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6 0 3 0SEC 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 A N D S U B

S I D I A R I E S

(Company’s Full Name)

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 867-6788(Contact Person) (Company Telephone Number)

1 2 3 1 A A F SMonth Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

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

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As stated in the JVA, the Parent Company and Marubeni are required to subscribe to SBML’stotal capital of P=250.0 million divided into two tranches, P=150.0 million for the first tranche andP=100.0 million for the second tranche not later than September 30, 2011 and December 31, 2011,respectively. In 2011, the Parent Company paid all required subscriptions except forP=30.0 million, which remained as subscription payable under Other liabilities as ofDecember 31, 2013 and 2012 (see Note 23).

On August 31, 2011, Marubeni’s representatives were elected to the SBML BOD. As theprovisions of the JVA require the unanimous consent of both the Parent Company and Marubenifor any significant decisions made in the ordinary course of business of SBML, the ParentCompany assessed that it lost control over SBML and gained joint control with Marubeni.Consequently, the Parent Company changed the accounting for its investment in SBML to theequity method of accounting starting August 31, 2011 (see Note 13).

The Parent Company is the Ultimate Parent Company of the Group.

2. Summary of Significant Accounting Policies

Basis of PreparationThe accompanying consolidated financial statements include the financial statements of the ParentCompany and its subsidiaries (collectively referred to as “the Group”).

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) and financialassets at fair value through other comprehensive income (FVTOCI) that have been measured atfair value. The carrying values of recognized loans and receivables that are hedged items in fairvalue hedges, and otherwise carried at amortized cost, are adjusted to record changes in fair valueattributable to the risks that are being hedged. The financial statements are presented in Philippinepesos and all values are rounded to the nearest thousand peso except when otherwise indicated.

The consolidated financial statements provide comparative information in respect of the previousperiod. In addition, the Group presents an additional statement of financial position at thebeginning of the earliest period presented when there is a retrospective application of anaccounting policy, a retrospective restatement, or a reclassification of items in financialstatements. An additional statement of financial position as at January 1, 2012 is presented in theseconsolidated financial statements due to retrospective application of PFRS 7 and PAS 19R (referto section on Changes in Accounting Policies).

The financial statements of the Parent Company and SBS include the accounts maintained in theRegular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The functionalcurrency of the RBU and the FCDU is the Philippine peso and United States dollar (USD),respectively. For financial reporting purposes, FCDU accounts and foreign currency-denominatedaccounts in the RBU are translated into their equivalents in Philippine peso, which is the ParentCompany’s presentation currency (see accounting policy on Foreign Currency Translation). Thefinancial statements individually prepared for these units are combined after eliminating inter-unitaccounts.

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.

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Statement of ComplianceThe accompanying financial statements have been prepared in compliance with PhilippineFinancial Reporting Standards (PFRS).

Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Group and itssubsidiaries as at December 31, 2013 and 2012. Control is achieved when the Group is exposed,or has rights, to variable returns from its involvement with the investee and has the ability to affectthose returns through its power over the investee. Specifically, the Group controls an investee ifand 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 indicatethat there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Group obtains control over the subsidiary and ceases when the Grouploses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired ordisposed of during the year are included in the statement of comprehensive income from the datethe Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to theequity holders of the parent of the Group and to the non-controlling interests, even if this results inthe non-controlling interests having a deficit balance. When necessary, adjustments are made tothe financial statements of subsidiaries to bring their accounting policies into line with the Group’saccounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flowsrelating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as 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’s share of components previously recognised in OCI to profit or loss or

retained earnings, as appropriate, as would be required if the Group had directly disposed ofthe related assets or liabilities.

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As discussed in Note 1, the Parent Company lost control and gained joint control over SBML.Prior to August 31, 2011, the accounts of SBML are consolidated with the Parent Company.

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

Non-Controlling InterestNon-controlling interest represents the portion of profit or loss and net assets not owned, directlyor indirectly, by the Parent Company.

Non-controlling interests are presented separately in the consolidated statement of income,consolidated statement of comprehensive income, and within equity in the consolidated 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 equitytransactions, whereby the difference between the consideration and the fair value of the share ofthe net assets acquired is recognized as an equity transaction and attributed to the owners of theParent Company.

Changes in Accounting PoliciesThe Group applied, for the first time PAS 19, Employee Benefits (Revised 2011) that requirerestatement of previous financial statements. In addition, the application of PFRS 12, Disclosureof Interests in Other Entities, PFRS 13, Fair Value Measurement and PFRS 7, Financialinstruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments)resulted in additional disclosures in the consolidated financial statements.

Several other amendments apply for the first time in 2013. The nature of each new standard andamendment are described below. Unless otherwise indicated, adoption did not impact theconsolidated financial statements of the Group:

· PFRS 7, Financial instruments: Disclosures - Offsetting Financial Assets and FinancialLiabilities (Amendments)These amendments require an entity to disclose information about rights of set-off and relatedarrangements (such as collateral agreements). The new disclosures are required for allrecognized financial instruments that are set off in accordance with PAS 32. These disclosuresalso apply to recognized financial instruments that are subject to an enforceable master nettingarrangement or ‘similar agreement’, irrespective of whether they are set-off in accordancewith PAS 32. The amendments require entities to disclose, in a tabular format, unless anotherformat is more appropriate, the following minimum quantitative information. This is presentedseparately for financial assets and financial liabilities recognized at the end of the reportingperiod:a) The gross amounts of those recognized financial assets and recognized financial liabilities;b) The amounts that are set off in accordance with the criteria in PAS 32 when determining

the net amounts presented in the statement of financial position;c) The net amounts presented in the statement of financial position;d) The amounts subject to an enforceable master netting arrangement or similar agreement

that are not otherwise included in (b) above, including:i. Amounts related to recognized financial instruments that do not meet some or all of

the offsetting criteria in PAS 32; and

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ii. Amounts related to financial collateral (including cash collateral); ande) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The Group revisited the presentation of SBEI’s Due to (Due from) customers, stock brokersand clearing house accounts which were previously presented on a net basis per counterparty.As these receivables and payables will not be settled simultaneously, the offsetting conditionsare therefore not met. Accordingly, the Group restated its 2012 and 2011 statements offinancial position to present the amounts due to (due from) customers, stock brokers andclearing house at gross. As of December 31, 2012, the restatement resulted to an increase inloans and receivables and other liabilities by P=73.6 million, while as of December 31, 2011,the restatement resulted in an increase in loans and receivables and other liabilities byP=34.0 million. The additional disclosures required by the amendments are presented in Note 5to the financial statements.

· PFRS 10, Consolidated Financial StatementsThe Group adopted PFRS 10 in the current year. PFRS 10 replaced the portion of PAS 27,Consolidated and Separate Financial Statements, that addressed the accounting forconsolidated financial statements. It also included the issues raised in SIC 12, Consolidation -Special Purpose Entities. PFRS 10 established a single control model that applied to allentities including special purpose entities. The changes introduced by PFRS 10 requiremanagement to exercise significant judgment to determine which entities are controlled, andtherefore, are required to be consolidated by a parent, compared with the requirements thatwere in PAS 27.

· PFRS 11, Joint ArrangementsPFRS 11 replaced PAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities- Non-Monetary Contributions by Venturers. PFRS 11 removed the option to account forjointly controlled entities using proportionate consolidation. Instead, jointly controlled entitiesthat meet the definition of a joint venture must be accounted for using the equity method.

· PFRS 12, Disclosure of Interests in Other EntitiesPFRS 12 sets out the requirements for disclosures relating to an entity’s interests insubsidiaries, joint arrangements, associates and structured entities. The requirements inPFRS 12 are more comprehensive than the previously existing disclosure requirements forsubsidiaries (for example, where a subsidiary is controlled with less than a majority of votingrights). While the Group has a subsidiary with material noncontrolling interest, there are nounconsolidated structured entities. PFRS 12 disclosures are provided in Note 13.

· PFRS 13, Fair Value MeasurementPFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.PFRS 13 does not change when an entity is required to use fair value, but rather providesguidance on how to measure fair value under PFRS. PFRS 13 defines fair value as an exitprice. PFRS 13 also requires additional disclosures.

As a result of the guidance in PFRS 13, the Group re-assessed its policies for measuring fairvalues, in particular, its valuation inputs such as non-performance risk for fair valuemeasurement of liabilities. The Group has assessed that the application of PFRS 13 has notmaterially impacted the fair value measurements of the Group. Additional disclosures, whererequired, are provided in the individual notes relating to the assets and liabilities whose fairvalues were determined. Fair value hierarchy is provided in Note 6.

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· PAS 1, Presentation of Financial Statements - Presentation of Items of OCI (Amendments)The amendments to PAS 1 introduced a grouping of items presented in OCI. Items that willbe reclassified (or “recycled”) to profit or loss at a future point in time (for example, uponderecognition or settlement) will be presented separately from items that will never berecycled. The amendments affect presentation only and have no impact on the Group’sfinancial position or performance.

· PAS 19, Employee Benefits (Revised)On 1 January 2013, the Group adopted the Revised PAS 19 Employee Benefits.

For defined benefit plans, the Revised PAS 19 requires all actuarial gains and losses to berecognized in other comprehensive income and unvested past service costs previouslyrecognized over the average vesting period to be recognized immediately in profit or losswhen incurred.

Prior to adoption of the Revised PAS 19, the Group recognized actuarial gains and losses asincome or expense when the net cumulative unrecognized gains and losses for each individualplan at the end of the previous period exceeded 10% of the higher of the defined benefitobligation and the fair value of the plan assets and recognized unvested past service costs as anexpense on a straight-line basis over the average vesting period until the benefits becomevested. Upon adoption of the revised PAS 19, the Group changed its accounting policy torecognize all actuarial gains and losses in other comprehensive income and closed to Surplusat end of the year. All past service costs in profit or loss in the period they occur.

The Revised PAS 19 replaced the interest cost and expected return on plan assets with theconcept of net interest on defined benefit liability or asset which is calculated by multiplyingthe net balance sheet defined benefit liability or asset by the discount rate used to measure theemployee benefit obligation, each as at the beginning of the annual period.

The Revised PAS 19 also amended the definition of short-term employee benefits and requiresemployee benefits to be classified as short-term based on expected timing of settlement ratherthan the employee’s entitlement to the benefits. In addition, the Revised PAS 19 modifies thetiming of recognition for termination benefits. The modification requires the terminationbenefits to be recognized at the earlier of when the offer cannot be withdrawn or when therelated restructuring costs are recognized.

Changes to definition of short-term employee benefits and timing of recognition fortermination benefits do not have any impact to the Group’s financial position and financialperformance.

The changes in accounting policies have been applied retrospectively. The effects of adoptionon the financial statements are as follows (amounts in thousands):

December 31,2013

December 31,2012

January 1,2012

Increase (decrease) in:Consolidated statements of financial positionPension Asset (included under Other

Assets) (P=190,307) (P=9,951) (P=37,506)Pension liability (included under

Accrued Interest, Taxes andOther Expenses) 1,917 (8,289) 341,857

Surplus (192,224) (1,662) (379,363)

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2013 2012Consolidated statements of incomeCompensation and fringe benefits P=29,601 (P=48,281)Net interest cost (20,535) 21,163Net income (9,066) 27,118Attributable to:

Equity holders of Parent Company (8,515) 28,767Non-controlling interest (551) (1,649)

Basic and diluted earnings per share (P=0.01) P=0.05

2013 2012Consolidated statements of comprehensive incomeNet income (P=9,066) P=27,118Remeasurement loss 183,158 –Remeasurement gain – 350,583Total comprehensive income for the year (192,224) 377,701Attributable to:

Equity holders of Parent Company (180,534) 354,732Non-controlling interest (11,690) 22,969

Basic and diluted earnings per share (P=0.30) P=0.59

December 31,2013

December 31,2012

January 1,2012

Increase (decrease) in:Parent Company statements of financial positionPension asset (P=178,069) (P=19,998) –Pension liability – – P=372,566Surplus (178,069) (19,998) (372,566)

2013 2012Parent Company statements of incomeCompensation and fringe benefits P=6,948 (P=47,727)Net interest cost (16,918) 23,499Net income (9,970) 24,228

2013 2012Parent Company statements of comprehensive incomeNet income (P=9,970) P=24,228Remeasurement gain – 328,340Remeasurement loss 168,099 –Total comprehensive income for the year (178,069) 352,568

Change of presentationUpon adoption of the Revised PAS 19, the presentation of the income statement was updatedto reflect these changes. Net interest is now shown under the finance income/expense lineitem (previously under compensation and fringe benefits). This presentation better reflects thenature of net interest since it corresponds to the compounding effect of the long-term netdefined benefit liability (net defined benefit asset).

· PAS 27, Separate Financial Statements (as revised in 2011)As a consequence of the issuance of the new PFRS 10, Consolidated Financial Statements,and PFRS 12, Disclosure of Interests in Other Entities, what remains of PAS 27 is limited toaccounting for subsidiaries, jointly controlled entities, and associates in the separate financialstatements.

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· PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)As a consequence of the issuance of the new PFRS 11, Joint Arrangements, and PFRS 12,Disclosure of Interests in Other Entities, PAS 28 has been renamed PAS 28, Investments inAssociates and Joint Ventures, and describes the application of the equity method toinvestments in joint ventures in addition to associates.

Fair Value MeasurementThe Group measures certain financial instruments such as derivatives, at fair value at eachstatement of financial position date. Also, fair values of financial instruments carried at amortizedcost and investment properties carried at cost are measured for disclosure purposes.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer theliability takes place either:

· In the principal market for the asset or liability, or· In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximising the use of relevant observableinputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesLevel 2 – Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is directly or indirectly observableLevel 3 – Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, theGroup determines 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 asa whole) at the end of each reporting period.

External appraisers are involved for valuation of significant nonfinancial assets, such asinvestment properties. Selection criteria include market knowledge, reputation, independence andwhether professional standards are maintained.

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For the purpose of fair value disclosures, the Group has determined classes of assets and liabilitieson the basis of the nature, characteristics and risks of the asset or liability and the level of the fairvalue hierarchy (see Notes 6 and 15).

Financial Instruments - Initial RecognitionDate of recognitionRegular way purchases and sales of financial assets that require delivery of assets within thetimeframe generally established by regulation or convention in the market, except for derivatives,are recognized on the settlement date. Settlement date is the date on which the transaction issettled by delivery of the assets that are the subject of the agreement. Settlement date accountingrefers to (a) the recognition of an asset on the day it is received by the Group, and (b) thederecognition of an asset and recognition of any gain or loss on disposal on the day that it isdelivered by the Group. Deposits, amounts due to banks and customers, loans and receivables andspot transactions are recognized when cash is received by the Group or advanced to the borrowers.

Derivatives are recognized on trade date - the date that the Group becomes a party to thecontractual provisions of the instrument. Trade date accounting refers to (a) the recognition of anasset to be received and the liability to pay for it on the trade date, and (b) derecognition of anasset that is sold, recognition of any gain or loss on disposal and the recognition of a receivablefrom the buyer for payment 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 financialliabilities at FVTPL.

‘Day 1’ differenceWhere the transaction price is different to the fair value from other observable current markettransactions in the same instrument or based on a valuation technique whose variables includeonly data from observable market, the Group immediately recognizes the difference between thetransaction price and the fair value of the instrument (‘Day 1’ difference) in the statement ofincome unless it qualifies for recognition as some other type of asset or liability. In cases wheredata used is not observable, the difference between the transaction price and model value is onlyrecognized in the statement of income when the inputs become observable or when the instrumentis derecognized. For each transaction, the Group determines the appropriate method ofrecognizing the ‘Day 1’ difference amount.

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’.

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 orderto collect 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 outstanding principal amount.

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Debt financial assets meeting these criteria are measured initially at fair value plus transactioncosts. They are subsequently measured at amortized cost using the effective interest method lessany impairment in value, with the interest calculated recognized as Interest income in thestatement of income. The Group classified Cash and other cash items (COCI), Due from BSP,Due from other banks, Interbank loans receivable and Securities purchased under resaleagreements (SPURA), Investment securities at amortized cost, Loans and receivables, and cashcollateral deposits (included under Other assets) as financial assets at amortized cost.

Loans and receivables include receivables arising from transactions on credit cards issued directlyby the Parent Company and SBCC which have tie-up arrangements with MasterCard and DinersClub, Inc., respectively.

The Group may irrevocably elect at initial recognition to classify a debt financial asset that meetsthe amortized cost criteria above as at FVTPL if that designation eliminates or significantlyreduces an accounting mismatch had the debt financial asset been measured at amortized cost. Asof December 31, 2013 and 2012, the Group has not made such designation.

Financial assets 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 permittedif the equity investment is held for trading.

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.

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. Gainsand losses arising from changes in fair value are recognized in other comprehensive income andaccumulated in Net unrealized gain (loss) on financial assets at FVTOCI in the statement offinancial position. Where the asset is disposed of, the cumulative gain or loss previouslyrecognized in Net unrealized gain (loss) on financial assets at FVTOCI is not reclassified to profitor loss, but is reclassified to Surplus.

As of December 31, 2013 and 2012, the Group has designated certain equity instruments that arenot held for trading as at FVTOCI on initial application of PFRS 9 (see Note 10).

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 PAS 18,Revenue, unless the dividends clearly represent recovery of a part of the cost of the investment.Dividends earned are recognized in the statement of income under Miscellaneous income.

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 valuethrough profit or loss.

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Equity investments are classified as at FVTPL, unless the Group designates an investment that isnot held for trading as at FVTOCI at initial recognition.

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 amortizedcost criteria, and equity investments not designated as at FVTOCI.

As of December 31, 2013 and 2012, the Group has not designated any debt instrument that meetsthe amortized 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 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 ofthese financial instruments. If quoted market prices are not available, their fair values areestimated based on market observable inputs. For all other financial instruments not listed in anactive market, the fair value is determined 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 Philippine Dealing System (PDS) closing rate at the statement offinancial position date. The foreign exchange component forms part of its fair value gain or loss.For financial assets classified as at FVTPL, the foreign exchange component is recognized in thestatement of income. For financial assets designated as at FVTOCI, any foreign exchangecomponent is recognized in other comprehensive income. For foreign currency denominated debtinstruments classified as at amortized cost, the foreign exchange gains and losses are determinedbased on the amortized cost of the asset and are recognized in the statement of income.

Derivative instrumentsThe Parent Company uses derivative instruments such as cross-currency swaps, interest rateswaps, foreign currency forward contracts, options on foreign currencies and bonds, warrants andrange accrual note. These derivatives are entered into as a service to customers and as a means forreducing or managing the Parent Company’s respective foreign exchange and interest rateexposures, as well as for trading purposes. Such derivative instruments are initially recorded atfair value and carried as financial assets at FVTPL when their fair value is positive and asfinancial liabilities at FVTPL when their fair value 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. For currency forwards, changesin fair value are recognized in Foreign exchange gain in the statement of income.

Derivatives embedded in non-derivative host contracts that are not financial assets within thescope of PFRS 9 (as approved in March 2010) (e.g., financial liabilities and non-financial hostcontracts) are treated as separate derivatives when their risks and characteristics are not closelyrelated to those of the host contracts and the host contracts are not measured at FVTPL.

The Group assesses the existence of an embedded derivative on the date it first becomes a party tothe contract, and performs re-assessment only where there is a change to the contract thatsignificantly modifies the contractual cash flows.

As of December 31, 2013 and 2012, the Parent Company’s hybrid financial instruments areclassified as at FVTPL (see Note 9).

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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.

Reclassification of financial assets designated as at FVTPL at initial recognition is not permitted.

A change in the objective of the Group's business model must be effected before thereclassification date. The reclassification date is the beginning of the next reporting periodfollowing the change in the business model.

In 2012, the Parent Company disposed of a substantial portion of its portfolio of Peso-denominated government securities under the Hold to collect (HTC) business model, whichconstitute a change in the Parent Company’s business model for the portfolio (see Note 8).

Impairment of Financial AssetsThe 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. Financial asset or a groupof financial assets is deemed to be impaired, if and only if, there is objective evidence as a resultof one or more events that had occurred after the initial recognition of the asset and that loss eventhas an impact on the estimated future cash flows of the financial asset or the group of financialassets that can be reliably estimated.

a. Financial assets carried at amortized costThe 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. If a loan has a variable interest rate, the discount rate for measuring anyimpairment loss is the current effective interest rate. The calculation of the present value ofthe estimated future cash flows of a collateralized financial asset reflects the cash flow thatmay result from foreclosure less costs for obtaining and selling the collateral, whether or notforeclosure is probable. The carrying amount of the asset is reduced through the use of anallowance account and the amount of loss is recognized in Provision for credit losses in thestatement of income. Interest income continues to be recognized based on the originaleffective interest rate of the asset. Loans and receivables, together with the associatedallowance accounts, are written off when there is no realistic prospect of future recovery andall collateral has been realized. If, in a subsequent year, the amount of the impairment lossincreases or decreases because of an event occurring after the impairment was recognized, thepreviously recognized impairment loss is increased or reduced by adjusting the allowanceaccount. If a future write off is later recovered, the recovery is credited to Provision for creditlosses in the statement of income.

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If the Group determined 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 whichan impairment loss is or continues to be recognized are not included in a collective assessmentof impairment.

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 lossexperience is adjusted on the basis of current observable data to reflect the effects of currentconditions on which the historical loss experience is based and to remove the effects ofconditions in the historical period that do not exist currently. Estimates of changes in futurecash flows reflect, and are directionally consistent with, changes in related observable datafrom year to year. The methodology and assumptions used for estimating future cash flowsare reviewed regularly to reduce any differences between loss estimates and actual lossexperience.

b. Credit card receivables and certain consumer loansThe Group’s receivables from credit cardholders and certain consumer loans are assessed forimpairment collectively because these receivables are not individually significant. Theallowance for credit losses is determined based on the results of the net flow to write-offmethodology. Net flow tables are derived from account-level monitoring of monthly pesomovements between different age buckets, from 1 day past due to 180 days past due. The netflow to write-off methodology relies on the historical data of net flow tables to establish apercentage (‘net flow rate’) of receivables that are current or in any state of delinquency(i.e., 30, 60, 90, 120, 150 and 180 days past due) as of reporting date that will eventually resultin write-off. The gross provision is then computed based on the outstanding balances of thesereceivables from credit cardholders and consumer loans as of the statement of financialposition date and the net flow rates determined for the current and each delinquency bucket.The carrying amounts of receivables from credit cardholders and certain consumer loans arereduced for impairment through the use of an allowance account.

c. Restructured loansWhere possible, the Group seeks to restructure loans rather than to take possession ofcollateral. This may involve extending the payment arrangements and the agreement of newloan conditions. Once the terms have been renegotiated, the loan is no longer considered aspast due. Management continuously reviews restructured loans to ensure that all criteria aremet and that future payments are likely to occur. The loan continues to be subject to anindividual or collective impairment, calculated using the original effective interest rate.

Financial LiabilitiesFinancial liabilities at FVTPLFinancial liabilities are classified as at FVTPL when the financial liability is either held for tradingor it is designated as at FVTPL.

A financial liability is held for trading if:

· it has been incurred principally for the purpose of repurchasing 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

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· it is a derivative that is not designated and effective as a hedging instrument or a financialguarantee contract.

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 theirperformance evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy; or

· The financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.

Financial liabilities at FVTPL are recorded in the statement of financial position at fair value.Changes in fair value of financial instruments are recorded in Trading and securities gain in thestatement of income. Interests incurred are recorded in Interest expense in the statement ofincome using the effective interest method.

Bills payable and other borrowed fundsBills payable and other borrowed funds are issued financial instruments or their components,which are not financial liabilities at FVTPL. They are classified as such when the substance of 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 fixedamount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, bills payable and similar financial liabilities not qualified as and notrecognized as financial liabilities at FVTPL, are subsequently measured at amortized cost usingthe effective 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 effective interest rate.

Derecognition of Financial Assets and LiabilitiesFinancial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of financialassets) 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) hastransferred 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 ofthe Group’s continuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of original carrying amount of theasset and the maximum amount of consideration that the Group could be required to repay.

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Financial liabilitiesA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired. When an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of the original liabilityand the recognition of a new liability, and the difference in the respective carrying amounts isrecognized in the statement of income.

Financial GuaranteesIn the ordinary course of business, the Parent Company gives financial guarantees. Financialguarantees are initially recognized in the financial statements at fair value, and the initial fair valueis 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 a payment under the guaranty has become probable).

Hedge AccountingThe Parent Company makes use of derivative instruments to manage exposures to interest raterisks, and applies hedge accounting for transactions which meet specified criteria.

At inception of the hedge relationship, the Parent Company formally designates and documentsthe relationship between the hedged item and the hedging instrument, including the nature of therisk being hedged, the objective and strategy for undertaking the hedge, and the method that willbe used to assess the effectiveness of the hedging relationship. Also, a formal assessment isundertaken to ensure that the hedging instrument is expected to be highly effective in offsettingthe designated risk in the hedged item. Hedges are formally assessed each quarter. A hedge isexpected to be highly effective if the cumulative change in the fair value of the hedging instrumentduring the period is expected to offset the cumulative change in the fair value attributable to thehedged risk of the hedged item by 80.00% to 125.00%.

Fair value hedgesFor designated and qualifying fair value hedges, the change in the fair value of a hedgingderivative is recognized under Trading and securities gain in the statement of income. Meanwhile,the change in the fair value of the hedged item attributable to the hedged risk is recorded as part ofthe carrying value of the hedged item and is also recognized in Trading and securities gain 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 ontermination 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 valueadjustment is recognized immediately in the statement of income.

As of December 31, 2013 and 2012, the Parent Company has outstanding interest rate swapsdesignated as effective hedging instruments in a fair value hedge (see Note 19).

Offsetting of Financial InstrumentsFinancial assets and liabilities are offset and the net amount is reported in the statement offinancial position, if and only if, there is a currently enforceable legal right to offset the recognizedamounts and there is an intention to either settle on a net basis, or to realize the asset and settle theliability simultaneously. This is not generally the case with master netting agreements, therefore,the related assets and liabilities are presented gross in the statement of financial position.

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Cash and Cash EquivalentsFor purposes of reporting cash flows, cash and cash equivalents consist of COCI, Due from BSPand other banks, and Interbank loans receivable and SPURA with the BSP that are convertible toknown amounts of cash, with original maturities of three months or less from dates of placementsand that are subject to insignificant risk of changes in value.

Due from BSP includes the statutory reserves required by the BSP which the Parent Companyconsiders as cash equivalents wherein 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 statement 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 (‘reverserepos’) are not recognized in the statement of financial position. The corresponding cash paid,including accrued interest, is recognized in the statement of financial position as SPURA, and isconsidered a loan to the counterparty. The difference between the purchase price and resale priceis treated as interest income and is accrued over the life of the agreement using the effectiveinterest method.

Foreign Currency TranslationTransactions and balancesFor financial reporting purposes, the foreign currency-denominated assets and liabilities in theRBU are translated into their equivalents in Philippine pesos based on the PDS closing rateprevailing at the statement of financial position date and foreign currency-denominated incomeand expenses, at the prevailing exchange rate at the date of transaction. Foreign exchangedifferences arising from revaluation and translation of foreign-currency denominated assets andliabilities are credited to or charged against operations in the year in which the rates change.

Non-monetary items that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rates as at the dates of the initial transactions. Non-monetary itemsmeasured at fair value in a foreign currency are translated using the exchange rates at the datewhen the fair value is determined.

FCDUAs at the reporting date, the assets and liabilities of the FCDU of the Parent Company and SBS aretranslated into the Parent Company’s presentation currency (the Philippine Peso) at PDS closingrate prevailing at the statement of financial position date, and its income and expenses aretranslated at PDS weighted average rate for the year. Exchange differences arising on translationto the presentation currency are taken to the statement of comprehensive income underCumulative translation adjustment. Upon disposal of the FCDU or upon actual remittance ofFCDU profits to RBU, the deferred cumulative amount recognized in the statement ofcomprehensive income is recognized in the statement of income.

Investments in Subsidiaries and a Joint VentureInvestment in subsidiariesInvestments in subsidiaries in the Parent Company’s separate financial statements are accountedfor under the cost method of accounting. Dividends received are reported as dividend incomewhen the right to receive the payment is established.

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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 contractuallyagreed sharing of control of an arrangement, which exists only when decisions about the relevantactivities require unanimous consent of the parties sharing control. The Group’s investment in ajoint venture represents its 60.00% interest in SBML.

The considerations made in determining joint control is similar to those necessary to determinecontrol over subsidiaries.

The Group’s investment in its joint venture is accounted for using the equity method. Under theequity method, the investment in a joint venture is initially recognized at cost. The carryingamount of the investment is adjusted to recognize changes in the Group’s share of net assets of thejoint venture since the acquisition date. Goodwill relating to the joint venture is included in thecarrying amount of the investment and is neither amortized nor individually tested for impairment.

The statement of profit or loss reflects the Group’s share of the results of operations of the jointventure. Any change in OCI of the investee is presented as part of the Group’s OCI. In addition,when there has been a change recognized directly in the equity of the joint venture, the Grouprecognizes its share of any changes, when applicable, in the statement of changes in equity.Unrealized gains and losses resulting from transactions between the Group and the joint ventureare eliminated to the extent of the interest in the joint venture.

The aggregate of the Group’s share of profit or loss of a joint venture is shown on the face of thestatement of income under Share in Net Income (Loss) of a Joint Venture and represents profit orloss after tax and non-controlling interests in the subsidiaries of the joint venture.

The financial statements of the joint venture are prepared for the same reporting period as theGroup. When necessary, adjustments are made to bring the accounting policies in line with thoseof the Group.

After application of the equity method, the Group determines whether it is necessary to recognizean impairment loss on its investment in its joint venture. At each statement of financial positiondate, the Group determines whether there is objective evidence that the investment in joint ventureis impaired. If there is such evidence, the Group calculates the amount of impairment as thedifference between the recoverable amount of the joint venture and its carrying value, thenrecognizes the loss in the statement of income.

Upon loss of joint control over the joint venture, the Group measures and recognizes any retainedinvestment at its fair value. Any difference between the carrying amount of the joint venture uponloss of joint control and the fair value of the retained investment and proceeds from disposal isrecognized in the statement of income.

In the Parent Company financial statements, investments in a joint venture are carried at cost less,if any, allowance for impairment losses.

Interest in a Joint OperationThe Group is a party to a joint operation whereby it contributed a parcel of land for developmentinto residential and commercial units. A joint operation involves the use of assets and otherresources of the Group and other venturers rather than the establishment of a corporation,partnership or other entity. The Group accounts for the assets it controls and the liabilities andexpenses it incurs, and the share of the income that it earns from the sale of goods, properties or

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services by the joint operation. The assets contributed to the joint venture are measured at thelower of cost or net realizable value. Net realizable value is the estimated selling price in theordinary course of business less estimated costs necessary to make the sale.

SLC has an interest in a joint operation with Robinsons Land Corporation (RLC) (see Note 16).

Property and EquipmentLand is stated at cost less any impairment in value and depreciable properties including buildingand improvements, furniture, fixtures and equipment, transportation equipment and leaseholdimprovements are stated at cost less accumulated depreciation and amortization and anyimpairment in value.

The initial cost of property and equipment consists of its purchase price, including import duties,taxes and any directly attributable costs of bringing the asset to its working condition and locationfor its 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 anitem of property and equipment beyond its originally assessed standard of performance, theexpenditures are capitalized as an additional cost of property and equipment. When assets areretired or otherwise disposed of, the cost and the related accumulated depreciation andamortization and any impairment in value are removed from the accounts, and any resulting gainor loss is reflected as income or loss in the statement of income.

Depreciation is computed using the straight-line method based on the estimated useful life (EUL)of the depreciable assets.

The range of EUL of property and equipment follows:

YearsBuilding and improvements 5-30Furniture, fixtures and equipment 1-10Transportation equipment 5-10

Leasehold improvements are amortized over the EUL of 5 years of the improvements or the termsof the related leases, whichever is shorter.

The EUL and the depreciation and amortization method are reviewed periodically to ensure thatthe period and the method of depreciation and amortization are consistent with the expectedpattern of economic benefits from items of property and equipment.

The carrying values of property and equipment are reviewed for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable. If any suchindication exists and where the carrying values exceed the estimated recoverable amount, theassets are written down to their recoverable amounts (see accounting policy on Impairment ofNonfinancial Assets).

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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 inrecognized in the statement of income. Foreclosed properties are classified under Investmentproperties upon:

a. entry of judgment in case of judicial foreclosure;b. execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; orc. 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,less accumulated depreciation and any impairment in value. Land is carried at cost less anyimpairment in value. Transaction costs, which include nonrefundable capital gains tax anddocumentary stamp tax, incurred in connection with foreclosure are capitalized as part of the costof the real properties acquired.

The Group applies the cost model in accounting for investment properties. Depreciation iscomputed on a straight-line basis over the EUL of 10 years. The EUL and the depreciationmethod are reviewed periodically to ensure that the period and the method of depreciation areconsistent with the expected pattern of economic benefits from items of real properties acquired.

The carrying values of the real properties acquired are reviewed for impairment when events 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, theassets are written down to their recoverable amounts (see accounting policy on Impairment ofNonfinancial Assets).

Investments in real estateInvestments in real estate consist of investments in land and building. Investments in land arecarried at cost less impairment in value. Building is carried at cost less accumulated depreciationand impairment in value. All costs that are directly attributable to the acquisition and developmentof property are capitalized, including borrowing costs incurred to finance the propertydevelopment. Depreciation is computed on a straight-line basis over 15 years.

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.Any gains or losses on retirement or disposal of investment properties are recognized in thestatement of income 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. These are carried at cost, which is the fair value at acquisition date, less accumulateddepreciation and any impairment in value.

The Group applies the cost model in accounting for other properties acquired. Depreciation iscomputed on a straight-line basis over the EUL of 3 years. The EUL and the depreciation methodare reviewed periodically to ensure that the period and the method of depreciation are consistentwith the expected pattern of economic benefits from items of other properties acquired.

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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, theassets are written down to their recoverable amounts (see accounting policy on Impairment ofNonfinancial Assets).

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 theasset (calculated as the difference between the net disposal proceeds and the carrying amount ofthe asset) is included in the statement of income as Profit from assets sold/exchanged in the yearthe asset is derecognized.

Intangible AssetsIntangible assets consist of software costs, exchange trading right and branch licenses. Anintangible asset is recognized only when its cost can be measured reliably and it is probable thatthe expected future 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 2 to 5 years. The amortization period and the amortization method for softwarecost are reviewed periodically to be consistent with the changes in the expected useful life or theexpected pattern of consumption of future economic benefits embodied in the asset. Theamortization expense on software cost is recognized in the statement of income.

Exchange trading rightThe exchange trading right is an intangible asset to be 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 membershipseat (after a corresponding allocation was made to the value of the Philippine Stock Exchangeshares) less impairment in value. SBEI does not intend to sell the exchange trading right in thenear future.

Branch licensesBranch licenses have been acquired and granted by the BSP and capitalized on the basis of thecost incurred to acquire and bring to use in operation. Branch licenses are determined to haveindefinite useful lives and are tested for impairment annually.

The carrying values of intangible assets are reviewed for impairment when events or changes incircumstances indicate that the carrying value may not be recoverable. If any such indicationexists and where the carrying values exceed the estimated recoverable amount, the assets arewritten down to their recoverable amounts (see accounting policy on Impairment of NonfinancialAssets).

Business CombinationsBusiness combinations are accounted for using the acquisition method. The cost of an acquisitionis measured as the aggregate of the consideration transferred, measured at acquisition date fairvalue and the amount of any non-controlling interest in the acquiree. For each businesscombination, the acquirer measures the non-controlling interest in the acquiree either at fair valueor at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurredare expensed and included in administrative expenses.

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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. It is then considered in the determination of goodwill.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value atthe acquisition date. Subsequent changes to the fair value of the contingent consideration which isdeemed to be an asset or liability, will be recognized in accordance with PAS 39 either in profit orloss or as a change to OCI. If the contingent consideration is classified as equity, it is notremeasured 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 fairvalue of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

Following initial recognition, goodwill is measured at cost less any accumulated impairmentlosses. 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 toeach of the Group’s cash-generating units (CGUs) or group of CGUs, which are expected tobenefit from the synergies of the combination, irrespective of whether other assets or liabilities ofthe acquiree are assigned to those units. Each unit to which the goodwill is allocated represents thelowest level within the Group at which the goodwill is monitored for internal managementpurposes, and is not larger than an operating segment in accordance with PFRS 8, OperatingSegments.

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 thecarrying amount of the operation when determining the gain or loss on disposal. Goodwilldisposed of in these circumstance is measured based on the relative values of the disposedoperation and the portion of the CGU retained.

When subsidiaries are sold, the difference between the selling price and the net assets pluscumulative translation differences and goodwill is recognised in the statement of income.

Impairment of Nonfinancial AssetsNonfinancial assets include property and equipment, investment properties, investment insubsidiaries, associate and a joint venture, software costs, goodwill, exchange trading right, branchlicenses and other properties acquired.

Property and equipment, investments in subsidiaries and a joint venture, investment properties,and other properties acquiredThe Group assesses at each statement 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 assetis required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount isthe higher of an asset’s or CGU’s fair value less cost to sell and its value in use (VIU). Where the

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carrying amount of an asset or CGU exceeds its recoverable amount, the asset is consideredimpaired and is written down to its recoverable amount. In assessing VIU, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. In determiningfair value less costs to sell, an appropriate valuation model is used. These calculations arecorroborated by valuation multiples or other available fair value indicators. Any impairment lossis charged to operations in the year in which it arises.

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 havedecreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverableamount. A previously recognized impairment loss is reversed only if there has been a change inthe assumptions used to determine the asset’s recoverable amount since the last impairment losswas recognized. The reversal is limited so that the carrying amount of the asset does not exceedits recoverable amount, nor exceeds the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognized for the asset in prior years. Such reversal isrecognized in the statement of income. After such a reversal, the depreciation expense is adjustedin future years to allocate the asset’s revised carrying amount, less any residual value, on asystematic basis over its remaining life.

Intangible Assets - branch licenses, exchange trading right and software costsIntangible assets with indefinite useful lives are tested for impairment annually at statement offinancial position date either individually or at the cash generating unit level, as appropriate orwhen circumstances indicate that the intangible asset may be impaired. Intangible assets withfinite lives are assessed for impairment whenever there is an indication that the intangible assetmay 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 groupof CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group ofCGUs) is less than the carrying amount of the CGU (or group of CGUs) to which goodwill hasbeen allocated, an impairment loss is recognized immediately in the statement of income.Impairment losses relating to goodwill cannot be reversed for subsequent increases in itsrecoverable amount in future periods.

Income TaxesCurrent taxCurrent tax assets and liabilities for the current periods are measured at the amount expected to berecovered from or paid to the taxation authorities. The tax rates and tax laws used to compute theamount are those that are enacted or substantively enacted at the statement of financial positiondate.

Deferred taxDeferred tax is provided on all temporary differences at the statement of financial position datebetween the tax bases of assets and liabilities and their carrying amounts for financial reportingpurposes.

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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, wherethe timing of the reversal of the temporary differences can be controlled and it is probable thatthe temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward ofunused tax credits from excess minimum corporate income tax (MCIT) over regular corporateincome tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it isprobable that taxable income will be available against which the deductible temporary differencesand carryforward of unused MCIT and unused NOLCO can be utilized except:

· Where the deferred tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting income nor taxable income;and

· In respect of deductible temporary differences associated with investments in subsidiaries,deferred tax assets are recognized only to the extent that it is probable that the 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 taxable income will beavailable to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred taxassets are reassessed at each statement of financial position date and are recognized to the extentthat it has become probable that future taxable income will allow the deferred tax asset to berecovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the periodwhen the asset is realized or the liability is settled, based on tax rates (and tax laws) that have beenenacted or 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 ordirectly in equity.

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off currenttax assets against current tax liabilities and the deferred taxes relate to the same taxable entity andthe same taxation authority.

Revenue RecognitionThe Group assesses its revenue arrangements against specific criteria in order to determine if it isacting as principal or agent. Revenue is recognized to the extent that it is probable that theeconomic benefits will flow to the Group and the revenue can be reliably measured. Thefollowing specific recognition criteria must also be met before revenue is recognized:

Interest incomeInterest on financial instruments measured at amortized cost and interest-bearing financial assets atFVTPL, HFT investments, and AFS investments are recognized based on the effective interestmethod of accounting.

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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 throughoutthe expected life of the financial instrument or, when appropriate, a shorter period to the netcarrying amount of the financial asset or financial liability. When calculating the EIR, the Groupestimates cash flows from the financial instrument (for example, prepayment options) but does notconsider future credit losses. The calculation includes all fees and points paid or received betweenparties to the contract that are an integral part of the EIR, transaction costs and all other premiumsor 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 discountthe future cash flows for the purpose of measuring the impairment loss.

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 a certain period of time

Fees earned for the provision of services over a period of time are accrued over that period.Loan commitment fees are recognized as earned over the term of the credit lines granted toeach borrower. However, loan commitment fees for loans that are likely to be drawn aredeferred (together with any incremental costs) and recognized as an adjustment to the EIR onthe 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. Fee income from providing transaction servicesFees arising from negotiating or participating in the negotiation of a transaction for a thirdparty, such as underwriting fees, corporate finance fees, and brokerage fees for thearrangement of the acquisition of shares or other securities or the purchase or sale ofbusinesses, are recognized on completion of the underlying transaction. Fees or componentsof fees that are linked to a certain performance are recognized after fulfilling thecorresponding criteria. Loan syndication fees are recognized in the statement of income whenthe syndication has been completed and the Group retains no part of the loans for itself orretains part at the same EIR as for the other participants.

Trading and securities gain - netResults arising from trading activities including all gains and losses from changes in fair value offinancial assets and financial liabilities at FVTPL, derivatives, gains and losses from disposal ofinvestment securities at amortized cost and any ineffectiveness recognized on accounting hedges.Costs of investment securities sold are determined using the weighted average cost method.

Dividend 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 leaseterms on ongoing leases.

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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 oncertain agreed rates and are deducted from the amounts remitted to the member establishments.Discounts earned are net of service fees, which represent interchange fees charged by the otherDiners Card Inc., Ltd. (DCI) issuers for purchases made by the cardholders of the other DCIissuers in the Philippines.

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 considerationreceived in respect of the initial sale is allocated between the award credits and the othercomponents of the sale. Income generated from customer loyalty programmes is recognized inService charges, fees and commissions in the statement of income.

Real estate revenueReal estate revenue pertains to the sale of residential condominium units being developed under ajoint venture entered into by the Group, whereby the Group contributed parcels of land to bedeveloped by its joint venture counterparty into residential condominium units.

Real estate revenue is accounted for using the full accrual method. The percentage-of-completionmethod is used to recognize income from sales of projects. Under this method, revenue isrecognized as the related obligations are fulfilled, measured principally in relation to cost incurredto date over the total cost of the project. The Group recognizes real estate revenue under Profitfrom asset sold/exchanged in the statement of income.

When a sale of real estate does not meet the requirements for revenue recognition, the sale isaccounted for under the deposit method. Under this method, revenue is not recognized, and thereceivable from the buyer is not recorded. The real estate inventories are included under Otherassets as Land held for sale and the related liability as deposits or advances from customersincluded under Other liabilities in the statement of financial position.

Cost of real estate sales is recognized consistent with the revenue recognition method applied.Cost of real estate inventory sold before the completion of the development is determined on thebasis of the acquisition cost of the land.

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 salesprice is reasonably assured under Profit from asset sold/exchanged in the statement of income.

Expense RecognitionExpenses are recognized when decrease in future economic benefits related to a decrease in anasset or an increase of a liability has arisen that can be measured reliably. Expenses arerecognized when incurred.

Operating expensesOperating expenses constitute costs which arise in the normal business operation and arerecognized when incurred.

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Taxes and licensesThis includes all other taxes, local and national, including gross receipts taxes (GRT),documentary stamp taxes, real estate taxes, licenses and permit fees and are recognized whenincurred.

Pension CostThe Group has a noncontributory defined benefit plan that defines the amount of pension benefitthat an employee will receive on retirement, usually dependent on one or more factors such as age,years of service and compensation. The Group’s retirement cost is determined using the projectedunit credit method. The retirement cost is generally funded through payments to a trustee-administered fund, determined by periodic actuarial calculations.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.

Defined benefit costs comprise the following:- Service cost- Net interest on the net defined benefit liability or asset- Remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically byindependent 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 byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as interest expense in profitor loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise and close to surplusat 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 ofplan assets is based on market price information. When no market price is available, the fair valueof plan assets is estimated by discounting expected future cash flows using a discount rate thatreflects both the risk associated with the plan assets and the maturity or expected disposal date ofthose assets (or, if they have no maturity, the expected period until the settlement of the relatedobligations).

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LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset. A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;b. a renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

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 recognizedas an 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 statement of financial position underLoans 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 inInterest income in the statement of income.

Leases where the Group does not transfer substantially all the risks and benefits of ownership ofthe assets are classified as operating leases. Initial direct costs incurred in negotiating operatingleases are added to the carrying amount of the leased asset and recognized over the lease term onthe same basis as the rental income. Contingent rents are recognized as revenue in the period inwhich they are earned.

Provisions and ContingenciesProvisions are recognized when the Group has a present obligation (legal or constructive) as aresult of a past event and where it is probable that an outflow of assets embodying economicbenefits will be required to settle the obligation and a reliable estimate can be made of the amountof the obligation. If the effect of the time value of money is material, provisions are determinedby discounting the expected future cash flows at a pre-tax rate that reflects current marketassessment of the time value of money and, where appropriate, the risks specific to the liability.Where discounting is used, the increase in the provision due to the passage of time is recognizedas 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 arenot recognized but are disclosed in the financial statements when an inflow of economic benefitsis probable.

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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 effectiveinterest method. Unamortized debt issuance costs are included in the carrying amount of the debtinstrument in the statement of financial position.

Borrowing CostsBorrowing costs are recognized as expense in the year in which these costs are incurred.Borrowing costs consist of interest expense calculated using the effective interest methodcalculated in accordance with PAS 39 that the Group incurs in connection with borrowing offunds.

Earnings Per ShareBasic earnings per share (EPS) is computed by dividing the net income for the year attributable toequity holders of the Parent Company by the weighted average number of common sharesoutstanding during the year after giving retroactive effect to stock dividends declared and stockrights 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.

EquityCapital 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 theAdditional paid-in capital is not sufficient, the excess is charged against Surplus.

When the Group issues more than one class of stock, a separate account is maintained for eachclass of stock and the number of shares issued.

Surplus represents accumulated earnings of the Group less dividends declared.

Dividends on Common SharesCash dividends on common shares are recognized as a liability and deducted from equity whenapproved by the respective BOD of the Parent Company and subsidiaries. Dividends for the yearthat are approved after the statement of financial position date are dealt with as a non-adjustingevent after the statement of financial position date.

Segment ReportingThe Group’s operating businesses are organized and managed separately according to the natureof the products and services provided, with each segment representing a strategic business unitthat offers different products and serves different markets. Financial information on businesssegments is presented in Note 34.

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

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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 financialstatements are listed below. This listing is 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 expectthe adoption of these new and amended PFRS and Philippine Interpretations to have significantimpact on the financial statements.

Effective in 2014

Investment Entities (Amendments to PFRS 10, PFRS 12 and PAS 27)These amendments are effective for annual periods beginning on or after January 1, 2014. Theyprovide an exception to the consolidation requirement for entities that meet the definition of aninvestment entity under PFRS 10. The exception to consolidation requires investment entities toaccount for subsidiaries at fair value through profit or loss.

Philippine Interpretation IFRIC 21, Levies (IFRIC 21)IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggerspayment, as identified by the relevant legislation, occurs. For a levy that is triggered uponreaching a minimum threshold, the interpretation clarifies that no liability should be anticipatedbefore the specified minimum threshold is reached. IFRIC 21 is effective for annual periodsbeginning on or after January 1, 2014.

PAS 19, Employee Benefits – Defined Benefit Plans: Employee Contributions (Amendments)The amendments apply to contributions from employees or third parties to defined benefit plans.Contributions that are set out in the formal terms of the plan shall be accounted for as reductionsto current service costs if they are linked to service or as part of the remeasurements of the netdefined benefit asset or liability if they are not linked to service. Contributions that arediscretionary shall be accounted for as reductions of current service cost upon payment of thesecontributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annualperiods beginning on or after July 1, 2014.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments)The amendments clarify the meaning of “currently has a legally enforceable right to set-off” andalso clarify the application of the PAS 32 offsetting criteria to settlement systems (such as centralclearing house systems) which apply gross settlement mechanisms that are not simultaneous. Theamendments affect presentation only and have no impact on the Group’s financial position orperformance. The amendments to PAS 32 are to be retrospectively applied for annual periodsbeginning on or after January 1, 2014.

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PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments)These amendments remove the unintended consequences of PFRS 13 on the disclosures requiredunder PAS 36. In addition, these amendments require disclosure of the recoverable amounts forthe assets or cash-generating units (CGUs) for which impairment loss has been recognized orreversed during the period. These amendments are effective retrospectively for annual periodsbeginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is alsoapplied. The amendments affect disclosures only and have no impact on the Group’s financialposition or performance.

Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessaryamendments to the following standards:

PFRS 2, Share-based Payment - Definition of Vesting ConditionThe amendment revised the definitions of vesting condition and market condition and added thedefinitions of performance condition and service condition to clarify various issues. Thisamendment shall be prospectively applied to share-based payment transactions for which the grantdate is on or after July 1, 2014. This amendment does not apply to the Group as it has no share-based payments .

PFRS 3, Business Combinations - Accounting for Contingent Consideration in a BusinessCombinationThe amendment clarifies that a contingent consideration that meets the definition of a financialinstrument should be classified as a financial liability or as equity in accordance with PAS 32.Contingent consideration that is not classified as equity is subsequently measured at fair valuethrough profit or loss whether or not it falls within the scope of PFRS 9 (or PAS 39, if PFRS 9 isnot yet adopted) The amendment shall be prospectively applied to business combinations forwhich the acquisition date is on or after July 1, 2014. The Group shall consider this amendmentfor future business combinations.

PFRS 8, Operating Segments - Aggregation of Operating Segments and Reconciliation of theTotal of the Reportable Segments’ Assets to the Entity’s AssetsThe amendments require entities to disclose the judgment made by management in aggregatingtwo or more operating segments. This disclosure should include a brief description of theoperating segments that have been aggregated in this way and the economic indicators that havebeen assessed in determining that the aggregated operating segments share similar economiccharacteristics. The amendments also clarify that an entity shall provide reconciliations of the totalof the reportable segments’ assets to the entity’s assets if such amounts are regularly provided tothe chief operating decision maker. These amendments are effective for annual periods beginningon or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures onlyand have no impact on the Group’s financial position or performance.

PFRS 13, Fair Value Measurement – Short-term Receivables and PayablesThe amendment clarifies that short-term receivables and payables with no stated interest rates canbe held at invoice amounts when the effect of discounting is immaterial.

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PAS 16, Property, Plant and Equipment - Revaluation Method – Proportionate Restatement ofAccumulated DepreciationThe amendment clarifies that, upon revaluation of an item of property, plant and equipment, thecarrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treatedin one of the following ways:a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the

carrying amount of the asset. The accumulated depreciation at the date of revaluation isadjusted to equal the difference between the gross carrying amount and the carrying amount ofthe asset after taking into account any accumulated impairment losses.

b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.

The amendment is effective for annual periods beginning on or after July 1, 2014. The amendmentshall apply to all revaluations recognized in annual periods beginning on or after the date of initialapplication of this amendment and in the immediately preceding annual period. The amendmenthas no impact on the Group’s financial position or performance.

PAS 24, Related Party Disclosures – Key Management PersonnelThe amendments clarify that an entity is a related party of the reporting entity if the said entity, orany member of a group for which it is a part of, provides key management personnel services tothe reporting entity or to the parent company of the reporting entity. The amendments also clarifythat a reporting entity that obtains management personnel services from another entity (alsoreferred to as management entity) is not required to disclose the compensation paid or payable bythe management entity to its employees or directors. The reporting entity is required to disclosethe amounts incurred for the key management personnel services provided by a separatemanagement entity. The amendments are effective for annual periods beginning on or afterJuly 1, 2014 and are applied retrospectively. The amendments affect disclosures only and have noimpact on the Group’s financial position or performance.

PAS 38, Intangible Assets - Revaluation Method - Proportionate Restatement of AccumulatedAmortizationThe amendments clarify that, upon revaluation of an intangible asset, the carrying amount of theasset shall be adjusted to the revalued amount, and the asset shall be treated in one of thefollowing ways:a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the

carrying amount of the asset. The accumulated amortization at the date of revaluation isadjusted to equal the difference between the gross carrying amount and the carrying amount ofthe asset after taking into account any accumulated impairment losses.

b. The accumulated amortization is eliminated against the gross carrying amount of the asset.

The amendments also clarify that the amount of the adjustment of the accumulated amortizationshould form part of the increase or decrease in the carrying amount accounted for in accordancewith the standard.

The amendments are effective for annual periods beginning on or after July 1, 2014. Theamendments shall apply to all revaluations recognized in annual periods beginning on or after thedate of initial application of this amendment and in the immediately preceding annual period. Theamendments have no impact on the Group’s financial position or performance.

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Annual Improvements to PFRSs (2011-2013 cycle)The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessaryamendments to the following standards:

PFRS 1, First-time Adoption of Philippine Financial Reporting Standards – Meaning of ‘EffectivePFRSs’The amendment clarifies that an entity may choose to apply either a current standard or a newstandard that is not yet mandatory, but that permits early application, provided either standard isapplied consistently throughout the periods presented in the entity’s first PFRS financialstatements. This amendment is not applicable to the Group as it is not a first-time adopter ofPFRS.

PFRS 3, Business Combinations - Scope Exceptions for Joint ArrangementsThe amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a jointarrangement in the financial statements of the joint arrangement itself. The amendment is effectivefor annual periods beginning on or after July 1 2014 and is applied prospectively.

PFRS 9, Financial InstrumentsPFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies tothe classification and measurement of financial assets and liabilities and hedge accounting,respectively. Work on the second phase, which relate to impairment of financial instruments, andthe limited amendments to the classification and measurement model is still ongoing, with a viewto replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair valueat initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, besubsequently measured at amortized cost if it is held within a business model that has the objectiveto hold the assets to collect the contractual cash flows and its contractual terms give rise, onspecified dates, to cash flows that are solely payments of principal and interest on the principaloutstanding. All other debt instruments are subsequently measured at fair value through profit orloss. All equity financial assets are measured at fair value either through other comprehensiveincome (OCI) or profit or loss. Equity financial assets held for trading must be measured at fairvalue through profit or loss. For liabilities designated as at FVPL using the fair value option, theamount of change in the fair value of a liability that is attributable to changes in credit risk must bepresented in OCI. The remainder of the change in fair value is presented in profit or loss, unlesspresentation of the fair value change relating to the entity’s own credit risk in OCI would create orenlarge an accounting mismatch in profit or loss. All other PAS 39 classification andmeasurement requirements for financial liabilities have been carried forward to PFRS 9, includingthe embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of thefirst phase of PFRS 9 will have an effect on the classification and measurement of the Group’sfinancial assets, but will potentially have no impact on the classification and measurement offinancial liabilities.

On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with amore principles-based approach. Changes include replacing the rules-based hedge effectivenesstest with an objectives-based test that focuses on the economic relationship between the hedgeditem and the hedging instrument, and the effect of credit risk on that economic relationship;allowing risk components to be designated as the hedged item, not only for financial items, butalso for non-financial items, provided that the risk component is separately identifiable andreliably measurable; and allowing the time value of an option, the forward element of a forwardcontract and any foreign currency basis spread to be excluded from the designation of a financialinstrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requiresmore extensive disclosures for hedge accounting.

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PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completionof the limited amendments to the classification and measurement model and impairmentmethodology.

PFRS 13, Fair Value Measurement – Portfolio ExceptionThe amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets,financial liabilities and other contracts. The amendment is effective for annual periods beginningon or after July 1 2014 and is applied prospectively. The amendment has no significant impact onthe Group’s financial position or performance.

PAS 40, Investment PropertyThe amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifyingproperty as investment property or owner-occupied property. The amendment stated that judgmentis needed when determining whether the acquisition of investment property is the acquisition of anasset or a group of assets or a business combination within the scope of PFRS 3. This judgment isbased on the guidance of PFRS 3. This amendment is effective for annual periods beginning on orafter July 1, 2014 and is applied prospectively. The amendment has no significant impact on theGroup’s financial position or performance.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real EstateThis interpretation covers accounting for revenue and associated expenses by entities thatundertake the construction of real estate directly or through subcontractors. The interpretationrequires that revenue on construction of real estate be recognized only upon completion, exceptwhen such contract qualifies as construction contract to be accounted for under PAS 11 orinvolves rendering of services in which case revenue is recognized based on stage of completion.Contracts involving provision of services with the construction materials and where the risks andreward of ownership are transferred to the buyer on a continuous basis will also be accounted forbased on stage of completion. The SEC and the Financial Reporting Standards Council (FRSC)have deferred the effectivity of this interpretation until the final Revenue standard is issued by theInternational Accounting Standards Board (IASB) and an evaluation of the requirements of thefinal Revenue standard against the practices of the Philippine real estate industry is completed.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in compliance with PFRS requires the Group to makejudgments and estimates that affect the reported amounts of assets, liabilities, income andexpenses 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 reasonablydeterminable.

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

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Judgmentsa. Going concern

The Group’s management has made an assessment of the Group’s ability to continue as agoing concern and is satisfied that the Group has the resources to continue in business for theforeseeable future. Furthermore, management is not aware of any material uncertainties thatmay cast significant doubt upon the Group’s ability to continue as a going concern. Therefore,the financial statements continue to be prepared on a going concern basis.

b. LeasesOperating 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 theend of the lease term, the lessee has no option to purchase the asset at a price that is expectedto be sufficiently lower than the fair value at the date the option is exercisable and the leaseterm is not for the major part of the asset’s economic life), that it retains all the significantrisks and rewards of ownership of these properties which are leased and so accounts for thecontracts as operating leases.

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.the lease does not transfer ownership of the asset to the lessee by the end of the lease term andthe lease 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.

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 substantiallyall of the fair value of leased asset, lease term is for the major part of the economic useful lifeof the asset, and lessor’s losses associated with the cancellation are borne by the lessee) that ithas transferred all significant risks and rewards of ownership of the properties it leases out onfinance leases.

c. Fair value of financial instrumentsWhere the fair values of financial assets and financial liabilities recognized or disclosed in thestatement 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 thisis not feasible, a degree of judgment is required in establishing fair values. These judgmentsmay include considerations of liquidity and model inputs such as correlation and volatility forlonger dated derivatives.

d. Embedded derivativesWhere a host instrument is not a financial asset within the scope of PFRS 9, the Groupevaluates whether the embedded derivative should be bifurcated and accounted for separately.This includes assessing whether the embedded derivative has a close economic relationship tothe host contract.

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e. Business model testThe Group manages its financial assets based on a business model that maintains adequatelevel of financial assets to match expected cash outflows while maintaining a strategicportfolio of financial assets for trading activities.

The Group's business model can be to hold financial assets to collect HTC contractual cashflows even when sales of certain financial assets occur. PFRS 9, however, emphasizes that ifmore than an infrequent number of sales are made out of a portfolio of financial assets carriedat amortized cost, the entity should assess whether and how such sales are consistent with theobjective of collecting contractual cash flows. In making this judgement, the Group considers,among other factors, the following:

a. disposal of instrument that no longer meets the Group’s investment policy (i.e., creditrating falls below the approved investments criteria for the business model);

b. disposal for unanticipated capital expenditure needs;c. sales of financial assets to reflect the change in expected timing of payouts;d. sales which are so close to maturity (e.g., less than three months) or the security’s call date

that changes in market rate of interest would not have a significant effect on the security’sfair value;

e. sales that occur after the Group has substantially collected all of the original principalthrough scheduled payments or prepayments;

f. sales attributable to an isolated event that is beyond the Group’s control, is non-recurringand could not have been reasonably anticipated;

g. sales attributable to a change in tax law that eliminates or significantly reduces the taxexempt status of the interest on the security;

h. sales attributable to major combination or major disposition that necessitates the sale ofsecurities to maintain the Group’s interest rate risk position or credit risk policy;

i. sales attributable to a change in statutory or regulatory requirements significantlymodifying either what constitutes a permissible investment or the maximum level ofparticular investments;

j. sales attributable to a significant increase in regulatory capital requirements;k. sales attributable to a significant increase in risk weights of securities used for regulatory

risk-based capital purposes; andl. sales attributable to the changes in the payment structure as initiated by the creditor

(e.g., bond swap or exchange, options, changes in tenor and other related debtrestructuring).

In 2013, the Parent Company decided to dispose of a significant portion of its holdings ofRepublic of the Philippines (ROP) US dollar-denominated government securities managedunder the HTC business model to provide capital relief and mitigate the impact of the newcapital requirements under Basel III on its CAR. The Parent Company believes that thesedisposals do not contradict its HTC business model (see Note 8).

On various dates in 2013, the Parent Company sold to SBS on a without recourse basis itsentire portfolio of personal loans, home loans/residential mortgages and auto loans toconsolidate all consumer financing activities under SBS. The Parent Company believes thatthe sale does not put into question the amortized cost accounting for its remaining portfolio ofloans and receivables as the sale to SBS is a result of a change in business strategy. At theconsolidated level, the business model for all loans and receivables remain to be HTC(see Note 12).

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In 2012, the Parent Company changed its original intention of holding Peso-denominatedgovernment debt securities for the collection of contractual cash flows to the realization of fairvalue changes. Such change in intention constitutes a change in business model which wasapproved by the BOD on April 24, 2012 (see Note 8).

However in 2013, the Parent Company decided to increase its investment in Peso-denominated government securities to accommodate the unanticipated expansion in its corepeso current and savings accounts (CASA) deposits arising from the restricted access to theBSP’s Special Deposit Account (SDA). The Parent Company assessed that this portfolio ismanaged under the HTC business model (see Note 8).

In 2011, as a result of the Parent Company’s participation in the ROP Domestic DebtConsolidation Program, some of the Parent Company’s holdings of financial assets whichwere part of the HTC business model were sold (see Note 8). Moreover, the Parent Companysold some of its holdings of HTC financial assets for capital expenditure purposes. The ParentCompany believes that these disposals do not contradict its HTC business model (see Note 8).

f. Cash flow characteristics testWhere the financial assets are classified as at amortized cost, the Group assesses whether thecontractual terms of these financial assets give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal outstanding, with interestrepresenting time value of money and credit risk associated with the principal amountoutstanding. The assessment as to whether the cash flows meet the test is made in thecurrency in which the financial asset is denominated. Any other contractual term that changesthe timing or amount of cash flows (unless it is a variable interest rate that represents timevalue of money and credit risk) does not meet the amortized cost criteria.

g. ContingenciesThe Group is currently involved in various legal proceedings. The estimate of the probablecosts for the resolution of these claims has been developed in consultation with outsidecounsel handling the Group’s defense in these matters and is based on an analysis of potentialresults. The Group currently does not believe that these proceedings will have a materialadverse effect on the financial statements. It is possible, however, that future results ofoperations could be materially affected by changes in the estimates or in the effectiveness ofthe strategies relating to these proceedings (see Note 33).

h. 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 representsthe economic effects of the underlying transactions, events and conditions that are relevant tothe entity. In making this judgment, the Group considers the following:

a) 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 servicesare denominated and settled);

b) the currency in which funds from financing activities are generated; andc) the currency in which receipts from operating activities are usually retained.

a. Consolidation and joint arrangementsThe Group has determined that it controls and consolidates the subsidiaries in which it ownsmajority of the shares.

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As discussed in Note 1, the Group has a JVA with Marubeni where it owns 60% of SBML.Under the JVA, the parties agreed to use SBML as a joint venture entity and requires theunanimous consent of both the Parent Company and Marubeni for any significant decisionsmade in the ordinary course of business of SBML. The Group has (after considering thestructure and form of the arrangement, the terms agreed by the parties in the contractualarrangement and the Group's rights and obligations arising from the arrangement) classified itsinterest in SBML under PFRS 11. As a consequence it continues to accounts for its ininvestment in SBML using the equity method.

Estimatesa. Fair value of financial instruments

The fair values of financial instruments that are not quoted in active markets are determinedusing valuation techniques such as discounted cash flow analysis and standard option pricingmodels for some derivative instruments. Where valuation techniques are used to determinefair values, they are reviewed by qualified personnel independent of the area that createdthem. All financial models are reviewed before they are used and to the extent practicable,financial models use only observable data, however, areas such as credit risk (both own andcounterparty) volatilities and correlations require management to make estimates. Changes inassumptions about these factors could affect reported fair value of financial instruments.Refer to Note 6 for the fair value measurements of financial instruments.

b. Impairment of financial assets at amortized costThe Group reviews its individually significant financial assets classified as at amortized cost ateach statement of financial position date to assess whether an impairment loss should berecorded in the statement of income. In particular, judgment by management is required in theestimation of the amount and timing of future cash flows when determining the impairmentloss. In estimating these cash flows, the Group makes judgments about the counterparty’sfinancial situation and the net realizable value of collateral. These estimates are based onassumptions about a number of factors and actual results may differ, resulting in futurechanges to the recognized impairment loss.

Financial assets that have been assessed individually and found not to be impaired and allindividually insignificant financial assets are then assessed collectively, in groups of assetswith similar characteristics, to determine whether provision should be made due to incurredloss events for which there is objective evidence but whose effects are not yet evident. Thecollective assessment takes account of data from the financial asset portfolio, concentrationsof risks and economic data.

The carrying values of investment securities at amortized cost and loans and receivables andthe related allowance for credit losses of the Group and the Parent Company, as applicable, aredisclosed in Notes 11 and 12.

c. Recognition of deferred tax assetsThe Group reviews the carrying amounts of deferred tax assets at each statement of financialposition date and reduces it to the extent that it is no longer probable that sufficient taxableincome will be available to allow all or part of the deferred tax assets to be utilized.Significant judgment is required to determine the amount of deferred tax assets that can berecognized, based upon the likely timing and level of future taxable income together withfuture tax planning strategies. The recognized net deferred tax assets and unrecognizeddeferred tax assets of the Group and the Parent Company are disclosed in Note 27.

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d. Impairment of nonfinancial assetsInvestments in subsidiaries, an associate and a joint venture and other nonfinancial assetsThe Parent Company and SBCIC assess impairment on its investments in subsidiaries, anassociate and a joint venture, whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Among others, the factors that the ParentCompany and SBCIC consider important which could trigger an impairment review on itsinvestments 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 nonfinancial assets (i.e., Property and equipment,Investment properties, Software costs, Exchange trading right, Branch licenses and Otherproperties acquired) whenever events or changes in circumstances indicate that the carryingamount of an asset may not be recoverable. The factors that the Group considers importantwhich could trigger an impairment review include the 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 strategyfor overall business; and

· significant negative industry or economic trends.

The Group recognizes an impairment loss whenever the carrying amount of the asset exceedsits recoverable amount. The recoverable amount is computed based on the higher of theasset’s fair value less cost to sell or VIU. Recoverable amounts are estimated for individualnonfinancial assets or, if it is not possible, for the CGU to which the nonfinancial assetbelongs.

The Group is required to make estimates and assumptions that can materially affect thecarrying amount of the asset being assessed.

As of December 31, 2013 and 2012, the carrying values of the Parent Company’s investmentsin subsidiaries and a joint venture and the related allowance for impairment losses aredisclosed in Note 13.

The carrying values of the Group’s and Parent Company’s nonfinancial assets follow:

Consolidated Parent Company2013 2012 2013 2012

Property and equipment (Note 14) P=1,974,281 P=1,544,696 P=1,761,152 P=1,335,873Investment properties (Note 15) 1,836,090 1,788,223 374,459 396,653Branch licenses (Note 16) 1,140,000 660,000 780,000 300,000Goodwill (Note 4) 841,602 841,602 – –Software costs (Note 16) 116,031 126,253 72,519 75,594Land held for sale (Note 16) 445,297 577,608 – –Other properties acquired (Note 16) 19,290 41,509 166 22,670Exchange trading right (Note 16) 8,500 8,500 – –

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The Group recognized provision for (recovery of) impairment losses on nonfinancial assetsamounting to (P=78.9 million) in 2013, P=27.7 million in 2012 and (P=156.5 million) in 2011.The Parent Company recognized provision for (recovery of) impairment losses onnonfinancial assets amounting to (P=8.7 million) in 2013, P=14.1 million in 2012 and(P=0.6 million) in 2011 (see Notes 14, 15 and 16).

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 thanthe carrying 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 of goodwill is disclosed in Note 4.

e. Estimated useful lives of property and equipment, investment properties, software costs andother properties 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 onexpected asset utilization as anchored on business plans and strategies that also considerexpected future technological developments and market behavior. It is possible that futureresults of operations could be materially affected by changes in these estimates brought aboutby changes in the factors mentioned. A reduction in the estimated useful lives of property andequipment, depreciable investment properties, software costs and other properties acquiredwould decrease their respective balances and increase the recorded depreciation andamortization expense.

The carrying values of depreciable property and equipment, investment properties, softwarecosts and other properties acquired are as follows:

Consolidated Parent Company2013 2012 2013 2012

Property and equipment (Note 14)* P=1,610,771 P=1,179,130 P=1,446,887 P=1,024,298Software costs (Note 16) 116,031 126,253 72,519 75,594Investment properties (Note 15)* 251,807 289,898 24,330 25,248Other properties acquired (Note 16) 19,290 41,509 166 22,670*Excludes land

f. Pension benefitsThe cost of defined benefit pension plans and other post employment medical benefits as wellas the present value of the pension obligation are determined using actuarial valuations. Theactuarial valuation involves making various assumptions. These include the determination ofthe discount rates, future salary increases, mortality rates and future pension increases. Due tothe complexity of the valuation, the underlying assumptions and its long-term nature, definedbenefit obligations are highly sensitive to changes in these assumptions. All assumptions arereviewed at each reporting date.

The present value of the defined benefit obligation of the Group and the Parent Company aredisclosed in Note 28.

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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,with extrapolated maturities corresponding to the expected duration of the defined benefitobligation.

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 28.

Employee entitlements to annual leave are recognized as a liability when they are accrued tothe employees. The undiscounted liability for leave expected to be settled wholly beforetwelve months after the end of the annual reporting period is recognized for services renderedby employees up to the end of the reporting period. As of December 31, 2013 and 2012,accrual of the Group for other employee benefit obligations and expenses included underAccrued and other expenses payable (included under Accrued interest, taxes and otherexpenses in the statements of financial position) amounted to P=437.3 million andP=522.8 million, respectively (see Note 22).

4. Business Combination and Goodwill

On June 1, 2011, the Parent Company and the shareholders of Premiere Development Bank (PDB)signed a share purchase agreement (SPA) for the acquisition of 96.42% of the outstanding capitalstock of PDB for P=1.3 billion, subject to regulatory approvals.

On January 20, 2012, the BSP approved the acquisition of PDB by the Parent Company subject tothe following conditions:

(a) Submission by the Parent Company of BIR clearance within 30 days; and(b) Parent Company’s infusion of additional capital to increase PDB’s capital to P=1.0 billion.

On February 1, 2012, the last closing date, the Parent Company effectively obtained control ofPDB. It is on this date that the Parent Company and the shareholders of PDB have performed andcomplied with all the requirements and conditions set out in the SPA. It is also on this date thatthe BOD of PDB approved the change in PDB’s name to Security Bank Savings Corporation(SBS). On May 9, 2012 and October 29, 2012, the BSP and the SEC approved the change inname, respectively.

The acquisition provides the Parent Company the opportunity to increase its presence in theconsumer and small-medium entities sector through SBS.

The following table summarizes the fair values of the assets acquired and liabilities assumed as ofthe acquisition date:

AssetsCash and other cash items P=203,698Due from BSP 183,041Interbank loans receivables 433,000

(Forward)

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Due from other banks P=207,986Financial assets at FVTOCI 14,933Investment securities at amortized cost 481,663Loans and receivables 2,470,199Property and equipment (Note 14) 205,975Investment properties (Note 15) 153,777Intangible assets (Note 16) 377,184Deferred tax assets 190,051Other assets (Note 16) 73,440

4,994,947LiabilitiesDeposit liabilities 4,245,254Bills payable 374Manager’s checks and certified checks outstanding 19,990Accrued taxes, interest and other expenses 69,168Deferred tax liability 108,000Other liabilities 75,008

4,517,794Net assets acquired 477,15396.42% share of Parent Company P=460,073

Goodwill arising from business combination amounted to P=841.6 million. Details are as follows:

Consideration for the acquisition P=1,301,67596.42% share of Parent Company in fair value

of net assets acquired 460,073Goodwill P=841,602

The Parent Company has elected to measure the non-controlling interest in the acquiree at theirproportionate share of the acquiree’s net identifiable assets and liabilities. As of acquisition date,the non-controlling interest in the acquiree amounted to P=17.1 million.

Acquisition-related costs included under Miscellaneous expense in the 2011 statement of incomeamounted to P=11.7 million.

On February 29, 2012 and December 18, 2012, the Parent Company contributed additional capitalto SBS amounting to P=550.0 million and P=688.8 million, respectively. In addition, pursuant to theagreement entered into with the Selling Shareholders, the Parent Company has offered to buy theremaining shares of the other shareholders at P=36.0 million which is higher than the fair value asof acquisition date. As a result of the said additional capital contributions and acquisition of thenon-controlling interest, the Parent Company’s ownership interest in SBS increased to 99.54%,additional paid-in capital attributable to the Parent Company decreased by P=26.7 million and non-controlling interest decreased by P=9.3 million.

Cash flow on acquisition follows:

AmountCash paid for the business combination (P=1,301,675)Cash and cash equivalents acquired from SBS* 1,027,725Net cash acquired from business combination (P=273,950)*includes Cash and other cash items, Due from BSP, Due from other banks and interbank loans receivable

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From the date of acquisition, SBS has contributed P=352.9 million of revenue and P=261.1 millionloss to the income before tax of the Group. If the combination had taken place at the beginning ofthe year, contribution to revenue would have been P=391.7 million and the reduction to the incomebefore tax of the Group would have been P=305.5 million.

Impairment Testing of goodwillGoodwill acquired through business combination has been allocated to SBS as the CGU. As ofDecember 31, 2013 and 2012, the carrying amount of goodwill amounted to P=841.6 million andthere were no impairment losses recognized in 2013 and 2012.

The recoverable amount of SBS has been determined based on a VIU calculation using cash flowprojections from financial budgets approved by senior management covering a five-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 comparable entities. In 2013, thepost-tax discount rate applied to cash flow projections is 10.46% and the growth rate used toextrapolate cash flows beyond the five-year period is 3.00%. In 2012, the post-tax discount rateapplied to cash flow projections is 9.09% and the growth rate used to extrapolate cash flowsbeyond the five-year period is 3.00%.

Management believes that no reasonably possible change in any of the above key assumptionswould cause the carrying value of the goodwill to materially exceed its recoverable amount.

5. Financial Risk Management Objectives and Policies

IntroductionIntegral to the Parent Company’s value creation process is risk management. It therefore operatesan integrated risk management system to address the risks it faces in its banking activities,including credit, market, liquidity and operational risks. Exposures across these risk areas areregularly identified, measured, controlled, monitored and reported to both Senior Management andthe BOD.

The independent risk control process does not include business risks such as changes in theenvironment, technology and industry. These risks are monitored through the Parent Company’sstrategic planning process.

Risk Management StructureBoard 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 policiesthrough various committees that it has created, as follows:

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 BODregardless of amount.

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Loan Restructuring CommitteeThe Loan Restructuring Committee focuses on substandard or nonperforming loans (NPLs) andapproves the remedial strategy and action plan for large exposures.

Audit CommitteeThe Audit Committee through Internal Audit provides the independent assessment of the over alleffectiveness of, and compliance with the Parent Company’s risk management policies andprocesses.

Risk Oversight CommitteeThe Risk Oversight Committee (ROC) reviews, approves, and ensures effective implementation ofthe risk management framework. It approves risk-related policies, oversees limits to discretionaryauthority that the BOD delegates to management, and evaluates the magnitude, distribution anddirection of risks in the Parent Company.

The Parent Company’s organizational structure includes the Risk Management Group (RMG),which is responsible for driving the following risk management processes of the Group:

· Independent assessment, measurement, monitoring and reporting of the Group’s risk-takingactivities; and

· Formulation, review and recommendation of risk related policies.

Nevertheless, the Group’s risk management framework adopts the basic tenet that risks are ownedby the respective business and process owners. Everyone in the organization is therefore expectedto proactively manage the risks inherent to their respective area by complying with the Group’srisk management 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 IIstandards. The Parent Company also runs worst case scenarios that would arise in the event thatextreme events which are unlikely to occur do, in fact, occur.

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 ParentCompany as well as the level of risk that the Parent Company is willing to accept. In addition, theParent Company monitors and measures the overall risk-bearing capacity in relation to theaggregate risk exposure 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,limit exceptions, Value-at-Risk (VaR), liquidity ratios and risk profile changes.

For credit risk, detailed reporting of risks per industry, customer and risk rating and cover takesplace. Senior management assesses the appropriateness of allowance for credit losses on a yearlybasis or as the need arises. The ROC and the heads of the concerned business units receive acomprehensive credit risk report once every quarter which is designed to provide all the necessaryinformation to assess and conclude on the credit risks of the Parent Company.

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In the case of market risk, a monthly report is presented to the ROC on the utilization of marketlimits and liquidity, plus any other risk developments.

Information compiled from all the businesses is examined and processed in order to analyze,control and identify early risks. This information is presented and explained to the BOD, theROC, and the head of each business unit.

Risk MitigationAs part of its market risk management, the Parent Company uses derivatives and other instrumentsto manage exposures resulting from changes in interest rates and foreign currencies.

In accordance with the Parent Company’s policy, the risk profile of the Parent Company isassessed before entering into hedge transactions, which are authorized by the appropriatecommittees. The effectiveness of hedges is assessed by the RMG. The effectiveness of all thehedge relationships is monitored by the RMG monthly. In situations of ineffectiveness, the ParentCompany will enter into a new hedge relationship to mitigate risk on a continuous basis.

The Parent Company actively uses collateral to reduce its credit risks.

Excessive Risk 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 theneed arises 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. Identifiedconcentrations of 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 riskconditions. The CPM defines the principles and parameters governing credit activities, ensuringthat each account’s creditworthiness is thoroughly understood and regularly reviewed.Relationship Managers assume overall responsibility for the management of credit exposureswhile middle and back office functions are clearly defined to provide independent checks andbalance to credit risk-taking activities. A system of approving and signing limits ensures adequatesenior management involvement for bigger and more complex transactions. Large exposures ofthe Group are kept under rigorous review as these are subjected to stress testing and scenarioanalysis to assess the impact of changes in market conditions or key risk factors (examples areeconomic cycles, interest rate, liquidity conditions or other market movements) on its profile andearnings.

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The risk management structure of policies, accountabilities and responsibilities, controls andsenior management involvement is similarly in place for nonperforming assets.

Derivative financial instrumentsCredit risk in respect of derivative financial instruments is limited to those with positive fairvalues, which are included under Financial assets at FVTPL. As a result, the maximum creditrisk, without taking into account the fair value of any collateral and netting agreements, is limitedto the amounts in the 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 specificact, generally related to the import or export of goods. Such commitments expose the ParentCompany to similar risks to loans and these are mitigated by the same control processes andpolicies. This also includes the unutilized credit limit of the Group’s credit card customers.

Maximum exposure to credit risk after collaterals held or other credit enhancementsThe table below shows the maximum exposure to on-balance sheet credit risk exposures of theGroup after taking into account any collaterals held or other credit enhancements (amounts inmillions):

2013

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect of

CollateralCredit risk exposure relating to on-balance sheet assetsReceivable from customers - net

(exclusive of SBEI):Corporate lending P=149,919 P=67,170 P=127,786 P=22,133Small business lending 3,441 2,022 2,463 978Consumer lending 2,180 461 1,815 365Residential mortgages 3,367 2,827 752 2,615

Credit card receivables - individual 1,566 29 1,537 29Receivable from customers - net

(SBEI):Individual 72 818 – 72Corporate 201 1,350 – 201

Other receivables 4,495 1,261 2,467 2,028P=165,241 P=75,938 P=136,820 P=28,421

2012

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect ofCollateral

Credit risk exposure relating to on-balance sheet assetsReceivable from customers - net

(exclusive of SBEI):Corporate lending P=104,980 P=53,430 P=86,132 P=18,848Small business lending 4,446 4,093 2,179 2,267

(Forward)

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2012

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effect ofCollateral

Consumer lending P=1,801 P=1,719 P=938 P=863Residential mortgages 1,707 1,327 1,149 558

Credit card receivables - individual 1,546 85 1,461 85Receivable from customers - net

(SBEI):Individual 138 1,056 – 138Corporate 729 2,807 3 726

Other receivables 4,402 290 4,112 290P=119,749 P=64,807 P=95,974 P=23,775

The table below shows the maximum exposure to on-balance sheet credit risk exposures of theParent Company after taking into account any collateral held or other credit enhancements(amounts in millions):

2013

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

FinancialEffect of

CollateralCredit risk exposure relating to on-balance sheet assetsLoans and receivables - net:

Corporate lending P=147,865 P=66,868 P=126,660 P=21,205Small business lending 3,336 1,866 2,434 902

Credit card receivables - individual 827 29 798 29Other receivables 3,962 – 2,251 1,711

P=155,990 P=68,763 P=132,143 P=23,847

2012

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

FinancialEffect of

CollateralCredit risk exposure relating to on-balance sheet assetsLoans and receivables - net:

Corporate lending P=104,248 P=52,882 P=85,580 P=18,668Small business lending 4,446 4,093 2,180 2,266Consumer lending 570 1,024 31 539Residential mortgages 1,707 1,327 1,149 558

Credit card receivables - individual 789 85 704 85Other receivables 4,098 176 3,922 176

P=115,858 P=59,587 P=93,566 P=22,292

Credit card receivables and receivable from customers of SBEI are presented separately for thepurpose of identifying receivables that are subjected to different credit risk rating systems.

Other receivables include unquoted debt instruments, accrued interest receivable, accountsreceivable, sales contracts receivable and dividend receivable.

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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, sector or sub-sector, as internally defined, exceeds 15.00% of thetotal loan portfolio, which is more conservative than the BSP requirement of 30.00%.

The distribution of financial assets and off-balance sheet items by industry sector of the Group,before taking into account collateral held or other credit enhancements (maximum exposure)follows (amounts in millions):

2013

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalWholesale and retail trade P=31,209 P=36 P=– P=8,235 P=39,480Power, electricity and water distribution 29,788 1,006 – 11,557 42,351Trading and manufacturing 25,394 1,130 – 1,340 27,864Real estate 20,658 2,762 – 3,704 27,124Financial intermediaries 15,325 75,495 89,018 753 180,591Transportation, storage and communication 14,539 1,305 – 267 16,111Others 28,478 552 455 16,698 46,183

P=165,391 P=82,286 P=89,473 P=42,554 P=379,704* 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 Other assets*** Consists of Contingent liabilities relating to inward and outward bills for collection, outstanding guarantees, letters of credit,

unutilized credit limit of credit card holders, security deposits and others.

2012

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalWholesale and retail trade P=19,293 P=– P=– P=5,728 P=25,021Power, electricity and water distribution 10,579 75 – 1,668 12,322Trading and manufacturing 25,004 1,085 – 1,338 27,427Real estate 20,549 1,445 – 1,673 23,667Financial intermediaries 11,981 60,246 65,781 441 138,449Transportation, storage and communication 12,315 70 – 326 12,711Others 20,028 351 14 14,921 35,314

P=119,749 P=63,272 P=65,795 P=26,095 P=274,911* 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 Other assets*** Consists of Contingent liabilities relating to inward and outward bills for collection, outstanding guarantees, letters of credit,

unutilized credit limit of credit card holders, security deposits and others.

The distribution of financial assets and off-balance sheet items by industry sector of the ParentCompany, before taking into account collaterals held or other credit enhancements (maximumexposure) follows (amounts in millions):

2013

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalWholesale and retail trade P=31,374 P=36 P=– P=8,235 P=39,645Power, electricity and water distribution 30,195 1,006 – 11,557 42,758Trading and manufacturing 25,774 1,060 – 1,340 28,174Real estate 17,811 2,762 – 3,704 24,277Financial intermediaries 15,410 75,138 87,755 753 179,056Transportation, storage and communication 14,744 1,305 – 267 16,316Others 20,831 374 – 9,824 31,029

P=156,139 P=81,681 P=87,755 P=35,680 P=361,255* 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 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, security deposits and others

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2012

Loans andReceivables

FinancialInvestments*

Loans andAdvances to

Banks** Others*** TotalWholesale and retail trade P=24,988 P=– P=– P=5,728 P=30,716Power, electricity and water distribution 19,965 75 – 1,668 21,708Trading and manufacturing 19,246 1,085 – 1,338 21,669Real estate 10,579 1,445 – 1,673 13,697Financial intermediaries 12,244 59,684 61,920 441 134,289Transportation, storage and communication 11,350 69 – 326 11,745Others 17,486 315 – 8,672 26,473

P=115,858 P=62,673 P=61,920 P=19,846 P=260,297* 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 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, security deposits and others

For details of the composition of the loans and receivables portfolio, refer to Note 12.

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 caseof default and insolvency or bankruptcy. The Parent Company, however, has no intention to netsettle or to gross settle the accounts simultaneously. Also, the enforceability of netting upondefault is contingent on a future event, and so the offsetting criteria under PAS 32 are not met.Consequently, the gross amount of the derivative asset and the gross amount of the derivativeliability are presented separately in the Parent Company’s statement of financial position.

Cash collaterals have also been received from and pledged to the counterparties for the net amountof exposures from the derivative financial instruments. These cash collaterals do not meet theoffsetting criteria in under PAS 32 since it can only be set off against the net amount of thederivative asset and derivative liability in the case of default and insolvency or bankruptcy, inaccordance with an associated collateral arrangement.

The Parent Company has entered into a sale and repurchase agreements with variouscounterparties that are accounted for as collateralized borrowing. The Parent Company has alsoentered into a reverse sale and repurchase agreements with various counterparties that areaccounted for as a collateralized lending. These transactions are subject to a global masterrepurchase agreement with a right of set-off only against the collateral securities upon default andinsolvency or bankruptcy and therefore do not meet the offsetting criteria under PAS 32.Consequently, the related SSURA is presented separately from the collateral securities in theParent Company’s statement of financial position.

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The table below presents the recognized financial instruments of the Group and the ParentCompany that are offset, or subject to enforceable master netting agreements or other similararrangements but not offset, as at December 31, 2013 and 2012, taking into account the effects ofover-collateralization.

2013

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]Financial AssetsDerivative assets (Notes 6 and 9) P=1,251,310 P=– P=1,251,310 (P=546,359) (P=115) P=704,836SPURA 12,120,000 – 12,120,000 – (12,120,000) –

P=13,371,310 P=– P=13,371,310 (P=546,359) (P=12,120,115) P=704,836

Financial LiabilitiesDerivative liabilities including

designated as hedges(Notes 6 and 9) P=878,119 P=– P=878,119 (P=546,359) (P=136,390) P=195,370

SSURA (Note 20) 48,059,930 – 48,059,930 – (48,059,930) –P=48,938,049 P=– P=48,938,049 (P=546,359) (P=48,196,320) P=195,370

2012

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]Financial AssetsDerivative assets (Note 6 and 9) P=2,266,723 P=– P=2,266,723 (P=778,555) P=– P=1,488,168SPURA 16,500,000 – 16,500,000 – (16,500,000) –

P=18,766,723 P=– P=18,766,723 (P=778,555) (P=16,500,000) P=1,488,168

Financial LiabilitiesDerivative liabilities including

designated as hedges(Notes 6 and 9) P=2,085,891 P=– P=2,085,891 (P=778,555) (P=391,096) P=916,240

SSURA (Note 20) 31,359,403 – 31,359,403 – (31,359,403) –P=33,445,294 P=– P=33,445,294 (P=778,555) (P=31,750,499) P=916,240

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.

Management monitors the market value of real property collateral on an annual basis and asneeded for marketable securities to preserve collateral cover. The existing market value ofcollateral is considered during the review of the credit facilities and adequacy of the allowance forcredit losses.

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It is the Parent Company’s policy to dispose assets acquired in an orderly fashion. The proceedsfrom the sale of the foreclosed assets (classified as Investment properties in the statement offinancial position) are used to reduce or repay the outstanding claim. In general, the ParentCompany does not use repossessed properties for business.

Credit quality per class of financial assetsIn compliance with BSP Circular No. 439, the Parent Company has developed and continuallyreviews and calibrates its internal risk rating system for large exposures aimed at uniformlyassessing its credit portfolio in terms of risk profile. Where appropriate, it obtains security, entersinto master netting agreements, and limits the duration of exposures to maintain and even furtherenhance the quality 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 ofthe credit 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 Standard Grade Substandard 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 ratings system. It isthe Parent Company’s policy to maintain accurate and consistent risk ratings across the creditportfolio. 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 hastwo parts, namely, the borrower’s risk rating and the facility risk rating. It is supported by avariety of financial analytics, combined with an assessment of management and marketinformation to provide the main inputs for the measurement of credit or counterparty risk. Allinternal risk ratings are tailored with various categories and are derived in accordance with theGroup’s rating policy. The attributable risk ratings are assessed and updated regularly.

The Group uses Internal Credit Risk Ratings (ICRR) to classify the credit quality of its receivablesportfolio. This is currently undergoing upgrade to enhance credit evaluation parameters acrossdifferent market segments and achieve a more sound and robust credit risk assessment.

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Description of the loan grades used by the Group for receivable from customers, except credit cardreceivables and receivables of SBEI, are as follows:

A. Large Corporate Scorecard/Camelot Rating

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 ina significant way and therefore, default risk is present under such adverse conditions.Repayment ability is more or less assured if economic and industry conditions remain stable.

Substandard Grade (ICRR 11 to ICRR 14)

Accounts for which default risk are very much present are included in this category. Thefinancial ratios of the accounts are virtually at the inflection point separating the current loansand potential problem loans. Any deterioration on the economic or industry front will push theaccounts into NPL category in the future.

Unrated

This category includes accounts not required to be rated under BSP regulation, equitysecurities, consumer loans, accounts receivables and sales contract receivables. The Group iscurrently building a separate credit rating system for its consumer loans portfolio to enhancecredit evaluation parameters across different market segments and achieve a more sound androbust credit risk assessment.

B. Middle Market Scorecard

High Grade (ICRR 1 to ICRR 3)

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 4 to ICRR 6)

Accounts whose financial ratios exhibit an amount of buffer although somewhat limited.These accounts can withstand minor economic weaknesses but may suffer if conditionsdeteriorate in a significant way and therefore, default risk is present under such adverseconditions. Repayment ability is more or less assured if economic and industry conditionsremain stable.

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Substandard Grade (ICRR 7 to ICRR 10)

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 loansand potential problem loans. Any deterioration on the economic or industry front will push theaccounts into NPL category in the future.

Unrated

This category includes accounts not required to be rated under BSP regulation, equitysecurities, consumer loans, accounts receivables and sales contract receivables. The Group iscurrently building a separate credit rating system for its consumer loans portfolio to enhancecredit evaluation parameters across different market segments and achieve a more sound androbust credit risk assessment.

For credit card receivables, the Parent Company and SBCC classify accounts that are neither pastdue nor impaired as follows:· High Grade - Accounts with tenure of 24 months or more which are under the current

classification and have never reached 30 days past due for the last 12 months from year-end.· Standard Grade - Accounts with tenure of 12 months or more which are under the current

classification and have never reached 30 days past due for the last 12 months from year-end.· Substandard Grade - Accounts with tenure of less than 12 months which are under the current

classification and have never reached 30 days past due for the last 12 months from year-end.· Unrated - Current but non-active accounts and accounts that have reached 30 days past due for

the last 12 months from year-end.

For SBEI's receivable portfolio, the Group classifies accounts that are neither past due norimpaired as follows:· High Grade - receivables from counterparties with no history of default and with apparent

ability to settle the obligation. In case of receivables from customers, the outstanding amountmust be more than 200.00% secured by collateral.

· Standard Grade - receivable from counterparties with no history of default, with apparentability to settle the obligation and the outstanding amount must be 100.00% - 200.00%secured by collateral.

· Substandard Grade - receivable from counterparties with history of default and partiallysecured or unsecured accounts.

· Unrated - Receivables from employees and refundable deposits.

Financial assets of the Group and Parent Company, for which no available external ratings areavailable, are classified as unrated.

The table below shows the credit quality by class of financial assets (gross of allowance for creditlosses) of the Group:

2013Neither Past Due nor Specifically Impaired

TotalHigh GradeStandard

GradeSubstandard

Grade UnratedPast Due butnot Impaired

IndividuallyImpaired

Financial assets at FVTPL:HFT investments:

Government securities P=479,346 P=145,327 P=– P=– P=– P=– P=624,673Equity securities 395,523 340,806 18,427 36,451 – – 791,207Private bonds 30,163 914,911 – 929 – – 946,003

Total HFT investments 905,032 1,401,044 18,427 37,380 – – 2,361,883

(Forward)

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2013Neither Past Due nor Specifically Impaired

TotalHigh GradeStandard

GradeSubstandard

Grade UnratedPast Due butnot Impaired

IndividuallyImpaired

Derivative assets:Interest rate swaps P=650,590 P=55,041 P=– P=– P=– P=– P=705,631Currency forwards 356,097 72,721 204 – – – 429,022Warrants – 116,657 – – – – 116,657

Total derivative assets 1,006,687 244,419 204 – – – 1,251,310Others – – – 15,117 – – 15,117

Total financial assets at FVTPL 1,911,719 1,645,463 18,631 52,497 – – 3,628,310Financial assets at amortized cost:

Due from BSP 45,583,991 – – – – – 45,583,991Due from other banks 27,568,347 1,171,034 – – – – 28,739,381Interbank loans receivable and SPURA

with the BSP 12,120,000 – – – – – 12,120,000Investment securities at amortized cost:

Private bonds 8,825,121 – 1,001,734 – – – 9,826,855Treasury notes and bills 6,294,859 – – – – – 6,294,859Treasury bonds 6,273,068 56,119,659 – – – – 62,392,727

Total investment securitiesat amortized cost 21,393,048 56,119,659 1,001,734 – – – 78,514,441

Receivable from customers:Corporate lending 12,159,813 62,283,124 32,167,120 16,247,622 211,425 27,534,604 150,603,708Credit card receivables - individual 693,109 16,812 13,005 2,568 24,647 – 750,141Residential mortgages – 3,375,799 – – 1,367 26,880 3,404,046Small business lending – 140,246 17,950 2,788,713 6,250 438,496 3,391,655Consumer lending – 2,234,672 – 283 117,092 454,772 2,806,819Receivable from customers (SBEI):

Corporate 20,597 171,936 8,039 – 11,017 – 211,589Individual 22,468 49,686 198 – – – 72,352

Total receivable fromcustomers (SBEI) 43,065 221,622 8,237 – 11,017 – 283,941

Total receivable from customers 12,895,987 68,272,275 32,206,312 19,039,186 371,798 28,454,752 161,240,310Other receivables 1,021,972 3,959,089 264,701 945,888 62,117 276,053 6,529,820Other assets 297,695 560,873 – 64,601 – – 923,169

Total financial assets at amortized cost 120,881,040 130,082,930 33,472,747 20,049,675 433,915 28,730,805 333,651,112Financial assets at FVTOCI 53,489 – – 90,643 – – 144,132Total P=122,846,248 P=131,728,393 P=33,491,378 P=20,192,815 P=433,915 P=28,730,805 P=337,423,554

2012Neither Past Due nor Specifically Impaired

TotalHigh GradeStandard

GradeSubstandard

Grade UnratedPast Due butnot Impaired

IndividuallyImpaired

Financial assets at FVTPL:HFT investments:

Government securities P=10,447,116 P=7,484,340 P=– P=– P=– P=– P=17,931,456Equity securities 531,683 281,310 72,283 140,473 – – 1,025,749Private bonds 30,422 160,060 – 255,881 – – 446,363

Total HFT investments 11,009,221 7,925,710 72,283 396,354 – – 19,403,568Derivative assets:

Interest rate swaps 745,418 108,762 149 – – – 854,329Currency forwards 559,217 202,903 8,537 1,994 – – 772,651Cross-currency swaps 531,876 – – – – – 531,876Warrants – 107,867 – – – – 107,867

Total derivative assets 1,836,511 419,532 8,686 1,994 – – 2,266,723Others 1,154,390 – – 374,876 – – 1,529,266

Total financial assets at FVTPL 14,000,122 8,345,242 80,969 773,224 – – 23,199,557Financial assets at amortized cost:

Due from BSP – 21,779,399 – – – – 21,779,399Due from other banks 25,166,343 240,409 – – – – 25,406,752Interbank loans receivable and SPURA

with the BSP 200,000 17,050,000 – – – – 17,250,000Investment securities at amortized cost:

Treasury bonds 100,000 35,596,466 – – – – 35,696,466Treasury notes 913,413 – – – – – 913,413Private bonds 1,897,612 – 1,001,901 377,735 – – 3,277,248

Total investment securities at amortized cost 2,911,025 35,596,466 1,001,901 377,735 – – 39,887,127Receivable from customers:

Corporate lending 12,936,080 52,312,120 4,216,749 17,317,802 2,092 19,688,477 106,473,320Small business lending – 341,825 7,693 3,992,739 18,361 163,184 4,523,802Consumer lending 242 934,047 2,685 504,775 343,111 137,238 1,922,098Residential mortgages – – – 1,678,045 8,850 49,843 1,736,738Credit card receivables - individual – – – 1,516,473 57,719 – 1,574,192Receivable from customers (SBEI):

Corporate 17,622 83,484 – 540,788 66,251 – 708,145Individual – – – 75,406 17,646 – 93,052

Total receivable fromcustomers (SBEI) 17,622 83,484 – 616,194 83,897 – 801,197

Total receivable from customers 12,953,944 53,671,476 4,227,127 25,626,028 514,030 20,038,742 117,031,347Other receivables 1,036,833 3,130,552 185,856 470,285 92,110 263,560 5,179,196Other assets 1,344,679 – – 14,603 – – 1,359,282

Total financial assets at amortized cost 43,612,824 131,468,302 5,414,884 26,488,651 606,140 20,302,302 227,893,103Financial assets at FVTOCI – – – 185,023 – – 185,023Total P=57,612,946 P=139,813,544 P=5,495,853 P=27,446,898 P=606,140 P=20,302,302 P=251,277,683

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The table below shows the credit quality by class of financial assets (gross of allowance for creditlosses) of the Parent Company:

2013Neither Past Due nor Specifically Impaired

TotalHigh GradeStandard

GradeSubstandard

Grade UnratedPast Due butnot Impaired

IndividuallyImpaired

Financial assets at FVTPL:HFT investments:

Government securities P=479,346 P=145,327 P=– P=– P=– P=– P=624,673Private bonds 30,163 914,911 – 929 – – 946,003Equity securities 395,523 270,898 18,427 35,848 – – 720,696

Total HFT investments 905,032 1,331,136 18,427 36,777 – – 2,291,372Derivative assets:

Currency forwards 356,097 72,721 204 – – – 429,022Interest rate swaps 650,590 55,041 – – – – 705,631Warrants – 116,657 – – – – 116,657

Total derivative assets 1,006,687 244,419 204 – – – 1,251,310Others – – – 15,094 – – 15,094

Total financial assets at FVTPL 1,911,719 1,575,555 18,631 51,871 – – 3,557,776Financial assets at amortized cost:

Due from BSP 45,129,263 – – – – – 45,129,263Due from other banks 27,506,482 1,171,034 – – – – 28,677,516Interbank loans receivable

and SPURA with the BSP 13,090,000 – – – – – 13,090,000Investment securities at amortized cost:

Treasury bonds 6,173,068 56,119,659 – – – – 62,292,727Treasury notes 6,203,845 – – – – – 6,203,845Treasury bills 89,962 – – – – – 89,962Private bonds 8,471,089 – 1,001,733 – – – 9,472,822

Total investment securities at amortized cost 20,937,964 56,119,659 1,001,733 – – – 78,059,356Receivable from customers:

Corporate lending 12,159,813 60,750,751 32,167,120 16,397,312 200,959 27,534,071 149,210,026Small business lending – 140,246 17,950 2,788,713 6,250 438,496 3,391,655Credit card receivables - individual – – – 812,895 28,703 – 841,598

Total receivable from customers 12,159,813 60,890,997 32,185,070 19,998,920 235,912 27,972,567 153,443,279Other receivables 606,700 3,605,297 264,701 421,947 7,648 230,232 5,136,525Other assets 297,695 560,873 – – – – 858,568

Total financial assets at amortized cost 119,727,917 122,347,860 33,451,504 20,420,867 243,560 28,202,799 324,394,507Financial assets at FVTOCI – – – 64,260 – – 64,260Total P=121,639,636 P=123,923,415 P=33,470,135 P=20,536,998 P=243,560 P=28,202,799 P=328,016,543

2012Neither Past Due nor Specifically Impaired

TotalHigh GradeStandard

GradeSubstandard

Grade UnratedPast Due butnot Impaired

IndividuallyImpaired

Financial assets at FVTPL:HFT investments:

Government securities P=10,447,116 P=7,484,340 P=– P=– P=– P=– P=17,931,456Equity securities 530,644 281,306 72,283 132,995 – – 1,017,228Private bonds 30,422 160,060 – 255,881 – – 446,363

Total HFT investments 11,008,182 7,925,706 72,283 388,876 – – 19,395,047Derivative assets:

Interest rate swaps 745,418 108,762 149 – – – 854,329Currency forwards 559,217 202,903 8,537 1,994 – – 772,651Cross-currency swap 531,876 – – – – – 531,876Warrants – 107,867 – – – – 107,867

Total derivative assets 1,836,511 419,532 8,686 1,994 – – 2,266,723Others 1,154,390 – – 374,853 – – 1,529,243

Total financial assets at FVTPL 13,999,083 8,345,238 80,969 765,723 – – 23,191,013Financial assets at amortized cost:

Due from BSP – 18,094,764 – – – – 18,094,764Due from other banks 24,993,445 237,165 – – – – 25,230,610Interbank loans receivable

and SPURA with the BSP 200,000 17,050,000 – – – – 17,250,000Investment securities at amortized cost:

Treasury bonds – 35,596,466 – – – – 35,596,466Treasury notes 912,323 – – – – – 912,323Private bonds 1,897,613 – 1,001,901 – – – 2,899,514

Total investment securities at amortized cost 2,809,936 35,596,466 1,001,901 – – – 39,408,303Receivable from customers:

Corporate lending 12,936,081 51,965,595 4,216,749 17,317,493 – 19,296,071 105,731,989Small business lending – 341,826 7,693 3,985,346 18,361 163,184 4,516,410Consumer lending 242 24,183 2,685 503,977 1,813 78,616 611,516Residential mortgages – – – 1,678,045 8,850 49,843 1,736,738Credit card receivables - individual – – – 774,678 28,526 – 803,204

Total receivable from customers 12,936,323 52,331,604 4,227,127 24,259,539 57,550 19,587,714 113,399,857Other receivables 1,029,803 3,111,726 185,856 302,837 36,858 232,374 4,899,454Other assets 1,344,679 – – – – – 1,344,679

Total financial assets at amortized cost 43,314,186 126,421,725 5,414,884 24,562,376 94,408 19,820,088 219,627,667Financial assets at FVTOCI – – – 73,370 – – 73,370Total P=57,313,269 P=134,766,963 P=5,495,853 P=25,401,469 P=94,408 P=19,820,088 P=242,892,050

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As of December 31, 2013 and 2012, allowance on individually impaired receivables of the Groupamounted to P=2.1 billion and P=2.0 billion, respectively, and P=2.0 billion and P=1.9 billion,respectively, for the Parent Company (see Note 12).

The following table provides for the analysis of the Group and the Parent Company’s restructuredreceivables by class as of December 31, 2013 and 2012:

Consolidated2013

Neither Past DueNor Impaired

Past Due ButNot Impaired

IndividuallyImpaired Total

Corporate lending P=111,035 P=13,826 P=33,753 P=158,614Consumer lending 8,085 3,156 17,198 28,439Small business lending 22,923 – 4,430 27,353Total P=142,043 P=16,982 P=55,381 P=214,406

Consolidated2012

Neither Past DueNor Impaired

Past Due ButNot Impaired

IndividuallyImpaired Total

Corporate lending P=10,746 P=– P=203,505 P=214,251Consumer lending 1,044 – 92 1,136Small business lending 38,228 36,933 – 75,161Total P=50,018 P=36,933 P=203,597 P=290,548

Parent Company2013

Neither Past DueNor Impaired

Past Due ButNot Impaired

IndividuallyImpaired Total

Corporate lending P=89,114 P=– P=16,668 P=105,782Small business lending 22,923 – 4,430 27,353Total P=112,037 P=– P=21,098 P=133,135

Parent Company2012

Neither Past DueNor Impaired

Past Due ButNot Impaired

IndividuallyImpaired Total

Corporate lending P=10,746 P=– P=186,015 P=196,761Consumer lending 1,044 – – 1,044Small business lending 38,228 – – 38,228Total P=50,018 P=– P=186,015 P=236,033

Aging analysis of past due but not impaired financial assets per classThe table below shows the aging analysis of past due but not impaired loans receivables per classof the Group and the Parent Company. Under PFRS 7, a financial asset is past due when acounterparty has failed to make a payment when contractually due.

Consolidated2013

Within30 days 31 to 60 Days 61 to 90 days Over 90 days Total

Small business lending P=9,440 P=7,407 P=5,061 P=7,891 P=29,799Consumer lending 13,159 13,202 37,308 217,173 280,842Corporate lending 9,221 185 60 1,534 11,000Others 25,736 17,841 12,582 56,115 112,274Total P=57,556 P=38,635 P=55,011 P=282,713 P=433,915

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Consolidated2012

Within30 days 31 to 60 Days 61 to 90 days Over 90 days Total

Small business lending P=38,034 P=1 P=– P=1,007 P=39,042Consumer lending 877 775 21,675 328,634 351,961Corporate lending 47,854 – – 2,092 49,946Others 18,619 9,461 27,815 109,296 165,191Total P=105,384 P=10,237 P=49,490 P=441,029 P=606,140

Parent Company2013

Within30 days 31 to 60 Days 61 to 90 days Over 90 days Total

Small business lending P=6,250 P=– P=– P=– P=6,250Consumer lending 9,969 8,516 – 182,475 200,960Others 6,687 8,369 5,463 15,831 36,350Total P=22,906 P=16,885 P=5,463 P=198,306 P=243,560

Parent Company2012

Within30 days 31 to 60 Days 61 to 90 days Over 90 days Total

Small business lending P=2,000 P=– P=– P=1,000 P=3,000Consumer lending 14 19 165 10,465 10,663Others 355 81 16,381 63,928 80,745Total P=2,369 P=100 P=16,546 P=75,393 P=94,408

Impairment assessmentThe Group and the Parent Company recognize impairment losses based on the results of itsindividual and collective assessment of its credit exposures. Impairment has taken place whenthere 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 hashappened, or when there is inability to pay principal or interest overdue beyond a certainthreshold. These and other factors, either singly or together with other factors, constituteobservable events and/or data that meet 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 marketand liquidity risk exposures. ALCO regularly monitors the Parent Company’s positions and setsthe appropriate transfer pricing rate to effectively manage movements of funds across businessactivities.

Analysis of financial instruments by remaining contractual maturitiesThe table below shows the maturity profile of the Group’s and Parent Company’s financialinstruments, based on the Group’s and Parent Company’s internal methodology that managesliquidity based on remaining contractual undiscounted cash flows.

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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 theremaining period from the end of the reporting period to the contractual maturity date or if earlier,the expected date the assets will be realized.

Financial liabilitiesThe maturity grouping is based on the remaining period from the end of the reporting period to thecontractual maturity date. When a counterparty has a choice of when the amount is paid, theliability is allocated to the earliest period in which the Group can be required to pay.

Consolidated2013

On DemandWithin 30

Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalFinancial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=– P=634,009 P=– P=– P=– P=– P=634,009 Private bonds – 946,156 – – – – 946,156 Equity securities – 791,157 – – – 23 791,180 Total HFT investments – 2,371,322 – – – 23 2,371,345 Others – – – – – 15,094 15,094Total financial assets at FVTPL – 2,371,322 – – – 15,117 2,386,439Financial assets at amortized cost: COCI and due from BSP 50,467,496 1,033,274 – – – – 51,500,770 Due from other banks 29,153,488 – – – – – 29,153,488 Interbank loans receivable and

SPURA with the BSP – 12,120,000 – – – – 12,120,000 Investment securities

at amortized cost – 288,332 523,775 301,029 1,137,552 85,466,804 87,717,492 Receivable from customers and

other receivables 56,646 42,816,318 11,109,991 28,025,508 13,928,737 94,602,548 190,539,748Total financial assets at amortized cost 79,677,630 56,257,924 11,633,766 28,326,537 15,066,289 180,069,352 371,031,498Financial assets at FVTOCI – – – – – 144,132 144,132Total financial assets P=79,677,630 P=58,629,246 P=11,633,766 P=28,326,537 P=15,066,289 P=180,228,601 P=373,562,069

Financial LiabilitiesDeposit liabilities: Demand P=51,938,623 P=– P=– P=– P=– P=– P=51,938,623 Savings 6,000,279 32,069,118 4,873,204 8,407,327 2,141,744 56,348,079 109,839,751 Time – 8,856,331 2,594,272 3,519,733 967,427 21,656,545 37,594,308 LTNCD – – 140,556 138,264 278,819 12,513,194 13,070,833Total deposit liabilities 57,938,902 40,925,449 7,608,032 12,065,324 3,387,990 90,517,818 212,443,515Derivative liabilities designated

as hedges – 7,809 10,096 16,658 25,437 61,961 121,961Bills payable and SSURA 47,969 46,512,365 19,009,472 21,121,823 16,677 4,724,969 91,433,275Acceptances payable 199,192 193,266 130,153 56,604 – – 579,215Margin deposits and cash letters of credit 3,223 1,732 946 – – – 5,901Manager’s and certified checks

outstanding 137,461 1,794,652 – – – – 1,932,113Accrued interest, expense

and other liabilities 213,641 5,528,678 193 840 – 442,859 6,186,211Total financial liabilities P=58,540,388 P=94,963,951 P=26,758,892 P=33,261,249 P=3,430,104 P=95,747,607 P=312,702,191

Consolidated2012

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalFinancial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=– P=18,130,495 P=– P=– P=– P=– P=18,130,495 Private bonds – 451,332 – – – – 451,332 Equity securities – 1,025,749 – – – – 1,025,749 Total HFT investments – 19,607,576 – – – – 19,607,576 Others – – 758,840 796,045 155 9,318 1,564,358Total financial assets at FVTPL – 19,607,576 758,840 796,045 155 9,318 21,171,934

(Forward)

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Consolidated2012

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalFinancial assets at amortized cost: COCI and due from BSP P=25,151,848 P=– P=– P=– P=– P=– P=25,151,848 Due from other banks 25,408,851 – – – – – 25,408,851 Interbank loans receivable and

SPURA with the BSP – 17,250,000 – – – – 17,250,000 Investment securities

at amortized cost – 64,591 4,423 1,071,226 488,554 63,097,599 64,726,393 Receivable from customers and

other receivables – 25,029,694 8,062,760 18,021,412 9,144,639 72,573,143 132,831,648Total financial assets at amortized cost 50,560,699 42,344,285 8,067,183 19,092,638 9,633,193 135,670,742 265,368,740Financial assets at FVTOCI – – – – – 185,023 185,023Total financial assets 50,560,699 61,951,861 8,826,023 19,888,683 9,633,348 135,865,083 286,725,697

Financial LiabilitiesDeposit liabilities: Demand 39,580,042 – – – – – 39,580,042 Savings 16,339,028 17,925,150 1,592,619 1,292,414 564,417 22,742,508 60,456,136 Time – 10,763,900 3,413,731 4,548,560 921,473 13,288,695 32,936,359

LTNCD – – 140,556 138,264 278,819 13,070,833 13,628,472Total deposit liabilities 55,919,070 28,689,050 5,146,906 5,979,238 1,764,709 49,102,036 146,601,009Derivative liabilities designated

as hedges 7,941 18,045 31,644 49,791 138,701 246,122Bills payable and SSURA 13,807,082 14,447,435 8,588,717 473,084 52,780 28,384,004 65,753,102Acceptances payable – 77,748 100,571 63,010 55,477 – 296,806Margin deposits and cash letters of credit – 11,968 10,236 64,764 – 102,624 189,592Manager’s and certified checks

outstanding 42,022 1,513,697 – – – – 1,555,719Subordinated note – – – 130,813 131,531 3,000,000 3,262,344Accrued interest, expense

and other liabilities 3,558,597 844 1,094 661 483,850 4,045,046Total financial liabilities P=73,326,771 P=44,748,683 P=13,865,569 P=6,743,214 P=2,054,288 P=81,211,215 P=221,949,740

Parent Company2013

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days* TotalFinancial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=– P=634,009 P=– P=– P=– P=– P=634,009 Private bonds – 946,156 – – – – 946,156 Equity securities – 720,696 – – – – 720,696 Total HFT investments – 2,300,861 – – – – 2,300,861 Others – – – – – 15,094 15,094Total financial assets at FVTPL – 2,300,861 – – – 15,094 2,315,955Financial assets at amortized cost: COCI and due from BSP 49,325,784 – – – – – 49,325,784 Due from other banks 28,677,516 – – – – – 28,677,516 Interbank loans receivable and SPURA with the BSP – 13,090,000 – – – – 13,090,000 Investment securities at amortized cost – 288,332 523,775 301,029 1,137,552 85,466,804 87,717,492 Receivable from customers and other receivables – 41,423,845 10,912,014 27,487,394 13,538,541 87,242,219 180,604,013Total financial assets at amortized cost 78,003,300 54,802,177 11,435,789 27,788,423 14,676,093 172,709,023 359,414,805Financial assets at FVTOCI – – – – – 64,260 64,260Total financial assets P=78,003,300 P=57,103,038 P=11,435,789 P=27,788,423 P=14,676,093 P=172,788,377 P=361,795,020

Financial LiabilitiesDeposit liabilities: Demand P=51,437,053 P=– P=– P=– P=– P=– P=51,437,053 Savings 5,844,881 31,835,971 4,873,204 8,407,327 2,141,744 55,636,982 108,740,109 Time – 7,932,721 2,077,293 3,423,545 841,420 17,898,117 32,173,096

LTNCD – – 140,556 138,264 278,819 12,513,194 13,070,833Total deposit liabilities 57,281,934 39,768,692 7,091,053 11,969,136 3,261,983 86,048,293 205,421,091Derivative liabilities designated as

hedges – 7,809 10,096 16,658 25,437 61,961 121,961Bills payable and SSURA 47,969 45,541,923 19,009,472 21,121,823 16,677 4,724,969 90,462,833Acceptances payable 199,192 193,266 130,153 56,604 – – 579,215Margin deposits and cash letters of credit 3,223 1,732 946 – – – 5,901Manager’s and certified checks

outstanding – 1,794,652 – – – – 1,794,652Accrued interest, expense and other

liabilities – 4,616,724 – – – 442,512 5,059,236Total financial liabilities P=57,532,318 P=91,924,798 P=26,241,720 P=33,164,221 P=3,304,097 P=91,277,735 P=303,444,889*For items within the “Over 360 Days” bucket, further analysis is made based on time buckets.

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Parent Company2012

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days* TotalFinancial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=– P=18,130,495 P=– P=– P=– P=– 18,130,495 Private bonds – 451,332 – – – – 451,332 Equity securities – 1,017,228 – – – – 1,017,228 Total HFT investments – 19,599,055 – – – – 19,599,055 Others – – 758,840 796,045 155 9,295 1,564,335Total financial assets at FVTPL – 19,599,055 758,840 796,045 155 9,295 21,163,390Financial assets at amortized cost: COCI and due from BSP 21,278,844 – – – – – 21,278,844 Due from other banks 25,230,610 – – – – – 25,230,610 Interbank loans receivable and SPURA with the BSP – 17,250,000 – – – – 17,250,000 Investment securities at amortized cost – 64,591 4,423 1,046,721 476,518 62,608,467 64,200,720 Receivable from customers and other receivables – 23,574,794 7,966,582 17,766,739 8,995,458 69,349,820 127,653,393Total financial assets at amortized cost 46,509,454 40,889,385 7,971,005 18,813,460 9,471,976 131,958,287 255,613,567Financial assets at FVTOCI – – – – – 73,370 73,370Total financial assets P=46,509,454 P=60,488,440 P=8,729,845 P=19,609,505 P=9,472,131 P=132,040,952 P=276,850,327

Financial LiabilitiesDeposit liabilities: Demand P=39,564,168 P=– P=– P=– P=– P=– P=39,564,168 Savings 15,819,658 17,925,150 1,592,619 1,292,414 564,417 22,743 37,217,001 Time – 8,601,369 3,020,136 3,414,893 707,933 12,540,781 28,285,112

LTNCD – – 140,556 138,264 278,819 3,070,833 3,628,472Total deposit liabilities 55,383,826 26,526,519 4,753,311 4,845,571 1,551,169 15,634,357 108,694,753Derivative liabilities designated as

hedges – 7,941 18,045 31,644 49,791 138,701 246,122Bills payable and SSURA 13,807,082 14,298,435 8,588,717 473,084 52,780 28,384,004 65,604,102Acceptances payable – 77,748 100,571 63,010 55,477 – 296,806Margin deposits and cash letters of credit – 11,968 10,236 64,764 – 102,624 189,592Manager’s and certified checks

outstanding – 1,513,696 – – – – 1,513,696Subordinated note – – – 130,813 131,531 3,000,000 3,262,344Accrued interest, expense and other

liabilities – 2,495,133 – – – 437,021 2,932,154Total financial liabilities P=69,190,908 P=44,931,440 P=13,470,880 P=5,608,886 P=1,840,748 P=47,696,707 P=182,739,569

*For items within the “Over 360 Days” bucket, further analysis is made based on time buckets.

The table below shows the contractual expiry by maturity of the Group’s and the ParentCompany’s contingent liabilities and commitments. Each undrawn loan commitment is includedin the time band containing the earliest date it can be drawn down. For issued financial guaranteecontracts, the maximum amount of the guarantee is allocated to the earliest period in which theguarantee could be called.

Consolidated2013

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalUnutilized credit limit of credit card

holders P=12,009,161 P=– P=– P=– P=– P=– P=12,009,161Unused commercial letters of credit 797,648 1,753,632 2,493,632 5,209,658 5,835,168 7,520,056 23,609,794Inward bills for collection 174,809 210,565 57,252 19,757 – – 462,383Committed loan line 58,000 – – 186,200 2,769,222 1,661,000 4,674,422Outward bills for collection 49,189 19,547 158,123 51,423 – – 278,282Outstanding guarantees 564,270 – – – – – 564,270Others 711,062 27,694 75,353 100,243 39,537 953,889

P=14,364,139 P=2,011,438 P=2,784,360 P=5,567,281 P=8,643,927 P=9,181,056 P=42,552,201

Consolidated2012

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalUnutilized credit limit of credit card

holders P=10,575,317 P=– P=– P=– P=– P=– P=10,575,317Unused commercial letters of credit 416,999 1,163,337 1,939,476 3,717,367 1,755,831 1,366,546 10,359,556Outward bills for collection 219,361 37,681 29,996 – – – 287,038Inward bills for collection 167,683 759,053 16,326 17,516 – – 960,578Outstanding guarantees 134,531 – – – – – 134,531Committed loan line – – – 320,000 743,000 1,906,500 2,969,500Others 452,596 14,206 72,591 204,012 65,442 – 808,847

P=11,966,487 P=1,974,277 P=2,058,389 P=4,258,895 P=2,564,273 P=3,273,046 P=26,095,367

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Parent Company2013

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalUnutilized credit limit of credit card

holders P=5,150,130 P=– P=– P=– P=– P=– P=5,150,130Unused commercial letters of credit 797,648 1,753,632 2,493,632 5,209,658 5,835,168 7,520,056 23,609,794Outstanding guarantees 564,270 – – – – – 564,270Inward bills for collection 174,809 210,565 57,252 19,757 – – 462,383Committed loan line 58,000 – – 186,200 2,769,222 1,661,000 4,674,422Outward bills for collection 49,189 6,530 158,123 51,423 – – 265,265Others 711,062 27,692 75,353 100,243 39,537 – 953,887

P=7,505,108 P=1,998,419 P=2,784,360 P=5,567,281 P=8,643,927 P=9,181,056 P=35,680,151

Parent Company2012

On DemandWithin

30 Days 31 to 60 Days61 to

180 Days181 to

360 DaysOver

360 Days TotalUnutilized credit limit of credit card

holders P=4,343,543 P=– P=– P=– P=– P=– P=4,343,543Unused commercial letters of credit 416,999 1,163,337 1,939,476 3,717,367 1,755,831 1,366,546 10,359,556Outward bills for collection 219,361 20,681 29,996 – – – 270,038Inward bills for collection 167,683 759,053 16,326 17,516 – – 960,578Outstanding guarantees 134,531 – – – – – 134,531Committed loan line – – – 320,000 743,000 1,906,500 2,969,500Others 452,596 14,206 72,591 204,012 65,349 – 808,754

P=5,734,713 P=1,957,277 P=2,058,389 P=4,258,895 P=2,564,180 P=3,273,046 P=19,846,500

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.

The Group manages its market risk exposures through various established structures, processesand measurement tools.

· The Treasury Group of the Parent Company manages asset and liability risks arising fromboth normal banking operations and from trading operations in the financial markets. TheTreasury Group is assigned risk limits by the ROC.

· The Risk Management Group performs daily monitoring of compliance with policies,procedures and risk limits and accordingly makes recommendations, where appropriate.

· The ALCO is the senior decision making body for the management of all market risks relatedto asset and liability management, and the trading and accrual books.

· VaR is the statistical model used by the Parent Company to measure the market risk of itstrading portfolio, with the confidence level is set at 99%. Moreover, the Group uses variousdefeasance periods per product type based on their liquidity as approved by the ROC.

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:

· Management action trigger· Position and duration limits, where appropriate· Mark-to-market valuation· VaR limits· EAR limits

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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 interms of profit or loss and capital erosion.

Interest rate riskInterest rate risk arises from the possibility that changes in interest rates will affect future cashflows or the fair value of financial instruments. The Parent Company follows a prudent policy onmanaging its assets and liabilities so as to ensure that exposure to fluctuations in interest rates arekept within acceptable limits.

Interest rate risk exposures are reported via a repricing gap schedule. Interest rate risk exposuresare reported via a repricing gap schedule. The repricing gap report highlights mismatches in therepricing tenors of assets and liabilities. Repricing gaps are calculated by distributing the statementof financial position accounts into time buckets based on the next repricing dates of individualitems. The difference between the amount of the assets and the amount of the liabilities that willreprice within a particular time bucket constitutes a repricing gap.

The Group employs gap analysis to measure the sensitivity of its assets and liabilities tofluctuations in market interest rates for any given period. A positive gap occurs when the amountof interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and isfavorable to the Group during a period of rising interest rates since it is in a better position toinvest in higher yielding assets more quickly than it would need to refinance its interest bearingliabilities. Conversely, during a period of falling interest rates, a positively gapped position couldresult in a restrained growth or even a declining net interest income.

The following tables set forth the asset-liability gap position of the Group and of the ParentCompany as of December 31, 2013 and 2012 (amounts in millions):

Consolidated2013

Within30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

Financial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=625 P=– P=– P=– P=– 625 Private bonds 946 – – – – 946 Total HFT investments 1,571 – – – – 1,571Total financial assets at FVTPL 1,571 – – – – 1,571Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 60,086 – – – – 60,086

Investment securities at amortized cost 291 240 435 535 77,013 78,514 Receivable from customers and other

receivables - gross 39,577 21,025 16,145 12,367 76,694 165,808Total financial assets at amortized cost 99,954 21,265 16,580 12,902 153,707 304,408Total financial assets 101,525 21,265 16,580 12,902 153,707 305,979Financial LiabilitiesDeposit liabilities 157,588 20,342 10,481 3,620 13,918 205,949Bills payable and SSURA 45,432 37,986 2,137 – 4,558 90,113Total financial liabilities 203,020 58,328 12,618 3,620 18,476 296,062Asset-Liability Gap (P=101,495) (P=37,063) P=3,962 P=9,282 P=135,231 P=9,917

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Consolidated2012

Within30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

Financial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=17,931 P=– P=– P=– P=– P=17,931 Private bonds 446 – – – – 446 Total HFT investments 18,377 – – – – 18,377 Others 359 414 741 – – 1,514Total financial assets at FVTPL 18,736 414 741 – – 19,891Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 45,534 – – – 425 45,959

Investment securities at amortized cost – – 196 – 39,691 39,887 Receivable from customers and other

receivables - gross 54,682 5,235 14,130 3,039 43,481 120,567Total financial assets at amortized cost 100,216 5,235 14,326 3,039 83,597 206,413Total financial assets 118,952 5,649 15,067 3,039 83,597 226,304Financial LiabilitiesDeposit liabilities 55,057 7,909 8,903 2,061 68,463 142,393Bills payable and SSURA 51,620 8,481 515 52 4,310 64,978Total financial liabilities 106,677 16,390 9,418 2,113 72,773 207,371Asset-Liability Gap P=12,275 (P=10,741) P=5,649 P=926 P=10,824 P=18,933

Parent Company2013

Within30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

Financial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=625 P=– P=– P=– P=– P=625 Private bonds 946 – – – – 946 Total HFT investments 1,571 – – – – 1,571Total financial assets at FVTPL 1,571 – – – – 1,571Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 59,218 – – – – 59,218

Investment securities at amortized cost 288 223 – 535 77,013 78,059Receivable from customers and other

receivables - gross 38,019 20,825 15,735 11,957 69,224 155,760Total financial assets at amortized cost 97,525 21,048 15,735 12,492 146,237 293,037Total financial assets 99,096 21,048 15,735 12,492 146,237 294,608Financial LiabilitiesDeposit liabilities 155,937 19,845 10,389 3,499 10,304 199,974Bills payable and SSURA 45,432 37,986 2,137 – 4,558 90,113Total financial liabilities 201,369 57,831 12,526 3,499 14,862 290,087Asset-Liability Gap (P=102,273) (P=36,783) P=3,209 P=8,993 P=131,375 P=4,521

Parent Company2012

Within30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

Financial AssetsFinancial assets at FVTPL: HFT investments: Government securities P=17,931 P=– P=– P=– P=– P=17,931 Private bonds 446 – – – – 446 Total HFT investments 18,377 – – – – 18,377 Others 359 414 741 – – 1,514Total financial assets at FVTPL 18,736 414 741 – – 19,891Financial assets at amortized cost: Due from BSP and other banks and

Interbank loans receivable and SPURAwith the BSP 42,056 – – – 425 42,481

Investment securities at amortized cost – – 176 – 39,232 39,408Receivable from customers and other

receivables - gross 53,543 5,129 13,867 2,735 41,363 116,637Total financial assets at amortized cost 95,599 5,129 14,043 2,735 81,020 198,526Total financial assets 114,335 5,543 14,784 2,735 81,020 218,417

(Forward)

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Parent Company2012

Within30 Days 31 to 60 Days

61 to180 Days

181 to360 Days

Over360 Days Total

Financial LiabilitiesDeposit liabilities P=52,494 P=7,515 P=7,769 P=1,999 P=67,627 P=137,404Bills payable and SSURA 51,471 8,481 515 52 4,310 64,829Total financial liabilities 103,965 15,996 8,284 2,051 71,937 202,233Asset-Liability Gap P=10,370 (P=10,453) P=6,500 P=684 P=9,083 P=16,184

The Group employs gap analysis to measure the sensitivity of its assets and liabilities tofluctuations in market interest rates for any given period. A positive gap occurs when the amountof interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and isfavorable to the Group during a period of rising interest rates since it is in a better position toinvest in higher yielding assets more quickly than it would need to refinance its interest bearingliabilities. Conversely, during a period of falling interest rates, a positively gapped position couldresult in a restrained growth or even a declining net interest income.

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, 2013 and 2012:

2013Consolidated Parent Company

Less than3 months

3 monthsto 1 year

Greaterthan 1 year

Less than 3months

3 monthsto 1 year

Greaterthan 1 year

PesoFinancial AssetsDue from BSP 2.00% – – 2.00% – –RRP 3.50% – – 3.50% – –Due from banks 0.27% – – 0.27% – –Investment securities* 2.63% 1.73% 4.90% 2.63% 1.73% 5.05%Loans and receivables 5.47% 5.11% 7.46% 5.37% 4.40% 6.92%

Financial LiabilitiesDeposit liabilities other than LTNCD 0.71% 1.78% 2.63% 0.65% 1.77% 2.63%LTNCD – – 5.62% – – 5.62%Bills payable and SSURA – – 8.00% – – 8.00%

USDFinancial AssetsDue from banks 0.08% – – 0.08% – –Investment securities* – 6.0% 4.78% – 6.00% 4.78%Loans and receivables 3.73% 5.00% 3.60% 3.73% 5.00% 3.60%

Financial LiabilitiesDeposit liabilities 1.47% 1.75% 1.17% 1.47% 1.75% 1.17%Bills payable 0.80% 0.82% 1.10% 0.80% 0.82% 1.10%

2012Consolidated Parent Company

Less than3 months

3 monthsto 1 year

Greaterthan 1 year

Less than 3months

3 monthsto 1 year

Greaterthan 1 year

PesoFinancial AssetsDue from BSP – – 3.00% – – –Due from banks 0.11% – – 0.11% – –Investment securities* 4.75% 1.00% 5.24% 4.75% 2.16% 5.27%Loans and receivables 6.32% 5.42% 7.41% 4.44% 5.24% 7.02%

Financial LiabilitiesDeposit liabilities other than LTNCD 1.53% 2.81% 2.55% 1.43% 2.73% 2.55%LTNCD – – 5.62% – – 5.62%Bills payable and SSURA 2.92% 3.87% 8.00% 2.55% 3.87% 8.00%

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2012Consolidated Parent Company

Less than3 months

3 monthsto 1 year

Greaterthan 1 year

Less than 3months

3 monthsto 1 year

Greaterthan 1 year

USDFinancial AssetsDue from banks 0.11% – – 0.11% – –Investment securities* – 6.00% 4.83% – 6.00% 4.83%Loans and receivables 2.07% 2.50% 4.62% 2.07% 2.50% 4.62%

Financial LiabilitiesDeposit liabilities 1.61% 2.03% 2.06% 1.61% 2.03% 2.00%Bills payable 0.59% 0.20% 1.27% 0.59% 0.20% 1.27%

* Consists of Financial assets at FVTPL 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 ofan asset or of a portfolio of assets is likely to decrease over a certain time period as market factorsrandomly change.

VaR computation is actually a two-step process which involves calculation of the change in theRisk Factor then computing for the corresponding impact on profit or loss. The Risk Factor isdefined as a variable that causes a change in the value of a financial instruments or a portfolio offinancial instruments.

VaR Methodology

The Parent Company uses two different approaches - Variance-Covariance and HistoricalSimulation Method.

Variance-Covariance approach is based on the assumption that the market factors have amultivariate normal distribution. Using this assumption, the distribution of portfolio profits andlosses is then also normal - normal in the sense that profits and losses follow the characteristics ofthe normal curve. Due to this assumption, it is possible to have an explicit formula for thequantile, since a relationship exists between standard deviation and confidence level, which willbe used for the VaR computation.

Historical Simulation assumes that asset returns in the future will have the same distribution thatthey had in the past. It estimates VaR by reliving history, which involves using historical changesin market factors to construct a distribution of potential profits and losses, and then reading off theloss that is exceeded at a specified confidence level and period.

The Parent Company will use Historical Simulation in calculating the VaR of derivativeinstruments other than forwards and swaps. For linear instruments such as fixed income, forwardsand swaps, the Variance-Covariance approach is used.VaR Parameters

The Parent Company uses 99.00% confidence level which translates to 2.326 standard deviations.To give a better picture, a 99.00% VaR can be taken as the 10th lowest of 1,000 profit and lossobservations.

Defeasance period is the length of time that it takes for the Parent Company to fully close itsposition on a specific product/portfolio. The length of defeasance period depends on the nature ofthe portfolio.

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For most products traded by the Parent Company, the standard defeasance period used is 5 days.However, for Foreign Exchange portfolio, the Parent Company uses a 1-day defeasance periodand for Peso HFT portfolio, the defeasance period varies depending on the amount of openposition. For Dollar Fixed Income securities, the Parent Company uses 2 days for Philippinegovernment bonds, 5 days for other approved sovereign government bonds and 30 days forcorporate bonds.

The VaR figures are backtested against actual and hypothetical profit and loss of the trading bookto validate the robustness of the VaR model. Likewise, to complement VaR measure, the ParentCompany performs stress tests wherein the trading portfolios are valued under extreme marketscenarios not covered by the confidence interval of the Parent Company’s VaR model.Since VaR is an integral part of the Parent Company’s market risk management, VaR limits havebeen established annually for all financial trading activities and exposures are monitored dailyagainst the VaR limits. These limits are based on the tolerable risk appetite of the ParentCompany.

The following table provides the VaR summary of the Parent Company for the year endedDecember 31, 2013 and 2012 (amounts in millions):

ForeignExchange

FixedIncome

ForeignExchange

Swaps

InterestRate Swap

AgreementsStructured

ProductsDecember 31, 20132013-Average Daily P=5.421 P=105.199 P=15.176 P=29.783 P=68.372013-Highest 26.728 260.230 79.179 46.312 245.642013-Lowest 0.193 18.687 0.050 12.951 0.01As of Dec. 31, 2013 2.593 71.712 6.721 18.280 52.57

ForeignExchange

FixedIncome

ForeignExchange

Swaps

InterestRate Swap

AgreementsStructured

ProductsDecember 31, 20122012-Average Daily P=6.039 P=209.102 P=28.019 P=13.543 P=22.2992012-Highest 37.880 525.732 77.703 106.185 89.3312012-Lowest 0.507 53.667 1.880 4.383 0.066As of Dec. 31, 2012 8.421 168.606 8.638 13.218 0.186

The Parent Company’s trading in fixed income securities together with the interest rate swaps areexposed to movements in interest rates. The currency swaps and structured products of the ParentCompany are exposed to multiple risk factors such as changes in foreign exchange rates, interestrates, and for some structured products, the volatility of these factors.

The high and low of the total portfolio may not equal to the sum of the individual components asthe high 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 inthe levels of equity indices and the value of individual stocks.

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The following tables set forth the impact of changes in the Philippine Stock Exchange Index(PSEi) on the Group’s and the Parent Company’s unrealized gain (loss) (in absolute amounts):

Financial Assets at FVTPLConsolidated

2013 2012Changes in PSEi 20.93% (20.93%) 18.27% (18.27%)Change on trading income of equity

portfolio under: Financial intermediaries P=27,869,793 (P=27,869,793) P=25,398,153 (P=25,398,153) Mining and oil 5,250,081 (5,250,081) 15,513,567 (15,513,567) Holding firms 31,163,927 (31,163,927) 50,998,929 (50,998,929)Industrial companies: 29,344,528 (29,344,528) 28,013,998 (28,013,998) Property 27,245,504 (27,245,504) 35,119,271 (35,119,271) Services 20,196,594 (20,196,594) 18,759,824 (18,759,824)

P=141,070,427 (P=141,070,427) P=173,803,742 (P=173,803,742)

As a percentage of the Group’s net unrealized gain (loss) for the year (32.58%) 32.58% (261.91%) 261.91%

Parent Company2013 2012

Changes in PSEi 20.93% (20.93%) 10.18% (10.18%)Change on trading income of equity

portfolio under: Financial intermediaries P=20,811,902 (P=20,811,902) P=25,397,407 (P=25,397,407) Mining and oil 5,249,580 (5,249,580) 15,512,612 (15,512,612) Industrial companies 29,343,337 (29,343,337) 27,732,733 (27,732,733) Holding firms 31,162,063 (31,162,063) 50,997,502 (50,997,502) Property 27,245,241 (27,245,241) 35,119,118 (35,119,118) Services 20,085,969 (20,085,969) 18,586,019 (18,586,019)

P=133,898,092 (P=133,898,092) P=173,345,391 (P=173,345,391)

As a percentage of the Parent Company’s netunrealized gain (loss) for the year (33.55%) 33.55% (263.17%) 263.17%

Financial Assets at FVTOCI

Consolidated2013 2012

Changes in PSEi 20.93% (20.93%) 10.18% (10.18%)Change in net unrealized loss of SBEI’s

PSE shares P=7,298,288 (P=7,298,288) P=11,570,208 (P=11,570,208)As a percentage of SBEI’s net unrealized gain

(loss) for the year 40.95% (40.95%) 49.09% (49.09%)

The Parent Company has no equity securities classified under Financial assets at FVTOCI as ofDecember 31, 2013 and 2012, respectively, which are affected by changes in the PSEi as thesesecurities are mainly 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.

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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:

2013Currency PHP USDChanges in interest rates (in basis points) +100 -100 +100 -100Change in annualized net interest income* (P=40) P=40 (P=489) P=489*Amounts in millions

2012Currency PHP USDChanges in interest rates (in basis points) +100 -100 +100 -100Change in annualized net interest income* P=320 (P=320) (P=249) P=249*Amounts in millions

Earnings-at-Risk (EAR) or the sensitivity of the statement of income is the effect of the assumedchanges in interest rates on the net interest income for one year, based on the floating rate non-trading financial assets and financial liabilities held at each statement of financial position date.This approach focuses on the impact in profit or loss of holding on to the gaps over a 1-year timeframe.

To control the interest rate repricing risk in the banking books, the Parent Company sets a limit onthe Earnings at Risk (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,the Parent Company performs regular stress testing to test its ability to cope with adverse changesin interest rates under different stress scenarios. This process involves applying one-time interestrate shocks of different magnitudes to the current repricing gap positions in the balance sheet.

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 BSPto match the foreign currency-denominated liabilities with the foreign currency-denominatedassets held under the FCDU books. In addition, the BSP requires a 30.00% liquidity reserve on allforeign currency liabilities held under the FCDU. As of December 31, 2013 and 2012, the ParentCompany is in compliance with the said regulation.

The Group’s policy is to maintain foreign currency exposure within acceptable limits and withinexisting regulatory guidelines.

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The following tables summarize the Group’s and the Parent Company’s exposure to currency riskas of December 31, 2013 and 2012. Included in the tables are the Group’s and the ParentCompany’s assets and liabilities at carrying amounts, categorized by currency (amounts inPhilippine Peso equivalent).

Consolidated2013 2012

USD Others* Total USD Others* TotalFinancial AssetsCash and cash equivalents P=1,004 P=45,949 P=46,953 P=1,541 P=51,139 P=52,680Due from other banks 1,696,044 517,819 2,213,863 203,647 483,423 687,070Financial assets at FVTPL 21,800 – 21,800 2,436 – 2,436Investment securities at amortized cost 18,058,011 – 18,058,011 12,674,904 – 12,674,904Loans and receivables 4,254,797 5,837 4,260,634 3,548,373 89,948 3,638,321Other assets 174,147 – 174,147 798,012 – 798,012Total financial assets 24,205,803 569,605 24,775,408 17,228,913 624,510 17,853,423Financial LiabilitiesDeposit liabilities – 349,316 349,316 – 239,292 239,292Financial liabilities at FVTPL – – – 807 – 807Derivative Liabilities 1,366 – 1,366 – – –Bills payable and SSURA 34,161,915 921 34,162,836 26,673,423 1,269 26,674,692Acceptances payable 565,444 5,837 571,281 148,039 89,948 237,987Margin deposits and cash letters of credit – – – 102,623 4,421 107,044Accrued interest, taxes and other

expenses 21,208 – 21,208 18,267 – 18,267Other liabilities 13,729 171 13,900 77,891 8 77,899Total financial liabilities 34,763,662 356,245 35,119,907 27,021,050 334,938 27,355,988Currency Swaps and Forwards 8,140,490 (261,230) 7,879,260 9,318,701 (167,132) 9,151,569Net Exposure (P=2,417,369) (P=47,870) (2,465,239) (P=473,436) P=122,440 (P=350,996)* Consists of Euro, British pound, Australian dollar, Canadian dollar, Hongkong dollar, Singapore dollar, New Zealand dollar,

Swiss franc, Japanese yen, Danish kroner, Thai baht, Chinese yuan, and South Korean won

Parent Company2013 2012

USD Others* Total USD Others* TotalFinancial AssetsCash and cash equivalents P=– P=45,949 P=45,949 P=4 P=51,139 P=51,143Due from other banks 1,696,044 517,819 2,213,863 202,311 483,423 685,734Financial assets at FVTPL 21,800 – 21,800 2,436 – 2,436Investment securities at amortized cost 18,058,011 – 18,058,011 12,674,904 – 12,674,904Loans and receivables 4,213,031 5,837 4,218,868 3,512,915 89,948 3,602,863Other assets 174,147 – 174,147 797,111 – 797,111Total financial assets 24,163,033 569,605 24,732,638 17,189,681 624,510 17,814,191Financial LiabilitiesDeposit liabilities – 349,316 349,316 – 239,292 239,292Financial liabilities at FVTPL – – – 807 – 807Derivative liabilities 1,366 – 1,366Bills payable and SSURA 34,161,915 921 34,162,836 26,673,423 1,269 26,674,692Acceptances payable 565,444 5,837 571,281 148,039 89,948 237,987Margin deposits and cash letters

of credit – – – 102,623 4,421 107,044Accrued interest, taxes and other

expenses 21,208 – 21,208 18,267 – 18,267Other liabilities 5,694 171 5,865 71,562 8 71,570Total financial liabilities 34,755,627 356,245 35,111,872 27,014,721 334,938 27,349,659Currency Swaps and Forwards 8,140,490 (261,230) 7,879,260 9,318,701 (167,132) 9,151,569Net Exposure (P=2,452,104) (P=47,870) (P=2,499,974) (P=506,339) P=122,440 (P=383,899)* Consists of Euro, British pound, Australian dollar, Canadian dollar, Hongkong dollar, Singapore dollar, New Zealand dollar,

Swiss franc, Japanese yen, Danish kroner, Thai baht, Chinese yuan, and South Korean won

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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 nil and$62.1 million as of December 31, 2013 and 2012, respectively, and foreign currency forwardtransactions with notional amount of $0.4 billion (bought) and $0.2 billion (sold) as ofDecember 31, 2013, and $1.2 billion (bought) and $0.9 billion (sold) as of December 31, 2012.

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-tax income in 2013 and 2012 has been included in the VaR summary per product line.

6. Fair Value Measurement and Derivative Transactions

The following table provides the fair value hierarchy of the Group’s and Parent Company’s assetsand liabilities measured at fair value and those for which fair values should be disclosed:

Consolidated2013

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments: Government securities P=624,673 P=624,673 P=624,673 P=– P=– Private bonds 946,003 946,003 946,003 – – Equity securities 791,207 791,207 791,207 – – Total HFT investments 2,361,883 2,361,883 2,361,883 – – Derivative assets: Currency forwards 429,022 429,022 – 429,022 – Interest rate swaps 705,631 705,631 – 705,631 – Warrants 116,657 116,657 – 116,657 – Total derivative assets 1,251,310 1,251,310 – 1,251,310 – Others 15,117 15,117 – 15,117 –Total financial assets at FVTPL 3,628,310 3,628,310 2,361,883 1,266,427 –Assets for which Fair Values are DisclosedFinancial assets at amortized cost Investment securities at amortized cost: Treasury bonds 62,392,727 62,009,529 62,009,529 – – Treasury notes and bills 6,294,859 6,620,717 6,620,717 – – Private bonds 9,826,855 9,322,434 9,322,434 – –

Total investment securities at amortized cost 78,514,441 77,952,680 77,952,680 – – Receivable from customers: Corporate lending 148,737,235 163,293,391 – – 163,293,391 Consumer lending 3,156,144 3,769,134 – – 3,769,134 Small business lending 3,207,893 3,628,677 – – 3,628,677 Residential mortgages 3,363,166 3,153,052 – – 3,153,052 Total receivable from customers 158,464,438 173,844,254 – – 173,844,254 Other receivables 6,777,123 5,324,562 – 5,324,562 Other assets 1,359,282 1,359,282 – 1,359,282 – Total financial assets at amortized cost 245,115,284 258,480,778 77,952,680 1,359,282 179,168,816Financial assets at FVTOCI 144,132 144,132 144,132 – –Total Assets P=248,887,726 P=262,253,220 P=80,458,695 P=2,625,709 P=179,168,816

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Consolidated2013

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities: Currency forwards P=28,634 P=28,634 P=– P=28,634 P=– Interest rate swaps 727,726 727,726 – 727,726 – Currency options 28,416 28,416 – 28,416 –Total financial liabilities at FVTPL 784,776 784,776 – 784,776 –Derivative liabilities designated as hedges 93,343 93,343 – 93,343 –Liabilities for which Fair Values are Disclosed Deposit liabilities excluding LTNCD 196,007,172 196,007,172 – 196,007,172 –

LTNCD 9,943,113 9,943,113 – 9,943,113 – Bills payable and SSURA 90,112,946 90,112,946 – 90,112,946 –Total liabilities P=296,941,350 P=296,941,350 P=– P=296,941,350 P=–

Consolidated2012

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments: Government securities P=17,931,456 P=17,931,456 P=17,931,456 P=– P=– Private bonds 446,363 446,363 446,363 – – Equity securities 1,025,749 1,025,749 1,025,749 – – Total HFT investments 19,403,568 19,403,568 19,403,568 – – Derivative assets: Currency forwards 772,651 772,651 – 772,651 – Interest rate swaps 854,329 854,329 – 854,329 – Cross-currency swaps 531,876 531,876 – 531,876 – Warrants 107,867 107,867 – 107,867 – Total derivative assets 2,266,723 2,266,723 – 2,266,723 – Others 1,529,266 1,529,266 – 1,529,266 –Total financial assets at FVTPL 23,199,557 23,199,557 19,403,568 3,795,989 –Assets for which Fair Values are DisclosedFinancial assets at amortized cost: Investment securities at amortized cost: Treasury bonds 35,696,466 43,770,436 43,770,436 – – Treasury notes 913,413 956,279 956,279 – – Private bonds 3,277,248 3,363,650 3,363,650 – –

Total investment securities at amortized cost 39,887,127 48,090,365 48,090,365 – – Receivable from customers: Corporate lending 105,686,888 108,237,069 – – 108,237,069 Consumer lending 3,347,116 3,922,083 – – 3,922,083 Small business lending 4,539,310 4,633,508 – – 4,633,508 Residential mortgages 1,706,724 1,742,883 – – 1,742,883 Total receivable from customers 115,280,038 118,535,543 – – 118,535,543 Other receivables 4,395,056 5,165,828 – – 5,165,828 Other assets 1,359,282 1,359,282 – 1,359,282 – Total financial assets at amortized cost 160,921,503 173,151,018 48,090,365 1,359,282 123,701,371Financial assets at FVTOCI 185,023 185,023 185,023 – –Total assets P=184,306,083 P=196,535,598 P=67,678,956 P=5,155,271 P=125,230,637

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Consolidated2012

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities: Currency forwards P=944,820 P=944,820 P=– P=944,820 P=– Interest rate swaps 950,252 950,252 – 950,252 –Total financial liabilities at FVTPL 1,895,072 1,895,072 – 1,895,072 –Derivative liabilities designated as hedges 190,819 190,819 – 190,819 –Liabilities for which Fair Values are DisclosedFinancial liabilities at amortized cost: Deposit liabilities excluding LTNCD 132,458,944 132,546,491 – 132,546,491 –

LTNCD 9,934,309 9,934,309 – 9,934,309 – Bills payable and SSURA 64,978,348 64,978,640 – 64,978,640 – Subordinated note 2,993,359 2,993,359 – 2,993,359 –Total 210,364,960 210,452,799 – 210,452,799 –Total liabilities P=212,450,851 P=212,538,690 P=– P=212,538,690 P=–

Parent Company2013

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments: Government securities P=624,673 P=624,673 P=624,673 P=– P=– Private bonds 946,003 946,003 946,003 – – Equity securities 720,696 720,696 720,696 – – Total HFT investments 2,291,372 2,291,372 2,291,372 – – Derivative assets: Currency forwards 429,022 429,022 – 429,022 – Interest rate swaps 705,631 705,631 – 705,631 – Warrants 116,657 116,657 – 116,657 – Total derivative assets 1,251,310 1,251,310 – 1,251,310 – Others 15,094 15,094 – 15,094 –Total financial assets at FVTPL 3,557,776 3,557,776 2,291,372 1,266,404 –Assets for which Fair Values are DisclosedFinancial assets at amortized cost: Investment securities at amortized cost: Treasury bonds 62,292,727 61,900,174 61,900,174 – – Treasury notes and bills 6,293,807 6,620,717 6,620,717 – – Private bonds 9,472,822 8,972,434 8,972,434 – –

Total investment securities at amortized cost 78,059,356 77,493,325 77,493,325 – – Receivable from customers: Corporate lending 147,864,923 160,830,350 – – 160,830,350 Consumer lending 826,815 899,313 – – 899,313 Small business lending 3,336,149 3,628,677 – – 3,628,677 Total receivable from customers 152,027,887 165,358,340 – – 165,358,340 Other receivables 3,961,817 4,472,520 – – 4,472,520 Other assets 858,568 858,568 – – 858,568 Total financial assets at amortized cost 234,907,628 248,182,753 77,493,325 – 170,689,428Financial assets at FVTOCI 64,260 64,260 64,260 – –Total Assets P=238,529,664 P=251,804,789 P=79,848,957 P=1,266,404 P=170,689,428

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Parent Company2013

Fair Value

Carrying Value Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities: Currency forwards P=28,634 P=28,634 P=– P=28,634 P=– Interest rate swaps 727,726 727,726 – 727,726 – Interest rate swaps 28,416 28,416 – 28,416 –Total financial liabilities at FVTPL 784,776 784,776 – 784,776 –Derivative liabilities designated as hedges 93,343 93,343 – 93,343 –Liabilities for which Fair Values are DisclosedFinancial liabilities at amortized cost: Deposit liabilities excluding LTNCD 190,030,215 190,406,279 – 190,406,279 –

LTNCD 9,943,113 11,349,657 – 11,349,657 – Bills payable and SSURA 90,112,899 90,124,489 – 90,124,489 –Total 290,086,227 291,880,425 – 291,880,425 –Total liabilities P=290,964,346 P=292,758,544 P=– P=292,758,544 P=–

Parent Company2012

Fair Value

Carrying Value Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Assets Measured at Fair ValueFinancial assets at FVTPL: HFT investments: Government securities P=17,931,456 P=17,931,456 P=17,931,456 P=– P=– Private bonds 446,363 446,363 446,363 – – Equity securities 1,017,228 1,017,228 1,017,228 – – Total HFT investments 19,395,047 19,395,047 19,395,047 – – Derivative assets: Currency forwards 772,651 772,651 – 772,651 – Interest rate swaps 854,329 854,329 – 854,329 – Cross-currency swaps 531,876 531,876 – 531,876 – Warrants 107,867 107,867 107,867 – – Total derivative assets 2,266,723 2,266,723 107,867 2,158,856 – Others 1,529,243 1,529,243 – 1,529,243 –Total financial assets at FVTPL 23,191,013 23,191,013 19,502,914 3,688,099Assets for which Fair Values are Disclosed Investment securities at amortized cost: Treasury bonds 35,596,466 43,664,117 43,664,117 – – Treasury notes 912,323 955,120 955,120 – – Private bonds 2,899,514 2,979,827 2,979,827 – –

Total investment securities at amortized cost 39,408,303 47,599,064 47,599,064 – – Receivable from customers: Corporate lending 104,248,024 106,456,628 – – 106,456,628 Consumer lending 1,359,128 1,387,923 – – 1,387,923 Small business lending 4,446,258 4,540,456 – – 4,540,456 Residential mortgages 1,706,724 1,742,883 – – 1,742,883 Total receivable from customers 111,760,134 114,127,890 – – 114,127,890 Other receivables 4,098,290 4,652,963 – – 4,652,963 Other assets 1,344,678 1,344,679 – 1,344,679 –Total financial assets at amortized cost 156,611,405 167,724,596 47,599,064 1,344,679 118,780,853Financial assets at FVTOCI 73,370 73,370 73,370 – –Total financial assets P=179,875,788 P=190,988,979 P=67,175,348 P=5,032,778 P=118,780,853

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Parent Company2012

Fair Value

Carrying Value Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs (Level 2)

Significantunobservable

inputs(Level 3)

Liabilities Measured at Fair ValueFinancial liabilities at FVTPL: Derivative liabilities: Currency forwards P=944,820 P=944,820 P=– P=944,820 P=– Interest rate swaps 950,252 950,252 – 950,252 –Total financial liabilities at FVTPL 1,895,072 1,895,072 – 1,895,072 –Derivative liabilities designated as hedges 190,819 190,819 – 190,819 –Liabilities for which Fair Values are DisclosedFinancial liabilities at amortized cost: Deposit liabilities excluding LTNCD 127,469,322 127,383,425 – 127,383,425 –

LTNCD 9,934,309 10,841,095 – 10,841,095 – Bills payable and SSURA 64,829,114 64,757,775 – 64,757,775 –

Acceptances Payable 296,806 296,806 – 296,806 –Margin deposits and cash letter of credits 189,592 189,592 – 189,592 –Manager’s checks and certified checks

outstanding 1,513,696 1,513,696 – 1,513,696 –Subordinated note 2,993,359 3,133,943 – 3,133,943 –

Accrued interest and other expenses 1,393,328 1,393,328 – 1,393,328 –Other liabilities 3,986,391 3,986,391 – 3,986,391 –

Total financial liabilities at amortized cost 212,605,917 213,496,051 – 213,496,051 –Total financial liabilities P=214,691,808 P=215,581,942 P=– P=215,581,942 P=–

During the years ended December 31, 2013 and 2012, 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 the 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 arenot readily available, fair values are estimated using either values obtained from independentparties offering pricing services or adjusted quoted market prices of comparable investments orusing the discounted cash flow methodology. No sensitivity analysis is presented for investmentsthat are valued using Level 3 inputs as the carrying amount of these assets is not material to theGroup.

Equity securitiesFair values of quoted equity securities are based on quoted market prices. The unquoted equitysecurities are carried at cost net of impairment since there is insufficient information available todetermine its fair values.

Receivable from customers and Sales contracts receivable (included under Other receivables)Fair values of loans and receivables are estimated using the discounted cash flow methodology,using the Group’s current incremental lending rates for similar types of loans and receivables.

Significant unobservable inputs Range (weighted average)Transfer pool rate 3.25% - 5.00%Credit spread 1.00% - 4.00%

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Other receivables - Accounts receivableQuoted market prices are not readily available for these assets. They are not reported at fair valueand are not significant in relation to the Group’s total financial assets.

Other financial assetsThe carrying amounts approximate fair values due to their short-term nature.

Derivative instrumentsFair values of quoted warrants are based on quoted market prices. Other derivative products arevalued using valuation techniques using market observable inputs including foreign exchangerates and interest rate curves prevailing at the statement of financial position date. For interest rateswaps, cross-currency swaps and foreign exchange contracts, discounted cash flow model isapplied. This valuation model discounts each cashflow of the derivatives at a rate that isdependent on the tenor of the cashflow. European currency options are valued using the Garman-Kohlhagen model which estimates the value of the option with the assumption that the risk-freerate paid on a foreign currency is a continuous dividend yield. European bond options are valuedusing the Black 76 model which incorporates in its formula the price variation of the underlyingbond, the time value of money, the option’s strike price and the time to the option’s expiry.

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 savings deposits, time deposits, Long-term negotiable certificates of deposit (LTNCD),bills payable and SSURA, and subordinated noteFair values of time deposits, LTNCD, bills payable and SSURA, and subordinated note areestimated using the discounted cash flow methodology using the Group’s current incrementalborrowing rates for similar borrowings with maturities consistent with those remaining for theliability being valued.

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’sderivative financial instruments and the related fair values:

2013 2012

NotionalAmounts

DerivativeAsset

(Note 9)

DerivativeLiability(Note 18)

NotionalAmounts

DerivativeAsset

(Note 9)

DerivativeLiability(Note 18)

Forward exchange bought $391,966 P=415,327 P=7,209 $1,186,363 P=65,355 P=902,924Forward exchange sold $249,561 13,695 21,425 $919,275 707,296 41,896Interest rate swaps P=80,166,163 705,631 727,726 P=71,074,250 854,329 950,252Warrants $250,258 116,657 – $250,258 107,867 –Currency options P=22,420,288 – 28,416 P=8,056,555 – –Cross-currency swaps $– – – $62,050 531,876 –

P=1,251,310 P=784,776 P=2,266,723 P=1,895,072

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The movements in the Group’s and the Parent Company’s derivative financial instruments follow:

2013 2012Derivative AssetsBalance at beginning of year P=2,266,723 P=2,721,094Fair value changes during the year (991,548) (376,480)Settled transactions (23,865) (77,891)Balance at end of year P=1,251,310 P=2,266,723

Derivative LiabilitiesBalance at beginning of year P=1,895,072 P=2,312,351Fair value changes during the year (1,833,036) (276,736)Settled transactions 722,740 (140,543)Balance at end of year P=784,776 P=1,895,072

Fair value changes of derivatives other than forward contracts amounting to P=268.9 million gain in2013 and P=95.5 million gain in 2012 are recognized as Trading and securities gain in thestatements of income (see Note 8), while fair value changes on forward contracts amounting toP=572.6 million gain in 2013 and P=195.2 million loss in 2012 are recognized as Foreign exchangegain (loss) - net in the statements of income.

On December 20, 2013, the BSP approved the Parent Company’s application for additional Type 2derivatives authority on the following derivative products:a. Non Deliverable/Net settled/Cash Settled Options on FX, Bonds and Goldb. Deliverable American Options on FX, Bonds and Goldc. Deliverable Exotic Options on FX, Bonds and Goldd. Gold Forwardse. Bond Forwardsf. Non Deliverables Swapsg. Asset Swaps

On February 7, 2012, the BSP approved the Parent Company’s application for additional Type 3derivatives authority on the following instruments:a. European and American foreign currency forwards (plain vanilla and exotic)b. Bond and gold forwardsc. Credit default swaps

On August 13, 2008, the BSP approved the Parent Company’s application for a Type 2 LimitedDealer Authority and Type 3 Limited User Authority under BSP Circular No. 594 datedJanuary 8, 2008 to engage in the following types of derivatives:

Type 2 Limited Dealer Authority (Stand-alone only):a. Foreign exchange forwards (including non-deliverable forwards)b. Forward rate agreementsc. Optionsd. Interest rate swapse. Currency swaps/cross currency swaps/foreign exchange swaps

Type 3 End-User Authoritya. Credit-linked notesb. Range accrual notes/swaps

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As of December 31, 2013 and 2012, the Parent Company has positions in the following types ofderivatives:

ForwardsForward contracts are contractual agreements to buy or sell a specified instrument at a specificprice and date in the future. Forwards are customized contracts transacted in the over-the-countermarket.

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 indexsuch as interest 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 forpaying or receiving, respectively, a fixed rate of interest. The payment flows are usually nettedagainst each other, with the difference being paid by one party to the other.

In a currency swap, the Parent Company pays a specified amount in one currency and receives aspecified amount in another currency. Currency swaps are mostly gross-settled.

OptionsOptions are contractual agreements that convey the right, but not the obligation, for the holdereither to buy or sell a specific amount of a financial instrument at a fixed price, either at a fixedfuture date or at any time within a specified period.

Derivative financial instruments held or issued for trading purposesThe Parent Company’s derivative trading activities relate to deals with customers which arenormally laid off with counterparties. The Parent Company may also take positions with theexpectation of generating profit from favorable movements in prices and rates on indices. Alsoincluded under this heading 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 offixed rate financial instruments.

The accounting treatment explained in Note 2 to the financial statements, Hedge Accounting,varies according to the nature of the item hedged and compliance with the hedge criteria. Hedgesentered into by the Parent Company which provide economic hedges but do not meet the hedgeaccounting criteria 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 rateswaps to hedge against identified interest rate risks (see Note 19).

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7. Interest Income on Financial Investments

This account consists of interest income on:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Financial assets at FVTPL (Note 9):Derivatives P=1,082,187 P=832,176 P=968,941 P=1,082,187 P=832,176 P=968,941Held-for-trading 244,778 587,659 422,309 244,778 586,706 421,854Others 52,911 263,288 226,426 52,911 263,288 226,426

1,379,876 1,683,123 1,617,676 1,379,876 1,682,170 1,617,221Investment securities at amortized

cost (Note 11) 2,260,678 2,566,162 3,282,381 2,240,244 2,547,092 3,282,381P=3,640,554 P=4,249,285 P=4,900,057 P=3,620,120 P=4,229,262 P=4,899,602

Peso-denominated HFT investments earn annual interest rates ranging from 1.63% to 14.38% in2013, 4.63% to 18.25% in 2012 and 5.00% to 14.38% in 2011, while foreign currency-denominated HFT investments earn annual interest rates ranging from 2.75% to 9.88% in 2013,0.63% to 11.88% in 2012 and 2.00% to 12.00% in 2011.

Financial assets at FVTPL - Others pertain to investments that are not held for trading but do notqualify for amortized cost classification in the case of debt securities, and are not designated asFVTOCI in the case of equity securities (see Note 9). In 2013, this asset simply pertains toinvestments in equity securities. In 2012, this includes a peso-denominated loan receivable thatbears fixed nominal annual interest rate of 15.70% minus 3-month PDST-F, a foreign currencydenominated Credit-Linked Note (CLN) that bears interest based on 3-month LIBOR plus anagreed spread of 3.00% per annum and a contingently prepayable foreign-currency denominatedloan receivable that bears floating interest rate based on 6-month LIBOR plus agreed spread of2.40%. These all matured in 2013. In 2011, this also includes a contingently prepayable foreign-currency denominated loan receivable that bears floating interest rate based on 6-month LIBORplus agreed spread of 3.38%.

Peso-denominated investment securities at amortized cost earn annual interest rates ranging from5.93% to 12.38% in 2013, 5.88% to 12.38% in 2012 and 5.23% to 12.13% in 2011, while foreigncurrency-denominated investment securities at amortized cost earn annual interest rates rangingfrom 4.00% to 9.50% in 2013 and 2012 and 4.00% to 10.63% in 2011.

8. Trading and Securities Gain

Net gains from trading/disposal of investment securities follow:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Investment securities at amortized cost(Note 11) P=2,212,225 P=3,273,345 P=1,356,655 P=2,212,225 P=3,273,345 P=1,356,655

Financial instruments at FVTPL: Held-for-trading investments (Note 9) (P=191,628) P=808,765 P=272,026 (P=122,244) P=813,688 P=268,843 Derivatives (Note 6) 268,929 95,451 137,455 268,929 95,451 137,455 Financial assets at FVTPL - others

(Note 9) (44,537) (62,613) (53,752) (44,536) (62,613) (53,752)P=32,764 P=841,603 P=355,729 P=102,149 P=846,526 P=352,546

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In August to October 2013, the Parent Company disposed of certain dollar denominated bondsheld under the HTC business model with an aggregate face amount of $900.4 million. Thedisposals resulted in a gain of P=2.2 billion. The Parent Company concluded that the disposal doesnot violate its HTC business model as the change in intention was primarily driven by the need toincrease capital position in view of the significant increase in the industry’s regulatory capitalrequirements in view of the early implementation of Basel III effective January 1, 2014.

In May to June 2012, to fund its growing lending requirements, the Parent Company disposed of asubstantial portion of its portfolio of Peso-denominated government securities held under the HTCbusiness model with an aggregate face amount of P=17.0 billion. The disposals resulted in a gain ofP=3.3 billion and constitute a change in its business model for the portfolio (i.e., from HTC torealization of fair value changes). As a result of the change in its business model, the ParentCompany reclassified at the beginning of the third quarter the remaining securities in the portfoliowith carrying amount of P=0.4 million and fair value as of reclassification date of P=0.4 million tofinancial assets at FVTPL, and all future investments in peso-denominated government securitieswill be classified as at FVTPL.

In 2013, the Parent Company has reinstated the Philippine peso-denominated governmentsecurities HTC business model. The significant increase in peso demand and savings deposits, asa result of the BSP Memorandum No. M-2013-021 issued in 2013, which limits access of entitiesto the SDA facility of BSP, resulted in a positive gap position. With consideration to VaR andEaR, management deemed it prudent and necessary to reintroduce the HTC Peso-denominatedgovernment securities business model.

In July and October 2011, as part of the Domestic Debt Consolidation Program launched in 2010,the Republic of the Philippines executed a bond exchange offer and cash tender offer, respectively.Under the bond exchange offer, the government issued ten-year and twenty-year bonds inexchange for shorter dated bonds. Under the cash tender offer, the government offered selectedEuro and US dollar-denominated securities for buyback. In connection with the offerings, theParent Company submitted its holdings of eligible bonds that resulted in the derecogntion ofcertain HTC securities. Peso-denominated investment securities at amortized cost with carryingamount of P=14.3 billion were exchanged under the bond exchange offer thereby realizing gains ofP=314.7 million. Under the cash tender offer, US dollar-denominated investment securities atamortized cost with carrying amount of $140.3 million (P=6.0 billion) were tendered which resultedin a gain of $12.5 million (P=534.6 million). The Parent Company concluded that the participationin these government-initiated offerings does not violate its HTC business model as it is not drivenby the realization of fair value gains, as supported by the following:

· The main motivation of the Parent Company in participating is to protect itself from thepossible adverse impact on the liquidity of the eligible securities. There is high likelihood thatthe securities will become illiquid after the offerings.

· The securities submitted for the offerings were purchased by the Parent Company prior to theannouncement by the government of the securities eligible for the offerings.

· Fair value does not play a role in the selection of the securities to be tendered as thegovernment provided a list of eligible securities for the offerings.

· The participation in the offerings was not anticipated as the offerings are not frequentexercises of the government.

The Parent Company also submitted Peso-denominated HFT investments in the bond exchangeoffer and realized gains of P=2.3 million.

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Moreover, in December 2011, the Parent Company sold peso-denominated securities under theHTC portfolio with carrying amount of P=3.0 billion for the purpose of funding its acquisition ofPDB (see Note 4) and the cost of fifty branch licenses which it obtained from BSP. The disposalresulted in a gain of P=507.4 million. The Parent Company assessed that such disposal does notcontradict its HTC business model as the unanticipated capital expenditures qualify as a permittedsale under PFRS 9 and BSP Circular 708.

9. Financial Assets at Fair Value Through Profit or Loss

This account consists of:

Consolidated Parent Company2013 2012 2013 2012

Held-for-trading:Private bonds P=946,003 P=446,363 P=946,003 P=446,363Equity securities 791,207 1,025,749 720,696 1,017,228Government securities 624,673 17,931,456 624,673 17,931,456

2,361,883 19,403,568 2,291,372 19,395,047Derivative assets (Note 6):

Interest rate swaps 705,631 854,329 705,631 854,329Currency forwards 429,022 772,651 429,022 772,651Warrants 116,657 107,867 116,657 107,867Cross-currency swaps – 531,876 – 531,876

1,251,310 2,266,723 1,251,310 2,266,723Others 15,117 1,529,266 15,094 1,529,243

P=3,628,310 P=23,199,557 P=3,557,776 P=23,191,013

‘Others’ include financial assets not held for trading purposes, but do not qualify for amortizedcost classification, as follows:

As of December 31, 2013:· The Parent Company’s and SBCIC’s equity investments with aggregate carrying amount of

P=15.1 million which are not designated as at FVTOCI.

As of December 31, 2012:· Inverse floater loan receivable with carrying amount of P=741.4 million.· Investment in CLN with carrying value of $10.1 million (P=413.0 million) that is linked to the

performance of a specific ROP bond. In the event of default of the specific ROP bond, theinvestment will unwind and the Parent Company will receive the deliverable obligation asdefined under the contract. If no credit event occurs, the Parent Company will receive thematurity value of the CLN, which is the face amount;

· The Parent Company’s and SBCIC’s equity investments with aggregate carrying amount ofP=15.1 million which are not designated as at FVTOCI; and

· Mandatorily prepayable loan receivables, prepayment of which is contingent on the equityoffering of the issuer, with aggregate carrying value of P=359.8 million.

As of December 31, 2013 and 2012, Financial assets at FVTPL include net unrealized gain ofP=1.0 billion and P=2.1 billion, respectively, for the Group and the Parent Company.

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Fair value gains or losses on financial assets at FVTPL (other than currency forwards) areincluded in Trading and securities gain (see Note 8) in the statements of income. Fair value gainsor losses on currency forwards are included in Foreign exchange gain (loss) - net in the statementsof income (see Note 6).

10. Financial Assets at Fair Value through Other Comprehensive Income

This account consists of:

Consolidated Parent Company2013 2012 2013 2012

PSE shares P=53,489 P=83,200 P=– P=–Golf shares 90,643 101,823 64,260 73,370Balance at end P=144,132 P=185,023 64,260 P=73,370

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. As such,SBEI designated these equity securities as financial assets at FVTOCI as management believesthat this provides a more meaningful presentation for medium or long-term strategic investments,rather than reflecting changes in fair value immediately in the statements of income. The Groupalso adopted the same classification for its investments in golf shares.

In February and March 2013, SBEI sold certain PSE shares with market value at the time of saleof P=22.2 million and realized a gain of P=10.0 million through Surplus.

SBEI recognized dividend income, included in Miscellaneous income in the statements of income,amounting to P=1.3 million and P=1.4 million from its investments in PSE shares in 2013 and 2012,respectively (see Note 30).

The movements in Net unrealized gain on financial assets at FVTOCI follow:

Consolidated Parent Company2013 2012 2013 2012

Balance at beginning P=85,231 P=32,663 P=44,530 P=21,975Unrealized gains (loss) for the year (25,217) 52,568 (9,110) 22,555Balance at end P=60,014 P=85,231 P=35,420 P=44,530

11. Investment Securities at Amortized Cost

This account consists of:

Consolidated Parent Company2013 2012 2013 2012

Treasury bonds (Note 20) P=62,392,727 P=35,696,466 P=62,292,727 P=35,596,466Private bonds 9,826,855 3,277,248 9,472,822 2,899,514Treasury notes and bills (Notes 20 and 26) 6,294,859 913,413 6,293,807 912,323

P=78,514,441 P=39,887,127 P=78,059,356 P=39,408,303

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As discussed in Note 20, certain investment securities were pledged with foreign and local banksas collateral for SSURA. In addition, as discussed in Note 26, as of December 31, 2013 and2012, government securities included under Investment securities at amortized cost with a totalface value of P=672.2 million and P=589.0 million, respectively, were deposited with the BSP incompliance with the requirements of the General Banking Law relative to the Parent Company’strust functions.

In 2013, the Parent Company disposed of certain HTC dollar-denominated bonds to increasecapital position in view of the significant increase in the industry’s regulatory capital requirements(see Note 8).

In 2012, the Parent Company disposed of its holdings of certain HTC Peso-denominatedgovernment securities to address its increasing lending requirements resulting in a change inbusiness model for the said portfolio (see Note 8). However as discussed in Note 8, in 2013, theHTC business model for Peso-denominated government securities was reinstated.

In 2011, certain HTC securities were sold as a result of the Parent Company’s participation in theROP Domestic Debt Program and for capital expenditure purposes (see Note 8).

12. Loans and Receivables

This account consists of:

Consolidated Parent Company2013 2012 2013 2012

Receivable from customers:Corporate lending P=151,110,353 P=107,374,947 P=149,160,738 P=105,896,378Consumer lending 3,284,131 2,093,324 – 693,819Small business lending 3,281,468 3,516,637 3,281,468 3,516,637Residential mortgages 3,407,542 1,741,438 – 1,741,438Others 1,001,733 2,805,414 1,001,733 1,906,379

162,085,227 117,531,760 153,443,939 113,754,651Less unearned discounts and deferred

credits 198,874 436,663 150,878 358,444161,886,353 117,095,097 153,293,061 113,396,207

Accrued interest receivable 2,631,220 1,916,630 2,561,726 1,881,220Unquoted debt instruments 2,203,653 2,704,392 2,203,514 2,704,218Accounts receivable (Note 16) 618,173 170,164 109,363 139,429Sales contracts receivable (Note 16) 430,731 397,842 112,760 178,237

167,770,130 122,284,125 158,280,424 118,299,311Less allowance for credit losses 2,528,569 2,535,449 2,290,721 2,440,887

P=165,241,561 P=119,748,676 P=155,989,703 P=115,858,424

As discussed in Note 3, on various dates in 2013, the Parent Company sold, on a without recoursebasis, its entire portfolio of personal loans, home loans/residential mortgages and auto loans toconsolidate all consumer financing activities in SBS. The consumer loans were sold at theircarrying values amounting to P=1.8 billion, which approximate fair value of the loans on each dateof sale.

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Receivables from customers consist of:

Consolidated Parent Company2013 2012 2013 2012

Loans (Note 31) P=147,953,070 P=105,172,846 P=140,142,997 P=102,155,138Customers’ liabilities under letters of credit

and trust receipts 9,908,831 7,753,122 9,908,831 7,753,122Bills purchased (Note 23) 2,002,874 2,737,113 1,953,295 2,729,721Credit card receivables 1,641,237 1,571,873 859,601 819,864Customers’ liabilities under acceptances 579,215 296,806 579,215 296,806

162,085,227 117,531,760 153,443,939 113,754,651Less unearned discounts and deferred

credits 198,874 436,663 150,878 358,444P=161,886,353 P=117,095,097 P=153,293,061 P=113,396,207

As of December 31, 2013 and 2012, foreign currency-denominated loans of the Parent Companyamounting to $1.1 million (P=48.0 million) and $1.7 million (P=71.0 million), respectively, andpeso-denominated loans amounting to nil and P=903.1 million, respectively, are pledged with theBSP as collateral for bills discounting privileges (see Note 20).

Unquoted debt instruments consist of private securities with EIR of 7.90% in 2013 and EIRranging from 7.90% to 9.75% for peso-denominated securities in 2012, and for dollar-denominated securities ranging from 5.85% to 5.91% and 2.35% to 8.05% in 2013 and 2012,respectively. In 2011, the Parent Company’s investment in an unquoted debt security withcarrying amount of $26.3 million (P=1.1 billion) was redeemed by the issuer. Proceeds from thepre-termination amounted to $31.1 million (P=1.3 billion) thereby realizing gain of P=219.4 million(see Note 30).

In 2008, the Parent Company identified certain fixed-rate corporate loans aggregating toP=3.4 billion as hedged items for fair value interest rate risk. On various dates in 2011, hedgedloan receivables amounting to P=488.0 million were either partially or fully preterminated by theborrowers. The accumulated fair value gain of P=31.1 million of these hedged loans as ofpretermination dates in 2011 were recognized in the statements of income under Trading andsecurities gain. In 2013, a hedged loan receivable amounting to P=50.8 million was preterminatedby the borrower. The accumulated fair value gain of P=2.2 million of these hedged loan as ofpretermination was recognized in the statements of income under Trading and securities gain. Asof December 31, 2013 and 2012, loan receivables identified as hedged items amounted toP=0.9 billion and P=1.9 billion, respectively. Gains from fair value changes of the remaining hedgeditems attributable to the hedged risk amounted to P=93.3 million and P=190.8 million as ofDecember 31, 2013 and 2012, respectively (see Note 19).

Regulatory ReportingCurrent banking regulations allow banks that have no unbooked valuation reserves and capitaladjustments to exclude from nonperforming classification receivables classified as loss in thelatest examination of the BSP which are fully covered by allowance for credit losses, provided thatinterest on said receivables shall not be accrued for regulatory accounting purposes.

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As of December 31, 2013 and 2012, NPLs not fully covered by allowance for credit losses are asfollows:

Consolidated Parent Company2013 2012 2013 2012

Total NPLs P=1,533,823 P=1,436,580 P=679,833 P=840,414Less NPLs classified as loss by the BSP

and are fully covered by allowance forcredit losses 623,945 440,120 55,203 41,514

P=909,878 P=996,460 P=624,630 P=798,900

Restructured receivables of the Group and the Parent Company amounted to P=214.4 millionand P=133.1 million, respectively, as of December 31, 2013 and P=290.5 million and P=236.0 million,respectively, as of December 31, 2012. Interest income on these restructured receivablesamounted to P=18.6 million in 2013, P=26.6 million in 2012 and P=19.5 million in 2011 for the Groupand P=8.93 million in 2013, P=15.9 million in 2012 and P=6.5 million in 2011 for the ParentCompany.

Movements in the allowance for credit losses on loans and receivables follow:

Consolidated2013

CorporateLending

SmallBusinessLending

ConsumerLending

ResidentialMortgages Others Total

Balance at beginning of year P=2,210,560 P=66,288 P=126,832 P=38,371 P=93,398 P=2,535,449Provision for (recovery of) credit losses (29,245) 4,689 78,193 17,286 57,195 128,118Accounts charged-off (19,509) (4,678) (109,122) – – (133,309)Interest accrued on impaired receivables (9,871) – – – – (9,871)Others (25,786) 4,462 86,489 (14,777) (42,206) 8,182Balance at end of year P=2,126,149 P=70,761 P=182,392 P=40,880 P=108,387 P=2,528,569

Individual impairment P=1,819,547 P=57,817 P=80,262 P=8,480 P=156,912 P=2,123,018Collective impairment 306,602 12,944 102,130 32,400 (48,525) 405,551

P=2,126,149 P=70,761 P=182,392 P=40,880 P=108,387 P=2,528,569

Gross amount of loans individuallydetermined to be impaired P=28,094,111 P=466,593 P=86,886 P=26,887 P=2,298,693 P=30,973,170

Consolidated2012

CorporateLending

SmallBusinessLending

ConsumerLending

ResidentialMortgages Others Total

Balance at beginning of year P=2,412,374 P=50,487 P=129,916 P=35,461 P=41,302 P=2,669,540Provision for (recovery of) credit losses (44,980) 27,956 42,636 2,910 219,245 247,767Accounts charged-off (72,484) (11,048) (34,567) – (162,251) (280,350)Interest accrued on impaired receivables (79,608) (553) – – – (80,161)Others (4,742) (554) (11,153) – (4,898) (21,347)Balance at end of year P=2,210,560 P=66,288 P=126,832 P=38,371 P=93,398 P=2,535,449

Individual impairment P=1,794,193 P=51,045 P=79,455 P=21,791 P=60,283 P=2,006,767Collective impairment 416,367 15,243 47,377 16,580 33,115 528,682

P=2,210,560 P=66,288 P=126,832 P=38,371 P=93,398 P=2,535,449

Gross amount of loans individuallydetermined to be impaired P=19,653,441 P=164,708 P=138,406 P=50,729 P=65,787 P=20,073,071

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Parent Company2013

CorporateLending

SmallBusinessLending

ConsumerLending

ResidentialMortgages Others Total

Balance at beginning of year P=2,201,624 P=66,288 P=47,073 P=38,371 P=87,531 P=2,440,887Provision for (recovery of) credit losses (55,650) (1,675) (395) – 68,130 10,410Accounts charged-off and transfers* (19,247) (4,678) (132,269) (35,893) – (192,087)Interest accrued on impaired receivables (9,871) – – – – (9,871)Others (32,589) 2,783 100,373 (2,478) (26,707) 41,382Balance at end of year P=2,084,267 P=62,718 P=14,782 P=– P=128,954 P=2,290,721

Individual impairment P=1,796,449 P=57,818 P=– P=– P=127,854 P=1,982,121Collective impairment 287,818 4,900 14,782 – 1,100 308,600

P=2,084,267 P= 62,718 P=14,782 P=– P=128,954 P=2,290,721

Gross amount of loans individuallydetermined to be impaired P=27,568,834 P= 438,560 P=– P=– P=2,265,918 P=30,273,312

*Includes allowance pertaining to consumer loans sold to SBS totaling P=104.2 million.

Parent Company2012

CorporateLending

SmallBusinessLending

ConsumerLending

ResidentialMortgages Others Total

Balance at beginning of year P=2,407,535 P=49,932 P=118,750 P=35,461 P=41,152 P=2,652,830Provision for (recovery of) credit losses (53,819) 27,956 (57,218) 2,910 177,162 96,991Accounts charged-off (72,484) (11,047) (14,459) – (109,458) (207,448)Interest accrued on impaired receivables (79,608) (553) – – – (80,161)Others – – – – (21,325) (21,325)Balance at end of year P=2,201,624 P=66,288 P=47,073 P=38,371 P=87,531 P=2,440,887

Individual impairment P=1,757,884 P=51,045 P=42,660 P=21,791 P=59,509 P=1,932,889Collective impairment 443,740 15,243 4,413 16,580 28,022 507,998

P=2,201,624 P=66,288 P=47,073 P=38,371 P=87,531 P=2,440,887

Gross amount of loans individuallydetermined to be impaired P=19,413,564 P=164,708 P=79,934 P=50,729 P=61,595 P=19,770,530

The fair value of the collateral that the Group and the Parent Company hold relating to the totalloan portfolio amounted to P=25.7 billion and P=22.3 billion, respectively, as of December 31, 2013and P=64.8 billion and P=59.6 billion, respectively, as of December 31, 2012. The collateral consistsof cash, securities, letters of guarantee and real and personal properties. The Group and ParentCompany took possession of various properties previously held as collateral with carrying valuesof P=114.8 million and P=32.7 million, respectively, as of December 31, 2013 and P=90.3 million andP=70.7 million as of December 31, 2012.

The following table shows the breakdown of receivable from customers as to secured andunsecured and the breakdown of secured receivables from customers as to the type of security asof December 31, 2013 and 2012 (amounts in millions):

Consolidated Parent Company2013 2012 2013 2012

Amount % Amount % Amount % Amount %Secured by: Real estate P=18,457 11 P=11,929 10 P=15,785 10 P=11,106 10 Assignment of projects/

company assets/contracts 14,057 9 5,715 5 11,894 4 5,715 5 Chattel 3,143 2 2,990 3 1,743 1 2,405 2 Mortgage trust indenture 2,311 2 2,245 2 2,311 2 2,245 2 Deposit hold-out 1,895 1 1,727 1 1,861 1 1,723 1 Others 2,103 1 2,361 2 1,562 1 2,014 2

41,966 26 26,967 23 35,156 19 25,208 22Unsecured 120,119 74 90,565 77 118,288 81 88,547 78

P=162,085 100 P=117,532 100 P=153,444 100 P=113,755 100

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As of December 31, 2013 and 2012, information on the concentration of credit as to industryfollows (amounts in millions):

Consolidated Parent Company2013 2012 2013 2012

Amount % Amount % Amount % Amount %Manufacturing P=25,712 16 P=20,231 17 P=25,687 17 P=20,215 18Wholesale and retail trade 31,582 19 25,369 22 31,308 20 25,322 22Power, electricity and water

distribution 27,607 17 15,952 14 27,607 18 15,952 14Real estate 20,138 12 14,455 12 17,741 11 13,898 12Financial intermediaries 15,351 10 13,316 11 15,306 10 13,316 12Transportation, storage and

communication 14,732 9 11,447 10 14,650 10 11,383 10Others 26,963 17 16,762 14 21,145 14 13,669 12

P=162,085 100 P=117,532 100 P=153,444 100 P=113,755 100

Interest income on loans and receivables consists of:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Loans P=6,957,337 P=5,909,836 P=4,445,530 P=6,453,684 P=5,587,055 P=4,443,790Customers’ liabilities under letters of

credit and trust receipts 398,274 348,931 342,443 398,274 348,931 342,443Credit card receivables 373,503 397,133 446,020 180,234 188,891 198,676Unquoted debt securities 138,826 169,578 247,835 138,826 169,578 247,835Sales contracts receivable 23,118 32,344 26,147 13,358 23,158 26,147Interest income accrued on impaired

loans and receivables 9,872 105,144 11,399 9,871 80,161 11,399Bills purchased 1,416 1,853 2,155 1,146 1,541 2,155

P=7,902,346 P=6,964,819 P=5,521,529 P=7,195,393 P=6,399,315 P=5,272,445

Of the total receivables from customers of the Group and of the Parent Company, 50.47% and53.44%, respectively, as of December 31, 2013, and 54.0% and 56.0%, respectively, as ofDecember 31, 2012, are subject to periodic interest repricing. Remaining receivables fromcustomers, for the Group and the Parent Company, earn annual fixed interest rates, as follows(in percentages):

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Peso-denominated 1.50-46.78 1.50-46.78 1.25-46.78 1.50-46.78 1.50-46.78 1.25-46.78Foreign currency-denominated 0.76-9.14 0.76-9.25 0.76-9.25 0.76-9.14 0.76-9.25 0.76-9.25

Sales contracts receivable earns interest rates ranging from 8.00% to 16.00% in 2013, 7.80% to16.00% in 2012 and 8.00% to 16.00% in 2011 for the Group, and 8.00% to 16.00% in 2013, 2012and 2011 for the Parent Company.

13. Investments in Subsidiaries and a Joint Venture

Investments in Subsidiaries and Non-controlling InterestThis account consists of investments in:

% of Consolidated Parent CompanyOwnership 2013 2012 2013 2012

Subsidiaries:Cost:

SBS (Note 4) 99.54 P=– P=– P=2,576,477 P=2,576,477SLC 51.81 – – 923,244 923,244

(Forward)

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% of Consolidated Parent CompanyOwnership 2013 2012 2013 2012

SBCIC 100.00 P=– P=– P=500,000 P=500,000SBCC 100.00 – – 325,000 325,000LPII 100.00 – – 125,000 125,000SBFI 100.00 – – 50,000 50,000SPFSIAI 50.00 – – 6,000 6,000

– – 4,505,721 4,505,721Joint Venture - SBML:Cost 60.00 150,058 150,058 177,728 177,728

150,058 150,058 177,728 177,728Accumulated equity in net income (losses)Balance at beginning of year 3,382 (1,126) – –Share in net income 18,389 4,508 – –

21,771 3,382 – –171,829 153,440 177,728 177,728

P=171,829 P=153,440 P=4,683,449 P=4,683,449

As discussed in Note 4, the Parent Company acquired 96.42% of the outstanding common sharesof PDB (renamed as SBS) on February 1, 2012. As of December 31, 2012, the investment cost inSBS amounting to P=2.6 billion represents the consideration for the acquisition amounting toP=1.3 billion, the capital infusion made by the Parent Company amounting to P=550.0 million andP=688.8 million on February 29, 2012 and December 18, 2012, respectively, and consideration forthe acquisition of non-controlling interest amounting to P=35.9 million.

As of December 31, 2013 and 2012, material non-controlling interest relates to SLC with anaccumulated balance of P=1.0 billion and P=935.0 million, respectively.

The summarized financial information of SLC are provided below. This information is based onamounts before inter-company eliminations.

Summarized statements of income:

2013 2012Interest income P=16,334 P=8,471Interest expense – –Net interest income 16,334 8,471Other income 194,143 96,039Total operating income 210,477 104,510Operating expenses (10,667) 21,826Income before income tax 221,144 82,684Provision for income tax 47,492 17,158Net income P=173,652 P=65,526

Net Income attributable to non-controlling interest P=83,683 P=35,093

Summarized statements of financial position:

2013 2012Total assets P=2,269,445 P=2,076,629Total liabilities 162,919 143,755Total equity: 2,106,526 1,932,874

Attributable to equity holders of parent 1,091,391 997,906Non-controlling interest 1,015,135 934,968

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Summarized cash flow information:

2013 2012Operating 138,089 P=110,548Investing (5,961) (188,440)Net increase (decrease) in cash and cash equivalents P=132,128 (P=77,892)

Interest in Joint VentureAs discussed in Note 1, the Parent Company lost control of SBML and gained joint control withMarubeni on August 31, 2011. Loss on deconsolidation amounted to P=27.7 million. SBMLstarted its finance leasing activities in October 2011.

The summarized financial information of the joint venture and reconciliation of the carryingamount of the investment in consolidated financial statements are set out below:

2013 2012Cash and cash equivalents P=140 P=4Loans and other receivables - current 602 225Non-current assets 2 236Current liabilities (218) (126)Non-current liabilities (258) (115)Equity P=268 P=224

Proportion of the Group’s ownership 60% 60%Carrying amount of the investment P=172 P=153

2013 2012IncomeLeasing and other income P=46 P=18Interest expense – (3)Net interest income 46 15Other income 34 33Operating expenses (48) (20)Income before income tax 32 28Provision for income tax (2) (1)Net income P=30 P=27

Group’s share for the year P=18 P=5

Depreciation expense amounting to P=0.5 million in 2013 and P=0.4 million in 2012 is includedunder Operating Expenses. SBML has no contingent liabilities or capital commitments as ofDecember 31, 2013 and 2012.

SPFSIAI has suspended its operations beginning 2005. On April 2, 2008, its corporate term wasshortened to until August 31, 2009. Starting August 31, 2009, assets and liabilities of SPFSIAIwere presented at the lower of cost or net realizable value. As of December 31, 2013 and 2012,assets of P=0.2 million and liabilities of P=2.1 million are included in the consolidated amounts inthe statements of financial position. The liquidation is still pending approval of SEC as ofDecember 31, 2013 and 2012.

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14. Property and Equipment

The composition of and movements in the Group’s property and equipment follows:

2013

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements TotalCostBalance at beginning of year P=425,721 P=1,626,806 P=1,027,846 P=224,746 P=229,829 P=3,534,948Additions – 327,887 429,966 106,988 172,009 1,036,850Disposals (6,531) (19,679) (202,740) (64,693) (1,256) (294,899)Amortization of leasehold improvements – – – – (74,030) (74,030)Balance at end of year 419,190 1,935,014 1,255,072 267,041 326,552 4,202,869Accumulated DepreciationBalance at beginning of year – 1,157,517 675,735 96,845 – 1,930,097Depreciation – 97,433 164,916 48,418 – 310,767Disposals – (8,460) (31,142) (28,440) – (68,042)Balance at end of year – 1,246,490 809,509 116,823 – 2,172,822Accumulated Impairment LossBalance at beginning of year 60,155 – – – – 60,155Provisions (recovery) (2,690) 2,606 – – – (84)Disposals (1,785) (2,520) – – – (4,305)Balance at end of year 55,680 86 – – – 55,766Net Book Value at End of Year P=363,510 P=688,438 P=445,563 P=150,218 P=326,552 P=1,974,281

2012

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements TotalCostBalance at beginning of year P=380,957 P=1,451,489 P=829,964 P=175,045 P=109,161 P=2,946,616Additions arising from business combination

(Note 4) 53,991 33,171 61,457 16,187 41,169 205,975Additions – 165,890 215,342 73,962 127,761 582,955Disposals (9,227) (23,744) (78,917) (40,448) (1,944) (154,280)Amortization of leasehold improvements – – – – (46,318) (46,318)Balance at end of year 425,721 1,626,806 1,027,846 224,746 229,829 3,534,948Accumulated DepreciationBalance at beginning of year – 1,071,145 620,999 85,382 – 1,777,526Depreciation – 96,641 123,026 39,794 – 259,461Disposals – (10,269) (68,290) (28,331) – (106,890)Balance at end of year – 1,157,517 675,735 96,845 – 1,930,097Accumulated Impairment LossBalance at beginning of year 60,155 74 – – – 60,229Recovery – (74) – – – (74)Balance at end of year 60,155 – – – – 60,155Net Book Value at End of Year P=365,566 P=469,289 P=352,111 P=127,901 P=229,829 P=1,544,696

As of December 31, 2013 and 2012, the cost of fully depreciated property and equipment still inuse by the Group amounted to P=929.1 million and P=709.5 million, respectively.

The composition of and movements in the Parent Company’s property and equipment follows:

2013

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements TotalCostBalance at beginning of year P=371,730 P=1,593,692 P=899,596 P=208,098 P=186,038 P=3,259,154Additions – 327,022 234,787 69,884 122,088 753,781Disposals – (9,358) (30,401) (44,606) – (84,365)Amortization of leasehold

improvements – – – – (48,210) (48,210)Balance at end of year 371,730 1,911,356 1,103,982 233,376 259,916 3,880,360

(Forward)

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2013

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements TotalAccumulated DepreciationBalance at beginning of year P=– P=1,144,915 P=621,792 P=96,419 P=– P=1,863,126Depreciation – 87,234 133,530 40,544 – 261,308Disposals – – (29,148) (36,149) – (65,297)Balance at end of year – 1,232,149 726,174 100,814 – 2,059,137Accumulated Impairment LossBalance at beginning of year 60,155 – – – – 60,155Provision for (recovery of)

impairment loss (2,690) 2,606 – – – (84)Balance at end of year 57,465 2,606 – – – 60,071Net Book Value at End of Year P=314,265 P=676,601 P=377,808 P=132,562 P=259,916 P=1,761,152

2012

LandBuilding and

Improvements

Furniture,Fixtures and

EquipmentTransportation

EquipmentLeasehold

Improvements TotalCostBalance at beginning of year P=380,957 P=1,451,489 P=765,731 P=171,653 P=105,180 P=2,875,010Additions – 165,119 179,790 66,744 112,754 524,407Disposals (9,227) (22,916) (45,925) (30,299) (1,943) (110,310)Amortization of leasehold

improvements – – – – (29,953) (29,953)Balance at end of year 371,730 1,593,692 899,596 208,098 186,038 3,259,154Accumulated DepreciationBalance at beginning of year – 1,071,145 565,762 82,957 – 1,719,864Depreciation – 83,785 96,179 32,726 – 212,690Disposals – (10,015) (40,149) (19,264) – (69,428)Balance at end of year – 1,144,915 621,792 96,419 – 1,863,126Accumulated Impairment LossBalance at beginning of year 60,155 74 – – – 60,229Recovery of impairment loss – (74) – – – (74)Balance at end of year 60,155 – – – – 60,155Net Book Value at End of Year P=311,575 P=448,777 P=277,804 P=111,679 P=186,038 P=1,335,873

As of December 31, 2013 and 2012, the cost of fully depreciated property and equipment still inuse by the Parent Company amounted to P=745.5 million and P=629.5 million, respectively.

The details of depreciation and amortization recognized in the statements of income follow:Consolidated Parent Company

2013 2012 2011 2013 2012 2011Property and equipment P=310,767 P=259,461 P=205,450 P=261,308 P=212,690 P=198,832Leasehold improvements 74,030 46,318 26,938 48,210 29,953 26,702Investment properties (Note 15) 23,568 29,786 28,603 2,808 18,300 21,073Other properties acquired (Note 16) 20,369 24,836 18,762 16,919 20,067 18,762Total P=428,734 P=360,401 P=279,753 P=329,245 P=281,010 P=265,369

15. Investment Properties

The composition of and movements in the Group’s investment properties follow:

2013

LandBuilding and

Improvements TotalCostBalance at beginning of year P=1,704,090 P=536,763 P=2,240,853Additions 141,275 72,968 214,243Disposals (115,809) (163,124) (278,933)Balance at end of year 1,729,556 446,607 2,176,163

(Forward)

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2013

LandBuilding and

Improvements TotalAccumulated DepreciationBalance at beginning of year P=– P=235,628 P=235,628Depreciation – 23,568 23,568Disposals – (37,129) (37,129)Balance at end of year – 222,067 222,067Accumulated Impairment LossBalance at beginning of year 205,765 11,237 217,002Provision for (recovery of)

impairment loss (78,818) 10,693 (68,125)Disposals (14,877) (15,994) (30,871)Balance at end of year 112,070 5,936 118,006Net Book Value at End of Year P=1,617,486 P=218,604 P=1,836,090

2012

LandBuilding and

Improvements TotalCostBalance at beginning of year P=1,561,762 P=309,914 P=1,871,676Additions arising from business

combination (Note 4) 134,103 19,674 153,777Additions 69,925 244,174 314,099Disposals (61,700) (36,999) (98,699)Balance at end of year 1,704,090 536,763 2,240,853Accumulated DepreciationBalance at beginning of year – 233,325 233,325Depreciation – 29,786 29,786Disposals – (27,483) (27,483)Balance at end of year – 235,628 235,628Accumulated Impairment LossBalance at beginning of year 186,649 28,401 215,050Provision for (recovery of)

impairment loss 21,304 (16,944) 4,360Disposals (2,188) (220) (2,408)Balance at end of year 205,765 11,237 217,002Net Book Value at End of Year P=1,498,325 P=289,898 P=1,788,223

The Group’s investment properties include real estate properties acquired in settlement of loansand receivables. The difference between the fair value of the asset upon foreclosure and thecarrying value of the loan is recognized under Miscellaneous income (see Note 30). The Group isexerting continuing efforts to dispose these properties.

Annually, management reviews the recoverable amount of investment properties. Several factorsare considered such as real estate prices and physical condition of the properties. The aggregatemarket value of investment properties below are measured at Level 2 as determined byindependent and/or in-house appraisers using the market data approach follows:

2013 2012

ConsolidatedParent

Company Consolidated Parent CompanyLand P=1,824,954 P=431,341 P=1,861,084 P=465,334Building and improvements 552,606 125,751 135,288 111,725

P=2,377,560 P=557,092 P=1,996,372 P=577,059

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Valuations were derived on the basis of recent sales of similar properties in the same area as theinvestment properties and taking into account the economic conditions prevailing at the time thevaluations were made and comparability of similar properties sold with the property being valued.

Carrying amount of assets foreclosed in 2013 and 2012 included in the Group’s investmentproperties amounted to P=114.8 million and P=64.9 million, respectively. As of December 31, 2013and 2012, the carrying value of investment properties still subject to redemption amounted toP=105.3 million and P=43.9 million, respectively.

The Group recognized rental income (included under Rent income in the statements of income) oninvestment properties, which are leased out under operating leases, amounting to P=107.0 million in2013 and P=61.7 million in 2012 and P=28.2 million in 2011 (see Note 32). Direct operatingexpenses, consisting of Depreciation and amortization and repairs and maintenance (includedunder Occupancy costs in the statements of income) pertaining to investment properties amountedto P=26.5 million in 2013, P=29.8 million in 2012 and P=28.6 million in 2011.

Net gains from sale of investment properties are included under Profit from asset sold/exchangedin the statements of income.

The composition of and movements in the Parent Company’s investment properties follows:

2013

LandBuilding and

Improvements TotalCostBalance at beginning of year P=503,032 P=186,290 P=689,322Additions 58,528 14,889 73,417Disposals (108,864) (12,911) (121,775)Balance at end of year 452,696 188,268 640,964Accumulated DepreciationBalance at beginning of year – 149,723 149,723Depreciation – 2,808 2,808Disposals – (2,861) (2,861)Balance at end of year – 149,670 149,670Accumulated Impairment LossBalance at beginning of year 131,627 11,319 142,946Provision for impairment loss (13,923) 5,349 (8,574)Disposals (15,137) (2,400) (17,537)Balance at end of year 102,567 14,268 116,835Net Book Value at End of Year P=350,129 P=24,330 P=374,459

2012

LandBuilding and

Improvements TotalCostBalance at beginning of year P=495,360 P=208,130 P=703,490Additions 63,261 11,482 74,743Disposals (55,589) (33,322) (88,911)Balance at end of year 503,032 186,290 689,322

(Forward)

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2012

LandBuilding and

Improvements TotalAccumulated DepreciationBalance at beginning of year P=– P=157,196 P=157,196Depreciation – 18,300 18,300Disposals – (25,773) (25,773)Balance at end of year – 149,723 149,723Accumulated Impairment LossBalance at beginning of year 121,230 9,648 130,878Provision for impairment loss 12,063 1,891 13,954Disposals (1,666) (220) (1,886)Balance at end of year 131,627 11,319 142,946Net Book Value at End of Year P=371,405 P=25,248 P=396,653

As of December 31, 2013 and 2012, the aggregate market value of the Parent Company’sinvestment properties amounted to P=1.1 billion and P=1.2 billion, respectively, while the carryingamount of assets foreclosed in 2013 and 2012 included in the Parent Company’s investmentproperties amounted to P=32.7 million and P=62.9 million, respectively. As of December 31, 2013and 2012, the carrying value of investment properties still subject to redemption amounted toP=17.7 million and P=6.7 million, respectively.

The Parent Company recognized rental income (included in Rent income in the statements ofincome) on investment properties, which are leased out under operating leases, amounting toP=10.8 million in 2013, P=10.3 million in 2012 and P=12.6 million in 2011 (see Note 32). Directoperating expenses, consisting of Depreciation and amortization and Repairs and maintenance(included under Occupancy costs in the statements of income), pertaining to investment propertiesamounted to P=13.4 million in 2013, P=18.3 million in 2012 and P=25.5 million in 2011.

16. Intangible and Other Assets

Intangible assets consist of:

Consolidated Parent Company2013 2012 2013 2012

Branch licenses P=1,140,000 P=660,000 P=780,000 P=300,000Software costs 116,031 126,253 72,519 75,594Exchange trading right 8,500 8,500 – –

P=1,264,531 P=794,753 P=852,519 P=375,594

Branch licenses of the Group amounting to P=1.1 billion represents the following:a. 24 branch licenses acquired by the Parent Company from the BSP in 2013 amounting

P=480.0 million;b. 15 branch licenses acquired by the Parent Company from the BSP in 2012 amounting to

P=300.0 million; andc. 24 branch licenses acquired by the Parent Company from the business combination on

February 1, 2012 amounting to P=360.0 million (see Note 4).

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Movements in software costs follow:

Consolidated Parent Company2013 2012 2013 2012

CostBalance at beginning of year P=477,267 P=401,164 P=324,994 P=311,330Additions arising from business combination (Note 4) – 17,184 – –Additions 29,937 58,919 23,872 P=13,664Disposals (717) – – –Balance at end of year 506,487 477,267 348,866 324,994Accumulated AmortizationBalance at beginning of year 351,014 307,382 249,400 221,711Amortization 39,442 43,632 26,947 27,689Balance at end of year 390,456 351,014 276,347 249,400Net Book Value at End of Year P=116,031 P=126,253 P=72,519 P=75,594

As of December 31, 2013 and 2012, the latest transacted price of SBEI’s exchange trading rightamounted to P=8.5 million.

Other assets consist of:

Consolidated Parent Company

20132012

(As Restated) 20132012

(As Restated)Land held for sale P=445,297 P=577,608 P=– P=–Prepaid expenses 221,843 75,874 189,644 46,356Pension asset (Note 28) 170,314 418,935 105,123 338,351Documentary stamps 101,852 58,549 95,191 54,193Other properties acquired - net 19,290 41,509 166 22,670Miscellaneous 1,363,703 1,597,105 1,258,987 1,509,575

2,322,299 2,769,580 1,649,111 1,971,145Less allowance for impairment losses 12,898 23,533 – –

P=2,309,401 P=2,746,047 P=1,649,111 P=1,971,145

Miscellaneous includes cash collateral deposits amounting to P=0.8 billion and P=1.3 billion as ofDecember 31, 2013 and 2012, respectively, for the Parent Company’s treasury transactions such asinterest rate swaps and SSURA. The fair value of these deposits approximates their carryingamount. The Group recognized provision for (recovery of) impairment loss on Other assetsamounting to (P=10.6 million) and P=23.5 million in 2013 and 2012, respectively.

As discussed below, Land held for sale pertains to properties contributed by SLC to a joint venturewith RLC for which development commenced in August 2011.

Interest in a Joint OperationOn June 29, 2009, SLC entered into a memorandum of agreement with RLC for the developmentof SLC’s land located at the corner of Valero and Rufino streets, Makati City (previously beingrented out as parking space) into residential condominium units. The parties agreed that SLC willcontribute the land while RLC will contribute its expertise as a developer and contribute financialcapital by way of funding the development and all related expenses of the proposed residentialcondominium buildings and related site development and improvements. SLC is entitled to 30%of the gross floor area plus share of parking lots. As the exclusive marketing manager of theproject, RLC is entitled to a marketing and management fee of 11% of the contract price.

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The project will consist of two residential condominium buildings - Tower 1 and Tower 2. Theconstruction of Tower 1 commenced in August 2011. RLC will complete the construction ofTower 1 on or before January 2015, which is within a period of 42 months from the start of theconstruction.

As of December 31, 2013 and 2012, pre-selling sales level of Tower 1 and Tower 2 reached 100%and 65%, respectively. The construction of Tower 2 commenced in August 2012 and reached25% pre-selling sales level by 2013. The construction of Tower 2 will be completed on or beforeJanuary 2016, which is within a period of 42 months from the start of construction. Tower 2 waslaunched in January 2012.

As of December 31, 2013 and 2012, pre-selling of Tower 1 amounted to P=344.0 million andP=281.9 million, respectively, of which P=112.5 million and P=65.5 million, respectively, havealready been collected by RLC on behalf of SLC. For Tower 2, pre-selling as ofDecember 31, 2013 and 2012 amounted to P=196.0 million and P=42.1 million, of whichP=33.5 million and P=1.3 million, respectively, have already been collected by RLC on behalf ofSLC. As a result of the commencement of development for Tower 1, SLC recognized gain fromsale of condominium units (included under Profit from asset sold/exchanged in the statements ofincome) amounting to P=50.9 million in 2013 and P=34.4 million in 2012. As of December 31, 2013and 2012, sales contracts receivable (included under Loans and receivables in the statements offinancial position) recognized by SLC for units sold amounted to P=232.3 million andP=113.9 million, respectively. As of December 31, 2013 and 2012, advances from customers(included as accounts payable under Other liabilities in the statements of financial position)amounted to nil and P=1.3 million, respectively.

As of December 31, 2013 and 2012, receivable from RLC (included as accounts receivable underLoans and receivables in the statements of financial position) amounted to P=22.2 million andP=9.5 million, respectively, net of marketing expenses (included under Miscellaneous expense inthe statements of income) amounting to P=8.2 million and P=3.1 million, respectively.

Other properties acquired represent chattel mortgages foreclosed from loan borrowers. Gain orloss upon foreclosure is included under Profit from asset sold/exchanged in the statements ofincome.

Movements in the Other properties acquired by the Group follow:

2013 2012CostBalance at beginning of year P=83,309 P=56,260Additions arising from business combination – 15,802Additions 21,690 27,707Disposals (34,016) (16,460)Balance at end of year 70,983 83,309Accumulated DepreciationBalance at beginning of year 41,474 22,394Depreciation 20,369 24,836Disposals (10,319) (5,756)Balance at end of year 51,524 41,474

(Forward)

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2013 2012Accumulated Impairment LossBalance at beginning of year P=326 P=516Reversal of impairment loss (29) (152)Disposal (128) (38)Balance at end of year 169 326Net Book Value at End of Year P=19,290 P=41,509

Movements in Other properties acquired by the Parent Company follow:

2013 2012CostBalance at beginning of year P=64,364 P=56,260Additions 6,435 13,839Disposals (15,871) (5,735)Balance at end of year 54,928 64,364Accumulated DepreciationBalance at beginning of year 41,479 22,394Depreciation 16,919 20,067Disposals (3,636) (982)Balance at end of year 54,762 41,479Accumulated Impairment LossBalance at beginning of year 215 11Provision for impairment loss – 215Disposal (215) (11)Balance at end of year – 215Net Book Value at End of Year P=166 P=22,670

17. Deposit Liabilities

BSP Circular 753 which took effect on April 6, 2012, promulgated the unification of the statutoryand liquidity reserve requirements on non-FCDU deposit liabilities of the Parent Company from21.00% to 18.00%. On the other hand, non-FCDU deposit liabilities of SBS are subject torequired reserves equivalent to 6.00%. As mandated by the Circular, only demand depositaccounts maintained by banks with the BSP are eligible for compliance with reserve requirements,thereby excluding government securities and cash in vault as eligible reserves. Further, depositsmaintained with the BSP in compliance with the reserve requirement shall no longer be paidinterest. As of December 31, 2013 and 2012, the Group was in compliance with such regulations.

As reported to the BSP, the Group has set aside due from BSP as reserves amountingP=28.13 billion and P=21.78 billion as of December 31, 2013 and 2012, respectively, while theParent Company has set aside due from BSP as reserves amounting to P=27.68 billion andP=18.09 billion as of December 31, 2013 and 2012, respectively.

Long Term Negotiable Certificate of Deposits due 2017 (LTNCD Series 1)On 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. LTNCD Series 1 matures on February 17, 2019.As of December 31, 2013 and 2012, the fair value of LTNCD Series 1 amounted to P=5.7 billionand P=6.2 billion, respectively.

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The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on November 24, 2011.

Long Term Negotiable Certificate of Deposits due 2017 (LTNCD Series 2)On August 15, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%)unsecured LTNCD at par value of P=5.0 billion. LTNCD Series 2 matures on August 16, 2019. Asof December 31, 2013 and 2012, the fair value of LTNCD Series 2 amounted to P=5.7 billion andP=6.3 billion, respectively.

The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by theBSP on April 26, 2012.

The Parent Company incurred debt issue costs amounting to P=36.1 million and P=34.9 million onthe LTNCD Series 1 and 2, respectively. The movement of unamortized debt issue costs follows:

2013 2012Beginning balance P=65,691 P=70,992Amortization (8,804) (5,301)Balance at end of year P=56,887 P=65,691

Interest expense on deposit liabilities consists of:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Demand P=122,439 P=110,110 P=115,811 P=119,970 P=109,036 P=116,461Savings 756,278 850,983 830,734 753,735 852,879 834,546Time 758,525 600,191 399,096 639,174 479,296 399,097LTNCD 558,804 349,051 – 558,804 349,051 –

P=2,196,046 P=1,910,335 P=1,345,641 P=2,071,683 P=1,790,262 P=1,350,104

Ranges of annual fixed interest on deposit liabilities follow (in percentages):

2013 2012 2011Peso-denominated 0.25-4.50 0.25-4.50 0.25-8.25Foreign currency-denominated 0.25-3.55 0.25-3.55 0.25-4.30

18. Financial Liabilities at Fair Value through Profit or Loss

This account consists of:

2013 2012Derivative liabilities (Note 6):

Interest rate swaps P=727,726 P=950,252Currency forwards 28,634 944,820Currency options 28,416 –

P=784,776 P=1,895,072

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Interest expense on derivative instruments consists of:

2013 2012 2011Interest rate swaps P=882,140 P=578,943 P=771,543Cross-currency swaps 115,686 126,932 126,048Range accrual note – 19,651 24,232

P=997,826 P=725,526 P=921,823

19. Derivative Liabilities Designated as Hedges

The Parent Company uses interest rate swaps to hedge certain receivables from customers fromfair value changes due to fluctuations in benchmark interest rates (see Note 12). The hedges havebeen assessed as perfectly effective as the critical terms of the swaps match those of the hedgedreceivables.

As discussed in Note 12, certain hedged loan receivables were either partially or fullypreterminated by the borrowers in 2013 and in 2011. As a result of the pretermination, the ParentCompany reclassified the related interest rate swaps to financial liabilities at FVTPL.

As of December 31, 2013 and 2012, the aggregate negative fair value of the interest rate swapsdesignated as hedging instruments amounted to P=93.3 million and P=190.8 million, respectively,with total notional amounts of P=0.9 billion and P=1.9 billion, respectively. Net interest expense onderivative liabilities designated as hedges amounted to P=96.9 million in 2013, P=83.4 million in2012 and P=101.1 million in 2011.

20. Bills Payable and Securities Sold Under Repurchase Agreements

This account consists of borrowings from:

Consolidated Parent Company2013 2012 2013 2012

Securities sold under repurchaseagreements (SSURA) P=48,059,930 P=31,359,403 P=48,059,930 P=31,359,403

Local banks 31,582,539 23,284,248 31,582,539 23,135,248Foreign banks 10,278,711 9,250,956 10,278,711 9,250,956BSP - rediscounting (Note 12) 48,016 974,348 47,969 974,114Local government banks with relending

facilities 143,750 109,393 143,750 109,393P=90,112,946 P=64,978,348 P=90,112,899 P=64,829,114

As of December 31, 2013, foreign currency-denominated fixed income securities of the ParentCompany (included in Investment securities at amortized cost in the statements of financialposition) with an aggregate face value of $1.2 billion (P=51.6 billion) and fair value of$1.4 billion (P=62.0 billion) were pledged with foreign and local banks as collateral for its SSURAamounting to $1.1 billion (P=48.1 billion).

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As of December 31, 2012, foreign currency-denominated fixed income securities of the ParentCompany (included in Investment securities at amortized cost in the statements of financialposition) with an aggregate face value of $812.0 million (P=33.3 billion) and fair value of$1,033.7 million (P=41.4 billion) were pledged with foreign and local banks as collateral for itsSSURA amounting to $763.9 million (P=31.4 billion).

Interest expense on bills payable and SSURA (included in Interest expense on subordinated note,bills payable and SSURA and other borrowings in the statements of income) of the Groupamounted to P=406.2 million in 2013, P=469.8 million in 2012 and P=504.2 million in 2011. Interestexpense on bills payable and SSURA of the Parent Company amounted to P=401.4 million in 2013,P=466.7 million in 2012 and P=493.2 million in 2011.

Annual fixed interest rate ranges on the Group’s and the Parent Company’s interbank borrowingsand rediscounting availments follow (in percentages).

2013 2012 2011Interbank borrowings:

Peso-denominated 1.50-2.00 4.00-4.50 4.00-4.75Foreign currency-denominated 0.19-2.15 0.17-1.86 0.27-1.50

Rediscounting availments:Peso-denominated 3.50-5.75 3.50-4.50 4.00-4.50Foreign currency-denominated 0.18-2.30 0.16-0.30 0.19-0.27

21. Subordinated Note

Tier 2 Unsecured Subordinated Note due 2018On December 10, 2008, the Parent Company issued 8.625% coupon rate (EIR of 8.87%) LowerTier 2 Fixed Rate Subordinated Note (Sub Note) with a par value of P=3.0 billion maturing in10 years but callable with step-up in interest rate after 5 years from issue date.

The issuance of the foregoing subordinated note under the terms approved by the BOD wasapproved by the BSP on October 29, 2008.

From and including December 10, 2008 to, but excluding December 10, 2013, the Sub Note bearsinterest at the rate of 8.625% per annum and shall be payable semi-annually in arrears onDecember 10 and June 10 of each year, commencing June 10, 2009. Unless the Sub Note ispreviously redeemed, the interest rate from and including December 10, 2013 to, but excludingDecember 10, 2018, will be reset at the equivalent of the five-year Money Market Association ofthe Philippines (MART1) Fixed Treasury Note (FXTN) (as of the first day of the eleventh interestperiod) multiplied by 80.00%, plus a spread of 3.176% per annum, and such stepped-up interestshall be payable semi-annually in arrears on December 10 and June 10 of each year, commencingJune 10, 2014. The Sub Note will mature on December 10, 2018, provided that the Sub Note isnot previously redeemed.

In September and October 2013, the Parent Company’s BOD and the BSP, respectively, approvedthe exercise of the call option on the Sub Note on December 11, 2013. Up until the redemption ofthe Sub-Note on December 11, 2013, the Parent Company was in compliance with the terms andconditions upon which the Sub Note has been issued.

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The movements in unamortized discount in 2013 and 2012 are as follows:

2013 2012Balance at beginning of year P=6,641 P=13,125Amortization (6,641) (6,484)Balance at end of year P=– P=6,641

Interest expense (included in Interest expense on subordinated notes, bills payable and SSURAand other borrowings in the statement of income) for the Sub Note amounted to P=250.3 million,P=265.2 million and P=264.7 million in 2013, 2012 and 2011, respectively.

22. Accrued Interest, Taxes and Other Expenses

This account consists of:

Consolidated Parent CompanyDecember 31 December 31

20132012

(As Restated) 2013 2012Accrued other expenses payable P=855,614 P=952,507 P=719,069 P=852,415Accrued interest payable (Note 31) 567,558 562,595 553,273 540,793Accrued other taxes and licenses payable 88,285 66,788 84,727 63,823Pension liability (Note 28) 16,897 12,856 – –

P=1,528,354 P=1,594,746 P=1,357,069 P=1,457,031

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 33).

23. Other Liabilities

This account consists of:

Consolidated Parent Company

20132012

(As Restated) 2013 2012Bills purchased - contra (Note 12) P=1,995,482 P=2,737,113 P=1,953,295 P=2,729,721Accounts payable (Notes 16 and 31) 1,579,741 1,750,727 1,276,597 1,107,883Payable to brokers 601,304 372,179 – –Other deferred credits 177,291 162,103 168,760 141,821Withholding taxes payable 145,161 68,037 135,070 57,622Subscription payable (Note 1) 30,000 30,000 273,750 273,750Due to the Treasurer of the Philippines 19,011 16,629 18,411 16,234Dividends payable 17,682 14,321 17,682 14,307Deferred tax liability (Note 27) 16,179 – – –Deposits for keys of safety deposit boxes 5,384 5,343 5,384 5,327Miscellaneous 151,669 207,731 71,470 155,743

P=4,738,904 P=5,364,183 P=3,920,419 P=4,502,408

Miscellaneous liabilities mainly include the Group’s rental deposits from its tenants and SocialSecurity System pension of the Group’s depositors.

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24. 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):

2013Consolidated Parent Company

Less ThanOne Year

OverOne Year Total

Less ThanOne Year

OverOne Year Total

Financial AssetsCash and other cash items P=4,429 P=– P=4,429 P=4,197 P=– P=4,197Due from BSP 45,584 – 45,584 45,129 – 45,129Due from other banks 28,739 – 28,739 28,678 – 28,678Interbank loans receivable and SPURA

with the BSP 12,120 – 12,120 13,090 – 13,090Financial assets at FVTPL:

HFT investments 2,362 – 2,362 2,292 – 2,292Derivative assets 1,251 – 1,251 1,251 – 1,251Others – 15 15 – 15 15

Total financial assets at FVTPL 3,613 15 3,628 3,543 15 3,558Financial assets at FVTOCI 124 20 144 64 – 64Investment securities at amortized cost 1,046 77,468 78,514 1,046 77,013 78,059Loans and receivables - at gross 90,484 77,485 167,969 88,474 69,957 158,431Other assets 859 65 924 859 – 859Total financial assets 186,998 155,053 342,051 185,080 146,985 332,065Nonfinancial AssetsInvestments in subsidiaries and a joint

venture – 172 172 – 4,683 4,683Property and equipment 6 1,969 1,975 – 1,761 1,761Investment properties – 1,836 1,836 – 374 374Deferred tax assets – 744 744 – 665 665Goodwill – 842 842 – – –Intangible assets – 1,264 1,264 – 853 853Other assets 219 1,166 1,385 190 601 791Total nonfinancial assets 225 7,993 8,218 190 8,937 9,127Less: Allowance for impairment and

credit losses 2,528 2,291 Unearned discounts and

deferred credits 199 1512,727 2,442

Total Assets P=347,542 P=338,750

Financial LiabilitiesDeposit liabilities P=123,407 P=82,544 P=205,951 P=121,044 P=78,929 P=199,973Financial liabilities at FVTPL 785 – 785 785 – 785Derivative liabilities designated as

hedges 93 – 93 93 – 93Bills payable and SSURA 85,555 4,558 90,113 85,555 4,558 90,113Acceptances payable 579 – 579 579 – 579Margin deposits and cash letters

of credit 6 – 6 6 – 6Manager’s and certified checks

outstanding 1,932 – 1,932 1,795 – 1,795Subordinated note – – – – – –Accrued interest, taxes and other

expenses 1,440 – 1,440 1,272 – 1,272Other liabilities 3,918 318 4,236 3,102 274 3,376Total financial liabilities 217,715 87,420 305,135 214,231 83,761 297,992Nonfinancial LiabilitiesIncome tax payable 41 – 41 – – –Accrued interest, taxes and other

expenses 88 – 88 85 – 85Other liabilities 300 203 503 376 169 545Total nonfinancial liabilities 429 203 632 461 169 630Total Liabilities P=218,144 P=87,623 P=305,767 P=214,692 P=83,930 P=298,622

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2012Consolidated Parent Company

Less ThanOne Year

OverOne Year Total

Less ThanOne Year

OverOne Year Total

Financial AssetsCash and other cash items P=3,373 P=– P=3,373 P=3,184 P=– P=3,184Due from BSP 21,779 – 21,779 18,095 – 18,095Due from other banks 25,407 – 25,407 25,231 – 25,231Interbank loans receivable and SPURA

with the BSP 17,250 – 17,250 17,250 – 17,250Financial assets at FVTPL:

HFT investments 19,404 – 19,404 19,395 – 19,395Derivative assets 2,267 – 2,267 2,267 – 2,267Others 1,155 374 1,529 1,155 374 1,529

Total financial assets at FVTPL 22,826 374 23,200 22,817 374 23,191Financial assets at FVTOCI – 185 185 – 73 73Investment securities at amortized cost 196 39,691 39,887 176 39,232 39,408Loans and receivables - at gross 56,981 65,740 122,721 54,923 63,735 118,658Other assets 1,345 52 1,397 1,345 – 1,345Total financial assets 149,157 106,042 255,199 143,021 103,414 246,435Nonfinancial AssetsInvestments in subsidiaries and a joint

venture – 153 153 – 4,683 4,683Property and equipment 1 1,544 1,545 – 1,336 1,336Investment properties – 1,788 1,788 – 397 397Deferred tax assets – 565 565 – 501 501Goodwill – 842 842 – – –Intangible assets – 795 795 – 375 375Other assets 179 1,169 1,348 183 443 626Total nonfinancial assets 180 6,856 7,036 183 7,735 7,918Less: Allowance for impairment and

credit losses 2,535 2,441 Unearned discounts and

deferred credits 437 3582,972 2,799

Total Assets P=259,263 P=251,554

Financial LiabilitiesDeposit liabilities P=96,442 P=45,951 P=142,393 P=92,288 P=45,116 P=137,404Financial liabilities at FVTPL 1,895 – 1,895 1,895 – 1,895Derivative liabilities designated as

hedges – 191 191 – 191 191Bills payable and SSURA 60,668 4,310 64,978 60,519 4,310 64,829Acceptances payable 297 – 297 297 – 297Margin deposits and cash letters

of credit 190 – 190 190 – 190Manager’s and certified checks

outstanding 1,556 – 1,556 1,514 – 1,514Subordinated note 2,993 – 2,993 2,993 – 2,993Accrued interest and other expenses 1,516 20 1,536 1,393 – 1,393Other liabilities 3,831 60 3,891 3,707 295 4,002Total financial liabilities 169,388 50,532 219,920 164,796 49,912 214,708Nonfinancial LiabilitiesIncome tax payable 15 – 15 – – –Accrued taxes and other expenses 59 – 59 64 – 64Other liabilities 1,240 233 1,473 358 142 500Total nonfinancial liabilities 1,314 233 1,547 422 142 564Total Liabilities P=170,702 P=50,765 P=221,467 P=165,218 P=50,054 P=215,272

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25. Equity

As of December 31, 2013 and 2012, the Parent Company’s capital stock consists of:

Shares* AmountCommon stock - P=10 par value

Authorized - 1,000,000,000 in 2013 and 600,000,000 in 2012Issued and outstanding 502,358,513 P=5,023,585

* Absolute number of shares

On March 19 and September 24, 2013, the Parent Company’s BOD approved and authorized thedeclaration of regular semestral cash dividend of P=0.50 per share and special cash dividend ofP=0.50 per share, respectively. Such were approved by BSP on April 30 and November 14, 2013,respectively.

On March 19 and May 28, 2013, the Parent Company’s BOD and stockholders, respectively,approved the declaration of 20% stock dividend and increase in authorized capital stock fromP=6.0 billion divided into 600.0 million common shares to P=10.0 billion divided into 1.0 billioncommon shares, subject to regulatory approvals.

On July 10, 2013, the BSP approved the distribution of 20% stock dividends to commonstockholders as declared by the BOD on March 19, 2013. Inasmuch as the Parent Company’sunissued common shares is insufficient to cover the stock dividends of P=1.0 billion or100.5 million shares, the Parent Company temporarily lodged the stock dividends in a separateaccount under equity (‘Stock dividends distributable’) until such time that the amended articles ofincorporation is approved by the BSP and SEC.

On October 13 and November 12, 2013, the BSP and SEC, respectively, approved the increase inauthorized capital stock from P=6.0 billion to P=10.0 billion, with par value of P=10.0 each.

On November 19, 2013, the SEC approved the distribution of the 20% stock dividends with recordand payment dates of December 2, 2013 and January 2, 2014, respectively.

On November 26, 2013, the Parent Company’s stockholders approved and authorized thefollowing:1. Creation of 1.0 billion non-cumulative, non-participating, non-convertible voting Preferred

Stock with par value of P=0.1 each and issuance of approximately 602.8 million of suchPreferred 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.

Upon receipt of regulatory approvals (BSP and SEC), the Preferred Stock will be offered toeligible common stockholders, with each eligible stockholder entitled to subscribe to one votingpreferred share for every one common stock held as of the record date. The record and issuancedate will be determined after the receipt of regulatory approvals.

On March 26 and September 4, 2012, the Parent Company’s BOD approved and authorized thedeclaration of regular semestral cash dividend of P=0.50 per share and special cash dividend ofP=0.50 per share, respectively. Such were approved by the BSP on April 26 and October 3, 2012,respectively.

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Details of the Parent Company’s cash dividend distribution follow:

Dividend

Date of declaration Per shareTotal amounts

in thousands Date of BSP approval Record date Payment dateSeptember 24, 2013 P=1.00 P=502,359 November 14, 2013 November 29, 2013 December 27, 2013March 19, 2013 P=1.00 P=502,359 April 30, 2013 May 15, 2013 June 10, 2013September 4, 2012 P=1.00 P=502,359 October 3, 2012 October 17, 2012 November 14, 2012March 26, 2012 P=1.00 P=502,359 April 26, 2012 May 11, 2012 June 6, 2012September 27, 2011 P=1.00 P=502,359 October 21, 2011 November 9, 2011 December 6, 2011March 29, 2011 P=1.00 P=418,631 May 20, 2011 June 6, 2011 July 1, 2011August 19, 2010 P=1.00 P=418,631 October 7, 2010 October 22, 2010 November 19, 2010March 23, 2010 P=1.00 P=418,631 May 12, 2010 May 26, 2010 June 22, 2010August 25, 2009 P=1.00 P=418,631 November 3 and 19, 2009 November 18, 2009 December 15, 2009March 31, 2009 P=0.75 P=247,009 May 22, 2009 June 8, 2009 July 3, 2009

The computation of surplus available for dividend declaration in accordance with SECMemorandum Circular No. 11 issued in December 2008 differs to a certain extent from thecomputation following BSP guidelines. The amount declared as dividends is the amount approvedby the BSP.The track record of the Parent Company’s registration of securities in compliance with theSecurities Regulation Code Rule 68 Annex 68-D 1(I) follows:

a. Authorized Shares

Date of SEC Approval Type of Shares Authorized Number of Shares*November 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%

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, 2013 1,900December 31, 2012 1,911December 31, 2011 1,975

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In the consolidated financial statements, a portion of the Group’s surplus corresponding to theaccumulated net earnings of the subsidiaries amounting to P=549.3 million and P=506.3 million as ofDecember 31, 2013 and 2012, respectively, is not available for dividend declaration. Thisaccumulated equity in net earnings becomes available for dividend declaration upon receipt ofdividends from the investees.

Surplus reserves of the Parent Company consist of:

2013 2012Reserve for trust business P=174,400 P=156,300Reserve for self-insurance 170,000 110,000Reserve for contingencies 11,000 11,000

P=355,400 P=277,300

In compliance with existing BSP regulations, 10.00% 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 20.00% of the Parent Company’sregulatory capital.

Reserves for self-insurance and contingencies represent the amount set aside to cover losses due tofire, defalcation by and other unlawful acts of the Group’s personnel or third parties. In 2007,SBS appropriated P=17.8 million for self-insurance.

To comply with Securities Regulation Code Rule 49.1 (B), Reserve Fund, requiring broker dealersto annually appropriate a certain minimum percentage of its audited profit after tax as reservefund, a portion of the Group’s surplus corresponding to the net earnings of SBEI amounting toP=22.5 million and P=17.3 million as of December 31, 2013 and 2012, respectively, has beenappropriated in the consolidated financial statements and is not available for dividend declaration.

Capital ManagementThe Group considers the equity attributable to the equity holders of the Parent Company as thecapital base of the Group. The primary objectives of the Group’s capital management are toensure that it complies with externally imposed capital requirements and that it maintains strongcredit ratings and healthy capital ratios in order to support its business and to maximizeshareholders 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. The processes and policies guiding the determination of thesufficiency of capital for the Group relative to its business risks are the very same methodologythat have been incorporated into the Group’s Internal Capital Adequacy Assessment Process(ICAAP) in compliance with the requirements of BSP Circular No. 639 for its adoption. Underthis framework, the assessment of risks extends beyond the Pillar 1 set of credit, market andoperational risks and onto other risks deemed material by the Group. The level and structure ofcapital are assessed and determined in light of the Group’s business environment, plans,performance, risks and budget; as well as regulatory edicts. BSP requires submission of anICAAP document every January 31. While the Group has added the ICAAP to its capitalmanagement process, no changes were made in the objectives and policies from previous years.

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Regulatory Qualifying CapitalUnder existing BSP regulations, the determination of the Parent Company’s compliance withregulatory requirements and ratios is based on the amount of the Parent Company’s ‘unimpairedcapital’ (regulatory net worth) reported to the BSP, which is determined on the basis of regulatorypolicies. In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifyingcapital to risk-weighted assets, should not be less than 10.00% for both solo basis (head office andbranches) and consolidated basis (parent company and subsidiaries engaged in financial alliedundertakings). Qualifying capital and risk-weighted assets are computed based on BSPregulations.

The regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1 (core) andTier 2 (supplementary) capital. Tier 1 capital comprises share capital, retained earnings (includingcurrent year profit) and non-controlling interest less required deductions such as deferred tax andunsecured credit accommodations to DOSRI. Tier 2 capital includes unsecured subordinated note,revaluation reserves and general loan loss provision. Certain items are deducted from theregulatory Gross Qualifying Capital, such as but not limited to equity investments inunconsolidated subsidiary banks and other financial allied undertakings, but excludinginvestments in debt capital instruments of unconsolidated subsidiary banks (for solo basis) andequity investments in subsidiary nonfinancial allied undertakings.

Risk-weighted assets are determined by assigning defined risk weights to statement of financialposition exposures and to the credit equivalent amounts of off-balance sheet exposures. Certainitems are deducted from risk-weighted assets, such as the excess of general loan loss provisionover the amount permitted to be included in Tier 2 capital. The risk weights vary from 0.00% to125.00% depending on the type of exposure, with the risk weights of off-balance sheet exposuresbeing subjected further to credit conversion factors. Below is a summary of risk weights andselected exposure types:

Risk weight Exposure/Asset type*0% Cash on hand; claims collateralized by securities issued by the non-

government, BSP; loans covered by the Trade and Investment DevelopmentCorporation of the Philippines; real estate mortgages covered by the HomeGuarantee Corporation

20% COCI, claims guaranteed by Philippine incorporated banks/quasi-bankswith the highest credit quality; claims guaranteed by foreign incorporatedbanks with the highest credit quality; loans to exporters to the extentguaranteed by Small Business Guarantee and Finance Corporation

50% Housing loans fully secured by first mortgage on residential property; LocalGovernment Unit (LGU) bonds which are covered by Deed of Assignmentof Internal Revenue allotment of the LGU and guaranteed by the LGUGuarantee Corporation

75% Direct loans of defined Small Medium Enterprise and microfinance loansportfolio; nonperforming housing loans fully secured by first mortgage

100% All other assets (e.g., real estate assets) excluding those deducted fromcapital (e.g., deferred tax)

125% All NPLs (except nonperforming housing loans fully secured by firstmortgage) and all nonperforming debt securities

* Not all inclusive

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With respect to off-balance sheet exposures, the exposure amount is multiplied by a creditconversion factor (CCF), ranging from 0.00% to 100.00%, to arrive at the credit equivalentamount, before the risk weight factor is multiplied to arrive at the risk-weighted exposure. Directcredit substitutes (e.g., guarantees) have a CCF of 100.00%, while items not involving credit riskhas a CCF of 0.00%.

In the case of derivatives, the credit equivalent amount (against which the risk weight factor ismultiplied to arrive at the risk-weighted exposure) is generally the sum of the current creditexposure or replacement cost (the positive fair value or zero if the fair value is negative or zero)and an estimate of the potential future credit exposure or add-on. The add-on ranges from 0.00%to 1.50% (interest rate-related) and from 1.00% to 7.50% (exchange rate-related), depending onthe residual maturity of the contract. For CLNs and similar instruments, the risk-weightedexposure is the higher of the exposure based on the risk weight of the issuer’s collateral or thereference entity or entities.

As of December 31, 2013 and 2012, the Group was in compliance with the required capitaladequacy ratio (CAR).

The CAR of the Group and of the Parent Company as reported to the BSP as ofDecember 31, 2013 and 2012 follows:

Consolidated Parent Company2013 2012 2013 2012

Tier 1 capital P=39,617,918 P=35,890,524 P=38,683,697 P=35,203,254Tier 2 capital 1,609,657 4,347,965 1,486,612 4,191,379Gross qualifying capital 41,227,575 40,238,489 40,170,309 39,394,633Less required deductions 1,091,395 988,390 4,464,880 4,421,203Total Qualifying Capital P=40,136,180 P=39,250,099 P=35,705,429 P=34,973,430

Risk Weighted Assets P=259,040,995 P=240,913,348 P=248,517,007 P=233,541,347

Tier 1 CAR 15.08% 14.69% 14.37% 14.13%Total CAR 15.49% 16.29% 14.37% 14.98%

On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines onMinimum Capital Requirements, which provides the implementing guidelines on the revised risk-based capital adequacy framework particularly on the minimum capital and disclosurerequirements for universal banks and commercial banks, as well as their subsidiary banks andquasi-banks, in accordance with the Basel III standards. The circular is effective on January 1,2014.

The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1 capitalratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital.The BSP’s existing requirement for Total CAR remains unchanged at 10% and these ratios shallbe maintained at all times.

Further, existing capital instruments as of December 31, 2010 which do not meet the eligibilitycriteria for capital instruments under the revised capital framework shall no longer be recognizedas capital upon the effectivity of Basel III. Capital instruments issued under BSP CircularNos.709 and 716 (the circulars amending the definition of qualifying capital particularly onHybrid Tier 1 and Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity ofBSP Circular No. 781, shall be recognized as qualifying capital until December 31, 2015. Inaddition to changes in minimum capital requirements, this Circular also requires variousregulatory adjustments in the calculation of qualifying capital.

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The Group has taken into consideration the impact of the foregoing requirements to ensure that theappropriate level and quality of capital are maintained on an ongoing basis.

26. 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 positionsince these are not assets of the Parent Company.

As of December 31, 2013 and 2012, government securities included under Investment securities atamortized cost with a total face value of P=672.2 million and P=589.0 million, respectively, weredeposited with the BSP in compliance with the requirements of the General Banking Law relativeto the Parent Company’s trust functions.

27. Income Taxes

Provision for income tax consists of:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Current: Final P=187,359 P=267,179 P=262,367 P=185,705 P=255,321 P=256,467 Corporate 388,964 457,259 389,012 284,455 385,084 346,289

576,323 724,438 651,379 470,160 640,405 602,756Deferred (156,117) (491,193) 16,196 (164,252) (500,908) 13,242

P=420,206 P=233,245 P=667,575 P=305,908 P=139,497 P=615,998

The Group’s provision for income tax - current represents final tax, RCIT of the ParentCompany’s RBU and FCDU, SBEI and SBCIC, and MCIT of SBCC, SBS and other subsidiaries.

Under Philippine tax laws, the Parent Company and its financial intermediary subsidiaries aresubject to percentage and other taxes (presented as Taxes and licenses in the statements of income)as well as income taxes. Percentage and other taxes paid consist principally of documentary stamptax and gross receipts tax.

Republic Act (RA) No. 9337, An Act Amending National Internal Revenue Code, provides that theRCIT rate shall be 30.00%. Interest expense allowed as a deductible expense is reduced by33.00%.

An MCIT of 2.00% on modified gross income is computed and compared with the RCIT. Anyexcess of the MCIT over the RCIT is deferred and can be used as a tax credit against futureincome tax liability for the next three years. In addition, the NOLCO is allowed as a deductionfrom the taxable income in the next three years from the year of inception. Current tax regulationsalso set a limit on the amount of entertainment, amusement and recreation (EAR) expenses thatcan be deducted for income tax purposes. EAR expenses are limited to 1.00% of net revenue forsellers of services. EAR expenses of the Group (included under Miscellaneous expenses in thestatements of income) amounted to P=468.1 million in 2013, P=392.3 million in 2012 andP=228.0 million in 2011 (see Note 30). EAR expenses of the Parent Company amounted toP=443.6 million in 2013, P=373.7 million in 2012 and P=220.1 million in 2011 (see Note 30).RA No. 9294, which became effective in May 2004, provides that the income derived by the

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FCDU from foreign currency transactions with non-residents, off-shore banking units (OBUs),and local commercial banks, including branches of foreign banks, is tax-exempt while interestincome on foreign currency-denominated loans from residents other than OBUs or otherdepository banks under the expanded system is subject to 10.00% income tax.Components of net deferred tax assets follow:

Consolidated Parent Company2013 2012 2013 2012

Deferred tax assets on:Allowance for credit losses P=764,335 P=737,220 P=592,463 P=576,669Unamortized past service cost 171,173 – 163,726 –Unrealized loss on derivative liabilities 129,870 521,728 129,870 521,728Accrued rent expense 23,849 – 21,146 –Others 63,055 65,115 4,030 6,587

1,152,282 1,324,063 911,235 1,104,984Deferred tax liabilities on:

Unrealized gain on derivative assets 245,331 603,790 245,331 603,790Branch licenses arising from business

combination (Note 4) 108,000 108,000 – –Gain on foreclosure of real assets and

other properties acquired 19,168 – – –Retirement asset 17,197 – – –Accrued rent income 11,959 – 744 –Unrealized gain on financial assets at

FVTOCI 7,689 13,710 – –Others 15,575 33,338 – 286

424,919 758,838 246,075 604,076Net deferred tax assets P=727,363 P=565,225 P=665,160 P=500,908

Net deferred tax asset/liability of the Group is included in the following accounts in the statementsof financial position:

2013 2012Deferred tax assets P=743,542 P=565,225Other liabilities 16,179 –

P=727,363 P=565,225

As of December 31, 2013 and 2012, deferred tax assets of the Group and of the Parent Companythat have not been recognized in respect of the deductible temporary differences follow:

Consolidated Parent Company2013 2012 2013 2012

Allowance for credit losses P=126,090 P=345,625 P=– P=211,030Remeasurement loss through OCI 109,407 – 109,001 –NOLCO 77,667 186,250 – –MCIT 12,917 13,576 – –Unamortized past service costs – 653,190 – 648,879Others 64,232 428,700 64,232 70,645

P=390,313 P=1,627,341 P=173,233 P=930,554

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Details of the Group’s NOLCO follow:

Inception Year Amount Used/Expired Balance Expiry Year2010 P=53 P=53 P=– 20132011 61,685 – 61,685 20142012 186,153 – 186,153 20152013 73,066 – 73,066 2016

P=320,957 P=53 P=320,904

Details of the Group’s MCIT follow:

Inception Year Amount Used/Expired Balance Expiry Year2010 P=11,036 P=11,036 P=– 20132011 5,595 218 5,377 20142012 7,590 – 7,590 20152013 7,337 – 7,337 2016

P=31,558 P=11,254 P=20,304

A reconciliation between the applicable statutory income tax rate to the effective income tax ratefollows:

Consolidated Parent Company

20132012

(As Restated)2011

(As Restated) 20132012

(As Restated)2011

(As Restated)Statutory income tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%Tax effect of:

FCDU net income (16.09) (6.15) (8.90) (16.91) (6.15) (9.33)Nondeductible expenses 4.85 3.62 6.97 4.92 3.50 7.25Interest income from tax-paid and

exempt investments (5.61) (4.44) (8.38) (5.80) (4.34) (8.76)Change in unrecognized deferred

tax assets (3.13) (5.42) (8.49) (4.10) (6.80) (8.87)Nontaxable income (2.40) (14.47) (0.02) (2.28) (14.41) (0.02)Others – (0.14) (2.20) – – (1.59)

Effective income tax rate 7.62% 3.00% 8.98% 5.83% 1.80% 8.68%

28. Pension Obligations

The Group provides noncontributory defined benefit pension plans for all employees. Provisionsfor pension obligations are established for benefits payable in the form of retirement pensions.Benefits are dependent on years of service and the respective employee’s final compensation. Themost recent actuarial valuation was carried out as of December 31, 2013. The present value of thedefined benefit obligation, and the related current service cost and past service cost were measuredusing the projected unit credit actuarial method.

The amounts of defined benefit plans are presented in the statements of financial position asfollows:

Consolidated Parent CompanyDecember 31 December 31

20132012

(As Restated) 20132012

(As Restated)Other Assets (Note 16) (P=170,314) (P=418,935) (P=105,123) (P=338,351)Accrued Interest, Taxes and other Expenses

(Note 22) 16,897 12,856 – –Net pension liability (asset) (P=153,417) (P=406,079) (P=105,123) (P=338,351)

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ConsolidatedNet benefit cost in

consolidated statement of income Remeasurements in other comprehensive income

January 1, 2013Current

service cost Net interest SubtotalBenefits

paid

Return onplan assets(excluding

amountincluded in net

interest)

Actuarialchanges arisingfrom changes indemographic

assumptions

Actuarialchanges arisingfrom deviationsof experience

fromassumptions

Actuarialchanges arisingfrom changes in

financialassumptions Subtotal

Contributionby employer

December 31,2013

Present value ofdefined benefit obligation P=1,825,641 P=154,588 P=91,817 P=2,072,046 (P=92,767) P=– P=243 P=50,890 P=88,797 P=139,930 P=– 2,119,209Fair value of plan assets (2,231,720) – (112,353) (2,344,073) 92,767 43,228 – – – 43,228 (P=64,548) (2,272,626)

(P=406,079) 154,588 (20,536) (272,027) – 43,228 243 50,890 88,797 183,158 (64,548) (153,417)Restrictions on asset recognized – – – – – – – – – – –Net defined benefit liability (asset) (P=406,079) P=154,588 (P=20,536) (P=272,027) P=– P=43,228 P=243 P=50,890 P=88,797 P=183,158 (P=64,548) (P=153,417)

Parent CompanyNet benefit cost in parent company

statement of incomeRemeasurements in other

comprehensive income

January 1, 2013Current

service cost Net interest SubtotalBenefits

paid

Return onplan assets(excluding

amount includedin net interest)

Actuarialchanges arisingfrom changes in

demographicassumptions

Actuarialchanges arisingfrom deviations

of experiencefrom

assumptions

Actuarialchanges arisingfrom changes in

financialassumptions Subtotal

Contributionby employer

December 31,2013

Present value ofdefined benefit obligation P=1,655,554 P=134,679 P=82,777 P=1,873,010 (P=81,672) P=– (P=98) P=54,826 P=75,912 P=130,640 P=– P=1,921,978Fair value of plan assets (1,993,905) – (99,695) (2,093,600) 81,672 37,459 – – – 37,459 (52,632) (2,027,101)

(338,351) 134,679 (16,918) (220,590) – 37,459 (98) 54,826 75,912 168,099 (52,632) (105,123)Restrictions on asset recognized – – – – – – – – – – – –Net defined benefit liability (asset) (P=338,351) P=134,679 (P=16,918) (P=220,590) P=– P=37,459 (P=98) P=54,826 P=75,912 P=168,099 (P=52,632) (P=105,123)

ConsolidatedNet benefit cost in consolidated

statement of income Remeasurements in other comprehensive income

January 1, 2012Current

service costAcquisition of

SBS Net interest SubtotalBenefits

paid

Return onplan assets(excluding

amountincluded in net

interest)

Actuarialchanges arisingfrom changes in

demographicassumptions

Actuarialchanges arisingfrom deviations

of experiencefrom

assumptions

Actuarialchanges arisingfrom changes in

financialassumptions Subtotal

Contributionby employer

December 31,2012

Present value ofdefined benefit obligation P=1,817,260 P=168,614 P=41,015 P=108,416 2,135,305 (P=49,164) P=– P=– P=80,044 (P=340,544) (P=260,500) P=– P=1,825,641Fair value of plan assets (1,413,057) – (71,409) (87,253) (1,571,719) 49,164 (90,084) – – – (90,084) (P=619,081) (2,231,720)

404,203 168,614 (30,394) 21,163 563,586 – (90,084) – 80,044 (340,544) (350,584) (619,081) (406,079)Restrictions on asset recognized – – – – – – – – – – – – –Net defined benefit liability (asset) P=404,203 P=168,614 (P=30,394) P=21,163 P=563,586 P=– (P=90,084) P=– P=80,044 (P=340,544) (P=350,584) (P=619,081) (P=406,079)

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Parent CompanyNet benefit cost in parent company

statement of income Remeasurements in other comprehensive income

January 1, 2012Current

service cost Net interest SubtotalBenefits

paid

Return onplan assets(excluding

amount includedin net interest)

Actuarialchanges arising

from changes indemographicassumptions

Actuarial changesarising from

deviations ofexperience from

assumptions

Actuarialchanges arising

from changes infinancial

assumptions SubtotalContributionby employer

December 31,2012

Present value ofdefined benefit obligation P=1,687,585 P=150,787 P=97,880 P=1,936,252 (P=41,798) P=– P=– P=82,921 (P=321,821) (P=238,900) P=– P=1,655,554Fair value of plan assets (1,282,438) – (74,381) (1,356,819) 41,798 (89,440) – – (89,440) (589,444) (1,993,905)

405,147 150,787 23,499 579,433 – (89,440) – 82,921 (321,821) (328,340) (589,444) (338,351)Restrictions on asset recognized – – – – – – – – – – –Net defined benefit liability (asset) P=405,147 P=150,787 P=23,499 P=579,433 P=– (P=89,440) P=– P=82,921 (P=321,821) (P=328,340) (P=589,444) (P=338,351)

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The fair value of plan assets by each class as at the end of the reporting period are as follows:

Consolidated Parent Company2013 2012 2013 2012

Amount % Amount % Amount % Amount %Debt instruments:

Government Securities P=953,294 P=881,954 P=857,955 P=794,860Highgrade 149,299 180,053 118,941 163,007Standard Grade 101,037 34,342 66,897 34,342Substandard Grade 101,783 64,634 100,739 63,639Not rated 44,780 121,955 43,687 110,627

1,350,193 59 P=1,282,938 58 P=1,188,219 58 P=1,166,475 58Equity instruments:

Financial intermediaries 174,392 166,776 143,750 155,047Power, electricity and water

distribution 58,203 47,483 55,133 45,960Wholesale/Retail Trade 37,236 36,644 32,700 32,400Transport, storage and

communication 7,598 6,325 5,732 5,440Real estate 5,940 5,685 4,084 4,364Manufacturing 3,210 1,515 - -Others 22,576 17,530 16,000 16,000

309,155 14 281,958 13 257,399 13 259,211 13Deposits in banks 314,227 14 482,272 22 300,565 15 394,692 20Investments in Unit Investment

Trust Funds 215,314 9 78,144 3 198,553 10 77,546 4Loans and other receivables:

Government Securities 13,659 14,560 12,387 13,290 High Grade 1,278 1,823 1,115 1,696 Standard Grade 458 206 287 206 Substandard Grade 1,274 1,068 1,259 1,053 Not rated 67,966 80,372 67,959 80,271

84,635 4 98,029 4 83,007 4 96,516 5Total P=2,273,524 100 P=2,223,341 100 P=2,027,743 100 P=1,994,440 100

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 ParentCompany and some of its subsidiaries as of January 1, 2013 and 2012 are shown below:

2013 2012Average

Durationof BenefitPayments

Salary RateIncrease

DiscountRate

AverageDuration of

BenefitPayments

Salary RateIncrease

DiscountRate

Parent Company 18 7.00% 5.00% 16 7.00% 5.80%SBS 23 7.00% 5.08% 19 7.00% 7.05%SBCC 19 7.00% 4.70% 17 7.00% 6.00%SBCIC 18 7.00% 4.46% 15 7.00% 5.60%SBEI 18 7.00% 4.48% 16 7.00% 5.60%

Discount rates used in computing for the present value of the obligation of the Parent Companyand significant subsidiaries as of December 31, 2013 and 2012 follow:

ParentCompany SBS SBCC SBCIC SBEI

2013 4.48% 5.08% 4.70% 4.46% 4.48%2012 5.00% 5.50% 5.25% 4.90% 5.10%

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The sensitivity analysis as of December 31, 2013 shown below has been determined based onreasonably possible changes of each significant assumption on the defined benefit obligation as ofthe end of the reporting period, assuming all other assumptions were held constant:

Consolidated Parent CompanyIncrease

(decrease) AmountIncrease

(decrease) AmountDiscount rates +1.00% (P=194,185) +1.00% (P=164,011)

-1.00% 194,185 -1.00% 164,011

Turnover rate +10.00% 33,089 +10.00% 27,604-10.00% (33,089) -10.00% (27,604)

Future salary increases +1.00% 191,146 +1.00% 161,930-1.00% (191,146) -1.00% (161,930)

Shown below is the maturity analysis of the undiscounted benefit payments:

Consolidated Parent Company2013 2012 2013 2012

Less than 1 year P=472,997 P=417,075 P=466,612 P=410,099More than 1 year to 5 years 710,654 682,526 664,538 635,321More than 5 years to 10 years 1,195,254 1,026,375 1,086,638 916,381More than 10 years to 15 years 1,860,659 1,637,693 1,639,907 1,442,623More than 15 years to 20 years 1,112,213 1,047,874 948,652 895,675Total P=5,351,777 P=4,811,543 P=4,806,347 P=4,300,099

There are no reimbursement rights recognized as a separate asset as of December 31, 2013 and2012.

The Group and the Parent Company expect to contribute P=56.0 million in 2014 to its definedbenefit plans.

29. Service Charges, Fees and Commissions

This account consists of service charges, fees and commissions on:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Stock brokerage P=458,460 P=253,600 P=192,466 P=– P=– P=–Deposit 233,810 247,852 225,571 226,690 237,406 225,571Loans 229,450 167,990 173,706 180,669 147,521 173,706Advisory 193,277 218,349 104,459 – – 251Credit cards 174,195 167,227 179,646 97,124 87,804 88,262Remittance 6,848 5,903 4,540 6,797 5,903 4,540Miscellaneous 83,744 62,069 34,757 64,563 47,397 34,758

P=1,379,784 P=1,122,990 P=915,145 P=575,843 P=526,031 P=527,088

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30. Miscellaneous Income and Expense

Miscellaneous income consists of:Consolidated Parent Company

2013 2012 2011 2013 2012 2011Income from trust operations P=180,902 P=131,512 P=120,260 P=180,902 P=131,512 P=120,260Recovery on charged-off assets 82,376 169,293 163,864 52,119 134,102 120,275Dividend income (Note 10) 19,045 4,938 5,074 17,501 3,474 3,687Gain on pre-termination of long

term investment (Note 12) – – 219,418 – – 219,418Miscellaneous (Note 15) 6,518 13,737 14,162 5,864 9,181 11,143

P=288,841 P=319,480 P=522,778 P=256,386 P=278,269 P=474,783

Miscellaneous expense consists of:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Representation and entertainment P=469,213 P=392,341 P=228,035 P=443,568 P=373,682 P=220,111Insurance expenses 336,371 267,856 222,691 319,188 252,724 191,848Security, clerical, messengerial and

janitorial services 328,666 259,238 183,412 262,259 206,020 148,356Management and other

professional fees 288,645 300,008 209,978 92,173 163,335 112,248Postage, telephone and cables and

telegrams 143,865 147,388 116,245 73,951 68,198 54,021Advertising and publicity 141,656 210,485 169,675 98,216 174,993 141,515Banking fees 89,285 66,102 48,515 87,401 64,614 48,515Donations and charitable

contributions 63,422 120,917 57,800 3,000 74,000 52,000Brokerage fees 62,857 78,357 66,537 62,857 78,357 66,537Litigation/assets acquired expenses 48,322 60,836 27,918 36,810 44,145 27,918Stationery and supplies used 40,994 49,682 18,307 26,853 32,835 12,820Fines, penalties and other charges 27,849 13,262 9,489 25,151 12,943 9,489Miscellaneous 398,845 278,102 31,294 185,538 176,076 25,949

P=2,439,990 P=2,244,574 P=1,389,896 P=1,716,965 P=1,721,922 P=1,111,327

Miscellaneous expense includes travelling expenses amounting to P=91.5 million, P=62.0 millionand P=32.6 million for the Group and P=82.5 million, P=54.6 million and P=31.8 million for the ParentCompany for the years ended December 31, 2013, 2012 and 2011, respectively. It also includesfuel and lubricants amounting to P=38.7 million, P=34.9 million and P=22.9 million for the Group andP=25.2 million, P=23.7 million and P=21.9 million for the Parent Company for the years endedDecember 31, 2013, 2012 and 2011, respectively.

31. 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 heldby key management personnel or their close family members,

- subsidiaries, joint ventures and their respective subsidiaries, and- post-employment benefit plans for the benefit of the Group’s employees.

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The Group has several business relationships with related parties. Transactions with such partiesare made 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. Thesetransactions also did not involve more than the normal risk of collectability or present otherunfavorable conditions.

Transactions of the Parent Company with subsidiaries

December 31, 2013

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

SubsidiariesDue from Other Banks: P=27 Earns interest at the respective bank deposit rates

Deposits P=531,333Withdrawals 531,306

Interbank loans receivable: P=970,0001 to 7 day term, unsecured, with interest 2.125%, noimpairment

Grants 83,202,000Settements 82,232,000

Loans and receivables: $980Short-term, unsecured, with interest ranging from 1.75% to2.0%, no impairment

Grants $1,930Settlements 1,590

Loans and receivables: P=150,000Short-term, unsecured, with interest ranging from 2.0% to4.0%, no impairment

Grants P=438,000Settlements 300,000

Accrued interest receivable 17,846 356 Interest income and accrued interest receivable, noimpairment

Accounts receivable 14,498 On demand, unsecured, non-interest bearing, no impairmentDeposit liabilities: 1,635,335 Earns interest at the respective bank deposit rates

Deposits 139,182,564Withdrawals 138,566,222

Accounts payable 20,613 On demand, unsecured, non-interest bearingAccrued interest payable 7,107 617 Interest expense and accrued interest payableRent income 5,334 Lease of office spaces for periods ranging from 1 to 5 yearsMiscellaneous income 894 Trust feesCommitments - credit facility 15,795,000 Unsecured

December 31, 2012

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

SubsidiariesLoans and receivables: $640 Short-term, unsecured, 2.0%, no impairment

Grants $640Settlements 800

Loans and receivables: P=12,000 Short-term, unsecured, 4.8%, no impairmentGrants P=12,000

Accrued interest receivable 679 26 Interest income and accrued interest receivable, no impairment

Accounts receivable – 54,460 On demand, unsecured, non-interest bearing, no impairmentDeposit liabilities: 1,018,993 Earns interest at the respective bank deposit rates

Deposits 84,526,049Withdrawals 84,209,610

Accounts payable – 9,581 On demand, unsecured, non-interest bearingAccrued interest payable 11,796 495 Interest expense and accrued interest payableRent income 5,265 5,265 Lease of office spaces for periods ranging from 1 to 5 yearsBills payable: – 1 to 5 day term; earns 4.0% to 4.5% interest

Availments 29,901,000Settlement 29,901,000

Miscellaneous income 749 749 Trust feesCommitments - credit facility 5,915,000 – Unsecured

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Accounts receivable from subsidiaries pertains to expenses paid by the Parent Company, whichwere later billed for reimbursement. Accounts payable to SBCC pertains to collections receivedfrom credit cardholders on behalf of the Parent Company.

The Parent Company has lease agreements with some of its subsidiaries for periods ranging from1 to 5 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.

Other related party transactions conducted in the normal course of business includes the following,as detailed in the Memorandum of Agreement (MOA) between the Parent Company and itssubsidiaries (except for SBCC and SBS):

· 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 SBCIC and SBEI pertaining to the above services amounted toP=44.1 million in 2013, P=26.4 million in 2012 and P=24.0 million in 2011. The Parent Company hasnot charged expenses to the other subsidiaries since the levels of their operations remain low.

Transaction of the Group with the Joint Venture

December 31, 2013

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Parent CompanyReceivables purchased P=637,272 P=867,228 Assignment of rights on a without recourse basisCollection Fee 597 2,907 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: 206,889 3-month to 3-year term; earns 4.78% to 6.32% interest Grants 517,400 Settlement 464,900

Accrued interest receivable 11,102 451 Interest income and accrued interest receivable Deposit liabilities: 139,103 Earns interest at the respective bank deposit rates

Deposits 2,350,598 Withdrawals 2,215,158

Accrued interest payable 4 4 Interest expense and accrued interest payableAccounts Payable 12,140 1,564 Expenses advanced by the Parent Company and

outstanding accounts payable (on demand, unsecured,non-interest bearing).

Rent Income 1,419 – Rental income for space occupied by SBMLRefundable Deposits – 215 Unsecured, non-interest bearing, no impairmentCommitments - credit facility 1,000,000 – Unsecured

SBSReceivables Purchased 328,731 340,293 Assignment of rights on a without recourse basisCollection Fee 264 1,565 Collection fee expense and prepaid collection fee,

equivalent to 0.2% of the selling price of the leasereceivables amortized over the lease term

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December 31, 2012

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Parent Company Receivables purchased P=277,475 P=271,698 Assignment of rights on a without recourse Prepaid collection fee 21 1,260 Prepaid collection fee and collection fee expense,

equivalent to 0.2% of the selling price of the leasereceivables amortized over the lease term

Loans receivable: 154,389 3-month to 3-year term; earns 4.78% to 6.32% interest Grants 390,600 Settlement 236,211

Accrued interest receivable P=3,387 P=464 Interest income and accrued interest receivable, no impairment

Deposit liabilities 3,663 Earns interest at the respective bank deposit rates Deposits 2,444 Withdrawals 2,637

Accrued interest payable 1,130 464 Interest expense and accrued interest payableSBS Receivables purchased 196,999 180,773 Assignment of rights on a without recourse Prepaid collection fee 57 777 Prepaid collection fee and collection fee expense,

equivalent to 0.2% of the selling price of the leasereceivables amortized over the term

In 2013, SBML sold various lease receivables to the Parent Company and SBS with carryingamounts of P=616.3 million and P=312.6 million, respectively, and realized gains amounting toP=21.0 million and P=16.2 million, respectively.

In 2012, SBML sold various lease receivables to the Parent Company and SBS with carryingamounts of P=266.1 million and P=184.9 million, respectively, and realized gains amounting toP=11.2 million and P=12.1 million, respectively.

The Parent Company’s proportionate share in the gain on sale of lease receivables was eliminatedin the consolidated financial statements of the Group.

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. (SBFI), a non-stock, non-profit organization registeredwith the SEC and accredited by the Philippine Council for Non-Governmental Organization, asfollows:

Donor 2013 2012SBEI P=38,320 P=19,700SBCIC 22,000 27,170Parent Company – 70,000Total P=60,320 P=116,870

The Parent Company also recognized trust fees amounting to P=0.7 million and P=0.5 million in2013 and 2012, respectively, for acting as the Investment Manager of SBFI’s fund.

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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, 2013

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Loans and receivables: P=1,380 Unsecured, 1 month term, earns 12.0% interest,no impairmentGrants P=240Settlements 798

Accrued interestreceivable 1,013 – Interest income and accrued interest receivableDeposit liabilities 435,427 Earns interest at respective bank deposit rates

Parent CompanyDecember 31, 2013

Category Amount/VolumeOutstanding

Balances Terms and Conditions/ NatureDeposit liabilities P=433,839 Earns interest at respective bank deposit rates

ConsolidatedDecember 31, 2012

CategoryAmount/Volume

OutstandingBalances Terms and Conditions/ Nature

Loans and receivables: P=1,938 Unsecured, 1 month term, earns 12.0% interest, no impairmentGrants P=648Settlements 1,494

Accrued interest receivable 259 – Interest income and accrued interest receivableDeposit liabilities 724,864 Earns interest at respective bank deposit rates

Parent CompanyDecember 31, 2012

Category Amount/ VolumeOutstanding

Balances Terms and Conditions/ NatureDeposit liabilities P=723,029 Earns interest at respective bank deposit rates

Compensation of key management personnel follows:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Salaries and other short-term benefits P=1,581,798 P=1,180,382 P=933,051 P=1,490,724 P=1,101,220 P=904,475Post-employment benefits 14,369 17,396 10,375 11,794 14,307 9,344

P=1,596,167 P=1,197,778 P=943,426 P=1,502,518 P=1,115,527 P=913,819

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 Grouphas business relationships with a number of its retirement plans pursuant to which it provides trustand management services to these plans.

As of December 31, 2013 and 2012, the fair values of the plan assets of the Parent Company andsome of its subsidiaries in the retirement funds amounted to P=2.3 billion and P=2.2 billion,respectively, of which P=2.0 billion pertains to the Parent Company.

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Relevant information on statements of financial position of carrying values of the ParentCompany’s retirement funds:

Consolidated Parent Company2013 2012 2013 2012

Debt instruments P=1,350,193 P=1,282,938 P=1,188,219 P=1,166,475Equity instruments 309,155 281,958 257,399 259,211Deposits in banks 314,227 482,272 300,565 394,692Investments in Unit Investment Trust Funds 215,314 78,144 198,553 77,546Loans and other receivables 84,635 98,029 83,007 96,516Total Fund Assets P=2,273,524 P=2,223,341 P=2,027,743 P=1,994,440

Total Fund Liability P=898 P=726 P=642 P=536

Debt instruments include government and private securities. Deposits in banks of the Group andParent Company include Special Deposit Account placement with BSP amounting toP=304.3 million and P=291.6 million in 2013, respectively, and P=252.0 million and P=250.3 million in2012, respectively.

Income earned by the Group and Parent Company from such services amounted to P=8.6 millionand P=8.0 million in 2013, respectively, and P=2.5 million and P=1.9 million in 2012, respectively.

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 bythe Trust Investment Committee. A summary of transactions with related party retirement plansfollows:

(amounts in thousands except number of shares and market value per share)

Consolidated Parent Company2013 2012 2013 2012

Deposit in banks P=9,897 P=159,118 P=8,975 P=144,385Equity instruments 106,398 121,212 106,398 119,652Dividend income 1,534 1,544 1,534 1,534Interest income 1,110 1,228 394 1,197Number of Parent Company’s

shares held by plan 920,400 777,000 920,400 767,000Market value per share P=115.60 P=156.00 P=115.60 P=156.00

Voting rights over the Parent Company’s shares are exercised by an authorized trust officer.

Regulatory ReportingIn 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 onthe same terms as loans to other individuals and businesses of comparable risks.

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On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations thatshall govern loans, other credit accommodations and guarantees granted to subsidiaries andaffiliates of banks and quasi-banks. Under the said circular, the total outstanding loans, creditaccommodations and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed10.00% of the bank’s net worth, the unsecured portion shall not exceed 5.00% of such net worth.Further, the total outstanding exposures shall not exceed 20.00% of the net worth of the lendingbank. The said Circular became effective on February 15, 2007.

BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further,BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts.The following table shows information relating to DOSRI accounts of the Parent Company:

2013 2012Total outstanding DOSRI accounts (in billions) P=0.316 P=0.303Percent of DOSRI accounts granted prior to

effectivity of BSP Circular No. 423 to total loans 0.07 0.20Percent of DOSRI accounts granted after effectivity

of BSP Circular No. 423 to total loans 0.12 0.03Percent of DOSRI accounts to total loans 0.19 0.23Percent of unsecured DOSRI accounts to

total DOSRI loans 66.41 70.45Percent of past due DOSRI accounts to

total DOSRI loans – –Percent of nonperforming DOSRI accounts to

total DOSRI loans – –

Total interest income on DOSRI accounts amounted to P=17.8 million in 2013, P=2.4 million in2012 and P=4.1 million in 2011.

32. 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 noncancellable leases have remaining lease terms of between 1 and 5years as of December 31, 2013 and 2012. Various lease contracts include escalation clauses, mostof which bear an annual rent increase of 5.0%. Rent income from long-term leases (included inRent in the statements of income) amounted to P=136.8 million in 2013, P=92.3 million in 2012 andP=63.2 million in 2011, for the Group, of which, P=37.1 million in 2013, P=42.8 million in 2012 andP=45.5 million in 2011 pertain to the Parent Company.

Future minimum rental receivable under non-cancellable operating leases follow:

Consolidated Parent Company2013 2012 2013 2012

Within one year P=126,216 P=130,466 P=10,808 P=16,728After one year but not more than five years 374,199 493,193 20,900 19,794More than five years 5,707 – 5,707 –

P=506,122 P=623,659 P=37,415 P=36,522

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The Parent Company leases the premises occupied by some of its branches (about 19.12% of thebranch sites are Parent Company-owned). Some of its subsidiaries also lease the premisesoccupied by their head offices and most of their branches. The lease contracts are for periodsranging from 1 to 20 years and are renewable at the Parent Company’s option under certain termsand conditions. Various lease contracts include escalation clauses, most of which bear an annualrent increase of 10.0%. Rent expense (included in Occupancy costs in the statements of income)amounted to P=318.8 million in 2013, P=267.0 million in 2012 and P=183.9 million in 2011 for theGroup, of which, P=251.6 million in 2013, P=188.7 million in 2012 and P=147.3 million in 2011pertain to the Parent Company.

Future minimum rental payable under non-cancelable operating leases are as follows:

Consolidated Parent Company2013 2012 2013 2012

Within one year P=347,318 P=200,602 P=247,098 P=141,179After one year but not more than five years 1,112,358 794,632 814,542 590,157More than five years 90,621 213,811 90,621 213,811

P=1,550,297 P=1,209,045 P=1,152,261 P=945,147

33. Commitments and Contingent Liabilities

In the normal course of operations of the Group, there are outstanding commitments andcontingent liabilities and bank guarantees that are not reflected in the financial statements. TheGroup does not anticipate losses that will materially affect its financial position and financialperformance as a result of these transactions.

There are several suits and claims that remain unsettled. Management believes, based on theopinion 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.

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:

Consolidated Parent Company2013 2012 2013 2012

Trust department accounts P=35,800,898 P=58,432,980 P=35,800,898 P=58,432,980Unused commercial letters of credit 23,609,794 10,359,556 23,609,794 10,359,556Unutilized credit limit of credit cardholders 12,009,161 10,575,317 5,150,130 4,343,543Committed loan line 4,674,422 2,969,500 4,674,422 2,969,500Outstanding guarantees 564,270 134,531 564,270 134,531Inward bills for collection 462,383 960,578 462,383 960,578Late deposit/payment received 554,236 467,458 547,294 467,390Outward bills for collection 278,282 287,038 265,264 270,038Others 953,887 808,847 953,887 808,664

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34. Segment Information

The Group’s operating businesses are recognized and managed separately according to the natureof services 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, aswell as the management of the funding operations for the Group.

Corporate and Investment Banking Segment - this segment addresses the top 1,000 corporate,institutional, and public sector markets. Services include relationship management, lending andother credit facilities, trade, cash management and deposit-taking services provided by the Group.It also provides structured financing and advisory services relating to debt and equity capitalraising, project financing, and mergers and acquisitions. The Group’s equity brokerage operationsare also part of this segment.

Commercial and Retail Banking Segment - this segment addresses the individual, retail, small-and-medium enterprise and middle markets. It covers deposit-taking and servicing, commercialand consumer loans and credit card facilities. The Group includes SBS as part of this segment.

All Other Segments - this segment includes but not limited to remittances, leasing, transactionbanking and other support services. Other operations of the Group comprise the operations andfinancial control groups.

No operating segments have been aggregated to form the above reportable operating businesssegments.

Management monitors the operating results of its business units separately for the purpose ofmaking decisions about resource allocation and performance assessment. Segment performance isevaluated based on net income after taxes, which is measured in a manner consistent with PFRS asshown in the statements of income.

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 areasonable basis.

Segment liabilities are those operating liabilities that result from the operating activities of asegment and that either are directly attributable to the segment or can be allocated to the segmenton a reasonable basis.

The Group’s revenue-producing assets are located in the Philippines (i.e., one geographicallocation), therefore, geographical segment information is no longer presented.

The Group has no significant customers which contribute 10.00% or more of the consolidatedrevenue, 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 marketrates on an arm’s length basis. Interest is charged/credited to the business units based on a poolrate which approximates the marginal cost of funds.

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Segment information as of and for the years ended December 31, 2013, 2012 and 2011 follow(amounts in millions):

2013

FinancialMarkets

Corporate andInvestment

Banking

Commercial andRetail

BankingAll OtherSegments Total

Statement of IncomeNet interest income:

Third party P=2,827 P=3,738 P=2,157 (P=338) P=8,384Intersegment (800) (1,953) 2,054 699 –

2,027 1,785 4,211 361 8,384Noninterest income 2,483 773 895 (223) 3,928Revenue - net of interest expense 4,510 2,558 5,106 138 12,312Noninterest expense 626 1,257 4,514 403 6,800Income before income tax 3,884 1,301 592 (265) 5,512Provision for income tax 561 261 140 (542) 420Non-controlling interest in net income of

subsidiaries – – – 80 80Net income for the year attributable to the

Parent Company P=3,323 P=1,040 P=452 P=197 P=5,012

Statement of Financial PositionTotal assets P=142,795 P=109,894 P=84,171 P=10,791 P=347,651

Total liabilities P=76,652 P=72,952 P=137,780 P=18,492 P=305,876

Other Segment InformationCapital expenditures P=14 P=58 P=633 P=331 P=1,036

Depreciation and amortization P=6 P=24 P=262 P=137 P=429

Provision for (recovery of) credit andimpairment losses P=– P=74 P=450 (P=475) P=49

2012(As Restated)

FinancialMarkets

Corporate andInvestment

Banking

Commercial andRetail

BankingAll OtherSegments Total

Statement of IncomeNet interest income:

Third party P=3,312 P=3,284 P=1,979 (P=456) P=8,119Intersegment (1,502) (1,798) 1,256 2,044 –

1,810 1,486 3,235 1,588 8,119Noninterest income 4,556 727 593 53 5,929Revenue - net of interest expense P=6,366 P=2,213 P=3,828 P=1,641 P=14,048Noninterest expense 835 900 3,773 761 6,269Income before income tax 5,531 1,313 55 880 7,779Provision for income tax 348 215 136 (466) 233Non-controlling interest in net income of

subsidiaries – – – 30 30Net income for the year attributable to the

Parent Company P=5,183 P=1,098 (P=81) P=1,316 P=7,516

Statement of Financial PositionTotal assets P=119,485 P=75,579 P=57,134 P=7,065 P=259,263

Total liabilities P=68,339 P=45,947 P=94,418 P=12,763 P=221,467

Other Segment InformationCapital expenditures P=15 P=88 P=419 P=267 P=789

Depreciation and amortization P=7 P=40 P=191 P=122 P=360

Provision for (recovery of) credit andimpairment losses P=– P=2 P=399 (P=126) P=275

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2011(As Restated)

FinancialMarkets

Corporate andInvestment

Banking

Commercial andRetail

BankingAll OtherSegments Total

Statement of IncomeNet interest income:

Third party P=3,588 P=2,692 P=1,241 P=17 P=7,538Intersegment (1,569) (1,384) 1,529 1,424 –

2,019 1,308 2,770 1,441 7,538Noninterest income 2,486 704 897 34 4,121Revenue - net of interest expense 4,505 2,012 3,667 1,475 11,659Noninterest expense 640 737 2,777 73 4,227Income before income tax 3,865 1,275 890 1,402 7,432Provision for income tax 243 38 23 363 667Non-controlling interest in net income of

subsidiaries – – – 83 83Net income for the year attributable to the

Parent Company P=3,622 P=1,237 P=867 P=956 P=6,682

Statement of Financial PositionTotal assets P=109,046 P=55,675 P=42,174 P=8,394 P=215,289

Total liabilities P=54,926 P=33,382 P=88,806 P=7,220 P=184,334

Other Segment InformationCapital expenditures P=60 P=36 P=97 P=9 P=202

Depreciation and amortization P=5 P=42 P=110 P=123 P=280

Provision for (recovery of) credit andimpairment losses P=– P=2 P=310 (P=409) (P=97)

The Group’s share in net income (loss) of a joint venture amounting to P=18.3 million in 2013,P=4.5 million in 2012 and (P=1.1 million) in 2011 are included under All Other Segments.

35. Financial Performance

The following basic ratios measure the financial performance of the Group and the ParentCompany:

Consolidated Parent Company2013 2012 2011 2013 2012 2011

Return on average equity 12.87% 21.96% 24.64% 12.89% 22.78% 24.23%Return on average assets 1.82 3.32 3.48 1.85 3.46 3.38Net interest margin 3.49 3.93 4.09 3.32 3.78 3.98

Basic earnings per share amounts were computed as follows:

20132012

(As Restated)2011

(As Restated)a. Net income attributable to the equity

holders of the Parent Company P=5,011,725 P=7,515,877 P=6,681,667b. Weighted average number of outstanding

common shares 602,830 602,830 602,830c. Earnings per share (a/b) P=8.31 P=12.47 P=11.08

The 20% stock dividend in 2013 of 100.5 million common shares (see Note 25) resulted in theadjustments of the earnings per share amount in 2013 from P=9.98 to P=8.31.

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As of December 31, 2013, 2012 and 2011, the Parent Company has no potentially dilutivecommon shares.

36. Events after the Reporting Period

On December 23, 2013, the Board of Directors of SBCIC approved the incorporation of SB RentalCorporation (SBRC), a wholly owned subsidiary, with the primary purpose of engaging in thebusiness of renting, leasing (excluding financial leases), and hiring all kinds of machineries andequipment, automotive equipment, automobiles, all kinds of motor vehicles and all kinds of land,air or water transportation system. On January 13, 2014, SEC approved SBRC’s articles ofincorporation and by-laws with authorized capital stock of P=200,000,000.

On February 25, 2014, the Board of Directors of the Parent Company approved the strategic planfor SBS to fully align with the overall strategic direction of the Parent Company and theacquisition of certain assets and assumption of certain liabilities of SBS by the Parent Company,subject to regulatory approvals.

37. 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 25, 2014.

38. Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010

Supplementary Information Under Revenue Regulations (RR) 19-2011On December 9, 2011, the Bureau of Internal Revenue (BIR) issued RR No. 19-2011 whichprescribes the new annual income tax forms that will be used for filing effective taxable year2011. Specifically, companies are required to disclose certain tax information in their respectivenotes to financial statements.

For the calendar year ended December 31, 2013, the Bank's RBU and FCDU reported thefollowing revenues and expenses for income tax purposes:

Revenues

RBU FCDUSale of services P=7,246,289 P=–Non-operating and taxable other income:

Service charges, fees and commissions 569,556 1,825Trading and foreign exchange gains (103,907) 1,492Income from trust operations 180,901 –Profit from assets sold (7,235) –Others 94,901 2,744

734,216 6,061P=7,980,505 P=6,061

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Expenses

RBU FCDUCost of services:

Compensation and other benefits P=1,112,012 P=126Others 2,584,278 156

3,696,290 282Itemized deductions:

Compensation and other benefits 963,631 –Taxes and licenses 763,630 444Occupancy costs 471,260 6Depreciation and amortization 194,888 157Bad debts 54,694 –Amortization of software 26,397 –Others 861,914 73,129

3,336,414 73,736Net taxable income P=947,801 (P=67,957)

Supplementary Information Under RR 15-2010On November 25, 2010, the BIR issued RR 15-2010 to amend certain provisions of RR 21-2002.The Regulations provide that starting 2010 the notes to financial statements shall includeinformation 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, 2013:

Gross receipt tax (GRT)The Parent Company is subject to GRT on its gross income from Philippine sources. GRT isimposed on interest, fees and commissions from lending activities at 5% or 1%, depending on theloan term, and at 7% on non-lending fees and commissions, trading and foreign exchange gainsand other items constituting gross income.

In FCDU, income classified under Ohers, which is subject to corporate income tax, is also subjectto GRT at 7%.

The details of the Parent Company’s GRT payments and corresponding GRT tax base in 2013 areas follows:

GRT GRT tax baseIncome from lending activities P=292,214 P=7,936,072Other income 100,198 1,431,402

P=392,412 P=9,367,474

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Taxes and LicensesThis includes all other taxes, local and national, incurred in 2013 and lodged under Taxes andlicenses in the statement of income, as follows:

AmountDocumentary stamp taxes P=350,266Fringe benefit taxes 19,007Mayor’s permit 17,576Real estate taxes 9,142Other taxes 32,454

P=428,445

Other taxes include car registration fees, privilege taxes and other permits.

Withholding TaxesDetails of total remittances in 2013 and balances as of December 31, 2013 are as follows:

TotalRemittance Balance

Withholding taxes on compensation and benefits P=354,508 P=31,918Expanded withholding taxes 57,526 5,582Final withholding taxes 392,426 97,570

P=804,460 P=135,070

Tax Assessments and CasesAs of December 31, 2013, the Parent Company has no deficiency tax assessments and has no taxcases, litigation and/or prosecution in courts or bodies outside the BIR.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsSecurity Bank Corporation6776 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, 2013 and 2012 and foreach of the three years in the period ended December 31, 2013, included in the Form 17-A, and haveissued our report thereon dated February 25, 2014. Our audits were made for the purpose of formingan opinion on the basic financial statements taken as a whole. The schedules listed in the Index to theFinancial Statements and Supplementary Schedules are the responsibility of the Group’s management.These schedules are presented for purposes of complying with the Securities Regulation CodeRule 68, As Amended (2011) and are not part of the basic financial statements. These schedules havebeen subjected to the auditing procedures applied in the audit of the basic financial statements and inour opinion, fairly state, in all material respects, the information required to be set forth therein inrelation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Josephine Adrienne A. AbarcaPartnerCPA Certificate No. 92126SEC Accreditation No. 0466-AR-2 (Group A), February 4, 2013, valid until February 3, 2016Tax Identification No. 163-257-145BIR Accreditation No. 08-001998-61-2012, April 11, 2012, valid until April 10, 2015PTR No. 4225145, January 2, 2014, Makati City

February 25,2014

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

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SECURITY BANK CORPORATION AND SUBSIDIARIESINDEX TO THE FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

DECEMBER 31, 2013

Part ISchedule Content Page No.

I Schedule of Reconciliation of Retained Earnings Available for DividendDeclaration(Part 1 4C, Annex 68-C) 1

II Schedule of all effective standards and interpretations under PFRS(Part 1 4J) 2-6

III Map showing relationships between and among parent, subsidiaries and ajoint venture(Part 1 4H) 7

Part IIA Financial Assets

Financial assets at fair value through profit or lossFinancial assets at fair value through other comprehensive incomeInvestment securities at amortized cost

(Part II 6D, Annex 68-E, A) 8B Amounts Receivable from Directors, Officers, Employees, Related Parties

and Principal Stockholders (Other than Affiliates)(Part II 6D, Annex 68-E, B) 9

C Amounts Receivable from Related Parties which are eliminated during theconsolidation of financial statements(Part II 6D, Annex 68-E, C) 10

D Intangible Assets - Other Assets(Part II 6D, Annex 68-E, D) 11

E Long-Term Debt(Part II 6D, Annex 68-E, E) 12-18

F Indebtedness to Related Parties (included in the consolidated statement offinancial position)(Part II 6D, Annex 68-E, F) 19

G Guarantees of Securities of Other Issuers(Part II 6D, Annex 68-E, G) 20

H Capital Stock(Part II 6D, Annex 68-E, H) 21

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SECURITY BANK CORPORATION6776 Ayala Avenue

Makati City

SCHEDULE IRECONCILIATION OF RETAINED EARNINGSAVAILABLE FOR DIVIDEND DECLARATION

DECEMBER 31, 2013(Amounts in Thousands)

Unappropriated retained earnings, beginning P=27,761,581Adjustments on beginning balance:

Fair value gain at foreclosure date (36,496)Effect of initial adoption of PAS 19 (19,998)Day one loss on off-market receivables, net of portion accreted 1,185

Unappropriated retained earnings, as adjusted, beginning 27,706,272Add: Net income actually earned during the year –Net income during the year 4,937,046Less: Non-actual/unrealized income net of tax –

Fair value adjustments (mark to market gains) 493,942Unrealized FX gains - net (except those attributable to Cash and cash

equivalents) 301,597Fair value gain at foreclosure date 14,321Interest accrued on impaired financial assets 9,871Interest accrued on off-market rate receivables 657Recognized deferred tax assets 164,253

Subtotal 984,641Net income actually earned during the period 3,952,405Add (Less):

Dividend declarations during the year (2,009,434)Appropriations of retained earnings during the year (78,100)

Total retained earnings, end available for dividend declaration P=29,571,143

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SECURITY BANK CORPORATIONSCHEDULE II

LIST OF PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS)EFFECTIVE AS OF DECEMBER 31, 2013

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics

3

3

PFRSs Practice Statement Management Commentary 3

Philippine Financial Reporting Standards

PFRS 1(Revised)

First-time Adoption of Philippine Financial ReportingStandards

3

Amendments to PFRS 1 and PAS 27: Cost of anInvestment in a Subsidiary, Jointly Controlled Entity orAssociate

3

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

3

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-time Adopters

3

Amendments to PFRS 1: Severe Hyperinflation andRemoval of Fixed Date for First-time Adopters

3

Amendments to PFRS 1: Government Loans 3

Amendments to PFRS 1: Borrowing Costs 3

Amendments to PFRS 1: Meaning of Effective PFRS 3

PFRS 2 Share-based Payment 3

Amendments to PFRS 2: Vesting Conditions andCancellations

3

Amendments to PFRS 2: Group Cash-settled Share-basedPayment Transactions

3

Amendments to PFRS 2: Definition of Vesting Condition 3

PFRS 3(Revised)

Business Combinations 3

Amendment to PFRS 3: Accounting for ContingentConsiderations in a Business Combination

Not early adopted

Amendment to PFRS 3: Scope Exceptions for JointArrangements

Not early adopted

PFRS 4 Insurance Contracts 3

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts

3

PFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations

3

PFRS 6 Exploration for and Evaluation of Mineral Resources 3

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

PFRS 7 Financial Instruments: Disclosures 3

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets

3

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets - Effective Date and Transition

3

Amendments to PFRS 7: Improving Disclosures aboutFinancial Instruments

3

Amendments to PFRS 7: Disclosures - Transfers ofFinancial Assets

3

Amendments to PFRS 7: Disclosures - OffsettingFinancial Assets and Financial Liabilities*

3

Amendments to PFRS 7: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

3

PFRS 8 Operating Segments 3

Amendments to PFRS 8: Aggregation of OperatingSegments and Reconciliation of the Total of theReportable Segments Assets to the Entity’s Assets

Not early adopted

PFRS 9** Financial Instruments 3

Amendments to PFRS 9: Mandatory Effective Date ofPFRS 9 and Transition Disclosures

3

PFRS 10 Consolidated Financial Statements 3

Amendments to PFRS 10: Investment Entities Not early adopted

PFRS 11 Joint Arrangements 3

Amendments to PFRS 11: Investment Entities Not early adopted

PFRS 12 Disclosure of Interests in Other Entities 3

PFRS 13 Fair Value Measurement (2013 Version) 3

Amendment to PFRS 13: Short-term Receivables andPayables

3

Amendment to PFRS 13: Portfolio Exception Not early adopted

Philippine Accounting StandardsPAS 1(Revised)

Presentation of Financial Statements 3

Amendment to PAS 1: Capital Disclosures 3

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation

3

Amendments to PAS 1: Presentation of Items of OtherComprehensive Income*

3

Amendments to PAS 1: Clarification of the Requirementsfor Comparative Presentation

3

PAS 2 Inventories 3

PAS 7 Statement of Cash Flows 3

PAS 8 Accounting Policies, Changes in Accounting Estimatesand Errors

3

PAS 10 Events after the Reporting Period 3

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

PAS 11 Construction Contracts 3

PAS 12 Income Taxes 3

Amendment to PAS 12 - Deferred Tax: Recovery ofUnderlying Assets

3

PAS 16 Property, Plant and Equipment 3

Amendment to PAS 16: Classification of ServicingEquipment

3

Amendment to PAS 16: Revaluation Method –Proportionate Restatement of Accumulated Depreciation

Not Early Adopted

PAS 17 Leases 3

PAS 18 Revenue 3

PAS 19(Amended)

Employee Benefits 3

Amendments to PAS 19: Defined Benefit Plans:Employee Contributions

Not Early Adopted

PAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance

3

PAS 21 The Effects of Changes in Foreign Exchange Rates 3

Amendment: Net Investment in a Foreign Operation 3

PAS 23(Revised)

Borrowing Costs 3

PAS 24(Revised)

Related Party Disclosures 3

Amendments to PAS 24: Key Management Personnel Not Early Adopted

PAS 26 Accounting and Reporting by Retirement Benefit Plans 3

PAS 27(Amended)

Separate Financial Statements 3

Amendments to PAS 27: Investment Entities Not Early Adopted

PAS 28(Amended)

Investments in Associates and Joint Ventures 3

PAS 29 Financial Reporting in Hyperinflationary Economies 3

PAS 32 Financial Instruments: Disclosure and Presentation 3

Amendments to PAS 32 and PAS 1: Puttable FinancialInstruments and Obligations Arising on Liquidation

3

Amendment to PAS 32: Classification of Rights Issues 3

Amendments to PAS 32: Offsetting Financial Assets andFinancial Liabilities

3

PAS 33 Earnings per Share 3

PAS 34 Interim Financial Reporting 3

Amendment to PAS 34: Interim Financial Reporting andSegment Information for Total Assets and Liabilities

PAS 36 Impairment of Assets 3

Amendments to PAS 36: Recoverable AmountDisclosures for Non-Financial Assets

Not Early Adopted

PAS 37 Provisions, Contingent Liabilities and Contingent Assets 3

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

PAS 38 Intangible Assets 3

Amendments to PAS 38: Revaluation Method –Proportionate Restatement of Accumulated Amortization

Not Early Adopted

PAS 39 Financial Instruments: Recognition and Measurement 3

Amendments to PAS 39: Transition and InitialRecognition of Financial Assets and Financial Liabilities

3

Amendments to PAS 39: Cash Flow Hedge Accounting ofForecast Intragroup Transactions

3

Amendments to PAS 39: The Fair Value Option 3

Amendments to PAS 39 and PFRS 4: Financial GuaranteeContracts

3

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets

3

Amendments to PAS 39 and PFRS 7: Reclassification ofFinancial Assets – Effective Date and Transition

3

Amendments to Philippine Interpretation IFRIC–9 andPAS 39: Embedded Derivatives

3

Amendment to PAS 39: Eligible Hedged Items 3

Amendment to PAS 39: Novation of Derivatives andContinuation of Hedge Accounting

Not Early Adopted

PAS 40 Investment Property 3

Amendment to PAS 40: Investment Property Not Early Adopted

PAS 41 Agriculture 3

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration andSimilar Liabilities

3

IFRIC 2 Members' Share in Co-operative Entities and SimilarInstruments

3

IFRIC 4 Determining Whether an Arrangement Contains a Lease 3

IFRIC 5 Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds

3

IFRIC 6 Liabilities arising from Participating in a Specific Market- Waste Electrical and Electronic Equipment

3

IFRIC 7 Applying the Restatement Approach under PAS 29Financial Reporting in Hyperinflationary Economies

3

IFRIC 8 Scope of PFRS 2 3

IFRIC 9 Reassessment of Embedded Derivatives 3

Amendments to Philippine Interpretation IFRIC–9 andPAS 39: Embedded Derivatives

3

IFRIC 10 Interim Financial Reporting and Impairment 3

IFRIC 11 PFRS 2- Group and Treasury Share Transactions 3

IFRIC 12 Service Concession Arrangements 3

IFRIC 13 Customer Loyalty Programmes 3

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONSEffective as of December 31, 2013

Adopted NotAdopted

NotApplicable

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction

3

Amendments to Philippine Interpretations IFRIC- 14,Prepayments of a Minimum Funding Requirement

3

IFRIC 16 Hedges of a Net Investment in a Foreign Operation 3

IFRIC 17 Distributions of Non-cash Assets to Owners 3

IFRIC 18 Transfers of Assets from Customers 3

IFRIC 19 Extinguishing Financial Liabilities with EquityInstruments

3

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 3

IFRIC 21 Levies 3

SIC-7 Introduction of the Euro 3

SIC-10 Government Assistance - No Specific Relation toOperating Activities

3

SIC-12 Consolidation - Special Purpose Entities 3

SIC-13 Amendment to SIC - 12: Scope of SIC 12 3

Jointly Controlled Entities - Non-Monetary Contributionsby Venturers

3

SIC-15 Operating Leases - Incentives 3

SIC-25 Income Taxes - Changes in the Tax Status of an Entity orits Shareholders

3

SIC-27 Evaluating the Substance of Transactions Involving theLegal Form of a Lease

3

SIC-29 Service Concession Arrangements: Disclosures. 3

SIC-31 Revenue - Barter Transactions Involving AdvertisingServices

3

SIC-32 Intangible Assets - Web Site Costs 3

*This standard has been early adopted by the Bank.

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SCHEDULE IIIMAP SHOWING RELATIONSHIPS BETWEEN AND AMONG PARENT

SUBSIDIARIES AND A JOINT VENTURE

100.00% 100.00% 100.00% 60.00% 51.81% 100.00% 50.00% 99.54%

100%

100%

*pre-operating stage**liquidating stage

SBM Leasing(a joint venturewith MarubeniCorporation)

Security LandCorporat ion

LandlinkProperty

Investments(SPV-AMC),

Inc.*

Security Bank Corporation

Security Bank SavingsCorporation (formerlyPremiere Development

Bank)

Security-PhilamFinancial Solutions

and InsuranceAgency, Inc. **

SB Forex,Incorporated

Services, Inc.*

SB Equit ies,Inc.

SB Internat ional

SB CapitalInvestmentCorporation

SB CardsCorporation

- 8 -

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Security Bank Corporation and SubsidiariesSchedule A – Financial Assets

December 31, 2013

(Amounts and Number of Shares in Thousands)Name of issuing entity and association of each

issueNumber of shares orprincipal amount of

bonds or notes

Amount shown on thebalance sheet

Valued based on marketquotation at balance sheet

date

Income accrued

Financial assets at fair value through profit or lossPhilippine government 416,739 P=479,346 P=479,346 P=6,405Private corporations 30,175 31,256 31,256 471Publicly-listed companies (Equity securitiesheld for trading) (shares) 906,961 791,207 791,207 –Privately held companies (Equity securities)(shares) 29 15,116 15,116 –Philippine government 3,153 145,327 145,327 2,667Private corporations 21,131 914,747 914,747 13,899Various derivative counterparties 1,251,311 1,251,311 –

P=3,628,310 P=3,628,310 P=23,442Financial assets at fair value through othercomprehensive income

Private corporations (shares) P=144,132 P=144,132 P=–Investment securities at amortized cost

Philippine government 10,430,554 P=12,567,927 P=12,538,111 P=219,463Private corporations 1,864,500 1,870,266 1,943,525 25,369Philippine government 1,015,132 56,119,659 56,092,135 1,052,627Private corporations 178,671 7,956,589 7,378,909 123,486

P=78,514,441 P=77,952,680 P=1,420,945

- 9 -

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Security Bank Corporation and SubsidiariesSchedule B - Amounts Receivable from Directors, Officers, Employees, Related Parties and

Principal Stockholders (Other than Related Parties)December 31, 2013

Name of Debtor

Balance atbeginning of

period Additions AmountsCollected

AmountsWritten-

off Current Non-

Current Balance at end

of periodNone to Report

Receivables from Directors, Officers, Employees, Related Parties and Principal Stockholders are subject to usual terms in the normal course ofbusiness.

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Security Bank Corporation and SubsidiariesSchedule C - Amounts Receivable from Related Parties which are eliminated

during the consolidation of financial statements December 31, 2013

(Amounts in Thousands)

Name of Debtor Balance at

beginning of period Additions AmountsCollected

AmountsWritten-off Current

Non-Current

Balance atend of period

US Dollar

SB Cards Corporation $640 $1,930 $1,590 $– $980 $– $980

Philippine Peso

SB Cards Corporation P=21,749 P=506,056 P=374,119 P=– P=153,686 P= P=153,686SB Capital Investment

Corporation 1,990 25,993 25,967 – 2,016 – 2,016SB Equities, Inc. 2,101 28,270 28,452 – 1,918 – 1,918Landlink Property

Investments, Inc. – 22 22 – – – –Security Land

Corporation 400 5,836 1,584 – 4,652 – 4,652SB Forex, Inc. 1 19 20 – – – –

SB Savings Corporation 40,219 83,221,591 82,289,228 – 972,582 – 972,582P=66,460 P=83,787,787 P=82,719,392 P=– P=1,134,854 P=– P=1,134,854

- 11 -

*SGVFS003338*

Security Bank Corporation and SubsidiariesSchedule D - Intangible Assets - Other Assets

December 31, 2013

(Amounts in Thousands)

Description (i)BeginningBalance

Additions atCost (ii)

Charged to costand expenses

Charged to otheraccounts

Other changesadditions

(deductions) (iii) Ending BalanceGoodwill P=841,602 P=– P=– P=– P=– P=841,602Branch Licenses 660,000 480,000 – – – 1,140,000Software costs 126,253 29,090 39,312 – – 116,031Exchange trading right – 8,500 – – – 8,500

P=1,627,855 P=517,590 P=39,312 P=– P=– P=2,106,133

_______________________________________________

(I) The information required shall be grouped into (a) intangibles shown under the caption intangible assets and (b) deferrals shown under the caption Other Assets in therelated balance sheet. Show by major classifications.(II) For each change representing other than an acquisition, clearly state the nature of the change and the other accounts affected. Describe cost of additions representingother than cash expenditures.(III) If provision for amortization of intangible assets is credited in the books directly to the intangible asset account, the amounts shall be stated with explanations, includingthe accounts charged. Clearly state the nature of deductions if these represent anything other than regular amortization.

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Security Bank Corporation and SubsidiariesSchedule E - Long-Term Debt

December 31, 2013

(Amounts in millions)

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Long-term Negotiable Certificates of Deposit (Series 1) P=4,972 P=– P=4,972 5.5 2/17/2019

Long-term Negotiable Certificates of Deposit (Series 2) 4,971 – 4,971 5.5 8/16/2019

Bills Payable and Securities Sold Under Repurchased AgreementsBills Payable – SSURA 114 114 – 0.50 2/26/2014Bills Payable – SSURA 594 594 – 0.52 1/27/2014Bills Payable – SSURA 427 427 – 0.55 2/4/2014Bills Payable – SSURA 480 480 – 0.58 2/10/2014Bills Payable – SSURA 426 426 – 0.58 2/10/2014Bills Payable – SSURA 198 198 – 0.55 1/21/2014Bills Payable – SSURA 594 594 – 0.55 1/21/2014Bills Payable – SSURA 481 481 – 0.55 2/18/2014Bills Payable - SSURA 852 852 – 0.55 3/6/2014Bills Payable - SSURA 482 482 – 0.55 3/6/2014Bills Payable - SSURA 272 272 – 0.60 3/20/2014

- 13 -

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Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - SSURA 479 479 – 0.60 3/20/2014Bills Payable - SSURA 274 274 – 0.53 1/24/2014Bills Payable - SSURA 273 273 – 0.55 3/5/2014Bills Payable - SSURA 97 97 – 0.55 3/5/2014Bills Payable - SSURA 852 852 – 0.55 3/10/2014Bills Payable - SSURA 273 273 – 0.55 3/10/2014Bills Payable - SSURA 429 429 – 0.58 2/14/2014Bills Payable - SSURA 545 545 – 0.55 2/14/2014Bills Payable - SSURA 213 213 – 0.65 4/22/2014Bills Payable - SSURA 544 544 – 0.65 4/22/2014Bills Payable - SSURA 376 376 – 0.65 3/26/2014Bills Payable - SSURA 278 278 – 0.65 3/26/2014Bills Payable - SSURA 313 313 – 0.65 3/26/2014Bills Payable - SSURA 337 337 – 0.65 2/24/2014Bills Payable - SSURA 412 412 – 0.58 1/28/2014Bills Payable - SSURA 207 207 – 0.60 2/4/2014Bills Payable - SSURA 235 235 – 0.60 2/4/2014Bills Payable - SSURA 623 623 – 0.60 2/12/2014Bills Payable - SSURA 415 415 – 0.60 2/12/2014Bills Payable - SSURA 188 188 – 0.65 3/10/2014Bills Payable - SSURA 468 468 – 0.65 1/21/2014Bills Payable - SSURA 531 531 – 0.64 2/18/2014

- 14 -

*SGVFS003338*

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - SSURA 360 360 – 1.45 2/5/2014Bills Payable - SSURA 140 140 – 1.45 2/5/2014Bills Payable - SSURA 889 889 – 1.45 2/5/2014Bills Payable - SSURA 279 279 – 0.65 2/7/2014Bills Payable - SSURA 699 699 – 1.45 2/5/2014Bills Payable - SSURA 749 749 – 1.45 2/12/2014Bills Payable - SSURA 478 478 – 0.60 2/12/2014Bills Payable – SSURA 675 675 – 0.60 2/18/2014Bills Payable - SSURA 182 182 – 0.60 1/22/2014Bills Payable - SSURA 186 186 – 0.50 1/10/2014Bills Payable - SSURA 395 395 – 0.50 1/27/2014Bills Payable - SSURA 400 400 – 0.50 2/4/2014Bills Payable - SSURA 381 381 – 1.25 1/21/2014Bills Payable - SSURA 268 268 – 1.25 1/21/2014Bills Payable - SSURA 408 408 – 1.25 1/21/2014Bills Payable - SSURA 400 400 – 0.65 1/17/2014Bills Payable - SSURA 596 596 – 0.50 1/28/2014Bills Payable - SSURA 196 196 – 0.50 1/21/2014Bills Payable - SSURA 196 196 – 0.50 1/21/2014Bills Payable - SSURA 225 225 – 0.55 2/11/2014Bills Payable - SSURA 598 598 – 0.55 2/11/2014Bills Payable - SSURA 678 678 – 1.25 1/13/2014

- 15 -

*SGVFS003338*

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - SSURA 798 798 – 0.55 3/6/2014Bills Payable - SSURA 400 400 – 0.68 2/20/2014Bills Payable - SSURA 512 512 – 0.68 2/20/2014Bills Payable - SSURA 452 452 – 0.65 1/21/2014Bills Payable - SSURA 400 400 – 0.55 3/10/2014Bills Payable - SSURA 514 514 – 0.55 3/10/2014Bills Payable - SSURA 596 596 – 0.50 2/4/2014Bills Payable - SSURA 450 450 – 0.50 2/4/2014Bills Payable - SSURA 796 796 – 0.55 2/10/2014Bills Payable - SSURA 511 511 – 0.68 2/18/2014Bills Payable - SSURA 901 901 – 0.68 2/18/2014Bills Payable - SSURA 889 889 – 0.25 2/26/2014Bills Payable - SSURA 514 514 – 0.60 2/4/2014Bills Payable - SSURA 720 720 – 0.58 1/17/2014Bills Payable - SSURA 526 526 – 0.58 1/21/2014Bills Payable - SSURA 254 254 – 0.55 1/30/2014Bills Payable - SSURA 544 544 – 0.58 1/21/2014Bills Payable - SSURA 666 666 – 0.58 1/24/2014Bills Payable - SSURA 75 75 – 0.65 3/10/2014Bills Payable - SSURA 238 238 – 0.52 1/21/2014Bills Payable - SSURA 763 763 – 0.52 2/12/2014Bills Payable - SSURA 274 274 – 0.52 1/30/2014

- 16 -

*SGVFS003338*

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - SSURA 241 241 – 0.52 1/30/2014Bills Payable - SSURA 483 483 – 0.54 3/10/2014Bills Payable - SSURA 548 548 – 0.54 3/10/2014Bills Payable - SSURA 274 274 – 0.52 2/3/2014Bills Payable - SSURA 424 424 – 0.52 2/3/2014Bills Payable - SSURA 344 344 – 0.52 2/18/2014Bills Payable - SSURA 724 724 – 0.56 4/22/2014Bills Payable - SSURA 241 241 – 0.52 2/20/2014Bills Payable - SSURA 213 213 – 0.52 2/18/2014Bills Payable - SSURA 283 283 – 0.55 2/24/2014Bills Payable - SSURA 86 86 – 0.55 2/24/2014Bills Payable - SSURA 454 454 – 0.40 2/24/2014Bills Payable - SSURA 630 630 – 0.60 1/21/2014Bills Payable - SSURA 272 272 – 0.60 1/28/2014Bills Payable - SSURA 272 272 – 0.60 1/30/2014Bills Payable - SSURA 213 213 – 0.60 2/4/2014Bills Payable - SSURA 477 477 – 0.62 1/27/2014Bills Payable - SSURA 211 211 – 0.62 1/21/2014Bills Payable - SSURA 545 545 – 0.66 1/17/2014Bills Payable - SSURA 212 212 – 0.64 2/11/2014Bills Payable - SSURA 256 256 – 0.65 2/7/2014Bills Payable - SSURA 422 422 – 0.62 2/3/2014

- 17 -

*SGVFS003338*

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - SSURA 272 272 – 0.68 2/14/2014Bills Payable - SSURA 214 214 – 0.68 2/14/2014Bills Payable - SSURA 213 213 – 0.68 2/18/2014Bills Payable - SSURA 213 213 – 0.68 2/18/2014Bills Payable - SSURA 240 240 – 0.68 2/18/2014Bills Payable - SSURA 214 214 – 0.66 1/22/2014Bills Payable - SSURA 1,543 – 1,543 1.24 1/15/2021Bills Payable - SSURA 1,529 – 1,529 1.05 1/15/2021Bills Payable - SSURA 309 – 309 0.74 1/15/2021Bills Payable - SSURA 1,034 – 1,034 1.07 1/20/2020Bills Payable - BSP Rediscounting 6 6 – 0.19 2/19/2014Bills Payable - BSP Rediscounting 3 3 – 0.19 2/24/2014Bills Payable - BSP Rediscounting 7 7 – 0.18 3/31/2014Bills Payable - BSP Rediscounting 3 3 – 0.18 4/8/2014Bills Payable - BSP Rediscounting 8 8 – 0.18 4/11/2014Bills Payable - BSP Rediscounting 6 6 – 0.18 4/16/2014Bills Payable - BSP Rediscounting 4 4 – 0.18 4/28/2014Bills Payable - BSP Rediscounting 7 7 – 0.17 5/2/2014Bills Payable - BSP Rediscounting 4 4 – 0.17 5/12/2014Bills Payable - DBP Funded 37 37 8 8/25/2031Bills Payable - DBP Funded 39 – 39 8 8/25/2031Bills Payable - DBP Funded 19 – 19 8 8/25/2031

- 18 -

*SGVFS003338*

Title of issue and type of obligation (i)Amount

authorized byindenture

Amount shown undercaption “Current

portion of long-termdebt’ in related balance

sheet (ii)

Amount shownunder caption“Long-Term

Debt” in relatedbalance sheet (iii)

Interest Rate%

MaturityDate

Bills Payable - DBP Funded 49 – 49 8 8/25/2031Bills Payable - IBTL 2,220 2,220 – 1.06 2/4/2014Bills Payable - IBTL 666 666 – 1.27 3/21/2014Bills Payable - IBTL 444 444 – 1.25 1/13/2014Bills Payable - IBTL 1,021 1,021 – 1.14 1/21/2014Bills Payable - IBTL 2,664 2,664 – 1.19 2/18/2014Bills Payable - IBTL 621 621 – 1.36 6/16/2014Bills Payable - IBTL 1,172 1,172 – 1.29 3/10/2014Bills Payable - IBTL 888 888 – 1.16 1/21/2014Bills Payable - IBTL 46 46 – 1.50 1/28/2014Bills Payable - IBTL 133 133 – 1.50 1/15/2014Bills Payable - IBTL 265 265 – 1.50 2/19/2014Bills Payable - IBTL 977 977 – 1.21 1/24/2014Bills Payable - IBTL 888 888 – 1.21 2/3/2014Bills Payable - IBTL 888 888 – 1.21 2/18/2014Bills Payable - IBTL 1,776 1,776 – 1.00 1/2/2014Bills Payable - IBTL 1,953 1,953 – 1.15 1/6/2014Bills Payable 583 583 – – –Bills Payable 774 774 – – –Bills Payable 23,883 23,883 – – –Total P=100,056 P=85,554 P=14,502

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Security Bank Corporation and SubsidiariesSchedule F - Indebtedness to Related Parties

(included in the consolidated financial statement of position)December 31, 2013

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.

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Security Bank Corporation and SubsidiariesSchedule G - Guarantees of Securities of Other Issuers

December 31, 2013

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 shall beset 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.

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Security Bank Corporation and SubsidiariesSchedule H - Capital Stock

December 31, 2013

(Absolute numbers 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 502,358,513 – – 134,374,825 –

_________________________________________________(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.

*SGVFS003338*

SECURITY BANK CORPORATION AND SUBSIDIARIESSCHEDULE OF FINANCIAL SOUNDNESS INDICATORS

Consolidated Parent Company

20132012

as restated 20132012

as restatedLIQUIDITY (%)Liquid to Total Assets Liquid Assets* 173,159.12 131,080.31 172,774.69 126,432.14

Total Assets 347,541.95 252,962.97 338,750.25 251,554.19

49.82 51.82 51.00 50.26* including investment securities at amortized cost

Loans (net) to DepositRatio

Loans andReceivables, net 165,241.56 119,748.68 155,989.70 115,858.42Total Deposits 205,950.29 142,393.25 199,973.33 137,403.63

80.23 84.10 78.01 84.32SOLVENCY RATIOS

Debt-to-equity ratio Total Debt 305,766.97 221,467.26 298,621.60 215,271.53Total Equity 40,755.81 36,856.29 40,128.65 36,282.66

7.50 6.01 7.44 5.93

Asset-to-equity ratio Total Assets 347,541.95 221,467.26 298,621.60 251,271.53Total EquityAttributable toParent Company

40,755.81 36,856.29 40,128.65 36,282.66

8.53 6.01 7.44 6.93

Interest rate coverageratio

Earnings BeforeInterest and Taxes(EBIT) 9,458.91 11,254.50 9,061.05 11,125.93Interest Expense 3,947.25 3,475.53 3,818.09 3,354.63

2.40 3.24 2.37 3.32PROFITABILITY (%)

Return on assets

Net IncomeAttributable toParent Company 5,011.73 7,515.88 4,937.05 7,631.80Average TotalAssets

274,846.63 226,150.86 266,964.46 220,453.02

1.82 3.32 1.85 3.46

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Consolidated Parent Company2013 2012 2013 2012

Return on equity

Net IncomeAttributable toParent Company 5,011.73 7,515.88 4,937.05 7,631.80Average TotalEquity Attributableto Parent Company

38,935.81 34,218.04 38,306.15 33,501.10

12.87 21.96 12.89 22.78

Net interest margin Net Interest Income 8,384.08 8,097.60 7,730.20 7,584.24Average InterestEarning Assets

239,903.43 205,990.52 233,058.66 200,578.06

3.49 3.93 3.32 3.78

Cost to income ratio

Total OperatingExpenses beforeProvision andImpairment Losses 6,751.51 5,972.10 5,379.69 4,895.57Total OperatingIncome

12,312.44 14,047.67 10,624.40 12,801.45

54.83 42.58 50.64 38.31ASSET QUALITY (%)

Non-performing loansratio

Non-performingLoans (net of NPLsClassified as Loss) *183.61 996.46 *(69.39) 798.90Gross Loans (net ofNPLs Classified asLoss)

174,530.71 134,763.67 166,383.59 130,608.34

0.11 0.74 (0.04) 0.61

*Non performing loans (net of specific allowance) over gross loans. Computed based on BSP Circular 772.Restated December 31, 2012 NPL ratio is (0.66).

Non-performing loancover

Allowance forProbable Losses (netof that for NPLsClassified as Loss) **2,984.85 2,555.23 **2,214.16 2,323.99Non-performingLoans (net of NPLsClassified as Loss)

1,533.82 996.46 679.83 798.90

194.60 256.43 325.69 290.90

**Allowance for probable losses over non-performing loans (gross of specific allowance). Computed based on BSPCircular 772. Restated December 31, 2012 NPL cover is 208.51