COVER SHEET B A N K O F T H E P H I L I P P I N E I S L A N D S. (Company's Full Name) B P I B U I L D I N G, A Y A L A A V E.

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2 COVER SHEET P W B A N K O F T H E P H I L I P P I N E I S L A N D S (Company's Full Name) B P I B U I L D I N G, A Y A L A A V E. M A K A T I C I T Y (Business Address: No. Street City/Town/Province) Josenia Jessica Nemeno (632) Contact Person Company Telephone Number Q Month Day FORM TYPE Month Day Fiscal Year Annual Meeting N/A Secondary License Type, If Applicable C F D Dept. Requiring this Doc. Amended Articles Number/Section 11,648 Total Amount of Borrowings Total No. of Stockholders Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier S T A M P S Remarks = pls. use black ink for scanning purposes

3 Page 1 of 30 STANDARD DOCUMENT COVER SHEET FOR SEC FILINGS All documents should be submitted under a cover page which clearly identifies the company and the specific document form as follows: SEC Number PW-121 File Number BANK OF THE PHILIPPINE ISLANDS BPI BUILDING, 6768 AYALA AVE. CORNER PASEO DE ROXAS MAKATI CITY, METRO MANILA (632) FISCAL YEAR ENDING DECEMBER 31 (indicate if anything above is new and the date it was changed) SEC FORM 17 Q QUARTERLY REPORT AMENDMENT DESIGNATION (if applicable) PERIOD-ENDED JUNE 30, 2018 (if a report, financial statement, GIS, or related amendment or show-cause filing) NONE EACH ACTIVE SECONDARY LICENSE TYPE AND FILE NUMBER (state NONE if that is the case)

4 Page 2 of 30 Page 2 of 21 SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-Q QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17 (2) (b) THEREUNDER 1. For the quarterly period ended June 30, Commission identification number PW BIR Tax identification No. - TIN: BANK OF THE PHILIPPINE ISLANDS Exact name of registrant as specified in its chart 5. Philippines Province, country or other jurisdiction of incorporation 6. Industry Classification Code: (SEC Use Only) 7. BANK OF THE PHILIPPINE ISLANDS BUILDING 6768 Ayala Avenue Corner Paseo de Roxas, Barangay San Lorenzo Makati City ZIP Code 1226 Address of principal office Postal Code 8. (632) Registrant s telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 8 and 12 of the Code Title of each class Number of shares of common stock outstanding and amount of debt outstanding Common 4,502,448, Are any or all of the securities listed on the Philippine Stock Exchange? Yes [x] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common

5 Page 3 of 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 [8] No [ ] (b) Has been subject to such filing requirements for the last 90 days Yes [8] No [ ]

6 Page 4 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENT OF CONDITION JUNE 30, 2018 AND DECEMBER 31, 2017 (in Thousands of Pesos) UNAUDITED AUDITED JUNE 30, 2018 DECEMBER 31, 2017 RESOURCES Cash and Other Cash Items 31,008,878 35,132,451 Due from Bangko Sentral ng Pilipinas 230,369, ,948,081 Due from Other Banks 8,219,429 14,406,141 Interbank Loans Receivable and Securities Purchased under Agreements to Resell 31,227,605 18,585,764 Financial Assets at Fair Value through Profit or Loss Derivative Financial Assets 4,787,290 4,980,742 Trading Securities 18,558,063 5,332,082 Financial Assets at Fair Value through OCI 11,560,482 23,312,583 Financial Assets at Amortized Cost 272,938, ,471,665 Loans and Advances, net 1,222,630,725 1,202,337,527 Assets Held for Sale, net 3,508,380 3,578,067 Bank Premises, Furniture, Fixtures and Equipment, net 15,085,491 15,056,439 Investment Properties, net 147, ,562 Investments in Subsidiaries and Associates, net 5,990,370 6,386,493 Assets Attributable to Insurance Operations 16,785,428 17,405,736 Deferred Income Tax Assets, net 8,365,647 8,091,454 Other Resources, net 19,775,743 15,744,914 - TOTAL RESOURCES 1,900,958,920 1,903,904,703 LIABILITIES AND CAPITAL FUNDS Deposit Liabilities Demand 265,490, ,238,118 Savings 890,034, ,611,696 Time 379,450, ,350,302 Sub-total 1,534,975,939 1,562,200,116 Derivative Financial Liabilities 4,729,269 4,788,711 Bills Payable 51,743,051 83,516,771 Due to Bangko Sentral ng Pilipinas and Other Banks 1,525,575 1,217,691 Manager's Checks and Demand Drafts Outstanding 6,425,594 7,022,059 Accrued Taxes, Interest and Other Expenses 7,850,536 7,116,647 Liabilities Attributable to Insurance Operations 14,451,347 14,512,712 Deferred Credits and Other Liabilities 36,674,680 39,978,950 TOTAL LIABILITIES 1,658,375,991 1,720,353,657 CAPITAL FUNDS ATTRIBUTABLE TO THE EQUITY HOLDERS OF BPI Share Capital 44,944,687 39,336,269 Share Premium 74,066,238 29,770,688 Reserves 205, ,371 Surplus 122,976, ,415,390 Accumulated Other Comprehensive Income/ (Loss) (2,498,337) (5,087,969) 239,694, ,688, NON-CONTROLLING INTERESTS 2,888,396 2,862,296 TOTAL CAPITAL FUNDS 242,582, ,551,046 TOTAL LIABILITIES AND CAPITAL FUNDS 1,900,958,920 1,903,904,703

7 Page 5 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENTS OF INCOME For the Quarter Ended June 30, 2018 and 2017 (In Thousands of Pesos) INTEREST INCOME On loans and advances 17,149,072 13,852,965 On FA at amortized cost 2,239,510 2,137,455 On FA at FV through OCI 50, ,571 On deposits with BSP and other banks 265, ,834 On FA at FV through profit or loss 70,491 58,794 Gross Receipts Tax (640,782) (524,717) 19,134,331 16,223,903 INTEREST EXPENSE On Deposits 4,955,687 3,893,719 On Bills Payable and other borrowings 478, ,881 5,434,187 4,202,600 NET INTEREST INCOME 13,700,145 12,021,303 IMPAIRMENT LOSSES 1,128,445 1,251,707 NET INTEREST INCOME AFTER IMPAIRMENT LOSSES 12,571,699 10,769,596 OTHER INCOME Fees and commissions 2,060,516 1,930,713 Income from foreign exchange trading 553, ,149 Trading gain (loss) on securities 63, ,752 Income attributable to insurance operations 219, ,176 Other operating income 2,537,495 2,759,678 Gross Receipts Tax (365,344) (332,971) 5,069,478 5,360,497 OTHER EXPENSES Compensation and fringe benefits 3,939,538 3,454,571 Occupancy and equipment-related expenses 3,745,586 2,784,011 Other operating expenses 3,787,192 3,287,323 11,472,316 9,525,905 INCOME BEFORE INCOME TAX 6,168,862 6,604,188 PROVISION FOR INCOME TAX Current 1,677,419 1,604,315 Deferred (329,023) (518,834) 1,348,397 1,085,480 NET INCOME FOR THE QUARTER 4,820,465 5,518,708 Attributable to: Equity holders of BPI 4,778,979 5,438,794 Non-controlling interest 41,486 79,914 4,820,465 5,518,708

8 Page 6 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Quarter Ended June 30, 2018 and 2017 (In Thousands of Pesos) NET INCOME BEFORE MINORITY INTEREST 4,820,465 5,518,708 Other Comprehensive Income: Items that may be reclassified subsequently to profit or loss Net change, in fair value reserve on FVOCI securities, net of tax effect (93,923) 180,881 Fair value reserve on investments of insurance subsidiaries, net of tax effect (185,404) 117,587 Share in other comprehensive income of associates (306,281) (50,472) Currency translation differences (39,205) 66,048 Items that will not be reclassified to profit or loss Actuarial gains (losses) on defined benefit plan, net of tax effect 1,016 (2,466) Share in other comprehensive income gain (loss) of associates 137,306 (619,824) Total Other Comprehensive Income (Loss), net of tax effect (486,491) (308,247) Total Comprehensive Income for the Year 4,333,974 5,210,461 Attributable to: Equity holders of BPI 4,313,742 5,112,473 Non-Controlling Interest 20,232 97,989 4,333,974 5,210,461

9 Page 7 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENTS OF INCOME For the Six Months Ended June 30, 2018 and 2017 (In Thousands of Pesos) Unaudited Unaudited INTEREST INCOME On loans and advances 33,028,097 27,268,035 On FA at amortized cost 4,481,879 4,308,823 On FA at FV through OCI 113, ,843 On deposits with BSP and other banks 552,831 1,147,526 On FA at FV through profit or loss 135, ,236 Gross Receipts Tax (1,224,548) (1,053,340) 37,087,129 32,012,123 INTEREST EXPENSE On Deposits 10,003,897 7,921,988 On Bills Payable and other borrowings 870, ,290 10,874,714 8,497,278 NET INTEREST INCOME 26,212,416 23,514,845 IMPAIRMENT LOSSES 1,913,445 2,460,717 NET INTEREST INCOME AFTER IMPAIRMENT LOSSES 24,298,970 21,054,128 OTHER INCOME Fees and commissions 4,028,185 4,165,341 Income from foreign exchange trading 1,142,856 1,101,965 Trading gain (loss) on securities 585, ,486 Income attributable to insurance operations 601, ,861 Other operating income 5,374,827 5,554,542 Gross Receipts Tax (725,670) (703,175) 11,007,403 11,824,020 OTHER EXPENSES Compensation and fringe benefits 7,594,551 6,808,585 Occupancy and equipment-related expenses 6,608,222 5,330,575 Other operating expenses 7,016,855 6,112,962 21,219,627 18,252,121 INCOME BEFORE INCOME TAX 14,086,746 14,626,027 PROVISION FOR INCOME TAX Current 3,243,031 3,357,790 Deferred (276,337) (578,683) 2,966,694 2,779,106 NET INCOME FOR THE PERIOD 11,120,052 11,846,920 Attributable to: Equity holders of BPI 11,026,264 11,691,461 Non-controlling interest 93, ,459 11,120,052 11,846,920 Earnings per share: Based on 4,502,448,426 shares as of June 30, 2018 P 2.45 P 2.97 and 3,939,376,937 shares in 2017 *Interest Expense on Deposits includes Documentary Stamp Tax of P1.86 billion (June 2018) and P1.25 billion (June 2017)

10 Page 8 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Six Months Ended June 30, 2018 and 2017 (In Thousands of Pesos) Unaudited Unaudited NET INCOME BEFORE MINORITY INTEREST 11,120,052 11,846,920 Other Comprehensive Income Items that may be reclassified subsequently to profit or loss Net change, in fair value reserve on FVOCI securities, net of tax effect (790,123) 485,780 Fair value reserve on investments of insurance subsidiaries, net of tax effect (369,840) 182,763 Share in other comprehensive income of associates (1,008,782) (55,201) Currency translation differences 174, ,225 Items that will not be reclassified to profit or loss Actuarial gains (losses) on defined benefit plan, net of tax effect (4,940) (7,832) Share in other comprehensive income gain (loss) of associates 286,346 (619,824) Total Other Comprehensive Income (Loss), net of tax effect (1,712,636) 0 95,912 0 Total Comprehensive Income for the Year 9,407,416 11,942,832 Attributable to: Equity holders of BPI 9,370,335 11,762,466 Non-Controlling Interest 37, ,366 9,407,416 11,942,832

11 Page 9 of 30 Page 9 of 21 BANK OF THE PHILIPPINE ISLANDS STATEMENT OF CHANGES IN CAPITAL FUNDS FOR THE PERIOD ENDED JUNE 30, 2018 & JUNE 30, 2017 ( In Thousands of Pesos) Attributable to equity holders of BPI Consolidated Share Capital Share Premium Reserves Surplus Accumulated Other Comprehensive Income (Loss) Total Non-controlling Interests Total Equity Balance, December 31, ,336,269 29,770, , ,415,390 (5,087,969) 180,688,749 2,862, ,551,045 Comprehensive Income Net Income for the year 11,026,264 11,026,264 93,788 11,120,052 Other Comprehensive Income for the year (1,655,929) (1,655,929) (56,707) (1,712,636) Total Comprehensive Income for the year ,026,264 (1,655,929) 9,370,335 37,081 9,407,416 Transactions with owners Proceeds from the stock rights offering 5,586,592 44,362,907 49,949,499 49,949,499 Executive Stock Plan amortization 21,826 (67,357) (48,913) (94,444) (94,444) Cash Dividend adjustment (4,052,206) (4,052,206) (4,052,206) Transfer from Surplus to Reserves 200 (200) - - PFRS 9 transition adjustment - (411,706) 4,245,561 3,833,855 (10,981) 3,822,874 Others (1,256) (1,256) (1,256) Total transactions with owners 5,608,418 44,295,550 (48,713) (4,465,367) 4,245,561 49,635,448 (10,981) 49,624,468 Balance, June 30, ,944,687 74,066, , ,976,287 (2,498,337) 239,694,533 2,888, ,582,929 Attributable to equity holders of BPI Consolidated Share Capital Share Premium Reserves Surplus Accumulated Other Comprehensive Income (Loss) Total Non-controlling Interests Total Equity Balance, December 31, ,308,302 29,591,222 2,710,843 98,601,974 (5,078,357) 165,133,983 2,549, ,683,834 Comprehensive Income Net Income for the year 11,691,461 11,691, ,459 11,846,920 Other Comprehensive Income for the year 71,005 71,005 24,907 95,912 Total Comprehensive Income for the year ,691,461 71,005 11,762, ,366 11,942,832 Transactions with owners Executive Stock Plan amortization 14,963 92,274 23, , ,944 Cash Dividends (3,545,439) (3,545,439) (3,545,439) Total transactions with owners 14,963 92,274 23,706 (3,545,439) - (3,414,495) - (3,414,495) Balance, June 30, ,323,265 29,683,496 2,734, ,747,996 (5,007,353) 173,481,954 2,730, ,212,171

12 Page 10 of 30 Page 10 of 21 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTER ENDED JUNE 30, 2018 AND JUNE 30, 2017 (In Thousands of Pesos) CASH FLOW FROM OPERATING ACTIVITIES Income before income tax 6,168,862 6,604,188 Adjustments for: Impairment losses 1,128,445 1,251,707 Depreciation and amortization 1,178,065 1,074,834 Share in net income of associates (59,555) (88,578) Share based compensation 11,458 11,921 Dividend income (26,907) (33,872) Interest income (19,775,114) (16,748,620) Interest expense 5,434,187 4,202,600 Operating income before changes in operating assets and liabilities (5,940,559) (3,725,820) Changes in operating assets and liabilities (Increase) decrease in: Due from Bangko Sentral ng Pilipinas - - Interbank loans receivable and securities purchased under agreements to resell (339,888) 175,910 FA at Fair Value through Profit or Loss 6,776,790 (917,412) Loans and advances (13,624,384) (25,964,976) Assets held for sale 86,446 45,954 Assets attributable to insurance operations 156, ,224 Other resources (1,831,867) 636,998 Increase (decrease) in: Deposit liabilities (52,206,965) (5,209,359) Due to Bangko Sentral ng Pilipinas and other banks (437,592) (394,792) Manager's checks demand drafts outstanding 280, ,183 Accrued taxes, interest and other expenses (353,902) (45,888) Liabilities attributable to insurance operations 130,279 (303,927) Derivative financial instrument 195,709 (279,052) Deferred credits and other liabilities (1,794,681) 263,238 Net cash from (used in) operations (68,903,784) (35,325,717) Income taxes paid (1,682,822) (1,593,882) Interest paid (5,111,799) (3,672,488) Interest received 18,421,835 15,471,394 Net cash from (used in) operating activities (57,276,570) (25,120,693) CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in: FA at Fair Value through OCI (179,771) 11,471,390 FA at Amortized Cost 1,149,855 4,742,779 Bank, premises, furniture, fixtures and equipment (703,710) (899,895) Equity investments (225,238) 184,350 Assets attributable to insurance operations 303,697 (94,965) Investment property (10,571) (0) Proceeds from sale of investments - - Dividends received 26,907 33,872 Net cash from (used in) investing activities 361,169 15,437,530 CASH FLOWS FROM FINANCING ACTIVITIES Cash Dividends - - Collection on stock subscriptions 49,876,368 53,377 Increase (decrease) in bills payable (13,176,805) (18,293,857) Net cash from (used in) financing activities 36,699,563 (18,240,480) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,215,838) (27,923,643) CASH AND CASH EQUIVALENTS March ,142, ,388,285 June ,926, ,464,641

13 Page 11 of 30 BANK OF THE PHILIPPINE ISLANDS CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND JUNE 30, 2017 (In Thousands of Pesos) CASH FLOW FROM OPERATING ACTIVITIES Income before income tax 14,086,746 14,626,027 Adjustments for: Impairment losses 1,913,445 2,460,717 Depreciation and amortization 2,291,163 2,116,528 Share in net income of associates (319,918) (396,892) Share based compensation (48,913) 23,706 Dividend income (36,990) (37,999) Interest income (38,311,678) (33,065,463) Interest expense 10,874,714 8,497,278 Operating income before changes in operating assets and liabilities (9,551,431) (5,776,099) Changes in operating assets and liabilities (Increase) decrease in: Due from Bangko Sentral ng Pilipinas - - Interbank loans receivable and securities purchased under agreements to resell 80, ,196 FA at Fair Value through Profit or Loss (13,221,080) 312,236 Loans and advances (21,307,408) (19,092,474) Assets held for sale 207,188 (71,848) Assets attributable to insurance operations 204, ,218 Other resources (4,557,839) (1,203,338) Increase (decrease) in: Deposit liabilities (27,225,402) 1,163,741 Due to Bangko Sentral ng Pilipinas and other banks 307,884 (148,027) Manager's checks demand drafts outstanding (596,465) (516,155) Accrued taxes, interest and other expenses 64,403 15,993 Liabilities attributable to insurance operations (61,366) (977,486) Derivative financial instrument 134,010 69,854 Deferred credits and other liabilities (3,826,746) 1,447,669 Net cash from (used in) operations (79,349,117) (23,485,519) Income taxes paid (3,240,886) (3,341,718) Interest paid (10,205,229) (8,077,769) Interest received 37,164,147 33,304,895 Net cash from (used in) operating activities (55,631,085) (1,600,110) CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in: FA at Fair Value through OCI 15,188,334 10,304,056 FA at Amortized Cost 4,341,344 8,367,077 Bank, premises, furniture, fixtures and equipment (1,870,619) (1,603,987) Investment in subsidiaries and associates, net (218,304) 186,333 Assets attributable to insurance operations 381,009 (74,558) Investment property, net (15,164) (0) Proceeds from sale of investments - - Dividends received 36,990 37,999 Net cash from (used in) investing activities 17,843,590 17,217,420 CASH FLOWS FROM FINANCING ACTIVITIES Cash Dividends (3,545,471) (3,543,339) Collection on stock subscriptions 49,903, ,238 Increase (decrease) in bills payable (31,773,720) (19,463,491) Net cash from (used in) financing activities 14,584,776 (22,899,592) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (23,202,721) (7,282,283) CASH AND CASH EQUIVALENTS January 1 322,129, ,746,924 June ,926, ,464,641

14 Page 12 of 30 BANK OF THE PHILIPPINE ISLANDS Financial Indicators As at June 30, 2018 and a) Liquidity Ratio * 52.9% 52.1% b) Debt to Equity Ratio ** 21.6% 24.5% c) Asset to Equity Ratio 793.1% 989.2% d) Interest Rate Coverage Ratio *** 250.6% 297.0% e) Net Interest Margin on Average Earning Assets 3.0% 2.9% f) Return on Average Equity 10.8% 13.7% g) Return on Average Assets 1.2% 1.4% h) Cost to Income Ratio 57.0% 51.6% i) Cost to Assets Ratio 2.3% 2.1% j) Capital to Assets Ratio 12.6% 10.1% * Liquid Assets over Total Deposits ** Bills Payable and Unsecured Subordinated Debt over Total Equity *** Net Income Before Income Tax add back Interest Expense and Depreciation and Amortization over Interest Expense

15 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 Page 13 of 30 SEC REQUIREMENT DISCLOSURE Disclosure that the issuer s interim financial report is in compliance with generally accepted accounting principles The Bank s interim financial statements have been prepared in accordance with the Phil. Financial Reporting Standards (PFRS) which includes applicable PFRS, PAS (Phil. Accounting Standards) and interpretations approved by the FRSC (Financial Reporting Standards Council). The following information, as a minimum, should be disclosed in the notes to financial statements, if material and if not disclosed elsewhere in the interim financial report: A statement that the same accounting policies and methods of computation are followed in the interim financial statements as compared with the most recent annual financial statements or, if those policies or methods have been changed, a description of the nature and effect of the change. Explanatory comments about the seasonality or cyclicality of interim operations The nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidents The nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year or changes in estimates of amounts reported in prior financial years, if those changes have a material effect in the current interim period. The Bank s interim financial statements have been prepared consistent with its most recent annual financial statements as of December 31, 2017 which was in accordance with the PFRS adopted by the SEC. Nothing to report Nothing to report The Bank has adopted PFRS 9 effective January 2018 using Classification and Measurement business models and Expected Credit Loss models developed for its various products. An independent team is currently conducting validation of the ECL developed models. Full Impact of the PFRS 9 will be finalized once the validation is completed.

16 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 14 of 30 Issuances, repurchases, and repayments of debt and equity securities Dividends paid (aggregate per share) separately for ordinary shares and other shares Segment revenue and segment result for business segments or geographical segments, whichever is the issuer s primary basis of segment reporting. (This shall be provided only if the issuer is required to disclose segment information in its annual financial statements). Material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period The effect of changes in the composition of the issuer during the interim period, including business combinations, acquisitions or disposal of subsidiaries and long-term investments, restructurings, and discontinuing operations. On April 25, 2018, the Bank completed its P50 billion stock rights offering ( SRO ), issuing 558,659,210 new common shares (ratio of 1: common shares as of record date April 6, 2018) at P89.50 per share. Shares were listed on the Philippine Stock Exchange on May 4, On January 19, 2018, total cash dividends paid to Common Stockholders of record as December 28, 2017 amounted to P3.5 billion. On June 21, 2018, the Board declared a regular cash dividend of P0.90 per share on the total outstanding Common shares of the capital stock of BPI, payable to all Common stockholders of record as of July 4, 2018 and payable/distributable on July 25, Total dividends declared amounted to P4.1 billion. Attached Nothing to report Nothing to report

17 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 15 of 30 Changes in contingent liabilities or contingent assets since the last annual balance sheet date Existence of material contingencies and any other events or transactions that are material to an understanding of the current interim period. Assess the financial risk exposures of the company and its subsidiaries particularly on currency, interest, credit, market and liquidity risks. If any change thereof would materially affect the financial condition and results of operation of the company, provide a discussion in the report on the qualitative and quantitative impact of such risks and include a description of any enhancement in the company s risk management policies to address the same; Changes in contingent liabilities and contingent assets are in the normal course of business and are not anticipated to cause any material losses from those commitments/contingent liabilities. Nothing to report The BPI Group monitors and measures financial risks according to three major classifications: credit, market and liquidity, and operational/it risks. The Bank is exposed to these financial risks primarily through lending activities, trading and investment in bonds, currencies, financial derivatives and structured investment products, and engaging in operating activities, infrastructure and technology to support the Bank s day-to-day business. The risks associated with these activities are closely monitored through the various key risk indicators (KRIs) and metrics, risk appetite and limits, and management triggers defined and set by the Board through its Risk Management Committee (RMC). The Bank s Risk Management Office (RMO), led by the BPI Group Chief Risk Officer, supports the RMC in identifying, measuring, controlling, and reporting the Bank s financial and non-financial risks at the Management and business line levels. BPI has since maintained its disciplined risk appetite by establishing and implementing prudent risk management policies and standards, concentrating on sovereign-issued and investment-grade securities, and by ensuring that controls are generally in place and working effectively, thus, exposing the Bank and its key subsidiaries to manageable credit, market, liquidity, and operational/it risks which are within the RMC approved risk-appetite (BPI subsidiary Board-

18 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 16 of 30 level RMCs, in the case of key BPI subsidiaries). Dedicated and skilled risk managers, including business risk and subsidiary risk officers, fully support the Bank s three lines-of-defense (3LoD) risk organization. The persistent challenges observed in the global and local financial markets have resulted to more active risk management strategies in the Bank. Sensitivity analyses, forward-looking simulations and stress testing, daily risk monitoring and escalation procedures, regular risk MIS reporting and in-depth discussions involving Senior Management and the Board of Directors are measures to strengthen the effectiveness of the Bank s enterprise risk management framework. Moreover, the levels of risk exposures and limits are continuously reviewed to reflect the Board s overall risk appetite and strategy. The Bank closely monitors the risk exposures of both trading and non-trading portfolios. Assets in both on- and off-balance sheet trading portfolios are marked-to-market and the resulting gains and losses are recognized through profit or loss. Furthermore, starting January 2018, the Bank adopted the new accounting classification and measurement under PFRS 9 guidelines. The Bank also started recognizing credit losses upon initial recognition of the asset through the Expected Credit Loss (ECL) model. Market risk exposures are measured using the historical simulation value-at-risk model complemented by several risk metrics such as Stop Loss and DV01. As of the second quarter of 2018, the Bank s Value-at-Risk (VaR) is well within the RMC-approved limit.

19 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 17 of 30 The Bank conducts regular price stress tests that measure the potential impact of the adverse movements in interest rates on the Bank s trading and banking book and the corresponding impact on the Capital Adequacy Ratio. The results of the second quarter 2018 price stress test on both the trading and banking book revealed that the Bank s post-shock CAR is well above the minimum regulatory requirement given the adverse movements in risk factors. Interest rate risk exposure arising from the core banking activities is measured by (a) earningsat-risk (EaR), or the potential deterioration in net interest income over the next 12 months due to adverse movements in interest rates, and (b) balance sheet value-at-risk (BSVaR), or the impact on the economic value of the future cash flows in the banking book due to changes in interest rates. As of the second quarter of 2018, BPI Group s BSVaR and EaR levels are well below the RMC-approved limits. The Bank s liquidity profile is measured and monitored through the minimum cumulative liquidity gap (MCLG) internal metric and the regulatory metric, liquidity coverage ratio (LCR). MCLG measures the smallest net cumulative cash inflow (if positively gapped) or the largest net cumulative cash outflow (if negatively gapped) over the next three months. LCR determines the short-term resilience of the Bank s liquidity risk profile, requiring financial institutions to hold adequate level of highquality liquid assets to cover net cash outflows in the next 30 days. BPI, on a consolidated basis, should maintain adequate liquidity to provide sufficient buffer for critical liquidity situations.

20 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 18 of 30 As of the second quarter of 2018, BPI Group s MCLG is well above the RMC-approved floors while total LCR exceeds the prescribed minimum ratio set by the BSP. The Bank also conducts liquidity stress tests which have consistently revealed ample liquidity to meet its financial obligations under both name-specific and system-wide crisis scenarios. The Bank is continuously improving its risk models and systems through upgrades and improvements in model assumptions and regularly conducts back-testing to assess the accuracy and effectiveness of its models and metrics. On the Bank s management of operational and IT risks, for the second quarter of 2018, the Bank has maintained estimated operational and IT losses related to the Bank s operating activities to less than 1% of gross income. Such minimal losses are within the Senior Management and Board/RMC's conservative and prudent risk appetite, and are generally attributed as inherent risks in executing the Bank's day-to-day business operations. The Bank is conscientiously aware of new and emerging industry-wide risks, and duly consider these in regular risk assessments and in updating the Bank s risk strategies. The Bank, to the best of its knowledge, deems that there are no anticipated and significant changes in risk exposures that shall materially affect the Bank's financial condition and results of operations.

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 SEC REQUIREMENT DISCLOSURE Page 19 of 30 The significant judgments made in classifying a particular financial instrument in the fair value hierarchy. The assumptions/judgments made in the Bank s interim financial statements are consistent with the most recent annual financial statements as of December 31, A comparison of the fair values as of date of the recent interim financial report and as of date of the preceding interim period, and the amount of gain/loss recognized for each of the said periods In accordance with PFRS 9, Financial Assets at Fair Value through Profit and Loss (FVPL) are marked to market as profit and loss. As such, these are reflected in Other Income Trading gain (loss) on securities including realized gains (losses) from opportunistic sell down of inventory. Financial Assets at Fair Value through Other Comprehensive Income (FVOCI) are marked to market against capital funds and reflected as Accumulated Other Comprehensive Income (Loss). The movements of these accounts are recognized as Other Comprehensive Income Net Change in Fair Value Reserve for the banking books and Fair Value Reserve on investments of insurance subsidiaries. The table below summarizes the carrying amount and fair value of Financial Assets at Amortized Cost, net: Carrying Fair Value Jun 30, 2018 (unaudited) Dec 31, 2017 (audited) Amount 272, , , ,301

22 Page 20 of 30 BANK OF THE PHILIPPINE ISLANDS SEGMENT REPORT For the Quarter Ended June 30, 2018 In P Mn CONSUMER BANKING CORPORATE BANKING INVESTMENT BANKING / FINANCIAL MARKETS CORP / ELIM TOTAL Net interest income 7,750 3,337 3,868 (1,256) 13,700 Impairment charge (0) 1,129 Net interest income after impairment charge 7,129 2,832 3,866 (1,255) 12,570 Fees and commission 1, (199) 2,063 Other income 1, ,376 GRT (199) (33) (97) (38) (367) Other Income, net 2, , ,072 Compensation and fringe benefits Occupancy and equipmentrelated expenses 2, (66) 3,939 1, ,405 3,748 Other operating expenses 2, (407) 3,788 Total operating expenses 7,682 2, ,475 Operating profit 2,445 1,382 4,461 (2,120) 6,167 Share in net income of associates 129 Provision for Income Tax 1,348 Total Assets 478,270 1,013, ,288 30,429 1,900,959 Total Liabilities 1,081, ,068 52,667 20,991 1,658,376

23 Page 21 of 30 BANK OF THE PHILIPPINE ISLANDS SEGMENT REPORT For the Six Months Ended June 30, 2018 In P Mn CONSUMER BANKING CORPORATE BANKING INVESTMENT BANKING / FINANCIAL MARKETS CORP / ELIM TOTAL Net interest income 15,122 6,182 7,120 (2,212) 26,212 Impairment charge 1, (1) 1,913 Net interest income after impairment charge 13,762 5,638 7,110 (2,211) 24,299 Fees and commission 3, (288) 4,028 Other income 3,006 1,013 2,445 1,241 7,705 GRT (379) (60) (165) (122) (726) Other Income, net 5,728 1,580 2, ,007 Compensation and fringe benefits Occupancy and equipmentrelated expenses 5,969 1, (135) 7,595 3, ,140 6,608 Other operating expenses 6,133 1, (1,356) 7,017 Total operating expenses 15,507 3,733 1, ,220 Operating profit 3,984 3,484 8,647 (2,029) 14,087 Share in net income of associates 389 Provision for Income Tax 2,967 Total Assets 478,270 1,013, ,288 30,430 1,900,959 Total Liabilities 1,081, ,068 52,667 20,990 1,658,376

24 Page 22 of 30 Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations Financial Condition as of June 30, 2018 versus as of December 31, 2017 Total resources decreased P2.95 billion to P1.90 trillion. While this decrease was minimal at 0.2%, it was impacted by the following movements: Due from Banko Sentral ng Pilipinas at P billion, decreased P25.58 billion or 10.0% due to lower reserve requirement set by the BSP; Financial Assets at Fair Value through OCI at P11.56 billion, decreased P11.75 billion due to decrease in position taking in various holdings. This was also impacted by the reclassification of securities as the Bank transitioned to PFRS 9; Due from other banks at P8.22 billion, decreased P6.19 billion or 42.9%, as a result of lower working balances maintained with correspondent banks; Cash and other cash items at P31.01 billion, decreased P4.12 billion or 11.7%, on account of lower cash requirement for the period as compared to year-end 2017; Investments in subsidiaries and associates, net at P5.99 billion, decreased P million or 6.2% on account of the decrease in Bank s share in net income from insurance companies. Above decreases were partially tempered by the following: Trading securities, at P18.56 billion, increased P13.23 billion or 248.0%, due to increase in government securities purchased; Interbank loans receivables and securities purchased under agreement to resell at P31.23 billion, increased P12.64 billion or 68.0%, due to higher volume in placements in Reverse Repurchase Agreement (RRP); Other resources, net at P19.78 billion, increased P4.03 billion or 25.6%, on account of higher miscellaneous assets; Investment properties, net at P million, increased P13.14 million or 9.8%, due to renovation of bank-owned properties; Loans and advances, net at P1.22 trillion, increased P20.29 billion or 1.7%, due to higher loan demand from both corporate and retail clients. Total liabilities decreased P61.98 billion, or 3.6% impacted by the following downward movement: Bills payable at P51.74 billion, down by P31.77 billion or 38.0%, due to lower external borrowings; Deferred credits and other liabilities at P36.67 billion, down by P3.30 billion or 8.3%, due to the decline in bills purchased contra account; Manager s checks and demand drafts outstanding at P6.43 billion, lower by P million or 8.5%, due to lower level of outstanding manager s checks issued;

25 Page 23 of 30 Total deposits at P1.53 trillion, lower by P27.22 billion or 1.7%, as the Bank paid down high cost time deposits ending at P billion for the period, down P69.90 billion or 15.6%. Demand and savings deposits both increased to P billion and P billion, up P13.25 billion or 5.3%, and P29.42 billion or 3.4%, respectively. These decreases in liabilities were partly tempered by the following: Accrued taxes, interest and other expenses at P7.85 billion, increased P million or 10.3%, largely on higher accrued interest payable on time certificate of deposits and interest rate swaps; Due to Banko Sentral ng Pilipinas and other banks at P1.53 billion, increased PP million or 25.3%, due to higher taxes collected for the Bureau of Internal Revenue (BIR). Total Capital at P billion, increased P59.01 billion or 32.7%, from year-end 2017 because of the P50.00 billion increase in share premium and share capital owing to the May 2018 SRO. Surplus increased by P6.56 billion as a result of accumulated profits net of cash dividend payments. Accumulated other comprehensive loss at P2.50 billion, decreased P2.59 billion or 50.9% on account of higher market valuation of the group-wide available-for-sale securities; Reserves at P million, decreased P48.71 million or 19.1%, on account of reversal of reserves due to exercise of stock option. RESULTS OF OPERATIONS For the Quarters ended June 30, 2018 and 2017 Net income for the second quarter of 2018 was P4.78 billion, down P million or 12.1%, from the profit earned in the second quarter of Operational spending dragged down the bottom line as other expenses grew by P1.95 billion or 20.4% for the period. This was despite the P1.39 billion or 8.0%, growth in total revenues and P million or 9.8% drop in impairment losses. Net interest income at P13.70 billion, increased P1.68 billion, or 14.0% on account of the P20.22 billion expansion in average asset base and a 15-basis point increase in spreads. Interest income stood at P19.13 billion, up P2.91 billion, or 17.9%, and this was affected by the following movements: Increase in interest income on loans and advances at P17.15 billion, up P3.30 billion, or 23.8%, largely due to expansion in the average volume and higher yield; Increase interest income on FA at FV through profit or loss at P70.49 million, up P11.70 million, or 19.9%, due to significant increase in average volume despite drop in yield; Decrease in interest income on deposits with BSP and other banks at P million, down P million or 55.0%, on lower average volume, partly offset by higher yield;

26 Page 24 of 30 Decrease in interest income on FA at FV through OCI at P50.94 million, down P59.64 million or 53.9%, due to lower average volume and yield; Increase in gross receipts tax at P million, up P million or 22.1%, as a result of higher interest income. Interest expense at P5.43 billion, increased P1.23 billion, or 29.3%, largely driven by the increase in interest expense on deposits at P4.96 billion, up P1.06 billion or 27.3%, due to higher documentary stamps tax (DST) on deposits. Bills payable and other borrowings also contributed to the increase at P million, up P million or 54.9%, on higher average volume and interest cost. Other income at P5.07 billion was P million, or 5.4% lower than the P5.36 billion earned in the second quarter of 2017: Fees and commissions at P2.06 billion, increased P million or 6.7%, on account of higher service fees derived from the ATM channel business; Other operating income at P2.54 billion, decreased P million or 8.1%, driven by lower trust fees and profit from assets sold; Income attributable to insurance operations at P million, decreased P92.77 million or 29.7%, largely due to the lower income contribution of the Bank s insurance subsidiaries; Trading gain (loss) on securities at P63.54 million, decreased P81.22 billion or 56.1%, due to higher current market rates; Gross receipts tax at P million, ended higher by P32.37 million or 9.7%, in spite of the overall decrease in other income impacted by the increase in higher tax-based fees and commission. Other expenses at P11.47 billion, grew P1.95 billion or 20.4% driven by the following: Occupancy and equipment-related expenses at P3.75 billion, up P million or 34.5%, due to increased spending on operation infrastructure; Other operating expenses at P3.79 billion, increased P million or 15.2%, largely due to expenses related to EMV issuance, marketing, regulatory, and other miscellaneous transaction; Compensation and Fringe Benefits at P3.94 billion, up P million or 14.0% on account of manpower expansion. Provision for income tax at P1.35 billion, increased P million or 24.0%, on higher current income tax at P1.68 billion, up P73.11 million or 4.6%, while recording lower deferred income tax at (P329.02) million versus last year s (P518.83) million on lower impairment losses. Income attributable to non-controlling interest at P41.49 million, decreased P38.43 million or 48.1%, largely attributable to lower income contribution from insurance subsidiaries and leasing business.

27 Page 25 of 30 Total comprehensive income at P4.31 billion, decreased P million, or 15.6%, due to the P million, or 12.7% decline in net income before minority interest, and the P million, or 57.8% decline in total other comprehensive income, net of tax effect. For Items that may be reclassified subsequently to profit and loss: Fair value reserve on investments of insurance subsidiaries, net of tax effect at (P185.40) million, decreased P million or 257.7%, as a result of lower market valuation of the insurance subsidiaries investment funds; Net change, in fair value reserve on FVOCI securities, net of tax effect at (P93.92) million, decreased P million or 151.9%, on account of lower market valuation of the Bank s investment securities; Share in other comprehensive income of associates at (P306.28) million, declined P million or 506.8%, due to the downward market valuation of the investments of the bancassurance affiliate; Currency translation differences at (P39.21) million, down P million or 159.4%, on account of lower revenue arising from lower investment volume despite the weakening of the Philippine Peso against the Euro Currency; For Items that will not be reclassified to profit and loss: Actuarial gains (losses) on defined benefit plan net of tax effect, at P1.02 million, up P3.48 million or 141.2%, on higher actuarial valuation of bank contribution on retirement fund; Share in other comprehensive gain/(loss) of associates was at P million, up P million or 122.2%, impacted by the change in premium recognition from net to gross of the bancassurance affiliate. This adjustment is in compliance with the Insurance Commission s new framework effective January 1, Income attributable to non-controlling interest at P20.23 million, decreased P77.76 million, or 79.4%, due to lower income contribution by bancassurance affiliate. For the Six Months ended June 30, 2018 and 2017 Net income in the first semester of 2018 was P11.03 billion, down P million or 5.7%, from the profit earned in the first semester of The decrease was driven largely by lower noninterest income and higher operating expenses and taxes, despite impact of higher net interest income and reduced provisions. Total revenues still increased P1.88 billion or 5.3%, to P37.22 billion. Net interest income stood at P26.21 billion, increased P2.70 billion or 11.5%, on account of the P billion or 9.3% expansion in average asset base, and 8 basis points expansion in net interest margin (NIM).

28 Page 26 of 30 Interest income stood at P37.09 billion, up P5.08 billion or 15.9%, and this was affected by the following movements: Increase in interest income on loans and advances at P33.03 billion, up P5.76 billion or 21.1%, due to improvement in average volume and yield; Increase in interest income on FA at FV through profit or loss at P million, up P19.01 million or 16.4%, due to higher average volume and improved yield; Decrease in interest income on deposits with BSP and other banks at P million, down P million or 51.8%, due to lower average volume coupled by lower yield; Decrease in interest income on FA at FV through OCI at P million, down P million or 49.5%, despite slight increase in yield as average volume dropped for the period; Increase in Gross Receipts Tax at P1.22 billion, up P million or 16.3%, as a result of higher interest income. Interest expense at P10.87 billion, increased P2.38 billion, or 28.0%, driven by the increase in interest expense on deposits at P10.00 billion, up P2.08 billion or 26.3%, as expense on documentary stamps tax (DST) on deposits increased for the period. Bills payable and other borrowings at P million, up P million or 51.4%, due to higher average volume and interest cost. Other income at P11.01 billion was P billion, or 6.9% lower than the P11.82 billion earned in the first semester of 2017: Trading gain (loss) on securities at P million, decreased P million or 38.5%, due to one-time income booked last year; Income attributable to insurance operations at P million, decreased P million or 20.1%, due to the lower overall income contribution of the bancassurance affiliate and insurance subsidiaries. Other expenses at P21.22 billion, grew P2.97 million, or 16.3%, from P18.25 billion: Occupancy and equipment-related expenses at P6.61 billion, up P1.28 billion or 24.0%, on increased premises and technology-related costs; Other operating expenses at P7.02 billion, increased P million or 14.8%, largely due to acquiring expenses, EMV-related, marketing, and regulatory costs; Compensation and Fringe Benefits at P7.59 billion, up P million or 11.5%, on increased headcount, largely attributable to BPI Direct BanKo hiring for its new branches and branch-lite units. Provision for income tax at P2.97 billion, increased P million or 6.7%, mainly due to lower deferred income tax at (P276.34) million, up P million from last year s (P578.68) million as the Bank recorded lower provisions for the period. Current income tax at P3.24 billion was down P million due to lower income subject to regular corporate income tax. Income attributable to non-controlling interest at P93.79 million, decreased P61.67 million or 39.7%, largely attributable to lower income contribution from insurance and leasing businesses.

29 Page 27 of 30 Total comprehensive income at P9.37 billion, decreased P2.39 billion, or 20.3%, due to the P million or 6.1% decline, in net income before minority interest, and the P1.81 billion decline in total other comprehensive income, net of tax effect from P95.91 million recorded in For Items that may be reclassified subsequently to profit and loss: Currency translation differences at P million, increased P64.48 million or 58.5%, on account of higher revenue arising from higher investment volume while the Philippine Peso weakened against US and Hong Kong Dollars, and the Euro Currency; Net change in fair value reserve on FVOCI securities, net of tax effect at (P790.12) million, decreased P1.28 billion, or 262.7%, on account of lower market valuation of the Bank s investment securities; Share in other comprehensive income of associates at (P1.01) billion, declined from (P55.20) million from first semester of last year, on lower valuation of the bancassurance affiliate s investments relative to last year; Fair value reserve on investments of insurance subsidiaries, net of tax effect at P million, decreased P million as a result of lower market valuation of the insurance subsidiaries investment funds; For Items that will not be reclassified to profit and loss: Actuarial gains (losses) on defined benefit plan net of tax effect, at (P4.94) million, increased from (P7.83) million versus last year, due to change in financial assumption; Share in other comprehensive gain/(loss) of associates was at P million, up P million or 146.2%, impacted by the change in premium recognition from net to gross of the bancassurance affiliate. This adjustment is in compliance with the Insurance Commission s new framework effective January 1, Income attributable to non-controlling interest at P37.08 million, decreased P million or 79.4%, due to lower income contribution by the bancassurance affiliate.

30 Page 28 of 30 Key Performance Indicators The following ratios, applied on a consolidated basis, are used to assess the performance of the Bank and its majority owned subsidiaries: June 30, 2018 June 30, 2017 Return on Equity (%) Return on Assets (%) Net Interest Margin (%) Operating Efficiency Ratio (%) Capital Adequacy Ratio (%)-Basel III Return on equity (ROE), net income divided by average equity was lower at 10.8%, compared to last year s 13.7% due to the decline in net income at 5.7% versus growth in average equity of 19.6% on account of the recent stock rights offering. Return on assets (ROA), net income divided by average assets, was also lower at 1.2%, versus 1.4% last year due to decline in net income at 5.7% versus growth in average assets at 9.3%. Net interest margin (NIM), net interest income divided by average interest bearing assets, at 3.0% was higher by 8 basis points than the first semester of 2017 on the combined impact of the increase in yields and growth in average interest earning assets. Operating efficiency ratio (cost to income), operating expenses divided by total revenues, increased to 57.0% from 51.6% as increase in operating expenses outpaced that of the revenues. Cost to income ratio measures the Bank s ability to utilize its overhead to generate revenues. Capital adequacy ratio (CAR), total qualifying capital divided by total risk-weighted assets, measures the ability of the Bank s capital funds to cover its various risks. The Bank s CAR improved to 17.3% versus last year s 13.7%, owing to the impact of the May 2018 SRO. The Bank s CAR is above the BSP s minimum requirement of 10%. CET 1 ratio at 16.4%, was higher than 12.8% last year, and above the minimum regulatory requirement.