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 For the year (in million pesos, except per share amounts)

 At year-end (in million pesos)

                                                  2 0 0 4   A N N U A L   R E P O RT   1

                                                                        organization for the new challenges and
                                                                        opportunities, and strengthen our
                                                                        capability to thrive wherever we are in the
                                                                        economic cycle.
                                                                             At the close of the past year and on
                                                                        the eve of the new, we could see
                                                                        definitive progress in realizing our vision of
                                                                        our company as a bank preferred by
                                                                        customers across the board because of
                                                                        products and services that help them
                                                                        realize their financial goals, a bank that
                                                                        delivers exemplary standards of service to
                                                                        customers every day, and a bank that
                                                                        produces strong, consistent financial
                                                                        returns for its shareholders.

                                                                        Remarkable Financial Performance
                                                                        The financial results in 2004 provide a
                                                                        vivid yardstick of the progress we are
                                                                        making. During the year, we increased net
                                                                        income by 39% over the previous year to
                                                                        a record —1.8 billion, as operating income
                                                                        grew 20% to —16.4 billion. Return on
                                                                        average equity (without appraisal and
                                                                        goodwill) improved to 9.18% from 7.33%
                                                                        in 2003, while return on average assets
                                                                        (without appraisal and goodwill) climbed
                                                                        to 0.82% from 0.69%. On per share
                                                                        basis, earnings reached —2.79 from —2.01
                                                                                                  P            P
PROGRESS IN REALIZING                                                   the previous year. We exceeded our goals
OUR VISION OF OUR                                                       in key financial categories, including
COMPANY AS A BANK         A Year of Growth and Transformation           earnings per share, net income, revenue
PREFERRED BY CUSTOMERS    In a year that saw the Philippine economy     and asset quality.
ACROSS THE BOARD                                                             An expansion in earning assets, a
                          rebound with over six percent GDP
                          growth, Equitable PCI Bank performed          better portfolio mix and an improved
 Antonio L. Go
 Chairman of the Board    above expectations on all fronts and took     funding cost structure contributed to
                          major strides in its reorganization program   the 72% surge in net interest income to
                          for sustained growth.                         —8.2 billion. This resulted in a wider net
                               This remarkable financial and            interest margin of 3.86% in 2004 from
                          operating performance was the result of       2.49% in 2003. We also saw
                          dedicated and extraordinary effort by our     improvement in the major components
                          management and staff to meet key              of non-interest income such as service
                          objectives of improving products, services    charges and commissions, corporate
                          and distribution network, and maintaining     finance fees, asset management and
                          financial discipline to ensure financial      trust fees, asset disposal gains and rental
                          health and profitability. At the same time,   income. These cushioned the impact of
                          it vindicated our continuing program of       volatile Treasury and forex-related
                          transformation to reshape the                 income during the year.

     We ended the year with —310 billion
in total resources, —194 billion in deposits,
and —138 billion in loans. Deposits were
up 4% while loans grew by 14%. Loans
to top-tier corporations continued to
account for the bulk of loans, but lending
to midsize and small enterprises as well as
consumers is increasingly becoming a
major source of loan growth. Consumer
loans performed well. Mortgages grew
13%, while auto loans registered a 24%
increase in number of units financed and
23% increase in outstanding portfolio.
Our formidable franchise in credit cards
continued to post hefty gains, registering
a 22% increase in gross billings and 16%
rise in cardholder base.
     Towards the end of last year and early
2005, we seized the opportunity to avail
of accounting and tax benefits under the
Special Purpose Vehicle (SPV) law. We
offloaded a substantial portion of our non-
performing asset (NPA) portfolio by
executing the bulk sale of approximately
—15.8 billion in aggregate non-performing
loans (NPL) and foreclosed assets to
several SPV entities. This move brought
our NPL ratio down to single-digit level. It
enhanced our cost management and
financial flexibility. We now have more
                                                                                              OUR STRATEGIC VISION AND
                                                                                                        SOLID FINANCIAL
room to use our balance sheet to                                                                 PERFORMANCE HAVE BEEN
reposition our core businesses for higher       compared to the Phisix’s 16% rise from                  REWARDED IN THE
growth in their respective markets. We          2001 to 2004, Equitable PCI Bank has            MARKETPLACE WITH SHARE
complemented this and similar moves to          been a solid investment.
                                                                                              PRICE GAINS THAT HAVE BEEN
increase the quality of our assets by raising
                                                                                               BETTER THAN THOSE OF THE
                                                    Strong profit growth also enabled us                OVERALL MARKET.
the NPL reserve cover to 73%, higher than       to declare cash dividends of —436 million,
industry average.                               resuming a practice of returning excess
                                                capital to shareholders. With total capital                   Rene J. Buenaventura
Share Price Gains and Dividends                 at a healthy —41.4 billion, our capital
                                                             P                                               & Chief Executive Officer
Our strategic vision and solid financial        adequacy ratio settled at 14.3% which is
performance have been rewarded in the           comfortably above the regulatory
marketplace with share price gains that         minimum of 10%.
have been better than those of the overall
market. The bank’s share price had nearly       Organizational Change
doubled to —48 over the three years since
            P                                   Our strategic reorganization program is
we embarked on our strategic                    bearing fruit in terms of a more cohesive
transformation plan. With a compounded          and motivated organization and closer
annual return to shareholders of 25%            relations with customers.

                                                                                                   2 0 0 4   A N N U A L   R E P O RT    3

ACROSS THE BOARD, OUR                           shifting political and economic currents.             Our Commercial Banking group set
BANKERS ARE WORKING                             We enhanced our infrastructure and              up more business units, particularly in
MORE EFFECTIVELY WITHIN                         capabilities during the year. We worked to      Luzon, to extend its already dominant
THEIR RESPECTIVE BUSINESS                       create a strong sales and service culture       coverage in the middle market and
PARTNERSHIPS WITH PEOPLE,                       among staff and develop the soft skills and     entrepreneurial segment. It worked more
COMMUNITIES AND ENTERPRISES.                    information capital needed by our new           effectively with our branch heads to tap
                                                relationship bankers and customer-focused       new markets, resulting in a strong 20%
                                                sales teams in order to compete effectively     increase in acquisition of new clients. It
     Organizational reforms to improve          in the market. We also strengthened our         launched a new product that was well
systems, procedures and operations,             marketing programs, putting up more             received in the market, especially in the
combined with efforts to motivate our           effective sales promotions and initiatives      distribution business. Amid fierce
employees to perform more effectively           and joining in more marketing events.           competition, the group achieved healthy
have contributed greatly to our improved                                                        growth in loan portfolio, deposits,
performance.                                    Sectoral Growth                                 placements and trade.
     One key part of the strategic              Sector by sector, business by business, our           Our Corporate Banking Group
reorganization was to ensure that our           operations have expanded and our                produced double-digit growth in loan
employees find their work meaningful so         financial performance improved.                 portfolio and a near-doubling in net
they feel personally committed to                    To make the bank more accessible to        interest margin as it implemented new
achieving the bank’s mission. We are            customers than ever before, we                  strategic initiatives aimed at better
happy to report that our entire staff have      intensified our efforts to enhance our          managing risk, making more strategic use
fully bought into our service first             Electronic Banking channels to                  of capital by improving credit quality and
philosophy, doing what is best for              complement the expansion of our                 refining its customer relationship focus.
customers even at the height of major           traditional branch network. With our                  Our Consumer Banking business had
transition in the organization. We              ATM network expanding by 10%, the               another exceptional year, registering a
reinforced employee commitment and              active cardholder base expanded by              17% growth in total loan portfolio.
dedication through our benefits, training,      180,000 new accounts and client                 Besides healthy increases in new housing
and development programs, and by                transaction volume rose by 5%. Our pace         loans and auto loans, it nearly doubled
fostering an inclusive environment where        of growth in electronic banking was             wholesale loan bookings. Our credit card
the best and brightest minds are                heady, with outsize increases in either         subsidiary maintained a brisk pace in its
encouraged to perform at their very best.       enrollment or volume for all our                acquisition campaigns to achieve 16%
     Across the board, our bankers are          electronic services, including e-payments,      increase in cardholder base and 22% in
working more effectively within their           online banking, phone banking, SMS              billings.
respective business units to forge profitable   transactions and call center operations.              Meanwhile in Trust Banking, we
partnerships with people, communities           Strong focus on the remittance business         continued to strengthen our leadership
and enterprises. They have learned              in recent years continued to pay off with       position in the asset management
teamwork in delivering full value and           a 16% increase in pure OFW                      industry as we grew total assets under
service to every customer, regardless of        remittances, the second year in a row of        management to over P100 billion, or
who “owns” the customer. This is                above industry growth.                          more than double the level three years
important because loyal customers stay               Amid a major transition, Retail Banking    ago. Our Bank cemented its reputation
longer, buy more products and services,         clearly performed impressively in 2004. It      as an exceptional investment
create good word-of-mouth referrals, and        recorded above industry growth of 16% in        management group with stellar results
reduce costs to acquire and keep business.      core low-cost deposits, allowing us to keep     for its Equity Portfolio Fund, which
     Most of our business thrived in 2004,      a tight rein on funding cost. In addition to    outperformed the benchmark Phisix and
not just because we achieved greater            better deposit generation, in-branch sales      its rival funds in the industry with a
operating efficiencies but also because we      of everything from credit cards, home           37.1% year-on-year return on
continued to invest in organic growth to        equity loans, investments to insurance          investment. This track record is
build them up amid an overall credit            products have increased dramatically            underscored by EPCIBank’s topping of
market that remained susceptible to             through more effective cross selling efforts.   the 2004 performance survey conducted

by global consulting firm Watson Wyatt.         managing risk across the business. A          Digest as a Gold SuperBrand in the
The Bank ranked No. 1 among fund                culture that encourages every employee        2005 Philippines SuperBrand Survey, a
managers handling at least five funds           to understand, anticipate and manage          genuine consumer poll done by the
with full discretion and was shown to           the full range of potential risks and         popular monthly magazine to determine
have provided the best returns to               rewards in their area. Achieving financial    and measure consumers' brand
retirement funds.                               discipline of this kind is the foundation     preferences.
                                                upon which we will build a great                  None of this has happened by
Building a Great Company                        company, which will prevail through both      chance or as the sole achievement of a
While most of our businesses are already        good economic times and bad.                  few. This is the achievement rather of
in leading positions, our experience in             At the same time, we must not             the Board, the Management, and all the
recent years suggest there is room to           forget that a great company gives back        people who constitute our institution.
grow in all of them. We intend to               to the community it serves. Equitable PCI     We take this opportunity to thank each
continue investing and building up our          Bank has a long tradition of active           and every member of the team for their
business to achieve growth. But we are          community involvement. That tradition         unwavering dedication and
not interested in growth for its own            continues today with the bank’s               performance.
sake. Rather we seek good growth,               programs of lending to build and rebuild          Upon this rock of solidarity and
meaning, services and products that best        communities, philanthropic giving, and        dedication, we will build an even
meet customer needs and can be                  employee volunteerism.                        brighter future.
profitable over a sustained period. We              With our excellent 2004 results and
will not pursue short-term revenue              with our strategic priorities in place, we
growth at the cost of long-term                 are in a position to realize this bolder
profitability.                                  and grander vision of our institution.
     Our recent performance is no
accident but is the result of several years     Facing the Future
of hard work during which our                   The financial services industry in the        ANTONIO L. GO
employees all concentrated their efforts        Philippines continues to face significant     Chairman
on learning to provide the best service         challenges and opportunities. We believe
experience for our customers. With this         Equitable PCI Bank is well-positioned to
service structure in place, we now set          remain a major pillar of the industry
our sights higher and aim not only to           because we started investing to build this
ensure customer satisfaction but to win         business model for the future many years
customer loyalty. This is important             ago and we have attained at this point
because loyal customers stay longer, buy        the diversity, reach, brand, and              RENE J. BUENAVENTURA
more products and services, create              momentum to thrive in this more               President
favorable word-of-mouth referrals, and          competitive environment. But we cannot
reduce costs to acquire and keep                afford to be complacent. The steps we
business.                                       take going forward are all-important.
     Financial discipline is indispensable to        We have progressed tremendously
the continued growth and vitality of our        since we launched our program of
enterprise. It means striving for a balance     transformation three years ago, and the
sheet of unquestioned strength. This in         year 2004 has crowned our efforts with
turn requires effective management of           record results and successes. This is
our assets and liabilities, conservative and    attested by citations the Bank has
appropriate accounting, sound asset             received from international bodies, such
quality, and thorough grasp of what             as the Best Domestic Bank Award in the
drives profitability and growth. Financial      Philippines from The Asset, a regional
discipline requires that we have a              financial publication, in its 2004 Triple A
rigorous process and culture of                 Awards, and recognition by the Reader's

                                                                                                    2 0 0 4   A N N U A L   R E P O RT   5
 Equitable PCI Bank Posts 23%                           “Your Bank” Campaign Launched                          PCI Leasing gets Top Credit Rating
 Remittance Growth                                      The latest institutional campaign, “Your Bank,”        on Solid Asset Base
 Equitable PCI Bank's Express Padala posted a           has surged on with its print ad series, catchy         Publicly quoted PCI Leasing and Finance, Inc.
 23% growth in OFW remittance volume for                radio ads and jingle, as well as strategically         officially received Securities and Exchange
 2003, or 3.5x over the industry's average by           installed billboards nationwide to increase            Commission approval to sell a –—500 million
 aggressively expanding operations to meet the          awareness and media mileage, establishing              short-term commercial paper (STCP) issue that
 constant demand for money transfer services            strong market presence.                                has been assigned the highest credit rating by
 from migrant Filipino workers.                                                                                Philratings.
                                                        Equitable PCI Bank posts rapid growth
 Bank and PhilamLife Form PELAC                         in Remittances on Expansion                            EPCIBank Annual Report is Finalist
 The Bank and PhilamLife held a ceremonial              Equitable PCI Bank’s remittance business               in Design Competition
 signing to formalize their alliance to form the        continues to experience strong growth posting          The 2003 Annual Report of the Bank was
 Philam Equitable Life Insurance Company                21% volume growth in the first four months of          recently named one of the top three finalists in
 (PELAC). With this strategic alliance, PELAC will      the year, as it rapidly expands in international       the Communications Design Competition
 be the bancassurance company that will cross-sell      markets and reaches more Filipinos abroad with a       organized by the CommDesign Center.
 life insurance products through the Bank’s vast        better means of sending money to the
 distribution network.                                  Philippines.                                           Equitable PCI Bank Makes
                                                                                                               Bond Investing Easy, Attractive
 Equitable PCI is Top Grosser Awardee                   Equitable PCI Bank links FASTNet                       The Bank has spruced up its dollar-denominated
 The Bank received the 2003 Top Grosser Award           with BIR to Allow Online Tax Payment                   bond investment product Maxihedge, a first in
 (based on total tax payments) from the Bureau of       Equitable PCI Bank has integrated its FASTNet          local banking, and making it widely available
 Internal Revenue. The Bank belongs to the top 20       internet facility to the BIR's Electronic Filing and   through its branches. Maxihedge offers investors
 corporations that posted the highest payment of        Payment System to give customers the ease and          the opportunity to participate in high-yield
 all internal revenue taxes in CY 2003. BIR cited       convenience of paying taxes online and bolster         Philippine corporate or sovereign bonds. It
 the Bank as instrumental to the Large Taxpayers        the bureau's efforts to modernize and collect          presents a convenient investment opportunity in
 Service's achievement of its collection                taxes more efficiently.                                a foreign country. The investment in these longer
 performance, and the attainment of the Bureau's                                                               term bonds provides steady coupon income every
 overall internal revenue goal.                         Equitable PCI Bank in Key Alliance with                six months, and offers higher yields than ordinary
                                                        Travelex; Opens new Remittance Service in              bank time deposits.
 Equitable PCI ties up with Xoom.com                    France
 The Bank has teamed up with US based Xoom              A key alliance was forged to create a new              EPCIBank named Reader’s Digest
 Corp. to provide the newest and fastest web            foreign remittance service targeting Europe.           ‘SuperBrand’
 fund transfer service available in the market,         Initially opening the door of opportunities in         Equitable PCI Bank was named a Gold SuperBrand
 allowing non-resident Filipinos worldwide to send      France, Equitable PCI Bank’s Express Padala            in the 2005 Philippines SuperBrand Survey, a
 their money home instantly and securely via the        teamed up with Banque Travelex, the French unit        genuine consumer poll done by the popular
 website of the San Francisco, California company       of UK-based Travelex Financial Group.                  monthly magazine, Reader's Digest, to determine
 – www.xoom.com.                                                                                               and measure consumers’ brand preferences.
                                                        Bank Posts Strong Profit Growth                        The Bank performed outstandingly well in both
                                                        The Bank reported strong profit growth for             qualitative and quantitative results, scoring higher
                                                        January-September, driven by higher gross              than most other homegrown brands in its
                                                        interest income and fee-based income.                  category. Only four of the Philippines’ 41
                                                                                                               commercial banks qualified as SuperBrands.

 Your choice.
          Our commitment.
 PCI Leasing & Finance Posts                            Bank turns 54                                          Equitable PCI Bank wins Accolade
 Higher Assets and Revenues                             Since its inception in 1950, your Bank has always      in The Asset Triple A Country Awards
 PCI Leasing & Finance Inc. marked significant          been one of the leading financial institutions in      Equitable PCI Bank won the top domestic bank
 expansion in assets and revenues in 2003,              the country. To date it is the third largest banking   award for the Philippines in the 2004 Triple A
 maintaining its position as the dominant leasing       group in the country with assets of –— 310 billion,
                                                                                               P               Country Awards by The Asset, a leading regional
 and finance company in the country. The publicly       enjoying leadership in corporate and commercial        financial publication.
 listed subsidiary of Equitable PCI Bank ended 2003     banking, credit and payment cards, remittances,
 with assets of –—5.13 billion, 22% higher than
                 P                                      leasing and investment banking.                        EPCIBank Among Five Best
 year-before levels, the company announced at its                                                              Dealers of Government Securities
 annual shareholders meeting. Gross income rose         Equitable Card Launches the                            Equitable PCI Bank has been cited by the Bureau
 35% to –— 778 million reflecting a higher level of
          P                                             New Equitable Gold American Express                    of Treasury among the best performing
 financing activities. PCILF continues to be the        In the new Equitable Gold American Express             Government Securities Eligible Dealers (GSEDs)
 most profitable leasing company with a net             Credit Card, the latest and most innovative            for 2004 for its exemplary performance in the
 income of –P258.17million.                             offering from the two leading institutions in the      primary market for all government securities.
                                                        industry that is set to elevate the standards of the
 Equitable PCI Bank Nets –—270 Million
                              P                         credit card industry to a new level.Consumers          Big Wins in Asset Management
 in First Quarter of 2004                               wanting to explore their buying power may soon         for Equitable PCI Bank
 Equitable PCI Bank saw a 27% rise in interest          find their most reliable partner.                      EPCIBank topped the 2004 performance survey
 income to –— 3.62 billion. The Bank said first
            P                                                                                                  conducted by global consulting firm Watson
 quarter profits came in at –—270.3 million, higher
                             P                          MTV Credit Card Launched                               Wyatt. The Bank ranked No. 1 among fund
 than the year ago figure of –—264.3 million, while
                               P                        Equitable CardNetwork, Inc., the country’s largest     managers handling at least five funds with full
 at the core operating level, pre-provisioning profit   credit card network figured in a pioneering            discretion and was shown to have provided the
 was up 80% at –— 681 million.
                  P                                     endeavor as it marked a new milestone in credit        best returns to retirement funds.
                                                        card innovation. As part of its continuous drive to
 Equitable PCI Bank President & CEO Urges               provide the youth a total lifestyle experience the
 Strong Push to Deepen Capital Market                   MTV way, ECN brings the MTV credit card.
 Equitable PCI Bank President & CEO told the Asia
 Pacific Congress that a true credit culture still      Bank in Deal to Unload –—10.5B in Idle Assets
 needs to further take root in the Philippines and      The Bank reached an initial agreement with
 must be fostered if the market for corporate debt      Lehman Brothers, Inc. for the sale of –— 10.5
 securities is to grow vibrant enough to help propel    billion in idle assets in a deal that it expects to
 economic growth. The Asia Pacific Congress is a        close before tax perks under the SPAV law expires
 gathering of top investment bankers and                and which promises to greatly strengthen its
 government officials.                                  balance sheet and boost earnings prospects.

2 0 0 4   A N N U A L   R E P O RT   7

                          EQUITABLE PCI BANK ESTABLISHES KEY
                            SERVICES GROUPS WITH THE AIM OF
                                         TO FILIPINOS ABROAD.

Retail Banking Group                            competitors among the sales force.              and Branch Upkeep Programs, in addition
The Retail Banking Group marked in                   In continuously enhancing customer         to the traditional Audit Rating and
2004 its first full year under a transformed    relationships, several events were              Performance Monitoring Reports. These
set-up designed towards solidly                 organized to help build loyalty and             programs allowed for the objective
positioning the Group into a sales and          strengthen the bond with the customer.          measurement of service delivery and
service oriented, customer-centric              The year saw the Retail Bank participate in     organizational performance in branches.
organization. This should enable the            various marketing events to create              Proactive Management for Transaction
Retail Bank to sustain the business growth      awareness and identify leads for new            Banking was also launched for Banking
achieved in the recent years in the retail      business. The Group was involved in             Center Heads. Fifteen runs were
financial services market as it focused on 3    various sponsorships for Amkor Anam,            completed for 273 Banking Center Heads
customer segments - the affluent, the           Quezon City Medical Society, Maxicare           and the program likewise achieved 100%
emerging affluent, and the mass market.         Primary Care Center, CEMEX, Children            customer satisfaction rating. Internal
     As the structure had been set-up and       Heart Foundation, Allied Suppliers Credit       bulletins such as Employee Alert and
duly manned, organizational development         Association of the Philippines (ASCAP) and      Customer Loyalty Builder were launched
focused on creating the culture and             in a joint Bank forum with the Ateneo.          to improve awareness about service
developing the soft skills - the human as       Retail Banking likewise sponsored               standards in branches.
well as the information capital, necessary      “Broadway to a Tee”, held at the Manila              In keeping with service standards,
in competing effectively in the market.         Polo Club, launched Deals on Wheels 3 in        merchandising efforts were accomplished
There was a need for cultivating the            San Fernando Pampanga, and participated         via the installation of a merchandising
organizational value discipline of customer     in the Business Opportunities 2005 event        display system to enhance the image of
intimacy or knowledge of the customer           held at the Philippine Trade & Training         the bank towards creating a “customer
among the sales and marketing units             Center and the Basic Education Congress         experience”. In the area of the branch
catering to the affluent and emerging           in Cebu City.                                   network, initiatives were made to expand
affluent customers, and the value                    Aside from these sales and marketing       reach by relocating certain branches to
discipline of operational excellence in the     initiatives, Retail Banking was involved in     better points of presence.
support and distribution units, which are       the design and implementation of core                Continuing efforts were made for the
largely positioned to serve the mass            training and development programs for           Bank to be more accessible to clients via
market customers.                               Personal Bankers and Elite Bankers such as      alternative modes. The Bank’s ATM
     Part of the sales initiatives in pursuit   Breakthrough Selling for Personal Banking       network increased by 10%, active
of developing the desired culture, was the      and the Financial Planning & Consulting         cardholder base grew by 180,000 new
formation of sales teams in order to            Program. The Group completed 12 runs of         accounts, and client transaction volume
create a sales-oriented culture and to          the Breakthrough Selling Program for 218        grew by 5%. In the area of internet
maintain a competitive spirit among             Personal Bankers, with the program              banking, our enrollment base for FASTNet
divisions. Various sales promotion              achieving a 100% customer satisfaction          E-Payment grew from 28 to 1,005. For
campaigns such as bancassurance’s Power         rating. Two runs of the Financial Planning      FASTNet Online Banking, enrollment base
of 2, Sure Money To The Max, CASA Idol          & Consulting Program were likewise              grew by 47% while transaction volume
and Consumer Finance Division’s Otso-           completed in partnership with one of the        grew by 64%. In the area of
Otso were initiated to support the sales        respected training institutes in the country.   phonebanking, FASTPhone enrollment
efforts of the branches. Internal bulletins          In line with the goal of improving         base grew by 23% while transaction
such as Drumbeater and Inside Scoop             customer experience, various service            volume increased by 10%. For FASTPhone
were put in place to enhance the                initiatives were continued such as the          SMS, transaction volume grew by 343%
knowledge of bank products and its              Mystery Shopper, Telephone Monitoring           which was brought about by the re-

                                                                                                      2 0 0 4   A N N U A L   R E P O RT   9

launch in September. Transaction volume       life insurance, total bookings measured        management system will be continuously
for the Call Center grew by 35% while         in production credits reached a total of       improved, particularly the timeliness of
remittance authorization done via the Call    —101M, an achievement considering the
                                              P                                              performance monitoring reports, not only
Center grew by 54%.                           Bank was only in its first year of its joint   at the business unit level, but also at the
     Aside from improving the alternative     venture with Philam Equitable Life             product, channel and customer level.
channels, Retail Banking was intent in        Assurance Company. The OFW remittance          Most importantly, Retail Banking shall
understanding customer needs vis-a-vis        market continued to grow with 17%,             endeavor to improve the strategic
product offerings via market research. The    another year of double digit, above-           business management skills of division
Group took part in Project Geneva: a          industry growth rate, further solidifying      management and the implementation or
Customer Satisfaction Survey, Project         the Bank’s number two position. Overall,       execution of skills across all levels of the
Check: A Focus Group Discussion amongst       Retail Banking was successful in producing     organization.
Bank Clients and Personal Banking             results amidst a major transition in the            The accomplishment of these goals
Managers for Product Concept Testing,         organization.                                  will be the foundation in building a
Project Big Foot: Overall Brand Health              Looking forward, the Group will          stronger and better organization that is
Check of Bank Products, and Project           continue to pursue its strategic directions    anchored on service, organizational and
Anchor: A Focus Group Discussion among        in improving revenue-generating                financial excellence.
Seafarers on Brand Health Check of            performance by providing customer
Express Padala. Research was conducted        interfacing personnel with access to total     Corporate Banking Group
among internal customers such as Branch       customer information in order to enhance       The Corporate Banking Group (Corbank)
Personnel via Project Bumblebee: a Focus      cross-selling and up-selling capabilities.     continued to be a major business segment
Group Discussion amongst Bank Officers        Retail Banking will also populate and          of the Bank offering working capital and
of Transformed Branches.                      update continuously the customer               project finance loans, trade facilities and
     Equal attention was given on             datamart and make extensive use thereof        cash management solutions to the Top
developing the information capital            to launch customer-focused marketing           1000 Corporations in 2004.
through Single Customer View Project,         campaigns. Market and customer events               As the primary bank for most of its
Design of Income and Cost Allocation          will be actively pursued for purposes of       clients, Corbank was able to achieve
Models, Personal and Transaction Banking      customer acquisition, retention and            double digit growth in its loan portfolio
Monthly Scorecards and the Sales Portal.      loyalty. There will be continuous              while maintaining a healthy credit quality.
     The year ended with remarkable           implementation of sales promotions for         Corbank likewise achieved an impressive
business and operational results for Retail   CASA, as well as referrals for consumer        increase in its net interest margin with the
Banking. The Group was able to sustain a      loans, credit cards, and bancassurance         adoption of a new approach to growing
double digit growth rate of 16% in peso       products. Efforts will be pursued to shift     the business. The traditional focus on
low cost deposits. The Group also             transactor business to self-service            volume-driven growth was replaced by
achieved a 19% year-on-year growth in         terminals and free up branch resources to      net income growth objectives. Renewed
service charges as a result of Project        be able to differentiate the service           emphasis on profitability on a per product
Abacus, a TEP project which focused on        experience for emerging affluent and           basis was undertaken. Cost structures
ways to improve revenue generation in         affluent customers. Branch formats may         were reviewed covering both funds-based
branches. In cross-selling, referrals for     be modified as needed to suit customer         sources and processing. Utilization of each
consumer finance increased by 11% and         and transaction profiles. Retail Banking       clients’ credit facilities focused on
credit card referrals increased by 84%. In    intends to pursue alliances on both the        products that yielded better returns. The
bancassurance, EBC Insurance Brokerage,       acquisition and distribution side to expand    optimum product utilization mix would
Inc. posted a growth of P 72M while for       market reach. The performance                  differ for each client resulting to specific

10 E Q U I T A B L E P C I B A N K

                                    2 0 0 4   A N N U A L   R E P O RT   11

account strategies tailor-fitted for each                     Own-A-Car loan program and close to
client’s needs.                              CONSUMER         1,000 residential properties were financed
     To underscore the new focus,            FINANCE          under Own-A-Home loan program. The
Corbank held a group wide competition
for the Best Account Officer and Best        ADOPTED MORE     wholesale loans under the Contract to Sell
                                                              Receivables Financing more than doubled
Division Head with net income growth as      STREAMLINED      by yearend making a significant contribution
the major criteria.                          PROCESSES        to the total loan portfolio of Consumer
     During the year, various productivity
enhancement and risk management              SUCH AS          Finance. Portfolio quality remains notably
                                                              good with a delinquency ratio kept well
systems were put in place. A new and         AUTOMATED        within acceptable industry standards.
upgraded risk assessment program was         CREDIT SCORING        Many successful initiatives were
purchased and implemented.
Furthermore various new technology           IN ADDRESSING    undertaken in 2004. The annual
                                                              marketing run of the Own-A-Car
assisted productivity programs like the      TURNAROUND       financing under the “Deals On Wheels”
Integrated Loan Approval Memorandum
(LAM) workflow and the Account
                                             TIME.            promotion in Pampanga showed
                                                              encouraging results. This prompted
Profitability systems were initiated for                      Consumer Finance to replicate this effort
delivery within the year.                                     nationwide in 2005. Late in 2004, a new
     By staying focused on optimizing                         variant of the housing loan program,
returns and maintaining a healthy                             under Own-A-Home Stretch was
portfolio quality, Corbank aims to                            introduced, which likewise stirred heavy
continue generating a major share of the                      interest among loan borrowers. Aggressive
Bank’s total loan portfolio and to                            tie-ups with valued corporate clients of
contribute a larger net income in the                         the Bank were forged to tap employees
years to come.                                                for personal loans via salary deduction.
                                                                   Recognizing the stiff competition and
     Cash Management                                          the continued appetite of the market for
     Cash Management Division went full                       both housing and car loans, Consumer
speed with the introduction of the new                        Finance adopted more streamlined
FastWrite product with more clients                           processes such as automated Credit
signing up to avail of this cash                              Scoring in addressing turnaround time.
disbursement facility. Increased volume                       Consumer Finance looks forward to more
growth was attained in the FastCollect                        dynamic product offerings in the coming
and FastPay collection products as various                    year. Sales incentives and financing tie-ups
tie ups with clients were inked.                              from regular sources shall sustain growth
                                                              in consumer loan portfolio, while new
    Consumer Finance                                          channels in loan generation shall be
    Consumer Finance experienced a banner                     developed to expand market reach and
year in 2004 with total loan portfolio                        spur growth in the business.
growing by 26%. Backed by aggressive                               Continuing growth momentum in
loan referrals from branches, more than                       2005 is expected as the Bank optimizes
3,500 units were financed under the                           business from an internal customer base,

12 E Q U I T A B L E P C I B A N K
and continues tie-ups with business              network of the Bank, the Group closely            Commercial Banking’s performance in
partners to provide attractive new               worked with Retail Banking branch heads       2004, as in the previous years, will
products in the market.                          to capture still untapped market. The         underscore its continuing efforts to
                                                 efforts paid off as the Group recorded a      achieve goals set for the coming years.
     Small Business Division                     20% growth rate in terms of acquisition
     The Small Business Division (SBD)           of new clients.                               Treasury
continued to address the financing needs              Commercial Banking’s customer base       The Treasury Group has been striving for
of the country’s small and medium-sized          form a wide spectrum of individuals,          market leadership across all businesses by
enterprises (SME) in the year 2004, in           groups, and corporations with varied          continuously focusing on client
support of the government’s thrust of            needs. Benefiting from the Bank’s             satisfaction and product diversification in
making credit more accessible to this            comprehensive range of products and           key areas and correct market positioning.
sector. As a result, the Division achieved       services, which are made available            The Group was able to capitalize on the
respectable growth in its SME loan               through other groups and affiliates such      robust Philippine economic growth in
portfolio, and contributed significantly to      as leasing, insurance, consumer finance,      2004 at the 15-year high of 6.1%, from
the growth of the Bank’s CASA accounts           trust, and cash management, the Group         the previous year’s 4.7%. The Treasury
via a double-digit increase over its 2003        was able to provide not only the              group expanded market reach and derived
YTD figures.                                     traditional banking product requirements,     greater non-proprietary income.
     To further fuel the growth of the SME       but also other financing options and          Consequently, it was again able to
sector, and to sustain its momentum in           services. In 2004, a new product launched     significantly contribute to the overall
this market segment, the Division will           to further capture trade transactions was     income of Equitable PCI Bank in 2004.
focus on its banner product, Credit On           well received by customers, in particular          The Treasury Marketing Division
Hand. It will likewise leverage the Bank’s       those in the distribution business.           maintained its focus on the expansion of
various distribution channels to expand its           By the end of the year, amidst strong    client base, product offering, and market
reach, and will continue to enhance its          competition from local peer banks,            reach. It intensified sales of investment
operational capabilities to position itself as   Commercial Banking continued to exhibit       and hedging products to clients through
the “Bank of Choice” among the                   growth in all aspects, particularly: loan     the support of the Bank’s distribution
country’s small and medium enterprises.          portfolio; deposits; placements; and trade.   network. It continued to widen its
                                                      Even as the Group aimed for better       presence in chosen markets through the
Commercial Banking                               market coverage, to ensure loan portfolio     operation of Treasury Desk Offices located
Commercial Banking in 2004 continued to          quality and to maintain low loan              in strategic areas aimed at bringing
pursue programs to enhance its foothold          delinquency ratio, it constantly              Treasury closer to its customers. Treasury
in the middle market and entrepreneurial         endeavored to take on a selective lending     Marketing likewise continued to pursue
segment. With dedicated business centers         stance. Marginal accounts in terms of         the development of high-level professional
in key areas in Metro Manila as well as in       credit worthiness were phased out, and        competence and technical skills in selling
Luzon, Visayas and Mindanao, the Group’s         smaller accounts were transferred to          Fixed Income, Currency and Derivative
geographical dispersion enabled it to            Small Business Division, in keeping with      products.
better address the needs of clients within       the Bank’s overall strategy. Providing             The Trading division which has been
stratified demographics.                         the groundwork for such undertakings,         spun off into three major divisions,
     As part of its continuing efforts to        the Group continued to implement              namely, Domestic Fixed Income Trading,
reach out to customers, it established           training programs designed to address         Foreign Fixed Income Trading and Foreign
additional business units in Luzon in 2004.      technical, product knowledge, and             Exchange Trading focused on key markets
Capitalizing on the extensive branch             managerial skills.                            for multi-currency fixed income, foreign

                                                                                                     2 0 0 4   A N N U A L   R E P O RT   13

                             THERE IS ALWAYS ROOM FOR GROWTH AT
                                    EQUITABLE PCI BANK. THE SURGE IN
                            CONSUMER LOANS ALLOWED THE BANK TO
                              ACHIEVE ITS HIGHEST PROFIT POSTING IN
                               FOUR YEARS. DRIVEN BY STRONG RETAIL
                                 BANKING GROWTH AND HIGHER FEES,
                           PROFITS WENT UP BY 39% SHOWING GREAT
                                  PERFORMANCE IMPROVEMENT WHILE
                                   REFLECTING THE BANK’S SUCCESS IN
                                        RESPONDING TO CLIENTS’ LOAN
                                     EASY AND ACCESSIBLE SOLUTIONS.

14 E Q U I T A B L E P C I B A N K
exchange and derivatives. The Foreign          rate and foreign exchange risks. It           Trust Banking
Fixed Income Trading desk was able to          efficiently took advantage of the             As the needs of Filipino investors evolve
significantly improve interest differential    Unibank’s various licenses to enable          to a more sophisticated state, people have
income from the excess FCDU liquidity of       it to reduce intermediation costs.            grown to rely on professional fund
the Unibank, amid relatively low demand             The Product, Technology and              management to preserve their assets and
for FCDU loans. Furthermore, it utilized       Information Division enhanced straight-       explore investment possibilities. Equitable
yield-enhancing outlets, credit                through processing for Treasury               PCI Bank has undoubtedly become a
diversification instruments, and other         transactions, including improvements          preferred wealth building partner of
innovative global investment products.         on the foreign exchange transaction           individual as well as institutional investors.
     The Trading Divisions continued to be     process. Significant cost savings were        This became even more evident when the
dominant players in their respective fields.   realized for the Group, especially on         Trust Banking Group surpassed the 100
Constantly vigilant of market                  recurring expenses. The OPICS Treasury        billion peso mark in total assets.
developments and trends, these divisions       system was upgraded to the most                     Asserting its strength and
carried out strategies and took advantage      current version and made more                 formidability in the industry, the Trust
of market opportunities. As a                  compliant to the rest of the Unibank’s        Banking Group grew its Personal Trust
manifestation to their remarkable              systems. Market analysis/forecasts and        business by 25% in volume. Corporate
performance, several citations were            other market-moving information               Trust ended the year with a 22% increase
received during the year. The Bureau of        that identified opportunities in the          in managed assets. Income from Stock
Treasury again named the Bank as one of        financial markets were constantly             Transfer and Settlements swelled 38%
the top 5 best performing Government           made available and responsive to              from 2003.
Securities Eligible Dealers (GSEDs) for        the requirements of the Unibank                     Beyond the growing fund sizes, the
2004, a distinction that the Bank has          and clients.                                  asset managers of Equitable PCI Bank
enjoyed for the past several years. It has          The Correspondent Banking Division       maintain steady focus on market
likewise been consistently included in the     pushed the development of business            opportunities to increase the value of the
Bangko Sentral ng Pilipinas’ (BSP) list of     relationships with various counterparty       investments they manage. Their
the most active banks in the Philippine        banks and has been instrumental in            exemplary fund management ability was
Dealing System (PDS). In addition, in a        generating additional trade and non-trade     confirmed as the Equity Portfolio Fund
survey conducted among foreign currency        lines for the bank.                           posted a year-on-year return of 37.1% in
bond dealers by the Asset, a well-                  Well positioned to take advantage of     2004, beating the benchmark Philippine
regarded Asian finance magazine, one of        market opportunities in the coming year,      Stock Exchange index of 26.4%. It
the Group’s senior dealers was cited for       the Treasury group will continue to be a      marked number one in terms of returns,
the second consecutive year as one of the      significant contributor to the income of      and surpassed all other rival funds in its
most astute global bond investors.             Equitable PCI Bank through increasing         class in the trust and mutual fund industry
     The Unibank Fund Management               presence in strategic markets, tapping        in 2004.
Division concentrated on sound                 global markets for proprietary and non-             Trust’s banner product, Prime Life
asset/liability management covering the        proprietary Treasury products, greater        Investment, gave medium term clients
bank and all its subsidiaries. Through the     harnessing of electronic delivery channels,   good premium over the bellwether 91-
ALCO process, it spearheaded initiatives       maximizing the use of international           day treasury bills. Long-term investors in
aimed at generating liquidity for the          licenses and capabilities, improving risk     the Epic, Coral and Jade Funds benefited
Unibank, minimizing cost of funding,           management capabilities, and continue to      from higher returns and periodic liquidity,
maximizing returns on excess funds and         upgrade human resource knowledge and          on top of the tax privileges under the
managing exposures to liquidity, interest      skills.                                       Comprehensive Tax Reform Law.

                                                                                                   2 0 0 4   A N N U A L   R E P O RT   15

     The diversified portfolios of employee        Treasury Support & Operations             of Credits (LC) for select clients, with
benefit trusts outperformed market            Department implemented the Delivery            convenient benefits of a template, ability
benchmarks, proving worthiness of             Versus Payment Facility. This new facility     to store data of applications, eliminate
Watson Wyatt’s 2004 survey result which       connected the Bureau of Treasury’s             need of requesting for forms and manual
showed Equitable PCI Bank as the best         Registry of Scripless GS Securities with the   typing, and prompt dispatch of LC details
fund manager with the highest returns for     Bangko Sentral’s Philippine Payments and       via email for the Bank’s immediate
full discretion retirement funds in the       Settlement System via Real Time Gross          receipt, while hard copy is submitted
country in 2004.                              Settlement System to achieve a real time,      soon after.
     Trust Banking welcomes 2005 with         final and irrevocable Delivery Versus               Tests & Cables Department
greater vitality. Recognizing the immense     Payment (DVP) settlement for government        implemented the required SWIFT
opportunity in the latest regulatory          securities traded in the secondary market.     communications systems upgrades for its
policies on collective investments, the       This facility enhanced the bank’s              servers ensuring compliance with
Group launched its Unit Investment Funds.     settlement risk by providing a more secure     mandated changes. Deposit Accounts
It aggressively seeks new collateral          and efficient settlement of government         Reconciliation Department in 2004 was
trusteeship and transfer agency business      securities transactions.                       cited by the Bank management for its
of corporate accounts to take advantage            Clearing and Settlement                   successful use of information technology
of a more active debt and capital market.     Department continued to improve its            in its “paperless” reconciliation resulting
Asset management products will be             backroom support for the Retail Banking        to substantial cost savings and faster turn
reinvented to meet demands of the             Group and other Head Office units. It          around times.
changing times. The market can look           successfully integrated the local clearing          The Information Technology
forward to simple and efficient ways of       of seven (7) key regions (i.e., Cebu,          Group’s (IT) major focus in 2004 was
investing their hard-earned money. In the     Dagupan, Bacolod, Iloilo, Davao, Cagayan       mainly on the automation projects related
coming year, Trust Banking is certain to      De Oro & Zamboanga) into the Electronic        to strengthening the Bank’s knowledge of
work smarter to be Your Bank of Choice.       Check Clearing System operations of the        its relationship with existing clients in
                                              Philippine Clearing House Corporation.         terms of portfolio and product availments.
Operations                                    The move facilitated the availability of       The Customer Focused Intelligence
The Operations Group provides information     funds and clearing of checks in these          Datamart and Customer Segmentation
technology, business systems, transaction     areas from 7 to 3 days, and allowed the        initiative of the Retail Banking Group
backoffice production, and facilities         Bank to further maximize the benefits of       allowed for statistical matching of
management support to the Bank.               centralized operations in the areas of         customers, operational validation,
    In the Transaction Processing             inward check processing, check                 customer segmentation, and predictive
Division, Cash Operations                     verification and bank statement rendition.     analysis. The Client Profitability
Department’s Grace Park Cash Hub was               In the Loans & Discounts                  Analysis Report, on the other hand,
opened in June 2004 to service Branches       Department, major work focused on              showed the profitability of its client
and deposit pick up for clients. In the       providing the backroom support for the         relationship by providing information
Visayas and Mindanao, Cashiering              bank’s growing loan portfolio. Improved        relating to the client’s assets, liabilities,
Services Center expanded its FASTWrite        manpower productivity enabled the              and net interest margin.
service coverage in Gen. Santos, Davao        department to handle a 32% increase in              Automation efforts directly benefiting
and Bacolod. Offering this check cutting      loan transaction volume.                       clients were implemented under the
service in these areas created the                 In the Trade Services Department,         Megalink Inter-Bank Fund Transfer
opportunity to deliver this product to        major enhancements to improve service          facility, which allows account holders to
more high profile corporate clients.          delivery allowed the use of Master Letter      transfer funds to other banks within the

16 E Q U I T A B L E P C I B A N K

                                   2 0 0 4   A N N U A L   R E P O RT   17

Megalink consortium. Similarly, it               implementing the Online Bidding              of recording transactions/movements
delivered the Pay Anywhere system that           System, an electronic bidding system for     within the Branch. Central Administration
allows beneficiaries to claim their              service providers of bank items, the Fax     Division, together with IT & BSD,
remittances from any Equitable PCI Bank          Server Project which allows branches and     developed and launched the Onsite
branch.                                          head office units to send fax messages via   eBidding System in June 2004. The
     To assist evaluation of a client’s credit   Lotus Notes, the messaging facility of the   implementation of the system is used in
rating, IT implemented the Moody’s Risk          Bank. And the Control-D Web Access           bidding out purchases of various
Advisor and the Consumer Finance                 Facility which lets users view mainframe     stationeries and office supplies, and other
Credit Scoring projects. The Moody’s Risk        reports remotely, using an available         services. Aside from heightened
Advisor is a knowledge base system which         browser in desktops at an improved           effectiveness in ensuring a fair and
processes the subjective and objective           response time.                               transparent bidding process, Bank
information that provides an overall                  Business Systems Division (BSD)         suppliers welcomed its use and became
evaluation of the borrower’s operating           focused on providing critical support for    more competitive. Central Administration
condition and financial strength while the       the various initiatives of the Bank’s        continued to provide the necessary
Consumer Finance Credit Scoring System           Transformation Express Program. It           support in the planning and relocation of
evaluates the credit performance of clients      spearheaded major projects on the            15 branches nationwide.
with automobile and mortgage loans.              operations review of bank marketing and           Another of the most significant
     Significant improvements in the             support units and select subsidiaries,       projects implemented by the Operations
processing of Equitable Card Network             business process outsourcing studies for     Group in 2004, in line with the
(ECN) transactions were likewise realized        non-core banking functions, and the          Transformation Program of the Bank, was
with the implementation of ECN Batch             MIS/RM project of the Bank. Benefits of      the outsourcing of non-core functions
Processing Streamlining, Control D-              such projects were realized in the form of   presently handled by Central
Print on Demand, and ECLink Auto-                improved productivity and operational        Administration. Initial coverage included
Debit Facility. The first two allowed for        efficiency leading to an improved            the armored car servicing and the service
faster completion of reports needed by           customer service as a result of reduced      vehicles. These two outsourcing projects
ECN on a daily basis, while the latter           turnaround time, cost savings,               translated to substantial capital
introduced an online posting facility for        identification of additional revenue         expenditure avoidance and additional
faster debit on client accounts. Facilities      opportunities, and improved control and      cash flows.
that provide services to employees were          decision support systems.
similarly enhanced with the availability of           The Central Administration              Credit, Products And Subsidiaries
the Loan Balances Module and                     Division, which provides facilities          Group
Provident Fund Contribution and                  management support for the Bank,             In 2004, Credit, Products and Subsidiaries
Earnings in the web-based Employee               continued in 2004 its various energy         Group achieved several milestones as the
Self-Service System. These reduced the           conservation program. The Building           business units under it namely: Special
manual handling of voluminous inquiries,         Administration Department implemented        Lending Department, Credit Policy
thus enabling the supporting unit to             the delamping program for the Bank’s         Supervision, and other subsidiaries and
divert efforts in more pertinent functions.      Tower II building. With the change to a      affiliates such as EBC Insurance
     While dynamically supporting the            more efficient lighting system, the          Brokerage, Inc. and Maxicare surpassed
technical requirements of the Bank’s             program is expected to generate              their business goals and objectives and
business operations and management               substantial savings. The CCTV Project,       posted double-digit growth.
initiatives, IT actively pursued the paper       piloted in 2003 and fully implemented in           Special Lending marked the year
reduction initiative of the Bank,                2004, provided the added security benefit    with an impressive performance as it

18 E Q U I T A B L E P C I B A N K
exceeded its loan bookings target by
more than 25% and bested its peer banks     SPECIAL           shipping and services. It will continue to
                                                              provide wide array if financial services to
when it garnered six (6) citations from     LENDING           clients to finance their working capital as
various institutions for its exemplary
achievement in supporting investment
                                            MARKED THE        well as medium and long-term capital

enterprises in the countryside and in       YEAR WITH AN      requirements. The Bank will also sustain its
                                                              active role in the delivery of credit and in
assisting the growth of industries,         IMPRESSIVE        creating opportunities for investments in
community and the economy.
     The Bank succeeded in winning three
                                            PERFORMANCE       the countryside.

awards including the overall category       AS IT EXCEEDED         Maxicare Health Corp, (Maxicare)
                                                              sustained its position as one of the
from the Land Bank of the Philippines       ITS LOAN          country’s premier HMOs with more than
(LBP) which was considered a sweep. For
two consecutive years, LBP cited the Bank
                                            BOOKINGS          278,000 members covered and having the

as The Most Outstanding Countryside         TARGET BY         most extensive network of doctors,
                                                              specialists, hospitals and clinics
Partner under the Commercial Banks and      MORE THAN         nationwide.
Government Financial Institutions
Category and The Most Outstanding
                                            25% AND AS IT          In 2004, Maxicare focused its

Countryside Partner for Agri-Agra           BESTED ITS PEER   marketing strategy in the acquisition
                                                              of new customers and organic
Financing. The Bank bagged the third        BANKS.            growth of existing clientele base.
award when it was named as The Most                           This brought in new business and
Active Countryside Partner for                                further improved revenues. Total
Countryside Loan Fund and Agricultural                        membership grew by a record high of
Loan Fund.                                                    38%. Likewise, revenues from existing
     In the same year, the Development                        premium-based business grew more than
Bank of the Philippines also named the                        20% while income from Administrative
Bank as The Most Outstanding                                  Services Only (ASO) business almost
Participating Financial Institution under                     doubled during the year. As a result of
the Japan Bank for International                              improved performance, net income in
Cooperation Facilities for Environmental                      2004 grew by 15%.
Projects. Likewise, the Small Business                             In its effort to further enhance
Guarantee and Finance Corporation                             customer service and health care delivery
cited the Bank as one of the 2004                             system, Maxicare successfully launched a
Distinguished Partners under the                              new web-based information system called
Financing Facilities for Small and                            Flexiclaims. This is an automated system
Medium Enterprises. The Social Security                       that provided improvement in business
System also recognized the Bank as the                        processes such as customer service,
2004 SSS Balikat ng Bayan Best                                underwriting, and processing of medical
Participating Financial Institution for                       services, billings and claims. The new
School Financing.                                             system also allowed the company to
     The Bank has supported various                           better manage its database and operation
industries such as agro-processing,                           and consequently reduce cost of doing
manufacturing, telecommunications,                            business.

                                                                    2 0 0 4   A N N U A L   R E P O RT   19

                                WITH A FINGER ON THE PULSE OF THE
                           MODERN MARKET, EQUITABLE PCI BANK IS
                              THE MTV CREDIT CARD, BILLED AS "THE
                         MOST WANTED CARD IN TOWN", THE BANK
                            IN LINE WITH THE SENSIBILITIES, STYLINGS
                              AND STANDARDS OF CURRENT MARKET

20 E Q U I T A B L E P C I B A N K
     Maxicare has also established a                  The Credit Policy and Support             service, the Division recently launched the
Primary Care Clinic (PCC) in the New             Division (CPSD) provides credit support        Credit Investigation System to further
Medical City in October 2004 to better           in the form of credit investigation and        strengthen its capability in fulfilling its
service its customers. Another PCC was           appraisal services to the Bank’s various       mandate in the area of credit
opened at the Medical Plaza Building in          lending units. The Division is also            investigation. Expected to be fully
January 2005. For 2005, it will open a           responsible for credit risk management         operational in 2005, this system is
PCC in Cebu.                                     which it performs through the formulation      another significant step towards the
     On the other hand, EBC Insurance            of effective credit policies, and the          complete realization of the automation
Brokerage Inc. (EIBI) is one of the top          conduct of credit risk reviews. Given these    blueprint for the whole credit support
ten insurance brokers in the country in          functions, CPSD was given the mandate          services of CPSD.
terms of market share and number six in          to lead the drive towards Basel II                  The Bank’s Credit Appraisal System has
terms of profitability. EIBI is responsible      compliance on credit risk.                     realized the principle of maximizing existing
for servicing the insurance requirements              Appraisal and Credit Investigation        technology to improve work and cost
of the Bank and its clients. It offers a              The drastic reforms that CPS instituted   efficiency. It has become an industry leader
complete range of insurance products             in its support services particularly in the    in this regard as no other major local bank
and services including risk/exposure             area of collateral appraisal enhanced its      is believed to possess this infrastructure.
assessment, insurance packaging, claims          operational capabilities and established a          Credit Risk Review, Reports &
negotiation and settlement.                      long-term support infrastructure for future    Policies
     In 2004, EIBI intensified its sales         growth in the lending portfolio.                    One of the many challenges
campaign by using the Bank’s branch                   The efficient use of technology           confronting banks today is the pending
network to bring in new business. It             including digital imaging equipment            implementation of Basel II which
launched Project i2, a continuing incentive      complemented the Credit Appraisal              advocates a wide array of principles on
referral sales program involving the Bank’s      System which produced significant cost         risk management with the view of making
Retail Banking Group (RBG). Premium and          savings for the bank, improved                 banks more prepared in meeting the risks
commission incomes from the Project i2           turnaround time and increased capacity by      inherent to its business. Recognizing risk
more than doubled during the year from           eliminating inefficiencies caused by           management as a tool for creating
previous year’s level as a result of extensive   manual work, geographical distance and         shareholder value, the Division started
branch referrals nationwide. The Car-a-          lack of monitoring system. The system          setting the foundation for a BASEL II-
Sure and Home-a-Sure were the products           enabled an effective monitoring of             compliant credit risk management
offered under this incentive program.            appraisal workload thus allowing optimal       environment consistent with the overall
     For 2005, EIBI will continue the            use of resources while similarly providing     goal of setting an enterprise-wide risk
successful Project i2 incentive program to       an objective measurement of performance        management infrastructure. The Moody’s
tap the retail clients of the Bank for           for all appraisers and appraisal units.        Risk Advisor system was implemented
insurance products. It will also launch the      Added to this, property data produced in       alongside a revised internal borrower risk
Power of 2 incentive program in                  electronic format by the system facilitated    rating policy. The conversion to the new
collaboration with RBG to sell both life         regulatory reporting as well as greater        rating system that considers both the
and non-life insurance products through          connectivity to other vital electronic         borrowers’ creditworthiness as well as
the Bank’s branch network. EIBI will also        infrastructures largely involving systems      facility structure is consistent with the new
strengthen its Open Market Unit to               used to manage the various risk assets of      BSP circular mandating the use of a risk
expand market share on non-bank                  the Bank.                                      rating system.
referred and open-market type of                      In its continuing journey towards              As effective risk management requires
accounts.                                        greater efficiency and improved customer       credit risk measurements using metrics

                                                                                                      2 0 0 4   A N N U A L   R E P O RT   21

and models, CPS designed and will                Performing Assets (NPA). Although              joint venture undertakings, public
implement the new Central Liability              managing distressed credits continued to       auctions, wholesale asset disposition
System by the third quarter of 2005. The         be the main thrust last year, the Group             As the economy’s overall performance
system is envisioned to provide the data         vigorously worked with a Special Task          remained challenging in 2004, the Group
gathering and storage facility required to       Force to dispose of approximately PHP15.8      once more exceeded its ambitious targets
store historical data in support of future       billion of the Bank and its savings bank       in reducing losses, contributing profits,
initiatives relevant to BASEL II compliance      NPAs to SPV companies, of which —10.5P         and shrinking the Bank’s non-performing
such as risk rating system validation or         billion was negotiated late 2004, and an       loan (NPL) portfolio to below industry
back-testing, development of models on           additional —5.3 billion for early 2005.
                                                              P                                 norms. In addition to the —15.8 billion
Probability of Default, Loss-Given Default             The Group sustained its reputation as    sale of NPAs, the Bank also disposed of
and Exposure-at-Default with the objective       a major force in resuscitating ailing          —1.0 billion of acquired assets through
of quantifying expected and unexpected           industries while churning profits              direct marketing and a series of successful
losses, and risk rating migration tracking.      generated from new business.                   public auctions.
These early initiatives are congruent with             The synergy that the Group’s                  The Bank sees 2005 as the year in
the overall medium to long-term credit           constituents have in achieving its targets     which it will transform viable but still
risk management plan of the Division             can be better appreciated by looking at its    distressed credits back into manageable
which is to enable the estimation of risk-       well-defined mandates and primary              risks while dealing less promising accounts
adjusted return on capital (RAROC) or            responsibilities, which include:               with Asset Management Companies
profitability of transactions or relationships         • Special Projects and Asset Advisory    under the auspices of the SPV Law. It is
factoring in expected loss, cost of capital      Division: debt work-outs; debt for asset       anticipated that the Bank’s NPL ratio will
and risk capital requirements among              swaps, corporate rehabilitation; corporate     be reduced to single digit levels by the
others.                                          finance in the area of export credits          end of this year with incremental business
     Moving forward, the Division shall          accessible from OECD countries for project     to be generated by the Group’s marketing
continue to focus its efforts in developing      finance; syndications.                         team contributing to the bottomline.
the necessary skills and systems that will             Equitable PCI Bank remains one of the
allow it to provide timely and quality           country’s local banks with a focused team      Human Resources
credit support services on a sustained           in the Structured Finance area able to         Equitable PCI Bank employees continue as
basis. It shall put greater priority to          directly access long-term project funding      the Bank’s significant partners for growth.
attaining Basel II compliance and in             from Export Credit Agencies in North           Through the EPCIBank-Human Resources
transitioning to global best practices in        America, Western Europe and Southeast          Division (HRD), programs of culture
credit risk management - all these in the        Asia, including Japan.                         building, personnel development and
pursuit of the Bank’s institutional objective          • Project Development and Joint          employee self-service bolstered employees’
of being the Bank of Choice.                     Ventures Team: the first ever to be            focus on their core functions and
                                                 established in the industry, charged with a    competencies. Noteworthy contributions
Special Projects, Asset Management &             mandate to maximize gains and optimize         to the institution in 2004 include the
Legal Group                                      the use for profit of Bank’s acquired          strengthened employee Rewards and
2004 was a year of transition as the             resources arising from loan to asset swaps.    Recognition programs, as well as the
banking industry focused on taking                     • Legal Services Division: documentary   Internal Customer Satisfaction survey.
advantage of benefits granted by the             audit, crafting of documentation, legal        More importantly, with the successful
Special Purpose Vehicle Act of 2002 (SPV         recoveries, advisory                           signing of the Collective Bargaining
Law) which introduced tax incentives on                • Asset Management and Disposal          Agreement for the 2004-2005 period in
sales and disposals of qualified Non-            Division: direct and indirect asset sales;     May 17, 2004, the Bank further sustained

22 E Q U I T A B L E P C I B A N K

                                   2 0 0 4   A N N UA L   R E P O R T   23

its commitment to its employees by
maintaining harmonious relations             THE GROUP IS        Equitable Card pursued various
                                                            marketing strategies throughout 2004.
between Management and the Union.            NOW            The Card Sales & Marketing - Retail
     HR Service delivery significantly       MANDATED TO    Department, responsible for the card
widened its reach with the expansion
of the Employee Self-Service facility via    HARNESS ITS    issuing business of credit card accounts of
                                                            Equitable Card and other specialty cards
the intranet, with additions of an           CREDIT AND     under the following brands -Visa,
expanded timesheet printing feature,         MARKETING      MasterCard, JCB, and American Express,
the employee loan balances and
provident fund contribution inquiry          RESOURCES BY   likewise handled conceptualization and
                                                            implementation of marketing programs to
facilities, as well as the implementation    MARKETING      boost card usages and loyalty from
of the Travel and Advance Liquidation        NEW BUSINESS   cardholders. Among the usage programs
electronic form.
     Human Resources Division likewise       THROUGH THE    are the internal E-Pay, Balance Transfer
                                                            and Cash in a Flash.
maintained internal efforts to improve its   PROMOTION OF        Despite a very challenging year,
operations by undergoing a review on         NON-           credit card base increased in 2004 by
processes and procedures. Year 2004 saw
HRD upholding endeavors in Job               TRADITIONAL    16%. Branch solicitation efforts resulted
                                                            to an 84% increase. And Equitable
Evaluation, Teambuilding, Officership        BANKING        Card introduced two (2) new products -
Training and Systems Training across the
organization. These programs
                                             PRODUCTS       the MasterCard Travel Card and
                                                            EasyPay JCB.
emphasized the Bank’s approach in                                Last year’s major installment
unifying visionary teams, nurturing job                     campaign, namely, Cash-in-a-Flash and
performance and reinforcing                                 Balance Transfer E-Pay contributed
management potential.                                       significantly to the gross income. More so
                                                            with the launching of MasterCard Travel
Equitable CardNetwork, Inc.                                 Card, volume for the brand considerably
Equitable CardNetwork, Inc. in 2004                         increase by 70%. Meanwhile the strategic
maintained its leadership position in the                   repositioning of the JCB brand as the
country as the foremost payment card                        “people’s card” resulted to a 285%
issuer.                                                     increase in issuing sales.
    With offerings of well-established                           In 2005, Equitable CardNetwork, Inc.
payment and card products, including                        plans to launch more aggressive card
Visa, Visa Electron, MasterCard, JCB and                    acquisition programs and promotions,
American Express and aggressive                             increase E-Pay and retail volume, and
marketing, Equitable Card enjoyed                           pursue further ventures to deliver
continued patronage from its broad and                      innovative card products and enhance
growing cardholder base.                                    customer service.

24 E Q U I T A B L E P C I B A N K
PCI Capital Corporation                       Assets and Return on Equity both              from the Philippine Rating Services
PCI Capital Corporation is the investment     registered at 9% for the year.                Corporation (PhilRatings) . This
banking arm of the Equitable PCI Bank             In the coming year, PCI Capital will      represents the “Best Grade” and the
Group which focuses on providing              continue its thrusts into the equities and    strongest capability for the timely
clients with a wide array of capital          fixed income markets-a thriving market        payment of the STCP issue for both
market products such as equity and            segment amidst political and economic         principal and interest.
debt underwriting, dollar and peso loan       uncertainties-to ensure its customer base a        PCI Leasing’s Operating Units, in their
syndication, project finance, private         steady stream of optimal financing            effort to ensure optimum quality services
equity, trading and brokering of              structures and quality investment             to its customers, further intensified
financial assets, and financial advisory      opportunities.                                efforts to maximize productivity, heighten
services.                                                                                   efficiency, and beef up work systems.
      In 2004, PCI Capital continued to       PCI Leasing & Finance, Inc.                   Foremost of its initiatives include the
show its market prowess in the midst of       In 2004, PCI Leasing continued to             constant system upgrades and
weak economic and political conditions.       manifest strength and resiliency. It          enhancements to be at par with
It has led or participated in the             achieved an exceptional growth of 37% in      technology standards. Initiatives to
consummation of major financial               net income and 45% in loan portfolio -        develop the working environment were
transactions last year involving over —11.4
                                       P      fortifying its leadership in the industry,    also given priority.
billion in debt, quasi-equity, and advisory   considerably far from its competitors.             The Productivity Improvement
transactions.                                      PCI Leasing achieved a defined           Committee, consistent with its objective
      PCI Capital acted as: Issue Manager     market focus and increased market             of continuous involvement in various
and Lead Underwriter for the —2.0 billion
                                 P            presence, as it posted robust increase in     cost rationalization projects, again
2-tranche preferred share issue of JG         loan portfolio. The growth in loan            managed to implement various
Summit Holdings; Lead Underwriter for         portfolio focused on high credit quality      productivity-related procedures which
the —500 million Pasay Kaunlaran, —315
     P                                P       risk assets with emphasis on strong           resulted to a savings of 7% in operating
million Onward Tacloban, and —150 P           markets and diversification of portfolio      expenses.
million Carmona municipal bond offers;        into higher margin-income generating               These achievements in 2004, wherein
Joint Issue Manager for the —3.0 billion
                               P              opportunities, thus maximizing earnings       each unit performed and took action in
corporate note of Unilever Philippines and    potential at far lesser risk. Aggressive      meeting specific targets, has further
—2.0 billion fixed bond offer of Ayala
P                                             efforts and strategies at product             equipped PCI Leasing for 2005 in
Corporation; Arranger of the —470 million
                                 P            innovation also capped milestone              continuously improving its customer
corporate note issue of Rockwell Land;        developments - maintaining its market         orientation, which will allow the company
Co-Lead Underwriter for the —1.8 billion
                                P             dominance.                                    to maintain its leadership in the industry.
preferred share issue of Aboitiz Equity            Through prudent management, PCI
Ventures; Selling Agent to the —365
                                  P           Leasing continued to have the largest             .
million Ayala Land bond offer; and            approved ceiling for short-term
Financial Advisor to a major telecom          commercial papers (STCP) in the
company.                                      financing industry. It received the highest
      In 2004, PCI Capital’s Return on        rating of PRS 1 for its 500 million STCP

                                                                                                    2 0 0 4   A N N UA L   R E P O R T   25

E    quitable PCI Bank continues to adhere
     to its long standing commitment to
corporate citizenship and national
                                                  The Bank’s Corporate Communi-
                                             cations Division likewise sustains a year-
                                             long round of projects and tie-ups
                                                                                               • Philippine Business for Social
                                                                                          Progress. Equitable PCI Bank is member
                                                                                          of PBSP, a private and non-profit
development.                                 involving donations, charity work, and       foundation dedicated to promoting the
     In 2004, the Bank continued to          community relations. Among these in          business sector’s commitment to social
demonstrate this corporate responsibility    2004 were:                                   development. Established in 1970, PBSP
by embarking and supporting various               • Tulong Para Sa Luzon. An internal     has since grown to become the nation’s
socio-civic programs as well as              donation drive to help raise funds for       largest business-led social development
environmental and educational projects.      the victims of the severe flooding of        foundation.
     Through the Equitable Bank              Central Luzon. The drive yielded                  • Habitat for Humanity. Equitable
Foundation, Inc., which was established      sacks of rice, noodles, sardines,            PCI Bank was a partner of Habitat for
in 1974 by founder Go Kim Pah, the Bank      canned meat, sugar, coffee, milk,            Humanity Philippines Foundation Inc. in
has provided scholarships to more than       blankets, mats, crackers, detergent,         building houses at BASECO, a depressed
four hundred students who exemplified        clothings, and other items which were        community near the piers of Manila.
leadership qualities and outstanding         distributed by employees of the Bank in           • Philippine Chinese Charitable
academic aptitude. The Go Kim Pah            the affected areas. Tulong Para Sa Luzon     Association. Upholds socio-civic
scholarship program has allowed many         has embarked on four relief missions,        responsibilities through aid relief and
deserving Filipino youths to attend the      twice each in the provinces of Pampanga      medical missions in times of calamities.
country’s top-tier universities and          and Nueva Ecija and the fifth will be        Equitable PCI Bank is one of the
vocational schools; enabling them to         the province of Quezon as the next           Association’s various sponsors.
finish undergraduate, non-degree,            mission.                                          • Hope for the Handicapped of the
vocational and graduate studies.                  • Ten Outstanding Young Men             Philippines Inc. A non-profit organization
However, the graduate studies program is     (TOYM). TOYM is a landmark program of        that was created to assist our less
only open to all Equitable PCI Bank          the Philippine Jaycees. The Bank has         fortunate brothers who have suffered
employees, both officers and staff, who      supported this worthwhile project which      from stroke, have cerebral palsy and other
wish to pursue post-graduate studies at      recognizes outstanding achievements of       deformities.
any of the Foundation’s accredited           individuals in their chosen field of              • Gift Giving Sa Makati. A yearly
schools.                                     expertise.                                   Christmas gift giving effort of the Bank to
     And on the occasion of Go Kim Pah’s          • Children’s Hour. A global fund        the less-fortunate sector of Makati City.
21st death anniversary, the Foundation       raising campaign calling on individuals      Pails of assorted goods are given away to
launched the Go Kim Pah High School          and companies to donate an hour of           hundreds of residents every year since
Scholarship Program last October for         their earnings to help fund programs         1997.
academically deserving but economically      committed to the welfare and
deprived high school freshmen students       development of children and youth. In
commencing School Year 2005-2006 until       2004, Equitable PCI Bank launched an
the grantees finished their high school.     internal campaign which raised money
The accredited schools are St. Jude          for Children’s Hour Philippines.
Catholic School, Chiang Kai Shek College,         • Namfrel-Bantay Ng Bayan
UNO High School, Manila Patriotic High       Foundation. Financial assistance to
School, Philippine Cultural High School      Namfrel in support of the advocacy for
and Philippine Tiong Se Academy.             clean, honest, and orderly elections.

26 E Q U I T A B L E P C I B A N K

T    he Philippine economy expanded at
     its fastest rate in 15 years in 2004
with real gross domestic product (GDP)
                                                   The industrial sector grew 5.2% last
                                              year from 3.8% in 2003, on the back of
                                              the strong recovery in construction
                                                                                          East Asia after Indonesia, but ahead of
                                                                                          Singapore and Japan. Political stability
                                                                                          following the May elections, the BSP’s
growing by 6.1% from 4.7% in 2003;            (+7.4%) and the growth in                   neutral monetary stance, and increased
gross national product (GNP) was up by        manufacturing (+5.1%), the latter           economic activity upheld the positive
6.2% from 5.6%. Robust private                gaining from a brisk global trading         market sentiment. Telecommunications,
consumption and export gains propelled        environment. Meanwhile, generally           banks, property, and mining sectors led
the economy last year. Election spending      favorable weather conditions and            the market’s bullish performance.
and the continual rise in overseas Filipino   government support enabled the farm              In 2004, the country hurdled its
workers (OFW) remittances drove               sector to grow by 5.1% last year from       biggest challenge of achieving political
household spending to a record 5.8%.          3.8% in 2003.                               stability with the assumption of Gloria
OFW remittances last year grew by 12%              Higher global crude oil prices and     M. Arroyo as President of the Philippines.
to $8.5 billion. The faster global pace       supply shortages due to the strong          This brought back confidence into the
(led by US and China) and the rebound         typhoons that hit the country in the        economy, abetted by the Supreme
in the technology sector buttressed the       latter part of the year pushed up the       Court’s favorable decision on the mining
14.1% expansion in exports, while             average inflation rate to 6.1% from         law and the passage of the sin tax and
increased economic activity pushed            3.5% in 2003. Rising inflation and          the lateral attrition laws late last year.
imports up by almost 6.0%.                    concerns over a “fiscal crisis” drove the   These positive developments created a
     A more broad-based expansion of          benchmark 91-day Treasury Bill rate         favorable environment going into 2005,
the production sectors was noted last         higher, averaging at 7.34% for the year     with the government’s efforts at fiscal
year. The services sector remained the        from 6.0% in 2003. Heightened political     consolidation (Expanded VAT law, power
major growth driver on the output side,       uncertainties leading to the May            sector reforms, etc.) seen to bring in
with a record high 7.1% increase in 2004      elections, increased import requirements    gains over the long-term, despite some
from 5.8% the year-before. The steady         on account of rising economic activity,     short-run adjustments. Despite high
growth of call centers and stable demand      and higher oil prices pushed the peso       inflation and US interest rate hikes,
for wireless communication services           lower versus the dollar to —56.18 by
                                                                          P               monetary authorities have been prudent
continued to fuel the communications          end-2004. The average peso-dollar rate      in raising its key interest rates (by 25
services (+15.6%), even as the real estate    for the year was —56.0 from —54.20 in
                                                                 P            P           basis points in April this year), taking
and property sector benefited from the        2003.                                       note of the existing slack in the
robust demand for office spaces/buildings          The government beat general            economy. While an expected global
from business process outsourcing (BPO)       expectations by posting a budget deficit    economic slowdown and a more difficult
activities. The residential property sector   lower than the —198 billion target as
                                                               P                          operating environment are seen limiting
also got a boost from increased migrant       well as the —200 billion deficit in 2003.
                                                           P                              growth prospects in 2005, the country’s
remittances, as spending spilled over into    The actual deficit last year stood at       resiliency, supported by structural reform
higher value items, notably medium-cost       —187 billion, or 3.8% of GDP, also the
                                              P                                           measures in vital areas such as banking,
housing. Retail trade and private services    lowest in five years.                       fiscal, trade and investments, capital
gained from election-related spending              Meanwhile, the Philippine composite    markets, and corporate governance,
and remittance inflows, while broadened       index ended the year at 1,822.80, or        should enable it to withstand these
economic activity supported the growth        26.4% (380.40 points) higher than the       temporary shocks.
in the finance sector (which includes         2003 level. The Philippines emerged as
banks).                                       the second best performing market in

                                                                                               2 0 0 4   A N N UA L   R E P O R T   27

         ANTONIO L. GO                      JOHN C.B. GO            MA. CORAZON S. DE LA PAZ   FERDINAND MARTIN G.
           Chairman                         Vice Chairman                Vice Chairperson           ROMUALDEZ
                                                                                                   Vice Chairman

       President & Director          Director & Chairman Emeritus          Director                   Director

           Director                           Director                      Director                 Director

28 E Q U I T A B L E P C I B A N K
                                             ADVISORY BOARD

    Director                Director            ANDRES L. SORIANO III                TEODORO P. REGINO
                                                     Member                              Member

                                                 RICARDO C. LEONG                    MIGUEL E. ROCA, JR
                                                      Member                             Member
     Director          GSIS Representative

                                                    FRANK L. GO                      JONATHAN C.B. GO
                                                      Member                             Member

Corporate Secretary

                                                                        2 0 0 4   A N N UA L   R E P O R T   29

                                                            RENE J. BUENAVENTURA
                                                                 President & CEO

Senior Exec. Vice President     Executive Vice President      Executive Vice President     Executive Vice President      Executive Vice President

 Executive Vice President        Executive Vice President     Executive Vice President     Executive Vice President       Senior Vice President

                               JONATHAN C.B. GO               REBECCA S. TORRES          MA. ROSANNA L. TESTA
                                 Senior Vice President         Senior Vice President            Vice President

CHAIRMAN                             Virgilio C. Pamatmat        Joy T. Yap                     Francisco Vicente O. Hilario
Antonio L. Go                        Jose Alfredo G. Pascual     Antonio C. Yniguez             Agnes F. Jamias
                                     Raul Martin A. Pedro        Aimee A. Yu                    Marietta M. Jamilla
PRESIDENT & CEO                      Domingo A. Ramos Jr.        Alice C. Yu                    Armando P. Jardeleza
Rene J. Buenaventura                 Ma. Theresa S. Simbul       Margaret L. Yu                 Tomas K. Javier
                                     Virginia N. Sy                                             Simeon S. Jumaquio
SENIOR EXECUTIVE VICE                Edwin R. Tajanlangit        ASSISTANT VICE PRESIDENTS      Rafael Martin C. Lara
PRESIDENT                                                        Kara Q. Abrogar                Michelette S. Legaspi
Walter C. Wassmer                    VICE PRESIDENTS             Jose Emilio M. Alcalde         Lilian Leslie T. Lim
                                     Belinda C. Abad             Melissa A. Alcantara           Alberto V. Lizares
EXECUTIVE VICE PRESIDENTS            Jocelyn D. Agas             Rogelio C. Alcantara           Vicente T. Lopez
Gerard Lee B. Co                     Regina Flor V. Alba         Edgardo L. Alcaraz             Gertrudes J. Lumain
Antonio N. Cotoco                    Mary Jane V. Ang            Ma. Milagros R. Alindogan      Nelia R. Lumanog
Nilo T. Divina, General Counsel      Pedro C. Bautista Jr.       Susan G. Almendral             Joseph Gerard E. Mabilog
Bienvenido M. Juat, Jr., Treasurer   Jose Luis F. Bautista       Apollo R. Alquiza              Vivian D. Malonjao
Eduardo J. Katigbak, Jr.             Bernard M. Carague          Leticia L. Ang Ley             Rebecca C. Marcelo
Ricardo V. Martin, Chief Financial   Aurora M. Castro            Elpidio R. Angeles, Jr.        Ariel T. Melo
  Controller                         Leticia T. Chua             Ma. Ophelia R. Angeles         Maria Socorro P. Meñez
Dennis B. Velasquez                  Milagros K. Chua            Maria Carina S. Antonio        Vicente L. Miciano, Jr.
Aristotle L. Villaraza               Peter D. Clemente           Apolinario E. Aquino           Dalisay S. Molas
                                     Elizabeth E. Coronel        Ma. Crizelda T. Arambulo       Mary Ann R. Munar
SENIOR VICE PRESIDENTS               Edna Christine P. Cruz      Ronald C. Arceo                Ma. Christina T. Nakanishi
Ursula A. Alano, Deputy Treasurer    Noel D. Dizon               Aldamuel S. Armonio            Pacifico A. Nieva, Jr.
Shirley S. Ang                       George R. Dosado            Susan Marie J. Atienza         Josefa P. Ortiz
Manolo C. Arzadon                    Lamberto B. Del Fonso Jr.   Jerome I. Austria              Rebecca C. Paguia
Ramon S. David                       Alexander G. Francisco      Chona M. Azucena               Arnaldo Emerito E. Palad
Marvin V. Fausto, Trust Officer      Patrick Warren D. Go        Janet B. Bagnes                Susan D. Pastor
Jonathan C.B. Go                     Genevieve W.J. Go           Regina Anne S. Basilio         Jocelyn T. Paz
Jeanette S. Javellana                Judy L. Go                  Francisco D. Bacierto Jr.      Cyrus M. Polloso
Annie H. Ngo                         Francisco Javier E. Jose    Gerardo I. Banzon              Donald E. Quintana
Jose Pastor Z. Puno                  David Kan Tat Yan           Marites A. Bautista            Hernando T. Rasco
Ricardo V. Reynoso, Jr.              Jennie F. Lansang           Rodora V. Bautista             Edmund A. Reyes
Arsenio L. Severino                  Cesar F. Lazo               Edgardo F. Blanco              Evangeline P. Reyes
Richard Benedict S. So               Estela L. Lim               Evangeline G. Borja            Joseph Nestor T. Reyes
Grace A. Sumalpong                   Maurice D. Lim              Ramon B. Borja                 Roberto H. Reyes
Robert W. Sy                         Roy Allan V. Magturo        Maria Eleanor B. Briones       Antonio D. Rona
Rebecca S. Torres, Chief of Staff    Angelita C. Manulat         Carlos L. Buenaventura         Ronald C. Rosales
Edward G. Wenceslao                  Cecilia C. Maravilla        Julius O. Buendia              Maria Rosario L. Salazar
Ma. Susana L. Yap                    Felix A. Martin             Benilda G. Cabardo             Emily D. Samoy
                                     Jessie A. Matibag           Victor Geronimo S. Calo        Arsenia S. Santos
FIRST VICE PRESIDENTS                Ergilio S. Ong              Cheryl A. Capili               Maria Lourdes T. Santos
Gerard M. Aguirre                    Neliza Ma. R. Oñate         Ma. Corazon N. Casanova        Joel Jovencio E. Sarreal
Maritess B. Antonio                  Ma. Bella C. Paguiligan     Veronica T. Chan Go            Ma. Corazon D. Simbulan
Victor C. Arboleda                   Ma. Aurora G. Panopio       Mary Assumpta Gail S.          Ronaldo D. Soriano
Onofre D. Avellanosa                 Grace Socorro V. Peczon        Chanyungco                  Grace C. Tan
Marcelo E. Ayes                      Flor Melissa Po-Artillaga   Christine T. Chow              Marites L. Tan
Rita V. Buendia                      Romeo J. Pulido, Jr.        Maria Clara D. Chua            Marilyn G. Tin
Ma. Evangeline A. Buhay              Victorina S. Ros            Riasa A. Chua                  Ma. Rosita J. Tinio
Antonina M. Cabuyadao                William U. Rosario          Salva Fe S. Cirilos            Margarita M. Tobias
Marilou L. Cesario                   Ma. Reymunda Carmen B.      Joselito B. Cobarrubias        Lourdes S. Turno
Susie S. Cham                           Sadang                   Raul B. Cruz                   Blandina Uvyhilda B. Vicente
Rolando D. Esguerra                  Cerwina Elenore A. Santos   Rosanna F. De Vera             Glicerio C. Vicente
Paul A. Evora III                    Rolando S. Santos           Salustiano B. Dela Cruz        Luzviminda M. Vidal
Belinda C. Fernandez                 Gregorio C. Severino        Rolando L. Dillague            Raul B. Vivas
Lesmes L. Garate                     Celia D. Sotto              Zosimo C. Dimacuha             Adora A. Yanga
Renato S. Gongora                    Alejandro R. Sumayao        Albert G. Dizon                Noel Z. Yuseco
Myrianne Joan D. Gonzales            Antonio U. Tan              Ma. Lirio E. Du                Paulino L. Yusi
Nenita C. Indiongco                  Divina N. Tan               Ma. Fe H. Dy
Ma. Elena L. Jao                     Richard R. Tan              Joel M. Escala                 EXECUTIVE LEGAL ADVISER
Ma. Cecilia G. Lantin                Ma. Rosanna L. Testa        Samuel C. Esguerra             Manuel D. Curato
Lilia E. Lising                      Soledad S. Tolentino        Elizabeth G. Estrada
Emerenciana H. Luistro               Don Elecci B. Torno         Joel Rizaldy G. Flor           EXECUTIVE ADVISER FOR
Alan David L. Matutina               Benjamin B. Turno           Madelyn V. Fontanilla          CORPORATE PLANNING
Merceditas P. Montesclaros           Gary A. Vargas              Dominador J. Francisco         Clarissa Emerita G. Ocampo
Jose G. Nuguid                       Francisco B. Vista, Jr.     Marcelita I. Geollegue
Maria Rhoda B. Orsolino              Rosola A. Vivas             Rommel S. Gomez

                                                                                             2 0 0 4   A N N UA L   R E P O R T   31
S E N I O R O F F I C E R S S U B S I D I A R I E S & A F F I L I AT E S

President                                Chairman                                    President & CEO
ANTONIO L. GO                            BIENVENIDO M. JUAT, JR.                     MANOLO C. ARZADON

Office of the President                  Directors                                   First Vice Presidents
ANTHONY F. CONWAY                        URSULA A. ALANO                             ROBERTO E. LAPID
                                         BELINDA C. FERNANDEZ                        VICENTE C. RALLOS
Senior Executive Vice President
EUGENIO K. HERNANDO                      Treasurer                                   Vice Presidents
                                         RENATO G. OÑATE                             MARLO R. CRUZ
Senior Vice President & Treasurer                                                    CONSTANTE C. LAPUZ
First Vice Presidents                                                                Assistant Vice Presidents
                                         RENE J. BUENAVENTURA
TERESITA T. TANBONLIONG                                                              ROSARIO C. CRISOSTOMO
MARILI M. TIOSECO                                                                    BEATRIZ ALICIA T. SANCHEZ
                                         MAXICARE HEALTHCARE
                                                                                     MA. THERESA M. SORIANO
Vice Presidents
ALPHA GRACE V. AQUINO                                                                PHILAM EQUITABLE LIFE ASSURANCE
                                         President & CEO
RICARDO M. CELESTINO                                                                 COMPANY, INC.
                                         SERGIO LL. NARANJILLA, JR.
                                                                                     President & CEO
                                         PCIB SECURITIES, INC.                       CARL S. GUSTINI
                                         President & CEO                             Vice President
Assistant Vice Presidents
                                         ERLASTER C. SOTTO                           ROMULO F. ALAJOR
                                         Senior Vice President & General Manager     Senior Assistant Vice President
                                         GABRIEL U. LIM                              JESSELYN V. VILLANUEVA
                                         Assistant Vice Presidents                   Assistant Vice Presidents
                                         NILO C. SAMPAYO                             BLESILDA S. BESABE
                                         MA. CAROLINA T. SANTANA                     CHRIS A. CABOGNASON
                                                                                     IMELDA L. FORTUGALEZA
President                                PCI CAPITAL CORPORATION                     DINAH P. OGATIS
                                         President & CEO
                                         ERLASTER C. SOTTO
First Vice President & General Manager
                                         Senior Vice President & Managing Director
                                         GABRIEL U. LIM
President                                First Vice Presidents
                                         ARNOLD E. OLIVA
CORPORATION                              Vice Presidents
                                         MICHAEL K. PASTORES
                                         NOEMI T. VILLANUEVA

32 E Q U I T A B L E P C I B A N K

                                    Statement of Management's Responsibility 34
                                    Report of Independent Auditors

                                    Statements of Condition 35

                                    Statements of Income 36

                                    Statements of Changes in Capital Funds 37

                                    Statements of Cash Flows 38

                                    Notes to Financial Statements 40

                                                                                  2 0 0 4   A N N U A L   R E P O RT   33

SEC Building, EDSA Greenhills
San Juan, Metro Manila

    The management of Equitable PCI Bank, Inc. is responsible for all information and representations contained in
the financial statements as of December 31, 2004 and 2003 and for each of the three years in the period ended December
31, 2004. The financial statements have been prepared in conformity with accounting principles generally accepted in the
Philippines 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 inter-
nal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unau-
thorized use or disposition and liabilities are recognized. The management likewise disclosed to the Bank’s audit
committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that
could adversely affect its ability to record, process and report financial data; (ii) material weaknesses in the internal
controls; and (iii) any fraud that involves management or other employees who exercise significant role in internal con-
    The Board of Directors reviews the financial statements before such statements are approved and submitted to the
Stockholders of Equitable PCI Bank, Inc.
    Sycip, Gorres, Velayo & Co., independent auditors and appointed by the stockholders, has examined the financial
statements of Equitable PCI Bank, Inc. in accordance with generally accepted auditing standards and has expressed its
opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors
and Stockholders.

ANTONIO L. GO                        RENE J. BUENAVENTURA                      RICARDO V. MARTIN
Chairman of the Board                President & Chief Executive Officers      Senior Vice President & Chief Financial Officers


The Stockholders and the Board of Directors
Equitable PCI Bank, Inc.

We have audited the accompanying statements of condition of Equitable PCI Bank, Inc. and Subsidiaries (the Group)
and statements of condition of Equitable PCI Bank, Inc. (the Parent Company) as of December 31, 2004 and 2003, and
the related statements of income, changes in capital funds and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the responsibility of the Group’s management. Our respon-
sibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Group and of the Parent Company as of December 31, 2004 and 2003, and the results of their operations and
their cash flows for the years then ended in conformity with accounting principles generally accepted in the

Renato J. Galve
CPA Certificate No. 37759
SEC Accreditation No. 0081-A
Tax Identification No. 102-087-055
PTR No. 9404006, January 3, 2005, Makati City

March 31, 2005

34 E Q U I T A B L E P C I B A N K
(Amounts in Thousands)

                                                          Group                                        Parent Company
                                                                                       December 31
                                                                               2003                                  2003
                                                                      (As restated -                        (As restated -
                                                             2004           Note 2)                    2004       Note 2)
Cash and Other Cash Items (Note 11)                   —7,545,361
                                                      P                —7,512,608
                                                                       P                      —7,295,483
                                                                                              P                    —7,350,209
Due from Bangko Sentral ng Pilipinas
   (Notes 11 and 15)                                    2,316,093        5,305,743               2,059,639           5,129,645
Due from Other Banks (Note 15)                          7,701,330        8,592,021               6,114,500           7,136,031
Interbank Loans Receivable and Securities
   Purchased Under Resale Agreements
   (Notes 3, 15 and 27)                                17,364,767       22,978,937             19,858,767           23,397,444
Trading Account Securities, at fair value
   (Notes 3 and 15)                                     2,982,531        3,285,658               2,798,127           2,845,824
Available-for-Sale Securities, at fair value
   (Notes 3 and 15)                                     5,564,330           16,714               5,533,558                 721
Investments in Bonds and Other Debt Instruments,
   at amortized cost (Notes 3, 11, 15 and 22)          52,058,189       47,035,423             50,388,865           45,443,431
Receivables from Customers - net
   (Notes 4, 15 and 25)                               137,825,503      120,974,184            121,222,365          106,849,913
Property and Equipment
   At cost - net (Note 5)                               8,030,649        8,219,119              7,421,915            7,624,271
   At appraised value (Note 5)                          5,333,324        5,373,121              5,199,348            5,238,711
Equity Investments - net (Note 6)                       2,281,688        2,513,157             11,261,651           11,958,564
Real and Other Properties Owned or
   Acquired - net (Notes 7, 27 and 28)                 15,646,793       16,836,710           14,210,188   15,588,301
Goodwill - net (Note 8)                                15,240,494       15,680,124           15,240,494   15,680,124
Other Resources - net (Notes 9 and 25)                 30,083,036       26,427,813           26,106,222   24,166,838
                                                     P                —290,751,332
                                                                      P                    —294,711,122 —278,410,027
                                                                                           P            P

Deposit Liabilities (Notes 11, 15 and 25)            —193,520,339
                                                     P                —186,044,202
                                                                      P                    —189,573,098 —183,305,312
                                                                                           P            P
Bills Payable (Notes 12 and 15)                        23,999,856       29,559,796           22,424,463   27,372,778
Due to Bangko Sentral ng Pilipinas (Note 15)              131,400          114,190              128,027      109,316
Outstanding Acceptances (Note 15)                       7,602,316        1,183,372            7,602,316    1,183,372
Margin Deposits (Note 15)                                 152,578          188,104              152,578      188,104
Manager’s Checks and Demand Drafts
    Outstanding (Note 15)                                 882,145          943,299                862,072              902,849
Accrued Interest Payable (Note 15)                        552,409          958,948                428,931              929,534
Accrued Taxes and Other Expenses (Note 15)              1,414,808        1,145,100                817,258              765,589
Subordinated Debt (Notes 13 and 15)                    11,243,700       11,087,357             11,243,700           11,087,357
Other Liabilities (Note 14)                            28,131,941       19,143,600             20,120,457           13,038,850
                                                      267,631,492      250,367,968            253,352,900          238,883,061
Minority Interest in Equity of Consolidated
   Subsidiaries                                           984,374          856,398                          –                   –
Capital Funds
Common Stock (Note 16)                                  7,270,033        7,270,033              7,270,033            7,270,033
Capital Paid in Excess of Par Value                    37,395,672       37,395,672             37,395,672           37,395,672
Surplus Reserve (Note 22)                                 510,356          451,977                510,356              451,977
Surplus (Notes 16 and 22)                               2,374,702          606,381              2,374,702              606,381
Parent Company Shares Held by a Subsidiary
   (Note 16)                                            (7,466,950)     (7,467,336)             (7,466,950)         (7,467,336)
Net Unrealized Loss on Available-for-Sale
   Securities (Note 3)                                      (5,979)            (980)                  (5,979)             (980)
Equity in Net Unrealized Loss on Available-for-
   Sale Securities of a Subsidiary (Notes 3 and 6)        (48,581)         (63,374)                  (48,581)          (63,374)
Equity in Revaluation Increment on Land of a
   Subsidiary (Note 6)                                     17,914           13,450               17,914       13,450
Revaluation Increment on Property - net (Note 5)        1,311,055        1,321,143            1,311,055    1,321,143
                                                       41,358,222       39,526,966           41,358,222   39,526,966
                                                     P                —290,751,332
                                                                      P                    —294,711,122 —278,410,027
                                                                                           P            P

See accompanying Notes to Financial Statements.

                                                                                           2 0 0 4   A N N U A L   R E P O RT   35
(Amounts In Thousands except Earnings Per Share)

                                                         Group                           Parent Company
                                                                   Years Ended December 31
                                                         2003          2002                      2003         2002
                                           2004       (As restated - Note 2)         2004    (As restated - Note 2)
Receivables from customers
  (Notes 4 and 25)                 —9,421,813
                                   P               —8,249,655 —7,778,645
                                                   P           P               —8,455,505 —7,329,559 —6,925,066
                                                                               P          P          P
Trading and investment securities     4,409,653      3,207,046   2,326,735       4,258,945 2,986,579   2,066,669
Interbank loans receivable and
  securities purchased under
  resale agreements                   1,097,891       894,600      604,697       1,107,502     936,571      556,489
Deposits with other banks
  and others                            988,590       367,778       560,288        400,315    449,123        525,904
                                    15,917,947     12,719,079    11,270,365     14,222,267 11,701,832     10,074,128
Deposit liabilities (Note 25)         5,005,618     5,071,829     5,168,844      4,780,818    4,944,756    5,122,430
Bills payable, borrowings
  and others                          2,722,002     2,879,612     2,206,796      2,660,761    2,758,135    2,108,040
                                      7,727,620     7,951,441     7,375,640      7,441,579    7,702,891    7,230,470
NET INTEREST INCOME                   8,190,327     4,767,638     3,894,725      6,780,688    3,998,941    2,843,658
  LOSSES (Note 10)                    4,139,985     2,232,850     1,296,201      3,314,160    1,501,957     593,064
  LOSSES                              4,050,342     2,534,788     2,598,524      3,466,528    2,496,984    2,250,594
Service charges, fees and
  commissions                         5,206,817     4,387,474     3,513,685      2,399,632    2,028,374    1,728,877
Trading gains - net                     348,493     1,579,766     1,767,392        324,637    1,543,509    1,738,914
Foreign exchange profits - net          308,617       603,011     1,072,969        213,083      428,953      930,000
Equity in net earnings (losses) of
  subsidiaries and associates
  (Note 6)                              (21,748)      (29,679)      (35,529)       855,279    1,008,060      758,851
Miscellaneous (Note 19)               2,365,101     2,349,467     1,649,041      1,735,688    1,596,018    1,006,142
                                      8,207,280     8,890,039     7,967,558      5,528,319    6,604,914    6,162,784
Compensation and fringe benefits
  (Note 17)                           3,317,859     3,153,943     3,106,109      2,757,480    2,680,864    2,666,442
Occupancy and other equipment-
  related expenses (Note 18)          1,612,101     1,686,570     1,996,213      1,402,259    1,516,909    1,862,219
Depreciation and amortization
  (Note 5)                            1,212,392     1,146,432     1,012,350        952,145      774,946      789,474
Taxes and licenses (Note 21)          1,149,867       427,486       841,864        877,771      338,831      637,514
Miscellaneous (Note 20)               4,132,800     3,090,895     3,091,026      2,752,615    2,322,230    2,354,648
                                    11,425,019      9,505,326    10,047,562      8,742,270    7,633,780    8,310,297
INCOME BEFORE INCOME TAX                832,603     1,919,501       518,520        252,577    1,468,118      103,081
  INCOME TAX (Note 21)               (1,081,628)      526,275      (367,964)    (1,557,869)    166,565      (687,624)
  INTEREST IN NET INCOME              1,914,231     1,393,226      886,484       1,810,446    1,301,553     790,705
  NET INCOME                           (103,785)      (91,673)     (95,779)             –          –             –
NET INCOME                         —1,810,446
                                   P               —1,301,553
                                                   P             —790,705
                                                                 P             —1,810,446 —1,301,553
                                                                               P          P               —790,705
Earnings Per Share (Note 26)             —2.79
                                         P             —2.01
                                                       P            —1.22
                                                                    P              —2.79
                                                                                   P          —2.01
                                                                                              P             —1.22

See accompanying Notes to Financial Statements.

36 E Q U I T A B L E P C I B A N K
(Amounts in Thousands)

                                                                    Years Ended December 31
                                                                                   2003                2002
                                                                  2004                (As restated - Note 2)
COMMON STOCK - —10 par value (Note 16)
                     P                                      —7,270,033
                                                            P                —7,270,033
                                                                             P                  —7,270,033
CAPITAL PAID IN EXCESS OF PAR VALUE                          37,395,672       37,395,672         37,395,672
Balance at beginning of year                                    451,977           398,641                 365,735
Transfer from surplus                                            58,379            53,336                  32,906
Balance at end of year                                          510,356           451,977                 398,641
SURPLUS (Note 16)
Balance at beginning of year, as previously reported          2,720,837        1,609,263                  999,646
Effect of change in accounting for:
  Leases (Note 2)                                              (206,558)         (177,409)                (158,866)
  Income taxes (Note 2)                                      (1,907,898)       (2,073,690)              (2,240,415)
Balance at beginning of year, as restated                       606,381          (641,836)              (1,399,635)
Net income (Note 26)                                          1,810,446         1,301,553                  790,705
Transfer from revaluation increment                              11,053                 –                        –
Deferred tax liability on revaluation increment                   5,201                 –                        –
Transfer to surplus reserves (Note 22)                          (58,379)          (53,336)                 (32,906)
Balance at end of year                                        2,374,702           606,381                 (641,836)
  SUBSIDIARY (Note 16)                                       (7,466,950)       (7,467,336)              (7,467,336)
  (Note 3)
Balance at beginning of year                                       (980)            (6,957)               (44,785)
Net unrealized (loss) gain during the year                       (4,999)             5,977                 37,828
Balance at end of year                                           (5,979)              (980)                (6,957)
Balance at beginning of year                                    (63,374)          (71,416)                (90,712)
Net unrealized gain during the year                              14,793             8,042                  19,296
Balance at end of year                                          (48,581)          (63,374)                (71,416)
Balance at beginning of year, as previously reported             19,779            18,719                   4,116
Effect of change in accounting for income taxes                  (6,329)           (5,990)                 (1,317)
Balance at beginning of year, as restated                        13,450            12,729                   2,799
Additional revaluation increment                                  4,464               721                   9,930
Balance at end of year                                           17,914            13,450                  12,729
  (Note 5)
Balance at beginning of year, as previously reported          1,942,858        1,942,858                1,921,472
Effect of change in accounting for income taxes (Note 2)       (621,715)        (621,715)                (614,871)
Balance at beginning of year, as restated                     1,321,143        1,321,143                1,306,601
Additional revaluation increment on land                            965                –                  188,957
Transfer to surplus                                             (11,053)               –                        –
Reversal of revaluation increment on building                         –                –                 (174,415)
Balance at end of year                                        1,311,055        1,321,143                1,321,143
                                                           — 41,358,222
                                                           P                 —39,526,966
                                                                             P                        —38,210,673

See accompanying Notes to Financial Statements.

                                                                              2 0 0 4   A N N U A L   R E P O RT   37
(Amounts in Thousands)

                                                             Group                            Parent Company
                                                                       Years Ended December 31
                                                                  2003        2002                     2003         2002
                                                   2004       (As restated - Note 2)     2004      (As restated - Note 2)
Income before income tax                     —832,603
                                             P              —1,919,501
                                                            P             —518,520
                                                                          P            —252,577 —1,468,118
                                                                                       P        P                  —103,081
Adjustments for:
  Provision for probable losses (Note 10) 4,139,985          2,232,850    1,296,201     3,314,160    1,501,957      593,064
  Depreciation and amortization (Note 5) 1,212,392           1,146,432    1,012,350       952,145      774,946      789,474
  Amortization of goodwill (Note 8)             439,630        439,630      439,630       439,630      439,630      439,630
  Gain on disposal of property and
    equipment                                   (36,867 )      (41,153)      (7,791)      (26,947)     (25,536)      (45,739)
  Equity in net losses (earnings) of
    subsidiaries and associates (Note 6)         21,748         29,679       35,529      (855,279)   (1,008,060)    (758,851)
  Gain on disposal of ROPOA (Note 19)          (182,069 )     (161,647)    (167,962)     (181,811)     (159,057)    (177,726)
  Changes in operating resources and
    Decrease (increase) in amounts of:
       Interbank loans receivable and
         securities purchased under resale
         agreements                         (3,113,205 )     (2,542,848) (6,271,455) (3,113,205) (2,542,848) (6,397,882)
       Trading account securities               303,127       6,293,407     (168,359)      47,697    5,098,989 (1,185,124)
       Receivables from customers          (17,024,615 )    (12,684,903) (10,389,144) (15,297,663) (10,051,801) (5,324,036)
       Other resources                      (4,990,344 )       (610,763) (1,126,513)     (787,247) 1,412,707 2,266,991
    Increase (decrease) in amounts of:
       Deposit liabilities                   7,476,137      25,301,366 19,664,388       6,267,786 23,987,166 18,139,401
       Due to BSP                                17,210         10,472     10,148          18,711       8,722    10,148
       Accrued taxes and other expenses        (206,754 )   (1,913,261)   877,482        (469,810) (1,762,691)  669,672
       Manager’s checks and demand
         drafts outstanding                     (61,154 )     (810,567)    (750,538)      (40,777)    (827,456)     (761,204)
       Other liabilities                     8,988,341         867,724      518,835     7,081,607     (490,236)     (389,184)
Net cash generated from (used in)
  operations                                (2,183,835 )    19,475,919    5,491,321    (2,398,426) 17,824,550      7,971,715
Income taxes paid                              (698,836 )     (612,758)    (720,336)     (345,648)   (316,621)      (439,715)
Net cash provided by (used in) operating
  activities                                (2,882,671 )    18,863,161    4,770,985    (2,744,074) 17,507,929      7,532,000
Decrease (increase) in amounts of:
  Available-for-sale securities             (5,537,822 )         5,954     322,262     (5,537,836)       5,954      337,776
  Investments in bonds and other debt
    instruments                             (4,886,175 )    (22,800,409) (3,361,543)   (5,272,516) (22,711,982) (2,532,973)
Dividends received (Note 6)                           -               -           -     1,194,837      165,321     179,729
Additions to property and equipment
  (Note 5)                                  (2,478,775 )     (1,588,878) (1,315,278)   (1,989,159)   (1,237,719)    (548,214)
Proceeds from disposal of property
  and equipment                              1,491,720         711,899    1,518,708     1,266,317      568,263      218,168
Disposals of (additions to) equity
  investments                                   714,748        (524,391)    199,568       692,840       63,753    (199,890)
Net cash used in investing activities      (10,696,304 )    (24,195,825) (2,636,283)   (9,645,517) (23,146,410) (2,545,404)


38 E Q U I T A B L E P C I B A N K
                                                                Group                                    Parent Company
                                                                            Years Ended December 31
                                                                       2003         2002                           2003         2002
                                                      2004         (As restated - Note 2)     2004             (As restated - Note 2)
Decrease in minority interest in equity of
  consolidated subsidiaries                        —24,191
                                                   P             —
                                                                (P 159,527)     —
                                                                               (P 13,377)          —–
                                                                                                   P                —–
                                                                                                                    P              —–
Increase (decrease) in amounts of:
  Bills payable                                   (5,559,940)   (2,419,377)    4,899,581    (4,948,315 )    (2,528,178)      3,258,802
  Outstanding acceptances                          6,418,944      (462,751)   (3,269,370)    6,418,944        (462,751)     (3,269,370)
  Margin deposits                                    (35,526)       15,737    (3,854,432)      (35,526 )        15,737      (3,854,432)
  Subordinated debt                                  156,343    11,087,357             –       156,343      11,087,357               –
Net cash provided by (used in) financing
  activities                                      1,004,012      8,061,439    (2,237,598)    1,591,446       8,112,165      (3,865,000)
  AND CASH EQUIVALENTS                        (12,574,963)       2,728,775      (102,896) (10,798,145 )      2,473,684       1,121,596
Cash and other cash items                         7,512,608      7,159,776     6,809,728     7,350,209       6,767,704       6,653,818
Due from Bangko Sentral ng Pilipinas              5,305,743      3,539,760     2,918,114     5,129,645       3,446,921       2,859,982
Due from other banks                              8,592,021      6,077,859    11,444,893     7,136,031       5,471,881       9,669,453
Interbank loans receivable and securities
  purchased under resale agreements
  (Note 27)                                   14,038,207        15,942,409    11,649,965    14,456,714      15,912,409     11,294,066
                                              35,448,579        32,719,804    32,822,700    34,072,599      31,598,915     30,477,319
Cash and other cash items                         7,545,361      7,512,608     7,159,776     7,295,483       7,350,209       6,767,704
Due from Bangko Sentral ng Pilipinas              2,316,093      5,305,743     3,539,760     2,059,639       5,129,645       3,446,921
Due from other banks                              7,701,330      8,592,021     6,077,859     6,114,500       7,136,031       5,471,881
Interbank loans receivable and securities
  purchased under resale agreements
  (Note 27)                                    5,310,832   14,038,207 15,942,409   7,804,832   14,456,714 15,912,409
                                             —22,873,616 —35,448,579 —32,719,804 —23,274,454 —34,072,599 —31,598,915
                                             P           P           P           P           P           P

See accompanying Notes to Financial Statements.

                                                                                                  2 0 0 4   A N N U A L   R E P O RT   39

1.    General Information                                                                The effect of adopting this standard will result in either a transition liability
                                                                                         or an asset with a corresponding adjustment to surplus as of January 1, 2005.
Equitable PCI Bank, Inc. (the Parent Company) is a universal bank incorporated           The Group will engage the services of professionally qualified actuary to
in the Philippines, with registered office address at Equitable PCI Bank Tower I,        determine the quantitative impact of adopting this standard in 2005.
Makati Avenue corner H.V. de la Costa Street, Makati City. The Parent Company
and its subsidiaries (the Group) are engaged in the business of banking, financ-       • PAS 21, The Effects of Changes in Foreign Exchange Rates, prohibits the cap-
ing, leasing, real estate, insurance and stock brokering and other related serv-         italization of foreign exchange losses. The standard also addresses the
ices to personal, commercial, corporate and institutional clients through a              accounting for transactions in foreign currency and translating the financial
network of 459 and 420 local and international branches, offices and agencies            statements of foreign operations that are included in those of the reporting
in 2004 and 2003, respectively. The Group’s products and services include                enterprise by consolidation, proportionate consolidation and equity method.
deposit-taking, lending and related services, treasury and capital market oper-          The adoption of this standard will have no material impact on the financial
ations, trade services, payments and cash management, and trust services.                statements.
The average number of employees of the Group in 2004 and 2003 follows:                 • PAS 30, Disclosures in the Financial Statements of Banks and Similar Financial
                                                                                         Institutions, provides for the required disclosure and presentation in respect
                                                           2004             2003         of the accounts of banks and similar financial institutions. It also provides
     Parent Company                                        6,509            6,348        that provision for general banking risk is treated as appropriation of surplus
     Subsidiaries                                            800              846        and should not be included in the determination of net income for the peri-
                                                           7,309            7,194        od. The Group has yet to determine the effect of this standard in the context
                                                                                         of the need to reallocate the general reserve to cover any increase in specif-
The Bank’s Audit Committee reviewed and approved the accompanying                        ic loan loss reserves required under PAS 39 (see discussion on PAS 39 below).
comparative financial statements on March 31, 2005 for release and for                   The required new disclosures will be included in the financial statements
subsequent confirmation by the board of directors (BOD) in their regular                 upon adoption of this new standard in 2005.
meeting on April 19, 2005.
                                                                                       • PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclo-
                                                                                         sure and presentation of all financial instruments. The standard requires
2. Summary of Significant Accounting Policies                                            more comprehensive disclosures about the Group’s financial instruments,
                                                                                         whether recognized or unrecognized in the financial statements. New dis-
Basis of Financial Statements Preparation and Presentation                               closure requirements include terms and conditions of financial instruments
The Group’s financial statements have been prepared in accordance with account-          used by the Group, types of risks associated with both recognized and unrec-
ing principles generally accepted in the Philippines (Philippine GAAP) for the           ognized financial instruments (market risk, price risk, credit risk, liquidity risk,
banking industry. These financial statements are prepared under the historical           and cash flow risk), fair value information of both recognized and unrecog-
cost convention modified for the measurement at fair value of certain derivatives,       nized financial assets and financial liabilities, and the Group’s financial risk
trading account securities (TAS) and available for-sale securities (ASS) and for the     management policies and objectives. The standard also requires financial
revaluation of land. The accompanying financial statements of the Parent                 instruments to be classified as liabilities or equity in accordance with its sub-
Company reflect the accounts maintained in the Regular Banking Unit (RBU) and            stance and not its legal form. The adoption of this standard will have no
Foreign Currency Deposit Unit (FCDU). The financial statements individually pre-         material impact on the financial statements.
pared for these units are combined after eliminating inter-unit accounts.
                                                                                       • PAS 39, Financial Instruments: Recognition and Measurement, establishes the
The books of accounts of the RBU are maintained in Philippine pesos, while               accounting and reporting standards for recognizing and measuring the Group’s
those of the FCDU are maintained in United States (US) dollars. For financial            financial assets and financial liabilities. The standard requires a financial asset
reporting purposes, the accounts of the FCDU are translated into their equiva-           or financial liability to be recognized initially at fair value. Subsequent to initial
lents in Philippine pesos based on the Philippine Dealing System weighted aver-          recognition, the Group should continue to measure financial assets at their fair
age rate (PDSWAR) prevailing at end of the year (for resources and liabilities)          values, except for loans and receivables and held-to-maturity investments,
and at the average PDSWAR for the year (for income and expenses).                        which are measured at cost or amortized cost using the effective interest rate
                                                                                         method. Financial liabilities are subsequently measured at cost or amortized
The preparation of financial statements in accordance with Philippine GAAP               cost, except for liabilities classified as “at fair value through profit and loss” and
requires the Group to make estimates and assumptions that affect the report-             derivatives, which are subsequently measured at fair value.
ed amounts of resources, liabilities, income and expenses, and disclosures of
contingent resources and contingent liabilities. Future events may occur which           PAS 39 also covers the accounting for derivative instruments. This standard
can cause the assumptions used in arriving at the estimates to change. The               has expanded the definition of a derivative instrument to include derivatives
effects of any changes in estimates are reflected in the financial statements as         (and derivative-like provisions) embedded in non-derivative contracts. Under
they become reasonably determinable.                                                     the standard, every derivative instrument is recorded in the balance sheet as
                                                                                         either an asset or liability measured at its fair value. Derivatives that do not
Changes in Accounting Policies                                                           qualify as hedges are adjusted to fair value through income. If a derivative
On January 1, 2004, the following new accounting standards became effective              is designated and qualify as a hedge, depending on the nature of the hedg-
and were adopted by the Group:                                                           ing relationship, changes in the fair value of the derivative are either offset
                                                                                         against the changes in fair value of the hedged assets, liabilities, and firm
• Statement of Financial Accounting Standards (SFAS) 12/International                    commitments through earnings, or recognized in capital funds until the
  Accounting Standard (IAS) 12, Income Taxes, requires deferred income taxes             hedged item is recognized in earnings. The Group must formally document,
  to be determined using the balance sheet liability method. The adoption of             designate and assess the hedge effectiveness of derivative transactions that
  this standard resulted in a retroactive downward adjustment to surplus as of           receive hedge accounting treatment.
  December 31, 2003, 2002 and 2001 amounting to —1.9 billion, —2.1 billion
                                                     P            P
  and —2.2 billion, respectively. Net income increased by —165.8 million in
        P                                                  P                             The Group has established a task force that will implement the provisions of
  2003 and —166.7 million in 2002.
            P                                                                            PAS 32 and PAS 39 and assess the implications of these standards to the
                                                                                         Group’s financial statements. The Group has not yet determined the impact
     In accordance with this new standard, deferred income tax liability is provid-      to the financial statements due to the following reasons:
     ed on revaluation increment of property, plant and equipment on a retroac-
     tive basis, which decreased capital funds by —628.0 million, —627.7 million
                                                  P               P                       • The Group is still in the process of establishing policies, procedures and
     and —616.2 million as of December 31, 2003, 2002 and 2001, respectively.
          P                                                                                 necessary systems related to the adoption of these standards.

• SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures              • The system which will incorporate the requirements of PAS 32 and PAS 39
  applicable to finance and operating leases. The adoption of the standard                  has not yet been implemented. The Bangko Sentral ng Pilipinas (BSP),
  resulted in the recognition of lease income and expense under operating                   through its Monetary Board (MB) Resolution No. 1869 dated December
  leases on a straight-line basis. Previously, all leases were recognized in the            23, 2004, has given the banks and financial institutions until December 31,
  statements of income on the basis of the terms of the lease agreements. The               2005 to ready their infrastructures to be PAS 32 and PAS 39 compliant.
  adoption of this accounting standard resulted in a retroactive downward                   Interim reports that will be submitted to the BSP for 2005 need not be in
  adjustment to surplus as of December 31, 2003, 2002 and 2001 amounting to                 compliance with the provisions of the said standards.
  —206.6 million, —177.4 million and —158.9 million, respectively. Net income
  P               P                    P
  decreased by —29.1 million in 2003 and —18.5 million in 2002.
                P                          P                                             With respect to account classification and related measurement, the Group has
                                                                                         already submitted to the BSP the proposed reclassification of its trading and
Additional disclosures required by the new standards have been included in the           investment securities portfolio. The effect of the reclassification will likely result
financial statements, where applicable.                                                  in a retroactive downward adjustment to surplus as of December 31, 2004. The
                                                                                         impact of the reclassification will only be quantified after the detailed PAS 39
New accounting standards based on IAS and International Financial Reporting              implementation has been substantially completed.
Standards, referred to as Philippine Accounting Standards (PAS) and Philippine
Financial Reporting Standards (PFRS), respectively, will become effective in             The effect of adopting the effective interest rate method in measuring amor-
2005. The Group will adopt the following new accounting standards approved               tized cost for loans and ASS has not yet been quantified since the existing sys-
by the Accounting Standards Council, to the extent that they are applicable,             tems of the Group have not yet been reconfigured to adopt effective interest
effective January 1, 2005:                                                               rate method of amortization. Due to the volume of transactions, it is impracti-
                                                                                         cable to compute for the financial impact manually. The Group will report the
• PAS 19, Employee Benefits, provides for the accounting for long-term and other         financial implications as soon as the information becomes available.
  employee benefits. The standard requires the projected unit credit method in
  determining the retirement benefits of the employees and a change in the man-          PAS 39 requires that if there is objective evidence that an impairment on
  ner of computing benefit expense relating to past service cost and actuarial           loans and other financial assets carried at amortized cost are incurred, the
  gains and losses. It requires the Group to determine the present value of              amount of loss is measured as the difference between the assets’ carrying
  defined benefit obligations and the fair value of any plan assets with sufficient      amount and the present value of future cash flows. The effect of adopting
  regularity that the amounts recognized in the financial statements do not dif-         this provision may be material to the financial assets and liabilities of the
  fer materially from the amounts that would be determined at the statement of           Group, particularly for the impairment of loans and other receivables.
  condition date.

40 E Q U I T A B L E P C I B A N K
  Currently, the adequacy of allowance for probable losses on loans and other            financial statements. This standard also requires strict compliance withadop-
  receivables is determined based on management criteria and BSP require-                tion of uniform accounting policies and requires the parent to make appro-
  ments. The existing systems of the Group have not yet been programmed to               priate adjustments to the subsidiary’s financial statements to conform them
  adopt the discounted cash flow method. Due to the volume of transactions, it           to the parent’s accounting policies for reporting like transactions and other
  is impracticable to compute for the financial impact manually. The Group will          events in similar circumstances.
  report the financial implications as soon as the information becomes available.
                                                                                       • PAS 28, Investments in Associates, reduces alternatives in accounting for asso-
  In 2005, the Group will perform additional procedures to identify any deriv-           ciates in consolidated financial statements and in accounting for investments
  ative embedded in both financial and non-financial contracts that are                  in the separate financial statements of an investor. Investments in associates
  required to be separately accounted for at fair value under PAS 39.                    will be accounted for either at cost or in accordance with PAS 39 in the sep-
                                                                                         arate financial statements. Equity method of accounting will no longer be
  In general, the effect of adopting these standards will not result in a                allowed in the separate financial statements. This standard also requires
  restatement of prior years financial statements as allowed by the Securities           strict compliance with adoption of uniform accounting policies and requires
  and Exchange Commission (SEC). Any cumulative effect of adopting the stan-             the investor to make appropriate adjustments to the associate’s financial
  dards, however, will be charged against beginning surplus (January 1, 2005).           statements to conform them to the investor’s accounting policies for report-
                                                                                         ing like transactions and other events in similar circumstances.
• PAS 40, Investment Property, prescribes the accounting treatment for invest-
  ment property and related disclosure requirements. This standard permits               The cost method in accounting for its investments in subsidiaries, associates
  the company to choose either the fair value model or cost model in account-            and joint ventures in the separate (parent company) financial statements is
  ing for investment property. Fair value model requires an investment prop-             expected to decrease both the carrying amounts of these investments and
  erty to be measured at fair value with fair value changes recognized directly          total capital funds by —3.4 billion equivalent to the undistributed retained
  in the statements of income. Cost model requires that an investment prop-              earnings of the investees net of accumulated equity earnings of subsidiaries
  erty should be measured at depreciated cost less any accumulated impair-               acquired prior to the Parent Company’s merger with Philippine Commercial
  ment losses. The Group is still in the process of identifying real and other           International Bank (PCIBank), and other equity adjustments.
  properties owned or acquired (ROPOA) accounts that will be accounted for
  under PAS 40 and PFRS 5 (see significant provisions of PFRS 5 below), and            • PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for
  which valuation model to be used under PAS 40. Regardless of valuation                 interests in joint ventures in consolidated financial statements and in
  model (either cost or fair value), the adoption of PAS 40 may result in an adjust-     accounting for investments in the separate financial statements of a ventur-
  ment of prior years’ financial statements. The Group has not yet quantified the        er. Interests in joint ventures will be accounted for either at cost or in accor-
  implication of PAS 40 since the system that will support the accounting of             dance with PAS 39 in the separate financial statements. Equity method of
  ROPOA under PAS 40 has not yet been established. Due to the volume of                  accounting will no longer be allowed in the separate financial statements.
  transactions, it is impracticable to compute for the financial impact manually.
  The Group will report the financial implications of PAS 40 as soon as the infor-     • PAS 33, Earnings Per Share, prescribes principals for the determination and
  mation becomes available.                                                              presentation of earnings per share for entities with publicly traded shares, enti-
                                                                                         ties in the process of issuing ordinary shares to the public, and any entity that
• PFRS 3, Business Combination, which will result in the cessation of the amorti-        calculate and disclose earnings per share. The standard also provides addition-
  zation of goodwill and a requirement for an annual test for goodwill impair-           al guidance in computing earnings per share including the effect of mandatory
  ment. Any resulting negative goodwill after performing reassessment will be            convertible instruments and contingently issuable shares, among others.
  credited to income. Moreover, pooling of interests in accounting for business
  combination will no longer be permitted. The effect of adopting this standard        • PAS 36, Impairment of Assets, requires annual impairment test of intangible
  will not result in retroactive adjustment of prior years’ consolidated financial       asset with an indefinite useful life, which includes goodwill acquired in a busi-
  statements but will affect prospective consolidated financial statements as a          ness combination, whether or not there is an indication of impairment.
  result of nonamortization of goodwill.
                                                                                       • PAS 38, Intangible Assets, requires discontinuance of amortization of intan-
• PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, spec-            gible asset with an indefinite useful life. The effect of adopting this standard
  ifies the accounting for assets held for sale and the presentation and disclo-         will not result in retroactive adjustment of prior year’s financial statements
  sure of discontinued operations. It requires assets that meet the criteria to          but will effect prospective financial statements as a result of nonamortiza-
  be classified as held for sale to be measured at the lower of carrying amount          tion of goodwill.
  and fair value less costs to sell, and the depreciation on such assets to cease.
  Furthermore, assets that meet the criteria to be classified as held for sale         The Group does not expect any significant impact of the adoption of the fore-
  should be presented separately on the face of the statements of condition            going revised standards except for the effects of PAS 27, PAS 28 and PAS 38 as
  and the results of discontinued operations to be presented separately in the         discussed above. The disclosures required by these revised PAS will be reflected
  statements of income. Pending the identification of ROPOA accounts to be             in the financial statements, where applicable, upon their adoption in 2005.
  accounted for under PFRS 5, as discussed under PAS 40 above, the effect of
  adoption of PFRS 5 with respect to the assets to be accounted for under this         Basis of Consolidation
  standard will not be material to the financial statements.                           The Group financial statements reflect the consolidated accounts of the Parent
                                                                                       Company and of the following wholly and majority owned subsidiaries:
The Group will also adopt in 2005 the following revised standards:
                                                                                                                                Effective Percentage         Country of
• PAS 1, Presentation of Financial Statements, provides a framework within             Subsidiary                                   of Ownership           Incorporation
  which an entity assesses how to present fairly the effects of transactions and       Financial Markets:
  other events; provides the base criteria for classifying liabilities as current or      EBC Investments, Inc. (EBCII)                   100              Philippines
  noncurrent; prohibits the presentation of income from operating activities              Equitable PCI Bank Cayman
  and extraordinary items as separate line items in statements of income; and               Limited (EPCI Cayman)                         100              Cayman Island
  specifies the disclosures about key sources of estimation uncertainty and               Equitable Savings Bank, Inc. (ESB)              100              Philippines
  judgments that management has made in the process of applying the                       Express Padala (HK) Ltd. (EPHK)                 100              Hong Kong
  Group’s accounting policies.                                                            Jardine Equitable Finance Corp. (JEFC)          100              Philippines
                                                                                          PCI Capital Corporation (PCI Capital)
• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors,                   and Subsidiaries                              100              Philippines
  removes the concept of fundamental error and the allowed alternative to                 PCIB Europe S.p.A. (PCIB S.p.A)                 100              Italy
  retrospective application of voluntary changes in accounting policies and ret-          PCI Express Padala (HK) Limited
  rospective restatement to correct prior period errors. It defines material                (Express Padala HK)                           100              Hong Kong
  omissions or misstatements, and describes how to apply the concept of mate-             PCI Express Padala - L.A.
  riality when applying accounting policies and correcting errors.                          (Express Padala L.A.)                         100              United States
                                                                                                                                                           of America
• PAS 10, Events After the Balance Sheet Date, provides a limited clarification of        PCI Express Padala Frankfurt                      100            Germany
  the accounting for dividends declared after the statement of condition date.            PCI Express Padala (Rotterdam) B.V.               100            Netherlands
                                                                                          Equitable Card Network, Inc. (ECN)
• PAS 16, Property, Plant and Equipment, provides additional guidance and                   and Subsidiaries                                 90            Philippines
  clarification on recognition and measurement of items of property, plant and            PCI Leasing and Finance, Inc.
  equipment. It also provides that each part of an item of property, plant and              (PCI Leasing)                                    85            Philippines
  equipment with a cost that is significant in relation to the total cost of the       Insurance/Insurance Brokerage:
  item shall be depreciated separately.                                                   EBC Insurance Brokerage, Inc. (EIBI)              100            Philippines
                                                                                          PCI Insurance Brokers, Inc.
• PAS 17, Leases, provides a limited revision to clarify the classification of a            (PCI Insurance)                                 100            Philippines
  lease of land and buildings and prohibits expensing of initial direct costs in       Securities Brokerage:
  the financial statements of lessors.                                                    PCIB Securities, Inc. (PCIB Securities)           100            Philippines
                                                                                       Real Estate:
• PAS 24, Related Party Disclosures, provides additional guidance and clarity in          PCIB Properties, Inc. (PCIB Properties)           100            Philippines
  the scope of the standard, the definitions and the disclosures for related par-         Equimark-NFC Development
  ties. It also requires disclosure of the total compensation of key management             Corporation (Equimark)                           60            Philippines
  personnel and by benefit types.                                                      Others:
                                                                                          EBC Strategic Holdings Corp. (ESHC)
• PAS 27, Consolidated and Separate Financial Statements, reduces alternatives              and Subsidiaries                                100            Philippines
  in accounting for subsidiaries in consolidated financial statements and in              Equitable Data Center, Inc. (EDCI)                100            Philippines
  accounting for investments in the separate financial statements of a parent,            PCI Automation Center, Inc.
  venturer or investor. Investments in subsidiaries will be accounted for either            (PCI Automation)                                100            Philippines
  at cost or in accordance with PAS 39 in the separate financial statements.              Equitable Venture Capital Corporation              60            Philippines
  Equity method of accounting will no longer be allowed in the separate                   Maxicare                                           60            Philippines

                                                                                                                            2 0 0 4    A N N U A L      R E P O RT       41

Subsidiaries are consolidated when control is transferred to the Group or Parent      end of the lease term, the residual value of the leased asset is generally applied
Company. Consolidation of subsidiaries ceases when control is transferred out         against the guaranty deposit of the lessee.
of the Group or Parent Company. The results of operations of a subsidiary dis-
posed of are included in the statements of income until the date of disposal          Receivables from Special Purpose Vehicle
when the Group or Parent Company ceases to have control of the subsidiary             Receivables from SPV is stated at the face value of the related note reduced by
(Note 6).                                                                             allowance for probable losses. Allowance for probable losses is determined
                                                                                      based on the difference between the outstanding principal amount and the
Under Standing Interpretations Committee No. 12, Consolidation of Special             recoverable amount which is the present value of the future cash flow expect-
Purpose Entity (SPE), control over an entity may exist even in cases when an          ed to be received in payment of the receivable.
enterprise owns little or none of SPE’s equity, such as when an enterprise retains
majority of the residual risks related to the SPE or its assets in order to obtain    Allowance for Probable Losses
benefits from its activities. In accordance with these standards, the Group           The allowance for probable losses is the estimated amount of probable losses in
financial statements include the accounts of Philippine Investment One (PIO)          the Group’s loan portfolio based on management’s evaluation of the collectibili-
and Philippine Investment Two (PIT), special purpose vehicles (SPV), in which the     ty of the loans, after consideration of prevailing and anticipated economic condi-
Group does not have equity interest (Note 28). PIO and PIT bought certain             tions, collection and credit experience with specific accounts, fair market value of
assets of the Parent Company under a transaction that qualified as a true sale        collateral, financial capabilities of guarantors, present value of estimated future
as approved by the BSP (Note 28).                                                     cash collections and on evaluations made by the BSP. The BSP observes certain cri-
                                                                                      teria and guidelines based largely on the classification of receivables in establish-
All significant intercompany balances and transactions have been eliminated in        ing specific loan loss reserves.
                                                                                      Receivables arising from transactions with credit cardholders are provided with
The Group financial statements were prepared using uniform accounting poli-           allowance for probable losses based on the review and evaluation of the status of
cies for like transactions and other events in similar circumstances.                 the receivables from cardholders and guidelines issued by the BSP. The MB,
                                                                                      through BSP Circular 398 issued on August 21, 2003, provides general guidelines
Resale Agreements                                                                     governing credit card operations, including the set up of loss on the basis of the
Resale agreements are contracts wherein the Group or the Parent Company               aging/classification of the credit card receivables.
purchases securities and simultaneously agrees to resell the same securities at a
specified future date at a fixed price. Securities purchased under resale agree-      The allowance for probable losses is established through provisions for proba-
ments (SPURA) are considered loans to the counterparty rather than as invest-         ble losses charged to current operations. Receivables are written off against the
ment in securities. SPURA are carried at cost. The corresponding interest             allowance when management believes that the collectibility of the principal is
income is accrued when earned.                                                        unlikely.

Trading and Investment Securities                                                     Property and Equipment
Trading Account Securities                                                            Property and equipment other than land are stated at cost, less any impairment
TAS, consisting of government and private debt and equity securities, are pur-        in value. Land is stated at appraised value. The appraisal values are determined
chased and held principally with the intention of selling them in the near term.      by qualified, independent appraisers. The revaluation increment resulting from
These securities are carried at fair market value; realized and unrealized gains      revaluation is credited to Revaluation Increment on Property under capital
and losses on these instruments are recognized as Trading Gains - net in the          funds.
statements of income. Interest earned on debt instruments is reported as
Interest Income. Quoted market prices, when available, are used to determine          Depreciable properties including buildings, leasehold improvements, and furni-
the fair value of trading instruments. If quoted market prices are not available,     ture, fixture and equipment are stated at cost less accumulated depreciation
their fair values are estimated based on prices obtained from the BSP, Bureau of      and amortization, and any impairment in value.
Treasury, Reuters, Telerates, Bloomberg and investment bankers.
                                                                                      The initial cost of property and equipment comprises its purchase price and any
When a security is transferred to TAS, the unrealized holding gain or loss at the     directly attributable costs of bringing the asset to its working condition and
date of transfer is recognized in the statements of income immediately.               location for its intended use. Expenditures incurred after the property and
                                                                                      equipment have been put into operation, such as repairs and maintenance, are
Available-for-Sale Securities                                                         charged against current operations. In situations where it can be clearly
Securities are classified as ASS when purchased and held indefinitely, i.e. neither   demonstrated that the expenditures have resulted in an increase in the future
held to maturity nor for trading purposes, where the Group anticipates to sell        economic benefits expected to be obtained from the use of an item of proper-
in response to liquidity requirements or in anticipation of changes in interest       ty and equipment beyond its originally assessed standard of performance, the
rates or other factors. ASS are carried at fair market value; unrealized holding      expenditures are capitalized as an additional cost of property and equipment.
gains and losses are reported as a separate component of capital funds.               When assets are retired or otherwise disposed of, the cost and the related accu-
                                                                                      mulated depreciation and amortization and any resulting gain or loss is credit-
When a debt security is transferred to ASS from investment in bonds and other         ed to or charged against current operations.
debt instruments (IBODI), the unrealized holding gain or loss on the date of
transfer is excluded from reported earnings and reported as a separate compo-         Depreciation is calculated on the straight-line method over the estimated use-
nent of capital funds until realized.                                                 ful life of the depreciable assets. The estimated useful lives of the depreciable
                                                                                      assets are as follows:
Investments in Bonds and Other Debt Instruments
IBODI are debt securities where the Group has the positive intent and ability to             Buildings                                           50 years
hold to maturity. These securities are carried at amortized cost; realized gains             Furniture, fixtures and equipment                  3-5 years
and losses are included in Trading Gains - net in the statements of income. The
allowance for probable losses is established by a charge against income to            Leasehold improvements are amortized over their estimated useful life of 3-5
reflect other-than-temporary impairment in value. Under current bank regula-          years or the terms of the related leases, whichever is shorter.
tions, IBODI shall not exceed 50% of adjusted statutory net worth plus 40% of
total deposit liabilities.                                                            The depreciation and amortization method and useful life are reviewed peri-
                                                                                      odically to ensure that the method and period of depreciation and amortiza-
When a debt security is transferred to IBODI from ASS, the unrealized holding         tion are consistent with the expected pattern of economic benefits from items
gain or loss at the date of transfer is maintained as a separate component of         of property and equipment.
capital funds and amortized over the remaining life of the security as an adjust-
ment of yield in a manner consistent with the amortization of premium or dis-         The carrying values of the property and equipment are reviewed for impair-
count.                                                                                ment when events or changes in circumstances indicate the carrying value may
                                                                                      not be recoverable. If any such indication exists and where the carrying values
Receivables from Customers                                                            exceed the estimated recoverable amount, an impairment loss is recognized in
Receivables from customers are stated at the outstanding balance, reduced by          the statements of income (see accounting policy on Impairment of Assets).
unearned discounts and capitalized interest on restructured loans and
allowance for probable losses.                                                        Equity Investments
                                                                                      Investments in Associates
Receivables from customers include receivables arising from transactions on cred-     Investments in associates are accounted for under the equity method of
it cards issued directly by ECN and by other banks which have tie-up arrangements     accounting. An associate is an enterprise in which the Group or the Parent
with ECN. Collection of receivables from credit cardholders of other banks is         Company exercises significant influence (presumed to exist if an entity holds
guaranteed by those banks with tie-up arrangements with ECN.                          20% to 50% of the voting power) and which is neither a subsidiary nor a joint
                                                                                      venture of the Group or the Parent Company. Investments in associates are car-
Receivables from customers also include the aggregate rental on finance lease         ried in the statements of condition at cost plus post-acquisition changes in the
transactions. Unearned income on finance lease transactions is shown as a             Group’s share of net assets of the associate, less any impairment in value. Post-
deduction from Receivables from Customers (included in Unearned Discount              acquisition changes in share of net assets of the associate include the share in
and Capitalized Interest).                                                            the associate’s: (a) income or losses, and (b) unrealized gain or loss on invest-
                                                                                      ment securities. Dividends received are treated as a reduction in the carrying
Receivables are classified as nonperforming in accordance with existing BSP reg-      values of the investments. Equity in unrealized gain or loss on investment secu-
ulations, or when, in the opinion of management, collection of interest or prin-      rities of associates is shown as a separate component of capital funds in the
cipal is doubtful. Receivables are not reclassified as performing until interest      statements of condition. Unrealized gain arising from transactions with an
and principal payments are brought current or the receivable is restructured in       associate is eliminated to the extent of the Group’s interest in the associate,
accordance with existing BSP regulations, and future payments appear assured.         against the investment in the associate. Unrealized loss is eliminated similarly
                                                                                      but only to the extent that there is no evidence of impairment of the asset
Residual Value of Leased Assets and Deposits on Finance Leases                        transferred. The Group’s investments in associates account include goodwill
The residual value of leased assets, which approximates the amount of guaran-         (net of accumulated amortization) on acquisition, which is treated in accor-
ty deposit paid by the lessee at the inception of the lease, is the estimated pro-    dance with the accounting policy for goodwill stated below.
ceeds from the disposal of the leased asset at the end of the lease term. At the

42 E Q U I T A B L E P C I B A N K
Investments in Subsidiaries                                                               Investments in Real Estate
Investments in subsidiaries in the Parent Company financial statements are                Investments in real estate (included under Other Resources) are real properties
accounted for similarly as investments in associates under the equity method. A           owned by certain subsidiaries which are for sale or for lease to others. These
subsidiary is an enterprise that is controlled by the Parent Company and whose            are carried at cost less any accumulated depreciation and any impairment in
accounts are included in the Group financial statements.                                  value.

Interest in Joint Venture                                                                 Impairment of Assets
The Group’s interest in its joint venture is accounted for under the equity               An assessment is made at each statement of condition date as to whether there
method of accounting. The interest in joint venture is carried in the consolidat-         is any indication of impairment of any asset, or whether there is any indication
ed statements of condition at cost plus post-acquisition changes in the Group’s           that an impairment loss previously recognized for an asset in prior years may no
share of net assets of the joint venture, less any impairment in value. The Group         longer exist or may have decreased. If any such indication exists, the asset’s recov-
statements of income reflect the Group’s share of the results of operations of            erable amount is estimated. An asset’s recoverable amount is calculated at the
the joint venture.                                                                        higher of the asset’s value in use or its net selling price.

Other Investments                                                                         An impairment loss is recognized by a charge against current operations for the
Other equity investments where the Group has no significant influence (other              excess of the carrying amount of an asset over its recoverable amount, unless
than trading and investment securities, as discussed above) are carried at cost           the asset is carried at a revalued amount, in which case the impairment loss is
less allowance for decline in value, if any. The allowance for decline in value is        charged to the revaluation increment of the said asset. An impairment loss is
set up by a charge to current operations.                                                 charged to operations or to revaluation increment, appropriate, in the year in
                                                                                          which it arises.
Real and Other Properties Owned or Acquired
Real and other properties owned or acquired (ROPOA) are stated at the lower of            A previously recognized impairment loss is reversed by a credit to current oper-
total outstanding exposure at the time of foreclosure or bid price, less allowance        ations, unless the asset is carried at a revalued amount in which case the rever-
for probable losses. Nonrefundable capital gains tax and documentary stamp tax            sal of the impairment loss is credited to the revaluation increment of the same
incurred in connection with foreclosures are capitalized as part of the carrying val-     asset, to the extent that it does not restate the asset to a carrying amount in
ues of the foreclosed properties, provided that such carrying values do not exceed        excess of what would have been determined (net of any accumulated depreci-
net realizable values (NRV). NRV represents the fair market value (determined by          ation and amortization) had no impairment loss been recognized for the asset
an independent firm of appraisers on foreclosed assets valued at —5 million and
                                                                     P                    in prior years.
above and by internal appraiser on those valued below —5 million) less direct costs
to sell. Allowance for probable losses is set up when the carrying value of the           Provisions and Contingencies
ROPOA exceeds its NRV and with consideration of the BSP allowance provisioning            Provisions are recognized when an obligation (legal or constructive) is incurred
requirements. Other costs incurred subsequent to foreclosure, such as security,           as a result of a past event and where it is probable that an outflow of resources
maintenance and other holding costs are charged against current operations.               embodying economic benefits will be required to settle the obligation and a
                                                                                          reliable estimate can be made of the amount of the obligation. If the effect of
Goodwill                                                                                  the time value of money is material, provisions are determined by discounting
Goodwill represents the excess of the cost of the acquisition of former PCI Bank,         the expected future cash flows at a pre-tax rate that reflects current market
which was merged with the Parent Company in 1999, over the fair value of its              assessments of the time value of money and, where appropriate, the risks spe-
identifiable net assets at the date of acquisition. Goodwill is amortized on a            cific to the liability. Where discounting is used, the increase in the provision due
straight-line basis over its useful economic life of 40 years based on the best esti-     to the passage of time is recognized as an Interest Expense.
mate made by the Parent Company’s management (Note 8).
                                                                                          Contingent liabilities are not recognized in the financial statements but are dis-
Goodwill is amortized over the best estimate of its useful life with a rebuttable         closed unless the possibility of an outflow of resources embodying economic bene-
presumption that the useful life is 20 years or less. Where goodwill is amortized         fits is remote. Contingent assets are not recognized but are disclosed in the
over 20 years, regardless of whether there is an indication of impairment or not,         financial statements when an inflow of economic benefits is probable.
goodwill is assessed annually for any impairment in its value. Effective January
1, 2005, as provided under PFRS 3, goodwill will no longer be amortized but will          Income Recognition
remain subject to impairment test on a regular basis.                                     Income is recognized to the extent that it is probable that economic benefits will
                                                                                          flow to the Group and the income can be reliably measured. The following spe-
The Parent Company’s management conducts an annual review for any impair-                 cific recognition criteria must also be met before income is recognized:
ment in value of the goodwill. The impairment on the goodwill is determined
by comparing (a) the carrying value of goodwill plus the net tangible assets of           Interest income
the business acquired and (b) the present value of the annual projected cash              Interest income on receivables from customers is accrued monthly as earned,
flows for five years and the present value of the terminal value of the business          except in the case of nonperforming receivables where interest income on these
acquired from PCIBank computed under the discounted cash flow method.                     receivables is recognized only to the extent of cash collections received.
Among the assumptions used are: (1) the benchmark yield of the 5-year bonds               Unearned discount is recognized as income over the terms of the receivables
of the Republic of the Philippines, the risk premium for and the Beta of the              using the effective interest method.
Parent Company’s stock as of statement of condition date as shown in
Bloomberg in determining its cost of equity; (2) the debt and equity profile of           Capitalized interest income on restructured loans is deferred and shown as
the Parent Company as of balance sheet date; and (3) the average net interest             deduction from Receivables from Customers.
spread and non-interest income growth over the 5-year projection period and
a perpetuity growth rate per year.                                                        Loan fees and service charges
                                                                                          Loan commitment fees are recognized as income over the terms of the related
Based on the results of the impairment test undertaken by the Parent                      credit lines granted to each borrower. Loan syndication fees are recognized upon
Company’s management with consideration of the current and projected levels               completion of all syndication activities and where the Group does not have fur-
of business to be generated from the former PCIBank Group, goodwill will con-             ther obligations to perform under the syndication agreement.
tinue to be amortized over management’s best estimate of its economic life of
40 years which was approved by the BSP.                                                   Service charges and penalties are recognized only upon collection or accrued
                                                                                          where there is reasonable degree of certainty as to its collectibility.
Income Taxes
Deferred income tax is provided, using the balance sheet liability method, on all         Discounts earned on credit cards
temporary differences at the statement of condition date between the tax bases of         Commissions earned by ECN are taken up as income upon receipt from member
assets and liabilities and their carrying amounts for financial reporting purposes.       establishments of charges arising from credit availments by credit cardholders.
                                                                                          These commissions are computed based on certain agreed rates and are deducted
Deferred income tax liabilities are recognized for all taxable temporary differ-          from amounts remittable to member establishments.
ences, including asset revaluations. Deferred income tax assets are recognized for
all deductible temporary differences, carryforward of unused tax credits from             Purchases by the credit cardholders, collectible on installments basis, are recorded
excess minimum corporate income tax (MCIT) and unused net operating loss car-             at the cost of the items purchased plus certain percentage of cost. The excess over
ryover (NOLCO), to the extent that it is probable that taxable profit will be avail-      cost is credited to unearned discount account and is shown as a deduction from the
able against which the deductible temporary differences and carryforward of               Receivables from Customers in the Group’s statements of condition. The unearned
unused tax credits from MCIT and unused NOLCO can be utilized. Deferred income            discount is taken up to income over the installment terms and is computed using
tax, however, is not recognized when it arises from the initial recognition of an         the effective interest method.
asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit or loss.     Income on direct financing leases and receivables financed
                                                                                          Income of PCI Leasing on loans and receivables financed with short-term matu-
Deferred tax liabilities are not provided on non-taxable temporary differences            rities is recognized using the effective interest method.
associated with investments in domestic subsidiaries, associates and interests in
joint ventures. With respect to investments in foreign subsidiaries, associates and       Interest and finance fees on finance leases and loans and receivables financed
interests in joint ventures, deferred tax liabilities are recognized except where the     with long-term maturities and the excess of the aggregate lease rentals plus the
timing of the reversal of the temporary difference can be controlled and it is            estimated residual value of the leased equipment over its cost are credited to
probable that the temporary difference will not reverse in the foreseeable future.        unearned discount and amortized over the term of the note or lease using the
                                                                                          effective interest method. Unearned income ceases to be amortized when
The carrying amount of deferred income tax assets is reviewed at each statement           receivables become past due.
of condition date and reduced to the extent that it is no longer probable that suf-
ficient taxable profit will be available to allow all or part of the deferred income      Retirement Cost
tax asset to be utilized.                                                                 The Group is covered by a noncontributory defined benefit retirement plan.

Deferred income tax assets and liabilities are measured at the tax rates that are         The retirement cost of the Parent Company and its subsidiaries namely ECN,
applicable to the period when the asset is realized or the liability is settled,          EBCII, ESB, EDCI, PCI Capital, EIBI, PCI Leasing, PCIB Securities and PCI
based on tax rates (and tax laws) that have been enacted or substantively enact-          Automation is determined using the projected unit credit method. Under this
ed at the statement of condition date.                                                    method, the current service cost is the present value of retirement benefits

                                                                                                                                2 0 0 4    A N N U A L      R E P O RT     43

payable in the future with respect to services rendered in the current period.          IBODI consists of the following:
The accrued actuarial liability is the present value of benefits payable in the
future with respect to services rendered to date. Unfunded past service costs,                                                 Group                Parent Company
experience adjustments and actuarial gains or losses are amortized over the                                            2004           2003           2004          2003
average remaining working life of employees. Retirement cost includes current                                                          (In Thousands)
service cost, amortization of past service costs, experience adjustments and            Government bonds      —30,994,603
                                                                                                              P               —31,944,573 —30,694,106 —30,665,988
                                                                                                                              P              P             P
actuarial gains and losses, if any.                                                     BSP treasury bills      12,213,130       9,437,973     12,021,968     9,422,657
                                                                                        Private bonds            5,012,494       4,859,933      4,717,602     4,587,692
Most of the officers and staff of EPHK, ESHC, JEFC and PCIB Properties are sec-         Treasury notes           1,375,181         696,448      1,130,283       696,448
onded from the Parent Company. Accordingly, the retirement benefits of these            Others                   2,480,477         250,782      1,840,551       195,291
officers and employees are determined and provided for by the Parent                                            52,075,885      47,189,709     50,404,510    45,568,076
Company and are charged against current operations.                                     Less allowance for
                                                                                          probable losses
Foreign Currency Transactions and Translation                                             (Note 10)                17,696     154,286             15,645     124,645
Foreign currency denominated resources and liabilities are translated using the                               —52,058,189 —47,035,423
                                                                                                              P           P                  —50,388,865 —45,443,431
                                                                                                                                             P           P
PDSWAR prevailing at the end of the year; income and expenses are translated
based on the average PDSWAR during the year.                                            IBODI includes US dollar-denominated bonds amounting to US$630 million
                                                                                        ( —35.5 billion) and US$590 million ( —33.2 billion) as of December 31, 2004 and
                                                                                          P                                   P
Financial statements of consolidated foreign subsidiaries that are integral to the      2003, respectively.
operations of the Group are translated as if the transactions of the foreign sub-
sidiaries had been those of the Parent Company. At each statement of condition          As of December 31, 2004 and 2003, the market values of the IBODI are as follows:
date, foreign currency monetary items are translated using the PDSWAR; non-
monetary items which are carried at historical cost are translated using the histor-                                           Group               Parent Company
ical rate prevailing as of the date of acquisition; non-monetary items which are                                       2004          2003           2004         2003
carried at fair value are translated using the exchange rate prevailing when the                                                     (In Thousands)
values were determined and; income and expense items are translated at the              Government bonds      —30,249,012
                                                                                                              P               —31,087,940 —29,948,515 —29,809,354
                                                                                                                              P             P             P
exchange rates prevailing on transaction dates. Resulting exchange differences          BSP treasury bills      12,129,635      9,399,057     11,938,472    9,383,742
are credited to or charged against current operations.                                  Private bonds            4,769,569      4,714,558      4,474,677    4,442,318
                                                                                        Treasury notes           1,353,814        576,664      1,108,916      698,297
Leases                                                                                  Others                   2,480,477        921,781      1,840,552      866,289
Finance leases, which transfer to the Group substantially all the risks and bene-                             —50,982,507
                                                                                                              P               —46,700,000 —49,311,132 —45,200,000
                                                                                                                              P             P             P
fits incidental to 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      Peso-denominated IBODI bear nominal annual interest rates ranging from 4.0%
value of the minimum lease payments. Lease payments are apportioned                     to 11.0% in 2004 and from 4.0% to 14.0% in 2003; for foreign currency-
between the finance charges and reduction of the lease liability so as to achieve       denominated IBODI, annual interest rate range from 1.5% to 14.0% in 2004 and
a constant rate of interest on the remaining balance of the liability. Finance          from 1.5% to 12.3% in 2003.
charges are charged directly against income.
                                                                                        As of December 31, 2004, the subordinated notes (included under Private
Capitalized leased assets are depreciated over the shorter of the estimated use-        bonds) represent investments in Global Ispat Holdings, Inc. (GIHI) and Global
ful lives of the assets or the respective lease terms.                                  Steelworks International, Inc. (GSII) which assumed the liabilities of National
                                                                                        Steel Corporation (NSC).
Leases where the lessor retains substantially all the risks and benefits of own-
ership of the asset are classified as operating leases. Operating lease payments        On October 15, 2004, GIHI and GSII (SPV companies), and the NSC Creditors
are recognized as an expense in the statements of income on a straight-line             entered into an agreement which sets forth the terms and conditions upon
basis over the lease term.                                                              which the NSC Creditors have agreed to accept zero interest coupon notes in
                                                                                        the aggregate amount of —12.3 billion to be issued by SPV companies in set-
Derivative Instruments                                                                  tlement of the liabilities of NSC.
The Parent Company and some of its subsidiaries are counterparties to derivative
contracts entered into as a service to customers and as a means of reducing or          The zero-interest coupon notes were issued in two tranches, namely, (a) Tranche
managing their respective foreign exchange and interest rate exposures.                 A Note in the principal amount of —2.0 billion and (b) Tranche B Note in the
                                                                                        principal amount of —10.3 billion, which notes are secured by a first ranking
For foreign exchange forward contracts that are designated and qualify as               mortgage and security interest over the NSC plant assets and stand-by letters of
hedges, the difference between the contracted forward rate and the spot rate            credit by the SPV companies in accordance with the schedule in the agreement.
at contract date is deferred and recognized as income or expense over the life
of the hedged instrument while gain or loss in the revaluation of the forward           On October 15, 2004, the Parent Company received Tranche A Note at principal
contract is recognized currently in the statements of income. For forward con-          amount of —78.3 million and Tranche B Note at principal amount of
tracts not designated as hedges, the changes in mark to market values are rec-          —328.2 million in exchange of the outstanding receivable from NSC of
ognized currently in the statements of income.                                          —549.5 million. The Parent Company carried the subordinated notes at dis-
                                                                                        counted values using a discount rate of 13.2%.
The differentials paid or received under interest rate swap agreements are
accrued and recognized over the life of the agreements as swap cost or income.
In the case of an early termination of an interest rate swap, gains or losses           4. Receivables from Customers
resulting from the early termination are deferred and amortized as an adjust-
ment of the yield of the related debt instrument over the remaining period              This account consists of:
originally covered by the terminated swap.
                                                                                                                               Group                Parent Company
Earnings Per Share                                                                                                    2004             2003         2004        2003
Basic earnings per share is computed by dividing net income for the year by the                                                        (In Thousands)
weighted average number of shares outstanding during the year after giving              Loans and lease
                                                                                          receivables          —102,555,828 —107,280,727 —89,656,356 —97,040,132
                                                                                                               P              P             P             P
retroactive effect to stock dividends declared during the year, if any.
                                                                                        Customers’ liabilities
Cash and Cash Equivalents                                                                 on acceptances,
For purposes of reporting cash flows, cash and cash equivalents include cash              letters of credit
and other cash items, amounts due from BSP and other banks and interbank                  and trust receipts      25,849,323    18,410,203    25,849,323    18,404,657
loans receivable and securities purchased under resale agreements (Note 27)             Receivables from
with maturities of three months or less from dates of placements and that are             cardholders              7,509,421     5,809,307             –             –
subject to insignificant risk of changes in value.                                      Bills purchased           16,276,848     9,074,928    16,253,638     9,074,928
                                                                                                                 152,191,420 140,575,165 131,759,317 124,519,717
Fiduciary Activities                                                                    Receivable from SPV
Assets and income arising thereon together with related undertakings to return            (Note 28)                        –             –     2,424,742             –
such assets to customers are excluded from these financial statements where                                      152,191,420 140,575,165 134,184,059 124,519,717
the Bank acts in a fiduciary capacity such as nominee, trustee or agent.                Unearned discount
                                                                                          and capitalized
Subsequent Events                                                                         interest                (2,869,023)   (2,594,954) (1,698,607)     (1,875,063)
Any post year-end event that provides additional information about the Group’s          Allowance for
position at the statement of condition date (adjusting event) is reflected in the         probable losses
financial statements. Post year-end events that are not adjusting events, if any, are     (Note 10)              (11,496,894) (17,006,027) (11,263,087) (15,794,741)
                                                                                                               —137,825,503 —120,974,184 —121,222,365 —106,849,913
                                                                                                               P              P            P             P
disclosed when material to the financial statements.

3. Trading and Investment Securities                                                    The Parent Company’s receivables from customers amounting to —1.6 billion and
                                                                                        —1.0 billion as of December 31, 2004 and 2003, respectively, were pledged as col-
TAS includes net unrealized loss amounting to —20.8 million and net unreal-
                                                 P                                      laterals with the BSP to secure borrowings under rediscounting privileges. In
ized gain of —12.8 million for the Group, of which net unrealized loss of —17.9
             P                                                            P             addition, receivables from customers amounting to —5.0 billion and —4.1 billion
                                                                                                                                             P                  P
million and net unrealized gain of —4.6 million pertain to the Parent Company
                                    P                                                   as of December 31, 2004 and 2003, respectively, have been rediscounted under
in 2004 and 2003, respectively.                                                         the Development Bank of the Philippines (DBP), Land Bank of the Philippines
                                                                                        (LBP) and Social Security System (SSS) rediscounting facilities (Note 12).
ASS is net of accumulated unrealized loss of —54.5 million in 2004 and —64.4
                                             P                         P
million in 2003 for the Group, and —6.0 million in 2004 and —1.0 million in
                                    P                          P                        Current bank regulations allow banks with no unbooked valuation reserves and
2003 for the Parent Company.                                                            capital adjustments required by the BSP to exclude from nonperforming classi-

44 E Q U I T A B L E P C I B A N K
fication those loans that are fully provided with allowance for probable losses,       Information on the concentration of credit as to economic activity and industry
provided that interest on said loans shall not be accrued. Accordingly, NPLs not       sub-sectors follow:
fully covered by allowance for probable losses as of December 31, 2004 and
2003 follow:
                                                                                                                                  2004                  2003
                                                                                                                              Amount                Amount
                                      Group           Parent Company
                                                                                                                       (In Thousands)      % (In Thousands)        %
                              2004      2003           2004        2003
                                          (In Thousands)                                                                 —16,852,470 11.07 —16,393,676 11.66
                      —15,656,540 —23,016,270 —14,003,755 —21,617,074                     Consumer goods                  P                     P
NPLs                  P           P             P            P
                                                                                          Capital goods                     15,191,418   9.98     14,574,487 10.37
Less NPLs fully
                                                                                          Intermediate goods                14,931,115   9.81     14,553,215 10.35
  provided with
                                                                                       Wholesale and retail                 34,284,153 22.53      29,528,148 21.01
  allowance for
                                                                                       Other community, social
  probable losses       3,832,818   7,759,682        3,270,645   7,201,116
                      —11,823,722 —15,256,588      —10,733,110 —14,415,958                and personal services             22,424,236 14.73      19,635,194 13.97
                      P           P                P           P
                                                                                       Financial intermediation,
                                                                                          renting and business activities 12,855,524     8.45     13,143,805     9.35
Restructured loans of the Parent Company as of December 31, 2004 and 2003              Transport, storage and
amounted to —14.0 billion and —16.1 billion, respectively.
              P                 P                                                         communications                    10,900,386   7.16     12,561,208     8.94
                                                                                       Real estate                           8,897,722   5.85      8,557,109     6.09
The Parent Company’s loan portfolio includes non-risk loans, as defined under          Electricity, gas and water            7,258,136   4.77      3,427,855     2.44
BSP regulations, totaling —14.7 billion and —16.0 billion as of December 31,
                          P                 P                                          Agriculture, hunting and forestry 2,182,157       1.43      2,464,843     1.75
2004 and 2003, respectively.                                                           Mining and quarrying                  1,946,447   1.28        989,420     0.70
                                                                                       Construction                          1,683,147   1.11      2,095,220     1.49
As of December 31, 2004 and 2003, 64.5% and 77.0% of the total loans of the            Others                                2,784,509   1.83      2,650,985     1.88
Group are subject to periodic interest repricing, respectively. Remaining loans                                         —152,191,420 100.00 —140,575,165 100.00
                                                                                                                        P                     P
earn annual fixed interest rates ranging from 5.2% to 49.9% for peso loans and
from 2.3% to 11.0% for foreign currency loans in 2004 and from 4.1% to 26.4%
                                                                                                                                 Parent Company
for peso loans and from 2.0% to 10.6% for foreign currency loans in 2003.
                                                                                                                               2004                 2003
                                                                                                                            Amount               Amount
The following table shows information relating to receivables from customers
                                                                                                                     (In Thousands)      % (In Thousands)      %
by collateral:
                                                                                          Consumer goods                 —16,735,133 12.70 —16,254,525 13.05
                                                                                                                          P                    P
                                                                                          Intermediate goods                14,472,086 10.98     13,961,635 11.21
                                     2004                    2003
                                                                                          Capital goods                     14,066,089 10.68     13,901,589 11.16
                                  Amount                  Amount
                                                                                       Wholesale and retail                 33,103,337 25.12     28,224,651 22.67
                           (In Thousands)         % (In Thousands)           %
                                                                                       Financial intermediation,
Secured by:
                            —36,246,185                  —37,031,181                      renting and business activities 14,055,066 10.67       14,498,877 11.65
  Real estate                P                 23.82      P               26.34
                                                                                       Transport, storage and
  Trust receipts               18,026,136      11.84        16,604,349    11.81
                                                                                          communications                     9,557,224  7.25     11,261,460  9.04
  Chattel                      10,642,637       6.99         9,213,874     6.56
                                                                                       Real estate                           8,366,555  6.35      7,900,873  6.35
  Mortgage trust indenture      8,614,739       5.66         9,064,568     6.45
                                                                                       Electricity, gas and water            7,057,083  5.36      3,169,573  2.55
  Bank deposits                 5,879,478       3.86         4,392,043     3.12
                                                                                       Other community, social
  Shares of stock               2,915,307       1.92         6,776,851     4.82
                                                                                          and personal services              6,622,684  5.03      7,651,584  6.15
  Warehouse receipts               16,847       0.01           184,616     0.13
                                                                                       Mining and quarrying                  1,938,217  1.47        987,552  0.79
  Others                        4,438,686       2.92         3,762,726     2.68
                                                                                       Agriculture, hunting and forestry 1,925,701      1.46      2,268,916  1.82
                               86,780,015      57.02        87,030,208    61.91
                                                                                       Construction                          1,287,505  0.98      1,937,715  1.56
Unsecured                      65,411,405      42.98        53,544,957    38.09
                          —152,191,420                  —140,575,165                   Others                                2,572,637  1.95      2,500,767  2.00
                           P                  100.00    P                100.00                                        —131,759,317 100.00 —124,519,717 100.00
                                                                                                                        P                    P
                                            Parent Company
                                                                                       The BSP considers that credit concentration risk exists when the total loan expo-
                                     2004                    2003
                                                                                       sure to a particular industry or economic sector exceeds 30% of the total loan
                                  Amount                  Amount
                           (In Thousands)         % (In Thousands)           %
Secured by:
                            —31,642,076                  —32,594,965                   Receivable from SPV represents the amount due from the sale of certain nonper-
  Real estate                P                 24.02      P               26.18
                                                                                       forming assets (NPAs) of the Parent Company to an SPV in 2004 (Note 28). The sale
  Trust receipts               18,026,136      13.68        16,604,349    13.33
                                                                                       and purchase agreement was formalized in November 2004 and approved in prin-
  Mortgage trust indenture      8,531,406       6.47         9,064,568     7.28
                                                                                       ciple by the BSP in December 2004 having qualified as a true sale.
  Bank deposits                 5,783,172       4.39         4,319,648     3.47
  Chattel                       3,507,859       2.66         3,924,156     3.15
                                                                                       The more significant terms of the sale are as follows:
  Shares of stock               2,892,961       2.20         6,772,934     5.44
  Warehouse receipts               15,086       0.01            67,922     0.05        a. Certain NPAs of the Parent Company were purchased by the SPV for a total
  Others                        1,877,054       1.42         3,570,990     2.87           consideration of —3.3 billion.
                               72,275,750      54.85        76,919,532    61.77
Unsecured                      59,483,567      45.15        47,600,185    38.23        b. The agreed purchase price of the NPAs was and shall be paid as follows:
                           P                  100.00    —124,519,717
                                                        P                100.00
                                                                                         i. An initial amount of —0.5 billion, booked as part of Accounts Receivable
                                                                                             under Other Assets; and
                                                                                         ii. The balance of P—2.8 billion, through issuance of SPV Notes (the Notes),
                                                                                             which shall be paid based on a cashflow waterfall arrangement and inter-
                                                                                             est rate of 20% per annum.

5. Property and Equipment

The composition of and movements in this account in 2004 follow:

                                                            At Appraised
                                                                   Value                                             At Cost
                                                                                                              Leasehold         Fixtures and
                                                                    Land             Buildings      Improvements - net            Equipment                 Total
                                                                                                     (In Thousands)
Cost/Appraised Value
Balance, January 1, 2004                                      —5,373,121
                                                              P                    —6,511,442
                                                                                   P                          —526,360
                                                                                                              P                  —7,837,063
                                                                                                                                 P                  —14,874,865
Additions                                                          60,682              155,337                   74,314            2,249,124           2,478,775
Disposals                                                       (100,479)            (270,227)                (151,898)            (415,710)           (837,835)
Balance, December 31, 2004                                      5,333,324            6,396,552                  448,776            9,670,477          16,515,805
Accumulated Depreciation and Amortization
Balance, January 1, 2004                                               –             1,265,255                         –           5,390,491            6,655,746
Depreciation and amortization                                          –               197,519                  119,318              895,555            1,212,392
Disposal                                                               –                40,943                   (7,640)             583,715              617,018
Balance, December 31, 2004                                             –             1,503,717                  111,678            6,869,761            8,485,156
Net Book Value, December 31, 2004                             —5,333,324
                                                              P                    —4,892,835
                                                                                   P                          —337,098
                                                                                                              P                  —2,800,716
                                                                                                                                 P                    —8,030,649
Net Book Value, December 31, 2003                             —5,373,121
                                                              P                    —5,246,187
                                                                                   P                          —526,360
                                                                                                              P                  —2,446,572
                                                                                                                                 P                    —8,219,119

                                                                                                                           2 0 0 4   A N N U A L     R E P O RT      45

                                                                                                       Parent Company
                                                           At Appraised
                                                                  Value                                              At Cost
                                                                                                              Leasehold           Fixtures and
                                                                   Land             Buildings       Improvements - net              Equipment                        Total
                                                                                                     (In Thousands)
Cost/Appraised Value
Balance, January 1, 2004                                     —5,238,711
                                                             P                    —6,401,944
                                                                                  P                            —464,954
                                                                                                               P                      —6,157,467
                                                                                                                                      P                   —13,024,365
Additions                                                         33,995              155,337                     71,179                1,762,643            1,989,159
Disposal                                                         (73,358 )            (57,728)                   (42,582 )               (293,250)            (393,560)
Balance, December 31, 2004                                     5,199,348            6,499,553                    493,551                7,626,860           14,619,964
Accumulated Depreciation and Amortization
Balance, January 1, 2004                                              –             1,112,869                           –               4,287,225            5,400,094
Depreciation and amortization                                         –               170,047                    108,088                  674,010              952,145
Disposal                                                              –                48,776                     (7,640)                 804,674              845,810
Balance, December 31, 2004                                            –             1,331,692                    100,448                5,765,909            7,198,049
Net Book Value, December 31, 2004                            —5,199,348
                                                             P                    —5,167,861
                                                                                  P                            —393,103
                                                                                                               P                      —1,860,951
                                                                                                                                      P                    —7,421,915
Net Book Value, December 31, 2003                            —5,238,711
                                                             P                    —5,289,075
                                                                                  P                            —464,954
                                                                                                               P                      —1,870,242
                                                                                                                                      P                    —7,624,271

Effective January 1, 2002, the Group carries its land used for its banking premises at appraised value. The Group had such land reappraised in 2002 and 2004, in accor-
dance with Philippine GAAP. The additional appraisal increment resulting from this accounting change resulted in an increase in Property and Equipment by —300.7P
million (including Revaluation Increment in Land of ECN and ESB amounting to —14.6 million and —6.6 million, respectively) and an increase in Revaluation Increment
                                                                                  P                  P
in Property amounting to —292.5 million (shown as part of capital funds). The cost of land of the Parent Company, ECN and ESB amounts to —3.3 billion, —76.1 mil-
                           P                                                                                                                   P            P
lion and —9.0 million, respectively. In addition, the Group opted to revert to cost (from appraisal value) method of accounting for buildings. Such accounting change
decreased Property and Equipment and Revaluation Increment by —263.2 million. This accounting change also resulted to a reduction in depreciation (relating to
appraisal increment) by —46.9 million in 2002 and the reversal of —111.2 million in depreciation in prior years relating to the appraisal increment. The reversal of
                          P                                            P
depreciation on appraisal increment in prior years was applied retroactively.

6. Equity Investments

This account consists of investments in:

                                                                                   Group                                          Parent Company
                                                                                               2003                                                          2003
                                                                      2004             (As restated)                          2004                   (As restated)
                                                                                                         (In Thousands)
At equity:
   Acquisition cost of:
   Wholly and majority owned (Note 2)
      PCI Leasing                                                      —–
                                                                       P                         —–
                                                                                                 P                   —1,854,073
                                                                                                                     P                                —1,854,073
      PCI Capital                                                        –                         –                   1,719,483                        1,719,483
      ESHC                                                               –                         –                   1,000,000                        1,000,000
      ECN                                                                –                         –                     736,250                          736,250
      EBCII                                                              –                         –                     500,000                          500,000
      PCIB Properties                                                    –                         –                     375,128                          375,128
      ESB                                                                –                         –                     300,000                          300,000
      PCI Express HK                                                     –                         –                     215,282                          215,282
      Maxicare                                                           –                         –                      88,593                           88,593
      JEFC                                                               –                         –                      50,000                           50,000
      Equimark                                                           –                         –                      44,997                           44,997
      EDCI                                                               –                         –                      40,000                           40,000
      PCIB Securities                                                    –                         –                      39,177                           39,177
      EPCI Cayman                                                        –                         –                      38,399                           38,399
      PCIB S.p.A.                                                        –                         –                      32,921                           32,921
      PCI Realty                                                         –                         –                      33,510                           33,510
      Express Padala L.A.                                                –                         –                      26,494                           26,494
      Express Padala H.K.                                                –                         –                      27,956                           27,956
      PCI Insurance                                                      –                         –                       7,800                            7,800
      PCI Automation                                                     –                         –                       7,443                            7,443
      Others                                                             –                         –                       6,320                            6,320
   Significantly owned:
      Jardine Land, Inc. (JLI) (20%)                               232,000                  232,000                         232,000                       232,000
      Taal Land, Inc. (33%)                                        170,000                  170,000                         170,382                       170,382
      Maxicare                                                           –                  119,510                               –                             –
      Securities Clearing Corporation of the
           Philippines (SCCP) (22%)                                     –                    11,000                               –                        11,000
      Medilink Network, Inc. (40%)                                 10,000                    10,000                               –                             –
      PCI Travel Corporation (35%)                                  4,424                     4,424                               –                             –
      Unicorn First Properties (UFP) (35%)                          3,500                     3,500                           3,500                         3,500
      Cameron Granville Asset Management (25%)                     31,250                         –                          31,250                             –
                                                                  451,174                   550,434                       7,580,958                     7,560,708
   Accumulated equity in net earnings (losses):
      Balance at beginning of year                               (179,182)                 (149,503)                    6,842,623                       5,918,170
      Equity in net earnings (losses)                             (21,748)                  (29,679)                      855,279                       1,008,060
      Disposal                                                      77,834                         –                        7,110                          81,714
      Dividends received                                                 –                         –                  (1,194,837)                       (165,321)
      Accumulated equity in net earnings at
          the time of merger                                             –                         –                  (3,038,303)                     (3,038,303)
      Balance at end of year                                     (123,096)                 (179,182)                    3,471,872                       3,804,320
   Equity in net unrealized loss on ASS
      of a subsidiary                                                   –                         –                      (48,581)                         (63,374)
   Equity in revaluation increment on land of subsidiary                –                         –                        17,914                           13,450
                                                                  328,078                   371,252                   11,022,163                       11,315,104
At cost - other investments                                     3,099,966                 2,804,982                      936,035                          966,070
Less allowance for probable losses (Note 10)                    1,146,356                   663,077                      696,547                          322,610
                                                                1,953,610                 2,141,905                      239,488                          643,460
                                                              P                         —2,513,157
                                                                                        P                           —11,261,651
                                                                                                                    P                                —11,958,564

Under the BSP regulations, the use of the equity method of accounting for investment in shares of stock is allowable only when ownership is more than 50%. The
use of the equity method of accounting for equity interests of 20% to 50% is being made for financial reporting purposes only to comply with the Philippine GAAP
and is not intended for BSP reporting purposes.

The costs of equity investments in subsidiaries have been retroactively adjusted to reflect the new cost basis at the time of acquisition by the Parent Company.

On August 1997, CIGNA and the Parent Company entered into a joint venture agreement to each acquire 30% of Maxicare in consideration for the amount
of —119.5 million each. On 2004, CIGNA conveyed to the Parent Company its entire shareholdings in Maxicare (totaling 30%) for a nominal sum of —1. No other
   P                                                                                                                                                  P
consideration, in cash or property, will be paid or delivered by Parent Company to CIGNA in exchange for CIGNA’s shares. With the increase of the Parent Company’s
share from 30% to 60%, the accounts have been included into the Group financial statements.

46 E Q U I T A B L E P C I B A N K
On December 20, 2004, the BSP approved the capital infusion of the Parent              On October 20, 2004, the BSP approved the request of the Parent Company to
Company to Mindanao Development Bank (MDB) pursuant to the plan of merg-               write off long-outstanding float items with a net credit balance of
er between ESB and MDB. On November 23, 2004, the BOD of the Parent                    —129.3 million subject to certain conditions.
Company approved the conversion of its interbank placements and advances to
MDB amounting to —2.1 billion into common shares in accordance with the
                    P                                                                  Assets held by SPV consists mainly of certain loans and ROPOA as of December
merger incentives approved by the BSP.                                                 31, 2004.

On October 24, 2003, a deed of assignment was made and executed with the               On October 17, 2002, the BSP approved the Parent Company’s request to write
Philippine American Life and General Insurance Company covering the sale of            off long-outstanding interoffice float items. Accordingly, the Parent Company
the Parent Company’s 95% share in Equitable PCI Life Insurance Corporation             wrote off against the allowance for probable losses long-outstanding interof-
(EPCI Life), a formerly wholly owned subsidiary. The estimated gain arising from       fice floats - net debit balance amounting to —340.4 million.
this transaction amounting to —1.0 million is temporarily included in Other
Liabilities in the statements of condition pending final arrangements depend-          As of December 31, 2004 and 2003, interoffice float items outstanding for more
ing on the due diligence review being undertaken on EPCI Life. The Parent              than 60 days amounted to —179.0 million and —214.0 million (net debit bal-
                                                                                                                 P                      P
Company’s remaining equity in EPCI Life of 5% as of December 31, 2003 is               ance), respectively, for which a full provision has been established.
accounted for at cost.                                                                 Management believes that no material unreserved losses will be incurred by the
                                                                                       Parent Company on interoffice float items.
The Parent Company’s equity in net earnings of EPCI Life through the date of
disposal amounting to —1.3 million was included in the statements of income.
                      P                                                                Other investments include the Group’s investments in Bank of Commerce with
                                                                                       net carrying value of —151.3 million as of December 31, 2004 and 2003.

7. Real and Other Properties Owned or Acquired                                         The BODs of ESB and MDB approved the Plan of Merger of ESB and MDB (with
                                                                                       ESB as the surviving corporation) on November 23, 2004 and November 18,
Details of this account follow:                                                        2004, respectively. Thereafter, the shareholders of MDB and ESB approved such
                                                                                       Plan of Merger on December 6, 2004 and November 23, 2004, respectively.
                                          Group               Parent Company           Under, the Plan of Merger, owing to the capital deficiency of MDB, ESB will not
                                 2004           2003           2004        2003        issue any shares of stock to the shareholders of MDB.
                                                  (In Thousands)
ROPOA                    —16,709,795
                         P                —17,630,800 —15,133,538 —16,287,019
                                          P             P            P                 On December 28, 2004, the BSP approved the merger between ESB and MDB
Less allowance for                                                                     subject to certain administrative conditions, which include, among others, sub-
  probable losses                                                                      mission to the BSP of the Philippine Deposit Insurance Corporation’s (PDIC’s)
  (Note 10)                1,063,002          794,090     923,350     698,718          written consent to the merger. Among others, the incentives approved by the
                         P                —16,836,710 —14,210,188 —15,588,301
                                          P           P           P                    BSP follow:

                                                                                       a. Conversion of the MDB Head Office and the 13 MDB branches closed in 2004
                                                                                          into ESB branches and their relocation within a period of one year from date
8. Goodwill                                                                               of merger;
Details of this account follow:                                                        b. Transfer of all rights, privileges, immunities, permits, licenses, franchises and
                                                           2004               2003        powers of MDB to ESB except for (a) the FCDU license, which has been
                                                               (In Thousands)             revoked by BSP effective March 7, 2004 and (b) the trust license provided
Goodwill, gross                                      —17,585,186
                                                     P                —17,585,186
                                                                      P                   that the merged bank should comply first with all the prerequisites under
Accumulated amortization:                                                                 Circular No. 348 dated August 20, 2002;
  Balance at beginning of year                         1,905,062          1,465,432
  Amortization                                           439,630            439,630    c. ESB will retain MDB’s trust license with the required trust duties of at least
  Balance at end of year                               2,344,692          1,905,062       —500,000 in MDB’s name on deposit with BSP to be transferred to ESB;
                                                     P                  —15,680,124
                                                                                       d. Amortization of all merger costs, including retrenchment costs for a period
The annual goodwill amortization amounting to —439.6 million is included in
                                                P                                         not exceeding five years;
Miscellaneous Expenses in the statements of income (Note 20). The goodwill’s
remaining life as of December 31, 2004 and 2003 is 34.7 years and 35.7 years,          e. Capital infusion by the Parent Company of —1 billion into ESB;
                                                                                       f. Conversion of the Parent Company’s outstanding interbank call loans and
                                                                                          advances granted to MDB into ESB common shares subject to compliance
9. Other Resources                                                                        with the procedural requirements and various bank regulatory ceilings and
                                                                                          subject to the SEC approval;
This account consists of:
                                                                                       g. Temporary relief for six months from the compliance with the prescribed
                                           Group                Parent Company            capital adequacy ratio and the 20% ceiling on the nonperforming loan to
                                 2004              2003           2004       2003         total loans ratio if such ratios are not complied with as a result of the merg-
                                                   (In Thousands)                         er;
Deferred tax assets -
  net (Note 21)            —7,391,834
                            P              —5,541,447
                                           P              —6,983,005
                                                          P              —5,058,612
                                                                         P             h. Revaluation of bank premises, improvements and bank equipment, with the
Investments in real                                                                       appraisal increment forming part of capital provided that the merged bank
  estate                      5,231,924     4,441,453               –              –      will meet the existing capital requirement after all the adjustments are taken
Advances to subsidiaries,                                                                 up in the books of accounts of the merged bank but before considering
  associates and other                                                                    appraisal increments;
  related parties
  (Notes 15 and 25)           4,660,552     2,550,988       8,173,852      8,043,679   i. Access to rediscounting window up to a ceiling of 150% of adjusted capital
Assets held by SPV                                                                        accounts for a period of one year, reckoned from the date of merger, pro-
  (Note 28)                   2,811,315              –              –              –      vided the merged bank meets the required net worth to risk assets ratio and
Accrued interest                                                                          all of the other requirements for rediscounting;
  receivable (AIR)
  (Notes 15 and 25)           2,523,572     2,541,617       2,392,516      2,417,963   j. Any right or privilege granted to MDB under its Rehabilitation Plan previ-
Interoffice float items -                                                                 ously approved by the MB or under any special authority granted by the MB
  net (Note 15)               2,387,584     2,015,236       2,247,062      1,688,727      shall continue to be in effect.
Accounts receivable
  (Notes 15, 25 and 28) 1,575,339           3,656,898       2,892,415      2,368,357   On December 29, 2004, the SEC approved the Articles and Plan of Merger of
Foreign currency notes                                                                 MDB and ESB.
  and coins on hand           1,176,079     1,160,987       1,176,015      1,159,684
Sales contracts                                                                        On January 19, 2005, the PDIC gave consent to the merger of ESB and MDB sub-
  receivable (Note 15)        1,113,519     1,236,754       1,097,950      1,186,674   ject to the following conditions:
Other investments             1,090,515       953,949         641,293        930,035
Prepayments                     408,660       473,909         226,752        264,708   a. MDB shall submit a certification to PDIC within 30 days from PDIC notifica-
Returned checks and                                                                       tion of its consent to the merger, that its depositors and creditors have been
  other cash items                                                                        given notice of the i) merger proposal; ii) full implications of ESB’s absorp-
  (Note 15)                     291,073       983,135        282,468         968,385      tion of MDB’s deposits liabilities; iii) depositors’ option to either withdraw
Miscellaneous checks                                                                      their deposits from MDB or maintain their accounts with ESB as surviving
  and other cash items          268,271       518,915         265,455        518,915      entity; and
Miscellaneous                 3,597,722     2,549,433       1,615,224      1,042,857
                             34,527,959    28,624,721      27,994,007     25,648,596
Less allowance for                                                                     b. Letter of Guaranty from the Parent Company, which wholly owns ESB, that
  probable losses                                                                         part of the committed fresh capital infusion in the amount of —1.0 billion
  (Note 10)                   4,444,923     2,196,908      1,887,785   1,481,758          would be immediately infused into ESB to assure funding for any withdraw-
                          P               —26,427,813
                                          P              —26,106,222 —24,166,838
                                                         P           P                    al of MDB deposits and payment of MDB’s other liabilities as they fall due.

As of December 31, 2004 and 2003, the appraised value of the Group’s invest-           Pursuant to the Plan of Merger, the effective date of merger was December 29,
ments in real estate amounted to —4.9 billion and —4.6 billion, respectively.
                                 P                P                                    2004, the date the SEC approved the Articles and Plan of Merger. The merger

                                                                                                                            2 0 0 4    A N N U A L      R E P O RT      47

constituted a tax-free reorganization and has been accounted for under the                The total liquidity and statutory reserves set aside are as follows:
pooling of interest method. Accordingly, the amounts reflected in the financial
statements of ESB as of December 31, 2004 were combined on a line-by-line                                                           Group                  Parent Company
basis with MDB’s 2004 accounts (net of material intercompany balances and                                                   2004             2003           2004           2003
transactions between ESB and MDB). For comparative purposes, ESB’s financial                                                                 (In Thousands)
statements as of December 31, 2003 were restated to include the amounts                   Cash                      —7,369,125
                                                                                                                     P               —7,221,979 —7,285,405 —7,124,666
                                                                                                                                      P              P              P
reflected in the financial statements of MDB as of December 31, 2003 (net of              Due from BSP                 2,007,833        5,286,693      1,751,379      5,129,645
material intercompany balances and transactions between ESB and MDB).                     IBODI                       14,318,939       12,287,492     14,200,310     12,205,795
                                                                                                                   P                —24,796,164 —23,237,094 —24,460,106
                                                                                                                                    P              P              P
In October 2002, ESHC signed a share purchase and sale agreement with another
local commercial bank for the sale of Ecology at a base purchase price that approx-
imates the carrying value of the ESHC’s investment in Ecology. The deed of sale           12. Bills Payable
was executed by ESHC in January 2003 to evidence the consummation of the sale
transaction. The investment carried an adequate provision and, accordingly, no            This account consists of borrowings from:
further loss was recognized at the time of sale.
                                                                                                                                    Group               Parent Company
Miscellaneous assets include the amount of —504.4 million as of December 31,
                                            P                                                                               2004           2003          2004         2003
2003 consisting of input value-added tax (VAT), debt issuance costs, revaluation                                                           (In Thousands)
of forward contracts and sundry debits which pertain to unposted deposit with-            Foreign banks            —15,843,383
                                                                                                                   P                —16,964,029 —15,843,383 —22,177,285
                                                                                                                                    P            P             P
drawals.                                                                                  BSP                        1,810,298        1,292,738     1,604,861     1,042,832
                                                                                          Local banks                1,189,740        1,876,560             –             –
The Group’s management believes that adequate allowance for probable loss-                Others                     5,156,435        9,426,469     4,976,219     4,152,661
es has been made on Other Resources and does not anticipate any material                                           —23,999,856
                                                                                                                   P                —29,559,796 —22,424,463 —27,372,778
                                                                                                                                    P            P             P
adverse effect on the Group’s financial statements upon the realization of these
                                                                                          Interbank borrowings with foreign and local banks are mainly short-term bor-
                                                                                          rowings. Peso borrowing are subject to annual fixed interest rates ranging
                                                                                          from 1.1% to 3.2% in 2004 and from 1.2% to 2.6% in 2003; for foreign denom-
10. Allowance for Probable Losses
                                                                                          inated borrowings, annual fixed interest rates range from 5.2% to 7.9% in 2004
                                                                                          and from 4.2% to 6.4% in 2003.
Changes in the allowance for probable losses follow:
                                                                                          Bills payable - BSP mainly represent term borrowings availed through normal
                                         Group                  Parent Company
                                                                                          open market transactions with the BSP. These are collateralized by eligible
                               2004              2003           2004        2003
                                                                                          receivables from customers. Bills payable - others mainly represent funds
                                                 (In Thousands)
                                                                                          obtained from DBP, LBP and SSS, which the Parent Company relends to bor-
Balance at beginning of year
                          —154,286          —153,200        —124,645       —119,592       rowers availing of certain financing programs of these institutions (Note 4).
  IBODI                   P                 P               P              P
  Receivables from
    customers            17,006,027        15,626,493      15,794,741      14,510,139
  Equity investments         663,077          612,767         322,610         322,610     13. Subordinated Debt
  ROPOA                      794,090          802,390         698,718         679,061
  Other resources         2,196,908         2,578,680       1,481,758       1,663,905     On October 15, 2002, the Parent Company’s BOD approved the raising of Lower
                         20,814,388        19,773,530      18,422,472      17,295,307     Tier 2 capital through the issuance in the international capital market of subordi-
Provisions                4,139,985         2,232,850       3,314,160       1,501,957     nated bonds maturing in 10 years but with a call option exercisable after 5 years
Accounts written off        (331,295)        (377,285)              –          (1,753)    subject to the provisions of BSP Circular No. 280. The bonds bear a coupon rate
Reversals and other                                                                       of 9.4% per annum with provision for step-up after 5 years.
  adjustments            (6,454,207)         (814,707)     (6,950,218)       (373,039)
Balance at end of year                                                                    The issuance of the foregoing subordinated bonds under the terms approved by
  IBODI                       17,696          154,286          15,645         124,645     the BOD was approved by the BSP under MB Resolution No. 1660 dated November
  Receivables from                                                                        12, 2002, as amended by MB Resolution No. 753 dated May 29, 2003.
    customers            11,496,894        17,006,027   11,263,087   15,794,741
  Equity investments      1,146,356           663,077      696,547      322,610           Relative to this, on May 16, 2003 and June 5, 2003, the Parent Company issued
  ROPOA                   1,063,002           794,090      923,350      698,718           US$130 million and US$70 million, respectively, 9.4% Subordinated Notes due
  Other resources         4,444,923         2,196,908    1,887,785    1,481,758           2013 (the Notes). Among the significant terms and conditions of the issuance of
                       P                 —20,814,388 —14,786,414 —18,422,472
                                         P            P            P                      the Notes are:

                                                                                          1. Issue price at 98.7% and 101.5% of their principal amount;
With the foregoing level of allowance for probable losses, management
believes that the Group has sufficient allowance to take care of any losses that          2. The Notes bear interest at the rate of 9.4% per annum from and including
the Group may incur from the noncollection or nonrealization of its receivables              May 23, 2003 to but excluding July 1, 2008. Unless the call option is exercised,
from customers and other risk assets.                                                        the interest rate from and including July 1, 2008 to but excluding July 1, 2013
                                                                                             will be reset at the U.S. Treasury rate plus 10.8% per annum. Interest will be
                                                                                             payable semi-annually in arrears on January 1 and July 1 of each year, com-
11. Deposit Liabilities                                                                      mencing July 1, 2003;
This account consists of:                                                                 3. The Notes will constitute direct, unconditional, unsecured and subordinated
                                                                                             obligations of the Parent Company and will at all times rank pari passu and
                                         Group                    Parent Company             without any preference among themselves but in priority to the rights and
                               2004               2003              2004           2003      claims of holders of all classes of equity securities of the Parent Company
                                                    (In Thousands)                           including holders of preference shares (if any);
Demand                 —10,783,280
                        P                —11,218,012 —10,689,996 —11,141,717
                                          P                 P              P
Savings                  128,852,508       125,476,797       126,053,940 123,427,244      4. The Parent Company may redeem the Notes in whole but not in part at redemp-
Time                      53,884,551        49,349,393        52,829,162     48,736,351      tion price equal to 100% of the principal amount of the Notes together with
                      P                 —186,044,202 —189,573,098 —183,305,312
                                        P                 P              P                   accrued and unpaid interest on July 1, 2008, subject to the prior consent of the
                                                                                             BSP and the compliance by the Parent Company with the prevailing require-
Of the total deposit liabilities of the Group as of December 31, 2004 and 2003,              ments for the granting by the BSP of its consent therefor;
51.8% and 55.0%, respectively, are subject to periodic interest repricing.
Remaining deposit liabilities earn annual fixed interest rates ranging from 0.5%          5. Each Noteholder by accepting a 2013 Note will irrevocably agree and acknowl-
to 4.5% in 2004 and 2003, respectively.                                                      edge that (i) it may not exercise or claim any right of set-off in respect of any
                                                                                             amount owed to it by the Parent Company arising under or in connection with
Under existing BSP regulations, non-FCDU deposit liabilities of the Parent                   the Notes and (ii) it shall, to the fullest extent permitted by applicable law, waive
Company are subject to liquidity reserve equivalent to 8% which increased to                 and be deemed to have waived all such rights of set-off; and
10% starting February 5, 2004 and statutory reserve equivalent to 9%. In addi-
tion, ESB, a thrift bank, is subject to liquidity and statutory reserves equivalent       6. The Notes are not deposits of the Parent Company and are not guaranteed
to 2% and 6%, respectively, on its deposit liabilities. As of December 31, 2004              or insured by the Parent Company or any party related to the Parent
and 2003, the Parent Company and ESB are in compliance with such                             Company or the PDIC and they may not be used as collateral for any loan
regulations.                                                                                 made by the Parent Company or any of its subsidiaries or affiliates. Also, the
                                                                                             Notes may not be redeemed at the option of the Noteholders.

                                                                                          As of December 31, 2004 and 2003, the Parent Company was in compliance with
                                                                                          the terms and conditions upon which the Notes have been issued.

48 E Q U I T A B L E P C I B A N K
14. Other Liabilities

This account consists of:
                                                                                     Group                                         Parent Company
                                                                                   2004                          2003                    2004                     2003
                                                                                                                       (In Thousands)
    Bills purchased - contra (Note 15)                                      —15,893,118
                                                                            P                              —8,340,746
                                                                                                           P                     —15,893,118
                                                                                                                                 P                          —8,340,746
    Liability to tie-up banks (Note 15)                                       4,687,599                      3,955,971                       –                        –
    Accounts payable (Note 15)                                                2,899,637                      2,446,401               1,667,862                1,506,158
    Deposits on lease contracts (Note 15)                                       998,925                        615,603                       –                        –
    Payment order payable (Note 15)                                             967,874                        695,192                 967,874                  695,192
    Unearned income and other deferred credits
         (Note 15)                                                              594,530                       620,059                 473,353                  527,386
    Liabilities of SPV                                                          386,573                             –                       –                        –
    Sundry and other credits (Note 15)                                          318,860                       857,819                 312,707                  782,421
    Withholding tax payable (Note 15)                                           150,923                       135,760                 101,524                   97,477
    Miscellaneous                                                             1,233,902                     1,476,049                 704,019                1,089,470
                                                                            P                             —19,143,600
                                                                                                          P                       —20,120,457
                                                                                                                                  P                        —13,038,850

Liabilities of SPV consist mainly of the principal balance of senior notes amounting to —387.0 million as of December 31, 2004.

15. Maturity Profile of Financial Resources and Financial Liabilities

The following tables present the financial resources and financial liabilities by contractual maturity and settlement dates as of December 31, 2004 and 2003:

                                                                               2004                                                             2003
                                                       Due Within        Due Beyond                                      Due Within       Due Beyond
                                                         One Year          One Year             Total                     One Year          One Year              Total
                                                                                                        (In Thousands)
Financial Resources
Due from BSP                                          —2,316,093
                                                      P                          —–
                                                                                 P        —2,316,093
                                                                                          P                              —5,305,743
                                                                                                                         P                        —–
                                                                                                                                                  P         —5,305,743
Due from other banks                                    7,701,330                  –        7,701,330                      8,592,021                –         8,592,021
Interbank loans receivable and securities
   purchased under resale agreements                    5,310,832         12,053,935       17,364,767                    14,038,207         8,940,730       22,978,937
TAS, at fair value                                        898,479          2,084,052        2,982,531                     2,923,255           362,403        3,285,658
ASS, at fair value                                         30,772          5,533,558        5,564,330                        15,993               721           16,714
IBODI - gross                                          13,262,892         38,812,993       52,075,885                    10,310,889        36,878,820       47,189,709
Receivables from customers - gross                     88,247,235         63,944,185      152,191,420                    78,861,389        61,713,776      140,575,165
Other resources:
   Advances to subsidiaries, associates and
        other related parties (Note 25)                4,166,304             494,248       4,660,552                   2,550,988                    –        2,550,988
   Assets held by SPV                                          –           2,811,315       2,811,315                           –                    –                –
   AIR                                                 2,523,572                   –       2,523,572                   2,541,617                    –        2,541,617
   Interoffice float items - net                       2,387,584                   –       2,387,584                   2,015,236                    –        2,015,236
   Accounts receivable (Note 25)                       1,575,339                   –       1,575,339                   3,656,898                    –        3,656,898
   Returned checks and other cash items                  291,073                   –         291,073                     983,135                    –          983,135
   Sales contracts receivable                             15,687           1,097,832       1,113,519                     197,153            1,039,601        1,236,754
                                                    P                   —126,832,118
                                                                        P               —255,559,310
                                                                                        P                           —131,992,524
                                                                                                                    P                    —108,936,051
                                                                                                                                         P                —240,928,575

Financial Liabilities
Deposit liabilities                            —182,350,260
                                               P                         —11,170,079
                                                                         P              —193,520,339
                                                                                        P                           —177,722,801
                                                                                                                    P                      —8,321,401
                                                                                                                                           P              —186,044,202
Bills payable                                    19,036,954                 4,962,902     23,999,856                  23,361,449             6,198,347      29,559,796
Due to BSP                                          131,400                         –        131,400                     114,190                     –         114,190
Outstanding acceptances                           7,602,316                         –      7,602,316                   1,128,696                54,676       1,183,372
Margin deposits                                     152,578                         –        152,578                     188,104                     –         188,104
Manager’s checks and demand drafts outstanding      882,145                         –        882,145                     943,299                     –         943,299
Accrued interest payable                            552,409                         –        552,409                     958,948                     –         958,948
Accrued taxes and other expenses                  1,414,808                         –      1,414,808                   1,145,100                     –       1,145,100
Subordinated debt                                         –                11,243,700     11,243,700                           –            11,087,357      11,087,357
Other liabilities:
   Bills purchased - contra                      15,893,118                        –      15,893,118                   8,340,746                    –        8,340,746
   Liability to tie-up banks                      4,687,599                        –       4,687,599                   3,955,971                    –        3,955,971
   Accounts payable                               2,894,876                    4,761       2,899,637                   2,446,401                    –        2,446,401
   Payment order payable                            967,874                        –         967,874                     695,192                    –          695,192
   Deposits on lease contract                             –                  998,925         998,925                           –              615,603          615,603
   Unearned income and other deferred credits       163,894                  430,636         594,530                     620,059                    –          620,059
   Liabilities of SPV                                     –                  386,573         386,573                           –                    –                –
   Sundry and other credits                         318,753                      107         318,860                     857,819                    –          857,819
    Withholding tax payable                         150,923                        –         150,923                     135,760                    –          135,760
                                               P                         —29,197,683
                                                                         P              —266,397,590
                                                                                        P                           —222,614,535
                                                                                                                    P                     —26,277,384
                                                                                                                                          P               —248,891,919

                                                                                                    Parent Company
                                                                               2004                                                             2003
                                                       Due Within        Due Beyond                                   Due Within          Due Beyond
                                                         One Year          One Year             Total                    One Year           One Year              Total
                                                                                                          (In Thousands)
Financial Resources
Due from BSP                                          —2,059,639
                                                      P                          —–
                                                                                 P        —2,059,639
                                                                                          P                              —5,129,645
                                                                                                                         P                        —–
                                                                                                                                                  P         —5,129,645
Due from other banks                                    6,114,500                  –        6,114,500                      7,136,031                –         7,136,031
Interbank loans receivable and securities
   purchased under resale agreements                    7,804,832         12,053,935       19,858,767                    14,456,714         8,940,730       23,397,444
TAS                                                       714,075          2,084,052        2,798,127                     2,483,421           362,403        2,845,824
ASS                                                             –          5,533,558        5,533,558                             –               721              721
IBODI - gross                                          12,453,025         37,951,485       50,404,510                     9,757,052        35,811,024       45,568,076
Receivables from customers - gross                     80,062,856         51,696,461      131,759,317                    68,285,143        56,234,574      124,519,717
Other resources:
   Advances to subsidiaries, associates and
    other related parties (Note 25)                    8,173,852                   –       8,173,852                   8,043,679                    –        8,043,679
   Accounts receivable (Note 25)                       2,892,415                   –       2,892,415                   2,368,357                    –        2,368,357
   AIR                                                 2,392,516                   –       2,392,516                   2,417,963                    –        2,417,963
   Interoffice float items - net                       2,247,062                   –       2,247,062                   1,688,727                    –        1,688,727
   Sales contracts receivable                              8,074           1,089,876       1,097,950                     147,073            1,039,601        1,186,674
   Returned checks and other cash items                  282,468                   –         282,468                     968,385                    –          968,385
                                                    P                   —110,409,367
                                                                        P               —235,614,681
                                                                                        P                           —122,882,190
                                                                                                                    P                    —102,389,053
                                                                                                                                         P                —225,271,243

                                                                                                                               2 0 0 4   A N N U A L     R E P O RT   49

                                                                                                       Parent Company
                                                                                  2004                                                           2003
                                                          Due Within        Due Beyond                                 Due Within          Due Beyond
                                                            One Year          One Year             Total                  One Year           One Year             Total
                                                                                                           (In Thousands)
Financial Liabilities
Deposit liabilities                            —179,913,385
                                               P                            —9,659,713
                                                                            P             —189,573,098
                                                                                          P                          —175,806,561
                                                                                                                     P                      —7,498,751
                                                                                                                                            P             —183,305,312
Bills payable                                    17,742,267                   4,682,196     22,424,463                 21,604,979             5,767,799     27,372,778
Due to BSP                                          128,027                           –        128,027                    109,316                     –        109,316
Outstanding acceptances                           7,602,316                           –      7,602,316                  1,128,696                54,676      1,183,372
Margin deposits                                     152,578                           –        152,578                    188,104                     –        188,104
Manager’s checks and demand drafts outstanding      862,072                           –        862,072                    902,849                     –        902,849
Accrued interest payable                            428,931                           –        428,931                    929,534                     –        929,534
Accrued taxes and other expenses                    817,258                           –        817,258                    765,589                     –        765,589
Subordinated debt                                         –                  11,243,700     11,243,700                          –            11,087,357     11,087,357
Other liabilities:
   Bills purchased - contra                      15,893,118                          –      15,893,118                  8,340,746                   –        8,340,746
   Accounts payable                               1,667,862                          –       1,667,862                  1,506,158                   –        1,506,158
   Payment order payable                            967,874                          –         967,874                    695,192                   –          695,192
   Unearned income and other deferred credits       473,353                          –         473,353                    527,386                   –          527,386
   Sundry and other credits                         312,707                          –         312,707                    782,421                   –          782,421
   Withholding tax payable                          101,524                          –         101,524                     97,477                   –           97,477
                                               P                           —25,585,609
                                                                           P              —252,648,881
                                                                                          P                          —213,385,008
                                                                                                                     P                    —24,408,583
                                                                                                                                          P               —237,793,591

16. Capital Funds                                                                         increases of 8% to 11% and 5% to 10% per annum, respectively. The latest
                                                                                          actuarial valuation studies of the retirement plans were made on various dates
The Parent Company’s capital stock consists of:                                           in 2004. Based on such studies, the aggregate unfunded past service liabilities
                                                                                          of the Group amounted to —494.8 million and —726.0 million as of December
                                                                                                                       P                   P
                                               2004            2003             2002      31, 2004 and 2003, respectively, net of plan assets at fair value amounting to
                                                      (In Thousands)                      —850.6 million and —593.0 million as of December 31, 2004 and 2003, respec-
                                                                                           P                    P
Common stock - —10 par value
                 P                                                                        tively. Total retirement expense charged against operations in 2004 and 2003
 Authorized - 1,000,000,000 shares                                                        consisting of the normal cost, interest cost on unfunded past service liability
 Issued - 727,003,345 shares       —7,270,033
                                   P                    —7,270,033
                                                        P               —7,270,033
                                                                        P                 and amortization of transition liability and actuarial gains or losses amounted
                                                                                          to —221.1 million and —303.5 million, respectively.
                                                                                              P                   P
The Parent Company shares are listed in the Philippine Stock Exchange.

Parent Company shares held by a subsidiary represent 78,807,098 shares pur-               18. Lease Contracts
chased by its investment house subsidiary and are available for future sale.
These are accounted for as treasury shares in the Group financial statements and          The Parent Company leases the premises occupied by some of its branches,
are carried at acquisition cost.                                                          including those of its subsidiaries. The lease contracts are for periods ranging
                                                                                          from 1 to 20 years and are renewable at the Group’s option under certain terms
In addition, a portion of the Parent Company’s surplus corresponding to the               and conditions. Various lease agreements include escalation clauses, most of
undistributed accumulated equity in net earnings of subsidiaries and associates           which bear an annual rent increase of 5% to 10%. As of December 31, 2004,
amounting to —3.5 billion and —3.8 billion as of December 31, 2004 and 2003,
                 P                 P                                                      the Group had no contingent rent payable.
respectively, is not available for dividend declaration until realized by the Parent
Company through distribution of cash dividends by the subsidiaries and associ-            Total rent expense incurred by the Group (included under Occupancy and other
ates.                                                                                     equipment-related expenses) amounted to —602.6 million in 2004, —470.4
                                                                                                                                        P                         P
                                                                                          million (as restated) in 2003 and —525.0 million (as restated) in 2002 of which
The determination of the Parent Company’s compliance with regulatory                      —499.7 million in 2004, —395.4 million (as restated) in 2003 and —456.0 million
                                                                                          P                         P                                       P
requirements and ratios is based on the amount of the Parent Company’s unim-              (as restated) in 2002 was incurred by the Parent Company.
paired capital (regulatory capital) as reported to the BSP, which is determined
on the basis of regulatory accounting practices which differ from Philippine              Future minimum lease rentals payable under non-cancelable operating leases fol-
GAAP in some respects.                                                                    low:

Specifically, under existing banking regulations, the combined capital accounts of                                              Group                 Parent Company
each commercial bank should not be less than an amount equal to ten percent                                             2004            2003          2004         2003
(10%) of its risk assets. Risk assets is defined as total assets less cash on hand, due                                                  (In Thousands)
from BSP, loans covered by hold-out on or assignment of deposits, loans or accept-        Within one year           —365,254
                                                                                                                    P                —384,548
                                                                                                                                     P            —327,289
                                                                                                                                                  P            —349,684
ances under letters of credit to the extent covered by margin deposits and other          After one year but not
non-risk items determined by the MB of the BSP.                                             more than five years    1,067,939        1,289,686      947,652     1,155,393
                                                                                          After more than
Under BSP Circular No. 360, effective July 1, 2003, the capital-to-risk assets ratio        five years                501,694       657,764         352,221      487,508
(CAR) is to be inclusive of a market risk change. Using this formula, the CAR of                                   —1,934,887
                                                                                                                   P             —2,331,998
                                                                                                                                 P               —1,627,162
                                                                                                                                                 P            —1,992,585
the Group was 14% and 17% (as restated) as of December 31, 2004 and 2003,
respectively, while that of the Parent Company is 13% and 15% (as restated),              The Group has entered into commercial property leases on the Group’s surplus
respectively.                                                                             offices. These non-cancelable leases have remaining non-cancelable lease terms
                                                                                          of between 1 and 15 years.
Under the previous computation provided for under BSP Circular No. 280, which BSP
Circular No. 360 above amended, the CAR of the Group as of December 31, 2004              Future minimum rentals receivable under non-cancelable operating leases are
and 2003 was 14% and 17% (as restated), respectively, while that of the Parent            as follows:
Company was 13% and 15% (as restated), respectively.
                                                                                                                                Group                 Parent Company
                                                                                                                         2004           2003           2004        2003
17. Retirement Plans                                                                                                                     (In Thousands)
                                                                                          Within one year           —116,883
                                                                                                                    P                —148,763
                                                                                                                                     P            —116,633
                                                                                                                                                  P            —148,525
The Group has separate funded noncontributory defined benefit retirement                  After one year but
plans covering substantially all its officers and regular employees. Under these           not more than
retirement plans, all covered officers and employees are entitled to cash bene-            five years                 134,131          245,448      133,743       244,810
fits after satisfying certain age and service requirements. The principal actuari-        After more than
al assumptions used to determine retirement benefits consist of: (1) retirement            five years                 11,190           15,579       11,190        15,579
age of 60 and 65 years and average remaining working life of covered officers                                       —262,204
                                                                                                                    P                —409,790
                                                                                                                                     P            —261,566
                                                                                                                                                  P             —408,914
and employees of 12 to 15 years; and (2) investment yield and projected salary

50 E Q U I T A B L E P C I B A N K
19. Miscellaneous Income

This account consists of:

                                                                         Group                                                        Parent Company
                                                                         2003                     2002                                     2003                 2002
                                                         2004                (As restated - Note 2)                     2004               (As restated - Note 2)
                                                                                                          (In Thousands)
Trust fees                                          —724,335
                                                    P                    —654,598
                                                                         P                   —421,009
                                                                                             P                     —724,335
                                                                                                                   P                   —654,598
                                                                                                                                       P                    —421,009
Recovery from assets written off                      112,728              185,319              16,169                    57                  17                2,319
Gain on disposal of ROPOA                             182,069              161,647             167,962               181,811             159,057              177,726
Rent of bank premises and equipment                   152,952              120,059             122,535               137,996             119,445              112,515
Income from assets sold/exchanged                      36,867               41,153               7,791                26,947              25,536               45,739
Rent from safety deposit boxes                         19,831               19,565              20,333                19,831              19,147               19,990
Others                                              1,136,319            1,167,126             893,242              644,711              618,218              226,844
                                                  P                    —2,349,467
                                                                       P                   —1,649,041
                                                                                           P                     —1,735,688
                                                                                                                 P                   —1,596,018
                                                                                                                                     P                    —1,006,142

20. Miscellaneous Expenses

This account consists of:

                                                                         Group                                                        Parent Company
                                                                         2003                      2002                                    2003                  2002
                                                         2004               (As restated - Note 2)                     2004                   (As restated - Note 2)
                                                                                                          (In Thousands)
Amortization of goodwill and other
   deferred charges (Note 8)                        —440,593
                                                    P                    —447,853
                                                                         P                   —458,533
                                                                                             P                     —439,771
                                                                                                                   P                  —444,866
                                                                                                                                      P                     —452,638
Insurance - PDIC                                      376,991              318,181             281,411               354,417            312,876               277,304
Litigation and assets acquired expenses               360,752              296,206             334,656               297,357            286,757               332,430
Communication expenses                                348,808              297,009             326,380               261,824            257,305               254,097
Professional fees                                     276,930              228,930             249,620               152,071            134,332               159,385
Advertising expenses                                  481,711              220,816             114,121                52,979             30,169                70,325
Entertainment, amusement and
   recreation (EAR) (Note 21)                         163,620             156,812             254,341               148,876             132,604              228,389
Transaction dues                                      178,079             135,188              23,214               174,561             131,689               19,118
Travelling expenses                                   183,007             136,068              58,985               120,153              99,513               41,129
Others                                              1,322,309             853,832             989,765               750,606             492,119              519,833
                                                  P                    —3,090,895
                                                                       P                   —3,091,026
                                                                                           P                     —2,752,615
                                                                                                                 P                   —2,322,230
                                                                                                                                     P                    —2,354,648

21. Income and Other Taxes
                                                                                      Components of the net deferred tax assets (included in Other Resources) follow:
Under Philippine tax laws, the RBU of the Parent Company and its domestic sub-
sidiaries are subject to percentage and other taxes (presented as Taxes and
Licenses in the statements of income) as well as income taxes. Percentage and                                                Group                 Parent Company
other taxes paid consist principally of gross receipts tax or GRT (GRT was in                                                        2003                         2003
effect until 2002) and documentary stamp taxes. Effective January 1, 2003, the                                             ( As restated -                As restated -
Parent Company and all subsidiaries in the financial intermediation business                                        2004          Note 2)           2004       Note 2)
were subject to the value-added tax instead of GRT. However, Republic Act No.                                                          (In Thousands)
9238 reimposed GRT on banks and financial intermediaries effective January 1,         Credited to operations
2004.                                                                                  Tax effects of:
                                                                                         Allowance for
Income taxes include the corporate income tax, as discussed below, and final               probable losses     —7,047,753 —5,212,453 —6,687,998 —4,889,168
                                                                                                                P            P            P            P
taxes paid at the rate of 20%, which is a final withholding tax on gross interest        NOLCO                      745,839      785,016      623,788      593,538
income from government securities and other deposit substitutes.                         Unamortized
                                                                                           past service costs       218,348      207,715      214,390      200,173
Under current tax regulations, the regular corporate income tax rate is 32%.             Capitalized interest      (106,641)    (113,957)    (111,424)    (113,957)
Interest allowed as a deductible expense is reduced by an amount equivalent to           Lease income/
38% of interest income subjected to final tax. In addition, current tax regula-            expense differential      (8,732)      42,360       84,143       83,711
tions provide for the ceiling on the amount of entertainment, amusement and              Foreign exchange
recreation (EAR) expenses that can be claimed as a deduction against taxable               profits                   (5,921)      (1,290)           –            –
income. Under the regulation, EAR expenses allowed as deductible expense for             Others                      16,442        6,057            –            –
a service company like the Parent Company is limited to the actual EAR paid or         MCIT                         109,914       31,694      101,078       27,694
incurred but not to exceed 1% of net revenue. The regulations also provide for                                    8,017,002    6,170,048    7,599,973    5,680,327
MCIT of 2% on modified gross income and allow a NOLCO. The MCIT and                   Charged against equity
NOLCO may be applied against the Group’s income tax liability and taxable              Revaluation increment
income, respectively, over a three-year period from the year of inception.               in property               (625,168)    (628,601)    (616,968)    (621,715)
                                                                                                               —7,391,834 —5,541,447 —6,983,005 —5,058,612
                                                                                                                P            P            P            P
FCDU offshore income (income from non-residents) is tax-exempt while gross
onshore income (income from residents) is subject to 10% income tax. In               The Parent Company and certain subsidiaries did not recognize deferred tax
addition, interest income on deposit placements with other FCDUs and offshore         assets on the following temporary differences:
banking units (OBUs) is taxed at 7.5%. Republic Act No. 9294, which became
effective in May 2004, provides that the income derived by the FCDU from for-                                               Group                  Parent Company
eign currency transactions with non-residents, OBUs, local commercial banks                                         2004             2003            2004       2003
including branches of foreign banks is tax-exempt while interest income on for-                                                        (In Thousands)
eign currency loans from residents other than OBUs or other depository banks          Allowance for
under the expanded system is subject to 10% income tax.                                probable losses             —252
                                                                                                                   P        —3,484,644
                                                                                                                             P                      —– —3,019,618
                                                                                                                                                     P   P
                                                                                      NOLCO                    2,619,173       7,219,227      2,585,899    6,809,727
Provision for (benefit from) income tax consists of:                                  MCIT                        18,905          21,166         14,672       18,630
                                                                                      Others                       9,763               –               –           –
                                                                                                             P             —10,725,037
                                                                                                                           P                —2,600,571 —9,847,975
                                                                                                                                            P            P
                         Group                       Parent Company
                           2003          2002                  2003        2002       Management believes that it is not likely that these temporary differences will
                              (As restated -                      (As restated -      be realized in the future.
                 2004                 Note 2)       2004                 Note 2)
                                     (In Thousands)
Current*     —768,759 —612,623 —699,952
              P          P           P           —366,524 —334,906 —412,541
                                                 P          P          P
Deferred     (1,850,387)   (86,348) (1,067,916) (1,924,393) (168,341) (1,100,165)
            —                       —           —                      —
           (P 1,081,628) —526,275 (P 367,964) (P 1,557,869) —166,565 (P 687,624)
                         P                                  P
* Includes income taxes of foreign subsidiaries and branches

                                                                                                                           2 0 0 4   A N N U A L     R E P O RT      51

A reconciliation between the statutory income tax to provision for (benefit                         22. Trust Operations
from) income tax follows:
                                                                                                    Securities and other properties (other than deposits) held by the Parent
                                     Group                         Parent Company                   Company in fiduciary or agency capacities for clients (and beneficiaries) are not
                                        2003        2002                  2003      2002            included in the accompanying statements of condition since these are not
                                          (As restated -                   (As restated -           resources of the Parent Company (Note 24).
                           2004                 Note 2)        2004               Note 2)
                                                  (In Thousands)                                    Government securities with total face value of —1,017.1 million and —838.2
                                                                                                                                                    P                      P
Statutory                                                                                           million as of December 31, 2004 and 2003, respectively, are deposited with the
  income tax                                                                                        BSP in compliance with existing banking regulations relative to the trust func-
  at 32%              —266,433
                      P            —614,240 —165,926
                                   P        P               —80,825 —469,798
                                                            P       P               —32,986
                                                                                    P               tions of the Parent Company. The carrying values of the government securities
Tax effects of:                                                                                     with the BSP amounted to —1,026.8 million and —839.7 million as of December
                                                                                                                              P                    P
  FCDU income          (746,448)    (739,514) (510,398)     (746,448) (739,514) (510,398)           31, 2004 and 2003.
    and tax-paid                                                                                    Additionally, a certain percentage of the Parent Company’s trust income is
    income             (468,103)    (668,591) (386,887)     (378,628) (499,881) (250,992)           transferred to surplus reserve until such reserve for trust functions amounts to
  Nondeductible                                                                                     20% of the Parent Company’s authorized capital stock. No part of such surplus
    expenses            404,470      553,435     221,042    360,221      405,656    141,414         reserve shall at any time be paid out as dividends.
  Equity in net
    losses (earnings)                                                                               Also, in accordance with BSP regulations, the common trust funds managed by
    of subsidiaries                                                                                 the Parent Company’s trust department maintain reserve deposit account with
    and associates       (6,959)      (9,497)     11,369    (273,689) (322,579) (242,832)           the BSP and government securities to meet the reserve requirement on peso-
  Nondeductible                                                                                     denominated common trust funds and other similarly managed funds. As of
    interest expense 111,812          94,704     116,523    110,801       90,254     95,226         December 31, 2004 and 2003, the balance of the BSP reserve deposit account
  Others - net          304,154     (113,492)    (45,996)   259,285       (4,087)    26,327         amounted to —2.4 billion and —2.1 billion, respectively, while government
                                                                                                                    P                P
Unrecognized                                                                                        securities amounted to —3.9 billion and —2.7 billion, respectively.
                                                                                                                            P                 P
  deferred tax
  asset                (946,987)     794,990      60,457    (970,236)    766,918     20,645
Provision for                                                                                       23. Segment Information
  (benefit from)
  income tax        —
                   (P 1,081,628)             —           —
                                   —526,275 (P 367,964) (P 1,557,869) —166,565 (P 687,624)
                                   P                                  P         —                   The Group’s operating businesses are organized and managed separately
                                                                                                    according to the nature of services provided and the different markets served
                                                                                                    with a segment representing a strategic business unit. The Group’s business
EAR expenses of the Parent Company amounted to —148.9 million and —132.6
                                                  P                  P                              segments are as follows:
million (included in Miscellaneous Expenses in the statements of income) in
2004 and 2003, respectively. EAR expenses for the period September 1 to                             Consumer and Retail Banking - principally handling individual customers’
December 31, 2002 amounted to —40.1 million.
                                 P                                                                  deposits, and providing consumer type loans, overdrafts, credit card facilities
                                                                                                    and fund transfer facilities;
The details of the Parent Company’s NOLCO and MCIT follow:
                                                                                                    Commercial Banking - principally handling commercial customers’ deposits, and
Inception Year           Amount          Used/Expired             Balance     Expiry Year           providing products and services to its commercial middle market customers,
                                       (In Thousands)                                               mainly small-medium-sized enterprises;
 2001                —4,223,828
                     P                    —4,223,828
                                          P                         —–
                                                                     P                2004          Corporate Banking - principally handling loans and other credit facilities and
 2002                  3,257,899                   –          3,257,899               2005          deposit and current accounts for corporate and institutional customers;
 2003                  1,182,806                   –          1,182,806               2006
 2004                     94,530                   –             94,530               2007          Investment Banking - principally arranging structured financing, and providing serv-
                     P                    —4,223,828
                                          P                 —4,535,235
                                                            P                                       ices relating to privatizations, initial public offerings, mergers and acquisitions; and
 2001                     —3,959
                          P                     —3,959
                                                P                  —–
                                                                    P                 2004          Treasury - principally providing money market, trading and treasury services, as
 2002                      14,671                    –          14,671                2005          well as the management of the Parent Company’s funding operations by use of
 2003                      27,694                    –          27,694                2006          treasury bills, government securities and placements and acceptances with
 2004                      73,385                    –          73,385                2007          other banks, through treasury and wholesale banking.
                        P                       —3,959
                                                P             —115,750
                                                                                                    These segments are the basis on which the Group reports its primary segment
                                                                                                    information. Other operations of the Group comprise the operations and financial
                                                                                                    control groups. Transactions between segments are conducted at estimated mar-
                                                                                                    ket rates on an arm’s length basis. Interest is charged or credited to business seg-
                                                                                                    ments based on a pool rate, which approximates the marginal cost of funds.

Segment information for the year ended December 31, 2004 follows:

                                                Consumer and            Commercial              Corporate      Investment
                                                 Retail Banking            Banking                Banking          Banking            Treasury              Others                  Total
Gross income                                        —7,922,418
                                                    P                   —4,895,093
                                                                        P                     —2,923,139
                                                                                              P                  —500,796
                                                                                                                 P                  —4,552,659
                                                                                                                                    P                   —3,331,122
                                                                                                                                                        P                  —24,125,227
Segment result                                      —1,737,527
                                                    P                   —1,152,074
                                                                        P                       —557,852
                                                                                                P                —262,597
                                                                                                                 P                  —1,598,324
                                                                                                                                    P                   —1,139,043
                                                                                                                                                        P                   —6,447,417
Unallocated costs                                                                                                                                                              5,593,065
Profit from operations                                                                                                                                                           854,352
Equity in net losses of associates                                                                                                                                               (21,748)
Income before tax                                                                                                                                                                832,604
Benefit from income tax                                                                                                                                                        1,081,627
Minority interest                                                                                                                                                              (103,785)
Net profit for the year                                                                                                                                                     —1,810,446
Other Information
Segment assets                                     —52,813,190
                                                   P                    —58,585,980
                                                                        P                    —56,602,288
                                                                                             P                —1,798,903
                                                                                                              P                   —74,226,071
                                                                                                                                  P                    —33,985,504
                                                                                                                                                       P                    278,011,936
Intra-segment assets                                                                                                                                                          2,387,584
Investments in associates                                                                                                                                                     4,660,552
Unallocated assets                                                                                                                                                           24,914,016
Total assets                                                                                                                                                              —309,974,088
Segment liabilities                                —50,947,836
                                                   P                    —55,207,016
                                                                        P                    —45,866,038
                                                                                             P                —1,747,288
                                                                                                              P                   —81,342,695
                                                                                                                                  P                    —32,520,619
                                                                                                                                                       P                    267,631,492
Unallocated liabilities                                                                                                                                                               –
Total liabilities                                                                                                                                                         —267,631,492
Other Segment Information
Depreciation                                          —571,570
                                                      P                     —12,533
                                                                            P                    —6,966
                                                                                                 P                 —5,212
                                                                                                                   P                   —57,748
                                                                                                                                       P                  —558,363
                                                                                                                                                          P                  —1,212,392

52 E Q U I T A B L E P C I B A N K
24. Commitments and Contingent Liabilities                                              lations existing prior to said circular, and new DOSRI loans, other credit accom-
                                                                                        modations granted under said circular (amounts in thousands) as of December
In the normal course of business, the Group enters into various commitments             31, 2004 and 2003:
and incurs contingent liabilities that are not presented in the accompanying
financial statements. The Group does not anticipate any material losses as a                                                  Group                 Parent Company
result of these commitments and contingent liabilities.                                                                     2004        2003           2004      2003
The following is a summary of the commitments and contingent liabilities at             Total outstanding
their equivalent peso contractual amounts as of December 31, 2004 and 2003:               DOSRI accounts               —1,126,878
                                                                                                                       P            —822,212
                                                                                                                                    P           —1,126,779
                                                                                                                                                P             —821,531
                                                                                        Percent of DOSRI accounts
                                        Group                  Parent Company             granted prior to effectivity
                                 2004           2003          2004        2003            of BSP Circular No. 423 to
                                           (In Thousands)                                 total loans                      0.71%       0.63%         0.75%       0.66%
Trust department                                                                        Percent of DOSRI accounts
   accounts (Note 22) —103,526,072 —83,564,831 —103,507,352 —83,564,831
                         P            P           P            P                          granted after effectivity of
Forward exchange                                                                          BSP Circular No. 423 to
   bought                  22,522,337 24,213,952    22,149,064 24,213,952                 total loans                      0.06%       0.00%         0.06%       0.00%
Unused commercial                                                                       Percent of DOSRI accounts
   letters of credit       11,557,196 13,206,849    11,544,496 13,206,849                 to total loans                   0.77%       0.63%         0.81%       0.66%
Forward exchange sold       6,689,461   9,577,882    6,620,082   9,577,882              Percent of unsecured DOSRI
Spot exchange sold          2,531,777     946,254    2,531,329     946,254                accounts to total DOSRI
Inward bills for collection 1,431,372   3,159,781    1,431,372   3,159,781                accounts                        27.68%      11.44%        27.67%      11.36%
Spot exchange bought          983,875     389,706      984,422     389,706              Percent of past due DOSRI
Outward bills for collection 950,339      835,550      950,339     835,374                accounts to total DOSRI
Late deposits/payments                                                                    accounts                         0.00%       0.00%         0.00%       0.00%
   received                   738,573     542,342      738,573     542,342              Percent of nonaccruing DOSRI
Guarantees issued             449,184   1,114,775      449,184   1,114,775                accounts to total DOSRI
Interest rate swap receivable 305,000     775,000      305,000     775,000                accounts                        14.52%       0.00%        14.52%       0.00%
Interest rate swap payable 305,000        775,000      305,000     775,000
Traveller’s check unsold      157,852     155,694      157,852     155,694              The following table shows information relating to the loans, other credit
Confirmed export letters                                                                accommodations and guarantees, as well as availments of previously approved
   of credit                   29,788      19,104       29,788      19,104              loans and committed credit lines not considered DOSRI accounts prior to the
Currency swap payables              –     349,969            –     349,969              issuance of said circular but are allowed a transition period of two years from
Currency swap receivables           –     288,074            –     288,074              the effectivity of said circular or until said loan, other credit accommodations
Others                        555,287     508,295      547,808     503,979              and guarantees become past due, or are extended, renewed or restructured,
                                                                                        whichever comes later, (amounts in thousands) as of December 31, 2004:
The Group has pending claims and/or is a defendant in legal actions arising                                                                                     Parent
from normal business activities including sale of a subsidiary. Management and                                                                  Group         Company
its legal counsel believe that these actions are without merit or that the ulti-        Total outstanding non-DOSRI accounts
mate liability, if any, resulting from such actions will not materially affect the        granted prior to BSP Circular No. 423           —15,546,362
                                                                                                                                          P                —15,546,362
Group’s financial position.                                                             Percent of unsecured non-DOSRI accounts
                                                                                          granted prior to BSP Circular No. 423
The Parent Company has received tax assessments from the Bureau of Internal               to total loans                                       11.16%           11.16%
Revenue on two industry issues. In addition, the Parent Company has pending             Percent of past due non-DOSRI accounts
tax assessments from the BIR on FCDU taxation, which is also an industry issue.           granted prior to BSP Circular No. 423
The Parent Company, through its tax counsels, is contesting these assessments             to total loans                                        0.00%            0.00%
and preassessments on the ground that the factual situations were not consid-           Percent of nonaccruing non-DOSRI
ered which, if considered, will not give rise to material tax deficiencies.               accounts granted prior to BSP Circular
Accordingly, no provision has been made in the accompanying financial state-              No. 423 to total loans                                9.42%            9.42%
ments for these contingencies.
                                                                                        Other related party transactions entered into under the normal course of busi-
                                                                                        ness include the availment of computer services, securities and currency trading,
25. Related Party Transactions                                                          insurance brokerage and management contract services rendered by certain
                                                                                        member companies of the Group.
In the ordinary course of business, the Group has loans transactions with
investees and with certain directors, officers, stockholders and related interests      The significant intercompany transactions and outstanding balances of the
(DOSRI). Existing banking regulations limit the amount of individual loans to           Group were eliminated in consolidation.
DOSRI, 70% of which must be secured, to the total of their respective deposits
and book value of their respective investments in the Group. In the aggregate,          Deposit liabilities include those associates and other related parties amounted
loans to DOSRI generally should not exceed the respective total regulatory cap-         to —31.9 million and —76.9 million as of December 31, 2004 and 2003, respec-
                                                                                            P                    P
ital or 15% of total loan portfolio, whichever is lower.                                tively. Related interest expense amounted to —0.1 million in 2004, —7.4 million
                                                                                                                                       P                     P
                                                                                        in 2003 and P —0.4 million in 2002.
BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI
accounts.                                                                              The retirement fund of the Parent Company’s employees amounting to
                                                                                       —850.6 million and —593.0 million as of December 31, 2004 and 2003, respec-
                                                                                       P                    P
The following table shows information relating to the loans, other credit              tively, is being managed by the Parent Company’s Trust Banking Group.
accommodations and new guarantees classified as DOSRI accounts under regu-

The following table shows the related party transactions included in the Group’s financial statements:

                                                                                                                            Elements of Transactions
                                                                                                        Balance     Sheet Amount           Income Statement Amount
Related Party               Relationship                       Nature of Transaction                      2004                2003             2004           2003
                                                                                                                                     (In Thousands)
Philex Mining               Associate                          Loans receivable                      —526,040
                                                                                                     P                  —535,343
                                                                                                                         P                       —-
                                                                                                                                                 P              —-
                                                               Other resources                             51              199,447                 -              -
Gratuity Fund               Retirement Fund                    Advances to subsidiaries,
                                                                  associates and related parties       307,594              451,576                 -                 -
Filsyn Corporation          Associate                          Loans receivable                         59,487               59,487                 -                 -
                                                               Other resources                           3,894                3,894                 -                 -
JLI                         Associate                          Loans receivable                         36,204               36,204                 -                 -
                                                               AIR                                         434                  570                 -                 -
                                                               Interest income                               -                    -             5,446             6,842

                                                                                                                            2 0 0 4   A N N U A L       R E P O RT   53

26. Financial Performance

Earnings per share (EPS) amounts were computed as follows:

                                                                                                       2003                          2002
                                                                        2004                                   (As restated)
                                                                            (In Thousands, Except Earnings Per Share)
a. Net income                                                      —1,810,446
                                                                   P                            —1,301,553
                                                                                                 P                              —790,705
b. Weighted average number
   of outstanding common shares                                        648,196                        648,192                     648,192
c. EPS (a/b)                                                            —2.79
                                                                        P                              —2.01
                                                                                                       P                           —1.22

The following basic ratios measure the financial performance of the Group:

                                                                                                         2003                        2002
                                                                          2004                                  (As restated)
Where average equity and average asset include revaluation
  increment and goodwill, respectively
  Return on average equity (ROE)                                        4.39%                          3.13%                        1.92%
  Return on average assets (ROA)                                        0.62%                          0.48%                        0.32%
Where average equity and average asset exclude revaluation
  increment and goodwill, respectively
  ROE                                                                   9.18%                          7.33%                        5.37%
  ROA                                                                   0.82%                          0.69%                        0.54%
Net interest margin on average earning assets                           3.86%                          2.49%                        2.26%

For purposes of computing ROE and ROA, average of month-end balances of capital funds and assets, respectively, were used.

27. Notes to Cash Flows Statements                                                       On March 15, 2005 and March 28, 2005, the Closing Certificate was signed
                                                                                         between the Parent Company and PIO and the Parent Company and PIT,
The following is a summary of certain non-cash activities that relate to the             respectively, to implement and make effective the SPA on loans and ROPOA
analysis of the statements of cash flows:                                                as of November 26, 2004 and December 15, 2004, respectively. Accordingly,
                                                                                         the Parent Company received SPV Notes amounting to —2.4 billion for loans
                                               2004           2003         2002          from PIO and for ROPOA from PIT. Total loans transferred to PIO amounted
Investing activity:                                                                      to —7.5 billion. ROPOA transferred to PIT amounted to —1.8 billion. The
                                                                                             P                                                       P
  Unrealized loss on ASS                    —54,560
                                            P             —64,354
                                                          P            —78,373
                                                                       P                 balance of the consideration received from PIO and PIT amounting to —90.1
  Additions to (disposals of) ROPOA - net                                                million and P—296.5 million, respectively, is recorded in Accounts Receivable
    Group                                   (748,692)    3,660,292     2,761,909         as of December 31, 2004.
    Parent Company                        (1,864,888)    3,655,317     2,730,195
                                                                                       2. On November 23, 2004, the Parent Company’s BOD approved the issuance of
The amount of Interbank Loans Receivable and Securities Purchased under                   senior bonds. Relative to this, on February 18, 2005 the Parent Company
Resale Agreements considered as cash and cash equivalents follows:                        issued US$100 million, 6.5% Subordinated Notes due 2008 (the Notes). The
                                                                                          issuance of the bonds under the terms approved by the BOD was approved
                                                         Group                            by the BSP on January 31, 2005.
                                           2004            2003             2002
                                                                   (As restated -        Among the significant terms and conditions of the issuance of the Notes are:
                                                                         Note 2)
                                                  (In Thousands)                         a. Issue price at 99.3% of the principal amount;
Interbank Loans
   Receivable and                                                                         b. The Notes bear interest at the rate of 6.5% per annum from and includ-
   Securities Purchased                                                                      ing February 18, 2005 to but excluding February 19, 2008. Interest will be
   under Resale Agreements         —17,364,767
                                   P               —22,978,937
                                                   P               —22,340,291
                                                                   P                         payable semi-annually in arrears on February 19 and August 19 of each
Interbank Loans Receivable                                                                   year, commencing August 19, 2005, except that the first payment of inter-
   and Securities Purchased                                                                  est will be in respect of the period from and including February 18, 2005
   under Resale Agreements                                                                   but excluding August 19, 2005;
   not considered as Cash and
   Cash Equivalents                  12,053,935      8,940,730       6,397,882            c. The Notes will constitute direct, senior, unconditional, and unsecured
                                    P              —14,038,207
                                                   P               —15,942,409
                                                                   P                         obligations of the Parent Company and claims in respect of the notes shall
                                                                                             at all times rank pari passu and without any preference among them-
                                              Parent Company                                 selves;
                                           2004         2003                2002
                                                                   (As restated -         d. The Parent Company may redeem the Notes in whole but not in part at
                                                                         Note 2)             redemption price equal to 100% of the principal amount of the Notes
                                                  (In Thousands)                             together with accrued and unpaid interest to the date fixed for redemp-
Interbank Loans                                                                              tion upon the occurrence of certain changes affecting taxation in the
   Receivable and                                                                            Philippines, as more particularly specified in the covering offering circu-
   Securities Purchased                                                                      lar;
   under Resale Agreements          —19,858,767
                                    P               —23,397,444
                                                    P                —22,310,291
Interbank Loans Receivable                                                                e. The 2008 Notes are not guaranteed or insured by the PDIC and are not
   and Securities Purchased                                                                  deposit liabilities of the Parent Company.
   under Resale Agreements
   not considered as Cash and                                                          3. On January 18, 2005, the Parent Company’s BOD approved the declaration of
   Cash Equivalents                  12,053,935       8,940,730        6,397,882          cash dividends at the rate of sixty centavos ( —0.6) per share or —436.2 mil-
                                                                                                                                         P                  P
                                     P              —14,456,714
                                                    P                —15,912,409
                                                                     P                    lion. Such declaration was approved by BSP on April 1, 2005.

                                                                                         On January 18, 2005, the BOD of PCI Leasing approved the declaration of
28. Other Matters                                                                        cash dividends at —0.2 per share or —196.6 million in favor of stockholders
                                                                                                           P                 P
                                                                                         of record as of February 1, 2005 and stock dividends in the aggregate
1. The Parent Company entered into sale and purchase agreements (SPA) under              amount of —1.2 billion in favor of stockholders of record as of March 23,
   the provisions of Republic Act No. 9182, “The Special Purpose Vehicle (SPV)           2005. Such declaration was approved by SEC on March 10, 2005.
   Act of 2002,” for the sale of its loans to PIO amounting to
    —8.3 billion on November 26, 2004 and ROPOA to PIT amounting to —2.2
    P                                                                       P            On January 18, 2005, the BOD of PCI Capital approved the declaration of
   billion on December 15, 2004. In exchange for the loans and ROPOA, the                stock dividends amounting to —200.0 million. Such declaration was
   Parent Company received SPV Notes and cash of P   —1.0 billion and —100.0 mil-
                                                                      P                  approved by BSP on March 10, 2005.
   lion, respectively, for loans and —1.8 billion and —350.0 million, respective-
                                     P                P
   ly, for ROPOA. The SPV Notes are payable over ten years in accordance with            On January 24, 2005, the BOD of ECN declared stock dividends amounting to
                                                                                         —475.0 million and cash dividends of —20 per share or —300.0 million to all
                                                                                         P                                     P                P
   the accounts arrangement included in the SPA. The probable loss incurred
   from this transaction has been fully provided as of December 31, 2004.                stockholders of record as of February 1, 2005.

54 E Q U I T A B L E P C I B A N K

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