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the investment entity parent is consolidated. The amendments also allow an investor (that isnot an investment entity and has an investment entity associate or joint venture) to retain thefair value measurement applied by the investment entity associate or joint venture to itsinterests in subsidiaries when applying the equity method. These amendments are notapplicable to the Company.

∂ Amendments to PAS 27, Separate Financial Statements, Equity Method in Separate FinancialStatementsThe amendments allow entities to use the equity method to account for investments insubsidiaries, joint ventures and associates in their separate financial statements. Entitiesalready applying PFRS and electing to change to the equity method in its separate financialstatements will have to apply that change retrospectively. The Company opted not to changeits current treatment (i.e., at cost) in accounting for its subsidiaries and investment in a jointventure.

∂ Amendments to PFRS 11, Joint Arrangements, Accounting for Acquisitions of Interests inJoint OperationsThe amendments to PFRS 11 require a joint operator that is accounting for the acquisition ofan interest in a joint operation, in which the activity of the joint operation constitutes abusiness (as defined by PFRS 3), to apply the relevant PFRS 3 principles for businesscombinations accounting. The amendments also clarify that a previously held interest in ajoint operation is not remeasured on the acquisition of an additional interest in the same jointoperation while joint control is retained. In addition, a scope exclusion has been added toPFRS 11 to specify that the amendments do not apply when the parties sharing joint control,including the reporting entity, are under common control of the same ultimate controllingparty.

The amendments apply to both the acquisition of the initial interest in a joint operation and theacquisition of any additional interests in the same joint operation. These amendments did nothave any impact on the Company as there has been no interest acquired in a joint operationduring the period. The Company will consider these amendments in future acquisition ofinterest in joint operation.

∂ Amendments to PAS 1, Presentation of Financial Statements, Disclosure InitiativeThe amendments are intended to assist entities in applying judgment when meeting thepresentation and disclosure requirements in PFRSs and clarify the following:∂ that entities shall not reduce the understandability of their financial statements by either

obscuring material information with immaterial information; or aggregating material itemsthat have different natures or functions

∂ that specific line items in the statement of income and other comprehensive income andthe statement of financial position may be disaggregated

∂ that entities have flexibility as to the order in which they present the notes to financialstatements

∂ that the share of other comprehensive income of associates and joint ventures accountedfor using the equity method must be presented in aggregate as a single line item, andclassified between those items that will or will not be subsequently reclassified to profit orloss.

These amendments did not have any impact to the parent company financial statements.

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∂ Amendments to PAS 16, Property, Plant and Equipment and PAS 38, Intangible Assets,Clarification of Acceptable Methods of Depreciation and AmortizationThe amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern ofeconomic benefits that are generated from operating a business (of which the asset is part)rather than the economic benefits that are consumed through use of the asset. As a result, arevenue-based method cannot be used to depreciate property, plant and equipment and mayonly be used in very limited circumstances to amortize intangible assets.

These amendments are applied prospectively and did not have any impact to the Company,given that the Company has not used a revenue-based method to depreciate or amortize itsproperty, plant and equipment and intangible assets.

Annual Improvements to PFRSs (2012 - 2014 cycle)The Annual Improvements to PFRSs (2012 – 2014 cycle) are effective for annual periodsbeginning on or after January 1, 2016 and and did not have a material impact to the Company.

∂ Amendment to PFRS 5, Non-current Assets Held for Sale and Discontinued Operations,Changes in Methods of DisposalThis amendment is applied prospectively and clarifies that changing from a disposal throughsale to a disposal through distribution to owners and vice-versa should not be considered to bea new plan of disposal, rather it is a continuation of the original plan. There is, therefore, nointerruption of the application of the requirements in PFRS 5. The amendment also clarifiesthat changing the disposal method does not change the date of classification.

∂ Amendment to PFRS 7, Financial Instruments: Disclosures, Servicing ContractsPFRS 7 requires an entity to provide disclosures for any continuing involvement in atransferred asset that is derecognized in its entirety. The amendment clarifies that a servicingcontract that includes a fee can constitute continuing involvement in a financial asset. Anentity must assess the nature of the fee and arrangement against the guidance in PFRS 7 inorder to assess whether the disclosures are required. The amendment is to be applied such thatthe assessment of which servicing contracts constitute continuing involvement will need to bedone retrospectively. However, comparative disclosures are not required to be provided forany period beginning before the annual period in which the entity first applies theamendments.

∂ Amendment to PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed InterimFinancial StatementsThis amendment is applied retrospectively and clarifies that the disclosures on offsetting offinancial assets and financial liabilities are not required in the condensed interim financialreport unless they provide a significant update to the information reported in the most recentannual report.

∂ Amendment to PAS 19, Employee Benefits, Discount Rate: Regional Market IssueThe amendment is applied prospectively and clarifies that market depth of high qualitycorporate bonds is assessed based on the currency in which the obligation is denominated,rather than the country where the obligation is located. When there is no deep market for highquality corporate bonds in that currency, government bond rates must be used.

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∂ Amendment to PAS 34, Interim Financial Reporting, Disclosure of Information ‘Elsewhere inthe Interim Financial Report’The amendment is applied retrospectively and clarifies that the required interim disclosuresmust either be in the interim financial statements or incorporated by cross-reference betweenthe interim financial statements and wherever they are included within the greater interimfinancial report (e.g., in the management commentary or risk report).

Future Changes in Accounting PoliciesThe Company will adopt the following standards and interpretations when these become effective.Except as otherwise stated, the Company does not expect the adoption of these standards to have asignificant impact on its financial statements.

Effective beginning on or after January 1, 2017

∂ Amendment to PFRS 12, Clarification of the Scope of the Standard (Part of AnnualImprovements to PFRSs 2014 - 2016 Cycle)The amendments clarify that the disclosure requirements in PFRS 12, other than those relatingto summarized financial information, apply to an entity’s interest in a subsidiary, a jointventure or an associate (or a portion of its interest in a joint venture or an associate) that isclassified (or included in a disposal group that is classified) as held for sale.

∂ Amendments to PAS 7, Statement of Cash Flows, Disclosure InitiativeThe amendments to PAS 7 require an entity to provide disclosures that enable users offinancial statements to evaluate changes in liabilities arising from financing activities,including both changes arising from cash flows and non-cash changes (such as foreignexchange gains or losses). On initial application of the amendments, entities are not requiredto provide comparative information for preceding periods. Early application of theamendments is permitted.

∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for UnrealizedLossesThe amendments clarify that an entity needs to consider whether tax law restricts the sourcesof taxable profits against which it may make deductions on the reversal of that deductibletemporary difference. Furthermore, the amendments provide guidance on how an entityshould determine future taxable profits and explain the circumstances in which taxable profitmay include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial applicationof the amendments, the change in the opening equity of the earliest comparative period maybe recognized in opening retained earnings (or in another component of equity, asappropriate), without allocating the change between opening retained earnings and othercomponents of equity. Entities applying this relief must disclose that fact. Early application ofthe amendments is permitted.

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Effective beginning on or after January 1, 2018

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment TransactionsThe amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; andthe accounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, butretrospective application is permitted if elected for all three amendments and if other criteriaare met. Early application of the amendments is permitted.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the forthcoming insurance contracts standard. Theyallow entities to choose between the overlay approach and the deferral approach to deal withthe transitional challenges. The overlay approach gives all entities that issue insurancecontracts the option to recognize in other comprehensive income, rather than profit or loss, thevolatility that could arise when PFRS 9 is applied before the new insurance contracts standardis issued. On the other hand, the deferral approach gives entities whose activities arepredominantly connected with insurance an optional temporary exemption from applyingPFRS 9 until the earlier of application of the forthcoming insurance contracts standard orJanuary 1, 2021.

The overlay approach and the deferral approach will only be available to an entity if it has notpreviously applied PFRS 9.

∂ PFRS 9, Financial InstrumentsPFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. Thestandard introduces new requirements for classification and measurement, impairment, andhedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1,2018, with early application permitted. Retrospective application is required, but providingcomparative information is not compulsory. For hedge accounting, the requirements aregenerally applied prospectively, with some limited exceptions.

As the Company has early adopted the first phase of PFRS 9 (2009 version) effectiveJanuary 1, 2011, the adoption is not expected to have significant impact on the classificationand measurement of the Company’s financial assets and liabilities. The adoption of the finalversion of PFRS 9 will have an effect on the impairment methodology for financial assets.The adoption will also have an effect on the Company’s application of hedge accounting andon the amount of its credit losses. The Company is currently assessing the impact of adoptingthis standard.

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∂ PFRS 15, Revenue from Contracts with CustomersPFRS 15 establishes a new five-step model that will apply to revenue arising from contractswith customers. Under PFRS 15, revenue is recognized at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods orservices to a customer. The principles in PFRS 15 provide a more structured approach tomeasuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full or modified retrospective application isrequired for annual periods beginning on or after January 1, 2018. The Company is currentlyassessing the impact of PFRS 15 and plans to adopt the new standard on the requiredeffectivity date.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part ofAnnual Improvements to PFRSs 2014 - 2016 Cycle)The amendments clarify that an entity that is a venture capital organization, or otherqualifying entity, may elect, at initial recognition on an investment-by-investment basis, tomeasure its investments in associates and joint ventures at fair value through profit or loss.They also clarify that if an entity that is not itself an investment entity has an interest in anassociate or joint venture that is an investment entity, the entity may, when applying the equitymethod, elect to retain the fair value measurement applied by that investment entity associateor joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries.This election is made separately for each investment entity associate or joint venture, at thelater of the date on which (a) the investment entity associate or joint venture is initiallyrecognized; (b) the associate or joint venture becomes an investment entity; and (c) theinvestment entity associate or joint venture first becomes a parent. The amendments should beapplied retrospectively, with earlier application permitted. .

∂ Amendments to PAS 40, Investment Property, Transfers of Investment PropertyThe amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’sintentions for the use of a property does not provide evidence of a change in use. Theamendments should be applied prospectively to changes in use that occur on or after thebeginning of the annual reporting period in which the entity first applies the amendments.Retrospective application is only permitted if this is possible without the use of hindsight.

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and AdvanceConsiderationThe interpretation clarifies that in determining the spot exchange rate to use on initialrecognition of the related asset, expense or income (or part of it) on the derecognition of anon-monetary asset or non-monetary liability relating to advance consideration, the date of thetransaction is the date on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments orreceipts in advance, then the entity must determine a date of the transactions for each payment

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or receipt of advance consideration. The interpretation may be applied on a fully retrospectivebasis. Entities may apply the interpretation prospectively to all assets, expenses and income inits scope that are initially recognized on or after the beginning of the reporting period in whichthe entity first applies the interpretation or the beginning of a prior reporting period presentedas comparative information in the financial statements of the reporting period in which theentity first applies the interpretation.

Effective beginning on or after January 1, 2019

∂ PFRS 16, LeasesUnder the new standard, lessees will no longer classify their leases as either operating orfinance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-assetmodel. Under this model, lessees will recognize the assets and related liabilities for mostleases on their balance sheets, and subsequently, will depreciate the lease assets and recognizeinterest on the lease liabilities in their profit or loss. Leases with a term of 12 months or lessor for which the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward theprinciples of lessor accounting under PAS 17. Lessors, however, will be required to disclosemore information in their financial statements, particularly on the risk exposure to residualvalue.

Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. Whenadopting PFRS 16, an entity is permitted to use either a full retrospective or a modifiedretrospective approach, with options to use certain transition reliefs. The Company iscurrently assessing the impact of PFRS 16 and plans to adopt the new standard on the requiredeffectivity date.

Deferred effectivity

∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor andits Associate or Joint VentureThe amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. Theamendments clarify that a full gain or loss is recognized when a transfer to an associate orjoint venture involves a business as defined in PFRS 3, Business Combinations. Any gain orloss resulting from the sale or contribution of assets that does not constitute a business,however, is recognized only to the extent of unrelated investors’ interests in the associate orjoint venture.

On January 13, 2016, the Financial Reporting Standards Council postponed the originaleffective date of January 1, 2016 of the said amendments until the International AccountingStandards Board has completed its broader review of the research project on equity accountingthat may result in the simplification of accounting for such transactions and of other aspects ofaccounting for associates and joint ventures.

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

∂ In the principal market for the asset or liability; or,∂ In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company. The fair valueof an asset or a liability is measured using the assumptions that market participants would usewhen pricing the asset or liability, assuming that market participants act in their economic bestinterest.

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

All assets and liabilities for which fair value is measured or disclosed in the parent companyfinancial statements are categorized within the fair value hierarchy, described as follows, based onthe lowest level input that is significant to the fair value measurement as a whole:

∂ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities∂ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable∂ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

Financial Assets and Financial LiabilitiesDate of RecognitionPurchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace are recognized on the trade date, whichis the date when the Company commits to purchase or sell the asset. The Company recognizes afinancial asset or a financial liability in the parent company statement of financial position when itbecomes a party to the contractual provisions of the instrument.

Initial Recognition of Financial InstrumentsFinancial assets and liabilities are recognized initially at fair value. The fair value of financialinstruments that are actively traded in organized financial markets are determined by reference toquoted market bid prices at the close of the business at the reporting date.

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‘Day 1’ DifferenceWhere the transaction price in a non-active market is different from the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Company recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ difference) in the statement of incomeunless it qualifies for recognition as some other type of asset or liability. In cases wheretransaction price used is made of data which is not observable, the difference between thetransaction price and model value is only recognized in statement of income when the inputsbecome observable or when the instrument is derecognized. For each transaction, the Companydetermines the appropriate method of recognizing the ‘Day 1’ difference amount.

Classification, Reclassification and Measurement of Financial Assets and Financial LiabilitiesFor purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is anonderivative and meets the definition of ‘equity’ for the issuer (under PAS 32, FinancialInstruments: Presentation), except for certain nonderivative puttable instruments presented asequity by the issuer. All other nonderivative financial instruments are ‘debt instruments’.

Financial Assets at Amortized CostFinancial assets are measured at amortized cost if both of the following conditions are met:

∂ the asset is held within the Company’s business model whose objective is to hold assets inorder to collect contractual cash flows; and,

∂ the contractual terms of the instrument give rise on specified dates to cash flows that are solelypayments of principal and interest on the principal amount outstanding.

Financial assets meeting these criteria are measured initially at fair value plus transaction costs.They are subsequently measured at amortized cost using the effective interest method less anyimpairment in value, with the interest calculated recognized as interest income in the parentcompany statement of income. The Company classified cash and cash equivalents, contractsreceivable, rent receivable, other receivables, due from related parties, and short-term deposits andrefundable deposits (included as part of other assets) as financial assets at amortized cost(see Note 22).

The Company may irrevocably elect at initial recognition to classify a financial asset that meetsthe amortized cost criteria above as at fair value through profit or loss (FVTPL) if that designationeliminates or significantly reduces an accounting mismatch had the financial asset been measuredat amortized cost. In 2016 and 2015, the Company has not made such designation.

Financial Assets at FVTOCIAt initial recognition, the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate equity investments as at FVTOCI. Designation at FVTOCI is notpermitted if the equity investment is held for trading.

A financial asset is held for trading if:

∂ it has been acquired principally for the purpose of selling it in the near term; or∂ on initial recognition it is part of a portfolio of identified financial instruments that the

Company manages together and has evidence of a recent actual pattern of short-termprofit-taking; or,

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

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Financial assets as at FVTOCI are initially measured at fair value plus transaction costs.Subsequently, they are measured at fair value, with no deduction for sale or disposal costs. Gainsand losses arising from changes in fair value are recognized in other comprehensive income (OCI)and accumulated in “Revaluation reserve on financial assets at FVTOCI” in the parent companystatement of financial position. Where the asset is disposed of, the cumulative gain or losspreviously recognized in “Revaluation reserve on financial assets at FVTOCI” is not reclassified toparent company statement of income, but is reclassified to Retained earnings.

Included under this category are the Company’s investments in quoted and unquoted shares ofstock (see Notes 7 and 22).

Dividends earned on holding these equity instruments are recognized in the parent companystatement of income when the Company’s right to receive the dividends is established inaccordance with PAS 18, Revenue, unless the dividends clearly represent recovery of a part of thecost of the investment.

Financial Assets at FVTPLDebt instruments that do not meet the amortized cost criteria or that meet the criteria but theCompany has chosen to designate as at FVTPL at initial recognition, are measured at FVTPL.

Equity investments are classified as at FVTPL, unless the Company designates an investment thatis not held for trading as at FVTOCI at initial recognition.

Financial assets at FVTPL are carried at fair value, and unrealized gains and losses on theseinstruments are recognized as “Mark to market gain” under Other income in the parent companystatement of income. Realized gains are recognized as Other income in the parent companystatement of income. Quoted market prices are used to determine the fair value of these financialinstruments.

Reclassification of Financial AssetsThe Company can reclassify financial assets if the objective of its business model for managingthose financial assets changes. The Company is required to reclassify the following financialassets:

∂ from amortized cost to FVTPL if the objective of the business model changes so that theamortized cost criteria are no longer met; and,

∂ from FVTPL to amortized cost if the objective of the business model changes so that theamortized cost criteria start to be met and the instrument’s contractual cash flows meet theamortized cost criteria.

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

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

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

A financial liability is held for trading if:

∂ it has been incurred principally for the purpose of repurchasing it in the near term; or,∂ on initial recognition, it is part of a portfolio of identified financial instruments that the

Company manages together and has evidence of a recent actual pattern of short-term profit-taking; or,

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

Management may designate a financial liability at FVTPL upon initial recognition when thefollowing criteria are met, and designation is determined on an instrument by instrument basis:

∂ The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the liabilities or recognizing gains or losses on them on adifferent basis; or,

∂ The liabilities are part of a group of financial liabilities which are managed and theirperformance evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy; or,

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

As of December 31, 2016 and 2015, the Company has no financial liability at FVTPL.

Financial Liabilities at Amortized CostFinancial liabilities are measured at amortized cost using the effective interest method, except for:

a. financial liabilities at fair value through profit or loss which are measured at fair value; and,b. financial liabilities that arise when a transfer of a financial asset does not qualify for

derecognition or when the continuing involvement approach applies.

Financial liabilities at amortized cost consist primarily of accounts payable and accrued expenses,short-term debt, long-term debt, and due to related parties (see Note 22).

Offsetting Financial InstrumentsFinancial assets and financial liabilities are only offset and the net amount reported in thestatement of financial position when there is a legally enforceable right to offset the recognizedamounts and the Company intends to either settle on a net basis, or to realize the asset and settlethe liability simultaneously. This is not generally the case with master netting agreements, wherethe related assets and liabilities are presented at gross in the statement of financial position.

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Impairment of Financial AssetsThe Company assesses at each reporting date whether a financial asset or group of financial assetsis impaired.

If there is objective evidence that an impairment loss on loans and receivables carried at amortizedcost has been incurred, the amount of the loss is measured as the difference between the asset’scarrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interestrate (EIR) (i.e. the EIR computed at initial recognition). The carrying amount of the asset shall bereduced either directly or through use of an allowance account. The amount of the loss shall berecognized in the parent company statement of income.

The Company first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant, and individually or collectively for financialassets that are not individually significant. If it is determined that no objective evidence ofimpairment exists for an individually assessed financial asset, whether significant or not, the assetis included in the Company’s financial assets with similar credit risk characteristics. Assets thatare individually assessed for impairment and for which an impairment loss is or continues to berecognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed. Any subsequent reversal of an impairment loss isrecognized in the parent company statement of income, to the extent that the carrying value of theasset does not exceed its amortized cost at the reversal date.

For financial assets at FVTOCI, the Company assesses at each reporting date whether there isobjective evidence that a financial asset or group of financial assets is impaired.

In case of equity investments classified as financial assets at FVTOCI, this would include asignificant or prolonged decline in the fair value of the investments below its cost. Where there isevidence of impairment, the cumulative loss - measured as the difference between the acquisitioncost and the current fair value, less any impairment loss on that financial asset previouslyrecognized in the parent company statement of income - is removed from equity and recognized inthe parent company statement of income. Impairment losses on equity investments are notreversed through the parent company statement of income. Increases in fair value afterimpairment are recognized directly in equity.

In the case of debt instruments classified as financial assets at FVTOCI, impairment is assessedbased on the same criteria as financial assets carried at amortized cost. Interest continues to beaccrued at the original effective interest rate on the reduced carrying amount of the asset and isrecorded as part of interest income in the parent company statement of income. If, in subsequentyear, the fair value of a debt instrument increased and the increase can be objectively related to anevent occurring after the impairment loss was recognized in the parent company statement ofincome, the impairment loss is reversed through the parent company statement of income.

If there is objective evidence that an impairment loss on an unquoted equity instrument that is notcarried at fair value because its fair value cannot be reliably measured, or on a derivative asset thatis linked to and must be settled by delivery of such an unquoted equity instrument has beenincurred, the amount of the loss is measured as the difference between the asset’s carrying amountand the present value of estimated future cash flows discounted at the current market rate of returnfor a similar financial asset.

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Derecognition of Financial Assets and Financial LiabilitiesFinancial AssetsA financial asset is derecognized when:∂ the rights to receive cash flows from the asset have expired;∂ the Company has transferred its rights to receive cash flows from the asset or has assumed an

obligation to pay them in full without material delay to a third party under a ‘pass-through’arrangement; or,

∂ the Company has transferred substantially all the risks and rewards of the asset, or has neithertransferred nor retained substantially all risks and rewards of the asset, but has transferredcontrol of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of an asset nor transferred control ofthe asset, the asset is recognized to the extent of the Company’s continuing involvement in theasset. Continuing involvement that takes the form of a guarantee over the transferred asset ismeasured at the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Company could be required to repay.

Financial LiabilitiesA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or the terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability, and the difference in the respective carrying amounts is recognized in the parent companystatement of income.

Real Estate InventoriesProperty acquired or being constructed for sale in the ordinary course of business, rather than to beheld for rental or capital appreciation, is held as real estate inventory and is measured at the lowerof cost or net realizable value (NRV).

Cost includes:∂ Land acquisition cost and expenses directly related to acquisition∂ Amounts paid to contractors for development and construction∂ Borrowing costs, planning and design costs, costs of site preparation, professional fees,

property transfer taxes, construction overheads and other related costs

NRV is the estimated selling price in the ordinary course of business, based on market prices atthe reporting date, less estimated costs of completion and the estimated costs of sale.

Land and Land DevelopmentLand and land development consist of properties for future development that are carried at thelower of cost or NRV. NRV is the estimated selling price in the ordinary course of business, lessestimated costs of completion and estimated costs to sell. The costs of land and land developmentinclude the (a) land acquisition, (b) costs incurred relative to the acquisition and transfer of landtitle in the name of the Company such as transfer taxes and registration fees, (c) real propertytaxes, and (d) costs incurred on initial development of the raw land in preparation for futureprojects. They are classified to real estate inventories when the project construction starts and thenecessary permits are secured.

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Investments in SubsidiariesThe Company’s investments in subsidiaries are accounted for under the cost method lessaccumulated provisions for impairment losses in the Company’s separate financial statements. Asubsidiary is an entity that is controlled by another entity. Control is achieved when the Companyis exposed, or has rights, to variable returns from its involvement with the investee and has theability to affect those returns through its power over the investee. Specifically, the Companycontrols an investee if and only if the Company has: (a) power over the investee (i.e., existingrights that give it the current ability to direct the relevant activities of the investee); (b) exposure,or rights, to variable returns from its involvement with the investee, and, (c) the ability to use itspower over the investee to affect its returns.

The Company’s investments in subsidiaries and the related percentages of ownership are asfollows:

Percentage of Ownership2016 2015

East West Banking Corporation (EWBC) (1) 77 77FDC Forex Corporation (FFC) 100 100Filinvest Land, Inc. (FLI) 59 59Filinvest Alabang, Inc. (FAI) (2) 92 92FDC Utilities, Inc. (FDCUI) 100 100FDC Misamis Power Corporation

(FDC Misamis) (3) 100 100Pacific Sugar Holdings Corporation (PSHC) 100 100Mactan Seascapes Services, Inc (MSSI)

(formerly Seascapes Resort, Inc.) 100 100Filinvest Hospitality Corporation (FHC)

(formerly FDC Hotels Corporation) 100 100Filinvest Mimosa, Inc. (FMI) (4) 100 –Corporate Technologies, Inc. (CTI) 100 100Countrywide Water Services Inc. (CWSI) 100 100Filinvest Development Cayman Islands (FDCI) 100 100

Notes:1. Includes 37% owned through FFC. In 2015, the Company and FFC subscribed to EWBC a total of 311,406,997 shares at

the offer price of P=21.53 per share, or a total of P=6.7 billion, which resulted to increase in ownership from 75% to 77% (seeNote 8).

2. The percentage ownership in FAI includes the 20% share of FLI in FAI.3. The percentage ownership in FDC Misamis represents the 86% share of FDCUI in FDC Misamis4. The percentage ownership in FMI includes the 50% share of FLI in FMI.

Investment in Joint ArrangementA joint venture is a contractual agreement whereby two or more parties undertake an economicactivity that is subject to joint control. A joint arrangement may either be a joint venture or a jointoperation.

The Company’s investment in joint venture is accounted for using the cost method lessaccumulated provisions for impairment losses. The Company did not account for the investmentin joint venture using the equity method because it availed of the exemption from using the equitymethod as allowed under the PAS 28, Investments in Associates and Joint Venture.

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The Company’s significant investment in joint arrangement represents its investment in 60%equity interest in Chroma Hospitality, Inc. (CHI, formerly Filarchipelago Hospitality, Inc.) as ofDecember 31, 2016 and 2015.

Investment PropertiesInvestment properties are held to earn rentals or for capital appreciation or both, rather than for usein the production or supply of goods or services or for administrative purposes or sale in theordinary course of business.

Investment properties consist of land, buildings and building improvements, furniture, fixtures andother equipment which are part of the building held to earn rentals. Land is carried at cost.Buildings and building improvements, furniture, fixtures and other equipment are carried at costless accumulated depreciation and any impairment in value.

Depreciation is computed on a straight-line basis over the estimated useful life of 40 years forbuildings and building improvements and five to ten (5-10) years for furniture, fixtures and officeequipment.

Investment properties are derecognized when either they have been disposed of or when theinvestment properties are permanently withdrawn from use and no future benefit is expected fromits disposal. Any gains or losses on the retirement or disposal of investment properties arerecognized in the parent company statement of income in the year of retirement or disposal.

Transfers are made to investment properties when, there is a change in use, evidenced by endingof owner-occupation, commencement of an operating lease to another party or ending ofconstruction or development.

Transfers are made from investment properties when, and only when, there is a change in use,evidenced by commencement of owner-occupation or commencement of development with a viewto sale. Transfers between investment properties, owner-occupied property and inventories do notchange the carrying amount of the property transferred and they do not change the cost of thatproperty for measurement or disclosure purposes.

Property and EquipmentProperty and equipment are stated at cost less accumulated depreciation and any impairment invalue. The initial cost of property and equipment comprises its purchase price and any directlyattributable costs of bringing the asset to its working condition and location for its intended use.

Expenditures incurred after the property and equipment have been put into operation, such asrepairs and maintenance and overhaul costs, are normally charged to income in the period inwhich the costs are incurred. In situations where it can be clearly demonstrated that theexpenditures have resulted in an increase in the future economic benefits expected to be obtainedfrom the use of an item of property and equipment beyond its originally assessed standard ofperformance, the expenditures are capitalized as an additional cost of property and equipment.

Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, asfollows:

YearsFurniture, fixtures and office equipment 5 to 10Transportation equipment 5

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The useful life and depreciation method are reviewed to ensure that the period and method ofdepreciation are consistent with the expected pattern of economic benefits from items of propertyand equipment.

An item of property and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use or disposal. When items of property and equipment are sold orretired, the cost and accumulated depreciation and any impairment in value are eliminated fromthe accounts and any gain or loss resulting from the disposal is included in the parent companystatement of income.

Impairment of Nonfinancial AssetsThe carrying values of investment in subsidiaries and joint venture, investment properties, andproperty and equipment are reviewed for impairment when events or changes in circumstancesindicate the carrying values may not be recoverable. If any such indication exists and where thecarrying values exceed the estimated recoverable amounts, the assets or cash-generating units arewritten down to their recoverable amounts. The recoverable amount of the asset is the greater offair value less costs to sell and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current marketassessment of the time value of money and the risks specific to the asset. For an asset that doesnot generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the parentcompany statement of income.

A previously recognized impairment loss is reversed by a credit to current operations to the extentthat it does not restate to a carrying amount in excess of what would have been determined (net ofany accumulated depreciation) had no impairment loss been recognized for the asset in prior years.

Deferred IncomeDeferred income relates to deferred gain on exchange of property with FAC and FLI and exchangeof investments with FLI. The gain on exchange is being amortized based on the sales of therelated properties to third parties. Deferred income related to investments in shares of stock isrealized when the shares are sold to third parties.

Portion of deferred income pertains to deferred charges on exchange with subsidiaries. Theinterest is being amortized over the life of property which is the subject of exchange.

EquityCapital StockThe Company records common and preferred stocks at par value and additional paid-in capital asthe excess of the total contributions received over the aggregate par values of the equity shares.The Company considers the underlying substance and economic reality of its own equityinstrument and not merely its legal form in determining its proper classification. Incremental costsincurred directly attributable to the issuance of new shares are shown in equity as a deductionfrom proceeds, net of tax.

Retained EarningsRetained earnings represents accumulated earnings of the Company, and any other adjustmentsarising from application of new accounting standards, policies or corrections of errors appliedretrospectively, less dividends declared.

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Treasury StockOwn equity instruments which are reacquired are carried at cost and are deducted from equity.

No gain or loss is recognized in parent company statement of income on the purchase, sale, issueor cancellation of the Company’s own equity instruments. When the shares are retired, the capitalstock account is reduced by its par value and excess of cost over par value upon retirement isdebited to additional paid-in capital to the extent of the specific or average additional paid incapital when the shares were issued and to retained earnings for the remaining balance.

Revenue and Income RecognitionRevenue is recognized to the extent that it is probable that the economic benefits associated withtransaction will flow to the Company and the amount can be reliably measured. The Companyassesses its revenue arrangements against specific criteria in order to determine if it is acting asprincipal or agent. The Company has concluded that it is acting as a principal in all of its revenuearrangements.

The following specific recognition criteria must also be met before revenue is recognized:

Real Estate SalesRevenue from sales of substantially completed projects where collectability of sales price isreasonably assured is accounted for using the full accrual method. The percentage-of-completionmethod is used to recognize revenue from sales of projects where the Company has materialobligations under the sales contract to complete the project after the property is sold. Under thismethod, revenue is recognized as the related obligations are fulfilled, measured principally on thebasis of the estimated completion of a physical proportion of the contract work. Real estate salesare recognized using the percentage of completion when (a) the criteria of percentage of collectionover the total selling price is met, and (b) the project is beyond preliminary stage (i.e., engineering,design work, construction contract execution, site clearance and preparation, excavation and thebuilding foundation are finished).

Any excess of collections over the recognized receivables are included in the “Accounts payableand accrued expenses” account in the liabilities section of the parent company statement offinancial position. Collections from accounts which do not qualify yet for revenue recognition aretreated as customer deposits included in the “Accounts payable and accrued expenses” in theparent company statement of financial position.

Sugar SalesSale is recognized when title to the goods has passed to the buyer through the endorsement ofquedans or physical delivery.

Dividend IncomeDividend income is recognized when the Company’s right to receive payment is established.

Management and Service FeesManagement fees from administrative functions and other services are recognized when earned.

Rental ServicesRental income arising from investment properties is accounted for based on a certain percentageof the gross revenue of tenants, pursuant to the terms of the lease contracts. Leases undercontingent rents are recognized as income in the period in which they are earned.

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Interest IncomeInterest income is recognized as the interest accrues taking into account the effective yield on theunderlying assets.

Realized Gains and LossesRevenue from deferred income is recognized by reference to the sale of related properties andinvestments.

Mark to Market Gain Mark to market gain is recognized be reference to the net changes in fair value of derivatives.

OCIOCI are items of income and expenses that are not recognized in accordance with PFRS. TheCompany’s OCI in 2016 and 2015 pertains to unrealized gains on financial assets at FVTOCI andremeasurement losses on net defined benefit liability.

Cost and Expense RecognitionCosts and expenses are recognized in the parent company statement of income when decrease infuture economic benefit related to a decrease in an asset or an increase in a liability has arisen thatcan be measured reliably.

Costs and expenses are recognized in the parent company statement of income:∂ On the basis of a direct association between the costs incurred and the earning of specific

items of income;∂ On the basis of systematic and rational allocation procedures when economic benefits are

expected to arise over several accounting periods and the association can only be broadly orindirectly determined; or,

∂ Immediately when expenditure produces no future economic benefits or when, and to theextent that, future economic benefits do not qualify or cease to qualify, for recognition in theparent company statement of financial position as an asset.

Cost of Real Estate SalesThis is recognized consistent with the revenue recognition method applied. Cost of condominiumunits sold before the completion of the development is determined on the basis of the acquisitioncost of the land and its full development costs, which include estimated costs to completedevelopment works, as determined by the Company’s in-house technical staff.

The cost of inventory recognized in profit or loss on disposal is determined with reference to thespecific costs incurred on the property, allocated to saleable area based on relative size and takesinto account the percentage of completion used for revenue recognition purposes.

Commission ExpenseCommissions paid to sales or marketing agents on the sale of pre-completed real estate units aredeferred when recovery is reasonably expected and are charged to expense in the period in whichthe related revenue is recognized as earned. Commission expense is included in the “Selling andmarketing expenses” account in the parent company statement of income.

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Retirement CostsThe net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets, adjusted forany effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the presentvalue of any economic benefits available in the form of refunds from the plan or reductions infuture contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

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

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs. These amounts are calculated periodically by anindependent qualified actuary.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income inprofit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods. All remeasurements recognized inother comprehensive income account “Remeasurement gains (losses) on net defined benefitliability” are not reclassified to another equity account in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paiddirectly to the Company. Fair value of plan assets is based on market price information. When nomarket price is available, the fair value of plan assets is estimated by discounting expected futurecash flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expectedperiod until the settlement of the related obligations).

The Company’s right to be reimbursed of some or all of the expenditure required to settle adefined benefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

Termination BenefitTermination benefits are employee benefits provided in exchange for the termination of anemployee’s employment as a result of either an entity’s decision to terminate an employee’semployment before the normal retirement date or an employee’s decision to accept an offer ofbenefits in exchange for the termination of employment.

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A liability and expense for a termination benefit is recognized at the earlier of when the entity canno longer withdraw the offer of those benefits and when the entity recognizes related restructuringcosts. Initial recognition and subsequent changes to termination benefits are measured inaccordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.

Employee Leave EntitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly within twelvemonths after the end of the annual reporting period is recognized for services rendered byemployees up to the end of the reporting period.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset. A reassessment is made after inception of the lease only if one of the following applies: (a)there is a change in contractual terms, other than a renewal or extension of the arrangement; (b) arenewal option is exercised or extension granted, unless that term of the renewal or extension wasinitially included in the lease term; (c) there is a change in the determination of whetherfulfillment is dependent on a specific asset; or, (d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for any of the scenarios (a), (c) or (d) and atthe date of renewal or extension period for the scenario (b).

Operating LeasesLeases where the Company does not transfer substantially all the risks and benefits of ownershipof the asset are classified as operating leases. Initial direct costs incurred in negotiating anoperating lease are added to the carrying amount of the leased asset and recognized over the leaseterm on the same bases as rental income.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of a qualifying asset. Qualifying assets are assets that necessarily take a substantialperiod of time to get ready for intended use or sale. Interest and other financing costs incurredduring the construction period on borrowings used to finance property development are capitalizedas part of development costs included under “Real estate inventories” and “Land and landdevelopment” account in the parent company statement of financial position. Capitalization ofborrowing costs commences when the activities to prepare the asset are in progress andexpenditures and borrowing costs are being incurred. Capitalization of borrowing costs ceaseswhen substantially all the activities necessary to prepare the asset for its intended sale arecomplete. If the carrying amount of the asset exceeds its recoverable amount, an impairment lossis recorded. All other borrowing costs that are not eligible for capitalization are expensed asincurred.

Income TaxesCurrent TaxCurrent tax assets and liabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the taxation authorities. The tax rates and tax laws usedto compute the amount are those that are enacted or substantively enacted at the reporting date.

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Deferred TaxDeferred tax is provided on all temporary differences at the reporting date between the tax basesof assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences with certainexceptions. Deferred tax assets are recognized for all deductible temporary differences,carryforward benefit of the excess of minimum corporate income tax (MCIT) over regularcorporate income tax and unused net operating loss carryover (NOLCO), to the extent that it isprobable that taxable profit will be available against which the deductible temporary differencesand carryforward of MCIT and unused NOLCO can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient taxable profit will be available to allow all orpart of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed ateach reporting date and are recognized to the extent that it has become probable that future taxableprofit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theyear when the asset is realized or the liability is settled, based on tax rates and tax laws that havebeen enacted or substantively enacted at the reporting date. Income tax relating to itemsrecognized directly in other comprehensive income is recognized in consolidated statement ofcomprehensive income and not in the consolidated statement of income.

Foreign Currency Exchange Transactions and TranslationsThe functional and presentation currency of the Company is the Philippine Peso. Transactionsdenominated in foreign currencies are recorded in Philippine Peso based on the exchange ratesprevailing at the transaction dates. Foreign currency denominated monetary assets and liabilitiesare translated to Philippine Peso at exchange rates prevailing at the reporting date.

Nonmonetary items measured at fair value in a foreign currency are translated using the exchangerates at the date when the fair value was determined.

ProvisionsA provision is recognized only when the Company has a present obligation (legal or constructive)as a result of a past event, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation, and a reliable estimate can be made on the amount of theobligation. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current market assessmentof the time value of money and, where appropriate, the risks specific to the liability. Wherediscounting is used, the increase in the provision due to the passage of time is recognized asinterest expense.

ContingenciesContingent liabilities are not recognized in the parent company financial statements. They aredisclosed in the parent company financial statements unless the possibility of an outflow ofresources embodying economic benefits is remote. Contingent assets are not recognized in theparent company financial statements but are disclosed in the parent company financial statementswhen an inflow of economic benefits is probable.

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Segment ReportingThe Company’s operating businesses are organized and managed separately according to thenature of the products and services provided, with each segment representing a strategic businessunit that offers different products and serves different markets. Financial information on businesssegments is presented in Note 24 to the parent company financial statements.

Events After the Reporting DatePost year-end events that provide additional information about the Company’s position at thereporting date (adjusting events) are reflected in the parent company financial statements. Postyear-end events that are not adjusting events are disclosed in the notes to parent company financialstatements when material.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of parent company financial statements in conformity with PFRS requires theCompany to make judgments, estimates and assumptions that affect the amounts reported in theparent company financial statements and accompanying notes. Future events may occur whichwill cause the judgments and assumptions used in the estimates to change. The effects of anychange in judgments and estimates are reflected in the parent company financial statements asthey become reasonably determinable.

Judgments and estimates are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be determinable underthe circumstances.

JudgmentsIn the process of applying the Company’s accounting policies, management has made thefollowing judgments, apart from those involving estimations, which have the most significanteffect on the amounts recognized in the parent company financial statements:

a. Real Estate Revenue RecognitionSelecting an appropriate revenue recognition method for a real estate sale transaction requirescertain judgments based on, among others, buyer’s commitment on sale which may be ascertainedthrough the significance of the buyer’s initial down payment. The Company has set a certainpercentage of collection over the total selling price in determining buyer’s commitment on thesale. It is when the buyer’s investment is considered adequate to meet the probability criteriathat economic benefits will flow to the Company.

ContingenciesIn the normal course of business, the Company is currently involved in various legalproceedings and assessments. The estimate of the probable costs for the resolution of therelated claims has been developed in consultation with outside counsel handling the defense inthese matters and based upon analysis of potential results. The Company currently believesthe result of these proceedings will not have material effect on the Company’s financialposition. It is possible, however, that future results of operations could be materially affectedby changes in the assessment of probability and estimates of potential outflow or in theeffectiveness of the strategies relating to these proceedings (see Note 23).

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b. Evaluation of Impairment of Nonfinancial AssetsThe Company assesses impairment on nonfinancial assets whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverable. Thefactors that the Company considers important which could trigger an impairment reviewinclude (a) significant underperformance relative to expected historical or projected future operatingresults; (b) significant changes in the manner of use of the acquired assets or the strategy for overallbusiness; (c) significant decline in assets’ market value, obsolescence or physical damage of an asset,plans in discontinuing the real estate projects; and (d) significant negative industry or economic trends.

An impairment loss is recognized whenever the carrying amount of an asset exceeds itsrecoverable amount. The recoverable amount is the higher of an asset’s fair value less cost tosell and value in use. The fair value less cost to sell is the amount obtainable from the sale ofan asset in an arm’s length transaction while the value in use is the present value of estimatedfuture cash flows expected to arise from the continuing use of an asset and from its disposal atthe end of its useful life. Recoverable amounts are estimated for individual assets or, if it isnot possible, for the cash-generating unit in which the asset belongs.

In determining the present value of estimated future cash flows expected to be generated fromthe continued use of the assets, the Company is required to make estimates and assumptionsthat may materially affect the recoverable amount of the assets.

No impairment loss was recognized in 2016 and 2015. As of December 31, the carryingvalues of the Company’s nonfinancial assets follow:

2016 2015(In Thousands)

Advances to contractors, officers and employees (Note 5) P=3,367 P=40,208Investments in shares of stock (Note 8) 46,039,248 44,650,506Investment properties (Note 9) 2,026,226 2,363,488Property and equipment (Note 10) 1,780 2,763Other assets - net of deposits (Note 11) 243,700 235,100

Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year are discussed below.

a. Evaluation of Impairment of Financial Assets at Amortized CostThe Company reviews loans and receivables, other than cash and cash equivalents, at eachreporting date to assess whether an allowance for impairment should be recorded in the parentcompany statement of income. If there is objective evidence that an impairment loss on loansand receivables, other than cash and cash equivalents, carried at amortized cost has beenincurred, the carrying amount of the asset shall be reduced either directly or through use of anallowance account. The amount of the loss shall be recognized in the parent companystatement of income.

The Company maintains allowance for doubtful accounts based on the result of the individualand collective assessment. Under the individual assessment, impairment loss is determined asthe difference between the receivables carrying balance and recoverable amount. Factorsconsidered in individual assessment are payment history, account status and term.

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The collective assessment would require the Company to classify its receivables based on thecredit risk characteristics (customer type, payment history, account status and term) of thecustomers. Impairment loss is then determined based on historical loss experience of the receivablesgrouped per credit risk profile adjusted on the basis of current observable data to reflect the effects ofcurrent conditions. The methodology and assumptions used for the individual and collectiveassessments are based on management’s judgment and estimate. Therefore, the amount and timing ofrecorded expense for any period would differ depending on the judgments and estimates made for theperiod. Based on the Company’s experience, its loans and receivables are highly collectible orcollectible on demand.

The carrying values of receivables (excluding nonfinancial assets) amounted to P=474.1 millionand P=915.3 million as of December 31, 2016 and 2015, respectively (see Note 5). Due fromrelated parties amounted to P=7,709.3 million and P=7,420.4 million as of December 31, 2016and 2015, respectively (see Note 15).

b. Fair Value of Financial Assets and Financial LiabilitiesPFRS requires certain financial assets and financial liabilities to be carried at fair value, whichrequires the use of extensive accounting estimates and judgments. While significantcomponents of fair value measurement were determined using verifiable objective evidence(i.e. foreign exchange rates, interest rate and volatility rates), the amount of changes in fairvalue would differ due to usage of different valuation methodology. Any changes in fair valueof these financial assets and financial liabilities would affect directly the parent companystatement of income and other comprehensive income. See Note 22 for the related fair valuesof the Company’s financial assets and financial liabilities.

c. Estimating NRV of Real Estate InventoriesThe Company adjusts the cost of its real estate inventories to NRV based on its assessment ofthe recoverability of the inventories. In determining the recoverability of the inventories,management considers whether those inventories are damaged or if their selling prices havedeclined. Likewise, management also considers whether the estimated costs of completion orthe estimated costs to be incurred to make the sale have increased.

The amount and timing of recorded expenses for any period would differ if differentjudgments were made or different estimates were utilized.

As of December 31, 2016 and 2015, real estate inventories amounted to P=409.7 million andP=605.7 million, respectively. Land and land development amounted to P=71.0 million as ofDecember 31, 2016 and 2015 (see Note 6).

d. Estimation of Pension ObligationThe determination of the Company’s obligation and cost for pension is dependent on selectionof certain assumptions used by actuaries in calculating such amounts. Those assumptions aredescribed in Note 20 and include among others, discount rates, expected returns on plan assetsand rates of salary increase. While the Company believes that the assumptions are reasonableand appropriate, significant differences in actual experience or significant changes inassumptions materially affect retirement obligations.

Pension liabilities amounted to P=182.6 million and P=134.2 million on December 31, 2016 and2015, respectively (see Note 20).

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e. Recognition of Deferred TaxesThe Company reviews the carrying amounts of deferred tax assets at each reporting date andreduces to the extent that is no longer probable that sufficient income will be available toallow all or part of the deferred tax assets to be utilized

The Company recognized deferred tax asset amounting to P=305.3 million and P=470.6 millionas of December 31, 2016 and 2015, respectively. The tax effect of carryforward benefits ofNOLCO and MCIT for which no deferred tax assets were recognized amounted toP=575.7 million and P=199.0 million as of December 31, 2016 and 2015, respectively(see Note 21).

4. Cash and Cash Equivalents

This account consists of:

2016 2015(In Thousands)

Cash (Notes 15 and 22) P=2,163,018 P=1,270,550Cash equivalents (Notes 15 and 22) 643,566 622,788

P=2,806,584 P=1,893,338

Cash includes cash on hand and in banks. Cash in banks earn interest at the respective bankdeposit rates. Cash equivalents are short-term, highly liquid investments that are readilyconvertible to known amounts of cash with original maturities of three (3) months or less fromdates of placement, subject to an insignificant risk of change in value and earn interest at therespective short-term deposit rates.

Interest earned from the Company’s cash and cash equivalents amounted P=7.4 million andP=17.5 million in 2016 and 2015, respectively.

5. Receivables

This account consists of:

2016 2015Due Within

One YearDue AfterOne Year Total

Due WithinOne Year

Due AfterOne Year Total

(In Thousands)Contracts receivable

(Note 22) P=377,737 P=– P=377,737 P=761,758 P=79,801 P=841,559Advances to contractors – – – 21,944 – 21,944Rent receivable (Note 15 and 22) 53,125 – 53,125 20,218 – 20,218Advances to officers and

employees 3,367 – 3,367 18,264 – 18,264Others (Note 22) 43,225 – 43,225 53,557 – 53,557

P=477,454 P=– P=477,454 P=875,741 P=79,801 P=955,542

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Contracts receivable include real estate sales with deferred financing scheme which are collectiblefor a maximum period of two (2) years and are noninterest-bearing while installment contractsreceivable, which are collectible for a maximum period of five (5) years, earn interest at 15% perannum. Interest income recognized on contracts receivable amounted to P=5.0 million in 2016 andP=2.4 million in 2015.

Advances to contractors represent cash advances for the construction services of ongoing realestate projects which will be offset against progress billings.

Rent receivable pertains to the rental receivable from lessees resulting from accrual and straightline amortization of rental income.

Advances to officers and employees are advances for expenses and disbursements necessary incarrying out their functions in the ordinary course of business such as for selling and marketingactivities and other expenses arising from ordinary course of business. These are liquidated orcharged against officers’ and employees’ monthly salaries.

Other receivables include accrued interest receivable, receivables from brokers and receivablefrom sugar sales.

6. Real Estate Inventories and Land and Land Development

Real estate inventories pertain to the costs incurred on the Company’s Beaufort Project, whichinvolves development of condominium towers located in Bonifacio Global City. The Companyhas substantially completed the development of Beaufort Project in 2015

Land and land development pertains to raw land intended for future development. As ofDecember 31, 2016 and 2015, land and land development amounted to P=71.0 million.

A summary of the movements in real estate inventories is set out below:

2016 2015(In Thousands)

Opening balance at January 1 P=605,720 P=773,084Project construction/development costs incurred 19,843 90,317Borrowing costs capitalized as project

costs (Note 13) - 487Cost of inventories sold (215,876) (258,168)

P=409,687 P=605,720

Certain bank loans were obtained by the Company to finance its on-going projects. The averagecapitalization rate used is 6.1% in 2015 (nil in 2016; see Note 13).

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7. Financial Assets at FVTOCI

Financial assets at FVTOCI are as follows:

2016 2015(In Thousands)

Quoted:Investment in club shares P=90,740 P=84,400Investments in shares of stock 368 368

91,108 84,768Unquoted:

Investments in shares of stock 15,858 15,858Investment in club shares 4,500 4,500

20,358 20,358P=111,466 P=105,126

Unquoted investments in shares of stock include unlisted preferred shares of a public utilitycompany.

As of December 31, 2016 and 2015, financial assets at FVTOCI include net unrealized gains asfollows:

2016 2015(In Thousands)

Balance at the beginning of year P=70,707 P=66,867Unrealized gains recognized in OCI 6,340 3,840

P=77,047 P=70,707

8. Investments in Shares of Stock

This account consists of investments in the shares of stock of the Company’s subsidiaries and jointarrangement as follows:

Investments in Subsidiaries

2016 2015(In Thousands)

EWBCBalances at beginning of year P=7,715,001 P=4,513,550Additions (a) - 3,201,451Balances at end of year 7,715,001 7,715,001

FDCUIBalances at beginning of year 2,246,301 2,385,247Reclassification to due from related parties

(Note 15) - (138,946)Balances at end of year 2,246,301 2,246,301

(Forward)

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2016 2015FDC Misamis

Balances at beginning of year P=3,811,813 P=2,237,813Additions (b) 1,334,403 1,574,000Balances at end of year 5,146,216 3,811,813

FHCBalances at beginning of year 994,330 517,080Additions (c) 15,000 477,250Balances at end of year 1,009,330 994,330

FLICommon 13,249,302 13,249,302Preferred 80,000 80,000

FFC 1,557,661 1,557,661PSHC 11,160,000 11,160,000FAI 3,200,000 3,200,000MSSI 495,000 495,000FMI (Note 23) (d) 39,339 -CTI 500 500CWSI 134,375 134,375FDCI 2,032 2,032Others 1,050 1,050

P=46,036,107 P=44,647,365

(a) In 2015, the Company subscribed to additional 148,626,651 common shares of EWBC fora subscription price amounting to P=3.2 billion.

(b) In 2016 and 2015, the Company paid P=1,334.4 million for 13.0 million non-votingpreferred shares and P=1,574.0 million for 16.0 million non-voting preferred shares of FDCMisamis, respectively.

(c) In 2016, the Company paid a total of P=15.0 million for 150,000 shares of FHC. In 2015,the Company paid a total of P=477.3 million for 4.8 million additional shares of FHC.

(d) In 2016, the Company paid P=39.3 million for 125.0 million shares of FMI.

Investment in Joint Arrangement

The Company’s significant investment in joint arrangement represents investment in 60% equityinterest in CHI as of December 31, 2016 and 2015.

Total investment in joint arrangement amounted to P=3.1 million as of December 31, 2016 and2015.

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9. Investment Properties

The rollforward analysis of this account follows:

2016

Land

Buildings andBuilding

Improvements

Furniture,Fixtures and

OtherEquipment Total

(In Thousands)CostBalances at beginning of year P=1,228,176 P=1,252,550 P=111,172 P=2,591,898Adjustments (294,992) – – (294,992)Balances at end of year 933,184 1,252,550 111,172 2,296,906Accumulated depreciationBalances at beginning of year – 170,043 58,367 228,410Depreciation (Note 16) – 31,153 11,117 42,270Balances at end of year – 201,196 69,484 270,680Net book values P=933,184 P=1,051,354 P=41,688 P=2,026,226

2015

Land

Buildings andBuilding

Improvements

Furniture,Fixtures and

OtherEquipment Total

(In Thousands)CostBalances at beginning of year P=1,228,176 P=1,253,452 P=111,172 P=2,592,800Adjustments (Note 10) – (902) − (902)Balances at end of year 1,228,176 1,252,550 111,172 2,591,898Accumulated depreciationBalances at beginning of year – 138,892 47,248 186,140Depreciation (Note 16) – 31,151 11,119 42,270Balances at end of year – 170,043 58,367 228,410Net book values P=1,228,176 P=1,082,507 P=52,805 P=2,363,488

Rental income from investment properties amounted to P=162.4 million and P=121.1 million in 2016and 2015, respectively. Costs of rental services arising from investment properties amounted toP=46.9 million and P=45.8 million in 2016 and 2015, respectively (see Note 16).

The aggregate fair value of the Company’s investment properties amounted to P=2,600.0 million asof December 31, 2016 and 2015, respectively (see Note 22). Fair value was derived on the basisof recent sales of similar properties in the same area as the investment properties and taking intoaccount the economic conditions prevailing at the time the valuations were made.

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10. Property and Equipment

The rollforward analysis of this account follows:

2016Furniture,

Fixtures andOffice

EquipmentTransportation

Equipment Total(In Thousands)

CostBalances at beginning of year P=41,689 P=13,955 P=55,644Additions 40 – 40Adjustment (130) – (130)Balances at end of year 41,598 13,955 55,554Accumulated depreciationBalances at beginning of year 40,333 12,548 52,881Depreciation (Note 17) 402 491 893Balances at end of year 40,734 13,039 53,774Net book value P=864 P=916 P=1,780

2015Furniture,

Fixtures andOffice

EquipmentTransportation

Equipment Total(In Thousands)

CostBalances at beginning of year P=40,369 P=12,739 P=53,108Additions 418 1,216 1,634Reclassification (Note 9) 902 − 902Balances at end of year 41,689 13,955 55,644Accumulated depreciationBalances at beginning of year 39,510 11,964 51,474Depreciation (Note 17) 823 584 1,407Balances at end of year 40,333 12,548 52,881Net book value P=1,356 P=1,407 P=2,763

Fully depreciated property and equipment with gross carrying amounts of P=1.4 million as ofDecember 31, 2016 and 2015, respectively, are still used in operations.

11. Other Assets

This account consists of:

2016 2015(In Thousands)

Creditable withholding taxes P=240,143 P=215,402Short-term deposits (Notes 15 and 22) 12,974 486,555Refundable deposits (Note 22) 8,922 7,239Deferred input taxes 47 3,709Others 3,512 15,989

P=265,598 P=728,894

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Creditable withholding taxes are taxes withheld by the withholding agents from payments to theCompany which are creditable against the income tax payable.

Short-term deposits pertain to cash placements with maturity of four (4) to six (6) months and earninterest rate of 0.5% to 1% in 2016 and 0.5% in 2015. Interest earned on short term depositsamounted to P=4.3 million and P=2.2 million in 2016 and 2015, respectively.

Refundable deposits pertain to leased premises for the model unit of the Company’s developmentprojects, which will be refunded upon termination of lease agreement, and refundable meterdeposits.

Deferred input taxes represent the input taxes on purchase of goods and services which aredeferred following existing Value-added tax (VAT) rules.

As of December 31, 2016 and 2015, all other assets, except for the carrying values of refundabledeposits and deferred input taxes amounting to P=9.0 million and P=10.9 million, respectively, areconsidered as current.

12. Accounts Payable and Accrued Expenses

This account consists of:

2016 2015(In Thousands)

Accounts payable P=108,663 P=890,134Accrued interest expense 261,124 263,061Customers’ deposits 249,075 283,628Retention fees payable 133,875 150,146Others 41,105 21,159

P=793,842 P=1,608,128

Accounts payable includes liability to contractors.

Accrued interest expense pertains to interest on bonds payable and bank loans of the Company(see Note 13).

Customers’ deposits include collections from accounts which had not yet qualified for revenuerecognition as real estate sales related to the Company’s development projects.

Retention fees payable pertains to the amount withheld from the progress billings of thecontractors and is released generally one year from completion of the construction agreement.

Others pertain mainly to withholding taxes and output VAT payable.

Current portion of retention fee payable amounted to P=15.7 million and P=15.5 million as ofDecember 31, 2016 and 2015, respectively.

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13. Short-term and Long-term Debt

As of December 31, 2015, short-term debt consists of the following borrowings of Company andtheir contractual settlement dates (nil as of December 31, 2016; amounts in thousands):

Unsecured one (1) year loan obtained on April 22, 2015 with interest rate of 3.7% per annum. P=998,435Unsecured one year (1) loan obtained on April 22, 2015 with interest rate of 3.7% per annum. 998,435Unsecured one (1) year loan obtained on April 22, 2015 with interest rate of 3.7% per annum. 499,230

P=2,496,100

On April 22, 2015, the Company also obtained short-term loan from a local bank amounting toP=6.0 billion and is payable within one year. The loan was settled on October 7, 2015.

On April 21, 2016, the Company obtained short-term loan from a local bank amounting toP=1.0 billion with interest rate of 3.0% per annum and is payable within two (2) months. The loanwas settled on June 20, 2016.

Long-term debt consisted of the following respective borrowings of the Company and theircontractual settlement dates:

2016 2015 Collateral(In Thousands)

a. Fixed rate 10-year bonds due in 2024 with aggregateprincipal amount of P=8,800.0 million issued on January 24,2014 with interest rate of 6.1% per annum payable quarterlyin arrears P=8,735,408 P=8,719,375 Clean

b. Fixed-rate 7-year loan obtained in November 2013 withinterest rate of 4.5% per annum (inclusive of GRT) payablequarterly in arrears. 5,585,977 5,601,706

Cash depositof a

subsidiaryc. Fixed-rate 5-year loan obtained in October 2015 with

interest rate of 4.5% per annum (inclusive of GRT)payable quarterly in arrears. 2,958,555 2,955,818 Clean

d. Fixed-rate 5-year loan obtained in April 2016 with interestrate of 4.3% per annum (inclusive of GRT) payable quarterlyin arrears. 1,493,527 − Clean

e. Fixed-rate 5-year loan obtained in October 2015 withinterest rate of 4.7% per annum (inclusive of GRT) payablequarterly in arrears. 996,141 995,224 Clean

f. Fixed-rate 5-year loan obtained in June 2016 with interestrate of 4.5% per annum (inclusive of GRT) payable quarterlyin arrears. 995,453 − Clean

g. Fixed-rate 5-year loan obtained in September 2016 withinterest rate of 4.3% per annum (inclusive of GRT) payablequarterly in arrears. 796,240 − Clean

P=21,561,301 P=18,272,123

Entire amount of the Company’s long-term debt is noncurrent as of December 31, 2016 and 2015.

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The Company’s long-term debt are unsecured and no assets are held as collateral for these long-term debt, except for the P=5,586.0 million loans availed from EWBC, which is collateralized by acash deposit of FDCI (see Note 5).

As of December 31, 2016 and 2015, the unamortized deferred charges related to long-term debtfrom local banks amounted to P=110.5 million and P=119.7 million, respectively.

Interest expense recognized in the parent company statements of income follows:

2016 2015(In Thousands)

Long-term debt P=963,993 P=777,392Short-term debt 31,953 160,211

P=995,946 P=937,603

Debt Covenant The agreement covering the fixed rate ten (10) year local bonds requires maintaining financial

ratios including debt-to-equity ratio of not more than 2.0x; minimum current ratio of 2.0x andinterest coverage ratio of not less than 3.0x. These are calculated based on the consolidatedfinancial statements.

These loan agreements also provide restrictions and certain requirements with respect to, amongothers, making any distribution on its share capital, purchase, redemption or acquisition of anyshare of the Company, incurrence or assumption of indebtedness outside the ordinary course ofbusiness, sale or transfer and disposal of all or a substantial part of its capital assets, utilization offunds, and entering into any partnership, merger, consolidation or reorganization.

The Company has complied with these contractual agreements. There was neither default norbreach noted as of December 31, 2016 and 2015.

14. Equity

Capital Stock and Additional Paid-in CapitalThe details of the Company’s common and preferred shares as of December 31, 2016 and 2015are as follows (amounts in thousands, except par value figures):

Common Shares Preferred SharesAuthorized shares 15,000,000 2,000,000Par value per share P=1 P=1Issued and outstanding shares 9,317,474 −Treasury shares 2,398 −

On December 22, 1982, the SEC approved the registration of 5,300,000 shares, divided into5,200,000 Class A shares, and 100,000 class B shares with par value of P=10.0 per share.

On April 13, 1992, the SEC approved the registration of 144,575,000 common shares with parvalue of P=10.0 per share.

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On March 10, 1993, the SEC approved the reduction of par value from P=10.0 to P=5.0 per share ofthe Company’s common shares which at that time consisted of P=1.5 billion authorized commonstocks divided into 90,000,000 shares of Class “A” common shares and 60,000,000 shares ofClass “B” common shares.

On December 20, 1993, the stockholders approved the reduction of the par value per share fromP=5.0 to P=1.0 and to unclassify the Company’s capital stock.

On October 15, 2010, the stockholders and BOD of the Company approved the increase in theauthorized capital stock of the Company from P=10.0 billion, divided into 10.0 billion commonshares with a par value of P=1 per share to P=17 billion, divided into 15.0 billion common shareswith a par value of P=1 per share and 2 billion non-voting and redeemable preferred shares with apar value of P=1 per share. Article Seven of the Amended Articles of Incorporation of theCompany was amended to effect the increase in the authorized capital stock of the Company. OnAugust 19, 2011, the SEC approved the increase in the authorized capital stock of the Company.

Preferred shares shall have the following features:(a) not entitled to any voting right or privilege, except in those cases expressly provided by law;(b) redeemable subject to the terms and conditions to be fixed by the BOD;(c) entitled to dividends at the rate to be determined by the BOD prior to the issuance of shares, to

be payable out of the surplus profits of the Corporation so long as the preferred shares areoutstanding; and,

(d) may be subject to such other additional terms and conditions to be fixed by the BOD.

Below is the summary of the outstanding number of shares and holders of security as ofDecember 31, 2016:

Year

Number ofShares

Registered(In Thousands)

Number of holders of

securities as ofyear end

December 31, 2014 9,317,474 4,207Add/(deduct) movement − (36)December 31, 2015 9,317,474 4,171Add/(deduct) movement − (47)December 31, 2016 9,317,474 4,124Note: Exclusive of 2,398 treasury shares.

Dividend DeclarationOn May 15, 2015, the Company’s BOD approved the declaration and payment of cash dividendsof P=465.9 million or P=0.050 per share for every common share payable on July 2, 2015 tostockholders of record as of June 10, 2015.

On April 29, 2016, the Company’s BOD approved the declaration and payment of cash dividendsof P=480.8 million or P=0.052 per share for every common share payable on June 21, 2016 tostockholders of record as of May 27, 2016.

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Retained EarningsRetained earnings available for dividend declaration amounted to P=7,235.6 million andP=6,214.7 million as of December 31, 2016 and 2015, respectively.

Retained earnings are further restricted for the payment of dividends to the extent of the commonshares held in treasury amounting to P=24.2 million.

15. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party in making financial and operating decisions and the parties are subject to commoncontrol or significant influence, herein referred to as affiliates. Related parties may be individualsor corporate entities.

Significant transactions with related parties follow:

a) Cash and Cash EquivalentsThe Company maintains cash accounts and short-term deposit with EWBC, a subsidiarybank. Cash and cash equivalents earn interest at the prevailing short-term investment rates.

b) ReceivablesThe Company entered into a lease agreement as a lessor, with a subsidiary, on the use of itsbuilding and properties for the latter in its business operations. The term is for 25 years,renewable for another 25-year term. The subsidiary agreed to pay the Parent Company amonthly rent based on 15% of its gross revenue for first six years and 20% of gross revenuefor the remaining term of the lease.

c) Due to/from Related Parties∂ Due to/from related parties consist mostly of share of the related parties in various

common selling and marketing and general administrative expenses.

∂ The Company recognizes dividend income from its investment in subsidiaries when theCompany’s right to receive payment is established (see Note 19). Unpaid dividendreceivable is included under “Due from related parties” account in the parent companystatements of financial position as of December 31, 2016 and 2015.

∂ In 2016 and 2015, the Company purchased sugar inventories from its subsidiaries for saleto third parties.

∂ In April 2013, the Company guaranteed the USD300.0 million seven (7)-year bondsissued by FDCI. FDCI subsequently advanced to the Company USD150.0 million of theproceeds of the bonds which was used by the Company to pre-terminate its existing long-term debt and as additional investments in its subsidiaries.

In 2013, the Company repurchased USD13.5 million bonds issued by FDCI at a discountand were subsequently cancelled by FDCI.

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∂ In 2016 and 2015, the Company granted interest-bearing loans to FDCUI and FDCMisamis to finance the working capital requirements of their Independent Power ProducerAdministration (IPPA) contracts. The loan is subject to an annual fixed interest rate of8.0% and is repayable throughout the term of the IPPA contract.

∂ Included in due from related parties is a deposit for additional subscription to FDCUI’scommon shares amounting to P=131.9 million as of December 31, 2013. The amount wasinitially recognized as part of due from related parties awaiting SEC’s approval to theproposed increase in authorized capital stock of FDCUI. In 2015, the amount wasreclassified as part of the Company’s investment in FDCUI (see Note 8).

∂ The Company recognizes management fee based on percentage of the joint venture salesarising from assignment of its rights to the joint venture to FAI.

In 2014, the Company entered into a professional service agreement with FHI forprocurement, accounting and controllership, public relation services, legal, and otherservices necessary to assist FHI in fulfilling its services to the hotels. Income earned onthis agreement is presented as management and service fees in the parent companystatement of income.

∂ In 2015, the Company entered into service agreements with FAI, FDCUI, and CotabatoSugar Central Company, Inc. (CSCC) and Davao Sugar Central Company, Inc. (DSCC),wholly owned subsidiaries of PSHC, for its marketing and administrative functions andother services. Income earned on this agreement is presented as management and servicefees in the parent company statement of income.

∂ In 2015, ALGI granted interest-bearing loan to the Company amounting to P=2.03 billionwhich bears interest of 3.5%.

∂ In 2016, the Company paid Clark Development Corporation (CDC) advance rent andsecurity deposits on behalf of FMI amounting to P=320.0 million and bid premium onbehalf of MCI amounting to P=800.0 million in relation to the lease agreement for theMimosa Leisure Estate (see Note 23). As of December 31, 2016, due from MCI wascollected while due from FMI is still outstanding. These advances are subject to interestof 7.4% to 9.0% and are due within 12 months.

d) Other AssetsThe Company has short-term money market placements with a subsidiary bank withmaturities of greater than three months. Short-term money market placements earn interest atthe prevailing market rates (see Note 11).

e) Deferred IncomeIn 2016 and 2015, the Company recognized deferred income from property and investmentexchange transaction with FLI and FAI. Deferred income was determined as the differencebetween the consideration given up and fair value of the assets received by the Company.Such deferred income is released to realized gain on exchange of assets when portion of theproperty is sold to third parties and is recognized as part of “Other income” in the parentcompany statement of income.

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f) Long-term DebtThe Company has outstanding loans payable to EWBC, which was secured by cash depositof another subsidiary (see Note 13). The Company has also guaranteed the term loan of FLIamounting to P=225.0 million. The term loan was fully paid as of December 31, 2015.

The amounts and the balances arising from significant related party transactions are as follows:

2016Amount/Volume

Outstandingbalance Terms Conditions

(In Thousands)Ultimate Parent Company – ALGI

c) Due to related parties P=− (P=2,047,763)Interest bearing;

due and demandable Unsecured;∂ Interest expense 66,957 −

Subsidiariesa) Cash and cash equivalents (Note 4)

∂ Cash in banks 892,468 2,147,500

Interest bearing at prevailing marketrate;

due and demandableUnsecured;

no impairment

∂ Cash equivalents 20,777 643,068

Interest bearing at prevailing marketrate;

due and demandableUnsecured;

no impairment∂ Interest income 5,425 −

b) Receivables (Note 5)

∂ Rent receivables 32,906 53,125

25 year lease term;renewable for

another 25 years Unsecured∂ Rental services 162,420 − – –

c) Due from related parties 7,003,409

P=971.1 million earns interest at 7.5%to 9.0%, remaining balance is

noninterest-bearing anddue on demand

Unsecured;no impairment

∂ Dividend income (Note 19) 2,621,219 − – –∂ Operational advances 1,486,860∂ Sharing of expenses 142,785 − – –∂ Interest income 47,114 − –∂ Management fees 31,740 − – –

d) Other assets (Note 11) 12,974 12,974

Interest bearing short-term depositsat prevailing market

rate; due and demandableUnsecured;

no impairment∂ Interest income 1,963 − – –

e) Deferred income − 1,246,896

Portions are amortized upon sale ofproperties to third parties and others are

amortized over life of property Unsecured∂ Interest income 31,145 − – –

f) Long-term debts (Note 13) − (5,585,977)With interest rate of 4.1%,

payable on March 31, 2020 Secured∂ Interest expense 232,023 − – –∂ Amortization of deferred finance

charge 4,269 − – –

c) Due to related parties (4,942,936)Non-interest bearing;due and demandable Unsecured

∂ Unrealized foreign exchange 991∂ Management fee expense (Note 18) 4,378 − – –∂ Purchases of sugar 2,378,458 − – –

Associates

c) Due from related parties − 21,171Non-interest bearing;due and demandable

Unsecured;no impairment

∂ Interest expense 6,768Affiliates

c) Due from related parties 241,000 684,738Non-interest bearing;due and demandable

Unsecured;no impairment

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2015Amount/Volume

Outstandingbalance Terms Conditions

(In Thousands)Ultimate Parent Company - ALGI

c) Due to related partiesInterest bearing;

due and demandable Unsecured;∂ Advances (P=2,031,558) (P=2,031,450)∂ Interest expense 13,595

Subsidiariesa) Cash and cash equivalents

(Note 4)

∂ Cash in banks 1,250,721

Interest bearing at prevailingmarket rate;

due and demandableUnsecured;

no impairment

∂ Cash equivalents − 622,788

Interest bearing at prevailingmarket rate;

due and demandableUnsecured;

no impairment∂ Interest income 8,272 −

b) Receivables (Note 5)

∂ Rent receivables (58) 20,218

25 year lease term fromrenewable for

another 25 years Unsecured∂ Rental services 121,130 – –

c) Due from related parties 6,955,623

P=651.1 million earns interest at8.0%, remaining balance is

noninterest-bearing anddue on demand

Unsecured;no impairment

∂ Sharing of expenses 134,264 – –∂ Service fees 100,000 – –∂ Management fees 32,250 – –∂ Dividend income

(Note 19) 963,671 – –∂ Interest income 23,236 –

d) Other assets (Note 11) 486,555 486,555

Interest bearing short-termdeposits at prevailing market

rate; due and demandableUnsecured;

no impairment∂ Interest income 2,220 – –

e) Deferred income − (1,240,566)Amortized upon sale of related

properties to third parties Unsecured∂ Interest income 31,145 – –

f) Long-term debts (Note 13) − (5,601,706)With interest rate of 4.1%,

payable on March 31, 2020 Secured∂ Interest expense 231,389 – –

c) Due to related parties − (5,038,322)Non-interest bearing;due and demandable Unsecured

∂ Management fee expense (Note 18) 3,549 – –∂ Purchases of sugar 2,324,339 – –

Associates

c) Due from related parties − 21,171Non-interest bearing;due and demandable

Unsecured;no impairment

Affiliates

c) Due from related parties − 443,617Non-interest bearing;due and demandable

Unsecured;no impairment

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16. Costs of Rental Services

This account consists of:

2016 2015(In Thousands)

Depreciation (Note 9) P=42,270 P=42,270Repairs and maintenance 4,653 3,532

P=46,923 P=45,802

17. General and Administrative Expenses

This account consists of:

2016 2015(In Thousands)

Salaries, wages and employee benefits P=38,865 P=35,855Entertainment, amusement and recreation 12,994 13,763Transportation 11,592 11,012Professional fees 10,130 10,270Taxes and licenses 9,804 12,166Pension expense (Note 20) 8,772 6,945Security and janitorial services 4,264 2,785Stockholders relation 2,057 1,290Utilities 1,919 2,851Depreciation (Note 10) 893 1,407Dues and subscription 641 1,310Insurance 478 645Office supplies 284 340Repairs and maintenance 235 296Others 5,609 12,744

P=108,537 P=113,679

Others include costs and charges incurred by the Company for corporate affairs and other fees.

18. Selling and Marketing Expenses

This account consists of:

2016 2015(In Thousands)

Commission P=14,594 6,555Administrative 6,721 5,037Management fee (Note 15) 4,378 3,549Marketing 2,157 1,655Sales office expenses 498 240Cost of model units 122 50Others 5,777 3,519

P=34,247 P=20,605

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Others include utilities, furnishing and security expenses of model units, and other sales office andsupplies expenses incurred during the year.

19. Dividend Income

2016 2015(In Thousands)

Subsidiaries (Note 8):FAI P=1,260,902 P=26,715FLI 879,006 806,956MSSI 162,000 130,000EWBC 160,026 −FFC 148,727 −CHI 10,558 −

P=2,621,219 P=963,671

On May 8, 2015, the BOD of FLI approved the declaration from unappropriated retained earningsof cash dividend of P=0.0560 per share or a total of P=1.4 billion for all shareholders of records as ofJune 5, 2015. The dividend income received by the Company amounted to P=807.0 million.

On July 20, 2015, the BOD of FAI approved the declaration and payment from its unappropriatedretained earnings, cash dividends of P=0.006 per share or a total of P=33.4 million for allshareholders of record as of August 10, 2015. The dividend income received by the Companyamounted to P=26.7 million.

On July 29, 2015, the BOD of MSSI approved the declaration from unappropriated retainedearnings of cash dividend of P=130.0 million to all stockholders of record as of December 31, 2014.

On April 15, 2016, the BOD of EWBC approved the declaration of cash dividends amounting toP=400.0 million or P=0.26667 per share on the outstanding capital stock of EWBC of 1,499,983,610shares with a record date of April 29, 2016 and payment date of May 13, 2016. Dividend receivedby the Company amounted to P=160.0 million in 2016.

On April 22, 2016, the BOD of FLI approved the declaration of cash dividends amounting toP=1,967.24 million or P=0.061 per share to all stockholders of record as of May 22, 2016 andpayment date of June 15, 2016. Dividend received by the Company amounted to P=879.0 million.

On May 11, 2016, the BOD of MSSI approved the declaration and payment from itsunappropriated retained earnings of cash dividends of P=162.0 million to all shareholders of recordas of December 31, 2016.

On May 23, 2016, the BOD of FFC approved the declaration and payment from its unappropriatedretained earnings, cash dividends of P=9.55 per share or a total of P=148.7 million for allshareholders of record as of April 30, 2016. The dividend income received by the Companyamounted to P=148.7 million.

On September 8, 2016, the BOD of CHI approved the declaration and payment from itsunappropriated retained earnings, cash dividends of P=1.00 per share or a total of P=11.0 million forall shareholders of record as of September 30, 2016. The dividend income received by theCompany amounted to P=10.6 million.

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In 2016, the BOD of FAI declared and distributed from its unappropriated retained earnings cashdividends totaling P=1.6 billion. The Company’s share in dividends amounted to P1.26 billion, ofwhich P0.62 billion was received and P0.64 billion remains outstanding as of December 31, 2016.

20. Pension Liabilities

The Company has a noncontributory defined benefit pension plan covering all full-time regularemployees. The plan provides for lump-sum benefits equivalent to 100% of the employee’s salaryfor every year of creditable service. The normal retirement age is 60 years old, however, anemployee who attains the age of 55 with 15 years of service and opts for an early retirement isentitled to benefits ranging from 70% to 90% of the normal retirement pay, depending on the ageupon retirement.

The following tables summarize the components of retirement expenses recognized in the parentcompany statements of income and pension liabilities recognized in the parent companystatements of financial position.

Changes to the net pension liabilities recognized in the statements of financial position follow:

For the year ended December 31, 2016Present value

of definedbenefit

obligationFair value of

plan asset

Net definedbenefit

liabilitiesBalances as at January 1, 2016 P=134,361 (P=173) P=134,188Net benefit costs in profit or loss

Current service cost 8,772 – 8,772Net interest 7,031 (263) 6,768

15,803 (263) 15,540Remeasurements in other comprehensiveincome

Return on plan assets (excluding amountincluded in net interest) −

540540

Actuarial changes arising fromexperience adjustments 15,226 − 15,226

Actuarial changes arising from changesin financial assumptions 22,775 (5,684) 17,091

38,001 (5,144) 32,857P=188,165 (P=5,580) P=182,585

For the year ended December 31, 2015

Present valueof defined

benefitobligation

Fair value ofplan asset

Net definedbenefit

liabilitiesBalances as at January 1, 2015 P=121,816 (P=30) P=121,786Net benefit costs in profit or loss

Current service cost 6,945 − 6,945Net interest 5,600 (143) 5,457

12,545 (143) 12,402P=134,361 (P=173) P=134,188

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In 2016 and 2015, the principal assumptions used in determining retirement benefits are discountrate of 4.3 % and 4.5%, respectively and salary increase rate of 8%.

The sensitivity analysis that follow has been determined based on reasonably possible changes ofthe assumption occurring as of the end of the reporting period, assuming all other assumptionswere held constant. Management believes that as of the reporting date, it is only the decline indiscount rate that could significantly affect the pension obligation. Management believes thatpension obligation will not be sensitive to the salary rate increases because it is expected to be atthe same level for the remaining life of the obligation. If the discount rate would be 100 basispoints lower, the defined benefit obligation would increase by P=4.9 million and P=3.1 million in2016 and 2015, respectively. If the discount rate would be 100 basis points higher, the definedbenefit obligation would decrease by P=4.2 million and P=2.7 million in 2016 and 2015,respectively.

Undiscounted benefit payments expected to mature within one year, more than one year to fiveyears, and more than five years amounted to P=185.1 million and P=114.3 million; P=2.8 million andP=15.5 million; and P=171.1 million and P=134.4 million as of December 31, 2016 and 2015,respectively.

21. Income Taxes

The provision for income tax consists of:

2016 2015(In Thousands)

Current P=10,051 P=11,626Deferred 255,717 177,611

P=265,768 P=189,237

The current provision for income tax in 2016 and 2015 represents MCIT.

The components of the Company’s net deferred income tax assets (liabilities) are as follows:

2016 2015(In Thousands)

Deferred tax assets on:Unrealized foreign exchange loss P=253,746 P=197,991Pension liabilities 49,728 37,239Provision for accrual 1,808 1,808Allowance for impairment loss 7 7NOLCO - 215,176MCIT - 18,405

305,289 470,626Deferred tax liabilities on:

Unrealized mark to market gain (401,875) (321,352)Revaluation increment in land (19,856) (19,856)

(421,731) (341,208)(P=116,442) P=129,418

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In 2016, the Company recognized deferred tax asset on remeasurement losses on net definedbenefit liabilities amounting to P=9.9 million (nil in 2015).

Deferred tax assets are recognized only to the extent that future taxable income will be availableagainst which the deferred tax assets can be used. As of December 31, the Company did notrecognize deferred tax assets on the carryforward benefits of NOLCO and MCIT as follows:

2016 2015(In Thousands)

NOLCO P=1,820,551 P=624,729MCIT 29,537 11,626

The carryforward benefits of NOLCO and excess of MCIT over the RCIT, which can be claimedby the Company as credits against RCIT, are as follows:

Year Incurred NOLCO MCIT Expiry Date(In Thousands)

2016 P=478,570 P=10,051 December 31, 20192015 624,729 11,626 December 31, 20182014 717,252 7,860 December 31, 2017

P=1,820,551 P=29,537

The movements in NOLCO and MCIT are as follows:

NOLCO MCIT2016 2015 2016 2015

(In Thousands)Balances at beginning of year P=1,341,981 P=820,319 P=30,031 P=33,757Additions 478,570 624,729 10,051 11,626Expired – (103,067) (10,545) (15,352)Balances at end of year P=1,820,551 P=1,341,981 P=29,537 P=30,031

The reconciliation of the provision for income tax computed at the statutory tax rate to the actualprovision for income tax follows:

2016 2015(In Thousands)

Income tax at statutory rate P=585,866 P=233,497Adjustments for the income tax effect of:

Dividend income (786,366) (289,101)Expired NOLCO and MCIT 10,545 46,272Increase in unrecognized deferred tax asset 376,658 199,045Nondeductible expenses 81,281 2,906Interest income subjected to final tax (2,216) (3,382)

P=265,768 P=189,237

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22. Fair Value Measurement and Financial Risk Management Objectives and Policies

Fair Value MeasurementThe following table sets forth the carrying and fair values of assets and liabilities recognized as ofDecember 31, 2016 and 2015:

2016Fair Value

CarryingValue Total

QuotedPrices in

active market(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

(In Thousands)Assets measured at fair valueFinancial assets at FVTOCIInvestments in shares of stock Quoted P=91,108 P=91,108 P=91,108 P=– P=– Unquoted 20,358 20,358 – – 20,358

111,466 111,466 91,108 – 20,358Derivative assets 1,339,583 1,339,583 – 1,339,583 –Assets for which fair values are disclosedFinancial assets at Amortized CostContracts receivable 377,737 377,737 – – 377,737Refundable deposits 8,922 8,922 – – 8,922

386,659 386,659 – – 386,659Non-financial assets Investment properties 2,026,226 2,600,000 – – 2,600,000Total assets P=3,863,934 P=4,437,708 P=91,108 P=1,339,583 P=3,007,017(Forward)Liabilities for which fair values are

disclosedFinancial liabilities at amortized cost Long-term debt P=21,561,301 P=27,983,990 P=– P=– P=27,983,990

2015Fair Value

CarryingValue Total

QuotedPrices in

active market(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

(In Thousands)Assets measured at fair valueFinancial assets at FVTOCIInvestments in shares of stock Quoted P=84,768 P=84,768 P=84,768 P=– P=– Unquoted 20,358 20,358 – – 20,358

105,126 105,126 84,768 – 20,358Derivative assets 1,071,173 1,071,173 – 1,071,173 –Assets for which fair values are disclosedFinancial assets at Amortized CostContracts receivable 841,559 841,559 – – 841,559Refundable deposits 7,239 7,239 – – 7,239

848,798 848,798 – – 848,798Non-financial assets Investment properties 2,363,488 2,600,000 – – 2,600,000Total assets P=4,388,585 P=4,625,097 P=84,768 P=1,071,173 P=3,469,156Liabilities for which fair values are disclosedFinancial liabilities at amortized cost Long-term debt P=18,272,123 P=22,992,531 P=– P=– P=22,992,531

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The following methods and assumptions were used to estimate the fair value of each class offinancial instrument for which it is practicable to estimate such value:

∂ Due from Related Parties, Short-term Deposits and Refundable Deposits: Due to the short-term nature of these accounts, fair values approximate carrying amounts.

∂ Financial Assets at FVTOCI: Fair values were determined using quoted market prices atreporting date. The costs of financial assets at FVTOCI not quoted in an active marketapproximate fair values since there is insufficient information available to determine the fairvalues and there are no indicators that cost might not be representative of fair values.

∂ Derivative Assets: Fair values of derivative assets, are valued using a valuation technique withmarket observable inputs. The most frequently applied valuation technique is forward pricing,which uses present value calculations. The model incorporates various inputs including theforeign exchange rates and interest rate curves prevailing at the statement of financial positiondate.

∂ Receivables: On accounts due within one year, the fair value of the receivables approximatesits carrying amount. On long term receivables, considering the receivables are at amortizedcost using the prevailing interest rates of 19% both in 2016 and 2015 for similar type ofreceivables, its carrying amounts approximate fair values.

∂ Accounts Payable and Accrued Expenses and Due to Related Parties: Due to the short-termnature of these accounts, fair values approximate carrying amounts.

∂ Long-term Debt: Estimated fair value on debts with fixed interest and not subjected toquarterly re-pricing is based on the discounted value of future cash flows using the applicablerisk free rates for similar types of loans adjusted for credit risk. Discount rate for thedetermination of fair values ranges from 2.1% to 4.6% in 2016 and 2.7% to 5.2% in 2015.

During the years ended December 31, 2016 and 2015, there were no transfers between Level 1 andLevel 2 fair value measurements, and no transfers into and out of Level 3 fair valuemeasurements.

Derivative Financial InstrumentsIn 2013, the Company entered into two (2) seven (7)-year cross currency swaps (CCS) with anaggregate notional amount of USD150.0 million. Under the CCS agreements, the Companyreceives fixed interest of USD at the rate of 4.25% of the USD150.0 million total notional amountand pay semi-annual fixed interest in Philippine Peso at 5.98% and 5.78% of P=2.1 billion andP=4.1 billion, respectively, on a 30/360 day count basis. These transactions are classified asfreestanding financial instruments not designated as hedges.

In 2016 and 2015, net changes in fair value of derivatives amounted to P=268.4 million andP=565.7 million, respectively. The fair value of derivative asset as of December 31, 2016 and 2015amounted to P=1,339.6 million and P=1,071.2 million, respectively.

Financial Risk Management Objectives and PoliciesThe Company’s principal financial instruments comprise of cash and cash equivalents,receivables, due from and to related parties, and financial assets at FVTOCI, short-term deposits,refundable deposits, accounts payable and accrued expenses, short-term debt and long-term debt.The main purpose of these financial instruments is to raise financing for the Company’soperations.

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The main risks arising from the Company’s financial instruments are liquidity risk and credit risk.The Company also monitors the market price risk arising from all financial instruments.The BOD reviews and amends policies for managing each of these risks.

Liquidity RiskThe Company’s objective is to maintain a balance between continuity of funding and flexibilitythrough the use of bank loans. The Company’s policy is to manage its cash flows by continuouslymonitoring the cash flows for interest payment and bank and notes principal payment.

The tables below summarize the maturity profile of the Company’s other financial liabilities as ofDecember 31 based on contractual undiscounted payments:

2016On

DemandLess than3 months

3 months to1 year

>1 year to 3 years

>3 years to 5 years

Over5 years Total

(In Thousands)Accounts payable and accrued expenses Accrued interest P=261,124 P=− P=− P=− P=− P=− 261,124 Retention fees payable 14,196 965 523 118,191 − − 133,875 Accounts payable 108,663 − − − − − 108,663 Others 41,105 − − − − − 41,105

425,088 965 523 118,191 − − 544,767Due to related parties 6,990,699 − − − − 6,990,699Long-term debts − − − − 12,761,301 8,800,000 21,561,301Interests on long-term debts − 151,461 198,612 4,023,037 2,717,808 1,344,863 8,435,781

P=7,415,787 P=152,426 P=199,135 P=4,141,228 P=15,479,109 P=10,144,863 P=37,532,548

2015On

DemandLess than3 months

3 months to1 year

>1 year to 3 years

>3 years to 5 years

Over5 years Total

(In Thousands)Accounts payable and Accrued expenses Accounts payable P=890,134 P=− P=− P=− P=− P=− P=890,134 Accrued interest 263,061 − − − − − 263,061 Retention fees payable 15,516 1,174 3,905 129,551 − − 150,146 Others 21,159 − − − − − 21,159

1,189,870 1,174 3,905 129,551 − − 1,324,500Due to related parties 7,069,772 − − − − − 7,069,772Short-term debt − − 2,496,100 − − − 2,496,100Long-term debts − − − − 9,472,123 8,800,000 18,272,123Interests on long-term debts − 295,480 658,888 2,859,711 1,925,722 676,038 6,415,839

P=8,259,642 P=296,654 P=3,158,893 P=2,989,262 P=11,397,845 P=9,476,038 P=35,578,334

The tables below summarize the maturity profile of the Company’s financial assets held tomanage liquidity as of December 31, 2016 and 2015:

2016On

DemandLess than3 months

3 months to1 year

>1 year to3 years Total

(In Thousands)Financial Assets at Amortized CostCash and cash equivalents P=2,806,584 P=− P=− P=− P=2,806,584Receivables Contracts receivable 377,737 – – – 377,737 Rent receivable 53,125 – – – 53,125 Others 43,225 – – – 43,225Short-term deposits – – 12,974 – 12,974Due from related parties 7,709,318 – – – 7,709,318

P=10,989,989 P=– P=12,974 P=– P=11,002,963

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2015On

DemandLess than

3 months3 months to

1 year>1 year to

3 years Total(In Thousands)

Financial Assets at Amortized CostCash and cash equivalent P=1,893,338 P=− P=− P=− P=1,893,338Receivables Contracts receivable 126,340 2,302 633,116 79,801 841,559 Rent receivable 20,218 – – – 20,218 Others 53,557 – – – 53,557Short-term deposits – – 486,555 – 486,555Due from related parties 7,420,411 – – – 7,420,411

P=9,513,864 P=2,302 P=1,119,671 P=79,801 P=10,715,638

Credit RiskCredit risk is the risk that one party to a financial instrument will fail to discharge an obligationand cause the other party to incur a financial loss. The Company’s holding of cash and cashequivalents and receivables exposes the Company to credit risk of the counterparty.

The Company’s exposure to credit risk on its receivable balances is minimal.

With respect to credit risk arising from the other financial assets of the Company, which comprisecash and cash equivalents, the Company’s exposure to credit risk arises from default of thecounterparty, with a maximum exposure equal to the carrying amount of these instruments.

As at December 31, 2016 and 2015, all the outstanding loans and receivables of the Company areneither past due nor impaired and are of high grade quality.

The Company assessment on the credit quality of loans and receivables is based on the onexperience and nature of the loans and receivables, that is, they are highly collectible or collectibleon demand and that exposure to bad debt is not significant.

Foreign Currency RiskThe following table demonstrates the sensitivity to a reasonably possible change in theUS dollar exchange rate, with all other variables held constant, of the Company’s profit before tax(due to changes in the fair value of monetary assets and liabilities). Philippine Dealing System(PDS) closing rates used are P=49.72 and P=47.06 on December 31, 2016 and 2015. There is noother impact on the Company’s equity other than those already affecting the profit and loss.

Increase (decrease)in US dollar rate

Effect on incomebefore income tax

(In Thousands)2016 +6% (P=278,606)

-6% 278,6062015 +5% (248,281)

-5% 248,281

The sensitivity analysis shown above is based on the assumption that movement in US dollar-pesoexchange rate will most likely be limited to five percent (5%) upward or downward fluctuation in2016 and 2015. The Company, used as basis of these assumptions, the annual percentage changein US dollar exchange rate for the past five years as obtained from Bangko Sentral ng Pilipinas.Effect on the Company’s income before tax is computed on the carrying amount of the Company’sUS dollar-denominated financial assets (cash and cash equivalent, and short-term deposits) andfinancial liabilities (due to related parties) as of December 31, 2016 and 2015.

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23. Capital Management

ObjectiveThe primary objective of the Company’s capital management is to ensure that it maintainsa strong credit rating and healthy capital ratios in order to support its business and maximizeshareholder’s value.

Policy and ProcedureThe Company manages its capital structure and makes adjustments to it, in light of changes ineconomic conditions. To maintain or adjust the capital structure, the Company may adjustdividend payment to shareholders, return capital to shareholders or issue new shares.No changes were made in the objectives and policies of processes during the years endedDecember 31, 2016 and 2015.

The Company monitors capital using a gearing ratio which is long-term debt divided by totalequity. The Company’s policy is to keep the debt to equity ratio not to exceed 2:1.

2016 2015(In Thousands)

Long-term debt P=21,561,301 P=18,272,123Total equity 30,366,224 29,176,547Debt to equity ratio 0.71:1 0.63:1

24. Contingencies and Commitments

ContingenciesThe Company is contingently liable in respect to certain lawsuits, assessments and other mattersarising out of the normal course of business. Management believes that the resolution of thesecontingencies is presently not determinable and is not expected to have a material effect on theCompany’s financial statements.

The information normally required by PAS 37, Provisions, Contingent Liabilities and ContingentAssets, is not disclosed as it may prejudice the outcome of the proceedings.

Commitment - Development Agreement with CDCOn January 27, 2016, CDC awarded to the Company and FLI the management, development andoperation of the 201.64-hectare area of former Mimosa Leisure Estate, thru a 50-year leaseagreement, renewable for another 25 years upon mutual agreement by the parties. OnMarch 31, 2016, FDC and FLI incorporated FMI, the entity that entered into the lease agreementwith CDC.

Moreover, based on the terms of reference for the privatization of the former Mimosa LeisureEstate, CDC shall own 5% of FMI. As of December 31, 2016, the transfer of the 5% ownershipinterest of CDC from FLI and FDC was not completed. Ownership structure of FMI after saidtransfer is expected to be 47.5%, 47.5% and 5% ownership interest of FLI, FDC and CDC,respectively.

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25. Segment Reporting

For management purposes, the Company is organized into real estate and sugar operatingsegments about which separate financial information are available and are evaluated by the chiefoperating decision maker in deciding how to allocate resources and in assessing performance.

The Company derives its revenues from the following:

Real EstateThrough its subsidiaries, the Company is involved in acquisition of land, planning anddevelopment of large-scale fully integrated residential and commercial communities; developmentand sale of residential and commercial lots and the development and leasing of retail and officespace and land in these communities; construction and sale of residential, housing andcondominium and office buildings; development of farm estates, industrial and business parks;operation of cinema and mall; and property management.

Sugar OperationsThis involves purchase of raw sugar, refined sugar and molasses from DSCC and CSCCsubsidiaries of PSHC, and sale to third parties.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of DirectorsFilinvest Development Corporation,6/F The Beaufort, 5th Avenue corner 23rd StreetBonifacio Global City, Taguig City, Metro Manila

We have audited in accordance with Philippine Standards on Auditing, the parent company financialstatements of Filinvest Development Corporation as at and for the years ended December 31, 2016 and2015 and have issued our report thereon dated February 22, 2017. Our audits were made for the purposeof forming an opinion on the basic financial statements taken as a whole. The schedules listed in theIndex to Financial Statements and Supplementary Schedules are the responsibility of the management ofFilinvest Development Corporation. These schedules are presented for purposes of complying with theSecurities Regulation Code Rule 68, as Amended (2011), and are not part of the basic financialstatements. These schedules have been subjected to the auditing procedures applied in the audit of thebasic financial statements and, in our opinion, fairly state in all material respects, the financial datarequired to be set forth therein in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Dhonabee B. SeñeresPartnerCPA Certificate No. 97133SEC Accreditation No. 1196-AR-1 (Group A), June 30, 2015, valid until June 29, 2018Tax Identification No. 201-959-816BIR Accreditation No. 08-001998-98-2015, January 5, 2015, valid until January 4, 2018PTR No. 5908762, January 3, 2017, Makati City

February 22, 2017

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global LimitedA member firm of Ernst & Young Global Limited

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INDEPENDENT AUDITORS’ REPORTON THE SUPPLEMENTARY INFORMATIONREQUIRED UNDER REVENUE REGULATIONS 15-2010

The Stockholders and the Board of DirectorsFilinvest Development Corporation6/F The Beaufort, 5th Avenue corner 23rd StreetBonifacio Global City, Taguig City, Metro Manila

We have audited in accordance with Philippine Standards on Auditing the parent company financialstatements of Filinvest Development Corporation as at and for the years ended December 31, 2016 and2015 and have issued our report thereon dated February 22, 2017 which contained an unqualified opinionon those parent company financial statements. Our audits were conducted for the purpose of forming anopinion on the basic financial statements taken as a whole. The supplementary information requiredunder Revenue Regulations 15-2010 for the year ended December 31, 2016 is presented for purposes offiling with the Bureau of Internal Revenue and is not a required part of the basic financial statements.The information is also not required by Securities Regulation Code Rule 68, as Amended (2011).Revenue Regulations 15-2010 require the information to be presented in the notes to the parent companyfinancial statements. Such information is the responsibility of the management of Filinvest DevelopmentCorporation. The information has been subjected to the auditing procedures applied in our audit of thebasic financial statements. In our opinion, the information is fairly stated, in all material respects, inrelation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Dhonabee B. SeñeresPartnerCPA Certificate No. 97133SEC Accreditation No. 1196-AR-1 (Group A), June 30, 2015, valid until June 29, 2018Tax Identification No. 201-959-816BIR Accreditation No. 08-001998-98-2015, January 5, 2015, valid until January 4, 2018PTR No. 5908762, January 3, 2017, Makati City

February 22, 2017

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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FILINVEST DEVELOPMENT CORPORATIONSUPPLEMENTARY INFORMATION ON TAXES AND LICENSE FEESREQUIRED UNDER REVENUE REGULATION 15-2010DECEMBER 31, 2016

The Company reported and/or paid the following types of taxes for the year:

Value-Added Tax (VAT)The Company’s sales are subject to output value added tax (VAT) while its importations andpurchases from other VAT-registered individuals or corporations are subject to input VAT. The VATrate is 12.0%.

a. Net Sales/Receipts and Output VAT declared in the Company’s VAT returns for 2016

NetSales/Receipts Output VAT

(In Thousands)Taxable sales

Sugar sales P=281,787 P=33,814Real estate sales 389,766 46,772Rent income 82,094 9,851Interest income 47,697 5,724Management fee income 29,992 3,599Accounts receivable 44,155 5,299

Balance at end of year P=875,491 P=105,059

The Company’s sales of goods and services are based on actual collections received, hence, maynot be the same as the amounts accrued in the parent company statement of income.

b. Input VAT for 2016 (amounts in thousands)

Balance at January 1 P=–Current year’s domestic purchases of:

Goods other than for resale or manufacture 30,657Services lodged under other accounts 20,265

50,922Claims for tax credit/refund and other adjustments (50,922)Balance at December 31 P=–

Other Taxes and LicensesOther taxes and licenses, local and national, include real estate taxes, licenses and permit fees paid bythe Company during the year and are included as part of general and administrative expenses in theparent company statement of income (amounts in thousands).

License and permits fees P=9,526Real estate taxes 278

P=9,804

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Documentary Stamp TaxesDuring the year, the Company paid documentary stamp taxes on short-term debt and long-term debtsamounting to P=11.5 million.

Withholding Taxes

Withholding taxes for the year ended December 31, 2016 amounted to (amounts in thousands):

Withholding taxes on compensation and benefits P=32,136Expanded withholding taxes 118,422Final withholding taxes 2,300

P=152,858

As of December 31, 2016, unpaid balance amounting to P=1.9 million is included as part of “Accountspayable and accrued expenses” in the parent company’s statement of financial position.

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FILINVEST DEVELOPMENT CORPORATIONINDEX TO PARENT COMPANY FINANCIAL STATEMENTSAND SUPPLEMENTARY SCHEDULES

SUPPLEMENTARY SCHEDULES

Independent Auditor’s Report on Supplementary Schedules

Parent Company Supplementary Information and Disclosures Required on SRC Rule 68 and 68.1,As Amended

Schedule of All Effective Standards and Interpretations under PFRS as of December 31, 2016

Parent Company Unappropriated Retained Earnings Available for Dividend Distribution

Financial Soundness Indicators

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FILINVEST DEVELOPMENT CORPORATIONSUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIREDON SRC RULE 68 AND 68.1, AS AMENDEDDECEMBER 31, 2016

Philippine Securities and Exchange Commission (SEC) issued the amended Securities RegulationCode Rule SRC Rule 68 and 68.1 which consolidates the two separate rules and labeled in theamendment as “Part I” and “Part II”, respectively. It also prescribed the additional information andschedule requirements for issuers of securities to the public.

Below are the additional information and schedules required by SRC Rule 68 and 68.1 as amendedthat are relevant to the Company. This information is presented for purposes of filing with the SECand is not required part of the basic financial statements.

Schedule A. Financial Assets at FVTOCIBelow is the detailed schedule of financial assets in equity securities of the Company as ofDecember 31, 2016:

Name of Issuing entity and associationof each issue

Number ofShares/Principal

Amount ofBonds and Notes

Amount Shownin the Statement

of Financial Position

Value Basedon Market

Quotation atend of year

IncomeReceived and

Accrued(In Thousands)

Financial assets at FVTOCIQuoted:

Manila Golf 2 P=84,000 P=84,000 P=–Sta Elena Properties Inc. 2 6,400 6,400 –Philippine Long Distance

Telephone Company 52,800 368 368 –Valle Verde 1 340 340 –

91,108 91,108 –Unquoted:

H.B. Fuller 1,903,767 15,500 15,500 –Riviera Golf 1 4,500 4,500 –Kewalram Realty, Inc. 1,500 150 150 –KRL Land, Inc. 1,500 150 150 –Pacesetter Homes Dev't Corp. 1 25 25 –Discovery Homes Realty 1 25 25 –Pilipino Telephone Corp. 1,800 8 8 –

20,358 20,358 –P=111,466 P=111,466 P=−

The Company has no income received and accrued related to the financial assets at FVTOCI duringthe period.

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Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Partiesand Principal Stockholders (other than related parties)

Related Party Transactions

The Company has no advances to employees with balances above P=100,000 outside the ordinarycourse of business as of December 31, 2016.

Due from related partiesBelow is the schedule of receivables with related parties of the Company presented in the parentcompany statements of financial position as of December 31, 2016 (amounts in thousands):

Relationship Nature

Balance atbeginningof period

Balance atend of period

FDC Forex Corporation Subsidiary A P=5,335,788 P=5,336,072Pacific Sugar Holdings, Corp. Subsidiary A 951,772 351,774Filinvest Alabang, Inc Subsidiary A, B,E 110,386 674,306FDC Utilities, Inc. Subsidiary A 361,990 464,969Filinvest Land, Incorporated Subsidiary A 108,438 87,850Davao Sugar Central Company (DSCC) Subsidiary D 42,991 58,323Filinvest Hospitality Corporation Subsidiary A 4,413 20,243KRL Land Inc and Kewalram Realty Inc. Associate A 21,171 21,171Mactan Seascapes Services, Inc. Subsidiary A, C 6,370 1,073Seascapes Residential Club, Inc. Affiliate A 710 715The Palms Country Club Affiliate A 74 74Timberland Sports and Nature Club Subsidiary A 313 313Festival Supermall, Inc. Subsidiary A 168 168Countrywide Water Services, Inc. Subsidiary A 26 2,498East West Banking Corporation Subsidiary A 33,281 6,134Others Affiliate A 442,520 683,635

P=7,420,411 P=7,709,318

Nature of Intercompany TransactionsThe nature of the intercompany transactions with the related parties is described below:

(A) Expenses - these pertain to the share of the Company’s related parties in various common sellingand marketing and general and administrative expenses.

(B) Management and marketing fee(C) Rentals(D) Purchases of sugar(E) Dividends

The outstanding balances of intercompany transactions are due and demandable as ofDecember 31, 2016.

Schedule C. Amounts Receivable from Related Parties which are Eliminated During the Consolidationof Financial Statements

These are presented in the supplementary information and disclosures as of December 31, 2016attached to the consolidated financial statements.

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Schedule D. Intangible Assets - Other Assets

The Company has no intangible assets as of December 31, 2016.

Schedule E. Long-term debt

Below is the schedule of long-term debt of the Company:

Amount Current Noncurrent(In Thousands)

Unsecured fixed-rate 10-year bonds due in 2024 with aggregateprincipal amount of P=8.8 billion issued on January 24, 2014, withinterest rate of 6.1% per annum payable quarterly in arrearsstarting on April 24, 2014. P=8,735,408 P=– P=8,735,408

7-year term loan with interest rate per annum equivalent to 4.1% fixed (inclusive of GRT) payable semi-annually. Principal is due in March 31, 2020. 5,585,977 – 5,585,977Unsecured fixed-rate 5-year loan obtained in October 2016, with

interest rate of 4.5% per annum (inclusive of GRT), payablequarterly in arears. 2,958,555 – 2,958,555

Unsecured fixed-rate 5-year loan obtained in October 2016 withinterest rate of 4.7% per annum (inclusive of GRT) payablequarterly in arears. 1,493,527 – 1,493,527

Unsecured fixed-rate5-year loan obtained in October 2015 with interestof 4.7% per annum (inclusive of GRT) payable quarterly inarrears. 996,141 – 996,141

Unsecured fixed-rate 5-year loan obtained in June 2016 with interestrate of 4.7% per annum (inclusive of GRT) payable quarterly inarrears. 995,453 – 995,453

Unsecured fixed-rate 5-year loan obtained in September 2016 withinterest rate of 4.3% per annum (inclusive of GRT) payablequarterly in arrears. 796,240 – 796,240

P=21,561,301 P=– P=21,561,301

Amounts are presented net of unamortized deferred costs of P=110.5 million as of December 31, 2016.

Schedule F. Indebtedness to Related Parties

Below is the list of outstanding payables to related parties of the Company presented in the parentcompany statements of financial position as of December 31, 2016 (amount in thousands):

Relationship NatureBalance at the

Beginning of the periodBalance at end

of periodFilinvest Development Cayman

Islands Subsidiary b P=4,965,628 P=4,929,015A.L. Gotianun, Inc. Parent Company a, b 2,031,450 2,047,763Cotabato Sugar Company, Inc. Subsidiary c 38,615 2,339DSCC Subsidiary c 33,915 11,400Property Maximizer

Professional Corporation Affiliate d 115 182FLI Subsidiary a 49 –

P=7,069,772 P=6,990,699

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Nature of intercompany transactionsThe nature of the intercompany transactions with the related parties is described below:

(a) Expenses - these pertain to the share of the Parent Company’s related parties in various commonselling and marketing and general and administrative expenses.

(b) Advances - these pertain to temporary advances to/from related parties for working capitalrequirements.

(c) Purchases of sugar(d) Reimbursable marketing commission expense(e) Unrealized foreign exchange loss - these pertain to restatement of outstanding balances

Schedule G. Guarantees of Securities of Other IssuersThe Company does not have guarantees of securities of other issuers as of December 31, 2016.

Schedule H. Capital Stock

Title of issue

Number ofshares

authorized

Number ofshares issued

andoutstanding

as shownunder relatedbalance sheet

caption

Number ofShares

reserved foroptions,

warrants,conversion

and otherrights

Number ofshares held

by relatedparties

Directors,Officers and

Employees Others(In Thousands)

Common Shares 15,000,000 9,317,474 − 8,280,770 97,758 938,945Preferred Shares 2,000,000 − − − − −

Schedule of Bonds Issuances

On January 24, 2014, FDC issued and listed Php8,800.0 million unsecured fixed-rate peso retail bondsdue 2024 with annual coupon rate of 6.1458%. Interest is payable quarterly in arrears startingApril 24, 2014.

I. ProceedsGross proceeds P=8,800.0Net proceeds 8,754.9

II. UtilizationRefinancing of debt obligations 4,877.1Capital expenditures for:

Hotel projectsPower project

321.53,556.3

III. Balance as of December 31, 2016 P=−

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Group StructureBelow is a map showing the relationship between and among the Company and its ultimate parent company, subsidiaries, and joint ventures as ofDecember 31, 2016:

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Standards adopted by the Company

List of Philippine Financial Reporting Standards (PFRSs) [which consist of PFRSs, PhilippineAccounting Standards (PASs) and Philippine Interpretations] effective as of December 31, 2016:

PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

Framework for the Preparation and Presentation of FinancialStatementsConceptual Framework Phase A: Objectives and qualitativecharacteristics

2

PFRSs Practice Statement Management Commentary 2

Philippine Financial Reporting Standards

PFRS 1(Revised)

First-time Adoption of Philippine FinancialReporting Standards 2

Amendments to PFRS 1 and PAS 27: Cost of anInvestment in a Subsidiary, Jointly ControlledEntity or Associate

2

Amendments to PFRS 1: Additional Exemptionsfor First-time Adopters 2

Amendment to PFRS 1: Limited Exemption fromComparative PFRS 7 Disclosures for First-timeAdopters

2

Amendments to PFRS 1: Severe Hyperinflation andRemoval of Fixed Date for First-time Adopters 2

Amendments to PFRS 1: Government Loans 2

Amendments to PFRS 1: Borrowing Costs 2

Amendments to PFRS 1: Meaning of “EffectivePFRSs’ 2

PFRS 2

Share-based Payment 2

Amendments to PFRS 2: Vesting Conditions andCancellations 2

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions 2

Amendments to PFRS 2: Definition of VestingCondition 2

Amendments to PFRS 2: Share-based Payment,Classification and Measurement of Share-basedPayment Transactions

2

PFRS 3(Revised)

Business Combinations 2

Amendments to PFRS 3: Accounting forContingent Consideration in a BusinessCombination

2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

Amendments to PFRS 3: Scope Exceptions forJoint Arrangements 2

PFRS 4

Insurance Contracts 2

Amendments to PAS 39 and PFRS 4: InsuranceContracts Applying PFRS 9, Financial Instruments,with PFRS 4

2

Amendments to PAS 39 and PFRS 4: FinancialGuarantee Contracts 2

PFRS 5

Non-current Assets Held for Sale and DiscontinuedOperations 2

Amendments to PFRS 5: Changes in Methods ofDisposal 2

PFRS 6 Exploration for and Evaluation of MineralResources 2

PFRS 7

Financial Instruments: Disclosures 2

Amendments to PFRS 7: Transition 2

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets 2

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets - EffectiveDate and Transition

2

Amendments to PFRS 7: Improving Disclosuresabout Financial Instruments 2

Amendments to PFRS 7: Disclosures - Transfers ofFinancial Assets 2

Amendments to PFRS 7: Disclosures - OffsettingFinancial Assets and Financial Liabilities 2

Amendments to PFRS 7: Disclosures - ServicingContracts

2

Applicability of the Amendments to PFRS 7 toCondensed Interim Financial Statements

2

PFRS 8

Operating Segments 2

Amendments to PFRS 8: Aggregation of OperatingSegments and Reconciliation of the Total of theReportable Segments’ Assets to the Entity’s Assets

2

PFRS 9 Financial Instruments (2009 version) 2

PFRS 10Consolidated Financial Statements 2

Amendments to PFRS 10, Investment Entities:Applying the Consolidation Exception 2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

PFRS 11(Amended)

Joint Arrangements 2

Amendments to PFRS 11: Accounting forAcquisitions of Interests in Joint Operations 2

PFRS 12Disclosure of Interests in Other Entities 2

Amendments to PFRS 12: Investment Entities:Applying the Consolidation Exception 2

PFRS 13

Fair Value Measurement 2

Amendments to PFRS 13: Short-term receivableand payables 2

Amendments to PFRS 13: Portfolio Exception 2

PFRS 14 Regulatory Deferral Accounts 2

Philippine Accounting Standards

PAS 1(Revised)

Presentation of Financial Statements 2

Amendment to PAS 1: Capital Disclosures 2

Amendments to PAS 32 and PAS 1: PuttableFinancial Instruments and Obligations Arising onLiquidation

2

Amendments to PAS 1: Presentation of Items ofOther Comprehensive Income

2

Amendments to PAS 1: Clarification of therequirements for comparative information

2

Presentation of Financial Statements - DisclosureInitiative

2

PAS 2 Inventories 2

PAS 7 Statement of Cash Flows 2

PAS 8 Accounting Policies, Changes in AccountingEstimates and Errors 2

PAS 10 Events after the Reporting Period 2

PAS 11 Construction Contracts 2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

PAS 12

Income Taxes 2

Amendment to PAS 12 - Deferred Tax: Recoveryof Underlying Assets 2

Amendments to PAS 12: Income Taxes,Recognition of Deferred Tax Assets for UnrealizedLosses

2

PAS 16

Property, Plant and Equipment 2

Amendment to PAS 16: Classification of servicingequipment 2

Amendment to PAS 16: Revaluation Method -Proportionate Restatement of AccumulatedDepreciation and Amortization

2

Amendments to PAS 16 and PAS 38: Clarificationof Acceptable Methods of Depreciation andAmortization

2

Amendments to PAS 16 and PAS 41: Bearer Plants 2

PAS 17 Leases 2

PAS 18 Revenue 2

PAS 19(Amended)

Employee Benefits 2

Amendments to PAS 19: Actuarial Gains andLosses, Group Plans and Disclosures 2

Amendments to PAS 19: Defined Benefit Plans:Employee Contributions 2

Amendments to PAS 19: Discount Rate: RegionalMarket Issue 2

PAS 20 Accounting for Government Grants and Disclosureof Government Assistance 2

PAS 21The Effects of Changes in Foreign Exchange Rates 2

Amendment: Net Investment in a ForeignOperation 2

PAS 23 Borrowing Costs 2

PAS 24 Related Party Disclosures 2

Amendments to PAS 24: Key ManagementPersonnel 2

PAS 26 Accounting and Reporting by Retirement BenefitPlans 2

Separate Financial Statements 2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

PAS 27(Amended)

Amendments to PAS 27: Equity Method inSeparate Financial Statements 2

PAS 28(Amended)

Investments in Associates and Joint Ventures 2

Amendments to PAS 28: Investment Entities:Applying the Consolidation Exception 2

Amendments to PAS 28: Measuring an Associateor Joint Venture at Fair Value (Part of AnnualImprovements to PFRSs 2014 - 2016 Cycle)

2

PAS 29 Financial Reporting in HyperinflationaryEconomies 2

PAS 31 Interests in Joint Ventures 2

PAS 32

Financial Instruments: Disclosure and Presentation 2

Amendments to PAS 32 and PAS 1: PuttableFinancial Instruments and Obligations Arising onLiquidation

2

Amendment to PAS 32: Classification of RightsIssues 2

Amendments to PAS 32: Tax effect of Distributionto Holders of Equity Instruments 2

Amendments to PAS 32: Offsetting FinancialAssets and Financial Liabilities 2

PAS 33 Earnings per Share 2

PAS 34

Interim Financial Reporting 2

Amendment to PAS 34: Interim FinancialReporting and Segment Information for TotalAssets and Liabilities

Not Early Adopted

Amendments to PAS 34: Disclosure of Information‘Elsewhere in the Interim Financial Report’

PAS 36Impairment of Assets 2

Amendments to PAS 36: Recoverable AmountDisclosures for Non-Financial Assets 2

PAS 37 Provisions, Contingent Liabilities and ContingentAssets 2

PAS 38

Intangible Assets 2

Amendments to PAS 38: Revaluation Method -Proportionate Restatement of AccumulatedDepreciation and Amortization

2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

Amendments to PAS 16 and PAS 38: Clarificationof Acceptable Methods of Depreciation andAmortization

2

PAS 39 Financial Instruments: Recognition andMeasurement 2

Amendments to PAS 39: Transition and InitialRecognition of Financial Assets and FinancialLiabilities

2

Amendments to PAS 39: Cash Flow HedgeAccounting of Forecast Intragroup Transactions 2

Amendments to PAS 39: The Fair Value Option 2

Amendments to PAS 39 and PFRS 4: FinancialGuarantee Contracts 2

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets 2

Amendments to PAS 39 and PFRS 7:Reclassification of Financial Assets - EffectiveDate and Transition

2

Amendments to Philippine Interpretation IFRIC 9and PAS 39: Embedded Derivatives 2

Amendment to PAS 39: Eligible Hedged Items 2

Amendment to PAS 39: Novation of Derivativesand Continuation of Hedge Accounting 2

PAS 40

Investment Property 2

Amendment to PAS 40: Interrelationship betweenPFRS 3 and PAS 40 2

Amendment to PAS 40: Investment Property,Transfers of Investment Property 2

PAS 41Agriculture 2

Amendment to PAS 41: Agriculture: Bearer Plants 2

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restorationand Similar Liabilities 2

IFRIC 2 Members' Share in Co-operative Entities andSimilar Instruments 2

IFRIC 4 Determining Whether an Arrangement Contains aLease 2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

IFRIC 5Rights to Interests arising from Decommissioning,Restoration and Environmental RehabilitationFunds

2

IFRIC 6Liabilities arising from Participating in a SpecificMarket - Waste Electrical and ElectronicEquipment

2

IFRIC 7Applying the Restatement Approach under PAS 29Financial Reporting in HyperinflationaryEconomies

2

IFRIC 8 Scope of PFRS 2 2

IFRIC 9Reassessment of Embedded Derivatives 2

Amendments to Philippine Interpretation IFRIC 9and PAS 39: Embedded Derivatives 2

IFRIC 10 Interim Financial Reporting and Impairment 2

IFRIC 11 PFRS 2- Group and Treasury Share Transactions 2

IFRIC 12 Service Concession Arrangements 2

IFRIC 13 Customer Loyalty Programmes 2

IFRIC 14

The Limit on a Defined Benefit Asset, MinimumFunding Requirements and their Interaction 2

Amendments to Philippine Interpretations IFRIC14, Prepayments of a Minimum FundingRequirement

2

IFRIC 15 Agreements for the Construction of Real Estate 2

IFRIC 16 Hedges of a Net Investment in a Foreign Operation 2

IFRIC 17 Distributions of Non-cash Assets to Owners 2

IFRIC 18 Transfers of Assets from Customers 2

IFRIC 19 Extinguishing Financial Liabilities with EquityInstruments 2

IFRIC 20 Stripping Costs in the Production Phase of aSurface Mine 2

IFRIC 21 Levies 2

SIC-7 Introduction of the Euro 2

SIC-10 Government Assistance - No Specific Relation toOperating Activities 2

SIC-12Consolidation - Special Purpose Entities 2

Amendment to SIC - 12: Scope of SIC 12 2

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PHILIPPINE FINANCIAL REPORTING STANDARDS ANDINTERPRETATIONS

Adopted NotAdopted

NotApplicable

SIC-13 Jointly Controlled Entities - Non-MonetaryContributions by Venturers 2

SIC-15 Operating Leases - Incentives 2

SIC-25 Income Taxes - Changes in the Tax Status of anEntity or its Shareholders 2

SIC-27 Evaluating the Substance of Transactions Involvingthe Legal Form of a Lease 2

SIC-29 Service Concession Arrangements: Disclosures. 2

SIC-31 Revenue - Barter Transactions InvolvingAdvertising Services 2

SIC-32 Intangible Assets - Web Site Costs 2

Standards tagged as “Not applicable” have been adopted by the Parent Company but have nosignificant covered transactions for the period ended December 31, 2016.

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Financial Soundness Indicator

Below are the financial ratios that are relevant to the Company as of and for the years endedDecember 31, 2016 and 2015:

Financial ratios 2016 2015

Earnings per share* Net incomeWeighted average no. of

shares0.591 0.469

Price Earnings Ratio* Closing price**Earnings per share 13.94 9.38

Return on Revenue Net incomeTotal revenues 28% 12%

Long term debt-to-equity ratio Long term debtEquity 0.71 0.63

Debt-to-equity ratio Total liabilitiesEquity 1.02 1.06

EBITDA to total interest expense EBITDA

Total interest expense 2.85 1.86

Asset-to-equity ratio Total assetsEquity 2.02 2.06

Current ratio Total current assetsTotal current liabilities 1.49 1.04

*Based on consolidated financial statements of FDC and subsidiaries as of December 31, 2016 and 2015.**Closing price at December 29, 2016 and December 29, 2015, respectively.

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FILINVEST DEVELOPMENT CORPORATIONUNAPPROPRIATED RETAINED EARNINGSAVAILABLE FOR DIVIDEND DISTRIBUTION(Amounts in Thousands of Pesos)

Unappropriated Retained Earnings, Beginning P=7,944,127

Adjustments:Reclassification of revaluation reserve on land at deemed cost (46,331)Fair value adjustment of investment property resulting to gain (158,286)Unrealized mark-to-market gain on derivative asset (1,071,173)Deferred tax assets recognized in prior years (454,096)Others (81,757)

Unappropriated Retained Earnings as adjusted, beginning 6,122,492

Net Income Actually Earned/Realized During the Year

Net income during the year closed to Retained Earnings 1,687,119

Less: Non-actual/unrealized income, net of taxEquity in net income of associate/joint ventureUnrealized foreign exchange gain - netUnrealized actuarial gainFair value adjustment (mark to market gains) (268,410)Fair value adjustment of Investment Property

resulting to gainAdjustment due to deviation from PFRS/GAAP - gainOther unrealized gains or adjustments to the retained

earnings as a result of certain transactions accounted for under the PFRS

Movements in deferred tax assets 175,194Add: Non-actual losses

Depreciation on revaluation increment (after tax)Adjustment due to deviation from PFRS/GAAP - lossLoss on fair value adjustment of investment property

(after tax)1,593,903

Less: Cash dividend declaration during the year (480,782)

Total Unappropriated Retained Earnings AvailableFor Dividend Distribution, End P=7,235,613

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In July 2016, the BSP approved and confirmed the initial equity investment in East West Leasingand Finance Corporation (EWLFC) amounting to P=100.0 million. It was registered with the SECin October 6, 2016 with secondary license to operate as a financing company in accordance withthe Financing Company Act of 1998 and its implementing rules and regulations.

Real Estate OperationsOn February 4, 2014, Filinvest Cyberparks, Inc. (FCI), a wholly owned subsidiary of FilinvestLand, Inc. (FLI), was incorporated. Its primary purpose is to acquire by purchase, lease, donateand/or to own, use, improve, develop, subdivide, sell, mortgage, exchange, hold for investmentand deal with real estate of all kinds.

On April 15, 2015, FLI and Cofely Philippines (Cofely), a branch of Cofely South East Asia Pte.Ltd, entered into a joint venture agreement for the establishment and operations of Philippine DCSDevelopment Corporation (PDDC). On July 31, 2015, PDDC was registered with the SEC toengage in the business of building and operation of district cooling system within existing andfuture buildings at Northgate Cyberzone Area, Filinvest City, Alabang, Muntinlupa City. PDDCis 60.0% owned by FLI and 40.0% owned by Cofely. The incorporation of PDDC resulted toadditional investment from noncontrolling interest amounting to P=100.0 million in 2015.

On December 28, 2015, FLI and Filinvest Alabang, Inc. (FAI), entered into a Deed of Assignmentof Shares, wherein FAI has agreed to sell its rights, title and interests in the 249,995 commonshares of Festival Supermall, Inc. (FSI), with par value of P=1.0 per share and equivalent to 100.0%ownership interest, to FLI and in total consideration of P=0.5 million. FSI is the property managerof Festival Supermall and other commercial centers of the Group. FSI also owns 60.0% equityinterest in FSM Cinemas, Inc. (FSM Cinemas) which is engaged in theater operations. Thetransaction did not have any impact on the Group’s consolidated financial statements as both FLIand FAI remain as subsidiaries of FDC.

On February 11, 2016, FCGC Corporation (FCGCC) was incorporated to undertake thedevelopment of the Clark Green City Project under the Joint Venture Agreement with BasesConversion and Development Authorities (BCDA). On March 16, 2016, Filinvest BCDA Clark,Inc. (FBCI), a joint venture company with BCDA, was incorporated to handle the development ofthe Clark Green City Project. FBCI is 55% owned by FCGCC and 45% owned by BCDA. As ofDecember 31, 2016, FCGCC and FBCI have not started commercial operations.

On July 15, 2016, Parking Pro, Inc. (PPI) was incorporated. Its primary purpose is to develop,manage and maintain parking spaces, lots and buildings, and generally to do any and all thingsnecessary and pertinent or convenient to the stated purpose. As of December 31, 2016, PPI hasnot started its commercial operations.

On July 26, 2016, the SEC approved Whiluc Realty & Mgt., Inc.’s (Whiluc) application forincrease in its authorized capital stock. Likewise, FLI subscribed and paid P=124.7 million toWhiluc. On the same date, the SEC also approved the amendments of its corporate name andprincipal business address. Whiluc’s new corporate name is Filinvest Lifemalls Corporation(FLC). Its primary purpose is to invest in, purchase, hold, use, develop, lease, sell, assign, transfermortgage, enjoy or otherwise dispose of, as may be permitted by law, all properties of every kind,nature and description and wherever situated, of any corporation.

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Power Generation OperationsOn January 29, 2016, the SEC approved the application for increase in capital stock of FDCMisamis Power Corporation (FDC Misamis) from P=16.0 million to P=7,250.0 million, consisting of20.0 million common shares and 52.5 million preferred shares, both with par value of P=100.0 pershare.

On July 5, 2016, FDC Retail Electricity Sales Corporation (FDC Res Corp.), a wholly ownedsubsidiary of FDC Utilities, Inc. (FDCUI), received its license to operate as retail electricitysupplier from the Energy Regulatory Commission (ERC).

On September 22, 2016, FDC Misamis’ 3 x 135 MW Circulating Fluidized Bed Coal ThermalPower Plant was inaugurated. Located at the PHIVIDEC Industrial Estate in Villanueva, MisamisOriental, the plant’s three (3) units are fully operational with its first two (2) units completingtechnical evaluation of ERC and with Certificate of Compliance declaring commercial operationsreceived in October 2016.

On December 12, 2016, the SEC approved the amendment of the articles of incorporation of FDCDavao Del Norte Power Corporation, changing its corporate name to FDC RenewablesCorporation (FDC Renewables). FDC Renewables is intended to serve as FDCUI’s vehicle in thedevelopment of renewable energy projects, particularly hydro power projects.

Hotel OperationsOn December 29, 2015, the SEC approved the application for increase in authorized capital stockof FilArchipelago Hospitality, Inc. from P=3.0 million to P=11.0 million, divided into 30,000common shares and 80,000 preferred shares, both with par value of P=100.0 per share. On the samedate, the SEC approved to change its corporate name to Chroma Hospitality, Inc. (CHI).

On March 31, 2016, Filinvest Mimosa, Inc. (FMI) was incorporated to enter into an agreementwith Clark Development Corporation (CDC) for the lease of the Mimosa Leisure Estate. FMI isowned by the Parent Company and FLI. FMI started its commercial operations in June 2016.

On December 23, 2016, the SEC approved the application for the increase in authorized capitalstock of FDC Hotels Corporation from P=1,516.0 million to P=3,646.0 million, divided into15.2 million common shares and 21.3 million preferred shares, both with par value of P=100.0 pershare. On the same date, the SEC also approved the amendments of its corporate name to FilinvestHospitality Corporation (FHC) and its principal business address.

On March 14, 2016, SEC approved the amendment of articles of incorporation of BoracaySeascapes Resort, Inc., changing its corporate name to Boracay Seascapes, Inc. (BSI). OnDecember 23, 2016, the SEC approved BSI’s application for the increase in authorized capitalstock to P=1,700.0 million, divided into 700.0 million common stock and 1,000.0 million preferredshares, both with par value of P=100.0 per share.

On March 16, 2016, the SEC approved the application for increase in authorized capital stock ofSeascapes Resort, Inc. (SRI) from P=100.0 million to P=1,100.0 million, consisting of 1.0 millioncommon shares and 10.0 million preferred shares, both with par value of P=100.0 per share. OnNovember 22, 2016, the SEC approved SRI’s application to change its corporate name to MactanSeascapes Services, Inc. (MSSI), doing business as Crimson Resort and Spa Mactan (CRSM).

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On May 13, 2016, the SEC approved the incorporation of Mimosa Cityscapes, Inc. (MCI), asubsidiary of FHC, whose primary purpose, among others, is to operate the Quest-Clark hotel andgolf course located in Mimosa Leisure Estate.

Approval of Consolidated Financial StatementsThe consolidated financial statements were approved and authorized for issue by the ParentCompany’s Board of Directors (BOD) on February 22, 2017.

2. Summary of Significant Accounting Policies

Basis of PreparationThe accompanying consolidated financial statements are prepared using the historical cost basis,except for financial assets at fair value through profit or loss (FVTPL), financial assets at fairvalue through other comprehensive income (FVTOCI) and derivative financial instruments thathave been measured at fair value.

The Group’s consolidated financial statements are presented in Philippine Peso (P=), which is theParent Company and its subsidiaries’ functional currency, except for the Foreign CurrencyDeposit Unit (FCDU) of EWBC, with functional currency of United States Dollar (USD).

For financial reporting purposes, FCDU accounts and foreign currency-denominated accounts ofthe Group are translated into their equivalent in Philippine Pesos (see accounting policy on foreigncurrency transactions and translations). Amounts are in thousand Pesos, except as otherwiseindicated.

Statement of ComplianceThe consolidated financial statements have been prepared in compliance with Philippine FinancialReporting Standards (PFRS). PFRSs include Philippine Financial Reporting Standards,Philippines Accounting Standards and Interpretations issued by the Philippine InterpretationsCommittee (PIC).

Basis of ConsolidationThe consolidated financial statements include the financial statements of the Parent Company andits subsidiaries. All of the Parent Company’s subsidiaries were incorporated in the Philippines,except for Filinvest Development Cayman Island (FDCI), which was incorporated under the lawsof Cayman Islands. The financial statements of the subsidiaries and joint ventures are preparedfor the same reporting period as the Parent Company, except for Pacific Sugar HoldingsCorporation (PSHC) whose reporting period starts from October 1 and ends on September 30.Adjustments are made for the effects of significant transactions or events that occur between thereporting period of PSHC and the date of the Group’s consolidated financial statements.

Control is achieved when the Group is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect those returns through its power over theinvestee. Specifically, the Group controls an investee if and only if the Group has: (a) power overthe investee (i.e., existing rights that give it the current ability to direct the relevant activities of theinvestee); (b) exposure, or rights, to variable returns from its involvement with the investee, and,(c) the ability to use its power over the investee to affect its returns.

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When the Group has less than a majority of the voting or similar rights of an investee, the Groupconsiders all relevant facts and circumstances in assessing whether it has power over an investee,including: (a) the contractual arrangement with the other vote holders of the investee; (b) rightsarising from other contractual arrangements; and, (c) the Group’s voting rights and potentialvoting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicatethat there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Group obtains control over the subsidiary and ceases when the Grouploses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired ordisposed of during the year are included in the consolidated financial statements from the date theGroup gains control until the date the Group ceases to control the subsidiary.

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

A change in ownership interest of a subsidiary, without a loss of control, is accounted for as anequity transaction. If the Group loses control over a subsidiary, it:∂ Derecognizes the assets (including goodwill) and liabilities of the subsidiary∂ Derecognizes the carrying amount of any noncontrolling interests∂ Derecognizes the cumulative translation differences recorded in equity∂ Recognizes the fair value of the consideration received∂ Recognizes the fair value of any investment retained∂ Recognizes any surplus of deficit in profit or loss∂ Reclassifies the parent’s share of components previously recognized in OCI to profit or loss or

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

The consolidated financial statements include the accounts of the Parent Company and thefollowing subsidiaries, and the corresponding percentages of ownership of the immediate parentcompany as at December 31. The voting rights held by the Group in these entities are inproportion to their ownership interest.

Percentage of Interest in Common Sharesof the Immediate Parent Company

2016 2015 2014Subsidiaries: EWBC(1) 77 77 75 East West Rural Bank, Inc. (EWRB) 100 100 100

EWIB 100 100 –PSPI 100 – –ASIA 100 – –EWLFC 100 – –

FDC Forex Corporation (FFC) 100 100 100

(Forward)

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Percentage of Interest in Common Sharesof the Immediate Parent Company

2016 2015 2014 FLI 59 59 59 Cyberzone Properties, Inc. (CPI) 100 100 100 Filinvest AII Philippines, Inc. 100 100 100 Property Maximizer Professional Corp. 100 100 100 Homepro Realty Marketing, Inc. 100 100 100 Property Specialist Resources, Inc. 100 100 100 Leisurepro, Inc. 100 100 100 FCI 100 100 100

PDDC 60 60 – Filinvest Asia Corporation 60 60 60 FSI 100 100 100 FSM Cinemas 60 60 60 FCGCC 100 – – FLC 100 – –

Timberland Sports and Nature Club (TSNC)(2) 92 92 92 FBCI 55 – – FAI(3) 92 92 92 Northgate Convergence Corporation 100 100 100 Proplus, Inc. 100 100 100 Pro Excel Property Managers, Inc. 100 100 100 Entrata Hotel Services, Inc. 100 100 100

PPI 100 – – FDCUI 100 100 100 FDC Casecnan Hydro Power Corporation 100 100 100 FDC Res Corp. 100 100 100 FDC Danao Power Corporation 100 100 100 FDC Camarines Power Corporation 100 100 100 FDC Misamis (4) 100 100 100 FDC Negros Power Corporation 100 100 100 FDC Renewables 100 100 100 PSHC 100 100 100 Davao Sugar Central Corporation (DSCC) 100 100 100 Cotabato Sugar Central Corporation (CSCC) 100 100 100 High Yield Sugar Farms Corporation (HYSFC) 100 100 100 MSSI 100 100 100 FHC 100 100 100 Quest Restaurants, Inc. 100 100 100 BSI 100 100 100 Chinatown Cityscapes Hotel, Inc. 100 100 100 Duawon Seascapes Resort, Inc. 100 100 100 MCI 100 – –

FMI(5) 100 – – Corporate Technologies, Inc. 100 100 100 FDCI 100 100 100

Countrywide Water Services, Inc. (CWSI) 100 100 100Notes:1. Includes 37% owned through FFC. In 2015, the Parent Company and FFC subscribed to EWBC a total of 311,406,997 shares at the offer price of P=21.5 per

share, or a total of P=6.7 billion, which resulted to increase in ownership from 75.2% to 77.2% (see Notes 1 and 5).2. TSNC was included in the consolidation following the requirements of PIC Q&A 2016-02.3. The percentage ownership in FAI includes the 20% share of FLI in FAI.4. The percentage ownership in FDC Misamis includes the 85.7% share of the Parent Company in FDC Misamis.5. The percentage ownership in FMI includes 50.0% share of FLI in FMI.

Noncontrolling InterestNoncontrolling interest represents the portion of profit or loss and net assets not owned, directly orindirectly, by the Group.

Noncontrolling interests are presented separately in the consolidated statement of income,consolidated statement of comprehensive income, and within equity in the consolidated statementof financial position, separately from parent shareholder’s equity. Any losses applicable to thenoncontrolling interests are allocated against the interests of the noncontrolling interest even if thisresults in the noncontrolling interest having a deficit balance.

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The acquisition of an additional ownership interest in a subsidiary without a change of control isaccounted for as an equity transaction. Any excess or deficit of consideration paid over thecarrying amount of the noncontrolling interest is recognized in equity of the parent in transactionswhere the noncontrolling interest are acquired or sold without loss of control.

Business Combination and GoodwillBusiness combinations are accounted for using the acquisition method. This involves recognizingidentifiable assets (including previously unrecognized intangible assets) and liabilities (includingcontingent liabilities and excluding future restructuring) of the acquired business at fair value.The cost of an acquisition is measured as the aggregate of the consideration transferred, measuredat acquisition date fair value and the amount of any noncontrolling interest in the acquiree.

For each business combination, the acquirer measures the noncontrolling interest in the acquireeeither at fair value or at the proportionate share of the acquiree’s identifiable net assets.Acquisition costs incurred are expensed in the consolidated statement of income.

When the Group acquires a business, it assesses the financial assets and financial liabilitiesassumed for appropriate classification and designation in accordance with the contractual terms,economic circumstances and pertinent conditions as at the acquisition date. This includes theseparation of embedded derivatives in host contracts by the acquiree. If the business combinationis achieved in stages, the acquisition date fair value of the acquirer’s previously held equityinterest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value atthe acquisition date. Subsequent changes to the fair value of the contingent consideration, whichis deemed to be an asset or liability, will be recognized in accordance with PAS 39, FinancialInstruments: Recognition and Measurement, either in profit or loss or as a change to othercomprehensive income. If the contingent consideration is classified as equity, it should not beremeasured until it is finally settled within equity.

Goodwill acquired in a business combination is initially measured at cost, being the excess of thecost of the business combination over the Group’s interest in the net fair value of the acquiree’sidentifiable assets, liabilities and contingent liabilities. After initial recognition, goodwill ismeasured at cost less any accumulated impairment losses. For the purpose of impairment testing,goodwill acquired in a business combination is, from the acquisition date, allocated to each of theGroup’s cash generating units or groups of cash generating units, that are expected to benefit fromthe synergies of the combination, irrespective of whether other assets or liabilities of the Group areassigned to those units or group of units.

Where goodwill forms part of a cash-generating unit (CGU; group of cash generating units) andpart of the operation within that unit is disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determining the gain or losson disposal of the operation. Goodwill disposed of in this circumstance is measured based on therelative values of the operation disposed of and the portion of the cash-generating unit retained.

Acquisitions of noncontrolling interests are accounted for as transactions with owners in theircapacity as owners and therefore no goodwill or profit or loss is recognized as a result.Adjustments to noncontrolling interests arising from transactions that do not involve the loss ofcontrol are based on a proportionate amount of the net assets of the subsidiary.

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Changes in Accounting Policies and DisclosuresThe accounting policies adopted in the preparation of the Group’s consolidated financialstatements are consistent with those of the previous financial years, except for the adoption of thefollowing amendments in PFRS and Philippine Accounting Standards (PAS) which becameeffective beginning January 1, 2016. The nature and the impact of each new standard andamendment are described below:

∂ Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure ofInterests in Other Entities, and PAS 28, Investments in Associates and Joint Ventures,Investment Entities: Applying the Consolidation ExceptionThese amendments clarify that the exemption in PFRS 10 from presenting consolidatedfinancial statements applies to a parent entity that is a subsidiary of an investment entity thatmeasures all of its subsidiaries at fair value. They also clarify that only a subsidiary of aninvestment entity that is not an investment entity itself and that provides support services tothe investment entity parent is consolidated. The amendments also allow an investor (that isnot an investment entity and has an investment entity associate or joint venture) to retain thefair value measurement applied by the investment entity associate or joint venture to itsinterests in subsidiaries when applying the equity method. These amendments are notapplicable to the Group since none of the entities within the Group is an investment entity nordoes the Group have investment entity associates or joint ventures.

∂ Amendments to PFRS 11, Joint Arrangements, Accounting for Acquisitions of Interests inJoint OperationsThe amendments to PFRS 11 require a joint operator that is accounting for the acquisition ofan interest in a joint operation, in which the activity of the joint operation constitutes abusiness (as defined by PFRS 3), to apply the relevant PFRS 3 principles for businesscombinations accounting. The amendments also clarify that a previously held interest in ajoint operation is not remeasured on the acquisition of an additional interest in the same jointoperation while joint control is retained. In addition, a scope exclusion has been added toPFRS 11 to specify that the amendments do not apply when the parties sharing joint control,including the reporting entity, are under common control of the same ultimate controllingparty.

The amendments apply to both the acquisition of the initial interest in a joint operation and theacquisition of any additional interests in the same joint operation.

∂ Amendments to PAS 1, Presentation of Financial Statements, Disclosure InitiativeThe amendments are intended to assist entities in applying judgment when meeting thepresentation and disclosure requirements in PFRSs and clarify the following:∂ that entities shall not reduce the understandability of their financial statements by either

obscuring material information with immaterial information; or aggregating material itemsthat have different natures or functions

∂ that specific line items in the statement of income and other comprehensive income andthe statement of financial position may be disaggregated

∂ that entities have flexibility as to the order in which they present the notes to financialstatements

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∂ that the share of other comprehensive income of associates and joint ventures accountedfor using the equity method must be presented in aggregate as a single line item, andclassified between those items that will or will not be subsequently reclassified to profit orloss.

These amendments did not have any material impact to the Group’s consolidated financialstatements.

∂ Amendments to PAS 16, Property, Plant and Equipment and PAS 38, Intangible Assets,Clarification of Acceptable Methods of Depreciation and AmortizationThe amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern ofeconomic benefits that are generated from operating a business (of which the asset is part)rather than the economic benefits that are consumed through use of the asset. As a result, arevenue-based method cannot be used to depreciate property, plant and equipment and mayonly be used in very limited circumstances to amortize intangible assets.

These amendments are applied prospectively and did not have any impact to the Group, giventhat the Group has not used a revenue-based method to depreciate or amortize its property,plant and equipment and intangible assets.

∂ Amendments to PAS 27, Separate Financial Statements, Equity Method in Separate FinancialStatementsThe amendments allow entities to use the equity method to account for investments insubsidiaries, joint ventures and associates in their separate financial statements. Entitiesalready applying PFRS and electing to change to the equity method in its separate financialstatements will have to apply that change retrospectively. These amendments did not have anyimpact on the Group’s consolidated financial statements as it applies to separate financialstatements only.

∂ PIC Q&A No. 2016-02: PAS 32, Financial Instruments: Presentation and PAS 38, IntangibleAssets - Accounting Treatment of Club Shares Held by an EntityIn 2016, the PIC issued Q&A No. 2016-02 to clarify the accounting treatment of club sharesheld by an entity as follows:

Club Shares as Financial AssetsEquity instruments of another entity are considered as financial assets of the investor/holder inaccordance with PAS 32.11. Furthermore, PAS 32.11 defines an equity instrument as anycontract that evidences a residual interest in the assets after deducting its liabilities.

A proprietary club share entitles the shareholder to a residual interest in the net assets uponliquidation which justifies that such instrument is an equity instrument and thereby qualifies asa financial asset to be accounted for under PAS 39.

Club Shares as Intangible AssetsPAS 38 defines an intangible asset as an identifiable non-monetary asset without physicalsubstance. The key characteristics of intangible assets are that they are resources controlled bythe entity from which the entity expects to derive future economic benefits, lack physicalsubstance and are identifiable to be distinguished from goodwill.

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A non-proprietary club share, though an equity instrument in its legal form, is not an equityinstrument in the context of PAS 32. Furthermore, it does not entitle the holder to acontractual right to receive cash or another financial asset from the issuing corporation.

The holder of the share, in substance, only paid for the privilege to enjoy the club facilitiesand services but not for ownership of the club. In such case, the holder must account for theshare as an intangible asset under PAS 38.

The Group has evaluated the accounting treatment of its club shares following the guidanceunder the above PIC Q&A:

∂ TSNCThe Group assessed that it exercises control over TSNC. Accordingly, TSNC wasconsolidated as of December 31, 2016 and 2015 and the comparative December 31, 2015balance of the investment in TSNC presented under “Real estate inventories” amountingto P=761.1 million, was reclassified to “Property and equipment” (see Notes 13 and 17).The difference between the amount of investment in club projects and the amountreclassified to property and equipment amounting to P=137.9 million was charged to theopening balance of retained earnings and to the noncontrolling interest as ofDecember 31, 2015 in the consolidated statement of changes in equity.

∂ The Palms Country Club (The Palms)The Group assessed that it does not exercise control nor has significant influence over ThePalms. Accordingly, the investment in The Palms was accounted for as financial asset atFVTOCI. The comparative December 31, 2015 balance of the investment in The Palmspresented under Real estate inventories amounting to P=273.8 million was reclassified toFinancial assets at FVTOCI (see Notes 12 and 13).

The Group did not adjust its 2015 consolidated statement of income considering that theimpact of the amounts is not material. Also, the Group did not present a third statement offinancial position as the change resulted only in reclassification that was assessed to be notmaterial to the consolidated financial statements.

Annual Improvements to PFRSs (2012 - 2014 cycle)The Annual Improvements to PFRSs (2012 – 2014 cycle) are effective for annual periodsbeginning on or after January 1, 2016 and did not have a material impact on the Group.

∂ Amendment to PFRS 5, Non-current Assets Held for Sale and Discontinued Operations,Changes in Methods of DisposalThis amendment is applied prospectively and clarifies that changing from a disposal throughsale to a disposal through distribution to owners and vice-versa should not be considered to bea new plan of disposal, rather it is a continuation of the original plan. There is, therefore, nointerruption of the application of the requirements in PFRS 5. The amendment also clarifiesthat changing the disposal method does not change the date of classification.

∂ Amendment to PFRS 7, Financial Instruments: Disclosures, Servicing ContractsPFRS 7 requires an entity to provide disclosures for any continuing involvement in atransferred asset that is derecognized in its entirety. The amendment clarifies that a servicingcontract that includes a fee can constitute continuing involvement in a financial asset. Anentity must assess the nature of the fee and arrangement against the guidance in PFRS 7 inorder to assess whether the disclosures are required. The amendment is to be applied such that

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the assessment of which servicing contracts constitute continuing involvement will need to bedone retrospectively. However, comparative disclosures are not required to be provided forany period beginning before the annual period in which the entity first applies theamendments.

∂ Amendment to PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed InterimFinancial StatementsThis amendment is applied retrospectively and clarifies that the disclosures on offsetting offinancial assets and financial liabilities are not required in the condensed interim financialreport unless they provide a significant update to the information reported in the most recentannual report.

∂ Amendment to PAS 19, Employee Benefits, Discount Rate: Regional Market IssueThe amendment is applied prospectively and clarifies that market depth of high qualitycorporate bonds is assessed based on the currency in which the obligation is denominated,rather than the country where the obligation is located. When there is no deep market for highquality corporate bonds in that currency, government bond rates must be used.

∂ Amendment to PAS 34, Interim Financial Reporting, Disclosure of Information ‘Elsewhere inthe Interim Financial Report’The amendment is applied retrospectively and clarifies that the required interim disclosuresmust either be in the interim financial statements or incorporated by cross-reference betweenthe interim financial statements and wherever they are included within the greater interimfinancial report (e.g., in the management commentary or risk report).

Future Changes in Accounting PoliciesThe Group will adopt the following standards and interpretations when these become effective.Except as otherwise stated, the Group does not expect the adoption of these standards to have asignificant impact on the financial statements.

Effective beginning on or after January 1, 2017

∂ Amendment to PFRS 12, Clarification of the Scope of the Standard (Part of AnnualImprovements to PFRSs 2014 - 2016 Cycle)The amendments clarify that the disclosure requirements in PFRS 12, other than those relatingto summarized financial information, apply to an entity’s interest in a subsidiary, a jointventure or an associate (or a portion of its interest in a joint venture or an associate) that isclassified (or included in a disposal group that is classified) as held for sale.

∂ Amendments to PAS 7, Statement of Cash Flows, Disclosure InitiativeThe amendments to PAS 7 require an entity to provide disclosures that enable users offinancial statements to evaluate changes in liabilities arising from financing activities,including both changes arising from cash flows and non-cash changes (such as foreignexchange gains or losses). On initial application of the amendments, entities are not requiredto provide comparative information for preceding periods. Early application of theamendments is permitted.

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∂ Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for UnrealizedLossesThe amendments clarify that an entity needs to consider whether tax law restricts the sourcesof taxable profits against which it may make deductions on the reversal of that deductibletemporary difference. Furthermore, the amendments provide guidance on how an entityshould determine future taxable profits and explain the circumstances in which taxable profitmay include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial applicationof the amendments, the change in the opening equity of the earliest comparative period maybe recognized in opening retained earnings (or in another component of equity, asappropriate), without allocating the change between opening retained earnings and othercomponents of equity. Entities applying this relief must disclose that fact. Early application ofthe amendments is permitted.

Effective beginning on or after January 1, 2018

∂ Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment TransactionsThe amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; andthe accounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, butretrospective application is permitted if elected for all three amendments and if other criteriaare met. Early application of the amendments is permitted.

∂ Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the forthcoming insurance contracts standard. Theyallow entities to choose between the overlay approach and the deferral approach to deal withthe transitional challenges. The overlay approach gives all entities that issue insurancecontracts the option to recognize in other comprehensive income, rather than profit or loss, thevolatility that could arise when PFRS 9 is applied before the new insurance contracts standardis issued. On the other hand, the deferral approach gives entities whose activities arepredominantly connected with insurance an optional temporary exemption from applyingPFRS 9 until the earlier of application of the forthcoming insurance contracts standard orJanuary 1, 2021.

The overlay approach and the deferral approach will only be available to an entity if it has notpreviously applied PFRS 9.

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∂ PFRS 9, Financial InstrumentsPFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9.The standard introduces new requirements for classification and measurement, impairment,and hedge accounting. PFRS 9 is effective for annual periods beginning on or afterJanuary 1, 2018, with early application permitted. Retrospective application is required, butproviding comparative information is not compulsory. For hedge accounting, the requirementsare generally applied prospectively, with some limited exceptions.

As the Group has early adopted the first phase of PFRS 9 (2009 version) effectiveJanuary 1, 2011, the adoption is not expected to have significant impact on the classificationand measurement of the Group’s financial assets and liabilities. The adoption of the finalversion of PFRS 9 will have an effect on the impairment methodology for financial assets.The adoption will also have an effect on the Group’s application of hedge accounting and onthe amount of its credit losses. The Group is currently assessing the impact of adopting thisstandard.

∂ PFRS 15, Revenue from Contracts with CustomersPFRS 15 establishes a new five-step model that will apply to revenue arising from contractswith customers. Under PFRS 15, revenue is recognized at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods orservices to a customer. The principles in PFRS 15 provide a more structured approach tomeasuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full or modified retrospective application isrequired for annual periods beginning on or after January 1, 2018. The Group is currentlyassessing the impact of PFRS 15 and plans to adopt the new standard on the requiredeffectivity date.

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part ofAnnual Improvements to PFRSs 2014 - 2016 Cycle)The amendments clarify that an entity that is a venture capital organization, or otherqualifying entity, may elect, at initial recognition on an investment-by-investment basis, tomeasure its investments in associates and joint ventures at fair value through profit or loss.They also clarify that if an entity that is not itself an investment entity has an interest in anassociate or joint venture that is an investment entity, the entity may, when applying the equitymethod, elect to retain the fair value measurement applied by that investment entity associateor joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries.This election is made separately for each investment entity associate or joint venture, at thelater of the date on which (a) the investment entity associate or joint venture is initiallyrecognized; (b) the associate or joint venture becomes an investment entity; and (c) theinvestment entity associate or joint venture first becomes a parent. The amendments should beapplied retrospectively, with earlier application permitted.

∂ Amendments to PAS 40, Investment Property, Transfers of Investment PropertyThe amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investment

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property and there is evidence of the change in use. A mere change in management’sintentions for the use of a property does not provide evidence of a change in use. Theamendments should be applied prospectively to changes in use that occur on or after thebeginning of the annual reporting period in which the entity first applies the amendments.Retrospective application is only permitted if this is possible without the use of hindsight.

∂ Philippine Interpretation on International Financial Reporting Interpretations Committee(IFRIC) -22, Foreign Currency Transactions and Advance ConsiderationThe interpretation clarifies that in determining the spot exchange rate to use on initialrecognition of the related asset, expense or income (or part of it) on the derecognition of anon-monetary asset or non-monetary liability relating to advance consideration, the date of thetransaction is the date on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments orreceipts in advance, then the entity must determine a date of the transactions for each paymentor receipt of advance consideration. The interpretation may be applied on a fully retrospectivebasis. Entities may apply the interpretation prospectively to all assets, expenses and income inits scope that are initially recognized on or after the beginning of the reporting period in whichthe entity first applies the interpretation or the beginning of a prior reporting period presentedas comparative information in the financial statements of the reporting period in which theentity first applies the interpretation.

Effective beginning on or after January 1, 2019

∂ PFRS 16, LeasesUnder the new standard, lessees will no longer classify their leases as either operating orfinance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-assetmodel. Under this model, lessees will recognize the assets and related liabilities for mostleases on their balance sheets, and subsequently, will depreciate the lease assets and recognizeinterest on the lease liabilities in their profit or loss. Leases with a term of 12 months or lessor for which the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward theprinciples of lessor accounting under PAS 17. Lessors, however, will be required to disclosemore information in their financial statements, particularly on the risk exposure to residualvalue.

Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. Whenadopting PFRS 16, an entity is permitted to use either a full retrospective or a modifiedretrospective approach, with options to use certain transition reliefs. The Group is currentlyassessing the impact of PFRS 16 and plans to adopt the new standard on the requiredeffectivity date.

Deferred effectivity

∂ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor andits Associate or Joint VentureThe amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. Theamendments clarify that a full gain or loss is recognized when a transfer to an associate orjoint venture involves a business as defined in PFRS 3, Business Combinations.

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Any gain or loss resulting from the sale or contribution of assets that does not constitute abusiness, however, is recognized only to the extent of unrelated investors’ interests in theassociate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council postponed the originaleffective date of January 1, 2016 of the said amendments until the International AccountingStandards Board has completed its broader review of the research project on equity accountingthat may result in the simplification of accounting for such transactions and of other aspects ofaccounting for associates and joint ventures.

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

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

The principal or the most advantageous market must be accessible to by the Group. The fair valueof an asset or a liability is measured using the assumptions that market participants would usewhen pricing the asset or liability, assuming that market participants act in their economic bestinterest.

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

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

∂ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities∂ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is directly or indirectly observable∂ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair

value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, theGroup determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents include short-term placements,amounts due from BSP and other banks, and interbank loans receivable (IBLR) with originalmaturities of three months or less from dates of placements and that are subject to insignificantrisks of changes in value.

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Financial InstrumentsDate of RecognitionFinancial assets and liabilities are recognized in the consolidated statement of financial positionwhen, and only when, the Group becomes a party to the contractual provisions of the instrument.Purchases or sales of financial assets that require delivery or assets within the time frameestablished by regulation or convention in the marketplace are recognized on the trade date.

Initial recognition of financial instrumentsFinancial assets and liabilities are recognized initially at fair value. The fair value of financialinstruments that are actively traded in organized financial markets are determined by reference toquoted market bid prices at the close of the business at the reporting date.

Determination of Fair ValueThe fair value of investments that are actively traded in organized financial markets is determinedby reference to quoted market prices at the close of business on the reporting date. For financialinstruments where there is no active market, fair value is determined using valuation techniques.

Such techniques include using recent arm’s-length market transactions, reference to the currentmarket value of another instrument which is substantially the same, and discounted cash flowanalysis or other valuation models. In the absence of a reliable basis of determining fair value,investments in unquoted equity securities are carried at cost net of impairment, if any.

‘Day 1’ differenceWhere the transaction price in a non-active market is different from the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Group recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ difference) in the consolidated statement ofincome. In cases where transaction price used is made of data which is not observable, thedifference between the transaction price and model value is only recognized in the consolidatedstatement of income when the inputs become observable or when the instrument is derecognized.

For each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’difference amount.

Classification, Reclassification and Measurement of Financial Assets and Financial LiabilitiesFor purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is anonderivative and meets the definition of ‘equity’ for the issuer (under PAS 32), except for certainnon-derivative puttable instruments presented as equity by the issuer. All other non-derivativefinancial instruments are ‘debt instruments’.

Financial Assets at Amortized CostFinancial assets are measured at amortized cost if both of the following conditions are met:∂ the asset is held within the Group’s business model whose objective is to hold assets in order to

collect contractual cash flows; and∂ the contractual terms of the instrument give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal amount outstanding.

Financial assets meeting these criteria are measured initially at fair value plus transaction costs.They are subsequently measured at amortized cost using the effective interest method less anyimpairment in value, with the interest calculated recognized as Interest income in the consolidatedstatement of income. The Group classified cash and cash equivalents, loans and receivables, due

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from related parties and other investment securities at amortized cost as financial assets atamortized cost (see Notes 36 and 37).

The Group may irrevocably elect at initial recognition to classify a financial asset that meets theamortized cost criteria above as at FVTPL if that designation eliminates or significantly reducesan accounting mismatch had the financial asset been measured at amortized cost. In 2016 and2015, the Group has not made such designation.

Financial Assets at FVTOCIAt initial recognition, the Group can make an irrevocable election (on an instrument-by-instrumentbasis) to designate equity investments as at FVTOCI. Designation at FVTOCI is not permitted ifthe equity investment is held for trading.

A financial asset is held for trading if:

∂ it has been acquired principally for the purpose of selling it in the near term; or∂ on initial recognition it is part of a portfolio of identified financial instruments that the Group

manages together and has evidence of a recent actual pattern of short-term profit-taking; or∂ it is a derivative that is not designated and effective as a hedging instrument or a financial

guarantee.

Financial assets at FVTOCI are initially measured at fair value plus transaction costs.Subsequently, they are measured at fair value, with no deduction for sale or disposal costs. Gainsand losses arising from changes in fair value are recognized in other comprehensive income andaccumulated in “Revaluation reserve on financial assets at FVTOCI” in the consolidated statementof financial position. Where the asset is disposed of, the cumulative gain or loss previouslyrecognized in “Revaluation reserve on financial assets at FVTOCI” is not reclassified to profit orloss, but is reclassified directly to Retained earnings.

The Group has designated certain equity instruments that are not held for trading as at FVTOCI oninitial application of PFRS 9 (see Notes 12 and 37).

Dividends earned on holding these equity instruments are recognized in the consolidated statementof income when the Group’s right to receive the dividends is established in accordance withPAS 18, Revenue, unless the dividends clearly represent recovery of a part of the cost of theinvestment.

Financial Assets at FVTPLDebt instruments that do not meet the amortized cost criteria, or that meet the criteria but theGroup has chosen to designate as at FVTPL at initial recognition, are measured at fair valuethrough profit or loss.

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

The Group’s financial assets at FVTPL include government securities, private bonds and equitysecurities held for trading purposes as of December 31, 2016 and 2015 (see Notes 12 and 37).

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Financial assets at FVTPL are carried at fair value, and realized and unrealized gains and losses onthese instruments are recognized as ‘trading and securities gains (losses)’ under “Other income” inthe consolidated statement of income. Interest earned on these investments is reported in theconsolidated statement of income under Interest income while dividend income is reported in theconsolidated statement of income under Other income when the right of payment has beenestablished. Quoted market prices, when available, are used to determine the fair value of thesefinancial instruments. If quoted market prices are not available, their fair values are estimatedbased on inputs provided by the BSP, Bureau of Treasury and investment bankers. For all otherfinancial instruments not listed in an active market, the fair value is determined by usingappropriate valuation techniques.

The fair value of financial assets denominated in a foreign currency is determined in that foreigncurrency and translated at the Philippine Dealing Exchange (PDEx) closing rate at theconsolidated statement of financial position date. The foreign exchange component forms part ofits fair value gain or loss. For financial assets classified as at FVTPL, the foreign exchangecomponent is recognized in the consolidated statement of income. For financial assets designatedas at FVTOCI, any foreign exchange component is recognized in other comprehensive income.For foreign currency denominated debt instruments classified at amortized cost, the foreignexchange gains and losses are determined based on the amortized cost of the asset and arerecognized in the consolidated statement of income.

Reclassification of Financial AssetsThe Group can reclassify financial assets if the objective of its business model for managing thosefinancial assets changes. The Group is required to reclassify the following financial assets:

∂ from amortized cost to FVTPL if the objective of the business model changes so that theamortized cost criteria are no longer met; and,

∂ from FVTPL to amortized cost if the objective of the business model changes so that theamortized cost criteria start to be met and the instrument’s contractual cash flows meet theamortized cost criteria.

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

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

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

A financial liability is held for trading if:

∂ it has been incurred principally for the purpose of repurchasing it in the near term; or,∂ on initial recognition it is part of a portfolio of identified financial instruments that the Group

manages together and has evidence of a recent actual pattern of short-term profit-taking; or,∂ it is a derivative that is not designated and effective as a hedging instrument or a financial

guarantee.

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Management may designate a financial liability at FVTPL upon initial recognition when thefollowing criteria are met, and designation is determined on an instrument by instrument basis:

∂ The designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the liabilities or recognizing gains or losses on them on adifferent basis; or,

∂ The liabilities are part of a group of financial liabilities which are managed and theirperformance evaluated on a fair value basis, in accordance with a documented riskmanagement or investment strategy; or,

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

As of December 31, 2016 and 2015, the Group’s financial liabilities at FVTPL pertains toderivative liabilities (see Note 36).

Financial Liabilities at Amortized CostFinancial liabilities are measured at amortized cost using the effective interest method,except for:

a. financial liabilities at FVPTL which are measured at fair value; and,b. financial liabilities that arise when a transfer of a financial asset does not qualify for

derecognition or when the continuing involvement approach applies.

Issued financial instruments or their components, which are not designated at FVTPL, areclassified as financial liabilities at amortized cost, where the substance of the contractualarrangement results in the Group having an obligation either to deliver cash or another financialasset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount ofcash or another financial asset for a fixed number of own equity shares. The components of issuedfinancial instruments that contain both liability and equity elements are accounted for separately,with the equity component being assigned the residual amount after deducting from the instrumentas a whole the amount separately determined as the fair value of the liability component on thedate of issue.

After initial measurement, bills payable and similar financial liabilities not qualified as and notdesignated as FVTPL, are subsequently measured at amortized cost using the effective interestmethod. Amortized cost is calculated by taking into account any discount or premium on theissuance and fees that are an integral part of the effective interest rate (EIR).

Financial liabilities at amortized cost consist primarily of deposit liabilities, bills and acceptancespayable, accounts payable, accrued expenses and other liabilities, short-term and long-term debtand liability on IPP Administrator contract (see Note 37).

Derivative Financial Instruments and Hedge AccountingInitial Recognition and Subsequent MeasurementThe Group uses derivative financial instruments, such as cross currency swaps, to hedge itsforeign currency risks and interest rate risks. Such derivative financial instruments are initiallyrecognized at fair value on the date on which a derivative contract is entered into and aresubsequently remeasured at fair value. Derivatives are carried as financial assets when the fairvalue is positive and as financial liabilities when the fair value is negative.

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Any gains or losses arising from changes in the fair value of derivatives are taken directly to profitor loss, except for the recognized effective portion of cash flow hedges, which is recognized inOCI and later reclassified to profit or loss when the hedge item affects profit or loss.

For the purpose of hedge accounting, hedges are classified as:

∂ Fair value hedges when hedging the exposure to changes in the fair value of a recognized assetor liability or an unrecognized firm commitment

∂ Cash flow hedges when hedging the exposure to variability in cash flows that is eitherattributable to a particular risk associated with a recognized asset or liability or a highlyprobable forecast transaction or the foreign currency risk in an unrecognized firm commitment

∂ Hedges of a net investment in a foreign operation

At the inception of a hedge relationship, the Group formally designates and documents the hedgerelationship to which the Group wishes to apply hedge accounting and the risk managementobjective and strategy for undertaking the hedge.

The documentation includes identification of the hedging instrument, the hedged item ortransaction, the nature of the risk being hedged and how the entity will assess the effectiveness ofchanges in the hedging instrument’s fair value in offsetting the exposure to changes in the hedgeditem’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to behighly effective in achieving offsetting changes in fair value or cash flows and are assessed on anongoing basis to determine that they actually have been highly effective throughout the financialreporting periods for which they were designated.

Cash Flow HedgesAs of December 31, 2016 and 2015, the Group has outstanding cross currency swaps, designatedas a cash flow hedge, that are used to hedge both the changes in foreign currency and interest rateexposures on its USD-denominated bonds payable (see Note 37).

The effective portion of the gain or loss on the hedging instrument is recognized in OCI under“Cash flow hedge reserve”, while any ineffective portion is recognized immediately in theconsolidated statement of income as other operating expenses.

Amounts recognized in OCI are transferred to the consolidated statement of income when thehedged transaction affects the consolidated statement of income, such as when the hedgedfinancial income or financial expense is recognized or when a forecast sale occurs.

When the hedged item is the cost of a non-financial asset or nonfinancial liability, the amountsrecognized in OCI are transferred to the initial carrying amount of the nonfinancial asset orliability.

If the designation of the financial instrument as a hedge is revoked, or when the hedge no longermeets the criteria for hedge accounting, any cumulative gain or loss previously recognized in OCIremains separately in equity until the hedge transaction impacts the consolidated statement ofincome.

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Impairment of Financial AssetsThe Group assesses at each reporting date whether a financial asset or group of financial assets isimpaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if,there is objective evidence of impairment as a result of one or more events that has occurred afterthe initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has animpact on the estimated future cash flows of the financial asset or the group of financial assets thatcan be reliably estimated. Evidence of impairment may include indications that the borrower or agroup of borrowers is experiencing significant financial difficulty, default or delinquency ininterest or principal payments, the probability that they will enter bankruptcy or other financialreorganization and where observable data indicate that there is measurable decrease in theestimated future cash flows, such as changes in arrears or economic conditions that correlate withdefaults.

For financial assets classified and measured at amortized cost such as loans and receivables, duefrom other banks and investment securities at amortized cost, the Group first assesses whetherobjective evidence of impairment exists individually for financial assets that are individuallysignificant, or collectively for financial assets that are not individually significant. For individuallyassessed financial assets, the amount of the loss is measured as the difference between the asset’scarrying amount and the present value of the estimated future cash flows (excluding future creditlosses that have not been incurred). The present value of the estimated future cash flows isdiscounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discountrate for measuring any impairment loss is the current EIR, adjusted for the original credit riskpremium. The calculation of the present value of the estimated future cash flows of acollateralized financial asset reflects the cash flows that may result from foreclosure less costs forobtaining and selling the collateral, whether or not foreclosure is probable.

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 for impairment. Thecarrying amount of the asset is reduced through use of an allowance account and the amount ofloss is charged to ‘Provision for impairment and credit losses’ in the consolidated statement ofincome. Interest income continues to be recognized based on the original effective interest rate ofthe asset. Loans, together with the associated allowance accounts, are written off when there is norealistic prospect of future recovery and all collateral has been realized. If, in a subsequent year,the amount of the estimated impairment loss decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is reduced by adjusting theallowance account. If a write-off is later recovered, except for credit card receivables, anyamounts formerly charged are credited to the ‘Provision for impairment and credit losses’ in theconsolidated statement of income. For credit card receivables, if a write-off is later recovered, anyamounts previously charged to ‘Provision for probable losses’ are credited to ‘Other income’ inthe consolidated statement of income.

If the Group determines that no objective evidence of impairment exists for individually assessedfinancial asset, whether significant or not, it includes the asset in a group of financial assets withsimilar credit risk characteristics and collectively assesses for impairment. Those characteristicsare relevant to the estimation of future cash flows for groups of such assets by being indicative ofthe debtors’ ability to pay all amounts due according to the contractual terms of the assets beingevaluated.

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For the purpose of a collective evaluation of impairment, financial assets are grouped on the basisof credit risk characteristics such as industry, collateral type, past-due status and term. Future cashflows in a group of financial assets that are collectively evaluated for impairment are estimated onthe basis of historical loss experience for assets with similar credit risk characteristics. Historicalloss experience is adjusted on the basis of current observable data to reflect the effects of currentconditions that did not affect the period on which the historical loss experience is based and toremove the effects of conditions in the historical period that do not exist currently. Estimates ofchanges in future cash flows reflect, and are directionally consistent with changes in relatedobservable data from period to period (such as changes in property prices, payment status, or otherfactors that are indicative of incurred losses of the Group and their magnitude). The methodologyand assumptions used for estimating future cash flows are reviewed regularly by the Group toreduce any differences between loss estimates and actual loss experience.

For consumer loans, the Group is using net flow rate methodology for collective impairment.

Restructured LoansLoan restructuring may involve extending the payment arrangements and the agreement of newloan conditions. Once the terms have been renegotiated, the loan is no longer considered past due.Management continuously reviews restructured loans to ensure that all criteria are met and thatfuture payments are likely to occur. The loans continue to be subjected to an individual orcollective impairment assessment, calculated using the loan’s original effective interest rate. Thedifference between the recorded value of the original loan and the present value of the restructuredcash flows, discounted at the original effective interest rate, is recognized in ‘Provision forprobable losses’ in the consolidated statement of income.

Derecognition of Financial Assets and Financial LiabilitiesFinancial AssetsA financial asset is derecognized when (a) the rights to receive cash flows from the asset haveexpired, (b) the Group retains the right to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a pass-througharrangement, or, (c) the Group has transferred its rights to receive cash flows from the asset andeither has transferred substantially all the risks and rewards of the asset, or has neither transferrednor retained substantially all the risks and rewards of the asset, but has transferred control of theasset.

Where the Group has transferred its rights to receive cash flows from an asset and has neithertransferred nor retained substantially all the risks and rewards of an asset nor transferred control ofthe asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred asset is measuredat the lower of the original carrying amount of the asset and the maximum amount ofconsideration that the Group could be required to repay.

Financial LiabilitiesA financial liability is derecognized when the obligation under the liability has expired, dischargedor cancelled. Where an existing financial liability is replaced by another from the same lender onsubstantially different terms, or the terms of an existing liability are substantially modified, suchan exchange or modification is treated as a derecognition of the original liability and therecognition of a new liability, and the difference in the respective carrying amounts is recognizedin the consolidated statement of income.

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Repurchase and Reverse Repurchase AgreementsSecurities sold under agreements to repurchase at a specified future date (‘repos’) are notderecognized from the consolidated statement of financial position. The corresponding cashreceived, including accrued interest, is recognized in the consolidated statement of financialposition as a loan to the Group, reflecting the economic substance of such transaction.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are only offset and the net amount reported in theconsolidated statement of financial position when there is a legally enforceable right to offset therecognized amounts and the Group intends to either settle on a net basis, or to realize the asset andsettle the liability simultaneously. This is not generally the case with master netting agreements,where the related assets and liabilities are presented at gross in the consolidated statement offinancial position.

Interests in Joint ArrangementsA joint venture is a contractual agreement whereby two or more parties undertake an economicactivity that is subject to joint control. A joint arrangement may either be a joint venture or a jointoperation.

Joint VentureThe Group’s investments in joint venture are accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognized at cost. Thecarrying amount of the investment is adjusted to recognize changes in the Group’s share of netassets of the joint venture since the acquisition date. Goodwill relating to the joint venture isincluded in the carrying amount of the investment and is neither amortized nor individually testedfor impairment.

The consolidated statement of income reflects the Group’s share of the results of operations of thejoint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. Inaddition, when there has been a change recognized directly in the equity of the joint venture, theGroup recognizes its share of any changes, when applicable, in the consolidated statement ofcomprehensive income and consolidated statement of changes in equity. Unrealized gains andlosses resulting from transactions between the Group and the joint venture are eliminated to theextent of the interest in the joint venture.

The Group recognizes its share of the losses of the joint venture until its share of losses equals orexceeds the carrying value of its investment in joint venture, at which point the Groupdiscontinues recognizing its share of further losses. The Group restricts the elimination to theamount required to reduce the investment to zero.

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

After application of the equity method, the Group determines whether it is necessary to recognizean impairment loss on its investment in joint venture. At each reporting date, the Groupdetermines whether there is objective evidence that the investment in joint venture is impaired.

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If there is such evidence, the Group calculates the amount of impairment as the difference betweenthe recoverable amount of the investment in joint venture and its carrying value, then recognizesthe loss in the consolidated statement of income.

Upon loss of joint control over the joint venture, the Group measures and recognizes any retainedinvestment at its fair value. Any difference between the carrying amount of the associate or jointventure upon loss of joint control and the fair value of the retained investment and proceeds fromdisposal is recognized in the consolidated statement of income.

Joint OperationThe Group recognizes in relation to its interest in joint operation its: (a) assets, including its shareof any assets held jointly; (b) liabilities, including its share of any liabilities incurred jointly;(c) revenue from sale of its share of the output arising from the joint operation; (d) share of therevenue from the sale of the output by the joint operation; and (e) expenses, including its share ofany expenses jointly incurred.

The Group’s significant investments in joint arrangements include: CHI (60.0%), EW Ageas Life(50.0%), Filinvest Corporate City (FCC; 74.0%) and South Station Terminal (STT; 49.0%).Despite the Group’s interest of above 50.0% on the above entities, these are treated as jointarrangements due to existence of contractual arrangements between the parties.

CHI and EW Ageas Life are accounted for as joint venture while FCC and STT are accounted foras joint operation.

Real Estate InventoriesProperty acquired or being constructed for sale in the ordinary course of business, rather than to beheld for rental or capital appreciation, is held as real estate inventories and is measured at thelower of cost and net realizable value (NRV).

Cost includes:∂ Land acquisition cost and expenses directly related to acquisition∂ Amounts paid to contractors for development and construction∂ Borrowing costs, planning and design costs, costs of site preparation, professional fees,

property transfer taxes, construction overheads and other related costs

NRV is the estimated selling price in the ordinary course of the business, based on market pricesat the reporting date, less estimated costs of completion and the estimated costs of sale.

Sugar and Molasses InventoriesInventories are stated at the lower of cost and NRV. Cost is determined by the weighted averageproduction cost for sugar and molasses and, by the moving average method for materials andsupplies. NRV is the estimated selling price in the ordinary course of business, less estimated costof completion and expenses necessary to consummate the sale.

Coal, Fuel and Spare Parts InventoriesInventories are stated at the lower of cost and NRV. Cost is determined based on weightedaverage cost for coal and fuel inventories and by first-in, first-out method for spare partsinventories. NRV is the estimated selling price in the ordinary course of business, less estimatedcost of completion and expenses necessary to consummate the sale.

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Hotel InventoriesInventories are valued at the lower of cost and NRV. Cost is determined using the moving averagemethod. NRV is the estimated selling price in the ordinary course of business less estimated costsnecessary to make the sale. NRV of supplies is the estimated current replacement cost.

Land and Land DevelopmentLand and land development consists of properties for future development that are carried at thelower of cost and NRV. The cost of land and land development includes the (a) land acquisitioncost, (b) costs incurred relative to the acquisition and transfer of land title in the name of theGroup such as transfer taxes and registration fees, (c) costs incurred on initial development of theraw land in preparation for future projects and (d) borrowing costs. They are classified to Realestate inventories when the project plans and development and construction estimates arecompleted and necessary permits are secured.

Biological AssetsThe Group’s biological assets included in the ‘Other assets’ account consist of sugarcane crops.The costs of planting, fertilizers and other maintenance costs incurred for the sugarcaneplantations prior to harvest are capitalized to biological assets and are charged to operations as thesugarcane are harvested. Biological assets are carried at cost less any significant and apparentpermanent decline in value.

The Group uses the cost method of valuation since fair value cannot be measured reliably. TheGroup’s biological assets have no active market. Further, the existing sector benchmarks aredetermined to be irrelevant and the estimates (i.e., input costs, efficiency values, production)necessary to compute for the present value of expected net cash flows comprises wide range ofdata which may not result to a reliable basis for determining the fair value.

Once the fair value becomes reliably measurable, the Group will measure the assets at their fairvalue less estimated point-of-sale costs.

Investment PropertiesInvestment properties consist of commercial mall, land and other properties held for long-termrental yields and for capital appreciation. Investment properties are carried at cost lessaccumulated depreciation and any accumulated impairment losses. Land is carried at cost, lessimpairment in value, if any. Foreclosed properties are recorded as Investment properties upon: (a)entry of judgment in case of judicial foreclosure; (b) execution of the Sheriff’s Certificate of Salein case of extra-judicial foreclosure; or (c) notarization of the Deed of Dacion in case of dation inpayment (dacion en pago). Subsequent to initial recognition, depreciable investment propertiesare carried at cost less accumulated depreciation and any impairment in value.

Expenses with regards to investment properties are treated as ordinary expenses and arerecognized when incurred. Depreciation of investment properties are computed using the straight-line method over the estimated useful lives of these assets as follows:

YearsBuildings 20-50Building improvements 10-20Furniture, fixtures and machineries 2-5

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Investment property is derecognized when it is either disposed of or permanently withdrawn fromuse and there is no future economic benefit expected from its disposal or retirement. Any gains orlosses on the retirement or disposal of an investment property are recognized in the consolidatedstatement of income in the year of retirement or disposal.

Transfers are made to investment property when there is a change in use, evidenced by ending ofowner-occupation, commencement of an operating lease to another party or ending of constructionor development. Transfers are made from investment property when there is a change in use,evidenced by commencement of owner-occupation or commencement of development with a viewto sell. Transfers between investment property, owner-occupied property and inventories do notchange the carrying amount of the property transferred and they do not change the cost of thatproperty for measurement or disclosure purposes.

Property, Plant and EquipmentProperty, plant and equipment are stated at cost, net of accumulated depreciation and accumulatedimpairment losses, if any. Such cost includes the cost of replacing part of the property, plant andequipment and borrowing cost for long-term construction projects if the recognition criteria aremet. Likewise, when a major inspection is performed, its cost is recognized in the carryingamount of property, plant and equipment as a replacement if the recognition criteria are satisfied.All other repair and maintenance costs are recognized in the consolidated statement of income asincurred.

The separate recognition of significant components of property, plant and equipment depends onwhether these components serve the same purpose as the related items of property, plant andequipment. If the corresponding components do not serve the same purpose, they must berecognized separately. If the component parts serve the same purpose, the need to recognize themseparately depends on whether they have the same structure and the same normal useful life as theother component parts of the asset. If the structure and normal useful life are different, thecomponent parts must be recognized individually insofar as they comply with the definition of theassets. Accordingly, the cost of acquisition must be allocated to the individual components overtheir respective useful lives. The depreciation of the component parts must be recognized for eachcomponent part separately. The subsequent expenses for the exchange or replacement of suchassets must be recognized as acquisition costs for a separate asset if it meets the asset recognitioncriteria and are depreciated over their useful life.

The cost of an item of property, plant and equipment also includes the costs of its dismantling,removal or restoration, the obligation for which an entity incurs as a consequence of installing theitem.

Changes in the measurement of an existing decommissioning, restoration and similar liability thatresult from changes in the estimated timing or amount of the outflow of resources embodyingeconomic benefits required to settle the obligation, or a change in the discount rate, shall beaccounted for as follows:

a. subject to (b), changes in the liability shall be added to, or deducted from, the cost of therelated asset in the current period.

b. the amount deducted from the cost of the asset shall not exceed its carrying amount. If adecrease in the liability exceeds the carrying amount of the asset, the excess shall berecognized immediately in profit or loss.

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c. if the adjustment results in an addition to the cost of an asset, the entity shall considerwhether this is an indication that the new carrying amount of the asset may not be fullyrecoverable. If it is such an indication, the entity shall test the asset for impairment byestimating its recoverable amount, and shall account for any impairment loss.

The adjusted depreciable amount of the asset is depreciated over its useful life. Once the relatedasset reached the end of its useful life, all subsequent changes in the liability shall be recognized inprofit or loss as they occur.

Construction-in-progress, included in property, plant and equipment, is stated at cost. Thisincludes cost of construction and other direct costs. Construction-in-progress is not depreciateduntil such time as the relevant assets are completed and put into operational use.

Depreciation are calculated on a straight-line basis over the estimated useful lives of the assets asfollows:

YearsBuildings 20-50Coal thermal power plant 10-30Machinery and equipment 5-20Transportation equipment 5Furniture, fixtures and office equipment 3-5Communication equipment 5

Leasehold improvements included under “Property, plant and equipment” are amortized over theterm of the lease or their estimated useful lives (3 - 15 years), whichever is shorter.

The useful life and depreciation and amortization method are reviewed at financial year end toensure that the period and method of depreciation and amortization are consistent with theexpected pattern of economic benefits from items of property, plant and equipment.

An item of property, plant and equipment is derecognized upon disposal or when no futureeconomic benefits are expected from its use or disposal. Any gain or loss arising on derecognitionof the asset is included in the consolidated statement of income in the year the asset isderecognized.

Intangible AssetsIntangible assets include goodwill, branch licenses, customer relationship, core deposits andcapitalized software, card acquisition cost, Build-Transfer-Operate (BTO) rights, anddevelopment rights which are presented under ‘Other assets’, and rights from Independent PowerProducer Administrator (IPPA) contract which is separately presented in the consolidatedstatements of financial position.

Intangible assets acquired separately are measured on initial recognition at costs. The cost ofintangible assets acquired in a business combination or contracted arrangements is their fair valueat the date of acquisition. Following initial recognition, intangible assets, excluding goodwill andbranch licenses, are carried at cost less any accumulated amortization and any accumulatedimpairment losses. The useful lives of intangible assets are assessed to be either finite orindefinite.

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Intangible assets with finite lives are amortized over the economic useful life and assessed forimpairment whenever there is an indication that the intangible assets may be impaired. Theamortization period and the amortization method for an intangible asset with a finite useful life arereviewed at least at each financial year-end. Changes in the expected useful life or the expectedpattern of consumption of future economic benefits embodied in the asset is accounted for bychanging the amortization period or method, as appropriate, and treated as changes in accountingestimates. The amortization expense on intangible assets with finite lives is recognized in theconsolidated statement of income.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairmentannually or more frequently, either individually or at the CGU level. The assessment of indefinitelife is reviewed annually to determine whether the indefinite life continues to be supportable. Ifnot, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from the derecognition of an intangible asset are measured as the differencebetween the net disposal proceeds and the carrying amount of the asset and are recognized in theconsolidated statement of income when the asset is derecognized.

GoodwillGoodwill acquired in a business combination is initially measured at cost, being the excess of theconsideration transferred over the net fair value of the acquiree’s identifiable assets, liabilities andcontingent liabilities. Following initial recognition, goodwill is measured at cost less anyaccumulated impairment losses.

Branch LicensesBranch licenses are determined to have indefinite useful lives. These are tested for impairmentannually either individually or at the CGU level. Such intangibles are not amortized. The usefullife is reviewed annually to determine whether indefinite useful life assessment continues to besupportable. If not, the change in the useful life assessment from indefinite to finite is made on aprospective basis.

Customer Relationship and Core DepositCustomer relationship and core deposit included under “Other assets” account are intangible assetsacquired by the Group through business combination. These intangible assets are initiallymeasured at their fair value at the date of acquisition. The fair value of these intangible assetsreflects expectations about the probability that the expected future economic benefits embodied inthe asset will flow to the Group.

Following initial recognition, customer relationship and core deposits are measured at cost lessaccumulated amortization and any accumulated impairment losses. Customer relationship relatedto the credit cards business is amortized on a straight-line basis over its useful life of forty (40)years while the customer relationship related to the auto loans business and core deposits areamortized on a straight-line basis over its useful life of thirteen (13) and ten (10) years,respectively.

Capitalized SoftwareCapitalized software, included in ‘Other assets’, as acquired separately is measured at cost oninitial recognition. Following initial recognition, capitalized software is carried at cost lessaccumulated amortization and any accumulated impairment losses. The capitalized software isamortized on a straight-line basis over its useful economic life of five (5) years.

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Card Acquisition CostsCard acquisition costs represent capitalized commissions paid to third-party brokers forsuccessfully originated credit card accounts, which are amortized over two years, the averagerelationship life with customers.

BTO RightsBTO rights pertain to the cost related to the Build, Transfer and Operate agreements entered intoby the Group. The rights provided under the BTO agreements are carried at cost less accumulateddepreciation. This is amortized using the straight-line method over the term of the BTOagreement (i.e., 25 years) upon conveyance of right to operate and assessed for impairmentwhether there is an indication that the asset may be impaired. The amortization period and methodare reviewed at least each reporting date.

IPP Administrator RightsThe Group’s IPP Administrator rights pertain to the rights granted by Power Sector Assets andLiabilities Management (PSALM) to FDC Misamis to manage the output of Mt. Apo 1 and 2geothermal power plants. The rights provided under the IPP Administrator contract is carried atcost less accumulated amortization and any accumulated impairment losses. This is amortizedusing the straight-line method over the term of the IPP administrator contract starting on theeffective date of the IPP Administrator contract and assessed for impairment whenever there is anindication that the asset may be impaired. The amortization period and method are reviewed atleast at each reporting date.

Changes in the expected useful life or unexpected pretermination of the IPP Administratorcontract will be accounted for by changing the amortization period or method, as appropriate, andare treated as changes in accounting estimates. The amortization expense is recognized in profitor loss in the expense category consistent with the function of the intangible asset.

The IPP Administrator rights is derecognized on disposal or when no further economic benefitsare expected from its use or disposal. Gain or loss from derecognition of the right is measured asthe difference between the net disposal proceeds and the carrying amount of the asset, and isrecognized in profit or loss.

Impairment of Nonfinancial AssetsThe carrying values of investment properties, property, plant and equipment, IPP Administratorrights and other nonfinancial assets are reviewed for impairment when events or changes incircumstances indicate the carrying values may not be recoverable.

If any such indication exists and where the carrying values exceed the estimated recoverableamounts, the assets or cash-generating units are written down to their recoverable amounts. Therecoverable amount of the asset is the greater of fair value less cost of disposal and value in use.In assessing value in use, the estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessment of the time value of moneyand the risks specific to the asset. For an asset that does not generate largely independent cashinflows, the recoverable amount is determined for the cash-generating unit to which the assetbelongs. Impairment losses are recognized in the consolidated statement of income.

A previously recognized impairment loss is reversed only if there has been a change in theestimates used to determine the asset’s recoverable amount since the last impairment loss wasrecognized. The carrying amount of the asset is increased to its recoverable amount but theamount cannot exceed the carrying amount that would have been determined, net of depreciation,

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had no impairment loss been recognized for the asset in prior years. Such reversal is recognized inthe consolidated statement of income. After such a reversal, the depreciation and amortizationexpense is adjusted in future years to allocate the asset’s revised carrying amount, less anyresidual value, on a systematic basis over its remaining life.

The following criteria are also applied in assessing impairment of specific assets:

Property, Plant and Equipment and Investment PropertiesThe carrying values of property, plant and equipment and investment properties are reviewed forimpairment when events or changes in circumstances indicate the carrying values may not berecoverable. If such indication exists and where the carrying values exceed the estimatedrecoverable amounts, the assets are written down to their recoverable amount.

Branch LicensesBranch licenses are tested for impairment annually at the statement of financial position dateeither individually or at the CGU level, as appropriate.

GoodwillGoodwill is reviewed for impairment, annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the cash generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (or group of cash-generating units) is less than the carrying amount of the cashgenerating unit (or group of cash-generating units) to which goodwill has been allocated, animpairment loss is recognized immediately in the consolidated statement of income. Impairmentlosses relating to goodwill cannot be reversed for subsequent increases in its recoverable amountin future periods.

Other Intangible AssetsOther intangible assets such as customer relationship, core deposits, capitalized software,BTO rights, development rights and IPP Administrator rights are assessed for impairmentwhenever there is an indication that it may be impaired.

Revenue and Income RecognitionRevenue is recognized to the extent that it is probable that the economic benefits associated withtransaction will flow to the Group and the amount can be reliably measured. The Group assessesits revenue arrangements against specific criteria in order to determine if it is acting as principal oragent. In arrangements where the Group is acting as principal to its customers, revenue isrecognized on a gross basis. However, when the Group is acting as an agent to its customers, onlythe amount of net commission retained is recognized as revenue.

The following specific recognition criteria must also be met before revenue or income isrecognized:

a. Financial and Banking Services

Interest IncomeFor all financial instruments measured at amortized cost and interest-bearing financialinstruments classified as FVTPL, interest income is recorded at the effective interest rate,which is the rate that exactly discounts estimated future cash payments or receipts through theexpected life of the financial instrument or a shorter period, where appropriate, to the netcarrying amount of the financial asset or financial liability.

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The calculation takes into account all contractual terms of the financial instrument (forexample, prepayment options), includes any fees or incremental costs that are directlyattributable to the instrument and are an integral part of the EIR, but not future credit losses.The adjusted carrying amount is calculated based on the original EIR. The change in carryingamount is recorded as interest income. Once the recorded value of a financial asset or groupof similar financial assets has been reduced due to an impairment loss, interest incomecontinues to be recognized using the original EIR applied to the new carrying amount.

Service Charges and PenaltiesService charges and penalties are recognized only upon collection or accrued when there is areasonable degree of certainty as to its collectibility.

Fee and Commission IncomeThe Group earns fee and commission income from a diverse range of services it provides to itscustomers. Fee income can be divided into the following two categories:

a) Fee income earned from services that are provided over a certain period of timeFees earned for the provision of services over a period of time are accrued over thatperiod. These fees include investment fund fees, custodian fees, fiduciary fees,commission income and credit related fees.

b) Fee income from providing transaction servicesFees arising from negotiating or participating in the negotiation of a transaction for a thirdparty are recognized on completion of the underlying transaction. Fees or components offees that are linked to a certain performance are recognized after fulfilling thecorresponding criteria.

c) Bancassurance feesNon-refundable fees are recognized on a straight-line bases over the term of thedistribution agreement. Fees that are linked to a certain performance are recognized afterfulfilling the corresponding criteria.

Trading and Securities Gains (Losses) - netTrading and securities gain represents results arising from trading activities including all gainsand losses from changes in fair value for financial assets and financial liabilities held fortrading.

Commissions Earned on Credit CardsCommissions earned on credit cards are taken up as income upon receipt from memberestablishments of charges arising from credit availments by credit cardholders. Thesecommissions are computed based on certain agreed rates and are deducted from amountsremittable to member establishments.

Purchases by credit cardholders, collectible on an installment basis, are recorded at the cost ofthe items purchased plus a certain percentage of cost. The excess over cost is credited to‘Unearned discount’ and is shown as a deduction from ‘Loans and receivables’ in theconsolidated statement of financial position.

The unearned discount is taken up to income over the installment terms and is computed usingthe EIR method.

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Customer Loyalty ProgrammesAward credits under customer loyalty programmes are accounted for as a separatelyidentifiable component of the transaction in which they are granted. The fair value of theconsideration received in respect of the initial sale is allocated between the award credits andthe other components of the sale. Income generated from customer loyalty programmes isrecognized as part of ‘Service charges, fees and commissions’ in the consolidated statement ofincome.

Other IncomeIncome from sale of services is recognized upon rendition of the service. Income from sale ofproperties is recognized upon completion of the earning process and the collectability of thesales price is reasonably assured.

b. Real Estate Operations

Sale of Subdivision Lots and Housing UnitsRevenue from sales of substantially completed residential and housing projects wherecollectability of sales price is reasonably assured is accounted for using the full accrualmethod.

Sale of Condominium UnitsSale of condominium units are accounted for under the percentage-of-completion methodwhere the Group has material obligations to complete the development of the condominiumproject. The percentage of completion is measured principally by reference to the actual costsincurred to date over the estimated total costs of project development.

Under this method, revenue is recognized as the related obligations are fulfilled, measuredprincipally on the basis of the estimated completion of a physical proportion of the contractwork. These estimates are determined and regularly updated by the contractors and Group’stechnical personnel.

Revenue from sale of condominium units are recognized using the percentage of completionwhen (a) the criteria of percentage of collection over the total selling price is met, and (b) theproject is beyond preliminary stage (i.e., engineering, design work, construction contractexecution, site clearance and preparation, excavation and the building foundation arefinished). Under this method, revenue is recognized as the related obligation is fulfilled.

When conditions for recognizing revenue are not yet met, collections over the recognizedreceivables are reported as deposit included in “Accounts payable, accrued expenses and otherliabilities” in the consolidated statement of financial position.

Any excess of collections over the recognized receivables are included in the “Accountspayable, accrued expenses and other liabilities” account in the liabilities section of theconsolidated statement of financial position. Collections from accounts which do not qualifyyet for revenue recognition are treated as advances from customers included in the “Accountspayable, accrued expenses and other liabilities” in the consolidated statement of financialposition.

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Mall and Rental RevenuesRent income from investment properties is recognized in the consolidated statement of incomeeither on a straight-line basis over the lease term, or based on a certain percentage of the grossrevenue of tenants, pursuant to the terms of the lease contracts. Leases under contingent rentsare recognized as income in the period in which they are earned.

Ticket, Food and Beverage SaleRevenue from ticket sales is recognized when theater services are completed and consumed.Revenue from food and beverage sale is recognized when goods are actually sold tocustomers.

Interest IncomeInterest income is recognized as the interest accrues taking into account the effective yield onthe underlying assets.

Dividend IncomeDividend income is recognized when the Group’s right to receive payment is established.

Other IncomeIncome from sale of services is recognized upon rendition of the service. Income from sale ofgoods is recognized upon completion of the earning process and the collectability of the salesprice is reasonably assured.

c. Power Generation Operations

Power RevenuesRevenue from power generation is recognized in the period when actual capacity is generatedand transmitted to the customers, net of related discounts.

Interest IncomeInterest income is recognized as the interest accrues into account the effective yield on theunderlying assets.

Other IncomeIncome from sale of services is recognized upon rendition of the service. Income from sale ofgoods is recognized upon completion of the earning process and the collectability of the salesprice is reasonably assured.

d. Sugar Operations

Sugar SalesSale is recognized when title to the goods has passed to the buyer through the endorsement ofquedans or physical delivery.

Collections from accounts which are not yet qualified for revenue recognition are treated as‘deposit from customers’ and are included in the “Accounts payable, accrued expenses andother liabilities” account in the consolidated statements of financial position.

Fertilizer Assistance IncomeFertilizer assistance income pertains to income from sale of fertilizer to planters of sugarcaneand is recognized as income upon delivery of goods.

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Interest IncomeInterest income is recognized as the interest accrues into account the effective yield on theunderlying assets.

Other IncomeIncome from sale of services is recognized upon rendition of the service. Income from sale ofgoods is recognized upon completion of the earning process and the collectability of the salesprice is reasonably assured.

e. Hotel Operations

Hotel revenuesHotel revenue consists of revenue from room related services, sale of food and beverage, golfoperations and other operating departments. These are accounted for as follows:∂ Revenue from sale of food and beverage is recognized when served.∂ Revenue from rooms and/or golf operations is recognized when the related services are

rendered and/or facilities and amenities are used.∂ Revenue from other operating departments is recognized when services are rendered.

Interest IncomeRevenue is recognized as the interest accrues taking into account the effective yield on theasset.

Cost and Expense RecognitionCost and expenses are recognized in the consolidated statement of income when decrease in futureeconomic benefit related to a decrease in an asset or an increase in a liability has arisen that can bemeasured reliably. Cost and expenses are recognized in the consolidated statement of income:∂ On the basis of a direct association between the costs incurred and the earning of specific

items of income;∂ On the basis of systematic and rational allocation procedures when economic benefits are

expected to arise over several accounting periods and the association can only be broadly orindirectly determined; or,

∂ Immediately when expenditure produces no future economic benefits or when, and to theextent that, future economic benefits do not qualify or cease to qualify, for recognition in theconsolidated statement of financial position as an asset.

Cost of Real Estate SalesCost of real estate sales is recognized consistent with the revenue recognition method applied.Cost of subdivision lots and residential housing units and condominium units sold before thecompletion of the development is determined on the basis of the acquisition cost of the land and itsfull development costs, which include estimated costs to complete development works, asdetermined by the Group’s in-house technical staff.

The cost of inventory recognized in profit or loss on disposal is determined with reference to thespecific costs incurred on the property, allocated to saleable area based on relative size and takesinto account the percentage of completion used for revenue recognition purposes.

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

The cost of providing benefits under the defined benefit plans is actuarially determined using theprojected unit credit method.

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

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognizedwhen plan amendment or curtailment occurs.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income in theconsolidated statement of income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods. All remeasurements recognized inother comprehensive income account “Remeasurement gains (losses) on retirement plans” are notreclassified to consolidated statement of income in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Group, nor can they be paid directly tothe Group. Fair value of plan assets is based on market price information. When no market priceis available, the fair value of plan assets is estimated by discounting expected future cash flowsusing a discount rate that reflects both the risk associated with the plan assets and the maturity orexpected disposal date of those assets (or, if they have no maturity, the expected period until thesettlement of the related obligations).

The Group’s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only whenreimbursement is virtually certain.

Termination BenefitTermination benefits are employee benefits provided in exchange for the termination of anemployee’s employment as a result of either an entity’s decision to terminate an employee’semployment before the normal retirement date or an employee’s decision to accept an offer ofbenefits in exchange for the termination of employment.

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A liability and expense for a termination benefit is recognized at the earlier of when the entity canno longer withdraw the offer of those benefits and when the entity recognizes related restructuringcosts. Initial recognition and subsequent changes to termination benefits are measured inaccordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.

Employee Leave EntitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly within twelvemonths after the end of the annual reporting period is recognized for services rendered byemployees up to the end of the reporting period.

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

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

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

asset; or,(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at thedate of renewal or extension period for scenario (b).

Group as a LessorLeases where the Group does not transfer substantially all the risks and benefits of ownership ofthe asset are classified as operating leases. Rental income on operating leases is recognized on astraight line basis over the lease term. Initial direct costs incurred in negotiating an operating leaseare added to the carrying amount of the leased asset and recognized over the lease term on thesame bases as rental income.

Group as a LesseeLease payments under operating lease are recognized as expense on a straight line basis over theterms of the lease contract.

Commission ExpenseCommissions paid to sales or marketing agents on the sale of pre-completed real estate units aredeferred when recovery is reasonably expected and are charged to expense in the period in whichthe related revenue is recognized as earned. Commission expense is included in the “Expenses”account in the consolidated statement of income.

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Income TaxesCurrent Income TaxCurrent income tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities. The tax rates and taxlaws used to compute the amount are those that are enacted or substantively enacted at thereporting date.

Deferred Income TaxDeferred income tax is provided on all temporary differences at the reporting date between the taxbases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except;(a) where deferred income tax liability arises from the initial recognition of goodwill or of an assetor liability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and (b) in respect of taxabletemporary differences associated with investments in subsidiaries, associates and interests in jointventures, where the timing of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforwardbenefit of the excess of minimum corporate income tax (MCIT) over regular corporate income tax(RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable thattaxable profit will be available against which the deductible temporary differences andcarryforward of MCIT and unused NOLCO can be utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reducedto the extent that it is no longer probable that sufficient taxable profit will be available to allow allor part of the deferred income tax assets to be utilized. Unrecognized deferred income tax assetsare reassessed at each reporting date and are recognized to the extent that is has become probablethat future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to applyto the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)that have been enacted or substantively enacted at the reporting date. Income tax relating to itemsrecognized directly in other comprehensive income is recognized in other comprehensive incomeand not in the consolidated statement of income.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceableright exists to offset current income tax assets against current income tax liabilities and thedeferred income taxes relate to the same taxable entity and the same taxation authority.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition, construction orproduction of a qualifying asset. Qualifying assets are assets that necessarily take a substantialperiod of time to get ready for intended use or sale. Interest and other financing costs incurredduring the construction period on borrowings used to finance property development are capitalizedas part of development in the consolidated statement of financial position. Capitalization ofborrowing costs commences when the activities to prepare the asset are in progress andexpenditures and borrowing costs are being incurred.

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Capitalization of borrowing costs ceases when substantially all the activities necessary to preparethe asset for its intended sale are complete. If the carrying amount of the asset exceeds itsrecoverable amount, an impairment loss is recorded. All other borrowing costs are expensed asincurred.

EquityCapital Stock and Additional Paid-in CapitalCapital stock is measured at par value for all shares issued. When the Group issues more than oneclass of stock, a separate account is maintained for each class of stock and the number of sharesissued.

When the shares are sold at a premium, the difference between the proceeds and the par value iscredited to “Additional paid-in capital” account. When shares are issued for a consideration otherthan cash, the proceeds are measured by the fair value of the consideration received.

Direct cost incurred related to the equity issuance, such as underwriting, accounting and legal fees,printing costs and taxes are charged to “Additional paid-in capital” account. In the absence ofAdditional Paid-in Capital, such direct costs are treated as other equity transaction under RetainedEarnings.

Retained EarningsRetained earnings represent accumulated earnings of the Group, and any other adjustments to it asrequired by other standards, less dividends declared. The individual accumulated earnings of thesubsidiaries and joint ventures are available for dividend declaration when these are declared asdividends by the subsidiaries as approved by their respective BOD.

Dividends on common shares are deducted from retained earnings when declared and approved bythe BOD or shareholders of the Parent Company. Dividends payable are recorded as liability untilpaid. Dividends for the year that are declared and approved after the reporting date, if any, aredealt with as an event after the reporting date and disclosed accordingly.

Treasury SharesOwn equity instruments which are reacquired are carried at cost and are deducted fromconsolidated equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue orcancellation of the Group’s own equity instruments. When the shares are retired, the capital stockaccount is reduced by its par value and excess of cost over par value upon retirement is charged toadditional paid-in capital to the extent of the specific or average additional paid-in capital whenthe shares were issued and to retained earnings for the remaining balance.

Earnings Per Share (EPS)Basic EPS amounts are calculated by dividing net income attributable to equity holders of theParent Company for the year by the weighted average number of ordinary shares outstandingduring the year after giving retroactive effect for any stock dividends, stock options or reversestock splits during the period.

Diluted EPS is computed by dividing net income by the weighted average number of commonshares outstanding during the period, after giving retroactive effect for any stock dividends, stocksplits or reverse stock splits during the period, and adjusted for the effect of dilutive options anddilutive convertible preferred shares and bonds. If the required dividends to be declared onconvertible preferred shares divided by the number of equivalent common shares, assuming such

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shares are converted would decrease the basic EPS, then such convertible preferred shares wouldbe deemed dilutive. Where the effect of the assumed conversion of the preferred shares and theexercise of all outstanding options have anti-dilutive effect, basic and diluted EPS are stated at thesame amount.

Foreign Currency Transactions and TranslationsThe functional currency of each of the entities in the Group is the Philippine Peso, except for theFCDU of EWBC. Philippine Peso is also the presentation currency of the consolidated financialstatements. For financial reporting purposes, the monetary assets and liabilities of the FCDU andthe foreign currency-denominated monetary assets and liabilities of the Group are translated inPhilippine peso based on the Philippine Dealing Exchange (PDEx) closing rate prevailing at thestatement of financial position date and foreign currency-denominated income and expenses, at theprevailing exchange rate at the date of transaction. Foreign exchange differences arising fromrevaluation and translation of foreign currency-denominated assets and liabilities of the Group arecredited to or charged against operations in the period in which the rates change. Exchangedifferences arising from translation of the accounts of the FCDU to Philippine peso as thepresentation currency are taken to the statement of comprehensive income under ‘Translationadjustment’.

Non-monetary items that are measured in terms of historical cost are translated using the exchangerates as at the dates of the initial transactions. Non-monetary items measured at fair value in aforeign currency are translated using the exchange rates at the date when the fair value wasdetermined.

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

ProvisionsA provision is recognized when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of theobligation. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current market assessmentof the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognizedas interest expense. When the Group expects part or all of provision to be reimbursed orrecovered, the reimbursement is recognized as a separate asset, but only when the reimbursementis virtually certain.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements. They aredisclosed unless the possibility of an outflow of resources embodying economic benefits isremote. Contingent assets are not recognized in the consolidated financial statements but aredisclosed when an inflow of economic benefits is probable.

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Segment ReportingA business segment is a group of assets and operations engaged in providing products or servicesthat are subject to risks and returns that are different from those of other business segments. Ageographical segment is one that provides products or services within a particular economicenvironment that is subject to risks and returns that are different from those segments operating inother economic environments. The Group’s operations are organized according to the nature ofproducts and services provided. Financial information on business segments is presented inNote 35.

Events After the Reporting DatePost year-end events that provide additional information about the Group’s position at thereporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed when material in the consolidated financialstatements.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements in compliance with PFRS requiresmanagement to make judgments, estimates and assumptions that affect the amounts reported in theconsolidated financial statements and accompanying notes. Future events may occur which cancause the assumptions used in arriving at those estimates to change.

The effects of any changes in estimates are reflected in the consolidated financial statements asthey become reasonably determinable. Estimates and judgments are continually evaluated and arebased on historical experience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on theamounts recognized in the consolidated financial statements:

a. Business Model for Managing Financial AssetsSale of Investment Securities at Amortized CostThe Group’s business model allows for financial assets to be held to collect contractual cashflows even when sales of certain financial assets occur. PFRS 9, however, emphasizes that ifmore than an infrequent sale is made out of a portfolio of financial assets carried at amortizedcost, the entity should assess whether and how such sales are consistent with the objective ofcollecting contractual cash flows. In making this judgment, EWBC considers the following:

∂ sales or derecognition of debt instrument under any of the circumstances spelled out underparagraph 7, Section 2 of BSP Circular No. 708, Series of 2011;

∂ sales in preparation for funding a potential aberrant behavior in the depositors’ withdrawalpattern triggered by news of massive withdrawals or massive withdrawal alreadyexperienced by other systemically important banks in the industry;

∂ sales attributable to an anticipated or in reaction of major events in the local and/orinternational arena that may adversely affect the collectability of the debt instrument andseen to prospectively affect adversely the behavior of deposits or creditors;

∂ sales attributable to a change in EWBC’s strategy upon completion of the other phases ofPFRS 9; and,

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∂ sales that Asset-Liability Management Committee (ALCO) deems appropriate to beconsistent with managing EWBC’s balance sheet based upon, but are not limited to, theset risk limits and target ratios that have been approved by the BOD.

In 2014, EWBC sold various securities from different portfolios in its HTC business model.The sale was primarily driven by the need to improve EWBC’s capital position in relation tothe change in the regulatory capital requirements caused by the Basel III implementation.

In 2015, EWBC sold various securities under its hold-to-collect (HTC) portfolios inanticipation of the effects of the upcoming regulatory requirements on liquidity coverage ratio.

After each of the above disposals, EWBC assessed whether such sales are still consistent withthe objective of collecting contractual cash flows. EWBC concluded that despite thesedisposals, there is no change in its objective on managing these portfolios. The disposals weremade for specific reasons and do not constitute a change in EWBC’s business model for theaffected portfolios. Thus, the remaining securities in the affected portfolios will continue to bemeasured at amortized cost.

b. Determination of Joint Control over EW Ageas LifeControl is presumed to exist when an investor is exposed, or has rights, to variable returnsfrom its involvement with the investee and has the ability to affect those returns through itspower over the investee. On the other hand, joint control is presumed to exist when theinvestors contractually agree on the sharing of control of an arrangement, which exists onlywhen decisions about the relevant activities require the unanimous consent of the partiessharing control. Based on the provisions of the joint venture arrangement between EWBC andAgeas (see Note 18), both parties have to agree in order for any resolution to be passedrelating to the joint venture entity’s relevant activities. This joint arrangement is classified as ajoint venture since the parties have rights to the net assets of the joint venture entity.

c. Lease Commitments – the Group as LesseeThe Group has entered into a lease agreement with CDC for the lease of Mimosa LeisureEstate. The Group has determined that all significant risks and rewards of ownership of thebuilding and golf course were transferred to the Group considering that the lease term is forthe significant part of the useful life of these assets. Therefore these components of the leaseagreement which CDC were accounted for as finance lease.

In addition, the Group assessed that all significant risks and rewards of ownership for the landcomponent of the lease agreement with CDC is retained by the lessor since the present valueof the minimum lease payment attributable to the land does not amount to at least substantiallythe fair value of the land. Thus, this was accounted for as an operating lease (see Note 32).

d. Real Estate Revenue RecognitionSelecting an appropriate revenue recognition method for a real estate sale transaction requirescertain judgments based on, among others:∂ Buyers’ commitment on sales which may be ascertained through the significance of the

buyers’ initial downpayment; and,∂ Stage of completion of the project development.

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The Group has set a certain percentage of collection over the total selling price in determiningbuyer’s commitment on the sale. It is when the buyer’s investment is considered adequate tomeet the probability criteria that economic benefits will flow to the Group. The Group alsodetermines whether a project’s percentage of completion is already considered beyondpreliminary stage based the physical proportion of the contract of work.

e. Segment ReportingThe Group aggregates two or more operating segments into a single operating segment whenseparately, each operating segment has similar economic characteristics. The Group considersfinancial and banking services, real estate operations, power generation operations, sugaroperations, hotel operations, and other operations as its operating segments and are aggregatedas such based on the source and types of revenues (see Note 35).

f. Business CombinationIn determining whether a transaction or an event is a business combination, the Groupassessed whether the assets acquired and liabilities assumed constitute a business. A businessis defined as an integrated set of activities and assets that is capable of being conducted andmanaged for the purpose of providing a return in the form of dividends, lower costs or othereconomic benefits directly to investors or other owners, members or participants. Further, abusiness consists of inputs and processes applied to those inputs that have the ability to createoutputs. Based on the provisions of the asset transfer agreement between EWBC and SCB(see Notes 1), EWBC has identified the acquisition as a business combination. In making thisjudgment, EWBC has assessed the retail banking portfolio acquired as capable of providing areturn to EWBC in the form of revenues from lending and portfolio management activities(see Note 4).

g. ContingenciesIn the normal course of business, the Group is currently involved in various legal proceedingsand assessments. The estimate of the probable costs for the resolution of the related claimshas been developed in consultation with outside counsel handling the defense in these mattersand based upon analysis of potential results. The Group currently does not believe theseproceedings will have material effect on the Group’s financial position. It is possible,however, that future results of operations could be materially affected by changes in theassessment of probability and estimates of potential outflow or in the effectiveness of thestrategies relating to these proceedings (see Note 33).

Management’s Use of EstimatesThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year are discussed below:

a. Revenue Recognition on Real Estate SalesThe Group’s revenue recognition policy require management to make use of estimates andassumptions that may affect the reported amounts of revenues and costs. The Group’s revenuefrom real estate sales recognized based on the percentage of completion are measuredprincipally on the basis of the estimated completion of a physical proportion of the contractwork.

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Revenues and costs recognized based on percentage of completion are as follows:

2016 2015 2014(In Thousands)

Real estate sales P=9,190,824 P=9,776,893 P=8,885,343Cost of real estate 4,950,413 5,605,781 5,381,694

b. Fair Value of Financial InstrumentsCertain financial assets and liabilities are required to be carried at fair value and disclosure ofcertain fair value information, the determination of which requires the use of extensiveaccounting estimates and judgments. While significant components of fair value measurementwere determined using verifiable objective evidence (i.e., foreign exchange rate and interestrate), the amount of changes in fair value would differ due to usage of different valuationmethodology.

Any changes in fair value of these financial assets and financial liabilities would affectdirectly the consolidated statement of income, other comprehensive income or the disclosedfair value. See Note 36 for the related fair values of the Group’s financial assets and financialliabilities.

c. Impairment of Loans and ReceivablesThe Group reviews its loans and receivables at each reporting date to assess whether anallowance for impairment should be recorded in the consolidated statements of income. Loansand receivables includes corporate lending, consumer lending and other receivables fromfinancial and banking services; contracts receivables and other receivables from real estateoperations; and trade receivables from power generation operation, sugar operation and hoteloperation. In particular, judgment by management is required in the estimation of the amountand timing of future cash flows when determining the level of allowance required. Suchestimates are based on assumptions about a number of factors and actual results may differ,resulting in future changes to the allowance.

In addition to specific allowance against individually significant loans and receivables, theGroup also makes a collective impairment allowance against exposures which, although notspecifically identified as requiring a specific allowance, have a greater risk of default thanwhen originally granted. This collective allowance is based on any deterioration in theinternal rating of the loan or investment since it was granted or acquired. These internalratings take into consideration factors such as any deterioration in country risk, industry andtechnological obsolescence, as well as identified structural weaknesses or deterioration in cashflows (see Note 37).

As of December 31, 2016 and 2015, loans and receivables amounted to P=212,023.2 millionand P=165,726.5 million, respectively, net of allowance for impairment and credit lossesamounting to P=6,716.0 million and P=4,935.9 million as of December 31, 2016 and 2015,respectively (see Notes 7, 8, 9, 10 and 11).

d. Estimating NRV of Real Estate Inventories and Land and Land Development CostsThe Group adjusts the cost of its real estate inventories and land and land development coststo NRV based on its assessment of the recoverability of the inventories. In determining therecoverability of the inventories, management considers whether those inventories aredamaged or if their selling prices have declined. Likewise, management also considerswhether the estimated costs of completion or the estimated costs to be incurred to make thesale have increased. The amount and timing of recorded expenses for any period would differif different judgments were made or different estimates were utilized.

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As of December 31, 2016 and 2015, the carrying amount of real estate inventories amountedto P=29,359.3 million and P=27,442.0 million, respectively, and land and land developmentamounted to P=26,846.1 million and P=26,565.3 million, respectively (see Notes 13 and 15).

e. Evaluation of Impairment on GoodwillGoodwill is tested for impairment annually and or earlier when circumstances indicate that thecarrying value may be impaired. The Group’s impairment test for goodwill is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from theforecast as approved by the BOD and do not include restructuring activities that the Group isnot yet committed to or significant future investments that will enhance the asset base of thecash generating unit being tested. The recoverable amount is most sensitive to the discountrates used, as well as the expected future cash-inflows, the growth rates used and interestmargin.

Goodwill from acquisition of PSHC and subsidiaries:The budget period is five (5) years and the cash flows beyond five years are included in theterminal value. The pre-tax discount rates used of 6.7% and 7.3% as of December 31, 2016and 2015, respectively, were determined using capital asset pricing model. Key assumptionsin value-in-use calculation are most sensitive to discount rate and growth rate within thebudget period and beyond the budget period.

The Group assumed a certain growth rate within the budget period based on expected areas tobe harvested and the total harvest per area. Growth rate of 2.9% was assumed after the five-year budget period as of December 31, 2016 and 2015, respectively. The Group ascertainsthat growth rates beyond the budget period is not above the forecasted industry growth rate.

Goodwill from various bank acquisitionsFuture cash flows from the business are estimated based on the theoretical annual income ofthe cash generating unit. Average growth rate was derived from average increase in annualincome during the last five years. The pre-tax discount rates used were 12.0% and 12.3% asof December 31, 2016 and 2015, respectively. Key assumptions in value-in-use calculation ofthe CGUs are most sensitive to the following assumptions: (a) interest margin; (b) discountrates; (c) market share during the budget period; and (d) projected growth rates used toextrapolate cash flows beyond the budget period.

Goodwill from acquisition of CPIThe cash flows are derived from budget period of 10 years. The pre-tax discount rate used asof December 31, 2016 and 2015 was 10%. Average growth rate was derived from the averagecontracted rent increases. Key assumptions used in value-in-use calculations are mostsensitive to discount rates and growth rates within the budget period and beyond the budgetperiod.

The Group did not recognize impairment loss on its goodwill in 2016 and 2015. The totalcarrying value of goodwill (excluding provisional goodwill on SCB Philippines’ retailbanking business, PSPI and ASIA) amounted to P=11,726.6 million as of December 31, 2016and 2015 (see Note 4).

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f. Evaluation of Impairment on Nonfinancial Assets (other than Goodwill)The Group reviews property, plant and equipment, investment properties, IPP Administratorrights and other nonfinancial assets (excluding derivative assets) for impairment of value.This includes considering certain indications of impairment such as significant change in assetusage, significant decline in asset’s market value, obsolescence or physical damage of anasset, plans of discontinuing the real estate projects, and significant negative industry oreconomic trends. If such indications are present, and where the carrying amount of the assetexceeds its recoverable amount, the asset is considered impaired and is written down torecoverable amount. The recoverable amount is calculated as the higher of the asset’s fairvalue less cost to sell, or its value in use.

The fair value less cost to sell is the amount to be received from the sale of an asset in anarm’s length transaction, while value in use is the present value of estimated future cash flowsexpected to arise from the nonfinancial assets.

Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. The carrying values of the Group’s nonfinancialassets as of December 31 follow:

2016 2015(In Thousands)

Investment properties (Note 16) P=57,858,513 P=51,968,655Property, plant and equipment (Note 17) 42,834,082 34,321,712Investments in joint ventures (Note 18) 649,835 473,938IPP Administrator rights (Note 19) 7,113,442 8,255,117Other assets - net of derivative assets (Note 20) 17,528,844 14,078,587

In 2016 and 2015, the Group recognized provision for probable losses on investmentproperties amounting to P=76.0 million and P=14.3 million, respectively (nil in 2014;see Note 16). The Group also recognized provision for probable losses on other assetsamounting to P=371.5 million, P=160.0 million and P=43.4 million in 2016, 2015 and 2014,respectively (see Note 20).

g. Estimating Pension ObligationThe determination of the Group’s obligation and cost for pension benefits is dependent onselection of certain assumptions used by the actuaries in calculating such amounts. Thoseassumptions used are described in Note 30 and include among others, discount rates and ratesof salary increase. While the Group believes that the assumptions are reasonable andappropriate, significant differences in actual experience or significant changes in assumptionsmaterially affect retirement obligations.

As of December 31, 2016 and 2015, the Group has outstanding pension liability amounting toP=934.7 million and P=686.1 million, respectively (see Notes 23 and 30).

h. Estimating Asset Retirement ObligationThe Group is legally and constructively required under its lease contract to restore theproperty and dismantle its power plant located in Misamis upon termination or cancellation ofthe lease contract. Significant estimates and assumptions are made in determining theobligation, including estimates of the extent and costs of restoration activities, cost increases,prior restoration work, and changes in discount rates. Those uncertainties may result in futureactual expenditure differing from the amounts currently provided. An increase in assetretirement obligation would increase noncurrent liabilities.

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The provision at reporting date represents management’s best estimate of the present value ofthe future restoration costs required. Assumptions used to restoration costs are reviewed andupdated annually. Asset retirement obligation amounted to P=452.5 million (see Note 23).

i. Recognition of Deferred Tax AssetsThe Group reviews the carrying amounts of deferred taxes at each reporting date and reducesdeferred tax assets to the extent that it is no longer probable that sufficient taxable profit willbe available to allow all or part of the deferred tax assets to be utilized. However, there is noassurance that the Group will generate sufficient taxable profit to allow all or part of itsdeferred tax assets to be utilized. The Group recognized deferred tax assets amounting toP=5,142.5 million and P=4,942.0 million as of December 31, 2016 and 2015, respectively. Thetax effect of deductible temporary differences and carryforward benefits of NOLCO andMCIT for which no deferred tax assets were recognized amounted to P=599.5 million andP=180.4 million as of December 31, 2016 and 2015, respectively (see Note 34).

j. Valuation of Exclusive Bancassurance Access or Distribution RightsEWBC entered into an exclusive distribution agreement with EW Ageas Life for a period oftwenty (20) years. Under the distribution agreement, EW Ageas Life will have exclusiveaccess to the branch network of EWBC for the distribution of its insurance products (theexclusive bancassurance access).

The fair value of the exclusive bancassurance access was determined based on a valuationdone by an independent third party valuer, which used as inputs recent similar transactionsand the number of branches and customers of EWBC. The fair value of the exclusivebancassurance access was recognized as deferred revenue to be amortized over the distributionperiod (see Notes 18 and 23).

4. Goodwill and Business Combination

Asset and Share Transfer Agreement with SCB and SCMB Overseas LimitedIn May 2016, EWBC entered into an Asset and Share Transfer Agreement (the Agreement) withSCB and SCMB Overseas Limited (see Note 1).

The acquisition was approved by the BSP on August 8, 2016. On November 25, 2016, aftersatisfying all the conditions under the Agreement, the transfer of assets and liabilities wascompleted.

The following table summarizes the fair values of the assets acquired and liabilities assumed as atacquisition date (amounts in thousands):

AssetsCash P=64,850Loans and receivables 5,591,464Property, plant and equipment 11,261Investment properties 9,171Deferred tax asset 5,946Other assets 169,030

5,851,722

(Forward)

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LiabilitiesDeposit liabilities P=7,324,178Deferred income and bonus points 99,570Accrued interest payable 2,983Other liabilities 57,505

7,484,236Net liabilities assumed P=1,632,514

As of November 25, 2016, the gross contractual amounts of the acquired loans and receivables andthe estimated contractual amounts not expected to be collected amounted to P=5.9 billion andP=0.3 billion, respectively. The estimated amounts not expected to be collected are considered inthe determination of the fair value of the receivables.

Goodwill from the acquisition is computed as follows:

Consideration transferred* P=792,175Fair value of net liabilities assumed 1,632,514Provisional goodwill P=2,424,689*As of December 31, 2016, P=0.4 million of the total consideration is still payable and included under ‘Otherpayables’ in Accounts payable, accrued expenses and other liabilities (see Note 23).

The goodwill arising from the acquisition can be attributed mainly to expected operationalsynergies that will be brought by SCB’s retail banking talent pool and expertise in wealthmanagement.

As of December 31, 2016, the EWBC’s purchase price allocation for the acquisition is provisionalas the identification and valuation of intangible assets are still to be finalized.

Goodwill from acquisition of PSHC and subsidiariesIn 2007, the Parent Company acquired 100.0% interest in PSHC Group. The acquisition of PSHCincludes its wholly owned subsidiaries, DSCC, CSCC and HYSFC. The acquisition was accountedas a business combination and resulted to recognition of goodwill amounting to P=10,083.3 million.

Goodwill from acquisition of CPIIn February 2010, FLI acquired 40% interests in CPI from Africa-Israel Properties (Phils.), Inc. toobtain full control of the then joint venture. The acquisition resulted in CPI becoming whollyowned subsidiary of the Parent Company. The acquisition of the joint venture partner’s interestwas accounted for as business combination and resulted to recognition of goodwill amounting toP=326.6 million.

Goodwill from acquisitions of EWRB and Green Bank, Inc. (GBI)The acquisition of EWRB in 2012 resulted in goodwill amounting P=23.5 million, which has beenallocated to EWRB. The acquisition of GBI in 2011 resulted in goodwill amounting toP=374.0 million. The goodwill has been allocated to branch operations of GBI.

On October 31, 2013, GBI transferred certain assets and liabilities to EWRB. The assets andliabilities transferred include the branches where the goodwill from the acquisition of GBI hadbeen allocated. The branches coming from GBI were combined with the branch operations of

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EWRB after the transfer. Consequently, the goodwill from the acquisition of EWRB and GBIamounting to P=23.5 million and P=374.0 million, respectively, are now allocated to the branchoperations of EWRB, which is now considered as a single CGU for purposes of impairmenttesting.

Goodwill from other bank acquisitionsThe business combination between EWBC and AIG Philam Savings Bank (AIGPASB) Group in2009 resulted in goodwill amounting to P=769.0 million, which has been allocated to the auto andcredit cards lending unit acquired from the AIGPASB Group.

The business combination between EWBC and Ecology Savings Bank, Inc. (ESBI) in 2003resulted in goodwill amounting to P=172.8 million, which has been allocated to various branchesacquired from ESBI. As of December 31, 2016 and 2015, the carrying amount of goodwill, afterimpairment P=22.6 million recognized in prior years, amounted to P=150.2 million.

Goodwill arising from these business combinations in the Group’s consolidated statements offinancial position consists of:

2016 2015(In Thousands)

PSHC P=10,083,310 P=10,083,310SCB Philippines’ retail banking business,

PSPI and ASIA 2,424,689 −GBI 373,996 373,996CPI 326,553 326,553EWRB 23,478 23,478Other bank acquisitions 919,254 919,254

P=14,151,280 P=11,726,591

5. Subsidiaries with Noncontrolling Interest

On May 8, 2015, additional common shares of EWBC were listed at the PSE and the Groupsubscribed to a total of 311,406,997 shares or a total of P=6,704.6 million. This resulted to increasein the Group’s ownership interest in EWBC from 75.2% to 77.2% and dilution of noncontrollinginterest amounting to P=79.6 million (see Note 1). Additional subscription in EWBC ofnoncontrolling interest amounted to P=1,295.4 million.

As of December 31, 2016 and 2015, the noncontrolling interest in EWBC represents 22.8% whilethe noncontrolling interest in FLI represents 40.6%. Other noncontrolling interest pertains to the8.1% equity interest in FAI amounting to P=864.4 million and P=776.3 million as of December 31,2016 and 2015, respectively.

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The summarized financial information of EWBC and FLI are provided below. This information isbased on amounts after consolidation but before intercompany eliminations.

Summarized statements of financial position

2016 2015FLI EWBC FLI EWBC

(In Thousands)Assets: Cash and cash equivalents P=4,873,025 P=60,440,297 P=6,596,380 P=49,907,283 Loans and receivable - net 25,230,664 198,875,688 23,518,085 155,276,237 Financial assets at fair value through

profit or loss − 5,267,750 − 10,540,806 Financial assets at fair value through other

comprehensive income 15,670 500 18,665 6,255 Investment securities at amortized cost − 11,129,509 − 4,617,898

Investment in a joint venture − 619,333 − 471,287 Real estate inventories 25,905,712 − 25,239,416 − Land and land development 17,594,754 − 17,743,353 − Investment properties 37,964,948 699,667 31,981,021 727,613 Property and equipment 2,645,084 3,391,846 1,979,903 3,523,169 Investment in associates 4,046,789 − 4,141,165 −

Deferred income tax assets- net 23,714 1,972,465 − − Goodwill 4,567,242 6,946,408 4,567,242 1,316,729 Other assets 6,557,630 2,474,082 5,409,941 6,469,074Liabilities: Deposit liabilities − (240,221,519) − (184,143,996) Bills and acceptance payable − (2,194,595) − (3,073,523) Accounts payable, accrued expenses and

other liabilities (12,195,880) (9,613,092) (14,365,014) (7,283,179) Income tax payable (48,063) (369,508) (33,220) (486,390) Long-term debt (53,252,649) (4,969,460) (47,696,836) (6,466,516) Deferred income tax liabilities - net (4,516,003) − (3,402,840) −Total Equity P=59,412,637 P=34,449,371 P=55,697,261 P=31,402,747

Attributable to: Equity holders of the Parent P=41,200,335 P=26,592,067 P=38,857,879 P=24,240,679 Noncontrolling interest 17,957,211 7,857,304 16,568,265 7,162,068 Noncontrolling interest in subsidiaries 255,091 − 271,117 −

Summarized statements of comprehensive income for the years ended December 31, 2016 and2015:

2016 2015FLI EWBC FLI EWBC

(In Thousands)Revenue and other income P=19,317,566 P=24,749,888 P=18,126,378 P=18,611,395Equity in net income (loss) of associate and joint venture 183,020 (356,954) 176,475 (28,713)Costs and operating expenses (11,573,521) (20,251,221) (11,045,462) (15,919,415)Interest and other finance charges (1,072,664) – (883,756) –Income before income tax 6,854,401 4,141,713 6,373,635 2,663,267Provision for income tax (1,503,615) (733,957) (1,275,071) (659,332)Net income 5,350,786 3,407,756 5,098,564 2,003,935Other comprehensive income (loss) (36,625) 38,868 (7,106) 4,925Total comprehensive income P=5,314,161 P=3,446,624 P=5,091,458 P=2,008,860

Attributable to noncontrolling interest:Net income P=2,107,622 P=777,614 P=2,128,360 P=457,277Total comprehensive income 2,092,760 786,484 2,124,219 458,401

Dividends paid to noncontrolling interest 600,291 91,247 651,037 −

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Summarized statements of cash flow information for the years ended December 31, 2016 and2015:

2016 2015FLI EWBC FLI EWBC

(In Thousands)Operating activities P=4,184,907 P=18,653,839 P=4,154,595 P=4,842,885Investing activities (7,134,512) (5,286,134) (5,464,667) 3,766,358Financing activities (1,226,250) (2,834,691) 3,597,787 5,701,951Net increase (decrease) in cash and

cash equivalents (P=4,175,855) P=10,533,014 P=2,287,715 P=14,311,194

As of December 31, 2016 and 2015, there are no significant restrictions, outside the ordinarycourse of business, on the Parent Company’s ability to access or use assets and settle the liabilitiesof these subsidiaries.

6. Cash and Cash Equivalents

This account consists of:

2016 2015(In Thousands)

Cash P=14,833,481 P=12,817,495Short-term placements 1,799,060 2,427,555Due from BSP 39,343,143 30,908,680IBLR 7,502,748 7,722,546

P=63,478,432 P=53,876,276

Cash in banks earn interest at the respective bank deposit rates. Short-term placements are madefor varying periods of up to three months and earn interest at the respective short-term depositrates. Interest income earned on the Group’s cash and cash equivalents amounted toP=62.54 million, P=138.9 million and P=55.2 million in 2016, 2015 and 2014, respectively(see Note 27).

7. Loans and Receivables - Financial and Banking Services

Loans and receivables of the financial and banking services consist of:

2016 2015(In Thousands)

Receivables from customers:Corporate lending P=52,085,791 P=54,295,326Consumer lending 132,802,719 87,257,136

184,888,510 141,552,462Unearned premium 5,806,665 3,638,482

190,695,175 145,190,944Other receivables 3,329,166 2,635,359

194,024,341 147,826,303Less allowance for impairment and credit losses 6,572,971 4,898,407

P=187,451,370 P=142,927,896

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Consumer lending receivables include credit card receivables amounting to P=28,063.9 million andP=22,754.1 million as of December 31, 2016 and 2015, respectively.

Other receivables include unquoted debt securities amounting to P=405.4 million andP=406.8 million as of December 31, 2016 and 2015, respectively.

Interest income from loans and receivables in 2016, 2015 and 2014 amounted toP=17,377.4 million, P=13,920.2 million and P=11,050.3 million, respectively.

As of December 31, 2016 and 2015, noncurrent portion of loans and receivable from financial andbanking services amounted to P=91,683.9 million and P=98,338.4 million, respectively.

A reconciliation of allowance for probable losses for loans and receivables per class follows:

2016Corporate

LendingConsumer

Lending Others Total(In Thousands)

At January 1 P=1,429,185 P=2,736,128 P=733,094 P=4,898,407Provision for probable losses (Note 29) 149,053 4,996,457 99,135 5,244,645Write-off (209,653) (3,279,573) (80,855) (3,570,081)At December 31 P=1,368,585 P=4,453,012 P=751,374 P=6,572,971Specific impairment P=588,720 P=− P=68,755 P=657,475Collective impairment 779,865 4,453,012 682,619 5,915,496

P=1,368,585 P=4,453,012 P=751,374 P=6,572,971Gross amount of individually impaired loans P=822,329 P=− P=91,185 P=913,514

2015Corporate

LendingConsumer

Lending Others Total(In Thousands)

At January 1 P=1,324,547 P=1,802,591 P=845,383 P=3,972,521Provision for probable losses (Note 29) 142,279 3,493,515 88,977 3,724,771Write-off (37,641) (2,559,978) (201,266) (2,798,885)At December 31 P=1,429,185 P=2,736,128 P=733,094 P=4,898,407Specific impairment P=742,432 P=− P=66,084 P=808,516Collective impairment 686,753 2,736,128 667,010 4,089,891

P=1,429,185 P=2,736,128 P=733,094 P=4,898,407Gross amount of individually impaired loans P=893,047 P=− P=95,757 P=988,804

The following is a reconciliation of the individual and collective allowances for impairment andcredit losses on loans and receivables of the Group:

2016 2015Specific

ImpairmentCollective

Impairment TotalSpecific

ImpairmentCollective

Impairment Total(In Thousands)

At January 1 P=808,516 P=4,089,891 P=4,898,407 P=730,514 P=3,242,007 P=3,972,521Provision for probable losses (Note 29) 58,612 5,186,033 5,244,645 115,643 3,609,128 3,724,771Write-off (209,653) (3,360,428) (3,570,081) (37,641) (2,761,244) (2,798,885)At December 31 P=657,475 P=5,915,496 P=6,572,971 P=808,516 P=4,089,891 P=4,898,407

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8. Loans and Receivables - Real Estate Operations

Loans and receivables from real estate operations consist of:

2016 2015Due Within

One YearDue AfterOne Year Total

Due WithinOne Year

Due AfterOne Year Total

(In Thousands)Contracts receivable P=5,300,083 P=17,153,862 P=22,453,945 P=4,914,238 P=16,358,313 P=21,272,551Advances to contractors 1,976,084 – 1,976,084 2,253,749 – 2,253,749Receivable from sale of commercial

lots 479,059 289,963 769,022 485,764 675,913 1,161,677Receivables from tenants 697,060 − 697,060 467,757 – 467,757Receivable from government and other

financial institutions 538,979 − 538,979 546,341 – 546,341Advances to joint venture partners 331,517 − 331,517 400,649 − 400,649Advances to officers and employees 317,269 – 317,269 395,556 – 395,556Due from related parties (Note 26) 9,077 – 9,077 285,174 – 285,174Receivables from homeowners

association 72,139 – 72,139 218,595 – 218,595Others 905,530 – 905,530 423,384 – 423,384

10,626,797 17,443,825 28,070,622 10,391,207 17,034,226 27,425,433Less allowance for probable loss 143,042 – 143,042 198,829 – 198,829

P=10,483,755 P=17,443,825 P=27,927,580 P=10,192,378 P=17,034,226 P=27,226,604

Contracts receivable are collectible over varying periods up to 10 years. These receivables arisingfrom real estate sales are collateralized by the corresponding real estate properties sold.

Interest income recognized from contracts receivable and others amounted to P=754.6 million,P=704.7 million and P=672.4 million in 2016, 2015 and 2014, respectively (see Note 27). Interestrates on contracts receivable range from 11.5% to 19.0% per annum in 2016, 2015 and 2014.

The Group has a mortgage insurance contract with Home Guaranty Corporation, a governmentinsurance company for a retail guaranty line. As of December 31, 2016 and 2015, the contractscovered by the guaranty line amounted to P=288.6 million and P=465.7 million, respectively,including receivables sold with buy back provisions. As of December 31, 2016 and 2015, theremaining unutilized guaranty line amounted to P=3,879.9 million and P=4,168.5 million,respectively.

Advances to contractors represents downpayment to contractors which will be applied againstfuture billings for development and construction contracts.

Receivable from sale of commercial lots arose from sale of commercial lots collectible overvarying periods up to five (5) years.

Receivables from tenants represents charges to tenants for rentals and utilities which are normallycollectible within a year.

Receivables from government and other financial institutions pertains to government and bank-financed real estate sales. These are collectible within one year.

Advances to joint venture partners are advances (e.g., for property taxes and permits) which arenormally applied against the share of the joint venture partners from the sale of the joint ventureproperties.

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Advances to officers and employees are advances for project costs, marketing activities, travel andother expenses arising from the ordinary course of business which are liquidated uponaccomplishment of the purposes for which the advances were granted.

Receivables from homeowners’ association (HOA) represents claims from HOA of the Group’sprojects for the payments of the expenses on behalf of the association.

Others include receivable from condominium corporations and advances for fit-out funds andother chargeable expenses to buyers.

The reconciliation of allowance for impairment losses for individually assessed receivables of thereal estate operations of the Group as of December 31, 2016 and 2015 follows:

2016Receivables

from Tenantsand HOA

Receivablesfrom Sale

of Lots Total(In Thousands)

Balances at beginning of year P=122,493 P=76,336 P=198,829Provisions (Note 29) 2,963 − 2,963Reversal/Write-off (Note 29) (58,750) − (58,750)Balances at end of year P=66,706 P=76,336 P=143,042

2015Receivables

from Tenantsand HOA

Receivablesfrom Sale

of Lots Total(In Thousands)

Balances at beginning of year P=117,959 P=76,336 P=194,295Provisions (Note 29) 10,000 − 10,000Reversal/Write-off (Note 29) (5,466) – (5,466)Balances at end of year P=122,493 P=76,336 P=198,829

9. Loans and Receivables - Power Generation Operations

This account consists of:

2016 2015(In Thousands)

Trade P=1,459,000 P=629,294Advances to contractors 75,445 570,047Other receivables 43,602 39,494

1,578,047 1,238,835Less allowance for probable loss (Note 29) 15,000 −

P=1,563,047 P=1,238,835

Trade receivables pertain to receivables from electric cooperative for the transmitted power.These are due every 25th of the month of the immediately succeeding billing period.

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Advances to contractors pertain to down payments made by the Group for the construction of theMisamis Power Plant, which will be applied against future billings in accordance with the termsand conditions of the agreement with the contractors. Current portion of the advances tocontractors amounted to P=52.0 million and P=568.7 million as of December 31, 2016 and 2015,respectively.

Other receivables pertain mainly to advances to suppliers and employees, which will be appliedagainst future billings in accordance with the terms and conditions of the agreement or will beliquidated or charged against salary, as applicable.

As of and for the year ended December 31, 2016, allowance for probable losses amounting toP=15.0 million pertains to Other receivables specifically identified to be impaired (nil as of and forthe year ended December 31, 2015).

10. Loans and Receivables - Sugar Operations

This account consists of:

2016 2015(In Thousands)

Trade P=198 P=–Advances to:

Sugar planters (Note 33) 117,920 116,344Contractors and suppliers 13,180 9,413Officers and employees 3,955 4,040

Others 1,787 553137,040 130,350

Less allowance for probable loss 10,416 8,057P=126,624 P=122,293

Advances to sugar planters are for various incentives such as fertilizers, cash loans, cane pointsand tractor services. These are offset against the planter’s share of sales proceeds.

Advances to contractors and suppliers are down payments made to the suppliers of materials andsupplies, fixed assets and services acquired. These are credited upon full delivery of items andcompletion of services rendered by the supplier.

Advances to officers and employees represent advances for travel, marketing expense, loansavailed by employees and officers, including educational and car loans and other expenses arisingfrom ordinary course of business. These are liquidated upon the accomplishment of the purposesfor which the advances were granted or deducted from the salaries of officers and employees.Other receivables include advances to planters for trucking services.

As of December 31, 2016 and 2015, loans and receivables from sugar operations are collectiblewithin one year.

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The reconciliation of allowance for doubtful accounts which pertains to the Group’s advances tosugar planters specifically identified to be impaired as of December 31, 2016 and 2015 follows:

2016 2015(In Thousands)

Balances at beginning of year P=8,057 P=5,849Provisions (Note 29) 3,049 8,279Written off (690) (6,071)Balances at end of year P=10,416 P=8,057

11. Loans and Receivables - Hotel Operations

This account consists of:

2016 2015(In Thousands)

Trade P=43,098 P=42,702Advances to contractors and suppliers 345,685 189,374Advances to officers and employees 7,488 1,296Due from a related party (Note 24) 4,660 2,629

P=400,931 P=236,001

Trade receivables pertain to receivables from credit card companies, travel agents and corporateguests and are collectible within a year.

Advances to contractors and suppliers pertains to down payments made by the Group for theconstruction of its hotel projects, which will be applied against future billings in accordance withthe terms and conditions of the agreement with the contractors and suppliers.

12. Financial Assets at FVTPL, Financial Assets at FVTOCI and Investment Securities atAmortized Cost

Financial Assets at FVTPLFinancial assets at FVTPL of EWBC classified as held for trading consist of:

2016 2015(In Thousands)

Private bonds P=4,263,221 P=6,185,982Government securities 994,086 4,344,376Equity securities 10,443 10,448

P=5,267,750 P=10,540,806

As of December 31, 2016 and 2015, financial assets at FVTPL include net unrealized gain ofP=28.7 million and P=27.8 million, respectively.

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Financial Assets at FVTOCIFinancial assets at FVTOCI of the Group consist of:

2016 2015(In Thousands)

Quoted equity securities P=241,614 P=241,955Unquoted equity securities 180,111 179,719

P=421,725 P=421,674

The Group has designated the above equity investments at FVTOCI because these are held forlong-term investments rather than for trading. In 2016 and 2015, no cumulative gain or loss wastransferred within equity. Dividends received from unquoted shares amounted to P=4.1 million in2015 (nil in 2016 and 2014).

The cumulative unrealized gain on financial assets at FVTOCI presented as ‘Revaluation reserveon financial assets at FVTOCI’ amounted to P=72.6 million and P=67.5 million as of December 31,2016 and 2015, respectively.

Investment Securities at Amortized CostInvestment securities at amortized cost of the Group consist of:

2016 2015(In Thousands)

Government securities P=5,760,891 P=4,046,482Private bonds 5,368,618 571,417

P=11,129,509 P=4,617,899

Peso-denominated government bonds have effective interest rates ranging from 4.5% to 5.7% in2016 and effective interest rates ranging from 5.7% to 6.0% in 2015 and 2014. Foreign currency-denominated bonds have effective interest rates ranging from 2.9% to 7.1% in 2016, 2015, and2014.

In 2014, EWBC sold securities carried at amortized cost, with aggregate carrying amount ofP=3,621.2 million, and recognized a gain amounting to P=306.00 million. The gain is presented as‘Trading and securities gain on investment securities at amortized cost’ included as ‘Otherincome’ of financial and banking services in the consolidated statement of income. The sale wasdriven by the need to improve the capital position of the Parent Company in relation to the changein the regulatory capital requirements caused by the Basel III implementation. As a result of thesale, subsequent acquisitions of investment securities in the affected portfolios will be classified asfinancial assets at FVTPL while the remaining securities will remain to be classified as investmentsecurities at amortized cost.

In 2015, EWBC sold securities carried at amortized cost, with aggregate carrying amount ofP=4,288.3 million, and recognized a gain amounting to P=287.4 million. The gain is presented as‘Trading and securities gain on investment securities at amortized cost’ included as ‘Otherincome’ of financial and banking services in the consolidated statement of income. The sale wasin anticipation of the effects of the upcoming regulatory requirements on liquidity coverage ratio.As a result of the sale, subsequent acquisitions of investment securities in the affected portfolioswill be classified as financial assets at FVTPL while the remaining securities will remain to beclassified as investment securities at amortized cost.

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In 2016, there were no disposals of investment securities carried at amortized cost.

Judgments made related to the sale and derecognition of investment securities at amortized costare disclosed in Note 3.

Interest income on trading and investment securities follows:

2016 2015 2014(In Thousands)

Investment securities at amortized cost P=450,821 P=281,779 P=391,861Financial assets at FVTPL 348,808 301,674 169,745

P=799,629 P=583,453 P=561,606

Trading and securities gain (loss) of the Group (see Note 27) consist of:

2016 2015 2014In Thousands)

Financial assets at FVTPL P=721,035 (P=62,397) P=497,352US treasury futures 12,379 334 –Interest rate swaps 1,085 (35,027) 2,173

P=734,499 (P=97,090) P=499,525

13. Real Estate Inventories

A summary of the movements in this account is set out below:

2016 2015(In Thousands)

Balances at beginning of year P=27,441,962 P=25,522,706Project construction/development costs incurred 8,907,432 9,654,418Land cost transferred from land and land

development (Note 15) 889,676 250,719Borrowing costs capitalized as project costs 816,560 597,044Cost of inventories sold (Note 28) (8,696,380) (8,582,925)Balances at end of year P=29,359,250 P=27,441,962

Borrowing costs capitalized as project costs are interests on loans obtained to finance the Group’songoing projects. Capitalized borrowing costs amounted to P=816.6 million, P=597.0 million andP=495.6 million in 2016, 2015 and 2014, respectively. The capitalization rates used are 3.0% in2016, 1.0% to 6.1% in 2015 and 2.0% to 6.2% in 2014.

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14. Coal, Spare Parts and Other Inventories

This account consists of:

2016 2015(In Thousands)

Power generation inventories - at costCoal (Note 28) P=271,581 P=–Spare parts (Note 17) 136,264 –Fuel and others (Note 28) 26,801 –

434,646 –Sugar inventories

Materials and supplies - at NRV 144,258 153,900Sugar and molasses - at cost (Note 28) 79,331 176,717

223,589 330,617Hotel inventories - at cost

Food and beverage (Note 28) 11,877 6,931Others 15,060 23,422

26,937 30,353P=685,172 P=360,970

Materials and supplies at cost amounting to P=156.8 million and P=161.1 million as ofDecember 31, 2016 and 2015, respectively, were written down to net realizable value ofP=144.3 million and P=153.9 million, respectively.

15. Land and Land Development

This account consists of:

2016 2015(In Thousands)

Land P=17,472,042 P=17,609,925Land development 9,374,091 8,955,379

P=26,846,133 P=26,565,304

In February 2009, FLI signed an agreement with the Cebu City Government to develop50.6 hectares of the South Road Properties, a 300-hectare reclaimed land project located in CebuCity (see Note 33). The agreement involves:

(a) purchase by the Group of 10.6 hectares of the property to be developed into a modern urbancenter consisting of residential, office, commercial, hotel and leisure buildings and a publicpromenade which is a 1 kilometer long waterfront lifestyle strip that will offer a range ofseaside leisure activities. The property was fully paid in 2015. Payments made to the CebuCity Government in 2015 and 2014 amounted to P=141.8 million and P=224.4 million,respectively.

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(b) development of the remaining 40 hectares of the property under a profit-sharing arrangementwith the Cebu City Government. The profit sharing of FLI and the Cebu City Government is90% and 10%, respectively. The 40 hectares will be developed in four (4) phases over a20-year period, with the Group contributing the development costs, as well as the marketingand management services.

A summary of the movements in this account is set out below:

2016 2015(In Thousands)

Balances at beginning of year P=26,565,304 P=24,485,526Land acquisitions 1,234,902 2,643,670Transfers to:

Real estate inventories (Note 13) (889,676) (250,719)Investment property - net (Note 16) (171,916) (718,666)

Cost of lots sold (Note 28) (183,470) (150,576)Site development and incidental costs 290,989 556,069Balances at end of year P=26,846,133 P=26,565,304

Borrowing costs capitalized as part of land and land development, where activities necessary toprepare it for its intended use is ongoing, amounted to P=36.7 million, P=61.4 million andP=272.7 million in 2016, 2015 and 2014, respectively. Capitalization rates used ranges from 0.1%to 3.3% in 2016, 0.3% to 4.4% in 2015 and 1.4% to 5.1% in 2014.

As of December 31, 2016 and 2015, the Group is committed to pay land acquisition costsamounting to nil and P=249.6 million, respectively.

16. Investment Properties

The composition of and movements in this account follow:

2016

LandBuildings and

Improvements

Furniture,Fixtures andMachineries Total

(In Thousands)CostBalances at beginning of year P=29,871,859 P=26,023,514 P=302,277 P=56,197,650Additions/transfers (Notes 7, 15 and 17) 375,657 6,258,833 22,791 6,657,281Disposals/reclassifications (57,374) (138,579) – (195,953)Balances at end of year 30,190,142 32,143,768 325,068 62,658,978Accumulated depreciation and amortizationBalances at beginning of year – 4,032,071 177,133 4,209,204Depreciation and amortization (Notes 28 and 29) – 568,988 26,376 595,364Disposals/reclassifications – (91,605) – (91,605)Balances at end of year – 4,509,454 203,509 4,712,963Accumulated impairment lossBalances at beginning of year 10,674 9,117 – 19,791Provision for probable loss (Note 29) 74,398 1,633 – 76,031Disposals/reclassifications (5,345) (2,975) – (8,320)Balances at end of year 79,727 7,775 – 87,502Net book value P=30,110,415 P=27,626,539 P=121,559 P=57,858,513

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2015

LandBuildings andImprovements

Furniture,Fixtures andMachineries Total

(In Thousands)CostBalances at beginning of year P=28,843,939 P=21,114,388 P=265,021 P=50,223,348Additions/transfers (Notes 7, 15 and 17) 1,280,878 4,992,312 41,982 6,315,172Disposals/reclassifications (252,958) (83,186) (4,726) (340,870)Balances at end of year 29,871,859 26,023,514 302,277 56,197,650Accumulated depreciation and amortizationBalances at beginning of year – 3,522,472 154,538 3,677,010Depreciation and amortization (Notes 28 and 29) – 550,547 27,321 577,868Disposals/reclassifications – (40,948) (4,726) (45,674)Balances at end of year – 4,032,071 177,133 4,209,204Accumulated impairment lossBalances at beginning of year 85,259 14,482 – 99,741Provision for impairment loss (Note 29) 7,903 6,357 – 14,260Disposals/reclassifications (82,488) (11,722) – (94,210)Balances at end of year 10,674 9,117 – 19,791Net book value P=29,861,185 P=21,982,326 P=125,144 P=51,968,655

The Group’s investment properties include land and buildings utilized in mall operations,buildings and building improvements, land improvements acquired in settlement of loans andreceivables from banking operations, hotel buildings and other properties held for long-term rentalyields and for capital appreciation.

As of December 31, 2016 and 2015, additions to investment properties which remain outstandingand are recognized as part of “Accounts payable and accrued expense” amounted to nil andP=479.4 million, respectively (see Note 23).

Transfers from loans and receivables to investment properties as a result of foreclosures amountedto P=129.2 million, P=72.1 million and P=76.8 million in 2016, 2015 and 2014, respectively, forEWBC. Amounts mentioned are exclusive of gain (loss) on asset foreclosure and daciontransactions amounting to P=29.5 million, (P=67.1 million) and P=19.4 million in 2016, 2015 and2014, respectively.

Borrowing costs capitalized as part of investment properties amounted to P=827.8 million,P=929.1 million and P=856.1 million in 2016, 2015 and 2014, respectively. Capitalization rates usedranges from 1.6% to 5.1% in 2016 and 2.0% to 6.1% in 2015 and 2014.

The aggregate fair value of the Group’s investment properties amounted to P=85,408.7 million andP=73,716.8 million as of December 31, 2016 and 2015, respectively, based on a third partyappraisals performed in 2010 and 2015 and was updated using year-end values and assumptions.The aggregate fair value of investment properties from real estate operations was determined usingthe Income Approach based on discounted cash flow analysis for buildings. While aggregate fairvalues of investment properties from financial and banking services was determined on the basisof recent sales of similar properties in the same areas as the investment properties taking intoaccount the economic conditions prevailing at the time the valuations were made. In IncomeApproach, all expected cash flow from the use of the assets were projected and discounted usingthe appropriate discount rate reflective of the market expectations.

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Rental income from investment properties amounted to P=3,746.7 million in 2016, P=3,304.3 millionin 2015 and P=2,952.8 million in 2014. Cost of mall and rental services from investment propertiesamounted to P=567.5 million in 2016, P=532.8 million in 2015 and P=282.5 million in 2014(see Note 28).

17. Property, Plant and Equipment

The rollforward analysis of this account follows:

December 31, 2016

Land andBuildings

Coal ThermalPower Plant

Machineryand

EquipmentTransportation

Equipment

Furnitureand Fixtures &Communication

EquipmentLeasehold

Improvements

Constructionin Progress

(Notes 22and 31) Total

(In Thousands)CostBalances at beginning of year P=6,682,933 P=– P=3,988,915 P=211,636 P=2,407,849 P=3,288,614 P=23,840,605 P=40,420,552Additions/transfers 1,099,342 – 84,135 53,110 399,269 237,132 8,317,765 10,190,753Disposals (295,709) – (1,079) (6,271) (76,996) (409) (1,521) (381,985)Reclassifications (Note 14) – 30,270,447 – – – – (30,405,846) (135,399)Balances at end of year 7,486,566 30,270,447 4,071,971 258,475 2,730,122 3,525,337 1,751,003 50,093,921Accumulated depreciation

and amortizationBalances at beginning of year 738,055 – 2,190,934 169,886 1,684,453 1,315,512 – 6,098,840Depreciation and amortization

(Notes 24 and 25) 151,528 200,485 147,442 16,219 360,192 353,780 – 1,229,646Disposals – – (258) (4,770) (63,210) (409) – (68,647)Balances at end of year 889,583 200,485 2,338,118 181,335 1,981,435 1,668,883 – 7,259,839Net book value P=6,596,983 P=30,069,962 P=1,733,853 P=77,140 P=748,687 P=1,856,454 P=1,751,003 P=42,834,082

December 31, 2015

Land andBuildings

Machineryand

EquipmentTransportation

Equipment

Furnitureand Fixtures &

CommunicationEquipment

LeaseholdImprovements

Constructionin Progress

(Notes 22and 31) Total

(In Thousands)CostBalances at beginning of year P=6,464,471 P=3,954,369 P=195,403 P=2,069,018 P=2,972,980 P=6,714,668 P=22,370,909Additions/transfers 241,847 34,773 20,999 400,691 324,203 17,280,218 18,302,731Disposals (23,385) (13,365) (4,766) (61,860) (8,569) − (111,945)Reclassifications (Note 15) − 13,138 − − − (154,281) (141,143)Balances at end of year 6,682,933 3,988,915 211,636 2,407,849 3,288,614 23,840,605 40,420,552Accumulated depreciation

and amortizationBalances at beginning of year 610,051 1,989,059 158,978 1,391,275 1,010,454 – 5,159,817Depreciation and amortization

(Notes 24 and 25) 128,004 202,965 11,808 341,536 313,128 – 997,441Disposals − (1,090) (900) (48,358) (8,070) – (58,418)Balances at end of year 738,055 2,190,934 169,886 1,684,453 1,315,512 – 6,098,840Net book value P=5,944,878 P=1,797,981 P=41,750 P=723,396 P=1,973,102 P=23,840,605 P=34,321,712

In 2016, cost of land and building, and machinery and equipment acquired through finance leaseamounted to P=994.4 million and P=11.6 million, respectively (nil in 2015; see Notes 23 and 32).

Capitalized borrowing cost included as part of additions to construction in progress amounted toP=892.1 million, P=644.1 million and P=61.5 million, respectively (see Note 24). The capitalizationrates used ranges from 4.9% to 6.7% in 2016, 5.7% to 6.6% in 2015 and 6.0% to 6.1% in 2014.

As of December 31, 2016 and 2015, the cost of fully depreciated property and equipment still inuse by the Group amounted to P=1,337.2 million and P=998.4 million, respectively.

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18. Investments in Joint Ventures

This account consists of:

2016 2015(In Thousands)

Acquisition costBalance at beginning of year P=504,453 P=1,802Additions (Note 1) 505,000 502,651Balance at end of year 1,009,453 504,453Accumulated share in net lossBalance at beginning of year (30,515) (1,802)Share in net loss (Notes 27 and 29) (323,228) (28,713)Dividends declared (6,599) −Balance at end of year (360,342) (30,515)Accumulated share in OCIShare in remeasurement gain of pension liability 724 −

P=649,835 P=473,938

EW Ageas LifeOn May 28, 2015, EWBC and Ageas entered into a joint venture agreement to form EW AgeasLife. EW Ageas Life, which shall primarily engage in the life insurance business, will beincorporated in the Philippines with a capitalization of P=2.0 billion and with ultimate ownershipinterest of EWBC of 50.0% less 1 share. EWBC’s initial investment amounted toP=500.00 million. The joint venture agreement provided certain conditions that should be satisfiedfor the consummation of the agreement, which include among others, obtaining all the requiredregulatory approvals. In October 2015, the SEC approved the registration of EW Ageas Life.

EW Ageas Life and EWBC entered into a twenty-year exclusive distribution agreement inOctober 2015. Under the distribution agreement, EW Ageas Life will have exclusive access to thebranch network of EWBC for the distribution of its insurance products (the exclusivebancassurance access). As of December 31, 2015, EW Ageas Life has not yet started itsoperations, pending certain required regulatory approvals.

In 2016, upon obtaining all the required regulatory approvals from the IC and the BSP, theestablishment of EW Ageas Life was consummated and EWBC received a consideration fromAgeas. The consideration attributable to the exclusive bancassurance access was deferred and willbe recognized as income over the life of the distribution agreement (see Note 23). Theconsideration attributed to the investment transaction increased EWBC’s investment in EW AgeasLife by P=505.0 million and resulted in a gain on capital transaction of P=1,005.0 million(see Note 27).

For the years ended December 31, 2016 and 2015, share in net losses of EW Ageas Life amountedto P=357.0 million and P=28.7 million, respectively (see Note 29). There were no dividendsreceived from EW Ageas Life as of December 31, 2016. The joint venture have no contingentliabilities or capital commitments as of December 31, 2016.

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CHICHI is a joint venture between the Parent Company and Archipelago International Pte. Ltd.(AIPL), a corporation registered in Singapore. CHI was incorporated in the Philippine and isoperating as the management entity of the Group’s hotels including Crimson Alabang Hotel andConference Center, CRSM, and Quest Hotel and Conference Center.

Cost of investment in CHI amounted to P=1.8 million as of December 31, 2016 and 2015. For theyear ended December 31, 2016, the Group’s share in net earnings of CHI amounted toP=33.7 million while dividends received amounted to P=6.6 million (nil for the years endedDecember 31, 2015 and 2014; see Note 27).

Other investment in joint ventures amounted to P=2.7 million.

19. IPP Administrator Contracts and Electric Power Purchase Agreements (EPPA)

In 2014, PSALM conducted open public biddings wherein the Group participated and wasselected as the winning bidder of the following IPP Administrator contracts:

∂ IPP Administrator contract for the Strips of Energy of the Unified Leyte Geothermal PowerPlant - On January 29, 2014, PSALM issued the Notice of Award to FDCUI as one of theIPPA for the strips of energy of the ULGPP located in Tongonan, Leyte. The ULGPP IPPAshall expire on July 25, 2021.

∂ IPP Administrator contract for output of Mindanao I and II (Mt. Apo 1 and 2) GeothermalPower Plants - On October 24, 2014, FDC Misamis won the bidding for the selection andappointment of the IPPA for the output of the Mindanao I and II (Mt. Apo 1 and 2)Geothermal Power Plants located in Kidapawan City, North Cotabato. The IPPA contract isco-terminus with the Mt. Apo 1 and 2 Power Producer Agreements (PPAs) which shall expireon February 15, 2022 and June 17, 2024, respectively.

These IPP Administrator contracts include, among others, the following common rights andobligations:

a. The right to enter into bilateral contracts with third parties and ancillary services contracts,and to trade, sell or transact for its own account and at its own risk and cost.

b. The rights which are reasonably necessary for or incidental to the performance of IPPAdministrator’s obligations under the IPPA contract within PSALM’s authority to grant.

c. The obligation to pay PSALM all sums due under the IPPA contracts including:i. Mt. Apo 1 and 2 - monthly fixed payments and generation payments based on actual

metered quantity generated and delivered to the IPPA; and,ii. ULGPP - generation payments based on actual metered quantity generated and delivered

to the IPPA.d. The obligation to observe the existing nomination arrangement between PSALM and the IPP;

and,e. The obligation to maintain performance bond in full force and effect with a qualified bank.

These IPP Administrator contracts took effect on December 26, 2014. Since the effectivity of theIPP Administrator contracts, EPPAs were signed and agreed with electric cooperatives for aperiod of one (1) to nine (9) years.

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The Group determines that the rights under the IPP Administrator contracts qualify as anintangible asset. The monthly fixed payment attributable to the cost of acquiring these rights hasbeen accounted for as an intangible asset. The generation payments represent the considerationfor the actual capacity received by the IPP Administrator and is recognized in the consolidatedstatement of income when incurred.

The fair value of the IPP Administrator rights was determined using the present value of theexpected monthly fixed payments to PSALM throughout the term of the IPP Administratorcontract discounted using effective interest rate of 7.7%.

The rollforward analysis of this account follows:

2016 2015(In Thousands)

CostBalance at beginning of year P=9,412,389 P=9,412,389

Accumulated amortizationBalance at beginning of year 1,157,272 18,716Amortization (Note 28) 1,141,675 1,138,556Balances at end of year 2,298,947 1,157,272

Net book value P=7,113,442 P=8,255,117

The related financial liability payable up to the expiration of the IPP Administrator contract as ofDecember 31 follows:

2016 2015(In Thousands)

Current portion P=1,263,212 P=1,364,318Noncurrent portion 6,266,963 7,081,933

P=7,530,175 P=8,446,251

Accretion expense on liability on IPP Administration contract amounted to P=619.9 million,P=646.9 million and P=12.1 million in 2016, 2015 and 2014, respectively (see Note 29).

20. Other Assets

This account consists of:

2016 2015(In Thousands)

Intangible assetsBranch licenses P=2,167,600 P=2,167,600BTO rights (Note 33) 1,846,748 1,452,184Capitalized software 920,677 831,707Customer relationship and core deposits 129,616 137,970

5,064,641 4,589,461(Forward)

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2016 2015(In Thousands)

Input taxes P=5,573,880 P=4,348,751Prepaid expenses 1,793,443 924,457Derivative asset (Notes 36, 37 and 38) 1,507,248 1,238,664Deposits 1,337,695 1,588,617Repossessed assets 1,074,555 577,214Creditable withholding taxes 828,847 571,308Restricted cash (Note 24) 509,933 315,454Card acquisition cost 248,796 161,422Returned cash and other cash items 113,301 127,021Deferred costs 95,467 52,602Construction materials and supplies 90,312 108,261Biological assets (Notes 27 and 33) 74,663 86,669Others (Note 33) 1,165,202 818,085

19,477,983 15,507,986Less allowance for impairment losses (Note 29) 441,891 190,735

P=19,036,092 P=15,317,251

a. Intangible assets includes:

Branch licenses of the Group amounting to P=2,167.6 million as of December 31, 2016and 2015 represent: one branch license acquired by EWBC from the BSP amounting toP=0.2 million in 2015, 25 branch licenses acquired by EWBC from the BSP amounting toP=505.2 million in 2014, 10 branch licenses acquired by EWBC from the BSP amounting toP=214.8 million in 2013, 42 branch licenses acquired by EWBC from the BSP amounting toP=822.0 million in 2012 and 46 branch licenses acquired by EWBC from the acquisition ofGBI amounting to P=625.4 million in 2011.

BTO rights pertain to the cost related to the Build, Transfer and Operate agreement with theProvince of Cebu (Cebu Province) entered into on March 26, 2012. The BTO project relatesto the development, construction and operation of Business Process Outsourcing (BPO)Complex by the Group at the land properties owned by Cebu Province located at Salinas,Lahug Cebu City (see Note 33). As of December 31, 2016 and 2015, cost of completedportion of the BTO project amounted to P=1,182.2 million and P=1,144.6 million, respectively.

Related rent income amounting to P=85.2 million and P=17.1 million in 2015 and 2016,respectively, was also recognized as part of “Mall and rental revenues”.

Capitalized software pertain to costs of computer software licenses and programs acquired bythe Group for its banking operations.

Customer relationship and core deposits resulted from the business combination betweenEWBC and AIGPASB Group in 2009.

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The rollforward analysis of the Group’s intangible assets with finite lives as of December 31follows:

2016

BTO RightsCapitalized

Software

CustomerRelationship

andCore Deposits Total

(In Thousands)CostBalances at beginning of year P=1,459,400 P=1,655,999 P=195,059 P=3,310,458Additions 409,388 259,320 − 668,708Balance at end of year 1,868,788 1,915,319 195,059 3,979,166Accumulated amortizationBalances at beginning of year 7,216 824,292 57,089 888,597Amortization (Notes 27 and 28) 14,824 170,350 8,354 193,528Balance at end of year 22,040 994,642 65,443 1,082,125Net book value P=1,846,748 P=920,677 P=129,616 P=2,897,041

2015

BTO rightsCapitalized

Software

Customerrelationship and

core deposits Total(In Thousands)

CostBalances at beginning of year P=1,249,739 P=1,443,479 P=195,059 P=2,888,277Additions 209,661 212,520 − 422,181Balance at end of year 1,459,400 1,655,999 195,059 3,310,458Accumulated amortizationBalances at beginning of year − 640,153 48,735 688,888Amortization (Notes 27 and 28) 7,216 184,139 8,354 199,709Balance at end of year 7,216 824,292 57,089 888,597Net book value P=1,452,184 P=831,707 P=137,970 P=2,421,861

Included in the 2016 and 2015 acquisitions are software licenses acquired by the Group for theupgrade of EWBC’s core banking systems amounting to P=12.9 million and P=6.6 million,respectively.

b. Input taxes represents the value-added tax (VAT) due or paid on purchases of goods andservices subjected to VAT that the Group can claim against any future liability to the Bureauof Internal Revenue for output VAT on sale of goods and services subjected to VAT.

c. Prepaid expenses include commissions paid to brokers relating to the sales of real estateinventories which do not qualify yet for revenue recognition. Those will be recognized asexpenses when the qualification for recognition has been met for the related revenue.

d. Deposits include security deposits of EWBC representing refundable deposits with MasterCard and Visa related to its credit card business and FLI’s deposits in escrow for payments ofraw land pending finalization of contract to sell.

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e. Repossessed assets pertain to other foreclosed properties which do not qualify as land andbuilding. The movements in this account is as follows:

2016 2015(In Thousands)

CostAs of January 1 P=664,333 P=234,303Additions 1,707,027 898,888Disposals (1,142,515) (468,858)As of December 31 1,228,845 664,333Accumulated DepreciationAs of January 1 87,119 29,757Depreciation and amortization 262,344 117,080Disposals (195,173) (59,718)As of December 31 154,290 87,119Net Book Value, gross of impairment 1,074,555 577,214Accumulated Impairment LossesAs of January 1 21,378 9,444Provision during the year 234,475 66,793Disposals (114,033) (54,859)As of December 31 141,820 21,378Net Book Value, net of impairment P=932,735 P=555,836

f. Creditable withholding taxes are taxes withheld by the withholding agents from payment tothe Group which are creditable against the income tax payable.

g. Deferred costs pertain to FDCUI expenditures incurred related to project development and sitepreparation. This account will be reclassified to the appropriate asset account when actualconstruction of power plants begins.

h. Biological assets of the Group consist of sugarcane crops. The rollforward analysis of theGroup’s biological assets follows:

2016 2015(In Thousands)

Balances at beginning of year P=86,669 P=113,136Additions 126,921 141,832Costs of sales (138,927) (168,299)Balances at end of year P=74,663 P=86,669

The following table shows the estimated physical quantities of the Group’s biological assetsand raw sugar production:

2016 2015Sugarcane crops (in metric tons) 78,396 86,481Raw sugar (in Lkg) 149,304 169,280

There are no restrictions on the Group’s biological assets as of December 31, 2016 and 2015.

Others include sundry debits and interoffice floats amounting to P=213.9 million andP=287.0 million as of December 31, 2016 and 2015, respectively.

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The movements in the allowance for impairment losses on other assets of the Group and theParent Company follow:

2016 2015(In Thousands)

As of January 1 P=190,735 P=85,623Provision during the year 371,547 159,971Reversal of allowance from disposals (114,033) (54,859)Write off and others (6,358) −As of December 31 P=441,891 P=190,735

The Group recognized provision for probable loss on other assets amounting to P=371.5 million,P=160.0 million and P=43.4 million in 2016, 2015, and 2014, respectively (see Note 29).

21. Deposit Liabilities

This account consists of:

2016 2015(In Thousands)

Time (Note 36) P=103,112,716 P=82,866,306Savings 58,771,621 37,705,245Demand 52,059,668 36,363,006Long-term negotiable certificates of deposit

(LTNCD) (Note 36) 8,035,283 8,034,515P=221,979,288 P=164,969,072

BSP Circular No. 753, which took effect April 6, 2012, promulgated the unification of thestatutory/ legal and liquidity reserve requirement effective on non-FCDU deposit liabilities to18.0% and reserve requirement on long-term negotiable certificates of deposits to 7.0%. With thenew regulations, only demand deposit accounts maintained by banks with the BSP are eligible forcompliance with reserve requirements. This was tantamount to the exclusion of governmentsecurities and cash in vault as eligible reserves. On April 11, 2014, BSP Circular 830 took effectwhich increased the reserve requirements on non-FCDU deposit liabilities by 1-percentage-pointto 19.0%. BSP Circular 832 further increased the reserve requirements of non-FCDU depositliabilities to 20.0% starting on the reserve week of May 30, 2014. On the other hand, EWRB isrequired to maintain regular reserves equivalent to 5.0% against demand deposit and 3.0% againstsavings and time deposit. As of December 31, 2016 and 2015, EWBC is in compliance with suchregulations.

As of December 31, 2016 and 2015, due from BSP of EWBC amounting to P=37,170 million andP=28,308 million, respectively, were set aside as reserves for deposit liabilities, as reported to theBSP.

Of the total deposit liabilities of EWBC as of December 31, 2016, 2015 and 2014, about 52.0%,44.6% and 52.2%, respectively, are subject to periodic interest repricing. The remaining depositliabilities earn annual fixed interest rates ranging from 0.1% to 5.5% in 2016 and 0.5% to 6.3% in2015 and 2014.

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The Group’s interest expense on deposit liabilities amounted to P=2,253.8 million, P=1,625.6 millionand P=1,164.0 million in 2016, 2015 and 2014, respectively (see Note 28).

LTNCD due 2018 (LTNCD Series 1)In 2013 and 2012, EWBC issued 5.00% fixed coupon rate (average EIR of 4.4%) unsecuredLTNCD maturing on May 18, 2018. The first tranche of the LTNCD Series 1 amounting toP=1.5 billion was issued at a discount on November 23, 2012, and the second to seventh tranchesaggregating to P=3.1 billion were issued at a premium in February to May 2013. The net premium,net of debt issue costs, related to the issuance of the LTNCD Series 1 in 2013 and 2012 amountedto P=107.9 million and P=10.6 million, respectively.

LTNCD due in 2019 (LTNCD Series 2)In 2013, EWBC issued 3.3% fixed coupon rate (average EIR of 3.5%) unsecured LTNCDmaturing on June 9, 2019. The first to third tranches of the LTNCD Series 2 aggregating toP=748.5 million were issued in December 2013. The discount, net of debt issue costs related to theissuance of the LTNCD Series 2 in 2013 amounted to P=8.4 million. The fourth and fifth tranchesof the LTNCD Series 2 aggregating to P=1.7 billion were issued in February and April 2014,respectively. The discount, net of debt issue costs, related to the issuance of the LTNCD Series 2in 2014 amounted to P=85.1 million.

LTNCD due in 2020 (LTNCD Series 3)In 2014, the EWBC issued 4.5% fixed coupon rate (average EIR of 4.4%) unsecured LTNCDmaturing on April 24, 2020. The first tranche of the LTNCD Series 3 amounting to P=925.0 millionwas issued in October 2014. The discount, net of debt issue costs, related to the issuance of theLTNCD Series 3 in 2014 amounted to P=4.6 million.

The movements in unamortized net discount as of December 31, 2016 and 2015 follow:

2016 2015(In Thousands)

Beginning balances P=24,626 P=25,518Amortization during the year (769) (892)Ending balances P=23,857 P=24,626

As of December 31, 2016 and 2015, noncurrent portion of deposit liabilities amounted toP=90.7 million and P=27.8 million, respectively.

22. Bills and Acceptances Payable

This account consists of borrowings from:

2016 2015(In Thousands)

Banks and other financial institutions P=2,086,820 P=2,950,991Outstanding acceptances 107,775 122,532

P=2,194,595 P=3,073,523

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As of December 31, 2016 and 2015, investments in government securities of the Group (includedin investment securities at amortized cost in the statements of financial position) with face value ofP=435.5 million and P=2.6 billion, respectively, and fair value of P=437.2 million and P=2.7 billion,respectively, were pledged with other banks as collateral for borrowings amounting toP=373.2 million and P=2.2 billion, respectively.

Bills payable to the BSP, other banks and other financial institutions are subject to annual interestrates ranging from 0.01% to 1.7% in 2016, 0.6% to 1.2% in 2015 and 0.5% to 3.2% in 2014.

The Group’s interest expense on bills and acceptances payable amounted to P=55.9 million in 2016,P=17.3 million in 2015 and P=39.9 million in 2014 (see Note 28).

As of December 31, 2016 and 2015, bills and acceptance payable is due within one year.

23. Accounts Payable, Accrued Expenses and Other Liabilities

The details of this account follow:

2016 2015Due Within

One YearDue AfterOne Year Total

Due WithinOne Year

Due AfterOne Year Total

(In Thousands)Accounts payable P=10,993,065 P=3,238,151 P=14,220,216 P=14,404,535 P=2,406,661 P=16,811,196Retention fee payable (Note 27) 3,910,212 900,958 4,811,170 1,143,928 2,754,913 3,898,841Advances from customers 2,115,395 310,971 2,426,366 2,030,830 − 2,030,830Accrued expenses 2,421,671 − 2,421,671 1,680,321 − 1,680,321Due to related parties (Note 26) 2,063,994 − 2,063,994 2,117,674 − 2,117,674Deferred revenue (Note 18) 904,871 829,906 1,734,777 258,689 519,613 778,302Deposits 1,276,904 211,675 1,488,579 882,656 247,298 1,129,954Deposits for registration and insurance 158,224 1,132,861 1,291,085 248,847 1,781,696 2,030,543Accrued interest (Note 24) 1,138,434 − 1,138,434 1,092,233 − 1,092,233Pension liabilities (Notes 3 and 30) − 934,674 934,674 − 686,135 686,135Financial liability on lease contract

(Notes 17 and 32) 16,487 807,848 824,335 − − −Domestic bills purchased 652,796 − 652,796 688,852 − 688,852Asset retirement obligation

(Notes 3, 5 and 17) − 452,486 452,486 −−

−Derivative liabilities (Notes 36 and 38) 194,164 − 194,164 183,755 − 183,755Other payables 1,060,565 158,643 1,230,208 781,441 − 781,441

P=26,906,782 P=8,978,173 P=35,884,955 P=25,513,761 P=8,396,316 P=33,910,077

Accounts payable include the balance of the purchase price for raw land acquired by the Groupand payable upon completion of certain requirements and on agreed scheduled payment date andunpaid operating expenses (see Notes 15, 16 and 17).

Retention fee payable include amounts payable to contractors and suppliers for the constructionand development cost incurred by the Group.

Advances from customers include collections from accounts which do not yet qualify for revenuerecognition as real estate sales and any excess collections over the recognized receivables on realestate sales accounted under percentage-of-completion method.

Accrued expenses pertain to various operating expenses incurred by the Group in the course ofbusiness such as salaries and wages, professional fees and utilities expense, among others.

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Deposits are advance payments received for rentals, utilities and other fees. These will be appliedagainst rental obligations of tenants once due.

Deferred revenue include deferral and release of loyalty points program transactions andmembership fees and dues as well as the deferred exclusive bancassurance access fee(see Note 18).

Deposits for registration and insurance pertain to amounts collected from buyers for payment ofregistration and insurance of real estate properties.

Financial liability on lease contract pertains to the present value of the fixed monthly payments toCDC throughout the 50-year term of the lease contract pertaining to the building and golf course(see Notes 17 and 32).

Asset retirement obligation (ARO) pertain to the obligation of the Group as provided under FDCMisamis’ lease agreement with PHIVIDEC to restore the property where the Coal Thermal powerplant is situated to its original condition and to bear the cost of dismantling and restoration at theend of the lease term. ARO is accreted over the lease term and interest expense recognized in2016 related to ARO amounted to P=5.6 million (nil in 2015 and 2014).

Other payables include withholding taxes, output VAT payables and interest on restructured loans.

24. Short-term and Long-term Debt

Short-term debt as of December 31, 2015 consisted of the following borrowings of the Group andtheir contractual settlement dates (amounts in thousands):

Parent Companya. Unsecured 1 year loan obtained on April 22, 2015 with interest rate

of 3.7% per annum. P=998,435b. Unsecured 1 year loan granted on April 22, 2015 with interest rate

of 3.7% per annum. 998,435c. Unsecured 1 year loan obtained on April 22, 2015 with interest rate

of 3.7% per annum. 499,2302,496,100

PSHCd. Unsecured 60-day loan obtained on November 3, 2015 with interest

rate of 4.0% per annum. 150,000e. Unsecured 60-day loan obtained on December 9, 2015 with interest

rate of 4.0% per annum. 100,000250,000

P=2,746,100

On June 30, 2015, FLI obtained short-term loan from a local bank amounting toP=1,500.0 million which bears interest of 3.3% per annum (plus GRT) and is payable withintwo (2) months. The loan was settled on August 28, 2015.

On April 21, 2016, FDC obtained short-term loan from a local bank amounting toP=1,000.0 million with interest rate of 3.0% per annum and is payable within two (2) months. Theloan was settled on June 20, 2016.

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Long-term debts consisted of the following respective borrowings of the Group and theircontractual settlement dates:

2016 2015 Collateral(In Thousands)

Parent Company Loansa. Fixed-rate 10-year bonds due in 2024 with aggregate principal

amount of P=8,800.0 million issued on January 24, 2014 with interestrate of 6.1% per annum payable quarterly in arrears. P=8,735,408 P=8,719,375 Clean

b. Fixed-rate 5-year loan obtained in October 2015 with interest rate of4.5% per annum (inclusive of GRT) payable quarterly in arrears. 2,958,555 2,955,818 Clean

c. Fixed-rate 5-year loan obtained in April 2016 with interest rate of4.3% per annum (inclusive of GRT) payable quarterly in arrears. 1,493,527 – Clean

d. Fixed-rate 5-year loan obtained in October 2015 with interest rate of4.7% per annum (inclusive of GRT) payable quarterly in arrears. 996,141 995,224 Clean

e. Fixed-rate 5-year loan obtained in June 2016 with interest rate of4.5% per annum (inclusive of GRT) payable quarterly in arrears. 995,453 – Clean

f. Fixed-rate 5-year loan obtained in September 2016 with interest rateof 4.3% per annum (inclusive of GRT) payable quarterly in arrears. 796,240 – Clean

15,975,324 12,670,417Subsidiaries’ LoansEWBC

g. Lower tier-2 subordinated notes due January 4, 2025 with interest rateof 5.5% per annum. 4,969,460 4,966,516 Clean

h. Lower tier-2 subordinated notes callable with step-up interest in 2016in minimum denominations of P=500,000 and in integral multiples ofP=100,000 thereafter, due on January 2, 2021. Interest rate is at 7.5%per annum. – 1,500,000 Clean

4,969,460 6,466,516FLI

i. Fixed-rate bonds consisting of i) 5-year bonds issued on July 7, 2011amounting to P=3,000.0 million; ii) 7-year bonds issued onJune 8, 2012 with aggregate principal amount of P=7,000.0 million;iii) aggregate principal amount of P=7,000.0 million comprised ofP=4,300.0 million 7-year bonds and P=2,700.0 million 10-year bondsissued on November 8, 2013; iv) aggregate principal amount ofP=7,000.0 million issued on December 4, 2014 comprised of P=5,300.0million 7-year bonds and P=1,700.0 million 10-year bonds; andv) aggregate principal amount of P=8,000.0 million issued onAugust 20, 2015 comprised of P=7,000.0 million 7-year bonds andP=1,000.0 million 10-year bonds. 28,796,051 31,749,909 Clean

j. Developmental loans granted by local banks. 24,456,598 15,946,927 Clean53,252,649 47,696,836

FAIk. Fixed-rate 5-year term loan granted on August 3, 2015 with interest

rate of 5.0% per annum, payable quarterly in arrears. 850,000 850,000 Cleanl. Fixed-rate 5-year term loan granted on September 28, 2015 with

interst rate of 4.5% per annum, payable quarterly in arrears. Fiftypercent (50%) of the loan is payable in equal quarterly amortizationsto commence at the end of 2-year grace period and fifty percent(50%) is payable at maturity. 500,000 500,000 Clean

m. Fixed-rate 5-year term loan granted on July 28, 2016 with interest rateof 3.8% per annum, payable quarterly in arrears. Fifty percent (50%)of the loan is payable in equal quarterly amortizations to commenceat the end of the 2-year grace period and fifty percent (50%) ispayable at maturity. 450,000 – Clean

n. 7-year term loan granted on September 5, 2013 subject to floatinginterest set every 90 days and payable in arrears. Fifty percent (50%)of the loan is payable in twenty equal quarterly amortizations and theremaining fifty percent (50%) is payable at maturity. 437,500 487,500 Clean

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2016 2015 Collateral(In Thousands)

o. Fixed-rate 5-year term loan granted on June 28, 2016 and will matureon June 28, 2021 with interest rate of 3.9% per annum, payablequarterly in arrears. Fifty percent (50%) of the loan is payable inequal quarterly amortizations to commence at the end of the secondyear and fifty percent (50%) payable at maturity. P=400,000 P=– Clean

p. Fixed-rate 5-year term loan granted on February 18, 2016 withinterest rate of 4.6% per annum, payable quarterly in arrears. Fiftypercent (50%) of the loan is payable in equal quarterly amortizationsto commence at the end of the second year and fifty percent (50%)payable at maturity. 300,000 – Clean

q. 5-year term loan granted on July 23, 2012 subject to floating interestrate set every 90 days payable in arrears. 250,000 316,667 Clean

r. 7-year loan granted on November 10, 2011 subject to floating interestrate set every 90 days, payable in arrears. Fifty percent (50%) of theloan is payable in twenty (20) equal quarterly amortizations tocommence at the end of the 2-year grace period and the remainingfifty percent (50%) is payable at maturity. 210,000 240,000 Clean

s. Fixed-rate 5-year term loan granted on March 3, 2015 with interestrate of 4.3% per annum, payable quarterly in arrears. Fifty percent(50%) of the loan is payable in equal quarterly amortizations tocommence at the end of the 2-year grace period and fifty percent(50%) is payable at maturity. 200,000 200,000 Clean

t. Fixed-rate 5-year term loan granted on December 15, 2014 withinterest rate of 4.5% per annum, payable in arrears. Fifty percent(50%) of the loan is payable in equal quarterly amortizations tocommence at the end of the 2-year grace period and fifty percent(50%) is payable at maturity. 191,667 200,000 Clean

u. 7-year loan granted on March 30, 2012, subject to floating interestrate set every 90 days, payable in arrears. Fifty percent (50%) of theloan is payable in equal quarterly amortizations to commence at theend of the 2-year grace period and fifty percent (50%) is payable atmaturity. 145,000 165,000 Clean

v. 7-year term loan granted on December 27, 2011 subject to floatinginterest rate set every 90 days, payable in arrears. Fifty percent (50%)of the loan is payable in equal quarterly amortizations to commenceat the end of the 2-year grace period and the fifty percent(50%) ispayable at maturity. 105,000 120,000 Clean

w. 5-year term loan granted on February 12, 2013, subject to floatinginterest rate set every 90 days, payable in arrears. Principal is payablein twenty (20) equal quarterly installments at the end of the 2-yeargrace period. 104,166 187,500 Clean

4,143,333 3,266,667FDCUI

x. Loans granted by a local bank amounting to P=934 million,P=1,727 million, P=1,891 million, P=1,595 million, P=1,351 million andP=483 million on September 26, 2014, December 1, 2014,March 2, 2015, June 1, 2015, September 1, 2015 andDecember 1, 2015, respectively. 8,960,592 7,943,289

Realproperties and

real rightsy. Loans granted by a local bank amounting to P=643 million,

P=1,190 million, P=1,303 million, P=1,099 million, P=931 million andP=332 million on September 26, 2014, December 1, 2014,March 2, 2015, June 1, 2015, September 1, 2015 andDecember 1, 2015, respectively. 6,172,849 5,472,040

Realproperties and

real rightsz. Loans granted by a local bank amounting to P=2,500 million and

P=1,250 million on August 12, 2015 and December 1, 2015,respectively. 4,976,870 3,731,565

Realproperties and

real rights

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2016 2015 Collateral(In Thousands)

aa. Loans granted by a local bank amounting to P=480 million,P=720 million and P=1,200 million on March 18, 2016, July 1, 2016and October 3, 2016, respectively. P=2,388,296 P=–

Realproperties and

real rights22,498,607 17,146,894

PSHCbb. Loan obtained on September 28, 2016 amounting to P=600.0 million

with fixed interest rate of 4.6% per annum payable quarterly inarrears. P=600,000 P=– Clean

cc. Loan of P=1.0 million granted on February 12, 2013, payable in twelve(12) quarterly amortizations to start at the end of the 9th quarter fromthe date of the loan release. Interest rate is 4.5% per annum, payablequarterly in arrears. 418 833 Clean

dd. Loans of P=400.0 million granted on December 22, 2012 andP=100.0 million granted on February 16, 2011. The principal ispayable in twelve (12) quarterly amortizations to start at the end ofthe 9th quarter from the date of the loan release. – 8,250 Clean

600,418 9,083FHC

ee. Term loan of P=1,000.0 million granted on December 27, 2016 withinterest rate of 5.5% fixed for seven (7) years and payable quarterly inarrears. The fifty (50%) is payable in 36 equal quarterly amortizationto start on the 13th quarter from initial drawdown and 50% is payableon maturity. 1,000,000 – Clean

ff. 12-year term loans of P=160.0 million, P=60.0 million, P=270.0 millionand P=165.0 million granted on June 28, 2016, July 21, 2016, August24, 2016, and December 14, 2016, respectively. These loans bearinterest rates of 4.3% per annum (floating), 4.3% per annum (fixedfor 5 years), 4.1% per annum (fixed for 5 years) and 5.5% per annum(fixed for 7 years), in the same order as above. Fifty (50%) is payablein 36 equal quarterly amortization to start on the 13th quarter frominitial drawdown and fifty (50%) is payable on maturity. 655,000 – Clean

gg. 12-year term loan of P=180.0 million granted on December 27, 2016with interest rate of 5.5% per annum fixed for seven (7) years. Fifty(50%) is payable in 36 equal quarterly amortization to start on the13th quarter from initial drawdown and fifty (50%) is payable onmaturity. 180,000 – Clean

1,835,000 –FDCI

hh. Fixed-rate 7-year bonds with principal amount of USD286.5 millionissued on April 2, 2013 with interest rate of 4.3% per annum. 14,161,166 13,379,807 Clean

P=117,435,957 P=100,636,220

Below are the current and noncurrent portion of the long-term debt:

2016 2015(In Thousands)

Current P=2,960,454 P=2,291,018Noncurrent 114,475,503 98,345,202

P=117,435,957 P=100,636,220

The other details on foregoing long-term debt of the Group follow:

EWBCg. Lower Tier 2 unsecured subordinated notes due 2025

On July 4, 2014, EWBC issued 5.5% coupon rate Lower Tier 2 unsecured subordinated note(the 2025 Notes) with par value of P=5,000.0 million, maturing on January 4, 2025, but callable

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on January 4, 2020. The 2025 Notes qualify as Tier 2 capital pursuant to BSP Circular No.781 (Basel III), BSP Circular No. 826 on risk disclosure requirements for the loss absorptionfeatures of capital instruments, and other related circulars and issuances of the BSP.

Unless the 2025 Notes are previously redeemed, the 2025 Notes are repayable to theNoteholders at 100.0% of their face value or at par on the maturity date of January 4, 2025.

From and including the issue date to, but excluding the optional redemption date ofJanuary 4, 2020, the 2025 Notes bear interest at the rate of 5.5% per annum and shall bepayable quarterly in arrears on January 4, April 4, July 4, and October 4 of each year, whichcommenced on October 4, 2014. Unless the 2025 Notes are previously redeemed, the interestrate will be reset at the equivalent of the prevailing 5-year PDST-R2 at reset date plus initialspread (i.e. the difference between the Initial interest rate and the prevailing 5-year PDST R2at the pricing date of the initial tranche).

The 2025 Notes are redeemable at the option of EWBC in whole but not in part on the calloption date at 100% of the face value plus accrued but unpaid interest, subject to the followingconditions:

a. EWBC has obtained prior written approval and complied with the requirements of theBSP prior to redemption of the 2025 Notes

b. the 2025 Notes are replaced with capital of the same or better quality and the replacementof this capital is done at conditions which are sustainable for the income capacity ofEWBC, or,

c. EWBC demonstrates that its capital position is above the minimum capital requirementsafter redemption is exercised

d. EWBC is not in breach of (and would not, following such redemption, be in breach) ofapplicable regulatory capital requirements (including regulatory capital buffers)

e. EWBC is solvent at the time of redemption of the 2025 Notes and immediately thereafter.

Furthermore, upon the occurrence of a Tax Redemption Event or a Regulatory RedemptionEvent, EWBC may, subject to compliance with BSP rules and BSP approval, and upon priorapproval of the BSP and with prior written notice to the Noteholders on record, redeem all andnot less than all of the outstanding 2025 Notes prior to the stated maturity by paying theNoteholder the Redemption Option Amount which, (a) in the case of a Tax Redemption Eventis an amount equal to 100.0% of the face value of the 2025 Notes plus accrued interest at theinterest rate relating to the then current interest period up to but excluding the date of suchredemption, and (b) in the case of a Regulatory Redemption Event is an amount equal to100.0% of the face value of the 2025 Notes plus accrued interest at the interest rate relating tothe then current interest period up to but excluding the date of such redemption (the“Redemption Option Date”).

The 2025 Notes have a loss absorption feature which means that the 2025 Notes are subject toa Non-Viability Write-Down in case of a Non-Viability Event. Non-viability is defined as adeviation from a certain level of Common Equity Tier 1 (CET1) Ratio or inability of EWBCto continue business (closure) or any other event as determined by the BSP, whichever comesearlier. A Non-Viability Event is deemed to have occurred when EWBC is considered non-viable as determined by the BSP.

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Upon the occurrence of a Non-Viability Event, EWBC shall write-down the principal amountof the 2025 Notes to the extent required by the BSP, which could go to as low as zero.Additional Tier 1 (AT1) capital instruments shall be utilized first before Tier 2 capitalinstruments are written-down, until the viability of the Issuer is re-established. In the event theParent Company does not have AT1 capital instruments, then the write-down shallautomatically apply to Tier 2 capital.

Loss absorption measure is subject to the following conditions:

a. the principal amount of all series of Tier 1 Loss Absorbing Instruments outstandinghaving been Written-Down to zero or converted into common equity of the ParentCompany (where possible) irrevocably, in accordance with, and to the extent possiblepursuant to, their terms (the “Tier 1 Write-Down”)

b. the Tier 1 Write-Down having been insufficient to cure the Non-Viability Eventc. the Parent Company giving the relevant Non-Viability Notice to the Public Trustee and

the Registrar and Paying Agent

Each Noteholder irrevocably agrees and acknowledges that it may not exercise or claim anyright of set-off in respect of any amount owed to it by EWBC arising under or in connectionwith the 2025 Notes and it shall, to the fullest extent permitted by applicable law, waive andbe deemed to have waived all such rights of set-off.

h. Lower Tier 2 unsecured subordinated notes due 2021On July 2, 2010, EWBC issued 7.5% coupon rate Lower Tier 2 unsecured subordinated note(the 2021 Notes) with par value of P=1,500.0 million, maturing on January 2, 2021 but callableon January 2, 2016, and with step-up in interest if not called.

Unless the 2021 Notes are previously redeemed, the 2021 Notes are repayable to theNoteholders at 100.0% of their face value or at par on the maturity date of January 2, 2021.

From and including the issue date to, but excluding the optional redemption date ofJanuary 2, 2016, the 2021 Notes bear interest at the rate of 7.5% per annum and shall bepayable semi-annually in arrears on January 2 and July 2 of each year, commencing onJanuary 2, 2011. Unless the 2021 Notes are previously redeemed, the interest rate from andincluding January 2, 2016 to, but excluding January 2, 2021, will be reset and such Step-Upinterest shall be payable semi-annually in arrears on January 2 and July 2 of each year,commencing on July 2, 2016.

The Step-Up interest rate shall be computed as the higher of:a. 80.0% of the 5-year on-the-run Philippine Treasury benchmark bid yield (PDST-F) on

optional redemption date plus the Step-Up spread of 3.4% per annum. The Step-Upspread is defined as follows:

Step-Up spread = 150.0% of the difference between the Interest Rate and 80.0% of the5-year PDST-F on the Pricing Date, preceding the initial Issue Date, equivalent to 3.4%per annum.

b. 150.0% of the difference between the interest rate and the 5-year PDST-F on the pricingdate preceding the initial issue date plus the 5-year PDST-F on the optional redemptiondate.

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On January 4, 2016, EWBC exercised its call option on the P=1.50 billion 2021 Notes. Theredemption was approved by EWBC’s BOD on August 27, 2015 and by the BSP on October8, 2015. The call option amount was the sum of the face value of the Notes, plus accruedinterest amounting to P=1.56 billion, covering the 11th interest period from July 2, 2015 toJanuary 3, 2016 at the interest rate of 7.50%, as of but excluding the call option date.

FLI

i. Fixed-rate bondsOn July 7, 2011, FLI issued bonds with principal amount of P=3,000.0 million and term of five(5) years from the issue date. The fixed interest rate was 6.2% per annum, payable quarterlyin arrears starting on October 17, 2011. These bonds were terminated upon maturity inOctober 2016.

On June 8, 2012, FLI issued bonds with aggregate principal amount of P=7,000.0 million andterm of 7 years due in 2019. The fixed interest rate is 6.3% per annum, payable quarterly inarrears starting on September 8, 2012.

On November 8, 2013, FLI issued bonds with principal amount of P=7,000.0 million comprisedof P=4,300.0 million 7-year bonds with interest of 4.9% per annum due in 2020 andP=2,900.0 million 10-year bonds of 5.4% per annum due in 2023.

On December 4, 2014, FLI issued bonds with an aggregate principal amount ofP=7,000.0 million comprising of P=5,300.0 million 7-year bonds due in 2021 andP=1,700.0 million 10-year bonds due in 2024. The 7-year bonds carry a fixed rate of 5.4% perannum while the 10-year bonds have a fixed interest rate of 5.6% per annum.

On August 20, 2015, FLI issued bonds with an aggregate principal amount ofP=8,000.0 million comprising of P=7,000.0 million 7-year bonds due in 2022 andP=1,000.0 million 10-year bonds due in 2025. The 7-year bonds carry a fixed rate of 5.4% perannum while the 10-year bonds have a fixed rate of 5.7% per annum.

Unamortized debt issuance cost on bonds payable amounted to P=205.9 million,P=250.1 million, and P=213.0 million as of December 31, 2016, 2015, and 2014, respectively.Accretion in 2016, 2015 and 2014 included as part of ‘Interest expense’ amounted toP=29.3 million, P=47.3 million, and P=35.8 million, respectively (see Note 29).

j. Developmental Loans from Local BanksDevelopmental loans from local banks will mature on various dates up to 2021. These Peso-denominated loans bear floating interest rates equal to 91-day PDST-F rate plus a spread of upto 1.0% per annum, prevailing market rate, or fixed interest rates of 4.2% to 6.4% per annum.Additional loans availed by the Group in 2016, 2015 and 2014 amounted to P=10,480.0 million,P=7,845.0 million, and P=9,500.0 million, respectively. Principal payments made in 2016, 2015and 2014 amounted to P=1,490.0 million, P=8,204.0 million, and P=7,300.0 million, respectively.

FAI

The fixed-rate loans availed by FAI bear interest ranging from 4.1% to 5.0% per annum. Theterm loans availed by FAI that are subject to floating interest set every 90-days payable inarrears has a one-time option to change interest to fixed rate anytime during the life of theloan.

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FDCUI

FDC Misamis entered into loan facility agreements with local financial institutions to partiallyfinance the construction and operation of the 405 MW circulating fluidized bed coal-firedthermal power plant located inside the PHIVIDEC Industrial Estate in Villanueva, MisamisOriental.

These loan facility agreements provide for a scheduled loan availments within a certainperiod. These loans are payable in 42 quarterly variable payments. The first installment willbe due 42 months from initial availment date or 6 months from the project completion date,whichever comes first. These loans bear interest of 7-year PDST-F (subject to repricing onthe 7th year anniversary from initial availment date) plus applicable credit spread.

These loans are secured with real properties and real rights, inclusive of FDC Misamis’buildings and other improvements amounting to P=30,493.4 million and P=23,368.4 million asof December 31, 2016 and 2015, respectively, and its rights provided under certainagreements (e.g., EPPAs, insurance and lease contracts), chattels, movables and personalproperties.

These loans bear interest from 5.6% to 6.6% per annum, subject to repricing after the 7thanniversary from initial loan availment until maturity date. Interest is payable quarterly inarrears to start at the end of the first quarter from the date of the release of the loan.

PSHC

The fixed-rate loan availed by PSHC bears interest of 4.6% per annum. Loans availed byPSHC that are subject to carry interest rates ranging from 2.2% to 4.6% per annum. Interest ispayable quarterly in arrears to start at the end of the first quarter from the date of release of theloan.

FDCI

hh. USD300.0 million fixed-rate bondsOn April 2, 2013, the Group issued through FDCI fixed-rate bonds with original issuanceamount of USD300.0 million and term of seven (7) years from the issue date. The bonds beara fixed interest rate of 4.3% per annum and is payable semi-annually in arrears starting onOctober 2, 2013.

In 2013, the Group repurchased USD 13.5 million (P=577.3 million) of the USD300.0 millionfixed-rate bonds at a discount. As of December 31, 2016, the outstanding balance of thebonds amounted to USD284.8 million (P=14.2 billion), net of unamortized deferred financingcost of USD1.7 million (P=83.6 million).

The Group’s long-term debts are unsecured and no assets are held as collateral for these debts,except for the loans of FDC Misamis. The agreements covering the abovementioned loans requiremaintaining certain financial ratios including debt-to-equity ratio of 2.0x to 4.0x; debt servicecoverage ratio of 1.0x; interest coverage ratio of 2.0x to 3.0x; and minimum current ratio of 2.0x.

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The Group has complied with these contractual agreements. There was neither default nor breachnoted as of December 31, 2016 and 2015.

Total interest on these short-term and long-term debt, including capitalized borrowing costs, andamortization of transaction costs follow:

2016 2015 2014(In Thousands)

Interest expenseReal estate operations (Note 29) P=1,058,519 P=836,388 P=635,705Power generation operations

(Note 29) 297,609 – –Financial and banking services

(Note 28) 278,110 390,696 258,791Hotel operations (Note 29) 69,065 62,336 23,135Sugar operations (Note 29) 25,435 38,410 62,420Other operation (Notes 28 and 29) 1,450,746 1,276,905 1,112,566

3,179,484 2,604,735 2,092,617Total capitalized borrowing costs (Notes 13, 15, 16 and 17) 2,573,197 2,233,142 1,685,893

P=5,752,681 P=4,837,877 P=3,778,510

25. Equity

Capital Stock and Additional Paid-in CapitalOn December 22, 1982, the SEC approved the registration of 5,300,000 shares, divided into5,200,000 Class A shares, and 100,000 class B shares with par value of P=10.0 per share.

On April 13, 1992, the SEC approved the registration of 144,575,000 common shares with parvalue of P=10.0 per share.

On March 10, 1993, the SEC approved the reduction of par value from P=10.0 to P=5.0 per share ofthe Parent Company’s common shares which at that time consisted of P=1.5 billion authorizedcommon stocks divided into 90,000,000 shares of Class “A” common shares and 60,000,000shares of Class “B” common shares.

On December 20, 1993, the stockholders approved the reduction of the par value per share fromP=5.0 to P=1.0 and to unclassify the Parent Company’s capital stock.

On October 15, 2010, the stockholders and BOD of the Parent Company approved the increase inthe authorized capital stock of the Parent Company from P=10.0 billion, divided into 10.0 billioncommon shares with a par value of P=1 per share to P=17 billion, divided into 15.0 billion commonshares with a par value of P=1 per share and 2 billion non-voting and redeemable preferred shareswith a par value of P=1 per share. Article Seven of the Amended Articles of Incorporation of theParent Company was amended to effect the increase in the authorized capital stock of the ParentCompany. On August 19, 2011, the SEC approved the increase in the authorized capital stock ofthe Parent Company.

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The preferred shares have the following features:a) not entitled to any voting right or privilege, except in those cases expressly provided by law;b) redeemable subject to the terms and conditions to be fixed by the BOD;c) entitled to dividends at the rate to be determined by the BOD prior to the issuance of shares, to

be payable out of the surplus profits of the Corporation so long as the preferred shares areoutstanding; and,

d) may be subject to such other additional terms and conditions to be fixed by the BOD.

As of December 31, 2016 and 2015, authorized capital stock of the Parent Company is 15.0 billioncommon shares with a par value of P=1 per share and 2 billion non-voting redeemable preferredshares with a par value of P=1 per share.

Below is the summary of the Group’s track record of registration of securities with the SEC as ofDecember 31, 2016:

Year

Numberof Shares

Registered(In Thousands)

Numberof holders

of securitiesas of year end

January 1, 2014 9,317,474 4,266Add/(Deduct) Movement – (59)December 31, 2014 9,317,474 4,207Add/(Deduct) Movement – (36)December 31, 2015 9,317,474 4,171Add/(Deduct) Movement – (47)December 31, 2016 9,317,474 4,124Note: Exclusive of 2,398 treasury shares.

Dividend DeclarationOn May 30, 2014, the Parent Company’s BOD approved the declaration and payment of cashdividends of P=511.5 million or P=0.0549 per share to shareholders of record as of June 26, 2014,payable on July 16, 2014.

On May 15, 2015, the Parent Company’s BOD approved the declaration and payment of cashdividends of P=465.9 million or P=0.05 per share for every common share payable on July 2, 2015 tostockholders of record as of June 10, 2015.

On April 29, 2016, the Parent Company’s BOD approved the declaration and payment of cashdividends of P=480.8 million or P=0.052 per share for every common share payable onJune 21, 2016 to stockholders of record as of May 27, 2016.

Retained EarningsRetained earnings include undistributed earnings representing accumulated equity in net earningsof subsidiaries and joint ventures, which are not available for dividend declaration until receivedin the form of dividends from such subsidiaries and associates. Retained earnings are furtherrestricted for the payment of dividends to the extent of the cost of the shares held in treasury anddeferred tax asset recognized as of December 31, 2016 and 2015.

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The Parent Company’s retained earnings available for dividend declaration as of December 31,2016, 2015 and 2014 amounted to P=7,235.6 million, P=6,214.2 million and P=6,648.9 million,respectively.

Capital ManagementThe Group prudently monitors its capital and cash positions and cautiously manages itsexpenditures and disbursements. Furthermore, the Group may also, from time to time seek othersources of funding, which may include debt or equity issues depending on its financing needs andmarket conditions.

The primary objective of the Group’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business and maximize shareholdervalue. No changes were made in capital management objectives, policies or processes for theyears ended December 31, 2016, 2015 and 2014.

The Group monitors capital using debt-to-equity ratio, which is the long-term debt divided by totalequity. The Group’s policy is to keep the debt to equity ratio not to exceed 2:1.

2016 2015(In Thousands)

Long-term debt P=117,435,957 P=100,636,220Total equity 103,954,851 96,914,055Debt to equity ratio 1.13:1.00 1.04:1.00

26. Related Party Transactions

The Group has entered into various transactions with related parties. Parties are considered to berelated if one party has the ability, directly or indirectly, to control the other party in makingfinancial and operating decisions or the parties are subject to common control or commonsignificant influence (referred to as ‘Affiliates’). Related parties may be individuals or corporateentities.

Significant transactions with related parties are as follows:

a. The compensation of key management personnel consists of short-term employee salaries andbenefits amounting to P=78.4 million, P=73.2 million and P=51.6 million in 2016, 2015 and 2014,respectively. Post-employment benefits of key management personnel amounted toP=15.5 million, P=7.7 million and P=8.2 million in 2016, 2015 and 2014, respectively.

b. Other transactions with related parties include non-interest bearing cash advances and variouscharges to and from non-consolidated affiliates for management fees, rent, share of expensesand commission charges. Transactions with related parties are normally settled in cash.

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The amounts and the balances arising from the foregoing significant related party transactions areas follows:

2016

Amount/Volume

OutstandingBalance

Due from(Due to) Terms Conditions

(In Thousands)Due from related partiesReal estate operations (Note 8)Parent(a)

P=311 P=2,065Non-interest bearing,

collectible on demandUnsecured, no

impairmentAffiliates:

Share in expenses 14 7,012Non-interest bearing,

collectible on demandUnsecured, no

impairment325 9,077

Hotel operations (Note 11)Affiliates(a)

Share in expenses − 4,660Non-interest bearing,

collectible on demandUnsecured, no

impairmentP=325 P=13,737

Due to related parties (Note 23)Parent(b)

Interest expense (P=17,914) (P=2,047,762)

Bears 3.5% interestper annum, payable ondemand

Unsecured

Affiliates(a)

Share in expenses − (16,232)Non-interest bearing,

payable on demandUnsecured

(P=17,914) (P=2,063,994)(a) Share in Group expenses(b) Availment of loan payable within one year, with interest at prevailing market rate

2015

Amount/Volume

OutstandingBalance

Due from(Due to) Terms Conditions

(In Thousands)Due from related partiesReal estate operations (Note 8)Parent(a)

P=324 P=1,421Non-interest bearing,

collectible on demandUnsecured, no

impairmentAffiliates:

Share in expenses 2,670 283,753Non-interest bearing,

collectible on demandUnsecured, no

impairment2,994 285,174

Hotel operations (Note 11)Affiliates(a)

Share in expenses − 2,629Non-interest bearing,

collectible on demandUnsecured, no

impairmentP=2,994 P=287,803

Due to related parties (Note 23)Parent (b)

(P=2,030,000) (P=2,030,000)

Bears 3.5% interestper annum, payableon demand

Unsecured

Affiliates(a)

Advances − (87,674)Non-interest bearing,

payable on demandUnsecured

(P=2,030,000) (P=2,117,674)(a) Share in Group expenses(b) Availment of loan payable within one year, with interest at prevailing market rate

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Transactions with Retirement PlansUnder PFRS, certain post-employment benefit plans are considered as related parties. The ParentCompany’s retirement plan is in the form of a trust administered by the EWBC’s Trust Divisionunder the supervision of the Retirement Committee. The values of the assets of the fund are asfollows:

2016 2015Cash and cash equivalents P=107,186 P=162,572Equity instruments 332,730 242,398Debt instruments 245,065 189,036Others 2,644 2,554

P=687,625 P=596,560

As of December 31, 2016 and 2015, cash and cash equivalents include the savings deposit withthe Parent Company amounting to P=6.2 million and P=32.6 million, respectively, and debtinstruments include investments in EWBC’s LTNCD amounting to P=65.0 million andP=66.6 million, respectively. Equity instruments include investments in the EWBC’s PhilEquityInstitutional Feeder Fund amounting to P=19.4 million, equivalent to 21,656 shares with fair marketvalue of P=896.9 per share as of December 31, 2016, and P=177.7 million, equivalent to 195,467shares with fair market value of P=909.1 per share as of December 31, 2015, EWBC’s equitysecurities amounting to P=80.43 million, equivalent to 4,338,337 common shares with fair marketvalue of P=18.5 per share as of December 31, 2016, and P=48.73 million, equivalent to 2,572,637common shares with fair market value of P=18.9 per share as of December 31, 2015, and EWBC’sPSEi Tracker Fund amounting to P=186.3 million, equivalent to 1,946,857 shares with fair marketvalue of P=95.7 per share as of December 31, 2016.

The following are the amounts recognized by the retirement plan arising from its transactions withEWBC for the years ended December 31, 2016, 2015 and 2014.

2016 2015 2014Trust fees P=2,577 P=2,899 P=2,462Interest income on savings deposit 726 146 136Interest income on investments in

LTNCD 2,921 2,936 2,942Loss on investments in equity shares (22,452) (25,892) (30)

27. Other Income

Other income - net from financial and banking services consist of:

2016 2015 2014(In Thousands)

Service charges, penalties, fees andcommissions P=4,101,341 P=3,286,182 P=3,297,839

Gain on capital transactions (Notes 1 and 18) 1,005,000 − −Trading and securities gain (loss) - net

Financial assets at FVTPL (Notes 3 and 12) 734,499 (97,090) 499,525Investment securities at amortized cost (Note 12) − 287,361 305,997

(Forward)

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2016 2015 2014(In Thousands)

Recovery on written-off assets P=360,121 P=235,558 P=150,192Foreign currency exchange gains - net 176,958 192,053 193,517Gain on sale of assets 56,124 80,043 37,631Trust income (Note 41) 18,602 17,010 20,372Gain (loss) on asset foreclosure and dacion

transactions (29,454) (67,119) 19,417Others 101,842 70,878 71,839

P=6,525,033 P=4,004,876 P=4,596,329

Other income from real estate operations consist of:

2016 2015 2014(In Thousands)

Interest income (Notes 6 and 8) P=880,242 P=797,713 P=751,058Income from liquidated damages (Note 23) 450,000 − −Forfeited reservations and payments 233,694 197,123 277,081Water supply income 104,162 94,572 78,637Sewer treatment services 45,986 44,988 34,532Processing fees 43,250 19,085 36,335Service income 35,540 56,909 178,524Income from amusement centers, parking

and other lease related activities 13,782 − −Amortization of deferred income − − 236,259Others 552,198 520,674 224,762

P=2,358,854 P=1,731,064 P=1,817,188

Income from liquidated damages in 2016 represents the amount of the Group’s recovery of lostrevenue from prospective tenants which were claimed and applied against the liability to thecontractor.

Major items included in the ‘Others’ are membership and maintenance dues and other fees fromtenants.

Other income from power generation operations consist of:

2016 2015 2014(In Thousands)

Sale of scrap materials P=20,656 P=− P=−Interest income − 5,367 −Others 15,336 16,826 75

P=35,992 P=22,193 P=75

Other income from sugar operations consist of:

2016 2015 2014(In Thousands)

Fertilizers assistance income P=15,956 P=16,119 P=12,520Conversion rights 3,739 25,002 32,199Diesel mark-up 2,618 3,843 4,153Interest income 140 36 176Others 7,949 17,476 30,859

P=30,402 P=62,476 P=79,907

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Other income from sugar operations include storage and handling fee, sales of scrap and othermiscellaneous income.

Other income from hotel operations consist of:

2016 2015 2014(In Thousands)

Share in net earnings of joint venture (Note 18) P=33,726 P=− P=−Interest income 3,654 − 64Others 4,376 2,879 2,744

P=41,756 P=2,879 P=2,808

28. Costs

Cost of financial and banking services consists of:

2016 2015 2014(In Thousands)

Interest on deposit liabilities and otherborrowings:Deposit liabilities (Note 21) P=2,253,754 P=1,625,623 P=1,164,018Subordinated debt, bills payable and

other borrowings (Notes 22 and 24) 358,941 423,204 313,689P=2,612,695 P=2,048,827 P=1,477,707

Cost of sale of lots, condominium and residential units and club shares consists of:

2016 2015 2014(In Thousands)

Subdivision lots, condominium andresidential units (Note 13) P=8,696,380 P=8,582,925 P=8,163,710

Land and land development costs (Note 15) 183,470 150,576 31,414P=8,879,850 P=8,733,501 P=8,195,124

Cost of mall and rental services consists of:

2016 2015 2014(In Thousands)

Depreciation (Note 16) P=324,807 P=317,430 P=57,075Mall operations 161,553 132,004 116,820Amortization of BTO Rights (Note 20) 14,824 7,216 −Others 81,103 83,349 108,566

P=582,287 P=539,999 P=282,461

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Cost of power generation consists of:

2016 2015 2014(In Thousands)

Purchase of electricity P=4,551,010 P=4,307,178 P=66,807Amortization of IPP Administrator

rights (Note 19) 1,141,675 1,138,556 18,716Depreciation (Note 17) 200,486 − −Coal and fuel cost (Note 14) 371,347 − −Others 38,952 − −

P=6,303,470 P=5,445,734 P=85,523

Cost of sugar sales consists of:

2016 2015 2014(In Thousands)

Costs of quedan purchases P=1,145,713 P=1,180,663 P=1,092,255Salaries, wages and employee benefits 150,875 168,266 173,620Materials and supplies 136,622 156,448 187,458Depreciation and amortization (Note 17) 129,189 181,511 214,888Cane hauling 78,392 76,546 80,603Outside services 54,780 59,352 60,540Taxes and licenses 31,305 9,830 9,825Repairs and maintenance 15,561 23,035 24,909Development costs 11,484 10,604 13,674Communications, light and water 11,478 13,429 14,818Trucking and handling charges 9,455 8,768 10,542Liens 8,367 9,324 11,952Rent (Note 32) 681 23 3,989Others 21,904 23,454 22,374Cost of goods manufactured 1,805,806 1,921,253 1,921,447Decrease (increase) in:

Sugar and molasses inventories (Note 14) 1,300 (117,509) (73,349)Biological assets (Note 20) 12,006 26,467 (3,429)

P=1,819,112 P=1,830,211 P=1,844,669

Cost of hotel operations consists of:

2016 2015 2014(In Thousands)

Food and beverage (Note 14) P=237,482 P=168,243 P=152,827Salaries, wages and employee benefits 234,671 113,874 100,381Depreciation and amortization (Note 17) 49,381 42,269 42,269Guest amenities 33,895 9,320 6,861Guest transportation 19,470 12,840 1,817Guest laundry and linen 15,492 4,492 4,345Kitchen fuels 15,271 3,086 4,732Cleaning supplies 9,547 2,299 2,920Equipment rental 5,514 2,846 2,297Complimentary food and services 3,745 2,929 2,727Gift shop 3,685 2,855 2,585Paper and plastics 2,828 2,254 2,833Others 70,487 25,093 41,392

P=701,468 P=392,400 P=367,986

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Cost of other operations pertain to FDCI’s interest expense on fixed-rate dollar bonds amountingto P=631.7 million, P=577.0 million and P=567.1 million in 2016, 2015, and 2014 respectively(see Note 24).

29. Expenses and Losses

This account consists of:

2016 2015 2014(In Thousands)

Financial and banking servicesGeneral and administrative:

Salaries, wages and employee benefits P=3,897,587 P=3,191,012 P=2,918,617Taxes and licenses 1,520,722 1,130,700 974,893Depreciation and amortization

(Notes 16, 17 and 20) 974,771 776,467 670,291Rent (Note 32) 873,118 738,148 629,291Outside services 787,928 641,212 548,502Insurance 466,550 351,853 264,238Technological fees 411,147 352,010 242,537Brokerage fees 400,064 326,214 206,896Advertising 393,923 403,739 407,578Postage, telephone and telegraph 359,552 315,743 323,304Service charges, fees and commission 325,653 390,087 657,067Travel and transportation 228,896 213,759 194,571Utilities expense 187,557 186,725 183,769Amortization of capitalized software,

customer relationships and core deposits(Note 20) 175,251 180,905 191,662

Stationery and supplies 113,165 78,801 79,992Retirement costs (Note 30) 112,272 103,027 89,238Repairs and maintenance 109,685 77,790 74,303Entertainment, amusement and recreation 56,596 46,653 48,223Others 214,974 248,868 237,984

11,609,411 9,753,713 8,942,956Provision for probable losses (Notes 7, 16 and 20) 5,692,223 3,899,002 3,311,349Share in net loss of joint ventures (Note 18) 356,954 28,713 −

17,658,588 13,681,428 12,254,305Real estate operationsInterest expense (Note 24) 1,058,519 836,388 635,705

General and administrative:Salaries, wages and employee benefits 571,931 452,167 571,920Depreciation and amortization

(Notes 16 and 17) 249,204 234,680 223,770Taxes and licenses 245,215 218,148 224,685Outside services 171,901 151,847 109,430Repairs and maintenance 170,917 105,407 106,282Travel and transportation 136,958 116,756 115,649Entertainment, amusement and recreation 87,268 75,642 72,174Utilities 74,117 40,270 62,197Retirement costs (Note 30) 67,381 62,197 51,226Rent (Note 32) 54,296 44,339 73,963

(Forward)

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2016 2015 2014(In Thousands)

Bank charges P=38,628 P=86,101 P=76,448Insurance 29,832 32,698 93,036Provision (reversal of provision) for probable

losses - net (Note 8) (55,787) 5,494 7,211Others 218,633 131,075 142,832

2,060,494 1,756,821 1,930,823Marketing expenses:

Commission expense 646,657 598,124 540,002Selling, advertising and promotions 420,909 432,010 356,366Sales office direct costs 89,443 97,086 101,247Service fees 79,087 95,102 108,699Others 28,168 9,002 9,764

1,264,264 1,231,324 1,116,0784,383,277 3,824,533 3,682,606

Power generation operationsAccretion expense on liability on

IPP Administrator contract (Note 19) 619,934 646,865 12,084Interest expense (Note 24) 297,609 − −

917,543 646,865 12,084General and administrative:

Salaries, wages and employee benefits (Note 30) 100,341 58,296 52,126Taxes and licenses 70,317 3,043 5,419Professional fee 27,514 54,174 49,814Rent 21,982 6,054 6,342Insurance 15,178 − −Provision for probable loss (Note 9) 15,000 − −Depreciation and amortization (Note 16) 14,142 24,789 9,117Outside services 11,789 2578 −Retirement cost (Note 30) 10,790 7,429 3,757Repairs and maintenance 5,662 2,763 1,451Travel and transportation 5,192 7,073 4,709Representation and entertainment 3,378 978 758Others 32,423 6,934 11,404

333,708 174,111 144,8971,251,251 820,976 156,981

Sugar operationsInterest expense (Note 24) 25,435 38,410 62,420General and administrative:

Salaries, wages and employee benefits 52,497 40,826 36,501Outside services 29,811 16,775 17,224Taxes and licenses 14,726 9,593 19,353Depreciation and amortization (Note 17) 10,483 8,652 12,967Retirement costs (Note 30) 7,309 8,576 9,282Entertainment, amusement and recreation 5,924 4,837 5,410Travel and transportation 4,704 3,585 6,605Supplies 3,712 3,676 4,122Repairs and maintenance 3,610 3,909 3,837Provision for probable losses and

write-off (Note 10) 3,049 8,279 6,077Communication 2,481 3,067 2,415Others 8,191 43,446 51,950

146,497 155,221 175,743171,932 193,631 238,163

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2016 2015 2014(In Thousands)

Hotel operationsInterest expense (Note 24) P=69,065 P=62,336 P=23,135Accretion expense on financial liability on lease

contract (Note 32) 37,714 − −106,779 62,336 23,135

General and administrative:Rent (Note 32) 192,580 1,752 15,254Depreciation (Note17) 133,769 113,122 119,696Utilities 138,286 118,614 115,923Salaries, wages and employee benefits 85,187 82,983 104,075Outside services 43,805 61,462 66,052Management fees 42,572 38,619 28,387Taxes and licenses 29,732 15,656 8,065Repairs and maintenance 15,060 22,525 23,639Credit card commission 12,222 15,088 14,931Travel and transportation 8,578 8,956 8,632Insurance 2,099 5,157 8,210Representation and entertainment 3,173 7,162 3,412Others 160,291 183,693 96,617

867,354 674,789 612,893Marketing expenses 18,503 26,457 32,975

992,636 763,582 669,003Other operations

Interest expense (Note 24) 819,032 699,952 545,482General and administrative:

Salaries, wages, and employee benefits (Note 28) 57,074 54,533 26,482

Finance charges 36,002 152,294 121,978Outside services 14,394 4,245 5,131Entertainment, amusement and recreation 12,994 13,763 11,273Travel and transportation 11,592 11,012 9,820Taxes and licenses 10,015 18,761 11,476Retirement cost 8,772 6,945 4,221Depreciation and amortization (Note 16) 1,122 5,059 147Others 14,736 23,290 100,779

166,701 289,902 291,307985,733 989,854 836,789

P=25,443,417 P=20,274,004 P=17,837,847

30. Retirement Plan

The Group has a funded, noncontributory defined benefit retirement plan (the “Plan”) coveringsubstantially all of its officers and regular employees. Under the Plan, all covered officers andemployees are entitled to cash benefits after satisfying certain age and service requirements. Theretirement plan provides retirement benefits equivalent to 70% to 125% of the final monthly salaryfor every year of service. The funds are administered by the Group’s Treasurer under thesupervision of the Board of Trustees of the Plan and are responsible for investment strategy of thePlan.

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Republic Act 7641 requires a provision for retirement pay to qualified private sector employeesprovided that the employee’s retirement benefits under any collective bargaining and otheragreements shall not be less than those provided under the law. The law does not require minimumfunding of the plan. The Group updates the actuarial valuation every year by hiring the services ofa third party professionally qualified actuary.

Changes to the net pension liabilities recognized in the consolidated statements of financialposition follows:

For the year ended December 31, 2016

Present value ofdefined benefit

obligationsFair value of

plan assets

Net definedbenefit

liabilities(In Thousands)

Balances as at December 31, 2015 P=1,432,023 P=745,888 P=686,135Net benefit costs in profit or loss Current service cost 205,563 − 205,563 Net interest 59,430 28,580 30,850

Effect of consolidation of investment inclub project (Note 2) 2,286 − 2,286

Assumed from business combination(Note 4) 4,486

−4,486

271,765 28,580 243,185Remeasurements in other comprehensive income Return on plan assets (excluding amount

included in net interest) − (111,475) 111,475 Actuarial changes arising from experience

adjustments 22,355 − 22,355 Actuarial changes arising from changes in

financial assumptions (13,858) − (13,858)8,497 (111,475) 119,972

Benefits paid (20,696) (20,696) −Contributions − 114,618 (114,618)Balances as of December 31, 2016 (Note 23) P=1,691,589 P=756,915 P=934,674

For the year ended December 31, 2015

Present value ofdefined benefit

obligationsFair value of

plan assets

Net definedbenefit

liabilities(In Thousands)

Balances as at December 31, 2014 P=1,232,039 P=651,611 P=580,428Net benefit costs in profit or loss Current service cost 187,735 − 187,735 Net interest 56,269 29,420 26,849

244,004 29,420 214,584Remeasurements in other comprehensive income Return on plan assets (excluding amount

included in net interest) P=− (P=33,640) P=33,640 Actuarial changes arising from experience

adjustments 17,613 − 17,613 Actuarial changes arising from changes in

financial assumptions (20,208) − (20,208)(2,595) (33,640) 31,045

Benefits paid (41,425) (41,425) −Contributions − 139,922 (139,922)Balances as of December 31, 2015 (Note 23) P=1,432,023 P=745,888 P=686,135

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The fair value of plan assets by each class are as follows:

2016 2015(In Thousands)

Cash and cash equivalents P=176,476 P=311,900Debt instruments:

Private securities 178,015 113,259Government securities 67,050 75,777

Equity instruments:Financial services 327,219 236,704Real estate 5,510 5,446Retail − 104Holding 1 82Utilities − 62

Others 2,644 2,554Fair value of plan assets P=756,915 P=745,888

The Group’s plan assets are carried at fair value. The fair value of investments in equity and debtsecurities (except for investment in LTNCD) are based on quoted price in the active market. Thefair value of investment in LTNCD is based on the present value of future cash flow discountedusing prevailing market rate. The fair value of other assets and liabilities, which include depositsin banks, accrued interest and other receivables, and trust fee payables, approximate their carryingamount due to the short-term nature of these accounts.

The plan assets are diversified investments and are not exposed to concentration risk.

Each year, an Asset-Liability Matching Study (ALMS) is performed with the result beinganalyzed in terms of risk-and-return profiles. The current investment strategy of the Group(except EWBC) consists of 100% short-term deposit placements. EWBC’s current strategicinvestment strategy consists of 70.00% of debt instruments, 25.00% of equity instruments, and5.00% cash.

The Group expects to contribute P=112.10 million to the plan in 2017.

The cost of defined benefit retirement plans as well as the present value of the benefit obligationare determined using actuarial valuations. The actuarial valuation involves making variousassumptions. The actuarial valuation involves making various assumptions. The principalassumptions used in determining pension benefits includes discount rates of 4.2% to 8.8% andsalary increase of 5.0% to 8.0% in 2016, 2015 and 2014.

If the discount rate would be 100 basis points lower, the defined benefit obligation would increaseby P=408.5 million and P=138.1 million in 2016 and 2015, respectively. If the discount rate wouldbe 100 basis points higher, the defined benefit obligation would decrease by P=330.3 million andP=120.2 million in 2016 and 2015, respectively.

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31. Earnings Per Share (EPS)

The following reflects the income and share data used in the basic EPS computations:

2016 2015 2014(In Thousands, Except Per Share Figures)

a. Net income - attributable toequity holders of the parent P=5,502,727 P=4,370,996 P=3,743,770

b. Weighted average number ofoutstanding common shares 9,317,474 9,317,474 9,317,474

c. EPS - Basic/Diluted (a/b) P=0.59 P=0.47 P=0.40

Treasury shares are deducted from the total outstanding shares in computing the weighted averagenumber of outstanding common shares (see Note 25).

32. Lease Commitments

Operating LeasesThe Group, as a lessor, has future minimum rental receivables under renewable operating leases asof December 31, 2016 and 2015 as follows:

2016 2015(In Thousands)

Within one year P=2,589,958 P=1,931,918After one year but not more than five years 4,430,415 2,990,351More than five years 2,638,993 639,402

P=9,659,366 P=5,561,671

The Group entered into lease agreements with third parties covering real estate properties. Theseleases generally provide for either (a) fixed monthly rent (b) minimum rent or a certain percentageof gross revenue, whichever is higher. Most lease terms on commercial mall are renewable withinone year except for anchor tenants.

Rental income recognized based on a percentage of the gross revenue of mall tenants amounted toP=220.8 million, P=212.1 million and P=276.6 million in 2016, 2015 and 2014, respectively.

The Group, as a lessee, has future minimum rental payables under operating leases as ofDecember 31, 2016 and 2015 as follows:

2016 2015(In Thousands)

Within one year P=1,071,852 P=896,107After one year but not more than five years 3,210,175 2,689,568More than five years 15,206,466 3,040,221

P=19,488,493 P=6,625,896

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EWBC leases several premises occupied by its head office and branches. Some leases are subjectto annual escalation of 5.0% to 10.0% and for periods ranging from five (5) to fifteen (15) years,renewable upon mutual agreement of both parties.

FDC Misamis entered into a noncancellable lease agreement with PHIVIDEC Industrial Authorityfor the lease of undivided parcel of lands containing an aggregate area of 844,921 square meters tobe used for its power generation operation with a term of 25 years, exclusive of three-yearconstruction period. Construction period and lease period commenced on August 18, 2013 andAugust 18, 2016, respectively.

In 2016, FMI entered into a 50-year lease agreement with CDC for the lease of 201.6 hectares ofland and hotel properties (the Mimosa Leisure Estate), renewable for another 25 years. Landcomponent of the lease is accounted for as an operating lease (see Note 3).

As lessee, rent payable is computed based on a straight-line method and based on certainpercentages of gross income generated. In 2016, 2015 and 2014, rent expense recognized in theconsolidated statements of income amounted to P=1,205.0 million, P=790.3 million andP=724.9 million, respectively (see Note 28).

Finance LeaseThe Group’s minimum lease commitments for financial liability on lease contract as ofDecember 31, 2016 are as follows (nil as of December 31, 2015; amounts in thousands):

Within one year P=29,475After one year but not more than five years 160,145More than five years 4,088,095Total minimum lease payments 4,277,715Less interest expense (3,453,380)Present value of minimum lease payments (Note 23) P=824,335

33. Contingencies and Commitments

The Group is involved in various legal actions, claims and contingencies incident to its ordinarycourse of the business. Management believes that any amount the Group may have to pay inconnection with any of these matters would not have a material adverse effect on the Group’sfinancial position or operating results. The information normally required by PAS 37 is notdisclosed as it may prejudice the outcome of the proceedings.

EWBCEWBC has several loan related suits and claims that remain unsettled. It is not practicable toestimate the potential financial impact of these contingencies. However, in the opinion of themanagement, the suits and claims, if decided adversely, will not involve sums having a materialeffect on the consolidated financial statements.

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The following is a summary of contingencies and commitments of EWBC at their peso-equivalentcontractual amounts arising from off-balance sheet items of EWBC:

2016 2015 2014(In Thousands)

Unused credit line - credit cards P=45,144,348 P=29,833,506 P=28,580,201Trust department accounts (Note 28) 11,988,488 6,740,656 6,914,400Treasurer/cashier/manager’s checks 6,212,417 4,205,581 2,424,865Unused commercial letters of credit 3,279,530 3,922,980 2,194,609Financial futures sold 2,150,176 − −Outstanding guarantees 1,842,861 2,514,371 1,149,045Outward bills for collection 1,542,343 831,419 111,494Inward bills for collection 1,266,388 832,312 240,947Spot exchange sold 1,140,453 47,060 1,703,870Forward exchange sold 275,495 5,377 4,516,250Late deposits/payments received 6,483 11,706 350,747Items held for safekeeping 5,966 792 756Unsold traveler’s check − 28 27Others 32 1,032 2,097

FLIDevelopment of South Road Properties in CebuIn connection with the joint venture agreement entered into by FLI with Cebu City Government,FLI is committed to (a) purchase 10.60 hectares of the property payable in six (6) years, to bedeveloped into a modern urban center and (b) develop 40 hectares of the property in four (4)phases, mainly mid-rise residential buildings, over a 20-year period (see Note 16).

BTO Agreement with Cebu ProvinceIn connection with the BTO Agreement with the Cebu Province, FLI committed to develop andconstruct a BPO Complex on the properties owned by Cebu Province located at Salinas, Lahug,Cebu City, and transfer the ownership of the BPO Complex to the Cebu Province uponcompletion, in exchange for the right to operate and manage the BPO Complex for the entire termof the agreement and its renewal (see Note 20).

Assignment of Development Rights under a BTO AgreementOn June 26, 2015, FLI and a third party entered into an agreement whereby the latter agreed toassign its project development rights and benefits under its BTO Agreement with Cebu Provinceto FLI. In consideration of this assignment, FLI paid upfront fee amounted to P=50.0 million andP=150.0 million in 2016 and 2015, respectively. As of December 31, 2015, project construction hasnot started and this upfront fee is recorded as part of ‘Other assets’ in the consolidated statementof financial position (see Note 20).

Development Agreement with BCDAIn 2015, FLI won the contract to develop a 288-hectare area in Clark Green City in Tarlac andpaid 10% of the bid premium as bid security which amounted to P=16.0 million. On January 8,2016, the Joint Venture Agreement with BCDA was signed, and pursuant to the terms of thedevelopment of the project, FLI paid the P=160.0 million bid premium representing the right to own55.0% of the equity on the joint venture company to be formed with BCDA (see Note 14). OnFebruary 11, 2016, FLI incorporated FCGCC and FBCI, the entities that will handle thedevelopment of the Clark Green City Project (see Note 1).

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Development Agreement with CDCOn January 27, 2016, CDC awarded to FLI and FDC the management, development and operationof the 201.64-hectare area of former Mimosa Leisure Estate, thru a 50-year lease agreement,renewable for another 25 years upon mutual agreement by the parties. On March 31, 2016, FDCand FLI incorporated FMI, the entity that entered into the lease agreement with CDC (see Note 1).

Moreover, based on the Terms of Reference for the Privatization of the former Mimosa LeisureEstate, CDC shall own 5% of FMI. As of December 31, 2016, the transfer of the 5% ownershipinterest of CDC from FLI and FDC was not completed. Ownership structure of FMI after saidtransfer is expected to be 47.5%, 47.5% and 5% ownership interest of FLI, FDC and CDC,respectively.

FDCUIIn relation to the IPP Administrator contracts of Unified Leyte and Mt Apo 1 and 2, FDCUI andFDC Misamis are required to maintain an irrevocable standby letter of credit amounting toP=151.0 million and P=400.0 million which serve as an on-demand security to PSALM (seeNote 19).

PSHCMilling ContractsDSCC and CSCC (Millers) have milling contracts with various planters which provide for acertain sharing ratio between the Millers and the planters for the resulting sugar and molassesproduced in their respective sugar mills. The milling contracts are effective for a period of15 agricultural crop years, subject to an extension of another 15 crop years at the option of theMillers.

Development AgreementsHYSFC entered into several Development Agreements (the Agreements) with various landownersfor the development and cultivation of certain parcels of agricultural land into a sugarcaneproduction. The Agreements are effective for periods ranging from five (5) to fifteen (15)agricultural crop years and renewable for such additional periods under conditions mutuallyagreed upon by the parties. Under the Agreements, HYSFC shall have the rights and authority toenter into possession of the properties, and to do all acts, deeds, matter and things necessary for itsproper and profitable development, cultivation and improvement as viable sugarcane plantation.Other provisions of the Agreements follow:∂ HYSFC shall furnish necessary management expertise, equipment and technology for the

agricultural development and cultivation;∂ Parties shall be entitled to receive from the income derived from the property during the

effectivity of the Agreements;∂ HYSFC shall advance to the party in the Agreements a portion of the latter’s share in the

profits from the Agreements;∂ After satisfying the advance in full, the succeeding annual share in the profits of the party in

the Agreements shall be paid on the first day of the crop year following complete deduction ofadvanced made; and

∂ The remaining amount in the income from the property shall pertain to the HYSFC as its sharein the income on the agricultural development undertaken.

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Impacted by the development agreements are the advances to planters and biological assetsrecorded in the consolidated statements of financial position. The carrying values of the Group’sadvances to planters and biological assets, included in “Loans and receivables - sugar operations”and “Other assets” account in the consolidated statements of financial position, amounted toP=117.9 million (see Note 10) and P=74.7 million (see Note 20), respectively, as of December 31,2016 and P=116.3 million (see Note 10) and P=86.7 million (see Note 20), respectively as ofDecember 31, 2015.

Sugar Owned by Quedan HoldersAs of December 31, 2016 and 2015, the Group has in its custody certain volumes of sugar ownedby the quedan holders. These are not reflected in the Group’s consolidated statements of financialposition since these are not assets of the Group. The Group is accountable to the quedan holdersfor the value of these trusted sugar or their sales proceeds.

ContingenciesIn 2011, in relation with an ongoing case involving PSHC, the latter’s subsidiaries DSCC, HYSFCand CSCC received Notice of Garnishment from the court covering their respective money, goods,effects, stocks, interest in stocks/shares/credits/accounts receivables and any other personalproperties in each of the entities’ possession or control belonging to PSHC including the shares ofcommon stock of each entity. In October 2015, the court allowed PSHC to post a standby letter ofcredit issued by a reputable bank to be the security for any judgment in the case, in lieu of thegarnishment. In January 2016, PSHC submitted the standby letter of credit for the court to orderthe lifting of the garnishment. Notice of Lifting of the garnishment over the shares of stocks andaccounts of PSHC was served on May 13, 2016.

34. Income Tax

The components of net deferred tax assets follow:

2016 2015(In Thousands)

Deferred income tax assets on:Liability on IPP Administrator rights P=2,259,052 P=2,533,875Allowance for impairment and credit losses 1,988,986 1,475,689Provision for accruals 175,505 96,574Unrealized foreign exchange loss 130,826 130,124Depreciation of assets foreclosed or dacioned 115,657 91,304Deferred bancassurance fee 85,497 −Provision for retirement and unamortized past service cost 55,110 59,208NOLCO 33,515 246,754MCIT 10,223 25,763Advance rentals 9,388 9,430Cash flow hedge reserve 5,970 −Others 22,091 18,464

4,891,820 4,687,185

(Forward)

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2016 2015(In Thousands)

Deferred income tax liabilities on:IPP Administrator rights (P=2,134,033) (P=2,476,535)Branch license acquired from business combination (187,620) (187,620)Gain on asset foreclosure and dacion transactions (102,697) (107,747)Remeasurement of EW Ageas Life shares (67,167) −Unrealized foreign exchange gain (19,244) (33,306)Excess of fair value over cost of investment property

and property and equipment acquired in businesscombination (41,883) (43,369)

Revaluation increment in land (549) (20,405)Cash flow hedge reserve − (49,102)Others (324) −

(2,553,517) (2,918,084)P=2,338,303 P=1,769,101

The components of the net deferred tax liabilities follow:

2016 2015(In Thousands)

Deferred income tax liabilities on:Deemed cost revaluation increment in investment

properties and property, plant and equipment P=4,058,529 P=4,058,529Capitalized borrowing costs 3,725,280 3,347,497Excess of real estate revenue based on financial

accounting policy over revenue based on tax rules 1,331,125 589,739Excess of fair value over cost of investment property

and property and equipment acquired in businesscombination 129,023 137,117

Future taxable rent income 13,728 15,195Others 165,740 252,949

9,423,425 8,401,026Deferred income tax assets on:

Provision for retirement and unamortized past service cost (187,309) (146,899)Allowance for probable losses (31,397) (28,917)Others (31,929) (78,963)

(250,635) (254,779)P=9,172,790 P=8,146,247

The Group did not recognize deferred tax assets on the following temporary differences, NOLCOand MCIT since management believes that their carryforward benefits may not be realized.

2016 2015(In Thousands)

NOLCO P=1,703,092 P=512,899Allowance for credit and impairment losses 197,673 36,315Pension liabilities − 9,928Excess MCIT over RCIT 29,255 12,678

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Details of the Group’s NOLCO and MCIT are as follows (in thousands):

Year Incurred NOLCO MCIT Expiry Date2016 P=614,322 P=9,774 December 31, 20192015 425,868 11,626 December 31, 20182014 867,439 7,856 December 31, 2017

P=1,907,629 P= 29,256

The following are the movements in NOLCO and MCIT:

NOLCO MCIT2016 2015 2016 2015

(In Thousands)Balance at beginning of year P=1,335,411 P=1,340,968 P=38,441 P=34,621Additions 614,322 425,868 9,774 19,986Expired/applied (42,104) (431,425) (18,958) (16,166)Balance at end of year P=1,907,629 P=1,335,411 P=29,257 P=38,441

The reconciliation of the provision for income tax computed at the statutory tax rate to the actualprovision for income tax follows:

2016 2015 2014(In Thousands)

Income tax at statutory rate P=3,480,345 P=2,839,809 P=2,369,856Adjustments for:

FCDU Income (435,787) (100,560) (250,539)Nondeductible expenses 267,207 417,371 369,432Movements in unrecognized deferred taxassets 419,064 (11,505) 16,935Expired MCIT 11,223 16,031 15,145Tax-exempt realized gross profit on sold

socialized housing units (13,727) (20,787) (20,485)Nontaxable income (84,307) (50,047) (147,715)Income subjected to final tax (89,186) (85,364) (49,107)Income tax holiday availed (184,847) (411,325) (415,136)Rent income covered by Philippine

Economic Zone Authority (PEZA) (322,789) (193,208) (200,695)Expired NOLCO − 30,920 2,055Others 77,868 4,376 (7,662)

P=3,125,064 P=2,435,711 P=1,682,084

Under Philippine tax laws, the regular banking unit of EWBC is subject to percentage and othertaxes (presented as taxes and licenses in the cost of financial and banking services in theconsolidated statements of income) as well as income taxes. Percentage and other taxes consistprincipally consisting of gross receipt tax and documentary stamp taxes.

35. Segment Information

Operating segments are components of an enterprise about which separate financial information isavailable that is evaluated regularly by the chief operating decision-maker in deciding how toallocate resources and in assessing performance. Generally, financial information is required to bereported on the basis that is used internally for evaluating segment performance and deciding howto allocate resources to segments.

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The Group derives its revenues from the following reportable segments:

Banking and Financial ServicesThis involves a wide range of financial services to consumer and corporate clients which includesdeposit-taking, loan and trade finance, treasury, trust services, credit cards, cash management,custodial services, insurance services and leasing and finance. The business units in this segmentconsist of retail banking, corporate banking, consumer banking, and treasury and trust.

Real Estate OperationsThis involves acquisition of land, planning and development of large-scale fully integratedresidential communities as well as the development and sale of residential lots, housing units,medium-rise residential buildings, farm estates, industrial parks, residential resort projects, aprivate membership club and condominium buildings. This segment also involves operations andmanagement of cinema and mall, property management and leasing of commercial and officespaces.

Power Generation OperationsThis involves the establishment, construction, operation of power plants and supply of power toofftakers and also includes management of power plants’ output under the IPP Administrationcontracts.

Sugar OperationsThis involves operation of agricultural lands for planting and cultivating farm products, operationof a complete sugar central for the purpose of milling or converting sugar canes to centrifugal orrefined sugar and selling of sugar.

Hotel OperationsThis involves operation of hotels, including management of resorts, villas, golf course, serviceapartment and other services for the pleasure, comfort and convenience of guests in saidestablishments under its management.

Other OperationsThis involves other operations of the Parent Company including CWSI and FDCI. FDCI wasincorporated to facilitate the Group’s issuance of foreign currency-denominated bonds whileCWSI was incorporated to provide maintenance, operation, management and rehabilitation ofwaterworks sewerage and sanitation system and services specifically for the distribution, supplyand sale of potable water to domestic, commercial and industrial.

The financial information on the operations of these business segments as shown below are basedon the measurement principles that are similar with those used in measuring the assets, liabilities,income and expenses in the consolidated financial statements which is in accordance with PFRSexcept for the adjusted Earnings Before Interest, Taxes, Depreciation and Amortization(EBITDA).

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December 31, 2016Banking and

FinancialServices

Real EstateOperations

PowerGenerationOperations

SugarOperations

HotelOperations

OtherOperations Combined

EliminatingEntries Consolidated

(In Thousands)Revenues and Other Income External customers P=24,209,514 P=22,597,611 P=7,545,946 P=2,592,899 P=1,629,191 P=− P=58,575,161 P=− P=58,575,161 Inter-segment 540,424 196,710 13,379 2,470,388 22,181 3,245,483 6,488,565 (6,488,565) −

P=24,749,938 P=22,794,321 P=7,559,325 P=5,063,287 P=1,651,372 P=3,245,483 P=65,063,726 (P=6,488,565) P=58,575,161

Adjusted EBITDA P=5,291,734 P=10,368,001 P=1,713,031 P=771,958 P=316,452 P=2,119,132 P=20,580,308 (P=3,286,943) P=17,293,365

Net income (loss) P=3,407,755 P=6,783,154 (P=61,519) P=483,448 P=59,569 P=815,653 P=11,488,060 (P=3,011,976) P=8,476,084

AssetsOperating assets P=299,298,309 P=228,608,268 P=47,223,161 P=2,776,941 P=4,096,321 P=12,537,748 P=594,540,748 (P=95,901,677) P=498,639,071Less deferred tax asset 1,972,465 23,714 130,606 35,448 7,710 168,360 2,338,303 − 2,338,303Net operating assets P=297,325,844 P=228,584,554 P=47,092,555 P=2,741,493 P=4,088,611 P=12,369,388 P=592,202,445 (P=95,901,677) P=496,300,768LiabilitiesOperating liabilities P=259,199,637 P=115,601,164 P=40,354,297 P=1,308,337 P=2,428,140 P=14,337,897 P=433,229,472 (P=38,545,253) P=394,684,219

December 31, 2015Banking and

FinancialServices

Real EstateOperations

PowerGenerationOperations

SugarOperations

HotelOperations

OtherOperations Combined

EliminatingEntries Consolidated

(In Thousands)Revenues and Other Income External customers P=18,175,156 P=21,058,321 P=6,210,296 P=2,574,865 P=1,289,019 P=− P=49,307,657 P=− P=49,307,657 Inter-segment 436,246 947,223 17,021 2,409,010 2,523 1,136,399 4,948,422 (4,948,422) −

P=18,611,402 P=22,005,544 P=6,227,317 P=4,983,875 P=1,291,542 P=1,136,399 P=54,256,079 (P=4,948,422) P=49,307,657

Adjusted EBITDA P=3,620,636 P=10,184,258 P=1,095,123 P=726,996 P=310,895 P=14,996 P=15,952,904 (P=1,819,135) P=14,133,769

Net income (loss) P=2,003,934 P=7,065,153 (P=56,478) P=389,379 P=154,895 (P=1,072,825) P=8,484,058 (P=1,453,741) P=7,030,317

AssetsOperating assets P=240,337,087 P=217,404,790 P=40,819,439 P=2,811,161 P=1,933,195 P=12,286,876 P=515,592,548 (P=96,183,662) P=419,408,886Less deferred tax asset 1,322,271 190,959 67,048 34,484 − 2,712 1,617,474 151,627 1,769,101Net operating assets P=239,014,816 P=217,213,831 P=40,752,391 P=2,776,677 P=1,933,195 P=12,284,164 P=513,975,074 (P=96,335,289) P=417,639,785LiabilitiesOperating liabilities P=203,284,777 P=108,711,867 P=38,992,156 P=1,641,745 P=272,828 P=13,661,655 P=366,565,028 (P=44,070,197) P=322,494,831

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December 31, 2014Banking and

FinancialServices

Real EstateOperations

PowerGenerationOperations

SugarOperations

HotelOperations

OtherOperations Combined

EliminatingEntries Consolidated

(In Thousands)Revenues and Other Income External customers P=16,031,992 P=18,863,671 P=104,450 P=2,442,810 P=1,114,997 P=− P=38,557,920 P=− P=38,557,920 Inter-segment 495,531 307,527 3,557 2,202,069 2,940 1,441,369 4,452,993 (4,452,993) −

P=16,527,523 P=19,171,198 P=108,007 P=4,644,879 P=1,117,937 P=1,441,369 P=43,010,913 (P=4,452,993) P=38,557,920

Adjusted EBITDA P=3,499,475 P=7,805,096 (P=111,627) P=646,335 P=159,230 P=578,509 P=12,577,018 (P=1,850,159) P=10,726,859Net income (loss) P=2,073,378 P=5,450,820 (P=131,307) P=288,518 (P=25,870) (P=29,723) P=7,625,816 (P=1,408,381) P=6,217,435

AssetsOperating assets P=192,238,649 P=191,357,078 P=21,133,974 P=3,138,975 P=1,488,873 P=12,445,148 P=421,802,697 (P=78,478,763) P=343,323,934Less deferred tax assets 977,546 330,440 10,822 24,188 − 73 1,343,069 152,325 1,495,394Net operating assets P=191,261,103 P=191,026,638 P=21,123,152 P=3,114,787 P=1,488,873 P=12,445,075 P=420,459,628 (P=78,631,088) P=341,828,540

LiabilitiesOperating liabilities P=168,645,832 P=87,367,615 P=16,876,771 P=2,157,060 P=323,819 P=13,316,587 P=288,687,684 (P=35,008,712) P=253,678,972

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The Group’s chief operating decision-maker also use net income per segment after elimination inassessing performance of the identified reportable segments, as follows:

Net Income(Loss) Before

EliminationEliminating

Entries

Net Income(Loss) AfterElimination

(In Thousands)December 31, 2016Financial and banking services P=3,407,755 (P=197,812) P=3,209,943Real estate operations 6,783,154 9,255 6,792,409Power generation operations (61,519) 28,979 (32,540)Sugar operations 483,448 (4,996) 478,452Hotel operations 59,569 (102,257) (42,688)Other operations 815,653 (2,745,145) (1,929,492)

P=11,488,060 (P=3,011,976) P=8,476,084December 31, 2015Financial and banking services P=2,003,934 (P=218,231) P=1,785,703Real estate operations 7,065,153 (806,015) 6,259,138Power generation operations (56,478) 43,926 (12,552)Sugar operations 389,379 67,823 457,202Hotel operations 154,895 14,556 169,451Other operations (1,072,825) (555,800) (1,628,625)

P=8,484,058 (P=1,453,741) P=7,030,317December 31, 2014Financial and banking services P=2,073,378 (P=332,061) P=1,741,317Real estate operations 5,450,820 29,280 5,480,100Power generation operations (131,307) 1,406 (129,901)Sugar operations 288,518 3,918 292,436Hotel operations (25,870) 103,879 78,009Other operations (29,723) (1,214,803) (1,244,526)

P=7,625,816 (P=1,408,381) P=6,217,435

The following table shows a reconciliation of the total adjusted EBITDA to total income beforeincome tax:

2016 2015 2014(In Thousands)

Adjusted EBITDA for reportable segments P=17,293,365 P=14,133,769 P=10,726,859Depreciation and amortization (3,422,556) (3,030,654) (1,560,598)Operating profit 13,870,809 11,103,115 9,166,261Interest expense * (2,269,661) (1,637,087) (1,266,742)Income before income tax P=11,601,148 P=9,466,028 P=7,899,519* Excluding accretion expense on liability on IPP Administration contract and contract and financial liability onlease contract (see Note 29).

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36. Fair Value Measurement

The following table sets forth the fair value hierarchy of the Group’s assets and liabilitiesmeasured at fair value and those for which fair values are required to be disclosed:

2016Fair Value

CarryingValue Total

Quoted Pricesin active

market(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

(In Thousands)Assets measured at fair valueFinancial assetsFinancial assets at FVTPL

Government securities P=994,086 P=994,086 P=994,086 P=– P=– Private bonds 4,263,221 4,263,221 4,263,221 – – Equity securities 10,443 10,443 10,443 – –

5,267,750 5,267,750 5,267,750 – –Derivative assets 1,507,248 1,507,248 – 1,507,248 –Financial assets at FVTOCI Quoted equity securities 241,614 241,614 241,614 – – Unquoted equity securities 180,111 180,111 – – 180,111

421,725 421,725 241,614 – 180,111Assets for which fair values are disclosedFinancial assetsInvestment securities at amortized cost

Government securities 5,760,891 5,746,513 5,746,513 – –Private bonds 5,368,618 5,380,441 5,380,441 – –

11,129,509 11,126,954 11,126,954 – –Loans and receivables

Financial and banking services Corporate lending 50,717,206 48,784,585 – – 48,784,585 Consumer lending 128,349,707 130,995,761 – – 130,995,761 Unquoted debt securities 359,402 395,356 – – 395,356

179,426,315 180,175,702 – – 180,175,702Real estate operations Contracts receivable 22,453,945 22,479,055 – – 22,479,055 Receivables from tenants 697,060 697,060 – – 697,060

23,151,005 23,176,115 – – 23,176,115Non-financial assets

Investment properties 57,858,513 85,408,665 – – 85,408,665Total assets P=278,762,065 P=307,084,159 P=16,636,318 P=1,507,248 P=288,940,594Liabilities measured at fair valueFinancial liabilities

Derivative liabilities P=194,164 P=194,164 P=– P=194,164 P=–Liabilities for which fair values are disclosedFinancial liabilities at amortized costs

Deposit liabilities Time 103,112,716 104,417,148 – – 104,417,148 LTNCD 8,035,283 8,543,046 – – 8,543,046

111,147,999 112,960,194 – – 112,960,194 Accounts payable, accrued expenses and other

liabilities Accounts payable 14,220,216 14,072,315 – – 14,072,315 Retention fee payable 4,811,170 4,723,969 – – 4,723,969 Financial liability on lease contract 824,335 756,589 – – 756,589 Deposits for registration and insurance 1,291,085 1,235,883 – – 1,235,883

21,146,806 20,788,756 – – 20,788,756Liability on IPP Administrator contract 7,530,175 8,386,128 – – 8,386,128Long-term debt 117,435,957 119,903,059 – – 119,903,059

P=257,455,101 P=262,232,301 P=– P=194,164 P=262,038,137

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2015Fair Value

CarryingValue Total

Quoted Prices inactive market

(Level 1)

Significantobservable

inputs(Level 2)

Significantunobservable

inputs(Level 3)

(In Thousands)Assets measured at fair valueFinancial assetsFinancial assets at FVTPL

Government securities P=4,344,376 P=4,344,376 P=4,344,376 P=– P=– Private bonds 6,185,982 6,185,982 6,185,982 – – Equity securities 10,448 10,448 10,448 – –

10,540,806 10,540,806 10,540,806 – –Derivative assets 1,238,664 1,238,664 – 1,238,664 –Financial assets at FVTOCI Quoted equity securities 241,955 241,955 241,955 – – Unquoted equity securities 179,719 179,719 – – 179,719

421,674 421,674 241,955 – 179,719Assets for which fair values are disclosedFinancial assetsInvestment securities at amortized cost

Government securities 4,046,482 4,046,482 4,046,482 – –Private bonds 571,417 571,417 571,417 – –

4,617,899 4,617,899 4,617,899 – –Loans and receivables

Financial and banking services Corporate lending 51,720,556 53,630,806 – – 53,630,806 Consumer lending 85,666,593 83,502,962 – – 83,502,962 Unquoted debt securities 406,845 330,761 – – 330,761

137,793,994 137,464,529 – – 137,464,529Real estate operations Contracts receivable 21,272,551 21,419,457 – – 21,419,457 Receivables from tenants 467,757 467,757 – – 467,757

21,740,308 21,887,214 – – 21,887,214Non-financial assets

Investment properties 51,968,655 73,716,839 – – 73,716,839Total assets P=228,322,000 P=249,887,625 P=15,400,660 P=1,238,664 P=233,248,301Liabilities measured at fair valueFinancial liabilities

Derivative liabilities P=183,755 P=183,755 P=– P=183,755 P=–Liabilities for which fair values are disclosedFinancial liabilities at amortized costs

Deposit liabilities Time 82,866,306 82,866,306 – – 82,866,306 LTNCD 8,034,515 8,034,515 – – 8,034,515

90,900,821 90,900,821 – – 90,900,821 Accounts payable, accrued expenses and other

liabilities Accounts payable 16,811,196 16,541,093 – – 16,541,093 Retention fee payable 3,898,841 3,823,899 – – 3,823,899 Deposits for registration and insurance 2,030,543 1,943,724 – – 1,943,724

22,740,580 22,308,716 – – 22,308,716Liability on IPP Administrator contract 8,446,251 9,365,696 – – 9,365,696Long-term debt 100,636,220 109,054,810 – – 109,054,810

P=222,907,627 P=231,813,798 P=– P=183,755 P=231,630,043

The methods and assumptions used by the Group in estimating the fair value of the financialinstruments are:

∂ FVTPL financial assets: Fair value is based on quoted prices as of reporting dates.

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∂ Loans and receivables: Fair values of loans and receivables is based on the discounted valueof future cash flows using the prevailing interest rates and current incremental lending ratesfor similar types of receivables for real estate operations and financial and banking services,respectively. Interest rate used was 19.0% in 2016 and 2015. Carrying amounts of cash andcash equivalents approximate fair values considering that these consist mostly of overnightdeposits and floating rate placements.

∂ Debt securities - Fair values are generally based upon quoted market prices. If the marketprices are not readily available, fair values are estimated using either values obtained fromindependent parties offering pricing services or adjusted quoted market prices of comparableinvestments or using the discounted cash flow methodology.

∂ Equity securities - Fair values of quoted equity securities are based on quoted market prices.The costs of unquoted equity investments approximate their fair values since there isinsufficient more recent information available to determine fair values and there are noindicators that cost might not be representative of fair value.

∂ Deposit liabilities: Fair values of liabilities approximate their carrying amounts due either tothe demand nature or the relatively short-term maturities of these liabilities except for timedeposit liabilities whose fair value are estimated using the discounted cash flow methodologyusing EWBC’s incremental borrowing rates for similar borrowings with maturities consistentwith those remaining for the liability being valued.

∂ Bills and acceptances payable: The carrying amounts approximate fair values due to short-term nature of transactions.

∂ Accounts payable, accrued expenses and other liabilities: On accounts due within one year,the fair value of accounts payable, accrued expenses and other liabilities approximates thecarrying amounts. On accounts due for more than one year, estimated fair value is based onthe discounted value of future cash flows using the prevailing interest rates on loans andsimilar types of payables. Interest rates used are 4.28% and 4.5% in 2016 and 2015,respectively.

∂ Derivative instruments: Fair values of derivative instruments, mainly forwards and swaps, arevalued using a valuation technique with market observable inputs. The most frequentlyapplied valuation technique is forward pricing, which uses present value calculations. Themodel incorporates various inputs including the foreign exchange rates and interest rate curvesprevailing at the statement of financial position date.

∂ Long-term debt: Estimated fair value on debts with fixed interest and not subjected toquarterly repricing is based on the discounted value of future cash flows using the applicablerisk free rates for similar types of loans adjusted for credit risk. The discount rates used rangefrom 3.9% to 6.1% as of December 31, 2016 and 2.7% to 7.7% as of December 31, 2015.Long-term debt subjected to quarterly repricing is not discounted since it approximates fairvalue.

During the years ended December 31, 2016 and 2015, there were no transfers between Level 1 andLevel 2 fair value measurements, and no transfers into and out of Level 3 fair valuemeasurements.

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37. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments are composed of cash and cash equivalents, financialassets at FVTPL, financial assets at FVTOCI and investment securities at amortized cost, loansfrom financial institutions, mortgage and contracts receivables and other receivables. The mainpurpose of these financial instruments is to raise financing for the Group’s operations. The mainobjectives of the Group’s financial risk management are as follows:

∂ To identify and monitor such risks on an ongoing basis;∂ To minimize and mitigate such risks; and,∂ To provide a degree of certainty about costs.

Financial and Banking OperationsRisk ManagementTo ensure that corporate goals and objectives and business and risk strategies are achieved, EWBCutilizes a risk management process that is applied throughout the organization in executing allbusiness activities. Employees’ functions and roles fall into one of the three categories where riskmust be managed in the business units, operating units and governance units. EWBC’s activitiesare principally related to the use of financial instruments and are exposed to credit risk, liquidityrisk, operational risk and market risk, the latter being subdivided into trading and non-tradingrisks. Forming part of a coherent risk management system are the risk concepts, control tools,analytical models, statistical methodologies, historical researches and market analysis, which arebeing employed by EWBC. These tools support the key risk process that involves identifying,measuring, controlling and monitoring risks.

Risk Management Structurea. BOD

EWBC’s risk culture is practiced and observed across EWBC putting the prime responsibilityon the BOD. It establishes the risk culture and the risk management organization andincorporates the risk process as an essential part of the strategic plan of EWBC. The BODapproves EWBC’s articulation of risk appetite which is used internally to help managementunderstand the tolerance for risk in each of the major risk categories, its measurement and keycontrols available that influence EWBC’s level of risk taking. All risk management policiesand policy amendments, risk-taking limits such as but not limited to credit and tradetransactions, market risk limits, counterparty limits, trader’s limits and activities are based onEWBC’s established approving authorities which are approved by EWBC’s BOD. At a highlevel, the BOD also approves EWBC’s framework for managing risk.

b. Executive CommitteeThis is a board level committee, which reviews the bank-wide credit strategy, profile andperformance. It approves the credit risk-taking activities based on EWBC’s establishedapproving authorities and likewise reviews and endorses credit-granting activities, includingthe Internal Credit Risk Rating System. All credit proposals beyond the credit approving limitof the Loan and Investments Committee passes through this committee for final approval.

c. Loan and Investments CommitteeThis committee is headed by the Chairman of EWBC whose primary responsibility is tooversee EWBC’s credit risk-taking activities and overall adherence to the credit riskmanagement framework, review business/credit risk strategies, quality and profitability ofEWBC’s credit portfolio and recommends changes to the credit evaluation process, credit riskacceptance criteria and the minimum and target return per credit or investment transaction.

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All credit risk-taking activities based on EWBC’s established approving authorities areevaluated and approved by this committee. It establishes infrastructure by ensuring businessunits have the right systems and adequate and competent manpower support to effectivelymanage its credit risk.

d. ALCOALCO, a management level committee, meets on a weekly basis and is responsible for theover-all management of EWBC’s market, liquidity, and financial position related risks. Itmonitors EWBC’s liquidity position and reviews the impact of strategic decisions on liquidity.It is responsible for managing liquidity risks and ensuring exposures remain within establishedtolerance levels. The ALCO’s primary responsibilities include, among others, (a) ensuringthat EWBC and each business unit holds sufficient liquid assets of appropriate quality and inappropriate currencies to meet short-term funding and regulatory requirements, (b) managingposition and ensuring that business strategies are consistent with its liquidity, capital andfunding strategies, (c) establishing asset and/or liability pricing policies that are consistentwith the financial position objectives, (d) recommending market and liquidity risk limits to theRisk Management Committee and BOD and (e) approving the assumptions used incontingency and funding plans. It also reviews cash flow forecasts, stress testing scenariosand results, and implements liquidity limits and guidelines.

e. Risk Management Committee (RMC)RMSC is a board level committee who convenes monthly and is primarily responsible to assistthe Board in managing the EWBC’s risk taking activities. This is performed by the committeeby institutionalizing risk policies and overseeing EWBC’s risk management system. Itdevelops and recommends risk appetite and tolerances for the EWBC’s major risk exposuresto the Board. Risk management principles, strategies, framework, policies, processes, andinitiatives and any modifications and amendments thereto are reviewed and approved byRMSC. It oversees and reports to the Board the effectiveness of the risk management system,overall risk profile, and compliance with the risk appetite and tolerances that the Boardapproved.

f. Risk Management Subcommittee (RMSC)RMSC is a management level committee that convenes, at least four times in a year, and isresponsible to assist RMC in fulfilling its responsibilities in managing EWBC’s risk takingactivities. This is performed by the committee by implementing the risk managementprinciples, strategies, framework, policies, processes, and initiatives across EWBC. It leadsthe effective conduct of risk and capital management. It oversees and directs the managementof EWBC’s overall risk profile. The committee likewise oversees risk incidents, control gaps,and control deficiencies and management actions in implementing the correspondingcorrective actions.

g. Audit Committee (Audit Com)The Audit Com assists the BOD in fulfilling its responsibilities for overseeing seniormanagement in establishing and maintaining an adequate, effective and efficient internalcontrol framework. It ensures that systems and processes are designed to provide reasonableassurance in areas including reporting, monitoring compliance with laws, regulations andinternal policies, efficiency and effectiveness of operations, and safeguarding of assets. It istasked to discuss with management EWBC’s major risk exposures and ensures accountabilityon the part of management to monitor and control such exposures including EWBC’s riskassessment and risk management policies. The AuditCom oversees the internal audit functionand is responsible for monitoring and reviewing its effectiveness while ensuring itsindependence.

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h. Corporate Governance and Compliance Committee (CGCC)The CGCC leads EWBC in defining corporate governance policies and attaining best practiceswhile overseeing the implementation of the EWBC’s compliance program, money launderingprevention program and ensuring that regulatory compliance issues are resolved expeditiously.In addition to its governance role, the CGCC also assumes the nomination function whereby itreviews and evaluates the qualifications of all persons nominated to the BOD, all directreports of the President and CEO, regardless of rank, heads of Governance Units and otherpositions of the Bank requiring appointment by the BOD. The committee oversees the annualperformance evaluation of the BOD, its committees, and individual directors and conducts anannual self-evaluation of its performance as prescribed under and in accordance with theCorporate Governance Manual and the 2009 SEC Code of Corporate Governance.

i. Related Party Transactions (RPT) CommitteeThe RPT Committee assists the BOD in ensuring that the transactions with related parties ofEWBC are handled in a sound and prudent manner, with integrity and in compliance with theapplicable laws and regulations to protect the interest of depositors, creditors and otherstakeholders. It also ensures that related party transactions are conducted on an arm’s lengthbasis and that no stakeholder is unduly disadvantaged by such transactions.

j. Risk Management Division (RMD)RMD performs an independent risk governance function within EWBC. RMD is tasked withidentifying, measuring, controlling and monitoring existing and emerging risks inherent inEWBC’s overall portfolio (on- or off-balance sheet). RMD develops and employs riskassessment tools to facilitate risk identification, analysis and measurement. It is responsiblefor developing and implementing the framework for policies and practices to assess andmanage enterprise-wide market, credit, operational, and all other risks of EWBC.

It also develops and endorses risk tolerance limits for BOD approval, as endorsed by theRMC, and monitors compliance with approved risk tolerance limits. Finally, it regularlyapprises the BOD, through the RMC, the results of its risk monitoring.

k. Internal Audit Division (IAD)IAD provides an independent assessment of the adequacy of EWBC’s internal controls, riskmanagement, governance framework and execution/operational practices. Internal auditactivities are conducted in accordance with the International Standards for the ProfessionalPractice of Internal Auditing (ISPPIA) and the Code of Ethics. IAD has an adopted a riskassessment methodology, which provides a sound basis in the selection of areas of coverageand frequency of audit for the preparation of the annual audit plan. IAD employs a risk-basedaudit approach that examines both the adequacy of the policies and EWBC’s compliance withthe procedures while assuring audit coverage of the areas identified as representing thegreatest current risk. It discusses the results of assessments with management, and reports itsfindings and recommendations to the Audit Com. IAD’s activities are suitably designed toprovide the BOD with reasonable assurance that significant financial and operatinginformation is materially complete, reliable and accurate; internal resources are adequatelyprotected; and employee performance is in compliance with EWBC’s policies, standards,procedures and applicable laws and regulations.

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l. Compliance DivisionCompliance Division is vested with the responsibility of overseeing the design of EWBC’sCompliance Program and coordinating its effective implementation towards the soundmanagement of Business and Compliance Risks. Its mandate is to ensure that EWBC iscompliant with relevant and applicable laws, rules, regulations, codes of conduct andstandards of good practice while avoiding an overly risk-averse environment that inhibitsbusiness growth. It serves as EWBC’s central point of contact with banking regulators.

Credit RiskCredit risk refers to the potential loss of earnings or capital arising from an obligor/s, customer/sor counterparty’s failure to perform and/or to meet the terms of any contract with EWBC. Creditrisks may last for the entire tenor and set at the full amount of a transaction and in some cases mayexceed the original principal exposures. The risk may arise from lending, trade financing, trading,investments and other activities undertaken by EWBC. To identify and assess this risk, EWBChas: 1) approval process per borrower or business and/or product segment; 2) a structured andstandardized credit rating for corporate loans and risk acceptance criteria for consumer loans Forlarge corporate credit transactions, EWBC has a comprehensive procedure for credit evaluation,risk assessment and well-defined concentration limits, which are established for each type ofborrower. EWBC’s credit risk is managed at the portfolio level, which may be on an overall or byproduct perspective.

Credit concentrationExcessive concentration of lending plays a significant role in the weakening of asset quality.EWBC reduces this risk by diversifying its loan portfolio across various sectors and borrowers.EWBC believes that good diversification across economic sectors and geographic areas, amongothers, will enable it to ride through business cycles without causing undue harm to its assetquality.

RMD reviews EWBC’s loan portfolio in line with EWBC’s policy of not having significantconcentrations of exposure to specific industries or group of borrowers. Management ofconcentration of risk is by client/counterparty and by industry sector. For risk concentrationmonitoring purposes, the financial assets are broadly categorized into loans and receivables, loansand advances to banks, and investment securities. EWBC ensures compliance with BSP’s limit onexposure to any single person or group of connected persons by closely monitoring largeexposures and top 20 borrowers for both single and group accounts.

Aside from ensuring compliance with BSP’s limit on exposures to any single person or group ofconnected persons, it is EWBC’s policy to keep the expected loss (determined based on the creditrisk rating of the account) of large exposure accounts to, at most, one and a half percent (1.5%) oftheir aggregate outstanding balance. This is to maintain the quality of EWBC’s large exposures.With this, accounts with better risk grades are given priority in terms of being granted a biggershare in EWBC’s loan facilities.

Aligned with the Manual of Regulations for Banks definition, EWBC considers its loan portfolioconcentrated if it has exposures of more than thirty percent (30.0%) to a particular industry.

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Credit concentration profile as of December 31, 2016 and 2015Maximum credit risk exposuresThe following table shows EWBC’s maximum exposure to credit risk without taking into accountany collateral held or other credit enhancements (amounts in thousands):

Consolidated2016 2015

CarryingAmount

Fair Valueof Collateral

MaximumExposure toCredit Risk

Financial Effectof Collateral

CarryingAmount

Fair Valueof Collateral

MaximumExposure toCredit Risk

FinancialEffect of

CollateralLoans and receivables:

Receivables fromcustomersCorporate lending P=61,431,319 P=26,883,894 P=51,881,952 P=9,549,367 P=63,181,881 P=20,129,487 P=56,135,135 P=7,046,746Consumer lending 128,738,093 67,405,251 87,063,519 41,674,574 86,185,338 40,989,251 58,788,677 27,396,661

P=190,169,412 P=94,289,145 P=138,945,471 P=51,223,941 P=149,367,219 P=61,118,738 P=114,923,812 P=34,443,407

For off-balance sheet items, the figures presented below summarize EWBC’s maximum exposureto credit risk (amounts in Thousands):

2016 2015Credit

EquivalentAmount

Credit RiskMitigation

Net CreditExposure

CreditEquivalent

AmountCredit RiskMitigation

Net CreditExposure

Off-balance sheet items Direct credit substitutes P=258,608 P=− P=258,608 P=1,006,559 P=− P=1,006,559 Transaction-related contingencies 815,748 − 815,748 705,027 − 705,027 Trade-related contingencies arising

from movement of goods andcommitments with an originalmaturity of up to one (1) year 646,458 − 646,458 804,147 − 804,147

P=1,720,814 P=− P=1,720,814 P=2,515,733 P=− P=2,515,733

Large exposures and top 20 borrowersThe table below summarizes large exposure and top 20 borrowers of EWBC:

2016Top 20 Borrowers Large Exposures

SingleBorrowers

GroupBorrowers

SingleBorrowers

GroupBorrowers

Aggregate Exposure (in billions) P=29.7 P=32.6 P=21.2 P=22.9Composite Risk Rating 3.7 3.8 3.4 3.5Total Expected Loss/Aggregate Exposure 1.3% 1.3% 1.1% 1.2%

2015Top 20 Borrowers Large Exposures

SingleBorrowers

GroupBorrowers

SingleBorrowers

GroupBorrowers

Aggregate Exposure (in billions) P=30.8 P=35.7 P=22.4 P=23.2Composite Risk Rating 3.5 3.5 3.4 3.3Total Expected Loss/Aggregate Exposure 0.8% 0.8% 0.7% 0.7%

The credit exposures, after due consideration of the allowed credit enhancements of EWBC, areall compliant with the regulatory single borrower’s limit and considered to be the maximum creditexposure to any client or counterparty.

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Concentration by industryAn industry sector analysis of the financial assets of EWBC follows:

2016

Loans andReceivables*

Loans andAdvances to

Banks**Investment

Securities*** TotalFinancial intermediaries P=8,741,583 P=53,816,536 P=16,397,759 P=78,955,878Real estate, renting and business activity 17,795,748 − − 17,795,748Private households with employed persons 116,786,091 − − 116,786,091Wholesale and retail trade, repair of motor

vehicles 18,600,507 − − 18,600,507Manufacturing 6,071,216 − − 6,071,216Agriculture, fisheries and forestry 1,985,228 − − 1,985,228Electricity, gas, steam and air-conditioning

supply 9,617,263 − − 9,617,263Construction 2,469,423 − − 2,469,423Accommodation and food service activities 1,911,448 − − 1,911,448Administrative and support service activities 2,783,386 − − 2,783,386Human health and social work activities 2,692,101 − − 2,692,101Other service activities 2,820,347 − − 2,820,347Others**** 9,038,329 − − 9,038,329

201,312,670 53,816,536 16,397,759 271,526,965Allowance for credit losses (Note 7) (6,572,971) − − (6,572,971)

P=194,739,699 P=53,816,536 P=16,397,759 P=264,953,994* Includes commitments and contingent accounts.** Comprised of Due from BSP, Due from other banks and IBLR.*** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost.**** Pertains to unclassified loans and receivables, commitments and contingent accounts.

2015

Loans andReceivables*

Loans andAdvances to

Banks**Investment

Securities*** TotalFinancial intermediaries P=11,228,867 P=44,008,152 P=15,164,959 P=70,401,978Real estate, renting and business activity 19,449,098 − − 19,449,098Private households with employed persons 76,050,821 − − 76,050,821Wholesale and retail trade, repair of motor

vehicles 16,233,879 − − 16,233,879Manufacturing 5,717,379 − − 5,717,379Agriculture, fisheries and forestry 3,303,346 − − 3,303,346Electricity, gas, steam and air-conditioning

supply 8,274,976 − − 8,274,976Construction 1,730,345 − − 1,730,345Accommodation and food service activities 1,989,161 − − 1,989,161Administrative and support service activities 2,741,655 − − 2,741,655Human health and social work activities 2,632,622 − − 2,632,622Other service activities 5,465,707 − − 5,465,707Others**** 7,795,991 − − 7,795,991

162,613,847 44,008,152 15,164,959 221,786,958Allowance for credit losses (Note 7) (4,898,407) − − (4,898,407)

P=157,715,440 P=44,008,152 P=15,164,959 P=216,888,551* Includes commitments and contingent accounts.** Comprised of Due from BSP, Due from other banks and IBLR.*** Comprised of Financial assets at FVTPL, Financial assets at FVTOCI and Investment securities at amortized cost.**** Pertains to unclassified loans and receivables, commitments and contingent accounts.

Collateral and other credit enhancementsCollaterals are taken into consideration during the loan application process as they offer analternative way of collecting from the client should a default occur. The percentage of loan valueattached to the collateral offered is part of EWBC’s lending guidelines. Such percentages takeinto account safety margins for foreign exchange rate exposure/fluctuations, interest rate exposure,and price volatility.

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Collaterals are valued according to existing credit policy standards and, following the latestappraisal report, serve as the basis for the amount of the secured loan facility.

Premium security items are collaterals that have the effect of reducing the estimated credit risk fora facility. The primary consideration for enhancements falling under such category is the ease ofconverting them to cash.

EWBC is not permitted to sell or re-pledge the collateral in the absence of default by the owner ofthe collateral. It is EWBC’s policy to dispose foreclosed assets in an orderly fashion. Theproceeds of the sale of the foreclosed assets, included under “Investment properties”, are used toreduce or repay the outstanding claim. In general, EWBC does not occupy repossessed propertiesfor business use.

As part of the EWBC’s risk control on security/collateral documentation, standard documents aremade for each security type and deviation from the pro-forma documents are subject to LegalServices Division’s approval prior to acceptance.

Credit collaterals profileThe table below provides the collateral profile of the outstanding loan portfolio of EWBC:

Security Corporate Loans Consumer Loans2016 2015 2016 2015

REM* 23.4% 17.5% 10.0% 9.1%Other Collateral** 19.2% 13.1% 41.5% 37.8%Unsecured 57.4% 69.5% 48.5% 53.2%* Real Estate Mortgage** Consists of government securities, stocks and bonds, hold-out on deposits, assignment of receivables, etc.

As for the computation of credit risk weights, hold-out on deposits with EWBC, Home Guarantycover, and Philippine sovereign guarantees are the only credit risk mitigants considered as eligible.

Internal Credit Risk Rating SystemEWBC employs a credit scoring system for all corporate borrowers to assess risks relating to theborrower and the loan exposure. Borrower risk is evaluated by considering (a) quantitative factorsunder financial condition and (b) qualitative factors, such as management quality and industryoutlook.

Financial condition assessment focuses on profitability, liquidity, capital adequacy, sales growth,production efficiency and leverage. Management quality determination is based on EWBC’sstrategies, management competence and skills and management of banking relationship whileindustry prospect is evaluated based on its importance to the economy, growth, industry structureand relevant government policies. Based on these factors, each borrower is assigned a BorrowerRisk Rating (BRR), an 11-scale scoring system that ranges from 1 to 10, including SBL.

Supplementary to the BRR, consideration is also given to security arrangements in computing forthe final rating. Depending on certain requisites, an account secured by real estate mortgages andhold-out on deposits or guarantees may be upgraded to better risk classifications.

The credit rating for each borrower is reviewed annually. A more frequent review is warranted incases where the borrower has a higher risk profile or when there are extraordinary or adversedevelopments affecting the borrower, the industry and/or the Philippine economy.

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The following is a brief explanation of the EWBC’s risk grades:

Rating Description Account/Borrower Characteristics1 Excellent ∂ low probability of going into default within the coming year; very high debt service

capacity and balance sheets show no sign of any weakness∂ has ready access to adequate funding sources∂ high degree of stability, substance and diversity∂ of the highest quality under virtual economic conditions

2 Strong ∂ low probability of going into default in the coming year∂ access to money markets is relatively good∂ business remains viable under normal market conditions∂ strong market position with a history of successful financial performance∂ financials show adequate cash flows for debt servicing and generally conservative

balance sheets3 Good ∂ sound but may be susceptible, to a limited extent, to cyclical changes in the

markets in which they operate∂ financial performance is good and capacity to service debt remains comfortable∂ cash flows remain healthy and critical balance sheet ratios are at par with industry

norms∂ reported profits in the past three years and expected to sustain profitability in the

coming year4 Satisfactory ∂ clear risk elements exist and probability of going into default is somewhat greater,

as reflected in the volatility of earnings and overall performance∂ normally have limited access to public financial markets∂ able to withstand normal business cycles, but expected to deteriorate beyond

acceptable levels under prolonged unfavorable economic period∂ combination of reasonably sound asset and cash flow protection

5 Acceptable ∂ risk elements EWBC are sufficiently pronounced, but would still be able towithstand normal business cycles

∂ immediate deterioration beyond acceptable levels is expected given prolongedunfavorable economic period

∂ there is sufficient cash flow either historically or expected in the future in spite ofeconomic downturn combined with asset protection

5B Acceptable ∂ financial condition hard to ascertain due to weak validation of financial statementscoupled by funding leakages to other business interests whose financial condition isgenerally unknown

∂ continuous decline in revenues and margins due to competition; increasing debtlevels not commensurate to growth in revenues and funding requirements

∂ thin margin business with banks financing bulk of working capital and capexrequirements coupled by substantial dividend pay-outs

∂ chronically tight cashflows with operating income negative or barely enough fordebt servicing

∂ lines with banks maxed out and availments evergreen with minimal payments madeover time or with past record of past due loans with other banks, cancelled creditcards and court cases

6 Watchlist ∂ affected by unfavorable industry or company-specific risk factors∂ operating performance and financial strength may be marginal and ability to attract

alternative sources of finance is uncertain∂ difficulty in coping with any significant economic downturn; some payment

defaults encountered∂ net losses for at least two consecutive years

7 Special Mention ∂ ability or willingness to service debt are in doubt∂ weakened creditworthiness∂ expected to experience financial difficulties, putting EWBC’s exposure at risk

8 Substandard ∂ collectability of principal or interest becomes questionable by reason of adversedevelopments or important weaknesses in financial cover

∂ negative cash flows from operations and negative interest coverage∂ past due for more than 90 days∂ there exists the possibility of future loss to EWBC unless given closer supervision

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Rating Description Account/Borrower Characteristics9 Doubtful ∂ unable or unwilling to service debt over an extended period of time and near future

prospects of orderly debt service are doubtful∂ with non-performing loan (NPL) status∂ previously rated ‘Substandard’ by the BSP∂ loss on credit exposure unavoidable

10 Loss ∂ totally uncollectible∂ prospect of re-establishment of creditworthiness and debt service is remote∂ lender shall take or has taken title to the assets and is preparing foreclosure and/or

liquidation although partial recovery may be obtained in the future∂ considered uncollectible or worthless and of such little value that continuance as

bankable assets is not warranted although the loans may have some recovery orsalvage value

It is EWBC’s policy to maintain accurate and consistent risk ratings across the credit portfolio.This facilitates a focused management of the applicable risk and the comparison of creditexposures across all lines of business, geographic regions and products. The rating system issupported by a variety of financial analytics, combined with processed market information toprovide the main inputs for the measurement of counterparty risk.

All internal risk ratings are tailored to the various categories and are derived in accordance withEWBC’s rating policy. The risk ratings are assessed and updated regularly.

Credit Quality Profile as of December 31, 2016 and 2015External ratingsEWBC also uses external ratings, such as Standard & Poor’s, Moody’s, and Fitch, to evaluate itscounterparties and in its assignment of credit risk weights to its banking book exposures.Transactions falling under this category are normally of the following nature: placements withother banks, money market lending, debt security investments, and to some extent, equity securityinvestments.

Investments and financial securitiesThe table below shows credit quality, based on external ratings, per class of financial assets thatare neither past due nor impaired of EWBC:

2016AA/A BB/B Unrated Total

(In Thousands)Due from BSP P=39,343,143 P=– P=– P=39,343,143Due from other banks 6,947,356 3,281 20,008 6,970,645IBLR 7,502,748 – – 7,502,748Financial assets at FVTPL: Government securities 994,086 – – 994,086 Private bonds 4,246,512 – 16,709 4,263,221 Equity securities – – 10,443 10,443

5,240,598 – 27,152 5,267,750Investment securities at amortized cost: Government securities 5,760,891 – – 5,760,891 Private bonds 5,368,618 – – 5,368,618

11,129,509 – – 11,129,509Financial assets at FVTOCI:

Quoted equity securities – – 500 500P=70,163,354 P=3,281 P=47,660 P=70,214,295

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2015AA/A BB/B Unrated Total

(In Thousands)Due from BSP P=30,908,680 P=– P=– P=30,908,680Due from other banks 5,348,811 3,110 25,005 5,376,926IBLR 7,722,546 – – 7,722,546Financial assets at FVTPL: Government securities 4,344,376 – – 4,344,376 Private bonds 3,571,730 2,459,078 155,174 6,185,982 Equity securities – – 10,448 10,448

7,916,106 2,459,078 165,622 10,540,806Investment securities at amortized cost: Government securities 4,046,482 – – 4,046,482 Private bonds 571,416 – – 571,416

4,617,898 – – 4,617,898Financial assets at FVTOCI:

Quoted equity securities – – 6,255 6,255P=56,514,041 P=2,462,188 P=196,882 P=59,173,111

The tables below show the credit quality, based on the credit rating system, by class of loans andreceivables that are neither past due nor impaired (i.e., non-performing or past due by more than90 days) of EWBC:

2016

High GradeStandard

GradeSubstandard

Grade Unrated Total(In Thousands)

Receivables from customers:Corporate lending P=23,324,955 P=38,820,131 P=– P=– P=62,145,086Consumer lending 29,098,534 63,710,662 26,082,472 – 118,891,668

52,423,489 102,530,793 26,082,472 – 181,036,754Unquoted debt securities – – – 326,601 326,601Accounts receivable – – – 1,132,955 1,132,955Accrued interest receivable – – – 1,936,025 1,936,025Sales contract receivable – – – 176,648 176,648

– – – 3,572,229 3,572,229P=52,423,489 P=102,530,793 P=26,082,472 P=3,572,229 P=184,608,983

2015

High GradeStandard

GradeSubstandard

Grade Unrated Total(In Thousands)

Receivables from customers:Corporate lending P=29,510,723 P=33,805,024 P=– P=– P=63,315,747Consumer lending 15,661,611 40,784,769 23,900,929 – 80,347,309

45,172,334 74,589,793 23,900,929 – 143,663,056Unquoted debt securities – – – 311,088 311,088Accounts receivable – – – 908,412 908,412Accrued interest receivable – – – 1,482,532 1,482,532Sales contract receivable – – – 205,841 205,841

– – – 2,907,873 2,907,873P=45,172,334 P=74,589,793 P=23,900,929 P=2,907,873 P=146,570,929

Borrowers with unquestionable repaying capacity and to whom EWBC is prepared to lend on anunsecured basis, either partially or totally, are generally rated as High Grade borrowers. Includedin the High Grade category are those accounts that fall under ‘Excellent’, ‘Strong’, ‘Good’ and‘Satisfactory’ categories under ICRRS (with rating of 1-4).

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Standard rated borrowers normally require tangible collateral, such as real estate mortgage (REM),to either fully or partially secure the credit facilities as such accounts indicate a relatively highercredit risk than those considered as High Grade. Included in Standard Grade category are thoseaccounts that fall under ‘Acceptable’, ‘Watchlist’ and ‘Special mention’ categories under ICRRS(with rating of 5-7).

Substandard Grade accounts pertain to corporate accounts falling under the ‘Substandard,’‘Doubtful’ and ‘Loss’ categories under ICRRS (with rating of 8-10) and unsecured revolvingcredit facilities.

Those accounts that are classified as unrated includes consumer loans, unquoted debt securities,accounts receivable, accrued interest receivable and sales contract receivable for which EWBC hasnot yet established a credit rating system.

Impairment AssessmentOn a regular basis, EWBC conducts an impairment assessment exercise to determine expectedlosses on its loans portfolio.

The main considerations for the loan impairment assessment include whether any payments ofprincipal or interest are overdue by more than 30 to 90 days or if there are any known difficultiesin the cash flows of counterparties, credit rating downgrades, or infringement of the original termsof the contract.

EWBC addresses impairment assessment in two areas: specific or individually assessedallowances and collectively assessed allowances.

a. Specific Impairment TestingSpecific impairment testing is the process whereby classified accounts are individuallysignificant subject to impairment testing. Classified accounts are past due accounts andaccounts whose credit standing and/or collateral has weakened due to varying circumstances.This present status of the account may adversely affect the collection of both principal andinterest payments.

Indicators of impairment testing are past due accounts, decline in credit rating fromindependent rating agencies and recurring net losses.

The net recoverable amount is computed using the present value approach. The discount rateused for loans with fixed and floating interest rate is the original EIR and last repriced interestrate, respectively. Net recoverable amount is the total cash inflows to be collected over theentire term of the loan or the expected proceeds from the sale of collateral. Specificimpairment testing parameters include the account information (original and outstanding loanamount), interest rate (nominal and historical effective) and the business plan. Also includedare the expected date of recovery, expected cash flows, probability of collection, and thecarrying value of loan and net recoverable amount. EWBC conducts specific impairmenttesting on classified (i.e., rated 7-10) and restructured corporate accounts.

b. Collective Impairment TestingAll other accounts which were not individually assessed are grouped based on similar creditcharacteristics and are collectively assessed for impairment under the Collective ImpairmentTesting. This is also in accordance with PAS 39, which provides that all loan accounts notincluded in the specific impairment test shall be subjected to collective testing.

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Collective impairment testing of corporate accountsCorporate accounts, which are unclassified and with current status are grouped in accordancewith EWBC’s internal credit risk rating. Each internal credit risk rating would fetch anequivalent loss impairment where the estimated loss is determined in consideration of theEWBC’s historical loss experience. Impairment loss is derived by multiplying the outstandingloan balance on a per internal credit risk rating basis against a factor rate. The factor rate,which estimates the expected loss from the credit exposure, is the product of the Default Rate(DR) and the Loss Given Default Rate (LGDR). DR is estimated based on the 3-yearhistorical average default experience by internal credit risk rating of the EWBC, while, LGDRis estimated based on loss experience (net of recoveries from collateral) for the same referenceperiod.

Collective impairment testing of consumer accountsConsumer accounts, both in current and past due status are collectively tested for impairmentas required under PAS 39. Accounts are grouped by type of product - personal loans, salaryloans, housing loans, auto loans and credit cards.

The estimation of the impaired consumer products’ estimated loss is based on three majorconcepts: age buckets, probability of default and recoverability. Per product, exposures arecategorized according to their state of delinquency - (1) current and (2) past due (which issubdivided into 30, 60, 90, 120, 150, 180 and more than 180 days past due); (3) items inlitigation (ITL).

Auto, housing and salary loans have an additional bucket for its items in litigation accounts.EWBC partitions its exposures as it recognizes that the age buckets have different rates and/ orprobabilities of default. The initial estimates of losses per product due to default are thenadjusted based on the recoverability of cash flows, to calculate the expected loss of EWBC.Auto and housing loans consider the proceeds from the eventual sale of foreclosed collateralsin approximating its recovery rate; while credit cards, salary loans and personal loans dependon the collection experience of its receivables. Further for housing loans, due to the nature ofthe assets offered as security, and as the exposures are limited to a certain percentage of thesame, this product possess the unique quality of obtaining over 95% recoverability. Thesedefault and recovery rates are based on EWBC’s historical experience, which covers aminimum of two to three (2-3) years cycle, depending on the availability and relevance ofdata.

The table below shows the aging analysis of the past due but not impaired loans and receivablesper class of EWBC. Under PFRS 7, a financial asset is past due when a counterparty has failed tomake payments when contractually due.

2016Less than

30 days31 to

60 days61 to

90 days91 to

180 daysMore than

180 days Total(In Thousands)

Loans and receivables:Corporate lending P=9,084 P=25,657 P=34,741 P=– P=– P=69,482Consumer lending 194,418 1,551,634 2,630,597 146,949 293,569 4,817,167

P=203,502 P=1,577,291 P=2,665,338 P=146,949 P=293,569 P=4,886,649

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2015Less than

30 days31 to

60 days61 to

90 days91 to

180 daysMore than

180 days Total(In Thousands)

Loans and receivables:Corporate lending P=– P=– P=380,359 P=– P=– P=380,359Consumer lending 33,894 1,169,920 955,021 126,177 510,913 2,795,925

P=33,894 P=1,169,920 P=1,335,380 P=126,177 P=510,913 P=3,176,284

Collaterals of past due but not impaired loans mostly consist of real estate mortgage (REM) ofindustrial, commercial, residential and developed agricultural real estate properties.

Credit risk weighting as of December 31, 2016 and 2015Total credit risk exposure after risk mitigationThe table below shows the different credit risk exposures of EWBC after credit risk mitigation, byrisk weight applied in accordance with BSP Circular No. 538:

2016Capital

DeductionRisk Buckets

Total0% 20% 50% 75% 100% 150%(In Thousands)

Credit risk exposure after riskmitigation P=9,614,907 P=48,247,058 P=8,501,905 P=17,846,120 P=10,434,958 P=171,724,904 P=8,246,818 P=265,001,763

On-balance sheet assets – – – – – 1,720,813 – 1,720,813Off-balance sheet assets – – – – – – – –Counterparty in the banking book

(derivatives and repo-styletransactions) – – – – – – – –

Counterparty in the trading book(derivatives and repo-styletransactions) – – – – – – –

Credit-linked notes in the bankingbook – – – – – – – –

Securitization exposures – – – – – – – –9,614,907 48,247,058 8,501,905 17,846,120 10,434,958 173,445,717 8,246,818 266,722,576

Credit Risk Weighted Assets P=– P=– P=1,700,381 P=8,923,060 P=7,826,219 P=173,445,717 P=12,370,227 P=204,265,604

2015Capital

DeductionRisk Buckets

Total0% 20% 50% 75% 100% 150%(In Thousands)

Credit risk exposure after riskmitigation P=6,750,832 P=36,774,559 P=8,283,711 P=5,132,861 P=7,773,482 P=144,195,447 P=6,982,741 P=209,142,801

On-balance sheet assets – – – – – 2,515,734 – 2,515,734Off-balance sheet assets – – – – – – – –Counterparty in the banking book

(derivatives and repo-styletransactions) – – – – – – – –

Counterparty in the trading book(derivatives and repo-styletransactions) – – – – – 203,672 – 203,672

Credit-linked notes in the bankingbook – – – – – – – –

Securitization exposures – – – – – – – –6,750,832 36,774,559 8,283,711 5,132,861 7,773,482 146,914,853 6,982,741 211,862,207

Credit Risk Weighted Assets P=– P=– P=1,656,742 P=2,566,431 P=5,830,112 P=146,914,853 P=10,474,112 P=167,442,250

Liquidity RiskLiquidity risk is the risk that sufficient funds are unavailable to adequately meet all maturingliabilities, including demand deposits and off-balance sheet commitments. The mainresponsibility of daily asset liability management lies with EWBC’s Treasury Group, specificallythe Liquidity Desk and Fund Management Department of its subsidiary, which are tasked tomanage EWBC’s balance sheet and have a thorough understanding of the risk elements involvedin the business. EWBC’s liquidity risk management is then monitored through ALCO.

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Resulting analysis of the balance sheet along with the recommendation is presented during theweekly ALCO meeting where deliberations, formulation of actions and decisions are made tominimize risk and maximize EWBC returns. Discussions include actions taken in the previousALCO meeting, economic and market status and outlook, liquidity risk, pricing and interest ratestructure, limit status and utilization. To ensure that EWBC has sufficient liquidity at all times,the respective ALCO formulates a contingency funding plan which sets out the amount and thesources of funds (such as unutilized credit facilities) available to EWBC and its subsidiary and thecircumstances under which such funds will be used.

By way of the Maximum Cumulative Outflow (MCO) limit, EWBC is able to manage its long-term liquidity risks by placing a cap on the outflow of cash on a per tenor and on a cumulativebasis. EWBC takes a multi-tiered approach to maintaining liquid assets. EWBC’s principalsource of liquidity is comprised of Cash and Other Cash Items (COCI), Due from BSP, Due fromother banks and IBLR with maturities of less than one year. In addition to regulatory reserves,EWBC maintains a sufficient level of secondary reserves in the form of liquid assets such as short-term trading and investment securities that can be realized quickly.

Analysis of financial assets and liabilities by remaining contractual maturitiesThe table below shows the maturity profile of EWBC’s financial assets and liabilities, based on itsinternal methodology that manages liquidity based on contractual undiscounted cash flows(amounts in millions):

2016

On demandUp to

1 month>1 to 3

months>3 to 6

months>6 to 12months

Beyond 1year Total

Financial AssetsCash and cash equivalents* P=52,938 P=7,503 P=– P=– P=– P=– P=60,441Investments and trading

securities** – 5,803 90 408 224 13,470 19,995Loans and receivables*** – 25,751 37,165 25,386 32,485 121,758 242,545

P=52,938 P=39,057 P=37,255 P=25,794 P=32,709 P=135,228 P=322,981Financial LiabilitiesDeposit liabilities**** P=– P=10,308 P=14,104 P=15,324 P=5,571 P=209,704 P=255,011Bills and acceptances payable – 482 472 497 744 – 2,195Subordinated debt – – – – – 4,969 4,969Other liabilities – 1,597 – – – 7,856 9,453Contingent liabilities – 1,631 9 3 9 91 1,743

P=– P=14,018 P=14,585 P=15,824 P=6,324 P=222,620 P=273,371*** Consist of cash and cash other items, due from BSP, due from other banks and IBLR*** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables

from investment securities at amortized cost.*** Consist of loans and receivables, sales contract receivables, bills purchased, accrued interest receivables, accounts receivables,

unearned discounts, allowance for probable losses, investment properties, other intangible assets and other assets.****Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest payable

for these deposit liabilities.

2015

On demandUp to

1 month>1 to 3months

>3 to 6months

>6 to 12months

Beyond1year Total

Financial AssetsCash and cash equivalents* P=49,908 P=– P=– P=– P=– P=127 P=50,035Investments and trading

securities** – 6,165 3,398 3,636 5,668 2,368 21,235Loans and receivables*** – 32,433 13,073 11,542 16,031 116,641 189,720

P=49,908 P=38,598 P=16,471 P=15,178 P=21,699 P=119,136 P=260,990

(Forward)

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2015

On demandUp to

1 month>1 to 3months

>3 to 6months

>6 to 12months

Beyond1year Total

Financial LiabilitiesDeposit liabilities**** P=– P=7,703 P=10,556 P=11,442 P=4,143 P=165,517 P=199,361Bills and acceptances payable – 2,951 – – – 123 3,074Subordinated debt – – 1,500 – – 4,967 6,467Other liabilities 1,224 17 16 17 61 8,759 10,094Contingent liabilities – 129 59 204 521 180 1,093

P=1,224 P=10,800 P=12,131 P=11,663 P=4,725 P=179,546 P=220,089*** Consist of cash and cash other items, due from BSP, due from other banks and IBLR.*** Consist of financial assets at FVTPL, investment securities at amortized cost, financial assets at FVTOCI and interest receivables

from investment securities at amortized cost.*** Consist of loans and receivables, sales contract receivables, bills purchased, accrued interest receivables, accounts receivables,

unearned discounts, allowance for probable losses, investment properties, other intangible assets and other assets.**** Consist of demand and savings deposit, time certificate of deposit, long term negotiable certificates of deposit and interest

payable for these deposit liabilities.

EWBC manages liquidity by maintaining sufficient liquid assets in the form of cash and cashequivalents, investments securities and loan receivables with what it assesses to be sufficient ofshort-term loans. As of December 31, 2016 and 2015, P=99.9 billion and P=69,848.7 million,respectively, or 51.7% and 42.1%, respectively, of EWBC’s total gross loans and receivables hadremaining maturities of less than one (1) year. The total portfolio of trading and investmentsecurities is comprised mostly of sovereign-issued securities that have high market liquidity.EWBC was fully compliant with BSP’s limits on FCDU Asset Cover and FCDU Liquid AssetsCover, having reported ratios above 100.0% and 30%, respectively, as of December 31, 2016 and2015. With the above presented liquidity profile, EWBC remains to be inhibited from liquidityrisk that it can’t adequately manage.

Market RiskMarket risk is the risk that the fair value or future cash flows of financial instruments will fluctuatedue to changes in market variables such as interest rates, foreign exchange rates, and equity prices.EWBC treats exposures to market risk as either for trading or accrual/balance sheet exposure. Themarket risk for the trading portfolio is measured using Value at Risk (VaR). Interest rate risk ofaccrual portfolios in the Banking Book are measured using the Earnings at Risk (EaR).

Market Risk in the Trading BooksThe Board has set limits on the level of market risk that may be accepted. VaR limits are appliedat the business unit level and approved by the BOD based on, among other things, a businessunit’s capacity to manage price risks, the size and distribution of the aggregate exposure to pricerisks and the expected return relative to price risks.

EWBC applies the VaR methodology to assess the market sensitive positions held for trading andto estimate the potential economic loss based on parameters and assumptions. VaR is a methodused in measuring market risk by estimating the potential negative change in the market value of aportfolio at a given confidence level and over a specified time horizon.

Objectives and limitations of the VaR MethodologyEWBC uses the VaR model of Bloomberg Portfolio Analytics using one-year historical data set toassess possible changes in the market value of the Fixed Income, Equities, and Foreign Exchangetrading portfolio. VaR for the US Treasury Futures is measured using Historical Simulation usingBloomberg Multi Asset Risk System. The Interest Rate Swaps (IRS) and FX Forwards (outrightand forward leg of FX swaps) trading portfolio’s interest rate risk is measured using Monte CarloVaR. VaR models are designed to measure market risk in a normal market environment. The useof VaR has limitations because correlations and volatilities in market prices are based on historicaldata and VaR assumes that future price movements will follow a statistical distribution.

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Due to the fact that VaR relies heavily on historical data to provide information and may notclearly predict the future changes and modifications of the risk factors, the probability of largemarket moves may be underestimated.

VaR may also be under or over estimated due to assumptions placed on risk factors and therelationship between such factors for specific instruments. Even though positions may changethroughout the day, VaR only represents the risk of the portfolio at the close of each business day,and it does not account for any losses that may occur beyond the specified confidence level.

In practice, actual trading results will differ from the VaR calculation and, in particular, thecalculation does not provide a meaningful indication of profits and losses in stressed marketconditions. To determine the reliability of the VaR model, actual outcomes are monitored throughhypothetical and actual backtesting to test the accuracy of the VaR model.

Stress testing provides a means of complementing VaR by simulating the potential loss impact onmarket risk positions from extreme market conditions, such as risk factor movements based onhistorical financial market stress conditions and scenarios adopted from the uniform stress testingframework of the BSP.

VaR assumptionsThe VaR that EWBC use is premised on a 99.0% confidence level that this potential loss estimateis not expected to be exceeded if the current market risk positions were to be held unchanged for agiven holding period. Foreign exchange and US Treasury Futures, VaR is measured usingone (1) day holding period while fixed income VaR has holding period of five (5) days.Furthermore, EWBC’s equity and interest rate swap (IRS) trading positions are assumed to beclosed out in ten (10) days. The use of a 99.00% confidence level means that within the set timehorizon, losses exceeding the VaR figure should occur, on average, not more than once everyhundred days.

VaR is an integral part of EWBC’s market risk management and encompasses investmentpositions held for trading. VaR exposures form part of the market risk monitoring which isreviewed daily against the limit approved by the Board. The trading activities are controlledthrough the Market Risk Limit (MRL), which is a dynamic risk limit anchored on the principle ofrisk and return which is adjusted for any trading income that would exceed targets throughout theyear. RMD reports compliance to the MRL and trader’s VaR limits on a daily basis. If the MRLor individual trader’s limit is exceeded, such occurrence is promptly reported to the Treasurer,Chief Operations Officer, Chief Risk Officer and the President, and further to the Board throughthe RMC.

The table below pertains to interest rate risk of EWBC’s fixed income trading portfolio.

2016 2015(In Thousands)

Year-end VaR P=74,713 P=162,989Average VaR 238,951 186,191Highest VaR 581,383 379,820Lowest VaR 71,761 21,620

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The year-end VaR for 2016 was based on the EWBC’s fixed income trading book valued atP=4.9 billion with average yields of 2.3% and 3.8% for the Peso and Foreign currency denominatedbonds, respectively. Its average maturities are 1 year and 1 month for the Peso portfolio and 5years and 6 months for the foreign currency portfolio.

The year-end VaR for 2015 was based on the EWBC’s fixed income trading book valued atP=8,484.3 million with average yields of 3.9% and 3.6% for the Peso and Foreign currencydenominated bonds, respectively. Its average maturities are 1 year and 1 month for the Pesoportfolio and 5 years and 6 months for the foreign currency portfolio.

The market risk in EWBC’s US Treasury Futures trading positions in 2016 is shown in the tablebelow (amounts in thousands):

2016 2015Year-end VaR P=14,911** P=–Average VaR 7,709* 9,940** 154Highest VaR 34,150* 15,798** 581Lowest VaR 70* 1,903** –* January 1 to November 23, 2016 - VaR is calculated using Bloomberg MARS** November 24 to December 29, 2016 - VaR is calculated using an internally developed excel spreadsheet

The market risk in EWBC’s IRS trading positions is shown in the table below:

2016 2015(In Thousands)

Year-end VaR P=27,873 P=21,842Average VaR 18,545 19,965Highest VaR 30,517 25,982Lowest VaR 14,168 7,444

As of December 31, 2016, EWBC’s IRS positions have a notional amount of USD20.0 millionwhere it pays fixed rate and receives floating interest.

EWBC commenced entering into IRS in December 2014 with a notional amount of US$10.0 millionwhere EWBC pays fixed rate and receives floating rate interest.

The interest rate risk in EWBC’s FX forwards positions is shown in the table below (amounts inthousands):

2016 2015*Year-end VaR P=235 P=212Average VaR 76 222Highest VaR 564 325Lowest VaR 2 112*Calculation of interest rate risk for FX forwards was started September 16, 2015

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The table below pertains to the market risk of the EWBC’s equity trading positions in 2015(in thousands):

Year-end VaR P=–Average VaR 806Highest VaR 6,753Lowest VaR –

EWBC has no equity position during 2016.

Foreign Currency RiskEWBC holds foreign currency denominated assets and liabilities, thus, fluctuations on the foreignexchange rates can affect the financials and cash flows of EWBC. Managing the foreign exchangeexposure is important for banks with exposures in foreign currencies. It includes purchase or sellof foreign currency in order to control the impact of changes in exchange rates on the financialposition of EWBC.

The table below pertains to foreign exchange risk of EWBC:

2016 2015(In Thousands)

Year-end VaR P=465 P=3,161Average VaR 1,162 2,329Highest VaR 9,630 6,462Lowest VaR 13 33

EWBC foreign currency exposures emanate from its net open spot and forward FX purchase andsell transactions, and net foreign currency income accumulated over the years of its operations.Foreign currency-denominated deposits are generally used to fund EWBC’s foreign currency-denominated loan and investment portfolio in the FCDU. In the FCDU books, BSP requires banksto match the foreign currency assets with the foreign currency liabilities. Thus, banks are requiredto maintain at all times a 100.0% cover for their currency liabilities held through FCDU. EWBCis in compliance with said regulation as of December 31, 2016 and 2015.

Total foreign currency position is monitored through the daily BSP FX position reports, which aresubject to the overbought and oversold limits set by the BSP at 20.0% of unimpaired capital orUSD50.00 million, whichever is lower. Internal limits regarding the intraday trading and end-of-day trading positions in FX, which take into account the trading desk and the branch FXtransactions, are also monitored.

The table below summarizes the exposure to foreign currencies of EWBC as of December 31,2016 and 2015:

2016

USDOther

Currencies Total(In Thousands)

AssetsGross FX assets USD743,214 USD22,495 USD765,709Contingent FX assets 8,551 2,925 11,476

751,765 25,420 777,185

(Forward)

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2016

USDOther

Currencies Total(In Thousands)

LiabilitiesGross FX liabilities USD734,097 USD27,210 USD761,307Contingent FX liabilities 16,925 36 16,961

751,022 27,246 778,268Net exposure USD 743 (USD1,826) (USD1,083)

2015

USDOther

Currencies TotalAssets (In Thousands)Gross FX assets USD695,395 USD13,530 USD708,925Contingent FX assets 26,000 2,197 28,197

721,395 15,727 737,122LiabilitiesGross FX liabilities 686,129 13,091 699,220Contingent FX liabilities 29,170 – 29,170

715,299 13,091 728,390Net exposure USD6,096 USD2,636 USD8,732

The table below indicates the sensitivity of the currencies which EWBC had significant exposuresas of December 31, 2016 and 2015 (amounts in millions):

Foreign currency appreciates 2016(depreciates) USD EUR CNY

+10.0% (P=3.7) (P=6.5) (P=3.2)-10.0% 3.7 6.5 3.2

Foreign currency appreciates 2015(depreciates) USD EUR CNY

+10.0% P=28.7 P=2.1 P=8.1-10.0% (28.7) (2.1) (8.1)

The analysis calculates the effect of a reasonably possible movement of the currency rate againstthe Peso, with all other variables held constant on the statement of income. A negative amountreflects a potential net reduction in net income while a positive amount reflects a net potentialincrease. There is no other impact on EWBC’s equity other than those already affecting thestatements of income.

Market Risk in the Banking Book

Interest rate riskA critical element of risk management program consists of measuring and monitoring the risksassociated with fluctuations in market interest rates on EWBC’s net interest income. The short-term nature its assets and liabilities reduces the exposure of its net interest income to such risks.EWBC employs re-pricing gap analysis on a monthly basis to measure the interest rate sensitivityof its assets and liabilities. The re-pricing gap analysis measures, for any given period, anymismatches between the amounts of interest-earning assets and interest-bearing liabilities thatwould re-price, or mature (for contracts that do not re-price), during that period. The re-pricinggap is calculated by first distributing the assets and liabilities contained in EWBC’s statement of

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financial position into tenor buckets according to the time remaining to the next re-pricing date (orthe time remaining to maturity if there is no re-pricing), and then obtaining the difference betweenthe total of the re-pricing (interest rate sensitive) assets and re-pricing (interest rate sensitive)liabilities. If there is a positive gap, there is asset sensitivity which generally means that anincrease in interest rates would have a positive effect on EWBC’s net interest income. If there is anegative gap, this generally means that an increase in interest rates would have a negative effecton net interest income.

The following table provides for the average interest rates by period of re-pricing (or by period ofmaturity if there is no re-pricing) of EWBC as of December 31, 2016 and 2015:

2016Up to

1 month>1 month

to 3 months>3 months

to 6 months>6 months

to 12 months >12 monthsRBUFinancial assets

Cash and cash equivalents 2.5% − − − −Loans and receivables 4.0% 4.6% 4.9% 6.4% 10.6%Investment securities 2.3% 5.7% − − 5.4%

Financial liabilitiesDeposit liabilities 2.0% 2.4% 2.0% 1.7% 4.1%Bills payable 1.7% 1.1% 1.1% 1.4% −Subordinated debt − − − − 5.9%

FCDUFinancial assets

Cash and cash equivalents − − − − −Loans and receivables 0.6% 2.9% 3.1% 5.0% 6.1%Investment securities 3.8% 3.5% − − 3.6%

Financial liabilitiesDeposit liabilities 1.4% 1.7% 1.8% 1.9% 2.7%

2015Up to

1 month>1 month

to 3 months>3 months

to 6 months>6 months

to 12 months >12 monthsRBUFinancial assets

Cash and cash equivalents − − − − −Loans and receivables 4.6% 4.5% 5.0% 5.4% 7.8%Investment securities − − 2.7% 1.6% 3.6%

Financial liabilitiesDeposit liabilities 1.8% 2.0% 2.0% 2.4% 4.2%Bills payable 1.1% − − 0.6% −Subordinated debt 7.5% − − − 5.9%

FCDUFinancial assets

Cash and cash equivalents − − − − −Loans and receivables 3.3% 2.4% 3.7% − 6.6%Investment securities − − 2.2% 1.8% 4.0%

Financial liabilitiesDeposit liabilities 1.4% 1.4% 1.7% 1.9% 2.2%

The following tables set forth the interest rate re-pricing gap of EWBC as of December 31, 2016and 2015 (amounts in millions):

2016Up to

1 month> 1 to

3 months> 3 to

6 months>6 to

12 months >12 months TotalFinancial assets

Cash and cash equivalents P=1,200 P=− P=− P=− P=− P=1,200Loans and receivables 21,256 12,683 5,356 3,956 126,995 170,246Investment securities 5,733 − 321 − 10,141 16,195Contingent assets − 994 − − − 994

Total financial assets 28,189 13,677 5,677 3,956 137,136 188,635

(Forward)

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2016Up to

1 month> 1 to

3 months> 3 to

6 months>6 to

12 months >12 months TotalFinancial liabilitiesDeposit liabilities P=99,404 P=2,657 P=550 P=516 P=16,951 P=120,078Bills and acceptances payable 373 472 497 744 − 2,086Subordinated debt − − − − 5,000 5,000Contingent liabilities − − − − 994 994

Total financial liabilities 99,777 3,129 1,047 1,260 22,945 128,158Asset-liability gap (P=71,588) P=10,548 P=4,630 P=2,696 P=114,191 P=60,477

2015Up to

1 month> 1 to

3 months> 3 to

6 months>6 to

12 months >12 months TotalFinancial assets

Cash and cash equivalents P=− P=− P=− P=− P=− P=−Loans and receivables 30,884 7,716 4,971 3,542 79,397 126,510Investment securities 2,048 1,955 1,993 5,836 3,235 15,067Contingent assets − 941 − − − 941

Total financial assets 32,932 10,612 6,964 9,378 82,632 142,518Financial liabilities

Deposit liabilities 55,628 15,737 2,656 1,149 16,748 91,918Bills and acceptances payable 2,199 − 752 − − 2,951Subordinated debt 1,500 − − − 5,000 6,500Contingent liabilities − − − − 941 941

Total financial liabilities 59,327 15,737 3,408 1,149 22,689 102,310Asset-liability gap (P=26,395) (P=5,125) P=3,556 P=8,229 P=59,943 P=40,208

With the above negative re-pricing profile, EWBC could expect positive returns from thefollowing months after the end of 2016 should there be a downward movement in interest rates.

EWBC also monitors its exposure to fluctuations in interest rates by using scenario analysis toestimate the impact of interest rate movements on its interest income. This is done by modelingthe impact to EWBC’s interest income and interest expenses of different parallel changes in theinterest rate curve, assuming the parallel change only occurs once and the interest rate curve afterthe parallel change does not change again for the next twelve months.

The following table sets forth, for the period indicated, the impact of changes in interest rates onEWBC’s non-trading net interest income before tax (amounts in millions). There is no otherimpact on EWBC’s equity other than those already affecting the statements of income.

Change in basis points 2016 2015+100bps (P=562.5) (P=252.9)-100bps 562.5 252.9

Market Risk Weighting as of December 31, 2016 and 2015The table below shows the different market risk weighted assets (amounts in millions) of EWBCusing the standardized approach:

Type of Market Risk Exposure 2016 2015Interest Rate Exposure P=5,726 P=5,419Foreign Exposure 110 411

P=5,836 P=5,830

Operational RiskOperational risk is the loss resulting from inadequate or failed internal processes, people andsystems or from external events. It includes legal, compliance and reputational risks but excludesstrategic risk.

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Adopting the Basic Indicator Approach in computing, below is the total operational risk-weightedassets of EWBC (amounts in millions).

2016 2015Total operational risk-weighted assets P=26,313 P=22,426

Other Risk ExposuresEWBC risk exposures other than credit, market, liquidity and operational, while existent, aredeemed insignificant relative to the mentioned risks and if taken in isolation. Hence, managementof these risks are instead collectively performed and made an integral part of EW’s internal capitaladequacy assessment process (ICAAP) and enterprise risk management initiatives.

The last internal capital adequacy assessment results of EWBC show that these other risks remaininsignificant to pose a threat on EWBC’s capacity to comply with the minimum capital adequacyprescriptions of 6% with the buffers, as applicable, and 10.0% as prescribed by BSP for commonequity tier 1 (CET 1) and capital adequacy ratio (CAR), respectively.

Financial and Banking Services Capital ManagementEWBC actively manages its capital to comply with regulatory requirements, enable growthtargets, withstand plausible stress events and be at par with EWBC peers, the primary objective ofEWBC’s capital management is to ensure that it maintains adequate capital to cover risks inherentto its banking activities without prejudice to optimizing shareholders’ value.

Regulatory Qualifying CapitalUnder existing BSP regulations, the determination of EWBC’s compliance with regulatoryrequirements and ratios is based on the amount of EWBC’s ‘unimpaired capital’ (regulatory networth) reported to the BSP, which is determined on the basis of regulatory policies. In addition,the risk-based Capital Adequacy Ratio (CAR) of a bank, expressed as a percentage of qualifyingcapital to risk-weighted assets, should not be less than 10.0% for both solo basis (head office andbranches) and consolidated basis (EWBC and subsidiaries engaged in financial alliedundertakings). Qualifying capital and risk-weighted assets are computed based on BSPregulations.

Effective January 1, 2014, EWBC complied with BSP issued Circular No. 781, Basel IIIImplementing Guidelines on Minimum Capital Requirements, which provides the implementingguidelines on the revised risk-based capital adequacy framework particularly on the minimumcapital and disclosure requirements for universal banks and commercial banks, as well as theirsubsidiary banks and quasi-banks, in accordance with the Basel III standards.

The Circular sets out a minimum Common Equity Tier 1 CET1 ratio of 6.0% and Tier 1 capitalratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital.The BSP’s existing requirement for Total CAR remains unchanged at 10.0% and these ratios shallbe maintained at all times.

Further, existing capital instruments as of December 31, 2010 which do not meet the eligibilitycriteria for capital instruments under the revised capital framework shall no longer be recognizedas capital. Capital instruments issued under BSP Circular Nos. 709 and 716 (the circularsamending the definition of qualifying capital particularly on Hybrid Tier 1 and Lower Tier 2capitals), and before the effectivity of BSP Circular No. 781, shall be recognized as qualifyingcapital only until December 31, 2015. In addition to changes in minimum capital requirements,this Circular also requires various regulatory adjustments in the calculation of qualifying capital.

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On June 27, 2014, the BSP issued Circular No. 839, REST Limit for Real Estate Exposures whichprovides the implementing guidelines on the prudential REST limit for universal, commercial, andthrift banks on their aggregate real estate exposures. EWBC should maintain CET1 and CARlevels at the regulatory prescribed minimums, on a solo and consolidated basis, even after thesimulated results of a 25.0% write-off to EWBC’s real estate exposures. These shall be compliedwith at all times.

The capital-to-risk assets ratio reported to the BSP as of December 31, 2016 and 2015 are shownin the table below (amounts in millions):

2016 2015Qualifying capital:

Tier 1 capital P=34,225 P=31,035CET1 capital 34,225 31,035Less: Required deductions 9,615 6,751Net Tier 1 capital 24,610 24,284Tier 2 capital 6,851 6,232

Total qualifying capital 31,461 30,516Capital requirements:

Credit risk 20,450 16,744Market risk 601 583Operational risk 2,631 2,242

Total capital requirements P=23,682 P=19,569

CET1 capital ratio 10.4% 12.4%Tier 1 capital ratio 10.4% 12.4%Total capital ratio 13.3% 15.6%

Qualifying capital and risk-weighted assets (RWA) are computed based on BSP regulations.Under Basel III, the regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1(core) and Tier 2 (supplementary) capital. Tier 1 comprises share capital, surplus (includingcurrent year profit), and other comprehensive income (cumulative foreign currency translation andnet unrealized gains on financial assets at fair value through other comprehensive income).Required deductions include goodwill, intangible assets, investments in equity, deferred tax assets,defined benefit pension assets and unsecured credit accommodations to DOSRI and subsidiaries.Tier 2 capital comprise of unsecured subordinated debts and general loan loss provision.

Risk-weighted assets are determined by assigning defined risk weights to the statement offinancial position exposure and to the credit equivalent amounts of off-balance sheet exposures.Certain items are deducted from risk-weighted assets, such as the excess of general loan lossprovision over the amount permitted to be included in Tier 2 capital. The risk weights vary from0.00% to 150.00% depending on the type of exposure, with the risk weights of off-balance sheetexposures being subjected further to credit conversion factors.

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Below is a summary of risk weights and selected exposure types:

Risk weight Exposure/Asset type*0.0% Cash on hand; claims collateralized by securities issued by the national

government, BSP; loans covered by the Trade and InvestmentDevelopment Corporation of the Philippines; real estate mortgages coveredby the Home Guarantee Corporation

20.0% COCI, claims guaranteed by Philippine incorporated banks/quasi-bankswith the highest credit quality; claims guaranteed by foreign incorporatedbanks with the highest credit quality; loans to exporters to the extentguaranteed by Small Business Guarantee and Finance Corporation

50. 0% Housing loans fully secured by first mortgage on residential property;Local Government Unit (LGU) bonds which are covered by Deed ofAssignment of Internal Revenue allotment of the LGU and guaranteed bythe LGU Guarantee Corporation

75.0% Direct loans of defined Small Medium Enterprise (SME) and microfinanceloans portfolio; non-performing housing loans fully secured by firstmortgage

100. 0% All other assets (e.g., real estate assets) excluding those deducted fromcapital (e.g., deferred income tax)

150.0% All non-performing loans (except non-performing housing loans fullysecured by first mortgage) and all non-performing debt securities

* Not all inclusive

With respect to off-balance sheet exposures, the exposure amount is multiplied by a creditconversion factor (CCF), ranging from 0.00% to 100.00%, to arrive at the credit equivalentamount, before the risk weight factor is multiplied to arrive at the risk-weighted exposure. Directcredit substitutes (e.g., guarantees) have a CCF of 100.00%, while items not involving credit riskhas a CCF of 0.00%.

In the case of derivatives, the credit equivalent amount (against which the risk weight factor ismultiplied to arrive at the risk-weighted exposure) is generally the sum of the current creditexposure or replacement cost (the positive fair value or zero if the fair value is negative or zero)and an estimate of the potential future credit exposure or add-on. The add-on ranges from 0.00%to 1.50% (interest rate-related) and from 1.00% to 7.50% (exchange rate-related), depending onthe residual maturity of the contract. For credit-linked notes and similar instruments, the risk-weighted exposure is the higher of the exposure based on the risk weight of the issuer’s collateralor the reference entity or entities.

The risk-weighted CAR is calculated by dividing the sum of its Tier 1 and Tier 2 capital, asdefined under BSP regulations, by its risk-weighted assets. The risk-weighted assets, as definedby the BSP regulations, consist of all of the assets on the balance sheet at their respective bookvalues, together with certain other off-balance sheet items, weighted by certain percentagesdepending on the risks associated with the type of assets. The determination of compliance withregulatory requirements and ratios is based on the amount of EWBC’s ‘unimpaired capital’(regulatory net worth) as reported to the BSP, which is determined on the basis of regulatoryaccounting practices which differ from PFRS in some respects.

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In 2016 and 2015, EWBC has complied with the required 10.0% capital adequacy ratio of theBSP.

The policies and processes guiding the determination of the sufficiency of capital of EWBC havebeen incorporated in EWBC’s ICAAP which supplements the BSP’s risk-based capital adequacyframework under BSP Circular Nos. 538 and 639 to comply with the requirements of the BSP.While EWBC has added the ICAAP to its capital management policies and processes, there wereno changes made on the objectives and policies for the years ended December 31, 2016 and 2015.

EWBC has taken into consideration the impact of the foregoing requirements to ensure that theappropriate level and quality of capital are maintained on an ongoing basis.

The Group (excluding EWBC)Interest Rate RiskThe Group’s exposure to the risk for changes in market interest rates relates primarily to theGroup’s long-term debt obligations with a floating interest rate. The Group’s interest rateexposure management policy centers on reducing the Group’s overall interest expense andexposure to changes in interest rates. The Group’s policy is to manage its interest cost using a mixof fixed and floating interest-rate debts. The Group regularly monitors available loans in themarket which is of cheaper interest rate and substitutes high-rate debts of the Group.

The Group’s long-term debt with floating interest rate usually mature after three (3) to five (5)years from the date of availment, while fixed term-loans mature after five (5) to ten (10) years.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates,with all other variables held constant, of the Group’s profit before tax and equity (through theimpact on floating rate borrowings). There is no other impact on the Group’s othercomprehensive income other than those already affecting the profit and loss.

Increase (decrease)in basis points

Effect on incomebefore income tax(In Thousands)

2016 +200 (P=92,589)-200 92,589

2015 +200 (P=111,106)-200 111,106

The following table sets out the carrying amount by maturity, of the Group’s long-term debts thatare exposed to interest rate risk:

91-Day Treasury Bills/91-Day PDST plus 1% to 2% marginBelow 1 Year 1 to2 Years >2 to3 Years >3 to 4 Years Over 4 Years Total

As of December 31, 2016 P=1,338,753 P=947,125 P=1,941,334 P=22,222 P=379,995 P=4,629,429As of December 31, 2015 1,430,742 447,900 1,519,367 1,839,060 318,241 P=5,555,310

Liquidity RiskThe Group seeks to manage its liquidity profile to be able to finance capital expenditures andservice maturing debts. To cover its financing requirements, the Group uses internally generatedfunds and available long-term and short-term credit facilities.

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As part of its liquidity risk management, the Group regularly evaluates its projected and actualcash flows. It also continuously assesses conditions in the financial markets for opportunities topursue fund raising activities, in case any requirements arise. Fund raising activities may includebank loans and capital market issues. Accordingly, its loan maturity profile is regularly reviewedto ensure availability of funding through an adequate amount of credit facilities with financialinstitutions.

Overall, the Group’s funding arrangements are designed to keep an appropriate balance betweenequity and debt, to give financing flexibility while continuously enhancing the Group’sbusinesses.

The following table summarizes the maturity profile of the Group’s financial assets held tomanage liquidity as of December 31, 2016 and 2015 based on contractual undiscounted payments:

December 31, 2016

On demandLess than3 months

3 monthsto 1 year

> 1 yearto 3 years

>3 yearsto 5 years Over 5 years Total

(In Thousands)Loans and ReceivablesReal Estate Operations Cash and cash equivalents P=389,888 P=2,559,032 P=− P=− P=− P=− P=2,948,920 Contracts receivable 1,726,492 1,065,315 2,508,276 4,424,425 1,775,396 10,954,041 22,453,945 Receivable sale of commercial lots 769,022 − − − − 769,022 Receivable from government and other

financial institutions − − 538,979 − − 538,979 Receivable from tenants 697,060 − − − − 697,060 Due from related parties 9,077 − − − − 9,077 Receivable from homeowners association 72,139 − − − − 72,139 Others 905,530 − − − − 905,530

4,569,208 3,624,347 3,047,255 4,424,425 1,775,396 10,954,041 28,394,672Power Generation Operations Cash in bank P=20 P=− P=− P=− P=− P=− P=20 Trade receivables − 1,459,000 − − − − 1,459,000

20 1,459,000 − − − − 1,459,020Sugar Operations Cash in bank 8,732 − − − − − 8,732

Trade receivables 198 − − − − − 198 Others 1,787 − − − − − 1,787

10,717 − − − − − 10,717Hotel Operations Cash in bank 77,976 − − − − − 77,976 Trade receivables 43,098 − − − − − 43,098 Due from a related party 4,660 − − − − − 4,660

125,734 − − − − − 125,734Others Cash in bank 2,486 − − − − − 2,486

P=4,708,165 P=5,083,347 P=3,047,255 P=4,424,425 P=1,775,396 P=10,954,041 P=29,992,629

December 31, 2015

On demandLess than3 months

3 monthsto 1 year

> 1 yearto 3 years

> 3 yearsto 5 years Over 5 years Total

(In Thousands)Loans and ReceivablesReal Estate Operations Cash and cash equivalents P=1,234,055 P=2,427,556 P=− P=− P=− P=− P=3,661,611 Contracts receivable 717,303 1,006,210 3,190,725 5,263,020 1,652,193 9,443,100 21,272,551 Receivable sale of commercial lots 80,671 109,854 295,239 477,744 198,169 − 1,161,677 Receivable from government and other

financial institutions − − 546,341 − − − 546,341 Receivable from tenants 409,730 31,633 3,942 7,375 15,077 − 467,757 Due from related parties 285,174 − − − − − 285,174 Receivable from homeowners association 218,595 − − − − − 218,595 Others 423,384 − − − − − 423,384

3,368,912 3,575,253 4,036,247 5,748,139 1,865,439 9,443,100 28,037,090

(Forward)

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December 31, 2015

On demandLess than3 months

3 monthsto 1 year

> 1 yearto 3 years

> 3 yearsto 5 years Over 5 years Total

(In Thousands)Power Generation Operations Cash in bank P=212,216 P=− P=− P=− P=− P=− P=212,216 Trade receivables − 629,294 − − − − 629,294

212,216 629,294 − − − − 841,510Sugar Operations Cash in bank 65,660 − − − − − 65,660 Others 553 − − − − − 553

66,213 − − − − − 66,213Hotel Operations Cash in bank 27,153 − − − − − 27,153 Trade receivables 42,702 − − − − − 42,702 Due from a related party 2,629 − − − − − 2,629

72,484 − − − − − 72,484Others Cash in bank 2,353 − − − − − 2,353

P=3,722,178 P=4,204,547 P=4,036,247 P=5,748,139 P=1,865,439 P=9,443,100 P=29,019,650

The tables below summarize the maturity profile of the Group’s financial liabilities as ofDecember 31, 2016 and 2015 based on contractual undiscounted payments.

December 31, 2016

On demandLess than3 months

3 monthsto 1 year

>1 year to3 years

>3 years to5 years

Over5 years Total

(In Thousands)Accounts payable, accrued

expenses and other liabilities Accounts payable P=8,989,600 P=488,777 P=261,460 P=100,877 P=− P=− P=9,829,714 Asset retirement obligation − − − − 452,486 − 452,486 Accrued expenses 948,259 − − − − − 948,259 Deposits for registration and

insurance − 382 157,842 577,942 220,742 334,177 1,291,085 Retention fees payable 3,351,773 574,277 123,524 10,007 482,522 269,067 4,811,170 Accrued interest 744,916 − − − − − 744,916 Deposits 1,488,579 − − − − − 1,488,579 Other payables 874,326 − − − − − 874,326

16,397,453 1,063,436 542,826 688,826 1,155,750 603,244 20,451,535Long-term debt − 535,833 2,454,369 19,518,877 46,265,675 44,222,158 112,996,912Liability on IPP Administrator

contract − 242,278 747,691 2,223,866 2,592,924 1,713,846 7,520,605P=16,397,453 P=1,841,547 P=3,744,886 P=22,431,569 P=50,014,349 P=46,539,248 P=140,969,052

December 31, 2015

On demandLess than3 months

3 monthsto 1 year

>1 year to3 years

>3 years to5 years

Over5 years Total

(In Thousands)Accounts payable, accrued expenses

and other liabilities Accounts payable P=7,977,073 P=1,659,151 P=975,853 P=1,998,348 P=408,313 P=− P=13,018,738 Receivables sold to bank − − 4,812 2,515 − − 7,327 Accrued expenses 486,709 274,553 − − − − 761,262 Deposits for registration and

insurance − 602 248,244 908,953 347,171 525,573 2,030,543 Retention fees payable 493,826 494,717 155,384 2,104,270 414,687 235,957 3,898,841 Accrued interest 250,727 419,737 23,666 − − − 694,130 Deposits 204,270 123,051 555,335 218,364 28,934 − 1,129,954 Other payables 269,918 − − − − − 269,918

9,682,523 2,971,811 1,963,294 5,232,450 1,199,105 761,530 21,810,713Short-term debt – 250,000 2,496,100 – – – 2,746,100Long-term debt − 99,307 2,268,832 9,304,307 25,500,692 57,693,577 94,866,715Liability on IPP Administrator

contract − 222,996 691,921 2,059,135 2,400,856 3,060,614 8,435,522P=9,682,523 P=3,544,114 P=7,420,147 P=16,595,892 P=29,100,653 P=61,515,721 P=127,859,050

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Credit RiskIt is the Group’s policy that buyers who wish to avail the in-house financing scheme are subject tocredit verification procedures. Receivable balances are being monitored on a regular basis andsubjected to appropriate actions to manage credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprisecash and cash equivalents and financial assets at amortized costs, the Group’s exposure to creditrisk arises from default of the counterparty, with a maximum exposure equal to the carryingamount of these instruments.

The table below shows the comparative summary of maximum credit risk exposure on assets as ofDecember 31, 2016 and 2015.

2016 2015(In Thousands)

Loans and ReceivablesReal Estate

Cash and cash equivalents P=2,948,920 P=3,661,611Contracts receivable 22,453,945 21,272,551Receivable from sale of commercial lots - net 769,022 1,161,677Receivable from government and other financial

institutions 538,979 546,341Receivables from tenants 697,060 467,757Due from related parties 9,077 285,174Receivables from homeowners association - net 72,139 218,595Others 905,530 423,384

28,394,672 28,037,090Power Generation

Cash and cash equivalents 20 212,216Trade receivables 1,459,000 629,294

1,459,020 841,510Sugar

Cash and cash equivalents 8,732 65,660Trade receivables 198 −Others 1,671 553

10,601 66,213Hotel

Cash and cash equivalents 77,976 27,153Trade receivables 43,098 42,702Due from a related party 4,660 2,629

125,734 72,484Other Operations

Cash and cash equivalents 15,579 2,353Financial assets at FVTOCIQuoted equity securities 241,114 235,700Unquoted equity securities 180,111 179,719

421,225 415,419P=30,426,831 P=29,435,069

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The loans and receivable of sugar, hotel, power generation and other operations are neither pastdue nor impaired and are considered high grade. The table below shows the credit quality by classof asset for loan-related statement of financial position lines, based on the real estate operation’scredit rating system as of December 31, 2016 and 2015, based on the Group’s credit rating system.

2016Neither Past Due nor Impaired Past Due or

IndividuallyImpaired TotalHigh Grade

StandardGrade

(In Thousands)Cash and cash equivalents P=4,913,892 P=− P=− P=4,913,892Loans and receivables Contracts receivable 1,207,344 20,727,453 519,148 22,453,945 Receivable from government and other financial

institutions 538,979 − − 538,979 Receivables from tenants 174,134 503,710 19,216 697,060 Due from related parties 9,077 − − 9,077 Receivables from homeowners association − 72,139 − 72,139 Receivable from sale of commercial lots 769,022 − − 769,022 Others 739,807 165,723 − 905,530

P=8,352,255 P=21,469,025 P=538,364 P=30,359,644

2015Neither Past Due nor Impaired Past Due or

IndividuallyImpaired TotalHigh Grade

StandardGrade

(In Thousands)Cash and cash equivalents P=3,661,611 P=− P=− P=3,661,611Loans and receivables Contracts receivable 134,525 20,554,259 583,767 21,272,551 Receivable from government and other financial

institutions 546,341 − − 546,341 Receivables from tenants 102,218 288,493 77,046 467,757 Due from related parties 285,174 − − 285,174 Receivables from homeowners association − 36,567 182,028 218,595 Receivable from sale of commercial lots 1,003,316 − 158,361 1,161,677 Others 164,738 229,355 29,291 423,384

P=5,897,923 P=21,108,674 P=1,030,493 P=28,037,090

The analysis of financial assets as of December 31, 2016 and 2015 is as follows:

2016Neither past

due norimpaired

Past due but not impairedLess than

30 days30 to

60 days61 to

90 days91to

120 daysOver

120 days Subtotal Impaired TotalCash and cash equivalents P=4,913,892 P=− P=− P=− P=− P=− P= P=− P=4,913,892Loans and receivables

Contracts receivable 21,934,797 − 174,583 237,256 107,309 − 519,148 − 22,453,945Receivable from government and other

financial institutions 538,979 − − − − − − − 538,979Receivables from tenants 677,844 − 19,216 697,060Due from related parties 9,077 − − − − − − − 9,077Receivables from homeowners

association 72,139 − − − − − − − 72,139Receivable from sale of commercial

lots – net 769,022 − − − − − − − 769,022Others 905,530 − − − − − − − 905,530

P=29,821,280 P=− P=174,583 P=237,256 P=107,309 P=− P=519,148 P=19,216 P=30,359,644

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2015Neither past

due norimpaired

Past due but not impairedLess than

30 days30 to

60 days61 to

90 days91 to

120 daysOver

120 days Subtotal Impaired TotalCash and cash equivalents P=3,661,611 P=− P=− P=− P=− P=− P=− P=− P=3,661,611Loans and receivables

Contracts receivable 20,688,784 92,335 26,587 15,295 25,943 423,607 583,767 − 21,272,551Receivable from government and other

financial institutions 546,341 − − − − − − − 546,341Receivables from tenants 390,711 38,164 4,403 3,110 3,970 920 50,567 26,479 467,757Due from related parties 285,174 − − − − − − − 285,174Receivables from homeowners

association 36,567 86,014 − − − − 86,014 96,014 218,595Receivable from sale of commercial

lots - net 1,003,316 54,305 27,720 − − − 82,025 76,336 1,161,677Others 394,093 12,436 11,066 52 1,140 4,597 29,291 − 423,384

P=27,006,597 P=283,254 P=69,776 P=18,457 P=31,053 P=429,124 P=831,664 P=198,829 P=28,037,090

The Group’s high-grade receivables pertain to receivables from related parties and third partieswhich, based on experience, are highly collectible or collectible on demand, and of whichexposure to bad debt is not significant. Receivables assessed to be of standard grade are thosewhich had passed a certain set of credit criteria, and of which the Group has not noted anyextraordinary exposure which calls for a substandard grade classification.

Real Estate Operation Capital ManagementReal estate operation’s primary objective is to maintain its current sound financial condition andstrong debt service capabilities as well as to continuously implement a prudent financialmanagement program.

Real estate operation manage their capital structure and makes adjustments to it, in light ofchanges in economic conditions. It closely monitors its capital and cash positions and carefullymanages its capital expenditures such as land acquisitions, constructions and project developmentsand fixed charges. Real estate operation prefers to enter into joint venture arrangements withlandowners to develop land rather than purchasing land outright, which reduces its capitalrequirements and can increase returns. Furthermore, real estate operation may also, from time totime, seek other sources of funding, which may include debt or equity issues depending on itsfinancing needs and market conditions.

Real estate operation continues to fund its project developments using medium to long-termfinancing, which can help mitigate any negative effects of a sudden downturn in the Philippineeconomy or a sudden rise in interest rates.

When getting financing from the banks on a project-to-project basis, real estate operation usuallyfollows a gearing ratio of at least 60% loanable value versus total project costs.

Power Generation OperationPower operation’s primary objective is to effectively manage its cash flow position. For its IPPAdministrator contracts, cash flows are managed by ensuring that billings are prepared anddelivered promptly and by working closely with electric cooperatives to ensure timely collectionof receivables.

For the Group’s Misamis Power Plant, cash is sourced from the equity provided by the ParentCompany and from project finance loans provided by local banks. Expenditures anddisbursements are closely monitored to ensure that funds are available when needed.

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Sugar Operation Capital ManagementSugar operation manages their capital structure and makes adjustments to it in light of changes ineconomic conditions. It closely monitors its capital and cash positions and carefully manages itsexpenditures and disbursements. Furthermore, sugar operation also, from time to time seeks othersources of funding, which may include internal or external borrowings depending on its financingneeds and market conditions.

Sugar operation monitors capital using a gearing ratio which is total debt divided by total equity.They include within debt, accounts payable, accrued expenses and other liabilities, income taxpayable, due to related parties, short-term loan and long-term debt. Their policy is to keep thegearing ratio not to exceed 2.0:1.0.

Hotel Operation Capital ManagementHotel operation’s primary objective is to improve their profitability and continuously implement aprudent financial management program. Capital and cash positions are closely monitored andcarefully manages their expenditures and disbursements. Hotel operation considers their equity ascapital.

MSSI is subject to an externally imposed capital requirements by the BOI. Such requirementsprescribed that MSSI shall increase its equity to P=391.0 million equivalent to 25% of the totalproject cost. As of December 31, 2016 and 2015, MSSI was able to comply with the saidrequirement upon receipt of contribution of assets from The Parent Company.

Derivative Financial InstrumentsThe Group’s freestanding derivative financial instruments, which mainly consist of foreigncurrency forward contracts and swaps, and interest rate swaps, are transactions not designated ashedges.

The table below sets out information about the Group’s derivative financial instruments and therelated fair value as of December 31, 2016 and 2015:

Foreign Currency Forward Contracts and Swaps 2016 2015(In Thousands)

Notional amount USD152,969 USD163,113Derivative assets P=1,340,156 P=1,075,010Derivative liabilities 21,451 581

Interest Rate Swaps 2016 2015(In Thousands)

Notional amount USD20,000 USD20,000Derivative assets P=167,092 P=163,654Derivative liabilities 172,173 183,174

The derivative liability as of December 31, 2016 and 2015 are recorded under ‘other payable’account (see Note 21).

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The net movements in fair value changes of all derivative instruments are as follows:

2016 2015(In Thousands)

Balance at beginning of year P=1,054,909 P=514,803Net changes in fair value of derivatives

Designated as accounting hedges 268,410 565,748Not designated as accounting hedges (9,359) (1,616,224)

1,313,960 (535,673)Fair value of settled instruments

Not designated as accounting hedges (876) 1,590,582Balance at end of year P=1,313,084 P=1,054,909

Fair value changes of foreign currency forwards and swaps (not designated as accounting hedge)are recognized as Foreign exchange gain while fair value changes of interest rate swaps arerecognized as Trading and securities gain as part of “Other income” from the financial bankingand services.

Derivatives Designated as Accounting HedgesIn 2013, the Parent Company entered into two (2) seven (7)-year cross currency swaps (CCS) withan aggregate notional amount of $150.0 million to hedge its foreign currency risk arising from theUSD286.5 million fixed rate bonds issued by FDCI. The Group applies hedge accountingtreatment on these cross currency swaps after complying with hedge accounting requirements,specifically on hedge documentation designation and effectiveness testing.

Under the CCS agreements, the Parent Company receives fixed interest of USD at the rate of4.25% of the USD150.0 million total notional amount and pay fixed interest in Philippine Peso at5.98% and 5.78% of P=2.06 billion and P=4.09 billion, respectively, semi-annually on a 30/360 daycount basis. The notional amount of the cross-currency swap equals that of the debt, and all cashflows dates and interest rates coincide between the debt and the CCS.

The maturity date of the CCS contracts coincides with the maturity date of the hedged bonds(see Note 24).

Pertinent details of the CCS are as follows (amounts in millions):

Notional amount Trade date Effective date Maturity date Swap rateUSD100.00 April 3 2013 April 4, 2013 April 20, 2020 40.9

USD50.00 May17, 2013 May 20, 2013 April 20, 2020 41.2

As of December 31, 2016 and 2015, the fair value of the cross currency swaps designated ashedging instruments amounted to P=1.3 billion and P=1.07 billion, respectively, presented as part of“Other assets” in the consolidated statements of financial position (see Note 20). The netmovement on cash flow hedges amounted to P=128.5 million loss, net of deferred tax ofP=55.1 million, and P=150.3 million gain, net of deferred tax of P=64.4 million, for the years endedDecember 31, 2016 and 2015, respectively, and is presented in the consolidated statements ofcomprehensive income.

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Hedge Effectiveness ResultsSince the critical terms of the hedged bonds and the CCS match, except for one to two days timingdifference on the interest dates, the hedges were assessed to be highly effective. As such, theaggregate fair value changes on these CCS amounting to P=128.5 million and P=150.3 million in2016 and 2015, respectively, were recognized by the Group under “Net movement on cashflowhedges, net of tax” account in the consolidation statements of comprehensive income.

No ineffectiveness was recognized in the Group’s consolidated statements of income for the yearsended December 31, 2016 and 2015.

38. Offsetting of Financial Assets and Liabilities

The amendments to PFRS 7, which is effective January 1, 2013, require the Group to discloseinformation about rights of offset and related arrangements (such as collateral postingrequirements) for financial instruments subject to enforceable master netting agreements or similararrangements. The effects of these arrangements are disclosed in the succeeding tables.

Financial assets

December 31, 2016

Financial assetsrecognized at

end of reportingperiod by type

Gross carryingamounts (before

offsetting)

Gross amountsoffset in

accordance withthe offsetting

criteria

Net amountpresented in the

consolidatedstatements of

financialposition

[a-b]

Effect of remaining rights of set-off(including rights to set off financialcollateral) that do not meet PAS 32

offsetting criteria

Net exposure[c-d]

Financialinstruments

Fair value offinancialcollateral

[a] [b] [c] [d] [e](In Thousands)

Derivative assets (Note 20) P=1,507,248 P=– P=1,507,248 P=– P=– P=1,507,248

December 31, 2015

Financial assetsrecognized at

end of reportingperiod by type

Gross carryingamounts (before

offsetting)

Gross amountsoffset in

accordance withthe offsetting

criteria

Net amountpresented in the

consolidatedstatements of

financialposition

[a-b]

Effect of remaining rights of set-off(including rights to set off financialcollateral) that do not meet PAS 32

offsetting criteria

Net exposure[c-d]

Financialinstruments

Fair value offinancialcollateral

[a] [b] [c] [d] [e](In Thousands)

Derivative assets (Note 20) P=1,238,664 P=– P=1,238,664 P=– P=– P=1,238,664

Financial liabilities

December 31, 2016

Financial liabilitiesrecognized at

end of reportingperiod by type

Gross carryingamounts (before

offsetting)

Gross amountsoffset in

accordance withthe offsetting

criteria

Net amountpresented in the

consolidatedstatements of

financialposition

[a-b]

Effect of remaining rights of set-off(including rights to set off financialcollateral) that do not meet PAS 32

offsetting criteria

Net exposure[c-d]

Financialinstruments

Fair value offinancialcollateral

[a] [b] [c] [d] [e](In Thousands)

Derivative liabilities (Note 23) P=194,164 P=– P=194,164 P=– P=– P=194,164Bills payable* (Note 21) 437,233 – 437,233 – 437,233 –

P=631,397 P=– P=631,397 P=– P=437,233 P=194,164

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December 31, 2015

Financial liabilitiesrecognized at

end of reportingperiod by type

Gross carryingamounts (before

offsetting)

Gross amountsoffset in

accordance withthe offsetting

criteria

Net amountpresented in the

consolidatedstatements of

financialposition

[a-b]

Effect of remaining rights of set-off(including rights to set off financialcollateral) that do not meet PAS 32

offsetting criteria

Net exposure[c-d]

Financialinstruments

Fair value offinancialcollateral

[a] [b] [c] [d] [e](In Thousands)

Derivative liabilities (Note 23) P=183,755 P=– P=183,755 P=– P=– P=183,755Bills payable* (Note 21) 2,693,240 – 2,693,240 2,693,240 – 2,693,240

P=2,876,995 P=– P=2,876,995 P=2,693,240 P=– P=2,876,995* Included in bills and acceptances payable in the statements of financial position

The amounts disclosed in column (d) include those rights to set-off amounts that are onlyenforceable and exercisable in the event of default, insolvency or bankruptcy. This includesamounts related to financial collateral both received and pledged, whether cash or non-cashcollateral, excluding the extent of over-collateralization.

39. Registrations with the PEZA and CSEZ

On February 13, 2002, FLI, FAC and CPI were registered with Philippine Economic ZoneAuthority (PEZA) pursuant to the provisions of the Republic Act (RA) No. 7916 as the EcozoneDeveloper/Operator to lease, sell, assign, mortgage, transfer or otherwise encumber the areadesignated as a Special Economic Zone (Ecozone) to be known as Filinvest Technology Park-Calamba.

Under the registration, FLI shall enjoy 5% preferential tax privilege on income generated from theEcozone as opposed to the regular income tax rate.

On June 11, 2001, FAC was registered with PEZA as the developer/operator of PBCom Towerand as such it will not be entitled to any incentives, however, IT enterprises which shall locate inPBCom Tower shall be entitled to tax incentives pursuant to RA No. 7916.

On June 6, 2000, CPI was registered with PEZA as an ECOZONE Facilities Enterprise. As aregistered enterprise, it is also entitled to certain tax and non-tax benefits such as exemption frompayment of national and local taxes and instead a special tax rate of five percent (5%) of grossincome.

On December 15, 2015, PDDC was registered with PEZA as an ECOZONE Facilities Enterprise.As a registered enterprise, PDDC is entitled to certain tax and non-tax benefits such as exemptionfrom payment of national and local taxes and instead a special tax rate of five percent (5%) ofgross income.

FAC, CPI and PDDC are also entitled to zero percent (0%) value-added tax for sales toECOZONE enterprises.

On April 22, 2016, FMI was registered and granted a Permit-to-Operate s a Clark Freeportenterprise in Clark-Subic Economic Zone (CSEZ). As a registered enterprise, FMI is entitled to aspecial tax rate of five percent (5%) of gross income and tax exemption and duty-free importationin certain purchases directly related to its business activities as approved by CDC.

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40. Registration with the Board of Investments

The Group has registered the following New Developer of Low-Cost Mass Housing Projects withthe BOI under the Omnibus Investments Code of 1987 (Executive Order No. 226) as ofDecember 31, 2016:

Name Reg. No. Date RegisteredValle Dulce, Ph 1 2014-140 8/29/2014One Spatial Bldg. 1 (Fairmont) & Bldg. 2 (Greenwich) 2014-141 8/29/2014Sorrento Oasis, Ph 2 – Bldgs. K, L, N 2014-142 8/29/2014Maui Oasis, Bldg. 4 2014-143 8/29/2014Sorrento Oasis, Bldgs. M1 & M2 2014-204 11/12/2014Vinia Residences, Main Building 2014-205 11/12/2014One Oasis CDO, Bldg. 1 2014-212 12/4/2014Studio City Tower 2 2015-058 3/5/2015One Spatial Bldg. 3 (Hampstead) & Bldg. 4 (Kensington) 2015-228 10/27/2015Sorrento Oasis, Bldg. J 2015-229 10/27/2015Villa Montserrat, Ph. 1D 2015-261 11/15/2015Villa Montserrat, Ph. 3B 2015-262 11/15/2015Villa Montserrat, Ph. 3C 2015-263 11/15/2015One Oasis Davao, Bldg. 6 2015-264 12/2/2015Studio A 2016-008 1/8/2016Meridian Place 2016-030 2/5/2016Bali Oasis, Ph. 2 (Banjar) 2016-031 2/5/2016Anila Park Townhomes 2016-052 3/7/2016Futura Homes, San Pedro 2016-053 3/7/2016One Spatial (Richmond) 2016-244 12/1/2016One Spatial Iloilo 2016-243 12/1/2016Futura Homes Mactan Subdivision 2016-270 12/27/2016

As a registered enterprise, the Group is entitled to certain tax and nontax incentives, subject tocertain conditions.

41. Trust Operations

Securities and other properties held by EWBC in fiduciary or agency capacity for clients andbeneficiaries are not included in the accompanying consolidated statements of financial positionsince these are not assets of EWBC. The combined trust and managed funds operated by the TrustDepartment of EWBC amounted to P=11,990.0 million and P=6,735.6 million as ofDecember 31, 2016 and 2015, respectively.

Government securities with a total face value of P=183.6 million and P=86.9 million as ofDecember 31, 2016 and 2015, respectively, are deposited with the BSP in compliance with currentbanking regulations related to EWBC’s trust functions. These government securities are recordedas part of investment securities at amortized costs as of December 31, 2016 and 2015.

In accordance with BSP regulations, 10.0% of the profits realized by EWBC from its trustoperations are appropriated to surplus reserves. The yearly appropriation is required until thesurplus reserves for trust operations amounts to 20.0% of EWBC’s authorized capital stock.

EWBC’s income from its trust operations amounted P=18.6 million, P=17.0 million andP=20.4 million in 2016, 2015 and 2014, respectively.

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42. Events After Reporting Period

BSP authorization on the issuance of additional LTNCDOn January 12, 2017, the BSP granted EWBC authority to issue LTNCD, up to an aggregateamount of P=10.0 billion, with a quarterly interest rate to be set at PDST-R2 plus 50 basis points orless and a maturity of at least five years and one day and a maximum of ten years for each issue.EWBC is initially offering 5.5-year and 7-year tranches, to be issued in 2017.

Incorporation of Filinvest Lifemalls Mimosa, Inc. (FLMI) and Filinvest Cyberzone Mimosa,Inc. (FCMI)On January 23, 2017, the Group incorporated FLMI and FCMI, wholly-owned subsidiaries of FLIwith the primary purpose of acquiring by purchase, lease, donate and/or to own, use, improve,develop, subdivide, sell, mortgage, exchange, hold for investment and deal with real estate of allkinds. Both entities have not started their commercial operations.

Incorporation of Dreambuilders Pro, Inc. (DPI)DPI, a wholly-owned subsidiary of FLI, was incorporated on January 11, 2017. Its primarypurpose is to engage in general construction business, including constructions, enlarging, alteringand developing real estate of all kinds. DPI has not started its commercial operations.

Rescission of Purchase of the 19.2-hectare South Road Properties (SRP)In a letter to the Cebu City Mayor dated February 7, 2017, the Filinvest Consortium (whichincludes FLI, CPI and FAI) expressed its decision to rescind the Deed of Sale on Installment (DSI)covering its acquisition of the 19.2-hectare SRP lot from Cebu City Government (Cebu City) in2015. Under the DSI, Cebu City undertook to comply with several covenants, undertakings andobligations no later than February 7, 2016 (or 180 days from the execution of the DSI). The letterpointed out that as of date, the said covenants, undertakings and obligations have not beencomplied with and it does not appear that these will be complied with within a foreseeablereasonable period of time.

The rescission of the DSI shall only take effect upon return by Cebu City of the down paymentand instalment payments made to Cebu City by the Consortium, plus interests, within ninety (90)days from receipt of the letter in accordance with Section 5.7 of the DSI. Pending receipt of suchpayments, the DSI shall remain valid and subsisting by and among the parties. As of February 22,2017, details and processes to consummate the rescission are still being finalized, including thearrangements for the return of the down and installment payments made, plus interest.

The 19.2-hectare property mentioned above is a separate property from the other two propertieswithin the SRP which were acquired from Cebu City: a) the 40-hectare property under a jointventure undertaking with Cebu City; and b) the 10-hectare property which was already paid in fullby FLI to Cebu City.