluding

write offs) (97,334,478) (93,776) (59,218) (97,487,472)Transfers to Stage 1 1,416 (1,098) (318) –Transfers to Stage 2 (28,642) 28,821 (179) –Transfers to Stage 3 (84,054) (3,999) 88,053 –Amounts written off (6,343) – (27,627) (33,970)

P=7,106,510 P=130,124 P=141,967 P=7,378,601(Forward)

Page 178: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 96 -

*SGVFS038997*

ConsolidatedStage 1 Stage 2 Stage 3 Total

ECL allowance as at January 1, 2018 P=20,750 P=2,814 P=31,192 P=54,756Provisions for (recovery of) credit losses 7,804 127 19,235 27,166Assets derecognized or repaid (excluding

write offs) (2,296) – – (2,296)Transfers to Stage 1 1,482 (99) (1,383) –Transfers to Stage 2 (446) 921 (475) –Transfers to Stage 3 (6,453) 6,426 27 –Amounts written off – – (17,164) (17,164)

P=20,841 P=10,189 P=31,432 P=62,462

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2019 P=6,794,853 P=126,546 P=100,006 P=7,021,405

New assets originated or purchased 47,111,549 – – 47,111,549Assets derecognized or repaid (excluding

write offs) (46,322,586) (74,289) (67,475) (46,464,350)Transfers to Stage 1 5,755 (5,430) (325) –Transfers to Stage 2 (430,930) 430,944 (14) –Transfers to Stage 3 (335,559) (29,081) 364,640 –Amounts written off – – (81,335) (81,335)

P=6,823,082 P=448,690 P=315,497 P=7,587,269ECL allowance as at January 1, 2019 P=21,581 P=2,316 P=40,467 P=64,364Provisions for credit losses 12,801 7,914 232,168 252,883Transfers to Stage 1 9 (9) – –Transfers to Stage 2 (1,534) 1,534 – –Transfers to Stage 3 (12,619) (7,590) 20,209 –Amounts written off – – (81,335) (81,335)

P=20,238 P=4,165 P=211,509 P=235,912

Parent CompanyStage 1 Stage 2 Stage 3 Total

Gross carrying amount as atJanuary 1, 2018 P=6,095,587 P=195,576 P=108,217 P=6,399,380

New assets originated or purchased 33,913,235 – – 33,913,235Assets derecognized or repaid (excluding

write offs) (33,107,072) (92,904) (57,263) (33,257,239)Transfers to Stage 2 (25,938) 25,938 – –Transfers to Stage 3 (74,615) (2,064) 76,679 –Amounts written off (6,344) – (27,627) (33,971)

P=6,794,853 P=126,546 P=100,006 P=7,021,405ECL allowance as at January 1, 2018 P=20,750 P=2,814 P=31,192 P=54,756Provisions for (recovery of) credit losses 2,006 49 24,717 26,772Transfers to Stage 2 – (547) 547 –Transfers to Stage 3 (1,175) – 1,175 –Amounts written off (17,164) (17,164)

P=21,581 P=2,316 P=40,467 P=64,364

The increase in ECLs of the portfolio was driven by an increase in the gross size of the portfolio andmovements between stages as a result of changes in credit risk.

Page 179: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 97 -

*SGVFS038997*

Receivable from customers consist of:

Consolidated Parent Company2019 2018 2019 2018

Loans (Note 33) P=411,030,445 P=383,190,427 P=413,240,204 P=381,773,994Customers’ liabilities under letters of credit

and trust receipts 16,193,822 20,709,339 16,193,822 20,709,339Credit card receivables 15,399,275 6,354,600 15,399,275 6,354,600Bills purchased (Note 25) 4,199,290 3,547,889 4,199,290 3,547,889Customers’ liabilities under acceptances 491,917 618,831 491,917 618,831

447,314,749 414,421,086 449,524,508 413,004,653Less unearned discounts and deferred credits 725,590 472,859 725,590 471,146

P=446,589,159 P=413,948,227 P=448,798,918 P=412,533,507

Restructured receivables of the Group and the Parent Company amounted to P=350.8 million as ofDecember 31, 2019 and P=528.1 million and P=520.7 million, respectively, as of December 31, 2018.Interest income on these restructured receivables amounted to P=14.8 million in 2019, P=7.3 million in2018, and P=3.1 million in 2017 for the Group and P=14.8 million in 2019, P=7.3 million in 2018, andP=3.1 million in 2017 for the Parent Company.

Provision for (recovery of) credit losses on financial assets in the statements of income are as follows:

ConsolidatedFor the period ended December 31

2019 2018 2017Due from other banks (Note 7) P=623 (P=3,405) P=–Interbank loans receivable and SPURA with BSP (319) (43,799) –Financial assets at FVTOCI (Note 12) (19,327) (79,103) –Investment securities at amortized cost (Note 13) (27,771) (16,639) –Loans and receivables 4,308,966 857,301 656,469Cash collateral deposits (Note 18) 128 639 –Financial guarantees, loan and other commitments (Note 35) (88,026) (511) –

P=4,174,274 P=714,483 P=656,469

Parent CompanyFor the period ended December 31

2019 2018 2017Due from other banks (Note 7) (P=3,018) (P=1,464) P=–Interbank loans receivable and SPURA with BSP (319) (43,799) –Financial assets at FVTOCI (Note 12) (19,327) (79,103) –Investment securities at amortized cost (Note 13) (27,771) (16,639) –Loans and receivables 3,506,861 758,845 629,322Cash collateral deposits (Note 18) 128 639 –Financial guarantees, loan and other commitments (Note 35) (88,026) (511) –

P=3,368,528 P=617,968 P=629,322

As of December 31, 2019 and 2018, the fair value of the collateral held relating to the total loanportfolio amounted to P=169.2 billion and P=167.3 billion, respectively, for the Group andP=161.6 billion and P=160.0 billion, respectively, for the Parent Company. The collateral consists ofcash, securities, letters of guarantee and real and personal properties.

Page 180: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 98 -

*SGVFS038997*

The Group and the Parent Company took possession of various properties previously held ascollateral. As of December 31, 2019 and 2018, the carrying values of such properties based on BSPguidelines amounted to P=997.0 million and P=438.8 million, respectively for the Group and the ParentCompany.

As of December 31, 2019 and 2018, information on the concentration of credit as to industry, gross ofunearned discounts and deferred credits, follows (amounts in millions):

Consolidated Parent Company2019 2018 2019 2018

Amount % Amount % Amount % Amount %Real estate P=94,399 21.1 P=83,884 20.2 P=94,263 21.0 P=83,688 20.3Electricity, gas, stream and air

conditioning supply 74,696 16.7 72,586 17.5 74,696 16.6 72,586 17.6Wholesale and retail trade 71,659 16.0 68,058 16.4 71,659 15.9 68,058 16.5Activities of private households as

employees and undifferentiated goodsand services and producing activitiesof households* 58,480 13.1 28,285 6.8 58,480 13.0 28,285 6.8

Manufacturing 38,798 8.7 47,243 11.4 38,798 8.6 47,243 11.4Financial intermediaries 32,011 7.2 34,848 8.4 34,937 7.8 37,496 9.1Construction 16,335 3.7 15,188 3.7 16,335 3.6 15,188 3.7Transportation and storage 14,177 3.2 11,934 2.9 14,177 3.2 11,934 2.9Information and communication 13,267 3.0 13,578 3.3 13,267 3.0 13,578 3.3Agriculture, hunting and fishing 9,367 2.1 8,912 2.2 9,367 2.1 8,912 2.2Professional scientific & technical

services 5,898 1.3 5,950 1.4 5,898 1.3 5,950 1.4Water Supply, sewerage, waste

management and remediationActivities 3,728 0.8 4,831 1.2 3,728 0.8 4,831 1.2

Others 14,500 3.2 19,124 4.6 13,920 3.1 15,256 3.6P=447,315 100.0 P=414,421 100.0 P=449,525 100.0 P=413,005 100.0

* Excludes loans and receivables on real estate or dwelling units which are considered production activities and classified under “Real estate”

Interest income on loans and receivables consists of:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Loans P=30,234,511 P=22,226,265 P=16,244,613 P=29,040,436 P=21,759,574 P=16,177,584Credit card receivables 2,142,053 932,090 602,860 2,142,053 932,090 602,860Customers’ liabilities under letters of

credit and trust receipts 1,238,666 771,410 493,323 1,238,666 771,410 493,323Sales contracts receivable 7,009 7,446 8,536 7,009 7,446 8,536Bills purchased 11,117 5,919 7,208 11,117 5,919 7,208Interest income accrued on impaired

loans and receivables − − 366 − − 366P=33,633,356 P=23,943,130 P=17,356,906 P=32,439,281 P=23,476,439 P=17,289,877

Of the total receivables from customers of the Group and of the Parent Company, 50.9% and 50.9%,respectively as of December 31, 2019, and 53.4% and 53.6%, respectively as of December 31, 2018,are subject to periodic interest repricing. Remaining receivables from customers, for the Group andthe Parent Company, earn annual fixed interest rates, as follows (in percentages):

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Peso-denominated 2.00-36.83 1.50-36.83 1.17-36.83 2.00-36.83 1.50-36.83 1.17-36.83Foreign currency-denominated 1.00-9.14 0.76-9.14 0.76-9.14 1.00-9.14 0.76-9.14 0.76-9.14

Sales contracts receivable earns interest rates ranging from 6.0% to 13.5% in 2019 and 2018, andfrom 6.0% to 14.0% in 2017 for the Group and the Parent Company.

Page 181: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 99 -

*SGVFS038997*

15. Investments in Subsidiaries and a Joint Venture

Investments in Subsidiaries and Non-controlling InterestThis account consists of investments in:

% of Ownership Consolidated Parent Company2019 2018 2019 2018 2019 2018

Subsidiaries:Cost:

SBFCI (Note 4) 99.54 99.54 P=– P=– P=1,734,875 P=1,734,875SBCIC 100.00 100.00 – – 500,000 500,000SBCC 100.00 100.00 – – 325,000 325,000SFLI 100.00 100.00 – – 125,000 125,000SBFI 100.00 100.00 – – 50,000 50,000

– – 2,734,875 2,734,875Accumulated equity in net income –Balance at beginning of year – – 816,971 688,802Effect of adopting PFRS 16 – – (947) –

– – 816,024 688,802Share in net income – – 151,147 290,669Dividends – – (19,204) (162,500)Balance at end of year – – 947,967 816,971Accumulated equity in OCIRemeasurement gains on defined

benefit plans – – 70,807 70,517Net unrealized gain on financial

assets at fair value through othercomprehensive income – – 8,732 8,494

Balance at end of year – – 79,539 79,011Effect of disposal group classified

as held for sale (Note 38) – – (1,799,515) –– – 1,962,866 3,630,857

Joint Venture (SBML)

Cost 60.00 60.00 150,058 150,058 150,058 150,058Accumulated equity in net incomeBalance at beginning of year 143,258 116,797 143,258 116,797Share in net income 23,799 26,461 23,799 26,461Balance at end of year 167,057 143,258 167,057 143,258

317,115 293,316 317,115 293,316P=317,115 P=293,316 P=2,279,981 P=3,924,173

The details of the dividends by the subsidiaries to the Parent Company are provided below:

Subsidiary Date of declaration Per share Total amounts in thousandsSFLI September 16, 2019 P=0.2 per share P=19,204SBCC June 29, 2018 50.0 per share 162,500SBCC June 29, 2017 60.0 per share 195,000

Disposal of Diners Club International Credit CardsOn June 14, 2016, SBCC signed a Portfolio Sale and Purchase Agreement (PSPA) with BDOUnibank, Inc. (BDO), whereby BDO accepted SBCC’s offer to sell its rights as the exclusive issuerand acquirer of Diners Club International credit cards in the Philippines effective September 30,2016. The move is a strategic decision to focus on the existing MasterCard as the main credit cardoffering. The acquisition includes SBCC’s existing Diners Club portfolio and its cardholder base.Pursuant to the PSPA, SBCC transferred a substantial portion of its credit card receivables withcarrying values of P=586.7 million to BDO for a consideration of P=751.7 million.

Page 182: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 100 -

*SGVFS038997*

As part of the PSPA, SBCC shall provide transition services, including operational and systemsupport for automated teller machine transactions of the cardholders to facilitate the continuedmanagement and servicing of the sold portfolio. The transition fees received by SBCC amounted tonil in 2019 and 2018 and P=73.9 million in 2017, included under ‘Service fees - miscellaneous’ (seeNote 31).

Integration of SBS to the Parent CompanyOn February 25, 2014, the Parent Company’s BOD approved the integration of SBS. OnJanuary 8, 2015, the BSP approved the purchase of all assets and assumption of all liabilities of SBSby the Parent Company. On January 14, 2015, the BSP clarified that SBS will not become a shellcorporation after the integration because it will retain cash to meet its capital requirement as a thriftbank, and after one year of dormancy, shall go back to the BSP for consideration to resume itsbanking operations. On its letter dated January 29, 2015, the PDIC also granted the consent to theproposed sale of all assets and assumption of all liabilities of SBS to the Parent Company under theResolution No. 2014-12-290 dated December 19, 2014.

Assets and liabilities with carrying values of P=8.3 billion and P=9.6 billion, respectively, in the booksof SBS were sold/transferred to SBC at their fair values of P=8.4 billion and P=9.7 billion, respectivelyon transfer date. SBS paid the Parent Company for the difference between the fair value of the assetsand liabilities transferred amounting to P=1.3 billion.

On May 26, 2016, the BSP approved the request of SBS to extend the license and retain the vehicleon a dormant status for another year or until January 25, 2017.

Conversion of SBS to SBFCIOn November 24, 2016 and December 15, 2016, the BOD and stockholders of SBS, respectively,approved the conversion of SBS from a savings bank to a finance company. On April 11, 2017, theMonetary Board (MB) of the BSP, in its Resolution No. 616, approved the voluntary surrender ofSBS of its thrift bank, trust and FCDU licenses, subject to submission of certain regulatoryrequirements.

On August 4, 2017, the SEC approved the conversion of SBS from a savings bank to a financecompany. On the same date, the SEC also approved the Amended Articles of Incorporation andBy-Laws of SBS to operate as a financing company in accordance with the Financing Act of 1998(Republic Act. No. 8556) under the name of SBFCI.

On September 28, 2017, the BOD of SBFCI approved the organizational structure of the Company.

Interest in a Joint VentureThe summarized financial information of the joint venture and reconciliation of the carrying amountof the investment in consolidated financial statements are set out below (in millions):

2019 2018Cash and cash equivalents P=52 P=20Loans and other receivables - current 2,573 2,002Non-current assets 50 761Current liabilities (2,027) (1,984)Non-current liabilities (160) (352)Others 40 41Equity P=528 P=488Proportion of the Group’s ownership 60% 60%Carrying amount of the investment P=317 P=293

Page 183: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 101 -

*SGVFS038997*

2019 2018IncomeLeasing and other income P=178 P=155Interest expense (105) (58)Net interest income 73 97Other income 77 35Operating expenses (88) (67)Income before income tax 62 65Provision for income tax (22) (21)Net income P=40 P=44Group’s share for the year P=24 P=26

Depreciation expense amounting to P=6.4 million in 2019 and P=4.9 million in 2018 is included under‘Operating expenses’. SBML has no contingent liabilities or capital commitments as ofDecember 31, 2019 and 2018.

16. Property, Equipment and Right-of-Use Assets

The composition of and movements in the Group’s and the Parent Company’s property, equipmentand right-of-use assets follow:

Consolidated

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements

Right-of-use Assets

TotalBuilding and

ImprovementsTransportation

EquipmentTotal Right-of-

use assetsDecember 31, 2019CostBalance at beginning of year P=362,447 P=2,526,889 P=3,101,100 P=1,750,191 P=411,508 P=‒ P=‒ P=‒ P=8,152,135Effect of adopting PFRS 16

(Note 2) ‒ ‒ ‒ ‒ ‒ 2,496,501 16,161 2,512,662 2,512,662Balance at beginning of year,

as restated 362,447 2,526,889 3,101,100 1,750,191 411,508 2,496,501 16,161 2,512,662 10,664,797Additions ‒ 85,721 462,117 490,837 109,996 878,281 13,848 892,129 2,040,800Disposals ‒ (9,510) (39,312) (135,433) (1,565) ‒ ‒ ‒ (185,820)Amortization of leasehold

improvements ‒ ‒ ‒ ‒ (149,752) ‒ ‒ ‒ (149,752)Reclassifications ‒ 889 (1,197) (2,926) 309 ‒ ‒ ‒ (2,925)Effect of disposal group

classified as held for sale ‒ ‒ (726) ‒ ‒ (9,771) ‒ (9,771) (10,497)Balance at end of year 362,447 2,603,989 3,521,982 2,102,669 370,496 3,365,011 30,009 3,395,020 12,356,603Accumulated depreciationBalance at beginning of year ‒ 1,537,109 1,843,621 645,441 ‒ ‒ ‒ ‒ 4,026,171Effect of adopting PFRS 16

(Note 2) ‒ ‒ ‒ ‒ ‒ 921,714 7,727 929,441 929,441Balance at beginning of year,

as restated ‒ 1,537,109 1,843,621 645,441 ‒ 921,714 7,727 929,441 4,955,612Depreciation ‒ 127,956 475,388 390,925 ‒ 624,076 7,480 631,556 1,625,825Disposals ‒ (7,849) (37,308) (88,901) ‒ ‒ ‒ ‒ (134,058)Reclassifications ‒ ‒ ‒ (161) ‒ ‒ ‒ ‒ (161)Effect of disposal group

classified as held for sale ‒ ‒ (290) ‒ ‒ (4,398) ‒ (4,398) (4,688)Balance at end of year ‒ 1,657,216 2,281,411 947,304 ‒ 1,541,392 15,207 1,556,599 6,442,530Allowance for impairment

lossBalance at beginning and end

of year 4,607 2,170 ‒ ‒ ‒ ‒ ‒ ‒ 6,777Net book value at end of year P=357,840 P=944,603 P=1,240,571 P=1,155,365 P=370,496 P=1,823,619 P=14,802 P=1,838,421 P=5,907,296

December 31, 2018CostBalance at beginning of year P=362,447 P=2,428,934 P=2,866,319 P=1,232,242 P=507,822 P=‒ P=‒ P=‒ P=7,397,764Additions ‒ 73,005 368,419 672,489 127,329 ‒ ‒ ‒ 1,241,242Disposals ‒ (89) (104,481) (76,207) (49,398) ‒ ‒ ‒ (230,175)Amortization of leasehold

improvements ‒ ‒ ‒ ‒ (178,566) ‒ ‒ ‒ (178,566)Reclassifications ‒ 25,039 (29,157) (78,333) 4,321 ‒ ‒ ‒ (78,130)Balance at end of year 362,447 2,526,889 3,101,100 1,750,191 411,508 ‒ ‒ ‒ 8,152,135

(Forward)

Page 184: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 102 -

*SGVFS038997*

Consolidated

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements

Right-of-use Assets

TotalBuilding and

ImprovementsTransportation

EquipmentTotal Right-of-

use assetsAccumulated depreciationBalance at beginning of year P=‒ P=1,375,884 P=1,549,103 P=360,055 P=‒ P=‒ P=‒ P=‒ P=3,285,042Depreciation ‒ 139,079 393,161 365,093 ‒ ‒ ‒ ‒ 897,333Disposals ‒ (21) (102,657) (48,931) ‒ ‒ ‒ ‒ (151,609)Reclassifications ‒ 22,167 4,014 (30,776) ‒ ‒ ‒ ‒ (4,595)Balance at end of year ‒ 1,537,109 1,843,621 645,441 ‒ ‒ ‒ ‒ 4,026,171Allowance for impairment

lossBalance at beginning of year 5,625 3,024 ‒ ‒ ‒ ‒ ‒ ‒ 8,649Recovery of impairment losses

(Note 17) (1,018) (854) ‒ ‒ ‒ ‒ ‒ ‒ (1,872)Balance at end of year 4,607 2,170 ‒ ‒ ‒ ‒ ‒ ‒ 6,777Net book value at end of year P=357,840 P=987,610 P=1,257,479 P=1,104,750 P=411,508 P=‒ P=‒ P=‒ P=4,119,187

Parent Company

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements

Right-of-use Assets

TotalBuilding and

ImprovementsTransportation

EquipmentTotal Right-of-

use assetsDecember 31, 2019CostBalance at beginning of year P=427,120 P=2,490,658 P=2,660,948 P=224,145 P=410,393 P=− P=− P=‒ P=6,213,264Effect of adopting PFRS 16

(Note 2) − − − − − 2,486,729 16,161 2,502,890 2,502,890Balance at beginning of year,

as restated 427,120 2,490,658 2,660,948 224,145 410,393 2,486,729 16,161 2,502,890 8,716,154Additions − 85,721 395,333 44,663 107,211 878,282 13,848 892,130 1,525,058Disposals − (9,510) (27,672) (35,427) (1,565) − − ‒ (74,174)Amortization of leasehold

improvements − − − − (148,779) − − ‒ (148,779)Reclassifications 889 (1,198) (2,926) 309 ‒ (2,926)Balance at end of year 427,120 2,567,758 3,027,411 230,455 367,569 3,365,011 30,009 3,395,020 10,015,333Accumulated depreciationBalance at beginning of year − 1,503,365 1,691,426 113,903 − − − ‒ 3,308,694Effect of adopting PFRS 16

(Note 2) − − − − − 919,271 7,727 926,998 926,998Balance at beginning of year,

as restated ‒ 1,503,365 1,691,426 113,903 ‒ 919,271 7,727 926,998 4,235,692Depreciation − 127,372 386,739 41,228 − 622,121 7,480 629,601 1,184,940Disposals − (7,849) (26,058) (26,870) − − − ‒ (60,777)Reclassifications − − − (161) − − − ‒ ( 161)Balance at end of year ‒ 1,622,888 2,052,107 128,100 ‒ 1,541,392 15,207 1,556,599 5,359,694Allowance for impairment

lossBalance at beginning and end

of year 28,266 ‒ ‒ ‒ ‒ ‒ ‒ ‒ 28,266Net book value at end of year P=398,854 P=944,870 P=975,304 P=102,355 P=367,569 P=1,823,619 P=14,802 P=1,838,421 P=4,627,373

December 31, 2018CostBalance at beginning of year P=427,120 P=2,415,430 P=2,493,792 P=214,860 P=506,370 P=− P=− P=− P=6,057,572Additions − 73,005 366,773 51,395 127,192 − − − 618,365Disposals − (90) (104,125) (45,438) (49,398) − − − (199,051)Amortization of leasehold

improvements − − − − (178,092) − − − (178,092)Reclassifications − 2,313 (95,492) 3,328 4,321 − − − (85,530)Balance at end of year 427,120 2,490,658 2,660,948 224,145 410,393 ‒ ‒ ‒ 6,213,264Accumulated depreciationBalance at beginning of year − 1,364,295 1,408,711 106,123 − − − − 2,879,129Depreciation − 139,090 391,182 38,428 − − − − 568,700Disposals − (20) (102,322) (31,404) − − − − (133,746)Reclassifications − − (6,145) 756 − − − − (5,389)Balance at end of year ‒ 1,503,365 1,691,426 113,903 ‒ ‒ ‒ ‒ 3,308,694Allowance for impairment

lossBalance at beginning of year 29,898 240 ‒ ‒ ‒ ‒ ‒ ‒ 30,138Recovery of impairment losses

(Note 17) (1,632) (240) ‒ ‒ ‒ ‒ ‒ ‒ (1,872)Balance at end of year 28,266 ‒ ‒ ‒ ‒ ‒ ‒ ‒ 28,266Net book value at end of year P=398,854 P=987,293 P=969,522 P=110,242 P=410,393 P=‒ P=‒ P=‒ P=2,876,304

As of December 31, 2019 and 2018, the cost of fully depreciated property and equipment still in useamounted to P=2.8 billion and P=1.7 billion, respectively, for the Group and the Parent Company.

Page 185: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 103 -

*SGVFS038997*

The details of depreciation and amortization recognized in the statements of income follow:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Property, equipment and right-of-useassets P=1,625,825 P=897,333 P=701,522 P=1,184,940 P=568,700 P=501,057

Leasehold improvements 149,752 178,566 197,563 148,779 178,092 196,980Investment properties (Note 17) 44,980 38,243 29,369 44,855 37,194 28,463Other properties acquired (Note 18) 46,682 24,396 15,510 46,658 24,403 15,659

P=1,867,239 P=1,138,538 P=943,964 P=1,425,232 P=808,389 P=742,159

Set out below are the carrying amounts of lease liability (see Note 25) and the movements during theyear:

Consolidated ParentEffect of adopting PFRS 16, as at January 1, 2019

(Note 2) P=1,735,106 P=1,726,152Additions 892,130 892,130Accretion of interest 128,898 128,362Payments (742,469) (739,271)Effect of disposal group classified as held for sale

(Note 38) (6,292) –Balance at end of year P=2,007,373 P=2,007,373

Page 186: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 104 -

*SGVFS038997*

17. Investment Properties

The composition of and movements in the Group and the Parent Company’s investment propertiesfollow:

Consolidated

LandBuilding and

Improvements TotalDecember 31, 2019CostBalance at beginning of year P=594,852 P=338,868 P=933,720Additions (Note 39) 203,102 220,914 424,016Disposals (83,401) (83,624) (167,025)Balance at end of year 714,553 476,158 1,190,711Accumulated DepreciationBalance at beginning of year – 84,983 84,983Depreciation (Note 16) – 44,980 44,980Disposals – (28,160) (28,160)Balance at end of year – 101,803 101,803Allowance for Impairment LossBalance at beginning of year 17,835 18,108 35,943Provision for impairment losses 1,207 1,628 2,835Disposals (5,585) (5,310) (10,895)Balance at end of year 13,457 14,426 27,883Net Book Value at End of Year P=701,096 P=359,929 P=1,061,025December 31, 2018CostBalance at beginning of year P=630,418 P=251,477 P=881,895Additions (Note 39) 65,830 111,878 177,708Disposals (101,396) (24,487) (125,883)Balance at end of year 594,852 338,868 933,720Accumulated DepreciationBalance at beginning of year P=– P=54,056 P=54,056Depreciation (Note 16) – 38,243 38,243Disposals – (7,316) (7,316)Balance at end of year – 84,983 84,983Allowance for Impairment LossBalance at beginning of year 24,337 12,196 36,533Provision for (recovery of) impairment losses (224) 6,901 6,677Disposals (6,278) (989) (7,267)Balance at end of year 17,835 18,108 35,943Net Book Value at End of Year P=577,017 P=235,777 P=812,794

Page 187: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 105 -

*SGVFS038997*

Parent Company

LandBuilding and

Improvements TotalDecember 31, 2019CostBalance at beginning of year P=531,169 P=422,406 P=953,575Additions (Note 39) 203,102 220,914 424,016Disposals (80,467) (81,851) (162,318)Balance at end of year 653,804 561,469 1,215,273Accumulated DepreciationBalance at beginning of year – 91,296 91,296Depreciation (Note 16) – 44,855 44,855Disposals – (26,133) (26,133)Balance at end of year – 110,018 110,018Allowance for Impairment LossBalance at beginning of year 28,262 19,016 47,278Provision for impairment losses 1,207 1,628 2,835Disposals (3,675) (5,724) (9,399)Balance at end of year 25,794 14,920 40,714Net Book Value at End of Year P=628,010 P=436,531 P=1,064,541December 31, 2018CostBalance at beginning of year P=565,854 P=334,645 P=900,499Additions (Note 39) 65,830 111,878 177,708Disposals (100,515) (24,117) (124,632)Balance at end of year 531,169 422,406 953,575Accumulated DepreciationBalance at beginning of year – 61,037 61,037Depreciation (Note 16) – 37,194 37,194Disposals – (6,935) (6,935)Balance at end of year – 91,296 91,296Allowance for Impairment LossBalance at beginning of year 33,415 12,275 45,690Provision for impairment losses 858 7,730 8,588Disposals (6,012) (989) (7,001)Balance at end of year 28,262 19,016 47,277Net Book Value at End of Year P=502,908 P=312,094 P=815,002

Investment properties include real estate properties acquired in settlement of loans and receivables.The difference between the fair value of the asset upon foreclosure and the carrying value of the loanis recognized under ‘Profit from assets sold/exchanged’.

The fair values of investment properties are disclosed in Note 6.

As of December 31, 2019 and 2018, the carrying value of investment properties still subject toredemption amounted to P=481.2 million and P=132.5 million, respectively, for the Group and theParent Company.

In 2019, 2018, and 2017, rental income (included under ‘Rent’ in the statements of income) oninvestment properties, which are leased out under operating leases, amounted to P=1.1 million,P=0.1 million, and P=0.6 million, respectively, for the Group and the Parent Company.

Page 188: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 106 -

*SGVFS038997*

In 2019, 2018 and 2017, direct operating expenses, consisting of depreciation and amortization andrepairs and maintenance (included under ‘Occupancy costs’ in the statements of income) pertaining toinvestment properties amounted to P=80.1 million, P=47.8 million, and P=35.4 million, respectively, forthe Group and P=41.5 million, P=44.4 million, and P=36.3 million, respectively, for the Parent Company.

Provision for (recovery of) impairment losses on non-financial assets in the statements of income areas follows:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Property, equipment andright-of-use assets(Note 16) P=– (P=1,872) (P=16,439) P=– (P=1,872) (P=16,596)

Investment properties 2,835 6,677 10,471 2,835 8,588 13,775Other properties acquired (Note 18) 5,978 2,511 640 5,978 2,120 641

P=8,813 P=7,316 (P=5,328) P=8,813 P=8,836 (P=2,180)

18. Intangible and Other Assets

Intangible assets consist of:

Consolidated Parent Company2019 2018 2019 2018

Branch licenses P=1,460,000 P=1,460,000 P=1,445,000 P=1,445,000Software costs 1,173,227 874,535 1,171,690 872,317Exchange trading right 8,500 8,500 – –

P=2,641,727 P=2,343,035 P=2,616,690 P=2,317,317

Branch licenses of the Group amounting to P=1.5 billion represents the following:a. 1 branch license acquired by the Parent Company from the BSP in 2017 amounting to

P=20.0 million;b. 4 branch licenses acquired by the Parent Company from the BSP in 2016 amounting to

P=80.0 million;c. 11 branch licenses acquired by the Parent Company from the BSP in 2014 amounting to

P=220.0 million;d. 24 branch licenses acquired by the Parent Company from the BSP in 2013 amounting to

P=480.0 million;e. 15 branch licenses acquired by the Parent Company from the BSP in 2012 amounting to

P=300.0 million; andf. 24 branch licenses acquired by the Parent Company from the business combination on

February 1, 2012 amounting to P=360.0 million.

Page 189: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 107 -

*SGVFS038997*

Movements in software costs follow:

Consolidated Parent Company2019 2018 2019 2018

CostBalance at beginning of year P=1,754,671 P=1,239,417 P=1,610,084 P=1,096,212Additions 558,666 544,091 558,264 542,708Disposals − (28,837) − (28,836)Balance at end of year 2,313,337 1,754,671 2,168,348 1,610,084Accumulated AmortizationBalance at beginning of year 880,136 688,878 737,767 547,503Amortization 259,974 191,258 258,891 190,264Disposals − − − −Balance at end of year 1,140,110 880,136 996,658 737,767Net Book Value at End of Year P=1,173,227 P=874,535 P=1,171,690 P=872,317

As of December 31, 2019 and 2018, the latest transacted price of SBEI’s exchange trading rightamounted to P=8.5 million.

Other assets consist of:

Consolidated Parent Company2019 2018 2019 2018

Cash collateral deposits P=6,736,184 P=2,371,164 P=6,736,184 P=2,371,164Rental and security deposits (Note 33) 375,693 381,969 375,500 381,742Documentary stamps 350,361 349,214 350,361 345,994Prepaid expenses 475,023 392,998 279,171 228,653Pension asset (Note 30) 5,877 33,425 – 2,765Returned checks and other cash items 34,851 37,610 34,851 37,610Other properties acquired – net 226,385 97,556 226,385 97,057Miscellaneous 1,046,331 447,517 1,032,541 425,748

9,250,705 4,111,453 9,034,993 3,890,733Allowance for credit and impairment lossesBalance at beginning of year 13,966 13,327 816 177Provision for credit losses (Note 14) 128 639 128 639Effect of disposal group classified as held for

sale (13,150) – – –944 13,966 944 816

P=9,249,761 P=4,097,487 P=9,034,049 P=3,889,917

Cash collateral deposits represent the Parent Company’s restricted deposits for its treasurytransactions such as interest rate swaps and SSURA. The carrying amount of these depositsapproximates their fair value.

In 2019 and 2018, the gross carrying amount and corresponding ECL allowance of cash collateralsecurities were carried at stage 1 and there were no transfers into and out of stage 1.

As of December 31, 2019 and 2018, ‘Other assets - miscellaneous’ includes advance rentalamounting to P=200.9 million and nil for the Group and Parent Company, respectively, prepaidemployee benefits under car plan program amounting to P=154.9 million and P=141.1 million for theGroup, respectively, and P=153.7 million and P=138.5 million for the Parent Company, respectively.

Other properties acquired represent chattel mortgages foreclosed from loan borrowers. Gain or lossupon foreclosure is included under ‘Profit from assets sold/exchanged’ in the statements of income.

Page 190: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 108 -

*SGVFS038997*

Movements in the other properties acquired by the Group and the Parent Company follow:

Consolidated Parent Company2019 2018 2019 2018

CostBalance at beginning of year P=122,944 P=52,286 P=122,444 P=52,161Additions (Note 39) 437,287 192,849 437,287 192,350Disposals (288,680) (122,191) (288,205) (122,067)Balance at end of year 271,551 122,944 271,526 122,444Accumulated DepreciationBalance at beginning of year 23,326 14,796 23,323 14,649Depreciation (Note 16) 46,682 24,396 46,658 24,403Disposals (30,942) (15,866) (30,942) (15,729)Balance at end of year 39,066 23,326 39,039 23,323Accumulated Impairment LossBalance at beginning of year 2,062 720 2,064 720Provision for impairment losses (Note 17) 5,978 2,511 5,978 2,120Disposal (1,940) (1,169) (1,940) (776)Balance at end of year 6,100 2,062 6,102 2,064Net Book Value at End of Year P=226,385 P=97,556 P=226,385 P=97,057

19. Deposit Liabilities

As of December 31, 2019 and 2018, the Group and the Parent Company has set aside ‘Due fromBSP’ as reserves amounting to P=55.9 billion and P=63.6 billion, respectively.

Long-term Negotiable Certificates of Deposit matured on February 17, 2019On February 17, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%)unsecured LTNCD at par value of P=5.0 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on November 24, 2011.

Long-term Negotiable Certificates of Deposit matured on August 16, 2019On August 15, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%) unsecuredLTNCD at par value of P=5.0 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on April 26, 2012.

Long-term Negotiable Certificates of Deposit maturing on May 8, 2023On November 8, 2017, the Parent Company issued 3.875% fixed coupon rate (EIR of 4.01%)unsecured LTNCD at par value of P=8.6 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on October 5, 2017.

Long-term Negotiable Certificates of Deposit maturing on November 2, 2023On May 2, 2018, the Parent Company issued 4.50% fixed coupon rate (EIR of 4.69%) unsecuredLTNCD at par value of P=5.78 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on October 5, 2017.

Page 191: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 109 -

*SGVFS038997*

Long-term Negotiable Certificates of Deposit maturing on March 23, 2025On September 23, 2019, the Parent Company issued 4.00% fixed coupon rate (EIR of 4.18%)unsecured LTNCD at par value of P=6.06 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on May 30, 2019.

Long-term Negotiable Certificates of Deposit maturing on March 23, 2025On December 17, 2019, the Parent Company issued 4.00% fixed coupon rate (EIR of 4.16%)unsecured LTNCD at par value of P=2.31 billion.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on May 30, 2019.

The movement of unamortized debt issue costs on LTNCDs follows:

2019 2018Beginning balance P=99,870 P=73,525Addition 73,591 53,506Amortization (27,692) (27,161)Balance at end of year P=145,769 P=99,870

Interest expense on deposit liabilities consists of:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Demand P=146,174 P=127,938 P=151,869 P=146,465 P=128,465 P=152,860Savings 481,692 3,175,584 1,770,434 481,946 3,186,923 1,782,254Time 9,005,521 3,841,770 2,695,651 9,047,093 3,850,509 2,679,442LTNCD 894,872 1,082,471 611,510 894,872 1,082,471 611,510

P=10,528,259 P=8,227,763 P=5,229,464 P=10,570,376 P=8,248,368 P=5,226,066

Ranges of annual fixed interest on deposit liabilities excluding LTNCD follow (in percentages):

2019 2018 2017Peso-denominated 0.10-6.75 0.10-6.75 0.10-2.65Foreign currency-denominated 0.25-3.25 0.25-3.50 0.125-4.25

20. Financial Liabilities at Fair Value through Profit or Loss

This account consists of:

2019 2018Derivative liabilities (Note 6):

Interest rate swaps P=407,515 P=1,073,342Currency forwards 694,507 578,457Cross-currency swaps – 121,792FX options 2,213 –

P=1,104,235 P=1,773,591

Page 192: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 110 -

*SGVFS038997*

Interest expense on derivative instruments consists of:

2019 2018 2017Interest rate swaps P=567,294 P=580,690 P=430,246Cross-currency swaps 232,153 208,529 157,997

P=799,447 P=789,219 P=588,243

21. Bills Payable and Securities Sold Under Repurchase Agreements

This account consists of borrowings from:

Consolidated Parent Company

2019 2018 2019 2018SSURA P=49,305,175 P=59,274,353 P=49,298,175 P=59,274,353Foreign banks 35,753,357 25,822,254 35,753,357 25,822,254Local government banks with relending

facilities 7,171,850 13,694,071 7,178,850 13,694,071BSP - rediscounting – 2,541,491 – 2,541,491Local banks 1,358,623 1,847,860 126,623 1,522,860

P=93,589,005 P=103,180,029 P=92,357,005 P=102,855,029

The following are the carrying values of the investment securities pledged and transferred underSSURA transactions of the Group:

December 31, 2019 December 31, 2018Carrying

Value Fair ValueCarrying

Value Fair ValueInvestment securities at amortized cost

(Note 13)Treasury bonds P=43,772,591 P=47,480,398 P=67,805,474 P=64,076,037

Financial assets at FVTOCI (Note 12)Treasury bonds 13,362,859 13,362,859 8,596,372 8,596,372

P=57,135,450 P=60,843,257 P=76,401,846 P=72,672,409

For the years ended December 31, 2019, 2018 and 2017, interest expense on bills payable andSSURA, notes payable, subordinated notes and other borrowings in the statements of income consistof the following:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Bills payable andSSURA P=3,632,532 P=2,735,682 P=2,423,061 P=3,470,662 P=2,726,774 P=2,417,270

Notes payable (Note 22) 1,922,295 838,357 613,404 1,922,295 838,357 613,404Subordinated note

(Note 23) 326,433 543,934 543,590 326,433 543,934 543,590Others (Note 30) 195 6,617 7,021 195 6,617 7,021

P=5,881,455 P=4,124,590 P=3,587,076 P=5,719,585 P=4,115,682 P=3,581,285

Page 193: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 111 -

*SGVFS038997*

Annual fixed interest rate ranges on the Group’s and the Parent Company’s interbank borrowings andrediscounting availments follow (in percentages):

2019 2018 2017Interbank borrowings:

Peso-denominated 3.97-8.00 2.53-8.00 2.50-8.00Foreign currency-denominated 1.50-3.75 1.25-3.58 0.68-2.12

Rediscounting availments:Peso-denominated 5.06-5.38 5.06-5.38 –

22. Notes Payable

Senior Unsecured Notes due 2020In February, 2015, the Parent Company issued $300.0 million senior unsecured notes (“SeniorNotes”) due on February 3, 2020. The Senior Notes, which are listed in the Singapore StockExchange, were priced at par with a coupon rate of 3.95% (EIR of 4.04%) payable on a semi-annualbasis commencing on August 3, 2015. The Parent Company incurred debt issue costs amounting toP=61.0 million.

The Parent Company paid the $300.0 million senior unsecured notes on February 3, 2020.

Senior Unsecured Notes due 2023In September 2018, the Parent Company issued $300.0 million senior unsecured notes (“SeniorNotes”) due on September 25, 2023. The Senior Notes, which are listed in the Singapore StockExchange, were priced at a discount, with a coupon rate of 4.50% fixed rate (EIR of 4.68%) payableon a semi-annual basis commencing on March 25, 2019. The Parent Company incurred debt issuecosts amounting to P=57.6 million.

Fixed Rate Bonds due 2021On June 28, 2019, the Parent Company issued P=18.0 billion fixed rate bonds due on June 28, 2021.The bond, which are listed in Philippine Dealing and Exchange Corporation, were priced at par with acoupon rate of 5.875% fixed rate payable on a quarterly basis commencing on September 28, 2019.The Parent Company incurred debt issue costs amounting to P=160.8 million.

The movements in unamortized discount follow:

December 31, 2019 December 31, 2018Balance at beginning of year P=139,240 P=30,598Additions 160,794 132,354Amortization (77,587) (21,609)Translation adjustment (4,469) (2,103)Balance at end of year P=217,978 P=139,240

Page 194: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 112 -

*SGVFS038997*

23. Subordinated Note

Tier 2 Unsecured Subordinated Notes due 2024On July 11, 2014, the Parent Company issued P=10.0 billion Unsecured Subordinated Notes (2024 SubNotes) due on July 11, 2024 qualifying as Tier 2 Capital. The Notes initially bear interest at the rateof 5.375% per annum (EIR of 5.464%) from and including July 11, 2014 to but excluding July 11,2019. Unless the 2024 Sub Notes are redeemed on July 12, 2019, the initial interest rate will be resetat the equivalent of the five-year PDST-R1 plus a spread of 1.575% per annum, and such interest willbe payable commencing on July 12, 2019 up to and including July 11, 2024. The interest on the 2024Sub Notes for the entire term will be payable quarterly in arrears on the 11th of January, April, July,and October of each year, commencing on October 11, 2014.

The 2024 Sub Notes also contain a tax redemption option and a regulatory redemption option whichwill allow the Parent Company to redeem no less than all of the outstanding 2024 Sub Notes, at anamount equal to 100% of the face value of the 2024 Sub Notes plus accrued interest at the interestrate relating to the current interest period up to but excluding the date of such redemption, upon thehappening of certain events that are triggered by changes in laws and regulations.

The 2024 Sub Notes also have a loss absorption feature which means that the notes are subject to aNon-Viability Write-Down in case of the occurrence of a Non-Viability Event, subject to certainconditions, when the Parent Company is considered non-viable as determined by the BSP. Non-Viability is defined as a deviation from a certain level of Common Equity Tier 1 (CET1) Ratio or theinability of the Parent Company to continue business (closure) or any other event as determined bythe BSP, whichever comes earlier. Upon the occurrence of a Non-Viability Event, the ParentCompany shall write-down the principal amount of the notes to the extent required by the BSP, whichcould go down to as low as zero. A Non-Viability Trigger Event shall be deemed to have occurred ifthe BSP notifies the Issuer in writing that it has determined that a: (i) Write-Down of the notes andother capital instruments of the Parent Company is necessary because, without such Write-Down, theParent Company would become non-viable, (ii) public sector injection of capital, or equivalentsupport, is necessary because, without such injection or support, the Parent Company would becomenon-viable, or (iii) Write-Down of the notes and other capital instruments of the Parent Company isnecessary because, as a result of the closure of the Parent Company, it has become non-viable. ANon-Viability Write-Down shall have the following effects: (a) reduce the claim on the notes inliquidation; (b) reduce the amount re-paid when a call or redemption is properly exercised; and(c) partially or fully reduce the interest payments on the notes.

The issuance of the 2024 Sub Notes under the terms approved by the BOD was approved by the BSPon May 21, 2014, subject to the Parent Company’s compliance with certain conditions.

On March 26, 2019, the Parent Company’s BOD approved the exercise of the option to call of itsP=10.0 billion 5.375% Unsecured Subordinated Notes issued on July 11, 2014. The redemption fallsunder the call provisions of the Note, which has a maturity date of July 11, 2024 and is callable onJuly 12, 2019. The exercise of the option to call was approved by the BSP on May 10, 2019.

The movements in unamortized discount follow:

2019 2018Balance at beginning of year P=42,752 P=49,186Amortization (42,752) (6,434)Balance at end of year P=– P=42,752

Page 195: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 113 -

*SGVFS038997*

24. Accrued Interest, Taxes and Other Expenses

This account consists of:

Consolidated Parent Company2019 2018 2019 2018

Accrued interest payable (Note 33) P=2,816,318 P=3,478,353 P=2,804,810 P=3,479,089Accrued other expenses payable 1,210,271 1,509,218 1,177,264 1,452,895Pension liability - net (Notes 30 and 33) 280,491 878 274,337 –Accrued other taxes and licenses payable 269,905 429,358 261,415 415,755

P=4,576,985 P=5,417,807 P=4,517,826 P=5,347,739

Accrued other expenses payable includes accrual for various operating expenses such as payroll,repairs and maintenance, utilities, rental, and contractual services. This also includes estimatedprovision for probable losses arising from various legal cases of the Group (see Note 35).

25. Other Liabilities

This account consists of:

Consolidated Parent Company2019 2018 2019 2018

Bills purchased - contra (Note 14) P=2,803,489 P=2,485,623 P=2,803,489 P=2,485,623Accounts payable (Note 33) 2,786,364 2,634,769 2,770,579 2,418,227Lease liability (Notes 2 and 16) 2,007,373 – 2,007,373 –Payable to brokers 955,053 753,845 – –Unearned initial milestone fee 779,641 942,209 779,641 942,209Other deferred credits 537,794 529,864 537,794 529,864Withholding taxes payable 267,093 255,398 261,453 245,837Due to the Treasurer of the Philippines 83,846 45,412 83,846 45,412Subscription payable 30,000 30,000 123,750 123,750Dividends payable 14,708 16,393 14,688 16,393Deposits for keys of safety deposit boxes 7,065 6,789 7,065 6,789Miscellaneous 2,854,566 2,650,489 2,688,044 2,082,216

P=13,126,992 P=10,350,791 P=12,077,722 P=8,896,320

Miscellaneous liabilities includes the ECL on loan commitments and financial guarantees of theGroup and the Parent Company amounting to P=223.4 million and P=311.5 million as of December 31,2019 and 2018, respectively, Social Security System pension for the Group’s depositors amounting toP=175.2 million and P=163.0 million as of December 31, 2019 and 2018, respectively, cash collateraldeposits amounting to P=931.5 million P=824.6 million, respectively, and items in process for clearingamounting to P=1.0 billionand P=0.5 billion as of December 31, 2019 and 2018, respectively, whichwere subsequently reversed.

Page 196: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 114 -

*SGVFS038997*

26. Maturity Analysis of Assets and Liabilities

The table below shows an analysis of assets and liabilities analyzed according to when they areexpected to be recovered or settled (amounts in millions):

Consolidated Parent CompanyWithin

One YearOver

One Year TotalWithin

One YearOver

One Year TotalDecember 31, 2019Financial AssetsCash and other cash items P=9,884 P=– P=9,884 P=9,884 P=– P=9,884Due from BSP 56,119 – 56,119 56,119 – 56,119Due from other banks 9,279 – 9,279 9,114 – 9,114Interbank loans receivable and SPURA 1,060 – 1,060 1,060 – 1,060Financial assets at FVTPL:

HFT investments 2,125 1,593 3,718 2,125 – 2,125Derivative assets 1,148 – 1,148 1,148 – 1,148

Total financial assets at FVTPL 3,273 1,593 4,866 3,273 – 3,273Financial assets at FVTOCI – 24,729 24,729 24,690 24,690Investment securities at amortized cost 2,577 206,473 209,050 2,577 206,473 209,050Loans and receivables - at gross 220,015 235,239 455,254 218,938 238,174 457,112Other assets 6,747 365 7,112 6,736 376 7,112Total financial assets 308,954 468,399 777,353 307,701 469,713 777,414Non-financial AssetsInvestments in subsidiaries and a joint

venture – 317 317 – 2,280 2,280Property and equipment – 5,907 5,907 – 4,627 4,627Investment properties – 1,061 1,061 – 1,065 1,065Non-current assets held for sale 7,231 – 7,231 1,799 – 1,799Deferred tax assets – 2,284 2,284 – 2,237 2,237Goodwill – 842 842 – 842 842Intangible assets – 2,642 2,642 – 2,617 2,617Other assets 231 1,908 2,139 – 1,923 1,923Total non-financial assets 7,462 14,961 22,423 1,799 15,591 17,390

P=316,416 P=483,360 799,776 P=309,500 P=485,304 794,804Less: Allowance for credit losses 6,043 6,038 Unearned discounts and

deferred credits 726 726Total Assets P=793,007 P=788,040Financial LiabilitiesDeposit liabilities P=357,499 P=142,107 P=499,606 P=357,499 P=143,074 P=500,573Financial liabilities at FVTPL 1,104 – 1,104 1,104 – 1,104Derivative liabilities designates as

hedges – 4,940 4,940 – 4,940 4,940Bills payable and SSURA 73,199 20,390 93,589 71,967 20,390 92,357Acceptances payable – 492 492 – 492 492Margin deposits and cash letters

of credit – 921 921 – 921 921Manager’s and certified checks

outstanding 4,121 – 4,121 4,121 – 4,121Notes payable 15,189 32,974 48,163 15,189 32,974 48,163Liabilities of disposal group classified

as held for sale 3,723 – 3,723 – – –Accrued interest, taxes and other

expenses 3,947 310 4,257 3,947 310 4,257Other liabilities 8,264 2,282 10,546 7,181 2,222 9,403Total financial liabilities 467,046 204,416 671,462 461,008 205,323 666,331Non-financial LiabilitiesIncome tax payable 358 – 358 339 – 339Accrued interest, taxes and other

expenses 323 – 323 261 – 261Other liabilities 2,404 173 2,577 2,137 536 2,673Total non-financial liabilities 3,085 173 3,258 2,737 536 3,273Total Liabilities P=470,131 P=204,589 P=674,720 P=463,745 P=205,859 P=669,604

(Forward)

Page 197: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 115 -

*SGVFS038997*

Consolidated Parent CompanyWithin

One YearOver

One Year TotalWithin

One YearOver

One Year TotalDecember 31, 2018Financial AssetsCash and other cash items P=11,926 P=– P=11,926 P=11,926 P=– P=11,926Due from BSP 63,605 – 63,605 63,605 – 63,605Due from other banks 9,021 – 9,021 8,887 – 8,887Interbank loans receivable and SPURA 210 – 210 210 – 210Financial assets at FVTPL:

HFT investments 2,476 – 2,476 2,476 – 2,476Derivative assets 2,458 – 2,458 2,458 – 2,458Others – 15 15 – 15 15

Total financial assets at FVTPL 4,934 15 4,949 4,934 15 4,949Financial assets at FVTOCI 18,551 15,753 34,304 18,551 15,714 34,265Investment securities at amortized cost 524 211,759 212,283 524 211,759 212,283Loans and receivables - at gross 213,545 208,255 421,800 212,719 207,307 420,026Other assets 2,388 407 2,795 2,371 382 2,753Total financial assets 324,704 436,189 760,893 323,727 435,177 758,904Non-financial AssetsInvestments in subsidiaries and a joint

venture – 293 293 – 3,924 3,924Property and equipment – 4,119 4,119 – 2,876 2,876Investment properties – 813 813 – 815 815Deferred tax assets – 1,877 1,877 – 1,783 1,783Goodwill – 842 842 – 842 842Intangible assets – 2,344 2,344 – 2,317 2,317Other assets 78 1,308 1,386 – 1,138 1,138Total non-financial assets 78 11,596 11,674 – 13,695 13,695

P=324,782 P=447,785 772,567 P=323,727 P=448,872 772,599Less: Allowance for credit losses 5,233 5,284 Unearned discounts and

deferred credits 473 471

Total Assets P=766,861 P=766,844(Forward)Financial LiabilitiesDeposit liabilities P=301,498 P=187,392 P=488,890 P=303,229 P=187,392 490,621Financial liabilities at FVTPL 1,774 – 1,774 1,774 – 1,774Derivative liabilities designates as

hedges – 1,537 1,537 – 1,537 1,537

Bills payable and SSURA 79,075 24,105 103,180 78,750 24,105 102,855Acceptances payable – 619 619 – 619 619Margin deposits and cash letters

of credit – 939 939 – 939 939Manager’s and certified checks

outstanding 3,276 – 3,276 3,276 – 3,276Subordinated note – 9,957 9,957 – 9,957 9,957Notes payable – 31,409 31,409 – 31,409 31,409Accrued interest, taxes and other

expenses 4,662 312 4,974 4,630 302 4,932Other liabilities 5,821 228 6,049 5,548 176 5,724Total financial liabilities 396,106 256,498 652,604 397,207 256,436 653,643Non-financial LiabilitiesIncome tax payable 30 – 30 25 – 25Accrued interest, taxes and other

expenses 444 – 444 416 – 416

Other liabilities 3,909 392 4,301 2,643 529 3,172Total non-financial liabilities 4,383 392 4,775 3,084 529 3,613Total Liabilities P=400,489 P=256,890 P=657,379 P=400,291 P=256,965 P=657,256

Page 198: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 116 -

*SGVFS038997*

27. Equity

As of December 31, 2019 and 2018, the Parent Company’s capital stock consists of:

Shares* AmountCommon stock - P=10 par value

Authorized 1,000,000,000 P=10,000,000Issued and outstandingBalance at the beginning and end of the period 753,538,887 7,535,389

Preferred stock - P=0.10 par valueAuthorized 1,000,000,000 100,000Issued and outstandingBalance at the beginning and end of the period 1,000,000,000 100,000

1,753,538,887 P=7,635,389*Absolute number of shares

On November 26, 2013, the Parent Company’s stockholders approved and authorized the following:

1. Creation of 1.0 billion non-cumulative, non-participating, non-convertible voting Preferred Stockwith par value of P=0.1 each and issuance of approximately 602.8 million of such Preferred Stock;and

2. Increase in authorized capital stock from P=10.0 billion to P=10.1 billion broken down intoP=10.0 billion Common Stock and P=100.0 million Preferred Stock.

The Preferred Stock was offered to eligible common stockholders, with each eligible stockholderentitled to subscribe to one voting preferred share for every one common stock held as of the recorddate, June 16, 2014.

On July 10, 2014, the Parent Company issued 602,831,109 non-cumulative, non-participating, non-convertible Preferred Stock with P=0.1 par value. The dividend rate is 3.9% repricing every 10 years.The Preferred Stock is redeemable at the sole option of the Parent Company at its issue price.Redemption shall at all times be subject to regulation of the BSP and shall require (i) prior approvalof the BSP; (ii) replacement with at least an equivalent amount of newly paid-in shares; (iii) a lapse ofat least five (5) years from the date of issuance; and (iv) solvency of the Parent Company.Redemption shall not be allowed when the Parent Company is insolvent or if such redemption willcause insolvency, impairment of capital or inability of the Parent Company to meet its debts as theymature.

A sinking fund for the redemption of Preferred Shares amounting P=100.0 million is created upon theirissuance, to be effected by the transfer of free surplus to a restricted surplus account and shall not beavailable for dividend distribution.

Page 199: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 117 -

*SGVFS038997*

Details of the Parent Company’s cash dividend distribution follow:

Dividend

Shares Date of declaration Per shareTotal amounts

in thousands Record date Payment dateCommon October 29, 2019 P=1.00 P=753,539 November 13, 2019 November 28, 2019Common October 29, 2019 0.5000 376,770 November 13, 2019 November 28, 2019Common March 26, 2019 1.00 753,539 April 10, 2019 April 25, 2019Common March 26, 2019 0.5000 376,770 April 10, 2019 April 25, 2019Preferred February 19, 2019 0.0039 2,351 June 26, 2019 July 10, 2019Preferred February 19, 2019 0.0048 1,908 March 18, 2019 April 1, 2019Common October 30, 2018 1.00 753,539 November 19, 2018 November 29, 2018Common October 30, 2018 0.5000 376,770 November 19, 2018 November 29, 2018Common March 27, 2018 1.00 753,539 April 13, 2018 April 26, 2018Common March 27, 2018 0.5000 376,770 April 13, 2018 April 26, 2018Preferred February 27, 2018 0.0039 2,351 June 26, 2018 July 10, 2018Preferred February 27, 2018 0.0048 1,908 March 14, 2018 April 2, 2018Common October 27, 2017 1.00 753,539 November 17, 2017 November 24, 2017Common October 27, 2017 0.50 376,770 November 17, 2017 November 24, 2017Preferred April 25, 2017 0.0039 2,350 June 26, 2017 July 10, 2017Common April 25, 2017 1.00 753,539 May 11, 2017 May 25, 2017Common April 25, 2017 0.50 376,770 May 11, 2017 May 25, 2017Preferred February 28, 2017 0.0048 1,908 March 17, 2017 April 3, 2017

The computation of surplus available for dividend declaration in accordance with SEC MemorandumCircular No. 11 issued in December 2008 differs to a certain extent from the computation followingBSP guidelines including capital adequacy requirements and other considerations such as generalloan loss reserves. However, on September 17, 2015, the BSP through MB Resolution No. 1516,allowed banks to declare and pay dividends without prior BSP verification provided that pre-qualification criteria including capital adequacy requirements are met.

The track record of the Parent Company’s registration of securities in compliance with the SecuritiesRegulation Code Rule 68 Annex 68-D 1(I) follows:

a. Authorized Shares

Date of SEC Approval Type of Shares Authorized Number of Shares*April 8, 2014 Preferred 1,000,000,000November 11, 2013 Common 1,000,000,000July 29, 1998 Common 600,000,000February 19, 1997 Common 450,000,000June 8, 1995 Common 200,000,000* Absolute number of shares

b. Stock Dividends

Date of BSP Approval PercentageJuly 11, 2013 20.00%March 29, 2011 20.00%May 26, 1998 13.75%April 29, 1997 20.00%March 26, 1996 20.00%

Page 200: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 118 -

*SGVFS038997*

c. Stock Rights Offering

Date of SEC Approval Number of shares Registered* Offer PriceOctober 8, 2009 89,285,714 P=28.00 per shareFebruary 19, 1997 65,037,768 25.00 per share*Absolute number of shares

d. Number of Shareholders

Year End Number of shareholdersDecember 31, 2019 2,167December 31, 2018 2,176December 31, 2017 2,185

In the consolidated financial statements, a portion of the Group’s surplus corresponding to theaccumulated net earnings of the subsidiaries amounting to P=948.8 million and P=817.0 million as ofDecember 31, 2019 and 2018, respectively, is not available for dividend declaration. Thisaccumulated equity in net earnings becomes available for dividend declaration upon receipt ofdividends from the investees, subject also to SEC and BSP rules on dividend declaration.

Surplus reserves of the Group and the Parent Company consist of:

Consolidated Parent Company2019 2018 2019 2018

Reserve for self-insurance P=2,120,200 P=2,111,200 P=2,120,200 P=2,111,200Reserve for trust business 299,300 277,500 299,300 277,500Reserve for redemption of

preferred stock 100,000 100,000 100,000 100,000Reserve for regulatory requrements 2,946,751 3,251,143 2,909,175 3,216,598

P=5,466,251 P=5,739,843 P=5,428,675 P=5,705,298

In compliance with existing BSP regulations, 10.0% of the net profits realized by the ParentCompany from its trust business is appropriated to surplus reserve. The yearly appropriation isrequired until the surplus reserve for trust business equals 20.0% of the Parent Company’s regulatorycapital.

To comply with Securities Regulation Code Rule 49.1 (B), Reserve Fund, requiring broker dealers toannually appropriate a certain minimum percentage of its audited profit after tax as reserve fund, aportion of the Group’s surplus corresponding to the net earnings of SBEI amounting to P=37.6 millionand P=34.5 million as of December 31, 2019 and 2018, respectively, has been appropriated in theconsolidated financial statements and is not available for dividend declaration.

Page 201: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 119 -

*SGVFS038997*

The following table shows the components of comprehensive income closed to Surplus:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Net income attributable to the equity holders of the Parent

Company P=10,101,732 P=8,608,694 P=10,264,797 P=10,145,946 P=8,650,134 P=10,309,267Remeasurement gains (losses) on defined benefit plans

(Notes 15 and 30) (277,720) 2,478 226,618 (277,725) 2,478 226,618P=9,824,012 P=8,611,172 P=10,491,415 P=9,868,221 P=8,652,612 P=10,535,885

Capital ManagementThe Group considers the equity attributable to the equity holders of the Parent Company as the capitalbase of the Group. The primary objectives of the Group’s capital management are to ensure that itcomplies with externally imposed capital requirements and that it maintains strong credit ratings andhealthy capital ratios in order to support its business and to maximize shareholders value.

The Group manages its capital structure and makes adjustments to it in the light of changes ineconomic conditions and the risk characteristics of its activities and assessment of prospectivebusiness requirements or directions. In order to maintain or adjust the capital structure, the Groupmay adjust the amount and mode of dividend payment to shareholders, issue capital securities orundertake a share buy-back. No changes were made in the objectives, policies and processes from theprevious year.

BSP ReportingRegulatory Qualifying CapitalUnder existing BSP regulations, the determination of the compliance with regulatory requirementsand ratios is based on the amount of the “unimpaired capital” (regulatory net worth) as reported to theBSP, which is determined on the basis of regulatory accounting policies that differ from PFRS insome respects.

The Group complied with BSP Circular No. 781, Basel III Implementing Guidelines on MinimumCapital Requirements, which provides the implementing guidelines on the revised risk based capitaladequacy framework particularly on the minimum capital and disclosure requirements for universalbanks and commercial banks, as well as their subsidiary banks and quasi banks, in accordance withthe Basel III standards. The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of6.00% and Tier 1 capital ratio of 7.50%; capital conservation buffer of 2.50% comprised of CET1capital and Total Capital Adequacy Ratio (CAR) of 10.00%. These ratios shall be maintained at alltimes. Further, BSP Circular No. 856 covers the implementing guidelines on the framework fordealing with domestic systemically important banks (DSIBs) in accordance with the Basel IIIstandards. Banks identified as DSIBs shall be required to have higher loss absorbency, on top of theminimum CET1 capital and capital conservation buffer. Compliance with this requirement wasphased in starting January 1, 2017, with full compliance on January 1, 2019.

Page 202: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 120 -

*SGVFS038997*

The CAR of the Group and of the Parent Company as reported to the BSP as of December 31, 2019and 2018 follow:

Consolidated Parent Company2019 2018 2019 2018

Tier 1 capital P=117,883,664 P=107,840,717 P=115,213,913 P=107,977,432Less Required deductions 10,147,061 6,836,161 13,127,076 13,005,108

107,736,603 101,004,556 102,086,837 94,972,324Excess from Tier 2 deducted to

Tier 1 Capital* – – – –Net Tier 1 Capital 107,736,603 101,004,556 102,086,837 94,972,324Tier 2 capital 6,572,726 14,174,245 6,564,890 14,167,650Less: Required deductions − − – −

6,572,726 14,174,245 6,564,890 14,167,650Excess of Tier 2 deducted to

Tier 1 Capital* – – – –Net Tier 2 Capital 6,572,726 14,174,245 6,564,890 14,167,650Total Qualifying Capital P=114,309,329 P=115,178,801 P=108,651,727 P=109,139,974Credit Risk-Weighted Assets 587,084,263 575,394,958 575,814,953 571,535,427Market Risk-Weighted Assets 10,788,265 4,179,322 7,608,110 4,172,059Operational Risk-Weighted Assets 41,389,054 36,362,462 39,471,976 34,300,910Total Risk Weighted Assets P=639,261,582 P=615,936,742 P=622,895,039 P=610,008,396Tier 1 CAR 16.85% 16.40% 16.39% 15.57%Total CAR 17.88% 18.70% 17.44% 17.89%*Deductions to Tier 2 Capital are capped at its total gross amount and any excess shall be deducted from Tier 1 Capital.

Qualifying capital and risk-weighted assets (RWA) are computed based on BSP regulations. UnderBasel III, the regulatory qualifying capital of the Parent Company consists of CET1 capital, whichcomprises paid-up common stock, additional paid-in capital, retained earnings including current yearprofit, retained earnings reserves, OCI and non-controlling interest less required regulatorydeductions. The other component of regulatory capital is Tier 2 (supplementary) capital, whichincludes unsecured subordinated debts and general loan loss provision. RWA consist of total assetsexcluding cash on hand, due from BSP, loans covered by hold-out on or assignment of deposits, loansor acceptances under letters of credit to the extent covered by margin deposits and other non-riskitems determined by the Monetary Board (MB) of the BSP. Operational RWA are computed using theBasic Indicator Approach. As discussed in Note 30, as of December 31, 2018, additional operationalrisk has been included as required by the MB, which was lifted on July 18, 2019.

The Group and its individually regulated operations have complied with all externally imposedcapital requirements throughout the year.

The Internal Capital Adequacy Assessment Process (ICAAP) supplements the BSP’s risk-basedcapital adequacy framework. In compliance with this, the Group has adopted and developed itsICAAP framework to ensure that appropriate level and quality of capital are maintained by theGroup. Under this framework, the assessment of risks extends beyond the Pillar 1 set of credit,market and operational risks and onto other risks deemed material by the Group. The level andstructure of capital are assessed and determined in light of the Group’s business environment, plans,performance, risks and budget as well as regulatory edicts.

Page 203: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 121 -

*SGVFS038997*

Basel III Leverage Ratio (BLR)BSP Circular Nos. 881 and 990 cover the implementing guidelines on the BLR framework designedto act as a supplementary measure to the risk based capital requirements and shall not be less than5.00%. The monitoring period has been set every quarter starting December 31, 2014 and extendeduntil June 30, 2018. Effective July 1, 2018, the monitoring of the leverage ratio was implemented as aPillar I minimum requirement.

The details of the BLR as reported to the BSP, as of December 31, 2019 and 2018 follow:

Consolidated Parent Company2019 2018 2019 2018

Tier 1 Capital P=107,736,603 P=101,004,557 P=102,086,837 P=94,972,324Exposure Measure 829,227,349 804,578,265 819,189,899 798,643,782BLR 12.99% 12.55% 12.46% 11.89%

Under the framework, BLR is defined as the capital measure divided by the exposure measure.Capital measure is Tier 1 capital. Exposure measure is the sum of on balance sheet exposures,derivative exposures, security financing exposures and off balance sheet items.

Liquidity Coverage Ratio (LCR)BSP Circular No. 905 provides the implementing guidelines on LCR and disclosure standards that areconsistent with the Basel III framework. The LCR is the ratio of high quality liquid assets to total netcash outflows which should not be lower than 100.00%. Compliance with the LCR minimumrequirement commenced on January 1, 2018 with the prescribed minimum ratio of 90.00% for 2018and 100.00% effective January 1, 2019. As of December 31, 2019 and 2018, the LCR in singlecurrency as reported to the BSP, was at 115.29% and 120.27%, respectively, for the Group, and116.48% and 119.31%, respectively, for the Parent Company.

Net Stable Funding Ratio (NSFR)On June 6, 2018, the BSP issued BSP Circular No.1007 covering the implementing guidelines on theadoption of the Basel III Framework on Liquidity Standards NSFR. The NSFR is aimed to promotelong term resilience against liquidity risk by requiring banks to maintain a stable funding profile inrelation to the composition of its assets and off balance sheet activities. It complements the LCR,which promotes short term resilience of a bank's liquidity profile. Banks shall maintain an NSFR of atleast 100 percent (100%) at all times. The implementation of the minimum NSFR shall be phased into help ensure that covered banks can meet the standard through reasonable measures withoutdisrupting credit extension and financial market activities. An observatiion period was set from July 1to December 31, 2018. Effective, January 1, 2019, banks shall comply with the prescribed minimumratio of 100%. As of December 31, 2019 and 2018, the NSFR as reported to the BSP, was at113.07% and 118.82%, respectively, for the Group, and 114.94% and 118.20%, respectively, for theParent Company.

28. Trust Operations

Securities and other properties held by the Parent Company in a fiduciary or agency capacity forclients and beneficiaries are not included in the accompanying statements of financial position sincethese are not assets of the Parent Company.

Page 204: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 122 -

*SGVFS038997*

Treasury notes and bills included under ‘Investment securities at amortized cost’ as ofDecember 31, 2019 and 2018 with a total face value of P=595.0 million and P=508.1 million,respectively, were deposited with the BSP in compliance with the requirements of the GeneralBanking Law relative to the Parent Company’s trust functions (see Note 13).

29. Income Taxes

Provision for income tax consists of:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Current:Final P=547,766 P=504,622 P=504,727 P=537,784 P=497,681 P=498,910Corporate 2,318,078 1,559,588 1,823,964 2,209,266 1,531,075 1,765,074

2,865,844 2,064,210 2,328,691 2,747,050 2,028,756 2,263,984Deferred (552,460) 411,902 (642,539) (436,472) 317,636 (636,640)

P=2,313,384 P=2,476,112 P=1,686,152 P=2,310,578 P=2,346,392 P=1,627,344

The Group’s provision for income tax - current represents final tax, RCIT of the Parent Company’sRBU, SBEI, SBCC, SBFCI and SBRC, and MCIT of the Parent Company’s FCDU and othersubsidiaries.

Under Philippine tax laws, the Parent Company and its financial intermediary subsidiaries are subjectto percentage and other taxes (presented as ‘Taxes and licenses’ in the statements of income) as wellas income taxes. Percentage and other taxes paid consist principally of documentary stamp tax andgross receipts tax.

Current tax regulations provide that the RCIT rate shall be 30.0%. Interest expense allowed as adeductible expense is reduced by 33.0%.

An MCIT of 2.0% on modified gross income is computed and compared with the RCIT. Any excessof the MCIT over the RCIT is deferred and can be used as a tax credit against future income taxliability for the next three years. In addition, the NOLCO is allowed as a deduction from the taxableincome in the next three years from the year of inception. Current tax regulations also set a limit onthe amount of entertainment, amusement and recreation (EAR) expenses that can be deducted forincome tax purposes. EAR expenses are limited to 1.0% of net revenue for sellers of services. In2019, 2018, and 2017, EAR expenses (included under ‘Miscellaneous expenses’ in the statements ofincome) amounted to P=400.1 million, P=221.7 million and P=589.8 million, respectively, for the Groupand P=387.0 million, P=211.3 million and P=579.7 million, respectively, for the Parent Company(see Notes 15 and 32).

Republic Act (RA) No. 9294, which became effective in May 2004, provides that the income derivedby the FCDU from foreign currency transactions with non-residents, offshore banking units (OBUs),and local commercial banks, including branches of foreign banks, is tax-exempt while interest incomeon foreign currency-denominated loans from residents other than OBUs or other depository banksunder the expanded system is subject to 10.0% income tax.

Page 205: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 123 -

*SGVFS038997*

Components of net deferred tax assets follow:

Consolidated Parent Company2019 2018 2019 2018

Deferred tax assets on:Allowance for credit and

impairment losses P=1,941,415 P=1,543,390 P=1,761,131 P=1,457,005Lease liability 608,442 − 602,212 −Unrealized loss on derivative

liabilities 256,363 367,940 256,363 367,940Accrued expenses 223,429 303,025 220,414 301,160Unamortized past service cost 95,291 120,749 90,428 114,485Undrawn commitments 64,108 87,591 64,108 87,591Accumulated depreciation on

investment properties 35,962 32,492 33,006 34,386Others 143,153 36,688 111,377 24,274

3,368,163 2,491,875 3,139,039 2,386,841Deferred tax liabilities on:

Right-of-use assets 557,869 − 551,526 −Unrealized gain on derivative

assets 266,553 569,193 266,553 569,193Retirement asset 9,139 10,327 – 829Unrealized gain on financial

assets at FVTOCI 1,021 1,283 – –Accrued rent income 681 781 681 781Others 85,322 33,725 83,425 33,332

920,585 615,309 902,185 604,135Effect of disposal group classified

as held for sale (Note 38) (164,023) – – –Net deferred tax assets P=2,283,555 P=1,876,566 P=2,236,854 P=1,782,706

As of December 31, 2019 and 2018, deferred tax assets of the Group and of the Parent Company thathave not been recognized in respect of the deductible temporary differences follow:

Consolidated Parent Company2019 2018 2019 2018

NOLCO P=19,126 P=25,088 P=19,016 P=24,974MCIT 1,083 702 1,082 258

P=20,209 P=25,790 P=20,098 P=25,232

Details of the NOLCO follow:

ConsolidatedInception Year Amount Used/Expired Balance Expiry Year2016 P=11,339 P=11,339 P=– 20192017 114 – 114 20202018 83,360 19,860 63,500 20212019 139 – 139 2022

P=94,952 P=31,199 P=63,753

Page 206: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 124 -

*SGVFS038997*

Parent CompanyInception Year Amount Used/Expired Balance Expiry Year2018 P=83,247 P=19,860 P=63,387 2021

Details of the MCIT follow:

ConsolidatedInception Year Amount Used/Expired Balance Expiry Year2016 P=958 P=958 P=– 20192017 2,113 2,113 – 20202018 720 463 257 20212019 825 – 825 2022

P=4,616 P=3,534 P=1,082

Parent CompanyInception Year Amount Used/Expired Balance Expiry Year2016 P=934 P=934 P=– 20192018 258 – 258 20212019 825 – 825 2022

P=2,017 P=934 P=1,083

A reconciliation between the applicable statutory income tax rate to the effective income tax ratefollows:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Statutory income tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%Tax effect of:

FCDU net income (5.95) (7.43) (13.46) (5.93) (7.49) (13.47)Non-deductible expenses 4.67 4.74 4.12 4.23 4.13 4.06

Interest income from tax-paidand exempt investments (4.41) (4.56) (4.22) (4.32) (4.53) (4.18)

Change in unrecognizeddeferred tax assets (3.19) 0.17 (2.26) (2.26) (0.71) (2.21)

Non-taxable income (2.49) (0.58) (0.07) (3.17) (0.06) (0.57)Effective income tax rate 18.63% 22.34% 14.11% 18.55% 21.34% 13.63%

30. Pension Obligations

The Group provides non-contributory defined benefit pension plans for all employees. Provisions forpension obligations are established for benefits payable in the form of retirement pensions. Benefitsare dependent on years of service and the respective employee’s final compensation. The most recentactuarial valuation was carried out as of December 31, 2019. The present value of the defined benefitobligation, and the related current service cost and past service cost were measured using theprojected unit credit actuarial method.

Page 207: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 125 -

*SGVFS038997*

The amounts of defined benefit plans are presented in the statements of financial position as follows:

Consolidated Parent Company2019 2018 2019 2018

Other assets (Note 18) (P=5,877) (P=33,425) P=– (P=2,765)Accrued interest, taxes and other

expenses (Note 24) 280,491 878 274,337 –Net pension liability (asset) P=274,614 (P=32,547) P=274,337 (P=2,765)

Changes in net defined benefit liability of the Group and the Parent Company in 2019 and 2018 are asfollows:

ConsolidatedPresent Value

of DBOFair Value of

Plan AssetsNet Retirement

Liability (Asset)December 31, 2019Balance at beginning of year P=3,084,425 (P=3,116,972) (P=32,547)Net Benefit Cost in Statements of Income

Current service cost 250,164 – 250,164Net interest 226,413 (227,145) (732)

Effect of disposal group classified as held for sale (Note38) (655) 24,199 23,544

475,922 (202,946) 272,976Benefits paid (171,324) 171,324 –Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount included in net interest) – 1,648 1,648 Actuarial changes arising from

changes in demographic assumptions (266,881) – (266,881) Actuarial changes arising from

experience adjustments 44,209 – 44,209 Actuarial changes arising from changes

in financial assumptions 498,744 – 498,744276,072 1,648 277,720

Contributions paid – (243,535) (243,535)Balance at end of year P=3,665,095 (P=3,390,481) P=274,614December 31, 2018Balance at beginning of year P=3,109,099 (P=3,362,523) (P=253,424)Net Benefit Cost in Statements of Income

Current service cost 268,351 – 268,351Net interest 174,425 (187,376) (12,951)

442,776 (187,376) 255,400Benefits paid (183,152) 183,152 –Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount

included in net interest) – 281,820 281,820 Actuarial changes arising from

experience adjustments 86,902 – 86,902 Actuarial changes arising from changes in financial assumptions (371,200) – (371,200)

(284,298) 281,820 (2,478)Contributions paid – (32,045) (32,045)Balance at end of year P=3,084,425 (P=3,116,972) (P=32,547)

Page 208: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 126 -

*SGVFS038997*

Parent CompanyPresent Value

of DBOFair Value of

Plan AssetsNet RetirementLiability (Asset)

December 31, 2019Balance at beginning of year P=3,059,146 (P=3,061,911) (P=2,765)Net Benefit Cost in Statements of Income

Current service cost 246,501 – 246,501Net interest 224,541 (224,744) (203)

471,042 (224,744) 246,298Benefits paid (171,324) 171,324 –Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount

included in net interest) – 4,471 4,471 Actuarial changes arising from

changes in demographic assumptions (267,391) – (267,391) Actuarial changes arising from

experience adjustments 43,463 – 43,463 Actuarial changes arising from changes

in financial assumptions 493,796 – 493,796269,868 4,471 274,339

Contributions paid – (243,535) (243,535)Balance at end of year P=3,628,732 (P=3,354,395) P=274,337December 31, 2018Balance at beginning of year P=3,080,590 (P=3,301,919) (P=221,329)Net Benefit Cost in Statements of Income

Current service cost 264,539 – 264,539Net interest 172,821 (185,238) (12,417)

437,360 (185,238) 252,122Benefits paid (177,125) 177,125 –Remeasurement in Other Comprehensive Income Return on plan assets (excluding amount

included in net interest) – 278,915 278,915 Actuarial changes arising from

experience adjustments 85,727 – 85,727 Actuarial changes arising from changes

in financial assumptions (367,406) – (367,406)(281,679) 278,915 (2,764)

Contributions paid – (30,794) (30,794)Balance at end of year P=3,059,146 (P=3,061,911) (P=2,765)

The fair value of plan assets by each class as at the end of the reporting period follow:

Consolidated Parent Company2019 2018 2019 2018

Amount % Amount % Amount % Amount %Debt instruments:

Government Securities P=1,232,076 P=874,518 P=1,213,658 P=859,744High Grade 316,405 264,362 309,292 249,393Standard Grade 178,094 319,675 175,883 305,067

1,726,575 50.5 1,458,555 46.7 1,698,833 50.2 1,414,204 46.1Equity instruments:

Financial intermediaries 964,171 892,525 961,818 889,739Real estate 250,791 181,249 250,791 181,249Power, electricity and water

distribution 77,689 58,628 77,129 57,828Transport, storage and

communication 63,472 67,054 63,472 67,054Manufacturing 11,931 497 11,431 –Wholesale/Retail Trade 3,755 106,251 3,755 106,251Others 109,324 15,561 109,324 15,561

1,481,133 43.3 1,321,765 42.3 1,477,720 43.7 1,317,682 43.0Deposits in banks 2,057 0.1 6,185 0.2 1,119 0.0 4,932 0.2

(Forward)

Page 209: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 127 -

*SGVFS038997*

Consolidated Parent Company2019 2018 2019 2018

Amount % Amount % Amount % Amount %Investments in Unit Investment

Trust Funds 89,086 2.6 48,817 1.6 85,624 2.5 44,466 1.5Loans and other receivables:

Government Securities 19,644 15,603 19,469 15,397High Grade 2,330 2,074 2,289 1,993Standard Grade 1,597 3,305 1,577 3,205Not rated 98,713 265,299 98,356 264,561

122,284 3.6 286,281 9.2 121,691 3.6 285,156 9.3Total fund asset 3,421,135 100.0 3,121,603 100.0 3,384,987 100.0 3,066,440 100.0Total fund liability (30,654) (4,631) (30,592) (4,529)Net fund asset P=3,390,481 P=3,116,972 P=3,354,395 P=3,061,911

All equity and debt instruments held have quoted prices in an active market. The remaining planassets do not have quoted market prices in active market. The plan assets consist of diverseinvestments and is not exposed to any concentration risk.

The principal actuarial assumptions used in determining retirement liability of the Parent Companyand some of its subsidiaries as of January 1, 2019 and 2018 are shown below:

2019 2018Average

Duration ofBenefit

PaymentsSalary Rate

IncreaseDiscount

Rate

AverageDuration of

BenefitPayments

Salary RateIncrease

DiscountRate

Parent Company 16 7.00% 7.34% 9 7.00% 5.61%SBCIC 18 7.00% 7.40% 10 7.00% 5.66%SBEI 18 7.00% 7.40% 9 7.00% 5.60%SBRC 20 7.00% 7.47% 10 7.00% 5.70%

Discount rates used in computing for the present value of the obligation of the Parent Company andsignificant subsidiaries as of December 31, 2019 and 2018 follow:

ParentCompany SBCIC SBEI SBRC

2019 4.81% 5.00% 5.00% 5.08%2018 7.34% 7.40% 7.40% 7.47%

The sensitivity analysis as of December 31, 2019 shown below has been determined based onreasonably possible changes of each significant assumption on the defined benefit obligation as of theend of the reporting period, assuming all other assumptions were held constant:

Consolidated Parent CompanyIncrease

(decrease) AmountIncrease

(decrease) AmountDiscount rates 1.00% (P=201,034) 1.00% (P=198,230)

(1.00%) 246,672 (1.00%) 243,246

Turnover rate 10.00% 64,407 10.00% 64,021(10.00%) (64,407) (10.00%) (64,021)

Future salary increases 1.00% 232,539 1.00% 229,273(1.00%) (197,825) (1.00%) (195,048)

Page 210: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 128 -

*SGVFS038997*

Shown below is the maturity analysis of the undiscounted benefit payments:Consolidated Parent Company

2019 2018 2019 2018Less than 1 year P=1,232,258 P=1,069,776 P=1,224,248 P=1,063,842More than 1 year to 5 years 1,197,432 952,733 1,189,011 943,231More than 5 years to 10 years 2,155,776 2,162,774 2,123,111 2,143,852More than 10 years to 15 years 1,891,074 2,336,701 1,856,574 2,301,334More than 15 years to 20 years 5,441,475 10,179,324 5,213,517 9,928,467Total P=11,918,015 P=16,701,308 P=11,606,461 P=16,380,726

There are no reimbursement rights recognized as a separate asset as of December 31, 2019and 2018. The Group and the Parent Company expect to contribute P=574.8 million in 2020 to itsdefined benefit plans.

31. Service Charges, Fees and Commissions

This account consists of service charges, fees and commissions on:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Credit cards P=991,717 P=575,075 P=363,344 P=991,717 P=575,075 P=363,343Bancassurance 854,456 696,030 486,389 854,456 696,030 486,389Loans 805,259 578,763 375,294 753,270 555,202 375,294Deposits 753,289 582,472 440,074 753,289 582,472 440,074Stock brokerage 314,945 257,536 234,676 – – –Advisory 137,979 54,085 170,613 – – –Remittance 12,914 11,337 14,453 12,914 11,337 14,453Miscellaneous (Note 15) 213,496 171,585 235,587 212,225 171,099 161,696

P=4,084,055 P=2,926,883 P=2,320,430 P=3,577,871 P=2,591,215 P=1,841,249

In 2014, the Parent Company entered into a distribution agreement with FWD for the marketing ofFWD’s life insurance products through the Parent Company’s marketing and distribution network.The distribution agreement was approved by the BSP on December 22, 2014 under Monetary BoardResolution No. 2073, through its letter to the Parent Company dated January 7, 2015, and by theInsurance Commission on January 12, 2015. The term of the distribution agreement shall not be lessthan 11 years but no longer than 19 years.

Bancassurance revenues include recognized portion of access fees, recognized portion of milestonefees, commissions and bonuses from the Bancassurance agreement. The Parent Company will alsoreceive milestone fees and performance bonuses over the term of the agreement.

Miscellaneus include service charges on bills payment amounting to P=33.8 million, P=32.2 million andP=37.0 million for the period ended December 31, 2019, 2018 and 2017, respectively.

Page 211: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 129 -

*SGVFS038997*

32. Miscellaneous Income and Expenses

Miscellaneous income consists of:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Income from trust operations P=217,557 P=219,084 P=224,561 P=217,557 P=219,084 P=224,561Recovery on charged-off assets 207,531 199,518 131,432 172,908 161,477 85,573Dividend income 3,335 6,810 6,679 3,335 5,085 5,431Miscellaneous (Notes 17) 56,586 87,879 54,074 22,240 56,096 37,329

P=485,009 P=513,291 P=416,746 P=416,040 P=441,742 P=352,894

Miscellaneous expenses consists of:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Management and otherprofessional fees P=1,255,205 P=627,981 P=452,686 P=1,087,267 P=510,344 P=332,966

Insurance expenses 1,125,653 988,062 776,198 1,118,405 981,076 770,469Advertising and publicity 758,227 575,240 643,284 575,560 508,430 633,621Security, clerical, messengerial and

janitorial services 745,117 637,106 503,893 740,748 633,236 496,203Entertainment, amusement and

recreation (Note 29) 400,136 221,663 589,790 387,007 211,263 579,653Postage, telephone and cables and

telegrams 302,809 223,675 205,331 282,345 208,483 197,591Banking fees 248,950 240,867 199,865 248,950 240,867 199,646Information technology 240,728 266,567 210,124 240,728 389,901 210,124Donations and charitable

contributions 236,047 126,400 248,425 230,047 116,200 212,125Litigation/assets acquired expenses 181,903 127,124 112,909 181,903 127,124 112,909Stationery and supplies used 147,114 117,965 124,779 146,163 117,382 121,841Brokerage fees 37,571 18,285 28,724 37,571 18,285 28,724Miscellaneous 413,737 487,119 591,417 306,086 275,798 499,454

P=6,093,197 P=4,658,054 P=4,687,425 P=5,582,780 P=4,338,389 P=4,395,326

Miscellaneous expense includes travelling expenses amounting to P=170.3 million, P=162.3 million,and P=145.5 million for the Group and P=168.1 million, P=160.8 million, and P=143.9 million for theParent Company for the years ended December 31, 2019, 2018 and 2017, respectively. It alsoincludes athletics and other events amounting to P=50.7 million, P=50.1 million, and P=56.4 million forthe Group and P=50.5 million, P=49.9 million, and P=56.4 million for the Parent Company, and fuel andlubricants amounting to P=38.0 million, P=37.8 million, and P=31.1 million for the Group andP=37.2 million, P=37.3 million, and P=30.6 million for the Parent Company for the years endedDecember 31, 2019, 2018, and 2017, respectively.

33. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. The Group’s related parties include:

· key management personnel, close family members of key management personnel and entitieswhich are controlled, significantly influenced by or for which significant voting power is held bykey management personnel or their close family members,

Page 212: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 130 -

*SGVFS038997*

· subsidiaries, joint ventures and their respective subsidiaries,· entities under the same group (other affiliates), and· post-employment benefit plans for the benefit of the Group’s employees.

The Group has several business relationships with related parties. Transactions with such parties aremade in the ordinary course of business and on substantially same terms, including interest andcollateral, as those prevailing at the time for comparable transactions with other parties and areusually settled in cash. These transactions also did not involve more than the normal risk ofcollectability or present other unfavorable conditions.

Transactions of the Parent Company with Subsidiaries

December 31, 2019

CategoryAmount/Volume

OutstandingBalances Terms ad Conditions/ Nature

Loans and receivables P=820,000 Short-term, unsecured, with interest ranging from 2.75% to 7.13%Grants P=2,458,000Settlements 2,332,139

Accrued interest receivable 16,141 1,666 Interest income and accrued interest receivableAccounts receivable 188,002 On demand, unsecured, non-interest bearingDeposit liabilities 829,366 Earns interest at the respective bank deposit rates

Deposits 99,913,340Withdrawals 100,793,539

Accrued interest payable 43,445 229 Interest expense and accrued interest payableAccounts payable 96,679 On demand, unsecured, non-interest bearingRent income 12,702 Lease of office spaces for periods ranging from 1 to 5 yearsRent expense 12,672 Lease of transpo equipment for 3 yearsOther assets 2,288 Security depositsOther liability 2,621 Security depositsMiscellaneous income 197 Trust feesCommitments - credit facility 10,750,000 Unsecured

Disposal group classified as heldfor sale

Loans and receivables 2,105,972 Short-term, unsecured, with interest ranging from 4.88% to 7.18%Grants 3,000,000Settlements 2,848,028

Accrued interest receivable 150,210 10,501 Interest income and accrued interest receivableAccounts receivable 7,526 On demand, unsecured, non-interest bearingDeposit liabilities 137,516 Earns interest at the respective bank deposit rates

Deposits 11,494,425Withdrawals 11,377,148

Accrued interest payable 113 Interest expense and accrued interest payableCommitments - credit facility 7,050,000 Unsecured

December 31, 2018

CategoryAmount/Volume

OutstandingBalances Terms ad Conditions/ Nature

Loans and receivables P=2,648,139 Short-term, unsecured, with interest ranging from 2.75% to 3.5%Grants P=2,625,001Settlements 1,126,126

Accrued interest receivable 106,167 19,324 Interest income and accrued interest receivableAccounts receivable 72,329 On demand, unsecured, non-interest bearingDividend receivable 162,500 – Dividends earnedDeposit liabilities 1,729,804 Earns interest at the respective bank deposit rates

Deposits 159,101,957Withdrawals 159,282,724

Accrued interest payable 34,943 1,934 Interest expense and accrued interest payableAccounts payable 17,204 On demand, unsecured, non-interest bearingRent income 17,641 Lease of office spaces for periods ranging from 1 to 5 yearsRent expense 17,602 Lease of transpo equipment for 3 yearsOther assets 2,320 Security depositsOther liability 183 Security depositsMiscellaneous income 312 Trust feesCommitments - credit facility 13,000,000 Unsecured

Page 213: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 131 -

*SGVFS038997*

Accounts receivable from subsidiaries pertains to expenses paid by the Parent Company, which werelater billed for reimbursement. Accounts payable to SBCC pertains to collections received fromcredit cardholders on behalf of the Parent Company.

The Parent Company has lease agreements with some of its subsidiaries for periods ranging from 1 to5 years. The lease agreements include the share of the subsidiaries in the maintenance of thebuilding.

The foregoing transactions were eliminated in the consolidated financial statements of the Group. Otherrelated party transactions conducted in the normal course of business includes the following, as detailedin the Memorandum of Agreement (MOA) between the Parent Company and its subsidiaries:

· Human resource-related services· Finance/accounting functions including audit· Collection services (for legal action)· Preparation of reports· Processing of credit application (for property appraisal and credit information)· General services· Legal documentation· Information technology related service

Expenses allocated to SBFCI, SBCIC, SBEI, SBRC and SBCC pertaining to the above servicesamounted to P=66.3 million in 2019, P=66.3 million in 2018 and P=36.3 million in 2017. The ParentCompany has not charged expenses to the other subsidiaries since the levels of their operationsremain low.

Transaction of the Group with the Joint Venture

December 31, 2019

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Receivables purchased P=391,158 P=1,836,330 Assignment of rights on a without recourse basisCollection Fee 884 3,599 Collection fee expense and prepaid collection fee,

equivalent to 0.2% of the selling price of the leasereceivables amortized over the lease term

Loans receivable: 323,300 2 to 3-year term; earns 5.05% to 7.25% interest Grants 627,200

Settlement 788,294Accrued interest receivable 18,624 903 Interest income and accrued interest receivable

Accounts receivable 3,330 Expenses advanced by the Parent Company andoutstanding accounts payable (on demand, unsecured, non-interest bearing).

Deposit liabilities: 49,730 Earns interest at the respective bank deposit ratesDeposits 5,127,075Withdrawals 5,097,200

Accrued interest payable 117 Interest expense and accrued interest payableRent income 3,397 Rental income for space occupied by SBMLRefundable deposits 18 575 Unsecured, non-interest bearingCommitments - credit facility 1,530,000 Unsecured

Page 214: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 132 -

*SGVFS038997*

December 31, 2018

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Receivables purchased P=636,351 P=1,445,172 Assignment of rights on a without recourse basisCollection Fee 203 4,482 Collection fee expense and prepaid collection fee,

equivalent to 0.2% of the selling price of the leasereceivables amortized over the lease term

Loans receivable: 484,395 1-month to 5-year term; earns 2.90% to 4.74% interestGrants 1,155,300

Settlement 1,298,508Accrued interest receivable 23,505 1,000 Interest income and accrued interest receivable

Accounts receivable 1,962 Expenses advanced by the Parent Company andoutstanding accounts payable (on demand, unsecured, non-interest bearing).

Deposit liabilities: 19,855 Earns interest at the respective bank deposit rates Deposits 4,156,755

Withdrawals 4,268,559Accrued interest payable 74 Interest expense and accrued interest payableRent income 2,719 Rental income for space occupied by SBMLRefundable deposits 17 557 Unsecured, non-interest bearingCommitments - credit facility 1,530,000 Unsecured

In 2019, 2018 and 2017, SBML sold various loans and lease receivables to the Parent Company withcarrying amounts of P=365.0 million, P=625.1 million and P=231.6 million, respectively, and realizedgains amounting to P=27.7 million, P=11.3 million and P=6.6 million, respectively.

The Parent Company’s proportionate share in the gain on sale of lease receivables was eliminated inthe consolidated financial statements of the Group.

Transactions of the Parent Company with Other Affiliates

December 31, 2019

CategoryAmount/Volume

OutstandingBalances Ters and Conditions/ Nature

Due from other banks USD757 Earns interest at the respective bank deposit ratesDeposits USD34,604

Withdrawals 34,813Due from other banks JPY623 Earns interest at the respective bank deposit rates

Deposits JPY8,008,217 Withdrawals 8,075,136

Loans and receivables USD2,500 Call loans boughtAccounts receivable P=1,517 Unsecured, noninterest bearing

Accrued interest receivable P=58,018 P=9,574 Interest income and accrued interest receivableDeposit liabilities USD567 Earns interest at the respective bank deposit rates

Deposits USD939 Withdrawals 788

Deposit liabilities P=234,230 Earns interest at the respective bank deposit ratesDeposits P=13,377,832

Withdrawals 13,384,452Bills payable (USD) USD310,559 3 months – 3 years term; earns 2.63% to 3.74% interest

Availments USD345,519 Payments 35,000Accrued interest payable P=389,056 P=63,076 Interest expense and accrued

December 31, 2018

CategoryAmount/Volume

OutstandingBalances Ters and Conditions/ Nature

Due from other banks USD966 Earns interest at the respective bank deposit ratesDeposits USD33,347

Withdrawals 32,773Due from other banks JPY67,542 Earns interest at the respective bank deposit rates

Deposits JPY3,514,979 Withdrawals 3,510,429

Loans and receivables USD4,910 Call loans boughtAccounts receivable P=1,278 Unsecured, noninterest bearing

(Forward)

Page 215: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 133 -

*SGVFS038997*

December 31, 2018

CategoryAmount/Volume

OutstandingBalances Ters and Conditions/ Nature

Accrued interest receivable P=49,787 P=26,376 Interest income and accrued interest receivableDeposit liabilities USD416 Earns interest at the respective bank deposit rates

Deposits USD727 Withdrawals 705

Deposit liabilities P=240,850 Earns interest at the respective bank deposit ratesDeposits P=25,501,915

Withdrawals 25,458,730Bills payable (USD) USD40 1 – 6 months term; earns 1.08% to 1.70% interest

Availments USD175,200 Payments 175,160Accrued interest payable P=134,709 P=89,973 Interest expense and accrued

Transaction of the Group with another Related PartyAs part of the Group’s continuing support for worthwhile education and livelihood projects, it hasmade donations to SB Foundation, Inc. (SB Foundation), a non-stock, non-profit organizationregistered with the SEC and accredited by the Philippine Council for Non-GovernmentalOrganization, as follows:

Donor 2019 2018Parent Company P=204,000 P=93,010SBEI 6,000 14,400Total P=210,000 P=107,410

The Parent Company also recognized trust fees amounting to P=0.8 million and P=0.5 million in 2019and 2018, respectively, for acting as the Investment Manager of SB Foundation’s fund.

Transactions of the Group with Key Management PersonnelKey management personnel are those persons having authority and responsibility for planning,directing and controlling the activities of the Group, directly or indirectly. The Group considerssenior officers to constitute key management personnel.

ConsolidatedDecember 31, 2019

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Deposit liabilities P=271,603 Earns interest at respective bank deposit rates

ConsolidatedDecember 31, 2018

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Deposit liabilities P=928,715 Earns interest at respective bank deposit rates

Parent CompanyDecember 31, 2019

Category Amount/VolumeOutstanding

Balances Terms and Conditions/ NatureDeposit liabilities P=263,959 Earns interest at respective bank deposit rates

Parent CompanyDecember 31, 2018

Category Amount/VolumeOutstanding

Balances Terms and Conditions/ NatureDeposit liabilities P=927,463 Earns interest at respective bank deposit rates

Page 216: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 134 -

*SGVFS038997*

Compensation of key management personnel follows:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Salaries and other short-term benefits P=252,597 P=249,499 P=231,383 P=216,726 P=218,759 P=196,264Post-employment benefits 10,643 10,417 14,200 10,086 9,779 12,593

P=263,240 P=259,916 P=245,583 P=226,812 P=228,538 P=208,857

There are no agreements between the Group and any of its directors and key officers providing forbenefits upon termination of employment, except for such benefits to which they may be entitledunder the Group’s retirement plan.

Transactions of the Group with Retirement PlansUnder PFRS, certain post-employment benefit plans are considered as related parties. The ParentCompany has business relationships with a number of its retirement plans pursuant to which itprovides trust and management services to these plans. Income earned by the Parent Company fromsuch services amounted to P=3.6 million and P=3.7 million in 2019 and 2018, respectively.

As of December 31, 2019 and 2018, the fair values of the plan assets of the Parent Company andsome of its subsidiaries in the retirement funds amounted to P=3.4 billion and P=3.1 billion,respectively, of which P=3.4 billion and P=3.1 billion, respectively, pertains to the Parent Company.

Relevant information on statements of financial position of carrying values of the Parent Company’sretirement funds:

Consolidated Parent Company2019 2018 2019 2018

Debt instruments P=1,726,575 P=1,458,555 P=1,698,833 P=1,414,204Equity instruments 1,481,133 1,321,765 1,477,720 1,317,682Loans and other receivables 122,284 286,281 121,691 285,156Investments in Unit Investment

Trust Funds 89,086 48,817 85,624 44,466Deposits in banks 2,057 6,185 1,119 4,932Total Fund Assets P=3,421,135 P=3,121,603 P=3,384,987 P=3,066,440Total Fund Liability P=30,654 P=4,631 P=30,592 P=4,529

Debt instruments include government and private securities.

The Group’s retirement funds may hold or trade the Parent Company’s shares or securities.Significant transactions of the retirement fund, particularly with related parties, are approved by theTrust Investment Committee. A summary of transactions with related party retirement plans follows(amounts in thousands except number of shares and market value per share):

Consolidated Parent Company2019 2018 2019 2018

Dividend income P=− P=2,806 P= P=2,806Number of Parent Company’s

shares held by plan - common 1,876,027 1,870,400 1,876,027 1,870,400Number of Parent Company’s

shares held by plan - preferred 2,060,400 2,060,400 2,060,400 2,060,400Market value per common share P=195.00 P=155.00 P=195.00 P=155.00

Voting rights over the Parent Company’s shares are exercised by an authorized trust officer.

Page 217: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 135 -

*SGVFS038997*

34. Long-term Leases

The Group has entered into commercial property leases with various tenants on its investmentproperty portfolio and part of its bank premises, consisting of the Group’s surplus offices and realproperties acquired. These non-cancellable leases have remaining lease terms of between 1 and 5years as of December 31, 2019 and 2018. Various lease contracts include escalation clauses, most ofwhich bear an annual rent increase of 5.0%. Rent income from long-term leases (included in ‘Rentincome’ in the statements of income) amounted to to P=529.3 million in 2019, P=419.2 million in 2018and P=289.6 million in 2017 for the Group, of which, P=34.2 million in 2019, P=29.7 million in 2018 andP=38.5 million in 2017 pertain to the Parent Company (see Note 15).

Future minimum rental receivable under non-cancellable operating leases follow:

Consolidated Parent Company2019 2018 2019 2018

Within one year P=416,402 P=379,925 P=12,222 P=12,106After one year but not more than five years 253,630 313,399 21,631 21,956More than five years 223 3,342 223 3,342

P=670,255 P=696,666 P=34,076 P=37,404

The Parent Company leases the premises occupied by some of its branches (about 15.13% of thebranch sites are Parent Company-owned). Some of its subsidiaries also lease the premises occupiedby their head offices and most of their branches. The lease contracts are for periods ranging from 1 to20 years and are renewable at the Parent Company’s option under certain terms and conditions.Various lease contracts include escalation clauses, most of which bear an annual rent increase of5.0%. In 2019, 2018 and 2017, rent expense (included in ‘Occupancy costs’ in the statements ofincome) amounted to P=23.6 million, P=747.0 million, P=654.1 million, respectively, for the Group, ofwhich, P=24.9 million, P=751.2 million and P=656.8 million, respectively, pertain to the ParentCompany.

Future minimum rental payable under non-cancelable operating leases are as follows:

Consolidated Parent Company2018 2018

Within one year P=469,362 P=465,880After one year but not more than five years 1,094,517 1,086,931More than five years 27,585 27,585

P=1,591,464 P=1,580,396

35. Commitments and Contingent Liabilities

In the normal course of operations of the Group, there are outstanding commitments and contingentliabilities and bank guarantees that are not reflected in the financial statements. The Group does notanticipate losses that will materially affect its financial position and financial performance as a resultof these transactions.

There are several suits, claims and assessments that remain unsettled. Management believes, basedon the opinion of its legal counsels, that the ultimate outcome of such cases and claims will not have amaterial effect on the Group’s financial position and financial performance.

Page 218: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 136 -

*SGVFS038997*

Regulatory ReportingThe following is a summary of the Group’s and of the Parent Company’s commitments andcontingent liabilities at their equivalent peso contractual amounts:

2019 2018Trust department accounts P=58,173,050 P=49,015,310Unutilized credit limit of credit cardholders 48,489,206 22,994,800Committed loan line 28,049,063 49,556,389Unused commercial letters of credit 24,057,204 27,056,034Late deposit/payment received 660,177 511,335Outstanding guarantees 453,121 2,734,035Inward bills for collection 339,165 786,819Outward bills for collection 250,785 488,192Financial guarantees with commitment 69,139 98,613

Changes in allowance for credit losses on financial guarantees, loan and other commitments of theGroup and Parent Company follow:

Stage 1 Stage 2 TotalECL allowance as at January 1, 2019 P=289,279 P=22,230 P=311,509Recovery of credit losses (Note 14) (68,025) (20,001) (88,026)Transfers to Stage 1 50 (50) −Transfers to Stage 2 (1,766) 1,766 −

P=219,538 P=3,945 P=223,483

Stage 1 Stage 2 TotalECL allowance as at January 1, 2018 P=246,594 P=65,426 P=312,020Provision for (recovery of) credit losses

(Note 14) 60,814 (61,325) (511)Transfers to Stage 2 (18,129) 18,129 −

P=289,279 P=22,230 P=311,509

36. Segment Information

The Group’s operating businesses are recognized and managed separately according to the nature ofservices provided and the different markets served with each segment representing a strategicbusiness unit.

The Group derives revenues from the following main operating business segments:

Financial Markets Segment - this segment focuses on providing money market, foreign exchange,financial derivatives, securities distribution, asset management, trust and fiduciary services, as well asthe management of the funding operations for the Group.

Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and publicsector markets, small-and-medium enterprise and middle markets. Services include relationshipmanagement, lending and other credit facilities, trade, cash management, deposit-taking and leasingservices provided by the Group. It also provides structured financing and advisory services relatingto debt and equity capital raising, project financing, and mergers and acquisitions. The Group’sequity brokerage operations are also part of this segment.

Page 219: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 137 -

*SGVFS038997*

Retail Banking Segment - this segment addresses the individual, retail and small businesses. It coversdeposit-taking and servicing, commercial and consumer loans, credit card facilities andbancassurance. The Group includes SBFCI as part of this segment.

All Other Segments - this segment includes but not limited to branch banking and other supportservices. Other operations of the Group comprise the operations and financial control groups.Management monitors the operating results of its business units separately for the purpose of makingdecisions about resource allocation and performance assessment. Segment performance is evaluatedbased on net income after taxes, which is measured in a manner consistent with PFRS as shown in thestatements of income. This is regularly reported to the Group’s Chief Operating Decision Maker.The Group’s Chief Operating Decision Maker is the Parent Company’s President and ChiefExecutive Officer.

Segment assets are those operating assets that are employed by a segment in its operating activitiesand that either directly attributable to the segment or can be allocated to the segment on a reasonablebasis.

Segment liabilities are those operating liabilities that result from the operating activities of a segmentand that either are directly attributable to the segment or can be allocated to the segment on areasonable basis.

The Group’s revenue-producing assets are located in the Philippines (i.e., one geographical location),therefore, geographical segment information is no longer presented.

The Group has no significant customers which contribute 10.0% or more of the consolidated revenue,net of interest expense.

The segment results include internal transfer pricing adjustments across business units as deemedappropriate by management. Transactions between segments are conducted at estimated market rateson an arm’s length basis. Interest is charged/credited to the business units based on a pool rate whichapproximates the marginal cost of funds.

Segment information follows (amounts in millions):December 31, 2019

FinancialMarkets

WholesaleBanking

Retail Banking

All OtherSegments Elimination Total

Statement of IncomeNet interest income:

Third party P=6,398 P=13,617 P=7,134 (P=305) P=− P=26,844Intersegment (5,162) (4,027) 4,631 4,558 − −

1,236 9,590 11,765 4,253 − 26,844Noninterest income 2,140 1,533 3,576 39 (183) 7,105Revenue - net of interest expense 3,376 11,123 15,341 4,292 (183) 33,949Noninterest expense 2,479 6,382 11,326 1,322 25 21,534Income before income tax 897 4,741 4,015 2,970 (208) 12,415Provision for income tax 167 882 745 546 (27) 2,313Non-controlling interest in net income of

subsidiaries − − − − − −Net income for the year attributable to the

Parent Company P=730 P=3,859 P=3,270 P=2,424 (P=181) P=10,102Statement of Financial PositionTotal assets P=290,315 P=327,281 P=163,069 P=12,342 P=− P=793,007Total liabilities P=162,572 P=266,597 P=231,944 P=13,607 P=− P=674,720Other Segment InformationCapital expenditures P=11 P=329 P=457 P=352 P=− P=1,149Depreciation and amortization P=19 P=563 P=782 P=503 P=− P=1,867Provision for credit and impairment losses P=4 P=785 P=3,385 P=9 P=− P=4,183

Page 220: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 138 -

*SGVFS038997*

December 31, 2018Financial

MarketsWholesale

BankingRetail

BankingAll OtherSegments Elimination Total

Statement of IncomeNet interest income:

Third party P=5,363 P=11,696 P=4,230 (P=469) P=− P=20,820Intersegment (2,549) (3,830) 2,723 3,656 − −

2,814 7,866 6,953 3,187 − 20,820Noninterest income 974 1,544 2,721 (165) (295) 4,779Revenue - net of interest expense 3,788 9,410 9,674 3,022 (295) 25,599Noninterest expense 2,410 6,158 4,398 1,547 14,513Income before income tax 1,378 3,252 5,276 1,475 (295) 11,086Provision for income tax 706 199 539 1,032 2,476Non-controlling interest in net income of

subsidiaries − − − 1 − 1Net income for the year attributable to the

Parent Company P=672 P=3,053 P=4,737 P=442 (P=295) P=8,609Statement of Financial PositionTotal assets P=298,026 P=350,245 P=107,894 P=10,696 P=− P=766,861Total liabilities P=157,163 P=307,118 P=174,456 P=18,642 P=− P=657,379Other Segment InformationCapital expenditures P=6 P=387 P=443 P=334 P=− P=1,170Depreciation and amortization P=6 P=377 P=431 P=325 P=− P=1,139Provision for (recovery of) credit and

impairment losses (P=140) P=385 P=477 P=− P=− P=722

December 31, 2017Financial

MarketsWholesale

BankingRetail

BankingAll OtherSegments Elimination Total

Statement of IncomeNet interest income:

Third party P=7,120 P=10,200 P=2,557 (P=491) P=− P=19,386Intersegment (863) (4,001) 1,675 3,189 − −

6,257 6,199 4,232 2,698 − 19,386Noninterest income 2,593 1,259 1,994 64 (211) 5,699Revenue - net of interest expense 8,850 7,458 6,226 2,762 (211) 25,085Noninterest expense 1,421 4,876 3,990 2,847 − 13,134Income before income tax 7,429 2,582 2,236 (85) (211) 11,951Provision for income tax 366 466 321 545 (12) 1,686Net income for the year attributable to the

Parent Company P=7,063 P=2,116 P=1,915 (P=630) (P=199) P=10,265Statement of Financial PositionTotal assets P=341,653 P=288,145 P=48,101 P=16,128 P=− P=694,027Total liabilities P=176,354 P=277,926 P=116,609 P=18,059 P=− P=588,948Other Segment InformationCapital expenditures P=13 P=380 P=738 P=429 P=− P=1,560Depreciation and amortization P=7 P=230 P=447 P=260 P=− P=944Provision for (recovery of) credit and

impairment losses P=− P=538 P=653 (P=540) P=− P=651

No operating segments have been aggregated to form the above reportable operating businesssegments.

The Group’s share in net income of a joint venture amounting to P=23.8 million in 2019, P=26.5 millionin 2018 and P=25.5 million in 2017 are included under ‘All Other Segments’.

Page 221: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 139 -

*SGVFS038997*

37. Earnings Per Share

Basic earnings per share amounts were computed as follows (amounts in thousands except earningsper share and weighted average number of outstanding common shares):

2019 2018 2017a. Net income attributable to the equity holders of the

Parent Company P=10,101,732 P=8,608,694 P=10,264,797b. Dividends declared to Preferred Shares 4,259 4,259 4,259c. Weighted average number of outstanding common

shares 753,538,887 753,538,887 753,538,887d. Earnings per share [(a-b)/c] P=13.40 P=11.42 P=13.62

As of December 31, 2019, 2018 and 2017, the Parent Company has no potentially dilutive commonshares.

38. Assets and Liabilities of Disposal Group Classified as Held for Sale

On August 8, 2019, the Parent Company entered into a strategic partnership with BAY, commonlyknown as Krungsri. The agreement involves the sale of 50% of the outstanding shares or 7,075,000shares of SBFCI to Krungsri. The completion of this transaction will be subject to regulatoryapprovals.

The sale of the shares of SBFCI by the Parent Company is expected to be completed by 2020. As ofDecember 31, 2019, SBFCI was classified as disposal group held for sale.

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, requires assets andliabilities of SBFCI, to be classified separately from other assets and liabilities. As a result, the Groupreclassified all the assets and liabilities of SBFCI to ‘Assets of disposal group classified as held forsale’ and ‘Liabilities of disposal group classified as held for sale’, respectively, in the consolidatedstatement of financial position. The Parent Company reclassified the cost of the investment in SBFCIto be sold as ‘Assets of disposal group classified as held for sale’ in the parent company statement offinancial position.

The major classes of assets and liabilities of SBFCI classified as disposal group held for sale toequity holders of the Parent as of December 31, 2019 are as follows:

AssetsCash in bank P=2,356Loans and receivables 7,028,430Deferred tax assets 164,023Other assets 36,457Assets of disposal group classified as held for sale P=7,231,266LiabilitiesIncome tax payable P=57,381Accrued interest, taxes and other expenses 94,288Bills payable 3,551,960Other liabilities 19,123Liabilities of disposal group classified as held for sale P=3,722,752ReserveRemeasurement gain on defined benefit plan P=1,066Reserve of disposal group classified as held for sale P=1,066

Page 222: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 140 -

*SGVFS038997*

39. Notes to the Statements of Cash Flows

The amounts of interbank loans receivables and securities purchased under agreements to resellconsidered as cash and cash equivalents follow:

2019 2018Interbank loans receivable and SPURA P=8,000 P=206,223Interbank loans receivable and SPURA

considered as cash and cash equivalents 1,051,900 –P=1,059,900 P=206,223

As of December 31, 2019 and 2018, movements in allowance for credit losses on ‘Due from otherbanks’ and ’Interbank loans receivable and securities purchased under agreements to resell’ asfollows:

2019 2018Due from other banks (Note 7) (P=1,182) (P=2,307)Interbank loans receivable and SPURA (319) (4,097)

(P=1,501) (P=6,404)

As discussed in Note 13, the Parent Company reclassified certain HTC securities to financial assets atFVTOCI due to change in business model in managing its financial assets in accordance with thefinal version of PFRS 9.

Significant non-cash transactions of the Group and the Parent Company include foreclosures ofinvestment properties and chattels as disclosed in Notes 17 and 18, respectively.

Reconciliation of liabilities arising from financing activities follows:

BeginningBalance

Cashflows Non-cash charges Effect ofdisposal

group heldfor sale

(Note 38) Ending balanceProceeds/

Availments Payments

Foreignexchange

movement

Amortization oftransaction

costsDecember 31, 2019Bills payable and SSURA P=103,180,029 P=4,363,848,087 (P=4,366,722,703) (P=3,164,448) P=− (P=3,551,960) P=93,589,005Notes payable 31,408,760 17,839,206 − (1,162,531) 77,587 − 48,163,022LTNCD 24,281,130 8,296,409 (10,000,000) − 27,692 − 22,605,231Subordinated note 9,957,248 − (10,000,000) − 42,752 − −

P=168,827,167 P=4,389,983,702 (P=4,386,722,703) (P=4,326,979) P=148,031 (P=3,551,960) P=164,357,258December 31, 2018Bills payable and SSURA P=131,179,238 P=2,530,024,152 (P=2,565,298,292) P=7,274,931 P=− P=− P=103,180,029Notes payable 14,948,402 16,136,646 − 302,103 21,609 − 31,408,760LTNCD 18,526,475 5,727,494 − − 27,161 − 24,281,130Subordinated note 9,950,814 − − − 6,434 − 9,957,248

P=174,604,929 P=2,551,888,292 (P=2,565,298,292) P=7,577,034 P=55,204 P=− P=168,827,167

Page 223: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 141 -

*SGVFS038997*

Cashflows Non-cash charges

Beginning balanceProceeds/

Availments PaymentsForeign exchange

movementAmortization oftransaction costs Ending balance

December 31, 2019Bills payable and SSURA P=102,855,029 P=4,353,308,127 (P=4,360,641,703) (P=3,164,448) P=− P=92,357,005Notes payable 31,408,760 17,839,206 − (1,162,531) 77,587 48,163,022LTNCD 24,281,130 8,296,409 (10,000,000) − 27,692 22,605,231Subordinated note 9,957,248 − (10,000,000) − 42,752 −

P=168,502,167 P=4,379,443,742 (P=4,380,641,703) (P=4,326,979) P=148,031 P=163,125,258December 31, 2018Bills payable and SSURA P=131,029,238 P=2,529,484,152 (P=2,564,933,292) P=7,274,931 P=− P=102,855,029Notes payable 14,948,402 16,136,646 − 302,103 21,609 31,408,760LTNCD 18,526,475 5,727,494 − − 27,161 24,281,130Subordinated note 9,950,814 − − − 6,434 9,957,248

P=174,454,929 P=2,551,348,292 (P=2,564,933,292 ) P=7,577,034 P=55,204 P=168,502,167

40. Events after the Reporting Period

The Parent Company’s BOD, in its meeting held on February 21, 2020, approved the declaration offirst annual cash dividend of P=0.004805 per preferred share, representing 4.805% of par value,equivalent to the 10-year PDST-R2 on the issue date of the second tranche of preferred shares,payable on April 1, 2020 to preferred stockholders of record March 18, 2020. The declaration is inaccordance with the terms and conditions of the Parent Company’s preferred shares.

The Parent Company’s BOD, in its meeting held on February 21, 2020, approved the declaration ofsecond annual cash dividend of P=0.0039 per preferred share, representing 3.90% of par value,equivalent to the 10-year PDST-R2 on the issue date of the first tranche of preferred shares, payableon July 10, 2020 to preferred stockholders of record June 26, 2020. The declaration is in accordancewith the terms and conditions of the Parent Company’s preferred shares.

On February 5, 2020, the Parent Company issued 4.00% fixed coupon rate unsecured LTNCD at parvalue of P=2.07 billion.

On February 3, 2019, the Parent Company paid the $300.0 million senior unsecured notes.

41. Approval of the Release of the Financial Statements

The BOD of the Parent Company reviewed and approved the release of the accompanyingconsolidated and parent company financial statements on February 28, 2020.

42. Supplementary Information Required Under Revenue Regulation No. 15-2010

On November 25, 2010, the BIR issued Revenue Regulation (RR) No. 15-2010 to amend certainprovisions of RR No. 21-2002. The Regulations provide that starting 2010, the notes to financialstatements shall include information on taxes and licenses paid or accrued during the taxable year.In compliance with the requirements set forth by RR No. 15-2010, hereunder are theinformation on taxes, duties and license fees paid or accrued during the calendar year endedDecember 31, 2019:

Page 224: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 142 -

*SGVFS038997*

Gross receipt tax (GRT)The Parent Company is subject to GRT on its gross income from Philippine sources. GRT is imposedon interest, fees and commissions from lending activities at 5.0% or 1.0%, depending on the loanterm, and at 7.0% on non-lending fees and commissions, trading and foreign exchange gains andother items constituting gross income.

In FCDU, income classified under Others, which is subject to corporate income tax, is also subject toGRT at 7.0%.

The details of the Parent Company’s GRT payments and corresponding GRT tax base in 2019 are asfollows:

GRT GRT tax baseIncome from lending activities P=1,271,689 P=33,645,222Other income 371,150 5,302,142

P=1,642,839 P=38,947,364

Taxes and LicensesThis includes all other taxes, local and national, incurred in 2019 and lodged under ‘Taxes andlicenses’ in the statement of income, as follows:

AmountDocumentary stamp taxes P=1,243,401Mayor’s permit 64,968Fringe benefit taxes 51,218Real estate taxes 15,517Other taxes 24,624

P=1,399,728

Other taxes include car registration fees, privilege taxes and other permits.

Withholding TaxesDetails of total remittances in 2019 and balances as of December 31, 2019 are as follows:

TotalRemittance Balance

Withholding taxes on compensation and benefits P=743,115 P=91,933Expanded withholding taxes 827,857 66,968Final withholding taxes 2,457,214 117,042

P=4,028,186 P=275,943

Tax Assessments and CasesAs of December 31, 2019, the Parent Company has no deficiency tax assessments and has no taxcases, litigation and/or prosecution in courts or bodies outside the BIR.

43. Supplementary Information Required Under BSP Circular No. 1074

On February 7, 2020, the BSP issued Circular No. 1074 to amend certain provisions of the MORBand Manual of Regulations for Foreign Exchange Transactions (MORFXT). The Circular providesfor new and amended disclosure requirements to the audited financial statements, which are to be

Page 225: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 143 -

*SGVFS038997*

presented either (i) on specific notes to the financial statements, or (ii) in a separate note containingsupplementary information as required by the BSP. This supplementary information is not a requireddisclosure under PFRS.

In compliance with the requirements set forth by Circular No. 1074, hereunder are the supplementaryinformation:

Financial performance indicatorsThe following basic ratios measure the financial performance of the Group and the Parent Company:

Consolidated Parent Company2019 2018 2017 2019 2018 2017

Return on average equity 8.87% 8.07% 10.12% 8.90% 8.10% 10.18%Return on average assets 1.30% 1.20% 1.48% 1.31% 1.20% 1.48%Net interest margin 3.93% 3.27% 3.20% 3.81% 3.21% 3.20%

The following formulas were used to compute the indicators:

2019Performance Indicator BSP Prescribed FormulaReturn on AverageEquity

Net Income (or Loss) after Income Tax x 100Average Total Capital Accounts

Where: Average Total Capital Accounts =Current calendar/fiscal year-end Total capital accounts balance +previous calendar /fiscal year-end Total capital accounts balance

2

Return on AverageAssets

Net Income (or Loss) after Income Tax x 100Average Total Assets

Where: Average Total Assets =Current calendar/fiscal year-end Total assets balance +previous calendar /fiscal year-end Total assets balance

2

Net Interest Margin Net Interest Income x 100Average Interest Earning Assets

Where:Net Interest Income =

Total Interest Income – Total Interest Expense

Average Interest Earning Assets =Current calendar/fiscal year-end Total interest earning assets balance +previous calendar /fiscal year-end Total interest earning assets balance

2

Page 226: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 144 -

*SGVFS038997*

2018 and 2017Performance Indicator FormulaReturn on AverageEquity

Net Income (or Loss) after Income Tax x 100Average Total Capital Accounts

Where: Average Total Capital Accounts =Sum of end-month Total capital accounts

12

Return on AverageAssets

Net Income (or Loss) after Income Tax x 100Average Total Assets

Where: Average Total Assets =Sum of end-month Total assets

12

Net Interest Margin Net Interest Income x 100Average Interest Earning Assets

Where:Net Interest Income =

Total Interest Income – Total Interest Expense

Average Interest Earning Assets =Monthly Average Daily Balance of Interest Earning Assets

12

Capital instrumentsThere are no capital instruments issued by the Group and Parent Company in 2019 and 2018.

As of December 31, 2019 and 2018, the Group’s and the Parent Bank’s capital instruments eligible asrisk-based capital is its unsecured subordinated debt issued on July 11, 2014 (“2024 Sub Notes”). Asummary of the terms and conditions are as follows:

On July 11, 2014, the Parent Company issued P=10.0 billion Unsecured Subordinated Notes (2024 SubNotes) due on July 11, 2024 qualifying as Tier 2 Capital. The Notes initially bear interest at the rateof 5.375% per annum (EIR of 5.464%) from and including July 11, 2014 to but excluding July 11,2019. Unless the 2024 Sub Notes are redeemed on July 12, 2019, the initial interest rate will be resetat the equivalent of the five-year PDST-R1 plus a spread of 1.575% per annum, and such interest willbe payable commencing on July 12, 2019 up to and including July 11, 2024. The interest on the 2024Sub Notes for the entire term will be payable quarterly in arrears on the 11th of January, April, July,and October of each year, commencing on October 11, 2014.

The 2024 Sub Notes also contain a tax redemption option and a regulatory redemption option whichwill allow the Parent Company to redeem no less than all of the outstanding 2024 Sub Notes, at anamount equal to 100% of the face value of the 2024 Sub Notes plus accrued interest at the interestrate relating to the current interest period up to but excluding the date of such redemption, upon thehappening of certain events that are triggered by changes in laws and regulations.

Page 227: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 145 -

*SGVFS038997*

The 2024 Sub Notes also have a loss absorption feature which means that the notes are subject to aNon-Viability Write-Down in case of the occurrence of a Non-Viability Event, subject to certainconditions, when the Parent Company is considered non-viable as determined by the BSP. Non-Viability is defined as a deviation from a certain level of Common Equity Tier 1 (CET1) Ratio or theinability of the Parent Company to continue business (closure) or any other event as determined bythe BSP, whichever comes earlier. Upon the occurrence of a Non-Viability Event, the ParentCompany shall write-down the principal amount of the notes to the extent required by the BSP, whichcould go down to as low as zero. A Non-Viability Trigger Event shall be deemed to have occurred ifthe BSP notifies the Issuer in writing that it has determined that a: (i) Write-Down of the notes andother capital instruments of the Parent Company is necessary because, without such Write-Down, theParent Company would become non-viable, (ii) public sector injection of capital, or equivalentsupport, is necessary because, without such injection or support, the Parent Company would becomenon-viable, or (iii) Write-Down of the notes and other capital instruments of the Parent Company isnecessary because, as a result of the closure of the Parent Company, it has become non-viable. ANon-Viability Write-Down shall have the following effects: (a) reduce the claim on the notes inliquidation; (b) reduce the amount re-paid when a call or redemption is properly exercised; and(c) partially or fully reduce the interest payments on the notes.

The issuance of the 2024 Sub Notes under the terms approved by the BOD was approved by the BSPon May 21, 2014, subject to the Parent Company’s compliance with certain conditions.

On March 26, 2019, the Parent Company’s BOD approved the exercise of the option to call of itsP=10.0 billion 5.375% Unsecured Subordinated Notes issued on July 11, 2014. The redemption fallsunder the call provisions of the Note, which has a maturity date of July 11, 2024 and is callable onJuly 12, 2019. The exercise of the option to call was approved by the BSP on May 10, 2019.

Significant credit exposures as to industry/economic sectorAs of December 31, 2019 and 2018, information on the concentration of credit as to industry, net ofunearned discounts and deferred credits, follows (amounts in millions):

Consolidated Parent Company2019 2018 2019 2018

Amount % Amount % Amount % Amount %Real estate P=94,396 21.1 P=83,871 20.3 P=94,260 21.0 P=83,676 20.3Electricity, gas, stream and air

conditioning supply 74,569 16.7 72,440 17.5 74,569 16.6 72,440 17.6Wholesale and retail trade 71,622 16.0 68,029 16.4 71,622 16.0 68,029 16.5Activities of private households as

employees and undifferentiatedgoods and services andproducing activities ofhouseholds* 58,046 13.0 28,111 6.8 58,046 12.9 28,111 6.8

Manufacturing 38,739 8.7 47,200 11.4 38,739 8.6 47,200 11.4Financial intermediaries 31,997 7.2 34,826 8.4 34,923 7.8 37,474 9.1Construction 16,328 3.7 15,188 3.7 16,328 3.6 15,188 3.7Transportation and storage 14,146 3.2 11,908 2.9 14,146 3.2 11,908 2.9Information and communication 13,267 3.0 13,578 3.3 13,267 3.0 13,578 3.3Agriculture, hunting and fishing 9,364 2.1 8,909 2.2 9,364 2.1 8,909 2.2Professional scientific & technical

services 5,896 1.3 5,949 1.4 5,896 1.3 5,949 1.4Water Supply, sewerage, waste

management and remediationActivities 3,720 0.8 4,819 1.2 3,720 0.8 4,819 1.2

Others 14,499 3.2 19,120 4.6 13,919 3.1 15,253 3.7P=446,589 100.0 P=413,948 100.0 P=448,799 100.0 P=412,534 100.0

* Excludes loans and receivables on real estate or dwelling units which are considered production activities and classified under “Real estate”

Page 228: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 146 -

*SGVFS038997*

Breakdown of total loans as to security and statusThe following table shows the breakdown of receivable from customers as to secured and unsecuredand the breakdown of secured receivables from customers as to the type of security as ofDecember 31, 2019 and 2018 (amounts in millions):

Consolidated Parent Company2019 2018 2019 2018

Amount % Amount % Amount % Amount %Secured by: Real estate P=55,969 12.5 P=48,431 11.7 P=55,833 12.4 P=48,236 11.7 Assignment of projects/

company assets/contracts 19,497 4.4 28,007 6.8 19,497 4.3 28,007 6.8 Chattel 17,620 3.9 11,607 2.8 17,620 3.9 11,607 2.8 Mortgage trust indenture 15,717 3.5 14,352 3.5 15,717 3.5 14,352 3.5 Deposit hold-out 2,840 0.6 2,908 0.7 2,840 0.6 2,908 0.7 Others 4,109 0.9 3,096 0.7 3,531 0.8 2,346 0.6

115,752 25.9 108,401 26.2 115,038 25.6 107,456 26.0Unsecured 331,563 74.1 306,020 73.8 334,487 74.4 305,549 74.0

P=447,315 100.0 P=414,421 100.0 P=449,525 100.0 P=413,005 100.0

The following table shows the breakdown of receivable from customers net of unearned discountsand deferred credits as to performing and non-performing as of December 31, 2019 and 2018:

Consolidated Parent Company2019 2018 2019 2018

Performing loans Corporate lending 317,481,443 326,726,853 320,227,520 328,764,981 Consumer lending 68,784,503 39,255,817 68,383,816 36,249,773 Residential mortgages 53,968,178 43,558,133 53,832,547 43,362,901 Small business lending 1,015,984 1,359,001 1,015,984 1,358,967

441,250,108 410,899,804 443,459,867 409,736,622Non-performing loans Corporate lending 2,388,288 1,570,668 2,388,288 1,570,668 Consumer lending 2,163,255 821,665 2,163,255 570,127 Residential mortgages 768,166 620,796 768,166 620,796 Small business lending 19,342 35,294 19,342 35,294

5,339,051 3,048,423 5,339,051 2,796,885446,589,159 413,948,227 448,798,918 412,533,507

Information on related party loansIn the ordinary course of business, the Parent Company has loan transactions with subsidiaries andwith certain DOSRI. Under the Parent Company’s policies, these loans are made substantially on thesame terms as loans to other individuals and businesses of comparable risks.

On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that shallgovern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates ofbanks and quasi-banks. Under the said circular, the total outstanding loans, credit accommodationsand guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10.00% of the bank’snet worth, the unsecured portion shall not exceed 5.00% of such net worth. Further, the totaloutstanding exposures shall not exceed 20.00% of the net worth of the lending bank. The saidCircular became effective on February 15, 2007.

Page 229: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 147 -

*SGVFS038997*

BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further,BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts.The following table shows information relating to DOSRI accounts of the Parent Company:

2019 2018Total outstanding DOSRI accounts (in billions) P=0.339 P=0.373Percent of DOSRI accounts granted prior to

effectivity of BSP Circular No. 423 to total loans 0.08 0.09Percent of DOSRI accounts granted after effectivity

of BSP Circular No. 423 to total loans – –Percent of DOSRI accounts to total loans 0.08 0.09Percent of unsecured DOSRI accounts to

total DOSRI loans 6.17 7.58Percent of past due DOSRI accounts to

total DOSRI loans – –Percent of nonperforming DOSRI accounts to

total DOSRI loans – –

Total interest income on DOSRI accounts in 2019, 2018 and 2017 amounted to P=213.3 million,P=132.9 million, P=22.1 million, respectively.

Aggregate amount of secured liabilities and assets pledged as securityThe following are the carrying values of the investment securities pledged and transferred underSSURA transactions of the Group:

December 31, 2019 December 31, 2018Carrying

Value Fair ValueCarrying

Value Fair ValueInvestment securities at amortized cost (Note 13) Treasury bonds P=43,772,591 P=47,480,398 P=67,805,474 P=64,076,037Financial assets at FVTOCI (Note 12) Treasury bonds 13,362,859 13,362,859 8,596,372 8,596,372

P=57,135,450 P=60,843,257 P=76,401,846 P=72,672,409

Commitments and contingent liabilitiesThe following is a summary of the Group’s and of the Parent Company’s commitments andcontingent liabilities at their equivalent peso contractual amounts:

2019 2018Trust department accounts P=58,173,050 P=49,015,310Unutilized credit limit of credit cardholders 48,489,206 22,994,800Committed loan line 28,049,063 49,556,389Unused commercial letters of credit 24,057,204 27,056,034Late deposit/payment received 660,177 511,335Outstanding guarantees 453,121 2,734,035Inward bills for collection 339,165 786,819Outward bills for collection 250,785 488,192Financial guarantees with commitment 69,139 98,613

Page 230: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

INDEPENDENT AUDITOR’S REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsSecurity Bank CorporationSecurity Bank Centre6776 Ayala AvenueMakati City

We have audited, in accordance with Philippine Standards on Auditing, the financial statements ofSecurity Bank Corporation and Subsidiaries (the Group) as at December 31, 2019 and 2018 and for eachof the three years in the period ended December 31, 2019, included in the Form 17-A, and have issuedour report thereon dated February 28, 2020. Our audits were made for the purpose of forming an opinionon the basic financial statements taken as a whole. The schedules listed in the Index to the FinancialStatements and Supplementary Schedules are the responsibility of the Group’s management. Theseschedules are presented for purposes of complying with the Revised Securities Regulation Code Rule 68and are not part of the basic financial statements. These schedules have been subjected to the auditingprocedures applied in the audit of the basic financial statements and in our opinion, fairly state, in allmaterial respects, the information required to be set forth therein in relation to the basic financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Vicky Lee SalasPartnerCPA Certificate No. 86838SEC Accreditation No. 0015-AR-4 (Group A), April 16, 2019 valid until April 15, 2022Tax Identification No. 129-434-735BIR Accreditation No. 08-001998-53-2018, February 14, 2018 valid until February 13, 2021PTR No. 8125248, January 7, 2020, Makati City

February 28, 2020

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

Page 231: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

*SGVFS038997*

INDEPENDENT AUDITOR’S REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsSecurity Bank CorporationSecurity Bank Centre6776 Ayala AvenueMakati City

We have audited, in accordance with Philippine Standards on Auditing, the financial statements ofSecurity Bank Corporation and Subsidiaries (the Group) as at December 31, 2019 and 2018 and for eachof the three years in the period ended December 31, 2019, included in the Form 17-A, and have issuedour report thereon dated February 28, 2020. Our audits were made for the purpose of forming an opinionon the basic financial statements taken as a whole. The schedules listed in the Index to the FinancialStatements and Supplementary Schedules are the responsibility of the Group’s management. Theseschedules are presented for purposes of complying with the Revised Securities Regulation Code Rule 68and are not part of the basic financial statements. These schedules have been subjected to the auditingprocedures applied in the audit of the basic financial statements and in our opinion, fairly state, in allmaterial respects, the information required to be set forth therein in relation to the basic financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Vicky Lee SalasPartnerCPA Certificate No. 86838SEC Accreditation No. 0015-AR-4 (Group A), April 16, 2019 valid until April 15, 2022Tax Identification No. 129-434-735BIR Accreditation No. 08-001998-53-2018, February 14, 2018 valid until February 13, 2021PTR No. 8125248, January 7, 2020, Makati City

February 28, 2020

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

Page 232: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

SECURITY BANK CORPORATION AND SUBSIDIARIESINDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

DECEMBER 31, 2019

SchedulePart I

Content Page No.

I Schedule of Reconciliation of Retained Earnings Available for DividendDeclaration(Part 1 4C, Annex 68-C) 1

II Map Showing Relationships Between and Among Parent, Subsidiaries and aJoint Venture(Part 1 4H) 2

Part IIA Financial Assets

· Financial assets at fair value through profit or loss· Financial assets at fair value through other comprehensive income· Investment securities at amortized cost

(Part II 6D, Annex 68-E, A) 7B Amounts Receivable from Directors, Officers, Employees, Related Parties

and Principal Stockholders (Other than Related Parties)(Part II 6D, Annex 68-E, B) 8

C Amounts Receivable from Related Parties which are Eliminated During theConsolidation of Financial Statements(Part II 6D, Annex 68-E, C) 9

E Long-Term Debt(Part II 6D, Annex 68-E, E) 11-22

F Indebtedness to Related Parties (Included in the Consolidated Statements ofFinancial Position)(Part II 6D, Annex 68-E, F) 23

G Guarantees of Securities of Other Issuers(Part II 6D, Annex 68-E, G) 24

H Capital Stock(Part II 6D, Annex 68-E, H) 25

Part III Schedule of Financial Soundness Indicators 26

Page 233: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

SECURITY BANK CORPORATIONSCHEDULE I

RECONCILIATION OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATION

DECEMBER 31, 2019(Amounts in Thousands)

Unappropriated Retained Earnings at Beginning of Year P=51,473,423Adjustments on beginning balance:

Unrealized FX gains - net(except those attributable to Cash & Cash Equivalents) (903,471)Fair value adjustments (mark to market gains) (1,554,406)Fair value gain at foreclosure date (90,182)Remeasurement losses on defined benefit plans 421,259Accumulated share in net income of subsidiaries and joint venture (1,139,469)Deferred tax assets (1,261,887)

Unappropriated Retained Earnings, as adjusted, beginning 46,945,267Add: Net income actually earned/realized during the yearNet Income during the year 10,145,946Less: Non-actual/unrealized income net of tax during the year

Unrealized FX gains - net(except those attributable to Cash & Cash Equivalents) 401,205Fair value adjustments (mark to market gains) 394,222Fair value gain at foreclosure date 61,259Share in net income subsidiaries and joint venture (net of dividends) 174,945Recognized deferred tax asset 436,467

Sub-total 1,468,098Add: Non-actual losses/realized income during the year

Realized income categorized as unrealized in previous years 2,457,878Net income actually earned during the period 11,135,726Add (Less):

Dividend declarations during the year (2,264,876)Appropriations of retained earnings related to BSP Circular 1011 (2,909,175)

Total Retained Earnings Available for Dividend Declaration at End of Year P=52,906,942

Page 234: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 2 -

SCHEDULE IIIMAP SHOWING RELATIONSHIPS BETWEEN AND AMONG PARENT

SUBSIDIARIES AND A JOINT VENTURE

99.54% 100.00% 100.00% 100.00% 60.00% 100.00% 0%

100.00% 100.00% 100.00%

* MUFG ow ns 20% of voting shares of SBC Common Shares: Par value is P10.00; Total Outstanding Shares – 753,538,887 Preferred Shares: Par Value is P0.10; Total Outstanding Shares – 1,000,000,000** Joint venture*** Non-operating**** Pre-operating***** With irrevocable pow er of attorney/proxy to vote certain shares of FWD Life Insurance Corporation

SB Finance Company, Inc.(Formerly Security Bank

Savings Corporation)

SB Capital InvestmentCorporation

SB Equities, Inc.SB Rental Corporation SB InternationalServices, Inc. ****

SBM Leasing, Inc. **SB Forex,

Incorporated***FWD Life Insurance

Corporation *****

Security Finance andLeasing Inc. (Formerly

Landlink PropertyInvestments (SPV-

AM C), Inc.) ****

SB CardsCorporation

Security Bank Corporation (Parent Bank) *

Page 235: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 3 -

Security Bank Corporation and SubsidiariesSchedule A – Financial Assets

December 31, 2019

(Amounts and Number of Shares in Thousands)

Name of issuing entity and associationof each issue

Number of shares orprincipal amount of

bonds or notes

Amount shown on thebalance sheet

Valued based on marketquotation at balance sheet

dateIncome accrued

Financial assets at fair value through profit or lossPhilippine government P=1,837,746 P=1,990,132 P=1,990,132 P=34,058Private corporations 1,727,373 1,727,556 1,727,556 1,309Publicly-listed companies (Equity securities held

for trading) (in number of shares) 1 1 1Various derivative counterparties 1,148,010 1,148,010 438,212

P=4,865,699 P=4,865,699 P=473,579Financial assets at fair value through othercomprehensive income

Philippine government P=18,034,495 P=20,755,980 P=20,755,980 P=308,542Private corporations 3,546,941 3,675,966 3,675,966 61,468Equity Securities 207 296,888 296,888

P=24,728,834 P=24,728,834 P=370,010Investment securities at amortized cost

Private corporations P=25,025,210 P=25,025,209 P=25,126,027 P=167,836Philippine government 168,399,986 183,917,314 200,034,617 2,620,346

P=208,942,523 P=225,160,644 P=2,788,182

Page 236: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 4 -

Security Bank Corporation and Subsidiaries

Schedule B - Amounts Receivable from Directors, Officers, Employees, Related Parties andPrincipal Stockholders (Other than Related Parties)

December 31, 2019

Name of DebtorBalance at

beginning ofperiod

Additions AmountsCollected

AmountsWritten-

offCurrent Non-

CurrentBalance at end

of period

None to Report

Receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders are subject to usual terms in the normal course ofbusiness.

Page 237: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 5 -

Security Bank Corporation and SubsidiariesSchedule C - Amounts Receivable from Related Parties which are eliminated

during the consolidation of financial statementsDecember 31, 2019

(Amounts in Thousands)

Deductions

Name of DebtorBalance at

beginning ofperiod

Additions AmountsCollected

Effect of disposalgroup classifiedas held for sale

Current Non-Current

Balance at end ofperiod

Philippine Peso

SB Cards Corporation P=65,685 P=3,920,519 P=3,801,011 P=– P=185,193 P=– P=185,193

SB Capital InvestmentCorporation 1,423 943,267 121,763 – 822,927 – 822,927

SB Equities, Inc. 1,626 24,770 24,849 – 1,547 – 1,547

SB Rental Corporation 695,630 1,553,466 2,249,096 – – – –

Security Finance andLesing Inc. (formerlyLandlink PropertyInvestments (SPV-AMC),Inc. (LPII)) – 38 38 – – – –

SB Forex, Inc. – 27 27 – – – –

SB Finance Company, Inc. 1,975,429 3,077,726 2,929,154 2,124,000 – – –

P=2,739,793 P=9,519,813 P=9,125,938 P=2,124,000 P=1,009,667 P=– P=1,009,667

Page 238: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 6 -

Security Bank Corporation and SubsidiariesSchedule E - Long-Term Debt

December 31, 2019

(Amounts in Millions)

Title of issue and type of obligation (i)Amount authorized

by indenture

Amount shownunder caption

“Current portion”

Amount shownunder caption

“Long-Term Debt”Interest Rate

% Maturity Date

Long-term Negotiable Certificates of Deposit(LTNCD)

Maturing on May 8, 2023 P=8,563 P=– P=8,563 P=3.88% 05/8/2023Maturing on Nov 2, 2023 5,742 – 5,742 4.50% 11/2/2023Maturing on March 23, 2025 6,008 – 6,008 4.00% 03/23/2025Maturing on June 17, 2025 2,292 – 2,292 4.00% 06/17/2025

P=22,605 P=– P=22,605

Bills Payable and Securities Sold UnderRepurchased Agreements (SSURA)Bills Payable - IBTL P=7,000 P=7,000 P=– 4.50% 1/2/2020Bills Payable - IBTL 2,025 2,025 – 2.68% 1/6/2020Bills Payable - IBTL 2,532 2,532 – 2.76% 1/6/2020Bills Payable - IBTL 5,064 5,064 – 2.75% 11/16/2020Bills Payable - IBTL 1,013 1,013 – 2.42% 2/18/2020Bills Payable - IBTL 1,519 1,519 – 2.35% 3/18/2020Bills Payable - IBTL 2,025 2,025 – 2.49% 3/10/2020Bills Payable - IBTL 1,266 1,266 – 3.51% 1/2/2020Bills Payable - IBTL 2,532 2,532 – 2.56% 10/27/2020Bills Payable - IBTL 2,532 2,532 – 2.59% 10/20/2020Bills Payable - IBTL 1,266 1,266 – 2.61% 6/8/2020Bills Payable - IBTL 1,266 1,266 – 3.14% 5/13/2020Bills Payable - IBTL 1,266 1,266 – 2.70% 6/26/2020

Page 239: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 7 -

Title of issue and type of obligation (i)Amount authorized

by indenture

Amount shownunder caption

“Current portion”

Amount shownunder caption

“Long-Term Debt”Interest Rate

% Maturity DateBills Payable - IBTL 506 506 – 2.25% 2/14/2020Bills Payable - IBTL 370 370 – 2.24% 3/12/2020Bills Payable - IBTL 506 506 – 2.34% 2/19/2020Bills Payable - IBTL 1,013 1,013 – 2.41% 4/6/2020Bills Payable - IBTL 506 506 – 1.75% 1/2/2020Bills Payable - IBTL 1,013 1,013 – 1.63% 1/3/2020Bills Payable - IBTL 7,595 – 7,595 2.96% 7/12/2021Bills Payable - DBP Funded 26 – 26 8.00% 8/25/2031Bills Payable - DBP Funded 27 – 27 8.00% 8/25/2031Bills Payable - DBP Funded 14 – 14 8.00% 8/25/2031Bills Payable - DBP Funded 34 – 34 8.00% 8/25/2031Bills Payable - DBP Funded 37 – 37 8.00% 8/25/2031Bills Payable - DBP Funded 41 – 41 8.00% 8/25/2031Bills Payable - SSURA 1,488 1,488 – 1.80% 1/8/2020Bills Payable - SSURA 1,128 1,128 – 1.58% 1/8/2020Bills Payable - SSURA 1,102 1,102 – 2.47% 1/27/2020Bills Payable - SSURA 3,553 3,553 – 2.05% 1/21/2020Bills Payable - SSURA 503 503 – 2.05% 1/21/2020Bills Payable - SSURA 2,532 2,532 – 1.60% 1/14/2020Bills Payable - SSURA 1,230 1,230 – 2.30% 1/13/2020Bills Payable - SSURA 922 922 – 2.13% 1/16/2020Bills Payable - SSURA 979 979 – 1.80% 1/9/2020Bills Payable - SSURA 1,708 1,708 – 2.00% 1/9/2020Bills Payable - SSURA 618 618 – 2.10% 1/21/2020Bills Payable - SSURA 1,630 1,630 – 2.35% 1/21/2020Bills Payable - SSURA 800 800 – 2.35% 1/14/2020Bills Payable - SSURA 1,523 1,523 – 2.00% 1/17/2020Bills Payable - SSURA 3,521 3,521 – 2.30% 1/23/2020Bills Payable - SSURA 1,475 1,475 – 2.30% 1/23/2020Bills Payable - SSURA 4,010 4,010 – 2.30% 1/23/2020Bills Payable - SSURA 1,760 – 1,760 3.00% 1/15/2021

Page 240: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 8 -

Title of issue and type of obligation (i)Amount authorized

by indenture

Amount shownunder caption

“Current portion”

Amount shownunder caption

“Long-Term Debt”Interest Rate

% Maturity DateBills Payable - SSURA 1,743 – 1,743 2.86% 1/15/2021Bills Payable - SSURA 750 – 750 3.17% 1/22/2024Bills Payable - SSURA 1,242 – 1,242 1.78% 2/1/2028Bills Payable - SSURA 2,008 – 2,008 2.10% 3/30/2026Bills Payable - SSURA 2,503 – 2,503 1.81% 2/1/2028Bills Payable - SSURA 592 – 592 1.80% 2/1/2028Bills Payable - SSURA 1,666 – 1,666 1.80% 2/1/2028Bills Payable - SSURA 352 – 352 2.50% 1/15/2021Bills Payable - SSURA 1,179 1,179 – 2.75% 1/21/2020Bills Payable - SSURA 1,061 1,061 – 2.15% 1/3/2020Bills Payable - SSURA 1,968 1,968 – 2.15% 1/21/2020Bills Payable - SSURA 742 742 – 2.28% 1/16/2020Bills Payable - SSURA 3,009 3,009 – 2.28% 1/9/2020Bills Payable 66 66 –Bills Payable 800 800 – 4.65% 1/24/2020Bills Payable 105 105 – 4.10% 1/27/2020Bills Payable 100 100 – 4.10% 1/20/2020Bills Payable 40 40 – 4.00% 1/17/2020Bills Payable 26 26 – 4.10% 3/17/2020Bills Payable 30 30 – 4.00% 3/17/2020Bills Payable 11 11 – 4.00% 2/5/2020Bills Payable 20 20 – 4.00% 2/5/2020Bills Payable 100 100 – 4.50% 1/20/2020

P=93,589 P=73,199 P=20,390Notes and Bonds Payable

Notes (maturing on February 3, 2020) P=15,189 P=15,189 P=– 3.95% 2/3/2020Bonds (maturing on June 28, 2021) 17,878 – 17,878 5.88% 6/28/2021Notes (maturing on September 25, 2023) 15,096 – 15,096 4.50% 9/25/2023

P=48,163 P=15,189 P=32,974(i) Include in this column each type of obligation authorized

Page 241: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 9 -

Schedule F - Indebtedness to Related Parties(included in the consolidated statements of financial position)

December 31, 2019

Name of Related Parties (i) Balance at beginning of period Balance at end of period (ii)

None to Report

__________________________________________________(i) The related parties named shall be grouped as in Schedule D. The information called shall be stated for any persons whose investments shown separately in such relatedschedule.(ii) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase during the period that is in excess of 10 percent of

the related balance at either the beginning or end of the period.

Page 242: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 10 -

Security Bank Corporation and SubsidiariesSchedule G - Guarantees of Securities of Other Issuers

December 31, 2019

Name of issuing entity ofsecurities guaranteed by

the company for which thisstatement is filed

Title of issue of each classof securities guaranteed

Total amount ofguaranteed andoutstanding (i)

Amount owned by personof which statement is filed Nature of guarantee (ii)

None to Report

_____________________________________________________(i) Indicate in a note any significant changes since the date of the last balance sheet file. If this schedule is filed in support of consolidated financial statements, there shallbe set forth guarantees by any person included in the consolidation except such guarantees of securities which are included in the consolidated balance sheet.(ii) There must be a brief statement of the nature of the guarantee, such as “Guarantee of principal and interest”, “Guarantee of Interest”, or “Guarantee of Dividends”. If theguarantee is of interest, dividends, or both, state the annual aggregate amount of interest or dividends so guaranteed.

Page 243: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 11 -

Security Bank Corporation and SubsidiariesSchedule H - Capital Stock

December 31, 2019

(Absolute number of shares)

Title of Issue (i)Number of

sharesauthorized

Number ofshares issued

and outstandingas shown under

the relatedbalance sheet

caption

Number ofshares reserved

for options,warrants,

conversion andother rights

Number ofshares held by

related parties (ii)

Directors,officers andemployees

Others (iii)

Common stock - P=10 par valueAuthorized 1,000,000,000Issued and outstanding 753,538,887 110,066,815

Preferred stock - P=0.10 par valueAuthorized 1,000,000,000Issued and outstanding 1,000,000,000 368,429,788

_________________________________________________(i) Include in this column each type of issue authorized(ii) Related parties referred to include persons for which separate financial statements are filed and those included in the consolidated financial statements, other than theissuer of the particular security.(iii) Indicate in a note any significant changes since the date of the last balance sheet filed.

Page 244: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

- 12 -

SECURITY BANK CORPORATION AND SUBSIDIARIESSCHEDULE OF FINANCIAL SOUNDNESS INDICATORS

AS OF DECEMBER 31, 2019 AND 2018

2019 2018

a) Liquid to total assets 39.71 43.84

b) Loans (net) to deposit ratio 89.79 85.16

c) Debt-to-equity ratio 5.70 6.00

d) Asset-to-equity ratio 6.70 7.00

e) Interest rate coverage ratio 1.72 1.84

f) Return on assets 1.30 1.20

g) Return on equity 8.87 8.07

h) Net interest margin 3.93 3.27

i) Cost to income ratio 51.11 53.87

j) Non-performing loans ratio 0.56 0.41

k) Non-performing loan cover 129.2 110.90

Page 245: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

sustainability report

BetterBanking is Responsible Banking

sustainability report4The Banking and Financial Services industry is a business of trust and of growth. It is in this spirit that Security Bank affirms its desire to work towards ensuring sustainable growth for the organization, the industry, the economy and the communities it caters to.

Our approach to ensuring sustainable growth is anchored on our BetterBanking promise that is characterized by an unwavering commitment to providing excellent service to our clients. We believe our commitment to quality service has a positive long-term impact for both the Bank and its stakeholders. We therefore consider what we do to be conscious investments towards our shared bright and sustainable future.

This commitment is supported by right behaviors and best practice standards. It is inspired by a desire to fulfill our mission of enriching lives, empowering businesses and building communities.

Our strategies are designed based on how we want to uphold our commitment to service and fulfill the different aspects of our mission as a bank. At the same time, building trust and doing things right mean ensuring rigorous corporate governance and accountability.

We recognize all these as essential especially as the industry and global markets are enjoying technological breakthroughs that shape future markets.

Our Bank’s mission is made real by value-driven and inclusive leadership and initiatives. Moreover, it is a constantly evolving and improving process that is guided by the Global Reporting Initiative (GRI) frameworks and the United Nations’ Sustainable Development Goals.

We are all partners in striving to reach goals that work for the greater good.

What Sustainability Means to Us

Reporting ParametersGRI 102-50. GRI 102-54

This report has been prepared in accordance with the GRI Standards: Core option. It covers the period of January 1, 2019 to December 31, 2019. It aims to present Security Bank’s economic, environmental and social initiatives and performance, which collectively comprise our BetterBanking promise.

BetterBanking Here / 21 / security bank corporation

Page 246: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

BetterBanking for Sustainable Growth

Service is Security Bank's primary differentiator. The work we do on a daily basis is defined by our values and inspired by our mission to deliver BetterBanking to people, businesses and communities.

We are guided by the Global Reporting Initiative (GRI) reporting principles which revolve around inclusivity, context, materiality and completeness, allowing stakeholders to track the progress of our sustainability journey.

Everyone in Security Bank plays a key role in fulfilling the organization’s BetterBanking promise and following its path of sustainable growth. This report therefore consists of sections defined by the material topics that address our stakeholders’ concerns:

• How have we ENRICHED LIVES? • How have we EMPOWERED BUSINESSES? • How have we helped BUILD COMMUNITIES?

Stakeholders Mode of Engagement Frequency Concerns/Expectations Response

Customers • Call center• Website• Relationship teams• Social media• Branches• E-mail• SMS

As necessary • Accessibility and convenience• Speed & quality of service• Better product features• Financial advice

• Self-service facilities• New features for digital channels• Streamlining current standards

of service• Creation or improvement of products

based on customer feedback• Employee training

Employees • Regular meetings• Letters/correspondence to

employees• Health advisories• Employee engagement

activities• Focus Group Discussions

As necessary • Focus on work-life balance• Personal development• Health and wellness

• Events: Annual Family Day Christmas Party/Sports

• Service Tenure Awards• Recognition: Outstanding

Security Bankers’ Achievement and Milestone Awards

• CSR/Environmental volunteerism activities

Industry Associations

• Membership meetings As scheduled • Sharing of industry updates, standards, best practices and concerns

• Active participation relating to policy matters

Regulators • Regular discussions• Annual examinations

and audits• Correspondence and e-mails

As necessary • Compliance with laws and regulations

• Impact of new initiatives and policies

• Timely and accurate release of reports• Compliance with regulations• Response to regulatory queries

Local Communities

• Corporate Social Responsibility programs (development, implementation, monitoring and evaluation)

As necessary • Involvement of community stakeholders in implementation

• Quality education in community

• Upliftment of the quality of life in the communities

• Establishment of relationship with key stakeholders in the communities

• Integrated and multi-stakeholder approach to program implementation

• Measurement of program outcome and impact

Media • Press statements/releases• Press briefings/roundtable• Interviews• Media rounds• Media events

As necessary • Product brief/details• Transparency• Factual information• Timely release of

announcements

• Availability of spokespersons• Press kits with fact sheets and

profile of speakers• Market information

Partners • Letters/correspondence As necessary • Transparency in disclosures• Alignment of advocacies

• Regular disclosure of overall performance

Shareholders/Investors

• Annual meetings• Investor briefings &

communications

• Annual• Monthly• On demand• As scheduled

• Financial returns & shareholder value

• Minimum risks related to business & expansion

• Stable dividends• Regular, timely & transparent

disclosures of financial performance• Investment outlets• Immediate response to

investors’ queries

Suppliers • Letters/correspondence• Meetings

As necessary • Transparency in accreditation• Integrity of bids• Timeliness of payments

• Clear and transparent accreditation• Audited bidding process

In this sustainability journey, everything begins with building high-trust relationships with our stakeholders.

Engaging with Our StakeholdersGRI 102-40, GRI 102-42, GRI 102-43, GRI 102-44

Security Bank recognizes as essential and mutually beneficial the relationships that it maintains with various stakeholders—from investors to clients and depositors, from regulators to vendors and suppliers, from employees to local communities where we do business.

Thus, we offer a variety of accessible communication channels and create opportunities to interact and engage with various stakeholders. With this, we aim to ensure transparency and credibility that are needed in maintaining trust in our relationships.

The work we do on a daily basis is defined by our values and inspired by our mission to deliver BetterBanking to people, businesses and communities.People • Integrity • Empowerment • Innovation • Execution Excellence

sustainability report sustainability report

3 / security bank corporation BetterBanking Here / 4

Page 247: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

A key reporting principle advocated by the GRI is “materiality” or the “principle that determines which relevant topics are sufficiently important that it is essential to report on them.”

The topics discussed in this report are therefore organized into the following themes:

• Providing Excellent Service• Empowering Businesses• Enriching Lives• Building Communities

These provide a conceptual framework that helps us assess the “organization’s overall mission and competitive strategy, and the concerns expressed directly by stakeholders” culled from the information and insights gathered through all the communication channels and stakeholder engagements.

For 2019, the critical material topics remained those focused on the brand promise of BetterBanking, putting people at the heart of our business strategy. It is important for our stakeholders to know that Security Bank maintains quality of service, that it treats clients and employees right, that it is innovative and agile, ethical and responsible and able to protect customer data and information.

Significant to Bank Operations

Sign

ifica

nt to

Sta

keho

lder

s

Sustainability Topics Material for OrganizationGRI 102-46, GRI 102-47

As a responsible corporate citizen, Security Bank helps provide quality employment for people, pays correct local and national taxes and stands as a sound and sensible option for the investing public.

Moreover, Security Bank would like to contribute to the United Nations' Sustainable Development Goals 2030 agenda by influencing businesses and industries towards active support for positive changes.

Through the judicious and responsible conduct of our business, the Bank can help, through ways big and small, to promote sustainable solutions, quality education, financial inclusivity and economic freedom that are key to reaching many of the goals, especially for the following targets:

Economic Value Distribution GRI 201-1, GRI 103

Economic Impact in PHP Million 2019 % of Total 2018 % of Total 2017 % of Total

Direct Economic Value distributed 19,685 100% 15,978 100% 14,746 100%

Salaries paid to employees 5,581 28% 4,939 31% 4,259 29%

Taxes paid to government 6,050 31% 3,843 24% 3,890 26%

Amount paid to suppliers/contractors 5,579 28% 4,824 30% 4,100 28%

Dividends paid to shareholders 2,265 12% 2,265 14% 2,265 15%

Our Contribution to the Economy and to the UN SDGsGRI 103-1, GRI 103-2, GRI 103-3

As enablers of innovators and sustainable entrepreneurs and industries, banking and finance institutions, such as Security Bank, serve a role in enabling change at a scale that is necessary to reach a tipping point, that is capable of producing long-term impact for more people.

In terms of specific economic aspects, which rank high in materiality for our stakeholders, the Bank is happy to report on its performance on these and do so thoroughly in the succeeding sections. In particular, the top three economic aspects—Risk Management, New Products and Services/Product Innovation and Ethics—are comprehensively discussed on pages 40, 93 and 103.

For this section, this Sustainability Report offers our readers pertinent information on the Bank’s Economic Value Distribution for deeper appreciation of its impact in the context of national development.

As an economic partner for the Philippines, Security Bank generates and distributes economic value to various stakeholders, namely, to its employees in the form of salaries; to government in the form of taxes; to suppliers and contractors for products and services; to its investors in the form of dividends; and to the disadvantaged sectors of society in the form of charitable contributions through the Security Bank Foundation.

ECONOMIC1 Risk Management2 New Products and Services3 Ethics and Governance4 Product Innovation5 Responsible Lending6 Data Privacy/Information Security Internal7 Responsible Investment8 Corruption9 Supply Chain Management

ENVIRONMENTAL1 Climate Change Impact on Business2 Resource Efficiency

(Energy, Water, Emissions)3 Electronic Waste

SOCIAL1 Customer Complaints2 Customer Service3 Consumer Data Protection4 Employee Training and Skills Development5 Work-Life Balance/Employee Wellness6 Decent Employment and Labor Practices7 Community Development

8 3

2

7

8 5

1-7 1-4

6

91

sustainability report sustainability report

5 / security bank corporation BetterBanking Here / 6

Page 248: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

DIVIDEND POLICY

Value is even more directly shared through the dividends that are paid out to the Bank’s shareholders and investors. As a policy, Security Bank declares and pays out dividends from the earned surplus or net profits of the Bank as often and at such times as the Board of Directors may determine, with total dividend pay-outs ranging from 15% to 30% of the prior year’s Net Income After Taxes (NIAT).

A Conservative Dividend Policy enables the Bank to weather the uncertainties and volatilities in the market, comply with the tighter requirements of Basel III and the Bangko Sentral ng Pilipinas, maintain strong credit ratings, minimize the need for capital calls in the medium-term and provide a capital base for business expansion that will create value over the long-term for all stakeholders.

The Dividend Policy and the Bank’s management of capital structure is responsive to changes in economic conditions, risk characteristics of activities and assessment of prospective business directions. Capital management begins with an assessment of regulatory capital and capital adequacy, followed by the determination of the optimal capital structure based on a risk-based capital planning approach that takes into consideration risk appetite, risk exposures, provision of a capital buffer, capital mix, leverage, target ROE, opportunities in the capital markets and sustainability.

Stockholder’s Data 2019 2018 2017

Earnings per share (PHP) 13.40 11.42 13.62

Cash dividends declared (PHP million) 2,265 2,265 2,265

Cash dividends per common share (PHP) 3.00 3.00 3.00

Cash dividends per preferred share July 10 issue (PHP) 0.0039 0.0039 0.0039

Cash dividends per preferred share April 1 issue (PHP) 0.004805 0.004805 0.004805

Stock dividends paid None None None

Customer Service and Customer ComplaintsGRI 418-1

BetterBanking is synonymous with sustainable banking because it means being able to meet the needs of our customers now and in the future. It means practicing the corporate principle of carrying out our operations and activities with conscious consideration for the social impact of providing excellent service and superior customer experience for all.

For the past three years, we have used Kaizen, or the principle of Continuous Improvement as a strategy in proactively working and achieving continuous and incremental improvements in Security Bank’s processes, with the aim of enhancing customer service quality at all levels.

This methodology includes listening to the Voice of the Customer (VOC), Voice of the Employee (VOE), Voice of the Business (VOB), as well as to the documented complaints that help us identify proactive measures that can enhance our processes.

VOC is a process used to capture the customer’s expectations, preferences and aversions through telephone, online and client intercept surveys. Through insights from the feedback reflected in VOC, we acquire data and are able to validate the top drivers for dissatisfaction. With these data, we come up with appropriate process improvement projects to avoid recurrence and improve the customer experience. The VOC also allows us to determine employees who were able to provide our BetterBanking service, which are endorsed to our SBC Compliments Program for appropriate recognition.

BetterBanking Means Providing Excellent ServiceGRI 103-1, GRI 103-2, GRI 103-3

BetterBanking Here / 8

sustainability report

7 / security bank corporation

Page 249: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Resolution of Customer Complaints

2019 2018 2017

Resolution Rate

86% (vs target

of 85%)

90% (vs target

of 85%)

81% (vs target

of 85%)

Overdue Bucket Rate

2% (vs target

of 5%)

1% (vs target

of 5%)

1% (vs target

of 5%)

Problem Incidence Rate

5% (vs target

of 5%)

4% (vs target

of 5%)

2% (vs target

of 5%)

Feedback Rate

94% - -

Summary of VOC

Year Customer Satisfaction Net Promoter Score

2019

90% (62% Very Satisfied

+ 28% somewhat satisfied)

+67 (74% Promoters -

7% Detractors)

201889%

(52% Very Satisfied + 37% somewhat satisfied)

+57 (64% Promoters -

7% Detractors)

201795%

(68% Very Satisfied + 27% somewhat satisfied)

+62 (67% Promoters -

5% Detractors)

The SBC Compliments Program is an award given to any employee or a team who is commended by their external and internal customers. It’s a monthly recognition program that acknowledges and recognizes “BetterBanking Service” role models while reinforcing that delivering superior service is our commitment to all our customers. This also boosts employee morale as it is another avenue to recognize Security Bankers who excelled in their performance. We received a total of 1,635 nominations in 2019: 1,140 nominations for Individuals and 495 nominations for Groups, from which the awardees were chosen by the selection committee. There were 456 Individual awardees and 33 Group awardees.

In 2019, we also added the Customer Journey Map (CJM) as a new strategy for process improvement. The CJM provides a complete picture of the customer journey, thus giving a more holistic approach to improving the experience of our customers. As a result, we improved our metrics and saved costs.

Data from VOC also help us develop fresh ideas to expand platforms and channels for us to deliver customer service, whether in physical facilities or through online options, or even a combination of both. A good example is the Skype Nook, which we set up in our branches. The Skype Nook allows clients to easily and directly engage with an Investment Specialist using the online Skype facility.

Meanwhile, we have also learned a lot about our customers’ needs and we have gathered valuable data through our complaints management system.

The system we use was patterned after the standards of BSP Circular No. 1048 which promulgates the following: Regulations on Financial Consumer Protection, Guidelines and Procedures Governing the Consumer Assistance and Management System of BSP-Supervised Financial Institutions, and Amendments to the Manual of Regulations for Banks and Non-Bank Financial Institutions.

Therefore, while the Service Quality unit initially covered only Retail Banking clients, it now also handles complaints from Bancassurance, Trust, Treasury, Branch Corporates, W2R customers and corporate clients from the Transaction Banking Group.

As the Bank aims to resolve customer complaints in the shortest time possible, we monitor our performance and track complaints with an eye for constant process improvement. We utilize a data-driven mindset and use metrics or key performance indicators (KPIs) to measure resolution of client's complaints to ensure that we keep our BetterBanking promise.

With the Fourth Industrial Revolution and the global digital transformation being experienced by markets and individuals across the globe, Security Bank continues to offer new products and services to help our customers make their path to financial health faster and with more ease.

In 2019, we launched several innovative products and services to deliver the BetterBanking promise:

The 4-percentage point dip in the 2019 Resolution Rate was identified to be due to minor issues such as the migration of the Bank’s Credit Card System that created expected pain points during its initial launch. Nonetheless, concerns were ultimately addressed. Radical improvements are expected to recoup greater yields for long-term benefits.

Salary Advance Enhancements We introduced an online status checker that makes it easier for clients to check the status of their loan application without having to call or wait for an SMS update on the loan approval. The enhancement stemmed from analyzing top call drivers for the product and from insights gathered from customer satisfaction surveys.

Online Payroll Account Opening We simplified how employees open an account which no longer relied on corporate HR teams to send bank details of each employee. The new online process simplifies the work for HR and ensures data captured are up-to-date. For companies with more than 10,000 employees, this innovation offers faster and simpler migration.

NEW PRODUCTS AND SERVICES | PRODUCT INNOVATION

Three Domain Secure One-Time-Password (3DS-OTP) This innovative feature secures online transactions and purchases for clients. With the increase in online purchases, OTPs give our clients confidence on the security of their digital transactions.

Deployment of Cash Acceptance Machines To provide convenient 24/7 cash deposit services, we deployed cash acceptance machines in several major shopping malls. Since cash deposits is one of the top transaction drivers, providing other channels makes banking more convenient for our customers.

sustainability report sustainability report

9 / security bank corporation BetterBanking Here / 10

Page 250: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

As an ideal, we see BetterBanking as leading the way to building a strong and resilient economy that people can rely on and anchor their dreams upon. That is why the consistent and stringent practice of our Corporate Governance and Risk Management policies (see pages 93–110) remains key to our BetterBanking promise.

Security Bank’s commitment to transparency and accountability has been recognized by partners and stakeholders in the Philippine financial industry as we garnered a 1-arrow recognition as one of the high scorers on the ASEAN Corporate Governance Scorecard (ACGS).

ACGS is an instrument used for the assessment and ranking of publicly listed companies (PLCs) in the ASEAN. It aims to raise the corporate governance standards and practices among ASEAN PLCs, making well-governed ASEAN PLCs attractive to investors and promoting ASEAN as an investment asset class. The Scorecard was benchmarked against international best practices that encourage PLCs to go beyond national legislative requirements.

BetterBanking Means Empowering Businesses

CONSUMER DATA PROTECTION | DATA PRIVACY AND INFORMATION SECURITYGRI 418-1

Data Privacy and Protection, Information Security and Cybersecurity are essential to maintaining the high-trust relationship we have with our stakeholders.

Security Bank’s information security framework is aligned with ISO 27001 while our cybersecurity framework is aligned with the National Institute of Standards and Technology (NIST) Cybersecurity Framework. In compliance with regulatory requirement, our program is also aligned with BSP Circular 982 on enhanced guidelines on information security management issued in 2017, which states that incident reporting should be integral to industry players’ incident management plans.

We are constantly improving our processes, technologies and people's knowledge and skills to ensure that we cope with advances on cybersecurity threats and vulnerabilities. Security Bank monitors cybersecurity threats such as Phishing, Malware, Distributed Denial-of-Service (DDoS), etc., via our Security Operations Center and various cybersecurity tools.

The Bank’s risk management programs, such as those covering Incidents Management, Risk Assessment and Monitoring, and incident reporting to Senior Management and Board Committees put us on a constant state of alertness and readiness to act on them.

For instance, in 2019, we received complaints from 11 clients who did not apply for credit cards but received a notification that they have a pending application or approved credit cards. Upon review and investigation, it was revealed that the cases were caused by our Third-Party Sales Agency who used client’s information and forged applications. The Agency was consequently penalized in accordance to the Memorandum of Agreement with the Bank.

Furthermore, the Customer Care Department SQ-CCU created a new Service Level Agreement and process framework to effectively handle other potential cases in collaboration with key stakeholders—Frontline CCG, Fraud Team and Card Operations. They also revisited past agreements with Third Party Sales vendor and increased the penalties to provide stronger deterrence to such practices.

We are constantly improving our processes, technologies and people's knowledge and skills to ensure that we cope with advances on cybersecurity threats and vulnerabilities. Security Bank monitors cybersecurity threats such as Phishing, Malware, Distributed Denial-of-Service (DDoS), etc., via our Security Operations Center and various cybersecurity tools.Integrity – Data-Driven Decisions – We do the right thingExecution Excellence – Persistent Improvement – We do it right

BetterBanking Here / 12

sustainability report

11 / security bank corporation

Page 251: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Furthermore, Security Bank received a Special Citation for Prudential Reporting Innovation from the Bangko Sentral ng Pilipinas (BSP). This citation recognizes Security Bank’s participation in the successful pilot run of the BSP’s Financial Institution Portal (FI Portal).

This commitment was likewise recognized by industry observers that have conferred Security Bank with awards such as Best Investor Relations (IR) Company (Philippines) for the fifth successive year, Best CEO for IR (Philippines) and Best IR Professional (Philippines) at the 9th Asian Excellence Awards held at JW Marriott Hotel in Hong Kong.

Corporate Governance Asia (CGA), the organizer behind the prestigious award-giving body, lauded Security Bank for upholding transparency and accountability in corporate governance. On top of regulatory compliance, CGA praised Security Bank’s efforts in ensuring greater accessibility of its customer-centric products and services to the banking public through several transformation and digitalization initiatives.

An important part of this campaign is our drive to empower businesses and industries around the country—with information, knowledge and connections that will help them create data-driven strategies for growth.

Security Bank Corporation hosted its annual Economic Forum Roadshow in key investments hubs in the Philippines. These nationwide discussions were strategically held in the country's prime growth areas: Clark, Quezon City and Makati in Luzon; Iloilo in the Visayas; and Cagayan de Oro in Mindanao. Around 200 delegates per city took part in the economic fora.

The Roadshow is one of Security Bank’s initiatives to arm business leaders with information to make the best business and financial decisions. The Bank is optimistic that the discourse will help our clients build a mindset capable of fostering a strong economy amid disruptions.

We revised our Economic Forum to make it more interesting and relevant to its participants. We deemed it important to include political developments and risks as necessary in helping the participants in the forum to make informed business decisions. We brought together our Security Bank political economist, macro and microeconomics analysts and experts, and subject-matter experts from the area. This is part of our BetterBanking commitment, a value-add to clients that supports their everyday business decisions.

The Roadshow kicked off in Clark, Pampanga. The forum discussed dynamics between policies and decisions that currently shape the country’s economy, as well as local issues, such as inflation, agricultural performance and exports-imports. Clark also continues to be an investment destination for the real estate industry, in congruence with the developments in the New Clark City. All the infrastructure support systems are in place along with the absorptive capacity for new businesses and tourism.

Infrastructure was a recurring theme in the second Economic Forum in Quezon City as it highlighted the Build, Build, Build program of the government in Metro Manila and its impact on various businesses nationwide. The program is seen as a boon for the national economy because of the expected improvements in connectivity between key investment hubs across the country.

The third forum, held in Makati, continued the discussion on infrastructure from local and regional perspectives including future-readiness. Speakers from various sectors concurred that business leaders must be aware of current industry trends, especially of technological disruption and use it to their advantage in order to grow their businesses. Future-proofing and adapting to disruption can help create a frictionless environment that will create sustainable growth.

Security Bank also strengthened its presence in Western Visayas as it held the fourth forum in Iloilo City—the first forum of the Bank outside Luzon. Iloilo City has become the premier gateway to Visayas, with a growing hub for BPOs, real estate companies and SMEs, among the others. It is becoming one of the future-cities because of its progressive policies. The city must know what challenges it may face to create solutions to tackle these disruptions.

The concluding forum was held in the gateway of Northern Mindanao, Cagayan de Oro. The discussion revolved around the main drivers for sustainable and inclusive development in the region, as well as current and prospects, opportunities and challenges in CDO and Mindanao. CDO has continued to impress with the city’s ability to support a seaport, land and transportation infrastructures, economic zones, air transportation facilities and other economic support structures.

This year’s nationwide Roadshow was successful in promoting inclusivity of our BetterBanking commitments.

Best Investor Relations Companyfor the 5th successive year

We brought together our Security Bank political economist, macro and microeconomics analysts and experts, and subject-matter experts from the area. This is part of our BetterBanking commitment, a value-add to clients that supports their everyday business decisions.Empowerment – Collaborative Culture – We’re in this together

sustainability report

BetterBanking Here / 1413 / security bank corporation

Page 252: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

By 2019, Security Bank’s workforce had grown to over 6,625-strong. Alongside business operations, our employee-base grew by around 12%, even with an attrition rate of 12.48%.

We have managed to maintain the male to female gender ratio at about 1:2, reflecting the standard talent pool in the industry and no gender bias on the part of recruitment. This ratio remains mostly stable even when looking at leadership roles as the same ratio is maintained in the middle management level, while staying close to the same ratio at the senior management level. Notably, we have seen 46 women leaders moving up to senior positions in the last year.

BetterBanking Means Enriching Lives

Enabling Our People to Grow and ThriveGRI 404-1, GRI 103-1, GRI 103-2, GRI 103-3, GRI 102-41

Employee Distribution by Gender

Gender Wide Distribution

Full TimeContract

Corporate Wide Region Wide

Corporate Office

Branch Office

Luzon Visayas Mindanao

2019

Male 2,125 1,007 1,118 1,787 115 223

Female 4,500 1,806 2,694 3,935 292 273

TOTAL 6,625 2,813 3,812 5,722 407 496

2018

Male 1,876 865 1,011 1,591 110 175

Female 4,027 1,524 2,503 3,518 253 256

TOTAL 5,903 2,389 3,514 5,109 363 431

2017

Male 1,732 804 928 1,461 102 169

Female 3,705 1,352 2,353 3,230 232 243

TOTAL 5,437 2,156 3,281 4,691 334 412

GRI 102-8, GRI 405-1, GRI 102-7

RESPONSIBLE LENDING

With an informed market, Security Bank is better positioned to be the partner for sustainable growth. As an efficient and conscientious financial intermediary, the Bank contributes to economic development by supporting and equipping a wide range of industries with the essential resources for growth.

The Bank’s lending practices are anchored on the principles of Responsible Lending based on loan-to-value ratio, risk management, as well as the financial system’s resilience against unforeseen market problems. These practices have kept the Bank’s portfolio of loans with a healthy spread of businesses and industries to support and help develop sustainably.

In 2019, Security Bank was cited as the Best Bank for SMEs in the Philippines by Asiamoney and Alpha Southeast Asia Awards. The award showcases the Bank’s initiative to further grow the various businesses in the country, especially small-medium enterprises (SMEs), through empowerment. The Bank actively partners with franchise associations and trade unions to deliver business solutions and to educate its clients.

Best Bank for SMEsAward by Asiamoney and Alpha Southeast Asia Awards

Loans Distributed by Industry Sector

Industry Sector 2019 2018

Real estate 21.1% 20.3%

Electricity, gas, stream and air conditioning supply 16.7% 17.5%

Wholesale and retail trade 16.0% 16.4%

Activities of private households as employees and undifferentiated goods and services and producing activities of households 13.0% 6.8%

Manufacturing 8.7% 11.4%

Financial intermediaries 7.2% 8.4%

Construction 3.7% 3.7%

Transportation and storage 3.2% 2.9%

Information and communication 3.0% 3.3%

Agriculture, hunting and fishing 2.1% 2.2%

Professional scientific & technical services 1.3% 1.4%

Water supply, sewerage, waste management and remediation activities 0.8% 1.2%

Others 3.2% 4.6%

TOTAL 100.0% 100.0%

BetterBanking Here / 16

sustainability report

15 / security bank corporation

Page 253: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

By Office

Corporate Office

Branch Office

1,8061,007

2,6941,118

By Region

Luzon

Visayas

Mindanao

3,9351,787

292115

273223

By Rank

Staff

MiddleManagementSenior Management

1,864747

2,1961,099

440279

2,519

By Age

<20-30

<30-39

<40-50

<50-60

<60

1063

1,254649

500276

198130

297

Employee Distribution by Rank

Gender Age RangeRank

TOTALStaff

Middle Management

Senior Management

2019

Male

<20-30 664 397 2 1,063

<30-39 72 505 72 649

<40-50 8 140 128 276

<50-60 3 56 71 130

<60 0 1 6 7

Female

<20-30 1,721 794 4 2,519

<30-39 137 1,018 99 1,254

<40-50 6 297 197 500

<50-60 0 84 114 198

<60 0 3 26 29

TOTAL 2,611 3,295 719 6,625

2018

Male

<20-30 570 423 5 998

<30-39 36 412 75 523

<40-50 4 122 130 256

<50-60 4 40 50 94

<60 0 0 5 5

Female

<20-30 1,536 846 9 2,391

<30-39 88 832 95 1,015

<40-50 5 252 186 443

<50-60 0 60 99 159

<60 0 0 19 19

TOTAL 2,243 2,987 673 5,903

2017

Male

<20-30 497 366 2 865

<30-39 38 400 65 503

<40-50 3 144 115 262

<50-60 4 43 44 91

<60 1 0 10 11

Female

<20-30 1,313 734 4 2,064

<30-39 99 831 80 1,010

<40-50 3 267 165 435

<50-60 0 68 101 169

<60 0 2 25 27

TOTAL 1,958 2,868 611 5,437

2019 Employee Distribution

2,125Total Male Employees

4,500Total Female Employees

MALE FEMALE

sustainability report sustainability report

17 / security bank corporation BetterBanking Here / 18

Page 254: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

GRI 103-1, GRI 103-2, GRI 103-3, GRI 404-2Aside from pursuing gender balance and inclusivity in the workplace, as people leaders, we also have programs that make people want to stay and grow with us. We have effective employee retention programs, such as providing learning and training programs, doing industry salary benchmarking, maintaining a Performance Management System, prioritizing internal job postings and conducting focus group discussions. Plans for the following year include development of Career Maps and conduct of Competency and Skills Assessment.

As an Equal Opportunity Employer, Security Bank recognizes our people based on merit, performance and the consistent practice of corporate values.

In support of their continuous development, we provide people with opportunities to grow and learn through the many training programs we offer throughout the year and implemented through the SBC Academy which was launched back in 2013.

The SBC Academy was able to produce on the average five trainings days per employee, bringing total training hours for the year to over 280,500.

Among the most impactful trainings conducted are for onboarding new hires. This is when SBC Academy delivers the BetterBanking Experience (BBX) module, immersing new hires in the BetterBanking promise and what it means for every Security Banker.

Training Programs Offered to Employees

Program Description Digital Solutions

New Hires’ Orientation

This program aims to orient new employees on Security Bank's vision, mission, organizational structure, as well as key company policies and regulations. It also aims to instill a sense of pride among new entrants once they get to know how every Security Banker lives up to its Core Values, which enables the Bank to achieve its goals and be recognized as a multi-awarded Bank locally and internationally.

• Gamification through mobile learning applications, such as Kahoot

• Real-time feedback gathering through Kaizala, Mentimeter and MS Forms

• Blended learning methodology using videos, lecturettes and structured learning exercises

• Self-directed learning through the use of BBOG Knowledge Base (applicable to Branch Lab and Account Opening only)

Branch Lab for Channel Officers, Customer Advisors and Tellers

This is a comprehensive training, which aims to empower new branch personnel with the knowledge and skills that will enable them to perform their duties and responsibilities in the branch, discern risks and consequently mitigate them. The program provides hands-on systems training and application of best practices through simulation of various bank transactions.

Account Opening & Documentation

This program aims to empower branch personnel with the knowledge and skills to properly handle complex accounts being opened in the branch. The training will also provide tools and techniques to branch personnel on how to use their sound judgment during the account opening process.

Train the Trainers This program equips the participants with the right knowledge and skills to perform the trainer’s instructor, facilitator and administrator roles. It introduces the principles of adult learning and the ADDIE model of training and development.

I Am A Customer Advocate

This digital learning course focuses on improving the Bank’s quality of service by understanding the lobby management metrics, complaints handling and voice of the customer.

• Self-paced digital learning course, featuring a “virtual trainer”

CSQ Reimagined The CSQ Reimagined e-Learning is a mandatory course for all frontline staff who conduct suitability assessment. This is part of their CSQ certification wherein they are taught how to use the simpler and improved CSQ.

• Video-based learning course using situational examples

In 2019, Security Bank's Human Resources (HR) and SBC Academy continued to reinforce the Bank's core values by focusing on building a service-oriented culture defined by execution excellence.

Alongside SBC Academy’s usual competency building programs, it also laid the foundation for programs geared more towards culture-building.

Security Bank believes that its people are its greatest assets and that the quality of its people reflects the quality of service the Bank provides. SBC Academy therefore paired programs meant to equip employees with the technical and digital skills to tackle business challenges with those meant to prepare people to make competent decisions in the name outstanding service. This helps form best practice standards and sets BetterBanking service apart from the rest.

HR took a similar route as alongside its usual employee engagement and benefits programs, the Team also began a comprehensive people-centric program anchored on values, coaching and mentoring, and competency building. Training modules ranging from career pathing, succession planning, anti-corruption policies, Code of Conduct and Ethics, and leadership were offered and helped employees implement BetterBanking in their own roles.

HR and SBC Academy’s initiatives show that Security Bank is focused on developing and enabling its people to succeed in their roles and in their careers.

Security Bank also provides new hires and incumbent employees guidance on important governance and anti-corruption policies, such as those that cover the Code of Conduct, Conflict of Interest, Fraud Awareness, Operational Risk Awareness, Financial Consumer Protection and the Anti-Money Laundering Act of 2012 (AMLA). In 2019, we were able to conduct eLearning on these topics for at least 86% of our employees.

Training on Anti-Corruption Policies

TopicType of Training

% of Employees

Fraud Awareness

eLearning for new hires and

incumbents

97

Operational Risk Awareness

86

Financial Consumer Protection

97

Money Laundering and Terrorist Financing Protection Program

98

Types of Training Programs Offered to Employees

Program Category 2019 2018 2017

Functional 60 45 29

Behavioral 3 10 8

Job Related Technical 62 63 79

Career Development 3 3 2

External Program 474 122 225

Training Summary GRI 404-1

2019 2018 2017

Total Number of Participants

99,910 88,378 39,513

Total Training Days 35,073 35,294 35,651

Total Training Hours 280,586 282,348 285,208

Ending Head Count of SBC

6,625 5,903 5,437

Average Training Days per Employee

5 days 6 days 6.6 days

sustainability report sustainability report

19 / security bank corporation BetterBanking Here / 20

Page 255: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

WELLNESS IS ALWAYS A PRIORITYGRI 413-1, GRI 102-1, GRI 102-2, GRI 102-3

In our mind, the BetterBanking promise is to be delivered to both internal and external customers, and our people are also among the key stakeholders who reap the benefits of having a sustainable business.

Aside from ensuring our people are enabled and supported with their job roles, Security Bank also implements programs to provide them a safe and secure workplace where their health and wellness are looked after.

Security Bank has been diligent in ensuring disaster preparedness in all offices and branches. In 2019, it conducted 58 emergency drills and trainings in 2019, including response simulation and evacuation drills. The trainings are done throughout the year, to keep our people always alert.

We encourage everyone to think of their safety and health not only during emergencies, but to see the value of health and wellness in their everyday lives. That is why we also maintain a Total Wellness Program, which includes initiatives such as the annual physical examinations and annual flu vaccination sessions.

In 2019, we also held a Health, Wellness & Fitness Fair at the Security Bank Head Office to promote a healthy lifestyle. The two-day event featured health food concessionaires and fitness partners tapped to provide discounts and free consultations for the 800 participants who came to the fair.

RECOGNIZING OUR PEOPLE’S VALUABLE CONTRIBUTIONS

It is our people who deliver in our BetterBanking promise. Infrastructure, processes and technology only work when our people deliver with commitment to and passion for excellence. That is why Security Bank does not fail to recognize exemplary performance. Moreover, employees are financially rewarded with provisions for performance bonus, profit-sharing, bonuses, promotions and merit increases.

Other forms of recognition are essential for our people. That is why we have the annual Outstanding Security Banker Achievements and Milestones Awards (OSAM), which recognizes Security Bankers whose impact and contribution to the organization’s overall success is truly appreciated. OSAM awardees usually stand out among the ranks and get nominated because of their inspiring commitment to BetterBanking.

In 2019, the awarding ceremonies were held at the JYD Hall on August 16 as a tribute to the 17 Security Bankers who demonstrated excellence and full commitment to our mission and core values. HR received a total of 229 nominations, which was further shortlisted to 89 candidates from where the selection committee picked the final list of awardees. There was also one team awardee that exemplified the true spirit of collaboration and teamwork.

Through the OSAM awards, we promote a culture of appreciation and sustain the tradition of excellence. These awards empower us to provide excellent financial services to our clients and the community.

Meanwhile, the Service Tenure Awards—normally held in June—rewards Security Bankers for their years of loyal and excellent service and for being an inspiration for others. In 2019, there were 43 awardees fêted in ceremonies held in their honor.

Through the OSAM awards, we promote a culture of appreciation and sustain the tradition of excellence. These awards empower us to provide excellent financial services to our clients and the community.People – Employee Care and Development – We listenExecution Excellence – Flawless Execution – We do it right

For cases of injuries or ill health, Security Bank provides clinic services with nurse and doctor on duty, emergency transport from workplace to hospital (if needed) and medical assistance in case the HMO coverage is already fully utilized.

Our people are, of course, covered by an HMO plan. Above that, we promote an active lifestyle through initiatives, such as regular Zumba sessions and sports tournaments. Moreover, we support spiritual wellness through openness with spiritual expression and practice within the office premises.

We take great pains to take care of our people and their welfare because they are and always will be our greatest asset.

This high regard for our people includes respecting their right to self-organization, collective bargaining and negotiations. Security Bank maintains an open channel of communication with union groups, holding regular management-union meetings to keep each other updated. For 2019, a total of 1,782 employees were covered by Collective Bargaining Agreements. We promulgate a fair and transparent grievance mechanism that follows due process under our Code of Conduct and Ethics.

sustainability report

21 / security bank corporation BetterBanking Here / 22

Page 256: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

List of Benefits

List of Benefits Y/N% of Employees who availed for the year

Female Male

SSS Y

Maternity 5.35%

Sickness 1.98% 1.18%

SSS Loan 16.29% 12.26%

PhilHealth Y 11.88% 7.59%

Pag-ibig Y 6.95% 4.29%

Parental leaves Y

Solo Parent 0.78% 0.00%

Maternity 5.93% 0.00%

Paternity 0.00% 3.21%

Alternate Caregiver (part of ML) 0.00% 0.61%

Vacation leaves Y 82.77% 80.19%

Sick leaves Y 77.31% 70.90%

Magna Carta for Women 0.75%

Medical benefits (aside from PhilHealth) Y

HMO 86.50% 84.91%

Medical allowance 71.52% 7.35%

Housing assistance (aside from Pag-ibig) Y 0.03%

Retirement fund (aside from SSS) Y 4.73% 2.26%

Further education support Y 0.11% 0.28%

Company stock options N

PERKS OF BEING PART OF THE TEAM401-2

All these people programs reflect the core values that Security Bank stands for and shares with its employees, regardless of rank or role. The equal treatment of every employee is an integral part of the culture. This is evidenced by the fair and market-competitive provision of employee compensation and benefits packages that are above regulatory standards, especially in terms of health care and retirement benefits. Moreover, Security Bank also provides its employees, when applicable, with flexible work arrangements like timeblock schedules, compensatory days off and four-day work week to allow them to conveniently operate within the arrangements that work best for them and at the same time provide them time for self and family.

The values of respect and malasakit run deep in the organization. This is what drives Security Bank to root for its employees’ personal and professional success. With the goal of having a happy and healthy workforce, the Bank implements people-centered engagement programs that truly address the diverse needs of a 6,625-strong family. Here are some memorable among many Employee Engagement events that we celebrate annually:

Fast-tracked passport services for the whole familyRecognizing the benefits of travel, for employees’ well-being and family life, we partnered with the Department of Foreign Affairs to provide hassle-free passport application and renewal services to Security Bankers and their families at the Head Office. There were 204 passport applications and renewals processed during this event.

Back-to-School FairWe brought in concessionaires of school supplies, snacks, storage products and uniform essentials for a two-day Back-to-School Fair held at the Head Office. The Bank also invited a nutritionist-dietitian to share valuable tips on preparing healthy and budget-friendly snacks. This exciting initiative not only made back-to-school preparations less of a hassle to Security Bankers, but it also freed up their weekend so they could spend more time with families and friends.

Blockbuster Weekend TreatSecurity Bank encourages its people to share time and bond with those important to them, which is why it ensures that the overall work-life balance of its employees is well cared for. More than 5,000 Security Bankers and guests in Metro Manila were present at the SM Mall of Asia Cinemas to catch a free screening of the highly anticipated film Maleficent. Nationwide blockbuster weekend treats were also scheduled for our employees outside Metro Manila. The movie treat is just one of the Bank’s ways to thank its people for their hard work and dedication.

At the same time, Security Bank offers venues for our people to share and express their creative talents and bring their whole self to the workplace. Here are some of the programs available:

SBC Chorale The Security Bank Chorale showcases its musical talent as they perform in various company events, such as the annual Service Tenure Awards, Outstanding Security Banker Milestones and Achievements (OSAM Awards) and Celebration of Life. They are the music ministry for the Thanksgiving Mass at the beginning of the year, and in June for The Bank's anniversary, as well as on Ash Wednesday, and on the Solemnity of the Immaculate Conception of the Blessed Virgin Mary in December.

Security Bank Dance Troupe SBC’s rookie dance crew battled against 10 other bank groups and bagged second place at the third BAIPHIL Street Dance Challenge. The members were originally rivals in SBC’s Got Talent competition who assembled as one to represent their teammates and fellow Security Bankers.

Spirituality and Thanksgiving Security Bank highlights spirituality as a part of its culture through daily Catholic masses, Lent and Advent Recollections and regular Mid-Week Gatherings. The Bank also held special Thanksgiving Masses to celebrate the company's milestones.

The family culture of Security Bank transcends the service of former Security Bankers. To celebrate the lives of departed Security Bankers, the Bank held two separate gatherings in Makati and Davao for their bereaved families. Recognizing the significance of giving emotional support, Security Bank also invited a professional to talk about reshaping grief, putting loss into perspective and moving on.

BetterBanking Here / 24

sustainability report

23 / security bank corporation

Page 257: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Empowering Our People to Help Protect the EnvironmentGRI 103-1, GRI 103-2, GRI 103-3

Security Bank also delivers BetterBanking promise through its network of 308 branches and 841 ATMs around the country. In 2019, the organization took pains to complete the 7S for BetterBanking program, leveling up the standard cleanliness framework to a more comprehensive 7S— Sort, Systematize, Sweep, Standardize, Self-discipline, Safety and Sustain. The program aimed to preserve the brand promise, maintain orderliness, and create a safe and healthy working environment for people, focusing on improving productivity through well-organized work places. The Bank makes an effort to manage orderliness of its physical space. It is the nature of the business that operations require consumption of electricity, mainly because of necessary air conditioning, lighting and digital network and connectivity systems.

It is therefore standard practice for us to measure and monitor energy usage with an eye on areas for improvement in efficiency and potential for cost savings.

The facilities team has been replacing end-of-life air conditioning units (ACU) with inverter-type units, which is estimated to bring us PHP50,000 annual savings per branch. By end of 2019, around 50% of ACUs across the organization were already using the energy-saving inverter-type, up from the previous year’s 42%. Branches have also been reducing the running hours for lighted signages.

At the same time, we are now choosing to use LED light bulbs and converting busted fluorescent and CFL bulbs into the more energy-efficient technology which offers cost savings in the long run. The increase in headcount for any of the offsite areas (or facilities outside Head Office), however, would predictably have an effect on overall consumption, which for 2019 resulted in a 1% increase.

In terms of water consumption, the 10% decrease we noted in our tracker can be attributed to the overall decrease in water supply because the country as a whole had to deal with the impact of El Niño in its general water supply. With calls for water conservation in all sectors, the facilities team ensured that leaks and defective water fixtures were immediately addressed to avoid wastage.

The Bank included this year our calculations for greenhouse gas (GHG) emissions from our operations, particularly in electricity use and fuel consumption of our generator sets. This is part of our efforts in operational efficiency and environmental stewardship. The company looks forward to comparing our GHG emissions for 2020, and look for ways to decreasing our carbon footprint.

The challenges were also present in power distribution as natural calamities that occurred throughout the year affected power supply and drastically increased the need for using branch generator sets. This produced a big increase in our fuel consumption, which we managed through regular preventive maintenance to ensure optimal reliability and efficiency of the generator sets.

Electricity Consumption for Branches in KWh, MJ GRI 302-1, GRI 302-3

Luzon Branches Visayas Branches Mindanao Branches Total Branches

2019

Total Consumption (KWh) 7,613,601 793,026 1,098,719 9,505,345

Total Consumption (MJ) 27,408,962 2,854,893 3,955,387 34,219,242

Area in square meters 53,802 5,441 8,351 67,594

Energy Intensity 509 525 474 506

2018

Total Consumption (KWh) 7,704,299 851,634 1,106,995 9,662,928

Total Consumption (MJ) 27,735,476 3,065,882 3,985,182 34,786,541

Area in square meters 53,018 5,441 8,351 66,810

Energy Intensity 523 563 477 521

2017

Total Consumption (KWh) 8,097,861 775,272 813,578 9,686,711

Total Consumption (MJ) 29,152,298 2,816,080 2,903,779 34,872,157

Area in square meters 50,298 5,828 7,516 63,642

The Bank included this year our calculations for greenhouse gas (GHG) emissions from our operations,

particularly in electricity use and fuel consumption of our generator sets. This is part of our efforts in operational efficiency and environmental stewardship.Execution Excellence – Persistent Improvement – We do it right

sustainability report

BetterBanking Here / 26

sustainability report

25 / security bank corporation

Page 258: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Electricity Consumption in KWh, MJ GRI 302-1, GRI 302-3

Head Office Branches SLC Bldg Other Offsite TOTAL

2019

Total Consumption (KWh) 4,897,676 9,505,345 615,733 1,391,260 16,410,014

Total Consumption (MJ) 17,631,635 34,219,242 2,216,637 5,008,537 59,076,051

Area in square meters 24,444 67,594 3,589 11,369 106,996

Energy Intensity 721 506 618 441 552

2018

Total Consumption (KWh) 5,107,128 9,662,928 552,102 854,747 16,176,905

Total Consumption (MJ) 18,385,661 34,786,541 1,987,567 3,077,089 58,236,858

Area in square meters 24,444 66,810 3,589 7,819 102,662

Energy Intensity 752 521 554 394 567

2017

Total Consumption 5,131,612 9,686,216 561,753 303,982 15,683,563

(KWh) 5,131,612 9,686,216 561,753 303,982 15,683,563

Total Consumption (MJ) 18,473,801 34,872,153 2,022,310 1,094,336 56,462,600

Area in square meters 24,444 63,642 3,589 7,819 99,494

Energy Intensity 756 548 563 140 567

Water Consumption by Branches (Cu.M.) GRI 303-3

Year Branches

TOTALLuzon Visayas Mindanao

2019 30,615 3,631 6,043 40,289

2018 40,224 4,427 6,365 51,016

2017 95,956 3,476 10,714 110,146

Water Consumption (Cu.M.) GRI 303-3

Year Head Office

Branches SLC Bldg

Other Offsite

TOTAL

2019 51,940 40,289 1,969 13,299 107,496

2018 45,759 51,016 1,862 21,241 119,878

2017 41,206 110,146 2,104 15,134 168,590

Fuel Consumption (Liters) GRI 302-1

Year Head Office

Branches TOTAL

Luzon Visayas Mindanao

2019 1,695 5,514 1,238 1,713 10,161

2018 28.65 2,023 388 425 2,884

2017 2,682 7,131 2,755 1,708 14,276

GHG Emissions (Tons CO2e) GRI 305-1, GRI 305-2

Energy Source GHG Emissions (Tons CO2e)

Scope 1 (generators) 98

Scope 2 (electricity) 11,687

CLIMATE-RELATED RISKS AND OPPORTUNITIES

Security Bank is cognizant of the increasing significance of climate-related risks and opportunities, with changing climate patterns. That the Philippines is located along the Pacific Ring of Fire as well as the typhoon belt adds to the country's vulnerability. There is a conscious and constant assessment of the potential risks it portends.

For instance, climate-related risks such as high intensity typhoons would lead to temporary disruption of branch operations, pose dangers to our people’s safety and result in increased costs for maintenance and engineering. Meanwhile, potential risks are also brought by chronic lack of water resources, resulting in intermittent supply needed by power plants which in turn could mean service interruptions especially in the summer months, increasing the frequency of use of our standby power generators. Providing oversight over the Bank’s approach to these risks are the Board of Directors, through the Risk Oversight Committee (ROC), and the Audit Committee (AC). The ROC reviews, approves and ensures effective implementation of the risk management framework and its components, while the AC looks into the overall effectiveness and compliance of the risk management policies and processes.

Tasked to implement the strategies is the Risk Management Group (RMG) headed by the Chief Risk Officer (CRO) who develops policies and setslimits from the branch level up to the executive level. He also investigates ways to address such risks. As this is an independent business unit of the company, it looks into all operational risks and recommends ways to address specific risks and opportunities.

The Bank has a Business Continuity Plan and Crisis Management Plan already in place. In addition, we are in the process of revisiting the possible crisis scenarios to create the crisis playbook in order to streamline the process in case of an actual incident. We plan to include the climate-related risk events in the playbook and intend to complete this exercise within 2020.

sustainability report

27 / security bank corporation

sustainability report

Page 259: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Our commitment to service is embodied by the work we do to achieve business excellence and enhance the quality of the lives of people and communities. These are key components of our BetterBanking promise.

The Bank applies a holistic approach to giving, which entails:

• Thoroughly assessing the needs of people and communities• Analyzing and identifying ideal project partners (national government

agencies and local government units, academic institutions and other foundations or charitable institutions)

• Executing plans excellently through collaboration among employees, partners and beneficiaries

• Providing follow through programs to ensure sustainable impact

For 26 years, Security Bank Foundation Inc. (SBFI) has been the corporate social responsibility arm of Security Bank.

SBFI’s programs are geared towards enhancing quality of life in partner communities by forming lasting stakeholder relationships, all the while strengthening the Bank’s image as a supporter of social development and a hub for talent. In addition, SBFI has also helped uplift the lives of employees and agency personnel through medical and scholarship assistance initiatives.

In the Philippines, there are 27 million students from Kindergarten to Grade 12. This segment is critical to achieving the nation’s socio-economic goals. Over time, there has been a struggle to bridge gaps between students who require education and the availability of facilities, learning materials and teachers. This is true particularly for 23 million public school students who do not benefit from an ideal student-teacher ratio (1:50).

BetterBanking Means Building CommunitiesGRI 413-2, GRI 103-1, GRI 103-2, GRI 103-3

55Partner Cities/Municipalities

102Schools Benefited

By Island Group

111 Mindanao

124 Visayas

310 Luzon

By School Level

339 Elementary

164 High School

42 Kindergarten

545Total classrooms

turned over

Per Year

2019

2016

2013

2018

2015

2012

2017

2014

2011

116

58

98

44

28

64

84

44

9

CLASSROOMS TURNED OVER

545Classrooms Turned Over

99,930Students Benefited

The Bank has branches across key cities and municipalities in the country. This allows it to be close to the pulse of the people. The “Build a School, Build a Nation: The Classrooms Project” is a holistic program that leverages the ties SBC has with local communities towards improving the quality of people’s lives through quality education. The program is hinged on the following performance indicators:

• Build classrooms in all provincial locations with SBC presence.

• Hit 1:50 classroom-student ratio in all beneficiary schools.

• Maintain a single class shift for all beneficiary schools.• Help improve overall scores of beneficiary students

in the National Achievement Test in order to exceed the national average.

In 2019, SBFI turned over its 500th classroom in Lemery, Batangas, and covered its 100th beneficiary school in Cauayan, Isabela. It also reached its 50th city—Vigan, Ilocos Sur—where it turned over a uniquely designed heritage school building.

By the end of 2019, SBFI had turned over 545 classrooms across 102 schools and 55 cities and municipalities. Nearly 100,000 students have had their lives changed by this groundbreaking endeavor.

BUILDING THE FOUNDATION AND EXECUTING FOR TOMORROWGRI 203-1, GRI 203-2

29 / security bank corporation

sustainability report

BetterBanking Here / 30

Page 260: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

GOING THE EXTRA MILE: PAYING IT FORWARD

In 2019, SBC employees contributed 2,337 volunteer man-hours to SBFI advocacies. This shows how every Security Banker has taken their commitment to service to heart. Volunteer hours have been spent performing essential tasks, such as school painting, monitoring ongoing classroom construction, meeting with community stakeholders, organizing turnover ceremonies and gathering feedback from communities.

This, along with other social outreach activities, epitomizes the fact that SBC’s BetterBanking promise extends from business excellence to life-changing people and community development. It proves that the bayanihan spirit is very much alive within the Bank as seen through actions consistently born of malasakit.

FOLLOWING THROUGH

Continuity is an integral part of SBFI’s holistic approach to enriching lives and building sustainable communities. The Bank has ensured that the facilities it has and will turn over are disaster-proof and PWD-optimized. Regular maintenance and repair efforts are also conducted to ensure that students and teachers can work unimpeded.

Establishing foundations for improving quality of life has not been limited to safeguarding the integrity of physical structures. It has also called for equipping teachers and other members of beneficiary schools and communities with the skills needed to consistently deliver quality education over the long-term. This move to empower educators, students and communities to produce future leaders of tomorrow has been done through strategic partnerships with the One La Salle Educational Foundation (OLEF)

Teachers Trained Per Year

Year TOTAL

2019 384

2018 301

2017 301

2016 200

2015 151

2014 50

TOTAL 1,387

Employee Volunteer Hours

Year TOTAL

2019 2,337

2018 1,407

2017 1,974

Volunteer Programs

Activity Hours Pax

Classrooms Project 1,210 80

Bloodletting 64 94

Bible Packing Activity 142 65

Coron Medical Mission 20 10

School Painting Activity 901 108

TOTAL 2,337 357

1,387Total Teachers

Per School Level

Per Island Group

Elementary

Luzon

Junior High School

Visayas

Senior High School

Mindanao

754

448

185

612

391

384

Per Subject

English

Mathematics

Science

Araling Panlipunan

492

437

216

242

and Ateneo Center for Educational Development (ACED). Through this, teaching tools and strategies for Araling Panlipunan, English, Mathematics and Science have been shared and eventually deployed. All training initiatives are accredited by the Professional Regulations Commission. This has paved the way for participants to earn Continuing Professional Development units required for the renewal of professional licenses for school teachers and principals. 1,387 teachers have been trained by the end of 2019.

SBFI also provides leadership and management workshop for beneficiary school principals every three years in collaboration with its academic partners. The pilot workshop trained school leaders on leadership, trends in 21st century learning, creating a conducive and safe school environment, building and

nourishing partnerships, managing school assets and infrastructure, disaster risk reduction and management, financial management and resource mobilization for school needs.

sustainability report sustainability report

31 / security bank corporation BetterBanking Here / 32

Page 261: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

SBFI has donated classrooms to public schools that cater to special education (SPED) students. Panabo Central Elementary School – SPED Center received six classrooms in 2019. Meanwhile, the Foundation put up six classrooms in the mission school of De La Salle Philippines in Bagac, Bataan catering to children of farmers and fishermen.

This past year, the Department of Education recognized Security Bank for its work as an Adopt-a-School program partner, noting the Bank’s contributions in promoting quality basic education through classroom building and teacher training.

SBFI’s flagship CSR program was hailed as Best CSR Initiative in the Philippines at the Global Retail Banking Innovation Awards in Singapore and Outstanding Corporate Social Responsibility (CSR) Program in Education in the Philippine League of Corporate Foundations CSR Guild Awards. It also received an Award of Excellence for Corporate Social Responsibility at the 17th Philippine Quill Awards organized by the International Association of Business Communicators Philippines. The same program bagged a Gold Anvil Award for Public Relations Program on a Sustained Basis in Education presented by the Public Relations Society of the Philippines.

With the belief that every Filipino deserves quality education, SBFI has provided scholarships for deserving, underprivileged students in elementary, secondary, tertiary and post-graduate levels. The program is offered to Security Bank employees and their dependents, agency personnel and their dependents, as well as students enrolled in SBFI’s partner colleges and universities. From 2018 to 2019, 24 SBFI scholars graduated from college. Among them, two received Magna Cum Laude honors, while nine were hailed Cum Laude.

Existing partnerships with eight respected educational institutions namely: Ateneo De Manila University, Chiang Kai Shek College, De La Salle University Manila, Far Eastern University Manila, Pamantasan ng Lungsod ng Maynila, Polytechnic University of the Philippines Manila, University of Santo Tomas and University of the Philippines Diliman—have helped ensure college scholarships for 60 financially challenged students for four years starting in academic year 2019–2020. Scholarship courses include Accountancy, Business, Industrial Engineering, Finance, Management, Information Technology, Computer Studies, Mathematics and Statistics, and Social Sciences. In August 2019, the Bank further solidified its commitment to quality education through a PHP2,000,000 donation to the Amando M. Tetangco Scholarship Jr. Ateneo Scholarship Fund.

SBFI's flagship CSR program was hailed as Best CSR Initiative in the Philippines at the Global Retail Banking Innovation Awards in Singapore and Outstanding Corporate Social Responsibility (CSR) Program in Education in the Philippine League of Corporate Foundations CSR Guild Awards.Execution Excellence - Flawless Execution - We do it right

sustainability report

BetterBanking Here / 3433 / security bank corporation

Page 262: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

GIVING KNOWS NO BOUNDS

SBFI has also been at the forefront of other noteworthy charitable initiatives, namely,

• Medical Financial Assistance. The foundation extends financial assistance to employees and agency personnel, including their immediate relatives, who have limited resources for their medical needs. In 2019, SBFI provided medical financial assistance to 62 individuals.

• Ambulance Donation to Philippine Red Cross. The Foundation donated five ambulance units to Philippine Red Cross to help provide life-saving care during times of crisis.

• Palawan Medical Mission. Security Bank and SBFI, in partnership with post-graduate medical interns from the Department of Health–Philippine Centers for Specialized Health Care, provided basic medical services to 300 residents of Coron, Palawan. This Bank-sponsored mission brought free circumcision services, medical consultations, lectures and medicines to residents. Hygiene kits and toiletry packs, donated by Bank clients, and prepared by Security Bankers, were also distributed.

• Computer Donation to Pangasinan Universal Institute (PUI). SBFI donated 30 brand new desktop computers to PUI in line with its belief that digital education is the wave of the future.

By giving the most attention to those who have the least, but who deserve better the most, Security Bank has managed to promote and leverage the power of quality education to the hilt. Its holistic approach to uplifting the lives of people and communities has involved a careful and thorough process of building a foundation (research, selection, partnerships), execution (project implementation) and follow throughs (continuous upskilling, scholarships and financial support). SBFI has indeed brought deeper meaning to BetterBanking and it intends to continue to ride this wave of giving, not for the Bank to gain praise but in the service of others.

Individuals Provided with Medical Financial Assistance

Year TOTAL

2019 62

2018 40

2017 42

Ambulance Units Donated

Year TOTAL

2018 2

2017 1

2016 1

2015 1

TOTAL 5

To jumpstart students’ careers, SBFI has offered internships, corporate social responsibility activities and learning opportunities to its scholars to fully prepare them to face the challenges of the working world. This works in line with the Bank’s openness to onboard the same individuals to whom they had awarded scholarships to help extend the reach of SBC’s culture of excellence and BetterBanking well into the future.

Three college graduates of the scholarship program are now working in Security Bank. One of whom, a daughter of a security guard assigned at the Bank’s Head Office, graduated in 2015 and is already a Junior Assistant Manager in the Auto Loans Division of the Bank.

Security Bank donated funds for the construction of a new training facility in Punlaan School, a technical vocational school specializing in hospitality and culinary services, which offers scholarship programs and immediate employment for young women from marginalized families.

Scholars Supported for the Past 3 Years

Year TOTAL

2019 403

2018 327

2017 339

Scholars per School Level

Scholars Per Beneficiary

Elementary

Agency Personnel

High School

Bank Employees

College

External Partner Schools

120

252

31

403Total Scholars

1 Post-Graduate

24 College

10 Elementary

89Total

Graduates

54 High School

Post-Graduate

170

157

65

11

sustainability report sustainability report

35 / security bank corporation

Page 263: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

CONNECTED TO PEOPLE, COMMITTED TO PURPOSE

Security Bank believes that education, connectedness and purpose bring about positive change for the common good. We look at education from a broader perspective, seeking to engage students and the general public in the learning process. We support environmental, cultural and social initiatives that encourage personal and collective responsibility to fulfill our mission of enriching lives, empowering businesses and building communities.

Raising Cultural Consciousness: ArteFino FairKeen on forging partnerships built on shared values with a mission to empower businesses, Security Bank teamed up with the group behind ArteFino—Manila’s premier craft fair. This annual event celebrates the Filipino artisan with a mission to create a new ecosystem that inspires creativity, promotes sustainable livelihood for communities and uplifts Filipino craftsmanship. A portion of the proceeds goes to the HeArtefino Development Program. This program supports indigenous and underserved communities by providing them with a livelihood center, solar lamps, sewing machines, basic learning programs focused on values education and financial literacy. Among its beneficiaries is the Bagobo-Tagabawa Tribe from Toril, Davao. Revenues from sales of the products that these beneficiaries help create are ploughed back to them.

During ArteFino 2019, Security Bank presented the first ever Modern Filipino Award to Anya Lim of Anthill Fabric Gallery. The winning social enterprise demonstrated the same core values that Security Bank is committed to. Guided by data-driven decision making, Anya innovatively used digital platforms not just to promote products that preserve Filipino heritage through modern design, but also to effectively collaborate with customers and partners; thereby enhancing support for her beneficiary communities.

Celebrating the Filipino Heritage: Filipino Heritage FestivalSecurity Bank supports initiatives that advocate Filipino heritage conservation and cultural education. One of the Bank’s long-term commitments is to support National Heritage Month, by funding the Filipino Heritage Festival.

The Festival is a month-long calendar of cultural activities that aim to bring multiple aspects of our heritage to a wider audience. The events include an art exhibition, culinary demonstrations, performances and other programs for the public. This annual gathering acknowledges and reinforces the role of local artists alongside cultural workers in upholding our traditions. It showcases meaningful cultural activities that can be passed on to the next generation.

In 2019, Security Bank co-presented the photo exhibition entitled 100 Women: 100 Ways of Life, together with the Filipino Heritage Festival Inc. and the National Commission for Culture and the Arts. The exhibit featured a collage of a hundred photographs of Filipino women displayed at the Cultural Center of the Philippines in Manila. It depicted how seemingly ordinary women sustained and transformed our cultural heritage and various traditional practices.

Honoring Female Game Changers: 8 Bravo Empowered Women AwardsThe ideals of BetterBanking entail creating better opportunities for all. Security Bank’s support for the Bravo Empowered Women Awards is an example of the Bank’s commitment to bringing to the fore the Filipinas' unique brand of outstanding leadership and service.

The Bank, together with Zonta Club of Makati & Environs, recognized eight remarkable Filipinas in the 3rd BRAVO Empowered Women Awards. The 2019 winners were selected across a broad range of demographics and interesting backgrounds. The awardees included a tribal chieftain from Davao; a 29-year-old Jiujitsu world champion; and a former investment banker who established the first sustainable and most technologically advanced rice processing complex in the Philippines.

The awardees were Ma. Rhodora Fresnedi, Rachel Marjorie Renucci-Tan, Margarita Ochoa, Magnolia Yrasuegui, Dr. Rosario Oreta-Lapus, Mona Magno Veluz, Waya Araos-Wijanco and Bae Arlyne Salazar. These women were chosen based on their individual achievements, personal advocacies and inspiring stories of triumph over adversity in the categories of Business, Science & Technology, Sports, Media & Public Affairs, Education, Social Services, Culinary Arts and Arts, Culture & Heritage respectively.

The 8 BRAVO Empowered Women Awards honor change makers, achievers and advocates of social change nationwide. The Awards acknowledges the contributions of notable individuals who deliver significant economic and social impact and demonstrate incredible dedication to service and leadership.

Raising Environmental Awareness: Paseo Underpass Mural ProjectMindfulness and respect for the limits of natural resources and functions of ecosystems are fundamental. Awareness through education is the first step towards solving environmental problems. With the Paseo Underpass Mural project, Security Bank heeded this call through its message of “BetterBanking for a Better World."

Together with award-winning artist and activist AG Saño, Security Bank transformed the Paseo De Roxas underpass into a sanctuary of Philippine terrestrial and marine creatures. Entitled Art in Defense of Mother Nature, the Saño mural represents the protection of our country’s unique mega-biodiversity. It is a unique and creative way to highlight the importance of addressing a fundamental need—one that speaks of enriching people’s lives by caring for the environment. It embodies the call to protect Mother Nature because everyone, including the future generations, deserves better.

BetterBanking Here / 38

sustainability report

37 / security bank corporation

Page 264: S E C U R I T Y B A N K C O R P O R A T I O N · (“SBS”) after the Bank’s acquisition of its shares in February 2012. The Bank owns 99.54% shares of SBS. In January 2015, the

Between barriers and breakthroughs, Security Bank continues to build bridges. The Bank’s pathway to progress is to keep creating opportunities for people, businesses and communities.

BetterBanking is and will always be defined by execution excellence and a service-oriented culture. It only makes sense to strengthen existing partnerships and forge new ones in line with advocacies defined by service. Committing to stay the course can only lead to better days ahead.

Bringing It All Together for a Brighter Future

Promoting the Bayanihan Spirit: Giving Knows No SeasonBetterBanking is about sharing our best with others. In 2019, Security Bank emphasized the collaborative culture of giving through a campaign aptly titled Giving Knows No Season.

Part of the campaign was the creation of the SBC Giving Tree, a unique visual representation of Security Bank’s commitment to building communities and enriching lives. Built using repurposed boxes, the tree not only served as a festive reminder of the holiday season; it was also a sincere salute to the Bank’s dedication to sustainability.

Inspired by the Giving Tree and the generosity it conveys, we proudly promoted the collaborative culture of giving all year round. The Bank was quick to respond to earthquake victims in Mindanao, teaming up with Security Bank Foundation, Inc. (SBFI), National Bookstore Foundation, Inc. (NBSFI) and A Single Drop for Safe Water, Inc. (ASDSW). Together, relief goods, educational materials and even provisions to rebuild homes were provided to the affected families. Employees were also mobilized to share their time, talent or treasure in different ways.

The value of malasakit was evident during Security Bankers’ corporate social responsibility initiatives in late 2019. Employees distributed relief goods to calamity victims in Davao Del Sur and organized a caroling activity to raise funds for feeding programs in Tagaytay, Laguna and Pasay. Many employees also supported causes that tugged at the heartstrings. Among the causes and organizations supported were the 1000 Bear Hugs Project (donating bears to children displaced by natural disaster and/or conflict), the Grace to Be Born Maternity Home and Nursery (for destitute and troubled women, infants and children), and Caritas Manila’s Segunda Mana program (donation-in-kind program that seeks to fund vocational and college students, support livelihood programs and promote sustainable living).

BetterBanking Here / 40

sustainability report


SBS bawrala

SBS bawrala

SBS JOURNAL OF APPLIED BUSINESS RESEARCH (SBS-JABR)

SBS JOURNAL OF APPLIED BUSINESS RESEARCH (SBS-JABR)

UDESC - SBS

UDESC - SBS

Sbs hexgon

Sbs hexgon

SBS Presentation

SBS Presentation

SBS 2012 Medidas Adoptadas SBS Patricia Willstatter _ ASPEC

SBS 2012 Medidas Adoptadas SBS Patricia Willstatter _ ASPEC

PLAGES D’UTILISATION SHS-SBS - Salmson · SBS 205 - 1, 5 SBS 205 - 1, 1 SBS 205 - 1, 1 Qm3/h Imp.gpm 200 0 2 4 0 400 600 800 68 Qm3/h Qm3/h 68 Imp.gpm 0,8 50Hz SBS 206 - 2, SBS

PLAGES D’UTILISATION SHS-SBS - Salmson · SBS 205 - 1, 5 SBS 205 - 1, 1 SBS 205 - 1, 1 Qm3/h Imp.gpm 200 0 2 4 0 400 600 800 68 Qm3/h Qm3/h 68 Imp.gpm 0,8 50Hz SBS 206 - 2, SBS

Sbs heptgon

Sbs heptgon

BaseStation SBS-3 - Home | Kinetic Avionic Products SBS-3 SBS-1eR, SBS-1e and SBS-1 Reference Manual Revision 3.1.2 25 September 2012 This device complies with part 15 of the FCC Rules.

BaseStation SBS-3 - Home | Kinetic Avionic Products SBS-3 SBS-1eR, SBS-1e and SBS-1 Reference Manual Revision 3.1.2 25 September 2012 This device complies with part 15 of the FCC Rules.

SBS Procedures

SBS Procedures

FortalezasPeru2006 SBS

FortalezasPeru2006 SBS

Sbs decgon

Sbs decgon

Sbs ennegon

Sbs ennegon

sbs times - SBS University

sbs times - SBS University

Sbs octgon

Sbs octgon

SBS JOURNAL OF APPLIED BUSINESS RESEARCH (SBS-JABR ...

SBS JOURNAL OF APPLIED BUSINESS RESEARCH (SBS-JABR ...

SBS · SBS Printing, 7 Greenwich South Street, SE10 8NW. t: 020 8858 1226. e: studio@sbsprinters.co.uk. SBS. GREENWICH. SBS. GREENWICH. sbsprinters.co.uk. STAYING SAFE > BUSINESS

SBS · SBS Printing, 7 Greenwich South Street, SE10 8NW. t: 020 8858 1226. e: [email protected]. SBS. GREENWICH. SBS. GREENWICH. sbsprinters.co.uk. STAYING SAFE > BUSINESS

SBS PRACTICE TEST 8...SBS İngilizce Hazırlık - 6. sınıf sbs deneme sınavı Keywords SBS Deneme Sınavı, sbs ingilizce soruları, sbs ingilizce hazırlık, ingilizce SBS, seviye

SBS PRACTICE TEST 8...SBS İngilizce Hazırlık - 6. sınıf sbs deneme sınavı Keywords SBS Deneme Sınavı, sbs ingilizce soruları, sbs ingilizce hazırlık, ingilizce SBS, seviye

SBS NEDİR?SBS İLE NE AMAÇLANIYOR

SBS NEDİR?SBS İLE NE AMAÇLANIYOR

SBS Journal_04_2013

SBS Journal_04_2013