2010 Financial

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OUR VISION
We are the Bank of choice, serving and caring beyond our heroes’ dreams living their
legacy of integrity, dynamism, commitment, honor and love of country.
OUR MISSION
Provide our customers with the highest standard of service in terms of delivery, continuous
improvement and adaptability to their needs.
Ensure sustained profitability and growth of the Bank.
Provide our employees with a healthy working environment that promotes career growth,
performance-driven recognition and personal well-being.
Ensure a reasonable return on the shareholders’ investments for their benefit and welfare.
The Philippine Veterans Bank is an
advocate of modern-day heroes who
strive to make a difference in the lives
of their fellowmen.
CONTENTS
04 Financial Highlights
06 Letter to Shareholders
10 Operational Highlights
• Branch Banking Group
• Treasury Group
• Lending Business Group
- Corporate Banking Division
- Investment Banking Division
- Retail Banking Division
• Trust Management Group
• Technology and
Business Information Group
• Human Resource and
Organizational Development Division
13 Corporate Social Responsibility
14 Risk Management
15 Corporate Governance
16 Board of Directors
18 Management Committee
20 List of Senior Officers
21 Products and Services
22 Branch Directory
26 Statement of Management Responsibility
for Financial Statements
27 Independent Auditor’s Report
29 Statements of Financial Position
30 Statements of Income
32 Statements of Comprehensive Income
33 Statements of Changes in Equity
37 Statements of Cash Flows
39 Notes to Financial Statements
4 Philippine Veterans Bank
Net Income
(P million)
Total Loans and Receivables (Net)
(P billion)
Earnings per Share
(Php)
Total Deposits
(P billion)
IN MILLION PHILIPPINE PESOS 2006 2007 2008 2009 2010
Gross Income 2,456.45 2,535.28 3,864.78 3,181.10 3,794.81
Total Expenses 2,039.25 2,006.62 3,458.42 2,756.54 3,285.88
Net Income 417.20 528.65 406.36 424.56 508.93
Total Resources 29,603.86 36,396.02 45,587.29 51.790.47 58,075.41
Total Deposit Liabilities 23,572.48 29,624.61 37,127.62 43,013.79 46,357.74
Loans and Receivables - net 12,369.93 13,813.89 19,133.99 22,245.93 23,419.10
Trading and Investment Securities 4,650.52 1,877.39 6,730.69 8,635.96 9,236.58
Capital Funds 4,187.72 4,432.60 4,671.34 4,955.48 5,407.88
Earnings per Share (PhP) 15.35 19.75 14.92 15.66 18.99
Return of Average Assets (%) 1.64 1.65 1.01 1.10 0.93
Return of Average Equity (%) 10.39 12.17 9.05 10.80 10.05
Total Resources
(P billion)
Capital Funds
(P billion)
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10
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08
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10
0 1 2 3 4 5 6
10
15
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05 06 07 08 09
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0 5 10 15 20 25
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5 2010 Annual Report
2010 Financial Highlights
7 2010 Annual Report
COL. EMMANUEL V. DE OCAMPO
Chairman of the Board
RICARDO A. BALBIDO, JR.
President & Chief Executive Officer
Our Fellow Shareholders,
Of the many stories that defined the year 2010 for the
Philippine Veterans Bank, the most compelling ones are
those that took place not within the year itself, but almost
seven decades earlier. These are the stories of the unsung
heroes of World War II that the Bank helped bring to light
through World War II True Stories Contest co-sponsored
by PVB, the Philippine Daily Inquirer and the Department
of Education.
One of the winning stories involves a young man who
joined the guerilla forces at the age of 18 and helped put
up a camp in town of Tagoloan, Misamis Oriental. His
story of experiencing an attack by the Japanese, barely
surviving after being left behind, only to search for his
comrades afterwards to rejoin his unit, is an awe-inspiring
tale of bravery and patriotism.
This is only one of the many narratives of young Filipinos
who rose above their own personal concerns and showed
bravery beyond their years to aid the struggle for our
Nation’s freedom.
There are many other stories like this, of otherwise
ordinary people who did extraordinary things during the
war. These stories prove what we in PVB believe—that the
spark of heroism exists in every Filipino, and that it only
needs to be fueled in order to ignite into greatness.
As the country’s only private commercial bank built on the
heroism of Filipinos, that is how we ultimately see our role.
Beyond delivering excellent banking services and providing
value to you, our shareholders, our role is to keep the spirit
of heroism alive, and to fuel this spirit in today’s Filipinos—
the workers, professionals, entrepreneurs, families,
companies and institutions—so they can fulfll their dreams
and aspirations. Our role is to empower.
Throughout 2010, the theme of empowerment resonated
strongly for PVB, as it did for the entire nation, which once
again exercised its power to determine our country’s future
by choosing a new set of leaders.
“Empowering today’s Filipino heroes” became the guiding
principle that inspired us this year in achieving our new
product innovations, improved services, expanded reach
and robust financial performance that we worked hard for
during the year.
We are happy to report that our hard work has yielded
excellent results.
It was a banner year for PVB in terms of profit, as the
Bank earned a record-high net income of P509 million for
the year, 20% higher than our P425 million net income in
2009. The main factors behind this record performance
include higher interest income, sizable gains from the
trading of securities and foreign exchange, and strategic
management of our investment portfolio.
The Bank’s total resources continued to grow as well. We
closed the year with P58 billion in total assets, while the
Bank’s capital base grew to P5.4 billion, a 9% increase
from the P5.0 billion reported the previous year.
With its Capital-Adequacy Ratio at 17.16% based on
Basel II standards, well above the minimum 10% required
by the Bangko Sentral ng Pilipinas, PVB proved itself once
again to be in a very robust state.
The growth in PVB’s resources stems mainly from the
continued increase in deposits, reaching a total of
P46.358 billion at the end of 2010. While the year proved
to be a challenging one in terms of marketing and fund
generation, we were able to meet the challenges through
our continued expansion and product innovations.
We opened 10 additional branches at the start of the
year, and relocated a couple of our existing branches to
better sites. With PVB establishing its presence in the
cities of Santiago, Pagadian, Koronadal, Pasay, Malolos,
Olongapo, Lipa, San Pablo, Kalibo and Tagbilaran, we
are now able to bring our distinctive brand of service
to a greater number of our countrymen throughout the
archipelago.
To better serve our growing number of depositors
throughout the country, we have completed the successful
transfer to Bancnet, the largest interbank network in the
Philippines. This gives our depositors round-the-clock
banking access to PVB via a network of 4,616 ATMs
nationwide.
Our deep insight into the needs of Filipino savers, gained
from 18 years of serving our diverse client base, helped
us in developing new products, a few of which we have
launched successfully last year. Our long-term deposits—
Maxi Return, Hyper Saver and Advantage Plus—are
ideal for individuals who wish to earn higher returns from
their savings. New Current and Savings Account (CASA)
variants offer our depositors an even greater range or
choices to meet their different needs.
The year also saw robust growth in PVB’s corporate
banking business, with its Trade Finance, Commercial
It was a banner year for PVB in terms of proft, as the Bank
earned a record-high net income of P509 million for the
year, 20% higher than our P425 million net income in 2009.
Letter to Shareholders

Letter to Shareholders
8 Philippine Veterans Bank
Banking and Government Credit and Specialized Lending
Departments all expanding their respective clientele and
posting significant increases in their portfolio.
Particularly notable is the increase in loans to Local
Government Units (LGUs), which went up by 21.74%
during the year to reach P4.77 billion. Vibrant lending to
the local government sector continued to be a key factor
in the growth of the Bank’s assets, while also serving as a
channel for it to support development in the countryside.
Some of these loans went into the construction of
projects important to the livelihood of many, such as a
slaughterhouse, irrigation system, public market, drainage
and water works systems as well as tourism projects.
Others provided much-needed financing for schools,
hospitals and relocation programs for informal settler
families. All in all, our loan assistance to LGUs this year
empowered 4 provinces, 13 cities and 15 municipalities
nationwide to undertake concrete projects that will help
improve the lives of their citizens.
For 2011 we have a clear view of the challenges ahead.
We are targeting a modest net income of P500 million,
given the intense competition in the market and the
prevailing low-interest regime. We also expect that the
increase in fuel prices will drive up inflation and dampen
economic growth and business expansion plans.
Our strategies for sustaining growth and achieving
our targets include continuing the expansion of our
branch network, especially in key cities; developing and
introducing new products in our Investment Banking
business; further optimizing our resources to support
programs of the government and private sectors; and
maintaining the efficient management of the Bank’s
investment portfolios.
In all this, we will not lose sight of our responsibility to the
heroes to whom this institution owes its very existence.
Going back to the story with which we opened this report,
it is just one example of the many narratives of heroism
that PVB now helps to keep alive for future generations.
We are pleased to report that our efforts to preserve
the inspiring stories of Filipinos during our World War II
received recognition in 2010 when PVB and its partners
were conferred an Anvil Award of Merit for the World War II
True Stories Contest. The success of this program serves
as our inspiration to sustain it in the coming years so we
can continue to give voice to the unsung heroes of World
War II.
With the guidance of our Board of Directors, and the
support of all the men and women of PVB, we hope to
make this institution even stronger, and to help create new
stories of real heroism in all aspects of life that will move
our nation closer to the greatness that we know it to be
capable of achieving.
Mabuhay ang mga Beterano, mabuhay ang mga bagong
bayaning Pilipino!
COL. EMMANUEL V. DE OCAMPO
Chairman of the Board
RICARDO A. BALBIDO, JR.
President & Chief Executive Officer
T
wo stories stood out in 2010: the victory of President
Benigno Simeon C. Aquino III in the presidential elections
in May and the stronger Philippine economy.
On the strength of a platform of combating corruption,
alleviating poverty and prudent fiscal management, without
disregarding needed social services, President Aquino
emerged victorious in the first-ever automated presidential
elections with a clear mandate from the Filipino people.
Fears of some sectors that there might not be a peaceful
transition of leadership did not materialize, and the Filipinos
once again proved that democracy works in this country.
The May national elections had a tremendous impact
on the economy. During the first half of the year, the
outgoing administration of President Gloria Macapagal-
Arroyo increased spending leading up to the elections.
This, along with election-related expenditures of national
and local candidates, fueled the growth of the economy.
GDP growth rates rose to 7.8% and 8.2% during the frst
and second quarters, respectively. Despite slowing down to
6.5% during the third quarter, full-year GDP growth stood
at 7.3% for 2010—the highest in over a decade and after
avoiding a recession in 2009.
The growth in 2010 was broad-based, led by
consumption and investments and supported by the
industry and services sector. Better conditions in the global
economy and economic out-performance in the Philippines’
key export markets likewise paved the way for sustainable
growth. The Philippines has not only withstood the last
downturn, but has also shown rapid economic recovery
over the last twelve months.
The economic growth would not have been possible
if not for the benign infation environment and outlook. The
Bangko Sentral ng Pilipinas (BSP) appropriately calibrated
its monetary policy to support economic growth and, at the
same time, kept infation at bay. The average infation for
2010 was 3.8%, well within its target range of 3.5 to 5.5
percent.
On the fiscal front, the Aquino administration made
sustainability as a top priority and an integral part of its
governance agenda. A set of clear medium-term strategies
wereimplementedtoensureachievement of itsfscal goals—
stringent tax enforcement, tight expenditure discipline,
sustainable defcits and prudent debt management. The
National Government recorded a budget defcit of P314.4
billion in 2010, lower than the programmed deficit of P325
billion as it immediately executed zero-based budgeting,
improved revenue collections and reduced debt stock and
debt service repayments.
The country’s Balance of Payments posted an
unprecedented surplus of US$14.4 billion as of end-
December 2010, which allowed it to build up international
reserves and ensure external debt sustainability. This was
on the back of rapid export growth, robust remittances and
BPO receipt. Gross International Reserves and Overseas
Filipino Workers’ remittances expanded to a record
US$62.4 billion and US$18.8 billion in 2010, respectively.
Both of these have strengthened the country’s resilience
against external shocks. The Philippines has transformed
itself into a country with sustained structural current account
surpluses and rapid reserve accumulation.
On the financial markets, the BSP was able to keep
domestic interest rates and money supply broadly adaptive
to growth. BSP’s overnight borrowing and lending rates were
held steady at 4% and 6%, respectively, throughout 2010.
Treasury Bills rates fell signifcantly in 2010 as market
investors hastened to park their excess funds in government
securities. The 91-day T-bill primary market rates dropped
to a historical low of 0.775% in November 2010 after
reaching a high of 3.987% for the year and averaging at
3.634%. The yields of Fixed Rate Treasury Bonds likewise
fell by almost 215 basis points across all tenors. The ROP
Dollar-denominated bond prices appreciated by as much
as US$18, or a drop in yields by 2.25% during the year, due
to the strong demand for emerging market assets.
The Philippine stock market also gained from the
positive outlook of the Philippine economy. The index
surged by 43%, from 2,469 in 2009 to 3,523 in 2010.
Due to the positive sentiments towards the emerging
markets, the US dollar-peso exchange rate appreciated
immensely towards end of 2010. It closed at 43.84 in 2010
vis-à-vis 2009’s 46.20 and 2008’s 47.50. This was boosted
by the sustained inflow of OFW remittances, portfolio
inflows, foreign direct investments, and the booming
business process outsourcing (BPO) industry.
The Philippine Banking system remained resilient and
has shown adequate growth in line with the economic
expansion. Solid asset quality and more than adequate
capitalization continue to characterize the banking system.
The system-wide non-performing loans and assets have
declined. It has played an important and dynamic role in the
achievement of economic development.
All economic indicators pointed to a strong economic
performance of the country in 2010. The outcome of the
last Presidential election boosted both investor sentiment
and the country’s credit ratings. It was regarded by
the international market as a positive development for
the Philippines, and could signal a more stable political
transition.
The honeymoon is over, and there is a lot more work
to be done. 2011 is expected to be more difficult given the
higher food and fuel prices and, most recently, the Middle
East and North Africa events and the Japan earthquake,
all of which will have a negative impact on the Philippine
economy. The Aquino administration will have its hands full
as it tries to keep growth close to the 2010 level. It has
already promised to increase spending in infrastructure
projects to counter these downside risks. 2011 will be a
challenging year for the whole economy.
9 2010 Annual Report
REVIEW OF PHILIPPINE ECONOMY IN 2010
Letter to Shareholders
10 Philippine Veterans Bank 11 2010 Annual Report
Branch Banking Group
As part of the Bank’s strategy to grow its business and
meet the needs of its customers, the Branch Banking
group started the year 2010 in a big way—with the
successful simultaneous opening of 10 additional
branches across the country in January under its “10 in
2010” expansion program. With Philippine Veterans Bank
(PVB) opening its doors in Santiago, Pagadian, Koronadal,
Pasay, Malolos, Olongapo, Lipa, San Pablo, Kalibo and
Tagbilaran, the bank has expanded its network to a total
of 60 branches nationwide. Later during the year, the Bank
also relocated its existing branches in Baguio and Clark to
new sites to better serve clients in those areas.
Complementing the growth of PVB’s branch network
is the successful transfer to Bancnet, the biggest ATM
network in the country. Along with the installation of 33
additional ATM units, joining Bancnet gives clients easier
and more convenient round-the-clock access to bank
deposit services throughout the country.
Total deposits for the year reached P46.358 billion,
with private deposits increasing by P2.575 billion, and
government deposits by P772.0 million compared to
2009.
To meet the diverse needs of different clients, PVB
introduced and marketed new products during the year.
For long-term deposit products, the Bank launched
the Maxi Return, Hyper Saver and Advantage Plus—all
high-yield time deposits that come with free insurance
coverage. For Current and Savings Accounts (CASA),
the Bank now have the Regular Current Account with
Passbook, ATA Savings Account, Interest-bearing Current
Account with Passbook, Current Account with passbook
and ATM and ATA Current Account. All these new
products received good response from our clients.
With the proven reliability of the Bank’s Cash
Management and other deposit-related services, PVB
was able to secure more clients, including all branches
of the Philippine Gaming and Amusement Corporation
(PAGCOR), which now rely on PVB for their Money
Counting and Deposit Pick-up services.
Among its’ existing clients, the Bank saw an increase in
the transactions of the National Collection Office for the
Land Regulatory Administration and Registry of Deeds.
For the Bureau of Internal Revenue, the Bank started
offering Payment and Collection services at our property
on Paseo St., Makati after securing the approval of the
Bangko Sentral ng Pilipinas to operate under the category
“Other Banking Office” at the location.
Operational Highlights
of US dollar-denominated Republic of the Philippines
(ROP) bonds to individual clients. The marketing unit also
gave additional funding support to the Bank with the peso
and foreign currency deposits of its clients growing by
92% and 20%, respectively.
The Group’s foreign exchange trading profted from the
favorable environment created by huge swings in the
USD/Peso spot market. While the volume of trading
did not grow significantly, income still jumped by 322%
compared to the previous year. Sales of foreign currencies
to commercial clients likewise increased by 30%.
As a government depository, PVB is required to invest
50% of all government funds held in government
securities—another channel by which the Bank supports
national development by providing additional funding
for government projects. The challenge to the Treasury
Group is to maximize the returns from such securities.
Early in the year, the Group saw a good opportunity to
invest in securities with longer terms for greater returns
and for capital appreciation. Coupled with a more strategic
approach to portfolio management, this move paid off as
net revenue from funds showed considerable growth of
158% and 216% in Peso and Foreign Currency Deposit
Unit (FCDU) books, respectively.
PVB continued to be a provider of liquidity in both
Peso and FCDU interbank markets. The Treasury
Group maintained suffcient high-quality liquid assets
for its regular banking operations as well as for various
contingencies, primarily relying on proven management
tools that have been useful in accurately projecting cash
fow. Treasury actively participated in the Internal Capital
Adequacy Assessment Process (ICAAP), and headed
the technical committee on Market and Liquidity Risk.
This Further strengthened the overall liquidity of the Bank
and established standards based on international best
practices.
For 2011 and beyond, Treasury commits to continue
managing the Bank’s investment portfolios efficiently,
sustaining a healthy liquidity level, and delivering good
returns to the shareholders.
Lending Business Group
Corporate Banking Division
The principal player in PVB’s lending group, the
Government Credit and Specialized Lending Department
(GCSLD), had an outstanding year in 2010, having posted
total outstanding loans of P10.4 billion—more than one
third of the Bank’s total loan portfolio of P30.53 billion.
Through the P4.77 billion worth of loans released to
Local Government Units (LGUs) in 2010—21.74% higher
than the previous year’s—released by the department,
PVB financed the income-generating and essential
government projects for 4 provinces, 13 cities and 15
municipalities nationwide. The amount went into building
slaughterhouses, irrigation systems, public markets,
drainage and water works systems, schools, hospitals,
tourism projects and relocation sites for informal settlers.
Besides the LGU loans, the department also provided
fnancing to GOCCs worth P4.23 billion, monetized
Internal Revenue Allotments worth P54.4 million, and lent
P2.27 billion to private corporations.
The portfolio growth generated revenues of P585.04
million in 2010, a substantial increase of 73.23% over the
previous year’s P337.71 million. It also generated P7.82
billion in deposits, making up 75.19% of GCSLD’s funding
requirements.
For 2011, the GCSLD will continue to optimize its
resources in support of the programs of the National
Government as well as the private sector.
The Commercial Banking Division (CBD) saw further
diversifcation of its clientele this year. The total loan
portfolio of the CBD has made a substantial 60% increase
from P2.32 billion in 2009 to P3.71 billion for the year. It
also contributed 15% of the total interest collection and
11.5% of the total fee-based income of its division.
Despite the unsteady volume of trade business and
the volatility in the fnancial markets, the Trade Finance
Department (TFD) posted a total portfolio of P6.21 billion
in 2010, a hefty increase from last year’s P3.21 billion,
and the highest level ever reached by the Department in
incremental bookings.
Trade-related transactions generated P47.69 million in
income from fees, up by 91.76% from last year’s P12.17
million. Despite the dip in interest rates in the last quarter
of the year, TFD still managed to raise its total income to
P246.57 million from the previous year’s P230.71 million.
A total of US$97.50 million worth of Letters of Credit were
opened during the year. One of these is the biggest Letter
of Credit opened to date in the defense industry for the
importation of utility helicopters from Poland. The TFD
also participated in a Corporate Note offering for a food
manufacturing company and a loan facility for a global
hotel franchise.
The Bank also added around 110 new major accounts for
Deposit Pick-up, ATM payroll, Notes and Coins supply,
Timekeeping and Automatic Debit services.
As the principal depository of the National Housing
Authority, the national government agency mandated
to engage in shelter production to benefit the poorest
30% of the urban population, PVB was recognized for
its contribution to the National Shelter Program when it
received the Gawad Parangal Award.
For 2010, all PVB branches passed the audit with an
“Adequate” rating. The Bank also prepared well for the
January 2011 implementation of BSP Circular 681, which
sets new processes for check clearing and settlement, with all
PVB branches positioned for the change ahead of schedule.
Treasury Group
The Treasury Group remained as one of the Bank’s main
source of income in 2010, with all its three departments—
the Fund Management and Portfolio Department (FMPD),
Treasury Marketing Department (TMD) and Correspondent
Banking Department (CBD) contributing to this
achievement.
With the improvement in the Philippine economy in 2010,
local interest rates dropped significantly and resulted in
an unprecedented level of trading activity in the capital
markets, particularly for government securities. As a
dealer, the Treasury Group seized this opportunity and
realized gains of P255.8 million from trading fixed income
securities, an increase of 660% over the previous year,
while remaining conservative in its trading risks. The
volume of trading grew by 123% for peso-denominated
securities, and 161% for dollar-denominated bonds.
As a broker, PVB’s sales of fixed income securities to
clients grew by a record 214%, resulting in a 192%
increase in commissions, which boosted the Group’s
income for the year. Its’ most significant accomplishment
in brokering during the year was carrying out its role as
selling agent for the Power Sector Assets and Liabilities
Management Corp. (PSALM) retail bond offering.
This marks the frst time PVB became a broker for a
security issued by a Government-Owned and Controlled
Corporation (GOCC). This also expanded our client base,
as the majority of corporate and individual investors in the
bond were first-time clients of the Bank.
Other transactions by the Treasury Group during the
year were the sell-down of the Burley Tobacco Internal
Revenue Notes (BT-IR), a Local Government Unit (LGU)
bond issue, to various investors, and the aggressive sale
12 Philippine Veterans Bank 13 2010 Annual Report
Retail Banking Division
The Philippine real estate market, which has weathered
the economic downturn in 2008 and 2009, emerged even
more vibrant in 2010. With stiff competition in the real
estate loans industry, PVB’s housing mortgage portfolio
took a slight dip, ending the year with P2.22 billion in
total loans, compared to the previous year’s P2.31 billion.
Despite this, interest and other income of the Retail
Banking Division still grew from P225.1 million in 2009 to
P259.8 million, an increase of 13%.
The three units under the Division—Mortgage Banking,
Assignment of Receivables Financing and Group Plans
& Others—concentrated on establishing tie-ups with real
estate developers, encouraging branch referrals, as well as
maximizing opportunities to market the Bank’s loan products
at open-houses and ground breaking ceremonies.
The division continued to implement its innovative
marketing promotions, namely “Member-Get-Member”
and the “Refer-A-Borrower” internal campaign, both of
which remained regular sources of account referrals. To
further support these, PVB launched its Housing Loan
radio campaign, with its 30-second radio commercial
airing on top-rating AM and FM radio stations six to
seven times from Mondays to Sundays, raising the public
awareness of Bank’s housing loan offers.
Trust Management Group
PVB’s Trust and Investment Division (TID) was reorganized
in April 2010 into the Trust Management Group (TMG) to
expand its trust services and in response to the changing
fnancial market. The newly-renamed group has been
active in customizing and managing its range of non-
traditional trust products such as Safekeeping, Escrow
Arrangements, Mortgage Trust Indenture, Facility and
Paying Agent to various LGU accounts.
Total assets held in trust increased signifcantly by
27.84%, reaching P10 billion in 2010 compared to P8
billion in 2009. This increase was derived from Investment
Management accounts. Investments of TMG clients
increased despite tight competition in the market, thanks
to improved satisfaction and confidence among our
customers brought about by constant communication.
TMG is committed to becoming an even stronger partner
of other business units of the Bank and developing new
products that will cater to the needs of the client and
create more opportunities for profit and expansion.
Investment Banking Division
The Investment Banking Division (IBD) formerly known
as the Corporate Finance Division (CFD) completed
its second year of operations in 2010 as one of the
marketing units of the Bank under the Lending Business
Group. IBD earns income primarily on fees collected from
loan packaging and origination of investment and credit
instruments maintained by other business units such as
the Retail Banking Division (RBD), Corporate Banking
Division (CBD), Trust & Investment Group (TIG), Asset
Recovery Division (ARD) and Treasury Group.
At the end of 2010, IBD earned a total of P55.037 million
in total fees, at least P29.174 million of which are financial
arrangement fees.
IBD has contributed significantly to the growth of the
Bank’s loan portfolio by originating loan accounts for
other business units, especially the Corporate Banking
Department. A total of P2.964 billion in loans released by
CBD in 2010 were originated by IBD, exceeding its target
for the year and surpassing its performance in 2009 by
21%. Over 90% of these loans were to first- and second-
class LGUs for the funding of infrastructure projects such
as a public market, medical center and hotel buildings.
The IBD engages private commercial banks to participate
in these LGU accounts by way of syndication and sell
down. In 2010, the department was able to sell down a
total face value of P501.69 million to top universal banks.
It has initiated the syndication and sell down of another
P3 billion to existing and new bank partners, which are
expected to add to its 2011 performance.
As part of its arrangement and cross-selling efforts, IBD
coordinated with the Bank’s business units to arrange the
successful transfer of the Internal Revenue Allotments of
its various LGU clients to the Bank’s own branches.
IBD also strengthened the Bank’s partnership with the
LGU Guarantee Corporation (LGUGC) with the objective
of developing local capital markets and improving the
participation of private banks in LGU fnancing. The
LGUGC’s P1 billion accreditation of PVB under its frst and
only Automatic Guarantee Line reduces the risk rating of
LGU debt instruments to 20% and allowed the cumulative
booking of at least P444.63 million.
IBD commits to constantly introduce and develop new
products that will bring in more fees and direct premiums,
while keeping the company’s expenses low.
Operational Highlights
focused on solving day-to-day problems. Phase 1 of this
program empowered employees to contribute to small
improvements within their respective departments. Phase
2 encouraged different departments to work together on
cross-functional problems through a Quality Circle Team.
In recognition of these efforts, the bank continues to give
rewards and recognitions every year to different units
for submitting quality SGAs. To further promote active
individual and team efforts in this area, the Department
also launched its TQM Reward Points Program that lets
employees earn points for every submission of SGA
Minutes, which may be used to redeem premium items.
The pursuit of quality includes looking at it from the
perspective of customers. Recognizing this, the Bank
continues to monitor customer feedback from the
branches through survey forms. This provides valuable
insights on their concerns so that they can be addressed,
and thus improve services. Among the various in-house
and external trainings for employees conducted during the
year, continuing customer service training and orientation
remained a top priority, supported by a customer service
audit to see how the training is being applied.
With the expansion of the Bank’s branch network in
2010 raising the need for additional manpower, HRODD
has shortened the hiring period and was able to fill up
85% of the job vacancies, while judiciously maintaining
strict standards in recruiting employees who will be part
of the bank’s operations through stringent character
and background checks. Emphasis was also given on
developing staff to be bank officers through the Officers
Training Program (OTP). This year, the bank is doing the
second batch of OTP to strengthen the middle layer of the
organization.
One of the year’s highlights is the harmonious completion
of the Collective Bargaining Agreement between the
Management Panel and the employees’ representatives
on November 10. The CBA essentially contains improved
benefits for the employees in terms of salary, leave
benefits, insurance coverage and allowances, as well as
enhanced job security.
The HRODD will continue to taken relevant interventions in
support of the management’s unceasing efforts to fulfill its
vision and make a difference in the lives of Filipinos.
Corporate Social Responsibility
PVB is built on a solid foundation of Corporate Social
Responsibility, which is central to its very existence as
an institution. Everything that the Bank does to ensure
profitability and growth is rooted in its commitment to the
Technology &
Business Information Group
In the past two years, PVB has been actively investing in
new enterprise applications to improve its competitiveness
in the market. Consequently, 2010 became a year of
fine-tuning and upgrades, essential for ensuring that the
Bank’s facilities are stable and responsive to the demands
of the business.
In response to the growing threats against computer
systems today, we have taken necessary steps to
maximize the security of the Bank’s data and applications
by upgrading our prevention and protection systems
against malware and intrusions.
Due to the fast growing number of ATM cardholders,
we have upgraded the Bank’s ATM facility, specifcally
its application and server capacity, to improve the
performance and reliability of the system.
Also, with the increasing number of electronic-based
services available at the Bank’s branches, we have
upgraded the capacity of its Wide Area Network by
quadrupling the bandwidth of all branches. This makes
transactions faster—a signifcant development in the light
of growing business in all branches.
On the business development front, the Information
Technology and Banking Systems Group continued
to roll out facilities in response to the needs of specific
clients. For some partner institutions, it developed a
system of reporting collections, managing and monitoring
contributions made, and combining foreign remittances
from tie-ups. For another client, it created a new system
to speed up the transaction reconciliation of issued and
cancelled checks.
These new systems are now part of the Bank’s growing
list of services that new clients can choose from.
Human Resource and Organizational
Development Division
In line with PVB’s efforts to maintain its resiliency
and adaptability in these changing times, the Human
Resources and Organizational Development Department
(HRODD) in 2010 sustained its efforts to foster
improvements within the organization, enhance customer
service and look after the welfare of its employees.
The Department continued to promote the principles
of Total Quality Management (TQM) throughout the
organization through Small Group Activities (SGA)
14 Philippine Veterans Bank 15 2010 Annual Report
welfare of the Filipino veterans of World War II, as well as
their widows and families.
Every year, twenty percent of the Bank’s net income
goes to the Board of Trustees for the Veterans of World
War II (BTVWWII). These funds are used to support the
Veterans Federation of the Philippines (VFP) Out-Patient
Center in Taguig and the VFP Museum. Thus, the Bank’s
outstanding income performance in 2010 translated to
more funds for two very important endeavors: providing
health care services to veterans and their dependents,
and preserving the artifacts that symbolize the veterans’
bravery and heroism for future generations to appreciate.
For 2010, the Bank’s commitment to honoring the
veterans stood out in two other programs.
First is the World War II Traveling Exhibit entitled “War of
Our Fathers” which the Bank brought to Palawan, Kalibo,
Tagbilaran, Metro Manila and Roxas City during the year.
This unique exhibit showcases vestiges from the war
including vintage photographs, coins, arms, and maps, to
give people greater awareness and understanding of the
historic event that has shaped the world. PVB will bring
this well-travelled exhibit to even more towns, cities and
provinces in the coming year.
Second is the World War II True Stories Contest, a
joint project between Philippine Veterans Bank and the
Philippine Daily Inquirer that entered its second year
in 2010. This story writing contest invites high school
students nationwide, aged 13 to 18 years old, to
personally interview World War II veterans and survivors
and write original stories about their firsthand recollection
of the war.
The value of this contest as an instrument for making the
history of World War II real and relevant in today’s world
was given recognition by The Public Relations Society of
the Philippines (PRSP), when it conferred an Anvil Award
of Merit on the program in the category of arts, culture,
heritage, and tourism.
This recognition, as well the success of the program in
bringing out the many previously untold heart-warming
stories of Filipinos during the war, serves as an inspiration
for PVB to continue the contest every year and encourage
more young Filipinos to become chroniclers of our nation’s
history, as seen through the eyes of ordinary citizens.
Risk Management
One of the major strategies of the Bank to ensure a
sustainable profitability and growth is to create a strong
risk management and internal control discipline. To that
end, PVB continuously develops processes to strengthen
risk management to match the Bank’s growth.
The Internal Capital Adequacy Assessment Process
(ICAAP) has been implemented by the Bank to ensure
that it has a strong capital position relative to its risk
undertakings. The ICAAP is a process that requires the
Bank to determine the capital adequacy plus cushion
vis-à-vis the risks that it is exposed to. This is not limited
to the Bank’s current operations but is a forward-looking
assessment based on its strategic direction. This way,
the Bank can strategically address most, if not all, of
the risks surrounding its activities in the past, present
as well as the future. Seeing the importance of this
process, the Bank formed an ICAAP Committee and its
Technical Committees that are tasked to focus on the
documentation and implementation of the assessment
process. As a consequence, operational processes,
such as fnancial planning/budgeting, were strengthened
to incorporate risk and capital measurement and
assessment. Similarly, the area of product development
now includes risk and control assessment.
As part of developing the risk management process, the Bank
has also been updating its contingency plans for operating
in stressful situations. The Liquidity Contingency Plan is
regularly reviewed to ensure that the Bank has adequate
funding in case of extremely large cash outflow requirements.
The Business Continuity Plans have also been updated to
keep them relevant to the changing times and to the Bank’s
evolving operational risk profile.
Of high priority is the advancement in technological systems. To
this end, the Bank has made considerable investments in the
data warehouse and risk engine that will automate the risk and
capital measurement processes in the areas of credit risk, market
risk and operational risk. While the initial infrastructure supports
only the standardized approach computations, the Bank has
already made plans to pursue more advanced approaches.
The Bank has acquired a system that will lay down the
foundation for the advanced approaches for credit risk
measurement. Since the Bank’s risk profile is concentrated
more on credit risk, it has acquired a credit default model
system. This will give the Bank the capability to compute
for the probability of default of its credit risk exposure
through complex statistical computations base on its
internal historical lending experience. This provides a more
robust quantitative basis in assessing the Bank’s credit risk
and in managing and pricing its portfolio.
In terms of risk governance, the Board of Directors has
been actively assessing its performance as the highest
governing body of the Bank. To maintain full independence
and avoid conflicts of interest, directors who are
members of the Audit Committee and Risk & Compliance
Committee are no longer being designated as members
of board committees with business recommendatory or
approving authorities. In doing so, it is implementing the
risk philosophy it advocates throughout the institution.
Moreover, a Corporate Governance Committee is
mandated to ensure the Board’s effectiveness and due
observance of the corporate governance principles and
guidelines. It shall oversee the periodic performance
evaluation of the Board and its committees and executive
management especially on the matters related to the
implementation of the Bank’s ICAAP.
Operational Highlights
Corporate Governance
With its unique heritage and history, Philippine Veterans
Bank firmly believes that a functioning and sound
Corporate Governance structure is a key element in its
business operations. The Bank owes its very existence to
the hundreds of thousands of World War II veterans and
their families, who are also the Bank’s shareholders. As
such, it makes a serious and conscious effort to achieve
transparency on basic management policies & processes,
business direction and operating results for its veteran-
shareholders and other external publics. True to its unique
legacy, it has also endeavored to adhere to fundamental
principles of moral integrity, professionalism and honor as
demonstrated by Filipino heroes and veterans of World
War II.
The Bank’s Board of Directors is the ultimate oversight
body for the Bank. It is responsible for setting business
strategies, establishing major policies, rules and
standards for the Bank’s risk management activities, as
well as monitoring business performance. The Executive
Committee (ExCom) functions as the Board’s operating
committee. It approves and oversees the Bank’s risk
management on a more detailed basis. The members of
the ExCom are all Directors.
The Audit and Risk & Compliance Committees are also
composed of members of the Board of Directors and are
supported by the Department Heads of Internal Audit, Risk
Management and Bank Compliance. The Audit and Risk
Committees are independent of the management function.
Reporting directly to the Bank’s Board of Directors,
the Committees also recommend new, additional or
changes to internal audit and risk programs, policies and
procedures.
The Credit Committee (CreCom) has the authority to
review, approve or recommend to the Board of Directors
approval of all credit and credit-related proposals,
programs, policies and procedures. Also composed of
members of the Board of Directors, the CreCom oversees
the entire credit management process.
The President & Chief Executive Offcer is mandated by
the Board to implement major business directions and
programs, and to lead the overall management of the
Bank. In turn, the Management Committee (ManCom), led
by the President/CEO and composed of the Bank’s most
senior line officers, oversee the day-to-day supervision of
the business.
The Assets and Liability Committee (ALCO) is chaired
by the President and is also composed of senior line
management officers. Its main function is to ensure that
at all times the Bank and its business units maintain
adequate liquidity, capital and funding to meet all business
requirements. ALCO is tasked to effectively manage
capital with strict adherence to the risk disciplines set by
the Board of Directors.
The Risk Management Department provides assistance in
the oversight of the Board of Directors. Its main function
is to identify, monitor, analyze and measure risks from the
Bank’s trading, position-taking, lending, borrowing and
other transactional activities. This department reports
directly to the Board of Directors.
The Internal Audit Department regularly examines and
reviews the extent and quality of the Bank’s adherence
to internal control policies & procedures. It provides an
independent appraisal of functional units and likewise
reports directly to the Bank’s Board of Directors.
The Bank Compliance Department reports directly to the
President. Its main function is to identify all relevant laws
and regulations or jurisdictions, and ensures the Bank’s
compliance. Likewise, it is charged with ensuring that all
new or amended compliance policies are communicated
and understood by all concerned banking units.
16 Philippine Veterans Bank 17 2010 Annual Report
Board of Directors
Emmanuel V. De Ocampo
Chairman
Umberto A. Rodriguez
Director
Vicente R. Buenaventura
Director
Antonio A. Balgos
Director
Eduardo P. Pilapil
Director
Ramon P. Miranda
Director
Ricardo A. Balbido, Jr.
President and Chief Executive Officer
Democrito T. Mendoza
Vice-Chairman
Romeo G. Roxas
Director
Francisco T. San Miguel
Director
Federico A. Manalo
Board Secretary
Renato C. Valencia
Board Advisor
18 Philippine Veterans Bank 19 2010 Annual Report
Management Committee
Ricardo A. Balbido, Jr.
President & CEO
Annabelle Y. Yong
Senior Vice-President
Teresita E. Logarta
Senior Vice-President
Jesus Vicente O. Garcia
Executive Vice-President
Roel S. Costuna
First Vice-President
Ma. Rosario A. Sabalburo
First Vice-President
Ignacio A. Manipula
First Vice-President
Camille Maricelle M. Canullas
Senior Vice-President
Rogerio B. Panlasigui
Senior Vice-President
Severo C. Leagogo
Executive Vice-President
Joselito Ricardo G. Nazario
Senior Vice-President
Evener H. Monzones
First Vice-President
20 Philippine Veterans Bank 21 2010 Annual Report
DEPOSIT ACCOUNT SERVICES
Savings Account
Checking Account
Time Deposit
Hyper Saver
Maxi Return
Advantage Plus
Premium Savings Account
Veteran Teller ATM Card
LOAN SERVICES
Commercial Loans
Industrial Loans
Salary Loans
Housing Loans
Special Financing Loans
Developmental Loans
Loan Syndications & Co-Financing
Pension Loans
Foreign Currency Deposit
INTERNATIONAL SERVICES
Import / Export Financing
Commercial Letters of Credit
Purchase and Sale of Foreign Currency
Travelers Cheques
Foreign Currency Loans & Advances
TRUST SERVICES
FUND MANAGEMENT SERVICES
• Individual/Corporate Portfolio Management
• Investment Management Agreement (IMA)
• Fund Management Employee Beneft
• Pre-need Fund Management
ESTATE PLANNING
• Living Trust Account - PVB Destiny Fund / Traditional
• Testimonial Trust
• Life Insurance Trust
OTHER SPECIAL TRUST AND FIDUCIARY SERVICES
• Safekeeping and Custodianship
• Escrow
• Guardianship/Administratorship/Executorship
• Mortage/Trust Indenture
• LGU Bonds Trusteeship
OTHER SERVICES
Collection of Notes
Veterans Assistance
Government Securities Dealership
SSS & BIR Collection
Barangay Coop
Special Lending programs
PVB Gift Checks
Investment Securities & Commercial Paper
Products and Services
OFFICE OF THE CHAIRMAN
Emmanuel V. de Ocampo
Chairman
Federico A. Manalo
Senior Vice-President
Ricardo G. Agustin
First Vice-President
Samuel V. Poblete
First Vice-President
OFFICE OF THE PRESIDENT
Ricardo A. Balbido, Jr.
President & Chief Executive Officer
Francis M. Puzon
First Vice-President
Ma. Lourdes D.O. de Guzman
First Vice-President
Edgardo P. Gidaya
Vice-President
Miguel Angelo C. Villa-Real
Vice-President
Marilou R. Tupaz
Asst. Vice-President
CREDIT RISK MANAGEMENT &
ASSET RECOVERY GROUP
Rogerio B. Panlasigui
Senior Vice-President
Ma. Rosario A. Sabalburo
First Vice-President
Roel S. Costuna
First Vice-President
Ma. Theresa T. Nacar
Asst. Vice-President
Ramon J. Uy
Asst. Vice-President
BANK OPERATIONS &
COMPTROLLERSHIP GROUP
Teresita E. Logarta
Senior Vice-President
Ignacio A. Manipula
First Vice-President
Ma. Flor B. Manaois
Asst. Vice-President
BRANCH BANKING GROUP
Jesus Vicente O. Garcia
Executive Vice-President
Evener H. Monzones
First Vice-President
Alfredo B. Santiago
Vice-President
Chona Victoria R. Guray
Asst. Vice-President
Evangelo B. Savellano, Jr.
Asst. Vice-President
Jose Francisco C. Ramos
Asst. Vice-President
Loida O. Cabatbat
Asst. Vice-President
Ma. Corazon M. Dauz
Asst. Vice-President
Ma. Daisy S. Sibya
Asst. Vice-President
Marie Jean J. Carranceja
Asst. Vice-President
Moises T. Carpio
Asst. Vice-President
Paul B. Tuazon
Asst. Vice-President
Renante B. Dela Cruz
Asst. Vice-President
Philippine Veterans Bank Senior Officers
LENDING BUSINESS GROUP
Severo C. Leagogo
Executive Vice-President
Annabelle Y. Yong
Senior Vice-President
Carlos Rheal B. Cervantes
Vice-President
Roberto R. Noceda
Vice-President
Ma. Justina M. Francisco
Asst. Vice-President
INFORMATION TECHNOLOGY &
BUSINESS SOLUTION GROUP
Camille Maricelle M. Canullas
Senior Vice-President
Edgardo S. Dajao
First Vice-President
Frederick P. Rosario
Vice-President
Ma. Melyn B. Ramos
Asst. Vice-President
TREASURY GROUP
Joselito Ricardo G. Nazario
Senior Vice-President
Catherine T. Magana
First Vice-President
Roderick A. Dones
Vice-President
TRUST & INVESTMENT DIVISION
Milagros C. Yuhico
First Vice-President
Ma. Virginia C. Saquido
Vice-President
SUBSIDIARIES
INTERVEST PROJECTS INC.
Ma. Teresa O. De Guzman
Senior Vice-President
BRANCH ADDRESS PHONE
METRO MANILA
MAIN SVC DEPT.
(MOSD)
PVB Building 101 Herrera corner
Dela Rosa Sts., Legaspi Village,
Makati City 1229
894-3919 local 445 or 8403639
751-5534 or 5533
ALTA VISTA PVB Building Aurora Boulevard corner
Katipunan Road, Quezon City 1105
913-4732; 437-5991
fax-913-4760
ANTIPOLO 182 P. Oliveros Street, Barangay
San Roque 1870
470-1892; 470-1879
fax-470-1892
CAMP AGUINALDO PVB Building Boni Serrano Avenue,
Camp Aguinaldo, Quezon City 1110
911-8964; 911-7329; 437-9849
fax-911-9293; 911-9295
CAMP CRAME PVB Building Boni Serrano Avenue
Camp Crame, Quezon City 1111
726-9707; 726-9712; 726-9714
fax-724-3103
GAGALANGIN PVB Building 2666 J. Luna St.,
Gagalangin, Tondo Manila 1013
252-7222; 252-7228
fax-252-7216
LAS PIÑAS Units 1-3 , The Palm Square Building
Alabang Zapote-Road, Las Piñas City 1740
799-7210;722-7205
fax-799-7210
MARIKINA PVB Building A. Tuazon cor. Redwood St.
San Roque, Marikina City
682-9102; 682-9104
fax-682-9103
MUNTINLUPA CVA Building National Road Putatan,
Muntinlupa City 1770
861-0392; 861-0452
fax-861-0413
PARAÑAQUE 8280 Buenamart Dr. A. Santos Ave.,
San Isidro, Paranaque City, 1700
820-4940; 820-4942; 541-8386
fax-820-4941
PASAY CITY Unit 9-B and 10-A Liberty Commercial Center,
Libertad St., Pasay City
556-4163; 556-4164
fax-556-6118
PORT AREA PVB G/F PPA Building A. Bonifacio Drive,
South Harbor, Port Area Manila 1018
524-5950; 524-9174
fax-524-9173
TAGUIG G/F, VFP MDC Building
Veterans Center, Taguig,
Metro Manila 1650
838-3886; 838-3888
fax-838-3887
TIMOG 130 Cabrera 1 Building, Timog Avenue,
Quezon City 1103
441-1809; 9207455
fax-441-1809
UP DILIMAN Ang Bahay Ng Alumni R. Magsaysay St., UP.
Campus, Diliman, Quezon City, 1101
434-7440; 434-7444 ; 434-5757
fax-434-7443
NORTHERN LUZON
BAGUIO West Burnham Palace Hotel, Kisad Road
corner Chanum Street Baguio City 2600
(074) 304-2858; (074) 304-2841
fax-(074) 443-5033
BALIUAG PVB Building Rizal corner Barrera Sts.,
Poblacion, Baliuag Bulacan 3006
(044) 766-5012; (044) 766-5013
fax-(044) 766-5014
CABANATUAN G/F Ramos Building Maharlika Highway,
Barrera District, Cabanatuan City 3100
(044) 940-2571; (044) 940-2573
fax-940-2574
CLARK CDC Bldg. 2126 CP Garcia St., CSEZ,
Clark Field, Pampanga
(045) 599-6684; (045) 893-4118
fax-(045) 599-6683
DAGUPAN G/F CAP Building Burgos St.,
Dagupan City 2400
(075) 515-8590; (075) 522-0895
fax-(075) 515-3209
LA UNION PVB Building P. Burgos St.,
San Fernando, La Union 2500
(072) 888-2982; (072) 700-2653
fax-(072) 242-4953; (072) 700-4953
LAOAG PVB Building Gen. Segundo Avenue,
Laoag City, Ilocos Norte 2900
(077) 771-5371; (077 )770-3188
fax-(077) 770-3187
LINGAYEN RBP Bldg. Avenida Rizal west Avenue,
Poblacion Lingayen, Pangasinan 2401
(075) 542-3849; (075) 662-1010
fax-(075) 542-3850
MALOLOS, BULACAN MTKJ Building Paseo del Congreso,
Malolos City, Bulacan
(044) 796-2025; 796-2239
fax-796-2299
OLONGAPO Saver’s Digital Hub, Appliance Depot Building,
Rizal Avenue, West Tapinac,
Olongapo City, Zambales
(047) 222-8385; (047) 222-8382
fax (047) 222-8384
PANIQUI PVB Building, Zamora corner Burgos Sts.,
Paniqui, Tarlac 2307
(045) 931-1726
fax-(045) 931-1422
SAN FERNANDO Unit 2-3, The Peninsula Plaza, MacArthur
Highway, Dolores, San Fernando City,
Pampanga 2000
(045) 961-4410; (045) 961-7733
fax-(045) 961-4410
SANTIAGO, ISABELA Bretania Building, Camacam cor. Turingan
Streets, Santiago City, Isabela
(078) 305-1682;(078) 305-0624
fax-(078) 305-1872
TARLAC CAP Building MacArthur Highway,
Barangay San Sebastian, Tarlac City 2300
(045) 491-4692; (045) 491-4659
fax- (045) 491-4659
TUGUEGARAO PVB Building, Mabini corner Luna Sts.,
Tuguegarao, Cagayan 3500
(078) 844-1905; (078) 844-4126
fax-(078) 844-0596
22 Philippine Veterans Bank
Branch Directory
23 2010 Annual Report
24 Philippine Veterans Bank
SOUTHERN LUZON
BATANGAS G/F CAP Building, #56 Rizal Avenue
Batangas City 4200
(043) 723-5686
fax-(043) 723-2782
CALAMBA PVB Building Crossing, Barangay Real,
Calamba, Laguna
(049) 545-3002; (049) 545-3006
fax-(049) 545-3058
IMUS JSS Building, Bayan Luma 4,
Aguinaldo Hi-way, Imus, Cavite
(046) 515-7724; (046) 471-4583
(046) 471-4635
LEGASPI PVB Building Peñaranda St.,
Legaspi City 4500
(052) 820-2247; (052) 480-8909
fax-(052) 480-8908
LIPA, BATANGAS SMB Building, Barangay Marauoy,
Lipa City, Batangas
(043) 757-4250; (043) 757-4175
fax-(043) 757-4277
LUCENA G/F CAP Building, C.T. Profugo cor. Granja
Streets, Barangay V, Poblacion Lucena City
(042) 373-0376; (042) 373-0373
fax-(042) 373-0383
NAGA PVB Building Elias Angeles St.,
Naga City 4400
(054) 473-8251; (054) 811-2421
fax-(054) 473-9303
PUERTO PRINCESA PVB Building Rizal Avenue,
Puerto Princesa City 5300
(048) 433-7842 ; (048) 433-7843
fax-(048) 433-7841
SAN JOSE PVB Building Rizal corner Quirino Sts.,
San Jose, Occidental Mindoro 5100
(043) 491-2235
fax-(043 ) 491-1563
SAN PABLO, LAGUNA Azores Building, Regidor cor. Lopez Jaena
Streets, San Pablo City, Laguna
(049) 561-1131; (049) 561-1132
fax-(049) 561-1133
VISAYAS
BACOLOD PVB Building, General Lacson St.,
corner Cottage Road Bacolod City 9205
(034) 434-2371; (034) 434-1538
fax-(034) 434-1537
CATARMAN 108 Jacinto Street Barangay Molave,
Catarman, Northern Samar 6400
telefax-(055) 251-8195
CEBU PVB Building, Osmeña Boulevard (Beside SSS
Bldg.) Cebu City 6000
(032) 253-7745;(032) 255-1168
fax-(032) 254-7200
DUMAGUETE PVB Building Perdices corner San Juan Sts.,
Dumaguete City
(035) 225-2032; (035) 225-2033
fax-(035) 225-2031
ILOILO PVB Building Valeria corner Delgado Sts.,
Iloilo City 5000
(033) 335-8410; (033) 335-0452
fax-(033) 335-0451
KALIBO Ruiz-Igtanloc Building, Provincial Capitol,
Kalibo, Aklan
(036) 262-1970; (036) 268-1972
fax- (036) 268-1970
MANDAUE Carlos Perez Building A.C. Cortez Avenue
Ibabaw, Mandaue City
(032) 346-4344; (032) 346-4356
fax-(032) 420-6128
ROXAS PVB Building Legaspi corner Gomez Sts.,
Roxas City, Capiz 5800
(036) 621-6206; (036) 621-6123
fax-(036) 621-6122
TACLOBAN PVB Building Justice Romualdez St.,
Tacloban City 6500
(053) 523-9620; (053) 321-2556
fax-(053) 523-9701
TAGBILARAN QVC Business Plaza, C.P. Garcia Avenue,
Tagbilaran City, Bohol
(038) 412-4077; (038) 501-9802
fax-(038) 501-9802
MINDANAO
BUTUAN Villanueva corner Calo Sts.,
Butuan City 8600
(085) 225-5681; (085) 341-5082
fax-(085) 815-4289
CAGAYAN DE ORO PVB Building Abejuela corner Tiano Bros. Sts.,
Cagayan de Oro City 9000
(08822) 722-628 ; (08822 )857-
3386
fax-(08822) 722-644
DAVAO CM RECTO PVB Building CM Recto St.,
Davao City 8000
(082) 227-4012; (082) 221-4011
fax-(082) 224-0698
DAVAO
MONTEVERDE
VFP Building P. Tomas St., Monteverde,
Davao City 8000
(082) 222-0882; (082 )227-4264
fax-(082) 222-3790
GEN SANTOS I. Santiago Boulevard, General Santos
City 9500
(083) 553-3996; (083) 301-3990
fax-(083) 553-3995
ILIGAN CITY PVB Building Mahayahay Avenue,
National. Highway, Iligan City 9200
(063) 351-7366; (063) 223-8374
fax-(063) 223-1523
KIDAPAWAN CITY CAP Building Quezon Blvd. cor. Datu Matalam St.,
Poblacion, Kidapawan City
KORONADAL YMEI Building, Gen. Santos Drive,
Koronadal, South Cotabato
(083) 520-1138; (083) 520-1140
fax (083) 520-1139
PAGADIAN CITY JAVAVED Business Corp. Building,
Rizal Avenue, Pagadian City,
Zamboanga del Sur
(062) 925-0250; (062) 214-4380
fax- (062) 925-0259
ZAMBOANGA PVB Building Gov. Lim Avenue corner
Saavedra Sts., Zamboanga City 7000
(062)991-1077; (062) 991-1078
fax-(062) 991-1079
Branch Directory
25 2010 Annual Report
26 Philippine Veterans Bank 27 2010 Annual Report
Statement of Management Responsibility
for Financial Statements
The management of PHILIPPINE VETERANS BANK is responsible for all information and representations contained in the statements
of financial position as of the years ended December 31, 2010 and 2009, and the statements of comprehensive income, statements
of changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and other
explanatory notes. The fnancial statements have been prepared in accordance with Philippine Financial Reporting Standards and
reflect amounts that are based on the best estimates and informed judgement of management with an appropriate consideration to
materiality.
In this regard management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure
that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use of disposition and liabilities
are recognized.
The Board of Directors reviews the fnancial statements before such statements are approved and submitted to the stockholders of the
Company.
Sycip, Gorres, Velayo & Co, the independent auditors appointed by the Board of Directors and Stockholders, have examined
the financial statements in accordance with Philippine Standards on Auditing and have expressed their opinion on the fairness of
presentation upon completion of such audit in the attached report to the Board of Directors and Stockholders.
COL. EMMANUEL V. DE OCAMPO
Chairman of the Board
RICARDO A. BALBIDO, JR.
President & Chief Executive Officer
TERESITA E. LOGARTA
Senior Vice-President
Comptroller
The Stockholders and the Board of Directors
Philippine Veterans Bank
Report on the Financial Statements
We have audited the accompanying fnancial statements of Philippine Veterans Bank and Subsidiaries (the Group) and of Philippine
Veterans Bank (the Parent Company), which comprise the consolidated and the parent company statements of financial position as at
December 31, 2010 and 2009, and the consolidated and the parent company statements of income, the consolidated and the parent
company statements of comprehensive income, the consolidated and the parent company statements of changes in equity and the
consolidated and the parent company statements of cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these fnancial statements in accordance with Philippine
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance
with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion
As discussed in Note 28 to the consolidated and the parent company financial statements, in 2008, the Parent Company recognized
P1,103.69 million of the required allowance for probable losses on Interbank call loans (IBCL) to a thrift bank of P1,138.60 million in
2006. The remaining required allowance on the IBCL in 2006 and the required allowance on the additional IBCL in 2007 totaling to
P565.91 million and the required allowance on accounts receivable amounting to P1.72 million, P19.54 million and P886.00 million
representing the uninsured deposits assumed in 2010, 2009 and 2008, respectively, were deferred over 20 years as approved by the
Bangko Sentral ng Pilipinas (BSP). The Philippine Financial Reporting Standards require that the allowance on the IBCL be charged
against 2007 and 2006 operations and the allowance on accounts receivable be charged against 2010, 2009 and 2008 operations.
Had such allowance been charged to the proper accounting period, the Group and the Parent Company’s net income in 2010 and
2009 would have been increased by P35.69 million and P4.43 million, net of related deferred income tax, respectively, and both
the surplus and total assets would have been decreased by P976.22 million and P1,011.91 million as at December 31, 2010 and
2009, respectively. As further discussed in Note 28, management computed that the earnings of the government securities from the
special liquidity support will effectively cover the required allowance on the Parent Company’s IBCL to the thrift bank and the assumed
uninsured deposits.
As discussed in Note 7 to the consolidated and the parent company financial statements, in 2009, the Parent Company sold a non-
performing asset (NPA) to a special purpose vehicle (SPV) company. In accordance with regulatory accounting policies prescribed
by the BSP for banks and financial institutions availing of the provisions of Republic Act No. 9182, the Special Purpose Vehicle Act of
Independent Auditors’ Report
28 Philippine Veterans Bank 29 2010 Annual Report
2002, losses amounting to P63.4 million from the sale of the NPA to the SPV company in 2009 were deferred and are being amortized
over a ten-year period and in line with this BSP regulatory accounting policy, the Parent Company recognized losses amounting to
P3.1 million and P2.1 million in 2010 and 2009, respectively. The Philippine Financial Reporting Standards require that the loss be
charged against 2009 operations. Had the loss from the sale of NPA been charged in 2009, the Group and the Parent Company’s net
income in 2010 would have been increased by P3.1 million, net income in 2009 would have been decreased by P61.3 million, and both
the surplus and total assets would have been decreased by P58.2 million and P61.3 million as at December 31, 2010 and
December 31, 2009, respectively.
Qualified Opinion
In our opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs, the consolidated and
the parent company fnancial statements present fairly, in all material respects, the fnancial position of the Group and of the Parent
Company as at December 31, 2010 and 2009, and their financial performance and their cash flows for the years then ended in
accordance with Philippine Financial Reporting Standards.
Report on the Supplementary Information Required under Revenue Regulations 15-2010
Our audits were conducted for the purpose of forming an opinion on the basic fnancial statements taken as a whole. The
supplementary information on taxes, duties and license fees in Note 31 to the parent company financial statements is presented for
purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is
the responsibility of the management of the Parent Company. The information has been subjected to the auditing procedures applied
in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Janet A. Paraiso
Partner
CPA Certificate No. 92305
SEC Accreditation No. 0778-A
Tax Identifcation No. 193-975-241
BIR Accreditation No. 08-001998-62-2009
June 1, 2009, Valid until May 31, 2012
PTR No. 2641502, January 3, 2011, Makati City
Consolidated Parent Company
As of December 31
2010 2009 2010 2009
ASSETS
Cash and Other Cash Items (Note 14) P534,270,433 P431,579,978 P532,487,272 P426,279,803
Due from Bangko Sentral ng Pilipinas
(Note 14) 10,199,375,999 13,055,098,382 10,199,375,999 13,055,098,382
Due from Other Banks 674,894,448 699,457,117 655,734,045 685,820,958
Interbank Loans Receivable and Securities
Purchased Under Resale Agreement 10,213,428,846 2,633,259,478 10,213,428,846 2,633,259,478
Financial Assets at Fair Value Through
Profit or Loss (Note 6) 906,809,407 890,369,661 906,809,407 890,369,661
Available-for-Sale Financial Assets
(Note 6) 3,930,030,134 3,312,259,718 3,917,187,355 3,299,416,940
Held-to-Maturity Financial Assets
(Note 6) 4,399,736,256 4,433,330,690 4,399,736,256 4,433,330,690
Loans and Receivables (Note 7) 23,419,100,555 22,245,927,049 23,378,420,943 22,200,814,995
Investments in Subsidiaries (Note 8) – – 200,224,737 198,048,737
Investment in an Associate (Note 9) 14,248,334 6,348,778 21,924,744 10,269,688
Bank Premises, Furniture, Fixtures and
Equipment (Note 10) 697,546,861 637,899,466 575,574,178 513,200,938
Investment Properties (Note 11) 2,163,417,138 2,373,564,938 2,163,417,138 2,373,564,938
Deferred Tax Assets - net (Note 22) 407,915,269 359,959,122 407,915,269 359,959,122
Other Assets (Notes 12, 20 and 26) 514,635,859 711,413,972 513,583,421 723,678,439
P58,075,409,539 P51,790,468,349 P58,085,819,610 P51,803,112,769
LIABILITIES AND EQUITY
Liabilities
Deposit Liabilities (Notes 14 and 26)
Demand P12,424,751,868 P11,318,854,982 P12,424,751,868 P11,318,854,982
Savings 30,952,826,899 29,527,242,480 30,953,223,196 29,527,632,389
Time 2,980,160,288 2,167,695,730 2,980,160,288 2,167,695,730
46,357,739,055 43,013,793,192 46,358,135,352 43,014,183,101
Bills Payable (Note 15) 1,541,832,607 1,559,833,678 1,541,832,607 1,559,833,678
Manager’s Checks 88,226,516 54,883,736 88,226,516 54,883,736
Accrued Taxes, Interest and Other
Expenses (Note 16) 484,204,509 382,631,289 502,329,321 398,671,513
Other Liabilities (Notes 17 and 26) 4,195,329,423 1,823,654,072 4,184,353,544 1,823,169,641
52,667,332,110 46,834,795,967 52,674,877,340 46,850,741,669
Equity
Equity attributable to equity holders of the
Parent Company
Capital stock (Note 19) 2,752,050,317 2,751,621,268 2,752,050,317 2,751,621,268
Additional paid-in capital (Note 19) 20,979,000 20,979,000 20,979,000 20,979,000
Surplus reserves (Notes 23 and 25) 1,011,233,566 905,515,475 1,011,233,566 905,515,475
Surplus (Notes 19, 23, 25 and 28) 1,588,817,054 1,341,812,819 1,591,876,736 1,338,703,823
Net accumulated unrealized gains (losses)
on available-for-sale financial assets
(Note 6) 34,802,651 (64,448,466) 34,802,651 (64,448,466)
5,407,882,588 4,955,480,096 5,410,942,270 4,952,371,100
Noncontrolling interest 194,841 192,286 – –
5,408,077,429 4,955,672,382 5,410,942,270 4,952,371,100
P58,075,409,539 P51,790,468,349 P58,085,819,610 P51,803,112,769
See accompanying Notes to Financial Statements.
Philippine Veterans Bank And Subsidiaries
Statements Of Financial Position
Independent Auditors’ Report
30 Philippine Veterans Bank 31 2010 Annual Report
Philippine Veterans Bank And Subsidiaries
Statements Of Income
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
INTEREST INCOME
Loans and receivables (Note 7) P1,868,740,268 P1,742,683,866 P1,866,002,360 P1,741,522,157
Trading and investment securities (Note 6) 578,464,804 490,386,224 578,464,804 490,386,224
Deposits with banks 492,383,498 406,824,038 491,866,874 406,824,038
Interbank loans receivable 73,577,593 114,690,494 73,577,593 114,690,494
3,013,166,163 2,754,584,622 3,009,911,631 2,753,422,913
INTEREST EXPENSES
Deposit liabilities (Notes 14 and 26) 1,107,719,924 983,233,190 1,107,726,311 983,236,510
Bills payable and other borrowings (Note 15) 152,948,566 151,171,520 153,757,965 152,029,318
1,260,668,490 1,134,404,710 1,261,484,276 1,135,265,828
NET INTEREST INCOME 1,752,497,673 1,620,179,912 1,748,427,355 1,618,157,085
Gains on sale of acquired assets and bank
premises, furniture, fixtures and equipment 259,525,531 150,714,092 256,760,873 147,850,267
Trading gains - net (Note 6) 251,736,839 33,496,321 251,736,839 33,496,321
Service fees and commissions 123,830,444 119,739,846 116,161,300 101,982,195
Income from trust operations (Note 25) 30,812,964 29,524,396 30,812,964 29,524,396
Foreign exchange gain - net 30,690,158 9,366,364 30,759,403 7,616,731
Gains (losses) on asset foreclosures and dacion
transactions 24,561,141 (63,887,140) 24,561,141 (63,887,140)
Equity in net loss of an associate (7,676,410) (3,920,910) – –
Other operating income (Note 11) 68,164,856 151,480,871 67,975,727 151,413,307
TOTAL OPERATING INCOME 2,534,143,196 2,046,693,752 2,527,195,602 2,026,153,162
Provision for impairment and credit
losses (Notes 13 and 28) 191,467,813 160,443,301 191,467,813 160,443,301
Compensation and fringe benefits
(Notes 20 and 26) 599,177,502 516,380,081 593,116,043 511,440,570
Taxes and licenses 237,916,522 208,009,356 237,589,950 207,809,094
Occupancy (Note 21) 221,578,075 188,491,658 219,645,050 186,271,652
Depreciation and amortization
(Notes 10 and 11) 113,686,221 81,576,965 113,498,456 81,496,521
Insurance 111,040,024 72,233,747 110,958,590 72,146,605
Amortization of software costs (Note 12) 52,724,725 43,099,760 52,724,725 43,099,760
Communications 43,662,173 37,794,897 43,451,886 37,610,414
Transportation and traveling expense 39,187,900 29,176,973 38,576,563 28,547,978
Litigation and expenses on acquired assets 37,414,105 34,449,615 37,414,105 34,449,615
Advertising and publicity expense 19,611,918 26,850,717 19,611,918 26,850,717
Office supplies 18,026,294 14,612,533 17,848,499 14,450,868
Bangko Sentral ng Pilipinas supervision fees 14,094,926 13,814,452 14,094,926 13,814,452
Professional fees 11,199,795 10,665,503 9,646,197 7,861,916
Entertainment, amusement and
representation expense (Note 22) 9,688,043 9,053,942 9,500,411 8,775,152
Freight expenses 4,776,569 3,439,836 4,776,569 3,434,590
Membership fees and dues 1,967,927 1,899,541 1,817,772 1,899,541
Finance charges 117,752 93,861 117,752 86,018
Miscellaneous (Notes 11 and 26) 54,184,932 49,643,028 52,740,092 47,172,127
TOTAL OPERATING EXPENSES 1,781,523,216 1,501,729,766 1,768,597,317 1,487,660,891
(Forward)
Philippine Veterans Bank And Subsidiaries
Statements Of Income
- 2 -
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
INCOME BEFORE INCOME TAX P752,619,980 P544,963,986 P758,598,285 P538,492,271
PROVISION FOR INCOME TAX
(Note 22) 243,687,055 120,405,740 243,499,237 120,079,610
NET INCOME (Notes 23 and 24) P508,932,925 P424,558,246 P515,099,048 P418,412,661
Attributable to:
Equity holders of the Parent Company P508,930,370 P424,556,918
Noncontrolling interest 2,555 1,328
P508,932,925 P424,558,246
Basic/Diluted Earnings Per Share (Note 24) P18.99 P15.66
See accompanying Notes to Financial Statements.
32 Philippine Veterans Bank 33 2010 Annual Report
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
Net Income P508,932,925 P424,558,246 P515,099,048 P418,412,661
Other Comprehensive Income (Loss):
Net unrealized gains (losses) on available-
for-sale financial assets (Note 6) 99,251,117 (1,236,179) 99,251,117 (1,236,179)
TOTAL COMPREHENSIVE INCOME P608,184,042 P423,322,067 P614,350,165 P417,176,482
Attributable to:
Equity holders of the Parent Company P608,181,487 P423,320,739
Noncontrolling interest 2,555 1,328
P608,184,042 P423,322,067
See accompanying Notes to Financial Statements.
Philippine Veterans Bank And Subsidiaries
Statements Of Comprehensive Income
Philippine Veterans Bank And Subsidiaries
Statements Of Changes In Equity
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2
,6
5
1
P
5
,4
0
7
,8
8
2
,5
8
8
P
1
9
4
,8
4
1
P
5
,4
0
8
,0
7
7
,4
2
9
S
e
e
a
c
c
o
m
p
a
n
y
in
g
N
o
t
e
s
t
o
F
in
a
n
c
ia
l S
t
a
t
e
m
e
n
t
s
.
34 Philippine Veterans Bank 35 2010 Annual Report
-
2
-
C
o
n
s
o
lid
a
te
d
E
q
u
ity
A
ttrib
u
ta
b
le
to
E
q
u
ity
H
o
ld
e
rs
o
f th
e
P
a
re
n
t C
o
m
p
a
n
y
P
re
fe
rre
d
S
to
c
k
(N
o
te
1
9
)
C
o
m
m
o
n
S
to
c
k
(N
o
te
1
9
)
T
re
a
s
u
ry
S
to
c
k
(N
o
te
1
9
)
T
o
ta
l
C
a
p
ita
l S
to
c
k
A
d
d
itio
n
a
l
P
a
id
-
in
C
a
p
ita
l
(N
o
te
1
9
)
S
u
rp
lu
s
R
e
s
e
rv
e
s
(N
o
te
2
3
a
n
d
2
5
)
S
u
rp
lu
s
(N
o
te
s
1
9
, 2
3
,
2
5
a
n
d
2
8
)
N
e
t A
c
c
u
m
u
la
te
d
U
n
re
a
liz
e
d
G
a
in
s
(L
o
s
s
e
s
) o
n
A
v
a
ila
b
le
-
fo
r-
S
a
le

F
in
a
n
c
ia
l
A
s
s
e
ts
(N
o
te
6
)
T
o
ta
l
N
o
n
c
o
n
tro
llin
g
In
te
re
s
t
T
o
ta
l
E
q
u
ity
B
a
la
n
c
e
s
a
t J
a
n
u
a
ry
1
, 2
0
0
9
P
3
6
1
,8
6
7
,1
0
0
P
2
,3
9
4
,7
8
4
,2
6
8
(P
5
,4
4
1
,6
0
0
)
P
2
,7
5
1
,2
0
9
,7
6
8
P
2
0
,9
7
9
,0
0
0
P
8
2
0
,2
1
8
,2
0
3
P
1
,1
4
2
,1
4
2
,5
1
6
(P
6
3
,2
1
2
,2
8
7
)
P
4
,6
7
1
,3
3
7
,2
0
0
P
1
9
0
,9
5
8
P
4
,6
7
1
,5
2
8
,1
5
8
N
e
t in
c
o
m
e






4
2
4
,5
5
6
,9
1
8

4
2
4
,5
5
6
,9
1
8
1
,3
2
8
4
2
4
,5
5
8
,2
4
6
O
th
e
r c
o
m
p
re
h
e
n
s
iv
e
lo
s
s







(1
,2
3
6
,1
7
9
)
(1
,2
3
6
,1
7
9
)

(1
,2
3
6
,1
7
9
)
T
o
ta
l c
o
m
p
re
h
e
n
s
iv
e
in
c
o
m
e






4
2
4
,5
5
6
,9
1
8
(1
,2
3
6
,1
7
9
)
4
2
3
,3
2
0
,7
3
9
1
,3
2
8
4
2
3
,3
2
2
,0
6
7
T
ra
n
s
fe
r to
c
a
p
ita
l s
to
c
k
fro
m
s
u
rp
lu
s

re
p
re
s
e
n
tin
g
s
h
a
re
s
o
f p
re
v
io
u
s
ly

u
n
lo
c
a
te
d
s
to
c
k
h
o
ld
e
rs
7
2
,5
0
0
5
3
5
,0
0
0
1
4
,8
0
0
6
2
2
,3
0
0


(6
1
4
,9
0
0
)

7
,4
0
0

7
,4
0
0
T
ra
n
s
fe
r to
s
u
rp
lu
s
re
s
e
rv
e






8
5
,2
9
7
,2
7
2
(8
5
,2
9
7
,2
7
2
)




D
is
trib
u
tio
n
to
th
e
B
o
a
rd
o
f T
ru
s
te
e
s
o
f th
e

V
e
te
ra
n
s
o
f W
o
rld
W
a
r II






(6
0
,6
3
5
,6
6
7
)

(6
0
,6
3
5
,6
6
7
)

(6
0
,6
3
5
,6
6
7
)
D
iv
id
e
n
d
s
d
e
c
la
re
d





(7
8
,3
3
8
,7
7
6
)
(7
8
,3
3
8
,7
7
6
)
(7
8
,3
3
8
,7
7
6
)
A
c
q
u
is
itio
n
o
f tre
a
s
u
ry
s
to
c
k


(3
2
3
,6
0
0
)
(3
2
3
,6
0
0
)




(3
2
3
,6
0
0
)

(3
2
3
,6
0
0
)
C
o
lle
c
tio
n
s
o
f s
u
b
s
c
rip
tio
n
s
to
c
o
m
m
o
n

s
to
c
k

1
1
2
,8
0
0
1
1
2
,8
0
0




1
1
2
,8
0
0

1
1
2
,8
0
0
B
a
la
n
c
e
s
a
t
D
e
c
e
m
b
e
r
3
1
, 2
0
0
9
P
3
6
1
,9
3
9
,6
0
0
P
2
,3
9
5
,4
3
2
,0
6
8
(P
5
,7
5
0
,4
0
0
)
P
2
,7
5
1
,6
2
1
,2
6
8
P
2
0
,9
7
9
,0
0
0
P
9
0
5
,5
1
5
,4
7
5
P
1
,3
4
1
,8
1
2
,8
1
9
(P
6
4
,4
4
8
,4
6
6
)
P
4
,9
5
5
,4
8
0
,0
9
6
P
1
9
2
,2
8
6
P
4
,9
5
5
,6
7
2
,3
8
2
S
e
e
a
c
c
o
m
p
a
n
y
in
g
N
o
t
e
s
t
o
F
in
a
n
c
ia
l S
t
a
t
e
m
e
n
t
s
.
Philippine Veterans Bank And Subsidiaries
Statements Of Changes In Equity
-
3
-
P
a
r
e
n
t
C
o
m
p
a
n
y
P
r
e
f
e
r
r
e
d
S
t
o
c
k
(N
o
te
1
9
)
C
o
m
m
o
n
S
t
o
c
k
(N
o
te
1
9
)
T
r
e
a
s
u
r
y
S
t
o
c
k
(N
o
te
1
9
)
T
o
t
a
l
C
a
p
it
a
l S
t
o
c
k
A
d
d
it
io
n
a
l
P
a
id
-
in
C
a
p
it
a
l
(N
o
te
1
9
)
S
u
r
p
lu
s
R
e
s
e
r
v
e
s
(N
o
te
s
2
3
a
n
d
2
5
)
S
u
r
p
lu
s
(N
o
te
s
1
9
, 2
3
,
2
5
a
n
d
2
8
)
N
e
t
A
c
c
u
m
u
la
t
e
d
U
n
r
e
a
liz
e
d
G
a
in
s
(L
o
s
s
e
s
) o
n
A
v
a
ila
b
le
-
f
o
r
-
S
a
le
F
in
a
n
c
ia
l
A
s
s
e
t
s
(N
o
te
6
)
T
o
t
a
l
B
a
la
n
c
e
s
a
t J
a
n
u
a
ry
1
, 2
0
1
0
P
3
6
1
,9
3
9
,6
0
0
P
=
2
,3
9
5
,4
3
2
,0
6
8
(P
5
,7
5
0
,4
0
0
)
P
2
,7
5
1
,6
2
1
,2
6
8
P
2
0
,9
7
9
,0
0
0
P
9
0
5
,5
1
5
,4
7
5
P
1
,3
3
8
,7
0
3
,8
2
3
(P
6
4
,4
4
8
,4
6
6
)
P
4
,9
5
2
,3
7
1
,1
0
0
N
e
t in
c
o
m
e






5
1
5
,0
9
9
,0
4
8

5
1
5
,0
9
9
,0
4
8
O
th
e
r c
o
m
p
re
h
e
n
s
iv
e
in
c
o
m
e







9
9
,2
5
1
,1
1
7
9
9
,2
5
1
,1
1
7
T
o
ta
l c
o
m
p
re
h
e
n
s
iv
e
in
c
o
m
e






5
1
5
,0
9
9
,0
4
8
9
9
,2
5
1
,1
1
7
6
1
4
,3
5
0
,1
6
5
T
ra
n
s
fe
r to
c
a
p
ita
l s
to
c
k
fro
m
s
u
rp
lu
s
re
p
re
s
e
n
tin
g
s
h
a
re
s

o
f p
re
v
io
u
s
ly
u
n
lo
c
a
te
d
s
to
c
k
h
o
ld
e
rs
6
3
,9
0
0
4
4
8
,3
0
0

5
1
2
,2
0
0


(5
1
2
,2
0
0
)


T
ra
n
s
fe
r to
s
u
rp
lu
s
re
s
e
rv
e






1
0
5
,7
1
8
,0
9
1
(1
0
5
,7
1
8
,0
9
1
)


D
is
trib
u
tio
n
to
th
e
B
o
a
rd
o
f T
ru
s
te
e
s
o
f th
e
V
e
te
ra
n
s
o
f
W
o
rld
W
a
r II





(7
7
,3
6
2
,5
6
6
)

(7
7
,3
6
2
,5
6
6
)
D
iv
id
e
n
d
s
d
e
c
la
re
d






(7
8
,3
3
3
,2
7
8
)

(7
8
,3
3
3
,2
7
8
)
A
c
q
u
is
itio
n
tre
a
s
u
ry
s
to
c
k


(2
4
6
,2
0
0
)
(2
4
6
,2
0
0
)




(2
4
6
,2
0
0
)
C
o
lle
c
tio
n
s
o
f s
u
b
s
c
rip
tio
n
s
to
c
o
m
m
o
n
s
to
c
k

1
6
3
,0
4
9

1
6
3
,0
4
9




1
6
3
,0
4
9
B
a
la
n
c
e
s
a
t
D
e
c
e
m
b
e
r
3
1
, 2
0
1
0
P
3
6
2
,0
0
3
,5
0
0
P
=
2
,3
9
6
,0
4
3
,4
1
7
(P
5
,9
9
6
,6
0
0
)
P
2
,7
5
2
,0
5
0
,3
1
7
P
2
0
,9
7
9
,0
0
0
P
1
,0
1
1
,2
3
3
,5
6
6
P
1
,5
9
1
,8
7
6
,7
3
6
P
3
4
,8
0
2
,6
5
1
P
5
,4
1
0
,9
4
2
,2
7
0
S
e
e
a
c
c
o
m
p
a
n
y
in
g
N
o
t
e
s
t
o
F
in
a
n
c
ia
l S
t
a
t
e
m
e
n
t
s
.
Philippine Veterans Bank And Subsidiaries
Statements Of Changes In Equity
36 Philippine Veterans Bank 37 2010 Annual Report
-
4
-
P
a
re
n
t C
o
m
p
a
n
y
P
re
fe
rre
d
S
to
c
k
(N
o
te
1
9
)
C
o
m
m
o
n
S
to
c
k
(N
o
te
1
9
)
T
re
a
s
u
ry
S
to
c
k
(N
o
te
1
9
)
T
o
ta
l
C
a
p
ita
l S
to
c
k
A
d
d
itio
n
a
l
P
a
id
-
in
C
a
p
ita
l
(N
o
te
1
9
)
S
u
rp
lu
s
R
e
s
e
rv
e
s
(N
o
te
s
2
3
a
n
d
2
5
)
S
u
rp
lu
s
(N
o
te
s
1
9
, 2
3
,
2
5
a
n
d
2
8
)
N
e
t A
c
c
u
m
u
la
te
d
U
n
re
a
liz
e
d
G
a
in
s
(L
o
s
s
e
s
) o
n
A
v
a
ila
b
le
-
fo
r-
S
a
le
F
in
a
n
c
ia
l
A
s
s
e
ts
(N
o
te
6
)
T
o
ta
l
B
a
la
n
c
e
s
a
t J
a
n
u
a
ry
1
, 2
0
0
9
P
3
6
1
,8
6
7
,1
0
0
P
2
,3
9
4
,7
8
4
,2
6
8
(P
5
,4
4
1
,6
0
0
)
P
2
,7
5
1
,2
0
9
,7
6
8
P
2
0
,9
7
9
,0
0
0
P
8
2
0
,2
1
8
,2
0
3
P
1
,1
4
5
,1
7
7
,7
7
7
(P
6
3
,2
1
2
,2
8
7
)
P
4
,6
7
4
,3
7
2
,4
6
1
N
e
t in
c
o
m
e






4
1
8
,4
1
2
,6
6
1

4
1
8
,4
1
2
,6
6
1
O
th
e
r c
o
m
p
re
h
e
n
s
iv
e
lo
s
s







(1
,2
3
6
,1
7
9
)
(1
,2
3
6
,1
7
9
)
T
o
ta
l c
o
m
p
re
h
e
n
s
iv
e
in
c
o
m
e






4
1
8
,4
1
2
,6
6
1
(1
,2
3
6
,1
7
9
)
4
1
7
,1
7
6
,4
8
2
T
ra
n
s
fe
r to
c
a
p
ita
l s
to
c
k
fro
m
s
u
rp
lu
s

re
p
re
s
e
n
tin
g
s
h
a
re
s
o
f p
re
v
io
u
s
ly
u
n
lo
c
a
te
d

s
to
c
k
h
o
ld
e
rs
7
2
,5
0
0
5
3
5
,0
0
0
1
4
,8
0
0
6
2
2
,3
0
0


(6
1
4
,9
0
0
)

7
,4
0
0
T
ra
n
s
fe
r to
s
u
rp
lu
s
re
s
e
rv
e






8
5
,2
9
7
,2
7
2
(8
5
,2
9
7
,2
7
2
)


D
is
trib
u
tio
n
to
th
e
B
o
a
rd
o
f T
ru
s
te
e
s
o
f th
e

V
e
te
ra
n
s
o
f W
o
rld
W
a
r II






(6
0
,6
3
5
,6
6
7
)

(6
0
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Philippine Veterans Bank And Subsidiaries
Statements Of Changes In Equity
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax P752,619,980 P544,963,986 P758,598,285 P538,492,271
Adjustments for:
Provision for impairment and credit losses
(Notes 13 and 28) 191,467,813 160,443,301 191,467,813 160,443,301
Depreciation and amortization
(Notes 10 and 11) 113,686,221 81,576,965 113,498,456 81,496,521
Amortization of software costs (Note 12) 52,724,725 43,099,760 52,724,725 43,099,760
Amortization of premium 33,594,434 28,414,762 33,594,434 28,414,762
Accretion of interest on bills payable 20,966,368 18,946,567 20,966,368 18,946,567
Equity in net loss of an associate 7,676,410 3,920,910 – –
Net trading gains from changes in fair value
of financial assets at fair value through
profit or loss (2,815,892) (3,322,567) (2,815,892) (3,322,567)
Losses (gains) on asset foreclosures and
dacion transactions (24,561,141) 63,887,140 (24,561,141) 63,887,140
Accretion on impaired loans (Note 7) (114,864,973) (124,128,467) (114,864,973) (124,128,467)
Gain on sale of acquired assets and
bank premises, furniture, fixtures and
equipment (259,525,531) (150,714,092) (256,760,873) (147,850,267)
Changes in operating assets and liabilities:
Decrease (increase) in amounts of:
Financial assets at fair value
through profit or loss (13,623,854) (633,787,323) (13,623,854) (633,787,323)
Loans and receivables (1,677,961,630) (3,125,704,690) (1,682,394,072) (3,086,683,376)
Other assets 130,164,383 (214,858,981) 145,226,199 (218,060,247)
Increase (decrease) in amounts of:
Deposit liabilities 3,343,945,863 5,886,177,516 3,343,952,251 5,881,873,486
Manager’s checks 33,342,780 (39,808,362) 33,342,780 (39,808,362)
Accrued taxes and other expenses (11,329,715) (103,980,802) (9,256,463) (104,172,792)
Accrued interest payable 32,652,968 (32,797,666) 32,652,968 (32,797,666)
Other liabilities (538,726,190) (192,816,046) (549,217,638) (200,045,086)
Net cash generated from operations 2,069,433,019 2,209,511,911 2,072,529,373 2,225,997,655
Income taxes paid (288,755,800) (229,386,811) (288,556,646) (229,386,811)
Net cash provided by operating activities 1,780,677,219 1,980,125,100 1,783,972,727 1,996,610,844
CASH FLOWS FROM INVESTING
ACTIVITIES
Investment in an associate (Note 9) (11,655,056) (10,269,688) (11,655,056) (10,269,688)
Purchases of available-for-sale financial assets (6,268,414,020) (4,278,271,496) (6,268,414,020) (4,278,271,496)
Proceeds from sale/maturities of available-for-
sale financial assets 5,746,444,722 2,974,988,042 5,746,444,722 2,970,077,262
Additions to bank premises, furniture, fixtures
and equipment (Note 10) (181,327,851) (308,583,494) (181,327,851) (308,109,437)
Proceeds from sale of bank premises, furniture,
fixtures and equipment 50,332,281 86,948,123 47,794,201 70,807,149
Proceeds from disposal of investment
properties 976,329,216 82,872,490 973,564,558 80,008,665
Additions to software costs (Note 12) (30,130,376) (67,302,655) (30,130,376) (67,302,655)
Net cash provided by (used in) investing
activities 281,578,916 (1,519,618,678) 276,276,178 (1,543,060,200)
(Forward)
Philippine Veterans Bank And Subsidiaries
Statements Of Cash Flows
38 Philippine Veterans Bank 39 2010 Annual Report
- 2 -
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments of bills payable (P38,967,439) (P26,730,448) (P38,967,439) (P26,730,448)
Dividends paid (Note 19) (8,947,274) – (8,947,274) –
Acquisitions of treasury shares (246,200) (308,800) (246,200) (308,800)
Collections on subscriptions of capital stock 163,049 720,301 163,049 720,301
Proceeds from bills payable – 284,501,250 – 284,501,250
Net cash provided by (used in) financing
activities (47,997,864) 258,182,303 (47,997,864) 258,182,303
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,014,258,271 718,688,725 2,012,251,041 711,732,947
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
Cash and other cash items 431,579,978 370,720,413 426,279,803 372,620,235
Due from Bangko Sentral ng Pilipinas 13,055,098,382 6,489,794,735 13,055,098,382 6,489,794,735
Due from other banks 699,457,117 970,145,891 685,820,958 956,265,513
Interbank loans receivable (Note 29) 2,093,219,132 7,730,004,845 2,093,219,132 7,730,004,845
16,279,354,609 15,560,665,884 16,260,418,275 15,548,685,328
CASH AND CASH EQUIVALENTS
AT END OF YEAR
Cash and other cash items 534,270,433 431,579,978 532,487,272 426,279,803
Due from Bangko Sentral ng Pilipinas 10,199,375,999 13,055,098,382 10,199,375,999 13,055,098,382
Due from other banks 674,894,448 699,457,117 655,734,045 685,820,958
Interbank loans receivable (Note 29) 6,885,072,000 2,093,219,132 6,885,072,000 2,093,219,132
P18,293,612,880 P16,279,354,609 P18,272,669,316 P16,260,418,275
OPERATIONAL CASH FLOWS FROM INTERESTS
Consolidated Parent Company
Years Ended December 31
2010 2009 2010 2009
Interest paid P1,207,049,154 P1,167,202,376 P1,207,864,940 P1,168,063,494
Interest received 3,104,607,079 2,533,727,023 3,101,348,902 3,228,507,613
See accompanying Notes to Financial Statements.
Philippine Veterans Bank And Subsidiaries
Statements Of Cash Flows
1. Corporate Information
Philippine Veterans Bank (the Parent Company) operates as a domestic commercial bank and provides services such as deposit-
taking, loans and trade fnance, domestic and foreign fund transfers, treasury, foreign exchange and trust services. The principal
place of business of the Parent Company is at 101 V.A. Rufno corner Dela Rosa Streets, Legaspi Village, Makati City.
On June 18, 1963, the Philippine Veterans Bank was created with the enactment of Republic Act (RA) No. 3518, which became
its charter.
On October 30, 2003, the Board of Directors (BOD) approved the merger of Monarch Properties, Inc. (MPI), a wholly owned
subsidiary, with the Parent Company. The merger was subsequently approved by the Parent Company’s stockholders on May 30,
2005.
The Bangko Sentral ng Pilipinas (BSP) and the Philippine Securities and Exchange Commission (SEC) approved the merger
between the Parent Company and MPI on February 9, 2011 and February 18, 2011, respectively.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying fnancial statements have been prepared on a historical basis except for fnancial assets at fair value through
profit or loss (FVPL) and available-for-sale (AFS) financial assets that are measured at fair value.
The fnancial statements of the Parent Company include the accounts maintained in the Regular Banking Unit (RBU) and Foreign
Currency Deposit Unit (FCDU).
The functional currency of the RBU and FCDU is Philippine peso and United States dollar (USD), respectively. For fnancial
reporting purposes, FCDU accounts and foreign currency-denominated accounts in the RBU are translated into their equivalents
in Philippine peso, which is the Group’s presentation currency (see accounting policy on Foreign Currency Transactions and
Translation). The fnancial statements individually prepared for these units are combined after eliminating inter-unit accounts.
Each entity in the Group determines its own functional currency and the items included in the fnancial statements of each entity
are measured using that functional currency. The functional currency each of the Parent Company’s subsidiaries is Philippine
peso.
Statement of Compliance
The accompanying fnancial statements have been prepared in accordance with Philippine Financial Reporting Standards
(PFRS), except for the (a) recognition in 2008 of the allowance for credit losses on interbank call loans (IBCL) to a thrift bank
that should have been recognized in 2007 and 2006 as discussed in Note 28, (b) the staggered recognition of the remaining
required allowance for credit losses on IBCL and the required allowance for credit losses on accounts receivable over 20 years as
approved by BSP as discussed in Note 28; and (c) the deferral of losses on sale of non-performing assets to a Special Purpose
Vehicle (SPV) as discussed in Note 7.
Presentation of Financial Statements
The Group and the Parent Company present their statements of fnancial position broadly in order of liquidity. An analysis
regarding expected recovery or settlement of assets and liabilities within 12 months after the reporting date (current) and more
than 12 months after the reporting date
(non-current) is presented in Note 18.
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position only when
there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize
the assets and settle the liability simultaneously. Income and expense are not offset in the consolidated statement of income
unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies
of the Group.
Philippine Veterans Bank And Subsidiaries
Notes To Financial Statements
40 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
41 2010 Annual Report
Basis of Consolidation
The consolidated fnancial statements, which include the fnancial statements of the Parent Company and its subsidiaries
(collectively referred to as “the Group”), are prepared for the same reporting year as the Parent Company, using consistent
accounting policies.
The Parent Company has the following wholly and majority owned subsidiaries:
Subsidiary
Country of
Incorporation Principal Activities
Effective
Percentage
of Ownership
Intervest Projects, Inc. (IPI) Philippines Real estate 100.00
Monarch Properties, Inc. (MPI) Philippines Real estate 100.00
Veterans Venture Capital Corporation (VVCC) Philippines Financing 60.00
All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group
transactions are eliminated in full in the consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved where the
Group has the power to govern the fnancial and operating policies of an entity so as to obtain benefts from its activities.
Consolidation of subsidiaries ceases when control is transferred out of the Group or Parent Company.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the
date of acquisition or up to the date of disposal, as appropriate.
Noncontrolling Interest
Noncontrolling interest represents the portion of profit or loss and net assets of subsidiaries not owned, directly or indirectly,
by the Group. Noncontrolling interest is presented separately in the consolidated statement of income and within equity in
the consolidated statement of financial position, separately from the Parent Company’s equity. Any losses applicable to the
noncontrolling interest in excess of the noncontrolling interest are allocated against the interest of the noncontrolling interest even
if this results in the noncontrolling interest having a deficit balance. Acquisitions of noncontrolling interest are accounted for using
the parent entity extension method, whereby the difference between the consideration and the fair value of the share of the net
assets acquired is recognized as equity. Noncontrolling interest represents the equity interest in VVCC, a 60% owned subsidiary.
Changes in Accounting Polices
The accounting policies adopted are consistent with those of the previous fnancial year except for the following new and
amended standards, interpretations and improvements to PFRS which were adopted as of January 1, 2010. These new and
amended standards, interpretations and improvements to PFRSs did not have any impact on the accounting policies, financial
position or performance of the Group.
New and Amended Standards and Interpretations
PFRS 2, • Share-based Payment (Amendment) - Group Cash-settled Share-based Payment Transactions
PFRS 3 (Revised), • Business Combinations, and PAS 27 (Amended), Consolidated and Separate Financial Statements,
including consequential amendments to PFRS 2, PFRS 5, PFRS 7, PAS 7, PAS 21, PAS 28, PAS 31 and PAS 39
PAS 39, • Financial Instruments: Recognition and Measurement (Amendment) - Eligible Hedged Items
Philippine Interpretation IFRIC 17, • Distributions of Non-cash Assets to Owners
Improvement to PFRS in 2008
PFRS 5, • Non-current Assets Held for Sale and Discontinued Operations
Improvements to PFRS in 2009
PFRS 2, • Share-based Payment
PAS 17, • Leases
PAS 38, • Intangible Assets
Philippine Interpretation IFRIC 9, • Reassessment of Embedded Derivatives
Philippine Interpretation IFRIC 16, • Hedges of a Net Investment in a Foreign Operation
PFRS 5, • Non-current Assets Held for Sale and Discontinued Operations
PFRS 8, • Operating Segments
PAS 1, • Presentation of Financial Statements
PAS 7, • Statement of Cash Flows
PAS 36, • Impairment of Assets
PAS 39, • Financial Instruments: Recognition and Measurement
Future Changes in Accounting Policies
Standards issued but not yet effective up to the date of issuance of the Group’s fnancial statements are listed below. This is a
listing of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. Except as
otherwise indicated, the Group does not expect the adoption of these new and amended standards to have a signifcant impact
on the financial statements.
PAS 32, Financial Instruments: Presentation (Amendment) - Classification of Rights Issues
The amendment to PAS 32 is effective for annual periods beginning on or after February 1, 2010. It amended the defnition of a
financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights
are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a
fixed number of the entity’s own equity instruments for a fixed amount in any currency.
PAS 24 (Amended), Related Party Disclosures
The amended standard is effective for annual periods beginning on or after January 1, 2011. It clarifed the defnition of a related
party to simplify the identifcation of such relationships and to eliminate inconsistencies in its application. The revised standard
introduces a partial exemption of disclosure requirements for government-related entities. Early adoption is permitted for either
the partial exemption for government-related entities or for the entire standard.
PAS 12, Income Taxes (Amendment) - Deferred Tax: Recovery of Underlying Assets
The amendment to PAS 12 is effective for annual periods beginning on or after January 1, 2012. It provides a practical solution to
the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of
the carrying amount of an asset will normally be through sale.
PFRS 7, Financial Instruments: Disclosures (Amendments) - Disclosures-Transfers of Financial Assets
The amendments to PFRS 7 are effective for annual periods beginning on or after July 1, 2011. The amendments will allow users
of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations),
including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The
amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the
end of a reporting period.
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification
and measurement of fnancial assets and fnancial liabilities as defned in PAS 39. The standard is effective for annual periods
beginning on or after January 1, 2013. Earlier adoption is permitted. In subsequent phases, hedge accounting and derecognition
will be addressed. The completion of this project is expected in the second quarter of 2011. The adoption of the frst phase
of PFRS 9 will have an effect on the classifcation and measurement of the Group’s fnancial assets. The Group is currently
assessing the impact of this standard in the financial statements.
Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments
Philippine Interpretation IFRIC 19 is effective for annual periods beginning on or after July 1, 2010. The interpretation clarifes that
equity instruments issued to a creditor to extinguish a fnancial liability qualify as consideration paid. The equity instruments issued
are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of
the liability extinguished. Any gain or loss is recognized immediately in profit or loss.
Philippine Interpretation IFRIC 14 (Amendment) - Prepayments of a Minimum Funding Requirement
The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on or after January 1, 2011, with
42 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
43 2010 Annual Report
retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The
amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset.
Improvements to PFRSs in 2010
The amendments listed below have not been adopted as they become effective for annual periods on or after either July 1, 2010
or January 1, 2011.
PFRS 3, • Business Combinations
PFRS 7, • Financial Instruments: Disclosures
PAS 1, • Presentation of Financial Statements
PAS 27, • Consolidated and Separate Financial Statements
Philippine Interpretation IFRIC 13, • Customer Loyalty Programmes
Significant Accounting Policies
Foreign Currency Transactions and Translation
Transactions and balances
The books of accounts of the RBU are maintained in Philippine pesos, while those of the FCDU are maintained in US Dollars. For
fnancial reporting purposes, foreign currency-denominated monetary assets and liabilities of the RBU are translated into Philippine
peso based on the Philippine Dealing System (PDS) closing rate prevailing at the reporting date.
Transactions denominated in foreign currencies are recorded using the exchange rates prevailing at the transaction dates. Foreign
exchange differences are recognized in the statement of income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as
at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
FCDU
As at the reporting date, the assets and liabilities of FCDU are translated into Philippine peso at the prevailing PDS closing rate,
and its income and expenses are translated at the PDS weighted average rates for the year. Exchange differences arising on
translation are taken to other comprehensive income.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of recognition
Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention
in the marketplace are recognized on the settlement date - the date that an asset is delivered to or by the Group. Securities
transactions are also recognized on settlement date basis. Deposits, amounts due to banks and customers and loans and
receivables are recognized when cash is received by the Group or advanced to the borrowers.
Initial recognition of financial instruments
All financial assets and financial liabilities are initially recognized at fair value. Except for financial assets and financial liabilities
at FVPL, the initial measurement of fnancial assets and fnancial liabilities includes transaction costs. The Group classifes its
fnancial assets in the following categories: fnancial assets at FVPL, held to maturity (HTM) fnancial assets, AFS fnancial assets,
and loans and receivables. The fnancial liabilities, on the other hand, are classifed into fnancial liabilities at FVPL and other
fnancial liabilities. The classifcation depends on the purpose for which the fnancial instruments were acquired and whether
they are quoted in an active market and for HTM fnancial assets, the ability and intention to hold the investment until maturity.
Management determines the classifcation of its investments at initial recognition and, where allowed and appropriate, re-evaluates
such designation at every reporting date.
Determination of fair value
The fair value of fnancial instruments traded in active markets at the reporting date is based on their quoted market price or dealer
price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When
current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value
as long as there has not been a significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques include discounted cash flow techniques, comparison to similar instruments for which
observable market prices exist, options pricing models, and other relevant valuation models.
‘Day 1’ difference
Where the transaction price in a non-active market is different from the fair value based on other observable current market
transactions in the same instrument or based on a valuation technique whose variables include only data from observable market,
the Group recognizes the difference between the transaction price and fair value (‘Day 1’ difference) in the statement of income
unless it qualifies for recognition as some other type of assets. In cases where use is made of data which is not observable, the
difference between the transaction price and model value is only recognized in the statement 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.
Financial assets or financial liabilities held for trading
Financial assets or financial liabilities held for trading are recorded in the statement of financial position at fair value. Realized and
unrealized gains and losses relating to the held-for-trading positions are recognized in ‘Trading gains or losses’ in the statement of
income. Interest earned or incurred is recorded using the effective interest method in ‘Interest income or expense’, respectively,
while dividend income is recorded in ‘Other operating income’ in the statement of income when the right to receive payment has
been established.
Included in this classification are debt securities which have been acquired principally for the purpose of selling or repurchasing in
the near term.
Financial assets or financial liabilities designated at FVPL
Financial assets or financial liabilities classified in this category are designated by management on initial recognition when the
following criteria are met:
The designation eliminates or signifcantly reduces the inconsistent treatment that would otherwise arise from measuring the •
assets or liabilities or recognizing gains or losses on them on a different basis; or
The assets and liabilities are part of a group of fnancial assets, fnancial liabilities or both which are managed and their •
performance evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy; or •
The fnancial instrument contains an embedded derivative, unless the embedded derivative does not signifcantly modify the •
cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
Designated financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value.
Changes in fair value are recorded in ‘Trading gains or losses’ in the statement of income. Interest earned or incurred is recorded
in ‘Interest income or expense’, respectively, while dividend income is recorded in ‘Other operating income’ in the statement of
income according to the terms of the contract, or when the right of the payment has been established.
As of December 31, 2010 and 2009, the Group and the Parent Company do not have fnancial assets and liabilities designated as at FVPL.
HTM financial assets
HTM fnancial assets are quoted, non-derivative fnancial assets with fxed or determinable payments and fxed maturities for which
the Group’s management has the positive intention and ability to hold to maturity. Where the Group would sell other than an
insignifcant amount of HTM fnancial assets, the entire category would be tainted and reclassifed as AFS fnancial assets and the
Group would be prohibited to classify any fnancial assets as HTM investments for the following two years.
After initial measurement, these investments are subsequently measured at amortized cost using the effective interest method,
less any impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are an integral part of the effective interest rate (EIR). The amortization is included in ‘Interest income’ in the statement
of income. Gains and losses are recognized in the statement of income when the HTM fnancial assets are derecognized or
impaired, as well as through the amortization process. The losses arising from impairment of such investments are recognized in
the statement of income under ‘Provision for impairment and credit losses’.
44 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
45 2010 Annual Report
Loans and receivables, due from BSP and other banks, and interbank loans receivables and securities purchased under resale
agreement (SPURA)
This accounting policy relates to the statement of fnancial position captions ‘Loans and receivables’, ‘Due from BSP’, ‘Due from
other banks’ and ‘Interbank loans receivables and SPURA’. These are non derivative fnancial assets with fxed or determinable
payments and fxed maturities that are not quoted in an active market. They are not entered into with the intention of immediate
or short-term resale and as such are not classified as financial assets held for trading, designated as financial assets at FVPL or
AFS financial assets.
After initial measurement, ‘Loans and receivables’, ‘Due from BSP’, ‘Due from other banks’ and ‘Interbank loans receivables
and SPURA’ are subsequently measured at amortized cost using the effective interest method, less allowance for impairment.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral
part of the EIR. The amortization is included in ‘Interest income’ in the statement of income. The losses arising from impairment
are recognized in ‘Provision for impairment and credit losses’ in the statement of income.
AFS financial assets
AFS financial assets are those which are designated as such or do not qualify to be classified or designated as financial assets at
FVPL, HTM fnancial assets or loans and receivables. They are purchased and held indefnitely, and may be sold in response to
liquidity requirements or changes in market conditions. They include equity investments and other debt instruments.
After initial measurement, AFS fnancial assets are subsequently measured at fair value. The unrealized gains and losses arising
from the fair valuation of AFS fnancial assets are reported in ‘Net unrealized gains (losses) on AFS fnancial assets’ as other
comprehensive income.
When the security is disposed of, the cumulative gains or losses previously recognized in other comprehensive income is
recognized as ‘Trading gains or losses’ in the statement of income. Where the Group holds more than one investment in the
same security, these are deemed to be disposed of on a specific identification basis. Interests earned on holding AFS financial
assets are reported in ‘Interest income’ in the statement of income using the EIR. Dividends earned on holding AFS fnancial
assets are recognized in the statement of income as ‘Other operating income’ when the right to receive payment has been
established. The losses arising from impairment of such investments are recognized in ‘Provisions for impairment and credit
losses’ in the statement of income.
Other Financial Liabilities
Issued financial instruments or their components, which are not designated as financial liabilities at FVPL, are classified as
liabilities under ‘Deposit liabilities’, ‘Bills payable’ or other appropriate fnancial liability accounts, where the substance of the
contractual arrangement results in the Group having an obligation either to deliver cash or another fnancial asset to the holder,
or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of
own equity shares. The components of issued fnancial 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 instrument as a whole the
amount separately determined as the fair value of the liability component on the date of issue.
After initial measurement, other financial liabilities are subsequently measured at amortized cost using the effective interest
method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral
part of the EIR.
Reclassification of Financial Assets
A financial asset is reclassified out of the FVPL category when the following conditions are met:
the financial asset is no longer held for the purpose of selling or repurchasing it in the near term; and •
there is a rare circumstance. •
A financial asset that is reclassified out of the FVPL category is reclassified at its fair value on the date of reclassification. Any
gain or loss already recognized in the statement of of income is not reversed. The fair value of the fnancial asset on the date of
reclassification becomes its new cost or amortized cost, as applicable.
For fnancial assets reclassifed out of the AFS category to HTM investments, any previous gain or loss on that asset that has been
recognized under other comprehensive income is amortized to the statement of income over the remaining life of the investment
using the effective interest method. Any difference between the new amortized cost and the expected cash flows is also
amortized over the remaining life of asset using effective interest method. If the asset is subsequently determined to be impaired
then the amount recorded under other comprehensive income is recycled to the statement of income.
Derecognition of Financial Assets and Liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when:
the rights to receive cash flows from the asset have expired; or •
the Group retains the right to receive cash fows from the asset, but has assumed an obligation to pay them in full without •
material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash fows from the asset and either (a) has transferred substantially all •
the risks and rewards of the asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has
transferred the control of the asset.
Where the Group has transferred its rights to receive cash fows from an asset or has entered into a pass-through arrangement,
and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the 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 measured at the lower of original carrying amount of the asset and the maximum
amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.
Repurchase and Reverse Repurchase Agreements
Securities sold under agreements to repurchase at a specifed future date (‘repos’) are not derecognized from the statement of
fnancial position. The corresponding cash received, including accrued interest, is recognized in the statement of fnancial position
as securities sold under repurchase agreement in ‘Other liabilities’, refecting the economic substance of such transaction.
Conversely, securities purchased under agreements to resell at a specified future date are not recognized in the statement of
fnancial position. The corresponding cash paid, including accrued interest, is recognized in the statement of fnancial position
in ‘Interbank loans receivables and SPURA’. The difference between the purchase price and resale price is treated as interest
income and is accrued over the life of the agreement using the effective interest method.
Impairment of Financial Assets
The Group assesses at each reporting date whether there is objective evidence that a fnancial asset or group of fnancial assets
is impaired. 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 after the initial recognition of the asset (an incurred ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial
assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers
is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets at amortized cost
For fnancial assets at amortized cost which includes HTM fnancial assets, Loans and receivables, Due from BSP, Interbank loans
receivables and SPURA and Due from other banks, the Group frst assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.
46 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
47 2010 Annual Report
If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between
the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not
been incurred). If the Group determines that no objective evidence of impairment exists for individually assessed fnancial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively
assesses for impairment. Those characteristics are relevant to the estimation of future cash fows for groups of such assets by
being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
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.
The estimated future cash fows are discounted at the fnancial asset’s original EIR. If a loan has a variable interest rate, the
discount rate for measuring any impairment loss is the current EIR, adjusted for the original credit risk premium. The calculation of
the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from
foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged to the
statement of income. Interest income continues to be recognized based on the original EIR of the asset. Loans, together with
the associated allowance accounts, are written off when there is no realistic 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 the
impairment was recognized, the previously recognized impairment loss is credited to ‘Provision for credit and impairment losses’
in the statement of income and the allowance account is reduced. If a future write-off is later recovered, any amounts formerly
charged are credited to the ‘Provision for credit and impairment losses’ in the statement of income.
For the purpose of collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics
as industry, collateral type, past due status and term. Future cash flows in a group of financial assets that are collectively
evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar
to those in the Parent Company. Historical loss experience is adjusted on the basis of current observable data to reflect the
effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are
directionally consistent with changes in related observable data from period to period (such changes in property prices, payment
status, or other factors that are indicative of incurred losses in the Parent Company and their magnitude). The methodology
and assumptions used for estimating future cash flows are reviewed regularly by the Parent Company to reduce any differences
between loss estimates and actual loss experience.
Restructured loans
Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending
the payment arrangements and the agreement of new loan 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
that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment,
calculated using the loan’s original EIR. The difference between the recorded value of the original loan and the present value of
the restructured cash fows, discounted at the original EIR, is recognized in ‘Provisions for impairment and credit losses’ in the
statement of income.
AFS financial assets
For AFS fnancial assets, the Group assesses at each reporting date whether there is objective evidence that a fnancial asset or
group of financial assets is impaired.
In case of equity investments classified as AFS financial assets, this would include a significant or prolonged decline in the fair
value of the investments below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in
the statement of income, is removed from statement of comprehensive income and is recognized in the statement of income.
Impairment losses on equity investments are not reversed through the statement of income. Increases in fair value after
impairment are recognized as other comprehensive income.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial
assets carried at amortized cost. Future interest income is based on the reduced amount and is accrued based on the rate of
interest used to discount future cash fows for the purpose of measuring impairment loss. Such accrual is recorded as ‘Interest
income’ in the statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be
objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss
is reversed through the statement of income.
Remaining required allowance for credit losses on IBCL and the required allowance for credit losses on accounts receivable
from Bankwise, Inc.(BWI)
The remaining required allowance for credit losses on IBCL and accounts receivable from BWI are deferred and amortized over 20
years as approved by the BSP (Note 28).
Losses on sale of non-performing asset (NPA) to a special purpose vehicle (SPV) company
Losses on sale of NPA to an SPV company on a without recourse basis are deferred and amortized over a ten-year period in
accordance with regulatory accounting policies prescribed by the BSP for banks and financial institutions availing of the provisions
of RA No. 9182, the Special Purpose Vehicle Act of 2002.
Revenue Recognition
Revenue is recognized to the extent that it is probable that economic benefts will fow to the Group and the revenue can be
reliably measured. The following specifc recognition criteria must also be met before revenue is recognized:
Interest income
For all financial instruments measured at amortized cost and interest-bearing financial instruments classified as AFS financial
assets, interest income is recorded at the EIR, which is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the
fnancial asset or fnancial liability. The calculation takes into account all contractual terms of the fnancial instrument, including any
fees or incremental costs that are directly attributable 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 carrying amount is recorded as
‘Interest income’ in the statement of income.
Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss,
interest income continues to be recognized using the original EIR applied to the new carrying amount.
Service fees and commissions
Loan commitment fees are recognized as earned over the terms of the credit lines granted to each borrower. Loan syndication
fees are recognized upon completion of all syndication activities and where the Group does not have further obligations to perform
under the syndication agreement.
Service charges and penalties are recognized only upon collection or accrued where there is a reasonable degree of certainty as
to their collectibility.
Rental income
Rental income arising on investment properties is accounted for on a straight-line basis over the lease terms on ongoing leases.
Dividend income
Dividend income is recognized when the Group’s right to receive payment is established.
Trading gains and losses
Results arising from trading activities include all gains and losses from changes in fair value of financial assets and financial
liabilities at FVPL and gains and losses from disposal of financial assets held for trading and AFS financial assets. Cost of
securities sold is determined using specific identification method.
48 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
49 2010 Annual Report
Other income
Income from sale of services is recognized upon rendition of the service. Income from sale of properties is recognized upon
completion of the earning process and the collectibility of the sales price is reasonably assured.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include Cash and other cash items, Due from BSP and other
banks, and Interbank loans receivable and SPURA with original maturities of three months or less from dates of placements and
that are subject to insignificant risk of changes in value.
Investments in Subsidiaries and an Associate
Investments in subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the fnancial and operating policies, which generally
accompanies a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Group controls another entity.
Investments in subsidiaries are carried at cost, less accumulated impairment, if any, in the Parent Company financial statements
(see accounting policy on Basis of Consolidation). Dividends received are reported as dividend income under ‘Other operating
income’ in the parent company statement of income when the right to receive the payment is established.
Investment in an associate
Associates are entities to which the Group has signifcant infuence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. In the consolidated financial statements, investment in an associate is accounted
for under the equity method of accounting. Under the equity method, the investment in the associate is carried in the statement
of fnancial position at cost plus post acquisition changes in the Group’s share of net assets of the associate, less accumulated
impairment, if any. After application of the equity method, the Group determines whether it is necessary to recognize additional
impairment loss with respect the the Group’s net investment in the associate. The consolidated statement of income refects the
share in the results of operations of the associate.
The investment in an associate in the parent company fnancial statements is carried at cost less accumulated impairment, if any.
Dividends received are reported as dividend income under ‘Other operating income’ when the right to receive the payment is
established.
Bank Premises, Furniture, Fixtures and Equipment
Land is stated at cost less any impairment in value and depreciable properties, including buildings, leasehold improvements, and
furniture, fixtures and equipment, are stated at cost less accumulated depreciation and amortization, and any impairment in value.
Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are
met, but excludes repairs and maintenance costs.
Depreciation is calculated using straight-line method over the estimated useful lives (EUL) of the depreciable assets.
The EUL of the property and equipment follow:
Buildings 20 years
Furniture, fixtures and equipment 5 years
Leasehold improvements 5 years or lease term, whichever is shorter
The depreciation and amortization methods and EUL are reviewed at least at each reporting date to ensure that the method and
period of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and
equipment.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the statement of income in the year the asset is derecognized.
Investment Properties
Investment properties are measured initially at cost, including transaction costs. An investment property acquired through an
exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured
in which case the investment property acquired is measured at the carrying amount of asset given up. Foreclosed properties
are classifed under ‘Investment properties’ in the statement of fnancial position upon: (a) entry of judgment in case of juridical
foreclosure; (b) execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or (c) notarization of the Deed of
Dacion in case of dation in payment (dacion en pago).
Subsequent to initial recognition, land is carried at cost less any impairment in value while depreciable investment properties are
carried at cost less accumulated depreciation and any impairment in value.
Investment properties are derecognized when they have either been disposed of or are permanently withdrawn from use and
no future benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are
recognized in the statement of income under ‘Gain or loss on sale of acquired assets’ in the year of retirement or disposal.
Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are
normally charged against current operations in the period in which the costs are incurred.
Depreciation is calculated for buildings and improvement on a straight-line basis over the EUL life of 10 years from the time of
acquisition.
Transfers are made to investment properties when, and only when, there is a change in use evidenced by ending of owner
occupation, commencement of an operating lease to another party or ending of construction 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 view to sale.
Software Costs
Software costs are capitalized on the basis of the cost incurred to acquire and bring to use the specifc software. These costs,
included in ‘Other assets’ in the statement of fnancial position, are amortized over fve years on a straight-line basis.
Costs associated with maintaining the computer software programs are recognized as expense when incurred.
Impairment of Nonfinancial Assets
At each reporting date, the Group assesses whether there is any indication that its nonfnancial assets (Bank Premises, Furniture,
Fixtures and Equipment , Investment Properties and Software Costs) may be impaired. When an indicator of impairment exists
or when an annual impairment testing for an asset is required, the Group makes a formal estimate of recoverable amount.
Recoverable amount is the higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from
other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which
it belongs. Where the carrying amount of an asset (or cash generating unit) exceeds its recoverable amount, the asset (or cash
generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset (or cash generating unit).
An impairment loss is charged against operations in the year in which it arises.
An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment
losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of
income unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such
50 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
51 2010 Annual Report
a reversal, the depreciation expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining life.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires
an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the
arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following
applies:
There is a change in contractual terms, other than a renewal or extension of the arrangement; (a)
A renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the (b)
lease term;
There is a change in the determination of whether fulfllment is dependent on a specifed asset; or (c)
There is a substantial change to the asset. (d)
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances
gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b).
Parent Company as lessee (Finance leases)
Finance leases, which transfer to the Parent Company substantially all the risks and benefits incidental to the ownership of the
leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of
the minimum lease payments and included in ‘Bank premises, furniture, fxtures and equipment’ with the corresponding liability
to the lessor included in ‘Accrued taxes, interest and other expenses’ in the statement of fnancial position. Lease payments are
apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recorded in ‘Interest expense’ in the statement of income.
Capitalized lease assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms,
if there is no reasonable certainty that the Parent Company will obtain ownership by the end of the lease term.
Group as lessee (Operating leases)
Leases where the lessor retains substantially all the risk and benefits of ownership of the assets are classified as operating leases.
Operating lease payments are recognized as an expense in the statement of income on a straight-line basis over the lease term.
Group as lessor (Operating leases)
Leases where the Group does not transfer substantially all the risk and benefts of ownership of the assets are classifed as
operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset
and recognized over the lease term on the same basis as the rental income. Contingent rents are recognized as revenue in the
period in which they are earned.
Retirement Cost
The Parent Company is covered by a funded noncontributory defned beneft retirement plan (the Plan).
The retirement cost of the Parent Company is determined using the projected unit credit method. Under this method, the current
service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period.
The liability recognized in the statement of fnancial position in respect of the defned beneft pension plan is the present value of
the defined benefit obligation at the reporting date less the fair value of plan assets, together with adjustments for unrecognized
actuarial gains or losses and past service costs. The defned beneft obligation is calculated annually by an independent actuary
using the projected unit credit method. The present value of the defned beneft obligation is determined by discounting the
estimated future cash outflows using interest rate on government bonds that have terms to maturity approximating the terms
of the related retirement liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are credited to or charged against ‘Compensation and fringe benefts’ in the statement of income when the net
cumulative unrecognized actuarial gains and losses at the end of the previous period exceeded 10.00% of the higher of the
defned beneft obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected
average remaining working lives of the employees participating in the Plan.
Past service costs, if any, are recognized immediately in the statement of income, unless the changes to the pension plan are
conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service
costs are amortized on a
straight-line basis over the vesting period.
The defned beneft asset or liability comprises the present value of the defned beneft obligation less past service costs not yet
recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is
restricted to the sum of any past service cost not yet recognized and the present value of any economic benefits available in the
form of refunds from the plan or reductions in the future contributions to the plan.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example,
under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the statement of income, net of any reimbursement. If the effect of
the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized in ‘Interest expense’ in the statement of
income.
Contingent Liabilities and Contingent Assets
Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not recognized but are disclosed in the financial
statements when an inflow of economic benefits is probable.
Borrowing Costs
Borrowing costs are recognized as expense in the year in which these costs are incurred. Borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.
Income Taxes
Current income taxes
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date.
Deferred income taxes
Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, with certain exceptions. Deferred tax assets are
recognized for all deductible temporary differences, carryforward of unused tax credits from the excess of minimum corporate
income tax (MCIT) over the regular corporate income tax (RCIT), and unused net operating loss carryover (NOLCO), to the extent
that it is probable that sufficient taxable profit will be available against which the deductible temporary differences and carry
forward of unused MCIT and unused NOLCO can be utilized. Deferred tax, however, is not recognized on temporary differences
that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting income nor taxable income or loss.
Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries
and associates.
52 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
53 2010 Annual Report
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that suffcient taxable proft will be available to allow all or part of the deferred asset to be utilized. Unrecognized
deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period 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.
Current tax and deferred tax relating to items recognized in other comprehensive income are also recognized in other
comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income attributable to common shareholders for the year by the
weighted average number of common shares outstanding during the year after giving retroactive effect to stock dividends
declared and stock rights exercised during the year, if any. The Group does not have any dilutive potential common shares.
Dividends on Common Shares
Dividends on common shares are recognized as a liability and deducted from equity when approved by the BOD of the Parent
Company. Dividends declared after the reporting date are dealt with as an event after the reporting period.
Events after the Reporting Period
Any post-year-end events that provide additional information about the Group’s position at the reporting date (adjusting events)
are reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed in the notes
when material to the financial statements.
Fiduciary Activities
Assets and income arising from fiduciary activities, together with related undertakings to return such assets to customers, are
excluded from the financial statements where the Parent Company acts in a fiduciary capacity such as nominee, trustee or agent.
Business Combinations
Business combinations from January 1, 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at 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 acquiree either at fair value or at the
proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed in the statement of income.
When the Group acquires a business, it assesses the fnancial assets and liabilities assumed for appropriate classifcation and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition
date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in
the acquiree is remeasured to fair value at the acquisition date through the statement of income.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration, which is deemed to be an asset or liability, will be recognized in
accordance with PAS 39 either in the statement of income or as a change to other comprehensive income. If the contingent
consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount
recognized for noncontrolling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower
than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the statement of income.
After initial recognition, goodwill is measured 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 the Group’s cash-
generating units (CGU) that are expected to beneft from the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and
the portion of the CGU retained.
Business combinations prior to January 1, 2010
In comparison to the above-mentioned requirements, the following differences applied:
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition
formed part of the acquisition costs. The noncontrolling interest (formerly known as minority interest) was measured at the
proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did
not affect previously recognized goodwill.
When the Group acquired a business, embedded derivatives separated from the host contract by the acquiree were not
reassessed on acquisition unless the business combination resulted in a change in the terms of the contract that significantly
modified the cash flows that otherwise would have been required under the contract.
Contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outfow was more likely
than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as
part of goodwill.
Equity
Capital stock is measured at par value for all shares issued. When the Parent Company issues more than one class of stock, a
separate account is maintained for each class of stock and the number of shares issued.
When the shares are sold at a premium, the difference between the proceeds and the par value is credited to Additional paid-in
capital account. When shares are issued for a consideration other than cash, the proceeds are measured by the fair value of the
consideration received. In case the shares are issued to extinguish or settle the liability of the Parent Company, the shares shall be
measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more reliably determinable.
Surplus represents accumulated earnings less dividends declared.
Expense Recognition
Expenses are recognized in the statement of income when decrease in future economic benefit related to a decrease in an asset
or an increase in a liability has arisen that can be measured reliably.
Expenses are recognized in the 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 or indirectly determined; or
Immediately when expenditure produces no future economic benefits or when, and to the extent that, future economic •
benefits do not qualify or cease to qualify, for recognition in the statements of financial position as an asset.
54 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
55 2010 Annual Report
3. Significant Accounting Judgments and Estimates
The preparation of the fnancial statements in accordance with PFRS requires the Group to make estimates and assumptions
that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingent assets and contingent
liabilities. Future events may occur which will cause the judgments and assumptions used in arriving at the estimates to change.
The effects of any change in estimates are refected in the fnancial statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
Judgments
Operating lease commitment - the Group as lessee (a)
The Group has entered into property leases as a lessee for its offce premises. The Group has determined that the lessors
retained all the significant risks and rewards of ownership over the properties. In determining whether or not there is
indication of operating lease treatment, the Group considers retention of ownership title to the leased property, period of
lease contract relative to the estimated useful economic life of the leased property and the bearer of executory costs, among
others.
(b) Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be
derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical
models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree
of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs. The
valuation of financial instruments is described in more detail in Note 5.
(c) HTM financial assets
The classifcation to HTM fnancial assets requires signifcant judgment. In making this judgment, the Group evaluates its
intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other
than in certain specific circumstances - for example, selling an insignificant amount close to maturity - it will be required to
reclassify the entire portfolio as AFS investments. The investments would therefore be measured at fair value and not at
amortized cost.
(d) Functional currency
PAS 21 requires management to use its judgment to determine the entity’s functional currency such that it most faithfully
represents the economic effects of the underlying transactions, events and conditions that are relevant to the entity. In
making this judgment, the Group considers the following:
the currency that mainly influences sales prices for financial instruments and services (this will often be the currency in a)
which sales prices for its financial instruments and services are denominated and settled)
b) the currency in which funds from financing activities are generated; and
the currency in which receipts from operating activities are usually retained. c)
The functional currency of the RBU and FCDU is Philippine peso and United States dollar, respectively, while the functional
currency of the subsidiaries is Philippine peso.
Estimates
(a) Credit losses on loans and receivables
The Group reviews its loan portfolios and receivables to assess impairment at each reporting date with updating provisions
made during the intervals as necessary based on the continuing analysis and monitoring of individual accounts by credit
offcers. In determining whether an impairment loss should be recorded in the statement of income, the Group makes
judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated
future cash fows from a portfolio of loans before the decrease can be identifed with an individual loan in that portfolio. This
evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers
in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses
estimates in the amount and timing of future cash flows when determining the level of allowance required. Such estimates
are based on assumptions about a number of factors and actual results may differ, resulting to future changes in the
allowance.
In addition to specifc allowance against individually signifcant loans and receivables, the Group also makes a collective
impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have
a greater risk of default than when originally granted. This collective allowance is based on any deterioration in the internal
ratings of the loan or investment since it was granted or acquired. These internal ratings take into consideration factors such
as any deterioration in country risk, industry, and technological obsolescence, as well as identified structural weaknesses or
deterioration in cash flows.
The carrying value of loans and receivables amounted to P23.42 billion and P23.38 billion for the Group and Parent
Company, respectively, as of December 31, 2010 and P22.25 billion and P22.20 billion for the Group and Parent Company,
respectively, as of December 31, 2009 (see Notes 7 and 28).
As of December 31, 2010 and 2009, allowance for credit losses on loans and receivables amounted to P0.87 billion and
P1.27 billion, respectively, for both the Group and Parent Company (see Notes 7, 13 and 28).
(b) Impairment of AFS equity investments
The Group treats AFS equity investments as impaired when there has been a signifcant or prolonged decline in the fair
value below its cost or where other objective evidence of impairment exists. The determination of what is ‘signifcant’ or
‘prolonged’ requires judgment. The Group treats ‘signifcant’ generally as 20% or more and ‘prolonged’ as greater than 12
months. In addition, the Group evaluates other factors, including normal volatility in share price for quoted equities and the
future cash flows and the discount factors for unquoted equities.
In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee,
industry and sector performance, changes in technology, and operational and financing cash flows.
The carrying value of AFS equity investments amounted to P208.46 million and P182.61 million, respectively, for the Group
and Parent Company, as of December 31, 2010 and P192.23 million and P166.38 million, respectively, for both the Group
and Parent Company as of December 31, 2009 (see Note 6).
As of December 31, 2010, allowance for impairment losses on AFS equity investments amounted to P142.42 million and
P129.41 million for both the Group and Parent Company, respectively. As of December 31, 2009, allowance for impairment
losses on AFS equity investments amounted P138.97 million and P125.96 million for the Group and Parent Company,
respectively (see Note 6).
(c) Present value of retirement obligation
The cost of defned beneft pension plan and other post employment benefts is determined using actuarial valuation. The
actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary
increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are
subject to significant uncertainty.
The assumed discount rates of 8.90% and 10.26% in 2010 and 2009, respectively, were determined using the market yields
on Philippine government bonds with terms consistent with the expected employee benefit payout as of reporting dates.
As of December 31, 2010 and 2009, the present value of the retirement obligation for both the Group and the Parent
Company amounted to P132.23 million and P114.17 million, respectively (see Note 20).
As of December 31, 2010 and 2009, net retirement asset under ‘Other assets’ in the statement of fnancial position both for
the Group and the Parent Company amounted to P30.88 million and P18.49 million, respectively (see Note 20).
(d) Recognition of deferred income taxes
Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred
56 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
57 2010 Annual Report
tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax
planning strategies.
The recognized deferred tax assets for both the Group and Parent Company amounted to P407.92 million and
P359.96 million as of December 31, 2010 and 2009, respectively, while the unrecognized deferred tax assets for both
the Group and Parent Company amounted to P673.58 million and P597.65 million as of December 31, 2010 and 2009,
respectively (see Note 22).
(e) Impairment of bank premises, furniture, fixtures and equipment and investment properties
The Group assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment
review include the following:
significant underperformance relative to expected historical or projected future operating results; •
significant changes in the manner of use of the acquired assets or the strategy for overall business; and •
significant negative industry or economic trends. •
The Group recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is computed using the value in use approach. 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 value of bank premises, furniture, fxtures and equipment amounted to P697.55 million and P575.57 million,
respectively, for the Group and Parent Company as of December 31, 2010 and P637.90 million and P513.20 million,
respectively, for the Group and Parent Company, as of December 31, 2009 (see Note 10).
As of December 31, 2010 and 2009, the carrying value of investment properties amounted to P2.16 billion and P2.37 billion,
respectively, for both the Group and Parent Company (see Note 11).
(f) Contingencies
The Group is currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these
claims have been developed in consultation with outside counsel handling the Group’s defense in these matters and is
based upon an analysis of potential results. The Group currently does not believe that these proceedings will have a material
adverse effect on its financial position. It is possible, however, that future results of operations could be materially affected by
changes in the estimates or in the effectiveness of the strategies relating to these proceedings (see Note 27).
4. Financial Risk Management
Introduction
The Group has exposure to the following risks from its use of fnancial instruments:
Credit risk •
Liquidity risk •
Market risk •
Risk Management Framework
Risk is an inherent part of the Parent’s Company business activities. The Parent’s Company risk management framework
and governance structure are intended to provide comprehensive controls and ongoing management of these risks. The risk
management process is an ongoing identification, measurement, monitoring or control and reporting. It is critical to the Parent
Company’s soundness and profitability as it is continually exposed to credit risk, liquidity risk and market risk.
Risk identifcation: The Parent’s Company exposure to risk through its daily business dealings, including lending, trading and
capital market activities, is identified and aggregated through the Parent Company’s risk management infrastructure.
Risk measurement: The Parent’s Company measures risk using a variety of methodologies, including calculating potential liquidity
outflows, Earnings-at-Risk (EAR) and Value-at-Risk (VaR), and by performing sensitivity and scenario analyses (“stress testing”) on
strategic portfolios in the Parent Company’s statement of financial position.
Risk mitigation and control: The Parent Company’s risk management policies and procedures incorporate risk mitigation strategies
and include approval and tolerance limits by customer, product and industry.
Risk monitoring and reporting: Risks are monitored against approval and tolerance limits on a regular basis. Compliance with set
limits is reported to Senior Management, Risk and Compliance Committee (RCCom) and BOD on a regular basis.
Risk Governance
The BOD has the ultimate responsibility for understanding the nature and the level of risks taken by the Parent Company. The
BOD has created various committees such as the Credit Committee (CreCom), Audit Committee (AC), and RCCom to assist in
the performance of its responsibilities for the management of risk. These committees are composed of members of the board
supported by the Risk Management Department, Compliance Department and Audit Department.
The RCCom sets risk limits, policies and standards for risk identifcation, analysis and control especially credit, market, liquidity
and operational risks. The RCCom monitors the sensitivity of the Parent Company’s portfolios to changes in the market, such as
price, banking regulations and the effects on the proftability of the Parent Company. The AC reviews and recommends approval
to the BOD for the internal audit programs, policies and procedures and oversees proper implementation and adherence to such.
The risk management system of the Parent Company is annually reviewed by the internal auditors to ensure its effectiveness and
adequacy relative to the Parent Company’s risk taking activities. The CreCom of the BOD reviews, approves or recommends
approval to the Executive Committee (ExCom) and/or to the BOD credit and credit-related proposals, policies and procedures,
loan products and lending programs.
At the transactional level, Senior Management has created various management committees to supervise the management of the
various risks of the business. The Internal Capital Adequacy Assessment Process (ICAAP) Committee was created to oversee
the development and implementation of business strategies and plans in line with the Parent Company’s capital plans and risk
management processes. The Asset and Liability Committee (ALCO) is responsible for ensuring market and liquidity risks are
adequately managed both on long term and day-to-day bases. The President’s CreCom has been delegated with credit authority
limits and recommends credit proposals and policies to the CreCom of the BOD for proposals beyond its credit authority. The
Operations Committee evaluates and reviews operational policies and procedures and recommends the same for approval by the
BOD. The Remedial Management Committee monitors the status of and developments on non-performing loans of the Parent
Company. All other aspects of the business are managed by the Management Committee to ensure that all activities are in line
with the risk appetite and tolerance of the Parent Company.
Credit Risk
Credit risk is the risk of financial loss due to default of a counterparty to perform its financial obligation to the Parent Company.
The Parent Company has developed policies and practices that are designed to preserve the independence and integrity of
decision-making and ensure credit risks are assessed accurately, approved properly, monitored regularly and managed actively at
both the transaction and portfolio levels. The policy framework establishes credit approval authorities, concentration limits, risk-
rating methodologies, portfolio-review parameters and guidelines for management of distressed exposure. Credit risk is managed
by the Parent Company by setting and monitoring limits for individual borrowers or counterparties, and groups of counterparties
as well as periodically assessing the credit worthiness of its counterparties. In addition, the Parent Company obtains collateral
where appropriate and collateral agreements with counterparties, and limits the duration of exposure.
The BOD sets credit policies and delegates credit authority limits to Management to facilitate the approval of credit transactions.
Board oversight function is performed by the Corporate Governance and Risk and Compliance Committees. All credit proposals
prior to BOD approval or confrmation go through the scrutiny of the President’s CreCom and the CreCom of the BOD. The
Remedial Management Committee, a senior management committee, manages and monitors the lending units’ performance in
the collection of distressed loans.
For purposes of supporting the assessment of credit risk, the Parent Company established an Internal Credit Risk Rating System
(ICRRS). There are three internal credit risk rating systems. The frst ICRRS covers all corporate borrowers including small and
58 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
59 2010 Annual Report
medium enterprises regardless of asset size, requiring corporations with assets of P15 million and above to submit financial
statements that are audited by SEC-accredited auditing frms. The second ICRRS covers fnancial institutions. This is used
for establishment of counterparty credit lines for the Parent Company’s treasury transactions. Lastly, the Parent Company also
adopted an ICRRS for local government borrowers.
The ICRRS assesses two main aspects of the borrower, namely, the Borrower Risk Rating (BRR) and the Loan Exposure Rating
(LER). The BRR provides an assessment of the creditworthiness of the borrower, without considering the proposed facility and
security arrangements. The LER presents an assessment of the proposed facilities with the corresponding security arrangements
if available.
The Parent Company sets industry exposure limits to monitor credit risk concentration per industry type. It also establishes
the credit risk tolerance of the company to the various industry sectors. Moreover, a periodic review is conducted on credit
concentration on large exposures. Per BSP definition, large exposures are those credit exposures with an outstanding balance of
5% or more of the total qualifying capital. A limit is also applied on the maximum aggregate loan the Parent Company can expose
itself vis-à-vis its total assets. It further sets a limit on the maximum capital it can utilize to cover loan exposures. As of December
31, 2010 and 2009, all industry exposures are within approved limit of the Parent Company. Moreover, as of December 31, 2010
and 2009, there were twenty four (24) large exposures with a combined total of P14.01 billion and ten (10) large exposures with a
combined total of P5.08 billion, respectively. Of these combined totals, P2.30 billion and P1.35 billion are sovereign guaranteed
as of December 31, 2010 and 2009, respectively.
The ICRRS contains the following:
BRR - The BRR is an assessment of the credit worthiness of the borrower (or guarantor) without considering the type or a.
amount of the facility and security arrangements. It is an indicator of the probability that a borrower cannot meet its credit
obligations in foreseen manner. The assessment is described below:
Component Description Credit Factor Weight
Financial Condition Refers to the financial condition of the borrower as indicated
by certain fnancial ratios. The Financial Factor Evaluation
shall be conducted annually.
40%
Industry Analysis Refers to the prospects of the industry as well as the
company’s performance and position in the industry.
15%
Management Quality Refers to the management’s ability to run the company
successfully.
15%
Credit Dealings Refers to the company’s business relationship with banks,
suppliers and even its customers and the public as a whole.
15%
Collateral Business
with the Bank
Refers to the existing business relationship. 5%
Existence Refers to number of years company has been existing. 10%
LER - The LER is determined for each individual facility considering the term of the facility, security arrangement and quality b.
of documentation. This factor can downgrade or upgrade the BRR based on the elements relating to cover (collateral
including pledged cash deposits and guarantee), quality of documentation and structure of transactions.
Risk Asset Acceptance Criteria (RAAC) - the combination of BRR and LER results to RAAC.
The current risk grading framework consists of ten grades refecting varying degrees of risk of default and the availability of
collateral or other credit risk mitigation. The following table shows the description of ICRRS grade:
Credit Quality ICRRS Grade Description
High Grade
AAA Superior
AA Strong
A Good
BBB Satisfactory
Standard Grade
BB Acceptable
B Watchlist
CCC Specially mentioned
Substandard Grade
CC Substandard
C Doubtful
Impaired
D Loss
Superior
This rating is given to a borrower with no history of delinquencies or defaults, highly liquid and sustaining strong operating trends,
unlikely to be affected by external factors and has a competent management that uses current business models.
Strong
This rating is given to borrowers with the same characteristics as those rated as “superior” rating, but is only adequately liquid.
Good
This rating is given to a borrower with no history of default in the last 12 months. The entity’s borrowing base can support its
line of credit, and it is meeting performance expectations. It is unlikely to be affected by external factors and has a competent
management that uses current business models.
Satisfactory
This rating is given to a borrower that pays as agreed, but is not necessarily non-delinquent. The entity has adequate to marginal
liquidity and generally meets performance expectations. While there are external factors that may affect the entity, these will likely
be overcome. A lack of key management experience may be a current problem for the entity, and such could be brought about
by a recent departure of a key employee.
Acceptable
This rating is given to a borrower that is current in its payments while not necessarily paying as agreed. The entity has marginal
liquidity and has a declining trend in operations or an imbalanced position in the statement of financial position, though not to the
point that repayment is jeopardized.
There are identifed external disruptions though the impact on the entity is uncertain. There may also be some turnover causing
key management positions to stay vacant.
Watchlist
This rating is given to a borrower that may either be current in its payments, or 30 to 60 days past due. The entity has marginal
liquidity and may not be meeting performance expectations, even having defaulted on some of its loans. There are identifed
disruptions that negatively affect the entity’s performance, though there are near-term solutions. Management may also have
changed its business model with negative implications for the entity.
Specially Mentioned
The borrower in this rating shows evidence of weakness in its fnancial condition, having expected fnancial diffculties. There is a
60 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
61 2010 Annual Report
real risk that the entity’s ability to pay the interest and principal on time could be jeopardized. The entity’s ability or willingness to
service debt is in doubt, likely causing a need to reschedule payments.
Substandard
For a ‘substandard’ borrower, the debt burden has become too heavy, only to be made worse by weak or negative cash fows
and interest coverage. This makes the collection of principal or interest payments questionable, causing an assessment of default
at up to 50%. Unless given closer supervision, the institution will likely suffer a future loss. External factors may be causing an
adverse trend, or there may be a signifcant weakness in the entity’s collateral. Management has an unfavorable record and lacks
managerial capability.
Doubtful
This rating is given to a nonperforming borrower where a payment default has occurred, due to the borrower’s inability or unwillingness
to service debt over an extended period of time. Loss is unavoidable and significant, although the extent of probable loss on the loan
cannot be exactly quantified at the current time. However, there may be external factors that may strengthen the entity’s assets, e.g.
merger, acquisition, and capital injection. Management has an unfavorable record and lacks managerial capability.
Loss
This rating is given to a borrower when debt service or the prospect for re-establishment of credit worthiness, has become
remote. This may be due to the fact that the borrower and/or his co-makers have become insolvent, thus the lender may already
be preparing foreclosure procedures. A full provision is made on that part of the principal which is not fully and adequately
covered. While the loan covers basically worthless assets, writing off these loans is neither practical nor desirable for the lender.
Maximum exposure to credit risk before collateral held or other credit enhancements
An analysis of the maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements
is shown below (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Loans and receivables
Cash and other cash items and Due
from BSP (excluding cash on hand) P10,267,369 P13,084,422 P10,267,765 P 13,084,031
Due from other banks 674,894 699,457 655,734 685,821
Interbank loans receivable and SPURA 11,395,688 3,762,819 11,395,688 3,762,819
Loans and discounts
Corporate 9,901,853 10,063,670 9,901,814 10,063,670
Individual 2,221,258 2,740,681 2,221,258 2,740,654
Government 6,886,761 5,945,630 6,886,761 5,945,630
Unquoted debt securities 3,398,065 2,902,328 3,398,065 2,902,328
Accounts receivables 1,106,503 1,151,718 1,086,878 1,122,878
Accrued interest receivable 575,963 509,679 575,961 509,675
Sales contract receivable 203,151 204,248 182,137 188,007
46,631,505 41,064,652 46,572,061 41,005,513
Allowance for credit losses (2,056,712) (2,401,587) (2,056,712) (2,401,587)
44,574,793 38,663,065 44,515,349 38,603,926
Financial assets at FVPL
Held-for-trading
Government 906,809 890,370 906,809 890,370
AFS financial assets - net
Government securities 3,863,986 3,258,993 3,863,986 3,258,993
Equity securities
Quoted 26,183 27,004 26,183 27,004
Unquoted 39,861 26,262 27,018 13,420
3,930,030 3,312,259 3,917,187 3,299,417
(Forward)
Consolidated Parent Company
2010 2009 2010 2009
HTM fnancial assets - net
Government P4,399,736 P4,433,331 P4,399,736 P4,433,331
Contingent assets 420,916 647,034 420,916 647,034
P54,232,284 P47,946,059 P54,159,997 P47,874,078
Contingencies include trust department accounts, unused commercial letter of credits, late deposits/payments received and
outstanding guarantees, among others.
Excessive Risk Concentration
Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same
geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions. The Parent Company’s credit and other product portfolios may
also cause concentrations. Concentrations indicate the relative sensitivity of the Parent Company’s performance to developments
affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Parent Company’s policies and procedures include specific guidelines
focusing on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.
Selective hedging is used within the Parent Company to manage risk concentrations at both the relationship and industry levels.
Concentration of risks of financial assets with credit risk exposure
An analysis of concentrations of credit risk at the reporting date is shown below (amounts in thousands):
Consolidated
2010
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Real estate, renting and business activities P4,421,955 P– P– P4,421,955
Agricultural, hunting and forestry 2,412,935 – – 2,412,935
Philippine government – – 9,374,554 9,374,554
Other community, social and personal
services 2,797,728 – – 2,797,728
Household consumption 89,200 – – 89,200
Financial intermediaries 1,255,894 22,269,958 4,238 23,530,090
Manufacturing (various industries) 873,707 – 160 873,867
Wholesale and retail trade 1,075,387 – 40 1,075,427
Hotel and restaurants 698,514 – – 698,514
Construction 264,310 – – 264,310
Electricity, gas and water 156,756 – – 156,756
Education 132,360 – – 132,360
Transportation, storage and communication 526,114 – – 526,114
Public administration and local government 4,402,008 – – 4,402,008
Health and social work 8,256 – – 8,256
Mining and quarrying 15,000 – – 15,000
Others 5,163,430 67,992 – 5,231,422
24,293,554 22,337,950 9,378,992 56,010,496
(Forward)
62 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
63 2010 Annual Report
Consolidated
2010
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Less allowance for impairment and
credit losses P874,453 P1,182,259 P142,416 P2,199,128
23,419,101 21,155,691 9,236,576 53,811,368
Contingent assets 420,916 – – 420,916
P23,840,017 P21,155,691 P9,236,576 P54,232,284
* Comprised of Cash and other cash items (excluding cash on hand), Due from BSP, Due from other banks and Interbank
loans receivables and SPURA.
** Comprised of Financial assets at FVPL, AFS and HTM fnancial assets.
Consolidated
2009
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Real estate, renting and business activities P4,212,354 P– P– P4,212,354
Agricultural, hunting and forestry 3,847,414 – – 3,847,414
Philippine government – – 8,748,874 8,748,874
Other community, social and personal
services 2,906,438 – – 2,906,438
Household consumption 85,094 – – 85,094
Financial intermediaries 778,736 17,517,375 – 18,296,111
Manufacturing (various industries) 935,073 – 160 935,233
Wholesale and retail trade 1,071,297 – – 1,071,297
Hotel and restaurants 664,383 – – 664,383
Construction 69,824 – – 69,824
Electricity, gas and water 230,607 – 40 230,647
Education 167,645 – – 167,645
Transportation, storage and communication 196,018 – – 196,018
Public administration and local government 3,571,524 – – 3,571,524
Health and social work 8,825 – – 8,825
Mining and quarrying 4,711 – – 4,711
Others 4,768,011 29,323 25,852 4,823,186
23,517,954 17,546,698 8,774,926 49,839,578
Less allowance for impairment and
credit losses 1,272,027 1,129,560 138,966 2,540,553
22,245,927 16,417,138 8,635,960 47,299,025
Contingent assets 647,034 – – 647,034
P22,892,961 P16,417,138 P8,635,960 P47,946,059
* Comprised of Cash and other cash items (excluding cash on hand), Due from BSP, Due from other banks and Interbank
loans receivables and SPURA.
** Comprised of Financial assets at FVPL, AFS and HTM fnancial assets.
Parent Company
2010
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Real estate, renting and business activities P4,421,955 P– P– P4,421,955
Agricultural, hunting and forestry 2,412,935 – – 2,412,935
Philippine government – – 9,348,701 9,348,701
Other community, social and personal
services 2,776,002 – – 2,776,002
Household consumption 89,200 – – 89,200
Financial intermediaries 1,255,894 22,250,798 4,238 23,510,930
Manufacturing (various industries) 873,707 – 160 873,867
Wholesale and retail trade 1,075,387 – 40 1,075,427
Hotel and restaurants 698,514 – – 698,514
Construction 264,310 – – 264,310
Electricity, gas and water 156,756 – – 156,756
Education 132,360 – – 132,360
Transportation, storage and communication 526,114 – – 526,114
Public administration and local government 4,402,008 – – 4,402,008
Health and social work 8,256 – – 8,256
Mining and quarrying 15,000 – – 15,000
Others 5,144,476 68,389 – 5,212,865
24,252,874 22,319,187 9,353,139 55,925,200
Less allowance for impairment and
credit losses 874,453 1,182,259 129,407 2,186,119
23,378,421 21,136,928 9,223,732 53,739,081
Contingent assets 420,916 – – 420,916
P23,799,337 P21,136,928 P9,223,732 P54,159,997
* Comprised of Cash and other cash items (excluding cash on hand), Due from BSP, Due from other banks and Interbank
loans receivables and SPURA.
** Comprised of Financial assets at FVPL, AFS and HTM fnancial assets.
Parent Company
2009
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Real estate, renting and business activities P4,212,354 P– P– P4,212,354
Agricultural, hunting and forestry 3,847,414 – – 3,847,414
Philippine government – – 8,748,874 8,748,874
Other community, social and personal
services 2,906,439 – – 2,906,439
Household consumption 85,094 – – 85,094
Financial intermediaries 778,736 17,503,739 – 18,282,475
Manufacturing (various industries) 935,073 – 160 935,233
(Forward)
64 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
65 2010 Annual Report
Parent Company
2009
Loans and
Receivables
Loans and
Advances
to Banks*
Investment
Securities** Total
Wholesale and retail trade P1,071,297 P– P– P1,071,297
Hotel and restaurants 664,383 – – 664,383
Construction 69,824 – – 69,824
Electricity, gas and water 230,607 – 40 230,647
Education 167,645 – – 167,645
Transportation, storage and communication 196,018 – – 196,018
Public administration and local government 3,571,524 – – 3,571,524
Health and social work 8,825 – – 8,825
Mining and quarrying 4,711 – – 4,711
Others 4,722,898 28,933 – 4,751,831
23,472,842 17,532,672 8,749,074 49,754,588
Less allowance for impairment and
credit losses 1,272,027 1,129,560 125,957 2,527,544
22,200,815 16,403,112 8,623,117 47,227,044
Contingent assets 647,034 – – 647,034
P22,847,849 P16,403,112 P8,623,117 P47,874,078
* Comprised of Cash and other cash items (excluding cash on hand), Due from BSP, Due from other banks and Interbank
loans receivables and SPURA.
** Comprised of Financial assets at FVPL, AFS and HTM fnancial assets.
Neither Past Due nor Impaired Loans and receivables and Investment securities
Table below shows credit quality per class of fnancial assets based on the Parent Company’s rating system (amounts in
thousands):
Consolidated
2010
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Loans and receivables
Cash and other cash items and
Due from BSP (excluding cash
on hand) P– P– P– P10,267,369 P– P10,267,369
Due from other banks – –

674,894 – 674,894
Interbank loans receivable and
SPURA – – – 9,726,088 1,669,600 11,395,688
Loans and discounts
Corporate 154,837 3,496,706 3,581,816 1,328,169 1,340,325 9,901,853
Individual – – – 1,868,269 352,989 2,221,258
Government 945,202 5,908,913 – 32,646 – 6,886,761
Unquoted debt securities 3,398,065 – – – – 3,398,065
Accounts receivable – – – 1,106,503 – 1,106,503
Accrued interest receivable – – – 575,963 – 575,963
Sales contract receivable – – – 203,151 – 203,151
4,498,104 9,405,619 3,581,816 25,783,052 3,362,914 46,631,505
Allowance for credit losses – – – – (2,056,712) (2,056,712)
4,498,104 9,405,619 3,581,816 25,783,052 1,306,202 44,574,793
(Forward)
Consolidated
2010
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Financial assets at FVPL
Government P906,809 P– P– P– P– P906,809
AFS financial assets
Government debt securities 3,863,986 – – – – 3,863,986
Equity securities
Quoted 636 – – – 154,954 155,590
Unquoted 52,870 – – – – 52,870
53,506 – – – 154,954 208,460
3,917,492 – – – 154,954 4,072,446
Allowance for impairment losses – – – – (142,416) (142,416)
3,917,492 – – – 12,538 3,930,030
HTM fnancial assets
Government 4,399,736 – – – – 4,399,736
Contingent assets 420,916 – – – – 420,916
P14,143,057 P9,405,619 P3,581,816 P25,783,052 P1,318,740 P54,232,284
Consolidated
2009
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Loans and receivables
Cash and other cash items and
Due from BSP (excluding cash
on hand) P– P– P– P13,084,421 P– P13,084,421
Due from other banks – – – 699,457 – 699,457
Interbank loans receivable and
SPURA – – – 2,093,219 1,669,600 3,762,819
Loans and discounts
Corporate 2,028,263 3,824,613 1,765,828 812,725 1,632,241 10,063,670
Individual – – – 2,111,975 628,706 2,740,681
Government 2,510,392 3,410,572 – 19,955 4,711 5,945,630
Unquoted debt securities 2,902,328 – – – – 2,902,328
Accounts receivable – – – 1,151,718 – 1,151,718
Accrued interest receivable – – – 509,679 – 509,679
Sales contract receivable – – – 204,248 – 204,248
7,440,983 7,235,185 1,765,828 20,687,397 3,935,258 41,064,651
Allowance for credit losses – – – – (2,401,587) (2,401,587)
7,440,983 7,235,185 1,765,828 20,687,397 1,533,671 38,663,064
(Forward)
66 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
67 2010 Annual Report
Consolidated
2009
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Financial assets at FVPL
Government P890,370 P– P– P– P– P890,370
AFS financial assets
Government debt securities 3,258,993 – – – – 3,258,993
Equity securities
Quoted 343 – – – 178,470 178,813
Unquoted 13,420 – – – – 13,420
13,763 – – – 178,470 192,233
3,272,756 – – – 178,470 3,451,226
Allowance for impairment losses – – – – (138,966) (138,966)
3,272,756 – – – 39,504 3,312,260
HTM fnancial assets
Government 4,433,331 – – – – 4,433,331
Contingent assets 647,034 647,034
P16,684,474 P7,235,185 P1,765,828 P20,687,396 P1,573,175 P47,946,059
Parent Company
2010
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Loans and receivables
Cash and other cash items and
Due from BSP (excluding cash
on hand) P– P– P– P10,267,765 P– P10,267,765
Due from other banks – – – 655,734 – 655,734
Interbank loans receivable and
SPURA – – – 9,726,088 1,669,600 11,395,688
Loans and discounts
Corporate 154,837 3,496,706 3,581,816 1,328,130 1,340,325 9,901,814
Individual – – – 1,868,269 352,989 2,221,258
Government 945,202 5,908,913 – 32,646 – 6,886,761
Unquoted debt securities 3,398,065 – – – – 3,398,065
Accounts receivable – – – 1,086,878 – 1,086,878
Accrued interest receivable – – – 575,961 – 575,961
Sales contract receivable – – – 182,137 – 182,137
4,498,104 9,405,619 3,581,816 25,723,608 3,362,914 46,572,061
Allowance for credit losses – – – – (2,056,712) (2,056,712)
4,498,104 9,405,619 3,581,816 25,723,608 1,306,202 44,515,349
Financial assets at FVPL
Government 906,809 – – – – 906,809
AFS financial assets
Government debt securities 3,863,986 – – – – 3,863,986
(Forward)
Parent Company
2010
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Equity securities
Quoted P636 P– P– P– P154,954 P155,590
Unquoted 27,018 – – – – 27,018
27,654 – – – 154,954 182,608
3,891,640 – – – 154,954 4,046,594
Allowance for impairment losses – – – – (129,407) (129,407)
3,891,640 – – – 25,547 3,917,187
HTM fnancial assets
Government 4,399,736 – – – – 4,399,736
Contingent assets 420,916 – – – – 420,916
P14,117,205 P9,405,619 P3,581,816 P25,723,608 P1,331,749 P54,159,997
Parent Company
2009
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
Loans and receivables
Cash and other cash items and
Due from BSP (excluding cash
on hand) P– P– P– P13,084,031 P– P13,084,031
Due from other banks – – – 685,821 – 685,821
Interbank loans receivable and
SPURA – – – 2,093,219 1,669,600 3,762,819
Loans and discounts
Corporate 2,028,263 3,824,613 1,765,828 812,725 1,632,241 10,063,670
Individual – – – 2,111,947 628,707 2,740,654
Government 2,510,392 3,410,572 – 19,955 4,711 5,945,630
Unquoted debt securities 2,902,328 – – – – 2,902,328
Accounts receivable – – – 1,122,878 – 1,122,878
Accrued interest receivable – – – 509,675 – 509,675
Sales contract receivable – – – 188,007 – 188,007
7,440,983 7,235,185 1,765,828 20,628,258 3,935,259 41,005,513
Allowance for credit losses – – – – (2,401,587) (2,401,587)
7,440,983 7,235,185 1,765,828 20,628,258 1,533,672 38,603,926
Financial assets at FVPL
Government 890,370 – – – – 890,370
AFS financial assets
Government debt securities 3,258,993 – – – – 3,258,993
Equity securities
Quoted 343 – – – 152,618 152,961
Unquoted 13,420 – – – – 13,420
13,763 – – – 152,618 166,381
3,272,756 – – – 152,618 3,425,374
Allowance for impairment losses – – – – (125,957) (125,957)
3,272,756 – – – 26,661 3,299,417
(Forward)
68 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
69 2010 Annual Report
Parent Company
2009
Neither past due nor impaired
High Grade
Standard
Grade
Substandard
Grade Unrated
Past Due or
Impaired Total
HTM fnancial assets
Government P4,433,331 P– P– P– P– P4,433,331
Contingent assets 647,034 – – – – 647,034
P16,684,474 P7,235,185 P1,765,828 P20,628,258 P1,560,333 P47,874,078
Past due but not impaired Loans and receivables and Investment securities
Loans and receivables and investment securities where contractual interest or principal payments are past due but the Group
believes that impairment is not appropriate on the basis of the level of collateral available and or status of collection of amounts
owed to the Group.
The following past due but not impaired loans and receivables are not over 90 days past due (amounts in thousands):
2010 2009
Individual P186,242 P44,164
Corporate 237,333 154,388
P423,575 P198,552
Impaired Loans and receivables and Investment securities
Impaired loans and receivables and investment securities are loans and receivables and investment securities for which the Group
determines that it is probable that it will be unable to collect all principal and interest due based on the contractual terms of the
promissory note and securities agreements.
The Group holds collateral against loans and receivables in the form of real estate and chattel mortgages, guarantees, and other
registered securities over assets. Estimates of fair value are based on the value of collateral assessed at the time of borrowing
and these are updated every two years. Generally, collateral is not held over loans and advances to banks except for reverse
repurchase agreements. The Company is not allowed to sell or pledge collateral held for reverse repurchase agreements.
Collateral usually is not held against investment securities, and no such collateral was held as of December 31, 2010 and 2009.
The following table shows the fair value of collateral held against Loans and receivables both for the Group and the Parent
Company (amounts in thousands):
2010 2009
Against individually impaired
Real estate P2,374,769 P2,958,261
Chattel 40,112 923,737
Others 303,395 247,188
Against collectively impaired
Real estate 8,524,924 9,201,265
Chattel 2,881,448 82,521
Against past due but not impaired
Real estate 239,411 148,025
Chattel – –
Against neither past due nor impaired
Real estate 8,285,513 9,053,240
Other 2,881,448 82,521
P25,531,020 P22,696,758
It is the Group’s policy to dispose foreclosed properties acquired in an orderly fashion. The proceeds of the sale of the foreclosed
assets classified as “Investment Properties” are used to reduce or repay the outstanding claim.
As of December 31, 2010 and 2009, breakdown of restructured loans for the Group and Parent Company is as follows (amounts
in thousands):
2010 2009
Corporate P675,553 P698,241
Individual 7,367 943
682,920 699,184
Allowance for probable losses 59,355 68,716
P623,565 P630,468
Liquidity Risk
The objective of liquidity risk management is to ensure that all maturing obligations and commitments of the Parent Company will
be paid fully and promptly. Liquidity risk is therefore the risk that the Parent Company will be unable to meet financial commitment
to a customer or market in any location, in any currency, at any time. Remaining liquid then is a precondition for achieving all other
business objectives and ranks as one of the core objectives of the Parent Company.
The ALCO oversees the liquidity risk management of the Parent Company. The Treasury Group executes the funding and liquidity
plan after the business strategies of each business unit are approved and consolidated. The Treasury Group shall likewise ensure
that liquidity is maintained in the statement of financial position and that the Parent Company shall have the ability to access
incremental funding. Risk Management Department prepares a quarterly Maximum Cumulative Outfow (MCO) analysis report.
The liquidity planning process includes the preparation of the liquidity gap reports, the diversifcation of sources of funds and the
Liquidity Contingency Planning. The liquidity gap report or MCO report shows the mismatch in maturities of sources and uses
in the fnancial position. Assets and liabilities are plotted based on maturity and/or behavioral profle in different tenor buckets.
Cumulative gaps are computed through the different tenor buckets. An MCO limit is placed based on the projected statement of
financial position growth and the Parent Company’s funding capacity.
Financial assets
Analysis of equity and debt securities at fair value into maturity groupings is based on the expected date on which these assets
will be realized. For other assets, the analysis into maturity grouping is based on the remaining period from the end of the
reporting period to the contractual maturity date or if earlier the expected date the assets will be realized.
Financial liabilities
The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date.
When counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can
be required to pay.
70 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
71 2010 Annual Report
The table below summarizes the maturity profle of fnancial instruments based on contractual undiscounted cash fows (amounts
in thousands):
2010
Consolidated
On Demand
Less than
3 Months
3 to 12
Months 1 to 5 Years
Beyond
5 Years Total
Financial assets
Financial assets at FVPL P– P917,883 P– P– P– P917,883
AFS investments
Government – 820,351 487,422 837,833 2,792,280 4,937,886
Unquoted – – – 202,295 – 202,295
HTM Investments 322,794 282,794 2,269,786 6,458,594 9,333,968
Loans and receivables
Due from BSP 2,969,374 7,261,855 – – – 10,231,229
Due from other banks 655,734 – – – – 655,734
Interbank loans
receivable and SPURA – 9,730,300 – – – 9,730,300
Loans and discounts
Corporate – 2,917,592 1,290,716 5,356,145 4,023,505 13,587,958
Individual – 629,707 256,860 1,150,978 893,239 2,930,784
Government – 4,992,406 1,232,965 5,512,845 5,271,921 17,010,137
Unquoted debt
securities – 7,037 1,409,586 2,060,540 598,539 4,075,702
Accounts receivable – 67,148 954,924 121,254 – 1,143,326
Accrued interest
receivable – 575,963 – – – 575,963
Sales contract receivable 32,494 1,437 2,945 98,410 557 135,843
P3,657,602 P28,244,473 P5,918,212 P17,610,086 P20,038,635 P75,469,008
Financial liabilities
Deposit liabilities
Demand P12,424,752 P– P– P– P– P12,424,752
Savings 6,088,940 23,561,839 1,392,127 – – 31,042,906
Time 283,397 1,654,163 577,187 596,236 100 3,111,083
18,797,089 25,216,002 1,969,314 596,236 100 46,578,741
Bills payable – 6,891 26,619 108,000 2,682,200 2,823,710
Manager’s checks 88,227 – – – – 88,227
Accrued interest 151,388 – – – – 151,388
Accrued other expenses – 16,308 2,666 331,401 – 350,375
Other liabilities 664,618 607,010 16,270 2,897,082 262,920 4,447,900
P19,701,322 P25,846,211 P2,014,869 P3,932,719 P2,945,220 P54,440,341
2009
Consolidated
On Demand
Less than
3 Months
3 to 12
Months 1 to 5 Years
Beyond 5
Years Total
Financial assets
Financial assets at FVPL P890,370 P– P– P– P– P890,370
AFS investments
Government 28,277 66,002 661,751 1,196,965 1,394,803 3,347,798
Unquoted – – – – 26,263 26,263
HTM Investments – – – 2,441,329 7,267,667 9,708,996
Loans and receivables
Due from BSP 13,577,301 – – – – 13,577,301
Due from other banks 704,703 – – – – 704,703
Interbank loan
receivable and SPURA – 3,769,673 – – – 3,769,673
Loans and discounts – – – –
Corporate 1,692,220 2,456,520 1,199,484 2,565,761 2,696,480 10,610,465
Individual 852,751 81,440 904,941 559,536 770,303 3,168,971
Government 11,626 1,304,189 522,568 1,911,642 2,718,722 6,468,747
Unquoted debt securities – 11 550,009 1,766,515 703,409 3,019,944
Accounts receivable 1,168,230 – – – – 1,168,230
Accrued interest receivable 262,929 56,031 185,270 5,449 – 509,679
Sales contract receivable – 258 10,622 99,192 108,348 218,420
P19,188,407 P7,734,124 P4,034,645 P10,546,389 P15,685,995 P57,189,560
Financial liabilities
Deposit liabilities
Demand P11,318,855 P– P– P– P– P11,318,855
Savings 29,527,632 21,538,796 2,551,664 – – 53,618,092
Time – 2,089,593 80,843 – – 2,170,436
40,846,487 23,628,389 2,632,507 – – 67,107,383
Bills payable – – – 537,234 2,013,152 2,550,386
Manager’s checks 54,884 – – – – 54,884
Accrued interest 118,735 – – – – 118,735
Accrued other expenses 147,518 – – – – 147,518
Other liabilities 569,676 – – – – 569,676
P41,737,300 P23,628,389 P2,632,507 P537,234 P2,013,152 P70,548,582
2010
Parent Company
On Demand
Less than
3 Months
3 to 12
Months 1 to 5 Years
Beyond 5
Years Total
Financial assets
Financial assets at FVPL P– P917,883 P– P– P– P917,883
AFS investments
Government – 820,351 487,422 837,833 2,792,280 4,937,886
Unquoted – – – 176,443 – 176,443
HTM Investments – 322,794 282,794 2,269,786 6,458,594 9,333,968
Loans and receivables
Due from BSP 2,969,374 7,261,855 – – – 10,231,229
Due from other banks 655,734 – – – – 655,734
(Forward)
72 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
73 2010 Annual Report
2010
Parent Company
On Demand
Less than
3 Months
3 to 12
Months 1 to 5 Years
Beyond 5
Years Total
Interbank loans receivable
and SPURA P– P9,730,300 P– P– P– P9,730,300
Loans and discounts
Corporate – 2,917,592 1,290,677 5,356,145 4,023,505 13,587,919
Individual – 629,707 256,860 1,150,978 893,239 2,930,784
Government – 4,992,406 1,232,965 5,512,845 5,271,921 17,010,137
Unquoted debt securities – 7,037 1,409,586 2,060,540 598,539 4,075,702
Accounts receivable – 67,148 949,070 70,660 – 1,086,878
Accrued interest receivable – 575,961 – – – 575,961
Sales contract receivable 32,494 1,437 2,945 98,410 557 135,843
P3,657,602 P28,244,471 P5,912,319 P17,533,640 P20,038,635 P75,386,667
Financial liabilities
Deposit liabilities
Demand P12,424,752 P– P– P– P– P12,424,752
Savings 6,089,336 23,561,839 1,392,127 – – 31,043,302
Time 283,397 1,654,163 577,187 596,236 100 3,111,083
18,797,485 25,216,002 1,969,314 596,236 100 46,579,137
Bills payable – 6,891 26,619 108,000 2,682,200 2,823,710
Manager’s checks 88,227 – – – – 88,227
Accrued interest 151,388 – – – – 151,388
Accrued other expenses – 16,000 1,754 331,401 – 349,155
Other liabilities 664,618 606,971 3,683 2,891,229 262,920 4,429,421
P19,701,718 P25,845,864 P2,001,370 P3,926,866 P2,945,220 P54,421,038
2009
Parent Company
On Demand
Less
than Months
3 to 12
Months 1 to 5 Years
Beyond
5 Years Total
Financial assets
Financial assets at FVPL P890,370 P– P– P– P– P890,370
AFS investments
Government 28,277 66,002 661,751 1,196,965 1,394,803 3,347,798
Unquoted – – – – – –
HTM Investments – – – 2,441,329 7,267,667 9,708,996
Loans and receivables
Due from BSP 13,055,098 – – – – 13,055,098
Due from other banks 704,703 – – – – 704,703
Interbank loans receivable
and SPURA – 3,769,673 – – – 3,769,673
Loans and discounts
Corporate 1,692,220 2,456,520 1,199,484 2,565,761 2,696,480 10,610,465
Individual 852,751 81,440 904,941 559,536 770,303 3,168,971
Government 11,626 1,304,189 522,568 1,911,642 2,718,722 6,468,747
Unquoted debt securities – 11 550,009 1,682,395 669,913 2,902,328
Accounts receivable 1,113,140 – – – – 1,113,140
Accrued interest receivable 262,925 56,031 185,270 5,449 – 509,675
Sales contract receivable – 258 10,622 93,477 108,348 212,705
P18,611,110 P7,734,124 P4,034,645 P10,456,554 P15,626,236 P56,462,669
(Forward)
2009
Parent Company
On Demand
Less
than Months
3 to 12
Months 1 to 5 Years
Beyond
5 Years Total
Financial liabilities
Deposit liabilities
Demand P11,318,855 P– P– P– P– P11,318,855
Savings 29,527,632 21,538,796 2,551,664 – – 53,618,092
Time – 2,089,593 80,843 – – 2,170,436
40,846,487 23,628,389 2,632,507 – – 67,107,383
Bills payable – – – 537,234 2,013,152 2,550,386
Manager’s checks 54,884 – – – – 54,884
Accrued interest 118,735 – – – – 118,735
Accrued other expenses 147,518 – – – – 147,518
Other liabilities 553,615 – – – – 553,615
P41,721,239 P23,628,389 P2,632,507 P537,234 P2,013,152 P70,532,521
Historically, not all deposit liabilities are withdrawn on their contractual maturities. Based on the historically observed behavior
of the Parent Company’s deposit liabilities, a signifcant amount of deposits is retained longer than its contractual maturity. This
therefore allows the Parent Company to go into long term investments and lending whose streams of cash flows are sufficient
enough to cover cash outflow requirements. Below is the adjusted liquidity gap position of the Parent Company based on a
mixture of observed behavior and contractual maturity which is supported by the asset side of the statement of financial position
(amounts in thousands):
2010
PESO BOOKS On Demand
Less than
3 months
3 to 12
months
1 to 5
years
Over 5
Years Total
Assets
Cash in vault P506,821 P– P– P– P– P506,821
Due from BSP 2,969,374 4,105,211 1,952,251 79,745 1,092,795 10,199,376
Due from banks 447,880 – – – – 447,880
Loans – 11,398,042 3,448,474 9,923,540 4,103,303 28,873,359
Investments 2,528,253 2,962,509 505,650 2,887,579 3,899,389 12,783,380
Other assets – 117,948 167,682 – 5,269,065 5,554,695
6,452,328 18,583,710 6,074,057 12,890,864 14,364,552 58,365,511
Liabilities
Deposits 5,989,600 11,133,180 17,747,737 724,952 9,934,484 45,529,953
Other liabilities – 495,773 283,197 3,005,105 2,807,358 6,591,433
Contingent liabilities – 299,860 715,601 – – 1,015,461
5,989,600 11,928,813 18,746,535 3,730,057 12,741,842 53,136,847
Equity – – – – 5,464,805 5,464,805
Gap 462,728 6,654,897 (12,672,478) 9,160,807 (3,842,095)
Cumulative Gap P462,728 P7,117,625 (P5,554,853) P3,605,954 (P236,141)
74 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
75 2010 Annual Report
2009
PESO BOOKS On Demand
Less than
3 months
3 to 12
months
1 to 5
Years
Over 5
Years Total
Assets
Cash in vault P402,276 P– P– P– P– P402,276
Due from BSP 8,835,098 1,613,456 1,513,751 – 1,092,793 13,055,098
Due from banks 282,542 – – – – 282,542
Loans – 4,797,149 4,867,979 6,652,622 4,452,285 20,770,035
Investments 382,521 5,335,836 263,371 1,674,782 4,222,272 11,878,782
Other assets – 232,762 465,523 – 4,834,031 5,532,316
9,902,437 11,979,203 7,110,624 8,327,404 14,601,381 51,921,049
Liabilities
Deposits 859,020 17,153,522 13,761,372 – 9,934,484 41,708,398
Other liabilities – 266,348 347,238 117,685 3,083,891 3,815,162
Contingent liabilities – 594,112 1,117,547 – – 1,711,659
859,020 18,013,982 15,226,157 117,685 13,018,375 47,235,219
Equity – – – – 5,052,655 5,052,655
Gap 9,043,417 (6,034,779) (8,115,533) 8,209,719 (3,469,649)
Cumulative Gap P9,043,417 P3,008,638 (P5,106,895) P3,102,824 (P366,825)
2010
FCDU BOOKS On Demand
Less than
3 months
3 to 12
months
1 to 5
Years
Over 5
Years Total
Assets
Due from banks $1,418 $3,260 $– $– $– $4,678
Loans – 2,040 385 – – 2,425
Investments – 8,653 1,028 – 3,379 13,060
Other assets 298 529 – – – 827
$1,716 $14,482 $1,413 $– $3,379 $20,990
Liabilities
Deposits 260 11,175 3,821 1,087 2,549 18,892
Other liabilities – 1,437 – – 662 2,099
$260 $12,612 $3,821 $1,087 $3,211 $20,991
Gap 1,456 1,870 (2,408) (1,087) 168
Cumulative Gap $1,456 $3,326 $918 ($169) ($1)
2009
FCDU BOOKS On Demand
Less than
3 months
3 to 12
months
1 to 5
Years
Over 5
Years Total
Assets
Due from banks $1,022 $7,707 $– $– $– $8,729
Loans – 8,077 – – – 8,077
Investments – 7,529 – 1,035 3,395 11,959
Other assets 245 553 – – – 798
1,267 23,866 – 1,035 3,395 29,563
Liabilities
Deposits 289 18,906 3,129 3,103 2,838 28,265
Other liabilities – 48 – – 1,252 1,300
289 18,954 3,129 3,103 4,090 29,565
Gap 978 4,912 (3,129) (2,068) (695)
Cumulative Gap $978 $5,890 $2,761 $693 ($2)
As December 31, 2010 and 2009, of the total assets under the regular books, around 31% or P18.0 billion and 40% or
P21.0 billion, respectively, are in cash assets and other cash items such as due from BSP, cash-in-vault, due from local banks
and short term lending to BSP. Moreover, as of December 31, 2010, the Parent Company had a signifcant inventory of cash
convertible government securities booked under HFT, AFS and HTM investments, which constituted 10% or P6 million of total
assets. This is gleaned from the fact that the Parent Company is an authorized government depository bank that is required to
maintain legal and liquidity floor reserves equivalent to 50% of total government deposits. As of December 31, 2010 and 2009,
total government deposits amounted to P33.11 billion or 73% and P32.34 billion or 80%, respectively, of the total peso deposits.
For the FCDU books, deposits with other banks, loans and investments were largely short term. Investments were likewise limited
to Philippine government guaranteed bonds that can easily be liquidated if the need arises.
Under normal condition, the Parent Company periodically tests its ability to draw on the identifed sources to back-up liquidity
requirement. In addition, stress tests are conducted on periodic basis in order to assess the Parent Company’s ability to meet
its liquidity obligations during a liquidity crisis. Stress testing may be in the form of simple sensitivity or scenario analysis. It is
an important tool used to measure the outcome of certain extreme events to the Parent Company’s liquidity position. More
importantly, stress testing results help plan for a liquidity crisis. To counter a severe liquidity problem, the Parent Company put in
place a liquidity contingency plan. Depending on the severity of the liquidity problem, the Parent Company may choose or use
one or more of liquidity funding sources.
Diversification of funding sources is important in managing liquidity risk, specifically funding liquidity needs. Diversification of funds
sources means that the Parent Company takes liquidity from as many different types of customers in as many different sources
as possible. It also means having many types of instruments from which funds can be drawn. By offering different instruments,
there is a better chance of getting more funds from the same customer. Even though achieving liquidity through instrument
diversification has a cost, the Parent Company nevertheless avoids the danger of using only one type of instrument to draw
money from the same source.
Any sudden swing in interest rates may entice customers/investors to shift funds to higher yielding instruments. For this reason,
the Parent Company offers several deposit instruments whose yields are market competitive. However, in order that there is
no over dependence on high yielding deposit funds, tolerance limits are set. For interbank borrowings, maximum interbank
borrowing per day is set at P1 billion and USD2 million for the regular and FCDU books, respectively. Large funds provider limits
are set at P1 billion and USD2 million for the peso and dollar term deposits, respectively. Any excess to the large funds provider
limit is invested at very short term and highly liquid assets.
Market Risk
Market risk is the potential decline in earnings, either immediately or over time, as a result of adverse fuctuations or changes in
the level or volatility of interest rates, foreign exchange rates or commodities or equity prices. The Risk Management Department
is responsible for identification, measurement, reporting and mitigation of market risk under the supervision of the BOD through
76 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
77 2010 Annual Report
the Risk and Compliance Committee. Measurement of market risk is done by Value-at-Risk (VaR) and Earnings-at-Risk (EaR)
methodologies.
VaR is a statistical estimate of the maximum amount of loss that an “open” risk position may diminish during a given time period
with a given level of confdence. VaR calculation covers the accounts booked under Held-for-Trading Securities and the Parent
Company’s overall Foreign Exchange exposure. EaR, on the other hand, is used to measure the impact of volatility of the interest
rates to the earning assets and liabilities of the Parent Company. Unlike VaR, EaR refects the risk exposure of future income of
the Parent Company as changes in interest rates may occur.
Objectives and limitations of the VaR methodology
In calculating the VaR, the Parent Company used the parametric methodology with 99% confidence interval and one (1) day
holding period. This means that actual trading losses are expected to exceed VaR estimates of not more than once out of
every one hundred trading days. The VaR model assumes that the market conditions follow a normal distribution. The use of
VaR has limitations because it is based on historical correlations and volatilities in market prices and assumes that future price
movements will follow a statistical distribution. Due to the fact that VaR relies heavily on historical data to provide information
and may not clearly predict the future changes and modifications of the risk factors, the probability of large market moves may
be underestimated if changes in risk factors fail to align with the normal distribution assumption. VaR may also be under or over
estimated due to the assumptions placed on risk factors and the relationship between such factors for specific instruments. Even
though positions may change throughout the day, the VaR only represents the risk of the portfolios at the close of each business
day, and it does not account for any losses that may occur beyond the 99% confidence level.
The Parent Company calculates VaR on a daily basis and sends a report to the Treasury Group.
Below are the tables showing VaR for the period ended December 31, 2010 and 2009 (amounts in thousands):
For Fixed Income - Peso Books
2010 2009
As of December 31 P12,556 P3,293
Average 4,942 8,694
Highest 12,556 19,099
Lowest 1,838 0.22
For Fixed Income - FCDU
2010*
As of December 31 $–
Average 73
Highest 465
Lowest –
*The statistics for the Fixed Income- FCDU Books cover data from March to December 2010 only.
For Foreign Exchange Exposure
2010 2009
As of December 31 $0.57 $4
Average 10 13
Highest 69 70
Lowest – 1
For the Fixed Income trading books, actual VaR reporting commenced only in 2009 after a re-calibration and a trial run was
conducted in 2008.
Moreover, back-testing is periodically done although it does not serve as basis for capital funding requirement for an internal risk-
based approach in capital adequacy calculation. Back-testing is the basic analytical tool, where previous-day VaR calculations
are compared against the actual day-to-day profit and loss. Back testing is performed on a semi-annual basis and the results are
reported to theALCO, the RCCom and the BOD.
However, VaR methodology has its own limitations. It assumes a normal distribution of risk factors under normal market condition
as such it may tend to under-estimate the possible losses or fail to capture the worst case scenarios. Furthermore, calculations
are largely based on historical data of market prices and assume that future price movements will replicate the statistical
distribution of the past data.
In spite of applying the VaR calculations, the Parent Company adopted the Standardized Approach set by the BSP in calculating
capital adequacy covering market risk. The standardized approach employs standard risk weights for both the general and
specifc market risks. The general market risk classifes market risk according to the instruments coupon rate and the tenor while
specifc market risk classifes market risk based on the nature or type of security/instrument.
Moreover, as a control measure for losses in the trading activities that may arise, market risk limits are put in place such as volume
or position limits and stop loss limits. Nominal Position Limits is the maximum amount of open risk positions that can be held within
a set time period for each financial instrument that the Parent Company can trade. It is a pre-determined position level set by the
Management and approved by the BOD for a specifc instrument. Position limits are set for fxed income instruments booked under
held-for-trading and for foreign exchange positions of the Parent Company. For the fixed income instruments, total position limit
for the Peso and FCDU are P1.5 billion and USD15 million, respectively while the foreign exchange position limit is based on the
regulatory ceiling of 20% of unimpaired capital ($23.12 million as of December 31, 2010) or $50 million whichever is lower.
An Annual VaR limit is also set by the Parent Company to manage trading losses. The annual VaR limit is usually set as a
percentage to the budgeted trading income for the year. The Annual VaR limit is the maximum monetary amount for market-
related losses for a specified time period that top management deems acceptable for the Parent Company. It is intended to limit
the actual financial loss (realized and unrealized) from adverse trading performance of the Parent Company. Before the annual
VaR limit is reached, a loss alert limit and a stop loss limit are set as a red flag and cut-loss limit, respectively for significant large
losses in trading.
Interest Rate Risk
The method by which the Parent Company measures the sensitivity to its assets and liabilities to interest rate fuctuation is by
way of Earnings-at-Risk (EaR) measurement. EaR measures the Parent Company’s susceptibility to changes in interest rates. It
calculates the change in income over the next 12 months, given current exposures that will result from a management selected
and approved change in interest rate. The Parent Company computes for the EaR for Peso and FCDU books separately.
To compute for the EaR, a repricing gap must frst be created. The repricing gap is calculated by distributing the assets and
liabilities into tenor buckets according to their repricing dates or maturity dates or assumed behavior of payouts or liquidation.
A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. On the other hand, a gap is considered negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets.
After establishing the repricing gap, the resultant gaps on each tenor bucket shall be multiplied by the assumed rate volatility
based on the approved standard deviation (SD) of 2.326. The use of 2.326 SD means that there is a 99% probability that actual
impact on the earnings of the Parent Company within the projected 12-month period will unlikely exceed the EaR estimates under
normal conditions.
78 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
79 2010 Annual Report
Below is the repricing gap of interest sensitive assets and liabilities as of December 31, 2010 and 2009 (amounts in thousands):
2010
PESO BOOKS 1 Month
2 to 3
Months
4 to 6
Months
7 to 12
Months > 1 Year Total
Assets
Cash in vault P– P– P– P– P506,821 P506,821
Loans and receivables 17,158,511 2,681,667 1,748,000 3,109,924 3,395,935 28,094,037
Due from BSP 6,880,000 350,000 – – 2,969,374 10,199,374
Due from other banks – – – 447,880 447,880
Investment securities* 1,888,718 690,935 571,778 240,484 9,240,543 12,632,458
25,927,229 3,722,602 2,319,778 3,350,408 16,560,553 51,880,570
Liabilities
Deposit liabilities 17,951,995 7,168,212 475,528 923,144 19,011,073 45,529,952
Other liabilities 1,042 8,333 12,500 18,750 1,512,184 1,552,809
P17,953,037 P7,176,545 P488,028 P941,894 P20,523,257 P47,082,761
Repricing gap 7,974,192 (3,453,943) 1,831,750 2,408,514 (3,962,704) 4,797,809
EaR (2.326SD) (18,252) 9,761 (3,130) (1,514) – –
EaR Cumulative (18,252) (8,491) (11,621) (13,134) – –
* Consisting of fnancial assets at FVPL, AFS fnancial assets, HTM fnancial assets and unquoted debt securities classifed as
loans
In a decreasing interest rate scenario, a positive repricing gap position would normally yield a decrease in earnings due to lowering
of interest margin. Within the first two months, a decrease in interest rates may result to a possible increase in income by
P9.76 million (net) at 2.326SD. As more assets than liabilities are due for repricing in the subsequent months, a sustained
decreasing trend of interest rates may result to an aggregate potential loss of P13.13 million at the end of the 12-month period at
2.326SD. However, if interest rates should increase at the same confidence interval, the Bank stands to earn additional income of
P13.13 million at the end of the 12-month period.
2010
FCDU BOOKS 1 Month
2 to 3
Months
4 to 6
Months
7 to 12
Months > 1 Year Total
Assets
Placement with other
banks $4,678 $– $– $– $– $4,678
Investment securities*
4,326
1,028
– –
7,705 13,059
Loans and receivables
1,171
1,255 –

– 2,426
10,175 2,283 – – 7,705 20,163
Liabilities
Deposit liabilities
8,553
3,443 1,009 221 5,665 18,891
Repricing Gap 1,622 (1,160) (1,009) (221) 2,040 1,272
EaR (2.326SD)
0.12
(0.10) (0.10)
(0.01) – –
EaR Cumulative
0.12
0.02 (0.08)
0.09 – –
* Consisting of fnancial assets at FVPL, AFS fnancial assets, HTM fnancial assets and unquoted debt securities classifed as loans
The FCDU book has a negative repricing gap position. Any sustained decrease in interest rates at 2.326SD may yield additional
earnings due to savings in interest expense by as much as $0.01 thousand at the end of the 12-month period. On the other
hand, an increase in interest rates at 2.326SD may result to a decrease in earnings of $0.09 thousand.
2009
PESO BOOKS 1 Month
2 to 3
Months
4 to 6
Months
7 to 12
Months > 1 Year Total
Assets
Loans and receivables P1,650,000 P8,532,232 P5,366,734 P1,327,548 P2,467,594 P19,344,108
Due from BSP – 9,820,000 – – 3,235,098 13,055,098
Due from other banks – – – – 282,542 282,542
Investment securities* – 980,066 1,523,694 1,821,568 7,402,535 11,727,863
1,650,000 19,332,298 6,890,428 3,149,116 13,387,769 44,409,611
Liabilities
Deposit liabilities 7,479,500 15,161,313 2,588,430 – 16,479,155 41,708,398
Other liabilities – 2,516 11,715 11,787 1,533,815 1,559,833
7,479,500 15,163,829 2,600,145 11,787 18,012,970 43,268,231
Repricing gap (5,829,500) 4,168,469 4,290,283 3,137,329 (4,625,201) 1,141,380
EaR (2.326SD) 5,575 (15,459) (2,874) – – –
EaR Cumulative 5,575 (9,884) (12,758) – – –
* Consisting of fnancial assets at FVPL, AFS fnancial assets, HTM fnancial assets and unquoted debt securities classifed as
loans
In a decreasing interest rate scenario, a positive repricing gap position would normally yield a decrease in earnings due to lowering
of interest margin. Within the first two months, a decrease in interest rates may result to a possible reduction of income by
P9.88 million (net) at 2.326SD. As more assets than liabilities are due for repricing in the subsequent months, a sustained
decreasing trend of interest rates may result to an aggregate potential loss of P12.76 million at the end of the 12-month period
at 2.326SD. However, if interest rates should increase at the same confidence interval, the Parent Company stands to earn
additional income of P12.76 million at the end of the 12-month period.
2009
FCDU BOOKS 1 Month
2 to 3
Months
4 to 6
Months
7 to 12
Months > 1 Year Total
Assets
Placement with other
banks $– $8,729 $– $– $– $8,729
Investment securities* – 3,000 – – 8,959 11,959
Loans and receivables – 8,077 – – – 8,077
– 19,806 – – 8,959 28,765
Liabilities
Deposit liabilities – 21,559 914 – 6,306 28,779
Repricing Gap – (1,753) (914) – 2,653 (14)
EaR (2.326SD) – 0.27 0.23 – – –
EaR Cumulative – 0.27 0.50 – – –
* Consisting of fnancial assets at FVPL, AFS fnancial assets, HTM fnancial assets and unquoted debt securities classifed as loans
The FCDU book has a negative repricing gap position. Any sustained decrease in interest rates at 2.326SD may yield additional
earnings due to savings in interest expense by as much as $0.50 thousand at the end of the 12-month period. On the other
hand, an increase in interest rates at 2.326SD may result to a decrease in earnings of $0.50 thousand.
80 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
81 2010 Annual Report
The sensitivity of the statement of income is the effect of the assumed changes in interest rates on the net interest income for
one year based its effect on the foating rate of fnancial assets and fnancial liabilities held at December 31, 2010 and 2009. The
sensitivity of equity is calculated by revaluing fixed rate available for sale debt instruments held at December 31, 2010 and 2009.
The following tables demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held
constant, of the Parent Company’s statement of income (amounts in thousands).
2010
Currency
Increase in
basis points
Sensitivity of net
interest income
Sensitivity
of equity
PHP +50% (P115,431) (P259,162)
USD +50% 1,472 (2,592)
Decrease in
basis points
Sensitivity of net
interest income
Sensitivity
of equity
PHP -50% P420,130 P441,284
USD -50% (354) 1,119
2009
Currency
Increase in
basis points
Sensitivity of net
interest income
Sensitivity
of equity
PHP +50% P39,535 (P227,045)
USD +50% (1,367) (1,523)
Decrease in
basis points
Sensitivity of net
interest income
Sensitivity
of equity
PHP -50% (P34,509) P399,111
USD -50% 3,836 1,938
The impact on the Parent Company’s equity already excludes the impact on transactions affecting the statements of income.
Foreign Currency Risk
Foreign exchange is the risk to earnings or capital arising from changes in foreign exchange rates. The Group takes on exposure
to effects of fluctuations in the prevailing foreign currency exchange rates on its financial and cash flows.
The Parent Company measures its foreign risk exposures using the VaR methodology.
The Parent Company’s policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory
guidelines. In 2010, the Parent Company’s profile of foreign currency exposure on its assets and liabilities is within limits for
financial institutions engaged in the type of businesses in which the Parent Company is engaged.
Some of the Parent Company’s transactions exposed to foreign currency fluctuations include investments in bonds and due from
other banks. The FX position emanates from both the RBU and FCDU books. BSP requires banks to match the foreign currency
assets with the foreign currency liabilities. Banks are required to maintain at all times a 100% cover for their currency liabilities
held through FCDU. In addition, the BSP requires a 30.00% liquidity reserve on all foreign currency liabilities held through FCDU.
Total foreign exchange currency position is monitored through the daily BSP FX position reports, which are subject to the
overbought and oversold limits set by the BSP at 20.00% of unimpaired capital or USD50 million, whichever is lower. The
maximum aggregate day-light limit for third currencies (Euro, GBP, Yen) is USD2 million while the aggregate maximum overnight
limit for third currencies is $1 million.
Regulatory Qualifying Capital
The regulatory capital, as defned under the BSP Circular No. 538, consists of Tier 1 capital and Tier 2 capital. The Parent
Company’s Tier 1 capital is comprised of common shares, non - cumulative preferred shares, retained earnings and undivided
profts less the deductibles such as deferred income tax and equity investments. The Tier 2 capital is composed of general loan
loss provision and unrealized gains on AFS equity securities purchased less the prescribed deductibles.
Under existing BSP regulations, the determination of the Parent Company’s compliance with regulatory requirements and ratios
is based on the amount of the Parent Company’s “unimpaired capital” (regulatory net worth) as reported to the BSP, which is
determined on the basis of regulatory accounting policies which differ from PFRS in some respects.
Qualifying capital and risk-weighted assets are computed based on BSP regulations. Risk-weighted assets consist of total assets
less cash on hand, due from BSP, loans covered by hold-out on or assignment of deposits, loans or acceptances under letters of
credit to the extent covered by margin deposits and other non-risk items determined by the MB of the BSP.
The following table shows that the Parent Company maintained a well-capitalized position based upon Tier 1 and total capital
ratios at December 31, 2010 and 2009.
Under BSP Circular No. 360, effective July 1, 2003, the capital adequacy ratio (CAR) is to be inclusive of a market risk charge,
during 2010 and 2009, the Parent Company was in compliance with the CAR. The capital-to-risk assets ratio of the Parent
Company as reported to the BSP as of December 31, 2010 and 2009 are shown in the table below.
2010 2009
In Millions Required In Millions Required
Tier 1 capital P4,937.81 P– P4,773.28 P–
Tier 2 capital 70.98 – 39.03 –
Gross qualifying capital 5,008.79 – 4,812.31 –
Total Credit risk-weighted assets P24,839.03 P2,483.90 P21,968.93 P2,196.90
Total Market risk-weighted assets 327.53 32.75 271.38 27.14
Total Operational risk-weighted assets 4,019.49 401.95 3,752.20 375.22
Total risk-weighted assets P29,186.05 P2,918.60 P25,992.51 P2,599.26
Tier 1 capital ratio 16.92% – 18.36% –
Total capital ratio 17.16% – 18.51% –
Per BSP regulation the minimum risk-based CAR that a bank should maintain is at least 10%.
In compliance to BSP Circular 639 issued in 2009, the Parent Company drafted its ICAAP. A trial document was submitted to
the BSP on March 30, 2009. While in the course of the developing its ICAAP, the ICAAP Committee and six ICAAP Technical
Committees (Credit Risk, Market Risk, Operational Risk, Information Technology Systems Risk, Compliance/Regulatory/Legal Risk
and Business/Strategic Risk Technical Committees) were formed in October 2009. The ICAAP Committee acts as the general
oversight committee for the planning, documentation, and implementation of the ICAAP, guided by the output of the Technical
Committees. The Technical Committees identify and assess each risk scenario within each risk type, including mitigating
measures and capital impact estimates.
The Parent Company completed its Stage 1 dialogue with BSP on February 3, 2010. In joint coordination with the Risk
Management Department and the various Technical Committees, the Interim Document was completed incorporating the
comments during the frst dialogue. It was submitted to the BSP on May 5, 2010.
On May 13, 2010, the Parent Company received a letter from BSP which summarizes its assessment of the Parent Company’s
ICAAP as presented in the Stage 1 dialogue. From thereon, the Parent Company researched and studied how the document
can be further improved. Certain comments in the letter which were not articulated during the dialogue were progressively
addressed, which include at, the minimum, the stress tests scenarios and allocation for other non-quantifable risks. Moreover,
the calculations were updated using the September 30, 2010 data. The Parent Company submitted its frst fnal document to the
BSP on January 21, 2011. The highlights were presented during the Stage 2 dialogue which took place on February 15, 2011.
82 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
83 2010 Annual Report
As per BSP letter dated April 1, 2011, the Parent Company’s ICAAP is found to be acceptable. Updating and revision
incorporating the latest BSP assessments is being done on an on-going basis.
5. Fair Value Measurement
The methods and assumptions used by the Group in estimating the fair value of the fnancial instruments are:
Cash and other cash items, due from BSP, due from other banks, interbank loans receivable and SPURA and accrued interest
receivable - Carrying amounts approximate fair values given the short-term nature of the instruments.
Trading and investment securities - Fair values of debt securities (investments at FVPL, AFS and HTM investments) and equity
investments are generally based on quoted market prices. For equity investments that are not quoted, the investments are carried
at cost less allowance for impairment losses, as allowed under PAS 39, due to the unpredictable nature of future cash flows and
the lack of suitable methods of arriving at a reliable fair value.
Loans and discounts - Fair values of loans and discounts, including unquoted debt securities classified as loans, are estimated
using the discounted cash flow methodology, using the Parent Company’s current incremental lending rates for similar types of
loans and receivables.
Accounts receivable and sales contracts receivable - Quoted market prices are not readily available for these financial assets.
They are not reported at fair value and are not signifcant in relation to the Group’s total fnancial assets.
Deposit liabilities - Fair values of demand deposit liabilities and savings deposit liabilities approximate their carrying amounts
due to the demand nature. The fair values of time deposit liabilities approximate their carrying amounts due to periodic interest
repricing.
Bills payable - Fair value is computed using the discounted cash flow methodology except for the fair value of short-term liabilities
which approximates carrying value.
Manager’s check, accrued interest payable and other liabilities - Carrying amounts approximate fair values given the short-term
nature of the instruments.
The table below presents a comparison by category of carrying amounts and estimated fair values of the fnancial instruments as
of December 31, 2010 and 2009 (amounts in thousands):
2010
Consolidated Parent Company
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables
Cash and other cash items P534,270 P534,270 P532,487 P532,487
Due from BSP 10,199,376 10,199,376 10,199,376 10,199,376
Due from other banks 674,894 674,894 655,734 655,734
Interbank loans receivable and SPURA 10,213,429 10,213,429 10,213,429 10,213,429
Loans and receivables - net
Loans and discounts
Government 6,882,050 7,170,537 6,882,050 7,170,537
Corporate 9,545,449 9,887,378 9,545,449 9,887,378
Individual 1,832,048 1,665,151 1,832,048 1,665,151
Unquoted debt securities 3,398,065 4,217,571 3,398,065 4,217,571
Accounts receivable 1,106,503 1,106,503 1,086,878 1,086,878
Accrued interest receivable 575,963 575,963 575,961 575,961
(Forward)
2010
Consolidated Parent Company
Carrying Value Fair Value Carrying Value Fair Value
Sales contract receivable P203,151 P203,151 P182,137 182,137
45,165,198 46,448,223 45,103,614 46,386,639
Financial assets at FVPL
Government securities 906,809 906,809 906,809 906,809
AFS financial assets
Government securities 3,863,986 3,863,986 3,863,986 3,863,986
Equity Securities
Quoted 26,183 26,183 26,183 26,183
Unquoted 39,861 39,861 27,018 27,018
3,930,030 3,930,030 3,917,187 3,917,187
HTM fnancial assets
Government 4,399,736 4,472,628 4,399,736 4,472,628
P54,401,773 P55,757,690 P54,327,346 P55,683,263
Financial Liabilities
Financial liabilities at amortized cost
Deposit liabilities
Demand P12,424,752 P12,424,752 P12,424,752 P12,424,752
Savings 30,952,827 30,952,827 30,953,223 30,953,223
Time 2,980,160 2,980,160 2,980,160 2,980,160
46,357,739 46,357,739 46,358,135 46,358,135
Bills payable 1,541,833 1,502,556 1,541,833 1,502,556
Manager’s checks 88,227 88,227 88,227 88,227
Accrued interest and other expenses* 465,163 465,163 465,163 465,163
Other liabilities* 4,169,168 4,169,168 4,152,418 4,152,418
P52,622,130 P52,582,853 P52,605,776 P52,566,499
*excluding statutory liabilities
2009
Consolidated Parent Company
Carrying Value Fair Value Carrying Value Fair Value
Financial Assets
Loans and receivables
Cash and other cash items P431,580 P431,580 P426,279 P426,279
Due from BSP 13,055,098 13,055,098 13,055,098 13,055,098
Due from other banks 699,457 699,457 685,820 685,820
Interbank loans receivable and SPURA 2,633,259 2,633,259 2,633,259 2,633,259
Loans and receivables - net
Loans and discounts
Government 5,940,919 6,318,195 5,940,919 6,318,195
Corporate 9,561,126 9,854,817 9,561,126 9,854,817
Individual 1,975,909 2,186,543 1,975,882 2,186,517
Unquoted debt securities 2,902,328 3,410,796 2,902,328 3,410,796
(Forward)
84 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
85 2010 Annual Report
2009
Consolidated Parent Company
Carrying Value Fair Value Carrying Value Fair Value
Accounts receivable P1,151,719 P1,151,719 P1,122,878 P1,122,878
Accrued interest receivable 509,679 509,679 509,675 509,675
Sales contract receivable 204,248 204,248 188,007 188,007
39,065,322 40,455,391 39,001,271 40,391,341
Financial assets at FVPL
Government securities 890,370 890,370 890,370 890,370
AFS financial assets
Government securities 3,258,993 3,258,993 3,258,993 3,258,993
Equity Securities
Quoted 27,004 27,004 27,004 27,004
Unquoted 26,262 26,262 13,420 13,420
3,312,259 3,312,259 3,299,417 3,299,417
HTM fnancial assets
Government 4,433,331 4,143,169 4,433,331 4,143,169
P47,701,282 P48,801,189 P47,624,389 P48,724,297
Financial Liabilities
Financial liabilities at amortized cost
Deposit liabilities
Demand P11,318,855 P11,318,855 P11,318,855 P11,318,855
Savings 29,527,242 29,527,242 29,527,632 29,527,632
Time 2,167,696 2,167,696 2,167,696 2,167,696
43,013,793 43,013,793 43,014,183 43,014,183
Bills payable 1,559,834 1,667,506 1,559,834 1,667,506
Manager’s checks 54,884 54,884 54,884 54,884
Accrued interest and other expenses* 368,936 368,936 368,936 368,936
Other liabilities* 1,791,649 1,791,649 1,791,513 1,791,513
P46,789,096 P46,896,768 P46,789,350 P46,897,022
*excluding statutory liabilities
The following table shows fnancial instruments recognized at fair value for both the Group and the Parent Company, analyzed
between those whose fair value is based on (amounts in thousands):
Quoted in market prices in active markets for identical assets or liabilities (Level 1); •
Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly •
(as prices) or indirectly (derived from prices) (Level 2); and
Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). •
2010
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at FVPL (Note 6)
Government securities P906,809 P– P– P906,809
AFS investments (Note 6)
Government securities 3,863,986 – – 3,863,986
Quoted equity securities 26,183 – – 26,183
P4,796,978 P– P– P4,796,978
2009
Level 1 Level 2 Level 3 Total
Financial Assets
Financial assets at FVPL (Note 6)
Government securities P890,370 P– P– P890,370
AFS investments (Note 6)
Government securities 3,258,993 – – 3,258,993
Quoted equity securities 27,004 – – 27,004
P4,176,367 P– P– P4,176,367
There were no transfers between Level 1 and Level 2 fair value instruments, and no transfers into and out of Level 3 fair value
measurements during the years ended December 31, 2010 and 2009.
6. Trading and Investments Securities
Financial assets at FVPL are investment securities held for trading by the Group and the Parent Company. This account consists
of (amounts in thousands):
2010 2009
Government bonds P564,330 P140,611
BSP treasury bills 342,479 749,759
P906,809 P890,370
Financial assets at FVPL of the Group and the Parent Company include net unrealized gains of P2.82 million and P3.32 million
included in ‘Trading gains - net’ in the statement of income for 2010 and 2009 for both the Group and Parent Company,
respectively.
The peso-denominated government bonds included in fnancial assets at FVPL bear nominal annual interest rates ranging from
4.17% to 7.93% and 3.90% to 7.14% as of December 31, 2010 and 2009, respectively. US dollar-denominated government
bonds bear nominal annual interest of 6.50% as of December 31, 2009 for both the Group and the Parent Company. There was
no US dollar-denominated government bond included in fnancial assets at FVPL as of December 31, 2010 for both the Group
and Parent Company.
AFS fnancial assets of the Group and the Parent Company consist of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Government securities P3,863,986 P3,258,993 P3,863,986 P3,258,993
Equity securities:
Quoted 155,590 152,961 155,590 152,961
Unquoted 52,870 39,272 27,018 13,420
4,072,446 3,451,226 4,046,594 3,425,374
Allowance for impairment and credit losses
(Note 13)
Equity securities:
Quoted (129,407) (125,957) (129,407) (125,957)
Unquoted (13,009) (13,009) – –
(142,416) (138,966) (129,407) (125,957)
P3,930,030 P3,312,260 P3,917,187 P3,299,417
86 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
87 2010 Annual Report
Unquoted equity securities are composed of various bank association membership shares and are not actively traded in the
market. The Group does not intend to sell these securities in the near future. There were no unquoted equity securities sold in
2010 and 2009.
As of December 31, 2010 and 2009, AFS financial assets include net accumulated unrealized gains of P34.80 million and net
accumulated unrealized losses of P64.45 million, respectively.
Movements in net unrealized gains (losses) on AFS investments of the Group and the Parent Company follow (amounts in
thousands):
2010 2009
Balance at beginning of year (P64,448) (P63,212)
Unrealized gains 295,559 26,092
Unrealized gains taken to proft or loss (196,308) (27,328)
Net change during the year 99,251 (1,236)
Balance at end of year P34,803 (P64,448)
The composition of the net accumulated unrealized gains (losses) on AFS investments of the Group and the Parent Company
follow (amounts in thousands):
2010 2009
Net unrealized gains (losses) on AFS financial assets P72,640 (P17,813)
Unamortized net unrealized losses on reclassifed AFS fnancial
assets (37,837) (46,635)
P34,803 (P64,448)
The peso-denominated government bonds included in AFS fnancial assets bear nominal annual interest rates ranging from 4.63%
to 9.13% and 5.50% to 16.50% as of December 31, 2010 and 2009, respectively, while US dollar-denominated government
bonds bear nominal annual interest ranging from 4.00% to 7.25% and 4.25% to 8.25% as of December 31, 2010 and 2009,
respectively, for both the Group and the Parent Company.
HTM fnancial assets for both the Group and Parent Company consist of government securities amounting to P4.40 billion and
P4.43 billion as of December 31, 2010 and 2009, respectively.
As of December 31, 2010 and 2009, the peso-denominated government bonds for both Group and the Parent Company included
in HTM fnancial assets bear nominal annual interest rates ranging from 5.75% to 12.38%. As of December 31, 2010, US dollar-
denominated government bonds bear nominal interest ranging from 7.75% to 9.50% for both the Group and Parent Company.
There was no US dollar-denominated government bond as of December 31, 2009 for both the Group and Parent Company.
Interest income on trading and investment securities of the Group and Parent Company consists of (amounts in thousands):
2010 2009
HTM fnancial assets P340,631 P342,895
AFS financial assets 219,630 127,061
Financial assets at FVPL 18,204 20,430
P578,465 P490,386
Net trading gains on trading and investment securities of the Group and Parent Company consist of (amounts in thousands):
2010 2009
AFS financial assets P196,308 P27,328
Financial assets at FVPL 55,429 6,168
P251,737 P33,496
Reclassification of Financial Assets
The recent global credit crunch had prompted the International Accounting Standards Board to issue the Amendments to IAS
39 and IFRS 7 which was adopted by Philippine Financial Reporting Standards Council as amendments to PAS 39 and PFRS 7.
These amendments permitted the Parent Company to revisit the existing classifcation of their fnancial assets.
The Parent Company identifed fnancial assets eligible under the amendments, for which reclassifcation of various fnancial
assets at FVPL, under rare circumstance, to HTM fnancial assets was made on October 20, 2008. The Parent Company also
reclassifed various AFS fnancial assets to HTM fnancial assets from September 11, 2008 to October 20, 2008, for which the
Parent Company had a clear change of intent to hold the financial assets for the foreseeable future rather than to exit or trade in
the short-term.
The details of the HTM fnancial assets reclassifed from fnancial assets at FVPL and AFS fnancial assets at the dates of
reclassification follow (amounts in thousands):
Effective Interest
Rate Face Value
Fair Market Value
on the Date
of Reclassifcation
Reclassification of government securities from:
Financial assets at FVPL to HTM fnancial assets 7.41% - 7.94% P200,000 P210,929
AFS fnancial assets to HTM fnancial assets 4.72% - 7.54% 1,776,998 1,924,426
P1,976,998 P2,135,355
The reclassifcation was also compliant with the criteria and rules set forth in BSP Circular Nos. 626 and 628, as well as those
provided in SEC Memorandum Circular No. 10, Series of 2008, on Amendments to PAS 39 and PFRS 7.
As of December 31, 2010, the carrying amount and fair value of fnancial assets reclassifed out of the FVPL category to the HTM
category amounted to P203.26 million and P217.95 million, respectively. As of December 31, 2009, the carrying amount and fair
value of fnancial assets reclassifed out of the FVPL category to the HTM category amounted to P204.02 million and
P202.53 million, respectively. Interest income recognized in the statement of income on the above investments amounted to
P15.12 million and P15.06 million in 2010 and 2009, respectively for both the Group and the Parent Company.
As of December 31, 2010, the carrying amounts and fair values of financial assets reclassified out of the AFS category to the
HTM category amounted to P1.87 billion and P2.02 billion, respectively. As of December 31, 2009, the carrying amount and fair
value of fnancial assets reclassifed out of the AFS category to the HTM category amounted to P1.90 billion and P1.91 billion,
respectively. Interest income recognized in the statement of income on the above investments amounted to P130.91 million and
P133.03 million in 2010 and 2009, respectively for both the Group and the Parent Company.
Had these fnancial assets not been reclassifed to HTM fnancial assets, fair value gains or losses that would have been
recognized in other comprehensive income amounted to P105.07 million unrealized gains and P45.13 million unrealized losses in
2010 and 2009, respectively, and fair value gains that would have been recognized in the statement of income amounted to
P15.12 million and P8.39 million in 2010 and 2009, respectively both for the Group and the Parent Company.
As of December 31, 2010 and 2009, the Parent Company expects to recover the maturity amount of the above government
securities, including interests as at the date of reclassification.
88 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
89 2010 Annual Report
7. Loans and Receivables
This account consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Loans and discounts
Corporate P9,901,853 P10,063,670 P9,901,814 P10,063,670
Government 6,886,761 5,945,630 6,886,761 5,945,630
Individual 2,221,258 2,740,681 2,221,258 2,740,654
19,009,872 18,749,981 19,009,833 18,749,954
Unquoted debt securities 3,398,065 2,902,328 3,398,065 2,902,328
Accounts receivable 1,106,503 1,151,718 1,086,878 1,122,878
Accrued interest receivable 575,963 509,679 575,961 509,675
Sales contract receivable 203,151 204,248 182,137 188,007
24,293,554 23,517,954 24,252,874 23,472,842
Allowance for impairment and credit
losses (Note 13) (874,453) (1,272,027) (874,453) (1,272,027)
P23,419,101 P22,245,927 P23,378,421 P22,200,815
In 2009, the Parent Company completed a sale on a without recourse basis of a non-performing loan to an SPV with a carrying
value of P129.4 million for a consideration of P75.0 million. The sale resulted in losses of P63.4 million (inclusive of accretion
amounting to P9.0 million), which were deferred by the Parent Company and are being amortized over 10 years in accordance
with the policy prescribed by the BSP.
Amortization of the deferred losses on sale included in ‘Gain on sale of acquired assets and bank premises, furniture, fxtures and
equipment’ in the statement of income for 2010 and 2009 for both the Group and the Parent Company amounted to P3.1 million
and P2.1 million, respectively.
The unamortized deferred losses on sale included in “Other assets’ in the statement of fnancial position’ as of December 31,
2010 and 2009 both for the Group and Parent Company amounted to P58.2 million and P61.3 million, respectively.
Unquoted debt securities issued or guaranteed by the Philippine government amounted to P2.73 billion and P1.96 billion as of
December 31, 2010 and 2009, respectively for both the Group and the Parent Company. These include PEACE bonds, Burley
Tobacco - Incremental Internal Revenue notes, zero coupon bonds issued by Bureau of Treasury and various local government
units, bonds issued by National Power Corporation and National Food Authority.
Interest income on loans and receivables consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Loans and discounts P1,600,708 P1,538,684 P1,600,708 P1,538,684
Unquoted debt securities 256,003 187,391 256,003 187,391
Other receivables 12,029 16,609 9,291 15,447
P1,868,740 P1,742,684 P1,866,002 P1,741,522
Interest income accrued on impaired loans and receivables in 2010 and 2009 for both the Group and Parent Company amounted
to P114.86 million and P124.13 million, respectively.
BSP Reporting
As of December 31, 2010 and 2009, the nonperforming loans (NPLs) of the Group and the Parent Company as reported to the
BSP follow (amounts in millions):
2010 2009
Total NPLs P1,560 P2,226
Less NPLs fully covered by allowance for credit losses 220 650
P1,340 P1,576
As of December 31, 2010 and 2009, secured and unsecured NPLs of the Group and the Parent Company follow (amounts in millions):
2010 2009
Secured
P1,204 P1,490
Unsecured
356 736
P1,560 P2,226
Generally, NPLs refer to loans whose principal and/or interest is unpaid for thirty (30) days or more after due date or after they
have become past due in accordance with existing BSP rules and regulations. This shall apply to loans payable in lump sum
and loans payable in quarterly, semi-annual, or annual installments, in which case, the total outstanding balance thereof shall be
considered nonperforming.
In the case of receivables that are payable in monthly installments, the total outstanding balance thereof shall be considered
nonperforming when three (3) or more installments are in arrears.
In the case of receivables that are payable in daily, weekly, or semi-monthly installments, the total outstanding balance thereof
shall be considered nonperforming at the same time that they become past due in accordance with existing BSP regulations, i.e.,
the entire outstanding balance of the receivable shall be considered as past due when the total amount arrearages reaches ten
percent (10.00%) of the total receivable balance.
Receivables are classified as nonperforming in accordance with BSP regulations, or when, in the opinion of management,
collection of interest or principal is doubtful. Receivables are not reclassified as performing until interest and principal payments
are brought current or the loans are restructured in accordance with existing BSP regulations, and future payments appear
assured.
All items in litigation shall be considered nonperforming.
Restructured receivables which do not meet the requirements to be treated as performing receivables shall also be considered as NPLs.
Current banking regulations allow banks with no unbooked valuation reserves and capital adjustments required by BSP to exclude
from nonperforming classifcation those loans classifed as ‘Loss’ in the latest examination of the BSP, which are fully covered by
allowance for credit losses, provided that interest on said loans shall not be accrued.
The following tables show information relating to loans and discounts by security (amounts in thousands):
Consolidated
2010 2009
Amount % Amount %
Secured by:

Real estate
P5,324,852 28.01 P3,120,195 16.64
Republic of the Philippines guarantee
3,791,502 19.94 2,424,727 12.93
Assignment of receivables
1,552,766 8.17 768,674 4.10
Deposits hold-out
1,600,293 8.42 357,976 1.91
Chattel
52,137 0.27 59,128 0.32
Others
3,635,740 19.13 9,287,897 49.54
15,957,290 83.94 16,018,597 85.44
Unsecured loans
3,052,582 16.06 2,731,384 14.56
P19,009,872 100.00 P18,749,981 100.00
90 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
91 2010 Annual Report
Parent Company
2010 2009
Amount % Amount %
Secured by:
Real estate P5,324,813 28.01 P3,120,195 16.64
Republic of the Philippines guarantee 3,791,502 19.94 2,424,727 12.93
Assignment of receivables 1,552,766 8.17 768,674 4.10
Deposits hold-out 1,600,293 8.42 357,976 1.91
Chattel 52,137 0.27 59,128 0.32
Others 3,635,740 19.13 9,287,870 49.54
15,957,251 83.94 16,018,570 85.44
Unsecured loans 3,052,582 16.06 2,731,384 14.56
P19,009,833 100.00 P18,749,954 100.00
Unsecured loans and receivables pertain mostly to salary loans granted to teachers and non-teaching employees of the
Department of Education (DepEd), employees of local government units and veterans of World War II. These loans are covered by
agreements, which allow collection of monthly amortizations through salary or pension deductions.
Unsecured loans granted to teachers and non-teaching employees of DepEd include loans to members of Region XI Educators
Multi-purpose Cooperative (REMCO) under the fnancial assistance program of DepEd, which amounted to P327.10 million as of
December 31, 2009. Under the memorandum of agreement among the Parent Company, DepEd and REMCO, the latter acts as
surety for said loans and assumes repayment responsibilities to the Parent Company for the loan availment of its members. These
loans were fully written off as of December 31, 2010.
As of December 31, 2010 and 2009, information on the concentration of loans and discounts as to industry follows (amounts in
thousands):
Consolidated
2010 2009
Amount % Amount %
Real estate, construction, renting and business
services P4,686,264 24.65 P4,896,276 26.11
Public administration and defense; compulsory,
social and security 4,402,008 23.16 3,571,524 19.05
Community, social and personal service
activities 2,707,708 14.24 6,706,231 35.77
Agriculture, fisheries, and forestry 2,412,935 12.69 385,524 2.06
Financial intermediaries 1,255,894 6.61 778,736 4.15
Wholesale and retail trade 1,075,387 5.66 868,458 4.63
Manufacturing 877,720 4.62 1,071,297 5.71
Others 1,591,956 8.37 471,935 2.52
P19,009,872 100.00 P18,749,981 100.00
Parent Company
2010 2009
Amount % Amount %
Real estate, construction, renting and business
services P4,686,264 24.65 P4,896,276 26.11
Public administration and defense; compulsory,
social and security 4,402,008 23.16 3,571,524 19.05
Community, social and personal service
activities 2,707,708 14.24 6,706,231 35.77
Agriculture, fisheries, and forestry 2,412,935 12.69 385,524 2.06
(Forward)
Parent Company
2010 2009
Amount % Amount %
Financial intermediaries P1,255,894 6.61 P778,736 4.15
Wholesale and retail trade 1,075,387 5.66 868,458 4.63
Manufacturing 877,720 4.62 1,071,297 5.71
Others 1,591,917 8.37 471,908 2.52
P19,009,833 100.00 P18,749,954 100.00
The BSP considers that concentration of credit exists when the total loan exposure to a particular industry or economic sector
exceeds 30% of total loan portfolio.
8. Investments in Subsidiaries
As of December 31, 2010 and 2009, the Parent Company’s investments in subsidiaries consist of (amounts in thousands):
Percentage of
Ownership 2010 2009
Investments in subsidiaries:
IPI 100% P59,375 P59,355
MPI 100% 150,000 150,000
VVCC 60% 3,000 3,000
Total acquisition cost 212,375 212,355
Allowance for impairment losses (Note 13) (12,150) (14,306)
P200,225 P198,049

9. Investment in an Associate
The Parent Company has equity ownership of 49% in PVB Card Corporation (PVBCC), a Company incorporated in February 9,
2009 to engage primarily in the sale and/or patronage of goods, merchandise and services of producers and traders who accept
the convenience cards, including but not limited to credit, debit and prepaid cards, issued by the Company to qualified clientele.
The Parent Company’s investment in PVBCC amounted to P21.92 million and P10.27 million as of December 31, 2010 and 2009,
respectively. The carrying value of the investment, including share in net losses of the investee, amounted to P14.25 million and
P6.35 million as of December 31, 2010 and 2009, respectively.
For the year ended December 31, 2010 and the period February 9, 2009 to December 31, 2009, summarized financial information
of PVBCC follows (amounts in thousands):
2010 2009
Total assets P33,958 P22,010
Total liabilities 15,919 8,642
Revenues 11,988 69
Loss before income tax 22,394 11,451
Net loss 15,666 8,002
92 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
93 2010 Annual Report
10. Bank Premises, Furniture, Fixtures and Equipment
The composition of and movements of this account are as follows (amounts in thousands):
Consolidated
2010
Land Buildings
Furniture,
Fixtures and
Equipment
Leasehold
Improvements Total
Cost
Balances at beginning of year P191,706 P281,717 P558,274 P168,053 P1,199,750
Additions – 55,393 124,336 1,599 181,328
Disposals (1,306) (5,549) (133,140) – (139,995)
Reclassifications – (97,545) – 97,545 –
Balances at end of year 190,400 234,016 549,470 267,197 1,241,083
Accumulated Depreciation
and Amortization
Balances at beginning of year – 89,553 402,848 69,450 561,851
Depreciation and amortization – 8,757 62,642 24,105 95,504
Disposals – (2,391) (111,428) – (113,819)
Balances at end of year – 95,919 354,062 93,555 543,536
Net Book Values P190,400 P138,097 P195,408 P173,642 P697,547
Consolidated
2009
Land Buildings
Furniture,
Fixtures and
Equipment
Leasehold
Improvements Total
Cost
Balances at beginning of year P194,870 P212,775 P473,254 P116,481 P997,380
Additions/transfers 2,618 130,208 124,185 51,572 308,583
Disposals/transfers (5,782) (61,266) (39,165) – (106,213)
Balances at end of year 191,706 281,717 558,274 168,053 1,199,750
Accumulated Depreciation
and Amortization
Balances at beginning of year – 81,007 372,583 58,308 511,898
Depreciation and amortization – 8,594 51,193 11,142 70,929
Disposals – (48) (20,928) – (20,976)
Balances at end of year – 89,553 402,848 69,450 561,851
Net Book Values P191,706 P192,164 P155,426 P98,603 P637,899
Parent Company
2010
Land Buildings
Furniture,
Fixtures and
Equipment
Leasehold
Improvements Total
Cost
Balances at beginning of year P73,002 P276,311 P555,927 P168,123 P1,073,363
Additions – 55,393 121,554 4,381 181,328
Disposals (1,306) (5,549) (129,371) – (136,226)
Reclassifications – (94,762) – 94,762 –
Balances at end of year 71,696 231,393 P548,110 P267,266 P1,118,465
(Forward)
Parent Company
2010
Land Buildings
Furniture,
Fixtures and
Equipment
Leasehold
Improvements Total
Accumulated Depreciation
and Amortization
Balances at beginning of year P– P89,553 P401,089 P69,520 P560,162
Depreciation and amortization – 8,757 62,455 24,104 95,316
Disposals – (2,391) (110,196) – (112,587)
Balances at end of year – 95,919 353,348 93,624 542,891
Net Book Values P71,696 P135,474 P194,762 P173,642 P575,574
Parent Company
2009
Land Buildings
Furniture,
Fixtures and
Equipment
Leasehold
Improvements Total
Cost
Balances at beginning of year P73,002 P194,472 P471,381 P116,551 P855,406
Additions 2,618 130,208 123,711 51,572 308,109
Disposals (2,618) (48,369) (39,165) – (90,152)
Balances at end of year 73,002 276,311 555,927 168,123 1,073,363
Accumulated Depreciation
and Amortization
Balances at beginning of year – 81,007 370,905 58,378 510,290
Depreciation and amortization – 8,594 51,113 11,142 70,849
Disposals – (48) (20,929) – (20,977)
Balances at end of year – 89,553 401,089 69,520 560,162
Net Book Values P73,002 P186,758 P154,838 P98,603 P513,201
11. Investment Properties
The composition of and movements in the Group’s and Parent Company’s investment properties follow (amounts in thousands):
2010
Land
Buildings and
Improvements Total
Cost
Balances at beginning of year P2,435,389 P106,518 P2,541,907
Additions 517,351 59,101 576,452
Disposals (729,126) (12,931) (742,057)
Balances at end of year 2,223,614 152,688 2,376,302
Accumulated Depreciation and Amortization
Balances at beginning of year – 46,164 46,164
Depreciation and amortization – 18,182 18,182
Disposals – (2,885) (2,885)
Balances at end of year – 61,461 61,461
(Forward)
94 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
95 2010 Annual Report
2010
Land
Buildings and
Improvements Total
Allowance for Impairment Losses (Note 13)
Balances at beginning of year P107,231 P14,947 P122,178
Additions/reallocations
20,596 8,650
29,246
Balances at end of year 127,827 23,597 151,424
Net Book Values P2,095,787 P67,630 P2,163,417
2009
Land
Buildings and
Improvements Total
Cost
Balances at beginning of year P2,451,029 P123,771 P2,574,800
Additions 803,546 14,780 818,326
Disposals (819,186) (32,033) (851,219)
Balances at end of year 2,435,389 106,518 2,541,907
Accumulated Depreciation and Amortization
Balances at beginning of year – 44,836 44,836
Depreciation and amortization – 10,648 10,648
Disposals – (9,320) (9,320)
Balances at end of year – 46,164 46,164
Allowance for Impairment Losses (Note 13)
Balances at beginning of year 135,200 15,101 150,301
Additions/reallocations
(27,969) (154) (28,123)
Balances at end of year 107,231 14,947 122,178
Net Book Values P2,328,158 P45,407 P2,373,565
The Group’s investment properties consist of real estate properties acquired in settlement of loans and receivables.
The aggregate fair value of the investment properties for both the Group and the Parent Company amounted to P6.65 billion and
P4.60 billion as of December 31, 2010 and 2009, respectively.
The fair values of the Group and Parent Company’s investment properties have been determined on the basis of recent sales of
similar properties in the same areas as the investment properties, while taking into account the economic conditions prevailing at
the time the valuations were made.
Details of rental income and direct operating expense (excluding depreciation), included in ‘Other operating income’ and
‘Miscellaneous expense’, respectively, in the statement of income on the investment properties of the Group and of the Parent
Company follow (amounts in thousands):
2010 2009
Rental income on investment properties P10,739 P11,823
Direct operating expenses from investment
properties generating rent income (4,869) (5,346)
Direct operating expenses from investment
properties not generating rent income (3,084) (2,929)
12. Other Assets
This account consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Software costs - net P168,898 P191,493 P168,898 P191,493
Prepaid expenses 155,513 93,484 154,456 92,486
Stationery and other supplies 25,724 11,244 25,700 11,244
Miscellaneous 216,944 439,312 216,972 452,574
567,079 735,533 566,026 747,797
Less allowance for impairment
losses (Note 13) 52,443 24,119 52,443 24,119
P514,636 P711,414 P513,583 P723,678
Changes in software costs of the Group and of the Parent Company are as follows (amounts in thousands):
2010 2009
Balance at beginning of year P191,493 P167,290
Additions 30,130 67,303
Amortization (52,725) (43,100)
Balance at end of year P168,898 P191,493
Miscellaneous assets includes claims for tax credits amounting to P36.82 million as of December 31, 2010 and 2009 resulting
from the condonation of the final withholding taxes on the Parent Company’s income from investments during its closure from
October 4, 1985 to August 2, 1992.
13. Allowance for Impairment and Credit Losses
Changes in the allowance for impairment and credit losses of the Parent Company are summarized as follows (amounts in
thousands):
2010 2009
Balances at beginning of year:
Loans and receivables (Note 7) P1,272,027 P1,074,666
Interbank loans receivable and SPURA 1,129,560 1,103,694
AFS financial assets (Note 6) 125,957 125,957
Investment properties (Note 11) 122,178 150,300
Investment in subsidiaries (Note 9) 14,306 14,760
Other assets (Note 12) 24,119 58,327
2,688,147 2,527,704
Provision for credit and impairment losses
during the year 191,468 160,443
Accounts written off (477,479) –
Balances at end of year:
Loans and receivables (Note 7) 874,453 1,272,027
Interbank loans receivable and SPURA 1,182,259 1,129,560
AFS financial assets (Note 6) 129,407 125,957
Investment properties (Note 11) 151,424 122,178
Investment in subsidiaries (Note 9) 12,150 14,306
Other assets (Note 12) 52,443 24,119
P2,402,136 P2,688,147
96 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
97 2010 Annual Report
With the foregoing level of allowance for impairment and credit losses, management believes that the Parent Company has
sufficient allowance to cover for significant losses that may be incurred from the noncollection or nonrealization of its loans and
receivables and other risk assets.
A reconciliation of the allowance for impairment losses by class of loans and receivables of the Group and the Parent Company is
as follows (amounts in thousands):
2010
Corporate Individual Government Total
Balances at January 1 P502,544 P764,772 P4,711 P1,272,027
Reallocation to other risk assets (19,768) (24,097) – (43,865)
Charges for the year 10,798 112,972 – 123,770
Accounts written off (13,042) (464,437) – (477,479)
Balances at December 31 480,532 389,210 4,711 874,453
Individual Impairment 332,742 299,148 4,711 636,601
Collective Impairment 23,662 214,190 – 237,852
Balances at December 31 356,404 513,338 4,711 874,453
Gross amounts of loans individually
determined to be impaired, before
deducting any individually assessed
impairment losses P2,064,236 P128,456 P4,711 P2,197,403
2009
Corporate Individual Government Total
Balances at January 1 P353,212 P716,743 P4,711 P1,074,666
Reallocation from other risk assets 149,332 37,585 – 186,917
Charge for the year – 10,444 – 10,444
Balances at December 31 502,544 764,772 4,711 1,272,027
Individual Impairment 366,292 204,395 4,711 432,391
Collective Impairment 136,252 560,377 – 839,636
Balances at December 31 502,544 764,772 4,711 1,272,027
Gross amount of loans individually
determined to be impaired, before
deducting any individually assessed
impairment losses P2,064,236 P128,456 P4,711 P2,197,403
The following is the breakdown of provision for impairment and credit losses (amounts in thousands):
2010 2009
Loans and receivables P123,770 P10,444
Interbank loans receivable 52,699 25,866
Other assets 14,999 124,133
P191,468 P160,443
During 2010 and 2009, the Parent Company took possession of collaterals held as security for loans and discounts with carrying
amount of P551.89 million and P882.22 million, respectively. The related foreclosed collaterals have aggregate fair value of
P576.45 million and P818.33 million, respectively. The Parent Company is exerting continuing efforts to sell said properties.
14. Deposit Liabilities
Out of the total deposit liabilities of the Group as of December 31, 2010 and 2009, 59.0% is subject to periodic interest repricing.
The remaining peso deposit liabilities earn annual fxed interest rates of 0.50% in 2010 and 2009, while foreign currency-
denominated deposit liabilities earn annual interest rates of 0.25% in 2010 and 2009.
Under existing BSP regulations, non-FCDU deposit liabilities of the Parent Company are subject to the following requirements:
2010 2009
Liquidity reserve 11.00% 11.00%
Statutory reserve 8.00% 8.00%
Liquidity floor (additional for government deposits only) 31.00% 31.00%
As of December 31, 2010 and 2009, the Parent Company is in compliance with such regulations.
The total liquidity and statutory reserves of the Parent Company based on the latest report to the BSP in December 2010 and
2009 are as follows (amounts in thousands):
2010 2009
Cash on hand P463,983 P396,847
Due from BSP 10,199,376 13,055,098
Government securities 7,126,971 3,213,048
P17,790,330 P16,664,993
15. Bills Payable
This account consists of borrowings from local banks and non-bank fnancial intermediaries amounting to P1.54 billion and
P1.56 billion as of December 31, 2010 and 2009, respectively, for both the Group and Parent Company with interest rates ranging
from 4.49% to 9.00% in 2010 and 2009.
On February 7, 2008, the MB approved a 90-day special liquidity support amounting to P2.30 billion, bearing annual interest
rate of 9.00%. Subsequently, on May 29, 2008, such support was restructured with lower interest rate equivalent to 4.49% and
extended term of 20 years resulting to a day 1 gain of P1.10 billion in 2008.
Interest expense on bills payable (inclusive of interest accretion) included in ‘Interest expense on bills payable and other
borrowings’ in the statement of income in 2010 and 2009 amounted to P152.84 million and P151.06 million, respectively, for both
the Group and Parent Company.
Accretion of interest on bills payable resulting from the day 1 gain amounted to P20.97 million and P18.95 million in 2010 and
2009, respectively, for both the Group and Parent Company.
As of December 31, 2010 and 2009, bills payable are unsecured.
98 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
99 2010 Annual Report
16. Accrued Taxes, Interest and Other Expenses
This account consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Accrued operating expenses P313,631 P250,201 P331,899 P266,253
Accrued interest 151,388 118,735 151,388 118,736
Accrued taxes 1,566 13,541 1,566 13,541
Income tax payable 3,220 154 3,076 142
P484,205 P382,631 P502,329 P398,672
Accrued operating expenses payable include accrual for various operating expenses such as payroll, repairs and maintenance,
utilities, rental, insurance and contractual services.
17. Other Liabilities
This account consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Marginal deposits and letters of credit P2,855,105 P205,763 P2,855,105 P205,763
Dividends payable (Note 19) 656,234 586,848 656,234 586,848
Accounts payable 235,612 276,001 239,719 278,724
Withholding tax payable 26,877 32,005 26,569 31,657
Payment order payable 15,109 33,906 15,109 33,906
Miscellaneous 406,392 689,131 391,618 686,272
P4,195,329 P1,823,654 P4,184,354 P1,823,170
Miscellaneous other liabilities as of December 31, 20010 and 2009 includes Due to the Treasurer of the Philippines representing
unclaimed balances of deposit liabilities, unrealized profits on assets sold, advance rentals on bank premises and safety deposit
boxes and Social Security System payable.
18. Maturity Analysis of Financial and Nonfinancial Assets and Liabilities
The following tables show an analysis of assets and liabilities according to whether they are expected to be recovered or settled in
less than twelve months or over twelve months from reporting date (amounts in thousands):
2010
Consolidated Parent Company
Less than
Twelve
Months
Over
Twelve
Months Total
Less than
Twelve
Months
Over
Twelve
Months Total
Financial Assets
Cash and other cash items P534,270 P– P534,270 P532,487 P– P532,487
Due from Bangko Sentral ng Pilipinas 10,199,376 – 10,199,376 10,199,376 – 10,199,376
Due from other banks 674,894 – 674,894 655,734 – 655,734
Interbank loans receivable and SPURA 9,726,088 1,669,600 11,395,688 9,726,088 1,669,600 11,395,688
Financial assets at FVPL 906,809 – 906,809 906,809 – 906,809
AFS financial assets 1,124,264 2,948,182 4,072,446 1,124,264 2,922,330 4,046,594
HTM fnancial assets 250,704 4,149,032 4,399,736 250,704 4,149,032 4,399,736
Loans and receivable 7,938,109 16,355,445 24,293,554 7,897,429 16,355,445 24,252,874
(Forward)
2010
Consolidated Parent Company
Less than
Twelve
Months
Over
Twelve
Months Total
Less than
Twelve
Months
Over
Twelve
Months Total
Nonfinancial Assets
Investment in subsidiaries P– P– P– P– P212,375 P212,375
Investment in an associate – 14,248 14,248 – 21,925 21,925
Bank premises, furniture, fixtures and
equipment – 697,547 697,547 – 575,574 575,574
Investment properties – 2,314,843 2,314,843 – 2,314,843 2,314,843
Deferred tax assets – 407,915 407,915 – 407,915 407,915
Other assets 114,299 452,780 567,079 113,246 452,780 566,026
31,468,813 29,009,592 60,478,405 31,406,137 29,081,819 60,487,956
Less allowance for impairment and
credit losses (Note 13) – – (2,402,995) – – (2,402,136)
P31,468,813 P29,009,592 P58,075,410 P31,406,137 P29,081,819 P58,085,820
2010
Consolidated Parent Company
Less than
Twelve
Months
Over
Twelve
Months Total
Less than
Twelve
Months
Over
Twelve
Months Total
Financial liabilities
Deposit liabilities P45,630,787 P726,952 P46,357,739 P45,631,183 P726,952 P46,358,135
Bills payable – 1,541,833 1,541,833 – 1,541,833 1,541,833
Manager’s checks 88,227 – 88,227 88,227 – 88,227
Accrued taxes, interest and other
expenses 193,385 273,066 466,451 211,509 273,066 484,575
Other liabilities 162,049 4,005,018 4,167,067 151,382 4,005,018 4,156,400
46,074,448 6,546,869 52,621,317 46,082,301 6,546,869 52,629,170
Nonfinancial liabilities
Accrued taxes, interest and other
expenses 17,754 – 17,754 17,754 – 17,754
Other liabilities 28,261 – 28,261 27,953 – 27,953
46,015 – 46,015 45,707 – 45,707
P46,120,463 P6,546,869 P52,667,332 P46,128,008 P6,546,869 P52,674,877
2009
Consolidated Parent Company
Less than
Twelve
Months
Over
Twelve
Months Total
Less than
Twelve
Months
Over
Twelve
Months Total
Financial Assets
Cash and other cash items P431,580 P– P431,580 P426,280 P– P426,280
Due from Bangko Sentral ng Pilipinas 13,055,098 – 13,055,098 13,055,098 – 13,055,098
Due from other banks 699,457 – 699,457 685,821 – 685,821
Interbank loans receivable and SPURA 2,093,219 1,669,600 3,762,819 2,093,219 1,669,600 3,762,819
Financial assets at FVPL 890,370 – 890,370 890,370 – 890,370
AFS financial assets 735,172 2,716,054 3,451,226 735,172 2,690,202 3,425,374
HTM fnancial assets – 4,433,331 4,433,331 4,433,331 – 4,433,331
Loans and receivables 19,186,785 4,331,170 23,517,954 19,186,785 4,286,057 23,472,842
(Forward)
100 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
101 2010 Annual Report
2009
Consolidated Parent Company
Less than
Twelve
Months
Over
Twelve
Months Total
Less than
Twelve
Months
Over
Twelve
Months Total
Nonfinancial Assets
Investment in subsidiaries P– P– P– P– P212,355 P212,355
Investment in associate – 6,349 6,349 – 10,270 10,270
Bank premises, furniture, fixtures and
equipment 637,899 637,899 – 513,201 513,201
Investment properties - gross 533,789 1,961,954 2,495,743 533,789 1,961,954 2,495,743
Deferred tax assets – 359,959 359,959 – 359,959 359,959
Other assets 202,094 533,439 735,533 202,094 545,703 747,797
37,827,564 16,649,755 54,477,318 42,241,959 12,249,301 54,491,260
Less allowance for impairment and
credit losses (Note 13) – – 2,686,850 – – 2,688,147
P37,827,564 P16,649,755 P51,790,468 P42,241,959 P12,249,301 P51,803,113
Financial liabilities
Deposit liabilities P43,013,793 P– P43,013,793 P43,014,183 P– P43,014,183
Bills payable – 1,559,834 1,559,834 – 1,559,834 1,559,834
Manager’s checks 54,884 – 54,884 54,884 – 54,884
Accrued taxes, interest and other
expenses 321,219 47,759 368,978 337,260 47,727 384,987
Other liabilities 518,392 680,421 1,198,813 518,392 690,173 1,208,565
43,908,288 2,288,014 46,196,302 43,924,719 2,297,734 46,222,453
Nonfinancial liabilities
Accrued taxes, interest and other
expenses 360 13,293 13,653 391 13,293 13,684
Other liabilities 355,305 269,536 624,841 345,069 269,536 614,605
355,665 282,829 638,494 345,460 282,829 628,289
P44,263,953 P2,570,843 P46,834,796 P44,270,179 P2,580,563 P46,850,742
19. Equity
The Parent Company’s capital stock consists of (amounts in thousands except number of shares):
2010 2009
Shares Amount Shares Amount
Preferred stock - P100 par value
Authorized 4,900,000 P490,000 4,900,000 P490,000
Issued 3,620,035 362,004 3,619,396 361,940
Treasury stock (8,420) (842) (8,090) (809)
Common stock - P100 par value
Authorized 45,100,000 4,510,000 45,100,000 4,510,000
Issued 23,449,862 2,344,986 23,445,379 2,344,538
Subscribed, net of subscription
receivable 1,906,543 51,057 1,906,543 50,894
Treasury stock (51,546) (5,155) (49,414) (4,941)
Additional paid-in capital 20,979 20,979
Preferred shares are nonredeemable, nonvoting shares entitled to dividends of 8.00% annually from net income, subject to the
declaration of the BOD and have priority in case of liquidation or insolvency.
The determination of the Parent Company’s compliance with regulatory requirements and ratios is based on the amount of the
Parent Company’s ‘unimpaired capital’ (regulatory net worth) as reported to the BSP, determined on the basis of regulatory
accounting policies which differ from PFRS in some respects.
Under existing BSP regulations, the combined capital accounts of the Parent Company should not be less than an amount equal
to 10% of its risk assets. Risk assets consist of total assets less cash on hand, due from BSP, loans covered by hold-out on or
assignment of deposits, loans or acceptances under letters of credit to the extent covered by margin deposits, and other nonrisk
items as determined by the MB of the BSP.
Under BSP Circular No. 360, effective July 1, 2003, the capital-to-risk asset ratio (CAR) is to be inclusive of market risk charge.
Using this formula, the CAR of the Parent Company as of December 31, 2010 and 2009 is 17.16% and 21.46%, respectively,
which is in compliance with the minimum requirement of the BSP.
As of December 31, 2010 and 2009, surplus is restricted for the payment of dividends to the extent of the cost of shares held in
treasury amounting to P6.00 million and P5.75 million, respectively.
Details of the Parent Company’s dividend distribution follow:
Date of Declaration
Type of Share
Per Share Total Amount
Date of BSP
Approval Record Date
April 14, 2009 Preferred P8 P28,417,712 May 6, 2010 March 31, 2008
Common 2 49,921,064 May 6, 2010 March 31, 2008
April 27, 2010 Preferred 8 28,415,064 March 31, 2009
Common 2 49,918,214 March 31, 2009
As of December 31, 2010 and 2009, dividend payable amounted to P656.23 million and P586.85 million, respectively.
As of December 31, 2010 and 2009, subscription receivable amounted to P139.60 million and P139.76 million, respectively.
Capital Management
The objective of the Parent Company’s capital management framework is to ensure that there is suffcient capital to support the
underlying risks of its business activities and to maintain an adequately capitalized status under regulatory requirements. The
sufficiency of capital is measured using the rules and ratio established by the BSP which is also aligned with the requirements
of the new Basel II Accord of the Basel Committee on Banking Supervision, which took effect with the issuance of BSP Circular
No.538 on July 1, 2007.
The determination of the Parent Company’s compliance with regulatory requirements and ratios is based on the amount of the
Parent Company’s ‘unimpaired capital’ (regulatory net worth) as reported to the BSP, determined on the basis of regulatory
accounting policies which differ from PFRS in some respects.
Under existing BSP regulations, the combined capital accounts of the Parent Company should not be less than an amount equal
to 10% of its risk assets. Risk assets consist of total assets less cash on hand, due from BSP, loans covered by hold-out on or
assignment of deposits, loans or acceptances under letters of credit to the extent covered by margin deposits, and other nonrisk
items as determined by the MB of the BSP.
Under the BSP Circular No. 360, effective July 1, 2003, the CAR is to be inclusive of market risk charge. Using this formula, the
CAR of the Parent Company as of December 31, 2010 and 2009 as reported to the BSP is 17.16% and 18.51%, respectively,
which is in compliance with the minimum requirement of the BSP.
In 2009, the BSP issued Circular No. 639 covering the ICAAP which supplements the BSP’s risk-based capital adequacy
framework under BSP Circular No. 538. BSP No. 639 is effective starting January 1, 2011, as extended by BSP Circular No.
677 which is also issued in 2009. The policies and processes guiding the determination of the suffciency of capital of the Parent
Company have been incorporated to the Parent Company’s ICAAP to comply with the requirements of the BSP. While the
Parent Company has added the ICAAP to its capital management policies and processes, there were no changes made on the
objectives and policies for the years ended December 31, 2010 and 2009.
102 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
103 2010 Annual Report
20. Retirement Plan
The Parent Company has a funded noncontributory defned beneft retirement plan (the Plan) covering substantially all its offcers
and regular employees. Under the Plan, all covered offcers and employees are entitled to cash benefts after satisfying certain
age and service requirements. The latest actuarial valuation study of the Plan was made on December 31, 2010.
The principal actuarial assumptions used in determining the retirement liability of the Parent Company under the Plan are shown below:
2010 2009
Discount rate
At January 1 10.26% 18.84%
At December 31 8.90% 10.26%
Expected return on plan assets 6.30% 6.50%
Future salary increases 8.00% 9.00%
The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date applicable to
the period over which the obligation is to be settled.
The amounts recognized in Miscellaneous under ‘Other assets’ in the statements of fnancial position are as follows (amounts in
thousands):
2010 2009
Fair value of plan assets P160,695 P127,861
Present value of retirement obligation 132,231 114,165
Surplus 28,464 13,696
Unrecognized actuarial losses 2,411 4,795
Net retirement asset P30,875 P18,491
The movements in the present value of retirement obligation (PVO) of the Parent Company are as follows (amounts in thousands):
2010 2009
Balance at beginning of year P114,165 P44,915
Current service cost 13,137 5,730
Interest cost 11,713 8,462
Benefits paid (4,750) (4,550)
Actuarial losses (gains) (2,034) 59,608
Balance at end of year P132,231 P114,165
The movements in the fair value of plan assets of the Parent Company are as follows (amounts in thousands):
2010 2009
Balance at beginning of year P127,861 P92,417
Contributions during the year 28,923 34,685
Expected return on plan assets 8,311 5,545
Benefits paid (4,750) (4,550)
Actuarial gains (losses) 350 (236)
Balance at as of end of year P160,695 P127,861
The actual return on plan assets amounted to P8.66 million and P5.31 million in 2010 and 2009, respectively.
The amounts included in ‘Compensation and fringe benefts’ in the statement of income of the Parent Company are as follows
(amounts in thousands):
2010 2009
Current service cost P13,137 P5,730
Interest cost 11,713 8,462
Expected return on plan assets (8,311) (5,545)
Actuarial losses recognized during the year – 3,817
P16,539 P12,464
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
2010 2009
Investment in government securities 78.72% 74.69%
Cash in bank and investments in special savings 20.82% 25.09%
Others 0.46% 0.22%
100.00% 100.00%
Amounts for the current and prior years (in thousands):
2010 2009 2008 2007
Present value of pension benefit obligation P132,231 P114,165 P44,915 P118,462
Fair value of plan assets 160,695 127,861 92,417 70,196
Surplus (deficit) 28,464 13,696 47,502 (48,257)
Experience adjustments on plan liabilities (2,034) 59,608 95,824 –
Experience adjustments on plan assets – – (1,480) (960)
21. Leases
The Parent Company’s branches and its subsidiaries lease their respective offce premises under operating lease agreements
except the home offce which is under fnance lease arrangement. Rentals of the Group and the Parent Company charged
against current operations included in ‘Occupancy’ in the statements of income amounted to P53.19 million and P52.68 million in
2010, respectively, and P40.27 million and P39.44 million in 2009, respectively.
As of December 31, 2010 and 2009, the future minimum rentals payable under finance leases for the Parent Company are as
follows (amounts in thousands):
2010 2009
Within one year P1,320 P1,320
After one year but not more than five years 5,280 5,280
More than fve years 5,280 6,600
P11,880 P13,200
As of December 31, 2010 and 2009, the future minimum rentals payable under operating leases for the Group and Parent
Company are as follows (amounts in thousands):
2010 2009
Within one year P15,035 P17,169
After one year but not more than five years 65,709 67,834
More than fve years 19,647 32,557
P100,391 P117,560
104 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
105 2010 Annual Report
22. Income and Other Taxes
Under Philippine tax laws, the RBU of the Parent Company and its domestic subsidiaries are subject to percentage and other
taxes (presented as ‘Taxes and licenses’ in the statement of income) as well as income taxes. Percentage and other taxes paid
consist principally of gross receipts tax (GRT), documentary stamp taxes and value added tax. Income taxes include corporate
income tax, as discussed below, and final taxes paid which represent final withholding tax on gross interest income from
government securities and other deposit substitutes and income from FCDU transactions. These income taxes, as well as the
deferred tax benefts and provisions, are presented as ‘Provision for income tax’ in the statement of income.
RA No. 9397, An Act Amending National Internal Revenue Code, provides that the Regular Corporate Income Tax (RCIT) rate shall
be 30.00%. The interest expense allowed as a deductible expense shall be reduced to 33.00% of interest income subjected to
final tax.
An MCIT of 2.00% of modifed gross income is computed and compared with the RCIT. Any excess of MCIT over the RCIT is
deferred and can be used as a tax credit against future income tax liability for the next three years. In addition, NOLCO is allowed
as a deduction from taxable income in the next three years from the period of incurrence.
Current tax regulations also provide for the ceiling on the amount of entertainment, amusement and recreation (EAR) expense that
can be claimed as a deduction against taxable income. Under the regulations, EAR expense allowed as a deductible expense is
limited to the actual EAR paid or incurred but not to exceed 1% of the Parent Company’s net revenue.
FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income (income from residents) is subject
to 10% income tax. In addition, interest income on deposit placements with other FCDUs and offshore banking units (OBUs) is
taxed at 7.50%. Income derived by the FCDU from foreign currency transactions with non-residents, OBUs, local commercial
banks including branches of foreign banks is tax-exempt while interest income on foreign currency loans from residents other than
OBUs or other depository banks under the expanded system is subject to 10% income tax.
Provision for income tax consists of (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Current:
Final taxes P287,578 P223,345 P287,453 P223,265
RCIT 1,023 298 961 218
MCIT 3,042 6,047 3,042 6,047
291,643 229,690 291,456 229,530
Deferred (47,956) (109,284) (47,956) (109,450)
P243,687 P120,406 P243,500 P120,080
The components of the deferred tax assets - net as of December 31, 2010 and 2009 follow (amounts in thousands):
2010 2009
Deferred tax assets on:
Allowance for impairment and credit losses P302,707 P245,266
NOLCO 140,730 107,576
Depreciation on acquired assets 21,201 16,401
Unamortized past service cost 9,302 8,214
Unrealized net foreign exchange losses 1,829 1,425
MCIT 3,042 12,507
Provision for expenses 21,409 18,822
500,220 410,211
(Forward)
2010 2009
Deferred tax liabilities on:
Gains on asset foreclosures and dacion transactions (P80,861) (P43,368)
Net retirement asset (9,263) (5,547)
Unrealized net trading gains from changes in
fair value of financial assets at fair value
through profit or loss (2,181) (1,337)
(92,305) (50,252)
P407,915 P359,959
Details of the Group’s and Parent Company’s unrecognized deferred tax assets are as follows (amounts in thousands):
2010 2009
Tax effects of:
Allowance for impairment and credit losses P417,934 P561,178
NOLCO 243,142 21,152
MCIT 12,507 15,318
P673,583 P597,648
Management believes that it is not probable that suffcient taxable income will be available in the near foreseeable future against
which the tax benefits from the foregoing temporary differences could be realized.
Details of the Parent Company’s NOLCO follow (in thousands):
Inception Year Amount Used/Expired Balance Expiry Year
2010 P920,986 P– P920,986 2013
2009 242,500 – 242,500 2012
2008 116,086 – 116,086 2011
2007 70,508 70,508 – 2010
P1,350,080 P70,508 P1,279,572
Details of the Group’s and Parent Company’s MCIT follow (amounts in thousands):
Inception Year Amount Used/Expired Balance Expiry Year
2010 P3,042 P– P3,042 2013
2009 5,746 – 5,746 2012
2008 6,761 – 6,761 2011
2007 15,318 15,318 – 2010
P30,867 P15,318 P15,549
The reconciliation of the provision for income tax computed at statutory tax rate to the provision for income tax presented in the
statement of income follows (amounts in thousands):
Consolidated Parent Company
2010 2009 2010 2009
Statutory income tax P225,786 P182,674 P227,579 P161,548
Final taxes 287,578 223,345 287,233 223,254
Tax effects of:
Interest income subjected to final tax
(net of nondeductible expense) (639,265) (335,146) (638,748) (335,146)
Nontaxable income (197,436) – (197,436) –
Nondeductible expenses 285,501 – 285,501 –
(Forward)
106 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
107 2010 Annual Report
Consolidated Parent Company
2010 2009 2010 2009
Interest income on tax
exempt investments (P67,764) (P21,571) (P67,764) (P21,571)
Change in unrecognized deferred
tax assets 76,535 – 37,857 –
FCDU income (14,967) (13,363) (14,967) (13,363)
Others 287,719 84,467 324,245 105,358
Effective income tax P243,687 P120,406 P243,500 P120,080
23. Disposition of Net Income
As provided for in the Parent Company’s by-laws, the profit distributable to common shares shall be the Parent Company’s net
income reduced by the following:
(a) Transfer to the surplus reserves account (20% of net income) until the surplus reserves is equal to the Parent company’s
authorized capital stock;
(b) Guaranteed earnings of the preferred shares; and
(c) Appropriation of 20% of net income, after deducting (a) and (b) above, for the Board of Trustees of the Veterans of World War
II, as provided in Section 23 of RA No. 3518.
Also, as required by the BSP, the Parent Company transfers 10% of its income from trust operations to surplus reserves (see Note 25).
24. Financial Performance
The basic EPS of the Group is computed as follows (amounts in thousands except EPS):
2010 2009
a. Net income P508,933 P424,558
b. Cumulative preferred dividends 28,415 28,418
c. Weighted average number of outstanding
common shares 25,305 25,303
d. Basic earnings per common share [(a-b)/c] P18.99 P15.66
There were no dilutive potential common shares in 2010 and 2009.
The following basic ratios measure the fnancial performance of the Parent Company:
2010 2009
Return on average equity 10.05% 10.80%
Return on average assets 0.93% 1.10%
Net interest margin 3.34% 3.96%
25. Trust Operations
Securities and other properties held by the Parent Company in fiduciary or agency capacities for clients and beneficiaries
amounting to P10.24 billion and P8.01 billion as of December 31, 2010 and 2009, respectively, are not included in the
accompanying statement of financial position since these are not assets of the Parent Company (see Note 27).
Government securities with total face value of P118.00 million as of December 31, 2010 and 2009 and total carrying value of
P116.85 million and P118.93 million as of December 31, 2010 and 2009, respectively, are deposited with the BSP in compliance
with existing banking regulations relative to the Parent Company’s trust functions. Also, as required by the BSP, the Parent
Company transfers 10% of income from trust operations to surplus reserves until it amounts to 20% of the Parent Company’s
authorized capital stock and no part of such surplus reserves shall at any time be paid out in dividends, but losses in the course of
its business may be charged against such surplus.
26. Related Party Transactions
In the ordinary course of business, the Group has loan transactions with certain directors, offcers, stockholders and related
interests (DOSRI) within limits prescribed by the BSP. These loans are made substantially on the same terms as with other
individuals and businesses of comparable risks.
Existing banking regulations limit the amount of individual loans to DOSRI, 70% of which must be secured, to the total of their
respective deposits and book values of their respective investments in the Group. In the aggregate, loans to DOSRI generally
should not exceed the lower of the total capital funds or 15% of the total loan portfolio. These limits do not apply to loans secured
by assets considered as non-risk as defned in the regulations. As of December 31, 2010 and 2009, the Group is in compliance
with these regulatory requirements.
The following table shows information relating to the loans, other credit accommodations and guarantees classifed as DOSRI
accounts (amounts in thousands):
2010 2009
Total outstanding DOSRI accounts P63,412 P56,199
Percent of DOSRI accounts to total loans 0.33% 0.25%
Percent of unsecured DOSRI accounts to
total DOSRI accounts – 0.37%
Percent of past due DOSRI accounts to
total DOSRI accounts 6.68% –
Percent of nonperforming DOSRI accounts to
total DOSRI accounts 6.68% –
On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that govern loans, other credit
accommodations and guarantees granted to subsidiaries and affliates of banks and quasi-banks. Under the said circular,
the total outstanding exposures to each of the bank’s subsidiaries and affiliates shall not exceed 10% of bank’s net worth, the
unsecured portion of which shall not exceed 5% of such net worth. Further, the total outstanding exposures to subsidiaries and
affiliates shall not exceed 20% of the net worth of the lending bank. BSP Circular No. 560 is effective starting February 15, 2007.
The transactions of the Parent Company with its subsidiaries consist mainly of regular banking transactions and advances for
payment of various operating expenses.
The parent company fnancial statements include the following amounts resulting from the above transactions with subsidiaries
(amounts in thousands):
2010 2009
As of December 31
Deposit liabilities P396 P390
Other liabilities 26,850 20,431
For the Years Ended December 31
Interest expense 816 861
108 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
109 2010 Annual Report
The intercompany transactions and outstanding balances of the Group were eliminated in the consolidation.
Compensation of Key Management Personnel
The remuneration of directors and other members of key management of the Group are as follows (amounts in thousands):
2010 2009
Short-term benefits P105,671 P107,824
Post-employment benefits 1,955 1,995
P107,626 P109,819
27. Commitments and Contingent Liabilities
In the normal course of business, the Group enters into various commitments and incurs certain contingent liabilities that are not
presented in the accompanying fnancial statements. The Group does not anticipate material unreserved losses as a result of
these transactions.
The Parent Company and its subsidiaries are defendants in legal actions arising from normal business activities. Management
believes that these actions are without merit or that the ultimate liability, if any, resulting from these will not materially affect the
Group’s fnancial position and operating results.
The following is a summary of commitments and contingent liabilities at their equivalent peso contractual amounts (amounts in
thousands):
2010 2009
Trust department accounts (Note 25) P10,236,577 P8,007,279
Unused commercial letters of credit 3,079,949 490,173
Late deposits/payments received 132,070 38,450
Outstanding guarantees issued 61,295 112,415
Spot foreign exchange contracts bought and sold 30,792 639
Inward bills for collection 27,977 7,316
Outward bills for collection 15,510 37,131
Others 1,719 1,724
28. BWI (A Thrift Bank)
On January 15, 2005, the Parent Company temporarily assumed management of BWI. In February 2008, the MB approved the
closure of the thrift bank. The Parent Company had IBCL to BWI amounting to P1.67 billion as of December 31, 2010 and 2009
and assumed uninsured deposits of BWI amounting to P907.26 million, P905.54 million as of December 31, 2010 and 2009,
respectively. Relative to these exposures, on February 07, 2008, the MB approved a 90-day special liquidity support, which was
used by the Parent Company to acquire 25-year government securities. On May 9, 2008, such support was restructured with
lower interest and extended term of 20 years resulting to a day 1 gain of P1.10 billion in 2008 (see Note 15), which the Parent
Company used to partially offset the effect of the required allowance on IBCL in 2006 and recognized provision for probable
losses of P1.10 billion in 2008.
The remaining required allowance on the IBCL in 2006 and the required allowance on the additional IBCL in 2007 totaling to
P565.91 million, and the required allowance on accounts receivable amounting to P1.72 million, P19.54 million and
P886.00 million, representing the uninsured deposits assumed in 2010, 2009 and 2008, respectively, were deferred over 20
years as approved by the BSP. The Parent Company recognized provision for impairment losses amounting to P52.70 million
and P25.87 million in 2010 and 2009, respectively. The unamortized required allowance as of December 31, 2010 and 2009
amounted to P1,394.60 million and P1,445.58 million, respectively.
PFRS requires that the allowance on the IBCL be charged against 2007 and 2006 operations and the allowance on accounts
receivable be charged against 2010, 2009 and 2008 operations.
29. Notes to Cash Flows
The amounts of interbank loans receivable and securities purchased under agreements to resell considered as cash and cash
equivalents of the Group and Parent Company follow (amounts in thousands):
2010 2009
Interbank loans receivable and SPURA P10,213,429 P2,633,259
Interbank loans receivable and SPURA not
considered as cash and cash equivalents (3,328,357) (540,040)
P6,885,072 P2,093,219
Non-cash investing activity
The Group acquired certain investment properties through foreclosure and dacion transactions in 2010 and 2009 amounting to
P576.45 million and P818.33 million, respectively (see Note 11).
30. Approval of the Release of the Financial Statements
The accompanying fnancial statements of the Group and of the Parent Company were authorized for issue by the BOD on April
12, 2011.
31. Information Required Under Revenue Regulation No. 15-2010
The Parent Company reported and/or paid the following types of taxes in 2010:
Gross Receipts Tax (GRT) a.
The Parent Company is subjected to GRT on its gross income from Philippine sources. GRT is imposed on interest, fees
and commissions from lending activities at 5% or 1%, depending on the loan term, and at 7% on non-lending fees and
commissions, trading and foreign exchange gains and other items constituting gross income.
Details of the Parent Company’s income and GRT related to the income for the year ended December 31, 2010 under ‘Taxes
and licenses’ in the statement of income are as follows (amounts in thousands):
Gross receipts
GRT
Income derived from lending activities P2,821,040 P107,129
Other income 407,745 28,542
P3,228,785 P135,671
b. Other Taxes and Licenses
Other taxes and licenses, local and national, including real estate taxes, license and permit fees for 2010 under ‘Taxes and
licenses’ in the statement of income follow (amounts in thousands):
National
Documentary stamp taxes on loans
P89,756
License, registration and permit fees 4,500
Fringe benefit taxes 899
Documentary stamp taxes on shares of stock
86
Documentary stamp taxes on rental agreements
61
(Forward)
110 Philippine Veterans Bank
Philippine Veterans Bank And Subsidiaries
Notes to Financial Statements
Local
Real property taxes P4,987
License, registration and permit fees 1,381
Other taxes and licenses 249
P101,919
c. Withholding taxes
Withholding taxes for 2010 are as follows (amounts in thousands):
Paid
Accrued
Withholding taxes on compensation and benefits P84,677 P10,696
Expanded withholding taxes 12,380 1,901
Final withholding taxes 177,163 13,972
P274,220 P26,569
Tax assessments and cases b.
The Parent Company has no pending tax assessments and cases as of December 31, 2010.
101 V.A. Rufno cor. Dela Rosa Streets, Legaspi Village, Makati City 1229 Philippines
Tel. Nos. (632) 857-3800 • (632) 902-1700
www.veteransbank.com.ph

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