We are pleased to furnish your good office with a copy of our SEC Form 17-Q as of

Transcription

1 14 August 2015 MS. JANET A. ENCARNACION Head, Disclosure Department PHILIPPINE STOCK EXCHANGE Disclosure Department Listing & Disclosure Group 3rd Floor Philippine Stock Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City Dear Ms. Encarnacion: We are pleased to furnish your good office with a copy of our SEC Form 17-Q as of June 30, 2015 filed with the Securities and Exchange Commission (SEC). For your information and guidance. Thank you. Very truly yours, ALEXANDER C. ESCUCHA Senior Vice President & Corporate Information Officer

2 COVER SHEET SEC Registration Number C H I N A B A N K I N G C O R P O R A T I O N A N D S U B S I D I A R I E S (Company s Full Name) P a s e o d e R o x a s c o r n e r V i l l a r S t r e e t s, M a k a t i C i t y (Business Address: No. Street City/Town/Province) Delia Marquez (Contact Person) (Company Telephone Number) Q Month Day (Form Type) Month Day (Fiscal Year) (Annual Meeting) (Secondary License Type, If Applicable) Corporation Finance Dept. (Department Requiring this document) (Amended Articles Number/Section) 1,981 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.

3 SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER 1. For the quarter period ended June 30, Commission identification number BIR Tax Identification No CHINA BANKING CORPORATION 4. Exact name of issuer as specified in its charter PHILIPPINES 5. Province, country or other jurisdiction of incorporation or organization 6. Industry Classification Code: (SEC Use Only) 8745 PASEO DE ROXAS COR. VILLAR STS., MAKATI CITY Address of registrant's principal office Postal Code 8. Issuer's telephone number, including area code Former name, former address and former fiscal year, if changed since last report NA 10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA Title of each Class Number of shares of common stock Amount of debt Outstanding outstanding COMMON 1,716,414, Are any or all of the securities listed on the Stock Exchange? Yes [X] No [ ] If yes, state the name of such Stock Exchange and the class/es of securities listed therein: PHILIPPINE STOCK EXCHANGE COMMON 12. Indicate by check mark whether the registrant: (a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding 12 months (or for such shorter period the registrant was required to file such reports) Yes [X] No [ ] (b) has been subject to such filing requirements for the past 90 days Yes [X] No [ ]

4 PART I FINANCIAL INFORMATION Item 1. Financial Statements. Attached are the following: Annex I: Annex II: Annex III: Annex IV: Annex V: Annex VI: Annex VII: Annex VIII: Interim Consolidated Statements of Financial Position Interim Consolidated Statements of Income Interim Consolidated Statements of Comprehensive Income Interim Consolidated Statements of Changes in Equity Interim Consolidated Statements of Cash Flows Aging of Loans & Receivables Profitability Report by Business Segment Financial Soundness Indicators Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Annex IX: Management s Discussion PART II OTHER INFORMATION There are no material disclosures that were not reported under SEC Form 17-C during the period covered by this report. SIGNATURES Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Issuer... CHINA BANKING CORPORATION Principal Financial/Accounting Officer/Controller..DELIA MARQUEZ Signature and Title First Vice President Controllership Date August 14, 2015

5 Part I Financial Information Item 1. Financial Statements a. Accounting Policies and Methods of Computation. The interim financial statements of China Banking Corporation (the Parent Company) and its subsidiaries (the Group) have been prepared in accordance with the Philippine Financial Reporting Standards (PFRS). The International Accounting Standards Board issued International Financial Reporting Standards 9, Financial Instruments in November It was approved for adoption by the Financial Reporting Standards Council as PFRS 9, Financial Instruments in March The standard introduces new classification and measurement requirements for financial assets, which replaced the classification and measurement requirements previously included in PAS 39, Financial Instruments: Recognition and Measurement. The standard is effective for annual periods beginning on or after January 1, 2018, with early application permitted. The Group opted not to implement early adoption of PFRS 9 for its 2014 and 2015 financial reporting. An impact evaluation was conducted on the second quarter of 2015 using the audited financial data as of December 31, The next impact evaluation study will be conducted this second quarter of 2016 using the audited financial data as of December 31, b. Seasonality or Cyclicality of Interim Operations. Changes in the Group s financial condition or operation were due more to external factors such as interest movements and cost of borrowings rather than seasonality or cyclical aspects. c. Nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidents. Changes in nature and amounts in the financial statements were due more to market-related factors inherent in the nature of the issuer's business operations and are not considered unusual. Below are some significant changes as explained in the Management's Discussions of Financial Condition and Results of Operation: June 2015 December 2014 Inc / (Dec) Assets Cash and Other Cash Items 7,635,057 10,734,059 (3,099,003) Interbank Loans Receivable - 223,600 (223,600) Available for Sale Financial Assets 48,152,659 38,476,852 9,675,806 Liabilities Bills Payable 13,466,680 6,320,580 7,146,100 Income Tax Payable 1,361 10,944 (9,583) Derivative Liabilities 122, ,610 20,769 Subordinated Debt - 1,188,762 (1,188,762)

6 June June Inc/(Dec) Income Interest on Due from BSP and other banks 142, ,288 (193,306) Trading and securities gain-net 345, , ,811 Service charges, fees & commission 868, , ,580 Foreign exchange gain(loss)- net 179, ,741 (39,654) Miscellaneous 511, ,699 (143,091) Expense Interest on Bills payable and other Borrowings 76, ,016 (112,521) Compensation and Fringe Benefits 2,086,024 1,886, ,425 Provision for impairment and 255, ,437 69,154 credit losses Repairs & maintenance 73,426 63,401 10,025 d. Changes in Estimates of Amounts Reported. There were no changes in estimates of amounts reported in prior interim periods of current financial year or in estimates of amounts reported in prior financial years. e. Issuances, Repurchases, and Repayments of Debt and Equity Securities. There were no issuances, repurchases and repayments of debt and equity securities made by the issuer. f. Segment Information. Operating businesses are recognized and managed separately according to the nature of business served, with each segment representing a strategic business unit. The Bank s comparative revenues and expenses by business segments are included as part of the report. g. Dividends. At the annual stockholders meeting held on May 7, 2015, the stockholders approved the declaration of an 8% stock dividends and P 1.00 per share cash dividends subject to approval by the Bangko Sentral Ng Pilipinas, Securities and Exchange Commission (SEC) and Philippine Stock Exchange (PSE). h. Effect of Changes in the Composition of the Enterprise during the Interim Period. On April 1, 2015, the Parent Company Board of Directors approved the investment of the Parent Company in an Investment House Subsidiary to be named as China Bank Capital Corp. ("China Bank Capital"), up to the amount of P500 million, subject to the requirements of relevant regulatory agencies. On April 30, 2015, Bangko Sentral ng Pilipinas approved the request of the Parent Company to invest up to 100% or up to P500 million shares in China Bank Capital Corp. To date, the investment is still subject to the approval of Securities and Exchange Commission. i. Changes in Contingent Liabilities or Contingent Assets. There are various outstanding commitments and contingent liabilities but management does not anticipate any material losses as a result of these transactions.

7 j. Material Contingencies and Any Other Events. There are no material contingencies and other events or transactions that are material to an understanding of the current interim period. k. Financial Risk Disclosure. There were no material changes in the financial disclosure of the Group during the interim period. l. Material events subsequent to the end of the interim period that have not been reflected in the financial statements for the period. There were no material events subsequent to the end of the interim period that have been reflected in the financial statements for the period.

8 CHINA BANKING CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in thousands) June 2015 December 2014 Unaudited Audited Annex I ASSETS Cash and Other Cash Items P 7,635,057 10,734,059 Due from Bangko Sentral ng Pilipinas 69,246,884 67,451,648 Due from Other banks 18,281,985 17,552,823 Interbank Loans Receivable and Securities Purchased Under Resale Agreements - 223,600 Financial Assets at Fair Value through Profit and Loss 8,847,271 8,440,699 Available for Sale Financial Assets 48,152,659 38,476,852 Held to Maturity Financial Assets 12,204,333 12,109,344 Loans and Receivables - net 289,323, ,418,730 Accrued Interest Receivable 2,441,260 2,236,981 Equity Investments 484, ,881 Bank Premises, Furniture, Fixtures and Equipment - net 6,280,381 6,250,653 Investment Properties 5,827,791 5,766,822 Deferred Tax Assets 868, ,686 Branch Licenses 2,414,500 2,427,100 Goodwill 1,491,639 1,491,639 Other Assets 5,488,678 5,975,480 P 478,989, ,939,997 LIABILITIES AND EQUITY Liabilities Deposit Liabilities Demand 103,623,835 97,703,744 Savings 98,578,105 95,526,360 Time 196,943, ,071, ,145, ,301,544 Bills Payable 13,466,680 6,320,580 Manager's Checks 1,271,754 1,221,395 Income Tax Payable 1,361 10,944 Accrued Interest and Other Expenses 1,673,781 1,630,748 Derivative Liabilities 122, ,610 Deferred Tax Liabilities 957, ,556 Subordinated Debt - 1,188,762 Other Liabilities 3,541,867 3,635, ,180, ,373,948 Equity Capital Stock Common Stock - P10 par value Authorized - 25,000,000,000 shares Issued - 1,716,414,317 shares 17,164,143 17,164,143 Capital paid in excess of par value 6,987,564 6,987,564 Surplus Reserves 801, ,006 Surplus 33,829,524 31,310,603 Net Unrealized Gains on Available for Sale Financial Assets (139,428) 122,920 Remeasurement gain on defined benefit asset or liability 173, ,151 Cumulative translation adjustment (8,567) (20,392) 58,807,543 56,563,996 Minority Interest 970 2,053 P 478,989, ,939,997

9 CHINA BANKING CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in thousands) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 2015 December 2014 Unaudited Audited CONTINGENT ACCOUNTS Unused commercial letters of credit 19,477,358 19,500,528 Outstanding Guarantees Issued 868, ,028 Inward bills for collection 193, ,966 Outward bills for collection 109, ,692 IRS Receivable 7,450,000 4,700,000 Spot exchange bought 2,894,350 1,207,450 Spot exchange sold 2,059, ,405 Future exchange bought 16,440,022 20,223,682 Future exchange sold 26,889,268 26,415,835 Trust department accounts 78,365,692 71,201,164 Late deposits/payments received 341, ,738 Deficiency claims receivable 297, ,073 Other accounts 9,724,182 5,928, ,111, ,546,809

10 CHINA BANKING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Annex II (Amounts in thousands) JUNE JUNE APRIL-JUNE APRIL-JUNE INTEREST INCOME Loans and receivable P 7,808,832 7,141,446 3,920,589 4,167,077 Trading and investments 1,526,182 1,576, , ,125 Due from BSP and other banks 142, ,288 65, ,902 9,477,997 9,053,957 4,757,823 5,149,104 INTEREST EXPENSES Deposit liabilities 1,978,593 2,076,266 1,005,949 1,225,105 Bills payable and other borrowings 76, ,016 37, ,789 2,055,088 2,265,283 1,043,809 1,373,894 NET INTEREST INCOME 7,422,909 6,788,674 3,714,015 3,775,211 Trading and securities gain/(loss) 345, , , ,096 Service charges, fees and commissions 868, , , ,203 Foreign exchange gain- net 179, ,741 76,739 41,929 Income from asset acquired 143, , ,509 18,561 Miscellaneous 511, , , ,411 TOTAL OPERATING INCOME 9,471,031 8,751,998 4,697,101 4,733,411 Compensation and fringe benefits 2,086,024 1,886,598 1,047,428 1,130,234 Taxes and licenses 500, , , ,192 Occupancy costs 843, , , ,323 Depreciation and amortization 441, , , ,225 Provision for impairment and credit losses 255, , , ,682 Insurance 479, , , ,819 Repairs and maintenance 73,426 63,401 22,581 48,733 Entertainment, amusement and recreation 142, ,716 84,670 96,446 Miscellaneous 1,443,516 1,378, , ,061 TOTAL OPERATING EXPENSES 6,266,259 5,876,298 2,962,923 3,305,714 INCOME BEFORE INCOME TAX 3,204,771 2,875,699 1,734,178 1,427,697 PROVISION FOR INCOME TAX 690, , , ,442 NET INCOME P 2,513,921 2,203,758 1,305,884 1,043,255 Attributable to: Equity holders of the parent 2,514,377 2,205,919 1,306,623 1,063,044 Minority interest (456) (2,162) (739) (19,789) P 2,513,921 2,203,758 1,305,884 1,043,255 Earnings Per Share a. Basic b. Diluted * Net Income 2,514,377 2,205,919 1,306,623 1,063,044 Weighted Ave. Number of Common Shares Outstanding 1,716,414 1,716,414 1,716,414 1,716,414 * Same as basic earnings per share. No preferred shares, convertible bonds and stock warrants issued.

11 CHINA BANKING CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Quarters Ended June 2015 & 2014 (Amounts in thousands) Annex III June 2015 June 2014 Apr-Jun 2015 Apr-Jun 2014 Net Income 2,513,921 2,203,758 1,305,884 1,043,255 Other Comprehensive Income (Loss): Items that recycle to profit or loss in subsequent periods: Net unrealized gain (loss) on available-for-sale investments Fair value gain(loss) for the year, net of tax (702,323) (434,221) (580,310) 238,735 Gains taken to profit or loss 440, , ,407 90,267 Cumulative translation adjustment 11,878 (110,888) 3,084 (11,514) Items that do not recycle to profit or loss in subsequent periods: Remeasurement gain on defined benefit asset or liability (26,764) 5,805 (11,082) 5,805 Other Comprehensive Income (Loss) for the year (277,176) (293,545) (340,900.21) 323,294 Total Comprehensive Income for the year 2,236,745 1,910, ,984 1,366,549 Total comprehensive income attributable to: Equity holders of the Parent Company 2,237,828 1,932, ,016 1,385,456 Minority Interest (1,083) (22,054) (1,032) (18,907) 2,236,745 1,910, ,984 1,366,549

12 CHINA BANKING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Annex IV Capital Stock Capital Paid in Excess of Par Value Surplus Reserves Surplus Free Net unrealized gains Remeasurement gain (losses) on available-forsale financial assets or on defined benefit asset liability Cumulative Translation Adjustment Total Minority Interest Total Equity Balance at December 31, ,164,143 6,987, ,006 31,310, , ,151 (20,392) 56,563,996 2,053 56,566,049 Total comprehensive income for the year 2,514,377 (262,348) (26,026) 11,825 2,237,828 (1,083) 2,236,745 Prior Period Adjustments 5,719 5,719 5,719 Transfer of Surplus Reserve 1,175 (1,175) 0 0 Balance at June 30, ,164,143 6,987, ,181 33,829,524 (139,428) 173,125 (8,567) 58,807, ,808,513 - (0) Balance at December 31, ,276, , ,069 29,079,842 (79,258) 604,715 66,348 45,394,838 4,862 45,399,699 Total comprehensive income for the year 2,225,708 (188,467) 6,094 (111,068) 1,932,267 (22,054) 1,910,213 Issuance of Stock Rights 1,616,099 6,334,255 7,950,354 7,950,354 Share of minority interest in Subsidiaries' net assets - 15,098 15,098 Transfer of Surplus Reserve 781 (781) - - Balance at June 30, ,892,715 7,005, ,850 31,304,769 (267,725) 610,809 (44,720) 55,277,458 (2,094) 55,275,364 -

13 ANNEX V CHINA BANKING CORPORATION STATEMENTS OF CASH FLOWS For the periods ended June June CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P 3,204,771 P 2,875,699 Adjustment to reconcile income before income tax to net cash provided operations: Provision for probable losses 255, ,437 Depreciation and amortization 441, ,479 Unrealized Gain/Loss on AFS (262,348) (188,570) Gain on sale of investment properties (131,674) (201,574) Cumulative translation adjustment 11,825 (111,068) Operating income before changes in operating assets and liabilities 3,519,612 3,015,403 Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial assets at FVPL (406,572) 2,080,041 Loans and receivables 839,959 (43,689,389) Other assets 186,315 (6,840,519) Increase (decrease) in the amounts of: Deposit liabilities (155,632) 33,409,600 Manager's checks 50, ,258 Accrued interest and other expenses 43, ,172 Other liabilities (1,267,448) 2,523,885 Net cash provided by operations 2,809,626 (9,213,549) Income taxes paid (720,705) (1,036,844) Net cash provided by operating activities 2,088,921 (10,250,393) CASH FLOWS FROM INVESTING ACTIVITIES Net additions to bank premises, furniture, fixtures and equipment (471,174) (1,630,359) Proceeds from sale of investment properties 159, ,269 Adjustment of minority interest (627) 15,098 Decrease (increase) in equity investments 50,166 (242,649) Decrease (increase) in the amounts of: AFS financial assets (9,675,806) 5,248,841 HTM financial assets (94,990) 393,646 Net cash provided by (used in) investing activities (10,033,226) 4,221,846 CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in bills payable 7,146,100 (2,592,746) Issuance of Stock Rights 7,950, Net cash provided by financing activities 7,146,100 5,357,608 NET INCREASE IN CASH AND CASH EQUIVALENTS (798,205) (670,939) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items 10,734,059 7,281,641 Due from Bangko Sentral ng Pilipinas 67,451,648 78,968,133 Due from Other banks 17,552,823 23,885,538 Interbank loans receivable and securities purchased under resale agreements 223, ,962, ,135,311 CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items 7,635,057 6,530,905 Due from Bangko Sentral ng Pilipinas 69,246,884 82,007,191 Due from Other banks 18,281,985 20,426,277 Interbank loans receivable and securities purchased under resale agreements 0 500,000 P 95,163,926 P 109,464,373

14 China Banking Corporation Aging of Loans and Receivables June 30, 2015, ANNEX VI Total Current 90 days 91 to 181 days More than Total Items or less 180 days to 1 year 1 year Past Due in Litigation Loans and Receivables 296,264, ,771,812 2,216,471 1,172, ,697 1,633,926 5,720,442 1,771,833 Less: UID / Allow for Probable Losses 6,940,908 Net Loans and Receivables 289,323,179 Accounts Receivables 3,330, ,581 1,644,150 11,656 22, ,090 2,332,073 - Less:Allowance for Probable Losses 572,897 Net Accounts Receivables 2,757,757 Accrued Interest Receivables 2,572,197 2,572,197 Less:Allowance for Probable Losses 130,936 Net Accrued Interest Receivables 2,441,260

15 CHINA BANKING CORPORATION PROFITABILITY REPORT BY BUSINESS SEGMENT ANNEX VII Segment Report China Bank s operating businesses are recognized and managed separately according to the nature of services provided and the markets served, with each segment representing a strategic business unit. The Bank s business segments are as follows: a. Lending Business - principally handles all the lending, trade finance and corollary banking products and services offered to corporate and institutional customers as well as selected middle market clients. It also handles home loans, contract-to-sell receivables and auto loans for individual and corporate customers. Aside from the lending business, it also provides cash management services and remittance transactions; b. Retail Banking Business - principally handles retail and commercial loans, individual and corporate deposits, overdrafts and funds transfer facilities, trade facilities and all other services for retail customers; c. Financial Capital Markets & Investments - principally provides money market, trading and treasury services, manages the Bank's funding operations by the use of government securities, placements and acceptances with other banks as well as offers advisory and capital-raising services to corporate clients and wealth management services to high net-worth customers; and d. Others handles other services including but not limited to trust and investment management services, asset management, insurance brokerage, credit management, thrift banking business, operations and financial control, and other support services. The Bank reports its primary segment information on the basis of the above-mentioned segments. Segment assets are those operating assets that are employed by a segment in its operating activities that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis. Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Interest income is reported net as management primarily relies on the net interest income as a measure of perfromance, instead of gross income and expense. The segment results include internal transfer pricing adjustments across business units as deemed appropriate by management. Transactions between segments are conducted at estimated market rates on an arm's length basis. Interest is charged/credited to the business units based on a pool of funds rate which approximates the marginal cost of funds. Other operating income mainly consists of trading and securities gain (loss) - net, service charges, fees and commissions, trust fee income and foreign exchange gain - net. Other operating expense mainly consists of compensation and fringe benefits, provision for impairment and credit losses, taxes and licenses, occupancy, depreciation and amortization, stationery, supplies and postage and insurance. Other operating income and expense are allocated between segments based on equitable sharing arrangements. The Bank has no significant customers which contribute 10% or more of the consolidated revenues. The Bank s asset-producing revenues are located in the Philippines (i.e., one geographical location); therefore, geographical segment information is not presented. The following tables present relevant information regarding business segments as of June 30, 2015:

16 China Banking Corporation PROFITABILITY REPORT BY BUSINESS SEGMENT FOR THE PERIOD ENDING JUNE 30, 2015 CONSOLIDATED (Amounts in thousands of Pesos) LENDING RETAIL BANKING FINANCIAL CAPITAL OTHER BUSINESS BUSINESS BUSINESS MARKETS & INVESTMENT & SUPPORT UNITS BANKWIDE Net interest income 4,765,510 99,850 1,209,113 1,348,436 7,422,909 Third Party Intersegment (2,568,576) 3,056,926 (185,789) (302,561) - Net Interest Income after Intersegment Transactions 2,196,934 3,156,776 1,023,324 1,045,875 7,422,909 Other Operating Income 318, , , ,327 2,048,122 Total Revenue 2,515,311 3,827,855 1,763,663 1,364,202 9,471,031 Other Operating expense (533,057) (2,660,426) (320,846) (2,751,931) (6,266,260) Income before income tax 1,982,254 1,167,429 1,442,817 (1,387,729) 3,204,771 Income tax provision - (3,333) (194,149) (493,368) (690,850) Net Income 1,982,254 1,164,096 1,248,668 (1,881,097) 2,513,921 Total Assets 188,250, ,079,171 80,129,160 (29,469,658) 478,989,291 Total Liabilities 795, ,015,694 50,630,219 76,739, ,180,777 Depreciation & Amortization 18, ,001 9, , ,446 Provision for impairment and credit losses 61, ,758-81, ,591 Capital Expenditures 6,530 52,115 2, , ,477

17 Financial Soundness Indicators ANNEX VIII PROFITABILITY (%) Jan Jun 2015 Jan Jun 2014 Return on Average Equity Return on Average Assets Cost to income ratio Net Interest Margin LIQUIDITY (%) Jun 2015 Dec 2014 Liquid Assets to Total Assets Loans to Deposit Ratio ASSET QUALITY (%) Jun 2015 Dec 2014 Gross NPL Ratio Net NPL Ratio Non-performing Loan (NPL) Cover SOLVENCY Jun 2015 Dec 2014 Debt to Equity Ratio Asset to Equity Ratio Interest Rate Coverage Ratio * CAPITAL ADEQUACY (%) Jun 2015 Dec 2014 Capital Adequacy Ratio (Tier 1) Capital Adequacy Ratio (Total) *for full year 2014

18 Definition of Ratios Profitability Ratios: Return on Average Equity - Net Income after Income Tax Average Total Equity Return on Average Assets - Net Income after Income Tax Average Total Assets Cost to Income Ratio - Operating Expenses Less Provision for Impairment and Credit Losses Total Operating Income Net Interest Margin - Net Interest Income Average Interest Earning Assets Liquidity Ratios: Liquid Assets to Total Assets - Total Liquid Assets Total Assets Loans to Deposit Ratio - Loans (Net) Deposit Liabilities Asset Quality Ratios: New BSP Formula (BSP Circular 772) Gross NPL Ratio Net NPL Ratio Non-Performing Loan (NPL) Cover - Gross Non-Performing Loans Gross Loans Net NPL (NPL net of Specific Allowance) Gross Loans Gross Loan Loss Reserves Gross Non-Performing Loans Solvency Ratios Debt to Equity Ratio - Total Liabilities Total Equity Asset to Equity Ratio - Total Assets Total Equity Interest Rate Coverage Ratio - Net Income Before Tax and Interest Expense Interest Expense Capital Adequacy Ratio Capital to Risk Assets Ratio - BSP prescribed formula: Tier 1 CAR - Tier 1 Capital Total Risk Weighted Assets Total CAR - Total Qualifying Capital Total Risk Weighted Assets

19 ANNEX IX Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operation (Including Subsidiaries) Financial Highlights (Consolidated) In Million Pesos Jan Jun 2015 Jan Jun 2014 Gross Revenues 11,526 11,017 Gross Expenses 9,012 8,814 Net Income 2,514 2,204 In Million Pesos Jun 2015 Dec 2014 Total Resources 478, ,940 Loan Portfolio (Net) 289, ,419 Total Deposits 399, ,302 Equity 58,808 56,566 Key Performance Indicators PROFITABILITY (%) Jan Jun 2015 Jan Jun 2014 Return on Average Equity Return on Average Assets Cost to income ratio Net Interest Margin LIQUIDITY (%) Jun 2015 Dec 2014 Liquid Assets to Total Assets Loans to Deposit Ratio ASSET QUALITY (%) Jun 2015 Dec 2014 Gross NPL Ratio Net NPL Ratio Non-performing Loan (NPL) Cover SOLVENCY Jun 2015 Dec 2014 Debt to Equity Ratio Asset to Equity Ratio Interest Rate Coverage Ratio * CAPITAL ADEQUACY (%) Jun 2015 Dec 2014 Capital Adequacy Ratio (Tier 1) Capital Adequacy Ratio (Total) *for full year 2014

20 Economic Environment The global economy grew by 2.7% year-on-year, mainly buoyed by improving prospects for the advanced economies. Domestic output in the US expanded by 2.3% during the second quarter, marked by a stronger dollar and a modest rebound in consumer spending. The continuing recovery indicates a possible tightening in US monetary policy towards the year-end. Meanwhile, the Eurozone grew 1.0% during the first quarter as a result of their quantitative easing and containment of the impact of the Greek debt default. The Chinese economy expanded at its weakest pace over the last four years, with its stock market declining 30% from June to July and shedding US$ 3 trillion in value. On the other hand, Japan posted a 1.0% growth for the first quarter as consumer spending hit record-lows and industrial output contracted. The Philippines recorded a 5.2% GDP growth in the first quarter of the year, the slowest in three years due to delayed implementation of public construction projects. On the production side, the services and industry sectors led the growth with a 5.6% and 5.5% year-on-year increase, respectively. Exports growth dropped by 3.3% in June due to weaker demand from major trading partners China and Japan. On a positive note, cash remittances grew 5.8% year-on-year to $2.1 billion while FDI posted net inflows amounting to US$1.6 billion from January to May. Inflation rate remained benign at 0.8% in July due to slower increase in the prices of food, petroleum, and electricity. Meanwhile, domestic liquidity increased by 9.0% year-on-year to P7.7 trillion in June. Consequently, the BSP its retained policy rates and reserve requirements. In the second quarter, the Peso depreciated to a low of P45.20:$1.00 due to net capital outflows. In spite of this, the PSEi rose to 7, in June from 5, in 2014-end. Total assets of the U/KB industry, in June, breached the P10.0 trillion mark, with gross loans comprising 51% of all resources. NPL ratio improved to 1.84% with BSP s vigilance in ensuring the soundness of the banking system. In line with RA 10641, the BSP has approved five foreign bank entrants as of July namely: Cathay United Bank, Industrial Bank of Korea, Shinhan Bank, Sumitomo Mitsui Banking Corporation and Yuanta Commercial Bank Co. Ltd. Financial Condition Analysis of Consolidated Statement of Financial Condition As of June 30, 2015 (unaudited) and December 31, 2014 (audited) As of June 2015, China Bank s total assets increased to P billion, 1.71% or P8.05 billion higher than the December-end level of P billion. The growth can be attributed to the increase in the Bank s investment securities portfolio. Cash and other cash items dropped by 28.87% to P7.64 billion from P10.73 billion due to the leveling-off of the Bank s cash-in-vault from its usual year-end build-up. Investment securities totaled P69.20 billion, up 17.24% from P59.03 billion in December Financial assets at fair value through profit and loss (FAVPL) increased by 4.82% to P8.85 billion from P8.44 billion because of the Bank s higher holdings of tradable securities. Available for sale financial assets (AFS) went up by 25.15% from P38.48 billion to P48.15 billion mainly from additional holdings of Dollar-denominated bonds. Held-to-maturity financial assets (HTMs) slightly dropped to P12.20 billion from P12.11 billion with the maturity of some government securities. The Bank s investment portfolio increased to 14.45% from 12.53% of total assets. Similarly, liquid assets to total assets ratio rose to 34.32% from 32.91% in December Loans and receivables net (inclusive of UDSCL) totaled P billion, 0.38% lower year-to-date. Accrued interest receivables increased by 9.13% to P2.44 billion with the rise in interest receivables from investment securities. Equity investments totaled P million, down 9.38% from December 2014

21 because of lower earnings of the Bank s associate. Other assets fell 8.15% to P5.49 billion with the higher provisioning for other assets. Total deposits slightly decreased to P billion from P billion in December Overall funding mix (low-cost deposits to total deposits) improved to 50.66% from 48.39% in December 2014 with the P8.97 billion or 4.64% growth in CASA to P billion. Bills payable grew by % to P13.47 billion with the $158 Mn syndicated three-year term loan to the Bank. Income taxes payable were lower by 87.56% year-to-date to P1.36 million from P10.94 million with the decline in regular corporate income taxes payable for the first semester. Derivative liabilities went up by 20.44% to P million from P million because of the negative mark-to-market valuation of the Bank s forward contracts. During the semester, the Bank also saw the retirement of its subsidiary s unsecured subordinated debt amounting to P1.19 billion in 2014-end. Total equity (including minority interest) increased by 3.96% from P56.57 billion in 2014 to P58.81 billion from retained earnings. Cumulative translation adjustment improved to (P8.57) million from (P20.39) million due to the exchange differences arising from the conversion of foreign currency-denominated assets and liabilities. The Bank s Tier 1 and total CAR were computed at 13.58% and 14.49%, respectively. The difference was accounted for by the general loan loss provision limited to 1% of credit risk weighted assets as buffer for potential losses. Results of Operation Analysis of Consolidated Statements of Income and Expenses (unaudited) For the period ended June 30, 2015 and June 30, 2014 In the first semester of 2015, the Bank recorded a net income of P2.51 billion, 14.07% higher than the P2.20 billion recorded in the same period last year with the robust growth in core lending business, rebound in trading gains and the improvement in fee-based businesses. Net interest income increased by 9.34% year-on-year to P7.42 billion from P6.79 billion, because of the buildup in the Bank s earnings assets and low-cost funds. Net interest margin improved to 3.36%, 18 bps higher than the Jan-Jun 2014 ratio. Total interest income increased by 4.68% year-on-year to P9.48 billion vis-à-vis P9.05 billion. Interest income from loans and receivables went up by 9.35% to P7.81 billion from P7.14 billion with the year-on-year growth in loan portfolio. On the other hand, interest income from due from BSP and other banks fell to P million from P million from the decline in the Bank s placements with BSP and other banks. Interest expense on deposit liabilities fell 4.70% to P1.98 billion as the share of low-cost deposits to total deposits improved to 50.66% versus 48.39% last year. Interest expense on bills payable and other borrowings also recorded a 59.53% decline to P76.50 million from P million from the same period last year due to the retirement of the subsidiary s subordinated debt. As a result, total interest expenses decreased by 9.28% to P2.06 billion from P2.27 billion. Provision for impairment and credit losses increased by 37.09% to P million from P million with the bigger provisioning for the Bank s larger pool of risk assets. Total non-interest income grew 4.32% to P2.05 billion from P1.96 billion mainly from the rebound in trading and securities gain and the improvement in service charges, fees, and commissions. Trading and securities gain saw a 71.16% improvement to P million from P million as interest rate movements provided opportunities to realize trading gains. Income from service charges, fees, and commissions went up by 15.97% to P million from P million with the increase in fees from the remittance business, international operations, and transactional fees from the expanded network and launch of credit cards. Foreign exchange gain-net fell by P39.65 million to P million due to the month-tomonth movement in the Peso-Dollar exchange rate. Miscellaneous income dropped from P million to P million, or by 21.86%, with the decline in other operating earnings and non-recurring income. In the first semester, total non-interest income comprised 17.77% of gross revenues.

22 Total operating expenses (excluding provision for impairment and credit losses) saw a 5.64% increase to P6.01 billion from P5.69 billion as the Bank continued to pursue its expansion strategy investment in new branches, upgrade of technology platform, and hiring of additional manpower. Compensation and fringe benefits increased by 10.57% to P2.09 billion because of the growth in manpower complement. Taxes and licenses fell by 9.37% to P million with the drop in payable corporate income tax. Occupancy cost which include power, light, rental, security service, messengerial, and janitorial costs were up 7.86% to P million because of the expansion of business operations and branch network. Insurance costs, mainly representing dues to PDIC, rose 9.43% to P million with the year-on-year growth in deposit base. Repairs and maintenance increased by P10.02 million or 15.81% because of additional repairs expense related to the business expansion. Despite the slight increase in operating expenses, cost-toincome ratio improved to 63.46% from 65.01% last year from the higher operating income. Total Comprehensive Income For the period Ended June 30, 2015 and June 30, 2014 The Bank recorded total comprehensive income of P2.24 billion for January to June 2015, a P million increase from the P1.91 billion recorded in the same period last year mainly due to the higher net income for the period. Key Performance Indicators Profitability CHIB s net income of P2.51 billion resulted in a ROE of 8.67% and ROA of 1.06%. Cost-to-income ratio was computed at 63.46% from 65.01% last year with the growth in operating income. Net interest margin improved to 3.36% versus 3.18% mainly due to the higher volume of loans and low-cost funds. Liquidity The Bank s liquidity ratio (the ratio of liquid assets to total assets) was at 34.32% as of June 2015 from 32.91% in December 2014 from the increase in investment securities. Loans-to-deposits ratio was marginally lower at 72.49% from 72.73% in 2014-end. Asset Quality Gross and net NPL ratios were reported at 2.53% and 1.48%, respectively. Consolidated loan loss coverage ratio was computed at 92.64% while the Parent Bank s was at %. Solvency Ratios Debt-to-equity ratio was computed at 7.14 in June 2015 versus 7.33 in December 2014, while asset-to-equity ratio was at 8.14 as against Interest rate coverage ratio stood at 2.56 in the first semester versus the recorded 2.55 for full-year Capitalization China Bank s Tier 1 CAR and Total CAR ratios were at 13.58% and 14.49%, respectively. The Bank s capital is largely comprised of Tier 1 (core) capital. Corporate Developments Aside from the robust growth in its core business, China Bank gained significant ground in investment banking. In June, the Bank raised $158 Mn via a syndicated three-year term loan from foreign banks. This marked the Bank s successful return to the debt markets, and also reflected international investors confidence in China Bank s fundamentals. Moreover, the Bank also launched its one-year fixed rate Time Deposits in the first quarter of the year to further improve the funding mix. The additional funding will be channeled to higher-yielding and -quality investment outlets.

23 During the quarter, the Bank was part of a loan syndication for the Ayala Land and South Luzon Tollway Corporation issues. To further expand its share of investment banking deals, China Bank will infuse up to P500 million equity in its investment house subsidiary, China Bank Capital Corp., which was approved by the Bangko Sentral ng Pilipinas last April. In July, Fitch affirmed China Bank s long-term foreign and local currency Issuer Default Rating (DR) at BB with a stable outlook and its viability rating at bb. The rating reflected the Bank s higher risk appetite, adequate capitalization, and sound funding and liquidity. China Bank offers a wide range of financial products and services through its consolidated network of 483 branches as of June 2015, having already opened five branches for the Parent Bank and eight branches for China Bank Savings during the first half of In August, the Bank will migrate to Finacle Core Banking System as part of its commitment to continuously upgrade its technology platform, achieve efficient processes, and improve turnaround time. Subsidiaries The Bank s subsidiaries include China Bank Insurance Brokers, Inc., CBC Properties and Computer Center, Inc., China Bank Savings, Inc., CBC Forex, Inc., and Planters Development Bank. These companies comprised about 13% of the total consolidated resources. China Bank Insurance Brokers, Inc. (In Mn Pesos) Jan-Jun 15 Jan-Dec 14 Jan-Jun 14 Net Income Total Assets CBC Properties and Computer Center, Inc. (In Mn Pesos) Jan-Jun 15 Jan-Dec 14 Jan-Jun 14 Net Income Total Assets China Bank Savings, Inc. (In Mn Pesos) Jan-Jun 15 Jan-Dec 14 Jan-Jun 14 Net Income (20) (157) (37) Total Assets 23,909 20,670 18,431 CBC Forex, Inc.* (In Mn Pesos) Jan-Jun 15 Jan-Dec 14 Jan-Jun 14 Net Income Total Assets Planters Development Bank (In Mn Pesos) Jan-Jun 15 Jan-Dec 14 Jan-Jun 14 Net Income (92) (522) (294) Total Assets 46,105 45,405 49,686 *On May 7, 2009, The Board of Directors and stockholders of CBC Forex, Inc. approved, confirmed and ratified the amendment of the Articles of Incorporation of the company to shorten its corporate term until December 31, 2009, in accordance with Section 120 of The Corporation Code. To date, the corporation is still completing the remaining documents required by the Securities and Exchange Commission (SEC).