Chinabank 2004

COVER SHEET 8745 Paseo de Roxas cor. Villar St., 1226 Makati City

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R O X A S C O R V I L L A R S T (Business Address: No., Street City/ Town / Province) ARSENIO L. LIM, JR.

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Annual Meeting

Secondary License Type, If Applicable C F D Dept. Requiring this Doc.

Amended Articles Number / Section Total Amount of Borrowings

1,840 Total No. of Stockholders

Domestic

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CHINA BANK China Banking Corporation SECURITIES AND EXCHANGE COMMISSION SEC FORM 17-A 1. For the fiscal year ended December 31, 2004 2. SEC Identification Number NA (Exempt Securities) 3. BIR Tax Identification No. 320-000-444-210-NV 4. Exact name of registrant as specified in its charter CHINA BANKING CORPORATION 5. PHILIPPINES Province, Country or other jurisdiction of incorporation or organization

6. Industry Classification Code (For SEC use only)

7. 8745 Paseo de Roxas corner Villar Street, Makati City 1226 P.O. 2182 Address of principal office Postal Code 8. 885-5555 Registrant’s telephone number, including area code 9. Not Applicable Former name, former address, and former fiscal year, if changed since last report 10. Securities registered pursuant to Sections 4 and 8 of the RSA Number of Shares of Common Stock Title of Each Class Outstanding and Amount of Debt Outstanding Common stock, P100 par value

36,542,512 shares

11. Are any or all of these securities listed on the Philippine Stock Exchange Yes [ x ] No [ ] 12. Check whether the registrant: (a) has filed all reports required to be filed by Section 11 of the Revised Securities Act (RSA) and RSA Rule 11 11 (a) - 1 thereunder and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports): Yes [ x ]

No [ ]

(b) has been subject to such filing requirements for the past 90 days? Yes [ x ]

No [ ]

13. Aggregate market value of the voting stock held by non-affiliates: Not Applicable Portions of the Company’s 2004 Annual report to stockholders are incorporated by reference into Parts I & II of this report

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

PART I

BUSINESS AND GENERAL INFORMATION

ITEM 1. BUSINESS Historical Background. China Bank was incorporated on July 20, 1920 and commenced business on August 16 of the same year as the first privately owned local commercial bank in the Philippines. China Bank was listed on the local stock exchange in 1947 and became the first bank in Southeast Asia to process deposit accounts on-line in 1969, and the first Philippine bank to offer telephone banking in 1988. The Bank acquired its universal banking license in 1991. China Bank provides a wide range of domestic and international banking services and is one of the largest commercial banks in the country in terms of assets and capital. Business Milestones. Within a business arena dominated by intensified competition for market share, narrowing trading margins and regulatory pressure, in 2004, China Bank had a 3rd straight year of record income as it posted a profit after tax of P2.72 billion from P2.62 billion income in 2003. Another key financial milestone for 2004 was the P 11.9 billion increase in loans, its fastest pace in seven years. Comprehensive collection and restructuring efforts also cut past due loan level by P 1.2 billion and non-performing loan ratio to 11.40% from 14.68%. CASA deposit base reached a new high of P 21.7 billion, with broader retention rates for newly acquired accounts. The launching of our CASA revival program last November should reinvigorate the thrust to build-up traditional funding sources. Return on owners’ equity after appraisal increment of 14.37% again surpassed industry benchmarks. Similarly, our exceptional capital adequacy ratio of 32.74% is reflective of the Bank’s status as one of the best capitalized banks in the industry. These indicators were among the key factors that underpinned the decision of credit rating agencies Fitch Ratings & Capital Intelligence to retain China Bank’s credit rating at C/D and BB-, respectively. Despite an exigent environment, China Bank remained vigilant for fresh opportunities to improve market share and consolidate its presence as a multi-category service provider. We clearly defined China Bank’s value to customers as the ability to offer superior access to services and a selection of competitively priced fund- and fee-based products. In terms of customer service delivery & profitability, the evaluation of our banking channel economics merited greater attention last year, as shifting clients to more convenient electronic channels would be mutually beneficial in the long-run. Given the constraints on the opening of new branches, China Bank’s ATM network was expanded to 188 locations, while broadening the suite of available ATM- & Tellerphone-based services. By capturing client transactions across multiple touchpoints, our non-traditional income streams were maximized. On the corporate banking side, our newly established cash management unit became a significant engine for acquisition of business clients besides capturing payments flows from existing accounts. Check warehousing was introduced in the middle of 2004 to complement our bills & tax payments services. For retail banking, the centerpiece for 2004 was the implementation of the branch-based marketing program throughout the network. By institutionalizing a set of quantifiable and consistent measures for all branches, network performance could be better monitored and targeted toward desired segments – maximizing the business potentials at each area. Establishment of key metrics at all retail levels ensures that selling and cross-selling efforts become a collective responsibility. Given the constraints on the opening of new branches, network expansion focused on in-branch and off-branch ATMs. The Bank received recognition as “Outstanding Commercial Bank” by the Consumer Union of the Phils for 2004 and also by Parangal ng Bayan Foundation, Inc., National Consumer Excellence Awards for 2005. The Bank also launched this year its “Grateful at 85” promo in preparation for its 85th anniversary in 2005. For improved client recall and to better highlight the affiliation with China Bank, the subsidiary company officially changed its name from CBC Insurance Brokers, Inc. to Chinabank Insurance Brokers, Inc. Building on its strong performance from the previous years, Chinabank Insurance Brokers, Inc. capped the year 2004 with business strategies and accomplishments geared towards achieving business efficacy and customer satisfaction. The new name also signifies a new identity that echoes the China Bank brand – “your success is our business” and “banking with principles”. The launch of the “My Great Life Dollar Plan” paved the way for Chinabank Insurance’s first dollar denominated life insurance which is also an investment product. CHINA BANKING CORPORATION

SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A This product innovation was introduced and offered in partnership with another industry leader, Great Pacific Life (GrepaLife) of the Yuchengco Group of Companies. Motor car insurance business was also reinforced by improving the claims monitoring and service process turnaround. Their linkage with China Bank’s Consumer Banking Group Auto Loans’ current computer system allows for a seamless service delivery system for motor car quotations. Realizing the significant role technology plays in uninterrupted banking service to clients, China Bank – Properties and Computer Center, Inc. (CBC-PCCI) focused on providing the groundwork necessary to deliver effective and secure products and services to clients and users. These are all attuned to the rapid technological changes in the industry. For 2004, the Group implemented e-banking as China Bank’s answer to the demands of the advances in the internet banking front. Technology Group put in place network security for Internet banking. This resulted in the certification of external auditor SGV of our Bank upon passing the Network Assessment & Vulnerability Test or Ethical Hacking. The Group also successfully backed up the Online Clearing System accessed by unlimited users and which also links our Metro Manila and provincial branches to the government institution, Philippine Clearing House. There were other significant IT projects - Trade, Trust and Consumer which supported the overall positive performance of the Bank. Lastly, more teller terminals in the branches were converted to Mosaic NT, the latest generation of software which allows for automatic upgrading and troubleshooting over the network. CBC Forex Corp., another subsidiary of China Bank which handles the Bank’s business of dealing and broking in all currencies, registered a net income of P5.49 million in 2004. (1) Business of Issuer Principal Products and Services. The Bank’s products and services include deposits and related services, international banking services, loans and credit facilities, trust, investment services, insurance products and other services such as acceptance of various bill payments and donations to charitable institutions. The income from these products/services are divided into two categories, namely (1) interest income from the Bank’s deposit taking and lending/investment activities which accounts for 80% of revenues and (2) other income (includes service charges, fees & commissions, trading gain, foreign exchange gain, trust fees, income from sale of acquired assets and other miscellaneous income) which account for 20% of revenues. Distribution Network. As of end 2004, China Bank distributed its products and services through its 141 branch network with 79 branches in Metro Manila and 62 in the provinces. In 2004, Santiago City branch was opened in Feb. and two (2) branches were relocated namely Cebu-Banilad Branch and Cubao-Araneta Branch in order to improve network productivity, operational efficiency and customer service. The Banks’ ATM service, known as CBC Tellercard, complements the branch network in delivering services to its customers. As of end 2004, there were 188 ATMs nationwide Twenty three (23) ATMs were installed this year, namely: (1) Dipolog Center Mall; (2) Gilmore IT Center; (3) Power Plant R3; (4) Market! Market! 1; (5) Medical City; (6) Pacific Mall; (7) Greenbelt 3; (8) Caltex SLX 1; (9) SM City-Marilao; (10) SM City-Batangas; (11) SM City-Baguio; (12) Malanday Branch; (13) Market! Market! 2; (14) Metropoint Mall; (15) Robinson’s Galleria; (16) Lorma Hospital; (17) Greenhills Lifestyle Center; (18) Alabang Mall; (19) Greenhills Theater Mall; (20) Gaisano Mall; (21) Glorietta 1; (22) Rockwell-Loft and (23) ShopwiseAraneta. As a founding member of the BancNet consortium, TellerCard holders have access to more than 3,000 ATMs nationwide of both BancNet and Megalink networks. Status of New Products/Services. By 2004, China Bank offered and launched investment and cash management products. The line of investment products included high-yielding instruments Money L.I.F.T. (Long-term Investment Free of Tax)-2 months and Diamond Savings Account, a term deposit product supported by a passbook. These high-yielding investment options are available through its 141 branches nationwide. Consumer products such as the Contract to Sell (CTS) financing and salary loan were also offered this year. Cash management products were further boosted with the launching of the BIR Tax Payments (eFPs or electronic Filing and Payment system), payroll processing service, PDC’s warehousing and auto-debit arrangement. CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Competition. As the 12th largest commercial bank among the 41 commercial banks in the Philippines, China Bank had assets of P113.86 billion as of Dec 2004, which translated to a market share of about 2.95% of the commercial banking sector. The Bank mainly caters to the Chinese-Filipino commercial sector. Its core banking franchise stems mainly from its 84-year history in the Philippines, a factor that has enabled it to become deeply entrenched within the socioeconomic fabric of the Chinese-Filipino community. The Bank’s market comprises the corporate, commercial, middle and retail markets. The Bank also tapped the consumer market through its housing and auto loan business and high net worth market through its Private Banking Unit. Sources and Availability of raw materials and the names of principal suppliers. Not applicable. Disclose how dependent the business is upon a single customer or a few customers. Not applicable. Transactions with and/or dependence on related parties. In the ordinary course of business, the Bank has loans and other transactions with its subsidiaries and affiliates, and with certain directors, officers, stockholders and related interest (DOSRI). These loans and other transactions are made on the same terms as with other individuals and business of comparable risks and in compliance with all regulatory requirements. Other related party transactions conducted in the normal course of business include the availment of computer and general banking services of an affiliate to meet the Bank’s reporting requirements. Trademarks, Licenses, Franchises, etc. China Bank is operating under a universal banking license obtained in 1991. Need for any government approval of principal products or services. The Bank informs the BSP of all its products and services. Effect of existing or probable governmental regulations on the business. The bank strictly complied with the Bangko Sentral ng Pilipinas (BSP) requirements in terms of reserves, liquidity position, limits on loan exposure, cap on foreign exchange holdings, provision for losses, anti-money laundering provisions and other reportorial requirements. Amount Spent on Research and Development Activities. (In ‘000) 2004 2003 Education & Training Advertising Expenses Technology

P 5,698

P 4,976

11,173 76,640

4,965 81,877

2002 P 4,527 5,266 33,058

Cost and effect of compliance with environmental laws. Not applicable. No. of Employees. As of Dec. 2004, China Bank has a total manpower of 2,738 and plans to hire additional workforce of 323 in 2005. (A)

Additional Requirements as to Certain Issues or Issuers. Not Applicable (i) Debt Issues (ii) Investment Company Securities

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Products & Services DEPOSITS AND RELATED SERVICES ChinaCheck Plus Account Savings Account MoneyPlus Savings Account Diamond Savings Account Certificates of Time Deposits Manager’s Checks Gift Checks TellerCard (ATM Card) TellerPhone (Telephone banking) Government Securities 5-Year Money L.I.F.T. (Long-Term Investment Free of Tax) LOANS AND CREDIT FACILITIES Agricultural, Commercial and Industrial Financing Personal Loans Pre-export Financing (Direct and Indirect Exporters) Special Lending Programs Countryside Loan Fund (CLF) Agricultural Loan Fund (ALF) Industrial Guarantee and Loan Fund (IGLF) Japan Bank for International Cooperation Industrial Support Service Expansion Program (ISSEP) Japan Export Import Bank (JEXIM) for Private Sector Development Financing Industrial Restructuring Project Fund (IRPF) Asian Development Bank Financing Industrial Investment Credit Project (IICP) Domestic Shipping Modernization Program (DSMP) Environmental Infrastructure Support Credit Program (EISCP) SSS-GSIS Special Financing Program SSS Industry Loan Program Special Financing Program for Tourism Projects Hospital Financing Program Financing Program for Educational Institutions Special Financing Program for Vocational and Technical Schools Guarantee Programs Small Business Guarantee Finance Corporation (SB Corp.) Trade and Investment Development Cooperation (Designated as Philippine Export and Import Credit Agency – PHILEXIM) Overseas Chinese Credit Guarantee Funds (OCCGF) Export - Import Bank of the United States (USEXIM) Guarantee Consumer Loans HOMEPlus Real Estate Loan AUTOPlus Vehicle Loan

TRUST AND INVESTMENT MANAGEMENT SERVICES Investment Management Investment Advisory Investment Agency Corporate Trust Collateral/Mortgage Trust Estate Planning Testamentary Trust Living Trust Life Insurance Trust Educational Trust Employee Benefit Planning Retirement Plan Provident Plan Other Fiduciary Services Custodianship Escrow Agency Loan Agency China Bank Dollar Fund

INTERNATIONAL BANKING SERVICES Import and Export Financing Foreign and Domestic Commercial Letters of Credit Standby Letters of Credit Collection of Clean and Documentary Bills Bank Guaranty (Shipside Bond) Foreign and Domestic Remittances Purchase and Sale of Foreign Exchange Travel Funds Servicing of Foreign Loans and Investments Trade Inquiry Trust Receipt Facility Correspondent Banking Services LC Confirmations/LC Advising Cash Management Tie-ups with Foreign Correspondent Banks Cash Management Tie-ups with Non-Bank Money Transfer Service Providers Foreign Currency Checks and Drafts Clearing Services Foreign Currency Deposit Unit Services US$ Savings and Time Deposit Foreign Currency Loans

INSURANCE PRODUCTS Life Insurance Endowment Plans, Group Life Insurance Mortgage Redemption Insurance/Term Insurance Dollar-Denominated Life Insurance Plans Non-Life Insurance Fire Insurance Building and Content Fire and Allied Perils Motor Car Insurance Surety/Fidelity Bond/Judicial Bonds Marine Insurance – Cargo / Hull Casualty Comprehensive General Liability (C.G.L.) Products Liability (Local and Export) Accident and Health Personal and Travel Insurance 1. Student Personal Accident Insurance 2. Group Personal Accident Insurance HMO Plans Contractor’s / Erector’s All Risk Insurance Industrial All Risk (IAR) Insurance Electronic Equipment Insurance Medical Insurance Specialized Insurance Programs Special Scheme – Captive Insurance Company Risk Management Services/Risk Survey Report ACCEPTANCE OF PAYMENTS Credit Cards AIG Visa/Mastercard Allied Bank Visa Banco Filipino Visa Bankard/RCBC Citibank Visa/Mastercard East West Card HSBC Cards Metrobank Card Security Bank Diners/Mastercard Standard Chartered Visa/Mastercard Telecommunications Digitel Extelcom Globe Telecoms ICC – Bayantel Innove (formerly Islacom) PLDT Smart Communications Beeper 150 Mobiline Piltel Utility Company Meralco

CASH MANAGEMENT SERVICES Automatic Debit Arrangement (ADA) Multi-Channel Bills Payment Services (includes Overthe-Counter, ATM and TellerPhone) BancNet Payment System (ATM, Point-of-Sale and BancNet Online) Post-Dated Check Warehousing Service Cash and Check Deposit Pick-up Services Comprehensive Payroll Offering (Crediting and Outsourcing) BIR Online Tax Payments SSSNet Employee Contribution Facility SSS Sickness, Maternity and Employee’s Compensation (SMEC) Payment thru the Bank Program ACCEPTANCE OF PAYMENTS Cable TV Companies Home Cable Sky Cable Insurance / Pre-need CBC Insurance Brokers Manila Bankers Insurance Pacific Plans Loans China Bank Loan Payments Government Institutions BIR NSO Helpline Plus PhilHealth PNCC-Skyway PSC – EPass SSS Internet Edsamail Infocom ACCEPTANCE OF DONATIONS Bantay Bata Church of Jesus Christ of Latter Day Saints Knowledge Channel Piso Para sa Pasig OTHER SERVICES SSS Pension Accounts Direct Deposit Facility for U.S. Pensioners Safe Deposit Box Domestic Collections Western Union Money Transfer Service Prepaid Card Reloads Phonecards (Landline and Cellphone) Internet Cards Satellite TV Internet game

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A ITEM 2. PROPERTIES The Bank conducts its business in its Makati headquarters situated on a 2,977 square meter lot (2 parcels) with a multi storey building appraised at P1.8 BN, with business address at 8745 Paseo de Roxas cor. Villar St., Makati City. Its Binondo operations are located at a 1,233 sq. m. lot at the corner of Dasmarinas and Juan Luna streets (4 parcels of land with two multi-storey commercial buildings). Other properties include land & buildings of the different branches such as 1)

Caloocan

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2-storey mezzanine commercial bldg situated at No. 167 Rizal Ave. Ext. and J. Teodoro, Bgy. Calaanan, Caloocan City 2) Baguio Penthouse 3-level duplex residential building, Park Road, Baguio City 3) Davao Phase 3 of the Ecoland Commercial Center, Matina, Davao 4) San Juan Brgy. San Pedro Cruz, Municipality of San Juan 5) Cebu Bus. Park, Cebu Samar loop cor. Panay Road, Cebu Business Park, Cebu City 6) Trece Martires, Cavite Unnamed Road, Bo. San Agustin, Trece Martires, Cavite 7) Laguna Bel-Air Lot 17, Blk 66, Road Lot 1-B Laguna Bel Air Subd., Sta Rosa, Laguna 8) Iloilo-Rizal Drive Rizal cor. Gomez Sts. Brgy. Ortiz, Iloilo City 9) Silang, Cavite E. Aguinaldo Highway, Bo. Biuso, Silang, Cavite 10) Dolores, San Fernando 460 sq.m. at Lazatin, Blvd., Dolores, San Fernando, Pampanga 11) Las Piñas Alabang-Zapote Road cor. Aries, Pamplona, Las Piñas City 12) Valenzuela MacArthur Highway, Valenzuela City 13) Rosario, Cavite Gen. Trias Drive, Rosario, Cavite 14) Imus, Cavite Nueno Avenue, Tanzang Luma, Imus, Cavite 15) Tarlac Panganiban St., San Nicolas Tarlac City, Tarlac 16) Visayas Avenue Visayas Ave., cor. Congressional Ext. Quezon City 17) Cabanatuan Lot 6 Blk 3, Maharlika Highway, Dicarma, Cabanatuan City 18) Libertad, Pasay City No. 184 Libertad St., Pasay City 19) Dasmariñas, Cavite Gen Emilio Aguinaldo Highway, Dasmariñas, Cavite 20) Angeles City 347.07 sq.m. 2 parcels of land 21) Roosevelt # 291 Roosevelt Ave., San Francisco Del Monte, Quezon City 22) San Juan No. 169 Blumentritt St., San Juan, Metro Manila 23) Navotas No. 551 M. Naval St., Bankulasi, Navotas, MM 24) Cebu-Manalili M. Velez cor. V. Rama Ave., Cebu City 25) Bacolod Araneta St., Bacolod City 26) Lapasan C.M. Recto Ave. National Highway, Lapasan, Cagayan de Oro City 27) General Santos 600 sq.m. lot at Bo. Lagao, Gen Santos City 28) Sorsogon Ramon Magsaysay Ave., Sorsogon, Sorsogon 29) Zamboanga Gov. Lim Avenue, Zamboanga City 30) Dipolog Gen. Luna cor. G. Gonzales Sts., Dipolog City 38) Davao (Recto) C.M. Recto co. J.P. Rizal Sts., Davao City 39) Cebu Jakosalem & Magallanes St., Cebu City 40)Potrero McArthur Highway, Potrero, Malabon City 41) West Avenue No. 2 West Ave., Bgy. Philam, District of Diliman Quezon City 42)Talisay, Cebu Talisay, Cebu City 43) Banilad, Cebu Barangay of Banilad, Cebu City 44) San Fernando, Pampanga - V. Tiomico St., Sto. Rosario, San Fernando Pampanga 45) E. Rodriguez Sr. Blvd. E. Rodriguez Sr. Ave. New Manila, Quezon City 46) Banawe Banaue Ave., Quezon City 48) Cainta, Rizal 415 sq.m. lot at Felix Ave., Cainta, Rizal (beside Sta Lucia East Mall) 49) Quiapo No. 216-220 Villalobos St., Quiapo, Manila 50) Cubao-Aurora Aurora Blvd. Cor. Miami, Cubao, Quezon City 51)San Pablo City Rizal Ave., Poblacion, San Pablo City 52) General Santos 500 sq.m. lot at Queennies Vill., Dadiangas Heights, Bo. Lagao, Gen. Santos 53) Cainta, Rizal 623 sq.m. lot at Felix Ave., Cainta, Rizal (beside Sta Lucia East Mall) 54) Dolores, San Fernando 900 sq.m. at Lazatin, Blvd., Dolores, San Fernando, Pampanga These properties are free from any lien or encumbrance.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Description of Property the Bank intends to acquire in the next 12 months. The Bank has no plans to acquire properties in the next twelve (12) months. The Bank’s schedule of Bank premises, furniture, fixtures & equipment as of Dec. 31, 2004: Accounts Bank Premises-Land Building under construction Bank Premises-Building Bank Premises-Appraisal Leasehold Rights & Improvements Furnitures, Fixtures & Equipment Less: Accumulated Depreciation-Bldg. Accumulated Depreciation-FFE

Amount (In Million Pesos) P 1,825 588 348 75 1,876 160 1,525 P 3,027

Cost of computer equipment is lodged with CBC-Properties & Computer Center, Inc. ITEM 3. •

LEGAL PROCEEDINGS

There are pending cases for and against the Bank arising from normal business activities. In the opinion of the Bank’s management and legal counsel, there are no material pending legal proceedings to which the Bank or any of its subsidiaries or affiliates is a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS • •

Annual Stockholders Meeting -- May 06, 2004 Directors Elected - Gilbert U. Dee, Chairman of the Board Hans T. Sy, Vice Chairman and Chairman of the Executive Committee Peter S. Dee, President and CEO Pilar N. Liao, Independent Director Joaquin Dee, Director Dy Tiong, Director Herbert T. Sy, Director Henry T. Sy, Jr., Director Harley T. Sy, Director Donato T. Faylona, Independent Director Alberto S. Yao, Independent Director Henry Sy, Sr., Advisor to the Board Robert T. Dee, Jr., Advisor to the Board

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

PART II

OPERATIONAL AND FINANCIAL INFORMATION

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(1) Market Information •

Principal market where the equity is traded -- Philippine Stock Exchange Inc. (PSE)

•

Market Value

2003

HIGH

LOW

CLOSE .

Jan - Mar Apr - Jun Jul - Sept Oct - Dec

566.67* 633.33* 670.00 675.00

516.67* 583.33* 608.30* 660.00

2004

HIGH

LOW

Jan - Mar Apr - Jun Jul - Sept Oct - Dec

680.00 685.00 555.00 600.00

650.00 620.00 520.00 520.00

554.17* 604.16* 660.00 670.00 CLOSE .

665.00 650.00 530.00 560.00

* - Adjusted for 20% stock dividend on 15 July 2003 2004

HIGH

LOW

Jan - Mar Apr - Jun Jul - Sept Oct - Dec

566.67** 570.83** 555.00 600.00

541.67** 516.67** 516.67** 520.00

CLOSE .

** - adjusted for 20% stock dividend on 19 July 2004 •

Market value as of March 31, 2005 (last trading day): P685.00

554.17** 541.67** 530.00 560.00

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A (2) Holders • Top 20 Stockholders (As of 12/31/2004) Name of Stockholders

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Number of Shares

Percent Share

Sysmart Corporation PCD Nominee Corporation (Filipino) SM Investments Corporation The Int’l. Commercial Bank of China Shoe Mart, Inc. Henry Sy, Sr. CBC Employees Retirement Plan Joaquin Dee &/or Leticia Ty Dee JJACCIS Development GDSK Development Corporation PCD Nominee Corporation (Non-Fil) Domingo T. Dee Gilbert U. Dee Estate of Allen Cham Regina Y. Dee Hydee Management & Resource Corp. SM Development Corp. Kuan Yan Tan’s Charity (Phil.), Inc. The First Resources Mgt. & Sec. Corp. Reliance Commodities, Inc.

7,457,473 5,389,793 3,509,967 2,952,268 2,461,744 2,021,761 914,469 877,635 716,850 618,714 395,330 226,896 214,578 170,757 162,518 161,187 147,002 123,030 112,197 106,539

20.408 14.749 9.605 8.079 6.737 5.533 2.502 2.402 1.962 1.693 1.082 0.621 0.587 0.467 0.445 0.441 0.402 0.337 0.307 0.292

TOTAL

28,740,708

78.650%

Total number of shareholders (As of 12/31/2004) – 1,852 (3)

Dividends Chinabank’s Dividend history has been mainly in the form of stock dividends. 2004 2003 2002 2001 Stock Dividend 20% 20% 10% Cash Dividend 5% 5% 8% Authorized and Issued Capital Authorized Capital Issued Shares -

2000 10%

P5.0 billion divided into 50 million shares 36,542,512

There is no restriction that limits the ability to pay dividends other than what is required in the Corporation Code. However, any dividends declared by the Bank are subject to the approval primarily of Bangko Sentral ng Pilipinas, the Philippine Stock Exchange and the Securities and Exchange Commission. (4) Unregistered Securities There were no unregistered securities sold by the Bank for the past three (3) years, however there were new securities issued resulting from the declaration of stock dividend to come from the Bank’s unissued shares which were exempt from registration requirement under Sec 10.1 (d) of the Securities Regulation Code.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Compliance with leading practices on corporate governance The Bank’s Manual on Corporate Governance has been revised to incorporate amendments introduced by various governance-related circulars issued by the regulators which include among others, the creation of Corporate Governance Committee, Risk Management Committee and Compensation or Remuneration Committee and the adoption of corresponding Committee Charter, and the PSE Revised Disclosure Rules. Also, the Bank has an evaluation system for the Board of Directors and for the Individual Board, to determine and measure compliance with the provisions and requirements of the Manual. This is done annually where the results are summarized and reported to the Board of Directors by the Compliance Officer. To enjoin compliance, a copy of the Bank’s Manual on Corporate Governance, as amended, is made available to all employees. Also, orientation is conducted for supervisors and officers to raise the level of awareness and understanding of the principles, concepts and elements of good corporate governance.

ITEM 6.

MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

A.

Management’s Discussion and Analysis (MD & A) or Plan of Operation

(1)

Financial and Operating Highlights Highlights of the balance sheet and income statement for the last three (3) fiscal years: 2002 2004 2003 (In Million Pesos) (As restated) (As restated) Gross Revenues 10,678 11,174 10,403 Gross Expenses 7,961 8,558 7,811 Net Income 2,717 2,616 2,592 Total Resources 113,860 103,350 107,931 Loan Portfolio (Net) 48,458 38,209 34,351 Total Deposits 85,806 72,112 83,151 Capital Funds 19,641 17,093 14,562 (In %) Return on Assets 2.46 2.57 2.73 Return on Average Equity 14.37 16.82 19.36 BIS Capital Adequacy Ratios 32.74 26.17 24.53 Net Interest Margin 5.08 4.47 4.02

(2) Management’s Discussion and Analysis The Bank posted a 3rd straight year of record income at P2.72 billion, 3.87% above 2003 figures and 4.83% from 2002 figures. The resulting Return on Average Equity (ROE) of 14.37%, 16.82% and 19.36% and Return on Assets of 2.46%, 2.57% and 2.73% in 2004, 2003 and 2002, respectively reflect industry best performance. Income was boosted by higher interest margins coupled with lower provisioning at P856 million vs. P1.65 billion in 2003 and P2.32 billion in 2002. Fund-based revenues reached P8.56 billion, expanding by 18.81% and 31.13% from 2003 and 2002 respectively, mainly from interest income on loans, low-risk investment securities and IBCL. Interest expenses slightly declined by 0.52% in 2004 from P3.52 billion in 2003 but was slightly up by P205 million from 2002 as a result of lower interest cost on dollar deposits and pay-offs of high yielding peso deposits such as More Than Double Your Money (MTDYM)-5 at the start of the year. Consequently, net interest income expanded by 37.29% and 56.58% from P3.68 billion and P 3.23 billion in 2003 and 2002, respectively to P5.05 billion in 2004. Net interest margin improved to 5.08% from 4.47% in 2003 and 4.02% in 2002.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Fee-based revenues dropped by 46.60% from 2003 & 45.30% from 2002 to P2.12 billion in 2004 which can be attributed to the decline in trading gains by 87.74% and 89.47% from P2.46 billion in 2003 and P2.87 billion in 2002 respectively. This was expected as a substantial part of the GS inventory was sold in 2004 and 2003. On the other hand, services, fees and commissions grew by 33.91% from P467 million in 2003 and 34.97% in 2002. Higher in-clearing service charges such as no sufficient fund (NSF) and clearing house operating memo (CHOM) boosted service and collection charges. Foreign exchange gain also increased by 14.94% in 2004 from P642 million in 2003 and by 323.67% from P174 million in 2002 as our Treasury Group maximized opportunities from the higher peso-dollar exchange rate. Miscellaneous income also expanded by 9.02% to P95.5 million in 2004 from P87.6 million in 2003 and by 21.22% from P95 million in 2002 . Despite the drop in taxes and licenses by 10.05% to P385 million and slight increase by 2.06% from 2003, operating expenses grew to P3.28 billion or by 4.76% in 2004 from P3.13 billion in 2003 and 18.05% from P2.85 billion in 2002. Compensation and fringe benefits grew by P195 million to P1.22 billion in 2004 from P1.02 billion in 2003 and by P276 million in 2004 from P943 million in 2002 mainly due to higher salary and other fringe benefits. Miscellaneous expenses were down by 21.09% or P150.17 million to P561.90 million from P712.16 million in 2003 and up by 1.90% or P10.50 million from 2002 as a result of reclassification of accounts. With substantial loan loss reserves already provided in the previous 2 years, China Bank’s provision for probable losses slowed to P856 million. The resulting loan loss coverage ratio (ratio of reserves to bad loans) of 82.19%, remained one of the highest in the industry. This brings cumulative loan loss reserves to P6.25 billion in 2004, down by 4.5% from 2003 due to write-offs effected by end of year. NPL ratio stood at 11.40% in 2004, better than last year’s 14.68% . Going forward, changes in market/borrowing rates, volatility of peso/dollar exchange rates and other external factors are potential concerns. Total resources grew by P 10.51 billion to P 113.86 billion in 2004, mainly from higher loans volume and Investment in Bonds and Other Debt Instruments (IBODI). The bank’s gross loan portfolio for 2004 grew by P11.9 billion from 2003 and P17.7 billion from 2002 due to additional exposure to prime companies in telecommunications, shipping, medical services, food and agribusiness and real estate as well as higher volume of retail loans (housing & auto). Items on the asset side such as Cash & Other Cash Items increased by 22.79% from 2003 and 36.90% from 2002 due to year-end build-up. There was a growth in Due from BSP of 86.35% which can be attributed to an increase in BSP reserves from higher deposits . Meanwhile, Due from Other Banks dropped by 57.31% and 71.30% from 2003 and 2002, respectively as a result of lower placements with other banks. Interbank loans also declined by 60.20% to P2.42 billion from P6.09 billion in Dec. 2003 due to lower overnight bank placements. For 2004, IBODI increased by 27.30% to P34.39 billion in 2004 from P27.02 billion in 2003 and by 2.52% from P33.55 billion in 2002 from higher investment in government securities. Trading account securities (TAS) decreased by 26.55% from 2003 and 16.60% from 2002 due to reclassification of accounts. On the liabilities side, total deposits was up by 17.30% to P85.81 billion in 2004 from P 72.11 billion in 2003 and 3.19% from P83.15 billion in 2002 which can be attributed to higher CASA deposits and the introduction of new high yielding longterm deposits. Again, year-on-year CASA growth was one of the best ever for the Bank, and signified the eighth straight year of over P 1 billion build-up in low-cost CASA deposits. Interbank loans payable dropped by 87.81% to P732 million from P6.00 billion in 2003 and 70.76% from P2.50 billion in 2002 as there was no need for additional bank borrowings. Accrued Taxes, Interest & Other Expenses declined by 29.07% from 2003 and 4.20% from 2002 due to the payout of accrual interest on maturing MTDYM deposits last January. Other liabilities grew by 6.12% from 2003 due to adjustments involving reclassification to proper accounts for the whole year 2004. Total capital funds reached P19.64 billion, up by 14.91% from 2003 and 29.07% from 2002. The BIS Capital Adequacy Ratio (CAR) reached a new high of 32.74%, reflective of the Bank’s status as one of the best capitalized banks in the industry. Again, this is an improvement from the CAR of 26.17% in 2003 and 24.53% in 2002. Changes in market rates and borrowing costs as well as movements in the peso/dollar exchange rate may affect the Bank’s liquidity.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Despite an exigent environment, China Bank remained vigilant for fresh opportunities to hike market share and consolidate its presence as a multi-category service provider. On the corporate banking side, the Bank’s newly established Cash Management unit became a significant engine for acquisition of business clients through the launching/offering of services such as BIR tax payments (electronic Filing and Payment system), payroll processing, check warehousing and auto-debit arrangements. For the retail banking, branch-based marketing program was implemented throughout the network. Consumer products were also introduced in 2004 such as the Contract to Sell (CTS) financing and salary loans. We have also reorganized our support units such as the Centralized Operations Group which included the International Banking and Loans & Discounts. Another newly-formed group in 2004 was Credit Management, which includes Remedial Management, Securities Custodianship and Credit Division. Technology-related capital investment accounted for the bulk of the Bank’s capital expenditures for the year 2004. These include additional business applications, upgrade of computer mainframe hardware (CPU and storage) for the core banking system and e-banking projects. There were no key variable and other qualitative and quantitative factors which affected the Bank’s financial condition that did not arise from the Bank’s normal course of operations. Also, changes in the bank’s financial condition or operations are due more to external factors such as interest rate movements and cost of borrowings rather than cyclical aspects. In the normal course of the Bank’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these transactions. The following is a summary of contingencies and commitments with their equivalent peso contractual amounts: 2004 2003 Trust Department accounts P 38,184,795,281 P 33,560,644,456 Forward exchange sold 7,729,720,647 13,071,690,696 Unused commercial letters of credit 2,061,265,436 1,920,913,124 Outstanding guarantees issued 2,637,888,695 1,342,660,084 Deficiency claims receivable 779,131,078 491,142,262 Late deposits/payments received 218,321,220 119,022,748 Outward bills for collection 219,272,685 95,017,647 Inward bills for collection 134,308,337 91,467,555 Forward exchange bought 27,026,647 25,355,946 Others 731,573,297 615,480,142 There are pending assessments and pre-assessments from the Bureau of Internal Revenue (BIR) pertaining to withholding tax at source and DST for the years 1982 to 1986 and GRT for the years 1999 and 2000. In addition, the Bank has received tax assessments from the BIR on two industry issues. The Bank, through its tax counsel, is contesting these assessments and pre-assessments on the ground that the factual situations were not considered which, if considered, will not give rise to material tax deficiencies. The Bank, together with other member banks of the Bankers’ Association of the Philippines (BAP) , is contesting these pending assessments and pre-assessments of the BIR. Discussions are ongoing between the BAP and the BIR for the appropriate settlement and disposition of these tax issues. No provision has been made in the accompanying financial statements for these contingencies. Several suits and claims relating to the Bank’s lending operations and labor-related cases remain unsettled. In the opinion of management, these suits and claims, if decided adversely, will not involve sums having a material effect on the financial statements of the Bank.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A (3) Plan of Operations Prospects for the banking industry and China Bank in particular could be tied to the resilience of the Philippine economy. In 2005, with the GDP forecast of 5.3%-6.3% p.a. and better outlook for the banking industry such as loans growth, stronger retail/consumer market, reduced NPL/NPA due to SPAV, China Bank believes a 10% p.a. growth would be a challenge. To sustain its profitability, the Bank will continue to expand its market base and business volume through growth in CASA and loans. It will also intensify its revenue, pursue its replacement strategy through quality loans growth and build up of fee-based income. The Bank will also improve its asset quality through reduced NPL, disposal of ROPOA and strengthening of its credit management , change in lending process & structure. Another priority for the Bank this year is the implementation of internet banking solutions and the full implementation of the Sales Mgt. System to clearly target market segments, monitor performance as well as support customer acquisition & retention. The Bank will also continue to improve its overall operating efficiency through superior technology and review of core banking platform, implementation of automation projects and streamlining processes. Technology-related capital investment will account for the bulk of the Bank’s capital expenditures for the year 2005. These include operating software for insurance brokerage, upgrade of network and communications systems, automated solutions and e-banking projects. ITEM 7. FINANCIAL STATEMENTS Please refer to the attached Audited Financial Statements for 2004. ITEM 8.

CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

There were no changes and disagreements with our accountant on any matter of accounting and financial disclosure. For the last two (2) years, Mr. Wilson P. Tan, Partner, Sycip, Gorres Velayo & Co. (SGV), with office located at 6760 Ayala Avenue, Makati City, 1226 Philippines, has been our accountant/auditor.

PART III

CONTROL AND COMPENSATION INFORMATION

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (1) Incumbent Directors and/or Nominees for the position of directors including independent directors and executive officers and the relevant data about them are listed hereunder: a. Incumbent Directors and/or Nominees, including independent directors. 1. Gilbert U. Dee (GUD) Incumbent – Nominee Director 2. Hans T. Sy (HS) Incumbent – Nominee Director 3. Peter S. Dee (PSD) Incumbent – Nominee Director 4. Joaquin Dee (JD) Incumbent – Nominee Director 5. Dy Tiong (DT) Incumbent – Nominee Director 6. Herbert T. Sy (HTS) Incumbent – Nominee Director 7. Henry T. Sy, Jr. (HTS, Jr.) Incumbent – Nominee Director 8. Harley T. Sy (HSY) Incumbent – Nominee Director 9. Pilar N. Liao (PNL) Incumbent – Nominee Independent Director 10. Donato T. Faylona (DTF) Incumbent – Nominee Independent Director * 11. Alberto S. Yao (ASY) Incumbent – Nominee Independent Director 12. Robert F. Kuan (RFK) Nominee Independent Director * Per his letter dated April 6, 2005, he is declining his nomination as Director. CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Gilbert U. Dee, 69, Chairman of the Board, holds a Bachelor of Science degree in Banking from De La Salle University. He obtained his MBA in Finance from University of Southern California in 1959. He became the Chairman of the Board in 1989 and a Director since 1969. He has been a director/officer for more than five (5) years in companies engaged in banking, finance and investment, manufacturing and auto dealership. He holds directorships in affiliates/subsidiaries and other corporations such as CBC Properties & Computer Center, Inc. th (CBC-PCCI), Union Motor Corp. and Super Industrial Corp., among other corporations. GUD and PSD are related within the 5 civil degree by consanguinity. Hans T. Sy, 49, Vice Chairman and Chairman of the Executive Committee (ExCom), holds a Bachelor of Science degree in Mechanical Engineering from De La Salle University. He became Vice Chairman and Chairman of the ExCom since 1989 and a Director since 1986. He has been director/officer for more than five (5) years in companies engaged in banking, retailing, real estate development, mall operations, construction, cement, food and rubber manufacturing, finance and investment, insurance and entertainment. He holds directorships in affiliates/subsidiaries and other corporations such as Best Rubber Corp., ACE Hardware Phils. Inc., Family Entertainment Center, Inc., HS Food, Inc., Land Building Corp., Market-Watch Investors Co., Inc., Shoemart, Inc., Multi-Realty Dev’t. Corp., Shopping Center Mgt. Corp., SM Development Corp., SM Investments Corp., Wonderfoods, Inc., among other corporations. HS, HTS, HTS, Jr. and nd HSY are related within the 2 civil degree by consanguinity. Peter S. Dee, 63, President & Chief Executive Officer (CEO), holds a Bachelor of Science degree in Commerce from De La Salle University/University of the East. He became President & CEO in 1989 and has been a Director since 1977. He has been a director/officer for more than five (5) years in companies engaged in banking, paint, food and beverage, manufacturing, real estate development, finance and insurance. He holds directorships in affiliates/subsidiaries and other corporations such as CBC Properties & Computers Center, Inc., CBC Forex Corp., Chinabank Insurance Brokers, Inc., Cityland Dev’t. Corp., Hydee Mgt. & Resources Corp., Sinclair (Phils.), Inc., Can th Lacquer, Inc. and GDSK Dev’t. Corp., among other corporations. PSD and GUD are related within the 5 civil degree by consanguinity. Joaquin Dee, 69, Director, holds a Bachelor of Arts degree in Commerce from Letran College. He has been a Director since 1984 and has been a director/officer for more than five (5) years in companies engaged in banking, liquor manufacturing, flour trading and real estate development. He holds directorships in the following corporations: JJACCIS Dev’t. Corp. and Enterprise Realty Corp., among other corporations. Dy Tiong, 75, Director, holds a Bachelor of Science degree in Business Administration from National Jean Kuan College. He has been a Director since 1985. He has also been a director/officer for more than five (5) years in companies engaged in banking, finance, investment, insurance and education. He holds directorships in following corporations: Panelon Phils. and Chiang Kai Shek College, among other corporations. Herbert T. Sy, 48, Director, holds a Bachelor of Science degree in Management from De La Salle University. He has been a Director since 1993 and has been a director/officer for more than five (5) years in companies engaged in banking, food retailing, rubber manufacturing, investment, car service and car accessories, real estate development and mall operations. He holds directorships in the following corporations: Best Rubber Corp., SM Autoservice & Car Accessories (Phils.), Inc., Café Elysee, Inc., SM Prime Holdings, Inc. and Supervalue, Inc., among other corporations. HTS, HS, HTS, Jr. and HSY are related within the 2nd civil degree by consanguinity. Henry T. Sy, Jr., 51, Director, holds a Bachelor of Science degree in Management from De La Salle University. He has been a Director since June 2000. Mr. Sy, Jr. has been a director/officer for more than five (5) years in companies engaged in banking, real estate development, construction, mall operations, cement, food & rubber manufacturing, finance and investment. He holds directorships in the following corporations: SM Prime Holdings, SM Investments Corp., SM Synergy Properties Holdings Corp., Shoemart Inc., Sysmart Corp., Highlands Prime, Inc. & SM Development Corp., among other corporations. HTS, Jr., HS, HTS and HSY are related within the 2nd civil degree by consanguinity. Harley T. Sy, 45, Director, holds a Bachelor of Science degree in Commerce, major in Finance from De La Salle University. He became a Director in May 2001. He has been a director/officer for more than five (5) years in companies engaged in banking, retailing, food, real estate development, finance and investment. His directorships include the following: ACE Hardware Phils., SM Investments Corp., Shoemart, Inc. and H.S. Food, Inc., among other corporations. HSY, HTS, HS and HTS, Jr. are related within the 2nd civil degree by consanguinity.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

Pilar N. Liao, 74, Director, holds a Bachelor’s degree in Home Economics from the College of the Holy Spirit. She became a Director in May 1985. She has also been a director/officer for more than five (5) years in companies engaged in banking, office equipment, systems and supplies. She is also a Director of Speed Office System. Donato T. Faylona, 57, has been engaged in the general practice of law since 1974. Presently, a partner in Herrera Teehankee Faylona & Cabrera Law Offices in-charge of litigation, a position he has held since joining the firm in 1988, has extensively appeared in trial courts and administrative bodies such as the Securities and Exchange Commision, Civil Aeronautics Board and House Land Use and Regulatory Board. Directly handled and supervised appellate practice in the Court of Appeals and in the Supreme Court. Has likewise extensive practice in corporate law involving joint venture agreements, mergers and acquisitions and maintenance of corporate books. His directorship include the following: Gendiesel Philippines, Inc., Dream 6750, Inc., Jadwani Int’l., Inc., VAJ Industries, Inc., VSD Realty and Dev’t. Corp., Orient Wood Industrial Co., Inc., Tagum Agro-Industrial Corp., Phil-Gulf, Inc., and Casa Benita Dev’t. Corp. Alberto S. Yao, 58, Director, holds a Bachelor of Science in Business Administration from Mapua Institute of Technology. He became a director in July 2004. He has been a director/officer for more than five (5) years in companies engaged in manufacturing and distribution of tires, Mattel and other leading toys, infants and children’s footwear. His directorship/ officership in other corporations include Richphil House, Inc., Megarich Property Ventures and Crestland Empire Venture Corporation. Robert F. Kuan, 57, holds a Bachelor of Science degree in Business Administration from UP. He obtained his MBA from AIM in 1975. He took up Top Management Program exclusively for company Presidents and Chief Executive Officers at Bali, Indonesia in 1993. He has been the Chairman of the Board of Trustees of St. Luke’s Medical Center and Member of Board of Trustees of St Luke’s College of Medicine since 1996, and Brent International School of Manila since 1989. He is the founder and the President of Chowking Food Corporation from 1985 until March 2000. He is a recipient of several awards and citations in the field of business, such as Business Leadership Award (Pillar Category) from Aurelio Periquet, Jr. Foundation, TOFIL Awardee in the field of Business and Entrerpreneurship for the year 2003, 1999 Franchise Excellence Awardee from the Philippine Franchise Association, 1999 Most Outstanding Professional Awardee in the field of Business Administration from UP Alumni Association, among others. GUD- Nominated by Linda Susan T. Mendoza, no relation HS-Nominated by SM Investments Corp./Shoemart, Inc./Henry Sy, Sr./Sysmart Corp. PSD – Nominated by Nancy D. Yang, sister JD – Nominated by Christopher Dee, son DT – Nominated by Johnny Cheng, T.K., Jr. son-in-law HTS – Nominated by SM Investments Corp./ Shoemart, Inc./Henry Sy, Sr. / Sysmart Corp. HTS, Jr. – Nominated by SM Investments Corp./Shoemart, Inc./Henry Sy, Sr./Sysmart Corp. HSY – Nominated by SM Investments Corp./Shoemart, Inc./Henry Sy, Sr./Sysmart Corp. PNL – Nominated by Patrick Stephen Liao, son ASY – Nominated by Gregorio U. Kilayko, no relation DTF – Nominated by Regina Capital Development Corp. by Marita A. Limingan RFK – Nominated by Regina Capital Development Corp. by Marita A. Limingan

b. Principal Officers Ricardo R. Chua, 53, Executive Vice President (EVP) and Chief Operating Officer (COO), holds a Bachelor’s Degree in Commerce, major in Accounting from the University of the East. He obtained his MBA from Asian Institute of Management (AIM) in 1975. He became the COO in December 1995. He has been involved in the banking industry for more than 5 years. He is presently the President & COO of Chinabank Insurance Brokers, Inc. (CBC-IBI), Director of CBC Forex Corp. (CBC-CFC), Director and General Manager of CBC Properties and Computer Center, Inc. (CBC-PCCI). Reynaldo L. Lao, 61, Senior Vice President (SVP) and Head of the Consumer Banking Group, holds a Bachelor’s degree in Management from University of the East. He obtained his MBA from Ateneo de Manila and graduated from the Asian Institute of Management’s Management Development Program in 1972. He has been an SVP since 1995. He has been involved in the banking industry for more than 5 years. He is a Director of Chinabank Insurance Brokers, Inc. (CBC-IBI). CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Nancy D. Yang, 65, Senior Vice President (SVP) and Head of the Branch Banking Group, holds a Bachelor of Arts degree from PWU and a degree in Human Development & Child Psychology from Merill Palmer Institute, Detroit, Michigan, USA,

1960-61. She has been a SVP since 1995. She has been involved in the banking industry for more than 5 years. She is a Director of CBC Properties & Computer Center, Inc. (CBC-PCCI) and Chinabank Insurance Brokers, Inc. (CBC-IBI). PSD and NDY are related within 2nd civil degree by consanguinity. Samuel L. Chiong, 54, Senior Vice President (SVP), and Assistant Group Head of Branch Banking Group, holds a Bachelor of Arts degree in Economics from Ateneo de Manila. He took the Advanced Bank Management Program from the Asian Institute of Management (AIM) in 1989. He has been involved in the banking industry for more than 5 years. He became SVP in February 2004. Antonio S. Espedido, Jr., 49, Senior Vice President (SVP), and Head of Treasury Group, holds a Bachelor of Science in Business Administration from University of San Francisco. He has been in the banking industry since 1984. He became SVP in July 2004. He is a Director of CBC Forex Corporation (CBC-CFC). Ramon R. Zamora, 55, Senior Vice President (SVP) and Head of the International Banking Group, holds a Bachelor of Arts degree in Economics from Ateneo de Manila. He has been an SVP since April 2004. He has been involved in the banking industry for more than 5 years. He is a Director of CBC Forex Corp. (CBC-CFC). Margarita L. San Juan, 51, First Vice President (FVP), Account Management Group, holds a B.S.B.A. Major in Financial Management degree from UP. She took the Advance Bank Management Program from Asian Institute Management (AIM) in 1992. She became FVP in January 1997. Rene J. Sarmiento, 51, First Vice President (FVP) and Head of the Trust Group, holds a Bachelor of Science degree in Commerce, major in Accounting from De La Salle University. He obtained his MBA from AIM in 1978. He has been involved in the banking industry for more than 5 years. He has been an FVP since July 2002. Alexander C. Escucha, 48, First Vice President (FVP) and Head of Corporate Planning Division, holds a Bachelor of Arts degree in Economics from UP. He has been involved in the banking industry for more than 5 years. He became FVP in September 2002. Rhodora Z. Canto, 55, First Vice President (FVP) and Head of Credit Management Group, holds a Bachelor of Science in Business Administration from University of the Philippines. She obtained her MBA from AIM in 1975. She has been in the banking industry for more than 5 years. She became FVP in June 2004. Note: To the best of our knowledge, no nominees for director (1) own directly/indirectly or a beneficial owner of more than 5% of the Bank’s outstanding shares (2) have any transaction with or involving the Bank or any of its subsidiaries in which a director-nominee and members of their immediate family have a direct/indirect material interest, and (3) have been involved for the past five (5) years in any legal proceeding affecting/involving themselves and/or a material or substantial portion of their property before any court of law or administrative body in the Philippines or elsewhere, save in the usual routine cases particularly of the Bank.

(2) Significant Employees There is no person other than the executive officers who is expected to make a significant contribution to the Bank. (3) Family Relationships. (Please refer to Item 9 (1) )

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A (4) Involvement in Certain Legal Proceedings To the knowledge and/or information of the Bank, there are no events that occurred during the past five (5) years that are material to an evaluation of the ability or integrity of any director, nominee for election as director, executive officer, underwriter or control person of the Bank. Moreover, Criminal Case No. B-2003-345, RTC Branch 89, Bacoor, Cavite, formerly I.S. No. B-01-130 supposedly against Mr. Harley T, Sy, among others, was considered withdrawn per Court Order dated 03 August 2004 signed by Executive Judge Eduardo Israel Tanguanco, RTC, Bacoor, Cavite, signed xerox copy of which was furnished to OCS by Mr. Sy’s office, and which OCS, particularly, Ms. Amy De Leon and Mr. Arsenio L. Lim, Jr. found to be the true xerox copy of the signed original thereof shown to them for the purpose of comparison. ITEM 10.

EXECUTIVE COMPENSATION

Top 5 Senior Officers

P

Regular Salaries Regular Bonuses Profit Sharing 1. 2. 3. 4. 5.

Gilbert U. Dee Peter S. Dee Ricardo R. Chua Reynaldo L. Lao Nancy D. Yang

P

Regular Salaries Regular Bonuses Profit Sharing - Estimated

b

20,056,416.00 3,342,736.00 39,950,302.00

P

2004 b 59,411,516.00

P

2003 b 40,613,912.00

P

18,570,756.00 3,095,126.00 37,745,634.00

P

17,092,752.00 23,521,160.00

Chairman of the Board President & CEO Exec. Vice Pres. & COO Sr. Vice Pres & Head, Consumer Banking Group Sr. Vice-Pres. & Head, Branch Banking Group

Board of Directors & Officers

a

2005 a 63,349,454.00

P

485,534,627.00

P

455,876,247.00

P

349,558,479.00

P

264.283,016.00 44,047,169.00 177,204,442.00

P

244,706,496.00 40,784,416.00 170,385,335.00

P

221,321,808.00 128,236,671.00

- Actual

Components of the 2004 Data are as follows:

Components of the 2005 Data are as follows:

1. Annual Salary consisting of 12 months Basic Salary (December, 2004 figures) 2. Regular Bonuses equivalent to 2 months Basic Salary (December, 2004 figures) 3. Officers’ 2003 Profit Sharing (Taxable Portion) to be paid in June 2004 4. PSD/GUD’s 2003 Taxable PS (As Officer/EXCOM Member) Paid in 2004 5. EXCOM Members’ 2003 Taxable PS paid in June 2004 6. Directors’ 2003 Taxable PS paid in May 2004

1. Annual Salary consisting of 12 months Basic Salary (2004 figures plus 8.0%) 2. Regular Bonuses equivalent to 2 months Basic Salary (2004 figures plus 8.0%) 3. Officers’ 2004 Profit Sharing (Taxable Portion) to be paid in 2005 (Actual 2003 PS paid in 2004, plus 10%) 4. PSD/GUD’s 2004 Taxable PS (As Officer/EXCOM Member) (Actual 2003 PS paid in 2004, plus 10%) 5. EXCOM Members’ 2004 Taxable PS – actual 2003 PS paid in 2004 plus 10% 6. Directors’ 2004 PS to be paid in 2005 – same as actual 2003 PS paid in 2004

There are no compensation arrangements for members of the Board of Directors, other than four (4%) percent that is provided under Article VIII , Sec. 1 (a) on the Distribution of Net Earnings and Five Hundred Pesos (P500.00) Per Diem per director per meeting attended under Article IV Sec. 11 of the Bank’s By-Laws, and there are no warrants/options held by CEO, the named executive officers, and all officers and directors as a group.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A 1

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (1) Security ownership of certain record & beneficial owners of more than 5% 2) Name and Address 1) Title of Class 3) Amount & Nature 4) Percent of Class of record/beneficial of record/beneficial Owner ownership ( indicate by “r” or “b”) Common

Sysmart Corp. Rm. 326 Makati Stock Exchange Bldg., Ayala Ave., Makati City

745,747,300.00 “r”

20.408

Common

PCD Nominee Corp. (Fil.)

538,979,300.00 “r”

14.749

G/F MSE Bldg., 6767 Ayala Avenue, Makati City Common

SM Investment Corp. Rm. 326 Makati Stock Exchange Bldg., Ayala Ave., Makati City

350,996,700.00 “r”

9.605

Common

The Int’l Commercial Bank of China 100 Chin Lin Road, Taipei, 10424 Taiwan, Republic of China

295,226,800.00 “r”

8.079

Common

Shoemart, Inc. Rm. 326 Makati Stock Exchange Bldg., Ayala Ave., Makati City

246,174,400.00 “r”

6.737

Common

Henry Sy, Sr. Rm. 326 Makati Stock Exchange Bldg., Ayala Ave., Makati City

202,176,100.00 “r”

5.533

HENRY SY, SR. is the record and beneficial owner of the following China Bank’s common shares as of December 31, 2004: No. of Percentage Shares of Holdings Direct Holdings: Indirect Holdings: 1. Holdings from various brokers 2. 25% ownership in SM Investment Corporation 3. 21.31% ownership in Shoemart, Incorporated 4. 99.98% ownership in Sysmart Corporation Total holdings direct and indirect

2,021,761

5.53%

80,916 1,488,100 535,832 7,571,377 11,697,986

.22% 4.07% 1.47% 20.72% 32.01%

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Except as stated above, the Bank has no knowledge of any person or any group who directly or indirectly is the beneficial owner of more than 5% of the Bank’s outstanding shares or who has a voting power, voting trust or any similar agreement with respect to shares comprising more than 5%of the Bank’s outstanding common stock. HENRY SY, SR’s family are known to have substantial holdings in Shoemart, Inc., SM Investment and Sysmart Corporation and as such, could direct the voting or disposition of the shares of said companies while Donato T. Faylona is the proxy and represents International Commercial Bank of China in the Board. The Bank is not aware of any additional shares which the above-listed beneficial or record owners have the right, if any, to acquire within thirty (30)days, from options, warrants, rights, conversion privilege or similar obligation, or otherwise. (2) Security Ownership of Management 1) Title of Class

2) Name and Position

3) Amount* and Nature of record/beneficial ownership (indicated by “r” or “b”)

4) Percentage of Class

A. Director Common Common Common Common Common Common Common Common Common Common Common

Gilbert U. Dee, Chairman Hans T. Sy, Vice-Chairman Peter S. Dee, President & CEO Joaquin Dee, Director Dy Tiong, Director Herbert T. Sy, Director Henry T. Sy, Jr., Director Pilar N. Liao, Director Harley T. Sy, Director Donato T. Faylona, Director Alberto S. Yao, Director Total

214,578 43,526 106,290 877,635 3,367 6,950 33,549 198 1,584 12 120 1,287,809

“r” “r” “r” “r” “r” “r” “r” “r” “r” “b” “b”

0.587 0.119 0.291 2.402 0.009 0.019 0.092 0.001 0.004 0.000 0.000 3.524

1,982 40,164 720 360 1,296 44,522

“r” “r” “r” “r” “r”

0.005 0.110 0.002 0.001 0.004 0.122

1,332,331

“r”

3.646

B. Executive Officers Common Common Common Common Common

Ricardo R. Chua, EVP & COO Nancy Dee Yang, SVP Samuel L. Chiong Rene J. Sarmiento, FVP Margarita L. San Juan Total

C. Directors and Principal Officers (as a group)

* The figures indicated in column 3 are those directly owned of record by the above-named Directors and Officers. There are no directors or officers who beneficially own more than 10% shares of the Bank as nobody among them indicated in SEC Form 23-A which we sent to them in writing and which upon inquiry they personally confirmed to us, own more than 10% shares of the Bank.

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Schedule K Capital Stock (1) Title of issue Number of Number of

Number of

Number of

Directors,

Others

(2)

shares authorized

CHINA BANK

50,000,000

shares issued and outstanding at shown under related balance sheet caption 36,542,512

shares reserved for options, warrants conversion and other rights

shares held by affiliates (3)

officers and employees

- NONE -

- NONE -

(SEE LIST BELOW)

Stockholdings of Officers and Employees as of December 31, 2004

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

Full Name Abello, Orlando Mauricio Alameda, Evelyn Tumacder R. Alano, Ma. Hildelita P. Alvarez, Alejandro I., Jr. Aviles, Lucille M. Bernabe, Virginia ITF John Bognot, Renito R. Capacio, Victoria Cariño, Lilibeth R. Carreon, Antonio R. Chua, Victoria L. Cruz, Remedios C. Cuevas, Charmaine Dy, Patricia Chua Encinas-Tiu, Mary Ann Habalo Escuadro, Ma. Stella Paz P. Evangelista, Adela A. Galang, Hyacinth M. Gamboa, Raul C. Gan, Rosemarie C. German, Mercedes E. Go, Patrick U. Hidalgo, Bienvenido C. Javier, Jose Leslie P. Labalan, Melecio C. Jr. Lazaro-Manuel, Gina Torres Lee, Eric Y. Liamson, Estela A. Lim, Arsenio, Jr. L. Llorca, Marcelino J., Jr. Lopez, Jeanett J. Lucero, Mary Luz S. Marquez, Delia Mayor, Josefina G. Meniado, Maribel S. Miguel, Gigi Iluminada T. Milan, Zenaida Ngkaion, James Ngo, Melanie K. Ochoco-Soriano, Anita C. Ong, Gloria T. Ong, Hermenegildo

Position Officer Officer Officer Officer Employee Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Employee Officer Officer Employee Officer Officer Officer Officer Officer Officer Supervisor

Total Outstanding Share 19 72 72 14 19 126 434 14 36 26 225 336 14 66 40 14 129 48 300 434 8 919 1,190 1,008 487 40 138 14 9 180 28 12 198 19 600 120 62 453 12 19 1,065 40

43. 44. 45. 46. 47. 48. 49. 50 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78.

Orencia, Rafael C. Pacheco, Ma. Rosario Paggabao, Emma Z. Pajarillo, Maria Vida G. Purificacion, Noreen Qua Tee, Elizabeth Quintanilla, Alvin A. Ramirez, Betty Choa Rosario, Reylenita M. Del San Diego, Nycette O. Santos, Estefania A. Say, Elizabeth C. Sia, Henry D. &/or Evelyn R. Sia Sun, Antonio G. Sy, Celso M. Sy, Teresita Gabaldon Tam, Linda-Susan A. Tan, Annaliza M. Tan, Belenette C. Tan, Phillip M. Tan, Shirley T. Tan, William Winston O. Torralba, Edna A. Torres, Ruben M. Trinidad, Ferdinand C. &/or Salina E. Trinidad Tsai, Philip Ty, Jasmin Ongchan Uy, Johnny L. Uy, Norberto L. Uy, Virginia Yu Uyquiengco, Roberto C. Virtusio, Ma. Cecilia E. Yabut, Rosario D. Yap, George C. Yong, Vivian L. Yuchenkang, Marilyn

ITEM 12.

Officer Officer Officer Employee Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Employee Officer Officer Officer Officer Employee Officer Officer Employee Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer Officer

33 14 14 14 14 548 14 19 16 14 62 225 72 19 856 33 216 86 68 33 217 2,978 129 115 7 216 216 33 525 318 225 132 216 14 40 318

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is no transaction with or involving the Bank or any of its subsidiaries in which a director, executive officer, or stockholder owning five (5%) percent or more of total outstanding shares and members of their immediate family had or is to have a direct or indirect material interest. • The Bank retains the following law firms: • Angara Abello Concepcion Regala & Cruz Law Offices • Cruz Durian Agabin Atienza Alday & Tuazon • Lim Vigilia Alcala Dumlao & Orencia • External auditor -- Sycip, Gorres, Velayo & Company CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

PART IV (a) Exhibits

EXHIBITS AND SCHEDULES

Subsidiaries and Investments (i) CBC Properties and Computer Center, Inc. - 40% owned by China Bank and renders computer services solely to China Bank. It was incorporated last April 14, 1982. Ownership Structure Name 1. 2. 3. 4. 5. 6.

% Share

China Banking Corporation Gilbert U. Dee Peter S. Dee Ricardo R. Chua Honorio O. Reyes-Lao Nancy D. Yang

40.0 12.0 12.0 12.0 12.0 12.0 100.0

Officers: Gilbert U. Dee – Chairman of the Board / Director Peter S. Dee – President / Director Ricardo R. Chua - General Manager / Director Phillip Tan – Vice President Edith N. Young – Senior Assistant Vice President Augusto P. Samonte – Assistant Vice President Arsenio L. Lim, Jr. – Corporate Secretary No. Of Employees - 60 (ii) CBC Forex Corporation — is 100% owned by China Bank Corp. Its primary purpose is to engage in the business of dealing and broking in all currencies; to enter into spot and forward foreign exchange contracts with local or foreign individuals and other entities; and to act as brokers for the purpose of bringing together sellers and buyers of foreign exchange. It was incorporated last January 9, 1997. Ownership Structure: China Banking Corporation Peter S. Dee Ricardo R. Chua Antonio S. Espedido, Jr. Ramon R. Zamora Minda A. Lim

-

% Share 99.995 0.001 0.001 0.001 0.001 0.001 100.000

Board of Directors: 1. Peter S. Dee - Chairman of the Board 2. Ricardo R. Chua - Director 3. Ramon R. Zamora - Director 4. Antonio S. Espedido, Jr. - Director 5. Minda A. Lim – Director and President

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A Officers: Peter S. Dee Minda A. Lim Belenette Ching Tan Charis Tepoot

-

Chairman of the Board President Corporate Secretary Chief Dealer & Treasurer

(iii) Chinabank Insurance Brokers, Inc. — is 100% owned by China Bank Corp. Its primary purpose is to act as a broker in soliciting, procuring, negotiating, receiving, managing and forwarding applications for fire, casualty, plate glass, automobiles, trucks and other motor vehicles, accident, health, burglary, rent, marine, credit, disability, life insurance, and all other kinds of insurance, including reinsurance contracts or in any other manner aiding in taking out insurance, collecting payment of premiums due on such policies and doing such other business as may be delegated to brokers or such companies in the conduct of a general insurance brokerage business. It was incorporated last January 16, 1998. Ownership Structure Name 1. China Banking Corporation 2. Peter S. Dee 3. Ricardo R. Chua 4. Nancy D. Yang 5. Reynaldo L. Lao 6. Ramon R. Zamora

# of Shares 14,995 1 1 1 1 1 15,000

Officers Peter S. Dee Ricardo R. Chua Ramon R. Zamora Gerard E. Reonisto Omar D. Vigilia

-

Chairman of the Board President Treasurer General Manager Corporate Secretary

No. of Employees

-

16

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A (b) Reports on SEC Form 17-C REPORT

DATE REPORTED

Board of Directors’ approval of the Rules Governing the Nomination and Election of Directors

February 04, 2004

Executive Committee’s approval of the retirement of Mr. Honorio Reyes Lao as Senior Vice President, and the promotion of Mr. Samuel L. Chiong from First Vice President to Senior Vice President

February 18, 2004

Board of Directors’ approval to adopt as part of the Bank’s Code of Corporate Governance Sec. 4.2 of the PSE’s Revised Disclosure Rules entitled “Selective Disclosure of Material Information”

March 03, 2004

Executive Committee’s approval of the promotion of Mr. Ramon R. Zamora from First Vice President and Head, International Banking Group to Senior Vice President and Head, International Banking Group

March 10, 2004

Nomination Committee’s approval to extend the deadline of nomination for Directors to April 05, 2004

March 24, 2004

Board of Directors’ approval to declare Twenty (20%) percent stock dividend to come from the Bank’s unissued shares and Five (5%) percent cash dividend or Five Pesos (P5.00) per share

May 05, 2004

Election of Directors and Officers and confirmation by the stockholders of the cash and stock dividend declaration

May 06, 2004

Amendment to report dated May 06, 2004, the election of Ms. Pilar N. Liao, an independent director as Chairman of Audit Committee, in lieu of Mr. Joaquin Dee, and Mr. Joaquin Dee as Chairman of Compliance Committee in lieu of Mr. Dy Tiong

May 19,2004

Nomination Committee opened the nomination for Directors and set the deadline for submission of nominees on June 01, 2004 in compliance with BSP’s requirements to have a short list of nominees for directors to fill possible vacancies

May 20, 2004

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A The resignation of Ms. Yvonne S. Yuchengco as a Director

May 24, 2004

The Board of Directors’ acceptance of Ms. Yvonne S. Yuchengco’s resignation as a Director

June 02, 2004

Executive Committee’s approval of the appointment of Ms. Rhodora Z. Canto as First Vice President II and Head, Credit Management Group effective June 16, 2004

June 09, 2004

Executive Committee’s approval of the appointment of Mr. Antonio S. Espedido, Jr. as Senior Vice President and Head, Treasury Group effective on July 01, 2004

June 16, 2004

BSP’s approval of the Twenty (20%) percent stock dividend and Five (5%) percent cash dividend

June 17, 2004

Nomination Committee’s approval to re-open the nomination for independent and nonindependent directors and set the deadline on July 06, 2004

June 17, 2004

Amendment on the report regarding the appointment of Mr. Antonio S. Espedido, Jr.

June 18, 2004

Appointment of Mr. Antonio S. Espedido, Jr. as Senior Vice President, and Head, Treasury Group effective July 16, 2004, in lieu of July 01, 2004

June 23, 2004

Board of Directors’ resolution to - (a) elect Mr. Alberto S. Yao as Independent Director to take the position vacated by Ms. Yvonne S. Yuchengco, and as Chairman of Audit Committee in lieu of Ms. Pilar N. Liao (b) fix July 22, 2004 as record date and August 17, 2004 as the payment/issuance dates of the cash and stock dividends, and the closing of books from 23 July to 06 August 2004 (c) make CBC Properties and Computer Center, Inc. wholly owned subsidiary of the Bank, and (d) change the business name of the Bank’s subsidiary, CBC Insurance Brokers, Inc. to Chinabank Insurance Brokers, Inc.

July 07, 2004

CHINA BANKING CORPORATION SECURITIES AND EXCHANGE COMMISSION ... SEC FORM 17-A

PSE’s approval of the listing of the Bank’s additional common shares to cover the 20% stock dividend

August 09, 2004

Retirement from service of Mr. Danilo A. Alcoseba, Senior Vice President and Head, Treasury Group

August 20, 2004

Board of Directors’ approval of the organization and incorporation initially of a wholly owned Special Purpose Vehicle (SPV) with authorized capital of P500 million and Paid –up capital of P31,250,000.00.

September 02, 2004

Board of Directors’ approval of the creation of Risk Management Committee, Compensation or Remuneration Committee and Corporate Governance Committee in compliance with BSP Circular No. 456, Series of 2004

December 09, 2004

SIGNATURES Pursuant to the requirement of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the city of Makati on this 5th day of April 2005.

By:

(SGD) PETER S. DEE Principal Executive Officer

(SGD) RICARDO R. CHUA Principal Operating Officer

(SGD) ANTONIO S. ESPEDIDO, JR. Principal Financial Officer

(SGD) RICARDO R. CHUA Comptroller

(SGD) ZACARIAS B. ANTONIO Principal Accounting Officer

(SGD) ARSENIO L. LIM, JR. Corporate Secretary

SUBSCRIBED AND SWORN to before me this 5th day of April 2005 affiant (s) exhibiting to me their Community Tax Certificates, as follows: NAMES

COMMUNITY TAX CERT. NO.

DATE OF ISSUE

PLACE OF ISSUE

PETER S. DEE RICARDO R. CHUA ANTONIO S. ESPEDIDO, JR. ZACARIAS B. ANTONIO ARSENIO L. LIM, JR.

13997135 23044331 09572840 0217392 15189755

02/11/05 03/11/05 04/01/04 01/20/05 01/18/05

Manila Mandaluyong Muntinlupa Manila Makati

Doc. No.: 43 Page No.: 10 Book No.: 43 Series of 2005

(SGD) FLORA DE PANO-SOLLER Notary Public for Makati City Appl No. M-101 until 31 December 11th Floor China Bank Building Paseo de Roxas, Makati City PTR# 9441574:01-07-05; Makati City IBP# 631501;01-03-05; Quezon City Roll of Attorneys No. 39191

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS The Management of China Banking Corporation is responsible for all information and representations contained in the consolidated financial statements for the years ended December 31, 2004 and 2003. The financial statements have been prepared in conformity with generally accepted accounting principles and reflect amounts that are based on best estimates and informed judgment of management with an appropriate consideration of materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the company’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 roles in internal controls. The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the stockholders of the company. Sycip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders, have examined the consolidated financial statements of the Company in accordance with generally accepted auditing standards and have expressed their opinion on the fairness of presentation upon completion of such examination, in their report to stockholders.

(SGD) Ricardo R. Chua Executive Vice President & COO

(SGD) Peter S. Dee President & CEO

(SGD) Gilbert U. Dee Chairman of the Board

Republic of the Philippines Makati City S.S Subscribed and sworn to before me this 22nd Community Tax Certifcates Nos. as follows: Name Gilbert U. Dee Peter S. Dee Ricardo R. Chua

Doc. No.: 43 Page No: 10 Book No: 43 Series of 2005

Community Tax Certificate No. 00011355 13997135 23044331

day of March, 2005, affiants exhibiting to me their

Date and Place of Issue February 10, 2005, Manila February 11, 2005, Manila March 11, 2005, Mandaluyong City FLORA DE PANO-SOLLER Notary Public Until December 31, 2005 PTR No.9441574:01-07-05; Makati IBP#631501; 01-03-05; Quezon City Roll of Attorneys No. 39191

CHINA BANKING CORPORATION Financial Statements December 31, 2004 and 2003 and Years Ended December 31, 2004, 2003 and 2002 and Report of Independent Auditors

SGV

&

CO

SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 8910307 Fax: (632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No.

The Stockholders and the Board of Directors China Banking Corporation 8745 Paseo de Roxas corner Villar Street Makati City

We have audited the accompanying statements of condition of China Banking Corporation 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 Bank’s management. Our responsibility 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 China Banking Corporation as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the Philippines.

Wilson P. Tan Partner CPA Certificate No. 76737 SEC Accreditation No. 0100-A Tax Identification No. 102-098-469 PTR No. 9404036, January 3, 2005, Makati City March 30, 2005

SGV & Co is a member practice of Ernst & Young Global

Report of Independent Auditors

The Stockholders and the Board of Directors China Banking Corporation

We have audited the accompanying statements of condition of China Banking Corporation 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 Bank’s management. Our responsibility 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 China Banking Corporation as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the Philippines.

Wilson P. Tan Partner CPA Certificate No. 76737 SEC Accreditation No. 0100-A Tax Identification No. 102-098-469 PTR No. 9404036, January 3, 2005, Makati City March 30, 2005

CHINA BANKING CORPORATION STATEMENTS OF CONDITION December 31 2003 2004 (As restated) RESOURCES Cash and Other Cash Items (Note 9) P = 2,168,590,090 P = 1,766,041,157 Due from Bangko Sentral ng Pilipinas (Note 9) 2,346,840,957 1,259,370,585 Due from Other Banks 1,281,921,787 3,002,835,554 Interbank Loans Receivable and Securities Purchased Under Resale Agreement 2,423,410,000 6,088,600,000 Trading and Investment Securities (Notes 3 and 9) 45,389,234,791 41,937,080,532 Receivables from Customers - net (Note 4) 48,457,790,936 38,208,551,280 Bank Premises, Furniture, Fixtures and Equipment (Note 5) 854,240,321 At cost 823,368,382 2,172,405,858 At revalued amount 2,210,492,967 Equity Investments (Note 6) 245,499,158 193,896,087 Real and Other Properties Owned or Acquired - net of allowance for probable losses of P = 696,627,547 in 4,372,636,805 2004 and P = 440,845,495 in 2003 4,329,598,020 Other Resources - net (Notes 7 and 16) 4,147,097,734 3,530,205,727 P = 113,859,668,437 P 103,350,040,291 LIABILITIES AND CAPITAL FUNDS Liabilities Deposit Liabilities (Notes 9 and 18) P = 13,159,345,624 P Demand = 11,218,629,625 34,071,380,872 14,547,571,798 Savings 38,575,346,201 46,345,761,056 Time 85,806,072,697 72,111,962,479 Bills Payable (Note 10) 4,334,942,904 9,308,809,023 Manager’s Checks 229,476,068 220,264,851 Accrued Interest, Taxes and Other Expenses (Note 2,118,552,705 11) 2,986,874,288 Other Liabilities (Note 12) 1,729,340,326 1,629,545,704 94,218,384,700 86,257,456,345 Capital Funds 3,654,251,200 Capital stock (Note 13) 3,045,267,600 671,504,726 Capital paid in excess of par value 671,504,726 363,312,450 Surplus reserves (Notes 13 and 17) 327,886,436 13,669,066,767 11,748,201,737 Surplus (Notes 2, 13 and 17) Net unrealized gain on available-for-sale securities 42,364,800 (Note 3) 19,417,200 1,240,783,794 Revaluation increment on land (Notes 2 and 5) 1,280,306,247 19,641,283,737 17,092,583,946 P = 113,859,668,437 P = 103,350,040,291 See accompanying Notes to Financial Statements.

CHINA BANKING CORPORATION STATEMENTS OF INCOME Years Ended December 31 2003 2002 2004 (As restated - Note 2) INTEREST INCOME ON Investment securities, interbank loans = 4,685,773,819 P receivable, deposits with banks and others P = 3,990,798,315 P = 3,349,643,509 3,870,883,544 Receivables from customers 3,211,300,536 3,175,861,938 8,556,657,363 7,202,098,851 6,525,505,447 INTEREST EXPENSE ON Deposit liabilities, bills payable and others (Note 18)

3,501,851,516

NET INTEREST INCOME

5,054,805,847

PROVISION FOR PROBABLE LOSSES (Note 8) NET INTEREST INCOME AFTER PROVISION FOR PROBABLE LOSSES OTHER OPERATING INCOME Foreign exchange gain - net (Note 18) Service charges, fees and commissions (Note 18) Trust fee income (Note 17) Trading and securities gain - net (Note 3) Equity in net earnings of investees (Note 6) Miscellaneous OTHER OPERATING EXPENSES Compensation and fringe benefits (Note 14) Taxes and licenses Occupancy (Note 15) Entertainment, amusement and recreation (Note 16) Insurance Repairs and maintenance Depreciation and amortization (Note 5) Miscellaneous (Note 18) INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 16) NET INCOME Basic Earnings Per Share (Note 21) See accompanying Notes to Financial Statements.

3,520,145,887

3,297,293,521

3,681,952,964

3,228,211,926

1,647,468,409

2,321,375,766

4,199,279,743

2,034,484,555

906,836,160

737,844,804 625,805,479

641,931,528

174,155,240

467,316,308 293,210,797 2,462,222,188 20,128,746 87,600,303 3,972,409,870

463,669,384 268,568,793 2,866,285,109 10,112,418 95,003,730 3,877,794,674

1,024,643,824 427,626,809 329,047,794

943,012,541 376,865,004 318,987,051

189,591,031 189,420,713 163,526,543 561,989,529 3,283,838,119

170,157,049 172,396,469 133,924,528 164,594,588 712,160,100 3,134,551,161

183,434,266 168,567,665 129,038,348 177,480,326 551,485,405 2,848,870,606

3,036,704,348

2,872,343,264

1,935,760,228

319,166,324

256,036,026

855,526,104

354,260,137 301,807,713 6,043,683 95,500,908 2,121,262,724 1,219,660,116 384,645,317 365,787,191 209,217,679

(656,564,284)

P = 2,717,538,024 P = 2,616,307,238 P = 2,592,324,512 P = 74.37

P = 71.60

P = 70.94

CHINA BANKING CORPORATION STATEMENTS OF CHANGES IN CAPITAL FUNDS Years Ended December 31 2003 2002 2004 (As restated) (As restated) CAPITAL STOCK (Note 13) Common stock - P = 100 par value Authorized - 50,000,000 shares Issued and outstanding - 36,542,512 in 2004, 30,452,676 shares in 2003 Balance at beginning of year Stock dividends - 20% Balance at end of year

P = 3,045,267,600 P = 2,537,784,300 P = 2,537,784,300 608,983,600 507,483,300 – 3,654,251,200 3,045,267,600 2,537,784,300

CAPITAL PAID IN EXCESS OF PAR VALUE

671,504,726

671,504,726

671,504,726

SURPLUS RESERVES (Notes 13 and 17) Balance at beginning of year Transfer from surplus Balance at end of year

327,886,436 35,426,014 363,312,450

298,565,356 29,321,080 327,886,436

271,708,477 26,856,879 298,565,356

9,848,590,953

7,480,915,960

(53,002,859) 9,795,588,094 2,616,307,238 (507,483,300)

(47,772,755) 7,433,143,205 2,592,324,512 –

(152,263,380) (126,889,215) (35,426,014) (29,321,080) 13,669,066,767 11,748,201,737

(203,022,744) (26,856,879) 9,795,588,094

SURPLUS (Notes 13 and 17) Balance at beginning of year, as previously reported Effect of change in accounting for operating leases (Note 2) Balance at beginning of year, as restated Net income Stock dividends - 20% Cash dividends - P = 5 per share in 2004 and 2003, P = 8 per share in 2002 Transfer to surplus reserves Balance at end of year NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES (Note 3) REVALUATION INCREMENT ON LAND (Notes 2 and 5) Balance at beginning of year, as previously reported Effect of change in accounting for income taxes (Note 2) Balance at beginning of year, as restated Net increase (decrease) during the year Balance at end of year

See accompanying Notes to Financial Statements.

11,804,472,026

(56,270,289) 11,748,201,737 2,717,538,024 (608,983,600)

42,364,800

19,417,200

(21,770,800)

1,882,803,304 1,882,803,304

1,858,018,635

(602,497,057) (602,497,057) (594,565,963) 1,280,306,247 1,280,306,247 1,263,452,672 (39,522,453) – 16,853,575 1,240,783,794 1,280,306,247 1,280,306,247 P = 19,641,283,737 P = 17,092,583,946 P = 14,561,977,923

CHINA BANKING CORPORATION STATEMENTS OF CASH FLOWS Years Ended December 31 2003 2002 2004 (As restated) (As restated) CASH FLOWS FROM OPERATING ACTIVITIES P = 3,036,704,348 P Income before income tax = 2,872,343,264 P = 1,935,760,228 Adjustments to reconcile income before income tax to net cash provided by (used in) operations: 855,526,104 Provision for probable losses (Note 8) 1,647,468,409 2,321,375,766 163,526,543 Depreciation and amortization (Note 5) 164,594,588 177,480,326 Unrealized market valuation gain on trading (23,099,283) account securities (Note 3) (72,944,006) (136,946,006) (6,043,683) Equity in net earnings of investees (Note 6) (20,128,746) (10,112,418) 31,059 Amortization of deferred charges 23,966 672,444 – Cash dividends from investees (Note 6) 6,707,507 23,886,723 Loss (gain) on sale of real and other properties (51,685,032) owned or acquired (66,806,962) 56,612,696 Changes in operating resources and liabilities: Decrease (increase) in amounts of: 3,969,257,203 (1,693,335,852) (12,021,461,736) Trading account securities (10,019,917,609) (5,960,511,509) (1,018,573,790) Receivables from customers (1,873,823,226) Other resources 388,013,536 225,146,678 Increase (decrease) in amounts of: 13,694,110,218 (11,039,472,447) 22,059,923,439 Deposit liabilities 9,211,217 Manager’s checks (52,715,189) 61,784,670 Accrued taxes, interest, and other (883,481,329) expenses 686,420,655 649,368,937 (420,155,963) Other liabilities (210,490,238) (456,470,176) 8,450,160,567 (13,350,833,024) 13,868,447,781 Net cash provided by (used in) operations (196,402,193) Income taxes paid (104,741,028) (203,656,930) Net cash provided by (used in) operating 8,253,758,374 activities (13,455,574,052) 13,664,790,851 CASH FLOWS FROM INVESTING ACTIVITIES Net additions to: Bank premises, furniture, fixtures and (194,398,482) equipment (Note 5) (196,942,484) (185,734,210) (31,250,000) Equity investments (Note 6) – (920,706) Proceeds from sale of real and other properties 577,299,724 owned or acquired 417,731,904 387,137,391 Decrease (increase) in: Investments in bonds and other debt (7,375,364,579) instruments 6,530,096,270 (8,585,864,978) – Available-for-sale securities – 14,656,044 Net cash provided by (used in) investing (7,023,713,337) activities 6,750,885,690 (8,370,726,459) (Forward)

-2Years Ended December 31 2003 2002 2004 (As restated) (As restated) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in bills payable Payment of cash dividends Net cash provided by (used in) financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and other cash items Due from Bangko Sentral ng Pilipinas Due from other banks Interbank loans receivable and securities purchased under resale agreement CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and other cash items Due from Bangko Sentral ng Pilipinas Due from other banks Interbank loans receivable and securities purchased under resale agreement

See accompanying Notes to Financial Statements.

(4,973,866,119) P = 4,071,340,479 P = 307,791,669 (152,263,380) (126,889,215) (203,022,744) (5,126,129,499) 3,944,451,264 104,768,925 (3,896,084,462) (2,760,237,098)

1,766,041,157 1,259,370,585 3,002,835,554

5,398,833,317

1,584,083,284 3,271,480,210 4,466,935,953

1,490,911,801 1,626,247,405 1,444,245,371

6,088,600,000 5,554,584,947 12,116,847,296 14,877,084,394

4,916,846,500 9,478,251,077

2,168,590,090 2,346,840,957 1,281,921,787

1,766,041,157 1,259,370,585 3,002,835,554

1,584,083,284 3,271,480,210 4,466,935,953

2,423,410,000 6,088,600,000 5,554,584,947 P = 8,220,762,834 P = 12,116,847,296 P = 14,877,084,394

CHINA BANKING CORPORATION NOTES TO FINANCIAL STATEMENTS

1. Corporate Information China Banking Corporation (the Bank) is a publicly listed commercial bank, incorporated in the Philippines. The Bank acquired its universal banking license in 1991. It provides expanded commercial banking products and services such as deposit products, loans and trade finance, domestic and foreign fund transfers, treasury products, trust products, foreign exchange, corporate finance and other investment banking services through a network of 141 local branches. The Bank’s principal place of business is at 8745 Paseo de Roxas corner Villar Street, Makati City. In 2004 and 2003, the Bank had an average of 2,685 and 2,717 employees, respectively. The financial statements were authorized for issue by the Board of Directors (BOD) on March 30, 2005.

2. Summary of Significant Accounting Policies Basis of Financial Statement Preparation The Bank’s financial statements have been prepared in accordance with the accounting principles generally accepted in the Philippines (Philippine GAAP) for the banking industry. These financial statements are prepared under the historical cost convention modified by the fair value measurement of trading account securities (TAS), available-for-sale securities (ASS), underwriting accounts (UA), certain derivative financial instruments, and the revaluation of land account included under bank premises. The accompanying financial statements of the Bank reflect the accounts maintained in the Regular Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The financial statements individually prepared for these units are combined after eliminating inter-unit accounts. For financial reporting purposes, FCDU accounts and foreign currency denominated accounts in RBU are translated into their equivalents in Philippine pesos based on the Philippine Dealing System weighted average rate (PDSWAR) prevailing at the end of the year (for resources and liabilities) and at the average PDSWAR for the year (for income and expenses). Foreign exchange differentials arising from foreign currency transactions and restatements of foreign currency denominated resources and liabilities, except for past due receivables and nonmonetary assets, are credited to or charged against operations in the year in which the rates change. The preparation of the financial statements in accordance with Philippine GAAP requires the Bank to make estimates and assumptions that affect the reported amounts of resources, liabilities, income and expenses and disclosure of contingent resources and liabilities. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any changes in estimates are reflected in the financial statements as they become reasonably determinable.

39

Changes in Accounting Policies On January 1, 2004, the following new accounting standards became effective and were adopted by the Bank: •

Statement of Financial Accounting Standards (SFAS) 12/International Accounting Standard (IAS) 12, Income Taxes, prescribes the accounting treatment for current and deferred income taxes. The standard requires the use of the balance sheet liability method of accounting for deferred income taxes. It requires the recognition of a deferred tax liability and, subject to certain conditions, deferred tax asset for all temporary differences with certain exceptions. The standard provides for the recognition of a deferred tax asset when it is probable that taxable income will be available against which the deferred tax asset can be used. The adoption of this standard resulted in a retroactive downward adjustment to capital funds as of December 31, 2003 and 2002 amounting to P = 602.5 million and P = 594.6 million, respectively, representing the deferred income tax on the revaluation increment on the Land account. Deferred tax liability increased by the same amounts as of these dates.

•

SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures applicable to finance and operating leases. The adoption of the standard resulted in the recognition of lease payments under operating leases on a straight-line basis. Previously, all leases under operating lease are recognized in the statements of income on the basis of the terms of the lease agreement. The adoption of this accounting standard resulted in a retroactive downward adjustment to surplus as of December 31, 2003, 2002, and 2001 amounting to P = 56.3 million, P = 53.0 million, and P = 47.8 million, respectively. Net income decreased by P = 3.3 million in 2003 and P = 5.2 million in 2002.

Additional disclosures required by the new standards were included in the financial statements, where applicable. New Accounting Standards Effective in 2005 New accounting standards based on IASs and International Financial Reporting Standards (IFRS), referred to as Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS), respectively, will become effective in 2005. The Bank will adopt the following new accounting standards effective January 1, 2005: • PAS 19, Employee Benefits, provides for the accounting for long-term and other employee benefits. The standard requires the use of the projected unit credit method in determining the retirement benefits of the employees and a change in the manner of computing benefit expense relating to past service cost and actuarial gains and losses. It requires the Bank to determine the present value of defined benefit obligations and the fair value of any plan assets with sufficient regularity that the amounts recognized in the financial statements do not differ materially from the amounts that would be determined at the statement of condition date. The effect of adopting this standard will result in either a transition liability or asset with a corresponding adjustment to surplus as of January 1, 2005. The Bank will engage the services of a professionally qualified actuary to determine the quantitative impact of adopting this standard in 2005.

40

• PAS 21, The Effects of Changes in Foreign Exchange Rates, provides restrictive conditions for the capitalization of foreign exchange losses. The standard also addresses the accounting for transactions in foreign currency and translating the financial statements of foreign operations that are included in those of the reporting enterprise by consolidation, proportionate consolidation and equity method. The adoption of this standard will have no material impact on the financial statements. • PAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, provides for the required disclosures and presentation in respect of the accounts of banks and similar financial institutions. It also provides that provision for general banking risks is treated as appropriation of surplus and should not be included in the determination of net income for the year. The required new disclosures will be included upon adoption of this standard. Upon adoption of this standard, the Bank will evaluate the level of allowance for probable losses and consider their sufficiency to cover any losses from non-collection or non-realization of its loans. Any excess in the general loan loss reserve will result in a retroactive downward adjustment to retained earnings as of December 31, 2004. To date, the Bank has not yet determined the financial statement impact of adopting this standard. • PAS 32, Financial Instruments: Disclosure and Presentation, covers the disclosure and presentation of all financial instruments. The standard requires more comprehensive disclosures about the Bank’s financial instruments, whether recognized or unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used by the Bank, types of risks associated with both recognized and unrecognized financial instruments (market risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and the Bank’s financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with its substance and not its legal form. • PAS 39, Financial Instruments: Recognition and Measurement, establishes the accounting and reporting standards for the recognition and measurement of the Bank’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, the Bank should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives, which are subsequently measured at fair value. PAS 39 also covers the accounting for derivative instruments. The standard has expanded the definition of a derivative instrument to include derivatives (derivative-like provisions) embedded in non-derivative contracts. Under the standard, every derivative instrument is recorded in the statements of condition as either an asset or liability measured at its fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in capital funds until the hedged item is recognized in income. The Bank must formally document, designate, and assess the effectiveness of derivative transactions that receive hedge accounting treatment.

41

The Bank has established a task force that will implement the provisions of PAS 32 and PAS 39 and assess the implications of these standards on the Bank’s financial statements. To date, the Bank has not yet determined the impact on the financial statements due to the following reasons: • •

The Bank is still in the process of establishing policies, procedures and necessary systems related to the adoption of these standards. The system which will incorporate the requirements of PAS 32 and 39 has not yet been implemented. The Bangko Sentral ng Pilipinas (BSP), through BSP Monetary Board Resolution No. 1869 dated December 23, 2004, has given the banks and financial institutions until December 31, 2005 to make ready their infrastructures to be PAS 32 and 39 compliant. Interim reports that will be submitted to the BSP for 2005 need not be in compliance with the provisions of the said standards.

On the impact of account classification and related measurement, the Bank has already submitted to the BSP the proposed reclassification of its trading and investment securities portfolio. The effect of the reclassification will likely result in a retroactive adjustment to retained surplus as of December 31, 2004. The impact of reclassification will only be quantified after the detailed PAS 39 implementation has been substantially completed. The effect of adopting the effective interest rate method in measuring amortized cost for loans, held-tomaturity investments and available-for-sale securities has not yet been quantified since the existing systems of the Bank have not yet been reconfigured to adopt the effective interest rate method of amortization. Due to the volume of transactions, it is impracticable to compute for the financial statement impact manually. The Bank will report the financial statement implication as soon as the information is available. PAS 39 requires that if there is objective evidence that an impairment on loans and other financial assets carried at amortized cost is incurred, the amount of loss is measured as the difference between the assets’ carrying amount and the present value of future cash flows. The effect of adopting this provision will not be material to the financial assets and liabilities of the Bank, except for impaired loans and other receivables. Currently, the adequacy of allowance for probable losses on loans and other receivables is determined based on management criteria and BSP requirements. The existing systems of the Bank have not yet been programmed to adopt the discounted cash flow method. Due to the volume of transactions, it is impracticable to compute for the financial statement impact manually. The Bank will report the financial statement implication as soon as the information is available. Currently, the Bank does not intend to adopt hedge accounting. Prior to 2005, the Bank has been following the fair value method for all its derivative transactions. The effect of adopting the standard will not result in any retroactive adjustment to capital funds.

42

In 2005, the Bank will perform additional procedures to identify any derivative embedded in both financial and non-financial contracts that are required to be separately accounted for at fair value under PAS 39. In general, the effect of adopting these standards will not result in a restatement of prior years’ financial statements, as allowed by the Securities and Exchange Commission (SEC). Any cumulative effect of adopting the standards, however, will be charged against the January 1, 2005 surplus. The disclosures required by these standards will be reflected in the 2005 financial statements, where applicable. •

PAS 40, Investment Property, prescribes the accounting treatment for investment property and related disclosure requirements. This standard permits the Bank to choose either the fair value model or cost model in accounting for investment property. Fair value model requires an investment property to be measured at fair value with fair value changes recognized directly in the statements of income. Cost model requires that an investment property should be measured at depreciated cost less any accumulated impairment losses. Upon effectivity of PAS 40, the Bank will adopt the cost model and will carry its investment property (currently classified under Real and Other Properties Owned or Acquired or ROPOA) at depreciated cost less any accumulated impairment losses. Existing valuation reserve determined under BSP rules will be evaluated and adjusted in accordance with PAS 40. Considering the number of the Bank’s ROPOA, detailed assessment will be made in 2005 in order to quantify the impact of PAS 40.

•

PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, specifies the accounting for assets held for sale and the presentation and disclosure of discontinued operations. It requires assets that meet the criteria to be classified as held-for-sale to be measured at the lower of carrying amount 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 should be presented separately on the face of the statements of condition and the results of discontinued operations to be presented separately in the statements of income. The adoption of PFRS 5 will have no material impact on the financial statements of the Bank, except for the reclassification of ROPOA when they qualify as non-current assets held-for-sale.

The Bank will also adopt the following revised standards in 2005 which, except for PAS 27, are not expected to have significant impact on the 2005 financial statements. Required disclosures will be included as applicable. • PAS 1, Presentation of Financial Statements, provides a framework within which an entity assesses how to present fairly the effects of transactions and other events; provides the base criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income from operating activities and extraordinary items as separate line items in the statements of income; and specifies the disclosures about key sources of estimation uncertainty and judgments that management has made in the process of applying the entity’s accounting policies. It also requires changes in the presentation of minority interest in the statements of condition and statements of income.

43

• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. It defines material omission or misstatements, and describes how to apply the concept of materiality when applying accounting policies and correcting errors. • PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the accounting for dividends declared after the statement of condition date. • PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on the recognition and measurement of items of property, plant and equipment. It also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. • PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and buildings and prohibits expensing of initial direct costs in the financial statements of lessors. • PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the standard, the definitions and the disclosures for related parties. It also requires disclosure of the compensation of key management personnel by benefit type. • PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting for subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venturer or investor. It also requires strict compliance with adoption of uniform accounting policies and requires the parent to make appropriate adjustments to the subsidiary’s financial statements to conform them to the parent’s accounting policies for reporting like transactions and other events in similar circumstances. The effect of adopting this standard will result in a decrease in both the carrying amounts of the investments and total capital funds by P = 47.5 million, equivalent to the undistributed retained earnings of said investees in the Bank’s separate financial statements. • PAS 36, Impairment of Assets, establishes frequency of impairment testing for certain intangibles and provides additional guidance on the measurement of an asset’s value in use. The standard also requires annual impairment test of intangible asset with an indefinite useful life, which includes goodwill, whether or not there is an indication of impairment. Cash Equivalents For purposes of reporting cash flows, cash equivalents include amounts due from BSP and other banks and interbank loans receivable and securities purchased under resale agreement, with original maturities of three months or less from dates of placements and that are subject to insignificant risk of changes in value.

44

Repurchase and Resale Agreements and Lending Securities Repurchase agreements, which are limited to transactions with BSP, are contracts under which a party sells securities and simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a party purchases securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price. Securities sold under repurchase agreements (repos) are retained in the financial statements as trading or investment securities and the counterparty liability is included in amounts due to other banks or bills payable, as appropriate. Securities purchased under resale agreements (reverse repos) are recorded as securities purchased under agreements to resell. The corresponding interest expense or interest income is accrued when incurred or earned. Securities lent to counterparties are also retained in the financial statements. Trading and Investment Securities Trading Account Securities TAS consisting of government and private debt and equity securities that are purchased and held principally with the intention of selling them in the near term. These securities are carried at fair market value; realized and unrealized gains and losses on these instruments are recognized in “Trading and securities gain - net” under other operating income in the statements of income. Interest earned on debt instruments is reported as interest income. Available-for-Sale Securities Securities are classified as ASS when purchased and held indefinitely, that is, neither held to maturity nor for trading purposes, where the Bank anticipates to sell in response to liquidity requirements or in anticipation of changes in interest rates or other factors. ASS securities are carried at fair market value; unrealized gains and losses are excluded from the reported net income and are reported as a separate component of capital funds. Realized gains and losses are included in “Trading and securities gain - net” under other operating income in the statements of income. Investments in Bonds and Other Debt Instruments (IBODI) IBODI are debt securities which the Bank has the positive intent and ability to hold to maturity. These securities are carried at amortized cost. Realized gains and losses are included in “Trading and securities gain - net” under other operating income in the statements of income. Unearned discount for certain IBODI investment is recognized as income over the term of the loan using the effective interest method. The allowance for probable losses is established by a charge against income to reflect other-than-temporary impairment in value. Under current BSP regulations, IBODI shall not exceed 50% of adjusted statutory net worth plus 40% of total deposit liabilities. When a debt security is transferred from ASS to IBODI, the unrealized holding gain or loss at the date of the transfer is maintained as a separate component of capital funds and is amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of the premium or discount. For other transfers of investment securities, the unrealized holding gain or loss at the date of transfer is considered realized and, accordingly, is credited to or charged against current operations.

45

Receivables from Customers Receivables from customers are stated at the outstanding balance, reduced by unearned discounts and allowance for probable losses. Receivables are classified as non-accruing or nonperforming in accordance with BSP regulations, or when, in the opinion of management, collection of interest or principal is doubtful. Interest income on these receivables is recognized only to the extent of cash collections received. Receivables are not reclassified as accruing until interest and principal payments are brought current or the receivables are restructured in accordance with existing BSP regulations, and future payments appear assured. Allowance for Probable Losses The allowance for probable losses, which includes both specific and general loan loss reserves, represents management’s estimate of probable losses inherent in the portfolio, after consideration of prevailing and anticipated economic conditions, prior loss experience, estimated recoverable values based on fair market values of underlying collaterals and prospects of support from guarantors, subsequent collections and evaluations made by the BSP. The BSP observes certain criteria and guidelines based largely on the classification of receivables in establishing specific loan loss reserves. To supplement the specific loan loss reserves, a general reserve on unclassified loans is set aside. The allowance for probable losses is established through provisions for probable losses charged against current operations. Receivables are written off against the allowance for probable losses when management believes that the collectibility of the principal is unlikely. Bank Premises, Furniture, Fixtures and Equipment Parcels of land acquired and used by the Bank are stated at appraised values less any impairment in value. The appraised values were determined as of December 31, 2004 by the Bank’s professionally qualified appraisers. The appraisal increment resulting from the revaluation, net of deferred income tax, was credited to Revaluation Increment on Land shown in the statements of changes in capital funds. Buildings, furniture, fixtures and equipment and leasehold improvements are carried at cost less accumulated depreciation and amortization and any impairment in value. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets as follows:

Buildings Furniture, fixtures and equipment Leasehold improvements

Estimated Useful Life 50 years 3 to 5 years Shorter of 6 years or the related lease terms

The useful life and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of bank premises, furniture, fixtures and equipment.

46

Costs of minor repairs and maintenance are charged as expense in the period incurred; significant renewals and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss is credited to or charged against current operations. Equity Investments The combined total assets and the results of operations of subsidiaries where the Bank holds more than 50% equity interest and exercises control are not material (see Note 6). Thus, consolidated financial statements are not presented, and such equity investments in subsidiaries in the Bank’s financial statements are accounted for under the equity method. Investments in unconsolidated subsidiaries and associates (investees) are accounted for under the equity method. An associate is an enterprise in which the Bank holds 20% to 50% of the voting power or over which it exercises significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in these investees are carried in the statements of condition at cost plus post acquisition changes in the Bank’s share in the net assets of the investees, less any impairment in value. Post acquisition changes include the share in the investees’ net income or loss, reduced by dividends received. Unrealized gains arising from transactions with an investee are eliminated to the extent of the interest in the investee against the equity investment account. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred. Under BSP regulations, the use of the equity method of accounting for investments in shares of stock is allowable only where ownership is more than 50%. The equity method of accounting for equity interest of 20% to 50% is used for financial reporting purposes to comply with the provisions of generally accepted accounting principles and is not intended for BSP reporting purposes. When there is a significant and apparently permanent decline in value of an individual investment security, as indicated by a series of operating losses of an investee company or other factors, the carrying amount of the individual investment is written down to fair value and impairment loss is charged to income. Other equity investments where the Bank has no significant influence (other than investment securities) are carried at cost less allowance for decline in value, if any. The allowance for decline in value is set up by a charge to income (included as provision for probable losses in the statements of income). Real and Other Properties Owned or Acquired (ROPOA) These properties are stated at the total outstanding exposure at the time of acquisition or bid price, whichever is lower, less allowance for probable losses. Nonrefundable taxes such as capital gains tax and documentary stamp taxes which were paid by the Bank are capitalized provided that the adjusted value of the foreclosed asset does not exceed fair market value. Holding costs subsequent to foreclosure or acquisition are charged against operations as incurred. Allowance for probable losses is set up for any anticipated significant shortfalls from the recorded values based on appraisal reports and current negotiations and programs to dispose of these properties to other interested parties, including estimated selling cost.

47

Deferred Income Tax Deferred income tax is provided using the balance sheet liability method on all temporary differences at the statement of condition date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from excess minimum corporate income tax (MCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward of unused tax credits and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries, associates and interests in joint ventures. The carrying amount of deferred income tax assets is reviewed at each statement of condition date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of condition date. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Interest Income Interest on receivables from customers are recognized based on the accrual method of accounting, except in the case of non-accruing receivables where interest income is recognized only to the extent of cash collections received. Unearned discount is recognized as income over the term of the loan. Interest income on non-discounted loans is accrued monthly as earned, except in the case of non-accruing accounts as required by existing regulations of the BSP. Interest income on these non-accruing loans is recognized upon actual collection. Interest on interest-bearing placements and securities are recognized as the interest accrues, taking into account the effective yield on the assets. Loan Fees and Service Charges Loan commitment fees are recognized as earned over the terms of the credit lines granted to each borrower.

48

Loan syndication fees are recognized upon completion of all syndication activities and where the Bank does not have further obligations to perform under the syndication agreement. Service charges and penalties are recognized only upon collection or accrued where there is a reasonable degree of certainty as to their collectibility. Foreign Exchange Translation and Transactions Assets and liabilities denominated in foreign currencies are translated to Philippine pesos at the prevailing PDSWAR at the end of the year. Income and expense items are translated at rates at transaction dates. Foreign exchange differentials arising from foreign currency transactions and restatements of foreign currency denominated assets and liabilities are credited to or charged against operations in the year in which the rates change. Derivative Financial Instruments The Bank is a counterparty to forward exchange contracts. These contracts are entered into as a service to customers and as a means of reducing and managing foreign exchange as well as for trading purposes. Amounts contracted are recorded as contingent accounts which are not included in the statements of condition. For a forward exchange contract designated as a hedge, the exchange difference between the contracted forward rate and the spot rate at contract date is deferred and recognized as income or expense over the term of the hedge instrument while gain or loss on the revaluation of the forward exchange contract is recognized currently in the statements of income. Realized and unrealized gains and losses on contracts which are not designated as hedges are credited to or charged against current operations. Retirement Cost The Bank determines its retirement cost using the projected unit credit method. Under this method, the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current period. The past service cost is the present value of any units of future benefits credited to the employees for services in periods prior to the commencement or subsequent amendment of the plan. Unrecognized experience adjustments and past service costs are amortized over the expected remaining working lives of employees. Retirement costs include current service cost plus amortization of past service cost and unrecognized experience adjustments. Leases Operating lease payments are recognized as expense in the statements of income on a straight-line basis over the lease term. Impairment of Assets An assessment is made at each statement of condition date whether there is any indication of impairment of any long-lived asset, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated at the higher of the asset’s value in use or its net selling price.

49

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged against current operations in the year in which it arises, unless the asset is carried at a revalued amount in which case the impairment loss is charged to the revaluation increment of the said asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset but not, however, to an amount higher than the carrying amount that would have been determined (net of any depreciation) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to current operations, unless the asset is carried at a revalued amount in which case the reversal of the impairment loss is credited to the revaluation increment of the said asset. Related Parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Provisions Provisions are recognized when the Bank has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense. Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. Earnings Per Share Basic earnings per share amounts are computed based on the weighted average number of common shares outstanding after giving retroactive effect to stock dividends declared during the year. The Bank does not have any dilutive potential common shares. Segment Reporting The Bank’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Financial information on business segment is presented in Note 20. The Bank’s resources producing revenues are located in the Philippines (i.e., one geographical location). Therefore, geographical segment information is no longer presented.

50

Subsequent Events Post year-end events that provide additional information about the Bank’s position at the statement of condition date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material.

3. Trading and Investment Securities 2004 2003 Trading account securities - including net unrealized gain of P = 23,099,283 in 2004 and P = 10,916,838,980 P = 72,944,006 in 2003 P = 14,862,996,900 Available-for-sale securities - including net unrealized gain of P = 42,364,800 and P = 19,417,200 as of December 31, 2004 and 2003, respectively 80,022,400 57,074,800 Investments in bonds and other debt instruments - net of unearned discount of P = 302,935,350 as of December 31, 2004 34,392,373,411 (see Note 17) 27,017,008,832 P = 45,389,234,791 P = 41,937,080,532 As of December 31, 2004 and 2003, available-for-sale securities include convertible preferred shares of Philippine Long Distance Telephone Company (PLDT) amounting to about P = 24.6 million, which were acquired in connection with the debt restructuring of PLDT’s subsidiary, Pilipino Telephone Company (PILTEL). These preferred shares are convertible into common shares within seven (7) years beginning June 4, 2001 (date of issuance), and shall be mandatorily converted into common shares on the date immediately following the seventh anniversary of the date of issuance. Within 30 days following the mandatory conversion date, the Bank has an option to put the common shares to PLDT at a strike price per common share of P = 1,700 per share. The preferred shares are carried at the market value of PLDT common shares with the related net unrealized gain (loss) included in the statements of changes in capital funds. For BSP reporting purposes, the convertible preferred shares of PLDT are classified as equity investments. The following table presents the breakdown of trading and investment securities by contractual maturity dates as of December 31, 2004 and 2003: 2004

Trading account securities Available-for-sale securities

2003

Due Within

Due Beyond

One Year

One Year

P = 10,916,838,980

P =–

Total

Due Within

Due Beyond

One Year

One Year

P = 10,916,838,980 P = 14,862,996,900

P =–

Total P = 14,862,996,900

–

80,022,400

80,022,400

–

57,074,800

57,074,800

3,302,307,528

31,090,065,883

34,392,373,411

25,146,461

26,991,862,371

27,017,008,832

Investments in bonds and other debt instruments

P = 14,219,146,508 P = 31,170,088,283 P = 45,389,234,791 P = 14,888,143,361 P = 27,048,937,171 P = 41,937,080,532

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As of December 31, 2004 and 2003, the aggregate market value of IBODI was P = 34.6 billion and P = 27.2 billion, respectively. A significant portion of IBODI represents Philippine government debt securities with market value of P = 33.9 billion and P = 24.2 billion as of December 31, 2004 and 2003, respectively. On December 28, 2004, the Bank became a party to a purchase price sharing agreement (the Agreement) on the sale of the assets of one of its corporate borrowers, National Steel Corporation (NSC) to a special purpose vehicle (SPV). Under the Agreement, the total consideration for NSC’s assets is P = 13.3 billion with the following terms: a. Cash downpayment of P = 1.0 billion, and b. Issuance of zero coupon notes amounting to P = 12.3 billion as follows: i. P = 2.0 billion notes payable in five (5) years (termed as Tranche A notes), and ii. P = 10.3 billion notes payable in eight (8) years (termed as Tranche B notes) The downpayment and the notes shall be allocated among NSC’s secured creditor banks and its shareholders after deducting certain costs incurred for the maintenance of the mortgaged assets as well as other expenses incurred or to be incurred with the disposition of the assets. The remaining balance of the downpayment shall be applied in the order of the following: a. share of a foreign bank amounting to P = 39.5 million of the Tranche A note; b. share of preferred claims as provided in the memorandum of agreement (MOA) executed between the majority of NSC’s secured creditors and shareholders on November 22, 2002; and c. share of the remaining secured creditors pro rata in proportion to their respective outstanding claims and NSC’s shareholders pro rata in proportion to their agreed shareholding in the SPV as contemplated in the MOA. The Agreement further states that the downpayment shall be deposited in an escrow account with a local bank pending the finalization of the actual amounts of expenses which shall be deducted therefrom. The details of the Bank’s share in the notes issued by the SPV are as follows: Amount Term Interest Annual Principal Installment 2nd year 3rd year 4th year 5th year 6th year 7th year 8th year

Tranche A note P = 83,509,351 5 years Zero interest

Tranche B note P = 483,365,246 8 years Zero interest

P = 9,501,332 12,092,344 26,801,459 35,114,216

– – –

– – – P = 83,509,351

P = 52,197,612 80,277,622 81,359,101 269,530,911 P = 483,365,246

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The notes shall be fully secured by a mortgage trust indenture (MTI) covering NSC’s assets with the corresponding mortgage participation certificates to be issued equal to the outstanding balance of both Tranche A and B notes with a local bank as the trustee for the MTI. All annual amortizations on both zero interest coupon notes will be covered by a stand-by letter of credit (L/C) initially for US$4.5 million effective up to October 15, 2005 to cover the first annual amortization on the outstanding Tranche A note. On or before the expiry of the L/C, another L/C will be issued to cover subsequent annual amortizations. As of December 31, 2004, the present value of the notes recorded in the Bank’s IBODI was P = 263.9 million. The difference between NSC’s outstanding loan and the present value of the notes was charged to the specific allowance for probable losses maintained for the NSC loan account.

4. Receivables from Customers

Loans and discounts Customers’ liabilities under letters of credit or trust receipts Bills purchased

2004 2003 P = 50,465,733,871 P = 39,573,891,161

5,661,320,247 4,803,559,898 1,137,085,697 996,527,011 57,264,139,815 45,373,978,070 (2,558,823,556) Unearned discounts (621,642,969) (6,247,525,323) (6,543,783,821) Allowance for probable losses (see Note 8) P = 48,457,790,936 P = 38,208,551,280 As of December 31, 2004 and 2003, the breakdown of secured and unsecured receivables from customers is as follows: 2004 Amounts Loans secured by: Real estate Shares of stock of other banks Chattel mortgage Deposit hold out Others Unsecured loans

%

2003 Amounts

%

P = 24,380,557,760

42.58 P = 20,052,308,724

44.19

2,315,515,634 1,255,391,257 1,524,321,861 6,941,667,100 36,417,453,612 20,846,686,203 P = 57,264,139,815

4.04 2,365,839,999 2.19 1,212,246,248 2.66 885,493,030 12.13 3,537,104,815 63.60 28,052,992,816 36.40 17,320,985,254 100.00 P = 45,373,978,070

5.22 2.67 1.95 7.80 61.83 38.17 100.00

As of December 31, 2004 and 2003, receivables from customers amounting to P = 29.2 million and P = 24.3 million, respectively, are pledged to secure certain bills payable to the BSP under the Bank’s rediscounting privileges (see Note 10).

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As of December 31, 2004 and 2003, information on the concentration of credit as to industry follows:

Manufacturing (various industries) Wholesale and retail trade Financial intermediaries Real estate, renting and business services Electricity, gas and water Transportation, storage and communication Construction Agriculture Mining and quarrying Public administration and defense Others

2004 Amounts P = 14,575,350,810 10,935,573,550 9,855,003,772 8,456,976,997 5,942,793,607 2,356,970,248 1,681,850,948 863,693,427 73,310,396 9,404,583 2,513,211,477 P = 57,264,139,815

2003 % Amounts 25.45 P = 11,472,810,003 19.10 10,215,629,292 17.21 7,800,749,933

% 25.29 22.52 17.19

14.77 10.38

7,726,926,430 720,519,000

17.03 1.59

4.11 2,760,475,366 2.94 1,371,052,117 1.51 790,857,695 0.13 235,340,637 0.01 10,510,571 4.39 2,269,107,026 100.00 P = 45,373,978,070

6.08 3.02 1.74 0.52 0.02 5.00 100.00

The BSP considers that loan concentration exists when total loan exposure to a particular industry or economic sector exceeds 30% of total loan portfolio. As of December 31, 2004 and 2003, the Bank does not have credit concentration in any particular industry. Breakdown of receivables from customers by contractual maturity dates as of December 31, 2004 and 2003 is as follows:

Due within one year Due beyond one year

2003 2004 = 28,641,560,413 P = 32,599,679,386 P 24,664,460,429 16,732,417,657 = 45,373,978,070 P = 57,264,139,815 P

BSP Circular No. 351 allows banks to exclude from nonperforming classification receivables classified as “Loss” in the latest examination of the BSP which are fully covered by allowance for probable losses, provided that interest on said receivables shall not be accrued and that such receivables shall be deducted from the total receivable portfolio for purposes of computing non-performing loans. As of December 31, 2004 and 2003, nonperforming loans (NPLs) not fully covered by allowance for probable losses are as follows:

Total NPLs Less NPLs fully covered by allowance for probable losses

2004 P = 7,600,918,313

2003 P = 8,794,070,738

682,019,895 P = 6,918,898,418

988,757,623 P = 7,805,313,115

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5. Bank Premises, Furniture, Fixtures and Equipment Changes in the bank premises, furniture, fixtures and equipment - at cost follow: 2004 Furniture, Fixtures and Equipment At Cost At January 1 Additions Disposals At December 31 Accumulated depreciation and amortization At January 1 Depreciation and amortization Disposals At December 31 Net book value

Leasehold Building Under Buildings Improvements Construction

P = 1,754,828,345 P = 536,216,458 P = 121,158,999 176,864,056 53,212,956 8,474,364 (55,523,678) (1,398,827) (123,171) 1,876,168,723 588,030,587 129,510,192

1,415,260,145

143,328,222

2003 Total

Total

P = 7,669,607 P = 2,419,873,409 P = 2,263,914,435 150,468 238,701,844 201,662,596 (7,669,607) (64,715,283) (45,703,622) 150,468 2,593,859,970 2,419,873,409

37,916,660

-

129,496,475 17,621,135 16,408,933 (19,586,585) (825,336) 1,525,170,035 160,124,021 54,325,593 P = 350,998,688 P = 427,906,566 P = 75,184,599

P = 150,468

1,596,505,027

1,461,201,531

163,526,543 164,594,588 (20,411,921) (29,291,092) 1,739,619,649 1,596,505,027 P = 854,240,321 P = 823,368,382

Depreciation and amortization amounting to P = 163.5 million in 2004 and P = 164.6 million in 2003, are included in the statements of income. The following details relate to land carried at appraised values: 2004 At cost At appraised value

P = 347,723,808

2003 P = 327,689,663

= 2,210,492,967 P = 2,172,405,858 P

6. Equity Investments Percentage of Ownership Equity investments - equity: Acquisition cost: CBC Forex Corporation First Sovereign Asset Management, Inc.* CBC Finance, Inc. CBC Venture Capital Corporation CBC Insurance Brokers, Inc. CBC Properties and Computer Center, Inc.

100 100 40 60 100 40

2004 2003

P = 49,999,500 31,250,000

P = 49,999,500

6,000,000 3,000,000 1,500,000

– 6,000,000 3,000,000 1,500,000

280,000 92,029,500

280,000 60,779,500

*Special purpose entity created to avail of the benefits under the SPV act of 2002.

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2004 Accumulated equity in net earnings: Balance at beginning of year Equity in net earnings Cash dividends received Balance at end of year (see Note 13) Equity investments - at cost Less allowance for probable losses (see Note 8)

2003

P = 41,488,903 P = 28,067,664 6,043,683 20,128,746 – (6,707,507) 47,532,586 41,488,903 139,562,086 102,268,403 310,167,634 310,167,634 449,729,720 412,436,037 204,230,562 218,539,950 P = 245,499,158 P = 193,896,087

The combined total assets of subsidiaries where the Bank holds more than 50% of equity but which were not consolidated, not being material amounts, constituted 0.13% and 0.12% of the total resources of the Bank as of December 31, 2004 and 2003, respectively. Equity investments include the Bank’s interest amounting to P = 31.2 million in a SPV created in 2004 to avail of the benefits provided under the SPV Act of 2002. On November 7, 2001, the BOD and stockholders of CBC Finance, Inc. (CBCF) approved the shortening of CBCF’s corporate existence to December 31, 2001 by amending its articles of incorporation. CBCF’s certificate of dissolution is still to be obtained from the SEC. On July 6, 2000, the stockholders of CBC Venture Capital Corporation (CBC VCC) approved its dissolution and the eventual disposal of its real estate properties and the distribution of its retained earnings. In connection with its liquidation, in January 2001, CBC VCC sold its real estate properties and terminated some of its employees. CBC VCC is awaiting the approval of the regulatory authorities related to its liquidation.

7. Other Resources

Accrued interest receivable Deferred tax assets - net (see Note 16) Accounts receivable Sales contracts receivable Foreign currency notes and coins on hand Returned checks and other cash items in process of collection Foreign currency checks and other cash items Miscellaneous Less allowance for probable losses (see Note 8)

2003 2004 (As restated) P = 1,529,443,707 P = 1,162,606,020 1,025,514,898 1,114,520,482 445,327,796 320,015,462 325,638,938 244,907,771 312,170,824 278,817,179 268,432,956 284,451,208 84,907,482 85,984,969 461,530,147 308,526,785 4,452,966,748 3,799,829,876 305,869,014 269,624,149 P = 4,147,097,734 P = 3,530,205,727

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Breakdown of other resources by contractual maturity dates as of December 31, 2004 and 2003 is as follows:

2004 Due within one year Due beyond one year

P = 4,435,582,400

2003 (As restated) P = 3,761,905,299

37,924,577 17,384,348 = 3,799,829,876 P = 4,452,966,748 P

8. Allowance for Probable Losses Changes in the allowance for probable losses are as follows: 2004 Balance at beginning of year: Receivables from customers ROPOA Equity investments Other resources Provisions charged to operations Accounts charged off and others Balance at end of year: Receivables from customers ROPOA Equity investments Other resources

2003

= 5,061,213,198 P = 6,543,783,821 P 348,197,968 440,845,495 229,154,149 218,539,950 187,463,156 269,624,149 7,472,793,415 5,826,028,471 855,526,104 1,647,468,409 (703,465) (874,067,073) 7,454,252,446 7,472,793,415 6,247,525,323 6,543,783,821 440,845,495 696,627,547 218,539,950 204,230,562 269,624,149 305,869,014 = 7,472,793,415 P = 7,454,252,446 P

As discussed in Note 2, the Bank’s allowance for probable losses has been determined with due consideration of the BSP’s guidelines on probable loss provisioning. At the current level of allowance for probable losses, management believes that the Bank has sufficient allowance to cover any losses that may be incurred from the non-collection or non-realization of its receivables from customers and other risk assets.

9. Deposit Liabilities Of the total deposit liabilities of the Bank as of December 31, 2004 and 2003, 64.31% and 62.38%, respectively, are subject to periodic interest repricing. The remaining deposit liabilities earn annual fixed interest rates ranging from 1% to 12.375% in 2004 and 2003.

57

Available reserves as of December 31, 2004 and 2003 per latest report submitted to the BSP are as follows: 2003

2004 Cash and other cash items Due from BSP IBODI

P = 2,669,854,856

P = 1,766,041,157

2,333,263,862 5,388,726,836 P = 10,391,845,554

1,181,052,510 4,472,093,009 P = 7,419,186,676

The following table presents the breakdown of deposit liabilities by contractual settlement dates as of December 31, 2004 and 2003:

Due within one year Due beyond one year

2004

2003

P = 74,867,757,077

P = 58,084,998,931

10,938,315,620 P = 85,806,072,697

14,026,963,548 P = 72,111,962,479

10. Bills Payable 2003

2004 P = 29,239,007

BSP - rediscounting (see Note 4) Others

P = 24,271,501

4,305,703,897 9,284,537,522 = 9,308,809,023 P = 4,334,942,904 P

Bills payable - others mainly represent fundings from the Development Bank of the Philippines, Land Bank of the Philippines, Government Service Insurance System and Social Security System in connection with certain financing programs of these institutions. The following table presents the breakdown of bills payable by contractual maturity dates as of December 31, 2004 and 2003: 2004

BSP- rediscounting Others

2003

Due Within

Due Beyond

One Year

One Year

P = 29,239,007 821,522,286 P = 850,761,293

P =– 3,484,181,611

Total

Due Within

Due Beyond

One Year

One Year

P = 29,239,007

P = 24,271,501

4,305,703,897

6,018,288,000

P = 3,484,181,611 P = 4,334,942,904 P = 6,042,559,501

P =– 3,266,249,522

Total P = 24,271,501 9,284,537,522

P = 3,266,249,522 P = 9,308,809,023

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11. Accrued Interest, Taxes and Other Expenses

Accrued interest payable Accrued other expenses payable Accrued income tax payable

2003 (As restated) 2004 = 2,391,679,485 P = 1,473,998,863 P 565,044,860 599,244,153 30,149,943 45,309,689 = 2,986,874,288 P = 2,118,552,705 P

All accrued interest, taxes and other expenses are due within one year from the statement of condition dates.

12. Other Liabilities

Accounts payable (see Note 18) Other deferred credits Other credits - Dormant Acceptances payable Withholding taxes payable Due to BSP Margin deposits Miscellaneous

2003 2004 = 913,395,903 P = 541,295,362 P 310,098,739 417,874,140 265,714,365 278,021,619 34,728,192 211,574,624 32,851,690 55,389,168 12,400,675 34,789,147 23,802,891 9,897,760 36,553,249 180,498,506 = 1,629,545,704 P = 1,729,340,326 P

Breakdown of other liabilities by contractual maturity dates as of December 31, 2004 and 2003 is as follows:

Due within one year Due beyond one year

2003 (As restated) 2004 = 1,348,524,142 P = 1,729,340,326 P – 281,021,562 = 1,629,545,704 P = 1,729,340,326 P

13. Capital Funds On May 5, 2004 the BOD approved the declaration of 20% stock dividends to stockholders of record as of July 22, 2004. The BSP approved the dividend declaration on June 10, 2004. On May 7, 2003, the BOD approved the declaration of 20% stock dividends to stockholders of record as of July 18, 2003. The BSP approved the dividend declaration on June 10, 2003.

59

Under existing BSP regulations, the determination of the Bank’s compliance with regulatory requirements and ratios is based on the amount of the Bank’s “unimpaired capital” (regulatory net worth) reported to the BSP, determined on the basis of regulatory accounting principles, which differ from Philippine GAAP in some aspects. Under current banking regulations, the combined capital accounts of a commercial bank should not be less than an amount equal to ten percent (10%) of its risk assets. Risk assets consist of total assets after exclusion of cash on hand, due from BSP, loans covered by hold-out or assignment of deposits, loans or acceptances under letters of credit to the extent covered by margin deposits, and other non-risk items as determined by the Monetary Board. Under BSP Circular No. 360, effective July 1, 2003, the capital-to-risk assets ratio is to be inclusive of a market risk charge. Using this formula, the Bank’s capital-to-risk assets ratio (CAR) as of December 31, 2004 and 2003 were 31.52% and 26.07%, respectively. Under the previous computation provided under BSP Circular No. 280, which BSP Circular No. 360 above amended, the CAR of the Bank was 27.06% and 24.39% as of December 31, 2004 and 2003, respectively. A portion of the Bank’s surplus corresponding to the accumulated equity in net earnings of investees amounting to P = 47.5 million as of December 31, 2004 and P = 41.5 million as of December 31, 2003 is not available for dividend declaration. The accumulated equity in net earnings becomes available for dividends upon receipt by the Bank of cash dividends from the investees.

14. Retirement Plan The Bank has a noncontributory and funded retirement plan covering all its officers and regular employees. The retirement fund is administered by a Board of Trustees and is accounted for separately. The Bank’s annual contribution to the retirement plan consists of a payment covering the current service cost for the year and the amortization of the past service cost. Total contributions charged to operations amounted to P = 106.9 million in 2004, P = 173.4 million in 2003 and P = 137.9 million in 2002, including past service costs of P = 9.6 million in 2004 and P = 50.5 million in 2003 and 2002. As of December 31, 2003, the latest actuarial valuation, the actuarial accrued liability amounted to P = 920.7 million. The fair value of the plan assets amounted to P = 1,308.2 million. The principal actuarial assumptions used to determine retirement benefits were a return on plan assets of 10% per annum (p.a.) and salary increases of 10% p.a., both compounded annually. Actuarial valuations are made at least every two years.

15. Lease Contracts The Bank leases the premises for most of its branches. The lease contracts are for periods ranging from 1 to 25 years from the dates of contracts and are renewable under certain terms and conditions. Various leases contracts include escalation clauses, most of which bear an annual rent increase of 10%.

60

Annual rentals on these lease contracts amounted to P = 100.8 million in 2004, P = 122.1 million in 2003, and P = 112.1 million in 2002. Future minimum rentals payable under non-cancelable operating leases are as follows:

Within one year After one year but not more than five years After more than five years

2004

2003

P = 93,898,140 263,384,039

P = 123,243,455 291,676,781

219,341,218 74,557,522 = 634,261,454 P = 431,839,701 P

16. Income Taxes Under Philippine tax laws, the Bank is subject to percentage and other taxes (presented as Taxes and Licenses in the statements of income) as well as income taxes. In 2002, percentage and other taxes paid consist principally of gross receipt tax (GRT) and documentary stamp taxes (DST). In January 1, 2003, the Bank was subject to value added tax (VAT) instead of GRT. However Republic Act 9238 re-imposes GRT on banks and other financial intermediaries effective January 1, 2004. Income taxes include the corporate income tax, as discussed below, and final tax paid at the rate of 20% on gross interest income from government securities and other deposit substitutes. These income taxes, as well as the deferred tax benefits and provisions, are presented as “Provision for (benefit from) income tax” in the statements of income. Under current tax regulations, the corporate income tax rate is 32%. Interest allowed as a deductible expense is reduced by an amount equivalent to 38% of interest income subjected to final tax. An MCIT of 2% on modified gross income is computed and compared with the regular income tax. Any excess of the MCIT over the regular income tax is deferred and can be used as a tax credit against future income tax liability for the next three years from the year of inception. In addition, the NOLCO is allowed as a deduction from taxable income in the next three years from the year of inception. Current tax regulations also provide for the ceiling on the amount of entertainment, amusement and recreation (EAR) expense that can be claimed as a deduction against taxable income. Under the regulations, EAR expense allowed as a deductible expense is limited to the actual EAR paid or incurred but not to exceed 1% of the Bank’s net revenue. Effective in May 2004, Republic Act No. 9294 restores the tax exemption of FCDUs and offshore banking units (OBUs). Under such law, the income derived by the FCDU from foreign currency transactions with nonresidents, OBUs, local commercial banks including branches of foreign banks is tax-exempt while interest income on foreign currency loans from residents other than OBUs or other depository banks under the expanded system is subject to 10% gross income tax.

61

The provision for (benefit from) income tax consists of: 2004 Current: Final tax MCIT

2003 (As restated)

2002 (As restated)

P = 167,066,236 P = 87,658,728 P = 203,544,303 44,495,703 28,224,622 17,694,051 211,561,939 115,883,350 221,238,354 107,604,385 140,152,676 (877,802,638) P = 319,166,324 P = 256,036,026 (P = 656,564,284)

Deferred

The components of net deferred tax assets (included under Other Resources account) are as follows:

2004 Deferred tax asset (liability) on: Allowance for probable losses Revaluation increment on land Unamortized past service cost

2003 (As restated)

= 1,673,514,207 P = 1,570,207,434 P (583,898,256) (602,497,057) 43,503,332 39,205,720 = 1,114,520,482 P = 1,025,514,898 P

The Bank did not set up deferred tax assets on the following temporary differences: 2003 2004 (As restated) P = 1,623,072,642 P = 1,264,291,383 289,019,588 112,672,139 90,414,376 52,196,181 62,370,400 62,370,400 – 4,805,044 P = 2,064,877,006 P = 1,496,335,147

Allowance for probable losses NOLCO MCIT Unrealized loss on conversion Accrued rent

The Bank believes that it is highly probable that these temporary differences will not be realized in the future. As of December 31, 2004 and 2003, deferred income tax liabilities have not been recognized on the undistributed earnings of certain subsidiaries since such amounts are not taxable. Such undistributed earnings amounted to P = 47.5 million and P = 41.5 million in 2004 and 2003, respectively. As of December 31, 2004, the Bank’s NOLCO consists of:

Inception Year 2002 2004

Original Amount P = 112,672,139 176,347,449 P = 289,019,588

Expired Amount P =– – P =–

Applied Remaining Amount Balance Expiry Year 2005 P =– P = 112,672,139 2007 – 176,347,449 P =– P = 289,019,588

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As of December 31, 2004, the Bank’s MCIT consists of:

Inception Year 2001 2002 2003 2004

Original Amount P = 6,277,508 17,694,051 28,224,622 44,495,703 P = 96,691,884

Expired Amount P = 6,277,508 – – – P = 6,277,508

Applied Remaining Amount Balance P =– P =– – 17,694,051 – 28,224,622 – 44,495,703 P =– P = 90,414,376

Expiry Year 2004 2005 2006 2007

The reconciliation of the statutory income tax to the provision for (benefit from) income tax follows: 2003 2002 2004 (As restated) (As restated) P = 971,745,391 P = 919,149,845 P = 619,443,273

Statutory income tax Tax effects of: (501,318,541) (244,106,843) (384,252,550) FCDU income 155,204,931 Nondeductible expenses 236,415,443 144,630,951 Interest income subjected to (117,126,233) (888,743,943) (963,407,787) final tax (189,339,224) 233,321,524 Others (72,978,171) = 319,166,324 P Provision for (benefit from) income tax P = 256,036,026 (P = 656,564,284)

17. Trust Operations Securities and other properties (other than deposits) held by the Bank in fiduciary or agency capacities for clients and beneficiaries are not included in the accompanying statements of condition since these are not resources of the Bank (see Note 19). In compliance with the requirements of current banking regulations relative to the Bank’s trust functions: (a) government securities with a total face value of P = 365.5 million and P = 302.5 million as of December 31, 2004 and 2003, respectively, are deposited with the BSP as security for the Bank’s faithful compliance with its fiduciary obligations; and (b) a certain percentage of the Bank’s trust fee income (included under Other Operating Income in the statements of income) is transferred to surplus reserve. This yearly transfer is required until the surplus reserve for trust function equals 20% of the Bank’s authorized capital stock.

18. Related Party Transactions In the ordinary course of business, the Bank has loans and other transactions with its subsidiaries and affiliates, and with certain directors, officers, stockholders and related interests (DOSRI). Under the Bank’s policy, these loans and other transactions are made substantially on the same terms as with other individuals and businesses of comparable risks. The amount of individual

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loans to DOSRI, of which 70% must be secured, should not exceed the amount of their respective deposits and book value of their respective investments in the Bank. In the aggregate, loans to DOSRI generally should not exceed the Bank’s total capital funds or 15% of the Bank’s total loan portfolio, whichever is lower. As of December 31, 2004 and 2003, the Bank has complied with all these regulatory requirements. BSP Circular No. 423 dated March 15, 2004 amended the definition of DOSRI accounts. The following table shows information relating to the loans, other credit accommodations and guarantees classified as DOSRI accounts under regulations existing prior to said circular, and new DOSRI loans, other credit accommodations granted under said circular

Total outstanding DOSRI loans Percent of DOSRI accounts granted under regulations existing prior to BSP Circular No. 423 Percent of DOSRI accounts granted under BSP Circular No. 423 Percent of DOSRI loans to total loans Percent of unsecured DOSRI loans to total DOSRI loans Percent of past due DOSRI loans to total DOSRI loans Percent of non-performing DOSRI loans to total DOSRI loans

2004 P = 3,137,125,624

2003 P = 3,271,363,324

4.46%

–

0.91% 5.48%

– 7.21%

14.87%

7.94%

3.34%

2.04%

–

–

The following table shows information relating to the loans, other credit accommodations and guarantees, as well as availments of previously approved loans and committed credit lines not considered DOSRI accounts prior to the issuance of said circular but are allowed a transition period of two years from the effectivity of said circular or until said loan, other credit accommodations and guarantees become past due, or are extended, renewed or restructured, whichever comes later, as of December 31, 2004: 2004 Total outstanding non-DOSRI accounts prior to BSP Circular No. 423 Percent of unsecured non-DOSRI accounts prior to BSP Circular No. 423 to total loans Percent of past due non-DOSRI accounts prior to BSP Circular No. 423 to total loans Percent of non-performing non-DOSRI accounts prior to BSP Circular No. 423 to total loans

P = 59,251,783 0.09% 0.02% 0.02%

Other related party transactions conducted in the normal course of business include the availment of computer and general banking services of an affiliate to meet the Bank’s reporting requirements.

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The year-end balances in respect of related parties (other than DOSRI) included in the financial statements are as follows: Related Party CBC Insurance Brokers, Inc. CBC Properties and Computer Center, Inc. CBC Forex Corporation

Accounts Deposit liabilities Accounts payable Deposit liabilities Accounts payable Deposit liabilities

2004 P = 4,336,828 195,585 2,736,215 1,525,435 278,631

2003 P = 4,630,104 2,826,080 3,844,823 207,201 336,345

The income and expenses in respect of related parties included in the financial statements are as follows: Related Party CBC Insurance Brokers, Inc. CBC Properties and Computer Center, Inc. CBC Forex Corporation

Nature of Transaction Interest expense Computer services Service fees Income from foreign exchange transactions

2004 P =–

2003 P = 44,885

33,401,798 12,006

32,373,835 31,517

– 36,766

19. Commitments and Contingent Liabilities In the normal course of the Bank’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these transactions. The following is a summary of contingencies and commitments with their equivalent peso contractual amounts:

Trust department accounts (see Note 17) Forward exchange sold Outstanding guarantees issued Unused commercial letters of credit Deficiency claims receivable Outward bills for collection Late deposits/payments received Inward bills for collection Forward exchange bought Others

2003 2004 = 33,560,644,456 P = 38,184,795,281 P 7,729,720,647 13,071,690,696 1,342,660,084 2,637,888,695 1,920,913,124 2,061,265,436 491,142,262 779,131,078 95,017,647 219,272,685 119,022,748 218,321,220 91,467,555 134,308,337 25,355,946 27,026,647 615,480,142 731,573,297

There are pending assessments and pre-assessments from the Bureau of Internal Revenue (BIR) pertaining to withholding tax at source and DST for the years 1982 to 1986 and GRT for the years 1999 and 2000. In addition, the Bank has received tax assessments from the BIR on two industry issues. The Bank, through its tax counsel, is contesting these assessments and pre-assessments on the ground that the factual situations were not considered which, if considered, will not give rise

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to material tax deficiencies. The Bank, together with other member banks of the Bankers’ Association of the Philippines (BAP), is contesting these pending assessments and pre-assessments of the BIR. Discussions are ongoing between the BAP and the BIR for the appropriate settlement and disposition of these tax issues. No provision has been made in the accompanying financial statements for these contingencies. Several suits and claims relating to the Bank’s lending operations and labor-related cases remain unsettled. In the opinion of management, these suits and claims, if decided adversely, will not involve sums having a material effect on the financial statements of the Bank.

20. Segment Information The Bank’s operating businesses are recognized and managed separately according to the nature of services provided and the markets served, with each segment representing a strategic business unit. The Bank’s business segments are as follows: Consumer Banking - principally handling housing and auto loans for individual and corporate customers; Account Management - principally administering all the lending, trade finance and corollary banking products and services extended to corporate and institutional customers; Branch Banking - principally handling retail and commercial loans, individual and corporate deposits, overdrafts and fund transfer facilities, trade facilities and all other bank services for retail customers; and Treasury - principally providing money market, trading and treasury services, as well as the management of the Bank’s funding operations by use of government securities, placements and acceptances with other banks. These segments are the basis on which the Bank reports its primary segment information. Other operations of the Bank include the operations and financial control groups. Transactions between segments are at estimated market rates on an arm’s length basis. Interest is charged or credited to business segments based on a pool rate, which approximates the marginal cost of funds. The following tables present relevant information regarding business segments as of and for the years ended December 31, 2004 and 2003.

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Segment information for the years ended December 31, 2004 and 2003 are as follows (in thousands): Consumer Banking 2004

Account Management

2003

2004

Branch Banking

2003

2004

2003

Results of operations Net interest income Other operating income (loss) Total revenue

P = 190,760

P = 782,058

P = 163,472

P = 1,979,528

P = 542,090

20,950

10,823

176,181

211,710

174,295

958,239

P = 1,709,171

804,794

537,077

533,224

2,784,322

2,246,248 (1,393,714)

(8,866)

Other operating expense

(71,402)

(60,925)

(208,886)

(139,668)

(1,622,211)

Income before income tax

140,308

113,370

749,353

393,556

1,162,111

–

–

–

–

–

Income tax provision Net income Total Assets Total Liabilities Depreciation and Amortization Capital Expenditures

852,534 –

P = 140,308

P = 113,370

P = 749,353

P = 393,556

P = 1,162,111

P = 852,534

P = 4,562,663

P = 3,578,923

P = 26,892,138

P = 32,482,099

P = 45,473,334

P = 37,184,077

P = 273,687

P = 69,687

P = 5,966,294

P = 4,307,269

P = 83,011,623

P = 72,075,290

P = 1,729

P = 1,326

P = 2,218

P = 1,912

P = 78,298

P = 76,543

P = 766

P = 1,488

P = 814

P = 6,704

P = 44,491

P = 45,711

Treasury 2004

Others 2003

2004

Total 2003

2004

2003

Results of operations Net interest income (loss) Other operating income Total revenue (loss) Other operating expense Income (loss) before income

P = 1,661,601

P = 440,859

P = 1,900,805

(P = 633,585)

P = 5,054,806

P = 3,681,953

939,451

3,181,619

179,887

251,757

2,121,263

3,972,410

2,601,052

5,082,424

620,746

(381,828)

7,176,069

7,654,363

(166,346) 2,434,706

(278,185) 4,804,239

(2,070,520)

(2,909,528)

(4,139,365)

(4,782,020)

(1,449,774)

(3,291,356)

3,036,704

2,872,343

tax Income tax provision

–

–

319,166

256,036

(P = 1,768,940)

(P = 3,547,392)

319,166

P = 4,804,239

P = 53,716,413

P = 48,013,262

P = 6,443,377

P = 9,202,479

P = 602,731

P = 94,218,385

P = 86,257,456

Depreciation and Amortization

P = 3,332

P = 6,118

P = 77,950

P = 78,696

P = 163,527

P = 164,595

Capital Expenditures

P = 6,962

P = 2,460

P = 41,177

P = 97,910

P = 94,210

P = 154,273

Total Assets Total Liabilities

P = 2,717,538

256,036

P = 2,434,706

Net income (loss)

P = 2,616,307

(P = 16,784,880) (P = 113,859,668 P = 17,908,321) P = 103,350,040 (P = 1,476,596)

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21. Earnings Per Share (EPS) Basic earnings per share amounts are calculated by dividing the net income for the year by the weighted average number of common shares outstanding during the year (adjusted for stock dividends). The following reflects the income and share data used in the basic earnings per share computations: 2003 2002 2004 (As restated - Note 2) P = 2,717,538,024P = 2,616,307,238 P = 2,592,324,512

a. Net income b. Weighted average number of common shares outstanding c. Earnings per share (a/b)

36,542,512

36,542,512

36,542,512

Weighted average number of outstanding common shares in 2003 and 2002 was recomputed after giving retroactive effects to stock dividends declared on May 5, 2004 and May 7, 2003 (see Note 13).

Before consideration of the 20% stock dividend declared in 2004 and 2003, the EPS for 2003 and 2002 were P = 86.02 and P = 102.36, respectively.

22. Financial Performance The following basic ratios measure the financial performance of the Bank:

2004 14.37% 2.46 5.08

Return on average equity Return on average assets Net interest margin

23.

2003 (As restated) 16.82% 2.57 4.47

2002 (As restated) 19.36% 2.73 4.02

Notes to Statements of Cash Flows The following table presents supplemental cash flow disclosure on interest:

Interest received Interest paid

2004 2003 2002 P = 8,189,819,676 P = 7,584,601,516 P = 5,834,494,099 4,419,532,137 3,014,927,959 2,778,750,200

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