INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS. P-P Financial Statements.indd 66

Transcription

1 INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 66 4/8/14 7:11 PM

2 BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 67 P-P Financial Statements.indd 67

3 INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 68

4 BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 69 P-P Financial Statements.indd 69

5 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CONDITION DECEMBER 31, 2013 and 2012 and JANUARY 1, 2012 Notes December 31, 2013 December 31, 2012 (Restated) January 1, 2012 (Restated) December 31, 2013 December 31, 2012 (Restated) January 1, 2012 (Restated) RESOURCES CASH AND OTHER CASH ITEMS 7 25,696 23,293 22,395 24,888 22,518 21,661 DUE FROM BANGKO SENTRAL NG PILIPINAS 7 244, ,079 83, , ,244 70,807 DUE FROM OTHER BANKS 7 17,070 7,582 9,297 8,789 4,724 5,567 INTERBANK LOANS RECEIVABLE AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 7, 8 12,406 38,927 35,277 5,046 10,843 24,867 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - DERIVATIVE FINANCIAL ASSETS 9 16,550 5,920 5,389 16,550 5,920 5,389 - TRADING SECURITIES 10 4,597 22,098 12,275 2,626 19,055 11,638 AVAILABLE-FOR-SALE SECURITIES, net 11 87, ,403 74,084 81,736 92,845 64,500 HELD-TO-MATURITY SECURITIES 12 96,172 76,243 89,742 85,900 67,822 79,723 LOANS AND ADVANCES, net , , , , , ,425 ASSETS HELD FOR SALE, net 5,852 6,887 9,148 3,480 4,379 6,431 BANK PREMISES, FURNITURE, FIXTURES AND EQUIPMENT, net 14 12,205 12,421 12,322 8,030 8,101 8,199 INVESTMENT PROPERTIES, net 15 1,597 2,582 2,637 1,597 2,575 2,630 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES, net 16 4,176 3,680 3,069 6,793 7,088 7,008 ASSETS ATTRIBUTABLE TO INSURANCE OPERATIONS 5, 7 14,586 13,451 12, DEFERRED INCOME TAX ASSETS, net 17 6,176 5,087 5,284 4,296 3,525 3,677 OTHER RESOURCES, net 18 11,048 14,948 12,148 7,414 10,930 8,099 Total resources 1,195, , , , , ,621 (forward) INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 70

6 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CONDITION DECEMBER 31, 2013 and 2012 and JANUARY 1, 2012 Notes December 31, 2013 December 31, 2012 (Restated) January 1, 2012 (Restated) December 31, 2013 December 31, 2012 (Restated) January 1, 2012 (Restated) LIABILITIES AND CAPITAL FUNDS DEPOSIT LIABILITIES , , , , , ,414 DERIVATIVE FINANCIAL LIABILITIES 9 16,360 5,827 4,814 16,360 5,827 4,814 BILLS PAYABLE 20 26,179 26,280 19,136 18,990 16,963 9,887 DUE TO BANGKO SENTRAL NG PILIPINAS AND OTHER BANKS 2,051 2,035 1,717 2,052 2,036 1,717 MANAGER S CHECKS AND DEMAND DRAFTS OUTSTANDING 7,183 5,794 4,131 6,026 4,508 3,389 ACCRUED TAXES, INTEREST AND OTHER EXPENSES 4,907 4,819 4,026 3,396 3,456 2,709 UNSECURED SUBORDINATED DEBT 21-5,000 5,000-5,000 5,000 LIABILITIES ATTRIBUTABLE TO INSURANCE OPERATIONS 5 13,061 10,793 9, DEFERRED CREDITS AND OTHER LIABILITIES 22 31,230 24,297 25,387 26,338 19,563 20,965 Total liabilities 1,089, , , , , ,895 CAPITAL FUNDS ATTRIBUTABLE TO THE EQUITY HOLDERS OF BPI 23 Share capital 35,563 35,562 35,562 35,563 35,562 35,562 Share premium 8,316 8,317 8,317 8,316 8,317 8,317 Reserves 1,680 1,603 1,462 1,680 1,603 1,462 Surplus 62,137 49,794 41,763 32,053 24,054 19,948 Accumulated other comprehensive (loss) income (3,161) 1,420 (165) (3,810) 277 (563) 104,535 96,696 86,939 73,802 69,813 64,726 NON-CONTROLLING INTERESTS 1,272 1,426 1, Total capital funds 105,807 98,122 88,316 73,802 69,813 64,726 Total liabilities and capital funds 1,195, , , , , ,621 (The notes on pages 1 to 100 are an integral part of these financial statements.) BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 71 P-P Financial Statements.indd 71

7 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF INCOME FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 (In Millions of Pesos, Except Per Share Amounts) 2012 (Restated) 2011 (Restated) (Restated) 2011 (Restated) Notes 2013 INTEREST INCOME On loans and advances 32,368 30,790 27,156 20,255 19,356 16,762 On held-to-maturity securities 4,930 5,191 6,023 4,434 4,638 5,383 On available-for-sale securities 2,615 3,424 3,592 2,436 3,126 3,374 On deposits with BSP and other banks 1,641 1,230 2, ,001 On trading securities Gross receipts tax (1,442) (1,373) (1,382) (1,000) (963) (1,009) 40,802 40,109 38,689 27,657 27,622 27,278 INTEREST EXPENSE On deposits 19 9,530 11,648 11,721 5,187 6,929 7,601 On bills payable and other borrowings 20, ,007 1, ,478 12,655 12,823 5,784 7,517 8,269 NET INTEREST INCOME 30,324 27,454 25,866 21,873 20,105 19,009 IMPAIRMENT LOSSES 11, 13, 18 2,648 2,923 2,150 1,599 2,003 1,583 NET INTEREST INCOME AFTER IMPAIRMENT LOSSES 27,676 24,531 23,716 20,274 18,102 17,426 OTHER INCOME Trading gain on securities 4,839 5,908 2,948 3,983 4,717 2,712 Fees and commissions 5,885 5,111 4,607 4,823 4,256 3,777 Income from foreign exchange trading 2,042 1,682 1,770 1,652 1,372 1,596 Income attributable to insurance operations 5 1, Other operating income 24 9,514 7,878 6,687 8,556 6,771 5,917 Gross receipts tax (1,555) (1,342) (1,070) (1,307) (1,122) (943) 22,174 19,931 15,891 17,707 15,994 13,059 OTHER EXPENSES Compensation and fringe benefits 26 10,641 10,470 10,270 8,292 8,262 7,917 Occupancy and equipment-related expenses 14, 15, 25 8,040 7,193 6,534 6,460 5,798 5,080 Other operating expenses 26 8,022 7,139 6,552 5,872 5,378 5,296 26,703 24,802 23,356 20,624 19,438 18,293 INCOME BEFORE INCOME TAX 23,147 19,660 16,251 17,357 14,658 12,192 PROVISION FOR INCOME TAX 27 Current 4,147 3,576 3,570 2,644 2,444 2,556 Deferred 17 6 (418) (408) 245 (213) (274) 4,153 3,158 3,162 2,889 2,231 2,282 NET INCOME FOR THE YEAR 18,994 16,502 13,089 14,468 12,427 9,910 Attributable to: Equity holders of BPI 18,811 16,352 12,899 14,468 12,427 9,910 Non-controlling interests ,994 16,502 13,089 14,468 12,427 9,910 Earnings per share for net income attributable to the equity holders of BPI during the year: Basic and diluted (The notes on pages 1 to 100 are an integral part of these financial statements.) INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 72

8 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF TOTAL COMPREHENSIVE INCOME FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 Note (Restated) 2011 (Restated) (Restated) 2011 (Restated) NET INCOME FOR THE YEAR 18,994 16,502 13,089 14,468 12,427 9,910 OTHER COMPREHENSIVE INCOME 23 Items that may be subsequently reclassified to profit or loss Net change in fair value reserve on availablefor-sale securities, net of tax effect (3,983) (718) 1,420 (3,671) (550) 1,495 Fair value reserve on investments of insurance subsidiaries, net of tax effect (309) 161 (63) Share in other comprehensive income of associates (88) Currency translation differences 233 (104) (4) Item that will not be reclassified to profit or loss Actuarial (losses) gains on defined benefit plan, net of tax effect (491) 1,752 (864) (416) 1,390 (720) Total other comprehensive (loss) income, net of tax effect (4,638) 1, (4,087) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 14,356 18,096 13,929 10,381 13,267 10,685 Attributable to: Equity holders of BPI 14,230 17,937 13,737 10,381 13,267 10,685 Non-controlling interests ,356 18,096 13,929 10,381 13,267 10,685 (The notes on pages 1 to 100 are an integral part of these financial statements.) BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 73 P-P Financial Statements.indd 73

9 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 Share capital Attributable to equity holders of BPI (Note 23) Share premium Reserves Surplus Accumulated other comprehensive income (loss) Noncontrolling interests Total Balance, January 1, 2011 (Previously reported) 35,562 8,317 1,367 35, ,031 1,244 82,275 Effect of adoption of PAS 19 (R) (1,470) (1,424) - (1,424) Balance, January 1, 2011 (Restated) 35,562 8,317 1,367 35,364 (1,003) 79,607 1,244 80,851 Comprehensive income Net income for the year ,899-12, ,089 Other comprehensive income for the year Total comprehensive income for the year , , ,929 Transactions with owners Employee stock option plan: Exercise of options - - (41) Cash dividends (6,401) - (6,401) - (6,401) Transfer from surplus to reserves (138) Others (2) (2) - (4) - (4) Other changes in non-controlling interests (59) (59) Total transactions with owners (6,500) - (6,405) (59) (6,464) Balance, December 31, ,562 8,317 1,462 41,763 (165) 86,939 1,377 88,316 Balance, January 1, ,562 8,317 1,462 41,763 (165) 86,939 1,377 88,316 Comprehensive income Net income for the year ,352-16, ,502 Other comprehensive income for the year ,585 1, ,594 Total comprehensive income for the year ,352 1,585 17, ,096 Transactions with owners Cash dividends (8,180) - (8,180) - (8,180) Transfer from surplus to reserves (141) Other changes in non-controlling interests (110) (110) Total transactions with owners (8,321) - (8,180) (110) (8,290) Balance, December 31, ,562 8,317 1,603 49,794 1,420 96,696 1,426 98,122 (forward) Total equity INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 74

10 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 Attributable to equity holders of BPI (Note 23) Accumulated Share capital Share premium Reserves Surplus other comprehensive income (loss) Total Noncontrolling interests Total equity Balance, December 31, ,562 8,317 1,603 49,794 1,420 96,696 1,426 98,122 Comprehensive income 18,811 Net income for the year , ,994 Other comprehensive loss for the year (4,581) (4,581) (57) (4,638) Total comprehensive income (loss) for the year ,811 (4,581) 14, ,356 Transactions with owners Cash dividends - - (6,401) - (6,401) - (6,401) Transfer from surplus to reserves (76) Others 1 (1) Other changes in non-controlling interests (280) (280) Total transactions with owners 1 (1) 77 (6,468) - (6,391) (280) (6,671) Balance, December 31, ,563 8,316 1,680 62,137 (3,161) 104,535 1, ,807 (The notes on pages 1 to 100 are an integral part of these financial statements.) BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 75 P-P Financial Statements.indd 75

11 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 Share capital (Note 23) Share premium Reserves Surplus Accumulated other comprehensive income (loss) Total Balance, January 1, 2011 (Previously reported) 35,562 8,317 1,336 16,542 (303) 61,454 Effect of adoption of PAS 19 (R) (1,035) (1,010) Balance, January 1, 2011 (Restated) 35,562 8,317 1,336 16,567 (1,338) 60,444 Comprehensive income Net income for the year ,910-9,910 Other comprehensive income for the year Total comprehensive income for the year , ,685 Transactions with owners Employee stock option plan: Exercise of options - - (11) Cash dividends (6,402) - (6,402) Transfer from surplus to reserves (137) - - Others (1) - (1) Total transactions with owners (6,529) - (6,403) Balance, December 31, ,562 8,317 1,462 19,948 (563) 64,726 Balance, January 1, ,562 8,317 1,462 19,948 (563) 64,726 Comprehensive income Net income for the year ,427-12,427 Other comprehensive income for the year Total comprehensive income for the year , ,267 Transactions with owners Cash dividends (8,180) - (8,180) Transfer from surplus to reserves (141) - - Total transactions with owners (8,321) - (8,180) Balance, December 31, ,562 8,317 1,603 24, ,813 (forward) INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 76

12 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CHANGES IN CAPITAL FUNDS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 (Note 23) Share capital Share premium Reserves Surplus Accumulated other comprehensive income (loss) Total Balance, December 31, ,562 8,317 1,603 24, ,813 Comprehensive income Net income for the year ,468-14,468 Other comprehensive loss for the year (4,087) (4,087) Total comprehensive income (loss) for the year ,468 (4,087) 10,381 Transactions with owners Cash dividends (6,401) - (6,401) Transfer from surplus to reserves (76) - - Others 1 (1) Total transactions with owners 1 (1) 77 (6,469) - (6,392) Balance, December 31, ,563 8,316 1,680 32,053 (3,810) 73,802 (The notes on pages 1 to 100 are an integral part of these financial statements.) BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 77 P-P Financial Statements.indd 77

13 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, (Restated) 2011 (Restated) (Restated) 2011 (Restated) Notes 2013 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax 23,147 19,660 16,251 17,357 14,658 12,192 Adjustments for: Impairment losses 11, 13, 18 2,648 2,923 2,150 1,599 2,003 1,583 Depreciation and amortization 14, 15 3,459 3,346 3,040 2,125 2,188 1,921 Share in net income of associates (590) (138) (216) Dividend income 24 (28) (27) (47) (1,923) (1,383) (1,210) Interest income (42,244) (41,482) (40,071) (28,657) (28,585) (28,287) Interest expense 10,478 12,655 12,823 5,784 7,517 8,269 Operating loss before changes in operating assets and liabilities (3,130) (3,063) (6,070) (3,715) (3,602) (5,532) Changes in operating assets and liabilities (Increase) decrease in: Due from Bangko Sentral ng Pilipinas , ,010 Interbank loans receivable and securities purchased under agreements to resell - - 3, ,861 Trading securities, net 17,345 (9,887) (722) 16,291 (7,593) (1,236) Loans and advances, net (110,369) (74,049) (77,418) (91,710) (53,801) (62,188) Assets held for sale 434 1,868 2, ,759 2,137 Assets attributable to insurance operations (2,059) (724) (329) - - Other resources 3,212 (3,661) (4,295) 2,901 (3,603) (3,007) Increase (decrease) in: Deposit liabilities 186, ,173 (38,665) 157,038 83,951 (47,522) Due to Bangko Sentral ng Pilipinas and other banks (283) (285) Manager s checks and demand drafts outstanding 1,389 1,663 (56) 1,518 1,120 (95) Accrued taxes, interest and other expenses (536) (654) Liabilities attributable to insurance operations 2, Derivative financial instruments (106) (106) Deferred credits and other liabilities 3,250 3,949 (990) 3,157 3,191 (1,316) Net cash from (used in) operations 99,103 39,386 (67,996) 86,596 23,000 (63,673) Interest received 42,407 41,152 40,467 28,927 27,479 28,623 Interest paid (10,932) (12,418) (13,380) (6,149) (7,423) (8,780) Income taxes paid (5,243) (2,961) (2,813) (3,660) (2,079) (1,723) Net cash from (used in) operating activities 125,335 65,159 (43,722) 105,714 40,977 (45,553) (forward) INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 78

14 BANK OF THE PHILIPPINE ISLANDS STATEMENTS OF CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, (Restated) 2011 (Restated) (Restated) 2011 (Restated) Notes 2013 CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in: Available-for-sale securities, net 11 14,479 (32,756) 39,147 7,078 (28,286) 35,311 Held-to-maturity securities 12 (19,695) 13,230 5,694 (17,879) 12,165 5,363 Bank premises, furniture, fixtures and equipment, net 14 (2,557) (2,748) (3,247) (1,406) (1,416) (1,784) Investment properties, net 909 (12) (12) (2) Investment in subsidiaries and associates, net (349) (24) (120) 302 (80) (39) Assets attributable to insurance operations 936 (614) Dividends received ,923 1,383 1,210 Net cash (used in) from investing activities (6,249) (22,897) 41,707 (9,070) (16,246) 40,059 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid (3,201) (11,380) (3,201) (3,201) (11,380) (3,201) Increase (decrease) in: Bills payable (100) 7,144 (5,733) (2,973) 7,076 (7,356) Unsecured subordinated debt (5,000) Net cash used in financing activities (8,301) (4,236) (8,934) (6,174) (4,304) (10,557) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 110,785 38,026 (10,949) 90,470 20,427 (16,051) CASH AND CASH EQUIVALENTS 7 January 1 188, , , , , ,953 December , , , , , ,902 (The notes on pages 1 to 100 are an integral part of these financial statements.) BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 79 P-P Financial Statements.indd 79

15 BANK OF THE PHILIPPINE ISLANDS NOTES TO FINANCIAL STATEMENTS AS AT DECEMBER 31, 2013 AND 2012 AND JANUARY 1, 2012 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2013 Note 1 - General Information Bank of the Philippine Islands ( BPI or the Bank ) is a domestic commercial bank with an expanded banking license and has its registered office address, which is also its principal place of business, at BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City. BPI and its subsidiaries as detailed in Note 2.3 (collectively referred to as the BPI Group ) offer a whole breadth of financial services that include corporate banking, consumer banking, investment banking, asset management, corporate finance, securities distribution, and insurance services. At December 31, 2013, the BPI Group has 13,024 employees ( ,406 employees) and operates 825 branches and 2,181 ATMs ( branches and 2,068 ATMs) to support its delivery of services. The BPI Group also serves its customers through alternative electronic banking channels such as telephone, mobile phone and the internet. The BPI shares have been traded in the Philippine Stock Exchange (PSE) since October 12, The Bank was registered with the Securities and Exchange Commission (SEC) on January 4, This license was extended for another 50 years on January 4, These financial statements have been approved and authorized for issuance by the Board of Directors of the Bank on February 19, Note 2 - Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The financial statements of the BPI Group have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). The term PFRS in general includes all applicable PFRS, Philippine Accounting Standards (PAS), and interpretations of the Philippine Interpretations Committee (PIC), Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC) which have been approved by the Financial Reporting Standards Council (FRSC) and adopted by the SEC. As allowed by the SEC, the pre-need subsidiary of the Bank continues to follow the provisions of the Pre-Need Uniform Chart of Accounts (PNUCA) prescribed by the SEC and adopted by the Insurance Commission. The financial statements comprise the statement of condition, statement of income and statement of total comprehensive income shown as two statements, statement of changes in capital funds, statement of cash flows and the notes. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of trading securities, available-for-sale financial assets and all derivative contracts. The preparation of financial statements in conformity with PFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the BPI Group s accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate and that the financial statements therefore fairly present the financial position and results of the BPI Group. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 80

16 2.2 Changes in accounting policy and disclosures New and amended standards adopted by the BPI Group The following standards have been adopted by the BPI Group effective January 1, 2013 and have a material impact on the BPI Group: PAS 1 (Amendment), Financial Statement Presentation - Other Comprehensive Income (effective July 1, 2012). The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The required change in presentation has been effected in the statement of total comprehensive income. PAS 19 (Revised), Employee Benefits (effective January 1, 2013). These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The amendments also require recognition of all actuarial gains and losses in other comprehensive income as they occur and of all past service costs in profit or loss. The amendments replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit asset (liability). See Notes 29 and 33 for the impact of the adoption on the financial statements. PFRS 7 (Amendment), Financial instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities (effective January 1, 2013). This amendment includes new disclosures to facilitate comparison between those entities that prepare PFRS financial statements to those that prepare financial statements in accordance with United States Generally Accepted Accounting Principles (US GAAP). See Note for the disclosure required by the amended standard. PFRS 12, Disclosures of Interests in Other Entities (effective January 1, 2013). This new standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. See Note 16 for the disclosures required by the new standard. PFRS 13, Fair Value Measurement (effective January 1, 2013). This new standard aims to improve consistency and reduce complexity by providing a clarified definition of fair value and a single source of fair value measurement and disclosure requirements for use across PFRS. The requirements, which are largely aligned with IFRS and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within PFRS! Apart from the additional disclosures required by PFRS 13, there is no other significant impact on the financial statements as the current fair value measurement followed by the BPI Group is already consistent with the requirements of the new standard. See Note 3.5 for the disclosures required by the new standard. New standards, amendments and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after January 1, 2013, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements, except the following as set out below: PFRS 9, Financial Instruments. This new standard addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the parts of PAS 39, Financial Instruments: Recognition and Measurement that relate to the classification and measurement of financial instruments, and hedge accounting. PFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the PAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, part of the fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than in profit or loss, unless this creates an accounting mismatch. PFRS also details the changes in requirements to hedge accounting that will allow entities to better reflect their risk management activities in the financial statements. The mandatory effective date of PFRS 9, which is for annual periods beginning January 1, 2015 has been deferred and left open pending the finalization of the impairment classification and measurement requirements. The BPI Group has yet to assess the full impact of PFRS 9 and intends to adopt PFRS 9 upon completion of the IASB project. The BPI Group will also consider the impact of the remaining phase of PFRS 9 when issued! BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 81 P-P Financial Statements.indd 81

17 There are no other standards, amendments or interpretations that are not yet effective that have a material impact on the BPI Group. 2.3 Consolidation The consolidated financial statements comprise the financial statements of the BPI Group as at December 31, The subsidiaries financial statements are prepared for the same reporting year as the Bank. The consolidated financial statements include the financial statements of the Bank and the following subsidiaries as at December 31: Country of % of ownership Subsidiaries incorporation Principal activities BPI Family Savings Bank, Inc. Philippines Banking BPI Capital Corporation Philippines Investment house BPI Leasing Corporation Philippines Leasing BPI Direct Savings Bank, Inc. Philippines Banking BPI International Finance Limited Hong Kong Financing BPI Europe Plc. England and Wales Banking (deposit) BPI Securities Corp. Philippines Securities dealer BPI Card Finance Corp. Philippines Financing Filinvest Algo Financial Corp. Philippines Financing BPI Rental Corporation. Philippines Rental BPI Investment Management Inc. Philippines Investment management Santiago Land Dev. Corp. Philippines Land holding BPI Operations Management Corp. Philippines Operations management BPI Computer Systems Corp. Philippines Business systems service BPI Foreign Exchange Corp. Philippines Foreign exchange BPI Express Remittance Corp. USA USA Remittance BPI Express Remittance Corp. Nevada USA Remittance BPI Express Remittance Center HK (Ltd.) Hong Kong Remittance Green Enterprises S. R. L. in Liquidation (formerly BPI Express Remittance Europe, S.p.A.) Italy Remittance Prudential Investments, Inc. Philippines Investment house First Far - East Development Corporation Philippines Real estate FEB Stock Brokers, Inc. Philippines Securities dealer Citytrust Securities Corporation Philippines Securities dealer BPI Express Remittance Spain S.A Spain Remittance FEB Speed International Philippines Remittance AF Holdings and Management Corp. Philippines Financial management consultancy Ayala Plans, Inc Philippines Pre-need FGU Insurance Corporation Philippines Non-life insurance BPI/MS Insurance Corporation Philippines Non-life insurance BPI Globe BanKO, Inc. Philippines Banking BPI has control over BPI Globe BanKO, Inc. since BPI is largely involved in key decisions concerning financial and operating policies and activities of, and provision of technological support and technical know-how to BPI Globe BanKO, Inc INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 82

18 (a) Subsidiaries Subsidiaries are all entities over which the BPI Group has control. The BPI Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The BPI Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of defacto control. De-facto control may arise in circumstances where the size of the BPI Group s voting rights relative to the size and dispersion of holdings of other shareholders give the BPI Group the power to govern the financial and operating policies. Subsidiaries are fully consolidated from the date on which control is transferred to the BPI Group. They are deconsolidated from the date that control ceases. The BPI Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the BPI Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the BPI Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the BPI Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with PAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is not accounted for within equity. The excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the BPI Group s share of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in profit or loss. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the BPI Group, except for the pre-need subsidiary which follows the provisions of the PNUCA as allowed by the SEC. When the BPI Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the BPI Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. (b) Transactions with non-controlling interests Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. For purchases from noncontrolling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to noncontrolling interests are also recorded in equity. BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 83 P-P Financial Statements.indd 83

19 Interests in the equity of subsidiaries not attributable to the Bank are reported in consolidated equity as non-controlling interests. Profits or losses attributable to non-controlling interests are reported in the statement of income as net income (loss) attributable to non-controlling interests. (c) Associates Associates are all entities over which the BPI Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates in the consolidated financial statements are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the investor s share of the profit or loss of the investee after the date of acquisition. The BPI Group s investment in associates includes goodwill identified on acquisition (net of any accumulated impairment loss). If the ownership interest in an associate is reduced but significant influence is retained, a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate. The BPI Group s share of its associates post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in reserves is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the BPI Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the BPI Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The BPI Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the BPI Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to share of profit (loss) of an associate in profit or loss. Unrealized gains on transactions between the BPI Group and its associates are eliminated to the extent of the BPI Group s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the BPI Group. 2.4 Investments in subsidiaries and associates Investments in subsidiaries and associates in the Bank s separate financial statements are accounted for using the cost method in accordance with PAS 27. Under this method, income from investment is recognized in profit or loss only to the extent that the investor receives distributions from accumulated profits of the investee arising after the acquisition date. Distributions received in excess of such profits are regarded as a recovery of investment and are recognized as reduction of the cost of the investment. The Bank recognizes a dividend from a subsidiary or associate in profit or loss in its separate financial statements when its right to receive the dividend is established. The Bank determines at each reporting date whether there is any indicator of impairment that the investment in the subsidiary or associate is impaired. If this is the case, the Bank calculates the amount of impairment as the difference between the recoverable amount and carrying value and the difference is recognized in profit or loss. Investments in subsidiaries and associates are derecognized upon disposal or when no future economic benefits are expected to be derived from the subsidiaries and associates at which time the cost and the related accumulated impairment loss are removed in the statement of condition. Any gains and losses on disposal is determined by comparing the proceeds with the carrying amount of the investment and recognized in profit or loss INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 84

20 2.5 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief executive officer who allocates resources to, and assesses the performance of the operating segments of the BPI Group. All transactions between business segments are conducted on an arm s length basis, with intra-segment revenue and costs being eliminated upon consolidation. Income and expenses directly associated with each segment are included in determining business segment performance. In accordance with PFRS 8, the BPI Group has the following main banking business segments: consumer banking, corporate banking and investment banking. Its insurance business is assessed separately from these banking business segments (Note 6). 2.6 Cash and cash equivalents Cash and cash equivalents consist of Cash and other cash items, Due from Bangko Sentral ng Pilipinas (BSP), Due from other banks, and Interbank loans receivable and securities purchased under agreements to resell with maturities of less than three months from the date of acquisition and that are subject to insignificant risk of changes in value. 2.7 Repurchase and reverse repurchase agreements Securities sold subject to repurchase agreements ( repos ) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities purchased under agreements to resell ( reverse repos ) are recorded as loans and advances to other banks and customers and included in the statement of condition under Interbank loans receivable and securities purchased under agreements to resell. Securities lent to counterparties are also retained in the financial statements. 2.8 Financial assets Classification The BPI Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity securities and available-for-sale securities. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial assets held for trading (other than derivatives) are shown as Trading securities in the statement of condition. Derivatives are also categorized as held for trading unless they are designated as hedging instruments. Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance is evaluated on a fair value basis, in accordance with a documented investment strategy. Information about these financial assets is provided internally on a fair value basis to the BPI Group s key management personnel. The BPI Group has no financial assets that are specifically designated at fair value through profit or loss. BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 85 P-P Financial Statements.indd 85

21 (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments: (i) that are not quoted in an active market, (ii) with no intention of being traded, and (iii) that are not designated as available-forsale. Significant accounts falling under this category include loans and advances, cash and other cash items, due from BSP and other banks, interbank loans receivable and securities purchased under agreements to resell and accounts receivable included under other resources. (c) Held-to-maturity securities Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the BPI Group s management has the positive intention and ability to hold to maturity. If the BPI Group were to sell other than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale. (d) Available-for-sale securities Available-for-sale securities are non-derivative financial assets that are either designated in this category or not classified in any of the other categories Recognition and measurement (a) Initial recognition and measurement Regular-way purchases and sales of financial assets at fair value through profit or loss, held-to-maturity securities and available-for-sale securities are recognized on trade date, the date on which the BPI Group commits to purchase or sell the asset. Loans and receivables are recognized upon origination when cash is advanced to the borrowers or when the right to receive payment is established. Financial assets not carried at fair value through profit or loss are initially recognized at fair value plus transaction costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value; and transaction costs are recognized in profit or loss. (b) Subsequent measurement Available-for-sale securities and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity securities are subsequently carried at amortized cost using the effective interest method. Gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in the statement of income (as Trading gain/loss on securities ) in the year in which they arise. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognized directly in other comprehensive income, until the financial asset is derecognized or impaired at which time the cumulative fair value adjustments previously recognized in other comprehensive income should be recognized in profit or loss. However, interest is calculated on these securities using the effective interest method and foreign currency gains and losses on monetary assets classified as available-for-sale are recognized in profit or loss. Dividends on equity instruments are recognized in profit or loss when the BPI Group s right to receive payment is established Reclassification The BPI Group may choose to reclassify a non-derivative financial asset held for trading out of the held-fortrading category if the financial asset is no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables are permitted to be reclassified out of the held-for-trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near term. In addition, the BPI Group may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories if the BPI Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification INTEGRATED ANNUAL & SUSTAINABILITY REPORT BANK OF THE PHILIPPINE ISLANDS P-P Financial Statements.indd 86

22 Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortized cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively Derecognition Financial assets are derecognized when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the BPI Group tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). 2.9 Impairment of financial assets (a) Assets carried at amortized cost The BPI Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the BPI Group uses to determine that there is objective evidence of an impairment loss include: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower; Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower s competitive position; and Deterioration in the value of collateral. The BPI Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. If the BPI Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Financial assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate (recoverable amount). The calculation of recoverable amount of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs of obtaining and selling the collateral, whether or not foreclosure is probable. If a loan or held-tomaturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in profit or loss. For purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the BPI Group s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. BANK OF THE PHILIPPINE ISLANDS 2013 INTEGRATED ANNUAL & SUSTAINABILITY REPORT 87 P-P Financial Statements.indd 87